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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.14pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.28pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.01pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
damage+5
loss+5
criminal+4
challenges+4
harm+3
Positive rising
enhanced+3
successfully+2
improved+2
opportunities+2
able+1
Risk Factors (Item 1A)
8,990 words
ITEM 1A. RISK FACTORS.
Risks Related to Macroeconomic Conditions
Our business is significantly affected by fluctuations in general economic conditions.
Historically, the general level of economic activity and employment in the United States and the other countries in which we operate has significantly affected the demand for staffing services. In periods of economic growth, employers often add temporary employees before hiring full-time employees. However, when economic activity declines, many employers reduce their use of temporary employees before laying off full-time employees. Customer responses to real or perceived economic conditions, including perceptions related to market conditions, labor supply, international trade policy, and inflation, could negatively impact customer behavior. Historically, significant changes in economic activity have disproportionately impacted staffing industry volumes. We may not fully benefit from times of increased economic activity should we experience shortages in the supply of workers. We may also experience more competitive pricing pressure and slower customer payments during periods of economic decline. A substantial portion of our revenues and earnings are generated by our business operations in the United States. Any significant economic in the United States or certain other countries in which we operate could have a material effect on our business, financial condition and results of operations.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+2
against+2
critical+1
deliberate+1
sluggish+1
Positive rising
efficiencies+2
benefit+1
greater+1
attractive+1
improved+1
MD&A (Item 7)
8,484 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Executive Overview
In 2025, Kelly continued to advance its multi-year transformation, building on the decisive actions taken in 2023 and 2024 to streamline the portfolio, sharpen strategic focus, and expand into higher-margin, higher-growth specialties. We remained focused on capturing a greater share of growth, converting a higher proportion of revenue into bottom-line performance, and positioning Kelly to benefit from an eventual recovery in the staffing environment.
Kelly entered 2025 with a simplified operating model concentrated on North American staffing, business process outsourcing (“BPO”) and specialty solutions and global Managed Service Provider (“MSP”) and recruitment process outsourcing (“RPO”) offerings, following the 2024 sale of its European staffing operations and the Ayers Group and acquisition of Motion Recruitment Partners (“MRP”) and Children’s Therapy Center (“CTC”). These portfolio actions reflected a deliberate shift toward businesses with more attractive growth profiles, scalable platforms, and improved EBITDA margin potential.
We continued to execute our refreshed go-to-market strategy, designed to deliver the full suite of Kelly solutions to large enterprise customers and capture a share of wallet while maintaining high service levels for customers of all sizes. This strategy was supported by ongoing commitment to delivering effectiveness and data-driven sales processes and initiatives.
Our stock price may be subject to significant volatility and could suffer a decline in value.
The market price of our common stock may be subject to significant volatility. We believe that many factors, including several which are beyond our control, have a significant effect on the market price of our common stock. These include:
• actual or anticipated variations in our quarterly operating results;
• announcements of new services by us or our competitors;
• announcements relating to strategic relationships, acquisitions or divestitures;
• changes in financial estimates by securities analysts;
• changes in general economic conditions;
• actual or anticipated changes in laws and government regulations;
• commencement of, or involvement in, litigation;
• the effects of our dual-class common stock (including the concentration of voting power in our Class B shares);
• any major change in our board or management;
• changes in industry trends or conditions; and
• sales of significant amounts of our common stock or other securities in the market.
In addition, the stock market in general and Nasdaq in particular, often experiences significant price and volume fluctuations that frequently are unrelated or disproportionate to the operating performance of listed companies. These broad market and industry factors may seriouslyharm the market price of our common stock, regardless of our operating performance. A securities class action suit against us arising out of stock volatility or other investor claims, could result in substantial costs, potential liabilities and the diversion of our management’s attention and resources. Further, our operating results may be below the expectations of securities analysts or investors. In such event, the price of our common stock may decline.
Risks Related to our Industry Segment
We operate in a highly competitive industry with low barriers to entry and may be unable to compete successfullyagainst existing or new competitors.
The worldwide staffing services market is highly competitive with limited barriers to entry. We compete in global, national, regional and local markets with full-service and specialized temporary staffing and consulting companies. Some competitors are considerably larger than we are and have more substantial marketing and financial resources. Additionally, the emergence of online staffing platforms, talent sourcing models, or other forms of disintermediation may pose a competitive threat to our services that operate under a more traditional staffing business model. Price competition in the staffing industry is intense, particularly for the provision of office clerical, light industrial and education personnel. We expect that the level of competition will remain high, which could limit our ability to maintain or increase our market share or profitability.
The number of customers distributing their staffing service purchases among a broader group of competitors continues to increase which, in some cases, may make it more difficult for us to obtain new customers, or to retain or maintain our current share of business, with existing customers. We also face the risk that our current or prospective customers may decide to
provide similar services internally. As a result, there can be no assurance that we will not encounter increased competition in the future.
Technological advances, including advances in automation and artificial intelligence, may significantly disrupt the labor market and weaken demand for human capital.
Our success is directly dependent on our customers’ demand for talent. As technology continues to evolve, an increasing number of tasks currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence (“AI”), and other technology advances outside of our control. These changes could result in a decreased demand for human labor. This trend poses a risk to the staffing industry, particularly in lower-skill job categories and to creative, administrative, customer support and clerical roles vulnerable to advances in artificial intelligence. Artificial intelligence is beginning to perform tasks previously handled by knowledge workers, including data entry, basic coding, document review, financial analysis, customer service, and administrative support. As these technologies become more sophisticated and widely adopted, demand for certain categories of professional and technical staff we provide may decline. While technology may create demand for new types of roles that increase the demand for our services, there is no guarantee that growth in emerging job categories will fully offset potential declines in overall staffing demand. If we are unsuccessful in responding to this potential shift in customer demand due to advancing technology, it could have a material adverse effect on our results of operations and financial condition.
