Good morning, and welcome to Kelly Services Ford Quarter Earnings Conference Call. All parties will be on listen only until the question and answer portion of the presentation. Today's call is being recorded at the request of Kelly Services, Inc. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Scott Thomas, Kelly's head of investor relations. Please go ahead.

Good morning. And welcome to Kelly Services, Inc.'s fourth quarter and full year conference call. With me today are Kelly's President and Chief Executive Officer, Peter Quigley, and our Chief Financial Officer, Troy Anderson. Before we begin, I remind you that the comments made during today's call, including the Q&A session, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. We do not assume any obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, we will discuss certain data on a reported and on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. For more information regarding non-GAAP measures and other required disclosures, please refer to our earnings press release presentation, and once filed, Form 10-K. All of which can be accessed through our investor relations website at ir.kellyservices.com. I will now turn the call over to Kelly's President and Chief Executive Officer, Peter Quigley.

Thank you, Scott. Good morning, everyone. Before I share my reflections on our fourth quarter and full year performance, I would like to discuss the leadership succession plan that we announced in our earnings press release earlier today. After twenty-two years with Kelly Services, Inc., I intend to retire as President and CEO by the end of this year. The board has initiated a process to identify my successor, engaging a nationally recognized firm to conduct a comprehensive search of both internal and external candidates. I plan to continue serving in my current role until the board of directors appoints Kelly's next CEO and we can facilitate a smooth transition. Over the past few years, we have made meaningful strides on our specialty growth journey, and Kelly Services, Inc. is well positioned to realize the value creation opportunities that lie ahead. I am proud of the progress we have made, and I look forward to concluding my tenure with a strong 2025 defined by continued growth and strategic evolution. With new leadership, and as market conditions improve, the board and I are confident that Kelly Services, Inc. will reach new heights and create even more value for our clients, talent, employees, and shareholders. With that, let's review the highlights from our performance in the fourth quarter and full year. In the fourth quarter, Kelly Services, Inc. delivered both top and bottom line growth on a year-over-year basis, increasing organic revenue by more than 4% and adjusted EBITDA by 34%. This reflects strong profitability for the quarter as we delivered 110 basis points of margin expansion through targeted organic and inorganic initiatives. Total company performance exceeded the outlook we provided in November and continued to outpace the market. At the segment level, education delivered another quarter of double-digit revenue growth and…

Thank you, Peter, and good morning, everybody. Before I get into the results, I want to thank the Kelly Services, Inc. team for such a warm welcome during my first quarter with the company. It has been a pleasure diving into the business and seeing this team's dedication and commitment. I am incredibly excited to execute on the opportunities in front of us to drive more value for our shareholders, customers, talent, and employees in 2025. As Peter said, we are pleased with our strong fourth quarter and full year results and encouraged by the momentum we are building across our segments. As a reminder, for comparison, our reported results for 2023 included the European staffing business that was sold on January 2, 2024, and for 2024 include Motion Recruitment Partners since the May 31 acquisition date. To provide greater visibility into the underlying trends in our operating results, I will discuss year-over-year changes on a reported and on an organic basis, with the organic information excluding these items. Revenue for the fourth quarter of 2024 totaled $1.19 billion, a decrease of 3.3% versus Q4 last year. On an organic basis, year-over-year revenue was up 4.4%. This is an acceleration from our trends over the prior quarters in the year and better than what we had built into our Q4 outlook. In the quarter, staffing revenue trended up positively, and we saw moderating declines in perm fees, which have a higher gross margin rate. Our outcome-based offerings, which on an organic basis is just over a third of our revenue, in PNI and SET, an even greater portion of gross profit also trended up positively. Drilling down into revenue results by segment, I will start with education, which was up 12% year-over-year in the quarter, continuing its trend of double-digit…

