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Good morning, welcome to Kelly Services' first quarter earnings conference call. All parties will be in a listen only mode until the question and answer portion of the presentation. Today's call is being recorded at the request of Kelly Services. 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's first quarter conference call. With me today are Kelly's Chief Executive Officer, Chris Layden; and our Chief Financial Officer, Troy Anderson. Before we begin, I'll 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'll 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-Q, all of which can be accessed through our investor relations website at ir.kellyservices.com. With that, I'll turn the call over to Chris.

Thank you, Scott. Good morning, everyone. I'll begin with highlights from the 1st quarter. The macroeconomic environment remained dynamic over the first three months of 2026. Against this familiar backdrop, employers continued to take a cautious approach to hiring, contributing to a mixed labor market. That said, conditions through the quarter were stable, consistent with our expectations. This stability was reflected in our results as we executed on our strategic priorities. Total company revenue exceeded our expectations, and adjusted EBITDA margin was in line with our expectations. In ETM, staffing and overall revenue trends improved sequentially from the 4th quarter, including growth in talent solutions across our technology-enabled and AI-powered MSP, RPO, and PPO offerings. In SET, we delivered another quarter of year-over-year growth in our telecom specialty, and life sciences and engineering performance improved sequentially.

In Education, we continue to experience pressure from delayed contract decisions and enrollment declines and, to a lesser extent, weather-related closings. Across all three segments, we continue to align resources with demand and maintain a disciplined approach to expense management as part of our ongoing focus on efficiency. Contributing to stabilizing trends in our results were new customer wins that were implemented and came online during the quarter. Among them is a significant MSP program with a leading global oil and gas company across its North American operations. Kelly was selected based on the differentiated value of our technology-enabled capabilities. This includes our Helix Analytics platform and AI-enabled rate intelligence, which provides the visibility, benchmarking, and cost optimization large enterprise customers require of a contingent talent management program. With the initial implementation of this new MSP program complete, we have clear line of sight to additional expansion opportunities.

This win underscores what our One Kelly go-to-market approach is capable of delivering, leveraging technology and our experience serving global customers to win in the market and grow. With momentum building across the enterprise, we remain focused on returning to organic growth and margin expansion. Paving the way toward this next horizon is our newly formed Growth Office. Since it was established in February, the Growth Office has been collaborating across the enterprise to lay the foundation for an integrated commercial operating framework. This framework will serve as the foundation of a unified One Kelly Enterprise strategy that brings the full breadth of our portfolio to Kelly's current customers and prospects. Central to this effort is the migration of all commercial teams onto a new unified CRM system.

A key component of our modernized tech stack, the CRM will provide enterprise-wide pipeline visibility, enable high conviction forecasting, and support cross-selling across business units. We expect the migration to be complete by mid-year as part of our ongoing technology modernization initiative. Reflecting more broadly on our technology modernization journey, we remain on track with our multi-phase approach. In the first quarter, our team was successful in ensuring a smooth transition following the cut-over of our acquisitions in SET from their legacy technology stack to the modernized platform Kelly acquired through our acquisition of MRP. Armed with the key learnings we gathered from the initial cut-over, we're well positioned to execute on subsequent phases and realize the benefits of deeper data and insights, AI and automation at scale, and enhanced productivity. As we executed on our strategic priorities through the quarter, we continue to evolve our leadership team.

In March, we welcomed Joel Leege as President of SET. Joel is a proven industry leader with broad-based sector experience, having spent nearly three decades in staffing, talent solutions, and managed services across technology, engineering, and life sciences. He brings extensive experience leading complex transformations and integrations, enabling exceptional service delivery for customers and driving above-market growth. This experience is uniquely suited to further enhance SET's competitive positioning and take the business to the next level. I'm pleased to have him as part of Kelly, and I look forward to Joel leading the SET business to new heights of growth and profitability. I'm also reevaluating the leadership structure within the ETM business. This business is core to our strategy, and with this in mind, I'm taking time to assess what we need longer term to ensure we deliver on our growth objectives.

In the interim, I will be closely involved in the management of ETM. I have great confidence in the team, who have consistently demonstrated their commitment to customer centricity, visibility, and accountability. These cultural pillars remain fundamental to how we'll achieve our ambitions and win in the market, both in ETM and across the enterprise. I was pleased to have the opportunity to see the strength of our culture on full display at our recent Impact 2026 leadership summit in March. This immersive experience brought together 200 of our leaders for two days of dialogue and collaboration focused on transforming Kelly into a more customer-centric, visible, and accountable enterprise.

Impact reflects our commitment to building on the strength of Kelly's culture from the leadership level down, positioning the company to execute more consistently as we target a return to revenue growth and margin expansion in the second half of the year. In a moment, I'll share more about our pathway toward a return to growth. First, I'll turn it over to Troy to provide more details on the results in the quarter. Troy?

Thank you, Chris. Good morning, everybody. I'm pleased to report that we started the year with solid execution and results on a number of fronts. For the first quarter of 2026, revenue totaled $1 billion, which was down 10.7% overall versus Q1 of last year and favorable to our guidance. Excluding the previously disclosed discrete impacts driven by reduced demand from the Federal government and three top ETM customers, revenue was down 3.3% on an underlying basis, which was improved 60 basis points versus last quarter. As a reminder and brief update regarding these impacts, Federal government demand largely stabilized in Q3 of last year with a slight sequential increase this quarter, mainly from the government shutdown and seasonal impacts in Q4.

For the three top ETM customers, one stabilized at the current reduced demand levels beginning in Q3, one fully ran off in Q3, and the largest one remains one of our top customers and has stabilized across Q4 and Q1. At the segment level, underlying ETM declined 0.4% versus the prior year quarter, which is measurably improved versus last quarter and exceeded our expectations. Each Talent Solutions specialty grew versus the prior year quarter. In Staffing, we saw a net underlying decline of just 1.2% in the quarter and year-over-year growth across February and March. Overall underlying ETM revenue has been relatively stable across the last five quarters. Education decreased 4.8% year-over-year in the quarter, reflecting the prior year delayed new contract decisions, elevated weather-related school closures, and overall reduced demand in key markets due to enrollment declines.

We expect Education to deliver a sequential year-over-year improvement throughout the remainder of 2026 and a return to growth in the second half of the year as a result of new business wins, successfully defending several key renewals, and continued penetration of our therapy offering into new and existing clients. SET's underlying revenue declined 6% in the quarter, led primarily by near-term demand pressure within the Technology specialty. Consistent with ETM and Education, we are confident we will see sequential year-over-year improvement each quarter in 2026, with Science, Engineering, and Technology contributing most strongly in Q2. Reported gross profit was $196.4 million, down 17% versus the prior year quarter, reflecting the lower revenue volume along with employee-related costs and business mix changes.