Competition rules arising from government legislation, litigation or regulatory activity may limit how we structure and market our services.
As a leading staffing and recruiting company, we are closely scrutinized by government agencies under U.S. and foreign competition laws. An increasing number of governments are enforcing competition laws and regulations, leading to increased scrutiny. Some jurisdictions also allow competitors or consumers to assert claims of anti-competitive conduct.
The European Commission and its various competition authorities have targeted industry trade associations in which we participate, which could result in the assessment of finesagainst our business. Although we have safeguards in place to comply with competition laws, there can be no guarantee that such safeguards will be successful. Any government regulatory actions may result in fines and penalties or hamper our ability to provide cost-effective benefits to consumers and businesses, reducing the attractiveness of our services and the revenues that come from them. New competition law actions could be initiated. The outcome of such actions, or steps taken to avoid them, could adversely affect us in a variety of ways, including:
• We may have to choose between withdrawing certain services from certain geographies to avoid fines or designing and developing alternative versions of those services to comply with government rulings, which may entail a delay in a service delivery.
• Adverse rulings may act as precedent in other competition law proceedings.
Our business is subject to extensive government regulation, which may restrict the types of services we are permitted to offer or result in additional tax or licensing requirements, or other costs that reduce our revenues and earnings.
The temporary employment industry is heavily regulated in many of the countries in which we operate. Changes in laws or government regulations may result in prohibition or restriction of certain types of services we can offer, increased delivery and operating complexity costs, or the imposition of new or additional pay, benefit, licensing or tax requirements that could reduce our revenues and earnings. In particular, we are subject to state unemployment taxes in the U.S., which typically increase during periods of increased levels of unemployment. Increased government regulation of the workplace, such as enhanced wage or labor protections, laws or regulations restricting the use of artificial intelligence in the employment lifecycle, or expansion of employee privacy rights, could adversely impact our business. Changes in the immigration policy in the United States could adversely impact our ability to recruit or retain non-citizen workers, including individuals employed by us on work visas, primarily H-1B, or eligible to work under temporary protected status, deferred enforcement decisions, or similar work authorizations. We also receive benefits, such as the work opportunity income tax credit in the U.S., that regularly expire and may not be reinstated. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to fully cover increased costs as a result of any changes in laws or government regulations. Any future changes in laws or government regulations, or interpretations or enforcement thereof, including additional laws and regulations enacted at a state or local level may make it more difficult or expensive for us to provide services and could have a material adverse effect on our business, financial condition and results of operations. In addition, as state and local jurisdictions expand their regulation of the workplace, we may be unable to adequately monitor or timely respond to changes in state and local regulations, which could result in significant fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, damage to our reputation and other adverse consequences.
Unexpected changes in claim trends on our workers’ compensation, unemployment, disability, medical benefit plans, and other expenses may negatively impact our financial condition.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program, disability and medical benefits claims. Unexpected changes in claim trends, including the severity and frequency of claims, actuarial estimates and medical cost inflation, could result in costs that are significantly different than initially reported. If future claims-related liabilities increase due to unforeseen circumstances, or if we must make unfavorable adjustments to accruals for prior accident years, our costs could increase significantly. In addition, unemployment insurance costs are dependent on benefitclaims experience from employees which may vary from current levels and result in increased costs.
We face exposure to other significant expenses that could materially impact our financial performance, including cybersecurity incident response and remediation costs, regulatory compliance expenses, litigation and settlement costs, costs associated with employee or candidate misconduct, technology infrastructure investments required to maintain competitive service delivery, and expenses related to bad debt or client payment defaults. Additionally, we may incur unexpected costs related to regulatory changes, business integration or restructuring activities, or workforce retention initiatives in tight labor markets. Any of these expense categories could increase materially and unexpectedly.
There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities or other unexpected expenses. As customers monitor their third-party relationships for financial risk, such adverse financial changes could result in current customer loss or inability to acquire new customers due to perceived negative financial performance.
We may have additional tax liabilities that exceed our estimates.
We are subject to multiple federal, state, local and foreign taxes in the jurisdictions in which we operate. Our tax expense could be materially impacted by changes in tax laws in these jurisdictions, changes in the valuation of deferred tax assets and liabilities or changes in the mix of income by country. The overall size of our workforce and visibility of our industry may make it more likely we become a target of government investigations and we are regularly subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of audits and any related litigation could be materially different from our historical tax provisions and accruals. The results of an audit or litigation could materially harm our business.
Risks Related to Strategy and Execution
Our future performance depends on the Company’s effective execution of our business strategy.
The performance of the Company’s business is dependent on our ability to effectively execute our growth strategy. Our strategy includes targeted investments in select specialty areas, focusing on growth platforms and implementation of a cost-effective operating model to bridge our strategy to execution. If we are unsuccessful in executing our strategy, we may not achieve either our stated goal of revenue growth or the intended productivity improvements, which could negatively impact profitability. Even if effectively executed, our strategy may be insufficient considering changes in market conditions, technology, changes in customer buying behavior, competitive pressures or other external factors.
If we fail to successfullyimprove or develop new service offerings, we may be unable to retain and acquire customers, resulting in a decline in revenues.
The Company’s successful execution of our growth strategy requires that we match evolving customer expectations with evolving service offerings. The development of new or improved service offerings requires accurate anticipation of customer needs and emerging technology and workforce trends. We must make long-term investments in our information technology infrastructure and commit resources to development efforts without certainty that these investments will result in service offerings that achieve customer acceptance and generate the revenues required to provide desired returns. If we fail to accurately anticipate and meet our customers’ needs through the development of new or improved service offerings or do not successfully deliver these service offerings, our competitive position could weaken, causing a material adverse effect on our results of operations and financial condition.
