管理層發言
Good morning, and welcome to Kelly's Second Quarter Conference Call. With me today are Kelly's President and Chief Executive Officer, Peter Quigley; 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 on an 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 President and Chief Executive Officer, Peter Quigley.
Thank you, Scott, and good morning, everyone. Before I share my reflections on our second quarter results, I'll discuss the CEO transition update that we announced earlier this morning. Following a rigorous search process with the full engagement of Kelly's Board of Directors, including myself, Chris Layden has been selected to serve as the next President and CEO of Kelly. Chris will formally join Kelly and step into the role on September 2. I will remain with the company as a strategic adviser to Chris and the Board to ensure a smooth transition. Chris is a dynamic industry leader with extensive experience leading organizations through transformations to advance go-to-market initiatives and accelerate profitable growth. He joins Kelly from workforce solutions provider, Prolink, where he served as Chief Operating Officer and oversaw a period of rapid growth. Prior to Prolink, Chris spent nearly 2 decades at ManpowerGroup, where he served in a range of senior roles spanning general management, regional leadership, corporate strategy and sales.
After many conversations with Chris, it was clear that his skills and experience are uniquely suited for this moment in Kelly's strategic evolution. He brings a track record of executing enterprise scale transformations and driving commercial excellence as well as visionary leadership that aligns well with our commitment to accelerate profitable growth and value creation. Under Chris' leadership, I'm confident that Kelly will build upon the strong foundation we've established and reach new heights of profitability and growth. I look forward to formally welcoming him to Kelly when he joins us next month and introducing him to our talent, customers and shareholders. With that, let's review the highlights from our second quarter earnings. In the second quarter, we saw the benefits of our focus on more resilient markets to drive growth, with each business unit delivering strategic contributions to Kelly's results.
Our Education business achieved another quarter of revenue growth as we maintained strong fill rates in the K-12 staffing business. In SET, we capitalized on solid demand within the engineering and telecom verticals. Payroll process outsourcing remained a source of strength within the ETM segment, and delivered robust revenue growth over the prior year. Across both SET and ETM, outcome-based offerings, excluding our contact center business, sustained positive momentum with customers as we continue to shift our business mix toward higher-margin, higher-growth solutions. Results were impacted by acute demand reductions with certain large customers. These reductions were largely the result of cost controls implemented by these customers in response to the increasingly dynamic trade and geopolitical landscape. More broadly, the current environment continued to drive employers in some sectors to take a more measured approach to hiring.
As such, demand for staffing services decelerated in ETM. Volumes within our U.S. federal government business declined at the outset of the quarter but leveled off in May and June. This was in line with our expectations, which we previously revised in light of reduced demand for federal contractors in the first quarter. As market conditions evolve, we doubled down on our commitment to operational discipline and took decisive action to align resource levels with demand. Our differentiated capabilities and agility in adapting to changing market conditions enable Kelly to pursue attractive new business opportunities. Our unique solutions provide employers with a flexible, scalable approach to bridge the transition to an AI-enabled workforce in a way that unlocks the combined power of people and technology. They also position Kelly to harness the potential of AI and turn it into an opportunity to drive profitable growth for our customers and our shareholders.
We'll continue to leverage our position as the partner of choice as employers increasingly integrate AI into their operations to drive efficiency and growth. While delivering near-term results, we're also laser-focused on executing our growth and efficiency initiatives to position Kelly for the future. We advanced our efforts to integrate MRP's portfolio of businesses with our existing SET businesses, completing the realignment of sales, recruiting and functional teams as part of our redefined go-to-market strategy organized by specialty. We're also making excellent progress on the implementation of modernized front- and back-office systems within SET that will leverage MRP's leading technology stack and consolidate disparate systems to reduce complexity and drive efficiencies across the organization. Our progress in the second quarter reflects our agility in both seizing and creating opportunities in any operating environment, while accelerating profitable growth over the long term.
We're deliberate about staying close to our customers' evolving workforce needs and leveraging our differentiated capabilities to provide them with innovative solutions. The decisive actions we took earlier in the year to improve efficiencies and drive simplicity in our operating model have positioned us to better serve our customers and execute on our strategic priorities. Altogether, we continue to deliver for our customers and shareholders in the near term and position Kelly to compete and win over the long term. For more details on our results in the quarter, I'll turn the call over to our Chief Financial Officer, Troy Anderson.
