Kelly Services, inc (KELYA) Q2 2021 Earnings Call Transcript

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Kelly Services, inc (KELYA 1.27%)
Q2 2021 Earnings Call
Aug 12, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Kelly Services' Second Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded at the request of Kelly Services. [Operator Instructions] A second quarter webcast presentation is also available on Kelly's website for this morning's call.

I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO. Please go ahead.

Peter Quigley -- President and Chief Executive Officer

Thank you, Cynthia. Hello, everyone. And welcome to Kelly Services' second quarter conference call. With me today is Olivier Thirot, our Chief Financial Officer, who will walk you through our Safe Harbor language, which can be found in our presentation materials.

Olivier Thirot -- Chief Financial Officer

Thank you, Peter. And good morning, everyone. 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 and reported on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. References to organic growth in our discussion today excludes the results of our Q2 acquisition of Softworld. We have also provided a slide deck that we are using on today's call as well as an expanded slide deck with more information on our performance on our website.

Now, back to you, Peter.

Peter Quigley -- President and Chief Executive Officer

Thanks, Olivier. As expected, the economic recovery continued to gain momentum in the second quarter. The temporary labor market is approaching pre-COVID levels, the unemployment crisis in the US has eased with three months of strong job growth and demand for staffing and other workforce solutions continues to grow. Kelly entered the recovery with our strategy firmly in place and we continue to execute against that strategy in the second quarter.

We are optimizing our operating model, investing in organic growth and executing against our inorganic growth plans. Our purchase of Softworld in April 2021 was our largest ever acquisition and the latest proof point in our bolder approach to M&A and higher margin disciplines. As you'll see in our results today, Softworld has already begun accelerating Kelly's revenue and GP results, illustrating the impact a targeted acquisition can have on the entire organization.

Before I hand it off to Olivier to provide details on Kelly's quarterly performance, I'll share a few highlights. All five of our operating segments: Professional & Industrial; Science, Engineering & Technology; Education; OCG and International, had positive earnings from operations in the second quarter and all five segments delivered organic year-over-year revenue growth.

Four of our business units performed better than or in line with our expectations for the quarter. Education exceeded its pre-pandemic performance for the first time in June. OCG beat its pre-COVID revenue for the third consecutive quarter. International delivered positive sequential revenue gains and SET continues to deliver topline growth both organically and with the acquisition of Softworld inorganically.

In our Professional & Industrial segment, we continue to see strong demand for talent in our staffing business, while also experiencing the constraints on talent supply and other challenges in fulfillment that we described last quarter. Demand in the segment's outcome-based business has slowed since the heights it reached during the pandemic as customers' needs have shifted with the economy's reopening and supply chain shortages temporarily dampened some demand.

These businesses lagged our expectations for the quarter. So I'll take a closer look at these dynamics later in the call, along with the actions we're taking to address them.

I'll now turn it over to Olivier to share more details about Kelly's Q2 results.

Olivier Thirot -- Chief Financial Officer

Thank you, Peter. As Peter mentioned, our Q2 results reflect the continuing stabilization in economic activity and resulting improved demand for our services, coupled with the challenge to fulfill our customers' demand for talent in the current market.

Before I get started reviewing the current financial results, it's important to reflect on the comparable period of last year. Q2 of 2020 represented the deepest impact of the COVID-19 pandemic on our business. Revenues were severely impacted by declines in demand as businesses responded to the crisis and the K-12 education system in the US moved to remote learning.

As a result, we responded to those declines in revenue by quickly enacting temporary expense mitigation actions in the second quarter of 2020, including salary reductions and furloughs of full-time employees as well as cuts to discretionary expenses. As we have discussed on past calls since Q2 of last year, revenues have improved from crisis-driven lows and most temporary expense mitigation actions have been discontinued.

Now, looking at the second quarter of 2021, revenue totaled $1.3 billion, up 29% from the prior year and up 26% in constant currency. In the quarter, our acquisition of Softworld added 310 basis points to our revenue growth rate. All five segments are now reporting organic year-over-year revenue growth as we anniversary the depths of the COVID-19 crisis in the prior year. Overall, Q2 organic revenue is now 11% below pre-COVID-19 levels on a constant currency basis, an improvement of 220 basis points versus the trend we saw in Q1.

For the second quarter, our Education segment reported the highest year-over-year growth rate. As the comparable is impacted by significant school closures in the prior period, we also measure revenue compared to the most recent pre-pandemic period of Q2 of 2019. Education revenue was at 90% of pre-pandemic revenue for the quarter and, in June, exceeded its pre-pandemic performance for the first time. This would indicate [Phonetic] that our Education segment will perform well as schools continue to move toward even greater in-person learning in the fall.

Our Education business is already working to ensure that we have an adequate talent supply as the competition for talent in this space will be intense. And of course, because schools have continued to modify their functional delivery in response to changing local infection rates, volatility in demand in the near-term is still possible.

International continue to improve their revenue trends with positive year-over-year and sequential revenue gains in the quarter. Year-over-year revenue growth was driven by recoveries of average volume in France and Portugal and continued solid performance in Mexico and Russia.