A loss of major customers or a change in such customers’ buying behavior or economic strength could have a material adverse effect on our business.
We serve many large corporate customers through high volume service agreements. While we intend to maintain or increase our revenues and earnings from our major corporate customers, we are exposed to risks arising from the possible loss of major customer accounts. A change in labor strategy or labor disruptions, including work stoppages or the deterioration of the financial condition or business prospects of these customers could reduce their need for our services and result in a significant decrease in the revenues and earnings we derive from these customers. Such change could occur due to economic, social, climate, or political factors outside of our customers' control. Inability to meet customer demands in response to these factors could result in the decline in use of our service or outright loss of customers. Our customers are also exposed to third-party risk through their use of vendors and suppliers which, in the event of a third-party incident at a customer, could result in a deterioration in their financial condition. Continuing merger and acquisition activity involving our large corporate customers could put existing business at risk or impose additional pricing pressures. Since receipts from customers generally lag payroll to temporary employees, the bankruptcy of a major customer could have a material adverse impact on our ability to meet our working capital requirements. The expansion of payment terms may extend our working capital requirements and reduce available capital for investment. Additionally, most of our customer contracts can be terminated by the customer on short notice without penalty. This creates uncertainty with respect to the revenues and earnings we may recognize with respect to our customer contracts and the loss of a large customer could have a material impact on revenue.
Our business with large customer accounts reflects a market-driven shift in buying behaviors in which reliance on a small number of staffing partners has shifted to reliance upon a network of talent providers. The movement from single-sourced to competitively sourced staffing contracts may also substantially reduce our future revenues from such customers. While Kelly has sought to address this trend, including providing supplier and vendor management services as a customer’s MSP within our OCG segment, we may not be selected or retained as the MSP by our large customers, or if we are the MSP, we may not be one of the underlying staffing providers. This may result in a material decrease in the revenue we derive from providing staffing services to such customers. In addition, revenues may be materially impacted if we decide to exit customers due to pricing pressure or other business factors.
Our business with the federal government and government contractors presents additional risk considerations. We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts. Failure to meet these obligations could result in civil penalties, fines, suspension of payments, reputational damage, disqualification from doing business with government agencies and other sanctions or adverse consequences. Government procurement practices may change in ways that impose additional costs or risks upon us or pose a competitive disadvantage. Our employees may be unable to obtain or retain the security clearances necessary to conduct business under certain contracts, or we could lose, or be unable to secure or retain, a necessary facility clearance. In the event of a security incident by us or our personnel, we may not be able to conduct future business for certain federal government clients. In addition, government agencies may temporarily or permanently lose funding for awarded contracts, reduce spending, or deprioritize future spending on contracts on which we participate, or there could be delays in the start-up of projects already awarded and funded. This creates uncertainty with respect to the revenues and earnings we may recognize with respect to our government contracts.
We are at risk of damage to our brands, which are important to our success.
Our success depends, in part, on the value associated with our brands. Because we assign employees to work under the direction and supervision of our customer at work locations not under Kelly’s control, we are at risk of our employees engaging in unauthorized or illegal conduct that could harm our reputation. Our Education segment is particularly susceptible to this exposure because it places employees in schools and educational institutions where they work directly with vulnerable populations, including minors. These placements create heightened reputational and legal exposure related to potential misconduct involving students. Even a single incident of inappropriate contact, boundary violations, or prohibited interactions between our employees and students could result in significant harm to our brand, loss of client relationships, regulatory scrutiny, and legal liability. The nature of educational environments—where trust, safety, and duty of care are paramount—means that any allegation of misconduct, regardless of its ultimate validity, can damage our reputation within the education sector and more broadly. We implement screening, background checks, and training protocols that surpass regulatory compliance requirements, but we cannot entirely eliminate the risk that individuals we place may engage in conduct that violates professional boundaries or legal standards governing interactions with minors. The impact of such incidents could include contract terminations, difficulty securing new Education clients, litigation costs, regulatory penalties, and lasting damage to the Kelly brand.
Our brand reputation could also be damaged by the actions of unrelated third parties with diverse or unclear motives. Political activists, social media posts, or traditional news media could reference the Kelly brand as part of a broader communication
unrelated to our business, which could result in backlash against our business practices. In addition, undesirable actions by our competitors could adversely impact the reputation of the staffing industry as a whole, negatively impacting our brand. As we increasingly use artificial intelligence in our services, incidents of bias, hallucination, or error by artificial intelligence we use, or ethical objections to our use of artificial intelligence, could negatively impact our brand. Any incident, act or omission that damages Kelly’s reputation could cause the loss of current and future customers, additional regulatory scrutiny and liability to third parties, which could negatively impact profitability.
As we increasingly offer services outside the realm of traditional staffing, including outcome-based services, business process outsourcing, vendor and supplier management and services intended to connect independent talent to independent work, we are exposed to additional risks which could have a material adverse effect on our business.
Our business strategy focuses on driving profitable growth in key specialty areas, including through business process outsourcing arrangements, where we provide operational management of our customers’ non-core functions or departments. We also plan to expand the outcome-based services we provide, which increases our risk associated with product delivery. For outcome-based services, customers may impose specific requirements that limit our flexibility and control over service delivery and can increase operational complexity, introduce compliance and security risks, and which could have a material adverse effect on our business. This could expose us to certain risks unique to that business, including civil liability, product liability, or product recalls. As the nature of work changes, we deliver services that connect independent talent to independent work with our customers which could expose the Company to risks of misclassifying workers, which could result in regulatory audits and penalties. Although we have internal vetting processes intended to control such risks, there is no assurance that these processes will be effective or that we will be able to identify these potential risks in a timely manner. Our specialties also include professional services where errors or omissions by employees or independent contractors can result in substantial injury or damages. We attempt to mitigate and transfer such risks through contractual arrangements with our customers and suppliers; however, these services may give rise to liability claims and litigation. While we maintain insurance in types and amounts we believe are appropriate for the contemplated risks, there is no assurance that such insurance coverage will remain available on reasonable terms or be sufficient in amount or scope.
