Kelly Services Inc Q3 FY2024 Earnings Call

Good morning and welcome to Kelly Services Third Quarter Earnings Conference Call. All parties will be on listen-only until the question-and-answer session. Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. The third quarter webcast presentation is also available on Kelly's website for this morning's call. I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO.

Thank you, Brad. Hello, everyone, and welcome to Kelly's third quarter conference call. Before we begin, I'll walk you through our safe harbor language. As a reminder, any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, during the call, certain data will be discussed on a reported and on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. Finally, a presentation with information about Kelly's financial results in the quarter is available on our website. We have a lot to cover, so let's get started. First, I'm pleased to welcome Troy Anderson, Executive Vice President and CFO Designate, who formally joined Kelly last month and is with us on the call today. As announced in September, following an exhaustive search process, Troy was selected to succeed Kelly's current Executive Vice President and CFO, Olivier Thirot, following his planned retirement as an officer of the company. Troy and Olivier have been working side by side over the past several weeks to ensure a smooth transition of responsibilities. Upon completion of the transition, Troy will assume the role of Executive Vice President and CFO of Kelly, and Olivier will be a strategic adviser to the company. Troy brings to Kelly more than 30 years of experience, successfully executing business transformations, a track record of accelerating profitable growth and a passion for developing and leading high-performing teams. I'm confident he will build upon the significant contributions of Olivier, to whom I'm immensely grateful for his distinguished service to Kelly. Olivier's leadership has helped transform this company into a more efficient, profitable enterprise with a financial discipline to drive long-term value creation. I look forward to working with Troy to accelerate Kelly forward on our specialty journey and congratulate Olivier as he prepares to close one chapter and begin an exciting new one. Now turning to Kelly's results in the third quarter. We continue to navigate uncertain market conditions that were broadly consistent with the prior quarter. Large enterprises maintained a cautious approach to managing their workforces, deferring hiring decisions, managing existing headcount through attrition, and in some cases, choosing not to backfill open roles. This continued to impact demand for both temporary and permanent staffing services. Notwithstanding these persistent dynamics, we continue to focus on what we can control, capturing market share and shifting our business mix toward higher-margin, more resilient solutions. Our actions contributed to Kelly's organic revenue stabilizing year-over-year for the second consecutive quarter and drove strategic progress in each of our businesses. In our Education business, we achieved another quarter of double-digit revenue growth on strong fill rates and net new customer wins in our K-12 specialty. The ongoing growth of this specialty is reflected in Kelly's share of the K-12 staffing market, which once again ranked #1 on staffing industry analysts' latest list of the largest education staffing firms in the U.S. We also remain focused on expanding our higher-margin therapy specialty. Our near-term priorities in this specialty are scaling our capacity in additional markets and improving attraction and retention of therapy talent. In our P&I business, the sequential revenue stabilization we achieved in the second quarter gave way to a sequential improvement in the third quarter as our omnichannel strategy within the staffing business continued to gain traction. This strategy, underpinned by our network of physical branch locations and the Kelly Now mobile app, enabled our P&I business to meet clients and talent where they are and capture a greater share of the market as demand for industrial and commercial staffing remained under pressure. Also driving the continued improvement in P&I is the ongoing expansion of our outcome-based business into attractive end markets, including semiconductors and renewables. Our OCG business delivered solid year-over-year revenue growth driven primarily by increased demand for our Payroll Process Outsourcing solution. Revenue from our MSP and RPO solutions stabilized sequentially as more employers seek to drive efficiencies through total talent management. Powered by our advanced Helix technology platform, which we continue to upgrade with the addition of AI-enabled market intelligence capabilities, OCG's higher-margin MSP offering drove a steady pipeline of new business opportunities. In our SETT business, demand decelerated during the summer months before improving in September as companies began to increase spending on technology projects. Its results for the quarter reflect this dynamic while continuing to outpace the market on a year-over-year basis. SETT maintained its focus on expanding into the market for higher-margin SOW-based services through the statement works suite of solutions. This innovative offering continues to generate strong interest among clients seeking to optimize business processes without adding headcount amid ongoing macroeconomic uncertainty. The third quarter also marked the first full quarter since Kelly acquired specialty talent solutions company, Motion Recruitment Partners, whose results are currently reported as part of SETT. With integration planning well underway, I'm pleased with the collaborative approach our teams have taken to combining our highly complementary businesses. Together, we're creating a clear pathway to achieve revenue and cost synergies that will enable Kelly to realize the full value of this transformational deal. For more details on our results in the third quarter, I'll turn the call over to Olivier.