Our OCG segment continues to perform well as a result of new customer wins in all products and growth in our existing customer base, primarily in PPO and RPO. OCG has continued to deliver year-over-year revenue growth and is now reporting sequential revenue growth as well with revenues up 28% over last year. OCG revenue has exceeded pre-COVID levels for the past three quarters and is now up 12% in Q2 versus the same period in 2019.

Revenue in our Professional & Industrial segment continues to reflect increasing demand for talent in the staffing product that has been limited by the current softness in talent supply and resulting talent mismatches as well as talent fulfillment challenges that Peter will cover later. And after performing well and delivering revenue growth throughout the COVID-19 crisis, our outcome-based business in P&I expands a slight decline in revenue in the quarter as demand was impacted at several large customers.

And finally, the SET segment, where the results from our acquisition of Softworld is reported, revenue was up 21% on a reported basis and 8% on an organic basis. Organic revenue trends continue to track with the customers serve in each specialty. Science, where we have many life science and clinical customers, has been the strongest; and Engineering with the concentration in the oil and gas sector has been slower to recover.

Permanent placement fees were 146%, up year-over-year and up 16% sequentially. We continue to see significant increases in activity in P&I and SET, coupled with fees from our Q4 2020 acquisition of Greenwood/Asher in the Education segment. Fees in the International segment were also up over the pandemic-impacted prior year, but were flat sequentially, reflecting the more cautious environment in Europe amid the uncertainty of further COVID restrictions in the region. Overall perm fees for the quarter now exceed pre-COVID level at plus 19% compared to the same period in 2019.

Overall gross profit was up 22.1% or 19.6% on a constant currency basis. Our gross profit rate was 18.4% compared to 19.4% in the second quarter of the prior year. On a year-over-year basis, our GP rate was negatively impacted by unfavorable product mix as our lower margin staffing business recovers, coupled with approximately 100 basis points of temporary government wage subsidies in the prior year. Partially offsetting those declines was the impact of higher perm fees and the acquisition of Softworld, which generates higher margin rates, 75% in the second quarter.

Within the segments, we did expand some variability in GP rate caused by the factors I just mentioned. SET benefited from the Softworld acquisitions and higher perm fees. The International GP rate improve on the higher perm fees and Education was negatively impacted by the prior-year government wage subsidies. P&I has the largest swing as the impact of unfavorable product mix between staffing and outcome base and the prior year government subsidies were only partially offset by higher perm fees. In addition to the P&I outcome-based business GP rate was negatively impacted as talent attrition and declines in customer demand resulted in lower productivity in certain programs.

Our outcome-based business with its opportunity for higher margins also comes with higher inherent risk as we take on additional responsibilities for our customers' business processes. When talent attrition increases, our client demand and worker productivity decreases as we did in the second quarter, Kelly's revenue and GP are negatively impacted.

SG&A expenses were up 21.9% year-over-year on a reported basis or 19.8% in constant currency. Expenses for the second quarter of 2021 include the intangible amortization and other operating expenses of Softworld, which added 460 basis points to our year-over-year expense growth rate. The increase in expenses reflect increases in performance-based incentive compensation expenses as well as the impact of our temporary expense mitigation efforts in the prior year. Expenses in P&I, OCG, International and Corporate remain below pre-pandemic levels. And expenses in SET and Education reflect investment in the resources to capitalize on demand for services in those specialties.

Our reported earnings from operations for the second quarter were $13.7 million compared to $11.1 million in Q2, a 24% increase. Included in our report Q2 results are the operating earnings of Softworld of $2.3 million, inclusive of intangible asset amortization. For the second consecutive quarter, all operating segments had positive earnings from operations.

Now turning back to the company as a whole, Kelly's earnings before tax also include the unrealized gains and losses on our equity investment in Persol Holdings. For the quarter, we've recognized a $6.3 million pre-tax gain on our Persol common stock compared to $29.6 million tax gain in the prior year. These non-cash gains are recognized below earnings from operations as a separate line item.

Income tax benefit for the second quarter was $2.6 million compared with our 2020 income tax expense of $900,000. Our effective tax rate for the quarter was a 13.5% benefit. Our effective tax rate was lower than the US statutory rate and actually a benefit this quarter, primarily due to the impact of the non-recurring UK tax rate change resulting in greater deferred tax assets and the impact of the work opportunity credit in the US.

And finally, reported earnings per share for the second quarter of 2021 was $0.60 per share compared to $1.04 per share in 2020. The decline in earnings per share resulted primarily from lower gains on Persol shares net of tax. Adjusting for the Persol gains, Q2 2021 EPS was $0.49 compared to $0.51 per share in Q2 2020.

Now, moving to the balance sheet. We acquired Softworld on April 6 and the impact of the Softworld acquisition is reflected in our Q2 balance sheet. As of quarter end, cash totaled $64 million compared to $223 million at Q1 2020 and $216 million a year ago. That was nearly zero, consistent with Q1 2020 and a year ago. Again, we ended the quarter with no borrowings in our US credit facility. The reduction in our cash balance reflects the $219 million cash paid, net of cash received that was used to fund the acquisition of Softworld at the beginning of the quarter.

