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    KELYA
    Earnings call· Jun 2026(Q2 FY26)

    KELLY SERVICES Q2 FY26 earnings call KELYA

    Aug 6, 2026 Source

    Executive summary

    Kelly Services Q2 FY26 — Exceeds Guidance, Returns to 3% Adjusted EBITDA Margin

    Kelly Services exceeded Q2 guidance, driven by strong execution of growth and efficiency initiatives, leading to a return to 3% adjusted EBITDA margin. Management believes the business has moved beyond stabilization into early recovery, with expectations for further year-over-year improvement in the second half of FY26, supported by anniversarying discrete impacts and structural efficiency gains. The company is actively leveraging AI and technology modernization to enhance operations and capitalize on secular trends like industrial reshoring and data center demand.

    Highlights

    5

    • Measurably exceeded guidance for total company revenue and adjusted EBITDA margin, with adjusted EBITDA margin returning to 3%.

    • Underlying revenue decline improved 500 basis points YoY relative to Q1, with ETM underlying revenue growing 3.1% YoY.

    • Talent Solutions grew approximately 6% YoY, driven by ramping new wins and double-digit growth in RPO and MSP specialties.

    • SET revenue grew sequentially for the first time in 2 years, with outcome-based solutions contributing 40% of segment revenue.

    • Education K-12 staffing business achieved a 100% renewal rate and a year-over-year increase in net new customer wins.

    Concerns

    3

    • Adjusted diluted earnings per share declined to $0.37 compared to $0.54 in the prior year, reflecting lower profitability and a more normalized effective tax rate.

    • Education segment declined 4.4% YoY due to ongoing impacts of prior year delayed new contract decisions and reduced demand in key markets from enrollment declines.

    • Adjusted EBITDA margin declined 40 basis points YoY, despite sequential improvement.

    Guidance & targets

    8
    CategoryTargetConfidence
    Underlying Revenue Growth
    1% to 2%
    medium materiality
    High
    Total Revenue Growth
    flat to a decline of 2%
    medium materiality
    High
    Adjusted EBITDA Margin
    low 2% range
    medium materiality
    High
    Total Revenue Growth
    mid- to upper single digits
    medium materiality
    High
    Adjusted EBITDA Margin
    approximately 4%
    medium materiality
    High
    Total Revenue Decline
    low to mid-single-digit
    high materiality
    High
    Adjusted EBITDA Margin Improvement
    10 to 20 basis points
    high materiality
    High
    Core Adjusted SG&A Expenses Decline
    approximately $25 million or 4%
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    ETM
    Underlying revenue grew, showing significant improvement from Q1. Adjusted EBITDA margin improved sequentially and narrowed its year-over-year decline. Staffing and outcome-based solutions returned to growth, driven by strong demand across various clients and industries.
    Underlying revenue growth: 3.1%Adjusted EBITDA margin improvement vs Q1: 200 bpsStaffing and outcome-based solutions (excl. contact center) growth: 3%
    		—3.1%—down 10 bps YoY
    Talent Solutions
    Grew for the second consecutive quarter, driven by ramping new wins and increased overall demand in RPO and MSP specialties, both showing double-digit growth.
    Growth: 6%RPO and MSP specialties growth: double-digit
    		—6%——
    SET
    Underlying revenue decline improved significantly from Q1, marking the first sequential growth in 2 years. All specialty areas showed year-over-year improvement, with telecom delivering growth. Outcome-based solutions increased its contribution to total segment revenue.
    Underlying revenue decline: 3%Improvement vs Q1: 300 bpsAdjusted EBITDA margin improvement vs Q1: 100 bpsOutcome-based solutions contribution to total revenue: 40% (up from 1/3 a year ago)Telecom growth: year-over-year
    		—-3%—improved 100 bps vs Q1
    Education
    Declined due to prior year delayed contract decisions and reduced demand from enrollment declines, but showed improvement from Q1. Achieved a 100% renewal rate in K-12 staffing and increased net new customer wins. Therapy services represent 8% of the mix and are a strong growth opportunity.
    Decline: 4.4%Improvement vs Q1: 40 bpsK-12 staffing renewal rate: 100%Therapy services share of mix: 8%
    		—-4.4%—stable vs Q1

    Operational metrics

    17
    Total Revenue Decline
    5.8%YoY
    Q2 FY26

    Total company revenue decline.