We are increasingly dependent on third parties for the execution of critical functions and could be liable for their inability to perform or adhere to global compliance standards.
We rely on third parties to support critical functions within our operations, including portions of our technology infrastructure, vendor management, customer relationship management, applicant tracking systems and in-country staffing services. If we are unable to contract with third parties having the specialized skills needed to support our growth strategies or integrate their products and services with our business, or if they fail to meet our performance requirements, the results of operations could be adversely impacted. We also rely on supplier partnerships to deliver certain services to customers. If our suppliers fail to meet our standards and expectations, or are unfavorably regarded by our customers, our ability to discontinue the relationship may be limited, which could result in reputational damage, customer loss and adversely affect our results of operations. The failure or inability to adequately perform on the part of one or more of these critical vendors, suppliers, or partners could cause significant disruptions and increased costs. Moreover, these third parties are often subject to international laws and regulations regarding their conduct, including compliance with anti-bribery, anti-corruption, human trafficking, forced or child labor, trade sanctions, sustainability and other compliance obligations (“Global Compliance Obligations”). While we maintain processes to monitor these third-parties for compliance to these standards, failure of these third-parties to adhere to Global Compliance Obligations could result in significant fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, customer loss, and damage to our reputation.
Our information technology strategy may not yield its intended results.
Our information technology strategy focuses on improvements to our technology stack across the company, including synergies in our applicant onboarding and tracking systems, order management system, financial processes, and enterprise resource planning (“ERP”) system. While we have launched a multi-year strategic initiative to integrate all of our businesses into a single ERP system, full implementation of a unified ERP system is a complex, multi-year undertaking, and we face significant risks associated with completing the remaining phases of this initiative. The implementation of our enterprise-wide ERP system may experience delays, cost overruns, or technical challenges that prevent timely completion. We may encounter difficulties integrating our diverse business units into a single ERP. The complexity of harmonizing workflows, data migration, user adoption, and system customization could result in business disruptions, operational inefficiencies, or data integrity issues during the transition period. Even if successfully implemented, the new ERP system may not deliver the anticipated benefits, including improved productivity, cost savings, enhanced data visibility, or improved customer service capabilities. Although we carefully plan for intelligent integration of our acquisitions with our legacy businesses, there is no assurance that we will
adequatelyresolve the issues presented by operating multiple disparate systems, or that we will successfully integrate technology across the Company.
In addition to our ERP initiative, we are pursuing opportunities to integrate artificial intelligence into our business operations, including in the recruiting, applicant tracking, screening, assessment, workforce analytics, and talent management domains. While these AI tools are intended to improveefficiency and services quality, they depend on data quality, algorithmic accuracy, and ongoing maintenance and refinement. Additionally, the rapid evolution of AI technology may require substantial and ongoing investment to remain competitive, and our competitors or new market entrants may deploy superior AI capabilities that erode our market position. If we are unable to successfully implement AI tools that meet customer expectations, fail to identify and adapt to changing talent or customer market demands related to AI, or face regulatory restrictions on AI use in employment contexts, our financial condition and results of operations could be materially adversely affected.
Some of the initiatives are dependent on the products and services of third-party vendors. If our vendors are unable to provide these services, or fail to meet our standards and expectations, we could experience business interruptions or data loss which could have a material adverse effect on our business, financial condition and results of operations. Any delays in completing, or an inability to successfully complete, these technology initiatives, or an inability to achieve the anticipated efficiencies, could adversely affect our operations, liquidity and financial condition.
Past and future acquisitions may not be successful.
As a part of our growth strategy, we continue to monitor the market for acquisition targets to bolster our inorganic growth aspirations. Acquisitions involve a number of risks, including the diversion of management’s attention from its existing operations, the failure to retain key personnel or customers of an acquired business, the failure to realize anticipated benefits such as cost savings and revenue enhancements, potential substantial transaction costs associated with acquisitions, the assumption of unknown liabilities of the acquired business and the inability to successfully integrate the business into our operations. There can be no assurance that any past or future acquired businesses will generate anticipated revenues or earnings.
Further, acquisitions result in goodwill and intangible assets which have the risk of impairment if the future operating results and cash flows of such acquisitions are lower than our initial estimates. In the event of an impairment determination, we may be required to record a significant non-cash charge to earnings that could adversely affect our results of operations.
Risks Related to Operating a Global Enterprise
We conduct a portion of our operations outside of the United States and we are subject to risks relating to our international business activities, including fluctuations in currency exchange rates and numerous legal and regulatory requirements.
We conduct our business in major markets throughout the world. Our operations outside the United States are subject to risks inherent in international business activities, including:
• fluctuations in currency exchange rates;
• restrictions or limitations on the transfer of funds;
• government intrusions including asset seizures, expropriations or de facto control;
• varying economic and geopolitical conditions;
• differences in cultures and business practices;
• differences in employment and tax laws and regulations;
• differences in accounting and reporting requirements;
• differences in labor and market conditions;
• compliance with trade sanctions;
• changing and, in some cases, complex or ambiguous laws and regulations; and
• litigation, investigations and claims.
Our operations outside the United States are reported in the applicable local currencies and then translated into U.S. dollars at the applicable currency exchange rates for inclusion in our consolidated financial statements. Exchange rates for currencies of these countries may fluctuate in relation to the U.S. dollar and these fluctuations may have an adverse or favorable effect on our operating results when translating foreign currencies into U.S. dollars.
Our international operations subject us to potential liability under anti-bribery, anti-corruption, anti-trafficking, supply chain, trade protection and other laws and regulations.
The Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors, or agents. Other international laws and compacts hold companies liable for human rights violations that occur within their supply chain and impose obligations on companies to prohibit human trafficking, forced labor and child labor (“Human Rights and Supply Chain Laws”). While we devote substantial resources to our global compliance programs and have implemented policies, training and internal controls designed to reduce the risk of corrupt payments and ensure compliance with human rights standards, our employees, directors, officers, vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws or Human Rights and Supply Chain Laws could result in significant fines and penalties, criminal sanctions against us, our directors, officers, employees, agents, or our vendors, prohibitions on the conduct of our business and damage to our reputation. Operations outside the United States may be affected by changes in trade protection laws, policies and measures and other regulatory requirements affecting trade and investment. As a result, we may be subject to legal liability and reputational damage.
Events such as natural disasters, severe weather, terrorist attacks, war, pandemics and other catastrophic events could decrease demand for our services in impacted areas.
Because we conduct our business in major markets throughout the world, we face risks in those environments that are beyond our control. Natural disasters, severe weather, climate change, disease, pandemics, war, terrorist acts, or other similar unforeseen events could materially adversely affect our operations or financial condition. Even where the event does not directly impact our operations, its impact on regional business could adversely impact our business through decreased customer demand or inability to perform services due to the event. Historically, large-scale events have resulted in a temporary economic downturn in areas impacted by such catastrophic events. Even where we are able to provide services in relief and support operations, there is no assurance that we will be able to offset the adverse impacts of the catastrophic event.
We are subject to substantial pressure to meet external stakeholder’s sustainability requirements.
Influential investors, regulators, customers, and advocacy groups have increasingly focused on evaluating the sustainability commitments of companies in which they invest. While we have made public sustainability commitments, our customers often require us to comply with their requirements as part of their own practices. These enhanced expectations from our customers around sustainability practices can increase operating costs and require incremental resources to satisfy. Our inability to meet customer sustainability requirements could also result in the possible loss of major customer accounts. Although we maintain a sustainability program that we believe currently matches or exceeds our customer demands, there can be no guarantee that our program will be able to adequately meet future regulatory or customer requirements or that we will meet our established commitments.
Risks Related to Human Capital
We depend on our ability to attract, develop and retain qualified permanent full-time employees.
As we aim to expand the number of clients utilizing our higher margin specialty solutions in support of our growth strategy, we are highly reliant on individuals who possess specialized knowledge and skills to lead related specialty solutions and operations. Social, political and financial conditions can negatively impact the availability of qualified personnel. Competition for individuals with proven specialized knowledge and skills is intense and demand for these individuals is expected to remain strong in the foreseeable future. Our success is dependent on our ability to attract, develop and retain these employees.
We depend on the ability of Kelly and third-party talent suppliers to attract and retain qualified personnel to provide our services.
We depend on our and our suppliers' ability to attract qualified personnel who possess the skills and experience necessary to meet the workforce demands of our customers. We must continually evaluate our base of available qualified personnel and suppliers to keep pace with changing customer needs. Competition for individuals with established professional skills is fierce and demand for these individuals is anticipated to remain robust for the foreseeable future. Rapid evolution of technology may widen the skills gap, where the demand for expertise outpaces the availability of suitably skilled professionals. The shifts in workforce demographics, including new generations entering the labor market with different expectations around flexibility, career development, and work-life balance, may make it more difficult to attract and retain qualified talent. Low unemployment, periods of reduced job movement or hiring activity, as well as social, political and financial conditions can negatively impact the amount of qualified personnel available to meet the talent requirements of our customers. There can be no
assurance that qualified personnel will continue to be available in sufficient numbers and on terms of employment acceptable to us and our customers.
The proliferation of artificial intelligence-enhanced application materials and fraudulent candidates, including those potentially sponsored by hostile actors, creates operational challenges and exposes us to legal, reputational, and security risks.
The widespread availability of artificial intelligence tools has altered the candidate recruitment and screening landscape, creating operational challenges for our business. AI technologies enable candidates to rapidly generate resumes, cover letters, skills assessment responses, and interview answers that may misrepresent their actual qualifications, experience, and capabilities. The growing use of AI by candidates has made it increasingly difficult and costly to identify qualified candidates and assess true competencies.
Candidates may use AI to optimize their resumes for applicant tracking systems, fabricate work histories, exaggerate technical skills, or perform well in initial screenings despitelacking the actual abilities required for the positions. If we place candidates whose qualifications have been misrepresented through AI assistance, and those individuals fail to perform adequately or cause harm to our clients' operations, we may face damage to client relationships, customer loss, and harm to our reputation.
We also face emerging threats from individuals sponsored or directed by hostile nation-states or criminal organizations. These actors may use stolen identities, deepfake technology for video interviews, AI-generated documentation, and other advanced techniques to secure placement in customer organizations with the intent to steal intellectual property, commit fraud, conduct corporate espionage, facilitate cyberattacks, or generate revenue for sanctioned regimes or criminal enterprises. Government agencies have specifically warned about organized schemes involving nationals from foreign countries seeking remote employment at U.S. and international companies while concealing their true identities and locations.
If we inadvertently place individuals engaged in such schemes, or such individuals are placed by suppliers in our MSPs, we could face severe consequences including violations of international sanctions laws and export control regulations, criminal and civil liability, customer loss, government investigations, substantial fines and penalties, reputational damage, and difficulty obtaining or maintaining government contracts.
While we continue to invest in training, enhanced screening procedures, verification technologies, background checks, and fraud detection capabilities, the sophistication of AI tools and the resources available to criminal enterprises and nation-state actors may exceed our detection capabilities. The rapidly evolving nature of these threats means our countermeasures may not keep pace with emerging tactics. These challenges could materially increase our operating costs, reduce our screening effectiveness, expose us to significant legal and financial liability, and damage our competitive position and brand value.