Accounts receivable was $1.4 billion, an increase of 26% year-over-year, reflecting our year-over-year increase in revenue. Global DSO was 60 days, a decrease of one day over the same period in 2020 and a decline of four days from year end 2020. The decrease since year end reflects the collection of receivables from several large customers who are carrying higher balances at year end due to customer-driven administrative issues.

Year-to-date we generated $43 million of free cash flow. Free cash flow last year reflected the rapid decline in working capital as revenues declined on lower customer demand in the early stage of the COVID-19 pandemic. As I mentioned above, we completed the Softworld acquisition in Q2 and we're able to fund the entire acquisition with existing cash balances. Our cash balances are now back in line with levels needed to manage daily liquidity. And while the Softworld acquisition did not require debt financing, we may begin to borrow on existing credit facilities to see both working capital needs as revenue levels continue to recover or surpass pre-COVID levels.

And now, back to you, Peter.

Peter Quigley -- President and Chief Executive Officer

Thanks for those details, Olivier. We're encouraged by the economic momentum and increased demand for our services as the recovery accelerates. Our OCG and Education segments are performing especially well and SET and International are delivering solid year-over-year growth. We're also encouraged by healthy sales pipelines and new customer wins we're capturing in all five segments as businesses ramp up their full-time and temporary hiring. We have and will continue to add sales and recruiting resources as warranted to meet increased demand and support Kelly growth.

As Olivier mentioned, demand in our P&I business exceeds pre-pandemic levels and we continue to work through the fulfillment challenges we discussed last quarter as well as taking additional actions in our outcome-based business. On a macro level, the US talent shortages are well documented and publicized. As the economy surges, many jobs are going unfilled across the industries. We do expect the supply of P&I talent to improve as schools resume in-person instructional delivery in the fall and more parents return to work. Yet proper matching of talent requires more than just adequate supply. Businesses need workers with the right skills and upskilling and retraining are not overnight fixes. The recovery is highlighting a structural skills mismatch that was present before COVID began.

Beyond these broader trends, as Olivier noted, in the second quarter, we saw lower demand among large customers in our KellyConnect and BPO businesses, which impacted revenue and GP for the P&I segment. In addition, ongoing supply chain challenges, particularly microchips, impacted several large outcome-based customers in the quarter. We believe the current easing of demand is temporary and we remain confident in outcome-based business as part of our higher margin specialization strategy.

We are taking numerous actions to accelerate revenue growth moving forward in P&I. As I mentioned last quarter, we are intensifying efforts to add recruiters in our staffing business, streamlining processes to boost their productivity and investing in technology to support their work. And we have reopened critical branches in high demand areas where in-person recruiting can increase speed to revenue. In the second quarter, we invested in additional sales resources to support increased demand for outcome-based solutions. We implemented price increases where the market and client dynamics warrant additional margin and we are exiting client relationships where profitability doesn't meet our expectations.

We also continue to collaborate with clients to set competitive wages and benefits, drop unnecessary job requirements and invest in reskilling and upskilling. Each of these actions is designed to deliver talent to meet the current demand. Though our return to pre-COVID growth across the P&I segment will take longer than anticipated, we remain optimistic about the recovery and Kelly's ability to accelerate growth.

I'll now welcome back Olivier to provide additional thoughts on 2021.

Olivier Thirot -- Chief Financial Officer

Thank you, Peter. As mentioned, we completed the purchase of Softworld at the beginning of the second quarter. And we'll have nine months of Softworld's activity reflected in our 2021 results. The impact of Softworld is now included in our outlook.

As we saw in the second quarter results, Softworld acquisition will accelerate our revenue growth in the high demand -- high margin technology specialty and will result in a structural improvement in our GP rate. As we reflect on the second quarter results and look forward, our views are for continuation of the current trend of steady increases in demand as well as a longer than expected continuation of the current level of talent mismatch, putting pressure on fulfillment.

For the full year, we expect revenue to be up 11% to 12% in nominal currency and including 210 to 230 basis points impact from the Softworld acquisition. Our expectation reflects that there are no material changes in business of governmental restrictions related to COVID-19. Demand continues to improve and that the steps we are taking to address the current talent mismatch will expand the supply of talent available to us.

As noted, our current outlook reflects a slower pace of recovery than we were expecting last quarter, primarily in our lower margin specialties. We expect that the timeline for each operating segment to reach pre-COVID revenue levels will depend on geographies served, industry concentration, talent supply and product mix. OCG has already crossed that milestone and other segments will do so later in 2021 or in 2022.

We'll continue to launch targeted growth initiatives that are intended to further accelerate organic revenue growth. We do expect that the International segment's revenue growth rate will be negatively impacted by legislation recently enacted in Mexico, which prohibits temporary staffing not considered specialized services, although we see opportunities to improve our margin profile by delivering higher margins and specialty services.

We expect our GP rate to be approximately 18.5%, including a 30-basis-point impact from the Softworld acquisition. Our GP rate expectations have improved on both faster growth in our fee-based business and then the more gradual pace of growth in our lower margin specialties. We have taken definitive steps with respect to sustainable SG&A cost reductions in the past year that are driving meaningful cost savings and now partially offsetting the impact of the expiration of our temporary cost actions in place in 2020.

