Kelly Services, Inc. Q1 FY2025 earnings call

Peter Quigley mentioned Kelly delivered organic revenue growth in line with expectations and outperformed the market. The operating model demonstrated resilience with businesses making strategic contributions. The education business remained a source of strength, and higher margin outcome-based solutions were robust. Disciplined execution and cost actions were implemented for EBITDA margin expansion. The unification of OCG and P&I business units began to show benefits, and the integration of MRP was accelerated. Troy Anderson discussed segment changes, revenue by segment, gross profit, SG&A expenses, earnings per share, and EBITDA, and provided details on the second quarter outlook.

Revenue for Q1 2025 totaled $1.16 billion, an increase of 11.5% versus Q1 last year. On an organic basis, year-over-year revenue was up 0.2%. Education segment was up 6.6% year-over-year in the quarter or 6.3% on an organic basis. SET segment revenue was up 39% on a reported basis, with SET organic revenue down 7% in total but down only 4% excluding 3% of decline related to lower demand for federal contracts. ETM segment revenue grew 1.9% on a reported basis and was flat year-over-year on an organic basis. Reported gross profit was $236.5 million, reflecting a gross profit rate of 20.3%, an improvement of 60 basis points compared to the prior year quarter. Reported earnings per share were $0.16 compared to earnings per share of $0.70 in Q1 2024. Adjusted EBITDA was $34.9 million, an increase of 5% versus the prior year period, while adjusted EBITDA margin declined 20 basis points to 3%.

For the second quarter, expecting total revenue growth of 6% to 7% which includes a 1% to 1.5% negative impact associated with reduced demand for federal contractors and an additional 1% negative impact related to slower economic growth relative to initial expectations. Organically, expecting revenue to be down 1% to 2% or roughly flat excluding the impacts related to the federal government and slower economic growth. Anticipating adjusted EBITDA margin to decline 20 to 30 basis points year-over-year in the second quarter, but expecting margin expansion in Q3 and Q4 and for the full year.

Ongoing integration charges related to technology and severance. Impact from changes in the federal government business, such as the HHS contract actions. Uncertainty in the M&A environment with limited available properties and seller expectations. Macro-economic environment affecting clients' workforce management strategies leading to potential tempering of staffing market demand.

Q: Joe Gomes asked about ongoing integration charges, the Fed business, the M&A environment, and the Purcell Kelly sale.

A: Troy Anderson explained that there will be ongoing integration charges with a mix of IT-related and severance costs, the Fed business has seen impact from an HHS contract and there are expectations to claw back some of the impact, the M&A environment is quiet with limited properties and seller expectations, and the Purcell Kelly sale has been completed.

Q: Will Brinman asked about MRP margin benefits, quarter trends, and pricing.

A: Troy Anderson said MRP margin benefits are expected to improve as integration progresses, there were trends in education and staffing with improvement throughout the quarter, and pricing is mixed with some compression in certain areas but better bill rates in others.

Q: Kevin Steinke asked about second quarter outlook visibility, integration benefits for large customers, tailoring solutions for market share, and demand in semiconductor and renewable sectors.

A: Troy Anderson discussed second quarter outlook visibility based on leading indicators, integration benefits for large customers in terms of offering a more comprehensive talent acquisition approach, tailoring solutions helping gain market share, and details on demand in semiconductor and renewable sectors with examples of work in those areas.