Kelly Services, Inc. · NASDAQ:KELYA
Kelly Services — Q3 2016 Earnings Presentation
32 slides from Kelly Services's earnings presentation, 2016
Slide 1: Investor Presentation Third Quarter 2016
Investor Presentation Third Quarter 2016
Slide 2: Safe Harbor Statement
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
Slide 3: Kelly Services at a glance
SERVING 93% ‘of the Fortune 100™ ST cscs 2015 spend under management 2015 revenue: ono STAFFING Kelly Girl” William Russell Kelly pioneers the modern staffing industry by founding the Russell Kelly Office Service / in 1946 C) — Kelly Educational Staffing 2: Outen classrooms filled in 2015 Nasdaq: KE
Slide 4: Portfolio of Solutions and Revenue
Portfolio of Solutions Commercial Staffing Professional & Technical Staffing • Office Services • Science • Finance • Light Industrial • Engineering • Law • Electronic Assembly • IT • Healthcare • Marketing • Creative Services • Contact Center • Educational Services 64% Revenue 22% 56% of GP 23% of G
Slide 5: The Kelly Journey: Our Strategy in Action
WHERE WE WERE ® The Kelly Journey: To spur rapid PT and OCG growth, we invested in Our Strategy in Action specialized recruiters, sales resources, and OCG talent 2014 and technologies, and created more efficient, distinct operating models for branch network and centralized Kelly’s vision is to becom
Slide 6: How We're Going to Grow
HOW WE’RE GOING TO GROW Create a more balanced business mix across PT, OCG, and Commercial. Sell, recruit, and deliver staffing in the specialties and markets where we can win through scale or specialization. Design and deliver higher-margin solutions across our centralized accounts. Expand our tale
Slide 7: U.S. Branch Network Journey
DELIVERING SPECIALTY STAFFING, U.S. Branch Network Journey PROTECTING THE CORE PROTECTING THE CORE BE THE VERY BEST COMMERCIAL AND PT RECRUITMENT COMPANY, IN OUR CHOSEN OBJECTIVES/FUTURE STATE SPECIALTIES, IN THE MARKETS THAT WE SERVE Grow profitable local and mid-market accounts. Continue to grow K
Slide 8: International Journey
International Journey BE THE VERY BEST SPECIALTY RECRUITMENT COMPANY AND RELIABLE STAFFING PARTNER IN THE MARKETS THAT WE SERVE. OBJECTIVES/FUTURE STATE Scale up temp business in Large Accounts. Centralize recruitment and sourcing in large markets to boost productivity and collaboration. Lead throug
Slide 9: Global Talent Solutions Journey
Global Talent Solutions Journey OBJECTIVES/FUTURE STATE TRANSFORMING TO A WORKFORCE SOLUTIONS LEADER Use a talent supply chain management framework to solve clients’ workforce challenges. Design the best outsourced, Sell with a consultative, client- recruitment, and integrated first approach. LEADIN
Slide 10: Talent Supply Chain Management
Talent Supply Chain Management CORPORATE Temporary STRATEGIC PLAN Staff Independent Contractors / Freelancers OPERATIONS WORKFORCE ANALYTICS Talent Service Supply Chain Providers HUMAN RESOURCES STRATEGIC WORKFORCE Management (SOW) PLANNING Alumni, Retirees and Interns PROCUREMENT Full Time Employee
Slide 11: OCG Growth
OCG Growth ($ in millions) Gross Profit $50 $48.0 $45.0 $45 $42.3 $41.4 $40 $42.3 $42.8 $36.5 $35.8 $34.8 $35 $35.5 $35.7 $29.2 $32.6 $32.9 $30 $25 $27.7 $20 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 11
Slide 12: OCG Growth – Operating Profit
