Category: Business

Michael Burry Wonders Aloud if Facebook Knows What It Wants to Be

Posted on by phoffman@channelchek.com
Image Credit: Marco Verch (Flickr)  

Is Meta the Wrong Path for Facebook, or is it Just Ahead of its Time?

Not all ideas are good ideas, even when they come from billionaire tech start-up founders like Mark Zuckerberg.

Michael Burry, the legendary investor of “Big Short” fame, has been criticizing the social media giant’s metaverse strategy. Burry joins others in questioning why Zuck would change the Facebook formula and spend billions embracing something that is far from real. Many of Zuckerberg’s critics are other successful billionaires like Elon Musk and Mark Cuban. Other critics are investors that have endured Meta share’s 62.3% ($570 billion) decline since January.  

Burry founded and manages the hedge fund Scion Asset Management. Burry tweeted a message that seems to say Meta management blew it – and suggests they have blown it by historic proportions by taking a deep dive into something that may or may not have legs – the metaverse.

Image: @BurryDeleted (Twitter)

You don’t have to have been alive in the mid-1980s to know what Burry was saying when he posted, “Seems Meta has a New Coke problem.” Any business school textbook lists Coca-Cola’s changing the formula of its best-selling product as the #1 lesson in corporate blunders. It was an expensive change that failed miserably and caused the company to revert back to its original product or risk losing a lot more ground against rivals.

A Sweet Refresher

New Coke was a much sweeter version of the Coca-Cola people had become accustomed to using to wash down their pizza slices, or a burger and fries. It was introduced by Coca-Cola in April 1985 during the cola war Pepsi was waging.

At the time Coca Cola was perhaps one of the most recognized brands in the world. But, Pepsi stole customers after it ran a few Michael Jackson commercials suggesting its sugar water was the “choice of a new generation,” and also backed it up with ads showing blind taste test preferences. Between the taste test science and everyone wanting to be more like Michael Jackson, Coke lost market share. Coke reacted by reformulating its product and did its own blind side-by-side tests that indicated that consumers seemed to prefer the new sweeter taste, similar to Pepsi. The company then decided to market the reformulated recipe – New Coke was born.

Max Headroom was the spokesman for New Coke, Like the Grand Canyon (Flickr)

New Coke was introduced in April 1985, and within weeks they were receiving 5,000 angry calls a day. The number grew from there. Seventy-nine days after their initial announcement, Coca-Cola held a press conference in July 1985 to offer a mea culpa and announce the return of the original Coca-Cola “classic” formula.

Will Zuckerberg Relent?

So far, Facebook, I mean Meta, still wants to identify as a metaverse company, despite there being very few metaverse customers. The company is making sure users have accessories available and just unveiled a new virtual reality headset selling for $1,500 called the Meta Quest Pro. Zuckerberg says lower priced, presumably not “pro,” will follow ($300-$500 zone).

When one has built a business from a college dorm, a garage, or their mother’s basement, and it attains the kind of growth that Facebook, Apple, Amazon, or others have, it’s hard to keep growing at the pace investors and other onlookers have become accustomed to. This leads to a scenario where investors are exposed to a risk best described as the bigger they are, the farther they have to fall.  

And Facebook has fallen, not just in dollar value, but in ranking among its peers. Does this mean Zuckerberg is not right? The game isn’t over, and there aren’t many of us that can say, with honesty, that we are more forward-looking or have more luck than Zuck.

Is Michael Burry Right?

There is a whole universe of stocks beyond metaverse investments. Huge successful companies like Facebook or even Coca-Cola have ample resources to build and grow but lose nimbleness and growth potential, unlike the potential smaller companies enjoy. Huge companies are also more likely to have a “say yes to the boss, and you’ll be rewarded” culture, rather than a small company culture which is more “show the boss you can make them money, and you’ll be rewarded” culture.

Zuckerberg and Meta may very well be moving forward with a mistake that could be enshrined in textbooks years from now. However, like Coke, they may find that if it’s a lemon, they can make lemonade. Coca-Cola emerged from the brief departure from their main product strengthened as consumers discovered what life was like without their favorite soft drink.

Take Away

Michael Burry is worth paying attention to. He thinks differently and has been correct enough to always listen. The metaverse is new; does this mean it won’t grow and become something only a visionary like Mark Zuckerberg can imagine? It has been an expensive and slow start. I suspect Facebook was much less expensive to get off the ground, and adoption also required ancillary products to be useable by the masses.

A lesson investors should remember from this is how difficult it is for large companies to grow from their current offerings and huge corporate base.

Channelchek is a platform created to help investors uncover the next Apple, the next Moderna, or the next Facebook. It’s a resource to dig deeper into these less celebrated fledgling opportunities and to leave investors with enough understanding to decide whether they should take their own action by buying stock and becoming an owner of something with greater than average potential.

Paul Hoffman

Managing Editor, Channelchek  

Sources

https://www.history.com/news/why-coca-cola-new-coke-flopped

https://www.thestreet.com/technology/big-short-burry-says-facebook-and-zuckerberg-are-in-big-trouble

https://www.nytimes.com/2022/10/09/technology/meta-zuckerberg-metaverse.html

Musks Twitter Bid Raises Two Corporate Governance Questions

Posted on by aweinsoff@channelchek.com
Source: Steve Jurvetson (Flickr)

Elon Musk Argues Twitter is Better off Without a Board of Directors – Is He Right?

After a wild ride, it looks like Elon Musk’s bid to buy Twitter will move ahead.

Twitter’s board of directors had sued the Tesla billionaire in July 2022 when Musk tried to terminate the US$44 billion deal. The board has yet to drop its lawsuit to force Musk to complete the buyout, while many parts have been thrown out.

The board has in fact been at the center of this saga since the beginning, when Musk launched his hostile takeover bid while criticizing board members for owning almost no shares of the company they oversee. Twitter founder Jack Dorsey called the board the “dysfunction of the company.”

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Michael Withers, Associate Professor of Business, Texas A&M University, Steven Boivie, Professor of Management, Texas A&M University.

As experts on corporate governance, we believe this feud raised two important corporate governance questions: What purpose does a board of directors serve? And does it matter if a member owns company stock or not?

‘A Bad Board Will Kill’

“Good boards don’t create good companies, but a bad board will kill a company every time.”

Venture capitalist Fred Destin wrote that in 2018, citing what he called an “old Silicon Valley proverb.” The quote has been making the rounds on Twitter recently in light of Musk’s hostile bid. It even seemed to get a nod from Dorsey himself when he replied to a tweet containing the quote with “big facts.”

This tweet and the general conversation that has emerged have important implications for understanding boards and their role in shepherding a company.

Broadly speaking, a board’s most important roles include hiring, paying and monitoring the chief executive officer.

Academic research suggests that board members at large companies – who typically receive generous compensation packages – may be limited in their ability to perform these tasks effectively. In our work, we found that boards often find it impossible to conduct adequate monitoring and rein in wayward CEOs because there’s just so much information for modern boards to process with their limited time. And the social dynamics involved in the board also make it difficult for directors to speak up and oppose other directors.

In a separate study involving face-to-face interviews with directors, we were consistently told that directors take their board service seriously and operate with their companies’ best interests in mind. But they do so with an eye toward collaborating with the CEO and the rest of the executive team rather than serving as impartial observers, as their “independent” status suggests they should.

While our work didn’t focus on this, if the board and the CEO fundamentally disagree about the direction of company – which was often the case between Dorsey and the Twitter board – it would certainly be problematic and could lead to less than optimal decisions being made.

In other words, a board that isn’t functioning effectively can definitely destroy a company’s value. And some reporting suggests that’s what happened to Twitter, whose shares were trading at less than half their 2021 peak before Musk disclosed he had amassed a 9% ownership stake.

A Raider’s Lament

That brings us to the next question: Does not owning a significant stake in a company you oversee make it more likely that you’ll run it into the ground, as Musk seemed to suggest?

A few days after making his takeover offer on April 14, the billionaire, responding to a tweet showing how few shares Twitter board members own, posted that its directors’ “economic interests are simply not aligned with shareholders.”

Source: @ChrisJBlake (Twitter)

Musk’s arguments harked back to takeover bids from the 1980s in which activist investors – or “corporate raiders” – would argue that executives’ interests did not align with those of shareholders. As Gordon Gekko from the film “Wall Street” famously railed against executives of a business he wanted to take over, “Today, management has no stake in the company!”

Musk’s words echo Gekko’s “greed is good” speech, except in regard to independent directors, who comprise the vast majority of corporate boards. By definition, an independent or outside director is one who doesn’t hold an executive role in running the company, such as chief executive officer or chief financial officer.

In reality, Twitter’s board share ownership is very similar to that of other companies.

Independent Twitter directors held a median ownership stake of 0.003% as of May 2022. For comparison, we looked at equity ownership of independent directors of companies listed in the S&P 500 stock index in 2021. We found the median stake was less than 0.01%, and all but a handful of directors held less than 1% of the company’s stock. Median ownership at Musk’s company Tesla is similarly minuscule, at 0.23%.

Whether this makes a difference to a company’s success is hard to assess because research on the topic is rather sparse, in large part because board members have so little equity.

