Q3 2026 KELLY SERVICES, INC. EARNINGS WEBCAST - KELLY SERVICES INC

Financial Performance:

• Third quarter revenue totaled $927 million, a 0.8% year-over-year (YoY) decline, falling within the flat to down 2% guidance; underlying revenue grew 2.3%, exceeding the 1-2% guidance.
• Adjusted EBITDA reached $21.3 million, a 29% YoY increase, with an adjusted EBITDA margin of 2.3% (50 basis points YoY expansion, hitting the top end of guidance).
• Gross profit rate improved 20 basis points to 21% despite lower revenue, driven by higher mix in talent solutions and outcome-based services.
• Adjusted diluted earnings per share (EPS) was $0.07, compared to $0.17 in the prior year period.
• Reported diluted loss was $0.05 per share, excluding a prior-year goodwill impairment and tax valuation allowance.
• Adjusted SG&A expenses decreased 1% YoY (excluding $5.3M in one-time integration and restructuring charges), with a full-year target of a 4% decline ($25-30M savings).
• Total liquidity stood at $256 million ($22M cash + $234M credit facility); total debt was $122.5 million after $55 million cash usage for working capital and seasonal needs.
• Quarterly dividend maintained at $0.075 per share; share repurchase authorization is being refreshed and extended.

Guidance and Future Outlook:

• Q4 2026 revenue guidance revised to flat to up 1% YoY, reflecting gradual education recovery and near-term pressure from one large ETM client.
• Q4 adjusted EBITDA margin guidance raised to 3.8%–4.0% (180-200 basis points expansion), aided by a fiscal week shift benefiting revenue.
• Full-year 2026 outlook remains intact: mid-single-digit total revenue decline and adjusted EBITDA margin of 2.6%–2.7% (flat to +10 bps YoY).
• Management anticipates returning to underlying revenue growth and margin expansion in 2027, driven by industrial reshoring, digital infrastructure build-outs, and education sector pivots.
• Long-term focus on organic investment, profitability, and opportunistic inorganic activity to support scalable growth.

Business Segments and Product Lines:

• Engineering, Technology, and Manufacturing (ETM): Delivered first YoY revenue growth since establishment; underlying revenue up 7.7%, led by 11.6% growth in Talent Solutions (MSP/RPO) and 7% growth in industrial staffing. New wins in pharmaceuticals, energy, and logistics.
• Specialty, Engineering, and Technology (SET): Sequential revenue growth for the second quarter; underlying revenue down 0.8% (improved 200 bps YoY). High-margin outcome-based solutions now represent 40% of SET revenue; life sciences and engineering specialty pivoted to growth.
• Education: Revenue declined 6.4% YoY due to K-12 enrollment consolidation and therapy market fragmentation; expected to gradually pivot to growth as districts face talent shortages and larger class sizes.
• Strategic Initiatives: Launched refreshed "One Kelly" brand architecture with 10 specialties; fully integrated tele-digital infrastructure brand; completed Workday HRIS cutover; expanded "Grace Boost" AI recruiting platform to automate transactional tasks while maintaining human-led decision-making.
• Key Client Wins: Expanded global MSD program with a major semiconductor client; deepened partnership with a top IT infrastructure provider into a four-line-of-business, multinational engagement including AI innovation center support.

Market and Competitive Landscape:

• Industry viewed as being in early recovery stages, with constructive demand trends in industrial sectors, logistics, pharmaceuticals, and advanced mobility.
• Kelly recognized as a global leader in MSP/RPO by Everest Group and #1 global provider of total workforce solutions by HRO Today.
• "One Kelly" strategy driving increased wallet share with enterprise clients by integrating staffing, solutions, and consulting capabilities.
• Education segment addresses a market where 70% of school districts still insource substitute management, representing significant white space.
• Client demand for flexibility, visibility into total workforce, and AI-driven efficiency remains a primary growth catalyst.

Risks and Challenges:

• Education Segment: Near-term enrollment declines in K-12 districts leading to school consolidation and lower substitute teacher demand; fragmented therapy market requiring resource realignment to capture volume.
• Customer Concentration: One large ETM client is experiencing near-term demand pressure, expected to impact Q4 results temporarily.
• Macro Headwinds: Persistent inflation in operational costs (fuel/food) impacting school district budgets; potential softness in permanent hiring across certain sectors.
• Integration Costs: Ongoing expenses related to technology modernization and organizational realignment will persist through the year.

Management Commentary and Tone:

• CEO Chris Layden and CFO Troy Anderson expressed cautious optimism, highlighting the "One Kelly" strategy and AI integration as key differentiators.
• Tone was confident regarding long-term growth potential despite acknowledging a "more gradual pivot" for the education segment.
• Emphasis placed on client-centricity, technology modernization, and the ability to adapt to evolving workforce models (flexibility, AI, total workforce).
• Management emphasized resilience and discipline in capital allocation, prioritizing organic growth investments while maintaining shareholder returns.

Analyst Questions and Answers:

• ETM Growth Drivers: Confirmed ETM growth is a mix of new logos (especially in MSP/RPO) and share-of-wallet expansion in existing accounts (staffing/BPO).
• Education Rebound Confidence: Cited persistent teacher shortages, larger class sizes, and the 70% insourcing white space in K-12, alongside strong demand in therapy services.
• Margin Sustainability: Management expects gross profit rates to normalize and remain flat on a full-year basis, with EBITDA margin expansion driven by higher-margin mix (solutions/therapy) and operational efficiencies.
• Market Recovery Stage: Identified the market as in early recovery, with strength in industrial/reshoring and digital infrastructure, though permanent hiring remains below historical peaks.
• Discrete Client Impact: The near-term pressure from the large ETM client is viewed as temporary; Q4 guidance incorporates this impact.
• Remote Work Trends: No significant shift in client preferences regarding hybrid or remote work policies observed; stability expected in this area.

Other Key Points:

• Kelly Services celebrated its 80th anniversary and marked one year under the current CEO's leadership.
• Launch of "Talent Leadership in Action," a thought leadership forum engaging C-suite executives across global markets.
• Technology modernization milestones include the Workday cutover and the full integration of legacy acquisition brands under new specialty structures.
• Management highlighted the successful ramping of the Growth Office to improve market visibility and conversion of new business pipelines.