OCG Growth – Operating Profit $10 ($ in millions) $8 $6 $4 $2 $0 $16 2013 2014 2015 2016 $14.0 3Q $14 $12 $9.7 $10 $8.2 $7.5 $7.7 $8 $6.8 $6 $5.4 $4.8 $4 $3.6 $3.5 $2.5 $2.8 $1.8 $2 $1.2 $0 ($2) -$0.9 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 ----- Excluding Restruct
Slide 13: Key Financial Performance Metrics
Key Financial Performance Metrics ($ in millions) 2014 2015 2016 YTD (1) GP $ Growth (in constant currency) 3.2% 6.4% 4.5% GP Rate 16.3% 16.7% 17.1% (2) (2) Conversion Rate (return on GP) 3.7% 7.2% 6.9% (2) (2) (3) EPS Growth -50% 72% 122% Average DSO 57 56 55 $ Free Cash Flows ($91.7) $6.6 $18.3 --
Slide 14: 2016 Outlook – Fourth Quarter
2016 Outlook – Fourth Quarter • Revenue down 9% to 10% YOY in constant currency – Excluding 20 basis points of unfavorable foreign exchange impact – Excluding the impact of the APAC results in 2015, revenue down 2.0% to 3.0% in constant currency, or flat YOY excluding the 53rd week in 2015 • Gross p
Slide 15: Recent Highlights – TS Kelly Asia Pacific
Recent 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 competiti
Slide 16: TS Kelly Asia Pacific – Transaction Details
TS Kelly Asia Pacific – Transaction Details • 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%
Slide 17: Q3 Financial Review
Q3/ 201 6 FINANCIAL REVIEW PROGRESS REPORTON KELLY’S THIRD QUARTER* Q3 OPERATING EARNINGS EXPENSE UPDATE $1.2B Kelly's third quarter performance confirms that the Company Q3 RESULT: Vv uw continues to deliver on its commitment to becoming an even 91 3% OF GP FLAT more competitive and profitable comp
Slide 18: Third Quarter 2016 Financial Summary
Third Quarter 2016 Financial Summary Constant Currency Actual Results Change Change (1) Revenue $1.2B (7.6)% (7.1)% GP % 17.2% 30 bps Earnings from Operations $18.8M 13.1% 14.1% ROS % 1.5% 30 bps EPS $2.06 $1.83 • Results reflect the deconsolidation of APAC and a slow growth environment in the U.S.
Slide 19: Financial Summary (Excluding APAC 2015 Results)
Third Quarter 2016 Financial Summary (Excluding APAC 2015 Results) Constant Currency Actual Results Change (1) Change (3) Revenue $1.2B (0.7)% (0.1)% GP % 17.2% 10 bps Earnings from Operations $18.8M 29.4% 30.4% ROS % 1.5% 30 bps EPS(2) $0.44 $0.25 • Flat constant currency revenue growth reflects a
Slide 20: Third Quarter 2016 Operations Summary
Third Quarter 2016 Operations Summary ($ in millions) Kelly Services Sales $1,248 GP $215 Expenses $196 Profit $19 ROS 1.5% Americas Staffing EMEA Staffing OCG Sales $843 Sales $239 Sales $178 GP $136 GP $35 GP $45 Expenses $112 Expenses $31 Expenses $37 Profit $24 Profit $4 Profit $8 ROS 2.9% ROS 1
Slide 21: Third Quarter 2016 Revenue Growth
Third Quarter 2016 Revenue Growth Business Mix 5% YoY Growth 14% 0% 19% 48% -5% 19% -10% Americas Americas PT EMEA OCG Commercial Americas Commercial Americas PT EMEA OCG Reported Constant Currency • OCG revenue growth of 4% for the quarter • Americas PT Staffing declined in Centralized Accounts whi
Slide 22: Third Quarter 2016 Gross Profit Growth
Third Quarter 2016 Gross Profit Growth Business Mix YoY Growth 10% 8% 6% 21% 4% 2% 44% 0% 16% -2% -4% 19% -6% -8% -10% Americas Americas PT EMEA OCG Americas Commercial Americas PT EMEA OCG Commercial Reported Constant Currency • Americas Commercial and PT staffing, and OCG comprise 84% of total com