Mixed Research

Academic researchers on effective corporate governance in the 1970s argued that outside directors should avoid owning many shares in the companies they oversee to maintain objectivity. More recently, management scholars have suggested that higher stakes could provide a way to motivate directors to monitor management and make decisions more in line with shareholder interests.

Some researchers have found that boards with larger ownership stakes can improve a company’s operational performance and better align outside directors with the interests of shareholders.

But other work that examined multiple studies shows the impact of director stock ownership is mixed at best, with some studies suggesting higher stakes potentially lead to negative outcomes, such as excessive executive and director compensation.

Since the passage of the Sarbanes–Oxley Act of 2002 after massive accounting scandals at Enron, WorldCom and elsewhere, corporate governance issues such as board oversight have become increasingly important. This led to a number of changes intended to align the interests of managers and those of shareholders, including a focus on board independence and adjusting executive compensation.

Although our research shows boards are limited in their ability to monitor management, they’re still better than nothing.

In his original letter to shareholders announcing his bid, Musk vowed to “unlock” Twitter’s potential as a private company, without a public board. We may finally learn if he’s right.

Elon Musk’s Smoking New Product

Posted on by phoffman@channelchek.com
Image Credit: DonkeyHotey (Flickr)

Elon Musk’s Hair-Brained Ideas are Very Marketable

If your last name was Musk and one of your companies created a perfume, what would you name it? Perhaps Eau de Elon, or S3XY, an outlandish guess would be Neurastink, or simply Elon’s Musk. Here’s a hint, Musk’s perfume is a product of The Boring Company, the company that builds tunnels to enable rapid point-to-point transportation. Before this fragrance thrower, the company’s only other product was a flame thrower. So naturally, the company decided to call their new perfume, Burnt Hair. And it has already sold $1,000,000 worth.

Image: The Boring Company

A bottle of what his company referred to as ‘the essence of repugnant desire,’ will set you back about Ð1,666 or $100 USD. That’s if you buy it online. There is now an Ebay aftermarket where resellers are looking to fetch up to Ð16,666 for the product that was only released this week – 10,000 bottles of Burnt Hair have already been sold as of Wednesday morning.

“Just like leaning over a candle at the dinner table, but without all the hard work” – Boring Company Website

Image: The Boring Company

When he’s not tunneling, launching rockets, reinventing things on four wheels, neuralinking, or tweeting, Musk does keep busy with other strokes of brilliance. Did you know that in 2020 Tesla (TSLA) launched its own brand of tequila? That year Tesla, the world’s most valuable automaker,  also offered limited edition satin short-shorts.

Image Credit: Tesla

It isn’t clear what the inspiration was for this new product entry; developing a perfume that has earned revenue of $1,000,000 within a couple of days of launch is quite a feat, although certainly easier than colonizing Mars, and buying a microblogging social media company. Two things on Musk’s To-Do list that he seems to have fallen behind on.  

The Boring Company product page doesn’t say whether the fragrance is a limited edition item – just in time for Halloween or a long-term offering from The Boring Company. Something more exciting than a company that usually just sells holes in the ground.

Paul Hofman

Managing Editor, Channechek

Sources

https://www.boringcompany.com/burnthair

https://www.reuters.com/lifestyle/oddly-enough/elon-musk-sells-1-million-worth-quirky-new-perfume-burnt-hair-2022-10-12/

https://twitter.com/elonmusk/status/ShortShorts

When PPI and CPI are Correlated, and When they are Not

Posted on by phoffman@channelchek.com
Image Credit: Cottonbro (Flickr)

The Connection Between Producer Price (PPI) and Consumer Price (CPI) Inflation

Does a higher PPI mean a higher CPI? A newly released report shows U.S. suppliers raised prices by 0.4% in September from August, when the Producer Price Index report had shown a 0.2% drop. The inflation measure that has impacted the stock market most severely this year is the Consumer Price Index. The two Bureau of Labor Statistics (BLS) releases are related but not directly correlated and are often used to measure different things by economists and those in industry.

The PPI rose 8.5% in September from a year before, down from its 8.7% annual increase in August and 11.3% in June. – BLS

How CPI and PPI are Different

The PPI for personal consumption includes all marketable production sold by U.S.-domiciled businesses for personal consumption. The majority of the products sold by domestic producers come from non-governmental sectors. However, government produces some marketable output that is under the PPI umbrella. In contrast to the PPI’s components, CPI includes goods and services provided by businesses or governments when direct costs to the consumer are levied.

The most heavily weighted item in CPI is rent. It’s weighted at 24% of the index. What the BLS calls owners’ equivalent rent is the implied rent occupants would have to pay if they were renting their homes. This is how the Bureau of Labor Statistics captures the cost of housing for owner-occupied and rented housing. This heavily weighted component is not in PPI – obviously, owners’ equivalent rent is not a domestically produced output.

The PPI for personal consumption and the CPI also differ in their treatment of imports. The CPI includes, within its basket, goods and services purchased by domestic consumers and therefore includes imports. The PPI, in contrast, does not include imports because imports are, by definition, not produced by domestic firms.

How PPI Impacts CPI

The PPI trends often work their way into consumer price movements, but not at a one-to-one basis or even a standard delayed interval. The demand component of consumer’s impact, what the consumers are willing to consume at certain price levels, is at play with what is charged for goods at the retail level. So even if the cost to manufacture goods has risen, passing the cost on is not always possible without hurting sales. At some level of price increases, demand decreases. This is different for each type of product. For instance, food, medical care, and housing may not be impacted as much as recreation, clothing, and other items which are easier to put off or do without.

Companies are trying to manage higher costs without alienating consumers who are weary of price increases. So far in the 2022 U.S. economy, consumer spending has remained strong despite the rate of CPI, but economists worry that we’re approaching a tipping point.

The Fed has raised the benchmark federal funds rate at its last three meetings by 0.75 percentage points, it now sits in the range of 3% and 3.25%. Officials have indicated they are prepared to raise rates over the course of their final two gatherings this year to around 4.25%.

Today, with consumer inflation running at a four-decade high and savings measurements trending lower, consumers are expected to begin to change buying habits. This overall is bad for business and the economy, which is why the Federal Reserve is expected to continue its fight against price increases, despite their lack of popularity with the financial markets.

“Monetary policy will be restrictive for some time to ensure that inflation moves back” Fed Vice Chair Lael Brainard (October 10).

Prices have begun to fall for some goods and services, including commodities, freight shipping, and housing. Those declines have led some Fed watchers to warn that the central bank risks tightening financial conditions too much.

Take Away

Increases in producer prices are passed to consumers when they can be. However, there is only so much a consumer is willing to pay for a purchase they can put off or substitute for something cheaper. This has ramifications for investors.

Companies where demand will wain when prices rise, may find earnings weaken; these could include producers of discretionary goods. Stocks that are shares of consumer staple companies may not feel the brunt of consumer pushback; those that produce more cost-effective brands, including white label providers, may outshine their brand name competitors if consumers increase their substituting for lower priced alternatives. Health care is one area where demand changes little as prices change at the producer or consumer level.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.bls.gov/ppi/methodology-reports/comparing-the-producer-price-index-for-personal-consumption-with-the-us-all-items-cpi

https://www.wsj.com/articles/producer-prices-inflation-september-2022-11665541647?mod=hp_lead_pos2

Uses for Blockchain Beyond Crypto are Growing

Posted on by phoffman@channelchek.com
Christian Bucad (Flickr)

Why Blockchain Could Mean Fewer Hassles for Students and Workers Proving their Credentials

Microcredentials — attestations of proficiency in a specific skill or knowledge base that are certified by an authority — can provide evidence of a person’s skills to employers.

While microcredentials are becoming more popular, the concept is hardly new: A driver’s license or the St. John Ambulance certificate could be considered as microcredentials, attesting respectively to a person’s driving skill or their competency in administering first aid.

Blockchain technology is appropriate for microcredential implementation. Blockchain can best be described as a digital ledger that records information that can be shared among a community of users. Bitcoin and other crypto-currencies are the best-known examples of blockchain, but blockchain has uses beyond financial transactions.

Student records stored in blockchain for security limit access only to legitimate users, such as institutional administrators and potential employers selected by students or job seekers. Traditionally, institutions own and control certifications like degrees, but that could shift with “digital degrees” and microcredentials that rely on blockchain.

Verifying Accomplishments

Besides providing effective security and privacy for users, blockchain can also facilitate the maintenance and dissemination of the credentials, while ensuring that access is readily available for students under their control.

Because of its immutability, blockchain can be used to attest to and verify students’ accomplishments. This is important for students seeking to have their credits recognized, whether because they are studying to obtain new professional accreditation, studying in multiple institutions or because they are moving for study or employment.

Blockchain is distributed, meaning that multiple copies of the same information are stored on different computers. So, blockchain is not controlled by any central authority and the “blocks” in the “chain,” linked chronologically, are shared in a P2P (peer-to-peer) network, which can be accessed from any node or point on the network.

These blocks are immutable, as any change to the original leaves the first iteration intact and accessible.

When students or job seekers want to have credits transferred between institutions, gatekeepers — for example, post-secondary institutions or employers — typically insist on receiving copies of diplomas and degrees directly from each institution. As more students gain credentials from multiple institutions, this process becomes increasingly untenable.

Students need to control this process and blockchain can provide a solution.

