Good morning and welcome to Kelly Services’ Q2 Earnings Conference Call. (Operator instructions.) Today’s call is being recorded at the request of Kelly Services. I would now like to turn the meeting over to your host, Mr. Carl Camden, President and CEO. Sir, you may begin.

Thank you, Nick, and good morning everyone. Welcome to Kelly Services’ Q2 2014 conference call. With me on today’s call is Patricia Little, our CFO. Let me remind you that 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. Turning to Kelly’s Q2 results I’m pleased to report that our performance was in line with our expectations, and we delivered solid results while continuing our aggressive strategic investments. Revenue was $1.4 billion, up 3% year-over-year. Our gross profit rate for Q2 was 16.2%, up 10 basis points from the 16.1% delivered in the same period last year. As planned Q2 adjusted expenses were up 9% year-over-year as we accelerated our investments in the US and continued our aggressive investments in OCG. As anticipated, these investments impacted our Q2 earnings and we delivered an operating profit excluding restructuring of $7.7 million, down compared to adjusted earnings of $18.9 million from Q2 last year but up from the $6.3 million earned in Q1. Kelly’s Q2 earnings from continuing operations excluding restructuring were $0.10 per share compared to adjusted earnings of $0.33 per share for the same period last year. Patricia will cover our quarterly performance in more detail a bit later, but I can tell you that overall we’re pleased with Kelly’s performance during Q2. We’re doing precisely what we set out to do – deliver a profit while acting on investments that will accelerate our long-term growth objectives. Now let’s take a closer look at our…

Thank you, Carl. Revenue totaled $1.4 billion, up 3% compared to Q2 last year. Staffing placement fees were down 4% year-over-year as we continue to experience declines in EMEA and APAC that more than offset growth in the Americas. Our gross profit rate was 16.2%, up 10 basis points compared to Q2 last year. Overall GP was up nearly $7.5 million, about 3%. During the quarter we recorded $1.8 million in restructuring costs to exit branches in Australia and the Staffing business in Sweden. This is consistent with our willingness to optimize our footprint as our supply chain capabilities mature. During Q2 2013 we recorded restructuring charges of $800,000 and impairment charges of $1.7 million as a result of our decision to exit our Executive Placement business in Germany. Excluding restructuring and impairment charges, expenses were up 9% year-over-year. The increase is due to a number of factors including higher costs due to additional headcount related to investments in PT recruiters, OCG and centralized operations. Excluding restructuring and impairment costs, earnings from operations were $7.7 million compared to 2013 adjusted earnings of $18.9 million. Income tax expense for Q2 was $2.8 million or 50% compared to $4.8 million or 32% in 2013. The rate reflected the cessation of US Opportunity Credits in 2014 as well as a valuation allowance for foreign tax credits. Excluding restructuring and impairment charges, diluted earnings per share for Q2 2014 totaled $0.10 per share compared to $0.33 in 2013. Looking ahead for the full year we now expect revenue to be up 4% to 6%, down slightly from the 5% to 7% we were expecting last quarter. We expect the gross profit rate to be relatively flat and we expect SG&A to be up 6% to 8%, also down slightly compared to the 6% to…

Thank you, Patricia. Reflecting on Kelly’s Q2 performance we’re pleased with our progress against strategic objectives. We’ve accelerated our targeted investments to drive continued growth in OCG, adjusted our service delivery models and positioned the business for higher-margin growth. And given the long overdue lift we’re seeing in recent jobs reports it appears the US economy is finally on track to start producing jobs needed to sustain the recovery, and our strategy is well-aligned with market demands. The ongoing success of our OCG segment is confirmation of this market alignment. OCG continues to deliver double-digit revenue, GP and earnings growth as evidenced in our Q2 results. Our OCG specialties are performing above expectations. CWO, BPO and RPO are key drivers of Kelly’s talent supply chain management approach, which delivers strategic global workforce solutions for the world’s largest companies. OCG’s sustained performance reaffirms the significant investments we’re making to continue to accelerate this segment’s growth. We are seeing increased demand for integrated talent supply chains across our large clients’ global enterprises and our OCG roadmap is designed to capitalize on these trends. With this in mind we’re accelerating our OCG investments in talent analytics that will help drive predictive workforce planning; strengthening the breadth and depth of our global supplier network; and evolving the independent contractor and statement of work solutions that will also drive higher-margin PT growth. Even as we expand our solutions set in OCG we continue to strengthen our Staffing services with increased emphasis on winning higher-margin specialty business. As discussed in our last two earnings calls we’re introducing a new approach to PT recruiting in our local US markets. I’m pleased to report we’ve launched the planned Centers of Recruiting Excellence in the US ahead of schedule and they’re now supporting flexible teams of targeted recruiters and…

Thank you. (Operator instructions.) We’ll go first to the line of Toby Sommer with SunTrust. Please go ahead.

