Kelly Services, Inc. (KELYA) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Kelly Services. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Terrence Larkin, Chairman of the Board of Kelly. Mr. Larkin, the floor is yours.

Thank you. Good morning, and welcome to Kelly Services 2025 Annual Meeting of Shareholders. I am Terry Larkin, Chairman of the Board. I am pleased to have you join this webcast, and I would like to start by thanking Kelly's Board of Directors, all of whom are joining us today. And thank you to Kelly's leadership team members and other employees and guests from around the world who also have joined us. In 2020, we began holding our annual meeting virtually to protect the health and safety of our shareholders, employees and other guests. This format has proved beneficial by allowing all shareholders regardless of location, the ability to participate in the annual meeting safely and more efficiently. The overall response from shareholders has been positive, prompting us to adopt the virtual format moving forward. 2024 marked a period of significant strategic progress as Kelly accelerated forward on its specialty growth journey. The company entered the year a more efficient and focused enterprise, expecting to deliver above-market results on a consistent basis. The Kelly team moved forward through 2024 with a focused set of priorities, capture a greater share of customer demand and more effectively convert top line growth to bottom line profitability. Through disciplined execution and dedication to meeting the evolving needs of clients and talent, the company delivered on these commitments and is poised to deliver further progress in 2025. Kelly's President and CEO, Peter Quigley, will provide more details about the company's specialty growth journey. Parallel to Kelly's strategic journey, the Board of Directors continues its own evolution. Following more than 20 years of distinguished service as a member of Kelly's Board of Directors, Donald Parfet notified the Board in February that he will retire at the end of his current term, which concludes today. Mr. Parfet's tenure includes terms as Lead Director from 2012 to 2018 and as Chairman from 2018 to 2023. We thank him for his leadership and contributions to the company. As Kelly's Board of Directors evolves, our commitment to sound governance practices and creating long-term value for our shareholders remains steadfast. It's with this commitment as our guide that the Board commenced the process to identify and recruit a successor to serve as Kelly's next President and CEO, following Peter Quigley's notification to the Board that he plans to retire by the end of 2025, which the company announced in February. The Board's Composition and Talent Management Committee has engaged a nationally recognized firm to conduct a comprehensive search of both internal and external candidates. Mr. Quigley intends to serve in his current role until the Board appoints Kelly's next President and CEO and a smooth transition is completed. Under Mr. Quigley's leadership, Kelly has made meaningful strides on the specialty growth journey, and the company is well positioned to realize the value creation opportunities that lie ahead. On behalf of the Board of Directors, I am sincerely grateful for his commitment to the company and its noble purpose. He and the entire Kelly team have the full and enthusiastic support of the Board in executing the priorities we have outlined for 2025. Following my remarks, we will address any questions submitted from Class B shareholders relative to the proxy items voted on during this meeting. General questions from Class B shareholders will be addressed after Peter's comments. The questions from shareholders may be submitted in the Q&A text box field provided on the web portal at any time during this meeting. A playback of this meeting will be available on our virtual shareholder meeting website within 24 hours, and it will remain available until the 2026 shareholders' meeting. The agenda and meeting guidelines for today's meeting are also posted on this meeting website. Before moving to the business portion of our meeting, I'd like to introduce the members of your Board of Directors. In addition to myself, the continuing members of Kelly's Board of Directors are Gerald Adolph, George Corona, Robert Cubbin, Amala Duggirala, InaMarie Johnson, Leslie Murphy and Peter Quigley. I would like to thank my fellow Board members for their leadership, dedicated service and contributions to Kelly. We will now move to the business portion of the meeting and officially call the meeting to order. Vanessa Williams, General Counsel and Corporate Secretary of Kelly, who serves as Secretary of this meeting, certified that on April 14, proper notice of the date, time and meeting purpose, along with the web address for today's virtual meeting was provided to all shareholders of record on March 20, '25. The proxy holders who have been appointed by the Board to vote on behalf of the shareholders of this meeting are Vanessa Williams and Troy Anderson. At this point in the meeting, the Chair officially appoints Cynthia Mull from the Office of the Corporate Secretary as the Inspector of Elections. And I'm pleased to announce that there are present by proxy a sufficient number of voting shares of the company to constitute a quorum. At this time, any Class B shareholders who are logged in, but who have not already submitted a vote for their shares may do so now by clicking the Vote button on your screen. The first item of business is the election of 8 directors. As identified in the 2025 proxy statement, the 8 director nominees standing for election are Gerald Adolph, George Corona, Robert Cubbin, Amala Duggirala, InaMarie Johnson, Leslie Murphy, Peter Quigley and myself. I will now entertain a motion for their election.

Mr. Chairman, I am Vanessa Williams, a Class B shareholder. I move the election of directors for a term expiring at the Annual Meeting of Shareholders in the year 2026 or until the election and qualification of their successor.

Thank you, Vanessa. Is there a second to the motion?

Yes, Mr. Chairman. I am Troy Anderson, a Class B shareholder. I second the motion.

Thank you, Troy. The second business item is to consider a proposal to approve by advisory vote the company's executive compensation. Is there a motion to approve this proposal?

I move the adoption of the compensation of the named executive officers, commonly known as say-on-pay as disclosed in the company's 2025 proxy statement.

Thank you. Is there a second to the motion?

I second the motion.

Thank you. The third item of business is to consider the proposal to approve Kelly Services 2025 equity incentive plan. Is there a motion to approve this proposal?

I move that the proposal to adopt the Kelly Services, Inc. 2025 Executive Incentive Plan as disclosed in the company's 2025 proxy statement be approved.

Thank you. Is there a second to the motion?