Securely Validates Learning

In 2019, McMaster University announced it was awarding “digital degrees” using blockchain to Faculty of Engineering students after the university implemented microcredentials using blockchain to securely validate students’ learning.

Some post-secondary institutions are implementing pilot projects with eCampus Ontario and industry partners to award microcredentials using blockchain.

Microcredentials are now offered by post-secondary institutions, sometimes in partnership with corporations to target labor market needs. These may come in the form of “digital badges.” Digital badges are easily verifiable testaments to when, where and how skills have been mastered. Metadata in digital badges allows viewers to click on the badge to learn things like criteria for earning the badge, the date it was issued or when it expires.

Maintaining Privacy of Data

Certification by blockchain begins when a trusted institution issues the microcredential and creates a blockchain. The student then sends a public key password to the institution, requesting a transcript be sent to a potential employer.

The institution then adds a block onto the blockchain and sends the micro-credential, which is verified and forwarded to the potential employer. The learners can keep private keys to their credentials in an offline digital wallet.

Maintaining the privacy of the data is essential. With blockchain, the ownership of the microcredential rests with the individual, not the institution.

Blockchain supports more control for students and has the capability of further democratizing education. It empowers students to maintain control of their now-secure credentials and allows them to be confident their acquired skills and knowledge will be valued.

Potential Concerns

However, there are some ethical and logistical concerns. Right now, when a person seeks to transfer credits through traditional channels, they can choose which documents or certifications to share with employers: mistakes or aspects of one’s past credentials and experience deemed less salient or undesirable can be addressed or ignored.

But blockchain is immutable and this immutability can cause its own problems when mistakes cannot be erased.

Students cannot omit blocks from the chain that they do not feel are appropriate or that could damage their reputation. So, how can they create different narratives for diverse purposes or highlight and/or hide different experiences? What happens if someone wants or needs to start anew? Is there a right to forget?

What if a student loses their key? The New York Times reports that lost passwords have locked millionaires out of their bitcoin fortunes. Will students and workers fare any better when it comes to academic and professional records? Who will respond to these problems within institutions?

These are questions post-secondary institutions and our society at large will increasingly need to navigate.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Rory McGreal, Professor and UNESCO/ICDE Chair in Open Educational Resources, Athabasca University.

The Week Ahead – FOMC Minutes and CPI Late Week

Posted on by phoffman@channelchek.com

Potential for a Change in Sentiment if Suprised by this Week’s FOMC Minutes, Jobs, and Inflation

When the world’s trading partners move interest rates in concert with each other, their actions are much smoother, this is because currency flows, which influence exchange rates, are less inclined to reprice dramatically. The U.S. has been comparatively aggressive in raising rates. This is part of why the Bank of England (BOE) shoring up its bond market, and the Japanese hawkish hesitancy has created disruptions and a historically strong U.S. dollar.

This week begins with Columbus Day; the bond markets are closed, and so are the banks. Stock market participants shouldn’t expect guidance from interest rate moves related to bond trading. The futures market will be active; moves from Interest rate futures from tickers such as ZB=F can be helpful while bonds are silent.  

Monday 10/10

  • 1:30 PM ET Federal Reserve Vice Chair Lael Brainard discusses restoring price stability at the National Association of Business Economics (NABE). Attend via Zoom.
  • Columbus Day, the potential for thin trading and big price swings.

Tuesday 10/11

  • NY Fed 5-year inflation expectations for one- and three-year-ahead inflation expectations had posted steep declines in August, from 6.2 percent and 3.2 percent in July to 5.7 percent and 2.8 percent, respectively. Investors will be watching to see if the declining expectations continue.
  • NFIB Small Business Optimism Index (NFIB), is a monthly survey that asks small businesses if they have plans to increase employment, plans to expand capital spending, increase inventories, expect economic improvement, expect higher retail sales, is now a good time to expand, current job openings, and earnings trends in their business. Health in small businesses can be an indicator of overall economic health and stock market strength. This report is released at 6 am last month, the index was 91.8, and the consensus is 91.5.
  • The Labor Department’s JOLTS has, in recent years, been referred to as the “Quits” report. The report tracks monthly changes in job openings and contains rates of hiring and quitting. The word JOLTS stands for Job Openings and Labor Turnover Survey.

Wednesday 10/12

  • The Producer Price Index (PPI) from the Bureau of Labor Statistics (BLS) is an inflation gauge that measures the average change over time in the prices received by U.S. producers of goods and services. The prices are typically considered input costs for final products and can impact CPI, it may also impact company costs of production and, therefore, profits. The trend has been lower, YOY PPI has been running at 8,7%, the consensus is for 8.4%.
  • The Mortgage Bankers Association (MBA) creates a statistic from several mortgage loan indexes. The Mortgage Applications index measures applications at mortgage lenders. It’s considered a leading indicator and is especially important for single-family home sales and housing construction. Both are considered foundational in a strong economy. L
  • ast week, the Purchase Index was -12.6%.
  • 10 Year Treasury Note Auction is held in the middle of each month and settles on or around the 15th (depending on weekends). The yield is a benchmark for 30-year mortgages and has recently been noted by investment markets because it has been trading at a yield lower than shorter maturities; this inversion of the yield curve has some market players suggesting a recession is expected in the future. Any surprises at the auction will reverberate through the stock market.
  • FOMC minutes (September meeting) – We’d all love to be a fly on the wall at the Fed’s meetings. The minutes detail the issues debated and the consensus among policymakers. This, of course, has ramifications if the contents of the minutes demonstrate an above-average hawkish or dovish change in tone. The Federal Open Market Committee issues minutes of its latest meeting three weeks after the meeting.

Thursday 10/13

  • US Consumer Price Index (CPI) is the inflation indicator most widely broadcast. With inflation being a primary focus, this will be the big number coming out this week. The number represents a basket of goods considered typical for an urban consumer and is taken as the change in the cost of that basket of goods. A percentage is derived from the change. CPI is also reported with food and energy removed as it is considered that other non-economic factors influence these prices. The August report indicated CPI rose 0.6% for the month and 8.3% YOY. Expectations are for a slowing to 0.4% for September and a YOY rate of 8.1%.
  • U.S. Jobless Claims, which represent the prior weeks of employment are expected to have increased to 225,000 from 219,000. From jobless claims, investors can gain a sense of how tight or how loose the job market is. If wage inflation takes hold, interest rates will likely rise, and bond and stock prices will fall.  Remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.

Friday 10/14

  • U.S. retail sales have been lackluster, neither rising nor falling. As we head toward Thanksgiving and Black Friday sales levels, the market will be taking more and more interest in how strong the consumer is. Expectations for September are a rise of 0.2 percent overall, down 0.1 percent when excluding vehicles and up 0.4 when also excluding gasoline. The number is released at 8:30 am.
  • Business inventories are expressed in dollar value held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. Rising inventories can be an indication of business optimism that sales will be growing in the coming months. However, if unintended inventory accumulation occurs, then production will probably have to slow while those inventories. The consensus is for a 0.9% increase after only increasing 0.6% for August.
  • U.S. Baker Hughes Rig Count tracks weekly changes in the number of active operating oil & gas rigs. Rigs that are not active are not counted. Components in the data are the United States and Canada, with a separate count for the Gulf of Mexico (which is a subset of the U.S. total). A significant increase or decrease could have ramifications on energy costs in North America. The rig count for the prior period in North America was 977, with 762 of those being from the U.S.

What Else

It is a light week for economic releases and Fed governor addresses, but late week could see a dramatic change in market sentiment as the Fed Minutes, CI, and even employment has the potential to impact thinking.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/calendar.htm

http://global-premium.econoday.com/byweek.asp?cust=global-premium

https://www.channelchek.com/news-channel/noble_on_the_road___noble_capital_markets_in_person_roadshow_series

Musk, The Art of the Deal

Posted on by aweinsoff@channelchek.com
OnInnovation (Flickr)

Musk Plans to Go Ahead with Original Price of $54.20 a Share

All successful businessmen have their own style of negotiating. Elon Musk is better known as a whiz-kid/idea-man than a wheeler-dealer negotiator. But, he didn’t become the wealthiest person on planet Earth without being a master persuader. There’s no telling how much the on-again, off-again deal to buy Twitter was a “chess match” the entrepreneur was playing to accomplish a goal. Or if he backed himself into a corner that he could not get out of. In the end, Twitter had initially been fighting hard not to be bought for 54.20 a share, Twitter later wound up suing to be taken private for $54.20 a share. Assuming the final deal is near, this is either masterful brilliance or a costly mistake for the entrepreneur.

Will the Musk Twitter Deal Finally be Consummated?

Elon Musk, according to multiple news outlets, wrote to Twitter on Tuesday and offered to follow through with the deal to buy the company. The terms were the same as the original offer by the billionaire. If this is the final chapter of the interplay between Musk, who heads several companies, and Twitter, it will end the seven-month-long legal saga. It will also be the only company Musk owns that he has not built from the ground up.

Not coming to an agreement now would be difficult. Musk and Twitter are scheduled to meet in a Delaware court on October 17 as Twitter is looking to force the billionaire to purchase the company for the same terms Musk is said to have proposed in his letter.

As of 2:30 on Tuesday, the shares of Twitter are up 12.67%. The price is 11.50% below Musk’s per-share offering price.

