Kelly Services Inc. Q1 2009 Earnings Call Transcript

| About: Kelly Services, (KELYA)

Kelly Services Inc. (NASDAQ:KELYA)

Q1 2009 Earnings Call

April 28, 2009 9:00 am ET


Carl Camden – President and Chief Financial Officer

Patricia Little – Chief Financial Officer


Tobey Sommer – SunTrust Robinson Humphrey

Ashwin Shirvaikar – Citigroup

[Ty Delvettos – CLG]


Welcome to Kelly Services first quarter earnings 2009 conference call. (Operator Instructions) I would now like to turn the meeting over to your host, Mr. Carl Camden, President and CEO.

Carl Camden

Welcome to Kelly Services first quarter conference call. Let me start by reviewing today's agenda. As we've done in the past, I'll start with a few comments on current economic conditions then talk about the affect they're having on the labor market. In that context, I'll then address Kelly's earnings for the quarter, as well as our performance by individual business segment.

Following that, Patricia Little our CFO will supply you with more financial details and then we'll conclude this morning with a short commentary on Kelly's position relative to this economic environment, our strategic efforts, and the key strengths we bring to the challenge. And then we'll open the call for your questions.

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. Please refer to our 2008 10-K for a description of the risk factors that could also influence the company's actual future performance. In addition, we also make reference to non-GAAP performance measures. Please refer to the schedules attached to our press release for information on the performance measures and a comparison to our reported financial results.

In 2008, the U.S. lost more than 3.1 million jobs, roughly 1.9 million of them disappearing in the last four months of that year. That pace has worsened with more than 2 million jobs already lost during the first quarter of 2009.

March saw the 15th straight month of overall job losses in the U.S., the nation's unemployment rate reached 8.5% it's highest in 25 years. For some hard hit sections of the country, the rate has entered double digits. Adding to the already tough employment picture, opportunities for college graduates have begun to shrink. The unemployed rate for that group increased to 4.3%, a rate not seen in the last ten years.

With that jobs report, it's no surprise that demand for temporary staffing continues to suffer. In fact, temporary jobs were down 27% compared to the same period last year. As a percentage of the total U.S. workforce, temporary workers now represent only 1.37%, the lowest level since 1994. Outside of the U.S. the affect of the global recession also persists. Employment markets are sliding globally as jobless rates swell. The bottom line, this deteriorating environment continues to negatively affect our financial performance.

For the first quarter, Kelly reported a loss from operations of $25 million, excluding restructuring charges that compares to $13 million earned in the first quarter of 2008. Patricia will cover our overall earnings in greater detail during her remarks. Before I turn your attention to our individual operating segments, I'd like to share three observations we've made during the first quarter.

First, temporary staffing in the Americas, while not yet improving, has stopped getting worse. So far this stabilization has continued well into April. And while it's still too soon to tell, we're hopeful that this may be signaling that things will start to improve later this year.

Second, with permanent hiring on hold fees generated by temp to perm and perm placement continues to deteriorate. This is to be expected. Stability and eventual growth in perm fees generally lag improvements in temporary staffing until confidence builds and companies begin to expand their permanent workforce.

And third, up this point in the cycle our temp GP rates have held up relatively well. However, in the first quarter we saw increasing pressure on temp margins driven largely by less favorable customer and business mix shift

Now, let me review the operating results by business segment beginning with Americas Commercial, which is 46% of our revenue. Reported revenue in Americas Commercial declined about 25% in the first quarter. Intra-quarter year-over-year revenue was down 24% in both January and February, and down almost 27% in March. On a constant currency basis, revenue declined 23% for the quarter.

Our customers ended 2008 with a great deal of uncertainty aggressively reducing their demand for temporary staffing in the final weeks of the year. During the first quarter of 2009, they maintained that lower level of temporary usage. While they're not yet signaling plans to resume hiring in the near-term, they have stopped making further sizable staff reductions.

And, again, what does this tell us that relative consistency on the level of temporary staffing demand seen throughout the first quarter leads us to believe that we may have reached a long awaited bottom, or at least we're hopeful that we have.