Hi, Toby. Toby Sommer – SunTrust Robinson Humphrey : Thank you, good morning. Good morning, Carl. You’ve talked about investing to drive the specialty Staffing and your approach to the market. When is a reasonable time period to start to see the impact on growth and assess the effect of the new strategy? Thanks.

Thanks, Toby, good question. Substantively in Q4 you should expect us to begin to talk about results and in Q3 we’ll probably begin to texture with some of the early signs that we would be seeing. But Q4 is when we expect to see substantial results. Toby Sommer – SunTrust Robinson Humphrey : And based on these investments and the growth in SG&A this year should we expect less growth in expenses next year and therefore some leverage in the model?

There’d better be. [laughter] Yes, Toby, the short answer is yes. Yeah, that’s what we’re expecting; that’s the whole point of in fact trying to speed up the investments early into this year so that we could obtain maximum leverage as we walk forward. Toby Sommer – SunTrust Robinson Humphrey : So what kind of expense growth might you envision in 2015, and not relative to guidance – even some sort of qualitative commentary would be helpful.

Do you know what the economy’s going to be doing in 2015? Toby Sommer – SunTrust Robinson Humphrey : No, I didn’t get that email. [laughter]

[laughs] Neither did I. You know, I think we’ll get a better handle on that as we get deeper into the year. Without being joking about it we really need to see how are we exiting 2014 in terms of what types of growth rates, what are the programs doing, what type of investments would you need internal to some of the programs. But do I expect the investments to be substantially less than they were in 2014? Yes. Toby Sommer – SunTrust Robinson Humphrey : Okay. How much have you increased sales-related headcount as a result of the new strategy and the investments? I’m just trying to get a sense for order of magnitude.

About 60 individuals. Toby Sommer – SunTrust Robinson Humphrey : And how might that compare to a base just to judge the growth?

Yeah, we weren’t… Toby Sommer – SunTrust Robinson Humphrey : Well, I can ask another question maybe and if you come up with something during the call you can get back to me.

Say about a third, an increase of about a third, yes. Toby Sommer – SunTrust Robinson Humphrey : Oh, okay. Okay, perfect. Are there any other offices that you might anticipate closing at this point or have you sort of optimized your footprint relative to what you see in the market right now?

Yeah, the optimization effort is never done regardless of what’s taken place. Every year we close offices so do I expect there to be more? Yes. Part of the issue, not issue but part of what we look at is what does our improvements in our supply chain capabilities do to where we need to have a Staffing footprint? As we just said we were able to exit the Staffing market in Sweden because the OCG capabilities there took away the need for that. Do I expect that over the course of time there will be a further reduction of Staffing footprint in some countries? Yes. And inside the US, as we look at the centralized delivery and the localized service delivery, will we end up with some branches that can be closed out of that effort? Probably over the course of time as we understand what’s taking place in the market. Toby Sommer – SunTrust Robinson Humphrey : Okay, and just a couple more from me. What other kind of regulatory pressure are you facing other than ACA?

Yeah, as we mentioned, in Russia which as you know has been historically a nice market for us – every two to three years they go through a round of looking at the nature of employment in Russia and how does temporary staffing fit that, and we’ve gone through various versions of bills as we look at that versus outsourcing. So there’s always a constant, there’s always some country somewhere that is looking at the nature of employment regulation. Inside the United States you know, there’s always constant pressure here lately in terms of sorting out wage hour issues – everything from when does somebody technically go on the clock? Do they go on the clock from the moment they enter the parking lot, from the moment they enter the door, from the moment they approach the time machine. There’s lots of little issues like that but which are big issues for employment firms being sorted out by the Department of Labor and the courts. Toby Sommer – SunTrust Robinson Humphrey : Okay. And then just two questions about OCG and I’ll get back in the queue: do you expect growth to reaccelerate in Q3 and Q4 or might it continue to moderate from the growth level in Q1 and Q2? And then I didn’t catch the RPO growth that you cited so I’d love to get that number.

