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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.

Good morning, and welcome to Kelly Services Third Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded at the request of Kelly Services. [Operator Instructions] 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 third 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 Kelly's Chief Executive Officer, Chris Layden.

Thank you, Scott, and good morning, everyone. It's great to be with all of you. Let me start by saying what a privilege it is to serve as CEO of Kelly, the sixth in our storied history and the first to be selected from outside the company. Having spent my entire career in this industry, I've known and admired Kelly for many years. Our brand is iconic, synonymous with the industry we created when we were founded by William Russell Kelly in 1946. Since then, Kelly has connected millions of people to work, improving families, communities, economies and the world. This is also a company I've competed with. Throughout my career leading commercial organizations and customer pursuits, I've experienced up close Kelly's ability to win in the market. Our diverse portfolio of businesses has significant scale in attractive specialties and differentiated global capabilities that are widely recognized as leading the industry. With our Education business, Kelly has proven the ability to drive rapid organic growth in emerging markets, having established a dominant position in K-12 staffing and tripling the revenue of the business since 2020. This is among the best examples in our industry of what's possible when a team combines clear vision, sound strategy and consistent execution. Instead, I've watched a business that has acquired scale in higher-margin, higher-growth specialties like technology and telecom, moving up the value chain as a consultative partner to employers, seeking differentiated technical solutions. At the same time, SET has continued to win and retain market share in our established life sciences and engineering specialties, where for years, Kelly has led the market as the second and fourth largest staffing provider, respectively. In ETM, Kelly brings enterprise customers unmatched global workforce capabilities and insights to our technology-enabled and AI-powered offerings delivered at scale. This includes talent solutions, business process outsourcing and staffing services, which Everest just recently recognized as leading the market. I've seen firsthand the competitive advantage that this breadth and depth of capabilities creates as employers increasingly seek partners who can meet their total talent management needs. Because of these assets, Kelly's track record of driving value for customers, including many of the largest employers in the world is as strong as any company in this space. Never have our core strength and ability to enhance flexibility and agility in an employer's workforce been more important than they are today. As I step into this role, the operating environment is evolving, driven by a dynamic macroeconomic landscape, a sluggish labor market, global and domestic policy shifts and the AI boom. The impact of these trends on our industry is significant, and Kelly is not immune. These dynamics were more visible in our results in the third quarter. Despite continuing to capture growth in more resilient markets, our performance as a company fell short of expectations. Our team and I know that we can achieve more, having proven as much in the organic growth and margin expansion that Kelly has delivered in recent years. But to consistently win in the market and unlock Kelly's full potential, it's critical that we maximize our core strengths and address head-on opportunities to improve our strategy and execution. To better understand where these opportunities exist, I'm spending much of my time in the field meeting with and listening to our employees and customers. Through my conversations with our team, it's clear that we have a highly engaged group of workforce experts who are passionate about winning in the market and serving our clients and talent. The expertise and high level of service they provide are among our key differentiators that drive employers to choose Kelly to meet their workforce needs. In meeting with many of our top customers, I've heard how Kelly's tailored solutions and unique insights are helping our clients maintain a competitive edge in their industries. I've also had the pleasure of connecting with the investment community who have shared with me their growing interest in the value creation opportunity we have here at Kelly. During my time in the field, a few common themes have emerged. First, it's fundamentally important to customers that it'll be easy to do business with Kelly. We must ensure our structure and processes are designed with customers in mind, and they must be straightforward and intuitive to navigate. Next, the scale Kelly has acquired in higher-margin, higher-growth specialties is a tremendous asset that has repositioned the company in the market. This has created inroads with employers in attractive end markets who are eager to know how our expanded capabilities can meet their evolving needs. Completing the integration of these investments is critical to our ability to realize their full value and capitalize on these growth opportunities. And finally, much work has been done by our team to reduce complexity and improve efficiency. This work continues today with the efforts underway to consolidate disparate front-, middle- and back-office systems, leveraging the leading technology stack we obtained when we acquired MRP. We must continue to assess our resources from technology platforms to our workforce mix to ensure they're optimized to drive profitable growth. These early observations are helping inform how we move forward on the next leg of Kelly's strategic journey. I'll share more in a moment about our short-term priorities and long-term focus. First, I'll turn it over to our CFO, Troy Anderson, to provide more details on our results in the quarter.

