Kelly Services, Inc. Q3 FY2025 earnings call

CEO Chris Layden introduced Kelly's history and current situation, emphasizing the company's diverse portfolio and core strengths. CFO Troy Anderson provided details on financial results, including revenue decline, gross profit changes, SG&A expenses, goodwill impairment, and tax valuation allowance. Management's short-term priorities include aligning resources, strategic restructuring, and technology modernization. Long-term focus areas are growth (organic and inorganic), efficiency (resource alignment and cost reengineering), and culture (customer centricity, visibility, and accountability).

Education grew 0.9% year-over-year in the quarter, driven primarily by ongoing fill rate improvement. SET revenue was down 9% in the quarter or 3.5% excluding the federal government impact. Telecom and Engineering specialties continue to be growth areas within SET, while Life Sciences and Technology saw year-over-year declines. ETM segment revenue declined 13.1% year-over-year or an underlying decline of 1.9%. Staffing services revenues declined 16.4%, outcome-based revenues decreased by 17.2%, excluding Contact Center ETM outcome-based solutions grew modestly, and Talent Solutions revenue decreased 1.4% overall.

Fourth quarter revenue expected to decline 12% to 14%, including 8% negative impact from reduced demand from discrete large customers and federal contractors, with underlying revenue decline of 4% to 6%. Adjusted EBITDA margin expected to be approximately 3% in the quarter. Likely to see continued revenue and margin pressure at least through the first half of 2026.

Macro economic landscape, sluggish labor market, global and domestic policy shifts, AI boom impact on the industry, goodwill impairment of $102 million due to macroeconomic and industry conditions, and recording of $70 million valuation allowance for deferred tax assets.

Q: Joe Gomes asked about discrete impacts from federal government and large customers.

A: Troy Anderson said they're roughly equal.

Q: Kevin Steinke asked about AI impact.

A: Chris Layden and Troy Anderson discussed AI as an opportunity with ongoing technology modernization.

Q: Marc Riddick asked about cash usage and acquisition.

A: Troy Anderson talked about CapEx, cash flow, and acquisition pipeline.

Q: Jessica Luce asked about sales cycle and pricing.

A: Chris Layden and Troy Anderson discussed sales cycle robustness and pricing environment across segments