The savings will allow us to moderate expense growth as revenues increase. We have also started to make selected investments in organic growth initiatives in SET and Education to accelerate our specialty growth. So, all in, we expect SG&A expense to be up 9% to 10% on an adjusted basis, including 250 basis points impact from the Softworld acquisition. Included in our expectations is the 80 basis point of non-cash intangible asset amortization from Softworld.

As we executed on our acquisition strategy, we have started to utilize EBITDA and EBITDA margin as additional measures of our progress in delivering profitable growth and we have included these measures with our second quarter's earnings materials.

And finally, we expect an effective income tax rate in the low teens, which includes the impact of the work opportunity tax credit, which has been extended through 2025. We announced this morning that our Board of Directors has declared the first dividends in the beginning of COVID-19 crisis. This dividend of $0.05 per share for the quarter is payable on both Class A and Class B common shares. As the expected recovery in demand continues, we'll continue to review our capital allocation strategy, including our dividend policy with our Board of Directors.

And now, back to you, Peter.

Operator

Thank you, Olivier. As we anniversary the low points of the pandemic, we're gaining new clarity on the recoveries trajectory. We are encouraged by increasing demand in our outsourcing and staffing businesses. Our Education business is already accelerating. And so long as K-12 schools are able to conduct in-person instruction, it is poised to resume pre-COVID growth rates later this year.

Strong sustained fee growth in our staffing businesses points toward our customers' growing confidence in the future as companies continue to ramp up full-time hiring. As Olivier noted, our Board of Directors approved a dividend for the quarter, reflecting the progress we're making with our specialization and M&A strategies, our confidence in the sustainability of the recovery and our appreciation of shareholders' patience throughout the crisis.

Moving forward, as noted, we expect the continued increases in demand will be coupled with continued challenges in talent supply. Our equity at work initiative is helping to address some of these pressures, increasing the available talent pool by tackling systemic barriers that prevent people from connecting with work.

As we help clients improve their employer brands and attract talent in a competitive labor market, we're leveraging the strength of our own brand. Kelly is one of the most recognized brands in the industry and in 2021 is the most recognized brand in key specialties such as Light Industrial, MSP, Science, Engineering, Telecom, K-12 and Higher Education.

The Kelly brand continues to evolve as we drive growth from our specialization strategy. We're pursuing M&A opportunities in targeted high-value specialties as evidenced by our acquisition of Softworld, which is already delivering top and bottom line growth for the enterprise as well as bringing new synergies to Kelly's existing businesses. At the same time, we are investing in organic growth. For example, we're encouraged by the level of customer interest in our K-12 tutoring solution and the new P&I professional services product that I mentioned last quarter.

Kelly is moving forward in the economic recovery with a commitment to our specialization strategy and with confidence in our ability to help customers and talent thrive. Even brighter days lie ahead and we are ready for them.

Cynthia, you can now open the call to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question will come from the line of Kevin Steinke with Barrington Research. And your line is open.

Kevin Steinke -- Barrington Research -- Analyst

Good morning.

Peter Quigley -- President and Chief Executive Officer

Good morning, Kevin.

Olivier Thirot -- Chief Financial Officer

Good morning, Kevin.

Kevin Steinke -- Barrington Research -- Analyst

I wanted to first ask about you mentioned talent attrition in Professional and Industrial outcome-based and can you just expand more on what's going on there and how you're addressing that? I guess, you're referring specifically to KellyConnect and BPO with regard to the attrition?

Peter Quigley -- President and Chief Executive Officer

Yeah. So, thanks for the question, Kevin. And good morning. As Olivier mentioned in our outcome-based businesses inside P&I, we take on the responsibility of hiring the employees and delivering the outcome. And so, when there is increased attrition among the employees that we employ to deliver the services, it has a negative impact on productivity and therefore on our GP. And that's just something that's characteristic of the outcome-based business and we have plans in place to mitigate those risks we think are temporary. But it is one of the inherent risks we have when we're in such a competitive talent environment.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Understood. And you talked about supply potentially improving as schools reopen, specifically within Professional and Industrial, but you also mentioned the ongoing skills mismatch. What role does Kelly play in upskilling or retraining and how do you work with your clients to address those skills gaps?

Peter Quigley -- President and Chief Executive Officer

Well, we're regularly working with our customers to identify what skills they need to deliver the services that their -- in their business. And so, when you have people coming off the sidelines that may be coming from different industries, for example, hospitality and leisure, we need to spend some time reskilling and upscaling those individuals to fit, for example, a manufacturing environment. So, working with customers to establish short-term training programs to accelerate the way individuals gain skills to fill roles for those particular customers is something that we do and customers see the benefit of it because they get a more capable source of talent more quickly.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Great. And can you touch a little bit more on the SG&A outlook in the organic investments and maybe just expand on those organic investments, specifically within Science, Engineering and Technology and Education specialty?