Thanks for those insights, Troy. We move forward into 2025 propelled by positive momentum from our recent achievements and well positioned to accelerate profitable growth as staffing demand rebounds. Our priorities for the year are clear. First, we will deliver top line growth by continuing to increase scale in our chosen specialties. To this end, we will continue to execute our organic growth initiatives, including our omnichannel delivery strategy in PNI, and our large enterprise account strategy, both of which we expect will continue to deliver gains in market share. In addition to these initiatives, our primary focus is the integration of MRP. Since completing the acquisition, we have been working closely with our colleagues at MRP on a thoughtful approach to integration that harnesses the unique strengths of each business. At the core of the value case for this deal is the highly complementary nature of MRP's portfolio of businesses and our SET and OCG businesses respectively. To maximize value creation, we are integrating each of its respective offerings within our SET and OCG segments. We will combine Motion Recruitment's IT staffing and consulting business with SET's technology specialty, which includes Softworld. This significantly increases the scale of our IT staffing and consulting business, propelling Kelly Services, Inc. into the top ten providers in the category. TG Federal will come together with SET's government specialty, building upon the life sciences and engineering workforce solutions we currently bring to our public sector partners and adding a strong IT solutions capability. Motion Recruitment's telecom staffing and SOW managed services business will integrate with SET's telecom specialty, enhancing our market-leading staffing and solutions provider in the telecom market. Finally, we will combine MRP's Seven Step business with Kelly OCG's global RPO specialty. Differentiated by innovative technology, they will create a leading talent…

Our first question will go to Joe Gomes with Noble Capital. Your line is now open.

Good morning. Nice to meet you. Thanks for taking my questions. I wanted to start off on the education segment. Again, you know, really strong revenues were up by over 12%. But that was down, you know, if you look at the full year, I think they were up 15.5%. Anything unusual, whether you are expecting more in your education segment? Was it in line with your expectations for the quarter?

Yeah. Thanks, Joe. The Education segment in Q4 was impacted significantly by the two hurricanes in the end of September, early October time frame. That was not anticipated while a hurricane can be a common. The fact that there were two back to back created significant disruption in school districts in markets in which we participate, a significant contributing factor to the performance of education in Q4.

Okay. Are you with those at Skill Group? Twelve over twelve percent. So that's fantastic there. And then in the release, you talked about some, you know, new customer wins and the sales pipeline momentum. And, Peter, just wanted to give us a little more color on that. You know, the kind of the number of wins or, you know, growth in the pipeline. You know, what more could you add to that statement that you had in the press release?

Well, in terms of education specifically, Joe, we have based on staffing industry analysts, Mark, we continue to take share, and we are taking share not just because we are competing on price, but we are competing on value. We are the market leader for a reason. We deliver higher fill rates and better performance for school districts across the country, and they recognize that value. And so we are very confident in our ability to continue to win more than our fair share of schools. We also are very encouraged by the performance of our therapy business in combination with our traditional K-12 core education business. And we expect in the quarters to come to see meaningful contributions from the combination of traditional K-12 and therapy.

Okay. And on the M&A front, you know, anything there? How's the market, I guess, our pricing, you know, is it kind of trending in your favor? There are more opportunities coming across the sale there. Maybe give us a little more color on that also.

Yeah, Joe. It hasn't changed meaningfully in terms of the deal flow. It's still in a bit of a trough, I would say, relative to prior periods. And the anticipated or hoped for realignment of sellers' expectations about valuations is not immediately evident. There still appears to be some disconnect between valuation expectations and performance. But we are actively monitoring the deal flow and actively engaged in conversations with companies that we think could be attractive additions to the Kelly Services, Inc. portfolio.

Great. I'll get back in queue. You know, Peter, it's been great working with you, and you're going to be here hopefully to the end of the year, but I just want to congratulate you on the career.

Thank you. Thank you, Joe. Appreciate it. Likewise. Been a pleasure to work with you.

Thank you. And our next question coming from the line of Will Brinman with Northcoast Research. Your line is now open.

Hey, guys. How's it going?

Good. Well, how are you? Good morning.