The gross profit rate was 18.9%, a decrease of 140 basis points compared to the prior year quarter. Approximately 50 basis points of the decline is timing related, which we expect to normalize over the course of the year. Our overall gross profit rate improved 10 basis points relative to Q4, and the year-over-year decline improved similarly. Versus Q4, both ETM and SET saw improvement in their gross profit rates and year-over-year declines, while Education saw rate pressure in light of the revenue decline, cost timing, and mix. We expect to see gross profit rate improvement overall and in each BU in Q2 and over the remainder of the year. We continue to make significant progress improving our SG&A expense profile with reported SG&A expenses of $199.3 million, a decrease of 11.7%.

On an adjusted basis, SG&A expenses decreased 10.3% year-over-year, reflecting the continued momentum with our structural and volume-related cost optimization efforts. Over the last three quarters, the year-over-year decline has averaged over 10%. Core adjusted SG&A expenses, which exclude depreciation and amortization and incentives, have declined sequentially each quarter since Q1 of 2025. In the quarter, adjusted SG&A expenses decreased across all the segments as we continue to drive durable and sustainable efficiencies in our operating model through technology enhancements and process efficiencies, including leveraging AI. We also continue seeing benefits from realignments within the ETM segment and integration of MRP and other acquisitions within SET, all of which are progressing well. For the year, we're projecting a net year-over-year decline of approximately $25 million in core SG&A expenses, despite investments being made in technology, the Growth Office and other areas.

The structural and durable changes we are making will allow us to scale more efficiently as we pivot to growth, thus supporting our expected return to margin expansion in the second half of the year and beyond. Our reported loss per share was $0.17 for the quarter. On an adjusted basis, we delivered earnings per share of $0.03 compared to $0.39 in the prior year. For our adjusted results, in connection with our various efforts, we recognized $9.2 million of charges in the quarter. Integration, technology modernization, organizational realignment and restructuring drove $5.2 million of the charges. The balance is related to costs associated with our controlling shareholder change, executive transitions, and initial steps we have taken in our real estate rationalization efforts.

We expect to continue incurring various charges throughout 2026 as we progress on our technology modernization journey, reduce our fixed cost structure, including real estate costs, and expand upon our various optimization efforts. Adjusted EBITDA was $15.8 million, with an adjusted EBITDA margin of 1.5%, which was down 150 basis points versus the prior year quarter and in line with our expectations. The year-over-year decline improved 20 basis points relative to Q4. The revenue and gross profit declines drove the decrease versus the prior year, with the significant SG&A reductions partially offsetting them. At a segment level, similar to the gross profit rate, both ETM and SET improved their margins in year-over-year performance versus Q4, while education saw pressure in light of the revenue and gross profit declines.

We expect each BU to show sequential improvement in their adjusted SG&A margins in Q2 and on a year-over-year basis as we progress through the year. Moving to the balance sheet and cash flow, we utilized $25.4 million of cash from operations this quarter due to the timing of working capital requirements. Total available liquidity as of the end of the quarter was $252 million, comprising $26 million in cash and $226 million available on our credit facilities, providing us with ample capital allocation flexibility. Total borrowings of $130.5 million increased versus the prior year-end, reflecting the working capital needs during the quarter. Our debt-to-EBITDA leverage remained near one at the end of the fiscal quarter. During Q1, we maintained our quarterly dividend of $0.075 per share.

We remain confident in Kelly's strategy and cash flow generation capabilities and are committed to opportunistically deploying capital in pursuit of attractive returns for shareholders. As we turn to the outlook for the remainder of 2026, our expectations are unchanged relative to the initial view we established in February. Our expectations assume no material change in the macroeconomic or industry dynamics in the coming quarters. For Q2, we expect to show year-over-year improvement relative to Q1, with an overall revenue decline of 7%-9%, which includes at least 100 basis points of improvement in the underlying decline. For adjusted EBITDA margin, we expect at least 2.5%, representing at least 100 basis points improvement relative to Q1 and a significant reduction in the year-over-year decline relative to the past two quarters.

As we progress through the balance of the year, assuming no new material impacts, we expect to see relative improvement in our year-over-year performance each successive quarter for both revenue and adjusted EBITDA margin. That should translate to modest revenue growth in the second half of the year and a roughly mid-single-digit decline on a full year basis. For adjusted EBITDA margin, we expect to see measurable year-over-year margin expansion in the second half of the year and a modest increase on a full year basis. We are excited about the momentum we are building and the opportunities that lie ahead in 2026. I'm grateful to all the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhanced profitability over the long term. I'll now turn the call back to Chris for his closing remarks.

Thank you, Troy. As we look ahead, we remain firmly committed to executing on the priorities we outlined in February. Rooted in the strategic pillars I shared shortly after joining Kelly, these priorities will continue to guide our actions and progress on the pathway toward an inflection point in our results. Growth remains our top priority. The Growth Office is taking shape and beginning to enhance how we go to market as One Kelly Enterprise. With the leadership transition and SET complete and organic growth drivers gaining traction in each of our business, we have a clear path to improve top-line performance as we move through the year. The strength of our pipeline and the steady stream of new wins coming online reinforce our confidence that our go-to-market approach is working and our ability to convert opportunities is accelerating.

On efficiency, we'll continue to align resources with demand while re-engineering our cost base to drive structural efficiencies and enhance profitability. Our technology modernization initiative remains on track. Our enterprise AI strategy continues to unlock productivity across the business. On culture, the energy and alignment our team demonstrated at our recent Impact Leadership Summit reinforce what I've known since I joined Kelly. Our people are deeply committed to the success of our company, our clients, and the talent we place. We'll continue to build on the momentum with an emphasis on customer centricity, visibility, and accountability across everything that we do. We remain on track to deliver our commitments and achieve revenue growth and margin expansion in the second half of the year. There's much work ahead. I'm confident in our plan, our team, and our ability to execute.

I look forward to capitalizing on the positive momentum we're building together and unlocking Kelly's full potential for the benefit of all of our stakeholders. Operator, you can now open the call to questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one one on your telephone keypad. You may withdraw your question at any time by repeating the star one one command. If you're using a speakerphone, please pick up your handset before pressing the numbers. Once again, if you have a question, you may press star one one at this time. Our first question is going to come from the line of Marc Riddick with Sidoti. Your line is open. Please go ahead.

Hey, good morning.

Morning, Marc.

Morning, Marc.

I wanted to start with some of the cost improvements that you've been working on and maybe you could talk a little bit about the I believe it was $25 million in core SG&A reductions expected. Maybe you could sort of touch a little bit about some of those efforts and maybe the timing we might expect there.

Thanks, Marc. I'm really pleased with the progress that you're seeing as we really look at driving expense reductions across the enterprise. This is one of the priorities that I outlined right as I joined Kelly, our focus on reengineering our cost base, matching resources with demand. You're seeing us come through and really delivering on that commitment in the first quarter through that disciplined execution. You know, we saw that in the 1.5% margin, EBITDA margin as well, which was in line with our expectations. It improved 20 basis points year-over-year in comparison to our Q4 trajectory.