Thank you, Peter, and good morning, everybody. We're pleased with our performance in the first half of the year given the evolving macro environment and are encouraged by the adaptability and resiliency of our teams that we're seeing across our business. As referenced last quarter, we made changes to our operating model for 2025, which reduced our reportable segments from 4 to 3: Enterprise Talent Management, or ETM; Science engineering and Technology, or SET; and Education. We realigned certain customers and businesses as part of these changes. The 2024 results of ETM and SET have been recast accordingly. Please refer to our prepared remarks from the first quarter and our 10-Q for further details. As a reminder, our reported results for 2025 include MRP and its portfolio of businesses and Children's Therapy Center, while our 2024 results only include them from their acquisition dates. To provide greater visibility into the underlying trends in our operating results, I'll discuss year-over-year changes on a reported and organic basis, with the organic information excluding these items.
MRP will be fully in our year-over-year comparisons beginning in the third quarter. Revenue for the second quarter of 2025 totaled $1.1 billion, an increase of 4.2% versus Q2 last year. We saw a number of positive trends across the business during the quarter. However, we also experienced a larger-than-anticipated negative impact from the evolving macro environment. On an organic basis, year-over-year revenue was down 3.3%, including a 1.3% negative impact from reduced demand for federal contractors in the SET and ETM segments, and a 3.5% impact from a few large customers within ETM who materially decreased demand in conjunction with internal cost-reduction initiatives. We expect the full impact of these actions to be realized by the end of the third quarter. For Q2 organic revenue by service type, staffing services reflects continued strength 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, demonstrated resilience and were up 2% year-over-year driven by ETM. Perm fees, which were 1% of revenue in total, reflect growth in ETM offset by a moderating decline in SET. Drilling down into revenue results by segment. Education grew 5.6% year-over-year in the quarter or 5.3% on an organic basis. Each of the Education specialties grew in the quarter, with the primary driver being ongoing fill rate improvement on stable demand for services in the K-12 space. In the SET segment, revenue was up 19% on a reported basis, driven by the acquisition of MRP. SET organic revenue was down 8.5% in total and was down only 3.2%, excluding lower demand for federal contractors. This reflects year-over-year sequential improvement, building upon the positive trend we saw last quarter. Staffing services was down 10% and outcome-based services down 4.5%.
Lower staffing revenue was primarily due to the federal contractor impact. Outcome-based solutions revenue was down primarily due to lower demand in certain industry verticals and with a few key customers. Excluding the government impact, SET continues to outperform the market as a result of its targeted mix of specialty offerings and industry verticals despite the variability in the macro environment and weaker demand in the technology segment. This includes the outcome-based business and the statementworX suite of solutions, which are a growing portion of the market where we've sharpened our focus and are driving innovation, most recently by expanding this capability across the MRP sales team and customer base. In the ETM segment, revenue declined 3.9% year-over-year on a reported basis or 5.1% on an organic basis. Staffing services revenues declined 7.7%, driven primarily by the large customer demand reductions and lower demand for federal contractors.
Outcome-based revenues decreased by 6.2%, reflecting demand pressure from a large customer within our contact center offering. Declines for this customer accelerated materially in the quarter, and they'll be fully run off by the end of the third quarter. Excluding contact center, ETM outcome-based revenue increased 5%, reflecting strong demand from a variety of industry verticals, including semiconductors and manufacturing. Talent Solutions revenue increased 8% overall or 2% organically, with overall growth driven by the addition of the Sevenstep business from the MRP acquisition and strong performance in the PPO specialty, partially offset by a sequentially lower year-over-year decline in MSP. We continue to gain momentum in the Talent Solutions space with new customer wins, the Sevenstep integration and enhanced go-to-market efforts and positive industry recognition. A recent example of this being the Everest Group, naming Kelly both a leader and star performer in RPO in its latest industry rankings.
Reported gross profit was $225.5 million, reflecting a gross profit rate of 20.5%, an improvement of 30 basis points compared to the prior year quarter. This includes 70 basis points of improvement from the acquisition of MRP and 40 basis points of organic decline from lower perm fees, business mix and employee-related costs. The business mix impact is similar to last quarter and reflects the strong growth in Education, which has a lower relative GP rate. During the quarter, we saw GP rate improvement in SET as a result of the MRP acquisition. Education's GP rate was flat, while ETM's GP rate was down slightly, with benefits from the addition of Sevenstep and growth in perm fees, offset by growth in PPO, which carries a lower GP rate. We remain focused on improving our SG&A expense profile in the quarter, with reported SG&A expenses of $207.3 million. On an adjusted organic basis, SG&A expenses declined 1% year-over-year.