I'm good. So, you know, you said staffing revenue trended higher, and maybe you already gave a little bit of color on this. But you said staffing revenue trended higher in the fourth quarter. Was that mostly demand, or is that more so on the pricing side? And then if you could give me some insight on demand for perm and temp staffing and how that sort of progressed throughout the quarter.

Yeah. Sure. This is Troy. Good to talk to you, Will. Thanks for the question. The staffing, so PNI was where we saw the strong demand on staffing in the quarter. Yeah. They do tend to have a seasonal uptick in the fourth quarter, tend to progressively grow through the year and have a seasonal uptick. We have been talking about the improvements in PNI throughout the year with their omnichannel strategy and along with their large account strategy and the outcome-based solutions. So they had a good quarter of, you know, up 3.7% on staffing and up 5% on outcome-based. And it was pretty consistent throughout the quarter. I mean, they finished strong in December, but, you know, you start to get some anomalies with holidays and weather and things like that. But overall, it was consistent form. So we've seen consistent performance, improving performance throughout the year on the PNI side. SET, the staffing was pretty much consistent with Q3. Some ebbs and flows across the months but down 5% in Q3 and down 5% in Q4. We saw some good improvement on the outcome-based side with SET, which helped them pull back a little bit from their Q3 decline.

Okay. Great. That's all. Thank you.

Thanks, Will.

Thank you. And our next question coming from the line of Kevin Steinke with Barrington Research. Your line is now open.

Hey. Good morning.

Morning.

Just wanted to start off by asking about overall customer sentiment and as you talked about your outlook for the first half of 2025, you mentioned that you, I think you just expect the environment to be similar to what it has been. So are we just kind of still seeing general cautiousness? You know, how are customers in your view thinking about the overall macroeconomic environment and how that might be impacting their, you know, their plans and, you know, overall demand? Thanks.

Yeah, Kevin. So post the election, there was clearly a shift, I would say, towards more optimistic points of view from our customers in terms of the future business environment, tax policy, tax changes, relaxing of certain regulatory restrictions. But as the administration took over and with a flurry of executive orders, I would say companies are taking a little bit more cautious approach, a wait and see. To understand the downstream impacts of some of the executive orders that have come out as well as the pending legislation that, you know, around budget and tax policy, etcetera. So that's why we've landed on the first half of the year being a continuation of what we've seen in the prior few quarters. And, again, we're pleased with the fact that we're continuing to take share across our specialties and, you know, we will execute with that end in mind.

Okay. That makes sense. Yeah. And just with regard to the organic growth outlook for the first half of 2025. You talked about education continuing to grow nicely, although, alright. Yeah. Probably not at double digits. I assume that's just kind of a comp issue. And then on the other segments, I think you said flat to down modestly. Maybe if you could touch on the other segments in terms of the assumptions there as well. Yeah. You've had some pretty nice momentum going here, and professional and industrial and also outsourcing consulting, so maybe just talk about by segment what you're factoring in in terms of that outlook for the first half of 2025.

Yeah. Sure, Kevin. This is Troy. Appreciate the question. Our first half, you know, up ten, approximately ten with MRP and then, you know, roughly flat or modest growth on organic. It's not significantly different than our 2H performance from 2024. We were up about two, if you look at the second half. So when you think about the market conditions as we were just discussing in the customer sentiment, you know, again, it's not entirely different. And then you do get some of the dynamics. You mentioned education, yes, is predominantly on the compares. Keep in mind, they operate more on a school year basis, so their new wins come in in the spring and summer, they're implementing going into September. So the benefit of any new wins we've entirely captured at this point in the revenue performance and, you know, that we'll see that uptick in the back half of the year as we capture more share and expand into greenfield areas on the education side. So I would expect, you know, not double digits in the first half, but maybe some uptick in the back half. On PNI, a little bit of a pullback maybe relative, you know, again, very strong Q4, outcome-based, again, drove a good bit of that. There was a little bit of a favorable compare on outcome-based versus Q4 of the prior year where we had a bit of a pullback in some seasonality. So PNI probably in the more roughly flat range. SET, you know, again, coming off, you know, minus three Q2, minus five Q3, minus four Q4, good performance in outcome-based, but still a lot of challenge in the IT market. And I think as you've seen probably in some of the peers and just some of the industry data…

Alright. Thank you. That's helpful color. And when you were talking about bringing together professional and industrial and outsourcing and consulting under common operational management. Is that also going to be brought together from a segment reporting perspective or how will you approach that going forward?