Our combined temp to perm and direct placement fees were down 60% year-over-year for the quarter that is steeper than the 43% decline we saw in the fourth quarter of 2008. In January, combined fees fell 61% in February they dropped by 49% and March fell 68%. And, again, I remind you that this isn't surprising given the permanent hiring lags improvement in temporary staffing.

Given the considerable economic challenges we faced, Kelly's gross profit rate was negatively impacted as well. For the current quarter, the gross profit rate was 15.2% or 110 basis points lower than the same period last year. Sequentially, this represents a 100 basis point drop from the fourth quarter of '08. This decline was primarily due to the lower placement fees and few favorable adjustments to prior year's workers compensation claims in the first quarter.

I should stress that we remain focused on tight expense control in our Americas Commercial segment and have reduced spending this quarter by about 12% compared to last year. We've made targeted staff reductions, lowered incentive compensation, placed limits on travel and reduced other expenses not related to revenue generation.

In addition, during the quarter we closed an additional 14 branches at minimal cost. In spite of these efforts, negative expense leverage on the 25% revenue decline resulted in year-over-year operating earnings for Americas Commercial being down about 98%.

Now on to Americas Professional and Technical, which represents about 19% of company revenue, TNT revenue has been stronger than what we've seen on the commercial side. PT revenue dropped by 17% for the quarter as compared to the 8% turndown we experienced in the fourth quarter of 2008. Intra-quarter year-over-year revenue was down about 18% in January, 16% in February and about 18% in March.

Taking a closer look at our PT segment, we've seen year-over-year revenue declines of about 20% than our Finance, Law and Engineering business. On the other hand, our IT Science and Healthcare business have faired better showing much smaller declines. Combined temp to perm and direct placement fees for Professional and Technical were down 53% compared with the same period last year.

That decrease is considerably more pronounced in the 27% reduction we saw in the fourth quarter. PT direct placement fees was the largest contributor to this decline. Intra-quarter combined fee performance showed declines of 59% in January, 41% in February and 53% in March. Lower year-over-year performance is now being seen across all of the PT businesses.

For the entire segment, our gross profit rate was 15.9% down 120 basis points sequentially from the fourth quarter and down 180 basis points from the same period last year. This decline was attributable to lower fees, larger revenue declines in the higher margin business, and few favorable adjustments to prior year's workers compensation claims in the first quarter.

For the quarter, expenses decreased about 7%. There's no doubt we're seeing the affects of negative expense leverage in the face of revenue decline with PT earnings down 63%. However, in this difficult environment, we are pleased with PT's substantial earnings performance.

I'll turn now to our EMEA segment, which comprises 24% of our revenue. EMEA Commercial continued to slow in the first quarter with reported revenue decreasing 33% compared with the 17% decrease in the fourth quarter of 2008. On a constant currency basis, revenue was down 18%, excluding the acquisition of Randstad Portugal constant currency revenue was down 22%.

For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency. By month during the quarter, excluding the acquisition, January revenue was down 21%, February 22% and March nearly 23%. Western Europe and the U.K. were down approximately 20% in the quarter. The Nordics and Eastern Europe have not started to show some signs of deterioration with revenue decreasing by 6% in the quarter.

Turning to fees, the slowing trend seen in the fourth quarter continued. Fee revenue for the first quarter was down 45% year-over-year. By month, January was down 37%, February 50%, and March 47%. This was primarily driven by fee declines in the U.K., Russia and Switzerland. The quarter GP rate was 15.9% compared to 17.3% last year.

This decrease is mostly attributable to they declines in the U.K., France, Switzerland, Italy and Russia. This is mainly driven by reduction in fees, but we are seeing some margin erosion in temporary staffing due to price competition and a shift in customer mix to corporate accounts.

During our year end call, we announced that we were restructuring our U.K. operations. In February we entered into an agreement to sell 31 non-strategic commercial branches effective March 13, 2009. The purpose of this transaction was to accelerate our restructuring while preserving jobs and reducing cost. The restructuring should be completed in the second quarter.

