Kelly Services Inc (KELYA) 2020 Q4 法說會逐字稿

Good morning, and welcome to Kelly Services Fourth Quarter and Full Year Earnings Conference Call. (Operator Instructions) Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time.

A fourth quarter and full year 2020 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.

Thank you, Alan. Hello, everyone, and welcome to Kelly Services Fourth quarter and Full Year Conference Call. With me today is Olivier Thirot, our Chief Financial Officer, who will walk you through our safe harbor language.

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 on a reported and 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. We have also provided the 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.

Thank you, Olivier. I'll start with a brief look at economic and labor market dynamics to provide context for Kelly's Q4 and full year results, recap the actions we've taken to weather the pandemic and share highlights of our quarterly performance.

While a full recovery is still a ways off, several key indicators improved as 2020 drew to a close. In the U.S., the overall temporary labor market continued to gradually recover with year-over-year volumes at minus 8% in December, a marked improvement from minus 30% in April. Those figures have continued to get progressively better each month and the penetration rate is now just below 2%, close to its pre-pandemic norm. The overall U.S. labor market also improved, though some challenges remain. While the unemployment rate improved, falling from its April high of 15% down to 6.7% in December, overall labor participation rates remain low and permanent unemployment levels have plateaued at a high level.

In Europe, where widespread pandemic mitigation efforts have been put in place in recent months because of subsequent waves of infections and virus variants, unemployment was up again in December. Overall, trends since the deepest point of the COVID-19 economic crisis suggest a continued and gradual, if at times, uneven recovery.

Looking back at Kelly's response to the crisis throughout 2020, it's clear that the steps we took both protected the company and positioned us for future growth. Our actions were guided by a clear set of crisis principles that we've developed at the onset. These principles included a priority to protect the health and safety of our people, maintain the financial health of the company and support and serve our talent and customers without interruption. We entered the crisis with a healthy balance sheet and we acted quickly and decisively with temporary measures to protect it, including employee, executive and Board of Director compensation cuts, furloughs, suspension of the quarterly dividend and reduced capital expenditures, among other measures. These defensive actions, while difficult, were taken to protect Kelly's bottom line and liquidity during the most intense stretch of business disruption, and they proved successful.

The Kelly community's shared sacrifices enabled us to produce positive earnings in each quarter of 2020. And we ended the year with ample cash and available capacity, which can be used to pursue targeted M&A opportunities in our specialties most primed for growth, a critical element of our growth strategy. We also succeeded in holding our GP margin steady from the prior year, thanks to our strategic pre-pandemic actions to shift our portfolio toward higher value specialties.

Beyond financial resilience, Kelly teams displayed agility as we implemented our new operating model and stood up our 5 new operating segments based on our chosen specialties that we told you about previously. Working primarily from the safety of our homes utilizing recent IT infrastructure investments, Kelly's internal teams offered seamless service to our talent and customers and creatively captured new opportunities on several fronts. We were proud of every opportunity to connect talent to work at great organizations during a time when so many people lost employment. And particularly proud that Kelly employees contributed to essential and life-saving work related to the pandemic, such as supporting the development of vaccines, producing test kits and face shields, taking temperatures at local businesses and supporting essential supply chains. As CEO, I'm proud of how the entire Kelly community rose to the occasion and how we continue to do so today as the pandemic wears on.

Before I hand it off to Olivier to provide the details, I'll share a few Q4 highlights. In each of Kelly's 5 operating segments; Science, Engineering & Technology, Education, Professional & Industrial, OCG and International, we saw sequential improvements in revenue from Q3 2020. In fact, we've now seen continuous top line improvements each quarter since the crisis started. And we're gaining momentum across the board, even surpassing pre-COVID revenue levels in our OCG segment. We're also seeing positive signs that suggest the recovery is beginning to even out for customers of various sizes in the U.S.

Last quarter, I touched on the improved demand we saw for talent from our large customers, and we're pleased that this trend has continued in Q4. And while Q3 demand from small and medium enterprises was sluggish by comparison, we began seeing in Q4 early positive signs of improved demand trends from these customers. As expected, Education continues to be the operating segment most impacted by COVID-19. We're encouraged, though, by sequential improvements in revenue from last quarter. Vaccine programs now beginning to reach educators and the growing local and national focus on reopening schools.

I'll now turn it over to Olivier to share more details about our Q4 results.

Thank you, Peter. As Peter mentioned, while our Q4 results reflect the continuing impact of the COVID-19 pandemic, our results also reflect continued stabilization in economic activity and demand for our services. I will also highlight that 2020 is a 53-week fiscal year for Kelly. So our fourth quarter results include the extra week and reflect 14 weeks of operating activity compared to 13 weeks in 2019, where the impact is material. To understand the underlying business trend, I will provide the impact of the additional week in 2020 on our year-over-year comparisons.

Revenue totaled $1.2 billion, down 7.2% from the fourth quarter of the prior year. The impact of the additional week in our 2020 fourth quarter results added approximately 400 basis points to our revenue growth rate. The impact of foreign exchange positively impacted our revenue growth rate by 60 basis points.

As we mentioned last quarter, in Q3, we saw gradual improvement in demand from the low point experienced in Q2, particularly in large accounts, and our Q3 exit rate was a year-over-year decrease of 18%. Our Q4 constant currency exit rate or year-over-year revenue trends for the month of December, excluding the impact of the extra week, was down 8%. This reflects a continued trend of gradual improvements over the course of the quarter and that revenue trends in all segments have improved since the third quarter. And while the improvement in demand trends we saw in Q3 came primarily from large accounts, in Q4, we saw a more broad-based improvement in demand.

Our Education segment continues to be particularly impacted as U.S. school districts return to school in the fall using a variety of delivery models, including virtual and hybrid, which has had an impact on the demand for our services. In Q4, schools have continued to modify their instructional delivery in response to a resurgence in infection rates.

Revenue in our outcome-based products continues to trend well in the quarter, with revenue in our Professional & Industrial segments outcome-based product up double digit, as demand has been strong for our remote contact center specialty. And within the SET segment, our results have generally tracked with the customers served 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 the gas sector has been slower to recover.

And finally, our OCG segment has continued to be the most resilient. Excluding the extra week, Q4 revenue for OCG reached a key inflection point that is higher than the comparable period of 2019, primarily due to new customer wins in our payroll process outsourcing product. Permanent placement fees were down 19% year-over-year, which is an improvement over Q3, especially in Science, Engineering & Technology, but still reflect the continued economic uncertainty that has depressed full-time hiring in all segments.

Overall, gross profit was down 8.5%. Our gross profit rate was 18.1%, down 20 basis points compared to the fourth quarter of the prior year. On a year-over-year basis, our GP rate has been negatively impacted by a shift in customer mix as large account demand has been stronger than small- and medium-sized business as well as lower perm fees. We also saw a decline in our Q4 GP rate compared to Q3 2020 as demand improved in our P&I and International segments. Since margins are generally lower in these segments, our overall margin rate is impacted as revenue recovers in these segments.

SG&A expenses were down 1% year-over-year on a reported basis. Included in expenses for the quarter were the $4.4 million restructuring charge. Excluding the $4.4 million charge, expenses for the quarter were down 3.6% year-over-year in constant currency. The year-over-year comparisons were also unfavorably impacted by approximately 300 basis points as a result of the additional week in 2020. During the quarter, we reversed the majority of the temporary expense mitigation actions taken at the beginning of the pandemic, including eliminating the compensation adjustments we have mentioned in the past. Sequentially, expense levels in Q4 have increased as a result. In place of those temporary savings, we are actively working on sustainable cost optimization plans, including the actions which resulted in restructuring charges this quarter and may result in additional charges in the first half of 2021.

Our reported earnings from operations for the fourth quarter was $9.5 million compared to Q4 '19 reported earnings of $13.1 million. Our Q4 2020 earnings include a $4.4 million restructuring charge, and our Q4 2019 earnings include the $15.8 million noncash impairment charge related to a technology development project. So on a like-for-like basis, Q4 2020 earnings from operations was $13.9 million, a decline of 52% versus 2019.

The Professional & Industrial; Science, Engineering & Technology; International and OCG segments delivered positive operating earnings for the quarter. And when excluding restructuring charges, all segments, including Education, have positive earnings from operations. And again, consistent with their performance in Q3, the OCG segment delivered better year-over-year earnings.

And to quickly comment on our results for the full year. For the year 2020, losses from operations, as reported, were $93.6 million compared to earnings of $81.8 million in 2019. Excluding our Q1 goodwill impairment charge, a charge related to a customer dispute and restructuring charges, partially offset by the gain on sale of assets, 2020 adjusted earnings from operations were $44.3 million compared to adjusted earnings of $90.8 million in 2019, a decrease of 51%. Our adjusted 2020 results reflect the challenge of the sudden and sharp declines in demand brought on by global pandemic and our response to quickly and decisively take actions to reduce expense and maintain operating profit each quarter.

Now turning back to the fourth quarter again, Kelly's earnings before tax also include the unrealized gains and losses on our equity investment in Persol Holdings. For the quarter, we recognized a $14.8 million pretax gain on our Persol common stock compared to a $700,000 pretax gain in the prior year. These noncash gains and losses are recognized below earnings from operations as a separate line item. Income tax expense for the fourth quarter was $2.5 million compared with our 2019 income tax benefit of $5.9 million. Our effective tax rate for the quarter was 10.6%. Our tax rate was lower than the statutory rate, primarily due to the impact of nontaxable gains on company-owned life insurance assets.

And finally, reported earnings per share for the fourth quarter of 2020 was $0.59 per share compared to $0.43 per share in 2019. In order to better understand the underlying trend in earnings, let me provide you some additional information. 2020 earnings per share was favorably impacted by the gain on Persol common stock, partially offset by the restructuring charges. In 2019, EPS was negatively impacted by the noncash impairment charge related to a technology development project. Adjusting for these items, Q4 2020 EPS was $0.41 compared to $0.71 per share in Q4 2019, a decline of 42%.

Now moving to the balance sheet. Cash totaled $223 million compared to $26 million a year ago. That was nearly 0, down from $2 million at Q1 2019. We ended the quarter with no borrowings in our U.S. credit facilities. However, higher cash balance reflects the benefit of the deferral of payroll taxes in the U.S. under provisions of the CARES Act, and to a lesser extent, the impact of reductions in working capital given our current lower year-over-year revenue as recovery from the impact of COVID-19 in our business continues.

Accounts receivable was $1.3 billion and decreased 1.5% year-over-year. Global DSO was 64 days, an increase of 6 days over year-end 2019. The increase reflects 2 trends we foresaw beginning in Q2 as a result of the pandemic. First, customers are continuing efforts to manage their own cash flows and are taking advantage of their full payment terms with us. Second, there has been a shift in our customer mix as the large account demand has recovered faster and has resulted in a greater proportion of business with large customers who generally receive longer payment terms. In the fourth quarter, we also have a limited number of large customers with a significant increase in receivable balances as a result of customer-driven administrative issues. We believe this situation is temporary and does not reflect a deterioration in the quality of our receivables. We continue to monitor our customer payment patterns closely and are confident that our collection teams have the resources necessary to respond to current conditions.

In our cash flow for the quarter, we used $74 million of free cash flow compared to generating $22 million of free cash flow in the same period in 2019. For the quarter, we used cash to fund working capital as revenue trends improved and as a result of the increase in days sales outstanding. On a full year basis, we generated $171 million of free cash flow in 2020, compared to $82 million in 2019. For the year, the improvement in free cash flow is primarily due to the ability to defer certain payroll tax payments under the CARES Act, partially offset by the impact of higher days sales outstanding.

As demonstrated in the quarter, if revenue trends continue to improve over the next several quarters, we'll continue to utilize some of our existing cash balances to meet working capital needs. We will also be required to pay half of the deferred payroll taxes I mentioned earlier by the end of 2021.

And now back to you, Peter.

Thanks for those details, Olivier. I'd summarize our Q4 results as reflecting gradually improving economic and labor market conditions, coupled with good traction from the operating model we implemented midyear 2020. We're encouraged by continued momentum across all of our operating segments, including healthy pipelines and new customer wins. While constrained talent supply, especially for low- to mid-scale positions, continues to post challenges for fulfillment, we expect that dynamic to improve as vaccine programs accelerate and schools resume in-person instructional delivery, enabling more parents to return to work.

Looking ahead, we're optimistic that we'll see continued momentum in 2021, particularly in the second half of the year, when a higher percentage of the population is expected to be vaccinated against COVID-19.

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

Thank you, Peter. For the past 2 quarters, we have not provided an outlook as economic conditions and the resulting impact on demand for our services was highly uncertain. During the fourth quarter, we have completed our annual planning cycle, which gives us additional visibility, and we are encouraged that the trends pointing to a steady recovery in demand continued.

As a result, we'll return to providing an outlook for the full year and we'll consider providing more detailed quarterly expectations as the year progresses.

As we have seen in the early stages of the crisis, we'll continue to evaluate a variety of demand scenarios and assess the tool available to us in response. We consider the impact of these scenarios on earnings, cash flows and debt covenant metrics, and we remain confident that we have adequate financial resources and liquidity to emerge from the crisis and to capitalize on the recovery. We are also taking steps to advance our strategy.

And in the quarter, we completed the purchase of Greenwood/Asher to expand the reach of our Education segment. We continue to evaluate opportunities to advance our inorganic strategy in the specialties where we choose to focus to accelerate our growth. Given the likelihood that various pandemic mitigation measures are likely to continue well into 2021, our views on the first half of the year are for a continuation of the current trend of gradual and steady increases in demand with an opportunity for a more substantial recovery in the second half of 2021. More specifically, we continue to expect revenue trends to reflect year-over-year declines until we anniversary the economic impact of the crisis in March 2021.

For the full year, we expect revenue to be up 7% to 11%. The range is larger than usual to reflect the improved but still uncertain environment, especially in the first half of the year. We expect that the time to reach pre-COVID levels of activity could be up to 2 years, depending on the geography, industry concentration and products of each operating segment, and we'll continue to launch additional targeted growth initiatives that are intended to accelerate revenue growth.

We expect our GP rate for the full year to be around 18%, consistent with our pre-COVID margins. This is down slightly from our 2020 GP rate, which included approximately 20 basis points from COVID-related wage subsidies. Our outlook also reflects that while our new specialty strategy is intended to drive growth in higher-margin specialties, we also expect the recovery in lower-margin specialties to keep our GP rate relatively flat in 2021. And as discussed, we have taken some definitive steps with respect to sustainable SG&A cost reductions in Q4 of 2020 that will drive meaningful cost savings in talent to partially offset the impact of the expiration of our temporary cost actions.

We expect that we'll take additional actions in the first half of 2021, in line with our goal to achieve sustainable cost reductions. We expect that these savings will allow us to moderate expense growth as revenue increase. So all in, we expect SG&A expense to be up 3% to 4.5% for 2021. And finally, we expect an effective income tax rate in the mid-teens, which include the impact of the work opportunity credit, which was recently extended until 2025. We expect that if the recovery in demand continues, we'll review our capital allocation strategy, including our dividend policy with our Board of Directors in the course of 2021.

Now back to you, Peter.

Thank you, Olivier. Kelly's founder, Russ Kelly, probably couldn't have imagined that Kelly's 75th year in business would be spent recovering from one of the most intense and prolonged challenges in its history. October 2021 will mark this milestone anniversary for us. And I am hopeful that by then, we'll be close to considering the COVID-19 crisis to be part of our past, a difficult chapter in our history that has both tested and strengthened us. I'm confident we'll emerge more agile, more creative, more resilient and even more driven to fulfill our purpose of connecting people to work in ways that enrich their lives.

The Kelly spirit is even stronger than before, and we are applying it in 2021 to continuing our strategic journey and steadfastly pursuing growth.

As Olivier mentioned, we ended 2020 with the acquisition of Greenwood/Asher, a premier specialty education executive search firm. This move further expands Kelly's reach into the higher education space, a natural adjacency for us. And this month, we're launching a new tutoring product, another natural adjacency and an opportunity to generate new revenue streams while helping students close COVID-19 learning gaps. We're applying a disciplined focus to boldly pursuing other organic and inorganic growth opportunities among Kelly specialties in 2021, and we look forward to the shareholder value we believe it will create.

At the same time, we're tackling inequities in the world of work at large. On the heels of the 2020 launch of our Equity@Work initiative, we will continue into 2021 the sustained ongoing effort it will take to make a meaningful dent in the many systemic inequities that prevent more people from attaining enriching work. The interest in this initiative has been tremendous and inspiring.

In closing, I'd like to thank the Kelly community. Our full-time employees who made significant personal sacrifices during last year with Kelly's best interest and long-term strength in mind. Our temporary employees who entrusted us to connect them with work during these challenging times while making their safety a top priority. Our customers who turn to us for the talent they needed to keep their businesses going amid a crisis. And our Board of Directors and shareholders whose confidence in Kelly enabled us to protect our company and position it for brighter days ahead. I'm grateful to all of you, and thank you for your ongoing support.

Alan, you can now open the call to questions.

(Operator Instructions) For our first question, we'll go to the line of Joe Gomes with NOBLE Capital.

So just a couple of quick questions here. One on the Greenwood/Asher, how is that integration going? Does that indicate a potential or does it provide you the potential opportunity to do more in that space in terms of acquisitions? Or is this kind of more of a one-off type of an acquisition in that space?

Thanks for the question, Joe. The integration is going very well. It's only been a couple of months, but some very promising indications of the synergies created between Greenwood/Asher's presence in higher ed and Kelly's existing presence in higher ed, and we think there is opportunity to further grow that. We have no current plans to invest further in the executive search among higher ed. But as indicated earlier in my comments about our tutoring product, we're always looking for promising adjacencies in our specialty lines of business that produce synergies and our growth opportunities.

Okay. And I'm wondering -- you mentioned it briefly, I was wondering if you might be able to go in a little more detail here about the candidate pool, especially on the lower end of the wage scale and what are you seeing there? What steps is the company taking to hopefully enlarge that pool? Are you concerned if they pass some more of this legislation that it will reduce people's incentives to return to work? Any more detail there would be appreciated.

Yes. Reflecting back on 2020, we expected the talent shortages that we were seeing in Q2 and beginning of Q3 to lessen when the stimulus package expired in the summer, and that didn't translate into a wave of available talent. Our best guess, Joe, is that the 2 biggest levers are wages and schools reopening. The difficulties that working parents have when their children are at home are significant, particularly when you see the number of women that have left the labor force during the pandemic. And we have seen clear correlation between wage increases and the availability of talent. So our focus is working with our customers to ensure that they understand that dynamic. And I would say relative to earlier parts of the pandemic, we are seeing more and more customers willing to raise wages in order to attract talent.

Just to add on that, on wage inflation. If you look at P&I staffing, which is really addressing the point about jobs in manufacturing or what we call light industrial, if we look at our own perspective, wage inflation in Q1 was about 4%, which is the kind of history we have pre-COVID. And then we did move from the 4% in Q1 2020 to plus 8%, so it was doubled in Q2, Q3 and Q4. So that's, I think, a good sign of the supply shortage and challenges we have, but also showing our capabilities to really push some of our customers to basically be more competitive in the marketplace and thus improve the pay rate they can offer.

Okay. One more for me, I'll get back in queue. So you talked about revenues for this year being up in the 7% to 11% range. What does that assume for Education? That just seems to be a -- as you guys mentioned, a hot topic here, trying to get schools to fully reopen. So what is your guidance there, assume about the Education segment?

Well, first of all, I mean, reflecting on 2020, I mean, we have seen after the big drop of Q2, an improvement in Education as well as we have seen in all of our operating segments. Of course, it is still a challenging environment because a majority of the schools are now basically either running through what we call a hybrid model or remote model. And a minority of them are, I would say, fully reopened. What we expect for 2021 is clearly that things are going to be very close to back to normal at the time of the next school year, meaning in the course of late July, early August of 2021. Before that, we believe it's going to be still an improvement, but close to the current environment we have seen, especially in Q4 of 2020.

And Joe, we're encouraged by the fact, as I mentioned earlier, I think people realize the correlation between opening schools and participation in the labor market. So we're encouraged by the fact that educators are being moved up the line in terms of getting vaccinations. Kelly has done some excellent work to ensure that our employees, the substitute teachers, are included in those programs. And we're encouraged by the local and national focus, the administration focus, on making opening schools one of their key economic priorities.

We will go next to the line of Josh Vogel with Sidoti.

I just wanted to build off that last question a little bit, given the initiative around the tutoring and teachers of tomorrow and the acquisition. You exited 2019 at about 100 -- just under $140 million quarterly run rate in Education. Once -- what are post-pandemic quarterly expectations, now that we think about the new initiatives and the recent acquisition? What should be a good run rate we should think about for that business, and understanding that there are quarterly fluctuations?

Yes. I mean it's a highly seasonal business. What we can tell you is that when you look at Greenwood/Asher that we did acquire in Q4 of last year, the Q1 Insight acquisition, the multiple initiatives we have around organic growth, including what Peter was mentioning around tutoring. And also really a very healthy pipeline of new wins and new deals. I think as soon as we get into a better environment, I would say, we should be able to catch up very, very quickly and decisively revenue wise. And at least come back quickly to where we were pre-COVID, but of course, with the boost coming from our 2 recent acquisitions, the boost coming from a very healthy pipeline and the boost coming from multiple organic initiatives, including tutoring that Peter was mentioning.

Yes, Josh, the dynamic of the instructors is one that -- and the significant changes that are occurring both in higher ed as well K-12. So the number of teachers that are retiring, the lack of teachers graduating from colleges, we think positions us well to support school districts and colleges and universities with the workforce challenges that we have and the Greenwood/Asher acquisition as well as the items that Olivier just mentioned are all intended to position us to take advantage of the dynamics that are, frankly, only being accelerated by the pandemic.

And we are also actively working, Josh, on the supply side to make sure that we have the right pool of sub teachers to basically address potentially a very quick recovery in demand in the course of 2021.

(Operator Instructions) We'll go next to the line of Kevin Steinke with Barrington Research.

I wanted to ask about Professional & Industrial. On one of the slides in your presentation, you gave the adjusted Q4 '20 revenue trends and then the December exit rates. And really Professional & Industrial showed one of the most meaningful improvements of all your segments in terms of the December exit rate. We've been talking about some of the challenges there with talent supply. So what are you seeing in Professional & Industrial that's been able to drive an improvement in the December exit rate versus kind of the full quarter 4Q?

Well, Kevin, I think it's a number of factors. I think the customers are becoming more accustomed to operating in this uncertain environment. So they're figuring out how to operate and even expand in certain segments of -- so the demand is significant. And I think on the supply side, while there are challenges, I think in our new operating model where we have a keen focus on the Professional & Industrial space, we've been able to make some inroads in terms of working with customers on wages, with different recruiting strategies that allow us to tap into additional sources of talent and take advantage when we're able to of the unemployment that, frankly, usually would result in a plethora of talent.

Yes. I would probably add a few more things. One is when you look at P&I staffing, as Peter and I, we did mention during our prepared remarks, we have seen a lot of good traction in our large customers. As soon as, I would say, early Q3, we start now to see more traction coming from our smaller customers, meaning what we call SME or SMB businesses, which, of course, is also an explanation of why our exit rate in December was improving. The second thing I would mention, and I briefly talk about it again this morning, is our outcome-based business in P&I is trending extremely well, especially around KellyConnect or our call center business. And that's, of course, knowing it is still trending at a double-digit rate of growth is very helpful on a pure traction around revenue, but also in terms of, I would say, GP rate profile because this business is having a higher margin than the pure traction we have in P&I.

Okay. That's all very helpful color. And you talked about starting to see signs of recovery among your smaller customer base. Any more insight into maybe what's enabling them to kind of emerge from the downturn here? I know they've been slower to recover than larger customers. But any insight on what you're seeing in the market that's maybe helping smaller customers get back up and running?

Yes, Kevin, I think the 2 primary factors are, one, they're figuring out how to operate in this environment. Early in the pandemic, their focus, I believe, was primarily on their full-time workforce and trying to retain the employment of as many of their full-time employees as possible, which is not uncommon in a downturn. And I think now they've figured out how to operate and see demand for their goods and services, and so they need additional talent. So they're coming back to Kelly for purposes of helping that. I also think that they were the last segment to recognize the importance of wages to attracting talent. Our large accounts were more willing in the pandemic to raise wages because they recognize that was a key ingredient to attracting talent. And I think the small- and medium-sized businesses are now beginning to accept that as a reality of the current environment.

Yes. I mean just to clarify one single point. I mean, here, we are really referring to our U.S. business. We don't see some sign or tangible sign of recovery around SME, small- and medium-sized businesses outside of the U.S., namely, for instance, in Europe. That's not yet the case in Europe.

Okay. All right. And I also -- I wanted to ask about within Science, Engineering & Technology, you had talked last quarter just about a little bit of a slowdown in the telecommunications space, specifically the NextGen and GTA businesses within that due to some merger activity in the telecommunications space. What are you seeing in that piece of the business now? Is that picking up? And how do you see that trending in 2021?

Well, we're -- we expect it to be improving as we go through 2021. One of the issues in the rollout of 5G has been the number of projects that are dependent on certifications or permits or reviews of the work product and municipalities and other regional authorizing entities have been affected significantly by the pandemic in terms of the number of people pulling permits, the access. And so that's been an additional headwind for the telecom business. But as the economy begins to open up, as municipalities and the regulatory organizations get back to normal and the industry activity around the M&A and the -- that we mentioned in Q3, as that begins to further refine itself, we expect that the telecom business will continue to improve throughout 2021.

Yes. Yes, we have seen a good bit of improvement in Q4 of 2020, that's still early stage.

Okay. Okay. Got it. And then just we've been talking about some of the segments here. I don't know if you want to go to this level of detail, but can you maybe talk broadly about by segment, what sort of trends you expect in each of those segments to build up to that 7% to 11% revenue growth target for this year?

Well, I'll comment generally, Kevin. I'll let Olivier get to the details. But I mean we're seeing momentum across all of the business units. And as Olivier mentioned, even in Education, that the number of new wins with school districts is -- significantly exceeds pre-pandemic levels. And I would say that, that is true in all of our segments when we look at both new customer wins and pipelines. So I think the 7% to 11% will be -- there will be contributions from all of our business units.

Yes. I think it's.

Okay. And then just lastly for me. You mentioned the 3% to 4.5% SG&A growth expected in 2021, these are implementing some cost savings actions. Can you give us a sense for the size of cost savings you would expect this year from those actions you're taking?

Yes. Just to remind you a little bit of what we have done in 2020. You might remember that we had a Q1 restructuring that was basically -- the intent was basically to get us ready for our new operating model and new operating segments. At that time, we have disclosed the fact that the expectations were basically to save $20 million of cost as soon as 2020 on a full year basis. And looking at 2020, I can tell you that we have delivered on this $20 million savings. The Q4 initiatives that we have done in 2020 and that I was referring to in our prepared remarks, the intent is basically to add on top an additional $10 million of savings that would, of course, knowing that this initiative was late in 2020 would basically impact fully and positively 2021 by about $10 million. And the third point I would like to mention is -- and I think I mentioned it in -- again in my remarks, was we are continuing to look at sustainable cost reductions, especially in the first half of 2021. And that's also, I would say, included in the guidance, including, of course, potentially some costs to execute on this additional cost-saving initiatives, where what we are trying to do is to ensure sustainable optimization of our cost base, and also we look at what we call our allocation of resources.

