Prepared remarks
Good morning, and welcome to Kelly Services Third Quarter Earnings Conference Call. Today's call is being recorded at the request of Kelly Services. I would now like to turn the meeting over to your host, Mr. Scott Thomas, Kelly's Head of Investor Relations. Please go ahead.
Good morning, and welcome to Kelly's third quarter conference call. With me today are Kelly's Chief Executive Officer, Chris Layden; and our Chief Financial Officer, Troy Anderson. Before we begin, I'll remind you that the comments made during today's call, including the Q&A session, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. We do not assume any obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, we'll discuss certain data on a reported and adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. For more information regarding non-GAAP measures and other required disclosures, please refer to our earnings press release, presentation and once filed Form 10-Q, all of which can be accessed through our Investor Relations website at ir.kellyservices.com. With that, I'll turn the call over to Kelly's Chief Executive Officer, Chris Layden.
Thank you, Scott, and good morning, everyone. It's great to be with all of you. Let me start by saying what a privilege it is to serve as CEO of Kelly, the sixth in our storied history and the first to be selected from outside the company. Having spent my entire career in this industry, I've known and admired Kelly for many years. Our brand is iconic, synonymous with the industry we created when we were founded by William Russell Kelly in 1946. Since then, Kelly has connected millions of people to work, improving families, communities, economies, and the world. This is also a company I've competed with. Throughout my career leading commercial organizations and customer pursuits, I've experienced up close Kelly's ability to win in the market. Our diverse portfolio of businesses has significant scale in attractive specialties and differentiated global capabilities that are widely recognized as leading the industry.
With our Education business, Kelly has proven the ability to drive rapid organic growth in emerging markets, having established a dominant position in K-12 staffing and tripling the revenue of the business since 2020. This is among the best examples in our industry of what's possible when a team combines clear vision, sound strategy, and consistent execution. I've watched a business that has acquired scale in higher-margin, higher-growth specialties like technology and telecom, moving up the value chain as a consultative partner to employers, seeking differentiated technical solutions. At the same time, SET has continued to win and retain market share in our established life sciences and engineering specialties, where for years, Kelly has led the market as the second and fourth largest staffing provider, respectively. In ETM, Kelly brings enterprise customers unmatched global workforce capabilities and insights to our technology-enabled and AI-powered offerings delivered at scale.
This includes talent solutions, business process outsourcing, and staffing services, which Everest just recently recognized as leading the market. I've seen firsthand the competitive advantage that this breadth and depth of capabilities creates as employers increasingly seek partners who can meet their total talent management needs. Because of these assets, Kelly's track record of driving value for customers, including many of the largest employers in the world, is as strong as any company in this space. Never have our core strengths and ability to enhance flexibility and agility in an employer's workforce been more important than they are today. As I step into this role, the operating environment is evolving, driven by a dynamic macroeconomic landscape, a sluggish labor market, global and domestic policy shifts, and the AI boom. The impact of these trends on our industry is significant, and Kelly is not immune.
These dynamics were more visible in our results in the third quarter. Despite continuing to capture growth in more resilient markets, our performance as a company fell short of expectations. Our team and I know that we can achieve more, having proven as much in the organic growth and margin expansion that Kelly has delivered in recent years. But to consistently win in the market and unlock Kelly's full potential, it's critical that we maximize our core strengths and address opportunities to improve our strategy and execution. To better understand where these opportunities exist, I'm spending much of my time in the field meeting with and listening to our employees and customers. Through my conversations with our team, it's clear that we have a highly engaged group of workforce experts who are passionate about winning in the market and serving our clients and talent. The expertise and high level of service they provide are among our key differentiators that drive employers to choose Kelly to meet their workforce needs.
In meeting with many of our top customers, I've heard how Kelly's tailored solutions and unique insights are helping our clients maintain a competitive edge in their industries. I've also had the pleasure of connecting with the investment community who have shared with me their growing interest in the value creation opportunity we have here at Kelly. During my time in the field, a few common themes have emerged. First, it's fundamentally important to customers that it is easy to do business with Kelly. We must ensure our structure and processes are designed with customers in mind, and they must be straightforward and intuitive to navigate. Next, the scale Kelly has acquired in higher-margin, higher-growth specialties is a tremendous asset that has repositioned the company in the market. This has created inroads with employers in attractive end markets who are eager to know how our expanded capabilities can meet their evolving needs.