Yeah, we have programs that have seasonality in them and so we’ve tended to have Q4 be a very strong quarter for us. So do I expect there to be some acceleration deeper in the year? Yes, but more so in Q4 than in Q3 just given the nature of some of our business. And in terms of the RPO, again we report this in terms of gross profit increases given the structure of that business, and we gave the number 31%, Toby. Toby Sommer – SunTrust Robinson Humphrey : Thank you very much.

Thank you. We’ll go now to the line of Josh Vogel with Sidoti. Josh Vogel – Sidoti & Company : Thank you, good morning everyone.

Good morning. Josh Vogel – Sidoti & Company : The first question, what would you say is your longer-term target of where you want PT and OCG to get to in terms of your overall revenue mix?

Again, we would tend to talk more about gross profit than we would revenue because you have accounting rules as to which ones are denominated in payroll dollars and which ones in gross profit. In terms of gross profit dollars, the next stopping point that we’re trying to aggressively get to is where PT and OCG account for half of our gross profit dollar mix. After that you take a breath, stop and assess what are product demands out there and what’s happening to the nature of the job market. But I would be expecting to see the proportion of our gross profit dollars being delivered by PT and OCG to continue to improve proportionally every year. Josh Vogel – Sidoti & Company : Okay. And Carl, you talked about how the IT and Finance divisions were underperforming the market. Can you talk to that a little bit and also the investments that you’re making in PT recruiters today – are they geared towards improving the results of IT and finance?

Uh, yes. [laughter] So you’ve clearly heard us bifurcate kind of our specialty units where we talk about Engineering and Science performing well against the market, and IT and Finance were underperforming the market. We have focused on the leadership and we have focused on some of the areas for each of those adding to the recruiter base, and in others – in particular where we had a sufficient recruiter base but not enough order volume – increasing our salespeople, our BDRs. And we now think we’re approaching Q3 with a good set of the salespeople in place and the recruiters ready to go. So I would say Q3 is the first quarter that you begin to see us more fully staffed and leadership repositioned in those two units. Josh Vogel – Sidoti & Company : Okay. And just lastly we’re a month into the quarter and it’s good to see revenue growth is accelerating. As we look at your guidance both for Q3 and full-year, what assumptions are you using or assuming to get to the high end of this range outside of the growth we’re seeing in OCG? What other areas of strength will get us to the high end of that range?

So we, as Carl said in the beginning of his remarks, we see a slowly improving economy and that’s a big part of the assumption that we’re making. We’re also expecting to see that while the bulk of the improvement in PT comes in Q4 we should be and are already seeing some good traction of those initiatives, and continued strong performance in EMEA as well as OCG. So it’s a little bit of everything but underlying the basic economic growth. And the other thing I’ll point out for Q3 is Carl talked about the impressive wins in our Education unit, and of course Q3 and Q4 are seasonally helped a lot by those since the school year kicks in, and in Q3 we’ll start to see the benefit of those wins. Josh Vogel – Sidoti & Company : Okay. How big is the Education unit today?

We haven’t dimensioned it in dollars but it’s becoming a really significant part of our business. Josh Vogel – Sidoti & Company : Okay, that’s all I have right now. Thank you.

Great, thank you.

(Operator instructions.) We’ll go now to the line of Andrew Morey at Lee Munder. Andrew Morey – Lee Munder : Yes, hi. Could you just, I know in the past you’ve given a lot of detail about the expenses on the centralization, and then you called out a little bit of extra expense for ACA rollout and some extra spending on OCG. Is there any way to give just a short summary of the magnitude of the extra expenses just as far as what are the biggest buckets in order? Is it still centralization; is it several other initiatives, expanding specialties? Could you just give us a two-second review of that please?

