Kelly Services, Inc. Q4 FY2024 earnings call

• Leadership Transition: Peter Quigley to retire as President and CEO by end of 2024, with board initiating CEO search. - Financial Performance: Fourth quarter saw organic revenue growth >4% and adjusted EBITDA up 34%; full year organic revenue grew 0.5% despite industry declines. - Strategic Moves: Completed sale of European Staffing and Ayres Group; acquired Motion Recruitment Partners (MRP) to enhance scale and capabilities. - Integration of MRP: Integrating MRP's businesses into Kelly's SET and OCG segments to create complementary offerings, with combined business lines ready to launch in Q2 2025. - Operational Priorities: Focus on top line growth via organic initiatives, MRP integration, optimizing operating model, and driving EBITDA margin expansion.

Education: Fourth quarter saw 12% year-over-year revenue growth, with continued double-digit growth and expansion of higher margin therapy business via acquisition of Children's Therapy Center. SET: Reported revenue up 38% driven by MRP acquisition; organic revenue down 4%, but outcome-based solutions like StatementWorks showed growth. OCG: Revenue grew 9% driven by PPO specialty; MSP and RPO offerings expected to drive future growth. PNI: Revenue improved 4% year-over-year, with staffing up 3.7% and outcome-based specialties up 5.9% due to strong demand in sectors like semiconductors and logistics. Revenue contributions: Education, SET, OCG, PNI each contributed to the company's overall revenue mix with their respective growth trajectories.

• 2025 Outlook: Anticipates modest market improvement, first half revenue growth ~10% due to MRP acquisition and modest organic growth. - Gross Profit: Expect GP rate improvement of ~80 basis points in first half, driven by MRP acquisition and mix shift to outcome-based solutions. - EBITDA Margin: Adjusted EBITDA margin expected to improve ~10 basis points in first half to ~3.6%. - Capital Expenditures: Plan to increase CapEx and software development spending in 2025 for MRP integration and enterprise technology initiatives.

• Market Volatility: Continued challenging market conditions in the staffing industry. - Integration Challenges: Potential difficulties in successfully integrating MRP's businesses into Kelly's segments. - Impairment Activity: Non-cash impairment charges of $8 million related to headquarters facility and $72.8 million related to Softworld acquisition due to lower-than-projected performance.

Q: How did the education segment perform in Q4 and what impacted it?

A: The education segment was up 12% year-over-year in Q4, but was significantly impacted by two back-to-back hurricanes in late September/early October which disrupted school districts.

Q: What was the driver of staffing revenue trends in Q4 and how was demand for perm and temp staffing?

A: PNI saw strong staffing demand in Q4 with a seasonal uptick, up 3.7% on staffing and 5% on outcome-based. SET staffing was down 5% in Q4, but outcome-based solutions helped pull back from Q3 decline.

Q: What's the outlook for customer sentiment and segments in the first half of 2025?

A: Customer sentiment is cautious due to post-election shifts and pending legislation; education to see non-double-digit growth due to comps, PNI roughly flat, SET with pullback, and OCG with remix from PPO to MSP/RPO.

Q: Talk about the acquisition of Children's Therapy Center and share repurchase activity.

A: Acquisition of Children's Therapy Center is to expand therapy business complementing in-school therapy, with higher gross margins. Share repurchase of $10 million completed in Q4, with focus on investing in business, repaying debt, and considering return to shareholders.