    Underlying Revenue Decline
    0.6%YoY
    Q2 FY26

    Excludes discrete impacts from federal government and 3 large ETM customers.

    Gross Profit Rate
    20.4%flat YoY, up 150 bps sequentially
    Q2 FY26

    Reflects seasonality for employee-related costs and favorable business mix.

    Gross Profit Decline
    6%YoY
    Q2 FY26

    Reflecting lower revenue volume.

    Reported SG&A Expenses Decline
    5.5%YoY
    Q2 FY26

    Reported SG&A expenses.

    Adjusted SG&A Expenses Decline
    4.1%YoY
    Q2 FY26

    Reflecting continued focus on structural and volume-related cost optimization.

    Adjusted Earnings Per Share
    $0.37vs $0.54 prior year
    Q2 FY26

    Reflects lower profitability and a more normalized effective tax rate.

    Integration, Realignment, Restructuring, and Transaction Costs
    $3.2 million
    Q2 FY26

    Charges recognized in connection with various efforts.

    Adjusted EBITDA
    $31.1 million
    Q2 FY26

    Well above guidance of at least 2.5%.

    Adjusted EBITDA Margin
    3%down 40 bps YoY, up 150 bps sequentially
    Q2 FY26

    Significantly narrowing the decline versus recent quarters.

    Net Debt Reduction
    $52.4 million
    Q2 FY26

    Net reduction in debt during the quarter.

    Total Debt
    $78.1 million
    Q2 FY26

    Total debt at quarter end.

    Total Available Liquidity
    $303 million
    Q2 FY26

    Comprised of cash and available credit facilities.

    Cash Balance
    $24 million
    Q2 FY26

    Part of total available liquidity.

    Available Credit Facilities
    $279 million
    Q2 FY26

    Part of total available liquidity.

    Quarterly Dividend Per Share
    $0.075
    Q2 FY26

    Maintained during the quarter.

    Extra Fiscal Week Impact on Revenue Growth
    4 points
    Q4 FY26

    Benefits Q4 revenue growth but negatively impacts adjusted EBITDA.

    Industry KPIs

    3
    MetricValueDetails
    Retention rate100%%
    Revenue model mix40%%
    New business bookings growthincreased

    Deals & partnerships

    2
    Leading North American water technology companyExpansion of an engineering staffing engagement into a consultative workforce partnership and Managed Service Provider (MSP) win.

    Illustrates the 'One Kelly' enterprise go-to-market approach, leveraging combined insights across SET and ETM to address customer needs.

    Global hyperscalerEngagement to source critical mechanical and electrical engineers and technicians for new data centers.

    Supports commissioning of new data centers in EMEA and APAC, leveraging Kelly's expertise in technology, engineering, and telecom.

    Risks & headwinds

    3
    Reduced demand from federal government and large ETM customersExpected to fully anniversary in Q4 FY26

    Discrete impacts contributing to revenue decline

    Mitigation: Demand across the federal government and the 2 large ETM customers who remain active has been relatively stable in the past 3 quarters.

    Delayed new contract decisions and reduced demand in Education segmentOngoing impacts from prior year, but new wins expected to drive H2 FY26 growth

    Contributed to 4.4% decline in Education segment revenue YoY

    Mitigation: Strong renewal cycle (100% renewal rate) and year-over-year increase in net new customer wins, with therapy growth expected to return to YoY growth in H2 FY26.

