Carl Camden – President and Chief Executive Officer Olivier Thirot – Chief Financial Officer.

Tobey Sommer – SunTrust.

Good morning, ladies and gentlemen, 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. Carl Camden, President and CEO. Sir, you may begin..

Thank you, John, and good morning, everyone. Welcome to Kelly Services’ 2015 Q2 conference call. And with me on today’s call is Olivier Thirot, our acting 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.

As we walk through our quarterly results this morning, let me point out that our year-over-year comparisons are represented in constant currency due to ongoing volatility in foreign currency exchange rates. Now turning to Kelly’s second-quarter results, I am pleased to report we once again delivered solid performance and good operating leverage.

Revenue for the quarter was $1.4 billion, up 3.9% year over year. Our gross profit rate for the second quarter was 16.1%, a decline of 10 basis points compared to Q2 last year.

All told, we achieved an operating profit of roughly $12 million for the quarter, a 50% improvement over last year’s Q2 operating profit in nominal currency, excluding our 2014 restructuring and a 73% year-over-year improvement in constant currency.

Kelly’s second-quarter earnings from continuing operations in nominal currency were $0.18 per share compared to earnings of $0.10 per share for the same period last year, again excluding the 2014 restructuring charge. Our Q2 earnings were negatively impacted by $0.04 per share due to currency.

Overall, we are very pleased with Kelly’s performance during the second quarter. We continue to grow revenue at 10 times the rate of our expenses, excluding restructuring, and delivered strong earnings growth despite pressure on our margins. Now let’s take a closer look performance in each of our business segments, beginning with the Americas.

Total staffing revenue in the Americas increased 1% in the second quarter compared to the same period last year. This is down from the 4% increase we reported in Q1. This slowing in revenue growth from last quarter is a result of slowing in our commercial segment.

America’s commercial was relatively flat year-over-year in Q2 compared to the 6% growth we reported last quarter, primarily the result of exiting certain large accounts late in 2014 due to price discipline as well as a reduction in the growth rate in our local branch network.

Americas PT revenue for the quarter grew 1% year-over-year, compared to the 1% decrease we reported last quarter. This improvement was a result of solid performance by our local branch network, and a slight improvement in PT within our centralized accounts during the quarter. More importantly, though, GP dollars grew over 8% year over year.

As we stated on our last call, given the operational changes in 2014 to service our clients through two different delivery models, it is useful to look at our results through that lens. Our centralized accounts and branch network business continued to progress but with different timing. In the accounts serviced through our local U.S.

branch network, commercial staffing was up 7% in the second quarter, compared to a 12% increase in the first quarter. The temporary dip is primarily due to the phasing of commercial business with certain customers and the anniversary of some significant Kelly educational staffing wins from Q2 of 2014.

We are pleased with the continued gains we are seeing in our core light industrial business as well as the continued momentum from our new wins in Kelly Educational Staffing, which was up 34% year over year. We expect the growth rate and local commercial staffing to accelerate in the second half of the year.

We are also very pleased with the continued momentum we are building in our PT business in our local branch network, where we achieved 15% year-over-year revenue growth for the quarter compared to the 4% increase in Q1 and the 5% decrease in Q4 of 2014.

The performance in our PT branch network and the traction we are gaining from the specialty PT recruiting model we launched last year gives us confidence that our strategy is working, our PT pipeline appears healthy, and the number of new orders continues to trend positively as a result of our investments in PT branch sales resources.

Turning to the large accounts that we delivered through a centralized model, commercial revenue for the quarter decreased 11% year over year, again primarily as a result of exiting certain large accounts late in 2014 to the price discipline as well as some project completions.

Though we continue to be below last year’s order levels, we have seen sequential improvement in commercial demand compared to the first quarter. In our centralized PT business, while revenue was down 3% year over year, this was an improvement from the 4% decrease reported last quarter and represents 5% sequential growth in PT revenue from Q1.

And we have continued to see sequential increases in PT order volumes during the quarter in many centralized accounts. We expect this increase demand, coupled with our hiring of additional recruiters for our centralized PT accounts during the second quarter will accelerate growth in the second half of the year.