Expenses increased in our Education segment in conjunction with revenue growth, while expenses declined in ETM and SET. We remain focused on improving productivity and aligning resource levels with demand, while also driving structural and sustainable efficiencies in our operating model through technology enhancements, including leveraging AI, process efficiencies and other levers. Actions like the formation of the ETM segment and the integration of MRP will drive efficiencies throughout 2025 and into 2026. In connection with these efforts, we recognized $6 million of charges in the quarter, down from $11 million in the first quarter. Included in these charges are costs associated with improving technology and processes across the enterprise as well as severance expenses. We expect to see this reduced level of charges over the next few quarters as we execute these initiatives. Also included in our Q2 results is a $4 million gain on the 2024 sale of our EMEA staffing operations as a result of the final net working capital and other adjustments.
For the quarter, reported earnings per share were $0.52 compared to earnings per share of $0.12 in Q2 2024. On an adjusted basis, earnings per share were $0.54 compared to $0.71 in the prior year. The decline over the prior year reflects lower earnings from operations and increased net interest expense as a result of the debt incurred for the MRP acquisition, and a higher average cash balance in the prior year quarter as a result of the sale of the EMEA staffing business. Adjusted EBITDA was $37 million, a decrease of 9% versus the prior year period, while adjusted EBITDA margin declined 40 basis points to 3.4%, which reflects the incremental revenue pressure I previously noted. Education achieved year-over-year improvement in its adjusted EBITDA margin for the second straight quarter. Both SET and ETM expanded margins versus the first quarter, but were down year-over-year due to the timing of expense management actions relative to reduced demand.
Moving to the balance sheet. We maintained a disciplined yet opportunistic approach to capital allocation in pursuit of attractive returns. We ended the quarter with total available liquidity of $301 million, comprising $18 million in cash and $283 million of available liquidity on our credit facilities, leaving us ample capital allocation flexibility. We had seasonally strong operating cash flow in the quarter and we benefited further from favorable working capital timing and $22 million of cash proceeds related to the final true-up from the sale of our EMEA staffing operations. As a result, we had a $130 million net paydown on our debt, leaving us with total borrowing of $74 million at the end of the quarter, and an adjusted EBITDA leverage ratio of 0.6. We expect our net debt to increase over the balance of the year relative to the current level based upon our normal seasonal cash flow and capital deployment activities.
For the year, we should see an overall reduction in net debt relative to the prior year-end balance. For the third quarter outlook, while the macroeconomic environment appears to be stabilizing, a number of our clients are taking a measured approach to their workforce management strategies. Given that, we're assuming current macroeconomic conditions persist for the foreseeable future. Also with MRP fully in our comparable results, I'll only speak to the overall totals as the organic difference is immaterial. For revenue, we expect a decline of 5% to 7% in the quarter, which includes 8% of negative impact associated with reduced demand from discrete large customers and for federal contractors. Excluding these items, our underlying revenue growth would be 1% to 3%. For adjusted EBITDA margin, we expect an increase of 80 to 90 basis points year-over-year in the third quarter. We also continue to expect modest year-over-year adjusted EBITDA margin expansion for the full year.
As we progress through the balance of the year, we'll continue to adapt as conditions evolve while remaining opportunistic and focusing on achieving or exceeding our expectations. I'll now turn the call back to Peter for his closing remarks.
Thanks for those insights, Troy. As we move forward into the second half of the year, I remain confident in Kelly's ability to navigate this dynamic macroeconomic environment. Building on the meaningful progress we made in the first half, the company will continue to execute on its priorities. As employers' needs continue to evolve, we'll quickly adapt alongside them. Whether driven by macroeconomic shifts or advancements in AI, we stand ready to provide tailored workforce solutions that will enable them to maintain a competitive edge. From staffing and outcome-based solutions to manage service provider and recruitment process outsourcing, our differentiated portfolio of solutions leads the market. This is how we've continued to capture market share, and why Everest Group named Kelly both a leader and star performer in each of its contingent talent and strategic solutions Peak Matrix, marking the first time a company has achieved this feat.
We'll further refine our go-to-market approach within our realigned SET and ETM businesses, to ensure that our teams, processes and technologies are optimized to enhance efficiency and effectiveness, while making it easier for both employers and talent to engage with Kelly. And we'll continue to align resources with demand, leveraging our operational discipline to respond quickly to changing trends and maintaining our capacity to capture growth in more resilient markets. Executing on these priorities and remaining agile in the face of persistent change will enable Kelly to deliver on the commitments we outlined at the start of the year. And with greater scale in our chosen specialties, a streamlined operating model and enhanced profitability, the foundation is set for the next generation of leadership to take Kelly into a new phase of its strategic evolution. As I prepare to conclude my nearly 23-year career here, I'm grateful to each member of Team Kelly for their contributions on our journey to realize our collective vision for this great company.
