管理層發言
Good morning, and welcome to Kelly Services Second Quarter 2026 Earnings Conference Call. Operator instructions: Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. 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 Second 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 will 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 Chris.
Thank you, Scott, and good morning, everyone. It's great to be with all of you. In the second quarter, we measurably exceeded our guidance for both total company revenue and adjusted EBITDA margin. These results were driven primarily by positive momentum from our growth and efficiency initiatives. We continue to capitalize on organic growth drivers and constructive demand trends across the enterprise as well. Notably, Kelly's adjusted EBITDA margin returned to 3% in the quarter. This achievement demonstrates our ability to generate operating leverage in pursuit of growth as we continue to reengineer our cost base while driving greater value for our customers as a strategic workforce partner. The value we deliver continued to be recognized in the quarter as Everest Group named Kelly a leader in its 2026 Peak Matrix for RPO and for staffing and solutions in engineering, IT, business and professional and industrial. In addition, Forbes once again ranked Kelly among America's best temporary staffing and professional recruiting companies. These accolades are a testament to 80 years of industry leadership and our unwavering focus on meeting the evolving needs of our customers and talent. At the segment level, we delivered sequential improvements in each of our businesses. ETM capitalized on broad-based demand for professional and industrial staffing among both new and existing customers. Talent Solutions benefited from the ramp-up of recent MSP wins. Continued growth in Talent Solutions reflects the differentiation of our technology-enabled and AI-powered offerings. Within SET, revenue grew on a sequential basis for the first time in two years. This represents an inflection point driven by improving trends across each specialty vertical and strong execution by our team following the completion of the leadership transition in the first quarter. SET outcome-based solutions also contributed to positive momentum with revenue increasing over the prior year and contributing 40% of SET's total revenue in the quarter, up from about one-third a year ago. This reflects an intentional shift in our business mix as we increasingly leverage our specialized technical expertise across SET specialty areas to deliver milestone and SLA-based solutions to our customers. And in Education, the second quarter marked the conclusion of a strong sales cycle for our K-12 staffing business. The cycle included a 100% renewal rate in the quarter, a significant milestone underpinned by industry-leading fill rates and customer satisfaction. We also delivered a year-over-year increase in net new customer wins, which will come online beginning in the third quarter with the start of the new school year. These positive outcomes reflect the differentiated value we deliver and the depth of our relationships as the largest provider of education staffing solutions in the U.S. Across ETM and SET, our One Kelly enterprise go-to-market approach continued to generate positive traction with our customers. The recent expansion of our relationship with a leading North American water technology company illustrates the potential of this model. What began as an engineering staffing engagement grew into a consultative workforce partnership through a unified effort across SET and ETM. Our teams leveraged their combined insights into the company's contingent talent management strategy to identify additional capabilities which address their needs, positioning Kelly to capture the MSP. Through this win, we're well positioned to further expand this relationship as the customer moves forward with plans to double the size of their business by 2030. This is our One Kelly enterprise go-to-market approach in action. By supporting our customers as a unified team and bringing the full strength of our portfolio to bear, we're better able to anticipate their needs and position Kelly as a strategic partner in their success. As we scale our enhanced go-to-market approach, our technology modernization initiative is a key enabler. To that end, we delivered another milestone on our journey with the successful cutover onto a unified CRM platform. Powered by AI, this platform enables increased transparency and high-conviction forecasting while also driving cross-selling opportunities across the business. These capabilities are foundational to Kelly's integrated commercial operating framework. Championed by our growth office, this framework is strengthening account planning to capture greater market share and accelerate profitable growth. We also accelerated the integration of AI across the enterprise to drive efficiency and enhance the talent and customer experience. Growing employee adoption of GRACE Boost, our proprietary internal AI platform, is driving increased productivity at a small fraction of the utilization cost of third-party AI platforms. For talent and customers, we continue to scale our AI-enabled recruiting solution to create a more streamlined experience for both. Our solution can operate 24/7 and