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 the meeting over to Donald Parfet, Chairman of the Board of Kelly Services, Inc. Mr. Parfet, the floor is yours.

Good morning, and welcome to Kelly Services 2022 Annual Meeting of Shareholders. I'm Donald Parfet, Chairman of the Board. I'm pleased to have you join this webcast, and I'd like to start by thanking Kelly's Board of Directors, all of whom are joining us today, and thank you to members of Kelly's leadership team and other employees and guests from around the world who have joined us as well. In 2020, we began holding our annual meetings virtually to protect the health and safety of our stockholders, employees and other guests. This format has proved beneficial by allowing all stockholders regardless of location, the ability to participate in the annual meeting safely and more efficiently. And the general response from stockholders has been positive over the past couple of years, prompting us to adopt the virtual format going forward. 2021 was a year of challenge and hope. We were challenged by the persistence of the pandemic while remaining hopeful that as we learn more about the behaviors of this virus, we were better able to mitigate its risk with the many new tools and therapeutics coming to the market. I am pleased to state as the year unfolded with recurring global supply chain shortages, new dynamics and a tight talent market and outbreaks of the Delta and Omicron variants, Kelly persevered strategically, forged ahead and ended 2021 better than we began it. Through it all, the company's commitment to its specialty growth strategy never wavered. Kelly not only rose to the challenges of 2021, but also laid the groundwork for a strategic growth in the years ahead. The Board is very pleased with what's been accomplished in 2021. And remains focused on the company's continued progress toward achieving its strategic objectives. Kelly's President and CEO, Peter Quigley, will provide more detail as to how the company has positioned itself to be stronger and better prepared to succeed commercially with set -- sights set on an exceptional future. The Board also continues to prepare for this future through its own evolution. Board member, Carol Adderley, who has served with distinction since 2010, and has provided considerable contribution and an invaluable linkage to the Kelly family will not stand for reelection in 2022. And after more than 17 years of distinguished service, including a long tenure as Chair of the Corporate Governance and Nominating Committee, Board member, Jane Dutton, will be retiring in 2022. On behalf of both the management team and Board of Directors, I would like to express my appreciation to Ms. Adderley and Dr. Dutton for their valued contributions over the years and applaud the dedication, care and tenacity with which they served. The Board is also pleased to acknowledge our 2 newest members to our Board of Directors. In January 2022, the Board appointed 2 directors Amala Duggirala, who is the Executive Vice President and Enterprise Chief Information Officer at USAA and InaMarie Johnson, who is the former Chief People and Diversity Officer at Zendesk Incorporated. Each of these highly energetic, innovative and forward-thinking leaders has specific experience and competencies that complement those of our existing directors. Following the conclusion of my remarks, we will address questions submitted from Class B shareholders relative to the proxy items voted on during the meeting. The questions from stockholders may be submitted in the text box field provided on the web portal at any time during this meeting. We're asking stockholders who submit a question to include their name and e-mail address as well. 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 your virtual stockholder meeting site within 24 hours, and it will remain available until the 2023 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, the continuing members of Kelly's Board of Directors are Gerald Adolph, George Corona, Robert Cubbin, Amala Duggirala, InaMarie Johnson, Terrence Larkin, Leslie Murphy and Peter Quigley. I would 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, certify that on April 18, proper notice of the date, time and meeting purpose, along with the web address for today's virtual meeting were provided to all stockholders of record on March 28, 2022. The proxy holders who've been appointed by the Board to vote on behalf of the stockholders at this meeting are Jim Polehna and Vanessa Williams. At this point in the meeting, the Chair officially appoints [ Cynthia Mall ] from the Office of the Corporate 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 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 2022 proxy statement, the 9 director nominees standing for election are Gerald Adolph, George Corona, Robert Cubbin, Amala Duggirala, InaMarie Johnson, Terrence Larkin, Leslie Murphy, Peter Quigley, and myself, Donald R. 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 2023 or until the election and qualification of their successors.

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

Yes, Mr. Chairman. I am Vanessa Williams, a Class B stockholder. I second the motion.

Thank you, Vanessa. 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 2022 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 2022. 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 2022 be approved.

Thank you. Is there a second to the motion?

I second the motion.

Thank you. Cynthia, 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 votes the Class B shares outstanding and entitled to vote at this meeting.

At this point, we will address any questions or comments received from Class B shareholders on the 3 proposals. I understand there are no questions for us at this point. There being no further questions being submitted from Class B shareholders on the 3 proposals. I will ask for a motion to adjourn the business meeting.