Their resilience, agility and unwavering commitment to our noble purpose are the driving forces that continue to propel Kelly forward in pursuit of profitable growth. As the team moves forward together with Chris at the helm, I'm confident in their capacity to unleash Kelly's full potential and create long-term value for all of the company's stakeholders. Operator, you can now open the call to questions.
分析師問答
Our first question comes from Joe Gomes of NOBLE Capital.
So you touched on it briefly. I missed a part of the business, but I wanted to try and see if we get a little more color kind of how the quarter trended on a monthly basis or sequentially. Are we seeing any improvement throughout the quarter? Or was it more very lumpy throughout the quarter overall for the business?
Thanks for the question, Joe. Our business portfolio tends to be less sensitive to monthly fluctuations compared to some of our competitors. In our Education segment, we experience unique seasonality linked to the summer break. Our outcome-based businesses are generally more stable. However, the ETM staffing business, which accounts for about 25% of our revenue, shows more month-to-month variability. We did observe some increased pressure in that area as the quarter continued, primarily due to macroeconomic factors beyond the large customer impact we mentioned. Looking ahead to July, we’ve noticed more stability and are optimistic about our overall expectations. When comparing Q2 to our outlook for Q3 and adjusting for government and large customer influences, our expected growth remains about the same, around 1.5 points at the midpoint, similar to Q2 after accounting for those impacts.
Okay. Regarding these large customers, which I assume was somewhat unexpected, the question is what steps you are taking. Since the switch has been turned off so quickly, it could easily be turned back on. I assume you're trying not to cut too much too fast, but it must be a challenge to determine how much to adjust without incurring costs when you don't know how quickly things might change. Could you provide some insight into the thought process and how you are managing relationships with customers in this rapidly shifting environment?
Joe, it's Peter. Yes, as you mentioned, this is a factor when working with large global enterprise customers. They can quickly change their demand. In this situation, due to the current economic conditions, they reacted in an unexpected manner. However, we are in a much stronger position than in the past to adapt to the decrease in demand and also to increase our response when needed. Our operations are more efficient now, and we are very confident that whether it's with the specific customers affected in Q2 or the overall demand when it returns to more normal levels, we can quickly respond and ramp up.
And yes, Joe, this is Troy. There are three specific customers we need to mention, and we recognize we can't selectively choose what to highlight. One customer we pointed out is in the contact center space, and our engagement with them will conclude in the third quarter. It's still a significant relationship, and we will explore other ways to serve them. However, that particular aspect will be finalized in the third quarter. The other two customers are experiencing notable reductions in demand as they adapt to their business needs due to their macroeconomic situation.
Okay. I have one more question regarding the guidance. I reviewed the first quarter guidance for the second quarter, and it seemed quite optimistic. However, when we compare the projected numbers to the actual results, there is a notable discrepancy. Given the current environment, how confident are you in the guidance for the third quarter?
We are utilizing the best available information at any moment to set expectations for the investment community and manage our business internally, as Peter mentioned earlier. Based on the information at hand, we feel confident that we are seeing some stabilization. We have solid visibility into our pipelines and various aspects of our business. It's important to note that back in May, we were 30 days away from Liberation Day and 90 days away from DOGE taking action. There are several moving parts that we don't have direct control over, though we don't control everything within our operations. However, we believe we are observing greater stabilization and improved predictability in our execution.
Peter, it's been a pleasure working with you. Thank you for everything. Troy, I wanted to discuss your guidance for the third quarter. It's encouraging to see EBITDA margin expansion despite a decline in revenue. You also mentioned the fourth quarter, so I'm curious about what will drive that. Are you cutting costs, or do you expect higher margin revenue to continue growing at a faster pace?
It's both. We mentioned in our prepared remarks about taking decisive actions. At the start of the year, we realigned the two segments, P&I and OCG, into the ETM segment. With the conclusion of the earnout period from the MRP acquisition, we used that time to plan for integration efforts and are now rapidly executing on those efforts, which are driving efficiencies. We are continuously examining our cost structure to find efficiencies by leveraging AI and technology. We've discussed the MRP integration and are enhancing our move toward a modernized technology stack, starting with the SET business unit, which also benefits other functions. There are various actions taking place across the business, continuing the efforts we've been implementing for several years, while also refining our go-to-market strategy, emphasizing higher value specialties, and fostering growth in areas that can yield higher margins. We are experiencing a reduced decline in the SET segment, which is of higher value. We expect to see stronger growth in the education sector during the second half of the year compared to the first half, and we continue to see growth in the outcome-based business within ETM, which is a higher-margin sector. So, it's a combination of all these factors, but it's very much purposeful and intentional.
