KELYA - NASDAQ

Good morning, and welcome to Kelly Services Fourth Quarter Earnings Conference Call. All parties will be in a 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. A fourth 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. Please go ahead.

Thank you, Kailey. Hello, everyone, and welcome to Kelly's fourth quarter conference call. Before we begin, I'll walk you through our safe harbor language, which can be found in our presentation materials. 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, the slide deck that we're using on today's call is available on our website. With that, let's get started. In a moment, I'll invite our Chief Financial Officer, Olivier Thirot, to share our results for the fourth quarter. I'll then share my reflections on what has been a transformative year defined by decisive action and rapid progress on our growth and efficiency objectives. Finally, we'll provide our preliminary expectations for 2024, before taking your questions. With that, I'll turn the call over to Olivier.

Thank you, Peter, and good morning, everybody. Before I provide more details on our Q4 results, some brief comments on our full year performance first. Full year revenue was down 2.6% as reported or 3.2% on a constant currency basis. This reflects the challenging staffing market conditions we saw across a wide range of specialties and geographies. Amid those challenges, our education business demonstrated resilience and delivered another year of excellent revenue growth, up 32% in 2023, achieving over $840 million in revenue, almost doubling the level of revenue from the pre-COVID 2019 period. Overall, gross profit rate for 2023 was 19.9%. This is a 50 basis point decline from the prior year, driven primarily by lower permanent placement fees. Our 2023 results also reflect the significant efforts made as part of our transformation initiatives to lower our cost base and position us to benefit from our improved efficiency moving forward. On an adjusted basis, we lowered our SG&A expenses by 5.4%. That allowed us to deliver adjusted earnings from operations of $69.1 million, consistent with 2022, in spite of difficult market conditions. And finally, our full year 2023 adjusted EBITDA margin rate improved by 20 basis points. Now looking at the fourth quarter of 2023 in more detail. Revenue totaled $1.2 billion, essentially flat with the prior year, including 120 basis points of favorable currency impact. So revenues were down 1.3% on a constant currency basis. As we now look at revenue in the fourth quarter by segment, as noted in my full year remarks, our education segment's revenue growth continues to be strong, up 27% year-over-year. The continued double-digit growth reflects both strong field rate and demand from existing customers as well as net customer wins. Overall, the education business delivered more than $50 million of year-over-year revenue growth in the quarter. In the SET segment, revenue was down 5%. During the fourth quarter, we continued to see the impact of challenging market conditions with year-over-year revenue down 6% in our Staffing Specialties as well as lower revenue trends in our outcome-based business, which were flat year-over-year. Permanent placement fees in SET continued to be impacted by lower market demand and declined by 41%. In our OCD segment, revenue declined 3%. Year-over-year declines in RPO continued due to slower hiring in certain market sectors. Year-over-year MSP revenues also declined while PPO year-over-year revenues improved. Revenue in our Professional and Industrial segment declined 11.5% year-over-year in the quarter. Revenue from our staffing product declined 15%, reflecting continuous challenging market conditions. The segment's outcome-based revenue was flat year-over-year in the quarter. Growth across most of our outcome-based specialties was offset by contraction in the year-over-year demand from our coal center specialty. And finally, revenue in our International segment improved 5% on a reported basis and was down 2% on a constant currency basis. Overall gross profit was down 4.7% as reported or 5.7% on a constant currency basis. Our gross profit rate was 19.3% compared to 20.3% in the fourth quarter of the prior year. Lower term fees continued to unfavorably impact our GP rate by 60 basis points in Q4. And for the quarter, our GP rate was also impacted by unfavorable business mix by about 60 basis points. This reflects growth in specialties with lower GP rates including education and PPO and lower GP rates in SET, Education and International