Attached files
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| EX-99.1 - EXHIBIT 99.1 - KELLY SERVICES INC | a20172qearningsreleaseform.htm |
| 8-K - 8-K - KELLY SERVICES INC | form8-k2017secondquarter.htm |
Kelly Services, Inc.
Second Quarter
August 9, 2017
Exhibit 99.2
Safe Harbor Statement
This release contains statements that are forward looking in nature and, accordingly, are subject to risks and
uncertainties. These factors include, but are not limited to, competitive market pressures including pricing and
technology introductions, changing market and economic conditions, our ability to achieve our business strategy,
the risk of damage to our brand, the risk our intellectual assets could be infringed upon or compromised, our
ability to successfully develop new service offerings, our exposure to risks associated with services outside
traditional staffing, including business process outsourcing, our increasing dependency on third parties for the
execution of critical functions, the risks associated with past and future acquisitions, exposure to risks associated
with investments in equity affiliates, material changes in demand from or loss of large corporate customers, risks
associated with conducting business in foreign countries, including foreign currency fluctuations, availability of
full-time employees to lead complex talent supply chain sales and operations, availability of temporary workers
with appropriate skills required by customers, liabilities for employment-related claims and losses, including class
action lawsuits and collective actions, the risk of cyber attacks or other breaches of network or information
technology security as well as risks associated with compliance on data privacy, our ability to sustain critical
business applications through our key data centers, our ability to effectively implement and manage our
information technology programs, our ability to maintain adequate financial and management processes and
controls, impairment charges triggered by adverse industry developments or operational circumstances,
unexpected changes in claim trends on workers’ compensation, disability and medical benefit plans, the impact of
the Patient Protection and Affordable Care Act on our business, the impact of changes in laws and regulations
(including federal, state and international tax laws ), the risk of additional tax or unclaimed property liabilities in
excess of our estimates, our ability to maintain specified financial covenants in our bank facilities to continue to
access credit markets, and other risks, uncertainties and factors discussed in this release and in the Company’s
filings with the Securities and Exchange Commission. Actual results may differ materially from any forward looking
statements contained herein, and we have no intention to update these statements.
2
Second Quarter 2017 Highlights
(YOY Comparisons)
Total revenue declined 3%
– Excluding APAC results in 2016, total revenue increased 4%
Gross profit down 1%
– Excluding APAC results in 2016, gross profit up 6%
Earnings from operations of $20.3 million, up 105% YOY
– 2016 results include $3.4 million of restructuring expenses
– Excluding restructuring expenses and APAC results in 2016,
earnings from operations up more than 70% YOY
Diluted earnings per share of $0.47, up $0.24
– Excluding restructuring expenses and APAC staffing results in 2016,
diluted earnings per share up $0.20
3
Results reflect the deconsolidation of APAC at the beginning of Q3 2016
Continued GP rate improvement reflects on-going structural progress, as well as the impact
of removing the APAC JV, which carried lower margins
Earnings from operations increased by 105% including the 2016 impact of $3.4 million of
restructuring expenses
-----
(1)Constant Currency represent year-over-year changes resulting from translating 2017 financial data into USD using 2016 exchange rates.
Second Quarter 2017 Financial Summary
4
Actual Results Change
Constant
Currency
Change(1)
Revenue $1.3B (3.1)% (2.7)%
GP % 17.2% 40 bps
Earnings from Operations $20.3M 104.7% 104.5%
ROS % 1.5% 80 bps
EPS $0.47 $0.24
-----
(1) Excludes 2016 results from APAC related to the deconsolidation, and $3.4 million of restructuring charges, $2.5 million net of tax or $0.07 per share in
Q2 2016.
(2) Constant Currency represent year-over-year changes resulting from translating 2017 financial data into USD using 2016 exchange rates.
