Kelly Services, Inc. (KELYA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals several negative indicators: a decline in revenue and gross profit, reduced demand from key sectors, and a drop in adjusted EBITDA margin. Despite some positive aspects like cash flow improvement and AI opportunities, the Q&A section highlights ongoing demand pressures and margin challenges. The strategic plan mentions future revenue and margin pressure, further supporting a negative outlook. Given these factors, the stock price is likely to experience a negative reaction, falling between -2% to -8%.
Key Financial Performance
Fiscal Year Revenue $4.25 billion, down 1.9% overall and roughly flat excluding acquisitions and discrete impacts from reduced demand from the federal government and 3 top customers.
Fourth Quarter Revenue $1.1 billion, a decrease of 11.9% versus Q4 of last year or down 3.9% on an underlying basis, excluding discrete impacts. Decline attributed to reduced demand from federal government and top customers.
Education Segment Revenue Grew 1.3% year-over-year in Q4, driven by continued fill rate improvement.
SET Segment Revenue Underlying revenue declined 5.4% in Q4, reflecting demand pressure within information technology and other key specialties, partially offset by growth in telecom.
ETM Segment Revenue Underlying revenue declined 5.4% in Q4, with varying levels of declines across primary specialty areas.
Gross Profit $197 million in Q4, down 18.4% year-over-year, driven by lower revenue performance, increased employee-related costs, and business mix changes.
Gross Profit Rate 18.8% in Q4, a decrease of 150 basis points compared to the prior year quarter.
SG&A Expenses $198.5 million in Q4, a decrease of 8.7% year-over-year. Adjusted SG&A expenses decreased 11.1%, reflecting structural and volume-related cost optimization efforts.
Adjusted EBITDA $21 million in Q4, with an adjusted EBITDA margin of 2%, down 170 basis points year-over-year. Decline driven by revenue and gross profit declines.
Operating Cash Flow $122.6 million for the fiscal year, up significantly versus the prior year.
Total Available Liquidity $288 million at the end of Q4, comprising $33 million in cash and $255 million on credit facilities.
Total Borrowings $102 million at the end of Q4, decreased $16 million versus the prior quarter and $137 million versus the prior year-end.
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Operating Highlights
Education: Achieved year-over-year growth driven by solid demand for K-12 and therapy specialties. Strong pipeline of net new K-12 staffing opportunities and growing demand for pediatric therapy services.
SET (Science, Engineering, and Technology): Delivered top-line growth in telecom specialty and sequential revenue stability in Life Sciences.
ETM (Education Talent Management): Achieved stable sequential revenue performance in staffing, MSP, and BPO specialties, excluding contact center solutions.
Domestic Manufacturing: Supported a consumer technology company in scaling advanced manufacturing capacity in the U.S. from 10,000 units to 4 million units annually over 8 years.
Life Sciences: Captured growth in the clinical trials market through a functional service provider solution, including a multiyear contract with a global pharmaceutical company.
Technology Modernization: Completed the first phase of transitioning to a unified technology platform, benefiting from deeper data insights, AI, and automation.
AI Integration: Launched GRACE Boost, an internal AI platform, and deployed AI recruiting solutions to enhance hiring processes and customer satisfaction.
Cost Optimization: Reduced SG&A expenses by 11.1% year-over-year through structural and volume-related cost optimization efforts.
Leadership Changes: Appointed Pat McCall as Chief Growth Officer and initiated a search for the next President of SET to enhance growth and go-to-market strategies.
Customer-Centric Approach: Focused on aligning resources with demand and improving customer and talent experiences.
Growth Office Formation: Established a growth office to enhance enterprise-wide market strategies and customer acquisition.
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Risk or Challenges
Macroeconomic Environment: Employers are cautious about hiring due to a mixed labor market, which could impact revenue and growth opportunities.
Federal Government Demand: Demand from the federal government has stabilized but remains at reduced levels, which could continue to impact revenue.
Large Customer Demand: Three top customers have reduced demand, with one fully running off and another potentially reducing further in 2026, affecting revenue stability.
Segment-Specific Revenue Declines: SET and ETM segments experienced revenue declines due to demand pressures in IT and other specialties, as well as timing of project demand.
Gross Profit Pressure: Gross profit declined due to increased employee-related costs, business mix changes, and reduced demand from large customers.
SG&A Expenses: Structural and volume-related cost optimization efforts are ongoing, but SG&A expenses remain a challenge.
Technology Modernization Costs: The transition to a unified technology platform involves significant costs and will not be fully operational until 2027, delaying potential benefits.
AI Integration Challenges: While AI is being integrated to improve efficiency, its full impact on productivity and cost savings is yet to be realized.
Economic Uncertainty: No material change in macroeconomic or industry dynamics is assumed, but economic uncertainties could still pose risks.
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Guidance & Outlook
Revenue Projections: Revenue is expected to decline between 11% and 13% year-over-year in Q1 2026, with an underlying decline of 3% to 5% excluding discrete impacts. Modest revenue growth is anticipated in the second half of 2026, leading to a roughly mid-single-digit decline on a full-year basis.
