Kelly Services, Inc. Q2 FY2025 earnings call

• CEO Transition: Chris Layden selected as next President and CEO, joining on September 2; Peter Quigley to serve as strategic adviser. - Second Quarter Results: Benefits from focus on resilient markets; Education growth, SET capitalizing on engineering/telecom demand, ETM payroll process outsourcing strength. Impacted by large customer demand reductions and macroeconomic environment. - Operational Efforts: Emphasis on operational discipline and agility; advanced integration of MRP's businesses with SET; progress on modern front/ and back-office systems in SET to drive efficiencies.

Education: Grew 5.6% year-over-year in the quarter (5.3% on an organic basis). Each Education specialty saw growth, with K-12 staffing maintaining strong fill rates. SET: Reported revenue up 19% due to the acquisition of MRP. On an organic basis, SET revenue was down 8.5% total, and down 3.2% excluding lower demand for federal contractors. Staffing services were down 10% and outcome-based services down 4.5%, but SET continues to outperform the market with its targeted mix despite macro variability. ETM: Reported revenue declined 3.9% year-over-year (5.1% on an organic basis). Staffing services were impacted by large customer demand reductions and lower demand for federal contractors. Outcome-based revenues decreased, but Talent Solutions revenue increased 8% overall (2% organically) with new customer wins and integration of Sevenstep.

• Third quarter revenue expected to decline 5% to 7%, with 8% negative impact from reduced demand for discrete large customers and federal contractors; excluding these, underlying revenue growth expected 1% to 3%. - Adjusted EBITDA margin expected to increase 80 to 90 basis points year-over-year in third quarter; modest full-year adjusted EBITDA margin expansion expected.

• Impact from large global customers changing demand quickly. - Macroeconomic uncertainties affecting customer hiring decisions. - Variability in market conditions impacting segments like SET and ETM.

Q: Joe Gomes asked about quarterly trends and confidence in third quarter guidance.

A: Troy R. Anderson responded that the business portfolio isn't monthly sensitive, Education has seasonality, ETM staffing shows monthly fluctuation; they feel confident in third quarter guidance based on available info.

Q: Kartik Mehta inquired about EBITDA margin drivers and pricing competition.

A: Troy R. Anderson said margin expansion is from cost cuts, integration efforts, and focusing on higher value specialties; pricing is stable, with some pressure in light industrial commercial space.

Q: Kevin Steinke probed into SET outperformance and Education growth outlook.

A: Troy R. Anderson mentioned SET outperforms market based on public disclosures; Education growth in back half due to predictable business cycle, high fill rates, and certainty of book of business.

Q: Marc Riddick asked about cash usage, acquisitions, and share repurchases.

A: Troy R. Anderson said cash went towards debt paydown; actively exploring acquisition opportunities, with focus on smaller tuck-in assets; $40 million remaining on share repurchase authorization.