connect with applicants within minutes of receiving their application, increasing the throughput of highly qualified candidates. Feedback has been positive. Talent appreciates the responsiveness of the application and screening process, while customers value the reduction in cycle time. We're actively scaling new use cases, including for talent care as we pursue opportunities to reduce turnover and increase redeployment to new assignments with our customers. As our technology modernization initiative creates a foundation for innovative AI-powered offerings, we're evolving our strategy to drive deeper alignment between these critical work streams. That's why I'm pleased that we recently welcomed Alan Stukalsky as Kelly's Chief Product and Technology Officer. Alan brings significant technology and digital leadership experience to this newly created role. His background includes more than 20 years in staffing and a track record of aligning technology and product strategy to accelerate profitable growth. At Kelly, Alan will oversee product development, technology and digital innovation efforts across the enterprise. I'm confident he'll be able to help us scale and optimize what's working today while building new capabilities that will define the future of work from the products our teams will use to deploy our specialized technical solutions to autonomous AI agents. As we continue to solidify our management team in the second quarter, we further strengthened our Board of Directors as well. In May, we welcomed three new directors, Ryan McCrory, Michael Wartell and George Woody Young. Each of these directors brings extensive experience, which positions them to be strong contributors to the Board as we drive progress on Kelly's strategic journey. I'm pleased with our achievements in the second quarter, which reflect disciplined execution on our growth and efficiency priorities. The meaningful progress we've delivered on our strategy has set us up on a positive trajectory entering the second half of 2026. I'll now turn the call over to Troy to talk through the quarter in more detail and our expectations for the balance of the year. Troy?
Thank you, Chris, and good morning, everyone. I'm pleased to report second quarter results that both exceeded our guidance and reflect clear sequential improvement across our business. We are increasingly confident with the momentum we have established and are adjusting our full-year expectations favorably as a result. For the second quarter, revenue totaled $1.04 billion, a decline of 5.8% versus the prior year quarter and measurably better than our guidance of down 7% to 9%. The year-over-year revenue decline improved 500 basis points relative to the first quarter. Underlying revenue, which excludes the previously disclosed discrete impacts driven by reduced demand from the federal government and three large ETM customers, declined approximately 0.6%, an improvement of 270 basis points versus the first quarter, thus contributing more than half of the overall year-over-year improvement versus Q1. We expect to fully anniversary the year-over-year discrete impacts in the fourth quarter. Demand across the federal government and the two large ETM customers who remain active has been relatively stable in the past three quarters. At the segment level, ETM underlying revenue grew 3.1% year-over-year, which is an improvement of 350 basis points versus the first quarter decline. Staffing and outcome-based solutions, excluding contact center, returned to growth with staffing growing approximately 3%, driven by strong demand across a variety of clients and industries. Talent Solutions grew for the second consecutive quarter. The growth of approximately 6% was driven by ramping new wins and increased overall demand across the RPO and MSP specialties with both showing double-digit growth. SET underlying revenue declined 3% year-over-year, an improvement of 300 basis points versus the first quarter. Each specialty area showed year-over-year improvement versus Q1, while telecom delivered another quarter of year-over-year growth. Education declined 4.4%, which was a 40 basis point improvement versus the first quarter. The decline reflects the ongoing impacts of prior-year delayed new contract decisions and overall reduced demand in key markets due to enrollment declines. With year-over-year growth in our new business signings, a strong renewal cycle and accelerating growth in therapy, we expect to return to year-over-year growth in the second half of the year. Gross profit was $212 million, down 6% versus the prior year quarter, reflecting the lower revenue volume. The gross profit rate was 20.4%, essentially flat to the prior year and up 150 basis points sequentially from the first quarter, reflecting seasonality for employee-related costs and favorable business mix. All three business units saw a notable improvement in their gross profit rates relative to the first quarter. For year-over-year performance, ETM improved 50 basis points, while SET and Education both reduced their year-over-year declines relative to Q1. Reported SG&A expenses were $195.9 million, down 5.5% versus the prior year quarter, and adjusted SG&A expenses were $192.7 million, down 4.1%, reflecting the continued focus with our structural and volume-related cost optimization efforts, along with investment