Key Details

Twitter accepted Musk’s unsolicited takeover bid on April 25, three weeks after the billionaire disclosed he purchased a 9.2% stake in the company. This followed a short period where Twitter employees and a number of advocacy groups with names like Stop the Deal campaigned to prevent the purchase.

Musk is a uses the microblogging social media platform to communicate with his 108 million followers. However, he loathes the platform’s content moderation policy and wishes to change it to a more open, less moderated social media site. This was the reason given to his followers as to why he’d buy Twitter, to “fix it.”

He later said he was backing out of his offer, the reason was his due diligence allegedly uncovered a large number of fake and spam accounts on Twitter. Elon formally requested to be let out of the deal on July 8, using the reason Twitter lowballed the number of bot accounts in its public filings.

Twitter sued Musk four days later and argued his reasons for backing out of the deal were invalid. The company filed at a state court in Delaware to force Musk to buy Twitter at the originally agreed-upon terms. As the trial date drew nearer, more revelations about both Twitter and Musk emerged. One high drama event was Musk’s lawyers suggesting his case was strengthened by a whistleblower complaint from Twitter’s former head of security. The complaint alleged the company knowingly misled regulators and investors about the number of bots on the site.

The suit, if it had proceeded in two weeks, may have gotten messy as Musk’s texts between himself and  public figures like Twitter co-founder Jack Dorsey, popular podcaster Joe Rogan, and Florida Governor DeSantis were to be part of the suit.

Other Impacted Stocks

Late afternoon on Tuesday, Tesla (TSLA) stock was trading 2.25% higher on the day but off its highs from before the news. Digital World Acquisition Corp., the SPAC that has agreed to merge with Trump Media and its platform, Truth Social, is down 3.16% on the day, having fallen sharply as word spread about Musk’s plans to buy Twitter.

Paul Hoffman

Managing Editor, Channelchek

What To Watch Out For October 3rd – October 7th, 2022

Posted on by aweinsoff@channelchek.com

Monitoring the Week Ahead – Week Ending October 8th

Today is the first trading week of the new quarter and the first in October. It’s the start of what many hope will be a market turnaround and a strong positive close to the year.

Taking the new month and new quarter one day at a time, below are events scheduled this week that could prove important to our Channelchek subscribers. US data and events will be heavy most days this week, opening with the ISM Manufacturing Survey Monday and ending with monthly Employment on Friday. A variety of Fed Governors will be talking on a number of critical subjects, those talks most likely to move markets are listed.

All times are Eastern Time.

Monday 10/3

  • Noble Capital Markets in Chicago, interview E.W. Scripps (attend live)
  • 9 am Raphael Bostick, Federal Reserve Bank of Atlanta, President/CEO, Discusses technology and Disruption. Follow
  • US Construction Spending 10 am –  This reports the dollar value of new construction activity on residential, non-residential, and public projects. Construction spending fell 0.4 percent in July, marking the sixth straight lower-than-expected result. August’s consensus is a 0.1 percent decline.
  • ISM Manufacturing Index 10 am –  The survey gathers information from managers about the general direction (tracked in volumes) of production, new orders, order backlogs, inventories, employment, supplier deliveries, exports, and imports. It was 52.8 in each of the last two reports, this shows the ISM manufacturing index has stabilized at a level of modest growth. September’s consensus is 52.4.
  • TD Ameritrade’s Investor Movement Index 12:30 – The Investor Movement Index, (IMX), is a behavior-based index created by TD Ameritrade designed to shed insight into Main Street sentiment. The IMX strives to measure what investors are actually doing and how they are positioned in the markets. The index is a snapshot, but when compared to previous periods may be helpful to uncover trends or changes in focus.

Tuesday 10/4

  • Noble Capital Markets in Chicago, interview E.W. Scripps in Milwaukee (attend live)
  • Factory orders are a leading indicator. It is the dollar amount of new orders for both durable and nondurable goods. Factory orders are seen gaining 0.2 percent in August, which would follow a 1.0 percent decline in July. Durable goods orders, which have already been released and are one of two major components of this report, fell 0.2 percent in the month.
  • The Labor Department’s JOLTS has in recent years been referred to as the “Quits” report. The report tracks monthly changes in job openings and contains rates on hiring and quitting. The word JOLTS stands for Job Openings and Labor Turnover Survey.

Wednesday 10/4

  • OPEC meeting. OPEC meetings and the announcements post meeting with changes to production quotas, raising or lowering the global supply of crude oil can have a dramatic impact on energy prices, which currently have been feeding into inflation and business costs. The Organization of Petroleum Exporting Countries and associate members meet monthly.
  • U.S. MBA Mortgage Applications at 7 am. This is a gauge of both the demand for housing and economic momentum. Families and individuals are usually feeling comfortable and confident in their own financial position to buy a house. The changes in housing provide data that has a significant multiplier effect acting on the economy as other purchases follow. The indicated change in economic activity impacts many industries and investment markets.
  • U.S. International Trade in Goods and Services at 8:30. Trade numbers are available by export, import, and trade balance for six principal end-use commodity categories. The numbers will be for August and are expected to show a deficit of $68.0 billion for total goods and services trade which would compare with a $70.6 billion deficit in July. Advance data on the goods side of August’s report showed a nearly $3 billion narrowing in the deficit.
  • The U.S. PMI Composite (Final) or Purchasing Managers Index released at 9:45 am is based on a monthly survey collected from over 400 U.S. companies. The companies provide a leading indicator of what is occurring in the private sector economy.  At 49.2, the first indicator for September showed improvement from August’s 43.7. No change at 49.2 is the expectation for the final.
  • The U.S. Energy Information Administration (EIA) Petroleum report 10:30 am. This report provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products. The report is comprehensive and viewed by people in the industry at all levels.

Thursday 10/6

  • The Challenger Job-Cut Report at 7:30 am provides insight into where layoffs are occurring. There is industry and state-level detail, which makes it more insightful than a weekly jobless claims reports.
  • The Jobless Claims report is released each Thursday at 8:30. Jobless claims for the October 1 week are expected to come in at 203,000 versus 193,000 in the prior week, which was much lower than expected.
  • The U.S. Energy Information Administration (EIA) Natural Gas report 10:30 am. This report provides weekly information on natural gas inventories in the U.S., whether produced here or abroad. With winter approaching in the northern hemisphere, unresolved natural gas distribution issues in Europe have heightened the attention paid to this report.

Friday 10/7

  • U.S. Employment situation at 8:30 am is possibly the most closely followed of all economic indicators. It establishes the official unemployment rate. the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey, which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines, and the household survey, which interviews 60,000 households. August was the fifth straight month, and in seven of the last eight, payroll growth exceeded expectations. One widely followed estimate is that nonfarm payrolls rose 250,000 in September.
  • U.S. Wholesale Inventories at 10 am. Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories
  • Federal Reserve Governor Lisa Cook, 1 pm address at Peterson Institute for International Economics. Watch
  • U.S. Consumer Credit, released at 3 pm is expected to show an increase to $25.0 billion in August versus a $23.8 billion increase in July.

What Else

The U.S. markets have been taking good news as bad and bad news as good when it relates to the economy. The reasons are fear that if the economy shows too much strength, the Fed will continue its aggressive fight to tame it, possibly overshooting.

A quarterly report Metal & Mining Q3 was released Monday by Noble Capital Markets. Check back with Channelchek this week for other quarter-end industry reports, including energy expected on Tuesday.

When investing and trading, always be aware of your surroundings and what may be lurking in the next influential speech, event, or report. Wishing you all a profitable week.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/calendar.htm

https://www.channelchek.com/news-channel/noble_on_the_road___noble_capital_markets_in_person_roadshow_series

http://global-premium.econoday.com/byweek.asp?cust=global-premium

https://www.marketwatch.com/economy-politics/calendar

Musk’s Attempt to Rein In the Securities and Exchange Commission

Posted on by cpatches
Image Credit:  Wired Photostream (Flickr)

Musk’s Lawyers Call SEC Agreement a “Government Imposed Muzzle”

Elon Musk has had enough of being gagged. It has been over four years since he tweeted to his 22 million Twitter followers that he could take Tesla private, at $420 per share (a substantial premium to its trading price at the time), and that funding for the transaction had been secured, adding the only remaining uncertainty was a shareholder vote. On September 27, 2018, the SEC charged Musk, CEO of Tesla Inc., with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla (TSLA) private. 

Part of the resolution with the Commission was that the CEO and chairman would not use Twitter and mention business without each tweet being vetted by a lawyer. Apparently, the provision restricting open communication with followers is difficult for Elon, who is quite active on the social media microblog platform. The easier part is the $40 million in cash that was part of the settlement ($20mm Musk, $20mm Tesla), and his resignation as Chairman of the Board.

In a brief filed with the 2nd U.S. Circuit Court of Appeals in Manhattan, on the fourth anniversary of the SEC’s charges, Musk’s lawyers called the pre-approval mandate a “government-imposed muzzle” that inhibited and chilled his lawful speech on a broad range of topics. The brief also said the requirement imposed by the SEC violated the U.S. Constitution and undermined public policy by running “contrary to the American principles of free speech and open debate.”