We may be exposed to employment-related claims and losses, including class action lawsuits and collective actions, which could have a material adverse effect on our business.
We employ and assign personnel in the workplaces of other businesses. The risks of these activities include possible claims relating to:
• discrimination and harassment;
• wrongfultermination or retaliation;
• violations of employment rights related to employment screening or privacy issues;
• apportionment between us and our customer of legal obligations as an employer of temporary employees;
• classification of workers as employees or independent contractors;
• employment of unauthorized workers;
• violations of wage and hour requirements;
• entitlement to employee benefits, including health insurance and retroactive benefits;
• failure to comply with leave policy and other labor requirements; and
• errors and omissions by our temporary employees, particularly for the actions of professionals such as engineers, therapists, accountants, doctors, teachers and scientists.
We are also subject to potential risks relating to misuse of customer proprietary information, misappropriation of funds, death or injury to our employees, damage to customer facilities due to negligence of temporary employees, criminal activity and other similar occurrences. We may incur fines and other losses or negative publicity with respect to these risks. In addition, these occurrences may give rise to litigation, which could be time-consuming and expensive. In the U.S. and certain other countries in which we operate, new employment and labor laws and regulations have been proposed or adopted that may increase the
potential exposure of employers to employment-related claims and litigation. In addition, such laws and regulations are arising with increasing frequency at the state and local level in the U.S. and the resulting inconsistency in such laws and regulations results in additional complexity. There can be no assurance that the corporate policies and practices we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. Although we maintain insurance in types and amounts we believe are appropriate in light of the aforementioned exposures, there can also be no assurance that such insurance policies will remain available on reasonable terms or be sufficient in amount or scope of coverage. Additionally, should we have a material inability to produce records as a consequence of litigation or a government investigation, the cost or consequences of such matters could become much greater.
Risks Related to Cyber Security and Data Privacy
Damage to our data facilities could affect our ability to sustain critical business applications.
Many business processes critical to our continued operation are hosted in outsourced facilities in America, Europe and Asia, hosted at our corporate headquarters or, increasingly, occur in cloud-based computer environments. We rely on key cloud and Software as a Service (“SaaS”) providers to support critical business processes. These critical processes include, but are not limited to, payroll, customer reporting and order management. Although we have taken steps to protect such instances by establishing data backup and disaster recovery capabilities, a security incident, outage, or operational failure affecting these providers, or a misconfiguration or integration issue involving our environments, impair our ability to serve customers and candidates, and create a substantial risk of business interruption which could have a material adverse effect on our business, financial condition and results of operations.
A failure to maintain the privacy of personal data entrusted to us could have significant adverse consequences.
In the normal course of business we control, process, or have access to personal data regarding candidates and persons employed or engaged by us, our customers, certain customer employees and managed suppliers. Information concerning these individuals may also reside in systems controlled by third parties for purposes such as employee benefits, assignment information and payroll administration. The legal and regulatory environment concerning data privacy is becoming more complex and challenging and the potential consequences of non-compliance have become more severe. The European Union’s General Data Protection Regulation, the California Consumer Privacy Act, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and similar laws impose additional compliance requirements related to the collection, use, processing, transfer, disclosure, security and retention of personal or protected health information (“PHI”), which can increase operating costs and resources to accomplish. The further expansion of privacy laws and litigation for violations of those laws, including at a state-level in the United States, could make it more difficult or expensive for us to provide services and could have a material adverse effect on our business, financial condition and results of operations.
Any failure to abide by these regulations or to protect such personal information or PHI from inappropriate access or disclosure, whether through social engineering or by accident or other cause, could have severe consequences including fines, litigation, regulatory sanctions, reputational damage and loss of customers or employees. Although we have a privacy compliance program designed to preserve the privacy and rights of the individuals whose personal data we control or process, as well as personal data that we entrust to third parties, there can be no assurance that our program will meet all current and future regulatory requirements, anticipate all potential methods of unauthorized access, or prevent all inappropriate disclosures. Our insurance coverage may not be sufficient to cover all such costs or consequences and there can be no assurance that any insurance that we now maintain will remain available under acceptable terms.
Cyberattacks, damage or disruption to our technology systems and services, breaches of network or information technology security, or other serious security incidents could have an adverse effect on our systems, services, reputation and financial results.
We rely upon multiple information technology systems and networks, some of which are web-based or managed by third parties or open source, to process, transmit and store electronic information and to manage or support a variety of critical business processes and activities. Our networks and applications are increasingly accessed from locations and by devices not within our physical control and the specifics of our technology systems and networks may vary by geographic region. In the course of ordinary business, we may store or process proprietary or confidential information concerning our business and financial performance and current, past or prospective employees, customers, vendors and managed suppliers. The secure and consistent operation of these systems, networks and processes is critical to our business operations. Moreover, our workers may be exposed to, or have access to, similar information in the course of their customer assignments. We routinely experience cyberattacks, which may include the use or attempted use of malware, ransomware, computer viruses, phishing, social engineering schemes and other means of attempted disruption or unauthorized access. Advanced social engineering and
impersonation techniques by criminal organizations and nation-state adversaries for the purposes of espionage, data theft, or system disruption have sought to exploit information technology job opportunities at many companies. Although we have not experienced a material attack of this nature, because our services involve providing talent solutions for information technology roles, we are at increased risk for this advanced type of attack, whether directly or through a supplier in our MSP services.
Additionally, the rapid pace of change in information security and cyber security threats could result in a heightened threat level for us or companies in our industry without notice. The potential risk increases as we expand and publicize new services. In addition to cyberattacks, our systems and services are vulnerable to damage or disruption from technology or software failures, errors by our employees or our vendors, power outages, natural disasters, extreme weather, conflicts, or other unforeseen events, which could disrupt our business operations. Our relationships with third parties, including suppliers we manage, customers and vendors, create potential avenues for malicious actors to initiate a supply chain attack. Even in instances where we are not a target of a malicious actor, we could be exposed to risk due to our relationships and business processes with these third parties.