Mr. Chairman, I move to adjourn the meeting.

Thank you. May I have a second to 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, and hello, everyone. It's great to be with you today for our 2022 Annual Meeting of Stockholders. Before I begin, I'll 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 today's webcast. Earlier in today's meeting, Don mentioned, I'd be sharing how Kelly is positioned to succeed with our sights set on an exceptional future, and that's a perfect summary of my update on the last year of progress at Kelly. One year ago at last year's Annual Meeting of Stockholders, I shared that Kelly had just reached a historic milestone. We had made the largest acquisition in our history. Welcome to Kelly the Technology staffing and workforce solutions company, Softworld. We made this significant acquisition after committing 2 years ago, shortly after I stepped into the role of CEO and to a bold, more acquisitive specialty growth strategy. We set our sights on a transformation to establish Kelly as a leading specialty workforce solutions company that provides many of the world's best organizations with educators, scientists, engineers, contact center agents and other specialty talent that today's organizations need to grow and thrive. Today, we continue to believe our specialty approach is key to delivering growth and value to all of our stakeholders, including you as a Kelly stockholder. We anticipated our acquisition of Softworld would prove to be a significant contributor to Kelly's growth, and I'm pleased to report it has delivered on that promise. Our Science, Engineering & Technology segment saw a double-digit growth in the first quarter of this year. And in the months since that milestone acquisition, Kelly has seized every moment to make continued strategic progress. We started 2022 by taking bold action that provided us with an unprecedented amount of capital to invest in our specialty growth strategy. We achieved this significant boost in capital in February as a result of our strategic decision to monetize noncore assets in APAC through an agreement with our Japanese partner, Persol to end our cross ownership and also to reduce our ownership interest in our APAC joint venture PersolKelly. As part of the agreement, we repurchased 4% of our outstanding stock without impacting share liquidity, creating value for our stockholders. In addition, our strategic decision to monetize these noncore assets transformed Kelly's cash position. Upon completion of the APAC transactions and considering existing borrowing capacity, Kelly was equipped with more than $0.5 billion of capital, the kind of significant resources needed to pursue high-margin, high-growth businesses in our chosen specialties that will drive results. In March, just weeks after the APAC transactions, Kelly deployed some of that available capital to acquire RocketPower, a Silicon Valley startup that diversifies and strengthens Kelly's recruitment process, outsourcing business by targeting clients in the fast-growing high-tech market. And we didn't stop there. Earlier this month, Kelly acquired Pediatric Therapeutic Services, a specialty firm that extends our leadership position in K-12 education workforce solutions with the provision of in-demand in-school services, including occupational therapy, physical therapy, speech language, pathology and mental and behavioral health services. The acquisitions of these highly attractive assets clearly support our bold inorganic growth strategy. They both expand Kelly's presence in high-growth, high-margin specialties and both provide clients value by connecting them quickly to in-demand specialized talent. Both acquisitions also present exciting opportunities for organic growth within Kelly, which is the second prong on Kelly's two-prong approach to growth. To support high-quality organic growth within our existing businesses, we've enhanced our product development process, and in the past year or so, have launched our expanded 3 Kelly Education products and added a higher-value solution to our Professional & Industrial segment. These exciting solutions were identified for their growth potential and will continue to be ongoing areas of investment. Our quest for inorganic growth will also continue through the remainder of 2022 and beyond. Even after the RocketPower and PTS transactions, we have ample capital to deploy, and we continue to carry no debt. We're applying a disciplined process to identify and assess new opportunities. We look closely at projected market dynamics, potential for strong top line growth with healthy returns on our investment and fit with our target specialties. Our sights are set firmly on growth through inorganic and organic approaches, yet we're also making thoughtful long-term decisions about our portfolio. As a global company, Kelly has operations in 22 countries. One of those locations is Russia, where Kelly has provided staffing solutions for more than 25 years. Since the events in Eastern Europe began, Kelly, first and foremost, took immediate actions to protect the safety and well-being of our employees in the region. And now following a thorough review of the situation, consideration of input from stakeholders and an examination of all available options, we've decided to actively explore an orderly transition of our Russian operations in full compliance with local and international laws. We believe this path forward provides the strongest likelihood that our full-time and project-based employees in the country can continue their employment after the business transitions, protecting the dignity of work that Kelly so strongly believes in. As we carefully manage our portfolio and operationalize growth, we're also making important investments in Kelly's digital strategy to increase productivity and innovation. For many years, Kelly underfunded its tech stack, and