We're now focused on our strategy of developing our Professional Technical and Consulting businesses in the U.K. We will continue to provide updates on our progress on future calls. Excluding the U.K. restructuring and the Portugal acquisition, expenses were down 18% in constant currency for the quarter. Sequentially expenses were down 24% versus the fourth quarter.

We are beginning to see the benefits from our 2008 initiatives, along with diligent cost control efforts across the region. EMEA Commercial reported an operating loss of $6.7 million for the quarter, excluding the U.K. restructuring.

EMEA Professional and Technical, which is about 3% of total company revenue, also slowed during the quarter decreasing 10% compared to 2% growth in the fourth quarter of 2008. We did continue to see continued growth in Switzerland, Germany and Hungary. Fees in the quarter were down compared to last year by 21%. By month, January was down 19%, February 18% and March 25%.

The gross profit rate in this segment was 28.6% for the quarter compared to 29.8% last year. This decrease is due to lower fees. On a constant currency basis, PT expenses were flat compared to a year ago. Excluding acquisitions, expanses were down 10%. EMEA PT operating earnings were at a loss of roughly $600,000 compared to a profit of $1 million last year.

Our APAC region, which comprised of 6% of total company sales, also experienced rise in unemployment, deteriorating labor markets, and declining business confidence. Many of our customers in this region continue to focus on managing operating costs, scaling back their staffing needs and delaying hiring plans. This has negatively impacted our operating results during the quarter.

Commercial revenue in APAC declined nearly 26% year-over-year during the first quarter compared with the 18% decline in the fourth quarter. On a constant currency basis, revenue declined nearly 12%. The gross profit rate declined by 200 basis points when compared with the same period a year ago. This decrease was largely due to the reduction in perm fees in Australia, New Zealand and Singapore. Losses from APAC Commercial were $1.3 million compared to roughly breakeven results in the first quarter of 2008.

Exhibiting considerable slowing as well, PT revenue for the first quarter in APAC declined 27% year-over-year after seeing a 12% decline in the fourth. On a constant currency basis, revenue declined by roughly 17%. The gross profit rate was 30.8% in the quarter, about the same as the previous year. On a year-over-year basis, operations for APAC PT reported a loss in the quarter of about the same size as a year ago.

On a combined basis, with more pronounced slowing in the region, we remain focused on proactively rationalizing our operating expenses to bring them more inline with current revenue in market trends. Expenses for the region during the quarter were down 12% on a constant currency basis year-over-year.

Our final segment is our Outsourcing and Consulting Group representing 5% of total company revenue. OCG revenue decreased by 6% in the first quarter compared to the same period last year. This was down from the 5% year-over-year revenue increase we reported in the fourth quarter and the 32% revenue increase in the third.

All three regions of OCG showed negative revenue growth year-over-year with Europe and Asia showing the largest declines. The Americas revenues were also down slightly compared to a year ago with a 2% drop. The negative affects on revenue were most pronounced in our recruiting process outsourcing practice, especially in the U.S. and Europe. Our executive placement business units in Asia and our retail payroll processing outsourcing practice in the U.S.

On the other hand, we continue to see solid double-digit revenue growth from the Ayers Group, our career transition and outplacement unit, which reported first quarter revenue growth of 75% compared to the same period last year. OCGs total gross profit rate was 32.7% for the quarter compared to 33.1% for the same period last year.

For the first quarter of 2009, expenses were down $1.3 million or 7% sequentially compared with the fourth quarter of 2008. While the first quarter expenses were up roughly 12% year-over-year, it's important to note that this was a result of our OCG segment building out a service and management infrastructure in Europe in the second and third quarters of 2008, as well as our continued investment in new initiatives such as Kelly at home and independent contractors.

Year-over-year earnings were down $3 million compared with the same quarter last year. While all three OCG regions showed lower earnings than a year ago, the majority of the drop was attributable to the Americas and Europe.

Now, I'll turn the call over to Patricia who will cover our quarterly results for the entire company.

Patricia Little

Before I get into the operating results, let me provide a little more information on the first quarter restructuring charge. During our year end call, we announced that we would further restructure our U.K. operations and expected to take a charge of the $11 million to $14 million, including $1.5 million we recorded in the fourth quarter.

