Kelly Services Inc.
05/07/2026 | Press release | Distributed by Public on 05/07/2026 13:16
Quarterly Report for Quarter Ending March 29, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Executive Overview
In the first quarter, we achieved results that were in line with our expectations, reflecting our ongoing focus on stabilizing the business. In ETM, revenue trends improved sequentially from the fourth quarter, driven by growth in Talent Solutions across the MSP, RPO, and PPO offerings. In SET, we delivered another quarter of year-over-year growth in our Telecom specialty, and Science & Clinical improved sequentially. In Education, we continued to experience pressure from delayed contract decisions, enrollment declines, and elevated weather-related school closures.
Our results continue to reflect reduced volumes in parts of our portfolio driven by lower demand among certain large customers and a more measured approach to hiring among employers in some sectors, primarily in response to the dynamic macroeconomic environment. The impact of demand reductions among three large customers, which we disclosed in the second quarter of 2025, remains visible in the results of ETM. Staffing volumes in SET associated with the U.S. federal government, which were materially reduced beginning in the first quarter of 2025 as a result of government efficiency actions, were stable. Throughout the first quarter, we continued to align resources with demand to address these dynamics and maintained a disciplined approach to expense management overall as part of our ongoing focus on efficiency.
With trends stabilizing across the enterprise, we continued to execute strategic initiatives designed to drive organic growth and margin expansion. These include the formation of a Growth Office which has collaborated across the enterprise to lay the foundation for an integrated commercial operating framework. This framework unifies our go-to-market strategy, bringing our full suite of solutions to customers and increasing share of wallet and revenue growth. We remained on track with our technology modernization initiative in the quarter, facilitating a smooth transition following the cutover of our acquisitions in SET from their legacy technology stack to the modernized platform we acquired through our acquisition of MRP. The learnings from the initial cutover are being applied to subsequent phases to ensure we fully realize the growth and efficiency benefits of the new technology stack.
Our ability to stabilize the business while driving progress on our strategic initiatives in the first quarter reflects our enhanced focus on execution and operational discipline. As demand trends improve, our progress will position us to capitalize, driving profitable growth and long-term value creation.
Financial Measures
Reported percentage changes are computed based on millions. Prior year percentage changes were computed based on actual amounts in thousands. Prior year percentage changes have been recast to conform to the new presentation, which is calculated based on millions. All dollar amounts are presented in millions, except for per share data.
Days sales outstanding ("DSO") represents the number of days that sales remain unpaid for the period being reported. DSO is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances at period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer.
NM (not meaningful) in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.
Results of Operations
Total Company
(in millions)
| First Quarter | |||||||||||
| 2026 | 2025 | % Change | |||||||||
| Revenue from services | $ | 1,040.7 | $ | 1,164.9 | (10.7)% | ||||||
| Gross profit | 196.4 | 236.5 | (17.0) | ||||||||
| SG&A expenses excluding integration, realignment, restructuring charges, and depreciation and amortization | 182.9 | 202.2 | (9.5) | ||||||||
| Integration, realignment and restructuring charges | 4.7 | 10.7 | (56.1) | ||||||||
| Total SG&A expenses excluding depreciation and amortization | 187.6 | 212.9 | (11.9) | ||||||||
| Depreciation and amortization | 11.7 | 12.8 | (8.6) | ||||||||
| Total SG&A expenses | 199.3 | 225.7 | (11.7) | ||||||||
| Asset impairment charge | 2.2 | - | NM | ||||||||
| Earnings (loss) from operations | (5.1) | 10.8 | NM | ||||||||
| Other income (expense), net | (1.6) | (3.2) | 50.0 | ||||||||
| Earnings (loss) before taxes | (6.7) | 7.6 | NM | ||||||||
| Income tax expense (benefit) | (0.8) | 1.8 | (144.4) | ||||||||
| Net earnings (loss) | $ | (5.9) | $ | 5.8 | NM | ||||||
| Gross profit rate | 18.9 | % | 20.3 | % | (1.4)% | ||||||
First Quarter Results
Revenue from services in the first quarter decreased 10.7% year-over-year with decreases in the ETM, SET, and Education segments. Compared to the first quarter of 2025, revenue from staffing services and outcome-based services decreased 12.9% and 9.7%, respectively. Revenue from talent solutions increased 3.0% and permanent placement revenue decreased 5.2% from the prior year.
