Kelly Services Inc 17th Annual Midwest IDEAS Conference

Good afternoon. Appreciate everybody's interest. As John mentioned, I am Scott Thomas, Head of Investor Relations with Kelly Services. With me here is Troy Anderson, our Chief Financial Officer, and on behalf of both of us, really appreciate your interest in the company. Before we get started, just a couple housekeeping items. We will talk about some forward-looking statements. We have no obligation to update those statements after this presentation. We will also talk about non-GAAP measures. Reconciliations to those measures are all on our IR website at ir.kellyservices.com. With that out of the way, let us give an introduction to Kelly. Kelly invented the staffing industry in 1946, and we have been reinventing it ever since. We started as a local temp staffing agency with a focus on light industrial and clerical roles. Now in our 80th year, Kelly has grown into a leading global specialty talent solutions provider.

We meet employers' needs across a multitude of industries, from science, engineering, technology, and telecom, to, as I mentioned, light industrial and also education. We are the largest provider of substitute teachers in the U.S. Our differentiated offerings and level of service we provide to clients and talent are unmatched, and that is why Forbes has named Kelly the number two staffing firm in the United States. Also unmatched here at Kelly is the value creation opportunity that we have. To talk a little bit more about that, I am going to kick it over to Troy Anderson.

Troy, over to you. Thank you, Scott, and I echo Scott's comments.

Thank you all for joining us here today. I joined Kelly almost two years ago now, October 2024, and I was new to the industry, but I have been in and around the workforce solution space for most of my career. As Scott mentioned, I think we have a great value creation opportunity here with Kelly for all shareholders. We have done a significant amount of work on our operating model and our strength. We have been around for 80 years. William Russell Kelly started the company back in 1946, so our 80th anniversary is this year. We have this iconic brand. We really started the staffing industry, and of course, it has evolved, I think, quite a bit over the 80 years.

We have an iconic brand, and throughout our history, we've continued to evolve the business and most recently, through a number of different actions around acquisitions and divestitures, more recently with management change. We'll talk a little bit about all of that. As Scott mentioned, we have a differentiated portfolio of capabilities across the business, significant domain expertise in a number of different areas, science, engineering, technology, the light industrial space, managed services, a whole number of other areas. Again, we'll talk a little bit about that. We've done quite a bit of transformation on our core operations, reducing SG&A, driving more scalability and efficiency. We're in the middle of a major technology modernization initiative, which again, we'll touch base on. We've been balancing our capital allocation. We do have a dividend, $0.30 a share, that's been in place for a number of years.

We've done some share repurchase over the years. As I mentioned, we've done quite a bit of acquisitions. Most importantly, and more recently, we have a refreshed board. We have a refreshed management team. Chris Layden, our CEO, joined us last year. We had a board change earlier this year, including a few new members that joined in May. With all of that packaged together, we have, I think, a significant value creation proposition for our shareholders. Speaking of some of that change, that leadership change, Chris joined us in September of last year, so he's coming up on his one-year anniversary next week. He is an industry veteran, been in the industry over his entire career. He's been in all aspects of the industry.

Started as an intern in recruiting and has worked his way both through the Manpower organization, which is a large global generalist in our space, both from a sales, operations, acquisition, and integration, transformation perspectives. He was most recently, prior to joining Kelly, the COO of a healthcare-oriented, hypergrowth, single-segment company called Prolink. He joined, and he's made a number of changes since he joined. We have a new Chief Growth Officer, Pat McCall, who again brings significant industry experience and across the larger players as well as smaller players in the space. Joel Leege joined as our leader of our science, engineering, and technology business. He joined in March. Again, deep industry experience across a number of players, both large and small.

Most recently, Alan Stukalsky joined as our Chief Product and Technology Officer, where we're now combining all of our go-to-market digital capabilities along with our internal IT and technology infrastructure, to really accelerate our AI enablement and our overall technology modernization, as well as our product capabilities with our clients and go-to-market. I mentioned the board. I jumped over that one just to hit the management, but we do have a controlling shareholder, so the A shares and B shares John mentioned. The B shares are 92% held by the Hunt Companies, who acquired those shares at the end of January of this year. With that, the board was reconstituted.

We have 11 board members currently, and four of those were appointed at the time of the transaction, and three more joined here in May. The other four board members are Chris, our CEO, along with three of the prior Kelly board members, the leader of our compensation committee, the chair of the audit committee, and then our cyber and digital expert, who is the Chief Digital Officer at Delta Air Lines. Jumping into the business a little bit, we do operate in three segments: Kelly Enterprise Talent Management, Science, Engineering, and Technology, and Education. You can see they have a bit of a different profile across them. In the pie chart off to the right, you can see the general mix, ETM being roughly half of the business, just a little bit under half the business, SET being about $1.2 billion, and then Education about $1 billion.

Our overall gross profit is just above 20%. These are 2025 numbers, and our EBITDA margin was 2.6% for last year. That was down a little bit relative to the prior year. We have guided to 10 to 20 basis points of margin expansion this year, and we do expect gross profit expansion this year as well. As you look at the three segments, you can see that ETM is right around that 20%, SET is at 25%, and then Education at 14.5%. But the conversion to EBITDA varies quite a bit underneath of them. ETM has been under some pressure more recently, at the end of last year, beginning of this year, but is strongly bouncing back here in more recent quarters. We do expect that EBITDA margin. All three of them will have EBITDA margin expansion this year.

The SET business at 5.5%, and again, Education at 4.6%. It is more of a scale business, so roughly a third of the Education converts to EBITDA, whereas only about 20% of the SET converts to EBITDA, and about 10% of ETM, but again, that is a little bit distorted in the near term. You can see also the footprint is a bit different across the three segments. ETM is more of a global, more so in our managed services offering. What we call talent solutions is really where we are providing managed service capability for large enterprises. We run their talent platform for them. There can be multiple suppliers into that platform, Kelly being one of them. Not always, but certainly that is our preference is to have Kelly have a prominent space in those platforms. RPO is recruitment process outsourcing, and PPO is payroll process outsourcing.

That is about a quarter of the ETM business. About half the ETM business is the industrial and office clerical staffing, and then business process outsourcing, where we run production lines or other parts of an enterprise's operations on their behalf on an outsource arrangement. We provide the management, the safety, the credentialing and requirements, and typically on a multi-year type of contract relationship. From a global perspective, we support clients in 80 to 100 countries, but we are not providing the staffing in those countries. We manage then other suppliers who are doing that. But we have footprint in about 15 countries overall. SET is largely North American based, although in the life sciences space, they do tend to have a little bit more of an international mix with the large pharma companies, and life sciences companies in particular typically have a global footprint.

But there we do have temp staffing, perm placement, outcome based, so about 40% of that business. Outcome based is sort of a broad category that we report in when we do our revenue disaggregation. But in the SET example, it is more project-based resources. So whether it is an IT solutions project, it is a clinical trial that we are supporting for a 12-month basis, and we are providing clinicians and remixing capabilities and providing different services in support of that. Telecom, it could be a new capital build of RF engineering support or other types of capabilities around that field testing type services. So different project-based services across those, and that is growing. So that is a real industry shift, but then our solutions also are more oriented toward that more outcome-based model. And then on the Education side, we are the largest provider of substitute teacher outsourcing support for school districts.