Looking across the Americas at our core PT specialties, impacted by the completion of phasing of key centralized account projects last year, engineering reported a 4% revenue decline for the quarter. Our finance, science and IT businesses, on the other hand, all continued to show improvement.

Finance revenue increased to 38% for the quarter compared to 15% growth we reported last quarter, while revenue and science grew at 2% and IT grew at 3% year over year compared to a 1% increase and the 3% decrease reported last quarter for each of those two products, respectively.

Overall, Americas perm fees performance strengthened in the second quarter as we reported an overall fee increase of 19%. This was a nice improvement from the 3% growth we reported last quarter. Commercial fees were up 7%, consistent with last quarter, while PT fee revenue grew 30% for the quarter compared to the 2% decrease we reported last quarter.

We believe our perm fee revenue pipeline will remain healthy for the remainder of the year. America’s gross profit rate was 15.4%, up 40 basis points year over year due to a more favorable business next coupled with the impact of the increase in our perm fees revenue.

Notwithstanding the hiring of additional recruiters, Americas expenses for the second quarter were up just 1% year over year as we begin to anniversary the costs associated with last year’s investments. These costs were partially offset by the effects of the management simplification plan we implemented in October 2014.

Americas achieved solid earnings of $25 million for the second quarter, up 13% from year ago. We feel good about our quarterly results. We are especially pleased that our new branch network delivery model is working well and is continuing to gain momentum, and is positioned for additional growth.

We expect to see continue PT within our centralized accounts on the second half of the year, while we stabilize our commercial business on those accounts and we expect sustained revenue growth from our branch network in both commercial and PT throughout the remainder of 2015.

Let’s now turn to our staffing operations outside the Americas, starting with EMEA. Revenue in EMEA was up 1% on the second quarter compared to last year, with our commercial business flat and our PT business up 5% year-over-year. We achieved solid growth of 4% in Western Europe, with Portugal up 29% and France of 9%.

Switzerland was down by 14%, attributable to the impact of strong currency in the local economy, and its impact on major customers. And in Eastern Europe, we were up 4% year over year driven by an improvement in our temporary staffing business in Russia.

Fee-based income for the quarter was down 17% year over year with declines in both commercial and PT full-time hiring continues to be down across much of Europe, particularly in Russia, where hiring decisions of our customers have been postponed or canceled due to economic uncertainty.

EMEA’s GP rate for the first quarter was 15% compared to 16% for the same period last year. The overall GP decline is primarily attributable to the decrease in perm fees as well as unfavorable country mix. Excluding restructuring charges, expenses were down 2% and we continue to see the benefit from effective cost discipline in the region.

Netting everything all out, EMEA reported a profit of nearly $1.7 million compared with $3.5 million last year excluding restructuring. The outlook for our European operations continues to be difficult, specifically in Switzerland and Russia. However, we expect overall market conditions to improve slightly as the year progresses.

Revenue for the APAC region grew by 18% year over year with strong growth in both commercial and PT. Temporary staffing revenue grew at double-digit rates in Australia, Singapore and India, mainly driven by growth in large accounts. Perm fees declined by 11% compared to the prior year, primarily driven by slower hiring in Australia.

The GP rate declined to 13.9%, a 160 basis point drop compared to the prior year, primarily the result of declining perm fees and customer mix. Excluding 2014 restructuring charges, APAC expenses were down 6%, reflecting the region’s good control of headquarter-related expenses, which improved overall operating coverage.

The APAC region ended the quarter with a profit of $1.6 million, a $2.4 million improvement compared to the same period last year, excluding restructuring. Now, we will turn from our staffing results of the results for our outsourcing and consulting segment, OCG. OCG delivered strong year-over-year sales growth.

Revenue was up 22% in the second quarter, compared to last year, and gross profit increased by 11%. The sales increase was primarily driven by significant growth and business process outsourcing, BPO, and contingent workforce outsourcing, CWO. BPO revenue grew 29% for the quarter and gross profit increased by 15%.