Completing the integration of these investments is critical to our ability to realize their full value and capitalize on these growth opportunities. And finally, much work has been done by our team to reduce complexity and improve efficiency. This work continues today with the efforts underway to consolidate disparate front-, middle-, and back-office systems, leveraging the leading technology stack we obtained when we acquired MRP. We must continue to assess our resources from technology platforms to our workforce mix to ensure they're optimized to drive profitable growth. These early observations are helping inform how we move forward on the next leg of Kelly's strategic journey. I'll share more in a moment about our short-term priorities and long-term focus. First, I'll turn it over to our CFO, Troy Anderson, to provide more details on our results in the quarter.
Thank you, Chris, and good morning, everybody. Before I walk through our results, as a reminder, beginning in the third quarter, the Motion Recruitment Partners acquisition we completed in the second quarter of 2024 is fully in our year-over-year comparable results. Thus, I will only speak to reported and adjusted results for the current quarter. Revenue for the third quarter of 2025 totaled $935 million, a decrease of 9.9% versus Q3 of last year. This was lower than our expectations, most notably due to lower-than-expected growth in the ETM staffing specialty, education, and select other specialties. As we discussed last quarter, we had discrete impacts from reduced demand from the federal government and three of our top customers. Combined, these impacts drove approximately 8% of year-over-year revenue decline, consistent with our expectations, leaving us with an underlying decline of 2%, excluding these impacts, which is in line with industry performance.
Kelly's underlying performance reflects positive trends in each business area that reinforces our confidence in our strategy. Education continued its long-running streak of quarterly growth and achieved a 90% fill rate overall in the quarter for the first time. Within SET, the telecom specialty achieved double-digit growth in the quarter after strong growth in the second quarter, while the engineering specialty has grown each quarter this year. SET's underlying performance was consistent with the second quarter and continues to outperform the market. And within ETM, staffing underlying revenue has been consistent across the quarters despite the macro variability. Outcome-based solutions, excluding contact center and Payroll Process Outsourcing, or PPO, both continued to grow in the quarter and have shown growth all year. Finally, our managed service provider, or MSP specialty, showed modest growth in the quarter for the first time this year, reflecting the new customer wins we have referenced in prior quarters.
For Q3 revenue by service type, staffing services reflect modest growth in our education business and pressure from government, large customer, and macro environment impacts in SET and ETM. Our outcome-based offerings, excluding Contact Center solutions, were down year-over-year, reflecting timing of both project demand and new business within SET and ETM. Talent Solutions was down modestly year-over-year in the quarter, reflecting a mix of performance across the individual specialties. Perm fees represented approximately 1% of revenue, which was consistent with the prior year. Drilling down into revenue by segment, Education grew 0.9% year-over-year in the quarter, driven primarily by ongoing fill rate improvement. While we believe we won our fair share of the new business opportunities for the school year, we saw a number of decision delays in light of the broader macro environment, and the fill rate improvement benefit was lower year-over-year given our maturing customer portfolio, thus the relatively lower growth in the quarter.
As a reminder, education volumes and revenues are reduced significantly in the third quarter due to the summer break. In the SET segment, revenue was down 9% in the quarter or 3.5% excluding the federal government impact. Our Telecom and Engineering specialties continue to be growth areas within SET, while Life Sciences and Technology saw year-over-year declines consistent with the second quarter. In the ETM segment, revenue declined 13.1% year-over-year or an underlying decline of 1.9%. Staffing services revenues declined 16.4%, driven primarily by the large customer and federal contract demand reductions, along with lower hours volume across other clients. Outcome-based revenues decreased by 17.2%, reflecting demand pressure from the large contact center customer that has fully run off as of the end of the quarter. Excluding Contact Center, ETM outcome-based solutions grew modestly. Talent Solutions revenue decreased 1.4% overall, reflecting growth in PPO, MSP new customer wins, and reduced customer volumes in recruitment process outsourcing.