But during the first quarter, we sold a number of U.K. commercial branches we had originally intended to close. We now estimate that the restructuring will total $8 million to $9 million. We recorded an additional $5.4 million in the first quarter and expect to incur the remaining $1 million to $2 million in the second quarter. The restructuring expenses include lease terminations cost related to renegotiating certain European data invoice contracts and costs related to the sale of the branches.

Now, moving to our operating results for the quarter, revenue totaled $1 billion, a decrease of 25% compared to last year. On a constant currency basis, revenue decreased by 19% compared to last year and this compares to a year-over-year decrease of 8% in the fourth quarter. As Carl discussed, we are continuing to see revenue falloff worldwide with some stabilization in the Americas region.

Our gross profit rate was 16.8%, a decrease of 120 basis points compared to last year. The decrease was caused by a significant decline in fees, as well as declines in our temporary gross profit rate primarily in our Americas business segment. Our Americas region has seen a lower level of adjustments to prior years workers comp reserves, as well as a shift in business from higher margin small customers to larger corporate customers with lower gross profit levels.

We remain very focused on expenses. On the fourth quarter earnings call, we talked about actions we were taking and you can see the impact of them in our first quarter results. However, as expected, we continue to experience negative leverage with expenses not shrinking as quickly as our revenue. On a year-over-year basis, excluding restructuring costs, selling general and administrative expenses are down 15% or 9% on a constant currency basis.

On a constant currency basis, expenses are down in most segments, SG&A expense decreased by 9% in the Americas, 11% in EMEA, 12% in APAC and 15% in our corporate headquarters. OCG expense was up 18% due to investments made in 2008. Compared to the fourth quarter, SG&A expense, excluding last year's impairment and restructuring charges, was down 11% and down or flat in all segments.

As I said in January, our first emphasis on cost cutting is focused on actions which will reduce indirect costs while protecting our investment in customer and employee facing activities, and these initiatives are beginning to have an impact. For instance, neither management incentive compensation nor discretionary retirement plan contributions will be paid in 2009.

In addition to the U.K. restructuring, we will continue to right-size our business b y evaluating our headquarters and branch operations around the world and reducing the number of branches and permanent employees as appropriate. We have restructured the majority of our field-based incentive plans and suspended discretionary grants in our long-term stock incentive plan.

We have suspended the match for our management retirement plan and have reduced the match for our 401k plan to a level we can fund from within the plan. We put a salary freeze in place. We have a hiring freeze on indirect staff and we are avoiding discretionary spending on travel, general expenses and branch relocations.

In summary on costs, we believe these actions will result in annualized cost savings of about $65 million. We continue to react decisively to the changing economic conditions. Because of the lack of clarity on the economic front and the short cycle of our business, we are targeting actions which allow us to be flexible in responding to changing conditions both on the upside and on the downside. Part of our plan is to restore much of these expenses as cost conditions improve. As a result, we will not necessarily maintain them for a full year.

Moving back to the first quarter results, our loss from operations, excluding restructuring costs, was $25.2 million compared with income of $12.9 million in 2008. On a GAAP basis, we had an operating loss of $30.6 million. Income tax benefit in the first quarter was $13.2 million on a pre-tax loss of $29.3 million. For accounting purposes, most of the $5.4 million of restructuring charges is not tax deductible. And our tax benefit for the quarter is somewhat higher than normal due to work opportunity credits.

As usual, we revised our estimate of the work opportunity credits we earned in prior years and have reflected this in the first quarter. Adjusted diluted loss per share from continuing operations totaled $0.31 per share compared to adjusted earnings from continuing operation of $0.23 in 2008.

Turning to the balance sheet, I'll provide a few highlights. Cash remains very strong totaling $115 million, almost unchanged compared to the $118 million we held at year end. We were pleased that in spite of the poor economic conditions, we were able to repay $24 million in borrowings while maintaining our cash level.

At the end of the first quarter, in fact, cash exceeded debt by $31 million, an improvement of $28 million compared to year end. We continue to keep a close eye on our investments. We remain comfortable with our conservative investment policy, which emphasizes goals of maintaining the principle and liquidity of invested cash.