Thank you, Chris, and good morning, everybody. Before I walk through our results, as a reminder, beginning in the third quarter, the Motion Recruitment Partners acquisition we completed in the second quarter of 2024 is fully in our year-over-year comparable results. Thus, I will only speak to reported and adjusted results for the current quarter. Revenue for the third quarter of 2025 totaled $935 million, a decrease of 9.9% versus Q3 of last year. This was lower than our expectations, most notably due to lower-than-expected growth in the ETM staffing specialty, education and select other specialties. As we discussed last quarter, we had discrete impacts from reduced demand from the federal government and 3 of our top customers. Combined, these impacts drove approximately 8% of year-over-year revenue decline, consistent with our expectations, leaving us with an underlying decline of 2%, excluding these impacts, which is in line with industry performance. Kelly's underlying performance reflects positive trends in each business area that reinforces our confidence in our strategy. Education continued its long-running streak of quarterly growth and achieved a 90% fill rate overall in the quarter for the first time. Within SET, the telecom specialty achieved double-digit growth in the quarter after strong growth in the second quarter, while the engineering specialty has grown each quarter this year. SET's underlying performance was consistent with the second quarter and continues to outperform the market. And within ETM, staffing underlying revenue has been consistent across the quarters despite the macro variability. Outcome-based solutions, excluding contact center and Payroll Process Outsourcing, or PPO, both continued to grow in the quarter and have shown growth all year. Finally, our managed service provider, or MSP specialty, showed modest growth in the quarter for the first time this year, reflecting the new customer wins we have referenced in prior quarters. For Q3 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 both project demand and new business within SET and ETM. Talent Solutions was down modestly year-over-year in the quarter, reflecting a mix of performance across the individual specialties. Perm fees represented approximately 1% of revenue, which was consistent with the prior year. Drilling down into revenue by segment, Education grew 0.9% year-over-year in the quarter, driven primarily by ongoing fill rate improvement. While we believe we won our fair share of the new business opportunities for the school year, we saw a number of decision delays in light of the broader macro environment and the fill rate improvement benefit was lower year-over-year given our maturing customer portfolio, thus the relatively lower growth in the quarter. As a reminder, education volumes and revenues are reduced significantly in the third quarter due to the summer break. In the SET segment, revenue was down 9% in the quarter or 3.5% excluding the federal government impact. Our Telecom and Engineering specialties continue to be growth areas within SET, while Life Sciences and Technology saw year-over-year declines consistent with the second quarter. In the ETM segment, revenue declined 13.1% year-over-year or an underlying decline of 1.9%. Staffing services revenues declined 16.4%, driven primarily by the large customer and federal contract demand reductions, along with lower hours volume across other clients. Outcome-based revenues decreased by 17.2%, reflecting demand pressure from the large contact center customer that has fully run off as of the end of the quarter. Excluding Contact Center, ETM outcome-based solutions grew modestly. Talent Solutions revenue decreased 1.4% overall, reflecting growth in PPO, MSP new customer wins and reduced customer volumes and recruitment process outsourcing. Reported gross profit was $194 million, down 12.5% versus the prior year quarter, primarily from reduced revenue. The gross profit rate was 20.8%, a decrease of 60 basis points compared to the prior year quarter and a 30 basis point sequential increase. The sequential lift, which is typical with the seasonality of our business, was more muted than we expected given the revenue dynamics, along with elevated employee-related costs in the quarter. Education's GP rate increased 20 basis points, while SET declined 80 basis points and ETM declined 60 basis points. We made significant progress improving our SG&A expense profile in the quarter with reported SG&A expenses of $194.4 million, a decrease of $24.6 million or 11.2%. On an adjusted basis, SG&A expenses decreased 9.7% year-over-year, reflecting the momentum we are gaining on structural and volume-related cost optimization efforts. Expenses increased in our Education segment in support of the revenue growth, while expenses decreased across the rest of the company. With the increased revenue pressure, we're enhancing our efforts to drive durable and sustainable efficiencies in our operating model through technology enhancements, including leveraging AI, process efficiencies and multiple other levers. Existing initiatives like the formation of the ETM segment and integration of MRP and other acquisitions within SET are progressing well and will drive both go-to-market and cost efficiencies going forward. In connection with our various efforts, we