Reported gross profit was $194 million, down 12.5% versus the prior year quarter, primarily from reduced revenue. The gross profit rate was 20.8%, a decrease of 60 basis points compared to the prior year quarter and a 30 basis point sequential increase. The sequential lift, which is typical with the seasonality of our business, was more muted than we expected given the revenue dynamics, along with elevated employee-related costs in the quarter. Education's GP rate increased 20 basis points, while SET declined 80 basis points and ETM declined 60 basis points. We made significant progress improving our SG&A expense profile in the quarter with reported SG&A expenses of $194.4 million, a decrease of $24.6 million or 11.2%. On an adjusted basis, SG&A expenses decreased 9.7% year-over-year, reflecting the momentum we are gaining on structural and volume-related cost optimization efforts. Expenses increased in our Education segment in support of the revenue growth, while expenses decreased across the rest of the company.
With the increased revenue pressure, we're enhancing our efforts to drive durable and sustainable efficiencies in our operating model through technology enhancements, including leveraging AI, process efficiencies, and multiple other levers. Existing initiatives like the formation of the ETM segment and integration of MRP and other acquisitions within SET are progressing well and will drive both go-to-market and cost efficiencies going forward. In connection with our various efforts, we recognized $4.7 million of charges in the quarter, down from $6.4 million in the second quarter. These included costs associated with improving technology and processes across the enterprise, as well as severance expenses and executive transition costs. We expect to see these expenses increase in the fourth quarter as we make continued progress and expand upon our various optimization efforts. Related to the realignment of SET and acquisition integration, during the quarter, we assessed the current goodwill reporting units and determined it was appropriate to combine them into a single SET segment reporting unit.
As a result of the assessment, along with declines in the current and projected business performance driven by macroeconomic and industry conditions, we concluded that there was a triggering event for a noncash goodwill impairment totaling $102 million in the quarter. We are excluding the impairment from our adjusted results. Additionally, with the impairment activity, we were also required to reassess the recoverability of our deferred tax assets. While we have confidence in our business over the future recoverability time period, with a three-year cumulative loss position in our near-term actual and expected financial performance, it was necessary to record a valuation allowance of $70 million, which is also noncash and excluded from our adjusted results. As a result of the goodwill impairment and tax valuation allowance, our reported loss per share was $4.26 for the quarter. On an adjusted basis, earnings per share was $0.18 compared to $0.21 in the prior year, with the decline over the prior year primarily due to lower profitability and discrete tax items.
Adjusted EBITDA was $16.5 million, a decrease of 36.7% versus the prior year period, while adjusted EBITDA margin declined to 1.8%, both of which were below our expectations, reflecting the revenue and gross profit declines I previously noted. SET expanded margins by 60 basis points year-over-year despite the lower gross profit due to their expense optimization efforts. ETM saw margin pressure due to the elevated revenue and gross profit declines despite substantial progress on their SG&A. Education experienced margin compression due to the seasonality of that business. Moving to the balance sheet and cash flow. We are generating strong operating cash flow this year with $94 million through the third quarter, up significantly versus the prior year. Total available liquidity as of the end of the quarter was $269 million, comprising $30 million in cash and $239 million of available liquidity on our credit facilities, leaving us ample capital allocation flexibility.
Total borrowing of $118 million increased versus the prior quarter due to our normal working capital seasonality. Our debt-to-EBITDA leverage ratio was less than 1 at the end of the quarter. We don't expect a material change in our net debt position over the remainder of the year from normal operations. We ended the quarter with $40 million remaining on our current Class A share repurchase authorization. We continue to believe the data demonstrates that the company is measurably undervalued by the market. With that backdrop and our capital allocation flexibility, we anticipate being active in our repurchase program during the remainder of the year. We also maintained our quarterly dividend of $0.075 per share. These actions reflect our confidence in Kelly's strategy and our commitment to opportunistically deploying capital in pursuit of attractive returns for shareholders. As we look at the fourth quarter, we are assuming no material change in the macroeconomic or industry dynamics and a positive resolution to the federal government shutdown during the quarter.
