Good morning and welcome to Kelly Services Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO. Sir, you may begin..

Thank you, Brad. Hello, everyone, and welcome to Kelly Services Second Quarter Conference Call. With me on the call is Olivier Thirot, our Chief Financial Officer. I'll start the call by reviewing the impact of COVID-19 on Kelly's business in the second quarter.

The actions we've taken to mitigate its impact on our financial position and steps we've taken to capture available upside. Olivier will walk us through the highlights of our quarterly performance that were announced today in this morning's earnings release.

I'll then share what we're seeing in terms of customer demand and how Kelly is pursuing growth opportunities during this crisis. Olivier will provide some perspectives on Q3. And finally, I'll conclude with an update on what's next for Kelly, including our ongoing journey towards becoming a specialty talent solutions provider.

I'm pleased to say that despite disruption caused by the pandemic, we continue making solid progress on our strategy about which I'll provide some additional details as we conclude today's discussion. Now let's turn to Q2.

The impact of COVID-19 continued throughout the second quarter as closures and widespread uncertainty resulted in reduced customer demand and lower top line growth. We've discussed previously, how we've been closely monitoring the economic impact caused by two parameters of the pandemic.

How deep will it be and how long will it last? As Q2 progressed, the severity of the resulting economic impact started coming into focus and we believe the worst is behind us.

It's more challenging to call the duration of the downturn, although it appears that the recovery and economic and labor market improvements are underway, though they are likely to be uneven and more gradual than some thought a few months ago.

Amid this unprecedented environment, Kelly continued to mitigate the downside and execute with speed and discipline. The precautionary actions we took to protect our balance sheet that I shared on last quarter's earnings call proved to be judicious.

These temporary defensive measures included pay reductions for full time salaried Kelly employees in several regions, more significant pay reductions for me and our senior leadership team, reduced compensation for our Board of Directors, reduced hours in some regions, suspension of the company match for most retirement accounts, redeployments for some employees and temporary furloughs for others, suspension of the quarterly dividend and significantly reduced capital spending.

I did not take these moves lightly and I'd like to acknowledge everyone in the Kelly community, our employees, board and shareholders for their shared sacrifices.

These sacrifices mattered in this quarter's results and they give us flexibility to weather the ongoing crisis and go on the offensive when opportunities present themselves in the months ahead. So decisive expense management served us well in Q2 and so did speed, agility and execution of our operational plans.

Over the past several years, we have intentionally reduced our reliance on brick and mortar branch offices, established remote recruiting networks and moved to a progressive work from anywhere model at our headquarters.

When the pandemic hit, these earlier decisions aimed at being a more technology enabled agile organization meant we had robust IT systems and remote work protocols already in place. We quickly transitioned to a fully remote regular workforce for reasons of employee safety and we were ready and able to seamlessly serve our talent and customers.

This speed and agility have enabled us to creatively capture new opportunities on several fronts, even in the face of overall declines in demand and a challenging supply environment. I'll share more about that in a few minutes. But first, I'll turn it over to Olivier to cover the specifics of our Q2 financial results..

Thank you, Peter and good morning everyone. Before the Q2 highlights, 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 the reported and on an adjusted basis, discussion of items on an adjusted basis, our non-GAAP financial measures designed to give insight into certain trends in our operations.

We have also provided more information on our performance in the second quarter slide deck, which is available on our website. As Peter just mentioned, our Q2 results reflect the impact of the COVID-19 pandemic and the resulting disruption in economic activity and the availability of talent.

The results also reflect the impact of our temporary expense mitigation actions and the positive impact of one-time of limited duration government stimulus and pandemic assistance in the US and in Europe.

Revenue totaled $1 billion, down 29% from the second quarter of the prior year including a 100 basis point unfavorable impact from foreign exchange. The COVID-19 crisis and the resulting impact on both customer demand and talent supply impacted the full quarter.