As you've heard us talk about and Troy reemphasize, we're gonna continue to see that sequential, incremental improvement on the EBITDA margin side, as we go throughout the rest of the year. Maybe ask Troy if you wanna comment any further on the specific $25 million impact for the rest of the year.

Yeah, sure. Thanks for the question, Marc. You know, we began taking actions as Chris noted, throughout last year and really accelerated in the latter part of the year, in response to some of the elevated, you know, revenue pressure, but also just with the integration efforts that really with the acquisitions, the cut over to the new technology platform where we consolidated all the acquisitions in December.

It's really the manifestation of, you know, some of the realignments that we did last year and then the integration efforts, as we progress into this year, and just continue looking at, both, you know, durable structural, changes as well as, volume-related changes so that as we pivot to growth, we can scale much more efficiently and really drive that EBITDA margin expansion.

Great. I guess maybe picking up on that part of the commentary there, can you talk a little bit about the I guess the timing and milestones that you're looking for for the remainder of the year on the technology activity as well as I guess maybe timing at ERP that we might see going forward? Thanks.

Yeah. We have another phase expected in the beginning of the fourth quarter of this year, where we'll migrate the platform now to a broader enterprise platform. Right now, again, we have the acquisitions, MRP and the prior SET acquisitions all consolidated on the platform. That was designed really for those smaller entities. We've made some foundational changes in the platform that we'll migrate all those onto that now we'll call it the enterprise platform. We're migrating our enterprise human capital management. All of our FTEs will now be on the platform. We have some other smaller changes, migrating some customers on a prototype sample basis just to go through some of the Kelly to platform migrations.

We're gonna continue working on some of our solutions billing capabilities. That's some of the more complex, right non-staffing related capabilities. Work that we're gonna be doing to bring the majority of the SET business onto the platform early in 2027.

Marc, just maybe one thing to add, you know, on our CRM, the most important near term milestone in the second quarter, which is on track, is the deployment of our HubSpot CRM. It's the consolidation of our CRMs across the business units. We're gonna migrate all of our commercial sellers onto the CRM by mid-year. Now having the Growth Office and Pat's leadership to be able to go and drive that, it gives us the enterprise-wide pipeline visibility and allows us to go and do some of the go-to-market and growth objectives we've been outlining since we started.

That's very helpful. Thank you. Last one for me is just maybe touch a little bit on the demand drivers that you're seeing from customers, particularly the technology demands. Yeah, maybe you could talk a little bit about sort of how, you know, that sort of paced through the quarter and maybe just what you're seeing overall as far as, you know, whether the data center impacts AI, impacts things like that, what you're seeing now versus maybe the beginning of the year and sort of how that's been progressing. Thank you.

Yeah, sure. I mean, first, you know, some of the near term pressures you're seeing do reflect some difficulty in our year-over-year comps, particularly within SET as we look at 2025. Which is why, as we've talked about across the business, we continue to make sure we've got resources aligned with demand. Now under Joel's leadership, we'll be very focused on getting back to market growth. Now that being said, we're actually seeing some encouraging signals, including a net positive consultant count improvement in March. As we exited the quarter, we also are seeing that April is tracking quite similarly. Some positive momentum there.

We also saw some sequential improvement in some of the businesses that we've mentioned in our prepared remarks. We're really pleased with the progress we're making in the telecom space that is being driven by outsized demand in the data center space that where we have differentiated capability. We are gonna continue to see that demand play out in the market where we have customers across the supply chain who need total talent management solution and a technical solution to support the investment that's happening in the United States and around the world.

Marc, this is Troy. I would just add, across the business, we saw improvement as we progressed through the quarter. Again, in education, we had some weather-related impact that was largely concentrated in January. That was, you know, maybe half the decline in the quarter specific to that. Then in ETM, you know, I commented in the prepared remarks about pivoting to growth in the underlying staffing business as we exited the quarter. You know, we feel good about the trends heading into Q2, which is reflected in the expectation there, where we'll see in our call for 7%-9% overall and at least 100 basis points improvement in the underlying decline.

Excellent. Thank you very much.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Kartik Mehta with Northcoast Research. Your line is open. Please go ahead.

Thank you. Hey, good morning, Chris. Maybe, you know, taking a bigger picture look at Kelly today versus prior downturns, could you just discuss maybe how you think structurally the company is different today than it was before, maybe in terms of customer mix, customer relationships, and obviously in terms of how the company has changed in terms of business mix as you've gone more into SET and higher margin businesses?

Yeah, sure, Kartik, good to have you with us. You know, I guess as I step back and think a little bit about, you know, what differentiates Kelly in the market and maybe how that's evolved, all of the steps we took over the last few years to get scale and to get capability in higher specialized areas were all the right steps to take. We have the scale and the breadth of capability to go and compete now in all of the end segments that we're in. We didn't have that a few years ago in areas like technology, as an example, and now we do. We also have a much more robust RPO offering through some of the inorganic activity with our acquisition of Sevenstep.

We have a leading total talent management solution with the combination of the strength of our MSP offering and RPO offering, together. As I think though about what needs to differentiate Kelly going forward, it really is, it has to be our focus on our customer and making sure that we're bringing all of that capability to our customer. We're doing that, you know, in large part through better execution. The operating framework that we outlined right away, focusing on not only our go-to-market, but also the way that we show up more holistically as an enterprise, Kelly Enterprise, to all of our customers. The establishment in the first quarter of the Growth Office was the next step on that journey.

Driving the operating framework within account management, within how we sell, and within how we deliver across these large customers is really important. That is an area of focus that we're gonna continue to come back. We're seeing the roots of that already playing out with some large customer wins, and that focus is gonna continue to be what will differentiate Kelly for many years, many years to come.

Thanks, Chris. Maybe Troy, just on that point, you know, you've done a good job with taking costs out. The company seems more efficient. I'm wondering, you know, how you think about the incremental earnings power when we get back to kinda growth in this industry.

It's a good question. You know, that cost reduction from the earlier question, and I noted this in the prepared remarks, was net even of some investments that we're making in the Growth Office and some other areas. You know, you'll see some of that cost declines moderate as we go through the year and pivot to growth, but we'll be able to scale more efficiently. We're expecting, you know, to achieve our expectations for the year. Margins would be back above 3% in the back half of the year, which is where we were in the last half of 2024 and the first half of 2025.

Of course, as we continue to grow more, we would expect to expand further from there, and, you know, in a very efficient and effective way.

Perfect. Thank you very much. Appreciate it.

Thanks, Kartik.

Thank you. One moment for our next question. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is open. Please go ahead.

Great. Thank you, and good morning.

Good morning.

Hey, Kevin.

Wanted to just follow up on the discussion about the core SG&A expenses to make sure I'm understanding correctly. I guess, with core SG&A, I believe that you're equating that with the adjusted SG&A. You know, if it's down $25 million year-over-year in 2026, if I'm doing my math correctly, it appears that the adjusted SG&A expense on a quarterly basis will kind of flatten out for the rest of the year at about that $192 million level that you saw in the first quarter. Am I thinking about that correctly?

