Kelly Services(KELYA) - 2025 Q4 - Annual Report

Revenue Performance - In 2025, revenue from services decreased by 1.9% year-over-year to $4,250.9 million, with a significant decline in the Enterprise Talent Management (ETM) segment by 8.7%[161] - Revenue from staffing services decreased by 11.7% in the ETM segment, reflecting lower demand from large customers[171] - The Science, Engineering & Technology (SET) segment saw a revenue increase of 6.4% to $1,240.4 million, primarily due to the acquisition of MRP[170] - The Education segment's revenue increased by 3.9% to $1,010.7 million, driven by higher fill rates and bill rates[170] Profitability - Gross profit decreased by 3.4% to $853.0 million, with a gross profit rate of 20.1%, down 30 basis points from the previous year[156][162] - Gross profit for the Enterprise Talent Management (ETM) segment decreased to $392.8 million in 2025, down 11.7% from $444.9 million in 2024, and down 4.5% from $465.7 million in 2023[178] - Science, Engineering & Technology (SET) gross profit increased to $313.2 million in 2025, a 5.1% increase from $297.9 million in 2024, driven by the acquisition of MRP[180] - Education segment gross profit rose to $147.0 million in 2025, up 5.2% from $139.8 million in 2024, attributed to higher revenue volume[181] - Consolidated total gross profit decreased to $853.0 million in 2025, down 3.4% from $882.6 million in 2024, and down 8.2% from $961.4 million in 2023[186] Expenses - Total selling, general and administrative (SG&A) expenses increased by 0.9% to $825.9 million, primarily due to the acquisition of Motion Recruitment Partners (MRP)[163] - ETM segment SG&A expenses decreased to $373.0 million in 2025, a 3.3% decline from $385.9 million in 2024, primarily due to lower salary-related costs[187] - SET segment SG&A expenses increased to $247.1 million in 2025, a 9.0% increase from $226.7 million in 2024, mainly due to higher employee-related costs from the MRP acquisition[188] Operational Losses - Loss from operations in 2025 totaled $69.8 million, compared to a loss of $15.1 million in 2024, primarily due to increased integration and restructuring costs[165] - The goodwill impairment charge for 2025 was $102.0 million, significantly higher than the $72.8 million charge in 2024, driven by reduced demand and integration costs[164] Tax and Cash Flow - Income tax expense in 2025 was $175.3 million, compared to a tax benefit of $21.3 million in 2024, impacted by valuation allowances against deferred tax assets[167] - The company generated $122.6 million of net cash from operating activities in 2025, a significant increase from $26.9 million in 2024[206] Goodwill and Impairment - As of year-end 2025, total goodwill amounted to $202.1 million, while it was $304.2 million at year-end 2024[245] - The company recorded a goodwill impairment charge of $72.8 million for the Softworld reporting unit in 2024, with a remaining goodwill balance of $38.5 million[244] - The estimated fair value of each reporting unit tested in 2025 exceeded its carrying value by more than 10%, indicating no impairment of goodwill[242] - The company assessed that there were no indications of impairment for the PTS and Education reporting units, requiring no further testing[244] Liquidity and Capital Structure - Cash, cash equivalents, and restricted cash totaled $37.7 million at year-end 2025, down from $45.6 million at year-end 2024[205] - The debt-to-total capital ratio improved from 16.2% at year-end 2024 to 9.4% at year-end 2025, indicating a stronger capital structure[216] - As of year-end 2025, the company had $150.0 million available on its revolving credit facility and $105.5 million on its securitization facility[221] - The company maintains a strong liquidity position, having met all debt covenants related to its credit facilities throughout 2025[222] Future Outlook - Structural cost actions and portfolio reshaping are expected to support continued improvement in Kelly's growth prospects and financial profile through 2026 and beyond[151] - Future revenue and profit margin expectations are critical, as significant changes could lead to future goodwill impairment[241]