Accounts receivables totaled $706 million and decreased approximately $110 million compared to year end. For the quarter, our global DSO was 51 days down one day compared to the prior year. Debt of $85 million is down $31 million compared to year end primarily due to the repayment I noted earlier. At the end of the first quarter, debt to total capital was a conservative 12%.

Due to the difficult economic environment, litigation charges in the third quarter of 2008 and restructuring charges for the U.K., it became necessary for us to amend our loan agreement. On April 24th, we closed the amendment, which modified certain financial covenants. The amendments will increase our interest expense through upfront fees, higher commitment fees and increased spreads on drawn debt, although costs for higher borrowing capacity on our revolver remain unchanged.

The large majority of Kelly's debt obligations mature in 2010 and 2011. Of the $85 million of debt outstanding, $68 million is long-term in nature. We plan to further repay debt during the next year. Available committed capacity on our multicurrency revolving line of credit was $142 million at the end of the quarter.

Turning to our cash flow, net cash provided by operating activities was very strong at $44 million compared to $24 million last year. The improvement was primarily related to improved working capital as we reduced our accounts receivable by $110 million. In these difficult times, we remain committed to aggressive cost actions, diligent management of our balance sheet, and the preservation of our ability to compete.

I'll turn it back over to Carl for his concluding thoughts.

Carl Camden

The protracted recession has impacted every industry forcing companies to continually reassess their operations. And while Kelly faces some of the most challenging conditions, our company has experienced in it's 63 years, we believe that we're taking the right strategic steps to mitigate losses and to position our company to compete successfully when conditions improve, and conditions will improve.

Right now demand for temporary staffing, temp to perm and permanent placement remain at anemic levels throughout the world, but we have seen, as I said, some trends in support stabilization here in the Americas. And while stabilization may be fragile, we're confident that we will eventually see job creation as the economy strengthens and optimism builds.

We've always taken a long-term perspective, and despite this difficult environment, the outlook for the staffing industry remains positive. Maintaining operating leverage is always challenging for our industry in a downturn, but general works in our favor as things pick up. What's more, as economic conditions improve around the world, we think we'll actually see greater demand for a contingent workforce than in the past.

The war for talent is far from over, and Kelly will continue to play a vital role in supplying that talent on a global basis. Let me close with a few thoughts about Kelly's future. First, the strategic plan that we're pursuing is playing out well, even in this challenging environment.

Our emphasis on geographic diversity, expansion of high margin consulting services and high demand profession and technical talent, along with ongoing expense control has pointed us in the right direction and kept us on course. As proof as we reported this morning in aggregate, our Professional and Technical businesses posted positive earnings during the quarter.

Second, the actions we've taken during this deep protracted recession have only strengthened the foundation Kelly was built on more than 60 years ago. Through good times and bad, we remain dedicated to our customers and maintain strong enduring relationships and create lasting value for our shareholders.

Next, we protected our infrastructure that supports scalability and growth, not cutting too deep and jeopardizing our ability to serve customers, many of whom are some of the largest companies throughout the world. Kelly is now present in all of the key staffing markets and all of the geographic growth regions around the world.

On our broad array of staffing, consulting, placement and other talent management services is unmatched and remains a strong competitive advantage. Expense control was solid. Expenses are down more than $35 million year-over-year during the quarter, a roughly 9% in constant currency excluding restructuring charges. We maintain a strong balance sheet, a healthy cash position and available lines of credit.

Our conservative fiscal policies continue to serve us well. We have the capital, strength and staying power to weather a prolonged recession. Finally, Kelly is a cyclical company and we operate in a cyclical industry. After all, we are in business to provide our customers with workforce flexibility allowing them to respond quickly to market conditions. We absorb the impact the down cycles for customers and we enable them during an upturn. This is and always will be the nature of our business.

In closing, I want to stress I'm confident that Kelly will emerge from this recession an even stronger more focused, more dynamic company one that will win new customers, compete successfully in a glob economy, meet the complex demands for staffing talent and reward shareholders for many years to come. This ends our formal comments.