Revenue growth reflects the continued progress in our branch-based staffing business in
the Americas and International, as well as modest GTS revenue improvement
Earnings from operations increased more than 70% and improved in all three operating
segments
EPS growth reflects top-line improvement, GP rate increase, and expense control
Second Quarter 2017 Financial Summary
(Excluding APAC & Restructuring)
5
Actual Results Change(1)
Constant
Currency
Change(2)
Revenue $1.3B 4.4% 4.8%
GP % 17.2% 20 bps
Earnings from Operations $20.3M 70.7% 70.5%
ROS % 1.5% 60 bps
EPS 0.47$ 0.20$
Americas staffing revenues reflect continued strong top-line growth
International staffing is impacted by the deconsolidation of APAC staffing at the end
of 2016. Excluding APAC staffing, the segment grew revenue at 7%
Second Quarter 2017 Revenue Growth
6
43%
19%
38%
Business Mix
Americas Staffing International Staffing Global Talent Solutions
-30%
-10%
10%
30%
Total Americas Staffing International Staffing Global Talent
Solutions
YoY Growth
Reported Constant Currency Excluding APAC in 2016
Second Quarter 2017 Gross Profit Growth
Americas staffing GP reflects top-line growth, coupled with a 10 basis point GP rate
improvement
International staffing reflects the impact of the deconsolidation of the APAC staffing
business. Excluding the impact, GP grew 3%
GTS GP increase reflects solid GP rate improvement on modest revenue growth
7
45%
16%
39%
Business Mix
Americas Staffing International Staffing Global Talent Solutions
-30%
-20%
-10%
0%
10%
20%
30%
Total Americas Staffing International Staffing Global Talent
Solutions
YoY Growth
Reported Constant Currency Excluding APAC in 2016
16.8%
17.2%
16.0%
16.2%
16.4%
16.6%
16.8%
17.0%
17.2%
17.4%
Q2 2016 GP Rate International Staffing Americas Staffing Global Talent
Solutions
APAC Deconsolidation Q2 2017 GP Rate
Second Quarter 2017 Gross Profit Rate
Overall GP rate up due to the favorable impact related to improving GP rate in GTS
as well as the APAC deconsolidation
GTS GP rate improvement due primarily to a favorable business and customer mix
10 bps
20 bps
8
-10 bps
20 bps
$221
$209
$202
$204
$206
$208
$210
$212
$214
$216
$218
$220
$222
Q2 2016 SG&A International
Staffing
Corporate 2016
Restructuring
FX Global Talent
Solutions
Americas
Staffing
Q2 2017 SG&A
Second Quarter 2017 SG&A
International staffing reflects the deconsolidation of our APAC business upon closing the APAC
JV transaction in the third quarter of 2016
Corporate expenses primarily reflect one-time savings in executive compensation expenses
2016 Restructuring expenses were related to Americas Staffing and International Staffing
GTS expenses are primarily related to new and existing program implementations, as well as
additional sales resources, and were partially offset by cost reductions from last quarter’s
service delivery optimization initiative
Americas Staffing expenses were up due to increased performance based compensation
expenses and additional sales resources
$(10)
$(4)
$(3)
$2
$ in Millions
$4
9
$(1)
Second Quarter 2017 Conversion Rate
-----
(1)Conversion rate represents earnings from operations as a percent of gross profit, or return on gross profit.
APAC results are no longer included in the international staffing, total Company’s
gross profit, or earnings from operations upon closing of the APAC JV transaction
at the beginning of the third quarter of 2016
2016 results reflect restructuring expenses in Americas Staffing and International
Staffing
$ in Millions
10
2017 2016
Gross Earnings Conversion Gross Earnings Conversion Change
Profit from Ops Rate(1) Profit from Ops Rate(1) (bps)
Americas Staffing 103.8$ 20.4$ 19.7% 97.2$ 15.6$ 16.2% 350
Global Talent Solutions 88.7 15.3 17.2% 85.7 13.9 16.2% 100
International Staffing 36.8 4.1 11.2% 48.6 4.0 8.0% 320
Total Company 228.8$ 20.3$ 8.9% 230.5$ 9.9$ 4.3% 460
Second Quarter 2017 Conversion Rate
(Excluding APAC & Restructuring)
$ in Millions
-----
(1) Excludes 2016 results from APAC related to the deconsolidation, and $3.4 million of restructuring charges in Q2 2016.