in growth, technology and other areas. Core adjusted SG&A expenses, which exclude depreciation, amortization and incentives, continued the sequential decline trend that has been in place since Q1 of 2025. In the quarter, adjusted SG&A expenses decreased across all three segments as we continue to drive durable and sustainable efficiencies in our operating model through technology enhancements and process efficiencies, including leveraging AI. This includes benefits from the prior-year realignments within the ETM segment and the acquisition integration within SET. For the year, we're projecting a net year-over-year decline in core SG&A expenses of approximately $25 million or 4% despite investments being made in technology, the growth office and other areas. The structural changes we are making will allow us to scale more efficiently as we grow while supporting our margin expansion expectations in the second half of the year and beyond. Our reported diluted earnings per share was $0.31 for the quarter. On an adjusted basis, we delivered earnings per share of $0.37 compared to $0.54 in the prior year. The year-over-year decline reflects lower profitability and a more normalized effective tax rate. For our adjusted results, in connection with our various efforts, we recognized $3.2 million of charges in the quarter, reflecting reduced integration, realignment and restructuring costs as well as transaction costs relative to Q1. We expect to continue incurring various charges throughout 2026 as we advance our technology modernization journey and expand upon our various optimization efforts. Adjusted EBITDA was $31.1 million with an adjusted EBITDA margin of 3%. This was well above our guidance of at least 2.5% and represents 150 basis points of sequential improvement from the first quarter. On a year-over-year basis, adjusted EBITDA margin declined 40 basis points, significantly narrowing the decline versus recent quarters, reflecting the improved revenue and gross profit rate declines and our continued SG&A discipline. For the segments, ETM and SET adjusted EBITDA margin improved approximately 200 and 100 basis points versus Q1, respectively, while Education was stable. Each segment was down year-over-year with ETM down only 10 basis points, a notable improvement relative to the past several quarters. Our balance sheet remains strong and continues to provide ample capital allocation flexibility. Total available liquidity as of the end of the quarter was $303 million, comprised of $24 million in cash and $279 million available on our credit facilities. During the quarter, we generated $47.7 million of free cash flow and net reduced our debt by $52.4 million, resulting in total debt of $78.1 million at quarter end. Of note, during the quarter, we amended our accounts receivable securitization facility, primarily to extend the term by a year, along with other ancillary benefits that increase flexibility and reduce our cost of capital. We maintained our quarterly dividend of $0.075 per share during the quarter. We remain confident in Kelly's cash generation and are committed to a disciplined and opportunistic approach to capital allocation and pursuit of attractive returns for shareholders. As we turn to the outlook for the remainder of 2026, our expectations have improved relative to the initial view we established in February and remain unchanged for adjusted EBITDA margin. Our expectations assume no material change in the macroeconomic environment in the coming quarters. For Q3, we expect to show measurable year-over-year improvement relative to Q2. Before I jump into specifics, I want to remind everyone that Q3 is the lowest revenue quarter and therefore, a lower profit quarter for Kelly due to seasonality in our education business as a result of schools being out of session the majority of the quarter. With our volume-based revenue model, this results in notable sequential revenue and adjusted EBITDA declines from Q2 to Q3, along with lower margin and then a strong bounce back in the fourth quarter. For the third quarter, we expect underlying revenue growth of 1% to 2% and total revenue to be flat to a decline of 2% versus the prior year. For adjusted EBITDA margin, we expect year-over-year improvement of 40 to 50 basis points in the quarter, resulting in adjusted EBITDA margin in the low 2% range. For Q4, we expect to see further year-over-year improvement for both revenue growth and adjusted EBITDA margin with total revenue growth in the mid- to upper single digits and approximately 200 basis points of year-over-year adjusted EBITDA margin expansion, resulting in adjusted EBITDA margin of approximately 4%. This includes the impact of an extra fiscal week in the fourth quarter, which benefits revenue growth by approximately 4 points in the quarter, but negatively impacts adjusted EBITDA. On a fiscal year basis, that should translate to a roughly low to mid-single-digit total revenue decline and 10 to 20 basis points of year-over-year improvement in adjusted EBITDA margin. We are excited about the trajectory of our business going into the second half of the year. I'm thankful for all the Kelly team members and their commitment and resilience as we focus on delivering growth and enhanced profitability over the long term. I'll now turn the call back over to Chris for his closing remarks.