As we entered the quarter demand declined as customers closed facilities to protect their workforces and in response to government directives and consistent with the end of Q1, our education business was particularly impacted as most US school districts has closed in response to the crisis by the end of March.

We did see some strengthening as the quarter progressed and our June revenue exit rate, a decline of 23.1% or 22.5% in constant currency reflect lower year-over-year of declines than we experienced in April and May. These improvements came primarily from Americas staffing.

As we move through the quarter, our Q2 revenue results were also impacted by talent supply constraints in the US as COVID-19 related safety concerns and the impact of enhanced unemployment benefits reduce the pool of available talent in some skill sets especially in our commercial business.

Looking at each segment on the reported basis, the Americas staffing revenue declines were the most pronounced down 45% given the impact of lower demand in education and a larger reliance on the manufacturing sector and skill sets within the segment.

The international staffing revenue decline of 31% reflects a continuation of the COVID-19 impact, which began in the first quarter. Finally our GTS segment was the most resilient with an 8% decline in revenue for the quarter.

While certain customer industries such as automotive and energy were negatively impacted, the demand from life sciences customers and for our outcome-based services increasing Kelly Connect, our remote call center specialty remained strong.

Permanent placement fees were down 52% year-over-year, as fees declined in Americas staffing and international staffing as the impact of economic uncertainty has deprived full time hiring. Overall gross profit was down 22.5%. Our gross profit rate was 19.4% up 160 basis points when compared to the second quarter of the prior year.

The rate increase was primarily driven by three factors. The impact of government stimulus and pandemic relief of about 100 basis points, lower employee related costs and also the impact of improved product mix. This was partially offset by the impact of lower permanent placement fees.

While the government stimulus and pandemic relief has been helpful to temporarily ease the economic impact of the crisis and allowed us to retain critical talent, these benefits generally end early in the third quarter. SG&A expenses were down 19.6% year-over-year.

The decline in expenses reflects the temporary expense mitigation actions we took starting in April including the compensation adjustments Peter discussed, and also lower performance-based incentive compensation expenses.

In addition, we have seen benefits from the cost reduction actions we took in Q1 2020 prior to the pandemic and while we have been quick to react to the crisis, we have been deliberate in our actions to avoid jeopardizing our ability to partner with our customers now and to capture growth during the recovery period.

Our reported earnings from operations for the second quarter was $11.1 million compared to Q2 2019 reported earnings of $34.8 million.

Our Q2 2019 earnings included a $12.3 million gain on sale of assets and an adjustment to our Q1 2019 restructuring charge, so after adjusting for those items on the like-for-like basis Q2 2020 earnings from operations declined by 50% versus last year.

Kelly's earnings before tax also include the unrealized gains and losses on our equity investment in personal holdings. For the quarter, we recognized a $29.6 million pretax gain on our Persol common stock, compared to $61.2 million pretax gain in the prior year.

These non-cash gains are recognized below earnings from operations as a separate line item. Income tax expense for the second quarter was $900,000 compared to our 2019 income tax expense of $12.7 million.

Our effective tax rate for the quarter was 2%, as tax expense on current period earnings was mostly offset by a one-time benefit from the recognition of some deferred tax assets. And finally reported earnings per share for the second quarter of 2020 was $1.04 per share compared to earnings of $2.12 per share in 2019.

In order to better understand the underlying trend in earnings, let me provide some additional information. 2020 earnings per share was favorably impacted by the gain on Persol common stock. In 2019, EPS was positively impacted by a gain on Persol stock, a gain on sale of assets and an adjustment to restructuring charges.

Adjusting for these items, Q2 2020 EPS was $0.51 compared to $0.81 per share in Q2 2019, a decline of 37%. Now moving to the balance sheet. Cash totaled $216 million compared to $37 million a year ago. That was nearly zero, down from $2 million at year end 2019. We ended the quarter with no borrowings on our US credit facilities.

Our cash balances reflect the impact of reductions in working capital, primary accounts receivable as revenues declined during the quarter.