Gross profit decreased 17.0% year-over-year, primarily driven by lower revenue volume. The gross profit rate decreased 1.4% to 18.9%, primarily due to higher employee-related costs in the beginning part of the year.
Total SG&A expenses decreased 11.7% year-over-year, primarily due to expense management actions to reduce volume-related costs and reflects the benefits of the ongoing structural actions including integration and realignment efforts. SG&A expenses in the first quarter of 2026 include $4.7 million of integration and realignment costs related to continuation of ongoing initiatives, $1.5 million of executive transition charges and $0.8 million of transaction costs primarily related to costs incurred in connection with our controlling shareholder change in the first quarter of 2026. Included in SG&A expenses in the first quarter of 2025 were $10.7 million of integration and realignment costs related to initiatives to integrate MRP and align our processes and $0.3 million of executive transition charges and $0.3 million of transaction-related costs arising from the sale of our EMEA staffing operations. Excluding integration and realignment, transaction, executive transition charges, and depreciation and amortization, SG&A expenses decreased 9.5% from the prior year.
The asset impairment charge of $2.2 million in the first quarter of 2026 relates to certain right-of-use assets and reflects our ongoing realignment of our lease portfolio.
Income tax benefit was $0.8 million for the first quarter of 2026 compared to income tax expense of $1.8 million for the first quarter of 2025, driven by changes in pretax income and the benefit of work opportunity tax credits in the first quarter of 2025.
Operating Results By Segment
(in millions)
| First Quarter | |||||||||||
| 2026 | 2025 | % Change | |||||||||
| Revenue from Services: | |||||||||||
| Enterprise Talent Management | $ | 459.2 | $ | 529.1 | (13.2)% | ||||||
| Science, Engineering & Technology | 289.2 | 327.3 | (11.6) | ||||||||
| Education | 294.1 | 309.0 | (4.8) | ||||||||
| Less: Intersegment revenue | (1.8) | (0.5) | 260.0 | ||||||||
| Consolidated Total | $ | 1,040.7 | $ | 1,164.9 | (10.7)% | ||||||
First Quarter Results
The decrease in ETM revenue from services of 13.2% was primarily driven by a decrease of 16.9% in staffing services resulting from lower hours volume primarily at certain large customers and a decrease of 19.8% from outcome-based services primarily due to the relationship exit of a large contact-center customer that ended as of the third quarter of 2025. Permanent placement fees decreased 21.7%, reflecting lower market demand. These decreases were partially offset by an increase of 3.0% in talent solutions driven by new customer wins and volume increases.
The decrease in SET revenue from services of 11.6% was primarily driven by declines in hours volume in our staffing specialties, largely from changes in demand related to U.S. federal government contractors and IT services, partially offset by an increase in permanent placement fees.
The decrease in Education revenue from services of 4.8% was driven primarily by the impact of delayed contract decisions, weather-related school closures and a reduction in demand in key markets due to declines in student enrollment.
| First Quarter | |||||||||||
| 2026 | 2025 | % Change | |||||||||
| Gross Profit: | |||||||||||
| Enterprise Talent Management | $ | 85.6 | $ | 107.3 | (20.2)% | ||||||
| Science, Engineering & Technology | 71.8 | 83.0 | (13.5) | ||||||||
| Education | 39.0 | 46.2 | (15.6) | ||||||||
| Consolidated Total | $ | 196.4 | $ | 236.5 | (17.0)% | ||||||
| Gross Profit Rate: | |||||||||||
| Enterprise Talent Management | 18.6 | % | 20.3 | % | (1.7)% | ||||||
| Science, Engineering & Technology | 24.8 | 25.4 | (0.6) | ||||||||
| Education | 13.3 | 15.0 | (1.7) | ||||||||
| Consolidated Total | 18.9 | % | 20.3 | % | (1.4)% | ||||||
First Quarter Results
Gross profit for ETM decreased on lower revenue volume. The gross profit rate decreased by 1.7% primarily due to higher employee-related costs and lower permanent placement fees, partially offset by favorable changes in business mix.
The SET gross profit decreased on lower revenue volume. The gross profit rate decreased by 0.6% primarily due to higher employee-related costs, partially offset by higher permanent placement fees.