Thank you, Troy. The momentum we generated strengthens our conviction in our strategy and reinforces our confidence in our expectation of further measurable improvement in our year-over-year performance in the second half of the year. As we move forward, we remain well positioned to capitalize on organic growth drivers in each of our businesses. These include capturing additional K-12 staffing and therapy market share in Education, capitalizing on the shift towards higher-margin statement of work and consulting engagements in SET and growing demand for ETM's total talent management solutions among large enterprises. In addition to these growth drivers, we're seeing secular trends taking shape in markets where our breadth of offerings and depth of technical domain expertise are well suited to meet growing demand. Among these trends is industrial reshoring, which is driving significant expansion in U.S. manufacturing. Domestic semiconductor manufacturing capacity is expected to triple over the next decade, driven by the CHIPS and Science Act. With the construction of new fabrication sites underway across the country, demand for highly specialized talent needed to build and operate them is growing at a rapid pace from electrical and process engineers to product developers to field and service technicians. Kelly is well established as a leading workforce solutions provider to the world's largest semiconductor fabricators, and we continue to win new semiconductor logos in the first half of the year. Our SET and ETM businesses offer the breadth of solutions and depth of technical domain expertise and industry-leading scale, uniquely situating Kelly to meet this moment. Industrial reshoring momentum extends beyond semiconductors to other areas as well. The development of breakthrough drugs and treatments is driving companies throughout the life science value chain to accelerate their investments in U.S. manufacturing. This shift is increasing talent demand while introducing operational risk and uncertainty for companies investing in their supply chains to ramp up production and distribution. As one of the largest life sciences solutions providers in the U.S., our SET business offers a differentiated functional service provider capability that mitigates these challenges. By providing just-in-time access to specialized talent through our proprietary methodology to support critical development milestones, we're enabling life science companies to develop new drugs and maintain high performance and quality outcomes at an optimal cost. We're also seeing AI contribute to significant investments in data centers, which is driving demand for workers with technology, engineering and telecom expertise. This next phase of data center growth will favor organizations that can build, staff and operate at scale in a sustainable way. And our SET business is among the top providers of staffing and solutions across these key domains. Our tailored approach aligns workforce strategy with site selection, build schedules and long-term operational planning. We're actively deploying this approach with new customers, including a global hyperscaler who engaged Kelly in the quarter to source critical-to-fill mechanical and electrical engineers and technicians as it commissions new data centers in EMEA and APAC. Our growth and efficiency initiatives are positioning Kelly to capitalize on these opportunities. Our One Kelly enterprise go-to-market approach is bringing our full portfolio of solutions to the large multisite manufacturers and infrastructure providers at the center of these trends. The unified CRM platform we implemented in the second quarter is a critical enabler of that work. It gives our teams the tools and visibility they need to identify the white space within our existing customer base and convert it into new business. As these new wins materialize, our structural efficiency enhancements will enable us to generate leverage across our operating model and convert a greater share of the incremental revenue to margin. We have more work to do, but I remain excited and energized about the opportunities ahead. Our strategy is delivering results. Our leadership is strong. And with the demand trends beginning to improve, we're well positioned to capitalize and create value for our stakeholders. I'm grateful to our team for delivering on our commitments and to our shareholders, customers and talent for placing their trust in Kelly. Operator, you can now open the call to questions.
分析師問答
Operator instructions: For our first question, we'll go to Joe Gomes with NOBLE Capital.
I want to start by asking you to square the circle on the Education business. You mentioned there has been a multi‑quarter delay in contract decisions, but you also described recent wins and other positive developments this morning. Could you provide a little more color on that? At what point do delayed contract decisions stop being delays and become lost opportunities? I'd appreciate a bit more detail on Education.