Olivier Thirot -- Chief Financial Officer

Kevin, it's Oliver. I'm going to first give you a little bit of a view on Q2. Because I think it's also probably very useful to understand our full-year expectations related to SG&A. So, if you look at Q2 on a constant currency basis, our SG&A are up 19.8%. Out of that, you've got 460 basis points that is linked to Softworld. So, basically if you exclude Softworld, we're at about 15% on an organic basis. Then, we've got about out of the 15%, about 800 basis points coming from incentive. I mean, incentives are variable costs and, of course, last year they were pretty low based on what we have mentioned and what you know. So it's about 800 basis points, but it's completely variable depending on the performance.

Then we have about 300 basis points linked to the investments in SET and Education that we're mentioning. And then we have what we call is the wage impact, meaning I did mention that, of course, last year we had salary cuts, furloughs and so on. That's an additional 400 basis points that we have reduced, as you know, by going for some restructuring actions in Q4 of last year. But there is still, of course, the impact of that, especially in Q2 but also in Q3, that's just basically the last year.

So, if you think about now, the full year, we give basically an outlook of 9% to 10%. So first of all, it's what I call on an adjusted basis, so it is excluding from our 2020 base, our restructuring costs which were about $13 million between Q1 and Q4 and also a customer dispute that we had, which was about $9 million cost. So that's the first thing about the base.

So if you think about this 9% to 10%, you've got about 350 basis points from Softworld with about 80 basis points of amortization of intangible. And then, if you think about the [Indecipherable] and think about what I was sharing about Q2, you've got also this wage impact I was referring to, you get the same type of impact coming from organic investments we have now in our high growth specialty businesses, SET and Education, as well as normal impact linked to incentives coming from improvements in performance. So this is the way you need to think about basically our guidance or outlook for the full year. But again, I think a good way to look at it is a little bit referring to what I was explaining in terms of dynamics for Q2 of the current year versus last year.

Kevin Steinke -- Barrington Research -- Analyst

Okay. That's helpful. I guess -- again, with regard to the investments, those are incremental, I guess. And maybe can you just talk about a little more, expand on those investments and the growth opportunities you see that are leading you to increase that pace of investment?

Olivier Thirot -- Chief Financial Officer

Yeah. One of them, I think, we did mention it last quarter was, you know Kevin that anytime we have an acquisition, we immediately boost the top-line growth by adding some organic initiatives. We have done that in the past, we have started to do it for Softworld as well as soon as April, meaning the time where we went through the acquisition. That's going to be, of course, an investment, but we've seen that knowing the trajectory we have on top-line growth with Softworld with still double-digit -- around the 20% we were mentioning three months ago. We want to further accelerate this momentum. It's the right time. The market is good. We have good dynamic -- or dynamics.

So the other two investments we have underway, smaller of course, is in Engineering and also in our existing Kelly Technologies. Again, it's really because in this recovery phase, putting some investment and keeping the momentum is very appropriate. And in Education, as you know, we have several organic initiatives, one of them we did mention several times is on tutoring where we need to invest to really develop some areas like tutoring as you know and Peter might develop a little bit on that; tutoring, especially with what we know now with post-COVID but also with what we see now is a booming market that we are investing in to basically capture future growth.

Peter Quigley -- President and Chief Executive Officer

Yeah. Kevin, we recently released a report that we conducted with a partner organization called the Tutoring Solutions. It's very clear that school districts and parents are very concerned about the COVID gap year and the recovery of students. And we think the combination of that demand, coupled with funding from the federal government as well as state and local governments, we think there's really promising prospects for helping school districts develop tutoring solutions that help their students recover from the gap year essentially that was caused by the pandemic in 2021 and 2020.

Kevin Steinke -- Barrington Research -- Analyst

Right. Okay. That's helpful. And you did mention in your prepared comments that demand in Professional and Industrial is actually exceeding pre-COVID level. So, I guess, it's encouraging to see the demand is there and coming back, but it's more of a matter of having the available supply and being able to fulfil that demand. So, I guess that's going to be your real focus to make sure you can meet that surging demand. I mean, is that your top priority right now in P&I?

Peter Quigley -- President and Chief Executive Officer

Yeah. Absolutely, Kevin. On the staffing side, all of the steps that I mentioned are designed to increase our ability to capture more of that demand. And in the outcome-based business, it's around generating additional customers for that solution. As we said, we think that easing of demand is temporal and we expect that business to recover. And we'll be prepared for it when it does.

Kevin Steinke -- Barrington Research -- Analyst

Great. Just one last question from me. Have you heard anything in your discussions with your clients of any indicators that the Delta variant is having any impact on demand or slowing the outlook at all for the second half of the year?

Peter Quigley -- President and Chief Executive Officer

Kevin, we've seen some customers have reintroduced mask mandates, for example for the first time in a couple of months. We haven't seen any customers -- how do I say [Phonetic] -- any customers, but we haven't seen widespread shutdown of facilities due to the Delta variant. We have seen some shutdowns due to the microchip shortage, which has caused some companies in automotive, for example, to suspend operations for a period of time, a week. maybe 10 days while they find access to microchips. But we haven't seen any widespread disruption in economic activity as a result of the Delta variant yet.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Thanks. Very helpful insight. Thanks for taking the questions.

Peter Quigley -- President and Chief Executive Officer

Thanks, Kevin.