recognized $4.7 million of charges in the quarter, down from $6.4 million in the second quarter. These included costs associated with improving technology and processes across the enterprise as well as severance expenses and executive transition costs. We expect to see these expenses increase in the fourth quarter as we make continued progress and expand upon our various optimization efforts. Related to the realignment of SET and acquisition integration, during the quarter, we assessed the current goodwill reporting units and determined it was appropriate to combine them into a single SET segment reporting unit. As a result of the assessment, along with declines in the current and projected business performance driven by macroeconomic and industry conditions, we concluded that there was a triggering event for a noncash goodwill impairment totaling $102 million in the quarter. We are excluding the impairment from our adjusted results. Additionally, with the impairment activity, we were also required to reassess the recoverability of our deferred tax assets. While we have confidence in our business over the future recoverability time period, with a 3-year cumulative loss position in our near-term actual and expected financial performance, it was necessary to record a valuation allowance of $70 million, which is also noncash and excluded from our adjusted results. As a result of the goodwill impairment and tax valuation allowance, our reported loss per share was $4.26 for the quarter. On an adjusted basis, earnings per share was $0.18 compared to $0.21 in the prior year, with the decline over the prior year primarily due to lower profitability and discrete tax items. Adjusted EBITDA was $16.5 million, a decrease of 36.7% versus the prior year period, while adjusted EBITDA margin declined to 1.8%, both of which were below our expectations, reflecting the revenue and gross profit declines I previously noted. SET expanded margins by 60 basis points year-over-year despite the lower gross profit due to their expense optimization efforts. ETM saw margin pressure due to the elevated revenue and gross profit declines despite substantial progress on their SG&A. Education experienced margin compression due to the seasonality of that business. Moving to the balance sheet and cash flow. We are generating strong operating cash flow this year with $94 million through the third quarter, up significantly versus the prior year. Total available liquidity as of the end of the quarter was $269 million, comprising $30 million in cash and $239 million of available liquidity on our credit facilities, leaving us ample capital allocation flexibility. Total borrowing of $118 million increased versus the prior quarter due to our normal working capital seasonality. Our debt-to-EBITDA leverage ratio was less than 1 at the end of the quarter. We don't expect a material change in our net debt position over the remainder of the year from normal operations. We ended the quarter with $40 million remaining on our current Class A share repurchase authorization. We continue to believe the data demonstrates that the company is measurably undervalued by the market. With that backdrop and our capital allocation flexibility, we anticipate being active in our repurchase program during the remainder of the year. We also maintained our quarterly dividend of $0.075 per share. These actions reflect our confidence in Kelly's strategy and our commitment to opportunistically deploying capital in pursuit of attractive returns for shareholders. As we look at the fourth quarter, we are assuming no material change in the macroeconomic or industry dynamics and a positive resolution to the federal government shutdown during the quarter. For revenue, we expect a decline of 12% to 14% in the quarter, which includes 8% of negative impact associated with reduced demand from discrete large customers and for federal contractors, consistent with the third quarter impact. Excluding these items, our underlying revenue decline would be 4% to 6%. The incremental revenue decline relative to the third quarter is primarily due to the strong growth we saw in the fourth quarter of last year and includes a modest impact related to the government shutdown. For adjusted EBITDA, we expect margin of approximately 3% in the quarter. This represents a sequential increase of 120 basis points, consistent with the prior year change despite the incremental revenue pressure and a decrease of approximately 70 basis points year-over-year in the quarter, consistent with what we experienced in the third quarter. While we're not providing specific guidance beyond the fourth quarter, as we look out over the next few quarters and the anticipated residual year-over-year impacts from the reduced demand for federal contractors and from the 3 large customers in ETM, it's likely we'll see continued revenue and margin pressure at least through the first half of 2026. As Chris said, across Kelly, we're addressing head-on opportunities to continue to improve our execution. This includes in the finance organization, where we're well underway with implementing measures that will enhance our agility, efficiency and business impact in this evolving operating environment. I'm 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'll now turn the call back to Chris for his closing remarks.