The actions we take to reduce the risk of impairments to our operations or systems and breaches of confidential or proprietary data may not be sufficient to prevent or repel future cyber events or other impairments of our networks or information technologies, especially as cyberattacks become more sophisticated with advances in artificial intelligence. An event involving the destruction, modification, accidental or unauthorized release, or theft of sensitive information from systems related to our business, or an attack that results in damage to or unavailability of our key technology systems or those of critical vendors (e.g., ransomware), could result in damage to our reputation, fines, regulatory sanctions or interventions, contractual or financial liabilities, additional compliance and remediation costs, loss of employees or customers, loss of payment card network privileges, operational disruptions and other forms of costs, losses or reimbursements, any of which could materially adversely affect our operations or financial condition. Our cyber security and business continuity plans and those of our third parties with whom we do business, may not be effective in anticipating, preventing and effectively responding to all potential cyber risk exposures. Cyberattacks, even if unsuccessful, may damage or disrupt our systems and services or require us to take actions to protect our systems that could have a material adverse effect on our business, financial condition and results of operations. Our insurance coverage may not be sufficient to cover all such costs or consequences and there can be no assurance that any insurance that we now maintain will remain available under acceptable terms.
Risks Related to Our Capital Structure
Our controlling stockholder exercises voting control over our company and has the ability to elect or remove from office all of our directors.
We have a controlling stockholder that beneficially owns 92.2% of our outstanding Class B shares. Our Class B common stock is the only class of our common stock entitled to voting rights. The voting rights of our Class B common stock are perpetual and our Class B common stock is not subject to transfer restrictions or mandatory conversion obligations under our certificate of incorporation or bylaws. Our controlling shareholder therefore, is able to exercise voting control with respect to all matters requiring stockholder approval, including the election or removal from office of all members of the Company’s board of directors.
We are not subject to certain of the listing standards that normally apply to companies whose shares are quoted on the Nasdaq Global Select Market.
Our Class A and Class B common stock are quoted on the Nasdaq Global Select Market. Under the listing standards of the Nasdaq Global Select Market, we are deemed to be a “controlled company” due to our controlling shareholder having voting power with respect to more than fifty percent of our outstanding voting stock. A controlled company is not required to have a majority of its board of directors comprised of independent directors. Director nominees are not required to be selected or recommended for the board’s selection by a majority of independent directors or a nominations committee comprised solely of independent directors, nor do the Nasdaq Global Select Market listing standards require a controlled company to certify the adoption of a formal written charter or board resolution, as applicable, addressing the nominations process. A controlled company is also exempt from the Nasdaq Global Select Market’s requirements regarding the determination of officer compensation by a majority of independent directors or a compensation committee comprised solely of independent directors. A controlled company is required to have an audit committee composed of at least three directors who are independent as defined under the rules of both the SEC and the Nasdaq Global Select Market. The Nasdaq Global Select Market further requires that all members of the audit committee have the ability to read and understand fundamental financial statements and that at least one member of the audit committee possess financial sophistication. The independent directors must also meet at least twice a year in meetings at which only they are present.
As a “controlled company” under Nasdaq Global Select Market listing standards, we have elected to rely on the controlled company exemptions from certain corporate governance requirements. As a result, we are not required to (i) have director nominees selected or recommended to our board of directors by independent directors (either through a committee composed entirely of independent directors or by a majority of the independent directors on our board of directors) or (ii) have a compensation committee composed entirely of independent directors. Accordingly, the protections that these requirements are intended to provide may not be available to our stockholders, and our controlling stockholder may be able to exert significant influence over matters such as director nominations and executive compensation. In the future, we may elect to rely on additional controlled company exemptions (including exemptions relating to board and committee independence), to the extent we continue to qualify as a controlled company.
The holders of shares of our Class A common stock are not entitled to voting rights.
Under our certificate of incorporation, the holders of shares of our Class A common stock are not entitled to voting rights, except as otherwise required by Delaware law. Furthermore, pursuant to a Letter Agreement dated January 30, 2026, between the Company and Hunt Equity Opportunities, LLC (“Hunt”), for a period of three years following the closing of Hunt’s purchase of Class B common stock, certain “controlling stockholder transactions” (including “going private transactions”) must be approved by the holders of Class A common stock and Class B common stock voting together as a single class. In these specific and limited circumstances, each holder of Class A common stock is entitled to one vote per share, excluding any stockholders that have a material interest in the transaction or a material relationship with Hunt. As a result, Class A common stockholders do not otherwise have the right to vote for the election of directors or in connection with most other matters submitted for the vote of our stockholders, including most mergers and certain other business combination transactions involving the Company. See Subsequent Events footnote in the notes to our consolidated financial statements for additional details.
Provisions in our certificate of incorporation and bylaws and Delaware law may delay or prevent an acquisition of our Company.
Our certificate of incorporation and bylaws contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors. For example, if a potential acquirer were to make a hostile bid for us, the acquirer would not be able to call a special meeting of stockholders to remove our board of directors or act by written consent without a meeting. The acquirer would also be required to provide advance notice of its proposal to replace directors at any annual meeting and would not be able to cumulate votes at a meeting, which would require the acquirer to hold more shares to gain representation on the board of directors than if cumulative voting were permitted.
Our board of directors also has the ability to issue additional shares of common stock which could significantly dilute the ownership of a hostile acquirer. In addition, Section 203 of the Delaware General Corporation Law limits mergers and other business combination transactions involving 15 percent or greater stockholders of Delaware corporations unless certain board or stockholder approval requirements are satisfied. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation.