Yeah. That's, right, that's total, yeah, so $192 million. Yeah, roughly flatten out. The reason why I went to this core, which is not something that, you know, we've talked about really previously, was just we had a lot of movement with incentives last year, you know, with the challenging environment we were operating in. Of course, there was reduction to performance incentives throughout the year. Of course, this year, we're expecting to perform measurably better and we would expect a return to some of those incentives.

If you strip that out and really just focus on that underlying, you know, wages and facilities and some of those things that are more stable and some of those things that we're focused on from the durable and structural reduction perspective, that should flatten out as we progress through the year, and we get the year-over-year benefit of the actions taken both last year and this year. Again, that's net of investments that we'll be making as we pivot to growth.

Okay. All right. How material is the change in incentive comp that you're expecting in 2026 versus 2025?

It's probably, you know, a $20 million to $25 million swing on in total SG&A between the years, something in that ballpark. Again, it'll be subject to ultimate performance and of course, each business unit has different incentives tied to their specific performance, so you can get some variability in that just based on how individual business units perform.

Right. Okay, that makes sense. Just following up on that then, I think you commented that you expect gross margin improvement throughout the year, I believe. What would be driving that? It sounds like a lot of the adjusted EBITDA margin improvement that you're expecting would kinda hinge on the improved gross margins. Is that correct?

Yeah, that's generally correct. I mean, again, we'll continue driving. I mean, with the as we pivot to growth, we'll get some lift there, on a relatively, again, flat-ish expense base on a run rate basis. Then, with the gross margin improvement. A little bit of timing, I commented on that, just how some of the expenses, we're seeing how they'll play out this year versus how they played out last year, particularly in employee related expenses, which we saw some pressure on exiting last year. Then, we were again up 10 basis points quarter-over-quarter on gross margin despite some of that timing pressure.

Then, as we benefit from mix, again, as we grow, pivot to growth in some of the areas that we're expecting growth or the higher margin areas, that will benefit us as we get into the back half of the year. We are also, by the way, again, back to an earlier comment about just growth and where we're seeing opportunities. We are seeing a little bit of movement on perm fees. I mean, it's still, you know, 1% of revenue, but we did see a little bit of benefit from that and particularly in SET in the first quarter. And of course, that helps gross margins and ultimately EBITDA as well.

Okay. Yeah, that's helpful. Just a couple more. You called out lower student enrollment in the Education segment. Just, you know, wondering how meaningful that is or how broad-based that is as you look across your various school district clients?

Yeah, thanks. Well, we, you know, first, I mean, we remain really confident in this education business. It has really significant differentiation. We're number one in the market, and we continue to see really historic fill rates across the U.S., where we're serving 9,000 schools. You know, some of the impact, the convergence of factors that really came together are temporary in nature. We don't see these as structural. As we mentioned in the prepared remarks, there were some weather-related closures. We also saw some budget constraints stemming from enrollment declines. Where that had the biggest impact for us was in Florida.

We serve some of the largest school districts in the United States and largest school districts in Florida. That concentration was a one-time hit. That demand has now stabilized. Where we're focused is the 70% of the market that is still not benefiting from an outsourced K-12 substitute teacher management relationship with Kelly. We are selling around the country. We're very, as we hinted at, we feel very good about some of the large renewals that have been open this year. We're gonna continue to sell more districts around the United States.

We're also gonna continue to focus on bringing in more therapy, more therapy services across that K-12 footprint, not only in Florida, but around the United States. We feel really good about where that business, what the opportunity is in the Education business and where that business is gonna be as we go throughout the rest of the year.

Okay. That's helpful commentary. Just lastly, I wanna ask about the organic growth drivers. You mentioned organic growth drivers gaining traction, if you could provide a little more color on that. Then related to that, you mentioned the strength of the pipeline, can you maybe talk about how broad-based that strength is across your various businesses?

Yeah, sure. You know, first, you know, the Growth Office has been moving quickly and it's a foundational quarter for us, as we begin to put in this integrated commercial operating framework. There is some work we've been doing aligning incentives. Obviously, the commercial teams, some of the account management teams, putting more rigor around our pipeline management, and account planning, is all in motion.

We will move, as I mentioned earlier, all of our commercial teams to this new CRM platform. That will give us the visibility that we need to continue to drive the business forward and make sure we've got resources in the right places, not only to go close deals, but also to go and make sure that we're delivering and providing excellent service. The strength in the pipeline continues. You know, we continue to see a lot of demand for customers looking for total talent management solutions. The robustness of our MSP pipeline is very strong right now. You saw that in the big oil and gas win we had in the quarter. Interestingly, you know, that was not a price-based win.

This was a differentiation around our tech stack, our reach, and the differentiation of our core offering. We continue to see more and more large global customers coming to Kelly for those total talent management solutions. We hinted earlier, our Telecom and Engineering pipelines continue to be very strong in SET. We're gonna likely continue to see that. We have an opportunity to continue to drive more pipe in our Technology business. Our K-12 staffing pipeline continues to be very strong for net new school districts. We've seen a nice jump in the amount of therapy opportunities that we're seeing tied to some of our larger school districts.

At a high level, that's how I'd characterize some of the momentum that we're seeing. Pat and the Growth Office are gonna continue to drive as we go through the remainder of the year.

Okay. That's good to hear. Thank you for the comments.

Thanks, Kevin.

Thanks, Kevin.

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. Our next question is going to come from the line of Joe Gomes with Noble Capital Markets. Your line is open. Please go ahead.

Hi, this is George Proost. I'm filling in for Joe Gomes this morning. How are you guys doing?

Doing good. Hi, George.

First question I have for you. What have the Hunt Companies brought to the table so far?

Yeah. Great. Well, you know, as you would've seen a few weeks ago, in our filing, later today, we'll be in our annual meeting. The board has nominated 11 individuals for election to the board. Three new members will be joining. You know, really excited about the extensive experience that the board brings, some of our new board members are bringing to really help with our strategic execution, our long-term value creation. I'm personally really excited to work with the new board. As the Hunts have shared, they continue to express their support of our management team, the strategic direction that we've outlined. There's been no change, right? To our business strategy, our client relationships, our operational approach.

You know, we're all focused on driving shareholder value. We're excited to bring in this new slate of directors later today.

All right. Great. The early days of your new Chief Growth Officer, Pat McCall, how have they been?

You know, really well, and, you know, we talked a little bit about this in terms of, you know, setting some of the foundation for the commercial operating framework. There's a lot of opportunity for Kelly to show up as one global enterprise, One Kelly Enterprise to all of our large customers. So we're putting in the foundation right now, stronger account planning, more rigorous pipeline management, all of the things that will contribute to our growth. We're really excited about what this will mean to our future.

All righty. That's all I have. Thank you.

All right. Thanks, George.

Thanks, George.

Thank you. I'm showing no further questions, and I would like to hand the conference back over to Chris Layden for closing remarks.

Great. Thank you all. We'll see you next quarter.