As we navigate this barrier of economic uncertainty, we'll continue to manage our cash and debt closely to ensure that we have the working capital available to capitalize on the economic recovery and to take advantage of future market growth opportunities. Accounts receivable was $1.1 billion and decreased 15% year-over-year.

Global DSO was 61 days, an increase of three days of year end 2019 and four days from the same period last year. While we have experienced an increase in DSO, it does not reflect a deterioration of the quality of our receivables. The increase does reflect two main trends we are seeing as a result of the pandemic.

First, certain customers are making efforts to manage their own cash flows and are taking advantage of their full payment terms with us. Second, there has been a shift in our business mix as a result of the crisis, which has resulted in a greater proportion of business with large customers who generally enjoy longer payment terms.

In addition, we have historically had a seasonal reduction in DSO at the end of Q2 as a school year ends in June. But given the decline in education revenue with COVID-19 related school closing at the end of the first quarter, the seasonal impact happened earlier in the second quarter in 2020.

We'll continue to monitor our customer payment patterns closely and I'll ensure that our collection teams have the resources necessary to respond to current conditions. In our cash flow for the quarter, we generated $170 million of free cash flow compared to $65 million of free cash flow in the same period in 2019.

As I mentioned we've benefited from free cash flow generation due to the current market conditions. We generated free cash flow during the initial period of an economic downturn, as we continue to collect our receivables while payroll costs declined in line with demand.

We also took advantage of the ability to defer certain tax payments as part of COVID-19 related economic stimulus. In addition, we monetized certain tax receivables as part of an existing asset monetization cuttage [ph]. And now, back to you, Peter..

Thanks, Olivier. It's clear that COVID-19 has significantly muted demand, although some higher margin specialties by no coincidence areas where our specialty strategy is increasingly taking us have proven more resilient.

We're encouraged that we exited the quarter better than we started it and we're now using our observations on the ground to give us insight into the months ahead which we expect to be variable by industry, geography, product line and available skill sets.

Thanks to Kelly's operational agility I mentioned earlier and more resilient areas and skill sets that required ramping up in Q2, we stepped up and delivered high quality talent quickly, unemployment office agents, contact center agents, logistics professionals, remote learning educators, scientist supporting clinical trials and more.

We also demonstrated the flexibility to provide talent and skill sets supporting the response to the pandemic. Kelly has placed thousands of temperature checkers at businesses and employers that are screening guests and workers for COVID-19.

Similarly, contact tracing has been an in-demand skill set as public health agencies work to prevent community spread of the virus. The demand for these new jobs, certainly don't offset overall declines, but our ability to fill these new roles quickly is indicative of the more agile and creative company we are becoming.

Overall, we are encouraged by this quarter's results and signs of strengthening demand from existing customers, new customer wins and solid new business pipelines, while we keep a close eye on the recoveries trajectory as some level of uncertainty remains as the pandemic continues. Olivier, will now provide his thoughts..

Thank you, Peter. As we announced in mid-April, we withdrew our previously issued full year guidance. On our call in early May I described a scenario planning that we had undertaken in the early stages of the crisis and while we are now more than four months into it, the near and mid-term economic conditions continue to be highly uncertain.

We have continued with our scenario planning updating for our most recent data points and confirming response plans that align with our priorities. These scenarios considering variety [ph] of demand scenarios, based on the duration of the economic contraction and the speed of the subsequent economic recovery.

The possibility of repeated cycles of reopening of the economy and subsequent resurgence in infection rate, as well as a longer and slower recovery, are also included in our planning.

In addition to the customer and talent feedback that Peter discussed, we are utilizing economic forecast as well as predictive and terminal activity base metrics to inform our scenario planning. We continue to review the resulting impact on earnings, cash flows and debt covenant metrics.

We have updated our stress test of cash flows and debt covenants and at this point, we remain confident that we have adequate financial resources and liquidity to weather the crisis, to capture emerging growth opportunities and to take advantage of the recovery and subsequent periods of economic growth.

