Kelly Services, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• CEO Transition: Chris Layden selected as next President and CEO, to join on September 2; Peter Quigley to serve as strategic adviser.
• Second Quarter Highlights: Benefits from focus on resilient markets; Education achieved revenue growth; SET capitalized on engineering and telecom verticals; ETM payroll process outsourcing showed strength; impacted by large customer demand reductions and macro environment; maintained operational discipline and agility; progress on integrating MRP and modernizing front/back-office systems in SET.

Segment Performance

• Education: Grew 5.6% year-over-year in Q2 2025, or 5.3% on an organic basis. Each specialty within Education grew, with K-12 staffing driving fill rate improvement. GP rate was flat.
• SET: Reported revenue up 19% on a reported basis due to the acquisition of MRP. Organic revenue down 8.5% total, but down only 3.2% excluding lower demand for federal contractors. Staffing services down 10%, outcome-based services down 4.5%. GP rate improved in SET due to the MRP acquisition.
• ETM: Reported revenue declined 3.9% year-over-year, or 5.1% on an organic basis. Staffing services declined 7.7% primarily due to large customer demand reductions and federal contractor impact. Outcome-based revenues decreased 6.2%, but excluding contact center, increased 5%. GP rate slightly down, with benefits from Sevenstep addition and perm fees growth offset by PPO growth (lower GP rate).

Guidance

• Third Quarter Outlook: Revenue expected to decline 5%-7% (including 8% impact from large customers and federal contractors), underlying revenue growth 1%-3%; adjusted EBITDA margin expected to increase 80-90 basis points year-over-year; full-year adjusted EBITDA margin expected to modestly expand.
• Key Points: Macro environment stabilization considered; pipelines and business elements have good visibility; focus on leveraging efficiencies from integration efforts.

Risks

• Large Customers: Rapid flip of demand on/off by large global customers due to macroeconomic conditions.
• Macroeconomic Impact: Customers taking measured approach to workforce management, affecting demand for staffing services.
• Market Pressure: Light industrial commercial space experiencing pricing pressure from aggressive competition.

Question and Answer

• Q: About quarterly trend and improvement; A: Troy notes Education has seasonality, ETM staffing has monthly fluctuation, with July showing stability, and midpoint of expected growth similar to Q2 when excluding government and large customer impacts.
• Q: Dealing with large customers; A: Peter states ability to flex with demand decrease and ramp up due to streamlined operations; Troy adds about 3 specific large customers, with one contact center impact ending in Q3.
• Q: Confidence in third quarter guidance; A: Troy states confidence based on available information, seeing stabilization and good visibility into pipelines.
• Q: SET outperformance; A: Troy references public competitors' disclosures showing SET outperforming by 1-2 points; Peter mentions industry indices for comparison.
• Q: Education growth in second half; A: Troy explains Education's predictable nature, high certainty of book of business, excellent fill rates in back half of year.
• Q: Cash usage and acquisitions; A: Troy talks about cash used for debt paydown, active acquisition pipeline focusing on smaller tuck-in assets, and $40M remaining on share repurchase authorization.