Adjusted EBITDA Margin: Adjusted EBITDA margin is projected to be approximately 1.5% in Q1 2026, stepping down from Q4 2025 due to payroll tax resets. Measurable year-over-year margin expansion is expected in the second half of 2026, with a modest increase on a full-year basis.
Education Segment Growth: The Education segment is expected to continue growing, driven by a strong pipeline of K-12 staffing opportunities and increased penetration of higher-margin pediatric therapy services.
SET Segment Focus: The SET segment will focus on high-growth areas such as data centers, AI, and cybersecurity, as well as higher-margin statement of work and consulting engagements. Growth in the clinical trials market through the functional service provider (FSP) solution is also anticipated.
ETM Segment Developments: Several MSP and enterprise staffing wins are slated to go live in Q1 2026, including a significant MSP program with a global financial services firm. The new business pipeline is expected to grow, and conversion rates are anticipated to accelerate.
Technology Modernization: The technology modernization initiative will continue, with the majority of Kelly's businesses and functions expected to be operational within the unified platform by 2027. AI integration across the enterprise is expected to enhance productivity and efficiency.
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Shareholder Return Plan
Quarterly Dividend: Maintained at $0.075 per share.
Class A Share Repurchases: Completed $10 million of Class A share repurchases in the quarter, with $30 million remaining on the current authorization.
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Key Q&A
Q:What is Hunt bringing to the table as an active shareholder, and what does this mean for A shareholders?
A:Hunt companies support Kelly's team and focus on accelerating growth. They see opportunities to unlock more value at Kelly. There are no anticipated changes to business operations, client relationships, or strategic initiatives. Governance protections in the agreement with Hunt align with all shareholders and benefit both Class A and Class B shares.
Q:What are the underlying revenue trends in the SET business, and what could change these trends?
A:SET declined 5.4% in the quarter, slightly better than expectations. Demand pressure in the technology space was offset by growth in the telecom segment. Life Sciences showed positive momentum, with large pharma companies leveraging Kelly's functional service provider offering. IT faced headwinds from AI-driven productivity but saw growth in AI-related roles. Sequential quarter-on-quarter improvement is expected.
Q:What is the net impact of AI on Kelly in terms of demand for services and efficiency?
A:AI presents a net positive opportunity for Kelly. Employers are leveraging AI for productivity improvements and growth. Kelly's AI-enabled recruiting solution and other unique solutions provide flexibility and scalability for employers, unlocking value for Kelly.
Q:What are the trends for permanent hiring or the fee business for 2026?
A:There is no significant change, and the demand remains stable. Permanent hiring represents about 1% of total GP.
Q:What drove the margin trend in the fourth quarter, and what are the expectations for 2026?
A:Adjusted EBITDA margin fell short of expectations due to gross margin pressure, higher employee-related costs, and business mix. Discrete customer impacts and health care-related costs also contributed. For 2026, margin expansion is expected in the second half, driven by cost management, business mix shifts, and growth initiatives.
Q:What factors are expected to drive progressive improvement in revenue and adjusted EBITDA margin in 2026?
A:Progressive improvement will be driven by organic growth initiatives, technology modernization, efficiency and optimization efforts, and easier year-over-year comparisons. Returning to organic growth and measurable margin expansion is expected in the second half of 2026.
Q:What opportunities does the new Chief Growth Officer role bring?
A:The Chief Growth Officer will focus on bringing Kelly's full portfolio to market, winning more market share with large customers, building a unified client-centric model, driving organic growth, acquiring new customers, and accelerating the pipeline.
Q:What is the impact of Kelly's internal AI recruiting solution on efficiency and cost?
A:Kelly's AI recruiting solution delivers deeper data and insights, driving productivity and efficiency. It contributes to EBITDA margin expansion and integrates with platforms like Kelly Helix to provide workforce insights and faster decision-making.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the divergence in Class A and Class B share prices and provided limited detail on how AI-driven productivity impacts specific roles or the broader business.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Chief
Class share
ETM quarter
Education
Full Conference
GRACE
Officer
SGA
acquisition SET
agreement
allowance
application
approach
balance sheet
candidate
center solution
centricity
commitment
compensation
decline
decrease basis
enterprise
experience
firm
government
impact
modernization initiative
optimization effort
platform
pressure
sheet cash
solution opportunity
specialty
staffing
tax
technology modernization
workflow
year sale
KELYA Transcript
Kelly Services, Inc. (KELYA) Q4 2025 Earnings Call Transcript
Unknown2-12
The earnings call summary reveals several negative indicators: a decline in revenue and gross profit, reduced demand from key sectors, and a drop in adjusted EBITDA margin. Despite some positive aspects like cash flow improvement and AI opportunities, the Q&A section highlights ongoing demand pressures and margin challenges. The strategic plan mentions future revenue and margin pressure, further supporting a negative outlook. Given these factors, the stock price is likely to experience a negative reaction, falling between -2% to -8%.
Savaria Corporation (SIS:CA) Q3 2025 Earnings Call Transcript
Positive11-6
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.
Kelly Services, Inc. (KELYA) Q3 2025 Earnings Call Transcript
Unknown11-6
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.
Kelly Services, Inc. (KELYA) Q2 2025 Earnings Call Transcript
Unknown8-11
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.
KELYA Slides
KELYA Report
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