Slide 23: Third Quarter 2016 Gross Profit Rate
Third Quarter 2016 Gross Profit Rate 17.4% 20 bps 17.2% 17.2% 20 bps 16.9% 10 bps 17.0% (10) bps 16.8% (10) bps 16.6% 16.4% 16.2% 16.0% 15.8% 15.6% 15.4% 15.2% 15.0% Q3 2015 GP Rate AMER GP Rate EMEA GP Rate OCG GP Rate Perm Fee and APAC Q3 2016 GP Rate Other Deconsolidation • Overall GP rate up due
Slide 24: Third Quarter 2016 SG&A
Third Quarter 2016 SG&A ($ in millions) $215 $212 $210 $205 $200 $(11) $4 $196 $195 $(6) $(1) $(1) $(1) $190 Q3 2015 SG&A APAC Corporate FX Amer EMEA OCG Q3 2016 SG&A • OCG expense growth results from increasing salaries as well as costs related to additional sales resources • Corporate expenses ref
Slide 25: Total Corporate as a % of Gross Profit
Total Corporate as a % of Gross Profit 12% 10% 8% 6% 4% 2% 0% 2012 2013 2014 2015 2016F -2% Net Corporate (Base) Compliance & Litigation Performance Incentives Benefits Related APAC JV (2016) 25
Slide 26: Third Quarter 2016 vs. 2015 - Gross Profit & Expense
Third Quarter 2016 vs. 2015 - Gross Profit & Expense ($ in millions) $(13.1) $(15.3) $250 $228.2 $215.1 $211.6 $196.3 $200 $150 $100 $50 $0 Gross Profit Expense 2015 2016 2015 2016 ----- in nominal currency 26
Slide 27: Third Quarter 2016 Conversion Rate
Third Quarter 2016 Conversion Rate ($ in millions) 2016 2015 Gross Earnings Conversion Gross Earnings Conversion Change (1) (1) Profit from Ops Rate Profit from Ops Rate (bps) Americas $ 136.3 $ 24.1 17.7% $ 137.6 $ 23.9 17.3% 40 EMEA 35.0 4.4 12.7% 37.1 5.3 14.6% (190) APAC - - 0.0% 13.2 2.1 15.7%
Slide 28: Conversion Rate (Excluding APAC 2015 Results)
Third Quarter 2016 Conversion Rate (Excluding APAC 2015 Results) ($ in millions) 2016 2015 Gross Earnings Conversion Gross Earnings Conversion Change (2) (1) (1) (2) Profit from Ops Rate Profit from Ops Rate (bps) Americas $ 136.3 $ 24.1 17.7% $ 137.6 $ 23.9 17.3% 40 EMEA 35.0 4.4 12.7% 37.1 5.3 14.
Slide 29: Cash Flows: as of October 2, 2016
Cash Flows: as of October 2, 2016 ($ in millions) 2016 2015 Net income $ 101.0 $ 19.6 Other cash used in operating activities (74.9) (21.1) Capital expenditures (7.8) (12.3) Free cash flow $ 18.3 $ (13.8) Borrowing (47.8) (13.8) Available cash flow $ (29.5) $ (27.6) Dividends (7.7) (5.7) Net cash pr
Slide 30: Balance Sheet: as of October 2, 2016
Balance Sheet: as of October 2, 2016 ($ in millions) 2016 2015 Cash $ 27.6 $ 44.9 Accounts Receivable 1,125.8 1,160.3 Other Current Assets 53.0 84.0 Total Current Assets $1,206.4 $1,289.2 Long Term Assets 832.9 660.7 Total Assets $2,039.3 $1,949.9 Short-Term Debt $ 8.7 $ 76.8 Other Current Liabiliti
Slide 31: Third Quarter 2016 Balance Sheet Data
Third Quarter 2016 Balance Sheet Data ($ in millions) Accounts Receivable Debt Excluding APAC APAC (and Debt-to-Equity Ratio) $1,200 $100 $1,100 $80 $1,000 $60 $900 $800 $40 $700 $20 $600 $500 $0 2015 Q3 2015 2016 Q3 2015 Q3 2015 2016 Q3 DSO 57 54 56 Debt-to- 8.2% 5.8% 0.9% Equity Ratio • DSO improv
Slide 32: Kelly Services: Company Contacts
Kelly Services: Company Contacts Carl Camden President & Chief Executive Officer 248 244-7598 George Corona Executive Vice President & Chief Operating Officer 248 244-5462 Olivier Thirot Senior Vice President & Chief Financial Officer 248 244-4727 James Polehna Vice President, Investor Relations & C