Patricia and I will now be happy to answer your questions and the call can now be opened for those.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Tobey Sommer – SunTrust Robinson.

Tobey Sommer – SunTrust Robinson Humphrey

I was wondering if you could describe what the relative pace of decline has been recently in Europe and Asia because you did describe some moderating or stability in the U.S., I guess, in recent weeks. So I was just wondering on a relative basis kind of how those other markets shape up.

Carl Camden

I'm not willing to comment on what we're seeing in April in either Europe or Asia, but we'll simply note that they have caught up to the U.S. in declines on a year-over-year basis and that you're seeing roughly the same level of job declines around the world now in our industry.

Tobey Sommer – SunTrust Robinson Humphrey

On the gross margin side, one of your earlier points saying that temp margins under pressure. I'm wondering if you could describe what you're seeing from competitors out there both large and small. Have you seen some smaller ones go away and are the larger ones contributing to that gross margin pressure or is that coming from customers directly.

Carl Camden

The answer is probably yes to every one of the sources you've raise. So customers have always – by the way during up times or down times, customers always try to place downward pressure on your margins and no different at this particular time. I wouldn't view that as the most critical pressure point.

Again, I'll repeat much of what we've seen in the deterioration of temp GP has been due to shift of mix and customers and business lines with some modest pressure from customers and modest pressure from some small to medium sized competitors. Pricing discipline has remained relatively stable among the larger companies as kind of as a generic statement.

That, of course, is one that would differ by country, by region and by specific company in that mix. But in general, I'll again say the temp GP decline is mostly due in our case from fee declines as well as mix of business lines and customers.

Tobey Sommer – SunTrust Robinson Humphrey

Thank you, that's helpful. Then I'll ask one more question and I'll get in the queue. As we eventually see some improvement and we get to a point where temp is doing a little bit better and then perhaps perm, how should we think about how that may play out. Would temp to perm be the first to see some improvement and then direct hire or how may that play out in terms of how it has historically?

Carl Camden

Assuming history repeats itself, which doesn't always, you would first see temp hiring then you would see temp to perm and then you would see direct placement fees. That would differ by some specific business lines. I think healthcare as an example one of the industries that I know you cover would move fairly quickly into permanent hiring, as an example.


(Operator Instructions) Our next question comes from Ashwin Shirvaikar – Citigroup.

Ashwin Shirvaikar - Citigroup

My question I guess first of all a couple of your larger competitors have come out and said that March was relatively stable and you didn't quite come out with the same, I should say, the same level of – the same forcefulness to say that the conditions have stabilized. So why is Kelly that much different? Could you go a little bit into the specific maybe end markets what you're seeing in those end markets?

Carl Camden

Maybe I didn't have enough coffee this morning so unambiguously we would see the same level of stabilization in the North American market that I think you're seeing our larger competitors say with stability looking and appearing around the March period and extending into April.

Ashwin Shirvaikar - Citigroup

Okay. And I guess a question for Patricia. Could you go into some detail on how you would be able to flex the $65 million annualized cost savings up and down with revenues and expenses? Is there going to be some sort of a lag in that adjustment or is it variable actions with that stuff that you can go up and down relatively quickly?

Patricia Little

Ashwin, it is a lot of actions that we can move relatively quickly. That said, I think there will be a lag because we'll want to feel quite confident that we've got sustainable economic improvement before we start layering back some of the frankly comp related expenses that we took out so quickly in the first quarter. And the other thing I would say is there's also a layer of costs that I think won't come back.

When you push really hard on a lot of discretionary spending on things like travel and general expenses they come back but our intent would be that they come back slowly and maybe settle back to a level that's a little lower than they have been historically. So I would definitely see a lag of the expenses layering back into those regions.

Carl Camden

Wherein my former COO had as you shut down branches slowly and continuously as we've been as we evaluate them one by one while branches do reopen over time, it always lags and comes deeper into the recovery.

Ashwin Shirvaikar – Citigroup

And do you feel that the roughly $16 million to $18 million in quarterly cost cutbacks incrementally is enough to return to profitability, provided revenue remain roughly where they are?

