Kevin Fink

Kevin Fink asked about the margin trend in the fourth quarter, specifically why adjusted EBITDA margin came in below expectations, and requested more detail on the drivers of gross margin pressure, including employee-related costs and business mix. He also sought clarification on the factors expected to drive progressive improvement in quarterly performance for 2026, beyond easier comparisons, such as organic growth drivers and business mix. Additionally, he inquired about the opportunities presented by the newly appointed Chief Growth Officer and the potential impact of the internal AI recruiting solution on Kelly's efficiency, costs, recruiter numbers, and margin improvement.

Answer

Chris Layden (CEO, Kelly Services) acknowledged that EBITDA margin fell short of expectations but underscored the company's focus on aligning expenses with demand, as evidenced by SG&A reductions. He also mentioned efforts to reengineer the cost base and shift towards higher-margin offerings. Troy Anderson (CFO, Kelly Services) specified that the 150 basis point decline in the gross profit rate was incremental to expectations, primarily affecting ETM and SET, driven by increased healthcare coverage utilization and adjustments to workers' compensation claims. For 2026, Mr. Anderson outlined that Q1 would be similar to Q4, with payroll tax resets impacting margins. He then detailed growth initiatives, benefits from technology modernization, and other efficiency efforts expected to accumulate throughout the year, leading to a return to organic growth and measurable margin expansion in the second half. Mr. Layden explained that the Chief Growth Officer's mandate is to leverage Kelly's full portfolio to win market share, build a unified client-centric go-to-market model, and drive organic growth, new customer acquisition, and pipeline acceleration. Regarding the AI recruiting solution, Mr. Layden emphasized that AI at scale provides deeper data, insights, automation, and productivity, contributing to EBITDA margin expansion, particularly in the second half, through platforms like Grace Boost and Kelly Helix.

Kevin Fink of Barrington Research Associates questioned the adjusted EBITDA margin trend in Q4 2025 and the outlook for 2026, focusing on the drivers of incremental gross margin pressure, including employee-related costs and business mix.

Answer

CEO Chris Layden acknowledged that EBITDA margin fell short of expectations but highlighted the company's focus on expense alignment and cost management. CFO Troy Anderson elaborated on the 150 basis point decline in the gross profit rate, attributing it to escalations in healthcare and workers' compensation claims, which are expected to reset in 2026. Fink also asked about factors driving successive quarterly improvements in 2026. Anderson explained that after a similar Q4-Q1 period with payroll tax resets, progressive improvement would come from growth initiatives, technology modernization, and efficiency efforts, leading to organic growth and margin expansion in the second half of 2026. Layden further detailed the opportunities presented by the new Chief Growth Officer, Pat McCall, focusing on market share gains, unified go-to-market strategies, and new customer acquisition. Lastly, Layden discussed the impact of the internal AI recruiting solution, Grace Boost, on efficiency and cost, stating it drives increased productivity and efficiency, contributing to EBITDA margin expansion throughout the year.