Inquiry about the initial impact of Joel's leadership in the SET segment and steps taken to drive growth.

Chris Layden highlighted that Joel is in his second quarter, and SET is experiencing a genuine inflection point with broad-based improvement across all specialty areas. Telecom and Life Sciences are leading year-over-year growth, and outcome-based solutions now contribute 40% of SET's revenue. Positive momentum is seen in technology with a strong solutions pipeline and increasing consultant out-billing, as well as in engineering with increasing deal size and pipeline velocity. “And the meaningful mix progress that we referenced now having about 40% of that business be solution-oriented, -- that's a huge part of Joel and the team's focus. as we continue to move upstream.”

Assessment of the current stage of recovery in the industry, considering different segment dynamics.

Chris Layden stated that the company believes they have moved beyond stabilization and are now in the early stages of recovery, citing two consecutive quarters of improving underlying revenue trends, ETM returning to growth, and SET achieving sequential growth for the first time in two years. Operational indicators like increasing consultant out-billing in SET and expanding spend under management in ETM support this view. “We really believe we've moved beyond stabilization, and we're into the early stages of recovery. You're seeing now 2 consecutive quarters of improving underlying revenue trends.”

Question on whether AI is a headwind or tailwind for the SET business.

Chris Layden affirmed AI as a tailwind, reflected in sequential improvement and focus on supporting the data center industry. He noted that AI's impact spans engineering, telecom, and IT, driving demand for solution-based work. Kelly's strong engineering service capability and unique domain expertise in critical infrastructure pillars for data centers position them for continued growth. “Well, I think it's a tailwind for us. And in many ways, I think that's reflected in the sequential quarter-on-quarter improvement that you see from us in the quarter and really underpinned by our focus and really breadth and depth of capability to support the data center industry.”

KELYA

Kelly Services (KELYA) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 6, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Underlying Revenue Growth	1% to 2% medium materiality	Q3 · FY26	High
Total Revenue Growth	flat to a decline of 2% medium materiality	Q3 · FY26	High
Adjusted EBITDA Margin	low 2% range medium materiality	Q3 · FY26	High
Total Revenue Growth	mid- to upper single digits medium materiality	Q4 · FY26	High
Adjusted EBITDA Margin	approximately 4% medium materiality	Q4 · FY26	High
Total Revenue Decline	low to mid-single-digit high materiality	Full-year FY26	High
Adjusted EBITDA Margin Improvement	10 to 20 basis points high materiality	Full-year FY26	High
Core Adjusted SG&A Expenses Decline	approximately $25 million or 4% medium materiality	Full-year FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
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

Deals & partnerships

Leading North American water technology company Expansion 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 hyperscaler Engagement 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

Reduced demand from federal government and large ETM customers Expected 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 segment Ongoing 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 Q3 Q3 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

Education Segment Growth

second half of the year

Current declined 4.4% YoY

Target return 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.

Find out whether KELYA delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.