Gross profit for the Education segment decreased on lower revenue volume. The gross profit rate decreased by 1.7%, primarily due to higher employee-related costs as well as reductions due to changes in business mix and lower permanent placement fees.
Operating Results By Segment (continued)
(in millions)
| First Quarter | |||||||||||
| 2026 | 2025 | % Change | |||||||||
| SG&A Expenses (excluding depreciation and amortization): | |||||||||||
| Enterprise Talent Management | $ | 86.9 | $ | 101.0 | (14.0)% | ||||||
| Science, Engineering & Technology | 57.6 | 69.1 | (16.6) | ||||||||
| Education | 26.7 | 26.9 | (0.7) | ||||||||
| Corporate expenses | 16.4 | 15.9 | 3.1 | ||||||||
| Consolidated Total | $ | 187.6 | $ | 212.9 | (11.9)% | ||||||
First Quarter Results
The 14.0% decrease in ETM SG&A expenses excluding depreciation and amortization was primarily due to lower salary-related costs, lower performance-based incentive compensation, and lower shared service costs as a result of operating efficiencies and expense management actions in response to lower revenue volume compared to the prior year.
The 16.6% decrease in SET SG&A expenses excluding depreciation and amortization was primarily due to lower salary-related costs and performance-based incentive compensation as a result of operating efficiencies and expense management actions in response to lower revenue volume compared to the prior year.
The 0.7% decrease in Education SG&A expenses excluding depreciation and amortization primarily related to lower performance-based incentive compensation.
The 3.1% increase in Corporate expenses was primarily driven by investment in the Growth Office and other corporate initiatives and increases in our nonqualified compensation plan expense, partially offset by lower integration, realignment, and restructuring charges and performance-based incentive compensation in the first quarter of 2026 as compared to the prior year.
| First Quarter | |||||||||||
| 2026 | 2025 | % Change | |||||||||
| Business Unit Profit (Loss) | |||||||||||
| Enterprise Talent Management | $ | (1.3) | $ | 6.3 | NM | ||||||
| Science, Engineering & Technology | 12.0 | 13.9 | (13.7) | ||||||||
| Education | 12.3 | 19.3 | (36.3) | ||||||||
| Business Unit Profit (Loss) | 23.0 | 39.5 | (41.8) | ||||||||
| Corporate | (16.4) | (15.9) | 3.1 | ||||||||
| Depreciation and amortization | (11.7) | (12.8) | (8.6) | ||||||||
| Consolidated total earnings (loss) from operations | $ | (5.1) | $ | 10.8 | NM | ||||||
First Quarter Results
ETM reported a loss of $1.3 million compared to profit of $6.3 million in the prior year. SET and Education reported profit of $12.0 million and $12.3 million, respectively, which decreased compared to the prior year. Declines in business unit profit (loss) are primarily due to lower revenue and gross profit, partially offset by lower SG&A expenses.
Financial Condition
Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly, and customer accounts receivable, which is generally outstanding for longer periods. Since receipts from customers lag payroll to temporary employees, working capital requirements increase substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period.
As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: cash, cash equivalents and restricted cash, operating activities, investing activities and financing activities.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash totaled $29.5 million at the end of the first quarter of 2026 and $37.7 million at year-end 2025. As further described below, we used $25.4 million of cash for operating activities, used $1.2 million of cash for investing activities and generated $24.2 million of cash from financing activities.
Operating Activities
In the first three months of 2026, we used $25.4 million of net cash for operating activities, as compared to generating $23.9 million in the first three months of 2025, primarily due to increased working capital requirements as compared to the same period of the prior year.
Trade accounts receivable totaled $1.2 billion at the end of the first quarter of 2026. Global DSO was 64 days for the first quarter of 2026 and 61 days at year-end 2025.
Our working capital position (total current assets less total current liabilities) was $480.2 million at the end of the first quarter of 2026, an increase of $33.7 million from year-end 2025. The current ratio (total current assets divided by total current liabilities) was 1.6 at the end of the first quarter of 2026 and 1.5 at year-end 2025.
Investing Activities
In the first three months of 2026, we used $1.2 million of cash for investing activities, as compared to generating $3.2 million in the first three months of 2025. Cash used in investing activities in the first three months of 2026 is primarily driven by $1.1 million of capital expenditures. Included in the cash generated for investing activities in the first three months of 2025 is $6.4 million of cash from the sale of PersolKelly investment, partially offset by $2.5 million of cash used for capital expenditures.