We experienced revenue growth of more than 50% in both our STEM business and in our contact center outsourcing business, Kelly Connect, offset by slower growth in other parts of BPO.

As mentioned in our last call, we continue to make project specific investments within Kelly Connect, ahead of anticipated revenue growth in the second half of the year due to both program extensions and to the seasonality of one of our key customer programs. In CWO, revenue increased 23% for the quarter and gross profit increased 25% year over year.

These results reflect strong program management fees and an increase in our payroll processing outsourcing business. The volume growth came from both existing and new customers. In our RPO practice, revenue declined 10% year over year for the quarter and gross profit declined 30%.

As we said last quarter, the decline is primarily due to lower volume across our natural resource customers. We expect this industry to impact our RPO practice for the balance of the year. Overall, GP dollars were up 11% in OCG with a gross profit rate of 21.6% for the quarter.

The gross profit rate was impacted by the timing of investments in Kelly Connect as well as lower RPO gross profit rate due to customer mix. OCG expenses were up 6% year over year as we continued to invest in this critical and fast-growing segment.

We are pleased with OCG’s operating profit of $3.5 million for the second quarter, up almost 90% from last year’s operating earnings of $1.8 million. Now I will turn the call over to Olivier, who will cover our quarterly results for the entire Company..

Thank you, Carl. Revenue totaled $1.4 billion, up 3.9% in constant currency compared to the second quarter last year. Nominal currency is down about 1.8% with the difference caused mainly by the continued weak European currency.

So the negative impact of foreign currency on the revenue growth trend was over 500 basis points, similar to the impact we have seen in Q1. Now, consistent with Carl for the remainder of my comments, year-over-year comparisons are represented in constant currency.

Staff and placement fees were down 6% year over year as we continued to experience declines in EMEA and APAC. That more than offset the 19% growth we saw in the Americas. In constant currency, overall gross profit was up $6.6 million, about 3%.

Our gross profit rate was 16.1%, down 10 basis points compared to the second quarter last year, heavily influenced by lower perm fees. Our GP rate was lower than our expectations as a result of lower perm fees outside of the U.S. greater investment in our Kelly Connect business, and an unfavorable adjustment to our U.S. workers compensation expense.

SG&A expenses were nearly flat year over year, which does include the impact of cost savings generated by our management simplification plan and reflects our continued focus on cost discipline. Included in Q2 2014 results were $1.8 million of restructuring costs. Our Q2 expense growth rate reflects what we said during our call last quarter.

We will manage expenses in line with revenue growth. Earnings from operations were $11.5 million in the second quarter compared with 2014 earnings including restructuring charges of $7.7 million. These results reflect continued operating leverage similar to Q1 with about 85% of our GP growth dropped to the bottom line on a constant currency basis.

Notwithstanding other Q2 2015 results are negatively impacted by approximately $1.7 million as a result of foreign currency fluctuations. Income tax expense for the second quarter was $3.7 million compared to $2.8 million reported in 2014. The increase is driven by higher overall earnings before tax.

Diluted earnings per share for the second quarter of 2015 totaled $0.18 per share compared with $0.10 excluding restructuring charges in 2014. Our Q2 earnings were impacted by $0.04 per share, due to negative currency impact. Now, looking ahead into the rest of 2015.

For the third quarter we expect constant currency revenue to be up 4% to 5% on a year-over-year basis, up slightly from our Q2 revenue growth, reflecting continued traction in our locally delivered business in the U.S. as with at OCG.

We expect our gross profit rate to be up modestly on both year-over-year and sequential basis and we expect expenses to be up about 2% to 3%, so about 50% of our GP growth on a year-over-year basis.

For the full year, we expect constant currency revenue to be up 5% to 6% as we expect acceleration in our centralized account PT session growth for as well as continued growth in our local staffing and our CG [ph] business. 2015 is also a 53-week year.

The impact is estimated to be about 2.5 additional working days and is included in our current guidance. We expect the gross profit rate to be up modestly year over year, reflecting our continued pricing discipline and a favorable business mix in the U.S.

