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

Explicit Guidance:

• Q4 2026: Total revenue expected to be flat to up 1% year-over-year (YoY), influenced by an extra fiscal week boosting revenue by ~3% YoY. Adjusted EBITDA margin expected to expand 180–200 bps YoY, resulting in a margin of 3.8%–4.0%.
• Full Year 2026: Total revenue expected to decline in the mid-single digits. Adjusted EBITDA margin projected at 2.6%–2.7%, representing a flat to 10 bps YoY improvement. Core adjusted SG&A expenses projected to decline $25–30 million (approx. 4%) YoY.
• Q1 2027 (Implied): Management indicates expectations to continue delivering in line with full-year 2026 guidance.

Business-Segment Outlook:

• ETM (Engineering, Technical, & Manufacturing): Underlying revenue grew 7.7% YoY in Q3; momentum expected to continue into 2027 driven by industrial reshoring, digital infrastructure build-out, and growth in MSP/RPO solutions. New business wins and increased share of wallet with enterprise clients in pharmaceuticals, energy, and logistics are anticipated.
• SET (Staffing & Professional): Underlying revenue declined 0.8% YoY in Q3 but showing sequential improvement; outcome-based solutions (40% of SET revenue) and permanent placements (3rd straight quarter of growth) are expected to drive future growth. Specific growth anticipated in engineering, life sciences, and digital infrastructure specialties.
• Education: Near-term revenue headwinds persist due to K-12 enrollment declines and therapy market fragmentation. Management expects a "gradual pivot back to growth" in coming quarters as districts face talent shortages and larger class sizes increase demand for outsourced workforce solutions. 70% of school districts remain a white space opportunity for outsourcing substitute management.
• Therapy: Demand for PT/OT/speech therapy professionals is solid but fragmented; resources are being reallocated to capture this demand faster.

Market and Competitive Outlook:

• Recovery Status: Management views the market as in the "early stages of a recovery" with constructively increasing demand trends.
• Pricing & Margins: Gross profit rates are expected to normalize around 20% for the full year, with further margin expansion anticipated in 2027 via mix shift toward higher-margin solutions (outcome-based, therapy).
• Share Shifts: Continued market share gains expected in MSP/RPO and industrial staffing due to AI-powered differentiation and the "One Kelly" strategy.
• Permanents Hiring: Permanent placement activity has increased for three consecutive quarters, though at a lower starting point than historical norms; share gains expected here as well.

Macro / Industry Outlook:

• Economic Drivers: Growth supported by industrial reshoring, the global digital infrastructure boom (AI-related), and sector diversity (logistics, advanced mobility, pharmaceuticals).
• Workplace Trends: Stability expected in work-from-home vs. return-to-office policies with no significant shift anticipated in the near term. "Flexibility" and "visibility" into the total workforce remain the primary client demands.
• Skills & Demand: Widening skills gaps and the need for flexibility are identified as key structural drivers for the "inflection point" in the world of work.
• Specific Headwinds: Near-term demand pressure noted from the federal government (stable) and one large discrete ETM client (temporary decline expected). Education segment impacted by documented enrollment declines and rising fuel/food costs for districts.

Strategic Initiatives:

• Brand & Organizational: Completed integration of legacy acquisitions into a single "Kelly" brand with 10 specialties (e.g., "Tele-Digital Infrastructure" launched Sept 2026).
• Technology: Full cutover to Workday as the enterprise HCM platform completed; remaining back-office systems to be modernized in phases. AI platform "Grace Boost" expanding to automate recruiter transactional work and personalize candidate experiences.
• Go-to-Market: Establishment of a "Growth Office" to improve market visibility and execution; expansion of "One Kelly" approach to deepen relationships with existing clients across multiple lines of business.
• Capital Allocation: Focus on organic investment for profitable growth, maintaining the $0.075/share quarterly dividend, and managing leverage. Share repurchase authorization being extended beyond December to maintain optionality; inorganic activity (M&A) expected to increase over time.
• Cost Optimization: Structural changes to SG&A expected to enable scaling efficiency and margin expansion.

Risks and Headwinds to Outlook:

• Education: Persistent enrollment declines in K-12 districts and a fragmented therapy market could delay the return to growth.
• Discrete Client: Continued demand pressure from a specific large ETM client in Q4, though viewed as temporary.
• Execution Risks: Potential delays or costs associated with ongoing technology modernization (Workday phases) and restructuring charges.
• Macro Variability: Enrollment resets and staffing needs may fluctuate based on school district budget constraints and funding.

Management Tone on the Future:

• Confidence Level: High conviction in long-term growth potential despite near-term Education headwinds. Management describes the current period as an "inflection point" and expresses confidence in the company's ability to capture the "digital infrastructure build out" and "reshoring" trends.
• Sentiment: Optimistic regarding the "One Kelly" strategy, AI integration, and market share gains. Management emphasizes "sustained growth and enhanced profitability over the long term."
• Guidance Changes: Revenue guidance for Q4 was adjusted downward (from prior expectations) due to Education and the discrete ETM client, but the full-year guidance remains in line with February expectations.

Miscellaneous:

• Fiscal Calendar: Q4 2026 includes an extra fiscal week, which adds ~3 points to revenue growth but reduces EBITDA by several million dollars.
• Recognition: Kelly recognized by Everest Group (2026 Peak Matrix) as a global leader in MSP and RPO, and by HRO Today as the #1 global provider of total workforce solutions.
• Dividend & Buybacks: Quarterly dividend maintained at 7.5 cents/share; no share repurchases occurred in Q3 2026 as the previous authorization expires in December.