Kelly Services(KELYA) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited consolidated financial statements show a significant increase in quarterly net earnings to $19.0 million, while total assets decreased slightly to $2.51 billion due to debt reduction Consolidated Statements of Earnings Quarterly revenue grew to $1.10 billion, driving a substantial rise in net earnings to $19.0 million, boosted by a gain on the sale of EMEA staffing operations Quarterly Earnings Comparison | Financial Metric | 13 Weeks Ended June 29, 2025 | 13 Weeks Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue from services | $1,101.8 M | $1,057.5 M | +4.2% | | Gross profit | $225.5 M | $213.7 M | +5.5% | | Earnings from operations | $22.2 M | $12.2 M | +82.0% | | Net earnings | $19.0 M | $4.6 M | +313.0% | | Diluted earnings per share | $0.52 | $0.12 | +333.3% | Year-to-Date Earnings Comparison | Financial Metric | 26 Weeks Ended June 29, 2025 | 26 Weeks Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue from services | $2,266.7 M | $2,102.6 M | +7.8% | | Earnings from operations | $33.0 M | $39.0 M | -15.4% | | Net earnings | $24.8 M | $30.4 M | -18.4% | | Diluted earnings per share | $0.67 | $0.83 | -19.3% | Consolidated Balance Sheets Total assets stood at $2.51 billion, down from $2.63 billion at year-end, primarily reflecting a significant reduction in long-term debt Key Balance Sheet Items | Balance Sheet Item | June 29, 2025 | December 29, 2024 | | :--- | :--- | :--- | | Total current assets | $1,253.1 M | $1,365.5 M | | Total Assets | $2,511.9 M | $2,632.3 M | | Long-term debt | $74.3 M | $239.4 M | | Total current liabilities | $826.7 M | $826.5 M | | Total Liabilities | $1,245.8 M | $1,397.7 M | | Total stockholders' equity | $1,266.1 M | $1,234.6 M | Consolidated Statements of Cash Flows Net cash from operating activities improved significantly to $119.3 million, while financing activities reflected substantial net payments on long-term debt Year-to-Date Cash Flow Summary | Cash Flow Activity (26 Weeks Ended) | June 29, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $119.3 M | $32.2 M | | Net cash from (used in) investing activities | $24.7 M | $(353.1) M | | Net cash (used in) from financing activities | $(172.7) M | $201.6 M | | Net change in cash | $(21.1) M | $(122.0) M | - Key investing activities in YTD 2025 included $21.8 million in proceeds from the sale of EMEA staffing operations and $6.4 million from the sale of the PersolKelly investment, contrasting with a major acquisition outflow in YTD 2024[25] - Financing activities in YTD 2025 were characterized by net debt payments, whereas YTD 2024 saw net debt proceeds largely to fund the MRP acquisition[25] Notes to Consolidated Financial Statements The notes detail a change in reportable segments, the finalization of acquisitions, proceeds from divestitures, and costs from new integration initiatives - In Q1 2025, the company changed its reportable segments to Enterprise Talent Management (ETM), Science, Engineering & Technology (SET), and Education[33][113][114] - The company acquired Motion Recruitment Partners (MRP) on May 31, 2024, for $425.0 million and Children's Therapy Center (CTC) on November 13, 2024, for $3.3 million[44][45] - In Q2 2025, the company received final proceeds of $21.8 million related to the 2024 sale of its EMEA staffing operations, resulting in a $4.0 million gain for the quarter[49] - The company launched integration and realignment initiatives in 2025, incurring costs of $16.8 million YTD, primarily for IT-related charges and severance[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Revenue grew 4.2% to $1.1 billion driven by the MRP acquisition, while the company strengthened its balance sheet by significantly reducing its debt-to-total capital ratio Executive Overview The company saw continued growth in Education and outcome-based offerings, tempered by demand reductions from large customers, with a key focus on integrating the MRP acquisition - The Education segment achieved another quarter of revenue growth with strong fill rates in K-12 staffing[130] - Results were negatively impacted by demand reductions from certain large customers and lower staffing volumes with the U.S. federal government[131] - The integration of MRP is well underway, with realignment of sales and recruiting teams and implementation of modernized front- and back-office systems[132] Results of Operations Total revenue increased 4.2% due to the MRP acquisition, which also helped improve the gross profit rate, though organic revenue declined 3.3% Segment Revenue (Q2 2025 vs Q2 2024) | Segment Revenue (Q2 2025 vs Q2 2024) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Enterprise Talent Management (ETM) | $520.2 M | $541.2 M | (3.9)% | | Science, Engineering & Technology (SET) | $317.3 M | $265.7 M | 19.4% | | Education | $265.3 M | $251.1 M | 5.6% | - ETM's organic revenue decreased 5.1% in Q2 due to lower hours volume at certain large customers[153] - SET's revenue growth was driven by the MRP acquisition; excluding the acquisition, revenue decreased 8.5% due to declines in demand related to U.S. federal government contractors[154] Segment Business Unit Profit (Q2 2025 vs Q2 2024) | Segment Business Unit Profit (Q2 2025 vs Q2 2024) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Enterprise Talent Management (ETM) | $11.1 M | $15.5 M | (28.5)% | | Science, Engineering & Technology (SET) | $19.3 M | $18.9 M | 2.1% | | Education | $13.6 M | $12.7 M | 7.1% | Financial Condition and Liquidity The company's financial condition strengthened with robust operating cash flow of $119.3 million, enabling significant debt reduction and improved liquidity - Generated $119.3 million of net cash from operating activities in the first six months of 2025, compared to $32.2 million in the prior year period[188] - Global Days Sales Outstanding (DSO) was stable at 59 days at the end of Q2 2025, consistent with year-end 2024[188] - The debt-to-total capital ratio decreased to 5.5% at the end of Q2 2025 from 16.2% at year-end 2024, reflecting significant debt paydown[192] Credit Facility Availability (as of Q2 2025) | Credit Facility Availability (as of Q2 2025) | Total Size | Available Capacity | | :--- | :--- | :--- | | Revolving Credit Facility | $150.0 M | $130.0 M | | Securitization Facility | $250.0 M | $153.1 M | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile, primarily related to foreign currency and interest rates, has not changed significantly, with mitigation strategies in place - The company is exposed to foreign currency risk from its foreign subsidiaries, but notes that a natural hedge exists as revenues and expenses are primarily in the same local currency[208] - To manage interest rate risk on its Securitization Facility, the company entered into two $50.0 million interest rate swaps in July 2024[209] Item 4. Controls and Procedures Executive management concluded that disclosure controls and procedures were effective, and no material changes were made to internal controls during the quarter - The CEO and CFO have concluded that disclosure controls and procedures are effective at a reasonable assurance level[211] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[212] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings that are not expected to have a material adverse effect on its financial condition - The company is engaged in routine litigation and claims related to its business operations[214] - Management does not expect the outcome of current legal proceedings to have a material adverse effect on the company[215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the public program in Q2 2025, leaving $40.0 million available, though some shares were reacquired for employee tax purposes - A total of $40.0 million remains available under the Class A share repurchase program authorized in November 2024, which expires in December 2026[92][216] - In Q2 2025, 9,221 shares were reacquired, but these were to cover employee tax withholdings on vested restricted stock, not as part of the public repurchase program[216] Item 5. Other Information No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 or other non-Rule 10b5-1 trading arrangements during the second quarter - No directors or executive officers made changes to their securities trading plans during the second quarter of 2025[217]