Thank you, Troy. As we move forward, our immediate focus is on stabilizing Kelly's performance and actions to this end are underway. We're moving swiftly to align resources with current demand trends while continuing to drive structural efficiencies across the enterprise. As part of this effort, we made the difficult but necessary decision last month to implement strategic restructuring actions that resulted in a targeted workforce reduction. These actions address excess capacity while further streamlining our organizational structure following the consolidation of the OCG and P&I businesses into the single ETM segment. We're also continuing and, where possible, accelerating our technology modernization initiative within SET and ultimately across the enterprise. This initiative will unlock substantial growth and efficiency opportunities, making it easier for our employees to serve our customers and talent, reducing expenses associated with managing disparate and outdated systems and enabling more rapid innovation and integration of AI. While executing our near-term priorities, we're also keeping our sights set on the future. As I conclude my initial assessment of the business, our team is aligned where we must focus longer term to accelerate progress on Kelly's strategic journey. First and foremost is growth. Growth is the single most important value creation lever at this stage in Kelly's journey. To drive organic growth, we'll continue to enhance how we go to market, especially with our large enterprise customers to bring to bear the full strength of Kelly's portfolio and win more market share. We'll also continue to drive inorganic growth by pursuing targeted investments that add scale and capabilities in higher-margin specialties. We'll focus on evolving our product mix as well to address changing buyer preferences such as the shift towards statement of work solutions and to capitalize on the AI boom. Our widely recognized Global Re:work Report found nearly half of executives surveyed are struggling to find the talent with the right operational and technical skills in AI. This unmet demand represents a significant opportunity to position Kelly as the partner of choice for employers, navigating the transition to an AI-enabled workforce. Next, we'll continue to focus on efficiency. This means continuing to align resources with demand, while reengineering our cost base to drive further structural efficiencies. That includes our initiatives to modernize our technology stack and integrate legacy acquisitions. And finally, culture. Culture is fundamental to how we'll achieve our ambitions and win in the market. We're committed to building on the strong culture that exists here at Kelly, doubling down on customer centricity, visibility and accountability. I look forward to sharing with you more about these areas of focus and our progress as we move forward. We're navigating a complex moment for our industry and/or company. These circumstances call for decisive action to address near-term dynamics while positioning the company to realize the significant value creation opportunity before us. There is much work to be done, but I'm excited and energized to meet this moment together with our team and contribute my operational experience to accelerate our progress. Our core strengths, an iconic brand, a differentiated portfolio and an engaged team give me the confidence that we'll emerge more agile, resilient and primed for growth. I'm grateful to the Board of Directors for placing their trust in me to lead Kelly at this moment on the company's journey. I also want to extend my appreciation to Peter Quigley for his support as I stepped into this role and for his distinguished service to the company over the last 23 years. And to our team, thank you for welcoming me with openness and enthusiasm. I look forward to working alongside you to realize our collective ambitions and create long-term value for all of our stakeholders. Operator, you can now open the call to questions.