Given where we are in the cycle, we have determined that we'll not be providing guidance but we'll provide some perspective on the third quarter. While current trends may not be predictive of future results, they are helpful to understand the current level of demand and customer buying behavior.

As mentioned in my remarks on the second quarter results, revenue declines were not even across the segments and neither has been the pace of subsequent improvements in revenue trends. Declines have been more pronounced in Americas staffing where our education and light industrial business are heavily impacted.

Our June-over-year revenue declines in America staffing excluding education was barrels on our Q2 trend and down 34%, which reflects slow but positive momentum. Education was down 79% year-over-year for the second quarter. Any significant recovery in education revenue will be dependent on school reopening plans.

International staffing reflects decline across Europe and June revenue exit rates are in line with the second quarter. However, we do have some bright spots like Russia where our specialization in IT and remote call center business has a moderated impact.

And finally, GTS has been the most resilient to date as many customers in the segment operating essential industries support remote work or has begun to reopen their facilities. The exit rate for GTS was also generally in line with the Q2 trend and customer demand trends are stable.

As I noted in my remarks on the Q2 GP rate we did benefit from government stimulus, which we don't currently expect to continue in Q3 and certain employee related costs are always subject to a degree of variability that we would expect could be even more pronounced during the pandemic.

We have continued to work closely with our customers and have not yet seen any material sign of margin pressure due to the current environment. And as Peter discussed, we have taken some definitive steps with respect to SG&A expense levels both in advance off and in response to the crisis.

While we have made significant contradictions, we may not be able to entirely offset the expected Q3 year-over-year revenue decline stemming from the crisis. We'll continue to monitor conditions and take actions consistent with our financial planning. If needed, we'll take further steps to align our cost structure with top line results.

I quickly mentioned one other change that will be visible in Q3 beginning with our earnings announcement. For Q3, Kelly result we'll be reporting our financial information in new operating segments to align with the new specialty business unit structure we recently implemented.

I'll let Peter give you more details on that important milestone and his concluding thoughts..

Thank you, Olivier. Q2 2020 was a tumultuous quarter, but it's times of crisis that reveal true character and Kelly employees have risen to the occasion.

We remain confident in our ability to serve our talent and customers in this challenging environment and we are well positioned for growth as customer confidence, talent supply and the economy improve. Equally important, amid the painful moments of crisis stemming from systemic racism in our society, our identity is also unwavering.

We know who we are and we are a company that stands up for equity inclusion, fair treatment and opportunity for all. I have shared in previous calls what's next for Kelly's business and that remains unchanged. We are aggressively pursuing our strategy towards specialization both organically and inorganically.

I'm pleased that notwithstanding external headwinds we took a bold step forward on this path as we closed out Q2.

As of July 1, Kelly is now organized as five distinct business units based on our chosen specialties, Kelly Science Engineering and Technology, Kelly Education, Kelly Professional and Industrial previously known as Commercial, Kelly OCG and Kelly International.

We also completed on schedule our planned upgrade of our best-in-class front office platform and several state-of-the-art technology enhancements to further the productivity of our recruiters and other front-line employees.

Today, we are more focused and better positioned to capture high margin business in the skill sets modern organizations need to grow and thrive. We've already seen this playing out during the pandemic, as certain specialties proved to be more resilient.

We are actively working toward future growth and we see positive momentum in many parts of our business. As Kelly steadfastly pursues our transformation into a specialty talent company, we're doubling down on the talent essential to this strategy.

We are affirming our commitment to talent On Assignment around the globe with our new five-point talent promise. It's a bold stand to always do the right thing for our talent in five areas safety, value, well-being, investment and opportunity.

We've also turned up the volume on our voice in the marketplace during COVID-19 rather than retreating and waiting for things to improve. In Q2, we launched television spots in select markets for the first time in many years reintroducing Kelly to companies and highlighting our specialty skill sets, array of services and refresh brand.