This concludes today's teleconference. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good morning, and welcome to the Kelly Services, Inc. Fourth Quarter and Full Year 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, Scott Thomas, Kelly’s Head of Investor Relations. Please go ahead. Good morning.

And welcome to Kelly’s Fourth Quarter and Full Year Conference Call. With me today are Kelly’s Chief Executive Officer, Chris Layden, and our Chief Financial Officer, Troy Anderson. Before we begin, I will 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 risks that could influence the company’s actual future performance. In addition, we will discuss certain data on a reported and on an adjusted basis. Discussions of items on an adjusted basis are non-GAAP financials 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, 10-Ks, all of which can be accessed through our Investor Relations website at ir.kellyservices.com. With that, I will turn the call over to Chris. Thank you, Scott, and good morning, everyone. Before I discuss Kelly’s performance in the fourth quarter, I would like to reflect on the recent developments that mark an important moment on the company’s journey. On January 30, we announced that Kelly had entered an agreement with Hunt Companies related to its purchase of the controlling stake of our Class B common stock. In conversations with Hunt, it is clear they see many of the same opportunities I saw

as I considered joining the company as CEO. An iconic brand to build upon, a strong balance sheet with consistent free cash flow, a clear pathway to accelerate growth, and significant value to be unlocked. I welcome their support as we pursue these opportunities and realize Kelly’s full potential. As part of the agreement, our board has been reconstituted and four new board members have been appointed. Our new directors bring extensive experience which positions them to be strong contributors to the board as we drive progress on Kelly’s strategic journey. I look forward to engaging with them and continuing to work with the entire board to create lasting value for all of our stakeholders. Now let us review the highlights from our performance in the fourth quarter. Starting first with the broader macroeconomic environment, the dynamics that shaped our results through the third quarter persisted in the fourth quarter. Employers continue to take a cautious approach to hiring amid a mixed labor market. At the same time, we capitalized on positive trends in each segment which were reflected in our performance in the quarter. Kelly delivered revenue at the top end of our expectations as we doubled down on our commitment to stabilize the company’s performance and enhance how we are going to market as one Kelly enterprise. We achieved continued year-over-year growth in Education, driven by solid demand for K-12 and therapy specialties. In SET, we delivered top-line growth on a year-over-year basis in our telecom specialty and sequential revenue stability in Life Sciences. In ETM, we achieved stable sequential revenue performance in our staffing, MSP, and BPO specialties, excluding Contact Center Solutions. Across the enterprise, we continue to align resources with demand and maintain a disciplined approach to expense management. These results also reflect our deliberate shift towards customer centricity. My time in the field with our customers and talent has reinforced how this approach unlocks value for employers and for Kelly. Recently, I visited with the CEO of a consumer technology company that is designing and building some of the world’s most advanced audio solutions. I had the opportunity to see firsthand how Kelly has helped evolve their workforce as they scaled advanced manufacturing capacity in the U.S. to meet growing demand. When our relationship began eight years ago, they produced 10,000 units a year. Today, that number has grown to 4,000,000, with our team supporting key workstreams from R&D to final production and distribution. As they have invested in advanced robotics and capital equipment, our workforce has evolved alongside them, learning new skills, adapting to new processes, and helping them scale production in the U.S. As more manufacturers ramp up domestic capital investments and reshore operations, Kelly is well positioned to capitalize, leveraging our differentiated solutions, a customer-centric delivery model, and market leadership in North America. Parallel to these efforts, we reached a significant milestone in our technology modernization initiative that will power our growth well into the future. In December, our acquisitions in SET successfully completed the cutover from their legacy technology stack to the modernized platform Kelly acquired through our acquisition of MRP. This marks the first of a multiphase strategy to move our enterprise from a fragmented and outdated mix of front, middle, and back office technologies to a unified best-in-class platform. With our SET acquisitions fully operational within the platform, the business is now benefiting from deeper data and insights, AI and automation at scale, and enhanced productivity. These benefits will extend across SET and the enterprise as we execute on our phased approach, with the majority of Kelly’s businesses and functions slated to be operational within the platform in 2027. With our technology modernization gaining momentum, we also accelerated the integration of AI across the enterprise. In the fourth quarter, we launched a proprietary internal AI platform, Grace Boost, to every employee at Kelly. This is the latest iteration of Grace, a standalone GenAI tool which we initially deployed nearly two years ago to simplify sales and recruiting workflows. With Boost, we have taken its capabilities a step further, including directly integrating AI into the applications our people use every day. This integration eliminates swivel chair that limited adoption while improving its ability to learn users’ workflows, provide contextual assistance, and ultimately enhance productivity. As we continue to double down on customer centricity, we are also leveraging AI to enhance the customer and talent experience directly. During the quarter, we deployed a tailored AI recruiting solution enabling us to rapidly staff with a large multinational manufacturing customer a key assembly line. The AI agent calls, screens, and answers questions from applicants, helping our recruiters hone in on top candidates and accelerate the hiring process. And the results have exceeded our expectations. Talent feedback has been overwhelmingly positive, customer satisfaction has improved meaningfully, and we are meeting their needs faster and at a lower cost. The solution is highly configurable and scalable, and we are pursuing opportunities to deploy it to additional customers. These examples reflect Kelly’s focus on practical applications that put AI directly in the hands of our employees and our customers to solve real business challenges, leveraging the combined power of people and technology to deliver results with clear alignment to our strategy. We are also aligning our leadership team to accelerate growth. Yesterday, we announced the appointment of Pat McCall as Kelly’s Chief Growth Officer. Pat brings 30 years of sales and operations experience and a proven track record accelerating profitable growth and leading global staffing and IT services firms. In this newly created role, he will help bring to bear the full strength of Kelly’s portfolio, working across the enterprise to strengthen large enterprise account management and expand new customer acquisition. We are pleased to welcome him to the team and we look forward to his contributions towards Kelly’s growth strategy. Additionally, we announced in the fourth quarter the initiation of a comprehensive search for the next President of SET. Kelly has engaged a nationally recognized firm to conduct a search for a proven leader with significant experience enhancing go-to-market strategies, capitalizing on opportunities created by AI, and driving profitable growth. I am excited about the caliber of candidates we are speaking to and I look forward to sharing an update soon when our process concludes. The positive momentum we generated in the fourth quarter has set Kelly on the right path entering 2026. As we carry forward this momentum, we remain confident in our strategy, underpinned by a strong balance sheet, healthy cash generation, and a balanced approach to capital allocation. In a moment, I will share more on our priorities for the year.

First,

I will turn it over to Troy to provide more details on the results in the quarter for the full year. Thank you, Chris, and good morning, everybody. For the fiscal year, revenue totaled $4,250,000,000, which was down 1.9% overall and roughly flat excluding acquisitions and discrete impacts from reduced demand from the federal government and three top customers, which we have discussed in prior quarters.