For revenue, we expect a decline of 12% to 14% in the quarter, which includes 8% of negative impact associated with reduced demand from discrete large customers and from federal contractors, consistent with the third quarter impact. Excluding these items, our underlying revenue decline would be 4% to 6%. The incremental revenue decline relative to the third quarter is primarily due to the strong growth we saw in the fourth quarter of last year and includes a modest impact related to the government shutdown. For adjusted EBITDA, we expect a margin of approximately 3% in the quarter. This represents a sequential increase of 120 basis points, consistent with the prior year change despite the incremental revenue pressure and a decrease of approximately 70 basis points year-over-year in the quarter, consistent with what we experienced in the third quarter. While we're not providing specific guidance beyond the fourth quarter, as we look out over the next few quarters and the anticipated residual year-over-year impacts from the reduced demand for federal contractors and from the three large customers in ETM, it's likely we'll see continued revenue and margin pressure at least through the first half of 2026.
As Chris said, across Kelly, we're addressing opportunities to continue to improve our execution. This includes in the finance organization, where we're well underway with implementing measures that will enhance our agility, efficiency, and business impact in this evolving operating environment. I'm grateful to all of the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhanced profitability over the long term. I'll now turn the call back to Chris for his closing remarks.
Thank you, Troy. As we move forward, our immediate focus is on stabilizing Kelly's performance and actions to this end are underway. We're moving swiftly to align resources with current demand trends while continuing to drive structural efficiencies across the enterprise. As part of this effort, we made the difficult but necessary decision last month to implement strategic restructuring actions that resulted in a targeted workforce reduction. These actions address excess capacity while further streamlining our organizational structure following the consolidation of the OCG and P&I businesses into the single ETM segment. We're also continuing and, where possible, accelerating our technology modernization initiative within SET and ultimately across the enterprise. This initiative will unlock substantial growth and efficiency opportunities, making it easier for our employees to serve our customers and talent, reducing expenses associated with managing disparate and outdated systems and enabling more rapid innovation and integration of AI.
While executing our near-term priorities, we're also keeping our sights set on the future. As I conclude my initial assessment of the business, our team is aligned where we must focus longer term to accelerate progress on Kelly's strategic journey. First and foremost is growth. Growth is the single most important value creation lever at this stage in Kelly's journey. To drive organic growth, we'll continue to enhance how we go to market, especially with our large enterprise customers to bring to bear the full strength of Kelly's portfolio and win more market share. We'll also continue to drive inorganic growth by pursuing targeted investments that add scale and capabilities in higher-margin specialties. We'll focus on evolving our product mix as well to address changing buyer preferences such as the shift towards statement of work solutions and to capitalize on the AI boom. Our widely recognized Global Re:work Report found nearly half of executives surveyed are struggling to find the talent with the right operational and technical skills in AI.
This unmet demand represents a significant opportunity to position Kelly as the partner of choice for employers, navigating the transition to an AI-enabled workforce. Next, we'll continue to focus on efficiency. This means continuing to align resources with demand while reengineering our cost base to drive further structural efficiencies. That includes our initiatives to modernize our technology stack and integrate legacy acquisitions. And finally, culture. Culture is fundamental to how we'll achieve our ambitions and win in the market. We're committed to building on the strong culture that exists here at Kelly, doubling down on customer centricity, visibility, and accountability. I look forward to sharing with you more about these areas of focus and our progress as we move forward. We're navigating a complex moment for our industry and company. These circumstances call for decisive action to address near-term dynamics while positioning the company to realize the significant value creation opportunity before us.
There is much work to be done, but I'm excited and energized to meet this moment together with our team and contribute my operational experience to accelerate our progress. Our core strengths, an iconic brand, a differentiated portfolio, and an engaged team give me the confidence that we'll emerge more agile, resilient, and primed for growth. I'm grateful to the Board of Directors for placing their trust in me to lead Kelly at this moment on the company's journey. I also want to extend my appreciation to Peter Quigley for his support as I stepped into this role and for his distinguished service to the company over the last 23 years. And to our team, thank you for welcoming me with openness and enthusiasm. I look forward to working alongside you to realize our collective ambitions and create long-term value for all of our stakeholders. Operator, you can now open the call to questions.
Questions and answers
Our first question, we'll go to Joe Gomes from NOBLE Capital.