Olivier Thirot -- Chief Financial Officer

Thank you, Kevin.

Operator

Thank you. Our next question comes from the line of Josh Vogel with Sidoti. And your line is open.

Peter Quigley -- President and Chief Executive Officer

Good morning, Josh.

Josh Vogel -- Sidoti -- Analyst

Hope you guys are doing well.

Peter Quigley -- President and Chief Executive Officer

Yeah, you too. Thank you.

Josh Vogel -- Sidoti -- Analyst

Thank you. I have a couple of questions. First one is a little bit higher level. And just thinking about the [Technical Issues] in your client base, some thought maybe [Technical Issues] meaningful changes in the mix in terms of the client size or the number of orders they're putting in for and even going a little bit further, perhaps larger clients who predominantly did things in-house are now starting to open up to the outsourcing model, especially given the supply constrained environment. Just some general thoughts around that, please.

Peter Quigley -- President and Chief Executive Officer

Yeah. I think the first dynamic I would point to, Josh, and again, good morning, is our perm business in both SET and P&I is exceeding pre-pandemic levels, which suggest that at least some customers in order to address their demand, but also the talent supply issue, are resorting to full time hiring as opposed to contingent. At the same time, we are seeing customers, especially large customers, talk to us more about both increasing the amount of their contingent labor as well as moving more products to -- or more of their processes to an outcome like in our BPO practice.

Notwithstanding some hiccups related to the chip shortages in our business in the second quarter, we are seeing some healthy demand in P&I solution that we introduced and I discussed last quarter, which is essentially an outcome-based solution that allows customers to take advantage of talent and use them for longer periods of time than they might have otherwise using a temporary employee. So, there are some shifts going on, I think, as a result of companies taking experience away from the pandemic environment. And so those are a couple that I would offer.

Josh Vogel -- Sidoti -- Analyst

Yeah. Those are great insights. Thank you. So, obviously big theme is the supply constrained environment and expectations or assumptions that the -- outside of potential mismatches, but we should see an increase in the labor pools. I was just thinking, kids going back to school freeze up parents. You have unemployment benefits that are going to be curtailed, government stimulus. So what do you think the lag time could be between, especially once the stimulus and unemployment benefits are curtailed to actually seeing a meaningful increase in the labor pool and thus [Phonetic] order fulfillment. I'm just curious is this something that could and should happen immediately or is it something that could take several months before people really start to reenter? I was just wondering your thoughts there.

Peter Quigley -- President and Chief Executive Officer

Well, it's still early, Josh. It's something we talk about and look at all the time. It's still early to judge the impact that the states who eliminated or suspended the enhanced unemployment benefits, what impact that had -- has on the labor pool. It doesn't appear that it has resulted in a wave of new talent. So, at least as far as the enhanced unemployment benefits are concerned, again, it's early, but judging from the states that have eliminated the enhanced benefits would suggest that there isn't going to be an immediate impact.

We believe that the schools reopening with in-class instruction might have a bigger impact. And we say that because we did see anecdotally and in our own experience that when schools reopened during the pandemic in 2020 and 2021, we did see additional talent come off the sidelines and began looking for work. So, that's encouraging and potentially the increase in the number of people that is vaccinated could be a third factor that will provide some assurance to individuals that the workplace that they're coming back to is safe.

Josh Vogel -- Sidoti -- Analyst

I got it. Thank you. In thinking about the investments you're making on the technology side to streamline processes, support your recruiters, can you talk just about any investments? Are you investing in any client-facing technology that's focused on enabling candidates, whether attracting them to you onboarding where they can see except to be deployed on assignments? I'm just curious about what's going on in the client-facing end of it [Phonetic].

Peter Quigley -- President and Chief Executive Officer

Well, Josh, we're very excited about the technology that we've introduced last quarter called Helix. It's currently deployed in our OCG segment with our MSP clients, but the reaction from customers in that space has been extremely positive. And basically what Helix does is, it allows organizations and hiring managers to use the technology -- use the Helix platform to take out a lot of the guesswork of what kind of talent they need and it essentially streamlines for the hiring manager all of the processes that they otherwise would have to go through to try to answer that question. And it does it in a relatively -- it's a very user friendly way. And it's something that customers have been asking for and we were first to market in delivering this solution. And as I said, the response from our customers has been very positive.

So, we're regularly looking for opportunities to introduce technology into our solutions. And that includes our OCG, the Helix product, but it also includes our other businesses where we work with customers to identify what their pain points are and bring technology to eliminate those pain points.

Josh Vogel -- Sidoti -- Analyst

Great. Thank you. I just have a couple of quick hitters in relation to the outlook for the balance of the year. The first one just -- thoughts on direct hire or perm over the balance of the year. The strong results we saw in Q1 and certainly Q2, was that more pent-up demand or you think that can continue and then certainly once comps get a little bit tougher in the first half of next year, just what you're thinking there?