Financing Activities
We generated $24.2 million of cash from financing activities in the first three months of 2026, as compared to using $39.5 million in the first three months of 2025. The change in cash generated from financing activities was primarily driven by net proceeds of $28.6 million on our credit facilities in 2026 compared to net repayments of $34.8 million on our credit facilities in 2025. Dividends paid per common share were $0.075 in each of the first quarters of 2026 and 2025.
Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders' equity) is a common ratio to measure the relative capital structure and leverage of the Company. Our ratio of debt-to-total capital was 11.9% at the end of the first quarter of 2026 and 9.4% at year-end 2025.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Form 10-K.
Contractual Obligations and Commercial Commitments
There were no significant changes to our contractual obligations and commercial commitments from those disclosed in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Form 10-K. We have no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.
Liquidity
We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents and our credit facilities. Additional funding sources could include additional bank facilities or sale of non-core assets. To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies.
We have historically managed our cash and debt closely to optimize our capital structure. As our cash balances build, we tend to pay down debt as appropriate, unless it is needed for organic or inorganic investments that align with our overall growth strategy. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the global cash pooling arrangement (the "Cash Pool") first, and then access our borrowing facilities. We expect our working capital requirements to increase if demand for our services increases.
We assess and monitor our liquidity and capital resources globally. We use the Cash Pool, intercompany loans, dividends, capital contributions, and local lines of credit to meet funding needs and allocate our capital resources among our various subsidiaries. We periodically review our foreign subsidiaries' cash balances and projected cash needs. As part of those reviews, we may identify cash that we feel should be repatriated to optimize our overall capital structure. We expect our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth.
As of first quarter-end 2026, we had $150.0 million of available capacity on our $150.0 million revolving credit facility and $76.9 million of available capacity on our $250.0 million securitization facility. The revolving credit facility carried no long-term borrowings on the floating or term benchmark lines of credit. The securitization facility carried $130.5 million of long-term borrowings and $42.6 million of standby letters of credit related to workers' compensation. The credit facilities also include an accordion feature to increase our combined borrowing capacity by $250.0 million.
Together, the revolving credit and securitization facilities provide us with committed funding capacity that may be used for general corporate purposes subject to financial covenants and restrictions. We believe our cash flow from operations, the availability of liquidity under our credit facilities, including the accordion feature which allows us to increase our borrowing capacity and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements, while maintaining sufficient liquidity for normal operating purposes. As of first quarter-end 2026, we met the debt covenants related to our revolving credit facility and securitization facility.
As of first quarter-end of 2026, we had additional unsecured, uncommitted short-term local credit facilities totaling $3.1 million, under which we had no borrowings. Details of our debt facilities are contained in the Debt footnote in the notes to our consolidated financial statements.
We monitor the credit ratings of our banking partners on a regular basis and have regular discussions with them. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash.
Forward-Looking Statements
Certain statements contained in this report and in our investor conference call related to these results are "forward-looking" statements within the meaning of the applicable securities laws and regulations. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our Company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance, and we undertake no obligation to update them, except as required by law.
Actual events and results may differ materially from those expressed or implied by forward-looking statements due to a number of factors. The principal risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, (i) changing market and economic conditions, (ii) disruption in the labor market and weakened demand for human capital resulting from technological advances, competitive pressures and pricing, loss of large corporate customers and government contractor requirements, (iii) the impact of laws and regulations (including federal, state and international tax laws), (iv) unexpected changes in claim trends on workers' compensation, unemployment, disability and medical benefit plans, (v) litigation and other legal liabilities (including tax liabilities) in excess of our estimates, (vi) our ability to achieve our business's anticipated growth strategies, (vii) our future business development, results of operations and financial condition, (viii) damage to our brands, (ix) dependence on third parties for the execution of critical functions, (x) conducting business in foreign countries, including foreign currency fluctuations, (xi) availability of temporary workers with appropriate skills required by customers, (xii) cyberattacks or other breaches of network or information technology security, and (xiii) other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission, including those discussed under "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 28, 2025. Actual results may differ materially from any forward-looking statements contained herein, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Kelly Services Inc. published this content on May 07, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 07, 2026 at 19:16 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]