due to product, customers, and can mix, respectively, partially offsetting those impacts were 20 basis points of lower employee-related costs. SG&A expenses were down 2.2% year-over-year on a reported basis. Expenses for the fourth quarter of 2023 include $7.9 million of charges related to our ongoing transformation efforts as well as $6.9 million related to activities associated with the Q1 2024 sale of our European staffing operations. So on an adjusted basis, constant currency basis, expenses declined by 9.5%, similar to Q3. The reduction reflects the positive impact of our transformation efforts, which are designed to reduce cost on a structural basis. Our reported earnings from operations in the fourth quarter was $7.3 million compared to $4.6 million in Q4 of 2022. As noted, our 2023 results includes $7.9 million of charges related to our transformation activities and $6.9 million of charges related to the sale of our European staffing operations. Our fourth quarter 2022 included the $10.3 million goodwill impairment charge. So on an adjusted basis, Q4 2023 earnings from operations were $22.1 million, a 59% improvement over the prior year, and adjusted EBITDA margin also improved 60 basis points to 2.6%. Income taxes for the fourth quarter were a $6.5 million benefit compared with our 2022 income tax expense of $5.2 million. Income taxes in 2023 include the impact of nontaxable gains on the cash surrender value of company-owned life insurance and the benefit of work tax credit, which are recurring. In addition, we recognized deferred tax valuation allowance adjustments, the tax benefit from outside basis differences on held for sale assets and other tax impact from the legal entity restructuring of our European subsidiaries in anticipation of the Q1 2024 completion of the European staffing transaction. And finally, reported earnings per share for the fourth quarter of 2023 were $0.31 per share compared to a loss per share of $0.02 in 2022. Earnings per share in 2023 includes $0.46 of unfavorable tax adjustments, transaction costs and unrealized loss on a forward contract, all net of tax and all related to the sale of our European staffing operations and $0.16 related to restructuring charges net of tax. Loss per share in 2022 included the impact of a goodwill impairment charge, net of tax, partially offset by a gain on sale of real property net of tax. So on an adjusted basis, Q4 2023 EPS was $0.93 compared to $0.18 per share in Q4 of 2022. This significant improvement is driven by year-over-year change in income taxes as well as business performance. Now moving to the balance sheet. As of end 2022, our European staffing operations are now classified as held for [indiscernible] and those assets and liabilities are now included on separate line items on our balance sheet. At year end, cash totaled $126 million, and we have no debt outstanding. Of course, this cash position does not include the more than $100 million of proceeds from the sale of our European staffing operations received early in 2024, or additional proceeds expected under the terms of the sales agreement in the third quarter of 2024. So when combining our strong balance sheet with our existing borrowing capacity, we continue to have ample capital available to fund our organic and inorganic strategy and navigate an uncertain market environment. At year-end, accounts receivable as reported totaled $1.2 billion and represents accounts receivable generated from our North American staffing and outcome-based businesses as well as our global MSP and RPO practices. Receivables from our European staffing operations are now included in assets held for sale. Our global DSO, which includes all receivables, including those generated by our European staffing operations was 59 days. This is down two days over year-end 2022 and reflects continued efforts to manage our working capital investment in customer accounts receivable primarily in the U.S. For the year, we generated $61 million of free cash flow compared to using $88 million in free cash flows in 2022. Given the onetime items in the 2022 period, including the final repayment of approximately $87 million of federal payroll tax balances, which we deferred in 2020 under the CARES Act, and also $48 million of income taxes due in Japan following the sales of our investment in Persol common stock. Comparisons from year-over-year are challenging. But on a like-for-like basis, free cash flow did improve from careful management of working capital. And now I'll turn it back over to Peter for additional comments.