Olivier Thirot -- Chief Financial Officer

Yeah, I think this -- Josh, it's Olivier. It is one of the reasons why we have increased our GP rate expectation for the year to 18.5%. Of course, as we mentioned, one of the boost is coming from Softworld, bringing 30 basis points for three quarters only. But the fee business, we see -- I mean, the momentum continuing at least for the next coming months and that's one of the key reasons among those. This is why we are comfortable to bring our GP rate expectation up. We're seeing that in an environment where there are some issues, especially structural issues on the supply side. That's probably, with higher comparable, it's going to -- the percentages are going to go down a little bit. But we believe that in the mid-time horizon, I think there are going to be still very good traction, whether it's in P&I or SET, and you have seen also through our recent acquisition in Education some good tractions also in Education. So, I think, one of the reasons is confidence, as Peter was mentioning, but also the supply constraints that we see all over the place, including Education, but of course also P&I.

Josh Vogel -- Sidoti -- Analyst

Sure. Okay. And then, taking one of the prior questions a little bit further. Outside of discussions or what you may be seeing within the client base, looking at revenue, can you take [Phonetic] any conservative assumptions into this outlook that reflect the potential for the Delta variant or other variants potentially leading to lockdowns or just a broader disruption that we're seeing at this point in time?

Olivier Thirot -- Chief Financial Officer

Yeah. I mean, we -- of course, all that is based on multiple assumptions and so on. But our view for the second half of the year was to get a cautious view on Q3 because of what is going on with the COVID variant and getting through a combination of, I mean, business improvement, seasonality and also some better containment of these variants, something probably better in Q4. So we have been still quite cautious when building our outlook, especially again for Q3.

Josh Vogel -- Sidoti -- Analyst

Okay. Great. And just lastly, you gave a lot of good information, Olivier, around kind of reconciling SG&A. I had in my notes that -- I think it was last quarter -- you basically gave us a base number of $795 million adjusted for last year. Is that the number do you still?

Olivier Thirot -- Chief Financial Officer

Yeah. I mean, let me double-check. I think it should be in the same region. Just one second. I need to confirm with my own notes, so one second. Just need to go to the right page. I think I would confirm the same numbers. Yes, I mean, I have like $790, so...

Josh Vogel -- Sidoti -- Analyst

Okay.

Olivier Thirot -- Chief Financial Officer

...pretty close, yeah. There is always currency fluctuation and so on, but ballpark, that's where it should be. I mean, basically it's -- I have eliminated structuring and this one-time event with one customer, just to give a view that is more what I would call adjusted or like-for-like. But the base is good, yes.

Josh Vogel -- Sidoti -- Analyst

Of course. Okay, great. Well, thank you for taking my questions. I look forward to chatting soon.

Peter Quigley -- President and Chief Executive Officer

Thanks, Josh.

Olivier Thirot -- Chief Financial Officer

Thank you, Josh.

Operator

Thank you. Our next question comes from the line of Joe Gomes with Noble Capital. And your line is open.

Peter Quigley -- President and Chief Executive Officer

Good morning, Joe.

Olivier Thirot -- Chief Financial Officer

Good morning, Joe.

Joe Gomes -- Noble Capital -- Analyst

Good morning. Thanks for taking my questions. So I wanted to start off on Softworld and just how that integration is going. Peter, you mentioned about some synergies. I was wondering if you might be able to just expand a little bit more on what you're seeing on synergies and maybe opportunity expansion with the Softworld acquisition?

Peter Quigley -- President and Chief Executive Officer

Yeah. Joe, thanks and good morning. The integration is on track and meeting all of our expectations. We are very excited about the quality of the talent at Softworld as well as the talent that they engage on behalf of our customers. The synergies -- it's early frankly, but the opportunities we think are promising because of the fact that the overlap in customers between Softworld and Kelly was not -- surprisingly was not that significant. And it was one of the things that we were attracted to because we know that the kinds of services that Softworld provides to its customers are in demand at every organization, high technology development, cyber security, network support are all things that organizations in the US have need for. And so, the synergies are to increase the profile of Softworld into the Kelly customer base, one.

And then, two, Softworld has demonstrated an ability to expand its platform into new disciplines based on customer demand. So, it will provide a particular specialty into a customer, customer will have a need in adjacency and Softworld has shown an ability to build out that adjacency very effectively. And we think there could be some adjacencies and specialties inside not only technology but even in our Science businesses that would allow for new solutions in our customer base. So, again, it's early, but the relationships that are being developed between the Softworld team and the Kelly team are very promising. And the customer reaction so far has also been very promising.

Joe Gomes -- Noble Capital -- Analyst

Okay. Thank you. [Speech Overlap]

Peter Quigley -- President and Chief Executive Officer

Hey, Joe. Just -- Oliver had a comment as well.

Olivier Thirot -- Chief Financial Officer

Just [Technical Issues] to give you some views on the financials. Basically we are completely on track with what we are expecting. The revenue is around $30 million, margins 35%, which was our expectation, EBITDA for the quarter was $4.5 million, so 15% roughly. And it has been only accretive, which is what we're expecting despite starting to invest. Just maybe as a point of reference, due to the date of the acquisition, we had -- with Softworld 11 weeks of activity instead of 13 weeks. So that's also something you may consider. Top-line growth is still double-digit, as we said. So, completely in line with our expectations delivering, I would say, the growth and the value dynamics we were expecting. So all that is on track.