[Operator Instructions] Our first question, we'll go to Joe Gomes from NOBLE Capital.

I wanted to start out, Troy, I don't know if you can kind of break out these discrete between the federal government and the large customer impacts. I know in total, it was, I think you said roughly 8%. But I don't know if you could break that down what was for the federal government, and what was for the large customers?

Yes, Joe, thanks for the question. They're roughly equal. So it's roughly 2 points each, plus/minus a little bit. But I'd say, generally speaking, they're roughly equal.

Okay. And I know, Chris, you just talked about some of this go-to-market here, optimizing large enterprise customer share of wallet. When I -- you see that, and I understand that goal, but then I also see, hey, 3 customers had a significant impact on revenue this quarter. How are you kind of like squaring that circle and making sure that we get even more concentrated in some big customers, the same things don't happen down the road.

Yes. Thanks, Joe. This is Chris. And it's a good question. And let me just start by reiterating that we know Kelly can achieve more. We saw the headwinds, and we know there's also execution gaps that we're going to continue to address head on. One of the things that you heard me talk about is the breadth and depth of our portfolio. And as we've gone and acquired really significant scale over the last few years, that's also built on a foundation where we've had incredible strength, right, #1 in education, #2 in science, #4 in engineering, just outside the top 10 in our technology business, Everest recognized specialization and strength in our MSP, BPO and Staffing Services. And so as I'm talking to customers, not only the 3 impacted, but also the thousands of customers we're working with from around the globe, they want to be doing more with Kelly. They want to make sure that it's easy to work with us, that we're bringing all of our capability to them. And one of the things I have been impressed with is -- I saw this from the outside before I got here, and I've been even more impressed as I've joined, is the depth of these relationships, the length of time we've been working with customers around the world. And we know we'll continue to partner with them in new ways as we continue to make sure that we're showing up and that we're easy to work with, and we're showing up with all of our capabilities. So we do have opportunity as we move forward around some of that execution, but that's what we're taking head on. And again, I have some confidence as I've been engaging with customers over the last 60 days.

Yes, Joe, this is Troy. I would just add that, again, these 4 discrete items are somewhat unique and completely unrelated, just happen to all be around the same time. But it's -- the macro environment affected each of them in varying ways. policy decisions affected them in varying ways and their industry challenges are also affecting them in varying ways. So it's less about customer concentration, and it's more about stickier services and just growing -- we have relationships, by the way, with all those customers still and still very significant for at least 1 or 2 of them. So anyway, I just wanted to remind the -- since we didn't really get into the details of what they were, but remind everybody of that.

Appreciate that. And one more for me, if I may. Troy, you got a slide here in the deck about the revenue trends, and you kind of break out excluding discrete impacts. And if I take a quick glance at those that quarter 1, quarter 2, quarter 3, they're pretty much trending the wrong way. And just trying to get an idea, I understand the federal government shutdown. But what else needs to occur in the macro environment that you think we can start to see these revenue trends reverse and start becoming positive or as opposed to negative and/or start growing again as opposed to trending downward?

Yes, it's a fair question. Again, I would say that SET -- and again, they're somewhat unique across the 3 segments. SET is fairly consistent across the quarters. We had great strength in telecom, double-digit growth there this quarter after nearly double digit last quarter. Engineering has been growing all year and consistent rate of decline in technology and life sciences. So we did expect a little bit more out of SET this quarter, but we're still pleased that we -- despite the broader environment around us that we saw at least consistent performance and some strength there in those 2 areas. Education, again, somewhat of a unique dynamic there, market, some decision delays. Those are decisions we still expect to win in -- at a future date, but there was some hesitancy in the market just given some of the policy changes and dynamics around the broader macro environment. So we expect education to continue to grow and us win our fair share, if not more. We've been taking share in a growing market there. And then on ETM, again, the underlying still low single digit. We think we're competitive in the market, as Chris said, highly ranked by the industry experts, and we saw growth in MSP. So we're starting to realize the benefits of some of the new logo wins there. Staffing has been consistent across the year despite the macro headwinds, the underlying staffing. And really, that decline there was just less growth in PPO and a bit of a downturn in RPO, recruitment process outsourcing. So there's different dynamics in each, and there's significant opportunity in each, as Chris outlined in his prior response. So I think it's just a matter of moving us forward with some of the initiatives and getting through some of the softness that we see more in the macro dynamics around us.

Our next question comes from the line of Kevin Steinke from Barrington Research Associates.

So I wanted to start out by asking about the various factors in the operating environment that you noted in your earnings release are currently impacting your results, largely the macroeconomic landscape and sluggish labor market. But on top of that, you specifically added in the AI boom. And so I'm just kind of wondering what you're seeing in terms of the impact of AI on demand for your business currently? And on the flip side, you also mentioned that could be an opportunity over the longer term as your customers look to find IA talent. So maybe if you could walk through the dynamics you're seeing with AI currently.

Yes, Kevin, thanks. This is Chris. We really see there to be an opportunity to continue to capture new AI growth opportunities. And from our standpoint, really not just in the SET business, but in ETM and in Education, we've got a unique opportunity in the market based on our capability to bring employers a flexible, more scalable solution as they're bridging into a more AI-enabled workforce. We think that's going to unlock a lot of value in a way that will combine the power of people and technology. And we have that opportunity as we move up the value chain in our SET business with a lot of the work we're doing in things like data modernization and other digital work, that's solutions-based business. And again, that's in growing demand. And as we indicated in our prepared remarks, more broadly across employers in our research, 50% told us that they are struggling to find the right operational and technical skills to help them navigate this transition into the AI-enabled workforce. So we see it as a real opportunity for us on the go-to-market side. Now internally, you heard Troy and I both talk about how we are going to continue to accelerate the modernization of our technology stack, the technology stack that we acquired when we acquired MRP. That continues to be a priority as we think about ways to improve both process and efficiency across our teams and bring our teams new tools. And a lot of that is underway. The integration of those AI-based tools in our recruiting process in our client portals, and we're going to continue to see that add value and drive opportunities for efficiency and productivity over the next couple of quarters.

