Kelly Services(US:KELYA)2020-11-05 20:48Business Realignment and Strategy - The company has realigned its business into five specialty business units, which are also its reportable segments, to enhance focus and growth opportunities [147]. - The company plans to invest in strategic, targeted M&A opportunities while optimizing its portfolio, as evidenced by the sale of operations in Brazil [161]. - The company is focusing on digital transformation and building a technology foundation to sustain growth [163]. - The company has introduced a five-point Talent Promise to better support its talent and enhance the temporary worker experience [163]. Financial Performance - Revenue from services in Q3 2020 was $1,038.2 million, a decline of 18.1% compared to $1,267.7 million in Q3 2019 [171]. - Staffing services revenue decreased by 22% year-over-year, while permanent placement revenue fell by 40% due to economic uncertainty [172]. - Gross profit for Q3 2020 was $191.0 million, down 16.1% from $227.7 million in Q3 2019, despite a 40 basis points increase in gross profit rate [173]. - The loss from operations for Q3 2020 was $2.4 million, a decline from earnings of $17.1 million in Q3 2019 [175]. - Net earnings for Q3 2020 were $16.7 million, an increase of $27.2 million from a net loss of $10.5 million in Q3 2019 [179]. - Year-to-date revenue from services for the first nine months of 2020 declined by 23% compared to the previous year [180]. - The net loss for the first nine months of 2020 was $95.4 million, a decrease of $190.8 million from the prior year, primarily due to a goodwill impairment charge [189]. Cost Management and Expenses - Cost reduction efforts are expected to significantly lower year-over-year expenses in Q4 2020, but will not fully offset revenue declines [157]. - The company has implemented a 10% pay cut for full-time salaried employees and reduced CEO compensation to manage costs during the pandemic [156]. - Total SG&A expenses decreased by 8.2% year-over-year to $193.4 million, reflecting cost reduction measures taken in response to COVID-19 [174]. - Total SG&A expenses for the first nine months of 2020 decreased by 11.4%, including restructuring charges of $8.4 million [182]. International and Segment Performance - International revenue from services decreased by 20.8% in Q3 2020, primarily due to COVID-19 disruptions and the sale of operations in Brazil [196]. - Science, Engineering & Technology revenue from services decreased due to lower hours volume, with a gross profit decline of 13.1% to $50.7 million compared to $58.3 million in 2019 [200][204]. - Education revenue from services decreased significantly by 51.1% to $4.1 million, impacted by COVID-19, with a gross profit decline of 42.2% year-to-date [200][204]. - Professional & Industrial reported earnings of $11.8 million for the quarter, a 17.6% decrease from a year ago, primarily due to COVID-19 impacts [232]. - Science, Engineering & Technology reported earnings of $19.4 million for the quarter, a 13.2% decrease from a year ago, also primarily due to COVID-19 impacts [233]. - Education reported a loss of $7.5 million for the quarter, a 43.2% increase from a year ago, mainly due to COVID-19 impacts [234]. Cash Flow and Financial Position - Cash, cash equivalents, and restricted cash totaled $254.4 million at the end of the third quarter of 2020, up from $31.0 million at year-end 2019 [244]. - The company generated $216.5 million of net cash from operating activities in the first nine months of 2020, compared to $74.2 million in the same period of 2019 [245]. - The company had $200.0 million of available capacity on its revolving credit facility at the end of the third quarter of 2020 [256]. Market Risks - The company is exposed to foreign currency risk primarily related to its foreign subsidiaries, impacting the U.S. dollar value of reported earnings and investments [263]. - The investment in Persol Holdings is subject to market and currency risks, with foreign currency fluctuations reflected in other comprehensive income [265]. - The company faces market risk from its obligation to pay benefits under its nonqualified deferred compensation plan, which is influenced by equity and debt market movements [266].