Thanks for those insights, Olivier. When we began 2023, we did so with a clear vision for the company's future. Future defined by significantly improved profitability, sustainable growth and greater value creation for all our shareholders -- stakeholders. As the year progressed, macroeconomic uncertainty persisted, fueled by inflation, higher interest rates and geopolitical volatility. In general, employers continued to proceed cautiously with hiring both full-time and temporary workers while taking a measured approach to workforce reductions. . While some signs of cooling emerged, the labor market remained relatively resilient, and the supply of talent for open rolls continue to be constrained, diverging from the trend our industry has typically experienced during periods of uncertainty. Notwithstanding these unique dynamics, we focused on what we can control and executed on our vision with urgency and agility. We set out to align our cost base with our strategic priorities, operating environment and performance, and we have swiftly implementing efficiency actions across the enterprise that have delivered and sustained a structural reduction to SG&A expenses. We said we would significantly improve our net margin to create greater financial flexibility to invest in Kelly's future, and we have, delivering 60 basis points of adjusted net margin expansion in the second half of the year. We committed to finding new avenues of growth, and we have, refreshing our go-to-market strategy with innovative offerings to meet the evolving needs of both customers and talent. This includes a comprehensive approach to delivering the full suite of Kelly solutions to our large enterprise customers to capture a greater share of wallet. As of January, we are now executing on this strategy with an initial set of focus accounts that represent a meaningful portion of Kelly's revenue base. Of course, we remain committed to providing the highest quality of service to all our customers regardless of spend or size. In our P&I segment, our enhanced localized delivery model continues to generate positive momentum with both clients and talent benefiting further from our Kelly Now mobile app. The app is now live nationwide and actively serving up tailored job opportunities in commercial and light industrial to thousands of highly qualified candidates. With an eye trained on the future, we continue to drive growth and value in the near term as well. We remain focused on capturing demand in more resilient markets, including higher margin, higher growth outcome-based business as well as in education, which as Olivier mentioned, continues to be a high-performing growth engine within our portfolio. We unlocked additional value-creating opportunities, entering an agreement to sell our European staffing business and unlocking more than $100 million in capital to redeploy in pursuit of organic and inorganic growth. And we successfully completed a $50 million share repurchase program in the third quarter, returning value directly to Kelly shareholders. Taken together, these accomplishments form a strong foundation upon which we will continue to build. We entered 2024 a more efficient, profitable and focused enterprise, and with further streamlined operating model now comprising four business units with market-leading positions in North America staffing and global MSP and RPO solutions, we'll continue to realize more of the benefits from these changes throughout the year. For more details on our expectations for 2024. I'll turn the call back over to Olivier.

Thank you, Peter. As Peter mentioned, the staffing market and underlying economic trends have not moved in the same patents we have seen in other economic cycles, and that has made it more difficult to know how quickly the staffing market will improve as we move into 2024. As a result, we'll share our outlook for the first half of 2024 only, a period where we believe that staffing market conditions will remain relatively consistent with what we have experienced over the past several quarters. But before I dive into 2024, I will give you some color on the impact of the sale of our European staffing operations on our historical results. And for clarity, we have retained our Mexico operations, which were included in our International reportable segment through 2023. Revenue for Mexico has been reported in the revenue tables of our earnings releases. So you can get more information, including quarterly revenue impact from our historical filings. For the full year of 2023, our European staffing operations generated approximately $810 million of revenue, $120 million in gross profit and add $119 million in SG&A expenses. So reported revenue should be approximately 17% lower as we move into 2024 on a like-for-like basis, GP rate should improve by 100 basis points, and our EBITDA margin should improve by 40 basis points as a result of the sale. The remainder of my comments on our outlook for 2024 will exclude the European staffing operations from the 2023 base. For the first half of 2024, on a like-for-like basis, we expect nominal revenue to be flat to up 0.5% with no significant FX impact, resulting in a midpoint revenue expectation of $2.09 billion. Our outlook reflects an expectation that Q1 revenue trends will be consistent with Q4 of 2023 and then the transformation-related growth initiatives that Peter has mentioned start to gain traction as we move into Q2. We expect our GP rate to be 20.5% to 20.7% on a like-for-like basis. This is a 30 basis point decline in the midpoint of our range, reflecting the change in our business mix, primarily because of our Education business is expected to continue to deliver significant revenue growth. Also, we expect to see a continued improvement in efficiency as the impact of our transformation-related actions continue. On a like-for-like basis, we expect adjusted SG&A expenses to be down 5% to 6% for the first half of 2024. At the midpoint of our outlook, that's an expected run rate of about $190 million per quarter for the first half of the year. Overall, we expect adjusted EBITDA margin in the range of 3.3% to 3.5%. In addition to the 60 basis point improvement we made in our cost structure in the second half and the 40 basis point favorable impact from the sale of our European staffing operations, we expect an additional 30 basis points to 50 basis points of net margin improvement in the first half of 2024. And we believe that when the staffing market recovers, we'll be well positioned to take further advantage of our improved efficiency. Finally, as we move into 2024, beginning with our first quarter results, we report the operating results of our segments, utilizing revised segment earnings from operations and EBITDA margin measures. We will allocate a greater share of the costs we have previously reported as corporate costs to our business units. This aligns with feedback from investors and others that they would value greater transparency on the financial results each business unit generates and how they contribute to Kelly's overall performance. And now back to you, Peter.