Our larger share of voice is indicative of our fresh and bolder Kelly that attracts attention as evidenced by Forbes ranking Kelly Number 3 on their Annual List of the Best Professional Recruitment Firms in the US.

Q2 was a quarter unlike any we've seen during our nearly 75 years in business, and I'm very proud of how Kelly navigated through it all with our purpose of connecting people to work front and center. I'd like to thank our internal teams, our talent on assignment, our customers, our Board of Directors and shareholders for their support.

Brad, you can now open the call to questions..

Thank you. [Operator Instructions] and we'll go first to the line of JE [ph] Gomes with Noble Capital. Please go ahead..

This is Joe Gomes. Good morning. I just want to make sure here I heard you properly. The government stimulus added roughly a 100 basis points to the gross profit in the quarter..

Yes, if you add US and Europe as I said, it's about 100 basis points and then to complement the 160 basis points, we have about 20 basis points from employee related costs that I did mention and about 40 basis points for, I would say our structural mix improvement..

Okay. On the back to school, I'm showing little of my Northeast bias here because school here generally doesn't start until September, but would July and August typically be a little lower demand months for you on the back of - on the school segment? Or as given where we are today, with some schools starting in August, that's not quite as true.

I'm just trying to get an idea of some of the seasonality on the education segment there..

Yes. Joe, we see significant fall off towards the end of the school year in June and into the summer months, July. Again, because of the staggered openings of school districts across the US, we begin to see in a normal environment uptick starting in August and then with more fulsome in September.

So, that's the normal cyclicality of the education business..

Okay. My guess is, it's a tough one to read right now because it doesn't seem to be any type of consensus out there in terms of what reopening of schools may or may not be. Just trying to get some more color from you guys on what you're seeing out there so far or what your expectations or hearing as to what might be the back to school environment..

Yes, it's a great question, Joe. And given the given the environment, on top of mind for a lot of people, I'll use our Top 15 school districts as a proxy for what we're seeing among our other customers.

And among those 15, it's pretty evenly split for those that have made a decision, which is the majority, about half are going remote-only to open schools and then the other half are doing a hybrid of a mix between online and on-site. And there is still a handful that have not yet declared which direction they're going to go.

But I think that's representative of what we're seeing among school districts as they deal with the pandemic..

And how does that play out then for your staffing business there, if you're going remote? And you're able to just do everything out of your own house; does that lessen the opportunities available for you guys?.

Well, that will remain to be seen, but we've been using the time between the onset of the pandemic and today to prepare our teachers and work with the school districts to make sure that whether it's remote or on-site, we're satisfying the demand for teachers, which will continue even during the pandemic.

You may have seen in the press reports of accelerated teacher retirements, obviously there are teachers that are concerned about their own safety. So we think there is going to be school district demand for our services during the Q3 and Q4. We're in uncharted territory, as I know, you know, so it's hard to forecast and predict it precisely.

But I would comment that school districts are continuing to award contracts and Kelly had a very positive track record recently in terms of our wins when you compare it even to 2019 when we weren't in the pandemic situation..

Okay. Now, let me ask one more, then I'll get back in queue. So, you ended the quarter with $216 million of cash, and no debt. Do you [indiscernible] continuing to build cash for the rest of this year? Any plans for that sizeable cash that's on the balance sheet or any clarity there would be appreciated..

So, you're right to say we have about $216 million of cash plus about shy of $300 million of debt capacity. You know that in our industry during the first phase of an economic downturn, you start to accumulate cash and this is what you see on the free cash flow, which is $170 million Q2 year-to-date versus about $65 million last year.

It's a normal pattern we see in each economic downturn. But of course, depending on how the recovery is going to look like, some of this cash is going to be used to fund our recovery because our working capital needs are going to quickly go up, especially in some areas where there are expectations for a near term recovery.

On top of that, of course, having no leverage and available debt capacities is confirming that we have a very strong balance sheet and we continue to have a strong balance sheet.