Okay. Great. So it sounds like AI offers a nice longer-term growth opportunity for you. I was just curious if in the shorter term, perhaps are some customers kind of holding off or delaying hiring decisions as they assess the impact of AI on their businesses and as they assess whether they need to add as many people in the past, given that AI will bring them greater productivity. I'm just wondering if that's having any short-term impact on demand for your services?

Well, let me start, and I'll have Troy build on it. First, I think we just need to step back in the broader context of what we've been seeing, a pretty sluggish labor market. And many of the businesses that would support some of the disruption maybe you've seen and the lack of job growth that we've seen really pretty consistently across every month this year is a bit embedded already in the workforce dynamics. And so we see and have been seeing that sluggish impact all year. Now outside of that, we continue to see companies invest in bridging themselves into a more AI-enabled workforce. And we believe there could actually be opportunities, not only on the solutions side of how we can help companies navigate that, but it also could be an indication at some point on the staffing part of our business that companies use flexible labor as a bridge into that as they're navigating more certainty around the demand for their products and services. And so we'll continue to be navigating those indicators that will impact both parts of our business, our staffing and our solutions.

Yes. Kevin, I would just add, this is Troy. The -- I wouldn't say there's been a change this quarter versus last quarter or 2 quarters ago in terms of any impact that AI may have had in terms of our positions, the type of positions we staff or the type of opportunities we pursue. But we are seeing an uptick in our ability to leverage AI in terms of providing support to our customers, be it with our platforms from a workforce management perspective in the ETM space, be it some of the solutions that we're bringing to bear in SET, not just in the technology vertical, but also in telecom and engineering and life sciences. So I mean there's -- we're starting to be able to now move upstream into bumping into some of the major consulting players with some of our nimbleness and the capability that we bring, trying to fill that gap that Chris highlighted about companies not being able to find the right skills and the right workers. So -- yes, so no real change in what we've seen. And if anything, it's creating more opportunity for us to bring our solutions to bear.

Okay. Great. All right. So I just wanted to get a little more insight on education. You mentioned just some delayed decision-making there due to macro factors. And I'm just kind of trying to relate the macro environment to the K-12 space and perhaps why customers have been holding off on decisions there.

Yes, sure. This is Troy. The -- so I guess two things. One, again, I want to highlight across our portfolio, billion-dollar business now, largely in the K-12 substitute teacher, we achieved a 90% fill rate in the quarter for the first time ever. So that is a tremendous value that we deliver to our clients. And we have -- some of our largest customers are closer to 100% even. So we have tremendous offering there and value that for our customers. The new business there are really new opportunities for outsourcing. It's less about us and competitors taking each other's customers, and it's more about us competing with in-house offerings. Even when we lose a client here or there, it's usually they bring it back in-house that it's stabilized, and they now feel confident they can run it in-house. They may have implemented a technology solution that enables them to do that. But that, again, doesn't happen very often. What we saw with the -- so two things, really, the fill rate, we are maturing that portfolio. We've had tremendous growth there over the last number of years. Chris highlighted in his comments, we've tripled that business over the last 5 years. And so as those clients mature, I mean, you can only get to 100%. You can't get above that. And so as all those relationships mature, and we're operating in that 90-plus percent range, we're just not going to get as much fill rate lift across the portfolio that we've seen over the last few years that has been supplementing the new business wins, but we'll continue seeing some benefit there. So a little bit less benefit there than we've seen in prior years. And then the decision delays is really just around -- keep in mind, back in the summer, there was a $6 billion grant from the Department of Education that was withheld and put under review right around the time where certain decisions might have been made. Typically, these awards are done in the spring, late spring and early summer and then implemented for the new school year. So there was the future of the Department of Education, just -- there was just a lot of noise in the system and for a school district to venture into this new space of outsourcing their substitute teacher delivery, some felt like that was not a step they were ready to take. The work has been done. The relationships have been built. The value proposition has been sold. And so now it's just -- it's more of a when than an if on those. So we have confidence that we'll get, again, more than our fair share of those as they come back to market.