Thank you, Peter, and good morning, everybody. As a reminder, Kelly's 2023 results included the European staffing business that was sold on January 2, 2024, and our 2024 results include Motion Recruitment Partners since the May 31 acquisition date. To provide greater visibility into trends in our operating results, I will discuss year-over-year changes on a reported and also on an organic basis. References to organic information exclude the results of our European staffing business in 2023 and the impact of the acquisition of MRP in 2024. Revenue for the third quarter of 2024 totaled $1.04 billion compared to $1.12 billion in 2023, down 7.1%, resulting primarily from the sale of our European staffing business, partially offset by the acquisition of MRP. On an organic basis, year-over-year revenue was essentially flat and down 0.2%. This is slightly lower than what we have built into our second-half outlook. Reviewing results by segment, starting with Education. Q3 is a low season for Education because of summer in much of our K-12 practices, but we continued to deliver sustained double-digit revenue growth, up 11% year-over-year in the quarter. This growth continues to reflect net new customer wins and an improving fill rate on existing business. In the SETT segment, revenue was up 37% on a reported basis, resulting from the acquisition of MRP, which is included in our results for a full quarter in Q3. Revenue was down 5% on an organic basis. Organic revenue trends were weaker over some months but improved in September as we exited the quarter. For the total quarter, organic year-over-year trends reflect lower staffing market demand with revenue down 5% in our staffing specialties as well as in our outcome-based solutions, driven primarily by lower demand in certain industry verticals like telecom. We continue to see the outcome-based statement of work business as a growing portion of the market where we are focused and continue to innovate. Permanent placement fees declined 31% organically but more than doubled when including the results of MRP, which has a strong direct hire business. In our OCG segment, revenue improved 6%. The increase in revenues continues to be driven by our PPO specialty. Year-over-year declines in RPO are due to slower hiring in certain market sectors, and MSP revenues declined in line with customers' contingent labor demand. Adding lower-margin PPO revenue put some pressure on gross margin for the OCG segment as a whole again this quarter, but revenue in both MSP and RPO products were stable sequentially. And our higher-margin MSP product is well positioned to benefit from positive momentum in the sales pipeline moving into 2025. Revenue in our Professional & Industrial segment declined 2% year-over-year in the quarter. P&I sequential revenue stabilization in Q2 turned to sequential revenue growth of 4% in Q3. Revenue from our staffing product declined 3% year-over-year. And revenue in our outcome-based specialties was flat year-over-year. Consistent with SETT, we are seeing strong demand for innovative solutions to meet clients' talent needs across a variety of skill sets in P&I. Overall, gross profit was down 3% as reported or 6.4% on an organic basis. Our reported gross profit rate was 21.4% compared to 20.4% in the third quarter of 2023. Our GP rate reflects a 130 basis point improvement from the sale of our European staffing operations and an additional 110 basis points from the inclusion of MRP for a full quarter. Excluding those impacts on an organic basis, the GP rate declined 140 basis points in Q3, consistent with the trends we have seen in Q2. Drivers of the trend include 110-120 basis points from business mix and 30 basis points from lower perm fees, partially offset by 10 basis points of favorable employee-related costs. The business mix impact continued to reflect growth in lower GP rate specialties. SG&A expenses were down 4.1% year-over-year on a reported basis. Expenses for the third quarter of 2024 include $6.1 million of costs related to integrating MRP, as well as further aligning processes and technology across the company, and also $1.8 million of transition expenses related to the sale of our European staffing operations, and finally, $1.4 million of transaction costs associated with the acquisition of MRP. SG&A expenses in 2023 includes $15.4 million of restructuring charges. On an adjusted organic basis, SG&A expense declined 4%. So like-for-like expenses were lower in Q3 2024, reflecting organic top-line trends and management's effort to align resource levels with