Good morning, and welcome to Kelly Services Second Quarter Earnings Conference Call. All parties will be on listen-only until the question-and-answer portion of the presentation. Today’s call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. George Corona, President and CEO. Sir, you may begin.

Thank you, John, and good morning. Welcome to Kelly Services 2019 Second Quarter Conference Call. With me on today’s call is Olivier Thirot, our CFO. And 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. 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. Before I turn to our quarterly results, I would like to recap the announcement Kelly made yesterday afternoon regarding my planned retirement, the Board’s appointment of my successor and our transition plan. Then I will underscore some of the additional levels of complexity we experienced during the second quarter before I begin our second quarter earnings report. Starting with the announcement we made yesterday, on September 30th of this year, I will step down from my role as President and CEO of Kelly. It is important to me as well as to the Board to ensure a smooth transition, so I will remain with the company in an advisory capacity and as a member of the Board of Directors until my retirement sometime in the first-half of 2020. Having spent most of my adult work life at Kelly, be it in my CEO role or as COO for eight years or in other positions for 15 years before that, I believe it is now time to…

Thank you, George. Revenue totaled $1.4 billion, down 1.4% compared to the second quarter last year. Our total company reported results were unfavorably impacted by 120 basis points due to foreign exchange. So on a constant currency basis, our second quarter revenue was down 0.2% year-over-year. Our Q2 performance includes the results of NextGen and GTA, which added 290 basis points to our constant currency revenue growth rate. This was partially offset by the 60 basis point impact of that recent divestiture of our legal specialty practice. Overall, the Q2 constant currency organic revenue growth was down 2.5%. Organic revenue declines reflect a weakening economic environment in Europe and challenges resulting from the Q1 restructuring of our U.S. branch operations. Staffing placement fees were down 9.7% in nominal currency and down 7.5% versus a year ago in constant currency. The fee performance reflects continued declines in International Staffing fees, coupled with declining fees in Americas Staffing, after several quarters of fee growth. Overall, gross profit was up 1.4%, or 2.6% on a constant currency basis. Our gross profit rate was 17.8%, up 50 basis points when compared to the second quarter last year. Approximately 30 basis points of our GP rate improvement was due to the acquisition of NextGen and GTA, which are higher-margin specialty businesses. On an organic basis, GP rate improved 20 basis points, with 30 basis points coming from structural improvement in the GP rate, partially offset by 10 basis points from lower staffing placement fees. SG&A expenses were up 0.6% year-over-year, or 1.6%, excluding the impact of currency fluctuations. Including in SG&A in the second quarter of 2019 are $6.9 million of expenses from our NextGen and GTA acquisitions. In Q2, we also add a $600,000 benefit as the current expected cost for our Q1 restructuring…

Thank you, Olivier. I’d like to share some additional insights about the quarter. Let’s start in the Americas. As you may recall last quarter, we announced a restructuring initiative for our U.S. branch operations. This initiative is designed to accelerate growth by allowing us to more precisely and flexibly adjust and redeploy resources across our organization as required by supply and demand conditions. Ultimately, this improved agility will enable us to more quickly and efficiently meet the needs of both customers and talent, as well as to capture growth opportunities in the market. We’re confidence in the structural changes we have made and expect that later this year we will begin producing improvements in recruiter and sales productivity and a healthy customer and product mix. The second quarter brought slower-than-expected growth in the U.S. and softening demand in Europe. While macroeconomic conditions in Europe had deteriorated, the U.S. labor market continues to be holding up despite signs of slowing in both economic and employment growth. Against that backdrop, we accomplished several things this quarter. We delivered improvements in gross profit performance as we continue to focus on higher-growth outcome-based services, we executed on our inorganic specialty strategy with our GTA and NextGen acquisitions outperforming expectations and making a strong impact on the business. In Q2, they alone delivered $11 million in GP and $4 million in earnings, while providing us with a platform for additional organic growth and investment. We effectively managed costs in line with our GP, while continuing to invest strategically in our business. And free cash flow improved significantly now at $65 million, compared to $23 million in the same period last year. Our forward focus is on optimizing the value versus volume equation and effectively managing costs, while advancing our Specialty Talent Solutions strategy. As always, we will continue to monitor the competitive landscape for additional strategic investments to further accelerate the growth of our business. We look forward to reporting back to you on these results and these efforts next quarter. Olivier, Peter and I will now be happy to answer your questions

[Operator Instructions] And we’ll first go to line of Josh Vogel with Sidoti. Please go ahead.