Patricia Little

It's just too difficult to tell since we don't have such a good clarity on the future. Frankly, if need be we'll have to make more cost reductions if things are on the downside. If they're on the upside then, as I said, we'll start to layer them back. It's really such a short cycle business that that's the cycle we'll be responding on.

Ashwin Shirvaikar - Citigroup

And do you feel that you have other things to cut?

Patricia Little

Ashwin, I came from automotive and there are always a couple things to cut. I think that difficult management have is finding how to cut sensibly balancing that between not impeding our ability to compete on the upside. So that's what we really think hard about every day.


Our next question comes from [Ty Delvettos – CLG].

[Ty Delvettos – CLG]

You might not want to get that specific on this, but can you cut the SG&A in the second quarter by about the same amount between the fourth and first?

Patricia Little

Let me clarify, do you mean cut it a further chunk or keep the cuts that we have layered in already?

[Ty Delvettos – CLG]

Cut it a further chunk.

Patricia Little

Not that level because we really, I think, have made some very decisive cost cuts. We want to let them continue and keep our eye very much on the economic conditions before we take that kind of chunk back out. Now, every day everybody's working hard on the sort of smaller things that will continue to give us good results, but I don't see us doing, unless the economy changed substantially, I don't see us doing another what to us is a huge cost down in the second quarter.

Carl Camden

We also moved early, early in the first quarter so we had…

[Ty Delvettos – CLG]

Most of it's there.

Carl Camden

We have close to a full load in Q1, [Ty].

[Ty Delvettos – CLG]

Okay, that helps an awful lot. Can I assume that given resets and everything gross margins, theoretically would improve somewhat from the first quarter levels.

Carl Camden

I don't know how things will move from a quarter-to-quarter basis. Understand, again, core temp GP rates pretty much around the world hung as they were per customer per business line, so shifts in revenue mix move it around. The biggest impact on GP rates globally were placement fees and then inside the U.S. how much adjustments are made and what direction they go to workers comp is variable.

In this particular quarter we had fewer favorable adjustments than we had in prior quarters, but there isn't – we're not necessarily looking at a recovery in temp GP rates those are holding fairly well by individual business line and by customer.

[Ty Delvettos – CLG]

Okay, that's really helpful. One more, when you say stabilize, did the light industrial stabilize more than clerical?

Carl Camden

The answer is no, but, again, as you know, [Ty], you follow us we tend to have less light industrial lend to some of our other competitors. So whether we're necessarily a good gauge as to what's taking place there, I don't know.


Our next question is a follow-up from Tobey Sommer – SunTrust Robinson.

Tobey Sommer – SunTrust Robinson Humphrey

I was wondering if I could get the total branch closures in the quarter.

Carl Camden

We just did by one region, right?

Patricia Little

We just did Americas.

Carl Camden

All we announced was the Americas and that was 14.

Tobey Sommer – SunTrust Robinson Humphrey

Okay, I wasn't sure if there were additional in other areas. And then I know it's perhaps a question that in this environment is maybe not on the front burner, but in terms of your growth in PT and other areas, do you see opportunities to scoop up any small lines of business over the next quarter or two, or in this environment are you just hunkering down looking at internal operations.

Carl Camden

We've never looked just internally, as you know, we always look externally at what opportunities are there both with customers and in the industry. We haven't stopped looking.

Tobey Sommer – SunTrust Robinson Humphrey

Okay. Are there any more interesting opportunities?

Carl Camden

Excellent try. I think, as you know Tobey, that the distress that's in on the smaller companies more when there's a little bit of an uptick or when you get a full anniversary of the downturn. In the PT space, there hasn't been a full year of a downturn in that space. It went into decline after a commercial debt and hasn't hit the same level of intensity, so I expect that there might be interesting opportunities in the future.

Patricia Little

Tobey, I realized when we talked about the 15 branches in the Americas, of course, that exclude the 37 in the U.K. as well.


At this time we have no additional questions. Please continue.

Carl Camden

Very good, thank you all.


Ladies and gentlemen, this conference call will be available for replay after 11:30 am Eastern Time today through May 28, 2009 at midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code of 981265. International participants may dial 320-365-3844.

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