volume as well as the impact on variable performance-related incentive compensation expenses. On a consolidated basis, our reported earnings from operations in the third quarter were $2.6 million compared to $0.1 million in Q3 2023. On an adjusted basis, Q3 2024 earnings from operations were $11.7 million compared to $15.5 million a year ago. The acquisition of MRP added $2 million of earnings from operations in the third quarter of 2024. Adjusted EBITDA margin improved 20 basis points to 2.5%, reflecting 30 basis points of improvement from the sale of our European staffing operations, 30 basis points from the inclusion of MRP, partially offset by a 40 basis point decline in our organic EBITDA margin. Following the borrowings related to the acquisition of MRP, interest expense, net of interest income, which is reported as a component of other income and expense net, has increased $4.3 million year-over-year in Q3. Income tax benefit for the third quarter was $2.6 million compared to a benefit of $4.9 million in 2023. And finally, reported earnings per share for the third quarter was $0.02 per share compared to $0.18 in 2023. Earnings per share in 2024 include integration costs net of tax of $0.12 and $0.06 of transaction costs net of tax. Earnings per share in 2023 included $0.32 of restructuring charges net of tax. So on an adjusted basis, Q3 2024 EPS was $0.21 compared to $0.50 per share in Q3 of 2023. The change in earnings per share includes $0.09 of additional interest expenses following the acquisition of MRP in May 2024 and the impact of a one-time deferred income tax valuation allowance release of $0.14 in 2023. Now reflecting on the balance sheet. At the end of the quarter, total available liquidity was at $159 million, comprised of $33 million in cash and $126 million of available capacity on our credit facility. Borrowings totaled $228 million. Our debt-to-capital ratio is 15.6% at quarter-end as we leveraged our strong balance sheet to acquire MRP. And our credit facilities give us the financial flexibility for additional organic and inorganic investment and to navigate an ongoing uncertain market environment. At quarter-end, accounts receivable totaled $1.2 billion, including the receivables of MRP. Global DSO was 64 days, up 1 day from the third quarter of 2023. With continued growth in our Education business, we experienced a more pronounced seasonal DSO pattern in which DSO is the lowest in Q2 and the highest in Q3, making sequential comparisons less meaningful than in the past. Year-to-date, we have generated $3 million of free cash flow compared to $21 million in the prior year period. Now looking ahead to operating results for the fourth quarter. We believe that staffing market conditions will remain relatively consistent with what we have experienced in Q3 and expect continued stabilization in revenue in our P&I, SETT and OCG segments. With the start of the school year behind us, our Education segment's revenue will ramp sequentially from Q3 to Q4 and will continue to produce double-digit year-over-year revenue growth. And finally, the acquisition of MRP will deliver further improvement in both our growth and also value metrics. For the first quarter, on an organic basis, we expect revenue to be up 1.5% to 2.5% with no significant FX impact, resulting in a midpoint revenue expectation of $1.045 billion on an organic basis. In addition, we expect MRP to add an additional $120 million of revenue in the quarter. We expect our organic GP rate to be about 19.3% for Q4, reflecting the continuation of a change in our business mix, primarily because the Education segment is expected to continue to deliver significant revenue growth. MRP with its higher-margin specialty profile is expected to add an additional 110 basis points to our current gross margin rate in Q4. So all in, our GP rate in Q4 is expected to be about 20.4%. Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year and are actively managing resources in line with revenue trends in each segment. We expect that adjusted SG&A, excluding depreciation and amortization, will be 4.5% to 5.5% lower than a year ago on an organic basis, and MRP will add about $30 million of expenses in the quarter. All in, we expect approximately $14 million of depreciation and amortization in the fourth quarter. We expect an adjusted EBITDA margin of 3.4% to 3.5%, up about 90 basis points year-over-year, including a 30 basis point improvement from the acquisition of MRP. And finally, we expect our effective tax rate to be in the low teens. And now back to you, Peter.

