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01/11 08:14
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals: strong EPS growth and operational efficiency improvements are overshadowed by revenue declines and margin pressures. The Q&A reveals management's confidence in Q3 guidance and stabilization, but also highlights concerns about large customer demand variability and macroeconomic impacts. These factors, combined with stable price competition and strategic focus on higher-margin areas, suggest a neutral stock price movement. However, the lack of clear guidance on large customer demand recovery and the absence of a market cap for context make it difficult to predict a more positive or negative trend.
Revenue for Q2 2025 $1.1 billion, an increase of 4.2% year-over-year. On an organic basis, revenue was down 3.3%, including a 1.3% negative impact from reduced demand for federal contractors and a 3.5% impact from large customers reducing demand due to cost-reduction initiatives.
Education Segment Revenue Grew 5.6% year-over-year (5.3% on an organic basis). Growth driven by improved fill rates and stable demand in K-12 staffing.
SET Segment Revenue Increased 19% on a reported basis due to the MRP acquisition. Organic revenue declined 8.5%, with a 3.2% decline excluding lower demand for federal contractors. Decline attributed to reduced demand in certain industry verticals and with key customers.
ETM Segment Revenue Declined 3.9% year-over-year (5.1% on an organic basis). Staffing services revenue fell 7.7%, primarily due to large customer demand reductions and lower demand for federal contractors. Outcome-based revenues decreased 6.2%, driven by demand pressure from a large contact center customer.
Gross Profit $225.5 million, with a gross profit rate of 20.5%, up 30 basis points year-over-year. Improvement driven by the MRP acquisition, offset by lower perm fees, business mix, and employee-related costs.
Adjusted EBITDA $37 million, a decrease of 9% year-over-year. Adjusted EBITDA margin declined 40 basis points to 3.4%, reflecting incremental revenue pressure.
Reported Earnings Per Share (EPS) $0.52 compared to $0.12 in Q2 2024. Adjusted EPS was $0.54 compared to $0.71 in the prior year, reflecting lower earnings from operations and increased net interest expense due to debt from the MRP acquisition.
Operating Cash Flow Seasonally strong, supported by favorable working capital timing and $22 million cash proceeds from the sale of EMEA staffing operations.
AI-enabled workforce solutions: Kelly is providing employers with flexible, scalable solutions to transition to an AI-enabled workforce, combining people and technology to drive profitable growth.
Education business growth: Revenue grew 5.6% year-over-year, driven by improved fill rates in K-12 staffing.
SET segment performance: Revenue increased 19% on a reported basis due to the MRP acquisition, though organic revenue declined 8.5% due to reduced demand for federal contractors and certain industry verticals.
ETM segment performance: Revenue declined 3.9% year-over-year, impacted by reduced demand from large customers and federal contractors. However, outcome-based revenue excluding contact center solutions grew 5%.
Operational efficiencies: Kelly implemented modernized front- and back-office systems within SET, leveraging MRP's technology stack to reduce complexity and drive efficiencies.
Cost management: SG&A expenses declined 1% year-over-year on an adjusted organic basis, reflecting improved productivity and alignment of resources with demand.
CEO transition: Chris Layden will take over as President and CEO on September 2, 2025, bringing extensive experience in transformations and profitable growth.
Strategic realignment: Kelly realigned its operating model, reducing reportable segments from 4 to 3 (ETM, SET, Education) and integrating MRP's portfolio to enhance go-to-market strategies.
Demand Reductions from Large Customers: Acute demand reductions from certain large customers due to cost controls implemented in response to the dynamic trade and geopolitical landscape.
Decelerated Demand for Staffing Services: Broader market conditions have led employers in some sectors to adopt a more measured approach to hiring, impacting demand for staffing services.
Decline in U.S. Federal Government Business: Volumes within the U.S. federal government business declined at the outset of the quarter, attributed to reduced demand for federal contractors.
Macroeconomic Environment Impact: The evolving macroeconomic environment negatively impacted revenue, with a 3.3% organic year-over-year decline, including reduced demand for federal contractors and cost-reduction initiatives by large customers.
Technology Segment Weakness: Weaker demand in the technology segment contributed to revenue declines in the SET segment.
Contact Center Offering Decline: Outcome-based revenues in the ETM segment decreased due to demand pressure from a large customer within the contact center offering, with declines expected to fully run off by the end of the third quarter.
Integration and Efficiency Challenges: Efforts to integrate MRP's portfolio and implement modernized systems within SET are ongoing, with potential risks related to execution and achieving anticipated efficiencies.
Debt and Interest Expense: Increased net interest expense due to debt incurred for the MRP acquisition, impacting financial performance.
Revenue Projections: For the third quarter, revenue is expected to decline by 5% to 7%, including an 8% negative impact from reduced demand from large customers and federal contractors. Excluding these factors, underlying revenue growth is projected to be 1% to 3%.
Adjusted EBITDA Margin: For the third quarter, adjusted EBITDA margin is expected to increase by 80 to 90 basis points year-over-year. Modest year-over-year adjusted EBITDA margin expansion is anticipated for the full year.
Capital Allocation and Debt: Net debt is expected to increase over the remainder of the year due to seasonal cash flow and capital deployment activities. However, an overall reduction in net debt is anticipated relative to the prior year-end balance.
Macroeconomic Assumptions: The company assumes current macroeconomic conditions will persist for the foreseeable future, with clients taking a measured approach to workforce management strategies.
Operational Efficiency Initiatives: Efforts to improve productivity and align resources with demand will continue, including leveraging AI and process efficiencies. These initiatives are expected to drive efficiencies throughout 2025 and into 2026.
AI and Workforce Solutions: Kelly plans to leverage its position as a partner of choice for employers integrating AI into operations, aiming to drive efficiency and growth for customers and shareholders.
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The earnings call reveals strong financial performance, with reduced finance costs and improved leverage ratio. Despite a projected revenue decline, the company maintains strong margins and operational efficiencies. The Q&A highlights positive sentiment from analysts, with no significant macroeconomic impacts or price sensitivity observed. The focus on acquisitions, strategic growth, and maintaining shareholder returns further supports a positive outlook. However, the lack of detailed guidance on some initiatives and product-level data slightly tempers the positivity.
The earnings call reveals declining revenues across multiple segments, a significant drop in adjusted EBITDA, and reduced gross profit. Although there are efforts to leverage AI and operational efficiencies, the short-term impact is minimal. The Q&A highlights concerns about revenue concentration, macroeconomic challenges, and unclear management responses on certain risks, which further dampens sentiment. Despite some cash flow improvements and strategic initiatives, the overall outlook is negative, with potential stock price decline due to weak financial performance and uncertainty.
The earnings call presents mixed signals: strong EPS growth and operational efficiency improvements are overshadowed by revenue declines and margin pressures. The Q&A reveals management's confidence in Q3 guidance and stabilization, but also highlights concerns about large customer demand variability and macroeconomic impacts. These factors, combined with stable price competition and strategic focus on higher-margin areas, suggest a neutral stock price movement. However, the lack of clear guidance on large customer demand recovery and the absence of a market cap for context make it difficult to predict a more positive or negative trend.
The earnings call presents mixed signals. Revenue growth and improved gross profit rate are positive, but the EPS drop and lack of shareholder return plans are concerning. The Q&A reveals some uncertainties, particularly with federal business impacts and integration charges. Despite improvements in education and SET segments, macroeconomic uncertainties and mixed pricing trends temper optimism. The lack of a clear shareholder return plan and the cautious M&A outlook further balance the positives, resulting in a neutral sentiment.
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