Thank you. Good morning, guys. First off, George, congrats on your retirement. Wish you the best of luck. And Peter, congrats to you as well.

Thank you.

Thanks, Josh.

I guess, my first question, looking at organic revenue is down 3% in the first-half of the year ex-NextGen and GTA. And then looking at your guidance and commentary, I just want to confirm that you expect the organic revenue performance to show improvement in the second-half of the year versus the first-half of the year, excluding any FX?

Yes. I mean, when you look at organic growth, so excluding acquisition and divestiture, for Q2 we are at minus 2.5%. When you look at the outlook for Q3 and then the – for the full-year, we are comfortable to see some acceleration, namely in our U.S. branch-based business as an outcome of the restructuring initiative we have taken in Q1.

Okay, great. I actually – we saw some nice sequential in year-over-year uptick in the UK, which surprised me. I was just wondering if you could talk to the driver there and what the dialogue is, say, with clients around the ongoing Brexit talk?

Yes. I mean, when you look at total revenue in the UK for the quarter, we are up by about 13.3% in constant currency, it’s an acceleration versus Q1. Q1 was at about – close to 5%. So we see, despite of a very challenging environment, I think, very good dynamics in our business. But maybe, George, you may add something or Peter?

Yes. I guess, what I would say is that, we have spent a lot of time and effort in improving our UK operations and it’s been a long road, but it’s beginning to payoff now. And our business, while it will have some impacts from Brexit, we’re not highly dependent on those things. So we don’t think it will have a material. I don’t know, Peter, if you want to add to that?

Yes, Josh, the only thing I’d add is that the Brexit, George said, not a direct impact on our business, but it is creating some uncertainty among businesses in terms of making decisions. But I think that’s just something we’re going to have to live with.

And one of the outcome is basically what I did mention around tax, the fact that we have basically released some valuation allowance in the UK. And basically, the underlying reason is basically we have turned the business earning wise, positive for the last three years cumulated, which is one of the outcome on the tax standpoint. But the real root cause of that is, of course, business improvement and our capabilities to turn the business into a positive earnings.

Yes. we’re very proud of the team over there.

Okay, great. The technology and personnel investments that you’ve been making in recent quarters dating back to last year, I was just wondering how much left is there? And when we should expect to see even more leverage from those initiatives?

Yes. So let’s talk about the technology investment. We – as we said before, it’s going to take us – it’s a pretty significant investment that we’re making in technology and it will go into next year. So as we get into 2020, we still will have activities in rolling that technology platform out into the U.S. So you – when you start to think about the benefits that will come specifically from that and the leverage that will come from that, it’s going to be very late next year and early into – I get my years mixed up now 2021 when that really is fully deployed and is often running with the expected leverage that’s going to come from it. From a – the talents initiatives, that is a much longer-term project for us, that is to turn ourselves much more into a talent-focused business. Now we have some pilots that we’re running right now that we expect will begin to have improvements in making it easier for us to attract and deploy talent, but that will be an ongoing initiative for the next couple of years as we turn ourselves to be in much more of a specialty talent provider.

Okay, great. Thank you. So, seeing the sale of the parcel of land, I know that was kind of a one-off. But I guess, when we look at your platform today, are there – and if you take in the count the recent acquisitions and other businesses you’ve either sold or got out of in recent quarters, I was just wondering if there were any non-core assets that you were targeting to potentially move away from?

