Kelly Services, Inc. (KELYA) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Kelly Services, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Donald Parfet, Chairman of the Board of Kelly Services, Inc. Mr. Parfet, the floor is yours.

Good morning. Welcome to Kelly Services 2021 Annual Meeting of Stockholders. I'm Donald Parfet, Chairman of the Board. I'm pleased to have you join this webcast, and I'd like to start by welcoming and thanking Kelly's Board of Directors, all of whom are joining us virtually today. And thank you to members of Kelly's leadership team and other employees and guests from around the world, who have also joined us today. As a precautionary measure, to help protect the health and well-being of our stockholders, employees and other guests, last year, we made the decision to conduct our Annual Stockholders' Meeting virtually. And for that same reason, we made the decision to hold this year's meeting in a virtual format. As you know, 2020 turned out to be an unprecedented year. And Kelly, like most businesses around the world confronted serious challenges raised by the COVID-19 pandemic. Without a doubt, the health and well-being of our communities became the #1 priority. The company made some very difficult decisions and took actions early in the year 2020 to Protect Kelly for the long-term without losing sight of our employees, customers, business partners, stockholders and our strategic transformation into a specialty talent solutions company. The Board was supportive of the actions taken, and I applaud management for their diligence, transparency and progress made on our strategic journey. In his remarks, Kelly's President and CEO, Peter Quigley, will provide more detail as to how the company has responded to the pandemic as well as embrace the new operating structure that will enable the company to focus on those specialties with robust demand and promising growth opportunities. Following the conclusion of my remarks, we will address any questions submitted from Class B shareholders relative to the proxy items voted upon during this meeting. [Operator Instructions] General questions from Class B stockholders as well as Class A stockholders will be addressed after Peter's comments. A playback of this meeting will be available on our virtual stockholder meeting site within 24 hours, and it will remain available until the 2022 stockholders meeting. The agenda and meeting guidelines for today's meeting are also posted on this meeting website. Before moving to the business portion of our meeting, I'd like to introduce the members of your Board of Directors. In addition to myself, Kelly's directors are: Carol Adderley, Gerald Adolph, George Corona, Robert Cubbin, Jane Dutton, Terrence Larkin, Leslie Murphy and Peter Quigley. And I'd like to thank my fellow Board members for their leadership, dedicated service and contributions to Kelly. We will now move to the business portion of the meeting and officially call the meeting to order. Jim Polehna, Corporate Secretary of Kelly, who serves as secretary of this meeting, certified that on April 19, proper notice of the date, time and meeting purpose, along with the web address for today's virtual meeting was provided to all stockholders of record on March 29, 2021. The proxy holders who have been appointed by the Board to vote on behalf of the stockholders at this meeting are Jim Polehna and Olivier Thirot. At this point in the meeting, the Chair officially appoints Deborah Emerson, Assistant Secretary, as the inspector of election. And I'm pleased to announce that there are present by proxy a sufficient number of voting shares of the company to constitute a quorum. At this time, any Class B stockholders who are logged in, but who have not already submitted a vote of their shares may do so. Do so now by clicking the Vote Here button on your screen. [Voting]

The first item of business is the election of 9 directors. As identified in the 2021 proxy statement, the 9 director nominees standing for election are Carol Adderley, Gerald Adolph, George Corona, Robert Cubbin, Jane Dutton, Terrence Larkin, Leslie Murphy, Peter Quigley, and myself, Donald Parfet. I will now entertain a motion for their election.

Mr. Chairman, I am Jim Polehna, a Class B stockholder. I move the election of directors for a term expiring at the Annual Meeting of Stockholders in the year 2022 or until the election and qualification of their successors.

Thank you, Jim. Is there a second to the motion?

Yes, Mr. Chairman, I'm Olivier Thirot, a Class B stockholder. I second the motion.

Thank you, Olivier. The second business item is to consider the proposal to approve by advisory vote the company's executive compensation. Is there a motion to approve this proposal?

I move the adoption of the compensation of the named executive officers, commonly known as say-on-pay, as disclosed in the company's 2021 proxy statement.

Thank you. Is there a second to the motion?

I second the motion.

Thank you. The third and final item of business is to consider the proposal to ratify the appointment of PricewaterhouseCoopers as Kelly Services' independent registered public accounting firm for 2021. Is there a motion to approve this proposal?

I move that the proposal to ratify the appointment of PricewaterhouseCoopers as the independent registered public accounting firm for the year 2021 be approved.

Thank you. Is there a second to the motion?

I second the motion.

Thank you. Deb Emerson, what are the results of the election on the 3 proposals?

While a final tabulation will be made following today's meeting, all 3 proposals are approved, having received the necessary vote of the Class B shares outstanding and entitled to vote at this meeting.