And of course, this is going to give us on top of funding the recovery some ammunitions to basically switch our balance sheet from a defensive to an offensive mode, whether it's with organic or of course, inorganic initiatives..

Okay, thanks. I'll jump back in queue..

All right. Thanks, Joe..

And next, we can go to the line of Kevin Steinke with Barrington Research. Please go ahead..

Hey, I wanted to start out by asking about, you mentioned some of your higher margin specialty businesses being more resilient you called out Life Sciences and Kelly Connects specifically.

Should we be thinking of any others that have been performing a little bit better than average in this environment?.

Any of the customers in the essential services, so Life Science being obviously one. But there are a number of others that is stayed opened during the pandemic.

Particularly, our outcome-based services, business process outsourcing held up very well during the quarter and we do provide that in Life Sciences, but we also provide that in other essential services as well, Kevin..

Yes, you will see that our outcome-based business, if you look at revenue was up by about 10%, so similar to Q1. Our GP in this area was up by about 18%, due to customer mix. So, you see that the traction we have there basically is very similar to what we have seen in Q1 of this year, or I would say even in the past..

Okay, that's helpful.

In this environment are you able to kind of see any signs of continued benefits from the US branch restructuring that you completed last year in terms of maybe the pipeline or potential future growth or is that just kind of - most things have been put on hold with the pipeline there?.

Kevin, I know there's been a couple of benefits from that reorganization and the restructure. One, it provided additional financial flexibility, those steps were pre-pandemic, but they had helped with our ability to manage the financial position of the company during the pandemic.

I mentioned in my prepared remarks how the organization, which has reduced its reliance on brick and mortar was well prepared to respond to customer demand by going remote I think as quickly, if not more quickly than some of our competitors and we're very encouraged by the pipeline.

As I mentioned, not only we're seeing strengthening among existing customers, but also new wins, some of which I think are from other competitors that haven't potentially demonstrated the agility that Kelly has during the pandemic to respond to the challenges of remote recruiting.

So we think that those moves that we took, again, without the knowledge of the pandemic, are proof points that we are becoming a more technology enabled and agile organization..

Okay, great. And you mentioned that you saw some strengthening in June primarily in Americas staffing.

What are the areas within Americas staffing where you may be saw the most strengthening?.

I'm going to start with two numbers for you to understand a little bit our exit rate in Americas staffing commercial versus the average for the quarter. And then I think Peter is going to go a little bit deeper on what we see on the marketplace.

So our commercial within the Americas staffing was down roughly by minus 38% for the quarter and our exit rate was about minus 33%.

Peter?.

Yes. Kevin, during the quarter when non-essential services were shut down, that was a significant impact on for example, in automotive. Those businesses are now either online or close to being fully back online.

So those are the areas where we're likely to see improvement in US commercial because with exposure to light industrial and non-essential services and small and medium-sized enterprises as well were most likely shut down during the shelter in place rules and they're beginning to come back online. And we're seeing demand there as we move into Q3..

Okay, good.

And how should we think about expense management as we move through the rest of the year here? Are the initiatives that you put in place in Q2 is going to continue as is, moving forward or should we expect costs coming back, it is revenue rebound? Just how would you frame that?.

As I mentioned, we are looking at several scenarios, including for Q3, and we have always-- the flexibility to adjust our cost base, especially with the numerous initiatives we have taken that Peter has shared with you. On average, I like to use what is called recovery ratio that I think everybody should be familiar with.

Our recovery ratio in Q2 was about 79%, so pretty good I would say. And we expect this recovery ratio to be at least at 50% if not more in Q3, and probably around similar numbers in Q4..

Okay, thanks. And then just lastly for me, you mentioned continuing to aggressively pursue your specialty strategy in this environment.

What does the M&A pipeline look now, you know, have opportunities slowed, are you seeing more opportunities or just give us a flavor for those inorganic pursuits as they stand now?.