Okay. Got it. That's helpful. And can you just talk a little bit more about the time line on the integration work going on in the SET segment. Chris, I believe you said you're looking to even accelerate that a bit and just tie that to completion of the process, I think you said would be also beneficial with taking that SET offering to the market in an integrated way and driving greater growth out of that offering.

Yes, exactly. And as I mentioned a little earlier, we have significant scale, and we've deployed about $900 million of capital, mostly in the SET business. And our customers, as we're talking to them, continue to want to leverage those capabilities, not just in technology, but technology and telecom, technology and life sciences. And so what we're doing is accelerating the modernization of that tech stack. We acquired -- when we acquired MRP, they had a leading tech stack. We were in the process of looking at various ways to integrate our disparate front, middle and back office. We have selected the tech stack that we acquired when we bought MRP and are in the process now of migrating the rest of the organization to that tech stack. We're starting with the integration, though, of our SET business. And so we really -- we know that, that will give us an unlock as we go to market, making sure that it's easy for our internal teams to be collaborating, winning new business, helping go to market faster, leveraging that tech stack. And then as we get SET integrated and the legacy SET acquisitions integrated into that technology stack, we will also be bringing through our education and ETM segments. And so that is all underway, and all of it is on schedule.

Yes, Kevin, I might just add, this is Troy. The -- we have a big cut over here at the end of the year with the legacy acquisitions being integrated into the MRP tech stack and then in '26, the rest of SET, and we'll start making -- as Chris just indicated, we'll start moving some of the enterprise capabilities, likely leading with the human capital management component along with the rest of SET and then quickly follow that with education and ETM beyond '26. So those are some of the key near-term milestones around that. The go-to-market side of SET has been integrated. The management teams and the sales teams and the like there, but they're on separate systems, as Chris said. And so that creates some inefficiencies and some challenges with some of the collaboration, but we'll get through that here pretty quickly. Again, first big cut over into the year and then through '26.

Okay. Great. Yes, that's helpful. I guess, lastly, you talked about the fourth quarter outlook assuming a positive resolution to the government shutdown. I mean it sounds like the impact is -- on you has been pretty modest, but kind of what's the swing factor there in terms of this shutdown dragged on even longer than we expect?

Yes. So we can measure the direct impact, right? We know what our government business is. We were fortunate that there was a larger percentage of the positions that we have that were deemed essential. And so that was a pleasant surprise if there's such a thing in the dynamic. But -- so less than a point. It goes all the way through the quarter, maybe closer to a point of revenue impact, and we tried to capture that in the 12 to 14 expectation, give us some room there. What we can't measure really is the indirect impact. So just yesterday, right, 10% of flights across 50 major airports being reduced, 10%. That's going to have a ripple effect. There could be other ripple effects in other industries the longer this goes on. So that's a bit of a wildcard that we don't know. So really, all we know right now is what we can directly see. And I think the longer this goes on, it's not going to help anybody.

Our next question comes from the line of Marc Riddick from Sidoti.

So I was wondering if we could talk a little bit on the cash usage and prioritization. Maybe we can start with what we're looking at for CapEx for this year, and then how the technology plays into what -- how that might skew '26? And then I have a follow-up after that.

Yes, sure, Marc. This is Troy. The CapEx year-to-date is about $7 million, probably be $10-ish on a full year basis, plus or minus a little bit. Some of that spend on the technology deployment is cloud-based implementation work. So it doesn't show up as CapEx, but it still gets capitalized. third-party labor and some of the software costs, et cetera. So it's up in the operating section of the cash flow statement. But overall, again, strong cash flow for the year. And with that, we're seeing the opportunity to -- with some of the debt paydown that we've done this year, we're seeing the opportunity to -- in the fourth quarter here, given the share price and just the undervaluation of the stock also engage in some repurchase activity. So I think net-net, as I said in my prepared remarks, no material change in the -- our net debt position relative to the third quarter here, which is about $90 million-or-so, $118 million in debt and $30 million in cash. And the wildcard could be if perhaps there's a small tuck-in acquisition or something like that, that we're able to get over the goal line before the end of the year. But otherwise, that's what we're expecting.