Very good. At this point, we will address any questions or comments received from Class B stockholders on the 3 proposals.

Mr. Chairman, there are no questions from Class B stockholders.

Very good. There being no questions submitted from Class B stockholders on the 3 proposals, I'll ask for a motion to adjourn the business meeting.

Mr. Chairman, I move to adjourn the meeting.

Thank you. May I have a motion to second that motion?

I second the motion to adjourn the meeting.

Thank you. The motion is carried, and the business portion of the meeting is adjourned. And now I'd like to invite Kelly's President and Chief Executive Officer, Peter Quigley, to provide you with an update on the state of the company. Peter?

Thank you, Don. Good morning, everyone, and welcome. Before I begin, I will refer you to the safe harbor statement that's included as part of the rules of conduct and agenda slides found on both the annual meeting website as well as kellyservices.com. This applies to any forward-looking statements that I may make as part of my comments during this morning's webcast. It's great to be with you for our Annual Meeting of Stockholders for the year 2021, Kelly's 75th year in business. I spoke with you at this annual meeting last year, my first as your CEO shortly after the onset of COVID-19. I don't think any of us could have fully imagined the long-lasting and far-reaching impact of this pandemic on so many aspects of our lives over the past year. In one way or another, everyone on the planet has experienced change or made significant sacrifices as a result of COVID. Whether we struggled with the loss of normal social interactions, became virtual educators to our children, endured financial hardships, faced illness ourselves or even suffered the loss of a loved one, it has been both difficult and life-altering. And so today, it's a relief to be providing you a state of the company from a place of optimism for continued healing from this crisis as we enter a new and promising phase of the recovery. From Kelly's vantage point, both the business and economic environment are thankfully looking up. In the U.S., the temporary labor market has recovered from the lows of 2020. Unemployment is down. And demand for staffing and other workforce solutions is now broadly building across businesses of all sizes. While COVID isn't completely behind us and continues to grip some industries in parts of the world, we are entering what appears to be a solid, sustainable recovery. At Kelly, we are well positioned to grow, thrive and deliver value to you, our stockholders, as this recovery unfolds. I can confidently and proudly say, Kelly met the moment and weathered the worst of this crisis while protecting our people first, pivoting and innovating to serve our customers and safeguarding the company's financial standing to pave the way for our post-pandemic future. Our financial resilience has been in no small part, thanks to shared sacrifices from the Kelly community, including from you, our stockholders. We have carefully lifted some of our temporary expense mitigation measures, and we'll continue to evaluate those that remain, such as the company dividend as economic conditions continue to improve. At the same time, we were navigating an unforeseen and prolonged crisis, Kelly grew stronger and more resolute in our strategy to become a specialized talent company that provides the world's best organizations with educators, scientists, engineers, contact center agents and other specialty talent that modern companies need to grow and compete. Our Kelly operating model implemented in mid-2020 is driving our increased specialization through 5 operating segments based on our chosen specialties: Education; Science, Engineering & Technology; Professional & Industrial; Outsourcing & Consulting; and International. Organizing our business in this way leverages Kelly's long-standing strengths, combines our resources for scale and focus and positions the company to capture promising market opportunities that lie ahead. Today's Kelly is focused where we can win, and we have built a diverse team of leaders with a rich combination of institutional knowledge and outside specialty expertise that we need to compete and win. With our business organized for success and a revitalized leadership team in place, we are now executing against our specialization strategy with a clear two-pronged approach to achieving growth. As I mentioned, it is our 75th year in business. And in those many decades, we've built expertise and market leadership in a number of domains. Where we see the most promise for growth within these areas of expertise, we're bringing new, high-potential talent solutions to the market. An example of this type of organic growth is a tutoring product that we launched in March that will help close K-12 pandemic learning gaps and unlock new revenue streams in our Education segment. Our other approach to growth is inorganic. Growth we achieved by purchasing high-quality assets that complement our core strengths. Shortly before the pandemic hit, we laid out plans to more boldly drive growth through acquiring companies within our chosen specialties. We acted on those plans in 2020, including 2 acquisitions in our Education segment. Now we're excited to reach a new milestone just last month. Our purchase of Softworld is the largest acquisition in Kelly's history. The deal significantly expands our market presence in the fast-growing technology staffing and solutions space, and continues to shift Kelly's portfolio towards specialties with higher margins and a greater impact on our bottom line. With our well-defined specialty strategy in motion and the economic recovery underway, we are seeing traction in our performance. On Kelly's Q1 2021 earnings call last week, I was pleased to share that all of our operating segments were profitable in the quarter. Specifically, our Outsourcing & Consulting segment continued to thrive and surpassed its pre-COVID revenue levels for the second quarter in a row, while delivering better year-over-year earnings. Our Education segment, which