KELYA — Kelly Services, Inc.

Summary of Kelly Services, Inc. Q4 2025 Earnings Call

1. Key Financial Results and Metrics:

• Q4 Revenue: $1.1 billion, down 11.9% year-over-year, or down 3.9% on an underlying basis excluding discrete impacts.
• Full Year Revenue: $4.25 billion, a decrease of 1.9% overall, roughly flat when excluding acquisitions and impacts from reduced demand from the federal government and three top customers.
• Gross Profit: $197 million, down 18.4% year-over-year, with a gross profit margin of 18.8%, a decline of 150 basis points.
• Adjusted Earnings Per Share (EPS): $0.16, down from $0.79 in the prior year; reported loss per share was $3.69.
• Adjusted EBITDA: $21 million with an adjusted EBITDA margin of 2%, down 170 basis points year-over-year.
• Operating Cash Flow: $122.6 million for the year, significantly up from the prior year.
• Total Liquidity: $288 million, with total borrowings reduced to $102 million.

2. Strategic Updates and Business Highlights:

• Kelly Services has entered an agreement with Hunt Companies for a controlling stake in Class B common stock, leading to a reconstitution of the board with four new members.
• The company is focusing on customer-centric strategies and has seen growth in Education and telecom sectors, while Life Sciences showed stability.
• A significant milestone in technology modernization was reached with the completion of a cutover to a new platform, expected to enhance productivity and insights across the enterprise.
• AI integration efforts are ongoing, with the launch of a proprietary internal AI platform, Grace Boost, aimed at improving recruitment workflows and customer satisfaction.
• The appointment of Pat McCall as Chief Growth Officer is intended to enhance market strategies and drive growth.

3. Forward Guidance and Outlook:

• For Q1 2026, revenue is expected to decline between 11-13% year-over-year, with an adjusted EBITDA margin of approximately 1.5%.
• The company anticipates sequential improvement in revenue and adjusted EBITDA margin throughout 2026, with a return to modest revenue growth in the second half of the year.
• The focus will remain on organic growth drivers, particularly in Education and high-growth areas within SET, including data centers and AI.

4. Bad News, Challenges, or Points of Concern:

• Revenue declines were attributed to reduced demand from federal government contracts and three major customers, with potential further reductions expected in 2026.
• The company faced gross profit margin pressure due to increased employee-related costs and a challenging macroeconomic environment, particularly in the IT sector.
• The adjusted EBITDA margin fell short of expectations, reflecting challenges in maintaining profitability amidst declining revenues.
• There are concerns about the impact of AI on demand for certain roles, particularly in IT, which may affect future staffing needs.

5. Notable Q&A Insights:

• The management expressed confidence in the positive impact of AI on productivity and growth, emphasizing its role in enhancing customer solutions.
• Questions regarding the implications of Hunt Companies' involvement highlighted the potential for increased shareholder value and strategic alignment.
• Management acknowledged ongoing challenges in the SET business, particularly in IT, but noted growth in telecom and Life Sciences as offsets.
• The new Chief Growth Officer's role is seen as crucial for capturing market share and enhancing customer engagement, particularly with large enterprise accounts.

Overall, while Kelly Services is navigating significant challenges, particularly in revenue and profitability, the company is implementing strategic initiatives aimed at stabilizing and eventually growing its business in 2026.