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Industrials

Business Services

Kelly Services Inc. Class A Common Stock

Operating Results for Fourth Quarter and Full Year 2022
Fourth quarter 2022 revenue totaled $1.23 billion, down 1.3% from the prior year, including 200 basis points of unfavorable currency impact. Revenues were up 0.7% on a constant currency basis. Included in that increase are a 150 basis points favorable impact from the acquisitions of RocketPower and PTS, as well as a 270 basis points unfavorable impact resulting from the sale of the Russian operations. Net net, revenue was up 1.9% on a non-organic constant currency basis.
On a segment basis, SET revenue was up 1.7% to $302.7 million as demand has continued to be strong for Kelly&#8217;s telecommunication specialty and many of its outcome-based solutions. Growth in other specialties was negatively impacted in the quarter by the current economic headwinds. In the Education segment, year-over-year revenue growth continues to be strong, up 53% as reported to $203.0 million and up 43% on an organic basis, or excluding the impact of the May acquisition of PTS. The OCG segment had revenue of $116 million, another quarter of year-over-year revenue growth, with revenue up 3.5% over last year. OCG results include the impact of the March acquisition of RocketPower. Organic constant currency revenues were flat. Declines in PPO offset the continued growth in high-margin MSP and RPO products. Revenue in the Professional &amp; Industrial segment declined 11.8% in the quarter. Revenue from staffing product declined 17% in the quarter, a deceleration from the third quarter as economic headwinds has historically more impact on this segment early in the cycle. The segment&#8217;s outcome-based business delivered solid revenue growth of 9%. And even with continued contraction in the year-over-year demand from the call center specialty, growth in other outcome-based specialties was strong. Revenue in the International segment declined 16% on a reported basis and was down 8% on a constant currency basis. Excluding the impact of the sale of the Russian operations, revenue improved by 5% on an organic constant currency basis. Permanent placement fees were also resilient and were up 32% on an organic basis.
Kelly reported fourth quarter gross profit of $250.2 million, up 1.7% as reported, or up 3.7% on a constant currency basis. The quarter&#8217;s gross profit rate was 20.3%, compared to 19.7% in the fourth quarter of the prior year for a year-over-year improvement of 60 basis points. The primary driver continued to be favorable organic business mix, which contributed approximately 100 basis points for the quarter. The recent acquisitions also positively impacted total GP rate by about 20 basis points as both PTS and RocketPower generate higher margins than Kelly&#8217;s average. These improvements were partially offset by higher employee-related costs and also lower permanent placement fees.
SG&amp;A expenses were up 2.4% year-over-year on a reported basis and up 4% on a constant currency basis. Included in the 2021 results are approximately $4 million in restructuring charges, and the 2022 results are impacted by the intangible amortization and other expenses of the recent acquisitions, as well as the favorable impact of the sale of the Russian operations. On an organic constant currency basis, fourth quarter 2022 expenses grew by 4.3% year-over-year. During the fourth quarter, Kelly took an&nbsp; additional $10.3 million goodwill impairment charge related to RocketPower, as this follows a $30.7 million impairment charge taken in the third quarter. The dramatic drop in high tech hiring has negatively impacted RocketPower. As we have mentioned in past reports, management is&nbsp;focused on diversifying RocketPower&#8217;s customer base, identifying opportunities for synergies, and accelerating integration with the rest of Kelly to maximize the value of the investment in the future.
Kelly reported a GAAP net loss for the fourth quarter of $0.9 million, or $0.02 per share. We would note the tax rate for the quarter was an unusually high 121.4%, driven by non-deductible losses on cash surrender value company owned life insurance. On an adjusted basis, net income for the fourth quarter of 2022 was $7.0 million, or EPS of $0.18 per share. In the fourth quarter of 2021, the Company reported GAAP net income of $71.7 million, or EPS of $1.80, and adjusted net income of $25.9 million, or EPS of $0.65. Adjusted EBITDA for the quarter was $24.1 million, compared to $27.7 million in the year ago period.
 Full year revenue of $4.97 billion was up 1.1% on a reported basis and 3.2% on a constant currency basis. This reflects excellent revenue growth in the Education business unit, SET, OCG, and International, excluding Russia. Consistent with actions taken in alignment with Kelly&#8217;s specialty strategy, GP rate improved 170 basis points on a year-over-year basis to 20.4%. The higher GP rate, combined with increasing revenue, resulted in a 12.1% constant currency increase in gross margin dollars to $1.01 billion. The GP rate improved in all business units in 2022. Kelly reported a GAAP net loss for 2022 of $62.5 million, or a loss of $1.64 per share, compared to net income of $156.1 million, or $3.91 per diluted share in 2021. On an adjusted basis, 2022 net income totaled $50.7 million, or $1.33 per share, versus adjusted net income of $60.4 million, or $1.51 per share for 2021. Kelly reported adjusted EBITDA of $105.6 million for the year, or a 2.1% margin, compared to $84.1 million, or a 1.7% margin, in 2021.
Updated Guidance 
 
Economic uncertainty remains. As noted by management, &#8220;In the high-tech sector, layoffs continued as more firms move to bring costs in line with slowing growth following a long period of expansion and aggressive hiring. Workforce reductions spread to the financial services sector amid market volatility and decreased consumer spending, driven by rising interest rates. Manufacturers also cut jobs as economic activity in this sector began to contract after 29 consecutive months of growth. In other sectors not broadly impacted by layoffs, a growing number of employers have scaled back or slowed hiring in anticipation of greater headwinds in 2023. In spite of the above,&nbsp;the labor market remains tight. The economy continued to add jobs in the fourth quarter, albeit at a slightly slower pace to end the year. Services industries, health care, and retail accounted for the bulk of the gains as employers in these sectors continue to recover from the pandemic. Unemployment remains at historically low levels. vacancies are steady, and the labor force participation rate is relatively unchanged despite elevated wage growth.&#8221;
We believe the first half of 2023 will continue to be impacted by these headwinds, with the second half of 2023 showing some signs of improvement. For the first quarter, we are projecting revenue of $1.23 billion, net income of $10.2 million, or $0.27 per share, and adjusted EBITDA of $20 million. In the first quarter of 2022, the Company reported revenue of $1.29 billion, a net loss of $47.6 million, or a loss of $1.23 per share, adjusted net income of $17.6 million, or $0.46 per share, and adjusted EBITDA of $31.6 million.
For the full year 2023, we are at revenue of $5.0 billion, net income of $52 million, or EPS of $1.39, and adjusted EBITDA of $101 million.

Kelly Services Inc. Class A Common Stock (KELYA)

Fourth Quarter and Full Year Results for 2022

Fundamental Analysis:

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First Quarter 2023 Results (KELYA)

Move into Automated Solutions (KELYA)

Fourth Quarter and Full Year Results for 2022 (KELYA)

Making Progress in a Challenging Market (KELYA)

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