    Seasonal revenue and profit decline in Q3Q3 FY26

    Q3 is the lowest revenue and profit quarter due to seasonality

    Mitigation: Expect strong bounce back in Q4; structural changes allow for more efficient scaling and margin expansion.

    What to watch in Q3 FY26

    5

    Education Segment Growth

    second half of the year
    Currentdeclined 4.4% YoY
    Targetreturn to year-over-year growth

    Why it matters

    Indicates the effectiveness of new business signings and therapy growth in overcoming prior year contract delays and enrollment declines.

    With year-over-year growth in our new business signings, a strong renewal cycle and accelerating growth in therapy, we expect to return to year-over-year growth in the second half of the year.

    Q&A highlights

    7

    Clarification on the Education business, specifically reconciling delayed contract decisions with new wins, and when delayed decisions become lost opportunities.

    Management clarified that prior year contract delays are now behind them, impacting the past school year. The current selling cycle saw a 100% renewal rate and new wins, which will contribute to growth starting in Q3 with the new school year. The pressure is not structural, with Florida enrollment declines being a primary driver. They emphasized the value proposition of their services and the significant opportunity in therapy services.

    “The work has been done for them to see the value proposition, as Chris said, on the fill rates, on the client satisfaction, et cetera. So it's really just a matter of the process and working through them, many of which then we went ahead and closed this year.”

    asked by Joe Gomes · answered by Troy Anderson

    2 min read6 chapters

    Detailed Narrative

    01

    Technology Modernization & AI Integration

    Kelly Services successfully completed the cutover onto a unified CRM platform, which is powered by AI to enhance transparency, forecasting, and cross-selling opportunities. The company has also accelerated the integration of AI across the enterprise, including its proprietary internal AI platform 'Grace Boost' for increased productivity and AI-enabled recruiting solutions to streamline the talent and customer experience. These initiatives are foundational to Kelly's integrated commercial operating framework.

    02

    Strategic Workforce Partnering

    The 'One Kelly' enterprise go-to-market approach is gaining traction, exemplified by the expanded relationship with a leading North American water technology company. This engagement evolved from engineering staffing to a consultative workforce partnership, leveraging combined insights to capture a Managed Service Provider (MSP) contract. This positions Kelly to further expand the relationship as the customer plans to double its business by 2030, demonstrating the value of a unified team approach.

    03

    Leadership & Board Strengthening

    Kelly Services welcomed Alan Sikalski as Chief Product and Technology Officer, a newly created role designed to align technology modernization with product and AI strategy for accelerated profitable growth. Additionally, the Board of Directors was strengthened with the appointment of three new directors in May: Ryan McCoury, Michael Wartell, and George Woody Young, each bringing extensive experience to contribute to Kelly's strategic journey.

    04

    Education Business Turnaround

    Despite a 4.4% decline in Q2, the Education segment's K-12 staffing business achieved a 100% renewal rate and a year-over-year increase in net new customer wins, which will come online in Q3. Management expects the segment to return to year-over-year growth in the second half of FY26, driven by new business signings and accelerating growth in therapy services, which currently represents about 8% of the segment's mix.

    05

    Industrial Reshoring & Data Center Demand

    Kelly Services is capitalizing on secular trends such as industrial reshoring, particularly in domestic semiconductor manufacturing and life sciences, and AI-driven investments in data centers. The company's SET and ETM businesses are uniquely positioned to meet the growing demand for specialized talent in these areas, offering breadth of solutions and technical domain expertise. This includes supporting a global hyperscaler with critical engineering and technician sourcing for new data centers in EMEA and APAC.

    06

    Momentum and Outlook

    Management believes the company has moved beyond stabilization into the early stages of recovery, evidenced by two consecutive quarters of improving underlying revenue trends. This momentum, combined with the anniversarying of discrete impacts, gaining traction of organic growth drivers, and structural efficiency improvements, positions Kelly for further measurable year-over-year performance improvement in the second half of FY26.

    AI-generated summary of the company’s earnings call. Not investment advice.