Thanks for those insights, Olivier. With uncertain market conditions likely to persist through the end of the year, our priorities are clear. We'll remain focused on what we can control, delivering near-term results while driving strategic progress on our specialty growth journey. We'll continue to execute our organic growth initiatives, including our omnichannel strategy in P&I and our large enterprise account strategy. These initiatives are enabling Kelly to capture a greater share of the market for staffing services and contributing to stabilizing revenue trends for the company. Within both P&I and SETT, we'll aggressively pursue further expansion of our higher-margin, more resilient outcome-based and SOW business into attractive end markets. And in Education, we'll continue to drive growth by maintaining strong fill rates on existing K-12 staffing business and capturing net new customer wins through a healthy sales pipeline. We'll move ahead with our aggressive pursuit of value creation through our inorganic investments. MRP remains our top priority with whom our SETT and OCG teams will continue to partner on a thoughtful approach to integration that harnesses the unique strengths of each business. I look forward to sharing more about our approach on our fourth-quarter and full-year earnings conference call in February. We'll also continue to develop a pipeline of high-quality acquisition targets that align with our inorganic growth strategy in SETT, Education, and more opportunistically, OCG. Finally, we'll remain laser-focused on improving our ability to convert a greater share of top-line growth to bottom-line growth. This includes sustaining the structural improvements to our cost base that have enabled us to achieve significant EBITDA margin expansion from our recent historical average and maintaining a disciplined approach to SG&A management that aligns our resources with demand trends. This formula has helped set Kelly apart from our competitors in this uniquely challenging environment while driving significant progress on our specialty journey, and it has positioned us to accelerate profitable growth when staffing demand rebounds. Of course, our greatest competitive advantage and the key to our success on this journey is our people. I'm grateful to each member of Team Kelly for their dedication to meeting the evolving needs of our clients and talent. Their relentless pursuit of innovation and commitment to excellence are among the reasons Everest Group's 2024 PEAK Matrix assessment recently recognized Kelly across several categories. Among them are MSP, an engineering contingent staffing solutions, in which Kelly was named a star performer; and industrial staffing, business and professional staffing, services procurement and contingent workforce management in which Kelly was recognized as a leader. This recognition underscores the strength of Kelly's offerings and why we are positioned to compete and win over the long term. With our team energized by the opportunity in front of us and united by our noble purpose, I'm confident that we'll deliver on our strategic priorities, continue to outperform the market and propel Kelly into a new era of growth. Brad, you can now open the call to questions.