Turning to SG&A, based on our current projections of 5% to 6% revenue growth, we expect SG&A expense to be up about 1.5% to 2.5%, reflecting our continued cost discipline, partially offset by selected investments in growth areas of the business.

Our 2015 annual income tax rate is expected to be in the low 40% range, excluding work opportunity credits. As you may be aware, work opportunity credit expired at the end of 2014, and at this point we don’t know if or when they will be renewed.

If work opportunity credits are reinstated, our annual tax rate is expected to be 20 percentage points lower. Note that in the quarter of renewal the tax rate could be in the low single digits or even negative.

As discussed, the continued weak European currencies have impacted our Q2 earnings from operations and we do anticipate that we will continue to see such effects over the rest of the year. Because such impacts are inherently difficult to predict, we can’t provide any further guidance on such effects at this time.

Turning to the balance sheet, cash totaled $49 million compared to $83 million at year-end 2014. Accounts receivable totaled $1.2 billion, an increase of 3% compared to year-end 2014. Global DSO was 56 days, down one day from same quarter last year and reflect our continued focus on driving DSO improvements.

Accounts payable and accrued payroll and related taxes totaled $677 million, up 1% compared to year-end 2014. At the end of the second quarter, debt stood at $19 million, down $2 million from year-end 2014. Debt total capital was 9.6%, down from 9.9% at year-end 2014.

In our cash flow, we used $27 million of net cash from operating activities compared to using $108 million for operating activities last year. The change was due mainly to lower growth in trade accounts receivable, due in part to improved DSO. I now will turn it back to Carl for his concluding thoughts..

Thank you, Olivier. No question, Kelly is operating as a far more efficient organization in 2015, delivering very good leverage as we execute our strategy for growing revenue at roughly 10 times the rate of expenses excluding restructuring and we are nothing more than half of our GP growth to the bottom line.

Our 2014 investments in PT and OCG are also yielding results, and we are delivering on the strategic plan that clearly aligns with market trends and customer needs. Accounts serviced through our U.S.

branch network are delivering year-over-year growth in Kelly’s commercial core and delivering even stronger sequential and year-over-year growth than RPT specialties. Our investment in PT are yielding the results we expected.

Our expanded salesforce is growing our PT customer pipeline, while our PT recruiting centers are filling new orders with our expanded talent pipelines. We are extremely pleased with the PT growth we are seeing in our U.S. branch network, and we expect that trend to continue through the balance of the year.

Our centralized large account portfolio is more susceptible to client specific fluctuations. As project come to a close and as Kelly exercises pricing plan, there can be sharper variations from quarter to quarter.

We are pleased to see signs of increased sequential and year-over-year PT order volume in our centralized accounts and we believe our expanded PT recruiting team will enable us to capture additional PT growth in the portfolio as the year progresses.

We are also pleased with the trends we are seeing in our EMEA and APAC segments, which delivered nice leverage from increased revenue and lower expenses in the second quarter, turning in operating profits that align with our strategies in those regions.

Our OCG segment continues to perform well, bringing new client into Kelly’s portfolio and expanding current relationships. And though we expect RPO to have a challenging year, our BPO and CWO specialties are delivering solid results and are accelerating as more clients about our talent supply chain management approach.

As many of the world’s largest companies become more intentional and more strategic about their global workforce, OCG is delivering innovative solutions that help them acquire and manage talents more holistically.

We will continue our investment to capture ongoing growth opportunities in the outsourcing and consulting market and we continue to expect OCG revenue and gross profit growth in the 15% to 20% range in 2015. As a whole, we are pleased with Kelly’s second-quarter performance and our ability to deliver sustained, strong earnings growth. With the U.S.

jobs market continuing steady pace and increased global demand for skilled workers, we expect to capture opportunities for PT growth while delivering leverage in our core staffing business throughout the year.

As we continue our investment in drive topline growth in OCG, we will continue to expand Kelly’s role as a trusted talent advisor to many of the world’s top companies, positioning us for success this year and for many years to come. Olivier and I will now be happy to answer your questions. John, the call can now be opened..

[Operator Instructions] And we will go to Tobey Sommer with SunTrust. Please go ahead..