I wanted to start out, Troy, I don't know if you can kind of break out these discrete between the federal government and the large customer impacts. I know in total, it was, I think you said roughly 8%. But I don't know if you could break that down what was for the federal government and what was for the large customers?
Yes, Joe, thanks for the question. They're roughly equal. So it's roughly 2 points each, plus/minus a little bit. But I'd say, generally speaking, they're roughly equal.
Okay. Chris, you've mentioned the strategy for optimizing the share of wallet from large enterprise customers. While I understand that objective, I've noticed that three customers significantly influenced revenue this quarter. How are you addressing this issue to ensure greater focus on larger customers so that we don't encounter similar situations in the future?
Yes, thanks, Joe. This is Chris, and that's a good question. I want to emphasize that we believe Kelly can achieve more. We've faced some challenges, and we acknowledge there are areas for improvement that we will directly address. You’ve heard me mention the breadth and depth of our portfolio. Over the past few years, we have significantly scaled up, building on a strong foundation where we rank #1 in education, #2 in science, and #4 in engineering, while our technology business is just outside the top 10. We have been recognized for our specialization and strength in MSP, BPO, and Staffing Services. In my conversations with customers, not only those three affected but also the thousands we collaborate with globally, they express a desire to engage more with Kelly. They want to ensure that partnering with us is straightforward and that we bring all of our capabilities to the table. I have been impressed by the depth of our relationships and the longevity of our partnerships worldwide. We will continue to explore new ways to work with them while ensuring we are accessible and presenting our full range of services. There is certainly potential for improvement in our execution, and that's an area we are actively addressing. Overall, I feel confident based on my recent customer interactions over the past 60 days.
Yes, Joe, this is Troy. I would like to emphasize that these four specific items are unique and entirely unrelated, although they happened to arise around the same time. However, the macro environment has impacted each of them in different ways. Additionally, policy decisions and industry challenges have also affected them variably. Therefore, it is less about customer concentration and more about our ongoing relationships and the stickiness of our services. We still maintain significant relationships with all those customers, particularly with one or two of them. I just wanted to remind everyone of this since we didn't go into details about those items.
Appreciate that. And one more for me, if I may. Troy, you got a slide here in the deck about the revenue trends, and you kind of break out excluding discrete impacts. And if I take a quick glance at those that quarter 1, quarter 2, quarter 3, they're pretty much trending the wrong way. And just trying to get an idea, I understand the federal government shutdown. But what else needs to occur in the macro environment that you think we can start to see these revenue trends reverse and start becoming positive or as opposed to negative and/or start growing again as opposed to trending downward?
Yes, that's a valid question. I would mention that SET is relatively consistent across the three segments. We saw strong performance in telecom with double-digit growth this quarter, following nearly double-digit growth last quarter. Engineering has experienced steady growth throughout the year, while technology and life sciences are in a steady decline. We anticipated slightly better results from SET this quarter, but we are satisfied with the consistent performance and strength in those two areas. As for education, there are unique market dynamics and some delays in decision-making. These are decisions we expect to win in the future, although there has been some hesitancy in the market due to policy changes and the broader macro environment. We believe education will continue to grow and that we will secure our fair share, if not more, in the expanding market. Regarding ETM, the underlying growth remains low single digits.
We consider ourselves competitive in the market, and we have received positive recognition from industry experts. We also witnessed growth in MSP, reaping the benefits of new logo wins. Staffing has remained consistent throughout the year despite macro challenges, and the decline we observed was mainly due to reduced growth in PPO and a slight downturn in recruitment process outsourcing. Each segment has different dynamics, but there is significant potential in each area. Moving forward, our focus will be on advancing some initiatives and navigating through the macro challenges we currently face.
Our next question comes from the line of Kevin Steinke from Barrington Research Associates.
So I wanted to start out by asking about the various factors in the operating environment that you noted in your earnings release are currently impacting your results, largely the macroeconomic landscape and sluggish labor market. But on top of that, you specifically added in the AI boom. And so I'm just kind of wondering what you're seeing in terms of the impact of AI on demand for your business currently? And on the flip side, you also mentioned that could be an opportunity over the longer term as your customers look to find AI talent. So maybe if you could walk through the dynamics you're seeing with AI currently.