I second the motion.

The fourth and final item of business is to consider the proposal to ratify the appointment of PricewaterhouseCoopers as Kelly Services' independent registered public accounting firm for 2025. Is there a motion to approve this proposal?

I move that the proposal to ratify the appointment of PricewaterhouseCoopers as the independent registered public accounting firm for the year 2025 be approved.

Thank you. Is there a second to the motion?

I second the motion.

Thank you. Cynthia, what are the results of the election on the 4 proposals?

While a final tabulation will be made following today's meeting, all 4 proposals are approved, having received the necessary vote of the Class B shares outstanding and entitled to vote at this meeting.

Thank you. At this point, we will address any questions or comments received from Class B shareholders on the proposals.

At this time, there are no questions.

There being no questions submitted from Class B shareholders on the proposal, I will ask for a motion to adjourn the business meeting.

Mr. Chairman, I move to adjourn the meeting.

Thank you. May I have a second to that motion?

I second the motion to adjourn the meeting.

Thank you. The motion is carried, and the business portion of the meeting is adjourned. And now I'd like to invite Kelly's President and CEO, Peter Quigley, to provide you with an update on the state of the company. Peter?

Thank you, Terry, and hello, everyone. It's great to be with you today for our 2025 Annual Meeting of Shareholders. Before I begin, I'll refer you to the safe harbor statement that's included as part of the rules of conduct and agenda slides found on both the annual meeting website and on kellyservices.com. This applies to any forward-looking statements that I may make as part of my comments during today's webcast. As Terry noted, 2024 was a year of significant strategic progress for Kelly. We achieved positive organic revenue growth in 2024 that outperformed the market, driven by strategic contributions from each of our business units and our organic growth initiatives. Kelly Education once again delivered double-digit revenue growth through continued strong fill rates and net new customer wins in its market-leading K-12 specialty. Kelly Science, Engineering and Technology maintained its focus on expanding into the market for higher-margin outcome-based offerings through its innovative statementworX suite of solutions. We continue to capture industrial and commercial staffing market share through our omnichannel delivery strategy and capitalized on growing demand for outcome-based solutions in semiconductors, logistics, manufacturing and distribution. Our payroll process outsourcing solution delivered solid revenue growth, and we capitalized on a strong pipeline of higher-margin managed service provider and recruitment process outsourcing opportunities. Across our portfolio, our large enterprise account strategy enabled our businesses to penetrate further into Kelly's blue-chip client base. We delivered these results notwithstanding a challenging operating environment in which total staffing industry revenues declined in most sectors by double digits. Our achievements against this backdrop further reinforce our strategic decision to focus on in-demand specialties in which Kelly is well positioned to compete and win. We remain laser-focused on improving profitability as well. In 2024, we delivered 100 basis points of adjusted EBITDA margin expansion, increasing our full year EBITDA margin to 3.3% on an adjusted basis. This represents a significant increase over Kelly's recent historical average of approximately 2%. Contributing to this improvement are sustained structural efficiencies and Kelly's ongoing shift toward higher-margin, higher-growth areas, including outcome-based solutions. Following the sale of Kelly's European staffing business at the beginning of 2024, we swiftly redeployed the proceeds in support of our inorganic growth strategy. Last May, we completed the purchase of Motion Recruitment Partners. This transformational acquisition has strengthened the scale and capabilities of Kelly's technology staffing, consulting and recruitment process outsourcing solutions in attracting -- attractive customer end markets. MRP's portfolio of businesses is enhancing Kelly's revenue growth potential and driving continued EBITDA margin expansion. We also accelerated the expansion of Kelly Education's higher-margin therapy business through the acquisition of Children's Therapy Center, which we completed last November. Specializing in occupational, physical and speech therapy for children, CTC brings scale to our current network of licensed therapists, enabling flexible practice in clinics or schools. In addition to inorganic investments, we maintained our commitment to shareholder remuneration. In 2024, we returned $21 million to shareholders through dividends and share repurchases. This includes $10 million of Class A -- $10 million of Class A common shares repurchased under the $50 million authorization approved by Kelly's Board of Directors last November, a reflection of our confidence in the company's specialty growth strategy. Moving ahead through the balance of 2025, we'll harness the momentum from our recent achievements as we execute on our priorities and accelerate profitable growth. We'll continue to implement our growth and efficiency initiatives, including the integration of Motion Recruitment Partners and building out the go-to-market strategy within our realigned enterprise talent management business. We remain wholly committed to driving incremental EBITDA margin expansion as well. By executing on these priorities, we'll position Kelly to capitalize when demand rebounds. I'm proud of the progress we've made on our specialty growth journey, and I look forward to concluding my tenure as Kelly's President and CEO with a strong year defined by continued strategic evolution. With new leadership and when the market conditions improve, the Board and I are confident that Kelly will reach even greater heights. In closing, I'd like to thank our employees for their dedication to serving Kelly, our clients and our talent throughout our growth journey. I'd also like to thank our Chairman for his leadership of the Board and each of our Board members, particularly Mr. Parfet, as he embarks on a new chapter for their support and commitment to Kelly. And to our valued shareholders. We're grateful for your support as we move forward on our journey to unleash Kelly's full potential. With our team focused on our specialty growth strategy and guided by our noble purpose, we look forward to building on our momentum and rewarding you for placing your trust in our company.

Thank you, Peter. We will now address general questions received.

Mr. Chairman, we have not received any questions.

There being no questions, I hereby adjourn this meeting. Thank you for attending this afternoon. And as a reminder if you have any questions at any point, please reach out to our Investor Relations department at (248) 251-7264.

This concludes the meeting. You may now disconnect.