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KELLY SERVICES INC (KELYA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered organic revenue growth of 4.4% to $1.19B despite reported revenue down 3.3% y/y; adjusted EBITDA rose 34% with margin expanding 110 bps to 3.7% .
  • GAAP EPS was a loss of $0.90 driven by $80.8M non-cash impairment; adjusted EPS was $0.82, reflecting stronger underlying profitability and cost discipline .
  • Management guided H1 2025 to ~10% total revenue growth (MRP benefit), ~80 bps GP rate improvement, and adjusted EBITDA margin ~3.6% with D&A ~$13.5M per quarter and tax rate in the high teens .
  • Announced CEO succession (Peter Quigley retiring by end-2025) and repurchased $10M of shares in Q4; integration of Motion Recruitment Partners (MRP) targeted to yield ~$10M EBITDA synergies by 2026, supporting continued margin expansion .

What Went Well and What Went Wrong

What Went Well

  • Education: revenue +12% y/y with continued share gains; therapy acquisition (Children’s Therapy Center) enhances higher-margin mix .
  • SET: reported revenue +38% y/y (MRP), GP rate +140 bps; outcome-based solutions strengthened demand across telecom and IT specialties .
  • Profitability: adjusted EBITDA +34% y/y to $43.5M; margin +110 bps to 3.7% on organic improvement (+50 bps) and EMEA divestiture (+60 bps) .

What Went Wrong

  • GAAP loss: $0.90 EPS loss driven by $72.8M goodwill impairment (Softworld) and $8.0M ROU asset impairment tied to HQ utilization .
  • OCG margin pressure: growth in lower-margin PPO diluted GP; segment GP rate fell 450 bps y/y despite revenue +8.8% .
  • Macro/timing: hurricanes impacted Education in Q4; broader staffing demand remained cautious post U.S. election and executive actions, tempering near-term growth expectations .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Billions)$1.232 $1.038 $1.191
GAAP Diluted EPS ($USD)$0.31 $0.02 $(0.90)
Adjusted EPS ($USD)$0.93 $0.21 $0.82
Gross Profit Rate (%)19.3% 21.4% 20.3%
Adjusted EBITDA ($USD Millions)$32.5 $26.2 $43.5
Adjusted EBITDA Margin (%)2.6% 2.5% 3.7%
Wall St. Consensus (Revenue)N/A (S&P Global consensus unavailable)N/A (S&P Global consensus unavailable)N/A (S&P Global consensus unavailable)
Wall St. Consensus (EPS)N/A (S&P Global consensus unavailable)N/A (S&P Global consensus unavailable)N/A (S&P Global consensus unavailable)

Segment performance (Q4 2024):

SegmentRevenue ($USD Millions)Y/Y ChangeGross Profit Rate (%)Business Unit Adjusted EBITDA Margin (%)
Professional & Industrial (P&I)$384.2 +4.4% 17.9% 3.0%
Science, Engineering & Technology (SET)$396.1 +37.9% 23.9% 5.6%
Education$289.2 +12.1% 14.2% 5.7%
Outsourcing & Consulting (OCG)$122.3 +8.8% 30.3% 1.7%

Select KPIs (Q4 2024):

  • Gross Profit: $241.5M; Permanent placement income: $13.3M .
  • Working Capital: $539.0M; Debt-to-capital: 16.2%; Year-to-date Free Cash Flow: $15.8M .
  • Liquidity: $154M (cash $39M; $115M available credit); Total borrowing $239M; adj. EBITDA leverage ~1.7x .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue GrowthH1 2025Not previously provided for H1 2025~+10% (MRP benefit), modest organic growth New
GP RateH1 2025Not previously provided for H1 2025~+80 bps (MRP benefit); organic GP roughly flat New
Adjusted SG&AH1 2025Not previously provided for H1 2025Modest increase vs Q4 run-rate (payroll tax and incentive resets) New
D&AQ1–Q2 2025Not previously provided~$13.5M per quarter New
Adjusted EBITDA MarginH1 2025Not previously provided for H1 20253.6% (+10 bps), Q1 slightly lower, Q2 higher New
Effective Tax RateH1 2025Not previously providedHigh teens New
DividendQ1 2025$0.075/share (Q3 2024 declared) $0.075/share declared (payable Mar 12, 2025) Maintained
Share RepurchaseQ4 2024$50M authorization (Dec 2024) $10M executed in Q4 2024 Executed partial