For the 2025,

revenue totaled $1,100,000,000, a decrease of 11.9% versus Q4 of last year, or down 3.9% on an underlying basis excluding the discrete impacts. As a reminder and brief update regarding these impacts, federal government demand largely stabilized in Q3, with a modest sequential decline in Q4 mainly due to seasonality. For the three top customers, one stabilized at the current reduced demand levels beginning in Q3, one fully ran off in August, and the largest one remains one of our top customers and saw continued demand reductions throughout Q4 and could see some further reduction in 2026. At the segment level, Education grew 1.3%, reflecting continued fill rate improvement. SET’s underlying revenue declined 5.4% in the quarter and was modestly better than our expectations, and reflects demand pressure within information technology and other key specialties, partially offset by growth in telecom. Underlying ETM also declined 5.4% and was modestly better than our expectations, with varying levels of declines across the primary specialty areas. On an absolute basis, underlying ETM revenue has been relatively consistent across the quarters throughout 2025.

For Q4 revenue by service type,

staffing services reflects modest growth in our Education business

and pressure from government,

large customer and macro environment impacts in SET and ETM. Our outcome-based offerings, excluding Contact Center Solutions, were down year over year, reflecting timing of project demand and new business within SET and ETM. Talent Solutions was down year over year, reflecting a mix of performance across the individual specialties.

Perm fees represented approximately 1% of revenue,

which was consistent with the prior year. Reported gross profit was $197,000,000, down 18.4% versus the prior year quarter, reflecting the lower revenue performance along with increased employee-related costs and business mix changes in the quarter. The employee-related costs were driven primarily by healthcare and workers’ compensation claims expense as well as certain impacts related to the large customer runoffs. The gross profit rate was 18.8%, a decrease of 150 basis points compared to the prior year quarter. Education’s GP rate held flat at 14.2%, while SET at 24.2% declined 130 basis points and ETM at 18.1% declined 220 basis points.

We made significant progress improving our and A expense profile in the quarter,

with reported SG&A expenses of $198,500,000, a decrease of 8.7%. On an adjusted basis, SG&A expenses decreased 11.1% year over year, reflecting the momentum we are gaining on structural and volume-related cost optimization efforts. Expenses decreased across all the segments, as we continue to drive durable and sustainable efficiencies in our operating model through technology enhancements and process efficiencies, including leveraging AI. Reduced incentive compensation expenses also contributed to the decline in the quarter. Existing initiatives like the continued realignment within the ETM segment and integration of MRP and other acquisitions within SET are progressing well and will drive increased go-to-market and cost efficiencies going forward. In connection with our various efforts, we recognized $9,800,000 of charges in the quarter,

These included costs associated with improving technology and process

processes across the enterprise, as well as severance expenses and executive transition costs. We expect to incur certain of these expenses through 2026 as we make continued progress and expand upon our various optimization efforts, including our technology modernization initiative. As a result of the overall business performance and a $127,900,000 increase to the tax valuation allowance, our reported loss per share was $3.69 for the quarter. On an adjusted basis, we delivered earnings per share of $0.16 compared to $0.79 in the prior year, with the decline over the prior year primarily due to lower profitability and discrete tax items.

For the full year,

the reported loss per share was $7.24, including $7.61 of noncash negative impacts from goodwill impairments and tax valuation allowance. Full year adjusted earnings per share was $1.26

Adjusted EBITDA was 21,000,000 with an adjusted EBITDA margin of 2%.

Which was down 170 basis points versus the prior year quarter, and below our expectations. The revenue and gross profit declines I previously noted drove the decrease versus the prior year, while incremental GP rate pressure drove the shortfall versus expectations. Education margin expanded by 30 basis points year over year, driven by the revenue growth and expense optimization efforts. ETM and SET saw margin pressure due to the elevated revenue and gross profit declines, despite substantial SG&A reductions.

Moving to the balance sheet and cash flow.

We generated strong operating cash flow this year, with $122,600,000 through the fourth quarter, up significantly versus the prior year. Total available liquidity as of the end of the quarter was $288,000,000, comprising $33,000,000 in cash and $255,000,000 on our credit facilities, leaving us ample capital allocation flexibility. Total borrowings of $102,000,000 decreased $16,000,000 versus the prior quarter and $137,000,000 versus the prior year-end. Our debt to EBITDA leverage ratio was less than one at the end of the fiscal year. In addition to the debt repayment during the quarter, we completed $10,000,000 of Class A share repurchases, leaving us with $30,000,000 remaining on the current Class A share repurchase authorization. We also maintained our quarterly dividend of $0.075 per share. Total capital deployed across these three areas was $30,000,000 in the quarter and $158,000,000 for the fiscal year. These actions reflect our confidence in Kelly’s strategy and cash flow generation, and our commitment to opportunistically deploying capital in pursuit of attractive returns for shareholders.

As we look ahead to 2026,

we are assuming no material change in the macroeconomic or industry dynamics.

Consistent with what we discussed last quarter,

during 2026, we will still be experiencing the larger year-over-year effects of the discrete impacts from the federal government and the three large ETM customers, with some residual impact into the third and fourth quarters. Given that, we expect Q1 to look very similar to Q4,

with revenue declining between 11–13% year over year,

or an underlying decline of 3% to 5% excluding discrete impacts.

And adjusted EBITDA margin of approximately 1.5%,

which steps down from Q4 primarily due to payroll tax resets.

As we progress through the year,

assuming no new material impacts, we expect to see relative improvement in our year-over-year performance each successive quarter for both revenue and adjusted EBITDA margin. That should translate to modest revenue growth in the second half of the year and a roughly mid-single-digit decline on a full year basis. For adjusted EBITDA margin, we expect to see measurable year-over-year margin expansion in the second half of the year and a modest increase on a full year basis. We are excited about the momentum we are building and the many opportunities that lie ahead in 2026. I am grateful to all of the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhanced profitability over the long term. I will now turn the call back to Chris for his closing remarks. Thank you, Troy. The path to improved year-over-year performance becomes clear as we move through 2026 and the discrete impacts we have discussed begin to anniversary. The actions we are taking today are designed to ensure we capitalize on that inflection. Let me share more about our priorities for 2026 which build on the strategic pillars we discussed

last quarter.

First and foremost is growth. Our focus on growth is reflected in the formation of a growth office, which under Pat’s experienced leadership will work across our businesses to enhance how we go to market as one Kelly enterprise. And having identified organic growth drivers in each business, we have a clear path to improve top-line performance as we progress through the year. In Education, our pipeline of net new K-12 staffing opportunities remains strong. We are well positioned to continue to gain share in this growing market as more schools seek to improve fill rates with our industry-leading offering. In districts where we already have strong relationships, we are driving penetration of our higher-margin pediatric therapy services to meet growing demand. In SET, we are sharpening our focus on high-growth areas, including data centers, AI, and cybersecurity, where our scale and expertise are uniquely suited to meet customers’ evolving needs. We are also continuing to capitalize on the shift towards higher-margin statement-of-work and consulting engagements. As an example, in Life Sciences, where Kelly is already the second-largest staffing provider in the U.S., we are capturing growth in the clinical trials market through our differentiated Functional Service Provider solution, or FSP. Our outsourcing model provides sponsors with specialized, scalable expertise to more efficiently manage specific functions in clinical trials, from data management and biostatistics to pharmacovigilance. With new deals coming online, including a multiyear contract with a global pharmaceutical company, we expect FSP will continue to be an important contributor to Kelly’s top and bottom line going forward.