Of course. And our first question today comes from Joe Gomes with NOBLE Capital. Please go ahead.

Good morning. So real quick on the MRP integration cost. I know one of the things you've said in the past is you're planning on operating that kind of separately from the rest of Kelly. So how much more of these integration costs do you think we're going to see here in the next couple of quarters, if any?

Hey, Joe, thanks. Regarding the integration, we, as previously discussed, there is an earn-out as part of the transaction. And so during the earn-out period, which runs through the first quarter of 2025, we've agreed to maintain the operating companies and brand of MRP. But we are in the midst of some significant planning for integration that will capture both top and bottom line synergies when the earn-out period is over. I'll let Olivier comment on the integration cost.

Yeah. Sure. I mean, as Peter was saying, up to the end of Q1 of next year, we are in the planning mode because of the earn-out. But we have now a plan that we are going to trigger as soon as the earn-out is behind us, so Q2 of next year. The majority of the costs we are going to incur in 2025 are related to the technology integration. It's going to be CapEx and OpEx. We are still evaluating this cost, but I would say it's going to be in line with the type of IT investment we are usually making every single year. So overall, in terms of CapEx and OpEx, it should have a limited impact, I would say, overall in the course of 2025. It's going to be probably a little bit more visible in Q2, Q3 of next year as we are going to go significantly quick and big on this technology integration.

Okay. Thanks for that. And then looking through the release, when you break everything out in the segments, it looks like gross profit rate, with the exception of SETT, fell in the other three segments. And I just wondered if you might be able to, year-over-year, talk a little bit about that.

When considering organic performance, excluding MRP and the transaction related to EMEA staffing, P&I is at 17.9%, which aligns closely with last year and the current trend. We are experiencing some pressure from challenges in the fee business and fluctuations in employee-related costs. However, we are starting to see a positive impact from the overall mix in our staffing business. Our branch-based operations are growing at a quicker pace than our centralized staffing, and our local business is achieving a higher gross margin. Additionally, the mix factor observed over several quarters indicates that our outcome-based business in P&I is driving better gross margins, which helps us maintain our gross margin rate despite ongoing fee pressures. In Education, we are still facing margin pressure. Q3 tends to be a low seasonal quarter, so it’s essential to analyze it carefully, as the mix may not represent the overall yearly pattern. We continue to see margin pressure in Education, but it is more than offset by our consistent top-line growth. Therefore, I wouldn't draw firm conclusions about the Q3 GP rate for Education due to its low seasonality. OCG is experiencing a decline, primarily due to product mix. Our PPO business is growing significantly, while the RPO and MSP segments are stabilizing, and we expect MSP to grow soon because of a healthy pipeline. However, since the payrolling business has a much lower GP rate, this is the main reason we are currently at about 30%, compared to a historical average of 36% in OCG. In SETT, despite high fee pressures, we are effectively maintaining our overall GP rate by focusing on the mix, particularly on outcome-based statements of work versus staffing.

Thanks for that. Much appreciated. And last one, again, I think you mentioned that the adjusted EBITDA margin was 2.5% in the quarter, was up 20 basis points year-over-year. But I think last quarter, you said you were looking for about a 3% adjusted EBITDA margin. And wondering if you could just walk us through that.

I want to take a moment to reflect back on Q1 and Q2 to provide some context. In Q1, we saw a growth rate of 3.2%, which was an increase of 120 basis points, with 80 of those basis points coming from organic growth. By Q2, our total reached 3.8%, compared to 2.1% a year prior, marking a 170 basis point improvement, 120 of which was also organic. For Q3, we are currently at 2.5%, with expectations of around 3% compared to 2.3% from last year. This reflects an overall improvement of about 20 basis points, though if we consider only organic growth, we see a decline of 40 basis points. Education remains a strong contributor to growth in Q3, showing double-digit growth, but its absolute dollar contribution is significantly lower than what we experienced in Q4 or the first half of the year. Additionally, we have encountered some challenges in our SETT business, particularly in the first two months of Q3, where revenues were unexpectedly low. We’ve observed that our peers and overall market conditions have been more difficult in Q3 compared to earlier in the year. On a positive note, looking at the exit rate for September, in SETT, we recorded a decline of 3.6%, which is an improvement from the 5% organic drop for the quarter. This suggests some positive momentum in September, and we will need to monitor upcoming weeks to see if this trend continues. If we examine Kelly's exit rate for September, it was at 3.1% on an organic basis, with P&I growth nearing 1%, which is encouraging. Education showed about 12.5% growth, and OCG grew at 7.1%. This provides some assurance that the trends we have seen could persist into Q4, but we need to wait to see how SETT performs in the upcoming weeks before making a final evaluation about Q4 and possibly beyond.