Thanks, Olivier. With the decisive action and rapid progress our team delivered in 2023, we have laid the groundwork for 2024 to be an inflection point in Kelly's 77-year history. Our efficiency measures are delivering sustained results. Our growth initiatives are now in the implementation phase, and we ended the year with an adjusted EBITDA margin of 3%, a step change from our historical net margin average of around 2%. As Olivier shared, the stage is set for the company to achieve our previously disclosed expectation for net margin of 3.3% to 3.5%. With these structural improvements in place, I'm confident that Kelly is well positioned to capture increased customer demand when the macroeconomic environment improves and convert a greater share of top line gains to bottom line growth. I'm very proud of the way our team has kept their sights set on dual horizons, definitely steering Kelly through a challenging external environment and delivering results in the near term, all while embracing the change that's necessary to position the company for the future. Finally, I'm grateful to our customers, talented shareholders who have been with us on this journey, placing their trust in Kelly to deliver on our commitments and create value over the long term. While there is work to be done, I'm confident that 2024 is a start of a new era of growth for Kelly, a year in which we'll begin to reap the full benefits of the work we've done to transform this company and reward all our stakeholders. Kailey, you can now open the call to questions.

[Operator Instructions] Our first question will come from the line of Joe Gomes with Noble Capital.

So Peter, just kind of wanted to start off. You guys are doing everything you can. What else can we do to try and attract more candidates in order to be able to fill whatever opportunities there are? I mean, is there any more levers there that you can pull?

Yes, Joe, we're continuously finding new ways to reach talent. Social media is obviously a key component of that, but not the only one. Our revised geo structure that we've announced for our P&I segment is designed to establish a greater personal connection for those individuals that want to contact with a person and our Kelly Now app is designed to connect with more people over a broader geographic area for those people that prefer to do something electronically. So we're continuously exploring new ways in all of our businesses. And I think the improvement in fill rates in our Education segment is a great example of how we've been successful.

And just a quick kind of technical question here, Olivier. So lancing at the balance sheet, you've got assets held for sale at year-end of $291 million. You sold the international, got, let's call it, $100 plus million for that. What else is included in that assets held for sale? Or is there something else there on the accounting side that suggest maybe we're going to see a write-down at some point this year?

No. I think when you look at the held for sale, you have about $290 million of assets, $170 million of liabilities. So the net book value is about $120 million. Of course, as you know, we did receive the proceed, at least the first tranche of about $110.6 million on January 3, of this year. But there are still pending points that I would like to mention the transaction should be cash free, debt free with a normalized level of working capital, and there is also an earn out. So all that is under review, and we expect to get additional proceeds likely from all these items in the course of probably late Q2 or early Q3. And that's going to be in addition to basically the $110.6 million equivalent we did receive at the time of the signing, so early January.

And 1 more, if I may. Kind of more big picture here, Peter. So you've been CEO since October of 2019, I believe, kind of dealt a tough hand immediately having to deal with COVID and then recession and inflation and this uncertain economic environment. But in that time frame, you've monetized assets, done M&A, the transformation, the restructuring efforts, and yet the stock really is below from when you took over. And just trying to get an idea of what else do you see can you do that would attract investors in to help drive the stock higher? Or is the fact that we have the two share class just an impediment attracting more investors and more eyeballs to the Kelly story?