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Margin expansionAdjusted EBITDA margin +170 bps to 3.7%; targeted further expansion with MRP +20 bps to 2.5%; expected further expansion in Q4 +110 bps to 3.7%; all segments improved organic adj. EBITDA margins Improving
Outcome-based solutionsExpanding in SET & P&I; focus on higher-margin outcomes Stable MSP/RPO, outcome-based aiding performance Positive demand in P&I (semis/logistics/manufacturing/distribution); SET outcome-based improved Strengthening
Education segment+21.7% y/y (Q2) and +10.9% y/y (Q3) growth Continued double-digit growth and share gains +12% y/y; hurricanes impacted Q4 volumes; therapy expansion via CTC Durable growth, minor Q4 weather headwind
Macro/customer sentimentCautious hiring; demand stabilized sequentially Cautious but stable organic revenue; above-market Post-election optimism tempered by exec orders; first half resembles recent quarters Gradual improvement later in 2025
M&A/integration (MRP)MRP acquired; expected EBITDA benefits Transform actions + MRP to drive Q4 margin expansion Integrating MRP across SET/OCG; top-10 IT staffing; ~$10M EBITDA synergies by 2026 Integration ramping
Capital allocationFocused on redeploying capital, deleveraging Dividend maintained $10M buyback executed; bias to debt paydown and growth investments near-term Balanced returns

Management Commentary

  • “In the fourth quarter, Kelly delivered… organic revenue… up more than 4% and adjusted EBITDA up 34%… delivering 110 bps of margin expansion” — Peter Quigley .
  • “Revenue for the fourth quarter… totaled $1.19 billion… On an organic basis… up 4.4%… GP rate of 20.3%… adjusted EBITDA was $43.5 million… margin improved 110 bps to 3.7%” — Troy Anderson .
  • “We’re integrating MRP’s business lines within SET and OCG… creating a clear pathway toward… EBITDA benefit of approximately $10 million” — Peter Quigley .
  • “We expect… total revenue growth of approximately 10%… GP rate improvement of approximately 80 bps… adjusted EBITDA margin… ~3.6% in 1H 2025” — Troy Anderson .

Q&A Highlights

  • Education resilience and Q4 headwind: double-digit growth persisted despite hurricane disruptions; ongoing fill rate improvements and therapy synergies expected to contribute .
  • Staffing demand and pricing: P&I staffing up 3.7% and outcome-based up 5% with consistent performance; SET staffing down ~5% y/y but outcome-based improved sequentially .
  • 1H 2025 segment outlook: Education up but below recent double digits due to comps; P&I roughly flat after strong Q4; SET down modestly early in Q1 with improvement later; OCG remix from PPO toward MSP/RPO to aid margins .
  • Segment reporting: management assessing 2025 reporting changes; clear bridge to be provided with Q1 results .
  • M&A market: deal flow in a trough; valuation expectations remain disconnected; active monitoring continues .
  • Capital allocation: $10M buyback in Q4 amid share price disconnect; near-term bias to debt repayment and growth investments while maintaining dividend .

Estimates Context

  • S&P Global Wall Street consensus estimates for Q4 2024 revenue and EPS were unavailable at the time of analysis due to data access limits. As a result, comparisons versus consensus could not be provided. Values retrieved from S&P Global were unavailable at this time.

Key Takeaways for Investors

  • Margin trajectory remains favorable: adjusted EBITDA margin expanded to 3.7% in Q4; management guides incremental margin expansion in 1H 2025 to ~3.6% despite typical Q1 resets .
  • Mix shift to higher-margin offerings: outcome-based solutions and therapy services are growing share; SET and P&I outcome-based demand strengthened, supporting GP rate stabilization despite PPO pressure in OCG .
  • MRP integration is the 2025 catalyst: complementary integration across SET/OCG with synergies ramping to ~$10M EBITDA by 2026; expect commercial momentum beginning in Q2 as earnout period concludes .
  • Capital discipline with balanced returns: $10M Q4 buyback, dividend maintained at $0.075; liquidity of $154M and leverage ~1.7x adjusted EBITDA provide flexibility for organic/inorganic investments and deleveraging .
  • Education continues to lead growth: double-digit revenue increases and therapy expansion position the segment for sustained contribution, with near-term comps moderating sequential growth before accelerating in the back half .
  • Watch macro inflections: customer sentiment improved post-election but tempered by executive actions; management expects conditions similar to recent quarters in 1H 2025 with gradual improvements as the year progresses .
  • Governance/leadership transition: CEO retirement process underway; expect continuity near-term with potential strategic emphasis shifts under new leadership — monitor for changes in capital allocation and segment reporting .