Great. Thanks, much appreciate. I’ll get back in queue.

Thank you.

And our next question comes from the line of Kartik Mehta with Northcoast Research. Please go ahead.

Hey, good morning, Peter. Good morning, Olivier, Olivier, I think last quarter, I said goodbye to you a little bit early. So I want to correct that and wish you the best going forward.

Thank you.

Peter, as you look at the MRP business and kind of look at the performance of that business, how would you characterize it based on kind of expectations when you acquired the business? And now I know it hasn't been a long time, but just kind of your early thoughts on how this business is performing and what you might see that maybe has been better than your early expectations on the business?

The business has certainly met my expectations. It operates in sectors that are impacted by current market conditions, and MRP is not immune to that. Its results reflect what we observe in our SETT business. In terms of performance, they are handling the current industry challenges very well. I believe they are well-positioned for when demand increases. We appreciate the complementary nature of their operations and the various options they have for delivering solutions. Overall, MRP is meeting our expectations, if not exceeding them, particularly with both the MRP staffing solutions and the Sevenstep business, which will enhance our current RPO and MSP practices.

And then, Olivier, you talked a little about the SETT business and talked about maybe some monthly trends at how September was better than the previous two months in the quarter. And I'm wondering if you just look at the overall business and the rest of the businesses, if you saw a similar trend or were things fairly even throughout the three months of the quarter?

No. Overall, I mean, if you look at total SETT, again, we had a better exit rate than the average of the quarter. If you think, is it linked to a specific area in the sales business? No, I would say it's overall the same type of trends. We have seen two challenging months at the beginning of Q3 and then a better month in September, but none of that was linked to a specific area in SETT. And we have seen very similar trends in Motion Recruitment as well. Although interestingly, to follow up on what Peter was saying, we see some pressure on the top line for MRP. But the GP rate, interestingly, despite the pressure we have on the fee business, is still meeting our expectation at 29%, which I think is excellent knowing the pressure we see in the market now on the perm fees, amongst other things. And our EBITDA margin trend for MRP is now in the region of 5.6%, 5.7%, a little bit lower than the 6% we are expecting, but it's mainly driven by the top line pressure we continue to see in Q3 and potentially in Q4.

And just a final question. Olivier, as you look at 2025, if revenues remain stable and the trends continue similarly, is the business at a point where you can improve margins, or will the margins remain stable?

No, I think the September exit rate might not be directly applicable. However, when considering our outlook for Q4, combining organic growth with MRP, I believe we are starting to build positive momentum in our overall top line, which is encouraging. I expect this trend to be validated in Q4. There remains uncertainty regarding SETT, and we will need to observe how the upcoming weeks unfold, but I am optimistic that things will return to normal. As we begin to achieve organic growth, particularly alongside MRP, I anticipate our net margin expansion will persist. For Q4, we are projecting a margin of 3.4% to 3.5%, which I consider attainable and will set us up well for 2025. Although we may not experience significant growth in the near term, I believe we have demonstrated our capacity to effectively manage even modest top line growth through our transformation, which I hope will exceed expectations. We are now equipped to thrive in what is still a challenging environment, likely continuing our progress in net margin expansion into 2024 and beyond.

Okay, thanks very much. Really appreciated.

And our next question comes from the line of Kevin Steinke with Barrington Research. Please go ahead.

Good morning, Peter, Olivier. You mentioned the softness in SETT during the early part of the third quarter, with some improvement in September. It seems there was a bit of a surprise regarding that softness. Can you provide more insight into the market dynamics you're observing in that segment? What factors contributed to the trends you experienced throughout the third quarter?