The SEC is expected to respond by filing its own brief with the appeals court.

Elon had filed an appeal previously to terminate the settlement agreement he had as CEO of Tesla with the SEC. That request was denied in April of this year. The denial was awkward as Mr. Musk was moving forward to acquire Twitter for $44 billion.

When on November 6, 2021 Musk asked Twitter followers whether he should sell 10% of his Tesla stake to cover tax bills on stock options, the SEC opened a probe and subpoenaed documents related to his compliance with the earlier settlement.

It’s time to rein in the SEC, according to the filing by Musk’s attorneys. It said the ruling is keeping Musk under “constant threat” as the Commission might reject his view as to which tweets require pre-approval from legal staff.

“Under the shadow of the consent decree, the SEC has increasingly surveilled, policed, and attempted to curb Mr. Musk’s protected speech that does not touch upon the federal securities laws,” the lawyers wrote.

In other events related to Twitter and the Tesla founder, Twitter has sued Musk to complete his purchase of the company. A nonjury trial is scheduled for October 17 in Delaware Chancery Court.

Paul Hoffman Managing Editor, Channelchek

Sources

https://www.sec.gov/news/press-release/2018-219

https://www.sec.gov/news/press-release/2018-226

https://www.reuters.com/legal/elon-musk-seeks-narrow-sec-consent-decree-end-pre-approval-tweets-2022-09-28/

https://www.politico.com/news/2022/04/27/judge-rejects-elon-musks-motion-sec-consent-decree-tweets-00028341

In-Person “Meet the Management” Series

Posted on by cpatches

Face-to-face with c-suite executives

Noble Capital Markets, a full-service SEC / FINRA registered broker-dealer, dedicated exclusively to serving underfollowed small/microcap companies through investment banking, wealth management, trading & execution, and equity research activities (and the provider of equity research on Channelchek), is pleased to announce the return of in-person meetings with executives from companies listed on Channelchek. Qualified Investors, at all levels, as well as registered representatives, are welcome to attend these breakfasts and lunches at no cost, and with no obligation to invest. LIMITED SEATING AVAILABILITY.  

To request attendance, click the registration link(s) below. A Noble representative will contact you to request qualification information, and to provide you full location and attendance details (based upon availability). NOTE: All attendees must be preregistered and qualified; no admittance of unregistered guests at the door. Limited opportunity to attend future meetings for no-shows. For general MEET the MANAGEMENT inquiries, please contact Dustin Cronk, Head of Institutional Relationships at Noble Capital Markets at dcronk@noblecapitalmarkets.com

Release – Kelly to Participate in the 15th Annual Barrington Research Virtual Fall Conference

Posted on by Admin



Kelly to Participate in the 15th Annual Barrington Research Virtual Fall Conference

Research, News, and Market Data on Kelly

August 31, 2022

TROY, Mich., 
Aug. 31, 2022 /PRNewswire/ — 
Kelly (Nasdaq: KELYA, KELYB), a leading specialty talent solutions provider, today announced it will participate in the 15th Annual 
Barrington Research Virtual Fall Conference on 
Thursday, September 8, 2022.

Peter Quigley , president and CEO,  Olivier Thirot , executive vice president and chief financial officer, and  James Polehna , chief investor relations officer and corporate secretary, will participate in virtual one-on-one meetings. A copy of Kelly’s investor presentation is also available at kellyservices.com.

About Kelly®

Kelly Services, Inc.
 (Nasdaq: KELYA, KELYB) connects talented people to companies in need of their skills in areas including Science, Engineering, Education, Office, Contact Center, 
Light Industrial
, and more. We’re always thinking about what’s next in the evolving world of work, and we help people ditch the script on old ways of thinking and embrace the value of all workstyles in the workplace. We directly employ more than 350,000 people around the world, and we connect thousands more with work through our global network of talent suppliers and partners in our outsourcing and consulting practice. Revenue in 2021 was 
$4.9 billion. Visit 
kellyservices.com and let us help with what’s next for you.

KLYA-FIN

ANALYST & MEDIA CONTACT:
James Polehna
(248) 244-4586
james.polehna@kellyservices.com

 


When Corporate Governance Gets Sticky

Posted on by Admin 



Image Credit: NASA HQ Photo (Flickr)


Musk Confounds Experts in Corporate Governance Best Practices

According to the Chartered Governance Institute, “Good quality, ethical decision-making builds sustainable businesses and enables them to create long-term value more effectively.” So it’s no surprise that the head of start-up Neuralink (Elon Musk) has caused so many governance experts to try to wrap their brains around the decision he and a coworker made to have children together.

Often referred to as the richest man in the world, co-founder of Paypal (PYPL), SpaceX owner, Tesla (TSLA) CEO, and Boring Company President, Elon Musk has proven himself successful at managing unique companies through its growth phase. He’s respected worldwide, and a single snarky tweet from the South African-born American is powerful enough to change the fortunes of investors in crypto and some stocks.

Lately, the 51-year-old has been the subject of debate among those that report on company ESG (environmental, social, governance) standards. No, not because he smoked pot on The Joe Rogan Show, although in his role at SpaceX, the government did have some questions. This debate began after he and a direct report at Neuralink became the parents of twins back in November 2021. Neuralink is a less-known Musk creation with about 300 employees. It is developing chips that connect the human brain directly to machines.

The director-level subordinate has reportedly told coworkers that she was not and is not involved romantically with the boss. She has told them the children with Musk were conceived through in-vitro fertilization (IVF).

To avoid possible conflicts of interest, Neuralink’s employee handbook prohibits dating, “personal relationships,” and “close personal friendships” between employees in a direct supervisory dynamic. This is common language in employees’ agreements with their employer. It’s also considered best practice in corporate governance for those in significant management positions. It’s not uncommon for a “fling” to cost a CEO, or subordinate their job. The chief concern is conflicts of interest, putting the company and its investors first.


Musk Again Has Found a Different Path

But the reported circumstances surrounding the Neuralink babies are so unusual that Reuters reached out to corporate governance counselors and asked them to review the company policy and circumstances presented by the two involved. This is clearly a situation with many gray areas. There was no agreement amongst the experts, as with many other things that mix business and personal ethics.

Nell Minow, vice chair of corporate governance consultancy ValueEdge Advisors, told Reuters about the Code of Conduct, “Whatever lawyer wrote this language did not contemplate this situation.” Adding the facts appeared to “fall between the cracks” of the policy’s intent to avoid conflicts of interest due to worker relationships.

Four of the corporate governance experts said they believed the two producing children, even through IVF, is a “personal relationship” or “close friendship,” which Neuralink’s code of conduct requires to be disclosed to a “people operations manager.”  The code does not define a “close friendship” but defines a personal relationship as one where the individuals have a “continuing relationship of a romantic or intimate nature and who are not married to each other.”

Gabriel Rauterberg, a corporate law professor at the University of Michigan, told Reuters, “You’re layering intimate familial bonds over professional relationships,” he explained, “There is always the worry that someone with greater power will use their professional power in ways that are inappropriate.”

The remaining five corporate governance aficionados either did not think the parents’ arrangement was a breach under the Neuralink policy or were stumped by how far outside the box it was for them.

Joan Heminway, a business professor at the University of Tennessee’s law school, pointed out that one can’t demonstrate that the coworkers are close personally, despite the IVF matter, she said, “That’s the new wrench here.”

Usha Rodrigues, a professor at the University of Georgia’s law school, said the matter “may fall under ‘close friendship’ if there is an ongoing, co-parenting type relationship, but that is subject to interpretation.”

 

Business as “Usual”

The extent of Musk’s involvement in the life of his young twins is unclear. A court filing shows they asked for the children to take his last name; the parents also listed the same address in Texas.

Neuralink has accepted the new mom’s description that it is a non-romantic relationship, and she continues in her role as director of operations and special projects. The two still function as a team inside the workplace, each running internal and external meetings. 


Take Away

It’s difficult not to have an opinion on whether non-romantic parenting is an intimate relationship between coworkers or if such a policy is good corporate governance. Perhaps it is a policy that serves one company best yet would be a disaster imposed on another.

We’d like to know what you think. Leave a comment under this article on Channelchek’s Twitter account, and hit the “Follow” button while you’re there.

Paul Hoffman

Managing Editor, Channelchek

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Sources

https://www.cgi.org.uk/about-us/policy/what-is-corporate-governance

https://www.reuters.com/business/musk-tests-limits-governance-by-having-children-with-aide-2022-08-26/

Stay up to date. Follow us:

 

Release – Kelly Reports Second-Quarter 2022 Earnings

Posted on by Admin



Kelly Reports Second-Quarter 2022 Earnings

Research, News, and Market Data on Kelly

Kelly Reports Second-Quarter
2022 Earnings

August 11, 2022

  • Q2 revenue up 0.7% from a
    year ago; 2.7% in constant currency
  • Q2 operating earnings of $8.2
    million     and earnings per share of $0.06 down
    from a year ago primarily due to a non-cash impairment charge related to
    our operations in Russia
  • Adjusted operating earnings
    of $22.3 million; up
    63% from a year ago
  • Completed the acquisition
    of Pediatric Therapeutic Services in May to extend our leading position in
    K-12 education

TROY, Mich., 
Aug. 11, 2022 /PRNewswire/ — 
Kelly (Nasdaq: KELYA, KELYB), a leading specialty talent solutions provider, today announced results for the second quarter of 2022.