Yes, Kevin, thanks. This is Chris. We really see there to be an opportunity to continue to capture new AI growth opportunities. And from our standpoint, really not just in the SET business, but in ETM and in Education, we've got a unique opportunity in the market based on our capability to bring employers a flexible, more scalable solution as they're bridging into a more AI-enabled workforce. We think that's going to unlock a lot of value in a way that will combine the power of people and technology. And we have that opportunity as we move up the value chain in our SET business with a lot of the work we're doing in things like data modernization and other digital work, that's solutions-based business. And again, that's in growing demand. As we indicated in our prepared remarks, more broadly across employers in our research, 50% told us that they are struggling to find the right operational and technical skills to help them navigate this transition into the AI-enabled workforce.
So we see it as a real opportunity for us on the go-to-market side. Now internally, you heard Troy and I both talk about how we are going to continue to accelerate the modernization of our technology stack, the technology stack that we acquired when we acquired MRP. That continues to be a priority as we think about ways to improve both process and efficiency across our teams and bring our teams new tools. A lot of that is underway. The integration of those AI-based tools in our recruiting process in our client portals, and we're going to continue to see that add value and drive opportunities for efficiency and productivity over the next couple of quarters.
Okay. Great. So it sounds like AI offers a nice longer-term growth opportunity for you. I was just curious if in the shorter term, perhaps are some customers kind of holding off or delaying hiring decisions as they assess the impact of AI on their businesses and as they assess whether they need to add as many people in the past, given that AI will bring them greater productivity. I'm just wondering if that's having any short-term impact on demand for your services?
Well, let me start, and I'll have Troy build on it. First, I think we just need to step back in the broader context of what we've been seeing, a pretty sluggish labor market. Many of the businesses that would support some of the disruption maybe you've seen and the lack of job growth that we've seen really pretty consistently across every month this year is a bit embedded already in the workforce dynamics. And so we see and have been seeing that sluggish impact all year. Now outside of that, we continue to see companies invest in bridging themselves into a more AI-enabled workforce. We believe there could actually be opportunities, not only on the solutions side of how we can help companies navigate that, but it also could be an indication at some point on the staffing part of our business that companies use flexible labor as a bridge into that as they're navigating more certainty around the demand for their products and services. And so we'll continue to be navigating those indicators that will impact both parts of our business, our staffing and our solutions.
Yes, Kevin, this is Troy. I wouldn’t say there’s been a change this quarter compared to last quarter or two quarters ago regarding any impact AI may have had on our positions, the type of positions we staff, or the opportunities we pursue. However, we are noticing an increase in our ability to utilize AI to support our customers, whether through our workforce management platforms in the ETM space or the solutions we’re developing in SET, not just in technology but also in telecom, engineering, and life sciences. We are beginning to compete with some major consulting firms due to our agility and the capabilities we offer, addressing the gap Chris mentioned about companies struggling to find the right skills and workers. So yes, there hasn’t been a significant change in what we’ve observed. If anything, it’s creating more opportunities for us to provide our solutions.
Okay. Great. Yes, that's helpful. I guess, lastly, you mentioned the fourth quarter outlook assuming a positive resolution to the government shutdown. It seems the impact on you has been fairly modest, but what would be the impact if this shutdown were to extend longer than we anticipate?
Yes, we can assess the direct impact. We understand our government business well, and we were fortunate that a significant portion of our positions were classified as essential. This was a pleasant surprise in this situation. The revenue impact is likely to be less than a point, potentially closer to a point throughout the quarter, which we've considered in our expectation of 12 to 14, allowing some flexibility. However, we cannot accurately gauge the indirect impact. For example, just yesterday, 10% of flights at 50 major airports were cut, and this will create ripple effects. Other industries might also feel these effects if the situation continues for an extended period. Currently, we only know what we can directly observe, and it seems that prolonged circumstances will not benefit anyone.
Our next question comes from the line of Marc Riddick from Sidoti.
I would like to discuss our cash usage and prioritization. Can we start with our capital expenditures for this year and how technology might impact our outlook for 2026? I have a follow-up question after that.