We were surprised by the slowdown in July and August, which was more pronounced than we anticipated. However, the improvement we saw in September was encouraging. The exit rate demonstrated significant progress over the initial months of the quarter, and we are monitoring the situation closely. The industry appears to be stabilizing, though it's not clearly improving. This seems to reflect ongoing caution among large enterprise customers regarding major technology deployments and significant capital expenditure projects. It remains uncertain when companies will return to their usual spending patterns in technology and other scientific and engineering areas. Nevertheless, we are well positioned for when that occurs, particularly with our Kelly SETT business and our MRP acquisition.

Okay. That makes sense. And so when we look at kind of this flattish organic growth in the third quarter and combine that with your outlook for the fourth quarter in terms of organic growth, I think it's a bit below what you're looking for previously. So is it fair to say that's primarily attributable to SETT in terms of that a bit of a change in expectations?

I would say SETT is still uncertain. However, our outlook for organic revenue is somewhat cautious as we need to see how things develop. On the other hand, P&I is showing marked improvement. For instance, there was a 4% sequential increase in total revenue from Q3 to Q4. Year-over-year, we started the year at minus 11% in Q1 compared to Q1 of 2023, then improved to minus 8%, followed by minus 2%. Additionally, we anticipate a positive exit rate for total revenue in P&I by September, and we are also beginning to see some market improvement, which is more favorable than we expected three months ago.

And Kevin, while the relatively flat revenue is slightly below what we expected because of SETT in the first couple of months, it's clear that we continue to take market share across all of our business segments. This includes SETT as well as P&I OCG, and of course, Education. In SETT, we've been taking share for six quarters now.

Okay, that's great. I guess, Olivier, there discussing P&I that kind of was leading into my next question in terms of a really nice sequential revenue growth you saw in P&I. I think you mentioned maybe the market getting a little bit better, but I'm just wondering if you could dig into any other factors driving that sequential improvement. I know you have some organic initiatives in place. I think you mentioned moving into a couple of new market areas like semiconductor and renewables. So maybe if you could give any more color on that revenue rebound you saw sequentially.

I believe the performance has improved, and Olivier can add to that as well, Kevin. The enhancement in P&I is primarily attributed to our omnichannel strategy, which involves centralized delivery to large enterprise customers and a renewed emphasis on high-growth local markets where there's demand for light industrial and commercial solutions. We're also pleased with the results from our Kelly Now mobile app, which has seen a significant number of employees signing up and using it. We're experiencing better reassignment rates, faster cycle times, and improved fill rates as a result. This strategy has been paying off for several quarters, and we anticipate that such improvements will continue in the future, allowing us to gain market share.

I just want to add that overall, revenue for our P&I outcome-based segment is flat compared to last year. However, there are some underlying dynamics at play. Our call center business, which now constitutes about one-third of the revenue in this segment, is facing significant challenges, leading to pressure on our revenue. In contrast, the other two-thirds of the outcome-based business, particularly in the semiconductor sector that Peter has mentioned multiple times, is experiencing strong growth, currently up double digits. This growth provides us with a valuable diversification away from the call center business. Historically, the call center segment made up two-thirds of our outcome-based revenue, but due to our rapid expansion in outcome-based services, especially in specialties and industry verticals, its share has decreased.

Okay. Sounds great. So you've alluded a couple of times there or mentioned a couple of times about taking market share in SETT and P&I. And you actually had a comment in your earnings release about the stable year-over-year organic revenue actually outpacing the market. So maybe just speak to that, what the factors are that you think are enabling you to take market share and the competitive dynamics and if you feel like you can continue that trend of taking share and outperforming the market going forward?

Yes, Kevin, we believe it is possible. I would highlight a few key dynamics. In education, we are clearly the leader, offering a value proposition for school districts that is unmatched by competitors. This is why, as Olivier mentioned, we anticipate continued double-digit growth at least in the near term. The sustainability of this growth might be challenged by more difficult comparisons, but we remain the leader in education. In both P&I and SETT, we are gaining market share due to the solutions we provide. I noted our omnichannel strategy in P&I staffing, and Olivier highlighted our focus on outcome-based solutions in P&I, which is also gaining traction in SETT. Our statement works suite of solutions is a competitive differentiator in the science, engineering, telecom, and technology sectors, and we expect to keep evolving that. In OCG, we are also taking market share through our technology-driven solutions, particularly our Helix solution, which stands out competitively. Customers recognize this, and as a result, we are securing a significant portion of large MSP business particularly in our MSP practice. We have a robust pipeline and have also secured and implemented several large programs expected to generate gross profit in 2025, particularly in the second half. This success stems from a unique set of solutions that we believe distinguish Kelly in the marketplace.