Peter Quigley , president and chief executive officer, announced revenue for the second quarter of 2022 totaled 
$1.3 billion, a 0.7% increase, or 2.7% in constant currency, compared to the corresponding quarter of 2021. Revenue improved year-over-year in the quarter reflecting increased customer demand compared to the COVID-19-impacted prior year period, as well as the impact of the recent acquisitions of RocketPower, a recruitment process outsourcing firm, and Pediatric Therapeutic Services, a specialty firm providing in-school therapy services.

Earnings from operations in the second quarter of 2022 totaled 
$8.2 million
, compared to 
$13.7 million
 reported in the second quarter of 2021. Earnings in the second quarter of 2022 include an asset impairment charge related to our decision to transition our business in 
Russia and a gain on sale of assets related to the disposition of under-utilized real property located in 
the United States. Excluding those items, adjusted earnings from operations were 
$22.3 million compared to 
$13.7 million in the second quarter of 2021. Earnings improved as a result of revenue growth combined with structural improvement in gross profit rate and expense leverage.

Earnings per share in the second quarter of 2022 were 
$0.06 compared to earnings per share of 
$0.60 in the second quarter of 2021. Included in the earnings per share in the second quarter of 2022 is a 
$0.48 per share asset impairment charge, net of tax, related to our decision to transition our business in 
Russia and an 
$0.08 per share gain on sale of assets, net of tax, related to the disposition of under-utilized real property located in 
the United States. Included in the second quarter of 2021 is earnings per share of 
$0.11 gain, net of tax, related to non-cash gains, net of tax, on 
Persol Holding
 common shares. On an adjusted basis, earnings per share were 
$0.45 in the second quarter of 2022 compared to 
$0.49 in the corresponding quarter of 2021. Adjusted earnings per share in the second quarter of 2022 declined as a result of higher 2022 tax expense compared to the same period in 2021.

“We saw solid demand for Kelly’s specialties in the second quarter and, importantly, we are successfully translating revenue into strong gross profit growth. We drove significant improvement in our gross profit rate year over year, due to our continued positive shift in business mix toward higher-margin products and specialties boosted by our specialty acquisitions,” said Quigley. “We have significant capital available to enable growth, and we are putting that capital to work to drive shareholder value. While there is some economic uncertainty in the second half of the year, we are confident that our focused and well-capitalized specialization strategy will continue to deliver value in 2022 and beyond.”

Kelly also reported that on 
August 10, its board of directors declared a dividend of 
$0.075 per share. The dividend is payable on 
September 7, 2022 to stockholders of record as of the close of business on 
August 24, 2022.

In conjunction with its second-quarter earnings release, Kelly has published a financial presentation on the Investor Relations page of its public website and will host a conference call at 
9 a.m. ET on August 11 to review the results and answer questions. The call may be accessed in one of the following ways:

Via the Internet:
Kellyservices.com

Via the Telephone
(877) 692-8955 (toll free) or (234) 720-6979 (caller paid)
Enter access code 5728672
After the prompt, please enter “#”

A recording of the conference call will be available after 
2:30 p.m. ET on 
August 11, 2022
, at (866) 207-1041 (toll-free) and (402) 970-0847 (caller-paid). The access code is 8237932#. The recording will also be available at kellyservices.com during this period.

This release contains statements that are forward looking in nature and, accordingly, are subject to risks and uncertainties. These factors include, but are not limited to, changing market and economic conditions, the impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our brand, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, risks associated with conducting business in foreign countries, including foreign currency fluctuations, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this release and in the Company’s filings with the 
Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

About Kelly®

Kelly Services, Inc.
 (Nasdaq: KELYA, KELYB) connects talented people to companies in need of their skills in areas including Science, Engineering, Education, Office, Contact Center, 
Light Industrial
, and more. We’re always thinking about what’s next in the evolving world of work, and we help people ditch the script on old ways of thinking and embrace the value of all workstyles in the workplace. We directly employ more than 350,000 people around the world, and we connect thousands more with work through our global network of talent suppliers and partners in our outsourcing and consulting practice. Revenue in 2021 was 
$4.9 billion. Visit 
kellyservices.com and let us help with what’s next for you.

KLYA-FIN

MEDIA CONTACT:

ANALYST CONTACT:

Jane
Stehney

James
Polehna

(248) 765-6864

(248) 244-4586

stehnja@kellyservices.com

james.polehna@kellyservices.com

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 13 WEEKS ENDED JULY
3, 2022 AND JULY 4,
2021

(UNAUDITED)

(In millions of dollars except per share data)

%

CC %

2022

2021

Change

Change

Change

Revenue
from services

$

1,267.3

$

1,258.1

$

9.2

0.7

%

2.7

%

Cost of services

1,004.9

1,027.1

(22.2)

(2.2)

Gross
profit

262.4

231.0

31.4

13.6

15.6

Selling, general and administrative expenses

240.1

217.3

22.8

10.6

12.3

Impairment of assets held for sale

18.5

—

18.5

NM

Gain on sale of assets

(4.4)

—

(4.4)

NM

Earnings
from operations

8.2

13.7

(5.5)

(40.6)

Gain on investment in Persol Holdings

—

6.3

(6.3)

NM

Other expense, net

(1.1)

(0.3)

(0.8)

(350.6)

Earnings
before taxes and equity in net earnings (loss) of affiliate

7.1

19.7

(12.6)

(64.1)

Income tax expense (benefit)

4.9

(2.6)

7.5

282.9

Net
earnings before equity in net earnings (loss) of affiliate

2.2

22.3

(20.1)

(90.1)

Equity in net earnings (loss) of affiliate

—

1.7

(1.7)

NM

Net
earnings

$

2.2

$

24.0

$

(21.8)

(90.8)

Basic
earnings  per share

$

0.06

$

0.60

$

(0.54)

(90.0)

Diluted
earnings per share

$

0.06

$

0.60

$

(0.54)

(90.0)

STATISTICS:

Permanent placement revenue (included in revenue from services)

$

24.8

$

18.6

$

6.2

33.2

%

36.3

%

Gross profit rate

20.7

%

18.4

%

2.3

pts.

Conversion rate

3.1

%

5.9

%

(2.8)

pts.

Adjusted EBITDA

$

31.7

$

22.2

$

9.5

Adjusted EBITDA margin

2.5

%

1.8

%

0.7

pts.

Effective income tax rate

68.8

%

(13.5)

%

82.3

pts.

Average number of shares outstanding (millions):

     Basic

37.9

39.4

     Diluted

38.2

39.5

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 26 WEEKS ENDED JULY
3, 2022 AND JULY 4,
2021

(UNAUDITED)

(In millions of dollars except per share data)

%

CC %

2022

2021

Change

Change

Change

Revenue
from services

$

2,563.7

$

2,464.0

$

99.7

4.0

%

5.8

%

Cost of services

2,042.7

2,019.7

23.0

1.1

Gross
profit

521.0

444.3

76.7

17.3

19.0

Selling, general and administrative expenses

476.2

420.0

56.2

13.4

14.8

Impairment of assets held for sale

18.5

—

18.5

NM

Gain on sale of assets

(5.3)

—

(5.3)

NM

Earnings
from operations

31.6

24.3

7.3

29.8

Gain (loss) on investment in Persol Holdings

(67.2)

36.3

(103.5)

NM

Loss on currency translation from liquidation of subsidiary(1)

(20.4)

—

(20.4)

NM

Other income (expense), net

1.7

(3.7)

5.4

147.2

Earnings
(loss) before taxes and equity in net earnings (loss) of affiliate

(54.3)

56.9

(111.2)

NM

Income tax expense (benefit)

(8.1)

7.9

(16.0)

(204.0)

Net
earnings (loss) before equity in net earnings (loss) of affiliate

(46.2)

49.0

(95.2)

NM

Equity in net earnings (loss) of affiliate

0.8

0.6

0.2

35.7

Net
earnings (loss)

$

(45.4)

$

49.6

$

(95.0)

NM

Basic
earnings (loss) per share

$

(1.19)

$

1.25

$

(2.44)

NM

Diluted
earnings (loss) per share

$

(1.19)

$

1.25

$

(2.44)

NM

STATISTICS:

Permanent placement revenue (included in revenue from services)

$

51.4

$

34.6

$

16.8

48.5

%

51.4

%

Gross profit rate

20.3

%

18.0

%

2.3

pts.

Conversion rate

6.1

%

5.5

%

0.6

pts.

Adjusted EBITDA

$

62.4

$

39.1

$

23.3

Adjusted EBITDA margin

2.4

%

1.6

%

0.8

pts.

Effective income tax rate

15.0

%

13.8

%

1.2

pts.

Average number of shares outstanding (millions):

     Basic

38.3

39.4

     Diluted

38.3

39.5

 

(1)

Subsequent to the sale of the Persol Holdings investment, the Company commenced the dissolution process of the Kelly Services Japan subsidiary, which was considered substantially liquidated as of the first quarter-end 2022, resulting in the recognition of the 
$20.4 million
 loss on currency translation from liquidation of this subsidiary in the first quarter of 2022.