Yes, Joe. So I think in prior conversations, I've avoided trying to get into the head of prospective investors. So -- but what I would say is, I think based on our conversations with investors and potential investors, the improvements that we made last year are going to be a wake-up call that we're on a different trajectory than what we have been for the past 20 years. Obviously, we have to deliver those results, but entering the year at a 3% net margin versus our past 20-year average of about 2%, I think, is a major step in that direction. I think our focus on growth, our growth in the past several years, even longer than that, has been relatively flat. So it's a combination of net margin improvement and top line growth that is behind the transformation that we initiated last year. And I think that the fact that we're now a more disciplined focused company, given the portfolio revisions that we've made will be a simpler to understand business from many investors. And I think as we deliver the financial results, we'll begin to attract more attention and engage more potential shareholders in interest in being along on our journey.

I would add probably in organic, it's a big focus, and Peter did discuss about it several times. You know that post EMEA staffing transaction, we are going to have cash in excess of $200 million, probably more on the $225 million to $230 million. We have $300 million of available capacities with a very strong balance sheet, and we are continuing to actively looking at properties as we did in the past. But I think in terms of capabilities, now financial capabilities we can basically look at properties that probably were not affordable for us even a couple of years ago.

Those are awesome answers, I appreciate that and really look forward to seeing how 2024 unfolds.

We'll go next to the line of Kevin Steinke with Barrington Research.

So just wanted to circle back on the gross margin outlook you discussed for the first half of 2024. And Olivier, you talked about the mix shift to education there and the expected impact. But what are you thinking or factoring in, in terms of the perm placement outlook? Or is that even a meaningful part as you think about how gross margin will trend in the first half?

So Kevin, the first thing you need to think about is this mechanical improvement of 100 basis points, right? So when we guide 20.5% to 20.7%, basically, it's a kind of like-for-like pro forma comparison, right? The second thing is if you think about our expectations for fee business, I would say in the first half of this year, it's what I would call a stabilization. So more an improvement linked to a lower base of comparables. So something that I would say is kind of neutral. The main factor we really did compute is this mix that I was referring to, especially related to the growth we have in education and basically the type of overall pressure that it's putting on our GP rate, not on our GP dollar growth. So I would say neutral for fees mix would be the biggest thing that would compress our margin, especially driven by education. That's our assumption for the moment, which is what we have seen also in Q4. Although in Q4, you know that we have also 60 basis points coming from the fee business. But now the comps are much lower, so I don't think that it's going to have the impact we have seen all over 2023.

And obviously, education continues to be a strong performer and really impressive growth there. Maybe just talk about the continued runway or opportunity you see there for new customers, penetration of existing customers, et cetera, and how sustainable the runway is that you see there in terms of the growth outlook?

Well, clearly, as Olivier was talking about comps, the comps get more and more difficult for education, which has had a very good run. But the business is operating extremely well both with existing customers as well as generating interest from new school districts, both large and small. We've seen a steady improvement in fill rates in many of the school districts, which is very positive. We've seen improvements in pay rates. Those last 2 items, the bill rates and pay rates do have a sort of a natural ceiling. But other than that, the fact is the business is responding to a dynamic in the market or there's not enough instructors in classrooms. And we have demonstrated that we're the best in the business at filling those instructor positions. So we think the future is very bright for education.

Just also on education. The fourth quarter gross margin was a bit lower than we had seen historically over the last several quarters. I don't know if there's anything to call out there in terms of mix or something like that, but just curious

Yes. Probably a few things to call out I would say it was a little bit of a challenging quarter, but not -- I mean, more for phasing reasons on our fee business. But we don't see that as a deceleration. It's more that our fee business in education is like NEC business, going up, going down. We don't see that as a pattern like what we have seen in the fee business in set of P&I. The second factor is a little bit of mix. We don't see our spread moving down. There is a little bit of pressure, but it's more the mix, especially because very recently, we have welcomed pretty big customers, new wins, and the mix is a little bit more challenging, but I don't see that as a kind of long-term issue. So honestly, looking at Q4, I see that more -- whether it's on the fee side or on the mix side as something that is more temporary and the normal fluctuation we see quarter-over-quarter.