Okay. And then you kind of led yourself into where I was going next, which is acquisition. What you're seeing with the pipeline currently, maybe valuation-wise? And are you seeing how many opportunities out there vis-a-vis maybe 6 months ago or so? There seems to be a little bit of a pickup in activity there overall. So I was sort of wondering what your appetite is at the present time? And/or should we -- as far as larger acquisitions, are we things sort of on the sidelines for larger acquisitions now, or how you're feeling about that?

Yes, it's a fair question. The -- I mean we're active. We have an active corporate development team. They're constantly evaluating pipeline. We've been expanding our network of sources for opportunities. We have seen some certain assets that are fairly richly valued and that we've passed on or that we've thrown in maybe an inquiry, but quickly decided that was going in a direction we didn't want to go. But we continue to be active. We're looking at across -- primarily in the SET and Education areas, type of opportunities, therapy add-ons, some of the other add-ons that we can do in the SET verticals, be it technology, be it engineering or life sciences. But as we sit here today, unlikely that there's a large acquisition in the near term, but we never say never. But certainly, we're going to continue looking at building upon the scale that we've achieved. We're going to continue looking at adding capabilities. We believe we have a great foundation to be building upon both organic growth and inorganic growth. And so that's -- we've got strong cash flow, and we expect to continue to be able to deploy capital opportunistically across the various options, as I mentioned earlier.

Our next question comes from the line of Jessica Luce from Northcoast Research.

First of all, I don't know if it was already touched on, but I have a brief question and then a follow-up. First, in terms of the current macro environment having an impact on the quarter, just to go a bit deeper, how would you characterize the sales cycle for the business overall?

The sales cycle is still really robust. And we're continuing in some of the work I shared in my prepared remarks, our focus on growth is at the core of what we're doing right now, making sure that we are in front of our customers, helping them understand all of the ways that we can add value. And we're going to continue to make sure that all of Kelly is coming to our largest enterprise customers. We've also seen in our SET business, a really strong retail pickup this year, which has been driven -- driving some of the stability in the SET business and some of the growth in engineering and in telecom. And then finally, in the education space, as Troy indicated earlier, we're #1 in the market on the heels of a 90% fill rate in the quarter. It is maybe as exciting of a time as any to go and sell with that track record of success. And we are everywhere in the market, talking to districts, they're in-sourcing their model and helping them understand how we could add value as their partner. So we're going to continue to have that be a priority as we drive growth into the future.

All right. And then just as a brief follow-up again, if it was touched on or not. In terms of the pricing environment for the 3 segments, do you see any specific pressures within any of the segments?

I'll maybe start, and Troy, you feel free to weigh in. We're going to continue, I would say, overall, just to kind of set the stage to be disciplined in how we're going to approach new opportunities in the market. We're not going to go by business. We continue to see rationality in terms of where we play. We've got a huge opportunity to continue to move up the value chain in the statement of work solutions-based business, particularly in SET, and that continues to be a priority. And we're going to continue to monitor that over the next couple of quarters. I don't know, Troy, if there anything else you want to add?

Yes. I think as we look across the 3 segments, Education and SET are, I'd say, stable. The spreads there are stable too, actually improving as, again, we move up the value chain with both current and prospective clients on new opportunities. And then I would say it's a little more mixed in ETM as we -- some of the large enterprise as they come up for renewals, of course, we're trying to work with them on their cost structure. And so there could be a little bit of concession here or there. But generally speaking, I'd say maybe we see a little bit in ETM and actually more positive momentum than the other two. And it's not really translating. Our gross profit was, I commented, not as strong as we were expecting, down 60 basis points year-over-year, but it was really more a function of the business mix and some elevated cost of service in the quarter versus really spread or pricing pressure.

This concludes the question-and-answer session. I would now like to turn it back to Chris Layden for closing remarks.

Thank you all for joining today. That concludes, we'll see you next quarter.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.