Joe Gomes -- Noble Capital -- Analyst

Thanks, Olivier. I appreciate that. And then, on the cash, obviously we used a substantial portion of that for the Softworld acquisition. The remaining cash balance, you could remind us how much of that is due to go back to the federal government for FICA taxes? And then, is that remaining level -- are you comfortable with that as demand begins to -- or demand continues to increase across the business?

Olivier Thirot -- Chief Financial Officer

Yeah. I mean, the -- so we ended up the quarter with $64 million of cash. Usually we need about $25 million to run this business. We have a little bit excess, of course, not as big as it was pre-Softworld acquisition. So, we have a little bit of room there. At the end of December, we are planning to pay half of the deferral payroll tax, which was about $117 million, so roughly $58 million.

You know that as of now, we have available funding capacities between our securitization and revolver of high of $300 million, precisely $297 million. And knowing that we have no leverage now, we have ample capacity to basically do two things, potentially one is, of course, fund our growth and continuing growth in working capital as we continue to improve our top-line, sorry, and also potentially continue the momentum we have started this year again with Softworld, if you know there is something that would sit with our strategic priorities. So we believe we can fund really working capital as well as acquisitions or potential acquisitions with our existing facilities. Our DSO now is under control, we are below 60 days. We are going to continue to make progress. So we feel comfortable with basically the level of cash we have, our working capital expectations and basically our available liquidity.

Joe Gomes -- Noble Capital -- Analyst

Okay. Great. And then, one last question for me. It's kind of from a pretty high level here -- Peter, just trying to get some commentary. So, I was just looking earlier this morning on Thomson and looking at the 12-month stock returns based, again, on Thomson information. And if you look what Thomson is saying, Kelly over the past 12 months, it's up 24%, almost every other one of the main competitors in that group are up 50% to 100%. And I look at that and I say, Kelly has had very good rebound off the pandemic lows. There can't be any questions from anybody on the capital structure where obviously we're reinitiating the dividend.

When you talk with investors, what are some of their concerns that they bring to you? Is it a dual class structure? Is it the fact that every quarter you have the Persol impact on reported numbers that if you're not willing to go below the surface, you can't really see what the adjusted numbers are? Is it something else? And what are people saying to you that would at least in your mind kind of say, this is why Kelly is only up, again according to Thomson 24% and their peer group is up 50% to 100% in stock performance over the past 12 months?

Olivier Thirot -- Chief Financial Officer

Yeah. I mean, it's always difficult to know -- I mean, my feeling is more about filling an opinion [Indecipherable]. And please. Peter, add on to it. I mean, one of them is -- and I think we have mentioned that several times, we have these APAC assets basically that are -- basically one-third of our wonderful price value that are not generating any EBITDA, but the value of those assets, I think, is probably underestimated by the market.

The second item I think is probably the fact that also we are moving and transforming ourselves to be a specialty value company. We still have a good proportion of our business in, I would say, lower margin type of specialties where probably there is a concern -- probably temporary concern on the supply side, as we did mention again today.

Peter, do you have any other things you would add?

Peter Quigley -- President and Chief Executive Officer

Yeah. So, Joe, I wouldn't want to pretend to get into the minds of all of our investors or potential investors. Some of the issues that you mentioned do come up in conversations. I think, the new structure that we've created, the reaction from investors has been positive in terms of being simpler to understand our business and what we're trying to accomplish. But I think that the transformation and the focus on higher margin specialty is a work-in-process. And I think probably there is perhaps some, I don't want to say, trepidation but waiting to see if we can deliver on that.

I think Softworld was a huge step forward. But as Olivier said and as you mentioned, shareholding in both the JV and in Persol does create some confusion in the marketplace and as well it represents a asset that is not contributing to our earnings in a meaningful way. So, we think we still have work to do. But I don't have any precise answer other than to say that we have historically traded at a discount to that competitive set that I'm sure -- I don't know exactly what the competitive set is in the Thomson information that you're looking at. But we typically have traded at a discount and to some extent could be from the dual-class structure, but also from the reasons that Olivier mentioned about our dependence on the lower margin staffing business.

Joe Gomes -- Noble Capital -- Analyst

Thank you, Peter and Olivier. I think you guys have been doing an excellent job. And I just was trying to see if there's something that I'm missing as to that, but it doesn't. It seems like we're all pretty much on the same page here. And hopefully in the near-term, people start to -- investors start to see the job that you guys are doing and where you're moving to and it then becomes reflected in the share price. That's all the questions I had. Thanks for taking them.

Peter Quigley -- President and Chief Executive Officer

Thanks, Joe. Good to talk to you today.

Olivier Thirot -- Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] And allowing a few moments, it looks like we have no further questions in queue. Please continue.

Peter Quigley -- President and Chief Executive Officer

We're good here, Cynthia. If we have no further questions, we can wrap up the call.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Peter Quigley -- President and Chief Executive Officer

Olivier Thirot -- Chief Financial Officer

Kevin Steinke -- Barrington Research -- Analyst

Josh Vogel -- Sidoti -- Analyst

Joe Gomes -- Noble Capital -- Analyst

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