And then just from an industry standpoint, what are you seeing in terms of price competition? Especially if you look at it as each individual business, I'm wondering if any one of them is seeing pricing pressure or what the market is currently like?
Yes. Generally speaking, I'd say we're stable. The one area we do see a little bit of pressure is more in the light industrial commercial space. We are seeing some aggressiveness in the market as different players are trying to navigate the sustained demand challenges there. But otherwise, education is stable. We see actually some lift in a number of the areas within SET. So we feel good about our positioning and our offerings. And again, to your first question, driving towards higher value and higher margin opportunities in the market.
I wanted to start off by asking you to elaborate on your comments regarding SET. You mentioned in your prepared remarks that excluding the government impact, you believe you are outperforming the market. Can you provide more details on that statement about the outperformance and the evidence you have to support it?
Sure. Good question. And so when we parse out the public competitors' information and we get a like-for-like view relative to our SET business, as close as we can at least, geography and offerings mix, again, just based on public disclosures, we see that we are consistently 1 point to 2 points better than their performance in aggregate. Again, so there's some puts and takes across there. And that's been a fairly consistent trend really over the last 2 years or so, 18 months to 24 months.
Kevin, we also take a look at industry sources like staffing industry analysts who analyze both public and private companies. Troy's comments reflect our ability to look at public company disclosures, but we also refer to industry indices to gauge our performance versus the market.
Okay. Great. And you mentioned there are some ranks in the telecom and engineering areas within SET. Can you just elaborate on what you're seeing there currently?
We are in a strong position in the market as a leading player due to our growth through the MRP acquisition and our organic development. We have refined our go-to-market strategy with the restructuring of SET, following the earn-out from the MRP acquisition, and have realigned our five distinct verticals within SET. We are experiencing good traction in the market, backed by a strong existing customer base, while also identifying new opportunities. It's not about one specific new contract; rather, it's a continuous evolution of our business as we delve deeper into the opportunities available in the marketplace.
And Kevin, we believe that the significant capital expenditures and tax advantages could enhance some R&D investments, particularly in engineering and telecom.
Okay. Understood. That's helpful. Going back to the third quarter guidance, the underlying revenue growth of 1% to 3% excluding the government impact. Can you just kind of walk us through how you get to that underlying revenue growth number?
To clarify, the anticipated decline of 5 to 7 points includes about 8 points of influence from government and the three specific customers mentioned, which is higher compared to the second quarter. In the second quarter, the impact was approximately 1.4 points from government and about 3.5 points from the customers. The total impact rises from 5 to 8 points, reaching its peak in the third quarter. This impact is fairly distributed across the government and the three customers. When this is accounted for, it results in an underlying revenue growth of 1% to 3%. Looking at the components of this growth, we expect education to continue growing at an accelerated rate compared to the first half of the year. SET has shown a declining trend, but recent quarters have shown some positive signs, and we anticipate further improvements. Additionally, there are fluctuations in ETM with talent solutions and staffing, where staffing might stabilize without significant improvement, while talent solutions could see better performance as we implement new wins in the MSP and RPO sectors.
All right. That's helpful. Appreciate that. And you mentioned there expecting stronger growth in Education in the second half of the year. What leads you to believe that, that will be the case?
Well, it's a very predictable business. The school year begins in some cases in July, but typically in August or September at the latest. The renewal and new business cycle mainly occurs in the first half of the year and is usually completed by May or June. We did experience some delayed decisions due to the broader macro environment, but there are no significant concerns regarding loss or funding in that area. As we move into the second half of the year, we have a high level of certainty about our book of business. Our fill rates are excellent, maintaining strong performance in mature accounts while ramping up in newer ones to over 90 percent in most cases. At this point, we have a clear view of what the second half of the year will look like.
Okay. Good. And then lastly, I think you mentioned that the integration and realignment costs will be decreasing. Is that correct? There were $6 million in the second quarter, and I am trying to consider the run rate of costs for the next couple of quarters in the second half of the year.
Yes. Clarification. Maybe my comments were not as clear as I was hoping. We had $11 million in Q1 and that decreased to $6 million in Q2, and that's what we expect the run rate for the next few quarters given the timeline of the execution and implementation work that we're doing.
Okay. I probably didn't hear that correctly. I appreciate the clarification. And Peter, let me add my congratulations and best wishes to you.
Thank you, Kevin. Appreciate it.
I am showing no further questions at this time. I would now like to turn it back to the President and CEO, Peter Quigley, for closing remarks.
Thank you, Amber. I think we're good for the call. So we can end the call. Thank you very much.
Thank you, everyone.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.