Yes. So, we always will evaluate all of our assets and how do they fit into our portfolio as we move forward, as we continued on this path of being a much more highly specialized player. We don’t have anything particularly to report right now. But as we move forward, we will continue to look at every opportunity to deploy assets that aren’t producing or don’t fit into the strategy, so that we can invest more into the strategy.

Okay. And just lastly, I figured I’d ask, I’m sure otherwise it will be brought up later on the call. But do you have any updates on the B shares?

No. We don’t.

All right. Thank you, guys.

Thank you.

Thank you.

[Operator Instructions] Next, we have Joe Gomes with NOBLE Capital. Please go ahead.

Let me add my congratulation and good morning.

Thank you. Good morning.

Good morning. Thank you.

So kind of going along in some of these separate markets, just to call out a couple here like when we saw some declines quarter, year-over-year in Puerto Rico, France, Portugal. I was wondering if you might be able to provide a little bit more color on what is going on in those markets and where you think they’ll be going here in the near-term?

Yes. I mean, if I start with Puerto Rico, I mean, I would qualify it as basically tough comparables, because in the past were pretty busy post hurricane, I would say, improvement in the island. So I would say, it’s more the comparable that are challenging because of a big, unfortunate, but one-time event that was pushing our business last year as opposed to, say, there is a change in, I would say, more structural trends. I don’t see that as a problem. I think it’s again more the comparables. For Portugal, if you look at the trends, we are still, I would say, profitable in Portugal. We don’t see the growth we have seen in the past and we have been growing for a lot of years over there. I think in Portugal, I would say, it’s really a more challenging economic environment, especially because Portugal is sometime used as a platform for manufacturing, namely, for German type of manufacturing, including automotive. So it is depressing a little bit the market. But we feel still that with a critical match we have here, the team, the size of our business, we are going to continue to make progress. But it’s more challenging than what we have seen in the past, Yes.

And France would be a similar story and that the economic environment there is a little bit more challenging than it’s been in the past.

Okay. And then you guys have talked in the past about you’re seeking new and creative ways to address supply gaps. I was just wondered if you might be able to add a little more color or detail there as to exactly what you’re doing?

Okay. Yes. So first fall, we did a pretty substantial reorganization of our U.S. branch business last quarter. A big part of that was designed to address some of the challenges that we had within our structure to dealing with supply and demand fluctuations in the United States. Let me give you a little bit more color on that. We used to have artificial boundaries around divisions that delivered into the U.S. that didn’t necessarily make it easy to say that if there was an increase in demand in California that we could take productive capacity that might be in the Midwest that’s not being used and apply it to there. There were both technological barriers in the past and there were organizational barriers. Most of the technological barriers have been removed to give us the ability to do that. Last quarter, we took steps to remove the organizational boundaries to make it more seamless that we could apply recruiting talent to where the demand fluctuations are going. And that should make it much easier for us to not only fill more orders, but also to make it much more efficient when we do that. So we don’t have to hire places where we have – where we don’t have capacity and hang on to the people where we have capacity. So that big change happened last quarter and it’s going to take a little bit of time as we move through all the management changes for that to finally take hold. The second big thing that we’re doing to address those issues that we think particularly in the specialty areas are going – there’s going to be a long-term structural shortage of talent. And that in order – the companies that are going to prosper in the future are…

Okay, great. Thank you.

And Mr. Corona, we have no further questions in queue. I’ll turn it back to you for any closing comments.

If there is no further questions, I just want to thank everybody for being on the call. And since this is my last call, thank you to you all. It has been an honor of a lifetime. Thank you.

Ladies and gentlemen, this conference is available for replay. It starts today at 11:30 A.M. Eastern, will last until September 7 at midnight. You may access the replay at any time by dialing 800-475-6701 or 320-365-3844. The access code is 414735. Those numbers again 1800-475-6701 or 320-365-3844. The access code 414735. That does conclude your conference for today. Thank you for your participation. You may now disconnect.