Maybe just a couple more here. So you talked about the revenue outlook for the first half of 2024 and first quarter expected to be pretty consistent with the trend you saw in the fourth quarter, but then you mentioned you're looking for an improvement in revenue trends in the second quarter and you linked that to your transformational growth initiatives. So maybe just give us an update on the traction you expect there and the various initiatives that you see contributing to that traction in the second quarter?

Well, as we've discussed, Kevin, in 2023, we delivered significant improvements in our SG&A through efficiency gains and pivoted to focus on growth later in 2023. The time it takes for those to materialize and show up is a little bit longer than the SG&A benefits that we saw. But we're anticipating that sometime in the second quarter, the steps that we've taken to grow our market share within our large enterprise customers, we'll begin to take hold. And we're approaching a very significant portion of our revenue through that program, and we think there's opportunity for revenue growth, again, starting sometime in the second quarter.

Maybe lastly on the M&A front. You talked about you're actively continuing to look at properties. And Olivier, you mentioned, with the additional capital you now have from the European staffing sale, maybe being able to afford some properties that you might not have before. Are you just talking about in terms of targets of a larger size or maybe paying a little more on the valuation side. Maybe you could just delve into that comment and the overall pipeline you're seeing?

Yes. I think it's more the former than the latter. We're not going to -- we're going to continue to be very disciplined in terms of what we pay for properties, and we're going to be looking for the kinds of high-quality, high-growth properties that we demonstrated, that we've found in the past. And so that's where we're going to spend our money. The pipeline is still not what it was in the post-pandemic period. There's deal flow, but the quality is still not as good as we like it to be. But we're not just relying on active sales were proactively evaluating and engaging companies that we think would be a positive addition to the Kelly portfolio.

And we still have -- you might remember, we're disclosing and discussing the fact that in terms of valuation and so on, we have -- we use, amongst other things, internal rate of return -- we are still on the 25% I was referring to some time ago. So that's still the approach we have in terms of valuation.

We'll go next to the line of Kartik Mehta with Northcoast Research.

I was hoping to maybe get your thoughts a little bit about what you're seeing in January. I realize I'm sure the guidance reflects what you've seen. But any changes you're seeing outside of seasonality in January or early parts of February compared to what you saw in the fourth quarter or December?

So two things on that. It's Olivier. One is when you look at revenue exit rate end of Q4 of 2023, overall, we were at minus 0.1%, so I call it flat on a constant currency basis. So that's where we ended up at the far end of 2023. When I look at the first weeks of January, what we have seen so far, and I've heard that also from many sources, but we have seen it a very light start in manufacturing at least for the first couple of weeks of January. And then some ramp up, we have started to see a little bit later. For the rest of the business, Education, as Peter was saying, still in high-growth mode. And I would say for OCG and SET, stabilization versus a little bit similar to what we have seen at the far end of 2024 -- 2023, sorry.

And then as you look at -- I think you said a deal flow, maybe the quality isn't as good as you would like. Is it just quality? Or is it maybe a number of opportunities? Considering the environment we're in, are you getting to see opportunities where you can make a good decision? Or do you think that will come a little bit later, maybe as people get a better feel for what the economy is going to eventually do this year?

Yes. I think the big damper right now continues to be interest rate environment and the participation of certain investor communities. But I think as that either stabilizes or we actually get into a rate reduction environment, that money is going to come off the sidelines and companies that might be in the part of their cycle that they want to enter into an exit transaction, we'll see greater deal flow. Based on the folks we talk to, we're not in a permanent state of low-quality M&A properties, it's just that the current environment for the past year or so has been not conducive to a lot of companies coming on the market. .

And just one last question on Olivier. When you report first quarter results, right now, you have the Americas and Europe and AP and obviously, the EMEA business was about $854 million for the year of 2023. Will you still keep that European region segment? Or will that -- what's the remainder left move somewhere else?