Yes, Kevin, we saw a dramatic drop off in late March, April, May. But we have seen especially in the last few weeks, probably starting in late June, early July, a significant uptick in activity. Pipeline is not at pre-COVID levels by any means. Again, we've seen a nice uptick.

And we haven't hit the pause on our own proactive efforts to continue inquiring, speaking to, evaluating properties that we think provide an opportunity for Kelly to advance our specialty strategy.

So we're leaning into it and I think, when industry adjusts to the fact that you can actually do things remotely, we've had a couple of management meetings online and frankly, while I wouldn't have said that's how I would prefer to do management meetings pre-COVID, I think they were pretty well and I think we can advance deals during the pandemic, because of people getting used to the fact that this is the new normal..

And we are looking more and more at what we call passive candidates, meaning proactively looking at potential opportunities coupled with more what we call active on market candidates, as well..

Okay, great. That's all I had for now. Thank you..

Thanks, Kevin..

[Operator Instructions] We can go back to the line of Joe Gomes. Please go ahead..

One quick follow up here, if I may, you guys had talked about some of the responses you had implemented for the COVID including your free online training and certification program.

Just wondering how was the uptake on that and has that helped you at all in either retaining or maybe expanding your candidate pool?.

I think the uptake has been about what we expected, Joe. But I would point to a couple of other things of how we've connected with our talent during the summer. Our education business spent a lot of time working with our teachers to prepare them for working in any kind of scenario.

We had really positive reaction to that training as well as ongoing meetings to maintain contact to assure our teachers that we're focused on their training but also their safety. So I think our outreach during this pandemic across all of our business has been well received by our talent and I think it represents our focus on concentrating on talent.

As I mentioned during my prepared remarks that we're committed to having a long-term relationship with talent for helping them determine what's next in their journey and that's I think going to create some differentiation among Kelly versus some of our competitors.

So we're excited about that and the response to our efforts in the pandemic I think are just emblematic of a larger effort underway at Kelly..

Great, thanks..

And next, we can go to the line of Josh Vogel with Sidoti & Company. Please go ahead..

Hey, good morning guys. Thanks for taking my questions. I apologize. I have been bouncing back and forth between a couple of calls.

So if any of this is repetitive, I'm sorry but I thought I caught - Olivier, you said that education was down 79% in Q2, is that the correct number?.

Yes, that's correct 78%, 79%..

Okay. And I know you were giving a little bit of commentary around Q3 and I just wanted to kind of get a feel.

Did you say that the consolidated June exit rates are good idea of what to think about Q3 or is there incremental improvement that you expect especially if schools reopened?.

I would start with a few numbers and then I think Peter is going to complement. So our exit rate overall was minus 22.5% in constant currency.

The main improvement from the average of 28% in constant currency for the full quarter was really coming from improvement we have seen especially in June in our Americas staffing commercial business where the average decline for the quarter was about 38% and we ended up the quarter at minus 33%.

What we see in July is similar to what we have seen in June progressive but slow improvement on our top line versus a year ago..

We're seeing Josh sequential growth week-over-week and now that businesses are reopening, it's not concentrated in any particular area. We're seeing good growth in e-commerce, logistics, retail. I mentioned the automotive and our finance business has actually been pretty resilient through the pandemic. So we're seeing growth and we like the pipeline.

We are seeing customers continue to let contracts and we are pleased with our win ratio versus prior periods and so we think we have momentum recognizing as I mentioned in my prepared remarks, we're keeping an eye on the trajectory because these are uncertain times for sure..

That's helpful. Thank you. It's nice to see the transition to the five specialties. I think it will be good for investors to see the pillars of the business.

Is it possible when we think about those five specialties that you could kind of give us the exit rate of those businesses coming out of June or what you're seeing in July?.

Well, as we speak, we are going to of course report with our new segments at the end of Q3. We have shared with you some sizing revenue-wise for each of them and what I call margin of value profile.