Yes. Thanks, Joe. Happy to jump in. First, I think it's important to stress this pressure is not structural. The single largest driver of that decline is really enrollment-driven in Florida with some of the enrollment declines that we talked about, also some of the school choice attrition. The good news is, it's behind us. As we think about the selling cycle we talked about, the 100% renewal rate that we saw, many of those renewals were in the state of Florida, which is a big part of our business. But we also saw a whole bunch of other new wins come online. As a reminder, those wins will come online as the new school year starts. So we have a selling cycle that is ending about right now, we are implementing new districts, and then those districts will need our outsourced services for the 2026-2027 school year. We really feel good about our selling momentum. Obviously, the strength of not only our fill rates, the customer satisfaction and the white space is still out there for us to be able to grow outside of some of the key districts we're in. We continue to also see big opportunities for us to sell therapy and the acute need that our school districts and parents have in terms of that clinical care in school. So that's a little bit more color on the education timing. Troy, is there anything else you want to add?
Yes, Joe, I was just going to add one little point of clarification or expansion. The contract delays we're talking about were last year's selling cycle. There was a lot of turmoil in the macro environment, the Department of Education, et cetera. Various districts decided not to proceed with an outsourcing arrangement, and that impacted us through this whole school year, as Chris said. Now we have seen the selling cycle and the improvement. The work has been done for them to see the value proposition, as Chris said, on the fill rates, on the client satisfaction, et cetera. So it's really just a matter of the process and working through them, many of which we went ahead and closed this year.
Okay. Great. I appreciate that. And then you hired Joel over at SET. Just wondering what kind of the initial reaction there is? What kind of steps have been taken to really start to drive growth over there in the SET unit?
Well, Joel is now in his second quarter and is really excited about some of the momentum that's building. We referenced that this is a genuine inflection point in the quarter, and the improvement has been broad-based across SET. Every specialty area showed year-over-year improvement versus Q1 with telecom and life sciences really leading the way with delivering year-over-year growth. The meaningful mix progress that we referenced—now having about 40% of that business be solution-oriented—that's a huge part of Joel and the team's focus as we continue to move upstream. In technology, we continue to see the benefit of a strong solutions pipeline. Our consultant out billing continues to be positive. There continues to be a lot of demand for solution-based business in the IT and services space. And within engineering, that segment is performing at a high level. Our average deal size is increasing sequentially. The pipeline velocity has been strong, and some of those trends coming out of June were the strongest that we had seen all year in that business. Now that Joel and the team are fully in the operating model, we know SET is positioned to continue to build on this momentum in the second half of the year.
Okay. And then just one more for me. Chris, you talked last quarter about taking a more active role over ETM, reviewing leadership there. I was just wondering if you can give us a little more color as to how those efforts have proceeded here over the past quarter.
Yes. I think you can see based on the performance of the ETM business that we continue to be pleased with the steps we're making. We've got a really good leadership team in ETM who are committed to client centricity, accountability and execution. I continue to stay very close to the business. As we have any changes there, I'll make sure everyone is updated. But based on the progress in the business, we really feel good about the momentum coming out of the quarter.
Our next question comes from Kartik Mehta with Northcoast Research.
Chris, just a big-picture question. Where do you think we are in the recovery phase in the industry? I know maybe each segment might be a little bit different, but just your overall feel as you talk to clients and kind of see some of the job orders, where do you think we are in the cycle?
We really believe we've moved beyond stabilization, and we're into the early stages of recovery. You're seeing now two consecutive quarters of improving underlying revenue trends, underlying ETM returning to growth and SET delivering sequential growth for the first time in two years, which reflects the structural progress I referenced. We're also seeing this in some of the operational indicators. Consultants out billing in SET is increasing. We're seeing spend under management in the ETM business expanding as well. To the extent that demand trends continue to improve, we'll be well positioned to capitalize as a result of the growth and efficiency initiatives that we're implementing and are delivering results in the quarter.
And then as you look at SET, I know in the past or maybe even now, one of the issues might be how is AI impacting that segment. Would you think AI right now is a headwind for the business? Or are you seeing demand? And would you call it a tailwind right now for that particular business?
I think it's a tailwind for us. In many ways, that's reflected in the sequential quarter-on-quarter improvement that you see in the quarter and is underpinned by our focus and breadth and depth of capability to support the data center industry. We're supporting companies across all facets of the data center ecosystem, and this has a huge impact in SET but also ETM and requires our BPO capability increasingly where we're delivering solution-based work. That demand is an important growth driver. It shows up in engineering, in telecom, in our digital infrastructure business and in our IT business. We believe that's going to continue to grow. We're also benefiting from the strength of our leading engineering service capability. As you think about all of the critical infrastructure pillars required to support data center capital investment—from power and cooling to commissioning and component supply chain—we have unique domain expertise in this space that will allow us to continue to grow. So we're excited about the momentum there.
