Sign in

You're signed outSign in or to get full access.

KS

KELLY SERVICES INC (KELYA)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 revenue grew 11.5% to $1.165B, driven by the MRP acquisition; organic growth was 0.2% with Education strength offsetting reduced U.S. federal contractor demand (≈0.8% headwind) .
  • Adjusted EPS was $0.39 vs Wall Street consensus of $0.525, while revenue slightly beat consensus ($1.165B vs $1.160B); margin pressure in SET and higher interest expense from MRP financing weighed on earnings .
  • Management guided Q2 revenue growth of 6–7% YoY but expects a 20–30 bps YoY decline in adjusted EBITDA margin, now calling for margin expansion in Q3, Q4 and for the full year, versus earlier expectations of steady expansion throughout 2025 .
  • Strategic drivers: continued Education outperformance, robust demand for higher-margin outcome-based solutions in semiconductors/renewables, and integration of MRP (including tech stack modernization enabling rapid AI use cases) .

What Went Well and What Went Wrong

What Went Well

  • Education delivered 6.6% revenue growth (6.3% organic) with improving fill rates and higher bill rates; business unit profit rose to $19.3M and GP rate improved 50 bps YoY to 15.0% .
  • Outcome-based solutions demand remained robust in semiconductors and renewables; SET GP rate improved and ETM’s outcome-based growth offset PPO mix pressure .
  • Quote: “We delivered organic revenue growth… driven primarily by continued strength in Education, as well as growing demand for our higher-margin outcome-based solutions within the semiconductor and renewables sectors.” — CEO Peter Quigley .

What Went Wrong

  • SET margin pressure from timing of cost actions relative to reduced demand (including federal) led to a 20 bps decline in adjusted EBITDA margin to 3.0% company-wide .
  • Reduced demand from U.S. federal government contractors negatively impacted organic growth in ETM and SET; Q2 headwind expected at ~1–1.5 pts for the company, largely tied to an HHS contract .
  • Higher net interest expense (≈$0.15/share YoY) from prior-year cash and debt incurred for MRP pressured EPS despite EBITDA growth .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,038.1 $1,191.1 $1,164.9
Diluted EPS ($)$0.02 $(0.90) $0.16
Adjusted EPS ($)$0.21 $0.82 $0.39
Adjusted EBITDA ($M)$26.2 $43.5 $34.9
Adjusted EBITDA Margin (%)2.5% 3.7% 3.0%
Gross Profit Rate (%)21.4% 20.3% 20.3%
Operating Income ($M)$2.6 $(56.7) $10.8

Q1 2025 vs Consensus (S&P Global):

MetricQ1 2025 ActualQ1 2025 ConsensusSurprise
Revenue ($USD Billions)$1.165 $1.160*+$0.005B
EPS (Primary/Adj) ($)$0.39 $0.525*−$0.135

Values retrieved from S&P Global.

Segment performance (Q1 2025 vs Q1 2024):

SegmentMetricQ1 2024Q1 2025
Enterprise Talent Management (ETM)Revenue ($M)$524.1 $534.0
Gross Profit ($M)$106.2 $108.0
Business Unit Profit ($M)$8.1 $6.8
Adjusted BU Profit ($M)$8.8 $9.5
Adjusted EBITDA Margin (%)1.7% 1.8%
Science, Engineering & Technology (SET)Revenue ($M)$231.6 $322.4
Gross Profit ($M)$57.4 $82.3
Business Unit Profit ($M)$14.2 $13.4
Adjusted BU Profit ($M)$14.2 $14.5
Adjusted EBITDA Margin (%)6.1% 4.5%
EducationRevenue ($M)$289.9 $309.0
Gross Profit ($M)$42.1 $46.2
Business Unit Profit ($M)$18.1 $19.3
Adjusted EBITDA Margin (%)6.2% 6.2%

Operating and balance sheet KPIs:

KPIQ3 2024Q4 2024Q1 2025
Cash & Equivalents ($M)$32.8 $39.0 $28.2
Long-term Debt ($M)$228.2 $239.4 $204.6
Debt-to-Capital (%)15.1% 16.2% 14.2%
Working Capital ($M)$516.5 $539.0 $528.1
Global DSO (days)64 59 61

Cash flow KPI (YTD):

