Kelly Services(KELYA) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited Q1 2025 financials show decreased net earnings to $5.8 million, positive operating cash flow, and segment reorganization Consolidated Statements of Earnings Highlights (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue from services | $1,164.9 | $1,045.1 | +11.5% | | Gross profit | $236.5 | $205.7 | +15.0% | | Earnings from operations | $10.8 | $26.8 | -59.7% | | Net earnings | $5.8 | $25.8 | -77.5% | | Diluted earnings per share | $0.16 | $0.70 | -77.1% | Consolidated Balance Sheet Highlights (As of March 30, 2025) | Metric | March 30, 2025 (in millions) | December 29, 2024 (in millions) | | :--- | :--- | :--- | | Total current assets | $1,351.0 | $1,365.5 | | Total Assets | $2,594.9 | $2,632.3 | | Total current liabilities | $822.9 | $826.5 | | Total Liabilities | $1,354.4 | $1,397.7 | | Total stockholders' equity | $1,240.5 | $1,234.6 | Consolidated Statements of Cash Flows Highlights (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net cash from (used in) operating activities | $23.9 | $(25.5) | | Net cash from investing activities | $3.2 | $72.1 | | Net cash used in financing activities | $(39.5) | $(4.7) | | Net change in cash | $(11.1) | $41.3 | - In Q1 2025, the company changed its reportable segments to Enterprise Talent Management (ETM), Science, Engineering & Technology (SET), and Education[31][33][107] - The ETM segment combines the former Professional & Industrial (P&I) and Outsourcing & Consulting Group (OCG) segments, along with certain customers from SET and the newly integrated Sevenstep business[31][33][107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 results, noting acquisition-driven revenue growth, lower earnings, and stable financial condition Executive Overview Q1 2025 strategic focus includes organic growth, operational streamlining, margin expansion, and MRP integration - Strategic priorities for 2025 include delivering organic growth, realizing efficiencies through a streamlined operating model, and driving incremental margin expansion[121] - In Q1 2025, the company combined its P&I and OCG segments into the new Enterprise Talent Management (ETM) segment and moved MRP's Sevenstep business into ETM to create a more streamlined go-to-market approach[122] - The company initiated plans to modernize the SET segment's systems by leveraging MRP's technology stack to create a scalable and efficient platform[123] - Targeted cost-reduction actions were implemented to deliver structural improvements and align resources with demand, underscoring a commitment to long-term profitability[124] Results of Operations Q1 2025 revenue grew 11.5% to $1.16 billion from MRP acquisition, with earnings from operations declining 59.8% Total Company Performance (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue from services | $1,164.9 | $1,045.1 | 11.5% | | Gross profit | $236.5 | $205.7 | 15.0% | | Earnings from operations | $10.8 | $26.8 | (59.8)% | | Net earnings | $5.8 | $25.8 | (77.7)% | - The 11.5% revenue increase was primarily driven by the May 2024 acquisition of MRP; excluding this impact, revenue was flat year-over-year[132] - SG&A expenses in Q1 2025 included $10.7 million of integration and realignment costs related to integrating MRP and other acquisitions, and consolidating operating segments[134] Segment Revenue Performance (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Revenue (in millions) | Q1 2024 Revenue (in millions) | % Change | | :--- | :--- | :--- | :--- | | Enterprise Talent Management | $534.0 | $524.1 | 1.9% | | Science, Engineering & Technology | $322.4 | $231.6 | 39.2% | | Education | $309.0 | $289.9 | 6.6% | Financial Condition Financial condition remains solid with $23.9 million positive operating cash flow and improved debt-to-total capital ratio - Generated $23.9 million of net cash from operating activities in Q1 2025, compared to using $25.5 million in Q1 2024, due to decreased working capital requirements[162] - Global Days Sales Outstanding (DSO) was 61 days at the end of Q1 2025, up from 59 days at year-end 2024[162] - Financing activities used $39.5 million in cash, primarily due to net debt repayments of $34.8 million on credit facilities[165] - The debt-to-total capital ratio decreased from 16.2% at year-end 2024 to 14.2% at the end of Q1 2025[166] - As of Q1 2025, the company had $120.0 million available on its revolving credit facility and $32.8 million on its securitization facility[175] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk profile unchanged from year-end 2024, with foreign currency and interest rate risks partially mitigated - There have been no significant changes to market risk exposure management since year-end 2024[183] - The company is exposed to interest rate risk through its credit facilities, partially mitigated by two interest rate swaps entered into in July 2024, which lock in the SOFR rate for a portion of the debt on the Securitization Facility[185] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO have concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level as of the end of Q1 2025[187] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[188] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course litigation, with no material adverse effects expected from current proceedings - The company is continuously engaged in litigation arising in the ordinary course of business and records accruals for probable losses[190] - A specific proceeding by the Hungarian Competition Authority involves a potential secondary liability of approximately $300,000, for which the company has indemnified the buyer of its former Hungarian operations, and does not believe the resolution will have a material adverse effect[192] Item 1A. Risk Factors No material changes in the company's risk factors were reported compared to the 2024 Annual Report - No material changes in risk factors were reported compared to the 2024 Form 10-K[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales in Q1 2025; $40.0 million remains available under the share repurchase program - In Q1 2025, the company reacquired 127,046 shares, primarily to cover employee tax withholdings on vested restricted stock[194] - A $50.0 million Class A share repurchase program was approved in November 2024, with $40.0 million remaining available as of the end of Q1 2025[87][194] Item 3. Defaults Upon Senior Securities Not applicable Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading plans in Q1 2025 - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during Q1 2025[197] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and XBRL data files