I would say if you think about them, what we call science, engineering and technology knowing the type of business, the specialization is likely to be what we call now resilient, especially when you look at our GTS business. Education is based on what we have discussed today.

Professional and industrial, I mean what we are going to see is what we are describing around manufacturing as well as I would say clerical and professional.

But we cannot really give you more insight because we need of course now to get ready for the current quarter restate, of course, the best and we are going to be able to share much more around that during the Q3 earnings call..

Josh, the only thing I would add is outside of education and international is still a bit uneven. The comments about the slow and steady growth and the pipeline work with existing customers as well as new wins, I think applies to the other three business units..

That's great. Thank you. A question around education.

If schools stay closed through at least the end of this year and there is this pivot we're seeing to extended online learning, do you have a presence there?.

We have an increasing growing presence there.

We don't actually own a technology that we will deploy, but we work with school districts and our teachers would be trained on the - we have eLearning training that we've conducted throughout the summer with our teachers and they're prepared to use the technology that school districts use and it should be seamless given the amount of attention that's been given to it during the four or five months of the pandemic..

Okay, great. And shifting gears a little bit.

I know you've made investments in technology and I know it may be tough to gauge in this environment, but are you seeing any notable or quantifiable productivity improvements stemming from those investments?.

Well, I think we are glad that now we have implemented or fully implemented this new front office and the digital tools that are around it. Although on the digital side, it's more of the beginning than the end because we are going to continue to fine tune, invest in new tools around digital technologies. I would say yes.

It's challenging in this environment to really starting some measures also, we have started.

I think we are going to need a little bit of time probably the second half of this year to really start to see trends in term of productivity, efficiency, speed that we were expecting of course, as an outcome of this project, plus of course talent experience, how we connect with customers and so on.

But we are going to need a little bit of time, especially in this disrupted environment to make an assessment. But I believe again second half of this current year is a good target to really get and share some assessment on what are the outcome of this initiative..

Anecdotally, Josh, I would say the new technology has been very well received and our frontline very excited about the advantages that it provides to them in terms of matching candidates, communicating with candidates, allowing candidates to know where they are in the queue if you will.

So, we'll have more data later in the year, but anecdotally, we're confident that we're going to see improvements in the front line..

All right, great. I think there was an earlier question around the acquisition pipeline or appetite there, but obviously maintaining a strong cash balance in the balance sheet is very impressive in this environment.

Again if you addressed this I apologize, but what do you need to see from a macro level where you feel comfortable either getting active or aggressive on the acquisition front and what are your thoughts around reinstating a dividend at some point? Thank you..

It's more than one question but let's see. The key point is, of course, we need to be mindful that some of the cash we are generating now is basically because at an early stage of a downturn in our industry you generate more cash. The fact that our free cash flow year-to-date Q2 is $170 million versus $65 million a year ago.

Of course, we are going to need some of this cash when the recovery is going to progressively come but as a matter of fact, on top of having $216 million of cash, we have no debt so our available debt capacity is to be very clear on the exact $297 million.

So I would say at any point in time when we see some opportunities for inorganic, we are not going to wait forever. If we find something in the next coming months that is fitting with our strategy at the right price tag.

I think we are going to go for it, and as Peter explained previously, we are still very active on the marketplace and looking at properties, whether they are actively on the market or basically what we call passive candidates. On the dividend side, as we speak, we are still in a very uncertain environment.

That's something of course we assess and discuss regularly. I would say for us the step number one is going to be to get more clarity on what is going on and how things are evolving.

So I would say we are not yet ready to give you a precise timetable on when we are going to reestablish dividends, but it's of course something we have in mind and that is part of our capital allocation whether it's now or in the near future..

I appreciate the clarity. Thank you, guys, for taking my questions and it's always good talking to you..

Currently, no further questions in queue. [Operator Instructions] No questions currently..

Okay, Brad. I guess we can end the call. Thank you very much..

Thank you, Brad..

Thank you everyone..

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