As I mentioned during our prepared remarks, so the perimeter of what we have sold is Europe, so it is excluding Mexico from the perimeter, and basically, this Mexican business is going to be under the leadership of P&I. But just to make sure, was it your question? Or there was something else, sorry. I may have missed something.

No. I was just making sure I think Europe reported $854 million, you talked about $810 million kind of as a comparison.

Yes. So the $810 million was to make sure externally, you can capture the perimeter, right? It's lower than the total revenue of the segment International. The main difference is because basically our Mexican business is not part of the deal that we are referring to.

And our OCG business is going to continue to operate globally.

Right.

Right. So that OCG business will then be just reflected in your international segment, right?

In OCG, so we keep a footprint in Europe a little bit similar than the one we have in Asia, in Asia-Pacific through our OCG business, namely MSP, and to some extent, FSP or BPO when relevant.

And we'll go next to the line of Marc Riddick with Sidoti.

So a lot of my questions have been answered, and I want to thank you for providing greater clarification on that breakdown. That's super helpful. I wanted to circle back around to your thoughts around the acquisition pipeline and potential targets and the like. Are you getting the sense that while it may not be quite where you'd like it to be? Are you getting the sense that there are any particular pockets that may sort of emerge or be relatively actionable sooner rather than later, whether it be regionally or by industry vertical?

Well, we're focusing, as I've said previously, in science, engineering, technology, and telecom, and our education practice, others would be opportunistic. And we think that because of the size of the technology staffing market in the U.S. and North America that that's a very fertile area to continue to pursue. We think it would be an excellent complement to the acquisition we made in soft world. So that we will continue to focus on science engineering technology and telecom and think that there's historically been enough deal flow that when things ease up a little bit that we will begin to see the kinds of high-quality assets that we'd be looking for.

And then shifting gears, I was wondering with everything that's going on with the client demand environment and what we're sort of navigating through. I was wondering if you could share any thoughts as to if you see any potential changes for any particular go-to-market strategies or approaches and/or sort of how you feel about the general pricing environment? If there are any sort of tweaks or adjustments that you're looking at engaging in as we begin the year?

I don't think anything of consequence that I would point to, Marc. I think there are pockets where there are pricing challenges due to the competitive landscape and the decline in demand in certain areas. But I think, historically have demonstrated that we're able to navigate through that. And also get price where the environment calls for it and the labor market continues to be tight. So while demand hasn't necessarily -- we haven't seen it show up in demand yet, as the macroeconomic conditions improve, large and small enterprises are going to continue to struggle finding people in that is something that they'll often turn to Kelly to help them with.

Yes. I mean when you get the spread and it is something we look at to make sure that we understand where our margin are, our spread in P&I and SET are pretty much stable and even up a little bit. So we have not seen anything in terms of pricing pressure that would translate into basically some erosion in our spreads.

And then I would be remiss if I didn't bring the topic up, but I was wondering if you could talk a little bit about if you heard any, relatively speaking, any changes or updates of client thoughts around AI-driven revenue opportunities and demand opportunities? Or if there's any update you could provide there, that would be great.

Yes. So we're spending a lot of time talking with customers about AI. I would say there is activity, but it's still very early innings in that game. But we're not waiting. So we're using AI in a lot of our operations particularly to improve the productivity of our recruiters and salespeople, and we have used AI and other parts of our operations as well as in technology that we have that customers face off with and use like our Helix analytics portal and Helix UX in our OCG practice. But it's still Kelly operated. It's not a customer-driven activity right now. But there are a lot of conversations, a lot of interest. We have launched a program to connect customers who have demand for experts in the AI space, Kelly Arc program or platform. And we've got customers who are on that platform because they're looking for talent that can help them with their internal AI. But all of this is still relatively small and early relative to other technologies and solutions.

[Operator Instructions] And presenters, there are no further questions in queue from the phones at this time.

Okay. Kailey, thank you very much.

Thank you.