MetricQ1 2024Q1 2025
Free Cash Flow ($M)$(29.2) $21.4

Guidance Changes

MetricPeriodPrevious Guidance (Feb 13, 2025)Current Guidance (May 8, 2025)Change
Total Revenue Growth (YoY)H1 2025≈+10% total (MRP-driven), modest organic growth; Q1 higher than Q2 due to 5/31/24 MRP close Q2 2025: +6% to +7%; organic −1% to −2% (roughly flat ex Fed/macro) Lowered for Q2
Adjusted EBITDA MarginH1 2025Up ~10 bps to ≈3.6% (Q1 slightly lower, Q2 higher) Q2 2025: −20 to −30 bps YoY; expect expansion in Q3, Q4 and full year Lowered near term; back-half raised/affirmed
Gross Profit RateH1 2025Up ~80 bps (MRP benefit); organic GP roughly flat, Q1 down slightly Not specifically updatedMaintained/NA
Effective Tax RateH1 2025Upper teens Not updatedMaintained/NA
D&AQuarterly≈$13.5M per quarter Not updatedMaintained/NA
DividendQ2 2025 payout$0.075/share (declared Feb 11; paid Mar 12) $0.075/share (declared May 6; payable Jun 3) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 & Q4 2024)Current Period (Q1 2025)Trend
AI/Technology enablementEmphasis on integrating MRP and capturing synergies; tech stack integration plans discussed for 2025 .SET platform modernization leveraging MRP tech to enable rapid AI integration; long-term aim to scale across Kelly .Increasing focus and execution progress
Macro/trade policyUncertain macro; post-election cautiousness; clients “wait and see” re executive orders/regulatory impacts .Stayed agile amid anticipation of global trade policy shifts; customers cautious on workforce strategies .Caution persists
Federal government exposureNot prominent earlier; mix discussion ongoing .Fed contractor demand reduced revenue by ~0.8 pts in Q1; Q2 headwind ~1–1.5 pts, primarily HHS contract impact .Near-term headwind
Outcome-based solutionsExpansion in outcome-based offerings; statement of work growth in SET/P&I .Robust demand in semiconductors/renewables; ETM outcome-based growth offset PPO pressure .Continuing growth mix shift
Education momentumDouble-digit growth in 2024; hurricane disruptions in Q4 but still strong .+6.6% revenue; better fill rates, higher bill rates; Q2 growth rate expected higher than Q1 .Strong and accelerating in Q2
PricingNot highlighted as pressure in Q4 .Some compression in Professional & Industrial; better bill rates/spreads in SET and Education .Mixed: pressure in P&I, strength elsewhere

Management Commentary

  • “Our performance was driven primarily by continued strength in Education, as well as growing demand for our higher-margin outcome-based solutions within the semiconductor and renewables sectors.” — Peter Quigley, CEO .
  • “We recognized $10.7 million of [integration/realignment] charges in the quarter… We expect to see a similar level of charges over the next few quarters as we continue executing these initiatives.” — Troy Anderson, CFO .
  • “This will create a scalable, efficient and integrated technology platform within SET that significantly reduces complexity… enabling the rapid integration of AI as new solutions and use cases emerge.” — Peter Quigley .
  • “We expect to outperform the market and to deliver total revenue growth of 6% to 7% in [Q2]… and now anticipate margin expansion in Q3 and Q4, and for the full year.” — Troy Anderson .

Q&A Highlights

  • Integration costs cadence: In Q&A, management agreed with an assumption of “about $1 million a quarter,” but elsewhere guided to a similar overall level as Q1’s $10.7M; charges will vary by IT vs severance as integration broadens beyond MRP to legacy deals .
  • Federal government exposure: Largest impact tied to an HHS contract; ~0.8 pt headwind in Q1, ~1–1.5 pts expected in Q2 at the company level; stabilization expected exiting Q1 with potential to claw back later in year .
  • MRP margin opportunity: Earn-out restrictions limited action; as integration progresses and unified go-to-market/technology stack rolls out, management expects significant SET margin improvement through 2025–2026 .
  • Demand/pricing trends: January was choppy; Education growth accelerated through the quarter, and staffing improved across the quarter; some pricing compression in P&I offset by better rates/spreads in SET/Education .
  • M&A environment: Fewer assets in market; seller valuation expectations remain high; targeted interest continues in therapy to augment Education .

Estimates Context

  • Q1 2025 revenue slightly beat consensus ($1.165B vs $1.160B*) while EPS (Primary/Adj) missed ($0.39 vs $0.525*), reflecting gross profit mix and higher interest costs post-MRP .
  • Given Q2 guidance for lower margin YoY and federal headwinds, Street margin expectations for Q2 likely require trimming, with potential upward revisions for H2 margin as integration benefits and efficiency actions flow through .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Education remains a durable growth engine with improving fill rates/bill rates and a strong Q2 setup; continued share gains are a core driver of above-market outperformance .
  • Outcome-based solutions in semiconductors and renewables provide mix uplift and resilience; this remains the strategic vector for margin expansion as demand improves .
  • Near-term headwinds: federal contractor demand and P&I pricing pressure; expect Q2 margin to dip YoY before expanding in H2 as integration synergies and cost actions kick in .
  • Integration spend is meaningful and ongoing; while Q&A suggested ~$1M/quarter, prepared remarks indicate similar total charges as Q1 ($10.7M) in coming quarters—monitor cadence and synergy delivery closely .
  • Balance sheet flexibility remains: net debt declined sequentially; liquidity stood at $181M (cash $28M plus $153M availability), supporting investment in growth while maintaining dividend .
  • Watch catalysts: ETM go-to-market consolidation, SET tech platform modernization (AI-enabled), and MSP/RPO pipeline conversion in ETM’s Talent Solutions .
  • Trading lens: Q2 setup is cautious on margins; positioning for potential H2 re-rating hinges on visible synergy capture, Education momentum, and stabilization in federal/IT end markets .