I was worried about out Tobey, you are usually first in line..

Yes, all right, I still managed to make it. Your concern was occurred in recent of time I wanted to ask you about RPO. You mentioned it is down because of the natural resource customers.

Can you put a little context around that, how big a slice of revenue is in that business that comes from natural resource customers? And outside of that area, are your RPO customers generally living up to their forecast in rate of hiring? Where are the flows of hiring compared to how you might have originally contemplated in those contracts? Thanks..

Thanks. We did not contemplate the drop in the price of oil and the impact that was going to have through the oil part of the natural resource mix, and we have been heavily involved with the oil portion of the natural resource market. That’s where the majority of the declines that we’ve been seeing in RPO demand have happened.

Outside of the natural resource sector, volume is generally proceeding as we thought it would, consistent with employment growth and the demand for skilled labor in the various markets. Not on across-the-board systemic issue with employing, but a very specific issue to an industry we happen to be well focused in..

Right.

How big a slice of RPO is natural resources?.

We’ve not given that information and I don’t want to do it. If I am going to do it, I don’t want to do it imprecisely here. So we will see what we do in the future here, Tobey..

Okay. From a broader perspective, Carl , that the Company embarked on a strategy several quarters ago to change its distribution. Where are you versus your own expectations in being able to execute on strategy and how far along are we? Are we passed or a little bit behind your expectations for the effects of that to be visible on the P&L? Thank you..

I think what you’re seeing in OCG, starting with that, which is not tied to the distribution system but also was an important part of our strategic focus; we had looked for growth that continued to stay in the 20s. We had a quarter dip last quarter. It’s back in the range that we expected it to be in.

Demand for OCG services both in the total supply chain as well as for point solutions is doing fine. Branch network, if anything, is ahead of some of my expectation, very solid growth once you separate the demand of the large account from the demands of local accounts. It has yielded the results that we were expecting to see and is going well.

On the centralized account model, in terms of the service metrics, all of that is going well. Price discipline in the U.S., partly around ACA, partly around just setting some lines that we weren’t going to cross yielded a slightly larger impact than I think I might have expected, but important to do to say, this is what we are worth.

This is what we’ll make. On the other hand, if you were inside the call today, very clearly talking about and acceleration in order demand and acceleration in fill rates and revenues, so I think that it is a little behind in totality of where I want, but right on if not ahead of service delivery quality.

So I think you’re going to be – you will be seeing steady improvement in that portion of our service delivery model as the year plays out. Europe is volatile, as we all – European volatility this year was not expected, but being en coped well. And APAC is performing very, very well as a result of its restructuring..

Sure, I will ask one more question and I will get back in the queue. Could you comment on competition and I am asking the question in the context of proving some lower margin work.

And as you said, ACA and kind of conversations with customers, where you are talking with them about the value you are providing and expect to get in return, is there a broader set of competitors underneath there, working – willing to accept lower prices and lower margins? Or is there some sort of individual company out there kind of competing in that way?.

I think in terms of ACA, while I always hate to compliment everybody in the industry, the industry is showing pretty good price discipline. It’s clear that it’s a tax. It’s clear that the majority of the industry’s contracts provide a right to pass along those types of social benefit costs to the customers.

It benefits our workers and the industry is behaving responsibly on that side. When you get to specific contracts, and specific pricing points, there is always – somebody will have a point need for a – or a possibility of lowering price.

But again, I’m not – as you know, the industry often goes through its phases where somebody is identified as be in the low price cutter. But I think inside the industry, things are holding together well, and professional technical, in particular is. The price discipline is solid.

I would say the large lid accounts because you have more pressure on those margins. Increased ACA costs are a much bigger proportion of gross profit markup on those accounts, increasing the costs from everything like workers comp and so on across the country again is disproportionately affecting the lid accounts.

And so where I do see the price pressure discipline being most intense, it’s on the large commercial accounts that have a heavy lid concentration..

Thank you very much..

[Operator Instructions] Mr. Camden, there are no additional questions coming in..

Very good. Thank you, John. And thank you all for listening..

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect..