Kelly Services Inc (KELYB) 2009 Q1 法說會逐字稿

Ladies and gentlemen, good morning and welcome to Kelly Services' first quarter earnings 2009 conference call. All parties will be on listen-only until the question and answer portion of the presentation. This call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Carl Camden, President and CEO. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to Kelly Services' first quarter conference call. Let me start by reviewing today's agenda. As we have done in the past, I will start with a few comments on current economic conditions and talk about the effect they're having on the labor market. In that context, I will then address Kelly's earnings for the quarter, as well as our performance by individual business segments. Following that, Patricia Little, our CFO, will supply you with more financial details, and then we will conclude this morning with a short commentary on Kelly's position relative to this economic environment, our strategic efforts and the key strengths we bring to the challenge, and then we'll open the call for your questions.

Let me remind you that any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. Please refer to our 2008 10(K) for a description of the risk factors that could also influence the Company's actual future performance. In addition, we also make reference to non-GAAP performance measures. Please refer to the schedules attached to our press release for information on the performance measures and the comparison to our reported financial results.

In 2008, the US lost more than 3.1 million jobs, roughly 1.9 million of them disappearing in the last four months of that year. That pace has worsened, with more than 2 million jobs already lost during the first quarter of 2009. March saw the 15th straight month of overall job losses in the US. The nation's unemployment rate reached 8.5%, its highest in 25 years. For some hard-hit sections of the country, the rate has entered double-digits.

Adding to the already-tough employment picture, opportunities for college graduates have begun to shrink. The unemployment rate for that group increased to 4.3%, a rate not seen in the last 10 years. With that job's report, it is no surprise that demand for temporary staffing continues to suffer. In fact, temporary jobs were down 27% compared to the same period last year. As a percentage of the total US work force, temporary workers now represent only 1.37%, the lowest level since 1994.

Outside of the US, the effects of a global recession also persist. Employment markets are sliding globally as jobless rates swell. The bottom line: this deteriorating environment continues to negatively affect our financial performance. For the first quarter, Kelly reported a loss from operations of $25 million, excluding restructuring charges. That compares to $13 million earned in the first quarter of 2008. Patricia will cover our overall earnings in greater detail during her remarks.

Before I turn your attention to our individual operating segments, I would like to share three observations we've made during the first quarter. First, temporary staffing in the Americas, while not yet improving, as stopped getting worse. So far, the stabilization has continued well into April, and while it is still too soon to tell, we are hoping that this may be signaling that things will start to improve later this year.

Second, with permanent hiring on hold, fees generated by temp-to-perm and perm placement continues to deteriorate. This is to be expected-- stability and eventual growth in perm fees generally lag improvements in temporary staffing until confidence builds and companies begin to expand their permanent workforce, and third, up to this point in the cycle, our temp GP rates have held up relatively well. However, in the first quarter, we saw increasing pressure on temp margins, driven largely by less-favorable customer and business mix shift.

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

Our customers ended 2008 with a great deal of uncertainty, aggressively reducing their demand for temporary staffing in the final weeks of the year. During the first quarter of 2009, they maintained that lower level of temporary usage. While they are not signaling plans to resume hiring in the near term, they have stopped making further sizable staff reductions. And, again, what does this tell us? The level of consistency and the level of temporary staffing demand seen throughout the first quarter leaves us to believe that we may have reached a long-awaited bottom, or, at least, that we're hopeful that we have.

Our combined temp-to-perm and direct placement fees were down 60% year-over-year for the quarter. That is steeper than the 43% decline we saw in the fourth quarter of 2008. In January, combined fees fell 61%, in February, they dropped by 49%, and March fell 68% and, again, I remind you that this isn't surprising, given that permanent hiring lags improvement in temporary staffing. Given the considerable economic challenges we have faced, Kelly's gross profit rate was negatively impacted as well. For the current quarter, the gross profit rate was 15.2%, or 110 basis points lower than the same period last year. Sequentially, this represents a 100 basis point drop from the fourth quarter of '08. This decline was primarily due to the lower placement fees and fewer favorable adjustments to prior years' workers' compensation claims in the first quarter.

I should stress that we remain focused on tight expense control in our Americas Commercial segment and have reduced spending this quarter by about 12% compared to last year. We have made targeted staff reductions, lowered incentive compensation, placed limits on travel and reduced other expenses not related to revenue generation. In addition, during the quarter, we closed an additional 14 branches at minimal cost. In spite of these efforts, negative expense leverage on the 25% revenue decline resulted in year-over-year operating earnings for Americas Commercial being down about 98%.

Now on to America's professional and technical, which represents about 19% of Company revenue. P&T revenue has been stronger than what we've seen on the commercial side. PT revenue dropped by 17% for the quarter as compared to the 8% turndown we experienced in the fourth quarter of 2008. Intra-quarter, year-over-year revenue was down about 18% in January, 16% in February and about 18% in March.

Taking a closer look at our PT segment, we have seen year-over-year revenue declines of about 20% in our finance, law and engineering business. On the other hand, our IT, science and healthcare businesses have fared better, showing much smaller declines. Combined temp-to-perm and direct placement fees for professional and technical were down 53% compared with the same period last year. That decrease is considerably more pronounced than the 27% reduction we saw in the fourth quarter.

PT direct placement fees was the largest contributor to this decline. Intra-quarter, combined fee performance showed declines of 59% in January, 41% in February and 53% in March. Lower year-over-year performance is now being seen across all of the PT businesses. For the entire segment, our gross profit rates was 15.9%, down 120 basis points sequentially from the fourth quarter and down 180 basis points from the same period last year. This decline was attributable to lower fees, larger revenue declines in the higher-margin businesses, and fewer favorable adjustments to prior years' workers' compensation claims in the first quarter.

For the quarter, expenses decreased about 7%. There is no doubt we're seeing the effects of negative expense leverage in the face of revenue decline with PT earnings down 63%. However, in this difficult environment, we are pleased with PT's substantial earnings performance. I will turn now to our EMEAs segment, which comprises 24% of our revenue. EMEA Commercial continued to slow in the first quarter, with reported revenue decreasing 33%, compared with the 17% decrease in the fourth quarter of 2008. On a constant currency basis, revenue was down 18%, excluding the acquisition of Randstad Portugal, constant currency revenue was down 22%. For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency.

By month, during the quarter, excluding the acquisition, January revenue was down 21%, February, 22%, and March, nearly 23%. Western Europe and the UK were down approximately 20% in the quarter. The Nordics and Eastern Europe have now started to show some signs of deterioration, with revenue decreasing by 6% in the quarter. Turning to fees, the slowing trend seen in the fourth quarter continued. Fee revenue for the first quarter was down 45% year-over-year. By month, January was down 37%, February, 50%, and March, 47%. This was primarily driven by fee declines in the UK, Russia and Switzerland.

The quarterly GP rate was 15.9% compared to 17.3% last year. This decrease is mostly attributable to the declines in the UK, France, Switzerland, Italy and Russia. This is mainly driven by reductions in fees, but we are seeing some margin erosion in temporary staffing due to price competition and a shift in corporate-- in customer mix to corporate accounts.

During our year-end call, we announced that we were restructuring our UK operations. In February, we entered into an agreement to sell 31 non-strategic commercial branches effective March 13th, 2009. The purpose of this transaction was to accelerate our restructuring while preserving jobs and reducing cost. The restructuring should be completed in the second quarter. We are now focused on our strategy of developing our professional technical and consulting businesses in the UK. We will continue to provide updates on our progress on future calls.

Excluding the UK restructuring and the Portugal acquisition, expenses were down 18% in constant currency for the quarter. Sequentially, expenses were down 24% versus the fourth quarter. We are beginning to see the benefits from our 2008 initiative along with diligent cost-control efforts across the region. EMEA Commercial reported an operating loss of $6.7 million for the quarter, excluding the UK restructuring.

EMEA Professional and Technical, which is about 3% of total company revenue also slowed during the quarter, decreasing 10% compared to 2% growth in the fourth quarter of 2008. We did continue to see growth-- continued growth in Switzerland, Germany and Hungary. Fees in the quarter were down compared to last year by 21%. By month, January was down 19%, February 18%, and March, 25%. The gross profit rate in this segment was 28.6% for the quarter, compared to 29.8% last year. This decrease was due to lower fees. On a constant currency basis, PT expenses were flat compared to a year ago, excluding acquisitions, expenses were down 10%. EMEA PT operating earnings were at a loss of roughly $600,000, compared to a profit of $1 million last year.

Our APAC region, which comprises 6% of total company sales also experienced rising unemployment, deteriorating labor markets and declining business confidence. Many of our customers in this region continue to focus on managing operating costs, scaling back their staffing needs, and delaying hiring plans. This has negatively impacted our operating results during the quarter. Commercial revenue in APAC declined nearly 26% year-over-year during the first quarter, compared with the 18% decline in the fourth quarter.

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

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

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

Our final segment is our Outsourced and in Consulting Group, representing 5% of total Company revenue. OCG revenue decreased by 6% in the first quarter compared to the same period last year. This was down from the 5% year-over-year revenue increase we reported in the fourth quarter and the 32% revenue increase in the third. All three regions of OCG show negative revenue growth year-over-year, with Europe and Asia showing the largest declines. The Americas' revenues were also down slightly compared to a year ago with a 2% drop.

The negative effects on revenue were most pronounced in our recruiting process outsourcing practice, especially in the US and Europe. Our executive placement business unit in Asia and our retail payroll processing outsourcing practice in the US. On the other hand, we continued to see solid double-digit revenue growth from the errors group, our career transition and outplacement unit, which reported first quarter revenue growth as 75% compared to the same period last year.

OCG's total gross profit rate was 32.7% for the quarter, compared to 33.1% for the same period last year. For the first quarter of 2009, expenses were down $1.3 million or 7% sequentially, compared with the fourth quarter of 2008. While the first-quarter expenses were up roughly 12% year-over-year, it is important to note that this was a result of our OCG segment building out its service and management infrastructure in Europe in the second and third quarters of 2008, as well as our continued investment in new initiatives such as Kelly At Home and independent contractors.

Year-over-year, earnings were down $3 million compared with the same quarter last year. While all three OCG regions showed lower earnings than a year ago, the majority of the drop was attributable to the Americas and Europe. Now, I will turn the call over to Patricia who will cover our quarterly results for the entire Company.

Thank you, Carl. Before I get into the operating results, let me provide a little more information on the first-quarter restructuring charge. During our year-end call, we announced that we would further restructure our UK operations, and expected to take a charge of $11 million to $14 million, including $1.5 million we reported in the fourth quarter. But during the first quarter, we sold a number of the UK commercial branches we had originally intended to close. We now estimate that the restructuring will total $8 million to $9 million. We recorded an additional $5.4 million in the first quarter and expect to incur the remaining $1 million to $2 million in the second quarter.

The restructuring expenses include lease terminations, costs related to renegotiating certain European data and voice contracts and costs related to the sale of the branches. Now, moving to our operating results for the quarter, revenue totaled $1 billion, a decrease of 25% compared to last year. On a constant currency basis, revenue decreased by 19% compared to last year, and this compares to a year-over-year decrease of 8% in the fourth quarter.

As Carl discussed, we are continuing to see revenue fall off worldwide, with some stabilization in the Americas region. Our gross profit rate was 16.8%, a decrease of 120 basis points compared to last year. The decrease was caused by a significant decline in fees, as well as declines in our temporary gross profit rates, primarily in our Americas business segment.

Our Americas region has seen a lower level of adjustment to prior years' workers' comp (inaudible) as well as a shift in business from higher-margin small customers to larger, corporate customers with lower gross profit levels.

We remain very focused on expenses. On the fourth quarter earnings call, we talked about actions we were taking, and you can see the impact of them in our first-quarter results. However, as expected, we continue to experience negative leverage, with expenses not shrinking as quickly as our revenue.

On a year-over-year basis, excluding restructuring costs, selling, general and administrative expenses are down 15%, or 9% on a constant currency basis. On a constant currency basis, expenses are down in most segments. SG&A expense decreased by 9% in the Americas, 11% in the EMEA, 12% in APAC and 15% in our corporate headquarters. OCG expense was up 18%, due to investments made in 2008.

Compared to the fourth quarter, SG&A expense, excluding last year's impairment in restructuring charges, was down 11% and down or flat in all segments. As I said in January, our first emphasis on cost-cutting is focused on actions which will reduce indirect costs while protecting our investment in customer and employee facing activities, and these initiatives are beginning to have an impact. For instance, neither management and (inaudible) compensation, nor discretionary retirement plan contributions will be paid in 2009. In addition to the UK restructuring, we will continue to right-size our business by evaluating our headquarters and branch operations around the world and reducing the number of branches and permanent employees as appropriate.

We have restructured the majority of our field-based incentive plans and suspended discretionary grants in our long-term stock incentive plans. We have suspended the match for our management retirement plan and have reduced the match for our 401(k) plan to a level we can fund from within the plan. We have put a salary freeze in place. We have a hiring freeze on indirect staff, and we are avoiding discretionary spending on travel, general expenses, and branch relocation.

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

Moving back to the first quarter results, our loss from operations, excluding restructuring costs, was $25.2 million, compared with an income of $12.9 million in 2008. On a GAAP basis, we had an operating loss of $30.6 million. Income tax benefits in the first quarter was $13.2 million on a pre-tax loss of $29.3 million. For accounting purposes, most of the $5.4 million of restructuring charges is not tax-deductible, and our tax benefit for the quarter is somewhat higher than normal, due to work opportunity credit. As usual, we rebuy (inaudible) estimate of the work opportunity credit we earned in prior years, and have reflected this in the first quarter.

Adjusted diluted loss per share from continuing operations totaled $0.31 per share compared to adjusted earnings from continuing operations of $0.23 in 2008. Turning to the balance sheet, I will provide a few highlights. Cash remained very strong, totaling $115 million, almost unchanged compared to the $118 million we held at year-end. We were pleased that in spite of the poor economic condition, we were able to repay $24 million in borrowing while maintaining our cash levels. At the end of the first quarter impact, cash exceeded debt by $31 million, an improvement of $28 million compared to year-end.

We continue to keep a close eye on our investments. We remain comfortable with our conservative investment policy, which emphasizes goals of maintaining the principle and liquidity of invested cash. Accounts receivables totaled $706 million and decreased approximately $110 million compared to year-end.

For the quarter, our global DSO was 51 days, down one day compared to the prior year. Debt of $85 million is down $31 million compared to year-end, primarily due to the repayment that I noted earlier. At the end of the first quarter, debt to total capital was a conservative 12%. Due to the difficult economic environment, litigation charges in the third quarter of 2008 and restructuring charges for the UK, it became necessary for us to amend our loan agreements. On April 24th, we closed the amendments which modified certain financial covenants. The amendments will increase our interest expense through upfront fees, higher commitment fees and increased spreads on drawn debt.

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

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

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

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

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

We have always taken a long-term perspective, and despite this difficult environment, the outlook for the staffing industry remains positive. Maintaining operating leverage is always challenging for our industry in a downturn, but generally works in our favor as things pick up. What's more, as economic conditions improve around the world, we think we will actually see greater demand for a contingent work force than in the past. The war for talent is far from over, and Kelly will continue to play a vital role in supplying that talent on a global basis.

Let me close with a few thoughts about Kelly's future. First, the strategic plan that we are pursuing is playing out well, even in this challenging environment. Our emphasis on geographic diversity, expansion of high-margin consulting services and high-demand professional and technical talent, along with ongoing expense control has pointed us in the right direction and kept us on course. As proof, as we reported this morning in aggregate, our professional and technical posted positive earnings during the quarter.

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

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

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

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

In closing, I want to stress I'm confident that Kelly will emerge from this recession an even stronger, more focused and more dynamic company, one that will win new customers, compete successfully in a global economy, meet the complex demands for staffing talent and reward shareholders for many years to come. This ends our formal comments. Patricia and I will now be happy to answer your questions, and the call can now be opened for those. Thank you.

Thank you, sir. (Operator Instructions). Our first question will come from Tobey Summer with SunTrust Robinson. Please go ahead.

Hi, Tobey.

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

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

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

The answer is probably "yes" to every one of those sources you have raised. So, customers have always, by the way, during up times or down times, customers always try to place downward pressure on your margins and it is no different at this particular time. I would not view this as the most critical pressure point. Again, I will repeat-- much of what we have seen in the deterioration temp GP has been due to shift of mix and customers and business lines, with some modest pressures from customers and modest pressure from some small to medium-size competitors.

Pricing discipline has remained relatively stable among the larger companies, kind of as a generic statement, that, of course, is one that would differ by country, by region and by specific company in that mix, but in general, the-- I will again say that the temp GP decline is mostly due, in our case, from fee declines as well as mix of business lines and customers.

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

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

Thank you very much. I'll get back in the queue.

Thank you.

(Operator Instructions). And our next question will come from Ashwin Shirvaikar with Citigroup. Please go ahead.

Hi, Ashwin.

Carl, how are you?

I'm doing well.

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

Maybe I didn't have enough coffee this morning. So, unambiguously, we would see the same level of stabilization in the North American markets that I think you've seen our larger competitors say. With stability looking and appearing around the March period and extending into April.

Okay, and, I guess, a question for Patricia. Could you go into some detail on how you will be able to flex the $65 million annualized cost savings up and down with revenues and expenses? I mean, is there going to be some sort of a lag in that adjustment, or is it (inaudible) type stuff that you can move up and down relatively quickly?

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

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

I'm worried-- my former COO had-- as you shut down branches slowly and continuously, as we have done as we evaluate them one by one, while branches do reopen over time, it always lags and comes deeper into the recovery.

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

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

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

You know, Ashwin, I came from automotive, and there are always more things to cut. I think that the difficult management task is finding how to cut sensibly. Balancing that between not impeding our ability to compete on the upside, so that's what we really think hard about every day.

Okay. Thanks.

Thank you. (Operator Instructions). And our next question will come from Ty Govatos with CL King, and your line is open.

Hi, Ty.

Yes, how are you doing?

Well.

By the way, congratulations for living through this type of quarter. You might not want to get that specific on this, but can you cut the SG&A in the second quarter by about the same amount between the fourth and first?

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

Cut it a further chunk.

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

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

Most of it's there.

Yes. We had close to a full load in Q1, Ty.

Okay. No, that helps an awful lot. Can I assume that given resets and everything, gross margins theoretically would improve somewhat from first-quarter levels?

Oh, I don't know how things will move on a quarter to quarter basis. Understand, again, core temp GP rates pretty much around the world hung as they were per customer per business line, so shifts in revenue mix move it around. The biggest impact on GP rates globally were placement fees, and then, inside the US, how much adjustments are made and what direction they go to Worker's Comp is variable, and in this particular quarter, we had fewer favorable adjustments than we had in prior quarters, but there isn't-- we're not necessarily looking at a recovery in temp GP rates. Those are holding fairly well by individual business line and by customer. It's-- if that makes--

Okay. That's helpful. One more. When you stabilize, did the light industrial stabilize more than the clerical?

The answer is no, but again, I-- as you know, Ty, you follow us, we tend to have less light industrial, then, to some of our other competitors, so whether we are necessarily a good gauge as to what is taking place there, I don't know.

Fair enough. Thanks an awful lot. I appreciate it.

Thank you.

We also have a follow-up question that will come from the line of Tobey Summer with SunTrust Robinson. Go ahead.

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

We just did by one region, right?

We just did America.

Yes. All we announced was the Americas, and that was 14.

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

We never look just internally. As you know, we always look externally at what opportunities are there both with customers and in the industry. We have not stopped looking.

Okay. Are there any more interesting opportunities, or is that--

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

Perfect. Thanks. Have a good morning.

Hey, Tobey-- I realized when you talked about the 14 branches in the Americas-- of course, that includes the 37 in the UK, as well.

Right. Thank you very much.

Thank you, and at this time, we have no additional questions. Please continue.

Well, very good. Thank you all.

Thank you. (Operator Instructions).