Kelly Services Inc (NASDAQ:KELYB) Q1 2019 Earnings Conference Call - Final Transcript
May 06, 2019 • 09:00 am ET
(Operator Instructions) And first go to the line of Josh Vogel with Sidoti. Please go ahead.
Good morning. Thank you, guys. Sorry I sound a little nasally, my allergies are getting the best of me today. So my first question, I know you went into detail on this, George and Olivier. But looking at GTS, you did a tremendous job on the margin front, I know there's product mix and lower employee related costs. I'm just curious if there was any one-time items there that may have fueled some upside or is this a run rate we can expect to see going forward?
Yes, let me reply on that. When we think about 80 basis points, we like to split it into three categories. There is a 20 basis points structuring improvement coming from our acquisitions. We believe this acceleration is a structural improvement. To give you an idea, the margin of this business is about 25% overall so higher than the average. The second one is about 40 basis points, that is our structural improvement in our current product mix. This one has been structural. We have seen progress year-over-year since 2014 and we expect that to continue with of course some fluctuations. And the last one, which is about 20 basis points, is more what I would call short-term ups and downs that we have mentioned several times including in this outlook and it is made of on what we call adjustment on our employee related costs. So, this one I would say is more quarter related and can go up and down depending on the quarter and some dynamics around healthcare, payroll tax, and other matters such as workers' comp.
Great. That's very helpful. Thank you. And looking at property and equipment on the balance sheet, I was just curious -- I'm assuming obviously that's from the two acquisitions, but what exactly did you acquire in those deals with regard to P&E?
If you're referring to our two recent acquisition, the net book value that we have acquired not surprising is very limited and most of it is working capital and to a very I would say limited extent some fixed assets. The movements you see in fixed assets for the quarter versus a year ago or versus year-end is linked to the lease new standard that I was referring to in -- in my script. Basically we have now to recognize the right-of-use assets and I would say for the quarter it's shy of $70 million of adjustment that is purely linked to this lease accounting adjustment.
Okay. Yes, so it's helpful. That makes sense. Thank you. And I know that with the spike in the short-term borrowings related to the acquisitions, I was just curious was any of -- was that all going to NextGen and GTA or were there any seasonal increases for working cap purposes?
No. We said the large majority also we don't split into bits and pieces. The large majority of our