We have a follow-up question from the line of Josh Vogel.

Sorry, I excluded before. I just had a couple of follow-ups here on the outlook for '21, and when we're thinking about SG&A, can you quantify restructuring actions you like to take? How much it's going to add to SG&A in '21?

Yes. Not at this stage because basically, Josh, I mean, what we are doing now as we speak, and I've said that we are really focusing on executing on additional actions in the first half of 2021, it's basically an extension of what we have started in the far end of 2020. We know that there are going to be probably some cost to execute further. I think it's a little bit too early to disclose anything about it. What I can tell you is that basically the cost to execute is included in the guidance, meaning it's not a cost that is basically out of the SG&A cost base outlook we have provided today. I think we're going to be able to give you a much precise update on that, Josh, at the end of Q1, where we (inaudible) more reference in those initiatives that, again, are an extension of what we have started in the far end of 2020.

Okay. And just to make sure I'm looking at it right, when we think about the 3% to 4.5% year-over-year increase, which number is that off of? Is it the reported $806 million or the adjusted $783 million? Or does it take out that customer dispute, that $9.5 million? I was wondering if I'm looking at the right number.

It's a very good question because that was something I was carefully discussing to make sure that we give something that is clear based on what is the starting point. So the starting point is going to be, I would say, our SG&A adjusted. So excluding 2020 restructuring costs and also excluding what we refer to as the writeoff of some receivables coming from litigation with a customer in Mexico. So if you look at the base adjusted for SG&A, that would be a good starting point to look at 2021.

Okay. So that $783 million number, that's in the press release?

Yes.

Okay. And I know, Peter, you were just talking about -- there was a question about the 7% to 11% revenue guidance and generally expect all specialties to be up. But maybe just a little bit more thoughts around, as you saw more pronounced declines in P&I and International, should we potentially see outsized recoveries there versus the other segments? Is that what your assumption may be when we think about '21?

So Josh, I would offer -- our assumption is sort of colored by the fact that Education is expected to return to pre-pandemic levels and growth in the second half of the year. So that would be one. International is likely to be slower to recover given the challenges that it has in terms of the ongoing economic environment in the geographies in which we operate. We're already at pre-pandemic levels for OCG. And while that is a business that is at times depending on when we're implementing large programs for customers can have some variability in it, on the whole for 2021, we expect that growth to continue. And in P&I and our SET business, we continue to see momentum across those businesses. We've seen that through the pandemic. And we don't have any reason to believe, absent some event where you don't foresee in terms of a resurgence or a variant that we don't expect -- we expect the SET and then P&I businesses to continue their nice progression and momentum that we see both in existing customers, new wins, but also in the pipeline.

I appreciate the detail there. And just 2 more quick ones for me. Just to make sure I'm looking at it right. Olivier, what is the total payroll tax deferral? And what is expected to be paid back? Is it split 50-50 this year and next year?

Yes. I mean we have benefited from exactly $117 million of CARES Act. Basically, split almost evenly between Q2, Q3, Q4 of last year. A little bit more in Q4 because, of course, our revenue is -- and our level of activities moving up. The due date are basically half. So $58.5 million at the front end of 2021 and the other half at the end of 2022.

Great. And then just lastly, the balance sheet is in great shape. You continue to generate positive cash flow. Are there any thoughts around dividend plans and a potential statement?

Well, we're -- the Board is regularly revisiting the dividend policy in light of the environment that we're in. And that will be a topic of discussion for 2021. So that is nothing declarative today, Josh, but that is something that the Board will continue to make sure that as we continue to see progress in our financial health that we are taking into account the sharing the value with our shareholders.

Yes, we really need to look at how we are trending in Q1 and Q2 of 2021. And I think based on that, I think we are going to have probably much more clarity on the timing and other considerations related to dividends. But we really need to look at how Q1 and Q2 are looking. So I would say the first step is really kind of mid-year assessment of the situation.

(Operator Instructions) Gentlemen, we have no further questions in queue. You may proceed.

All right. Thank you, Alan.

Thank you very much.

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