Yeah, I’d be happy to. So this year we’re spending on all of those about $25 million. We haven’t broken them down by pieces but let’s sort of tick through what’s included in that in total. Carl talked about it but basically the first two pieces relate to the Americas – one is moving more of our large customers into centralized service delivery. The reason why that is an investment is because what that does is it takes business away from our branch structure which leaves them at an overcapacity situation, so we need to invest into those local branches with business development representatives as well as especially PT recruiters in order to fill up their capacity and most importantly grow that PT business that Carl was just talking about. We have three areas in OCG where we’re very focused on – first is expanding our global supplier network. That is the situation that Carl talked about. It has a lot of benefits; it’s what our large customers demand. It also means that we get to be more selective about where we supply staffing around the world. We can supply our large customers with OCG capabilities in many countries around the world where we don’t provide staffing. We’re also working on talent supply chain analytics solutions. There’s a lot of demand for workforce planning amongst these very large, sophisticated customers and we have a lot of flow-through of data that’s very helpful for them. We are also expanding beyond the traditional temporary staffing base in our OCG world, and as well as recruiting and business processing to include statement of work and independent contractors in our suite of services that we can help our large customers manage. That’s something that they no longer see boundaries between those different ways of…

Yeah, we entered the year viewing it as a pretty even spend of our expenses. We have pulled ahead; we’re pleased that we’ve pulled ahead some of those expenses that we delivered earlier than our original plan on some of the initiatives. So we’re probably a little bit of that money – we’ve probably pulled ahead a little bit more than half of it spent through the first half of the year. But yes, there will be expenses for those investments that continue in Q3 and Q4. Andrew Morey – Lee Munder : That’s it for now, thank you very much.

Thank you.

Thank you. And we do have a follow-up question from Toby Sommer. Toby Sommer – SunTrust Robinson Humphrey : Thank you. I’m curious about your kind of long lead time business in sense of demand as we work into the more active seasonal work that you do leading up to the holidays. Do you have a sense for the kind of growth that clients are planning for and what kind of buildup to Q4 that you may be seeing?

Yeah, mixed, and you’re kind of early in the year, you’re still a little early for all those plans to coalesce. But to an extent some numbers are beginning to be emitted here – it’s a mixed, some looking for more aggressive above-norm growth and others looking for a very tepid season. No particular help for you there, Toby. Toby Sommer – SunTrust Robinson Humphrey : Okay. When would be a reasonable timeframe by which you would kind of have a more wholesome sense for that?

Yeah, so probably towards the end of Q3, beginning of Q4 but we probably wouldn’t tell you what that was going to be until we were on a quarterly call there. Toby Sommer – SunTrust Robinson Humphrey : Okay, thanks for your help.

Yep.

You have a follow-up question from Andrew Morey. Andrew Morey – Lee Munder : Yes, hi, thank you again. You mentioned I guess discontinuing Sweden and some business in Germany and I think there was one other I’m forgetting. But I get that the earnings would have backed out restructuring charges and things like that, whatever, shut down expenses, but do you have some guesstimate or rough number of any impact that may have had either in the quarter or maybe just for Q3 or Q4 as far as revenues?

Yeah. Just first of all to be clear it was Australia and not Germany. Andrew Morey – Lee Munder : Sorry.

That’s okay. You know, the reason that we frankly exited those branches in those markets is because they were not a big driver of revenue or profits for us so there won’t be an appreciable impact in our results. Andrew Morey – Lee Munder : Okay, alright. Thank you.

Oh Andrew, you know, somebody just waved their hand and pointed out – you’re right, last year we exited Executive Placement in Germany, so yeah, that’s where you got the Germany. And it wasn’t, the reason we exited it is because it wasn’t significant enough to have a big impact so we didn’t call out the sort of that in our results. Andrew Morey – Lee Munder : And actually, one last follow-up: I think that Carl had mentioned earlier, and I hope I paraphrase this correctly, that the revenue impact of many of these initiatives and spend would start to be seen or I guess seen somewhat in Q4. Can you give us any more granularity on specifically where, whether it’s geographically or whether it’s by business line, where your hint is that that would really first show up?

Yeah, if you listen to where we talked about it we would expect to see it in US PT operations and then secondarily in OCG, which we report not by geography but as a consolidated report. Andrew Morey – Lee Munder : That’s right, okay, thank you.

Yep.

Thank you. And there are no further questions at this time.

Great, thank you all and thank you, Nick.