Sure. We're going through the segment reporting for 2025, the analysis associated with that as we speak. So we haven't made any definitive conclusions yet. We have some other elements of customer accounts and some offerings and the like that we're looking at making some changes with as well. So we'll have a full readout in the Q1 and, of course, bridge you all very clearly from our reporting structure for 2024 to any changes in 2025.

Okay. Sounds good. Thanks for taking your questions. I'll turn it over.

Thanks, Kevin.

Thank you. Our next question coming from the line of Marc Riddick with Sidoti. Your line is now open.

Hey. Good morning.

Good morning, Marc.

So first of all, Peter, I just want to say it's a pleasure working with you and looking forward to working with you through the remainder of the year at least. And, Troy, welcome. Looking forward to working with you going forward as well. Okay. So I did want to touch a little bit on the actually, no. I wanted to go back for a moment. You did have a smaller acquisition that was announced back in November in the education space. Maybe because maybe you spent so little time talking about that, and I'm sure that how that opportunity came about with Children's Therapy Center.

Yeah. Thanks, Marc. Small acquisition, little over $3 million, Children's Therapy Center. Very interesting space for the therapy business part of Kelly Education because CTC operates brick and mortar clinics that complement the in-school therapy that PTS provides to our school district customers. And because they're clinics, they're not bound only to school hours or even the school calendar. So it provides us with an opportunity to provide services outside of school time and even during the summer months. That can be very attractive to therapists that want a more regular schedule. And so we're very excited to essentially pilot this complement to our PTS business. And so far, we're very pleased with how the integration is going. And as you know, the therapy business commands significantly higher gross margins than our traditional K-12 business does. So we're excited about the possibility to further expand our therapy practice through CTC.

Excellent. And then shifting gears, as far as the sort of cash usage and the like. But we did sort of notice and prepared remarks around the share repurchase activity during the fourth quarter. I wanted to sort of touch a little bit on that appetite going forward as well as it seems as though there seems to be some comfort at least in, you know, with the prepared remarks that you already had regarding the valuation gulf, I suppose. But maybe if you could talk a little bit about what acquisition and prioritization you may have now and if that's shifted at all over the last year or so. Thank you.

Sure. Thanks, Marc. This is Troy. Yes. Completed the $10 million share repurchase in Q4. It's a two-year authorization. Clearly, there was a pretty significant disconnect in the fourth quarter on the share price coming out of the Q3 report. And so we felt it was important to be in the market there. You know, we continue to think very strongly in the Kelly Services, Inc. strategy and our ability to execute against that in 2025 and over the coming years and still believe there's a disconnect. But we also want to make sure that we're focused on investing in the business to support that strategy, drive growth, organically and inorganically, maintain the dividend, and, of course, look for opportunities for debt repayment. Our net debt went up about $4 million in the quarter, but that included the $10 million of share repurchase plus the $3 million or so that Peter referenced with CTC. So I think, you know, our bias probably in the near term is a little bit more toward the repay and investing in growth to drive further shareholder value creation, but we have the authorization available there and we'll continue to look at return to shareholder as an option throughout that time horizon.

Great. Thank you very much.

Thanks, Marc.

Thank you. Now that I have no further questions in the queue at this time, I will now turn the call back over to Mr. Peter Quigley for any closing remarks.

Yeah. Thanks. Well, I think we can conclude the call. Thank you, everybody, for your time this morning and appreciate your participation. Thank you, Liz.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call, and you may now disconnect.