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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
Segment performance (Q4 2024):
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
Earnings Call Themes & Trends
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 .