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)

Second Quarter

%

CC %

2022

2021

Change

Change

Professional
& Industrial

Revenue from services

$

415.8

$

466.5

(10.9)

%

(10.6)

%

Gross profit

77.8

75.2

3.6

3.9

Total SG&A expenses

67.4

69.0

(2.2)

(2.0)

Earnings (loss) from operations

10.4

6.2

68.6

Gross profit rate

18.7

%

16.1

%

2.6

 pts.

Science,
Engineering & Technology

Revenue from services

$

324.3

$

298.2

8.7

%

9.0

%

Gross profit

75.2

66.5

13.1

13.3

Total SG&A expenses

54.8

46.9

16.9

17.1

Earnings (loss) from operations

20.4

19.6

3.8

Gross profit rate

23.2

%

22.3

%

0.9

 pts.

Education

Revenue from services

$

155.5

$

105.9

46.8

%

46.8

%

Gross profit

26.0

16.8

55.0

55.0

Total SG&A expenses

20.4

15.3

33.4

33.4

Earnings (loss) from operations

5.6

1.5

278.6

Gross profit rate

16.7

%

15.8

%

0.9

 pts.

Outsourcing
& Consulting

Revenue from services

$

124.4

$

107.3

16.0

%

17.3

%

Gross profit

46.2

34.8

32.8

35.3

Total SG&A expenses

39.8

30.1

32.5

34.5

Earnings (loss) from operations

6.4

4.7

34.5

Gross profit rate

37.2

%

32.5

%

4.7

pts.

International

Revenue from services

$

247.6

$

280.4

(11.7)

%

(4.3)

%

Gross profit

37.2

37.7

(1.5)

7.3

Total SG&A expenses

34.6

34.6

(0.1)

8.2

Earnings (loss) from operations

2.6

3.1

(16.3)

Gross profit rate

15.0

%

13.4

%

1.6

pts.

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)

June Year to Date

%

CC %

2022

2021

Change

Change

Professional
& Industrial

Revenue from services

$

860.1

$

934.1

(7.9)

%

(7.8)

%

Gross profit

160.9

151.1

6.5

6.7

Total SG&A expenses

138.8

138.4

0.3

0.4

Earnings (loss) from operations

22.1

12.7

74.2

Gross profit rate

18.7

%

16.2

%

2.5

 pts.

Science,
Engineering & Technology

Revenue from services

$

641.4

$

552.9

16.0

%

16.2

%

Gross profit

149.0

119.7

24.5

24.7

Total SG&A expenses

108.0

82.6

30.8

30.9

Earnings (loss) from operations

41.0

37.1

10.5

Gross profit rate

23.2

%

21.6

%

1.6

 pts.

Education

Revenue from services

$

328.9

$

217.5

51.2

%

51.2

%

Gross profit

52.6

34.0

54.9

54.9

Total SG&A expenses

39.0

29.5

32.4

32.4

Earnings (loss) from operations

13.6

4.5

203.1

Gross profit rate

16.0

%

15.6

%

0.4

 pts.

Outsourcing
& Consulting

Revenue from services

$

233.5

$

206.6

13.0

%

14.1

%

Gross profit

83.5

66.1

26.3

28.2

Total SG&A expenses

74.1

58.5

26.7

28.2

Earnings (loss) from operations

9.4

7.6

23.1

Gross profit rate

35.8

%

32.0

%

3.8

pts.

International

Revenue from services

$

500.4

$

553.3

(9.5)

%

(2.7)

%

Gross profit

75.0

73.4

2.1

10.0

Total SG&A expenses

67.8

67.7

0.2

7.4

Earnings (loss) from operations

7.2

5.7

25.7

Gross profit rate

15.0

%

13.3

%

1.7

pts.

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions of dollars)

July 3,
2022

January 2,
2022

July 4,
2021

Current
Assets

  Cash and equivalents

$

133.9

$

112.7

$

64.4

  Trade accounts receivable, less allowances of

    
$12.0, 
$12.6, and 
$12.5, respectively

1,497.9

1,423.2

1,362.5

  Prepaid expenses and other current assets

80.6

52.8

82.4

Assets held for sale

24.6

—

—

Total current assets

1,737.0

1,588.7

1,509.3

Noncurrent
Assets

  Property and equipment, net

25.4

35.3

37.7

  Operating lease right-of-use assets

70.1

75.8

83.2

  Deferred taxes

298.3

302.8

302.9

  
Goodwill, net

192.1

114.8

114.8

  Investment in Persol Holdings

—

264.3

187.7

  Investment in equity affiliate

—

123.4

120.0

  Other assets

412.3

389.1

391.3

Total noncurrent assets

998.2

1,305.5

1,237.6

Total
Assets

$

2,735.2

$

2,894.2

$

2,746.9

Current
Liabilities

  Short-term borrowings

$

—

$

—

$

0.1

  Accounts payable and accrued liabilities

734.7

687.2

612.6

  Operating lease liabilities

15.3

17.5

19.6

  Accrued payroll and related taxes

322.4

318.4

337.0

  Accrued workers’ compensation and other claims

24.4

20.8

22.0

  Income and other taxes

50.5

51.3

62.6

Liabilities held for sale

13.7

—

—

Total current liabilities

1,161.0

1,095.2

1,053.9

Noncurrent
Liabilities

  Operating lease liabilities

57.7

61.4

67.1

Accrued payroll and related taxes

—

57.6

58.5

  Accrued workers’ compensation and other claims

43.4

37.0

40.8

  Accrued retirement benefits

180.2

220.0

214.6

  Other long-term liabilities

16.0

86.8

68.2

Total noncurrent liabilities

297.3

462.8

449.2

Stockholders’
Equity

  Common stock

38.5

40.1

40.1

  
Treasury stock

(12.5)

(15.1)

(15.3)

  Paid-in capital

24.9

23.9

22.3

  Earnings invested in the business

1,239.2

1,315.0

1,212.5

  Accumulated other comprehensive income (loss)

(13.2)

(27.7)

(15.8)

Total stockholders’ equity

1,276.9

1,336.2

1,243.8

Total
Liabilities and Stockholders’ Equity

$

2,735.2

$

2,894.2

$

2,746.9

STATISTICS:

 Working Capital

$

576.0

$

493.5

$

455.4

 Current Ratio

1.5

1.5

1.4

 Debt-to-capital %

0.0

%

0.0

%

0.0

%

 Global Days Sales Outstanding

63

60

60

 Year-to-Date Free Cash Flow

$

(110.8)

$

73.8

$

42.7

               

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE 26 WEEKS ENDED JULY
3, 2022 AND JULY 4,
2021

(UNAUDITED)

(In millions of dollars)

2022

2021

Cash flows
from operating activities:

Net earnings (loss)

$

(45.4)

$

49.6

Adjustments to reconcile net earnings (loss) to net cash from operating activities:

Impairment of assets held for sale

18.5

—

Depreciation and amortization

16.1

14.1

Operating lease asset amortization

9.8

10.7

Provision for credit losses and sales allowances

1.3

—

Stock-based compensation

3.8

2.8

(Gain) loss on investment in Persol Holdings

67.2

(36.3)

Loss on currency translation from liquidation of subsidiary

20.4

—

Gain on foreign currency remeasurement

(5.5)

—

Gain on sale of assets

(5.3)

—

Equity in net (earnings) loss of 
PersolKelly Pte. Ltd.

(0.8)

(0.6)

Other, net

2.9

2.2

Changes in operating assets and liabilities, net of acquisitions

(190.3)

5.1

Net cash
(used in) from operating activities

(107.3)

47.6

Cash flows
from investing activities:

Capital expenditures

(3.5)

(4.9)

Proceeds from sale of assets

4.5

—

Acquisition of companies, net of cash received

(143.1)

(219.0)

Proceeds from company-owned life insurance

1.5

10.4

Proceeds from sale of Persol Holdings investment

196.9

—

Proceeds from sale of equity method investment

119.5

—

Proceeds related to loans with equity affiliate

—

5.8

Proceeds from equity securities

—

5.0

Other investing activities

(0.2)

1.0

Net cash
from (used in) investing activities

175.6

(201.7)

Cash flows
from financing activities:

Net change in short-term borrowings

—

(0.1)

Financing lease payments

(0.4)

(0.3)

Dividend payments

(4.8)

—

Payments of tax withholding for stock awards

(0.8)

(0.6)

Buyback of common shares

(27.2)

—

Contingent consideration payments

(0.7)

—

Net cash
used in financing activities

(33.9)

(1.0)

Effect of
exchange rates on cash, cash equivalents and restricted cash

0.1

(2.3)

Net change
in cash, cash equivalents and restricted cash

34.5

(157.4)

Cash, cash
equivalents and restricted cash at beginning of period

119.5

228.1

Cash, cash
equivalents and restricted cash at end of period

$

154.0

$

70.7

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

REVENUE FROM SERVICES BY GEOGRAPHY

(UNAUDITED)

(In millions of dollars)

Second Quarter

%

CC %

2022

2021

Change

Change

Americas

United States

$

928.9

$

894.6

3.8

%

3.8

%

Canada

40.3

39.5

1.8

6.0

Puerto Rico

28.9

26.9

7.7

7.7

Mexico

11.2

33.1

(66.3)

(66.2)

Total
Americas Region

1,009.3

994.1

1.5

1.7

Europe

Switzerland

55.3

54.0

2.4

8.7

France

50.4

57.5

(12.4)

(0.7)

Portugal

42.0

40.6

3.5

17.3

Russia

28.7

33.7

(14.6)

(24.6)

Italy

18.4

19.4

(5.4)

7.4

United Kingdom

16.0

17.7

(9.6)

1.0

Other

35.7

31.8

12.1

28.3

Total
Europe Region

246.5

254.7

(3.2)

5.4

Total
Asia-Pacific Region

11.5

9.3

24.2

32.1

Total
Kelly Services, Inc.