Our next question comes from Kevin Steinke with Barrington Research Associates.
So as you talked about in your prepared comments, you noted that your expectations have improved since February, which is reflected in your improved revenue outlook for full year 2026. Can you just maybe walk through the areas where the expectations have improved most materially? I mean is it mostly related to the macro environment or internal business momentum? Or where would you assign the most weight to for the improved expectations?
I'll give a little bit of color and then have Troy talk about some of the detail in the segments. We're really pleased with the execution in the quarter. The beat was driven by meaningful operational progress, including some demand trends. We continue to see a normalized gross profit rate and continued SG&A discipline. These are not one-time items, and you're seeing structural impact and our ability to unlock more margin. The path to the second half of the year is pretty clear. I'll point to three broad drivers. First is the discrete impacts anniversary in the fourth quarter and seeing that run off. Second is the organic growth we've been talking about; those drivers are gaining traction across each segment, across the business units and even in Education, where we expect the second half of the year to flip back to growth. Third is the structural efficiency improvements we're creating, which will continue to drive operating leverage as revenue hits an inflection point. I'll toss it to Troy now to talk a little bit about it at the segment level.
Thanks. Certainly, ETM has been strong in Q1 and Q2 through the combination of factors Chris referenced. SET I'd say is probably more in line with expectations and Education, again, we're seeing the turn into the back half of the year. We had a little more pressure than we thought coming into the year on the volume side, but new business and the growth of therapy are playing out as we anticipated going into the back half of the year. On the cost structure side, we've been rigorous about that starting last year. We've continued to see benefits from activity from last year with the realignment within ETM and the integration work within SET, and we continue to look for further optimization opportunities and benefits from AI and our technology modernization. All of those things are coming together nicely and delivering opportunity for upside in the back half of the year.
Okay. Great. And within ETM, you talked about the broad-based demand for professional and industrial staffing that you're seeing. And you talked about the semiconductor angle and the reshoring. So from that commentary, it seems like you feel like there's some real legs to this in terms of continuing demand and combined with your ability to win new business? What do you think the sustainability of this improved professional and industrial staffing demand is?
Customer sentiment in the quarter was increasingly positive and a step forward from Q1, across the business. Some broader macro trends support industrial output picking up momentum, including ISM PMI data, which continue to show some expansion. Within ETM, customers are leaning into broader talent management programs, and that's important given the strength of our leading MSP and RPO offerings. These are being used as strategic workforce tools rather than temporary cost reduction measures, which gives us real leverage with large customers. Our growth office and strategic account management work help capture more of the white space. We have leading offerings on the solutions and staffing side in professional and industrial and across SET that allow us to support large enterprise customers. The customers we talk to want to do more with Kelly, and the One Kelly enterprise strategy gives them the unlock they're looking for.
All right. Great. Within SET, you referred to a couple of times that you see this as an inflection point. So what do you think that means for the growth outlook going forward? And again, maybe in terms of the sustainability angle, assuming we continue to see an overall improving macro environment or at least stable with where we are now. How do you think that business can trend over the coming quarters based on the momentum and the inflection point you saw there?
The improvement is broad-based. Every specialty area showed improvement from Q1. We referenced telecom and life sciences delivering year-over-year growth, but it is the breadth of demand and operational discipline in converting that to new solution assignments, projects and staffing revenue and gross profit. Technology is the biggest segment within SET, and we continue to see positive momentum on the demand side. Our selling focus moving upstream and the opportunity to differentiate with our solution capability is meaningful. There's a tremendous amount of demand to convert. On engineering, performance is driven by sequential improvement and the velocity and size of the pipeline improving. Opportunities in industrial reshoring and data center capital investment position our engineering and digital infrastructure telecom offerings well to support those needs. The strong performance exiting the quarter in engineering should continue to drive growth.