In an ETM,

we have several MSP and enterprise staffing wins slated to go live in the first quarter. This includes a new MSP program with a global financial services firm, one of the largest MSP deals Kelly has ever won. Our scale and capabilities, which contributed to this win, are reflected in our recent recognition by HRO Today as the number one global provider of total workforce solutions, encompassing MSP, RPO, and staffing. As we build on this momentum and enhance how we go to market as an enterprise, I expect our new business pipeline to continue to grow and our conversion of these opportunities to accelerate. Let me talk next about our second strategic priority, efficiency. We will continue to align resources with demand while reengineering our cost base to drive further structural efficiencies and enhance profitability. Our SG&A trajectory reflects the momentum we are building, and our technology modernization initiative is central to this effort. And our enterprise AI strategy reflects a targeted approach to unlocking productivity and growth across the business. And finally, culture. Culture remains fundamental to how we will achieve our growth and efficiency ambitions, with an emphasis on customer centricity, visibility, and accountability. We will continue making it easier to do business with Kelly, spending time in the field to better understand the needs of our customers and talent, and holding ourselves to the highest standard of execution across every part of the business. As we enter 2026, the investments we have made in our portfolio, our technology, and our people have positioned us to emerge stronger on the other side. There is much work to be done, but I am confident in our plan, our team, and our ability to execute. I want to thank our shareholders for their support and trust at this important moment on Kelly’s journey. I also want to express my gratitude to the Kelly team for their perseverance and resilience as we closed last year. The fourth quarter was a sprint, and we ran through the tape. Now it is time to carry our momentum forward and deliver on the promise of 2026. I look forward to working alongside our team to realize our collective ambition and create long-term value for our stakeholders. Operator, you can now open the call to questions.

Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press. Our first question will be coming from Joseph Gomes of Noble Capital. Your line is open, Joe.

Good morning. Thanks for taking the questions.

Good morning, Joe. Good morning, Joe. Chris, I appreciate your comments on Hunt and then

trying to dig a little deeper here and see maybe you could provide a little more insight. You know, we have gone from a

a passive

owner of control of Kelly to an active shareholder here.

And you know, trying to get a better handle on what Hunt is bringing to the table. Do they have expertise in the staffing business?

You know, maybe you can talk some more about that. And then what does this mean for the A shareholders? You know, if we look here

you know, the B shares

have risen in price where they have now diverged fairly significant

from A. And, you know, historically, they have pretty much traded in

tandem. I mean, obviously, there have been periods where they have diverged, but

it is just trying to get a better handle of what all this

can mean here for the A shareholders and what they could

see here going forward. Thank you. Yeah, Joe. Great question, and thank you for it. We are really excited to welcome the Hunt team and, as you heard in my prepared remarks and what we shared even last week, you know, Hunt Companies continue to express their support of our team and the focus that we have in accelerating growth. They saw a lot of the same opportunities that I have highlighted over my first five months and the opportunity to unlock a lot more value here at Kelly. Now we continue to maintain a market-leading position across this diversified portfolio, the deep client that continue to allow us to support global employers as their needs evolve. And we know that the Hunt team is committed to that. We are not expecting any or anticipating any changes to our business, our client relationships, our strategic initiatives. And we remain committed to continue to create lasting value for our shareholders and we look forward to working with our new directors on that. There really is an opportunity for value for all shareholders, and interests are aligned in that regard. Now specifically, maybe to the second half of your question on just some of the protections that were secured. The agreement that we have with the Hunt Companies does include some governance protections, and those governance protections, we think, really align to all shareholders and give us a benefit for our Class A and our Class B going forward, where we know there is a tremendous opportunity to unlock value.

Great for that. Appreciate it. And on the SET business, you know, the underlying revenue

trends have worsened the last three quarters.

And maybe you could speak a little bit more to that. And, you know, what do we see here in that business that could change those trends here?

Yeah. No. As you indicated and other 5.4% in the quarter, but this was modestly better than our expectations. The decline reflects some continued demand pressure in the technology space, but we also saw that offset with really nice growth out of our telecom segment. As we indicated, Life Sciences, our Science segment where we are number two, continues to show a lot of positive momentum. Large pharma companies leveraging our Functional Service Provider offering, which leads the market. And we expect to continue to see a demand for customers needing a more flexible outcome-based solution in the Science space. And in IT, right, that is our largest segment. We continue to see some headwinds from AI-driven productivity increases, reducing some demand for roles like programmers or areas like quality assurance. But we are also seeing an increase and an uptick in roles directly related to the development and deployment of AI solutions. We expect that pipeline to continue to grow as well. And as we go throughout the year, continue to see sequential quarter-on-quarter improvement. Troy, anything else you want to add? Sure. Yeah. Thanks, Chris, and Joe, for the question. The underlying has actually been—we did have a little bit of an uptick here, two points or so relative to what we saw in the last two quarters. We were in the low threes in Q2 and Q3 and around four in Q1. And similar to some comments we had offered last quarter, you know, last year in the fourth quarter, we grew 4% organically overall. And a lot of that growth was in, at the time, the P&I segment, but SET held pretty firm as well, and we did not see some of the normal seasonality we would see there, where it does trend down a little bit in the fourth quarter given how, you know, they are professional roles, and so you tend to see some holidays and the like. So I think it is really more a function of a compare with SET and ETM as well versus anything really changing in the business per se.

K. Great. Thanks for that. Thanks for taking the questions. I will get back in queue.

Thank you. And our next

question will be coming from Kartik Mehta of Northcoast Research. Your line is open.

Hey, good morning, Chris. I think you addressed a little bit of this

question in the previous answer you gave, but I am interested, you know, so much talk about AI and the impact it is having on many companies. And you have talked about using AI at Kelly. I am wondering if you kind of sit back and look, do you think the net impact of AI has been positive, negative, or neutral

for Kelly as far as demand for services,

compared to maybe what you have been able to do from AI from an efficiency and cost perspective?

Hi, Kartik. Yeah. No. Absolutely. We remain confident that AI presents a net positive opportunity for Kelly. Employers continue to be increasingly focused on leveraging the power of AI to drive productivity improvements and accelerate growth. You know, the AI-enabled recruiting solution I discussed in our prepared remarks is just one demonstration of the way that we are bringing that to market and differentiating. You know, our unique solutions also continue to provide employers, particularly big employers, global employers, with the flexibility and the scalability that they need to bridge their workforces into a more AI-enabled workforce. And in that way, it unlocks really the power of people and technology, and we think will unlock a lot of value for Kelly.

And then, Chris, as you kind of look at the trends for 2026, especially on the permanent hiring or the fee business, I would be curious as to kind of what you are seeing in terms of demand from your customers and if that is giving you any kind of look forward into what 2026 could bring?