has been the segment most impacted by COVID-19, exceeded our expectations, and in March, had its best month since the pandemic began. While normal is a ways off for the education system, more and more schools are reopening. We have added new wins to our portfolio, and our sales pipeline is healthy and growing. Kelly International delivered better year-over-year earnings as our teams captured growth from sustained demand among life sciences customers and saw increased demand in manufacturing as facilities reopened. Our Science, Engineering & Technology segment delivered sequential top line growth, notwithstanding a slight deceleration in growth rates during the quarter, stemming from some headwinds among certain verticals and industries. We continued to meet strong demand within our science specialty and saw a significant fee growth, a sign of increasing employer confidence. In our Professional & Industrial segment, our outcome-based businesses continued to perform well, and our staffing business delivered strong fee growth. And while our staffing business is trending up and demand returned to prepandemic levels in the first quarter, we saw the need to take specific actions to better convert this new demand to top line results. Those actions are underway now. Overall, we're optimistic that the recovery is gaining momentum and will continue to accelerate in the second half of the year. And looking across all of Kelly's segments, we're encouraged by healthy sales pipelines and the new customer wins we're capturing as the recovery progresses. We're also excited to share that Kelly has innovated to maximize the momentum of these promising market conditions with new intelligent staffing technologies. In fact, we're sharing today news of Kelly's powerful tech stack that currently provides our MSP customers visibility into top talent across all labor channels and provides full insights into their contingent and third-party workforce. It's called Kelly Helix because the intelligent staffing technologies that Helix encompasses are part of our DNA. These technologies are at the core of the services that we provide to our MSP customers today, and they are at the core of how we will enable the work of the future. Kelly Helix is the front door to our technology stack. It is a new talent management portal that simplifies and personalizes the MSP client experience. Helix offers hiring managers a universal single point of entry to source gig workers, independent contractors, contingent workers and full-time hires as well as services providers. Powered by AI and machine learning, it automatically generates talent requisitions and provides detailed workforce analytics. We're excited to bring this fully customizable platform to our clients who can implement it quickly. Personalized analytics and reporting tools adjust to the needs of hiring managers and program sponsors who have 24/7 access to their Kelly team and a suite of other powerful workforce management insights. The cloud-based platform will receive automated updates and technology additions regularly. Kelly Helix provides our clients the visibility and insight they need to advance their total talent strategy. We're ushering in a new era of intelligent staffing that will enable work that is smarter, more inclusive and more human. Kelly Helix allows us to provide cutting-edge customer service at a time when clients and talent need it most. All told, Kelly has turned the corner on its latest evolution in our storied history. You hold stock in a company that is more focused, growth-oriented, agile and forward-looking than it was even a year ago. And while we're proud of our transformation into a specialty talent company that's ready for the recovery that's upon us, we're equally proud to carry out our purpose of connecting people to enriching work in a way that creates lasting positive change. As a talent company, we are acting to advocate for those who aren't given a fair opportunity to secure meaningful work or advance in their employment. Our equity at work initiative sets a course to upend systemic barriers to employment and make the labor market more equitable and accessible. Just over 6 months into the program, we're inspired by customer support and enthusiasm around this initiative, and we are already seeing some encouraging early results in talent attraction and retention rates. We're also pleased with what we've accomplished within Kelly, updating our full-time hiring policies around minor drug offenses to allow more people with few or low level criminal offenses greater opportunity to join the company. This work, coupled with the launch of 6 active affinity groups and a cross-functional inclusion council is creating the inclusive culture we need to thrive and bolster the growth we're so passionate to deliver to you as a Kelly stockholder. In closing, I would like to thank and applaud Kelly employees for their dedication, passion and impressive body of work delivered during a year marked by disruption. I'd also like to thank our Chairman for his exceptional leadership of the Board and each of our Board members for their support and commitment to Kelly. You have provided keen insight from diverse viewpoints throughout the COVID crisis thus far, helping guide the successful response I shared today. And to our valued Kelly stockholders, thank you for your confidence over the last year as we protected our resources and position Kelly for brighter days ahead. Thanks to you, we remain focused on what's next. Thank you.

Peter, thank you. Thank you for your inspired leadership. Now we will address questions, general interest questions, received from both Class A and Class B stockholders.

Mr. Chairman, there are no general questions at this time.

There being no questions submitted, I will hereby adjourn this meeting. Thank you for attending this morning. And as a reminder, if you have any questions at any point, please contact our Investor Relations department. You can reach them by phone at 248-244-4586. Thank you for your attention today.

This concludes the meeting. Thank you. You may now disconnect.