(2) Conversion rate represents earnings from operations as a percent of gross profit, or return on gross profit.
Conversion rate improved in all business segments
Overall Q2 conversion rate increased year-over-year to 8.9% and was up 340 bps
from the prior year – consistent with Q1
11
2017 2016
Gross Earnings Conversion Gross Earnings Conversion Change
Profit from Ops Rate(2) Profit(1) from Ops(1) Rate(2) (bps)
Americas Staffing 103.8$ 20.4$ 19.7% 97.2$ 17.4$ 18.0% 170
Global Talent Solutions 88.7 15.3 17.2% 84.5 13.8 16.4% 80
International Staffing 36.8 4.1 11.2% 35.8 3.9 10.9% 30
Total Company 228.8$ 20.3$ 8.9% 216.6$ 11.9$ 5.5% 340
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
2016 Q2 2016 2017 Q2
Accounts Receivable
Excluding APAC APAC
Second Quarter 2017 Balance Sheet Data
12
DSO is up 2 days versus the same period last year, and up 2 days from year end
2016
Continue to operate essentially debt free
$ in Millions
DSO 53 53 55 Debt-to- 2.8% 0.0% 0.1%
Equity Ratio
$0
$20
$40
2016 Q2 2016 2017 Q2
Debt
(and Debt-to-Equity Ratio)
-----
(1) Includes $62 million of accounts receivable included in current assets held for sale.
(1)
2017 Outlook – Third Quarter
Revenue up 4% to 5% YOY
Gross profit rate up YOY
SG&A up 6% to 7% YOY
– Approximately half of increase is a result of higher
performance based incentive compensation expenses
13
2017 Outlook – Full Year
Revenue down 1% to flat YOY
– No significant foreign exchange impact expected
– Excluding the impact of the APAC results in the first half of
2016, revenue up 3.0% to 4.0%
Gross profit rate up YOY
SG&A down 1% to flat YOY
– Excluding APAC results in the first half of 2016, SG&A up 3.0%
to 4.0%
Annual tax rate in the 15-20% range
14
APPENDIX:
TS KELLY ASIA PACIFIC JOINT VENTURE
Highlights – TS Kelly Asia Pacific
Joint Venture capitalizes on the strong reputation of Kelly Services as a
leading talent provider in the region and on Temp Holdings’ regional
presence
– Provides accelerated growth opportunities, larger workforce
solutions presence, and enhanced competitive positioning
– Expands on 14-year strategic partnership between Kelly and Temp
Holdings
TS Kelly Asia Pacific is expected to be one of the largest workforce
solutions companies in the Asia Pacific region
Solidifies Kelly’s focus on OCG solutions in the APAC market
– Opportunity to accelerate investment in high growth market
– Kelly’s outsourcing and consulting group, KellyOCG, is not part of
the joint venture and will continue to operate under the complete
control of Kelly
16
Expands scope from four geographies to twelve, with headquarters in
Singapore
Brings together established businesses with approximately $500 million
in revenue and 1,600 employees
– TS Kelly North Asia – China, Hong Kong, Taiwan, South Korea
– Kelly Services – Singapore, Malaysia, Australia, New Zealand, India,
Indonesia, Thailand
– Capita – Singapore and Malaysia
– First Alliances – Vietnam
– Intelligence – Indonesia, Vietnam, Singapore, Malaysia
Highlights – TS Kelly Asia Pacific
17
Closed on July 4, 2016, the JV was formed through asset transfers from Kelly and
Temp Holdings, and a $36.5 million cash payment to Kelly at closing and a $4.5
million cash true-up payment made to Kelly in Q4 2016
Temp Holdings owns 51%, Kelly owns 49%
Beginning in the third quarter, Kelly accounts for its 49% interest as an Equity
Method Investment
– APAC results are no longer included in the individual lines of Kelly’s
consolidated income statement or balance sheet
• Equity method investment asset will be reported as a single line item
on the balance sheet
• 49% share of income reflected as Income from equity method
investments (below earnings from operations), effective on the
transaction closing date
» Will no longer be included as revenue, cost of service, and SG&A
expense
TS Kelly Asia Pacific – Transaction Details
18