I would add that in the Q4 expectation we've outlined, we expect growth across all three segments—ETM, SET and Education—excluding the 53rd week. Within SET, we expect the specialties to reflect year-over-year growth broadly, with government possibly being close but otherwise generally positive across specialties.
Okay. That's helpful. I also wanted to ask about Education. And you referenced the momentum in the therapy services there. How meaningful can that be at this point? I believe it's still a relatively small portion of the segment relative to the traditional substitute teacher K-12 staffing. But what can it mean for, say, a contract with a school district in terms of upsizing it or any other metrics that you'd point to in terms of its impact on the business?
Therapy is one of the strongest growth opportunities we have. It's about 8% of the mix today and has a lot of opportunity to grow. We're encouraged by the selling cycle; the support model follows the school calendar, and we're gearing up for September. We have more therapy providers confirmed in September to start to support that work than any other time in our history. Operationally, the team is focused on getting ready for the start of the school year. That reflects not only the expansion of therapy in new districts, but continuing to sell with our leading K-12 offering. With some new wins coming online, first-time districts now have both therapy and our K-12 model embedded in that overall solution. From a margin standpoint, it gives us real opportunity given the mix opportunity it presents, which over time, as it grows as part of the Education portfolio, we think it provides real opportunity to expand both EBITDA and gross profit margins across Kelly Education.
I would just add that the market opportunity is significant. It's a very fragmented market with many small local players. As we bring a combined integrated offering to our clients, both existing and net new, we have significant opportunity to penetrate much more deeply than we are today.
Our next question comes from Marc Riddick with Sidoti.
I wanted to touch a little bit on some of the progress that you're seeing with some of the leadership additions that you've made through the year. And then we— I know there was another one just, I guess, a month or so ago of adding to your leadership team as Chief Product and Technology Officer. I was wondering maybe touch a little bit on some of the progress of those folks that you've added to your team, but also are there other areas that you'd like to add to strengthen the bench, if you will?
We're pleased with the recent leadership appointments and what they mean for our broader management team. As I referenced, we welcomed Alan Stukalsky as Chief Product and Technology Officer. The role is a deliberate decision to integrate our technology modernization initiative with our product and AI strategy. As we scale AI deployment across the business and support customers, those work streams needed to be connected and aligned to our growth and efficiency initiatives. Alan brings the right experience and will help partner with us and our customers as we think about the future of work. When I'm out with customers and we think about our product roadmap, we must ensure that the data intelligence layer and IP embedded in products across our SET portfolio can be scaled to unlock more value. By bringing Alan in and connecting AI, product and IT together, we think it's the right time to do this and to bring more value. More broadly, we continue to assess talent and make sure we have the right people in the right roles to execute our strategy, and we will continue to do that. We're pleased with the additions we've welcomed this year and with their integration into the team.
Great. And then I guess the last one for me, I was wondering if you could talk a little bit about cash usage prioritization and how you're thinking about that and whether there's potential for nonorganic pursuits? If so, how do you feel about the potential pipeline or what's out there, level of attractiveness, valuation, things like that?
Our approach to capital allocation remains balanced and opportunistic. We maintained the quarterly dividend in the quarter, reflecting our confidence in our ability to generate cash. In the near term, as Troy referenced, we prioritize debt paydown with excess cash. The work we did on the credit facility gives us flexibility. We have a strong balance sheet and will remain opportunistic on inorganic opportunities.
We generated $47.7 million of free cash flow in the quarter, and year-to-date we are at $21 million. That went to pay down debt. Our debt is more short-term in nature, so we're able to pay it down and draw on it expeditiously as needed. We will use cash in the third quarter seasonally as the Education business winds down for the summer and then ramps back up, and working capital will consume cash as we accelerate growth into the back half of the year. Net-net, we should be a little more positive on cash flow for the full year relative to where we are now. We continue our internal work—technology modernization and integration—and we continue to look at external, inorganic opportunities. The market has pent-up assets given prior softness, and as the market turns, there may be more assets coming to market that could be attractive. There are areas that are hotter than others, some of which we play in and some of which we don't. We have flexibility and will be opportunistic going forward.
I would now like to turn the call back over to Chris Layden for any closing remarks.
Great. Thank you all for joining. We'll see you next quarter.
Thank you all.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.