$

1,267.3

$

1,258.1

0.7

%

2.7

%

               

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

REVENUE FROM SERVICES BY GEOGRAPHY

(UNAUDITED)

(In millions of dollars)

June Year to Date

%

CC %

2022

2021

Change

Change

Americas

United States

$

1,885.5

$

1,753.1

7.6

%

7.6

%

Canada

79.4

73.6

7.8

10.1

Puerto Rico

56.5

51.1

10.7

10.7

Mexico

21.5

67.7

(68.3)

(68.1)

Total
Americas Region

2,042.9

1,945.5

5.0

5.1

Europe 

Switzerland

110.3

106.7

3.4

7.5

France

105.0

111.8

(6.1)

3.6

Portugal

83.9

84.3

(0.5)

9.9

Russia

58.4

66.3

(11.9)

(9.4)

Italy

37.9

37.5

0.8

11.3

United Kingdom

31.0

34.7

(10.7)

(4.0)

Other

72.0

59.6

20.8

33.9

Total
Europe Region

498.5

500.9

(0.5)

7.4

Total
Asia-Pacific Region

22.3

17.6

26.7

33.7

Total
Kelly Services, Inc.

$

2,563.7

$

2,464.0

4.0

%

5.8

%

 

 

 KELLY SERVICES, INC. AND SUBSIDIARIES

 RECONCILIATION OF NON-GAAP MEASURES

SECOND QUARTER

 (UNAUDITED)

 (In millions of dollars)

2022

2021

Earnings
(loss) from Operations:

As Reported

Gain on sale of
assets(3)

Impairment of
assets held

for sale(4)

Adjusted

As Reported

Professional & Industrial

$                  10.4

$                     —

$                     —

$                  10.4

$                    6.2

Science, Engineering & Technology

20.4

—

—

20.4

19.6

Education

5.6

—

—

5.6

1.5

Outsourcing & Consulting

6.4

—

—

6.4

4.7

International

2.6

—

—

2.6

3.1

Corporate

(23.1)

—

—

(23.1)

(21.4)

Impairment of assets held for sale

(18.5)

—

18.5

—

—

Gain on sale of assets

4.4

(4.4)

—

—

—

Total Company

$                    8.2

$                   (4.4)

$                  18.5

$                  22.3

$                  13.7

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

JUNE YEAR TO DATE

(UNAUDITED)

(In millions of dollars)

2022

2021

Earnings
(loss) from Operations:

As Reported

Gain on sale

of assets(3)

Impairment of
assets held

for sale(4)

Adjusted

As Reported

Professional & Industrial

$                  22.1

$                     —

$                     —

$                  22.1

$                  12.7

Science, Engineering & Technology

41.0

—

—

41.0

37.1

Education

13.6

—

—

13.6

4.5

Outsourcing & Consulting

9.4

—

—

9.4

7.6

International

7.2

—

—

7.2

5.7

Corporate

(48.5)

—

—

(48.5)

(43.3)

Impairment of assets held for sale

(18.5)

—

18.5

—

—

Gain on sale of assets

5.3

(5.3)

—

—

—

Total Company

$                  31.6

$                  (5.3)

$                  18.5

$                  44.8

$                  24.3

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

(UNAUDITED)

(In millions of dollars except per share data)

Second Quarter

June Year to Date

2022

2021

2022

2021

Income tax expense (benefit)

$                      4.9

$                     (2.6)

$                     (8.1)

$                      7.9

Taxes on investment in Persol Holdings(1)

—

(1.9)

18.4

(11.1)

Taxes on foreign currency matters(2)

—

—

(1.5)

—

Taxes on gain on sale of assets(3)

(1.1)

—

(1.3)

—

Taxes on impairment of assets held for sale(4)

—

—

—

—

Adjusted income tax expense (benefit)

$                      3.8

$                     (4.5)

$                      7.5

$                     (3.2)

Second Quarter

June Year to Date

2022

2021

2022

2021

Net earnings (loss)

$                      2.2

$                    24.0

$                  (45.4)

$                    49.6

(Gain) loss on investment in Persol Holdings, net of taxes(1)

—

(4.4)

48.8

(25.2)

Loss on foreign currency matters, net of taxes(2)

—

—

16.4

—

Gain on sale of assets, net of taxes(3)

(3.3)

—

(4.0)

—

Impairment of assets held for sale, net of taxes(4)

18.5

—

18.5

—

Adjusted net earnings

$                    17.4

$                    19.6

$                    34.3

$                    24.4

Second Quarter

June Year to Date

2022

2021

2022

2021

Per Share

Per Share

Net earnings (loss)

$                    0.06

$                    0.60

$                  (1.19)

$                    1.25

(Gain) loss on investment in Persol Holdings, net of taxes(1)

—

(0.11)

1.27

(0.63)

Loss on foreign currency matters, net of taxes(2)

—

—

0.43

—

Gain on sale of assets, net of taxes(3)

(0.08)

—

(0.10)

—

Impairment of assets held for sale, net of taxes(4)

0.48

—

0.48

—

Adjusted net earnings

$                    0.45

$                    0.49

$                    0.90

$                    0.61

Note: Earnings per share amounts for each quarter are required to be computed independently and may not equal the amounts computed for the total year.

 

 

KELLY
SERVICES, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP MEASURES

(UNAUDITED)

(In millions of dollars)

Second Quarter

June Year to Date

2022

2021

2022

2021

Net earnings (loss)

$                  2.2

$                24.0

$               (45.4)

$                49.6

Other (income) expense, net(2)

1.1

0.3

(1.7)

3.7

Income tax expense (benefit)

4.9

(2.6)

(8.1)

7.9

Depreciation and amortization

9.4

8.5

17.6

14.8

EBITDA

17.6

30.2

(37.6)

76.0

Equity in net (earnings) loss of affiliate

—

(1.7)

(0.8)

(0.6)

(Gain) loss on investment in Persol Holdings(1)

—

(6.3)

67.2

(36.3)

Loss on foreign currency matters(2)

—

—

20.4

—

Gain on sale of assets(3)

(4.4)

—

(5.3)

—

Held for sale impairment charge(4)

18.5

—

18.5

—

Adjusted
EBITDA

$                31.7

$                22.2

$                62.4

$                39.1

Adjusted
EBITDA margin

2.5 %

1.8 %

2.4 %

1.6 %

 

KELLY SERVICES,
INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(UNAUDITED)

Management believes that the non-GAAP (Generally Accepted Accounting Principles) information excluding the 2022 sale of the Persol Holdings investment, the 2022 and 2021 gains and losses on the fair value changes of the investment in Persol Holdings, the 2022 losses on foreign currency matters, the 2022 gains on sale of assets and the impairment of assets held for sale, are useful to understand the Company’s fiscal 2022 financial performance and increases comparability.  Specifically, Management believes that removing the impact of these items allows for a meaningful comparison of current period operating performance with the operating results of prior periods.  Management also believes that such measures are used by those analyzing performance of companies in the staffing industry to compare current performance to prior periods and to assess future performance.

Management uses Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA Margin (percent of total GAAP revenue) which Management believes is useful to compare operating performance compared to prior periods and uses it in conjunction with GAAP measures to assess performance. Our calculation of Adjusted EBITDA may not be consistent with similarly titled measures of other companies and should be used in conjunction with GAAP measurements.

These non-GAAP measures may have limitations as analytical tools because they exclude items which can have a material impact on cash flow and earnings per share.  As a result, Management considers these measures, along with reported results, when it reviews and evaluates the Company’s financial performance.  Management believes that these measures provide greater transparency to investors and provide insight into how Management is evaluating the Company’s financial performance.  Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

(1)  In 2022, the loss on the investment in Persol Holdings represents the change in fair value up until the date of the sale of the investment on 
February 15, 2022 as well as the loss on the sale of the investment during the period presented and the related tax benefit.  In 2021, the gain on the investment in Persol Holdings represents the change in fair value of the investment during the period presented and the related tax expense.

(2)  In 2022, the loss on foreign currency matters includes a 
$20.4 million
 loss on currency translation resulting from the substantially complete liquidation of the Company’s 
Japan entity, partially offset by a 
$5.5 million foreign exchange gain on the 
Japan entity’s USD-denominated cash balance.  The foreign exchange gain is included in other (income) expense, net in the EBITDA calculation.

(3)  Gain on sale of assets in 2022 is related to the sale of under-utilized real property in the second quarter of 2022 and other real property sold in the first quarter of 2022.

(4)  Impairment of assets held for sale represents the write-down of the net assets of the Russian operations that are classified as held for sale as of the second quarter of 2022.

 

 

 

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SOURCE 
Kelly Services, Inc.