Yes, Marc. This is Troy. Year-to-date, our capital expenditures are around $7 million, and we expect them to be approximately $10 million for the full year, give or take a little. Some of the spending on technology deployment involves cloud-based implementation work that doesn't appear as capital expenditures but is still capitalized. It includes third-party labor and some software costs, which are reflected in the operating section of the cash flow statement. Overall, we are seeing strong cash flow for the year. Additionally, with the debt paydown we've accomplished this year, we see an opportunity in the fourth quarter to repurchase shares, given the current share price and the undervaluation of the stock. As I mentioned in my prepared remarks, there has been no significant change in our net debt position since the third quarter, which stands at about $90 million with $118 million in debt and $30 million in cash. There could be a possibility of a small tuck-in acquisition before the year ends, but otherwise, that covers our expectations.
Okay. You have touched on the topic I wanted to explore next, which is acquisitions. What is your current view on the pipeline, particularly regarding valuations? Are you noticing more opportunities compared to six months ago? There appears to be a slight increase in overall activity. I'm curious about your current appetite for acquisitions. Additionally, are larger acquisitions off the table for now, or how do you feel about that?
Yes, that's a reasonable question. We are actively engaged, with our corporate development team continually assessing our pipeline. We have been broadening our network of sources for potential opportunities. While we've identified some assets that are highly valued and decided not to pursue, we are still actively exploring. Our focus mainly lies in the SET and Education sectors, looking at opportunities such as therapy add-ons and other enhancements in the SET verticals, whether that involves technology, engineering, or life sciences. At this moment, it's unlikely that a significant acquisition will happen soon, but we remain open to possibilities. We will continue to seek ways to enhance our scale and capabilities. We believe our foundation supports both organic and inorganic growth. Our strong cash flow enables us to deploy capital wisely across various options that I mentioned earlier.
Our next question comes from the line of Jessica Luce from Northcoast Research.
First of all, I don't know if it was already touched on, but I have a brief question and then a follow-up. First, in terms of the current macro environment having an impact on the quarter, just to go a bit deeper, how would you characterize the sales cycle for the business overall?
The sales cycle is still really robust. And we're continuing in some of the work I shared in my prepared remarks, our focus on growth is at the core of what we're doing right now, making sure that we are in front of our customers, helping them understand all of the ways that we can add value. And we're going to continue to make sure that all of Kelly is coming to our largest enterprise customers. We've also seen in our SET business, a really strong retail pickup this year, which has been driving some of the stability in the SET business and some of the growth in engineering and in telecom. And then finally, in the education space, as Troy indicated earlier, we're #1 in the market on the heels of a 90% fill rate in the quarter. It is maybe as exciting of a time as any to go and sell with that track record of success. And we are everywhere in the market, talking to districts, they're insourcing their model and helping them understand how we could add value as their partner. So we're going to continue to have that be a priority as we drive growth into the future.
All right. And then just as a brief follow-up again, if it was touched on or not. In terms of the pricing environment for the three segments, do you see any specific pressures within any of the segments?
I'll maybe start, and Troy, you feel free to weigh in. We're going to continue, I would say, overall, just to kind of set the stage to be disciplined in how we're going to approach new opportunities in the market. We're not going to go by business. We continue to see rationality in terms of where we play. We've got a huge opportunity to continue to move up the value chain in the statement of work solutions-based business, particularly in SET, and that continues to be a priority. We're going to continue to monitor that over the next couple of quarters. I don't know, Troy, if there's anything else you want to add?
Yes. When examining the three segments, Education and SET are stable, with spreads also showing stability and even improvement as we enhance our value proposition to both current and potential clients through new opportunities. In ETM, the situation is a bit more mixed; as large enterprises approach their renewal periods, we're working with them on their cost structures, which may lead to some concessions. Overall, there seems to be slightly more positive momentum in ETM compared to the other two segments, although that hasn't fully reflected in our gross profit, which was down 60 basis points year-over-year. This decline was primarily due to the mix of our business and higher service costs during the quarter, rather than pricing or spread pressures.
This concludes the question-and-answer session. I would now like to turn it back to Chris Layden for closing remarks.
Thank you all for joining today. That concludes, we'll see you next quarter.
Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.