Great. Yeah, that's helpful insight. I appreciate that. And just lastly, Olivier, when we think about the adjusted SG&A expenses, for the third quarter, they were $210 million, up sequentially from $185.6 million. Is that just really driven by the inclusion of MRP, I assume?

Yeah. I mean, clearly, when you look at the impact of MRP, and what we provided in the outlook is, I would say, something you can use for Q3 as well. I mean, MRP is adding about $30 million of expense, excluding depreciation and amortization every quarter, right? This is what we have seen in Q3. This is what we are going to see in Q4. After that, things are going to change because we are going to have, of course, synergies whenever we start the integration that Peter was discussing a few minutes ago, starting in Q2 of next year.

Okay. Yeah. Thanks for that. That's helpful. And on what I believe is now your last earnings call, Olivier, I will add my best wishes.

Thank you. I appreciate very much. Thank you. Thank you very much.

Our next question comes from Marc Riddick with Sidoti. Please go ahead.

Good morning, Marc.

One moment. It seems to dropped out of the queue. One second, I’ll get him back. Please go ahead with your question, sir.

Hi, can you hear me.

Yeah.

Yeah, we can, Marc. Good morning.

Good morning. Just want to echo my sentiments as well, Olivier. Thank you for everything and certainly been a pleasure working with you.

Thank you, Marc.

I was curious if you could share some insights on the integration and the potential you see in terms of investment opportunities or technology spending, as well as your initial thoughts on how that innovation might unfold with the MRP.

Our current focus is on developing a plan that leverages the unique strengths of both Kelly and MRP. This involves optimizing our market approach and sharing best practices between the two companies, including their customers and talent. We are already making progress on this front. While we won't take any actions during the earn-out period, we will start implementing these integrations in the second quarter of next year. MRP offers some exciting technological opportunities for Kelly, and we will concentrate on scaling this technology to encompass not just our SETT business but eventually the Kelly enterprise as well. We view this as a fantastic chance to create value beyond MRP's immediate scope. We are looking forward to getting started while also respecting the earn-out period, and we are laying the groundwork to ensure we are prepared for when the time comes.

Yes, as Peter mentioned, we have developed a plan for business and technology integration, as well as back-office integration, since we need to be prepared once the earn-out period is completed. We believe we are ready and have targets to achieve regarding top line synergies that were discussed around June or July in relation to the Motion acquisition. We feel confident that we will be able to implement these initiatives by the second quarter of next year.

I was curious if you've had the chance to gather any feedback from customers or clients regarding the combined operations and what insights you might have on that.

Marc, it's been universally positive. I think people recognize that combining two outstanding organizations like ours creates a lot of potential. I think Kelly's customers are very excited about the really high-quality talent that Motion is known for being able to recruit in place. The Sevenstep brand is well recognized as a leader in the RPO space. So our customers are excited about the best practices that Sevenstep will bring to the Kelly OCG RPO practice. The Motion telco practice is a leader and has a very complementary customer set to Kelly's telecom practice. And TG Federal is an excellent government business that, again, is highly complementary to Kelly's formidable government business. So the customers recognize that and see opportunities for new solutions, new technology, and again, an opportunity to bring the very best talent to their workforces.

Very encouraging. Thank you very much.

Okay, Marc. Thank you.

And with that, our next question comes from the line of Joe Gomes with NOBLE Capital. Please go ahead.