Yeah. It is a good question, and we are really not seeing a significant change. It continues to be stable in that regard. Perm represents about 1% total GP, and we continue to see stability there.

Perfect. Thank you very much. I really appreciate it.

Thanks, Kartik. Yep. Thanks, Kartik.

Thank you. And our next question will be coming from Kevin Steinke of Barrington Research Associates. Your line is open, Kevin.

Thanks. I just want to

start out by

exploring kind of the margin trend here in the fourth quarter and as you move into 2026, specifically to the fourth quarter, where adjusted EBITDA margin came in relative to your expectations. I think you mentioned incremental gross margin pressure. Was that the primary reason for the variance versus expectations? And can you just dig a little bit more into the drivers of that? I know you called out the higher employee-related costs and also business mix, but maybe a little bit more detail on how those

affected the margin relative to your expectations.

Yeah. That sounds good. I will talk a little bit about the EBITDA margin performance, and I will have Troy provide a little bit of color on the discrete impact on the GP side with some of the healthcare-related costs. You know, as you know and as we have talked about, our strategy continues to be centered around driving profitable growth. And EBITDA margin expansion has been and is going to continue to be an important part of that. Our EBITDA margin expansion in the fourth quarter and on a full-year basis fell short of our expectations. Troy talked in his prepared remarks. I know we talked over the last couple of quarters about some of the discrete customer impacts. But with this in mind, we continue, as we have shown, our focus on aligning expenses with demand is a real lever for us. And this is reflected in the SG&A and cost management reductions you saw both in the third quarter and the fourth quarter, and we will continue to be very focused there. We also recognize the need to address longer-term opportunities to reengineer our cost base, shifting our business mix to higher-margin markets, solutions, and offerings, and that is a big part of our growth story. And I would say, just as I turn it over to Troy to talk a little bit about the discrete GP impacts, some of this margin and the incremental expansion that we have talked about, it will play out as we move and anniversary some of those discrete impacts the first half of the year, where we are going to see margin expansion in 2026 with a modest increase on a full-year basis. But I will have Troy give you a little bit more color on the GP impact. Yeah. Thanks. Good coverage there, Chris. And, Kevin, yeah, certainly, the 150 basis point decline on the GP rate was incremental to what we expected. And you see the largest portion of that hitting ETM, both at the GP level and at the EBITDA level, and a little bit on SET as well. And we had some of this in Q3 also around the employee-related costs. We just had escalations and some changes as we pivot from ’25 to ’26 that drove some outsized utilization against the healthcare coverage. And then workers’ comp is largely driven by healthcare costs, especially older claims that are still open. And so, periodically, we do have adjustments to those based

upon

the third-party estimates around those. So it is just a combination of factors as we came into the back part of the year here that put pressure on those two items that we expect will reset as we get into ’26. And we put some processes in place to have better visibility and better management there as we go forward. Okay. That is helpful. Yeah. Thank you for all the color there. And, you know, when we look ahead to 2026 here, just wanted to

explore a little bit more, you know, the outlook you discussed in terms of

successive

improvement in quarterly performance as you move throughout 2026 on both

I guess, revenue and adjusted EBITDA margin. I guess obviously comparisons get easier as you move throughout the year. But can you talk about the other factors that you expect to drive that progressive improvement, say, in terms of

organic growth drivers, business mix, etc.?

Yeah. Sure. So I will take that, and Chris, certainly add any color as I go through it. But just, you know, Q4 to Q1, not a whole lot going to change in the business, still about an eight-point impact on those discrete items. The margin profile will not change dramatically. We will have the payroll tax reset, which is common across all the companies. And so that puts some incremental pressure on Q1 margins. But as we work through the year, the various growth—Pat coming on board, some of the things that Chris has talked about as far as our organic growth drivers, opportunities we have to bring full Kelly to our customers and to the market, along with the work we are doing from a technology modernization perspective and the benefits we expect to continue realizing there through ’26 and ’27, along with just other efficiency and optimization initiatives that we have planned throughout the year. That should all be accumulating as we go through the year, in addition to the easier comps, as you indicated, as we get into the back half of the year. But net, returning to growth on an organic basis, again assuming no new major material impacts, assuming no major change in the macro environment, returning to organic growth and measurable margin expansion in the back half of the year. And, look, if we get some positive tailwinds out of the economy, we would expect to take our fair share of that as well.

Great. Thank you. I just wanted to follow up there.

You mentioned again bringing on a Chief Growth Officer and

you know, maybe you can just delve a little bit more into the

opportunities

you see

by bringing on that role and, you know, what sort of initiatives you can execute relative to maybe, you know, what the company had left on the table before? Yeah. Exactly. You know, growth, as you have heard me say, is the single most important value-creation lever at this stage of our journey. We are excited to welcome Pat. In this new role, a newly created role, and he is going to have a clear mandate and that is really to bring the full strength of Kelly’s portfolio to the market. And we have to go win more market share with our large customers in particular. We have to build a much more unified, client-centric go-to-market model, reduce some of the access points as you have heard us talk about, and he is going to help us drive organic growth. We know how much opportunity there is, particularly with these large customers, to do more with them. We have really an unmatched product portfolio now and product mix, and we have to make sure we are bringing that to all of our customers, both in the traditional ways where we do staffing, but also in more outcome-based and solution work. And so it will be focused also on driving acquisition of new customers, driving pipeline acceleration across the enterprise, and we are excited to bring him into the leadership team starting this Monday.

Great. Great. Lastly, I just wanted to ask about—Chris, you talked about in your prepared remarks a real-world example of an internal AI recruiting solution you built out

I think, for one particular customer, and I think you talked about looking to deploy that more broadly. What would that mean for Kelly from an efficiency and cost-efficiency perspective?

And

do you think that is something that could be meaningful in terms of, you know, the number of recruiters you employ or any other metrics that it could help on your

journey to continue improving margins?

Well, you know, we really see a lot of customer impact. And what I will start with is really to say that we believe that we can really deliver AI at scale, helping us provide deeper data and insights, AI and automation at scale. And some of that productivity is really a little borne out in the EBITDA margin expansion as you see us growing throughout the year, and particularly in the second half of the year as we have the benefits of the program that I mentioned before, the impact of products like Grace Boost that are now deployed across all of our customer base and our employee base. And finally, you know, our industry-leading talent management platform, Kelly Helix, continues to lead the market, helping customers with deep workforce insights around their workforce mix, integrating AI-based chatbot to drive faster workflows and workforce decision-making. We really see that continuing to drive increased productivity and efficiency for us. And, again, we are showing some of that in the step-up you will see throughout the year.

Okay. Thanks for the comments. Appreciate it. I will turn it back over. Thanks, Kevin. Thanks, Kevin.

And I would now like to turn the conference back to Chris Layden for closing remarks.

Great. Well, thank you all. We look forward to seeing you next quarter.

And this concludes today’s program. Thank you for participating. You may now disconnect.