we're in the process of unwinding legacy systems that hamper the speed of our business operations. We're looking to leap forward on our digital journey by introducing AI, machine learning, smart workflows and more to create digitally-powered delivery models that let Kelly people focus on the touch points that benefit the most from human interaction. Our vision for technology at Kelly is to create faster, more personalized connections between us and our talent and to simplify the client experience through smarter technologies. So as you've likely gathered, it's been a busy and exceptionally productive start to 2022. And I'm pleased to share that Kelly's first quarter performance provided substantial evidence that our strategy is paying off and momentum is underway. During last week's Q1 earnings call, we announced Kelly achieved significant year-over-year improvement in revenue. We grew GP in every one of our 5 segments. Our GP rate reached its highest point in more than 25 years, and we more than doubled our earnings from operations. All of which point to broad-based structural improvements in our business. We also restored our dividend to its pre-pandemic level of $0.075 per share, a sign of our Board's confidence in Kelly's performance and strategic progress. We are excited about the strategic advancements we are driving so far this year across all of our specialty business units. In our Science, Engineering & Technology segment, we saw meaningful returns on our inorganic and organic investments with double-digit growth in the first quarter, both with and without the acquisition of Softworld. In Education, we delivered double-digit year-over-year top line growth and further expanded our adjacencies. Our acquisition of PTS earlier this month creates yet another high-margin specialty within the Education segment that can quickly drive synergies across our market-leading client portfolio. KellyOCG continued to deliver year-over-year growth with revenue up double digits over the last year in the first quarter. This segment saw solid growth within our MSP product as well as in the high-growth RPO space. We invested in the exciting RPO market in Q1 with the acquisition of RocketPower. In our International segment, our EMEA operations delivered solid top line growth in the first quarter as we continue to manage through the overall negative impact of legislative changes in Mexico. In Professional & Industrial, notwithstanding a modest decline in revenue, largely due to ongoing talent shortages and supply chain disruptions, P&I substantially grew GP and experienced significant growth in fees as companies continue to ramp up their hiring of full-time talent. We're pleased with Kelly's first quarter financial results, and we are looking for additional signs that the pandemic grip has loosened. We're confronting remaining labor market and supply chain headwinds with confidence and the resilience we've built over the last 2 years. And with new growth opportunities emerging and our services in high demand, Kelly is leaning into 2022 with our well-defined and well-capitalized specialization strategy ready to use the resources at our disposal to accelerate our progress. The historically more conservative version of Kelly is part of our story passed and the era of focus, agility and aggressive pursuit of profitable growth is here. The speed and effectiveness we've shown at redeploying capital so far this year represent a newly confident Kelly, a bold company that has chosen specialties wisely, aggressively pursues high-margin growth where we know we can win and act decisively and with speed to drive value for shareholders. What hasn't changed is our passion for what we do best, connect people to work in ways that enrich their lives. Our deep belief in our purpose continues to drive us to champion for those who aren't given a fair opportunity to secure meaningful work. Last year, I shared with you the launch of Equity@Work, our initiative aimed at upending systemic barriers to employment and making the labor market more equitable and accessible. Since that time, we've introduced Kelly 33, a second chance program that connects hiring managers with undiscovered talent looking for a second chance. With clear proof of concept, favorable public opinion research and like-minded companies beside it -- beside us as part of our membership in the Second Chance Business Coalition, we won't rest until we break down barriers to work, such as nonviolent blemishes on job seekers criminal records. In this time of significant demand for talent, it's both the right thing to do and good for business to welcome these hidden workers who are proven to be loyal and engaged into the workforce. There is exciting and ample opportunity for Kelly to help more people with what's next in their careers, usher employers through the tight talent market and reimagine concept of work, meet market needs as the pandemic's grip loosens and deliver new value to you along the way. I've never been more energized about Kelly's opportunity to make an impact. We're more confident that our future together is bright. In closing, I would like to thank Kelly employees for carrying out our purpose each day and for their dedication to serving Kelly throughout our specialty transformation. I'd also like to thank our Chairman for his tremendous leadership of the Board and each of our Board members those attending their first annual meeting of stockholders today and those attending their last for their commitment to Kelly and unwavering support. And to our valued Kelly stockholders, thank you for your confidence that Kelly's best days lie ahead.

Thank you, Peter. We'll now address general questions received from both Class A and Class B stockholders. Jim, I understand there are no 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 at (248) 244-4586. Thank you, and good day.