Our board of directors could choose not to negotiate with an acquirer that it did not believe was in our strategic interests. If an acquirer is discouraged from offering to acquire us or prevented from successfully completing a hostile acquisition by these or other measures, our shareholders could lose the opportunity to sell their shares at a favorable price.
At our 2026 Annual Meeting of Stockholders, we expect to seek stockholder approval of an amendment to our certificate of incorporation that would (i) permit stockholder action by written consent, (ii) allow the Chairman of our Board to call special meetings of stockholders, (iii) allow a majority of the holders of our Class B common stock to call special meetings of stockholders, and (iv) permit stockholders to fill vacancies or newly created directorships. If approved, these changes would reduce certain impediments to stockholder action contained in our current organizational documents and could, depending on the circumstances, either facilitate or deter third-party acquisition efforts.
We may not be able to realize value from, or otherwise preserve and utilize, our tax credit and net operating loss carryforwards.
Provisions in U.S. and foreign tax law could limit the use of tax credit and net operating loss carryforwards in the event of an ownership change. In general, an ownership change occurs under U.S. tax law if there is a change in the corporation’s equity ownership that exceeds 50% over a rolling three-year period. If we experience an ownership change, inclusive of our Class A and Class B common stock, our tax credit and net operating loss carryforwards generated prior to the ownership change may be
subject to annual limitations that could reduce, eliminate or defer their utilization. Such limitation could materially impact our financial condition and results of operations.
Failure to maintain specified financial covenants in our bank credit facilities, or credit market events beyond our control, could adversely restrict our financial and operating flexibility and subject us to other risks, including risk of loss of access to capital markets.
Our bank credit facilities contain covenants that require us to maintain specified financial ratios and satisfy other financial conditions. During 2025, we met all of the covenant requirements. Our ability to continue to meet these financial covenants, particularly with respect to interest coverage (see Debt footnote in the notes to our consolidated financial statements), cannot be assured. If we default under this or any other of these requirements, the lenders could declare all outstanding borrowings, accrued interest and fees to be due and payable or significantly increase the cost of the facility. Additionally, our credit facilities contain cross-default provisions. In these circumstances, there can be no assurance that we would have sufficient liquidity to repay or refinance this indebtedness at favorable rates or at all. Events beyond our control could result in the failure of one or more of our banks, reducing our access to liquidity and potentially resulting in reduced financial and operating flexibility. If broader credit markets were to experience dislocation, our potential access to other funding sources would be limited.
greater
greater
Critical to positioning Kelly for future growth was the hiring of Chris Layden as President and Chief Executive Officer in September 2025. Layden succeeded Peter Quigley, who announced his intention to retire in February 2025. Layden brings dynamic industry leadership and extensive experience leading organizations through periods of significant change, while delivering growth and strengthening competitive positioning. Layden’s hiring underscores Kelly’s commitment to enhancing its operational capabilities and service delivery while transforming its technology processes and platforms.
During 2025, Kelly faced a dynamic macroeconomic environment characterized by sluggish labor market demand and policy shifts which had significant impacts on the industry, including Kelly. In the face of these headwinds, Kelly demonstrated measurable progress in cost discipline and selective market strength. At the same time, we accelerated structural and demand-driven cost optimization initiatives, including technology modernization, acquisition integration and process efficiencies to enhance execution and agility while positioning Kelly to capture market share and improveprofitability when staffing market conditions stabilize.
Structural cost actions, operating model simplification, acquisition integration and portfolio reshaping are expected to support continued improvement in Kelly’s growth prospects and financial profile as we move through 2026 and beyond.
Financial Measures
Reported percentage changes are computed based on millions. Prior year percent changes were computed based on actual amounts in thousands. Prior year percent changes have been recast to conform to the new presentation which is calculated based on millions. All dollar amounts are presented in millions except for per share data.
Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported. DSO is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances at the period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer.
NM (not meaningful) in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.
Results of Operations
Total Company
(in millions)
% Change
Revenue from services
Gross profit
SG&A expenses excluding integration, realignment, restructuring charges, and depreciation and amortization
Integration, realignment and restructuring charges
Total SG&A expenses excluding depreciation and amortization
Depreciation and amortization
Total SG&A expenses
Goodwill impairment charge
Asset impairment charge
Gain on sale of EMEA staffing operations
Gain on sale of assets
Earnings (loss) from operations
Other income (expense), net
Earnings (loss) before taxes
Income tax expense (benefit)
Net earnings (loss)
Gross profit rate
(0.3) pts.
The total company discussion that follows focuses on 2025 results compared to 2024. For a discussion of total company 2024 results compared to 2023, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2024, filed on February 13, 2025.
In the segment level discussions that follow the total company discussion, the comparative results for 2024 and 2023 have been recast to conform to the new structure. Our operating segments, which also represent our reportable segments, are based on the organizational structure for which financial results are regularly evaluated by our chief operating decision-maker (“CODM”, our CEO) to determine resource allocation and assess performance.
We combined our former P&I and OCG segments into the ETM segment in the first quarter of 2025, responding to a shift in customer demand toward integrated workforce solutions and enabling a more streamlined and efficient go-to-market approach. We also realigned certain customers from the SET segment to the ETM segment to support this integrated strategy. Also in the first quarter of 2025, we moved MRP's Sevenstep business from the SET segment to the ETM segment as part of the broader integration of MRP. The 2024 and 2023 ETM and SET segment information has been recast to conform to the new structure.
Our three reportable segments: (1) Enterprise Talent Management, (2) Science, Engineering & Technology and (3) Education, reflect the specialty services we provide to customers and represent how the business is organized internally.
Revenue from services decreased 1.9% year-over-year with decreases in the ETM and SET segments, partially offset by an increase in the Education segment and by the acquisition of MRP in May 2024. Excluding the impact from the acquisition, revenue from services decreased 6.2%. Compared to last year and excluding the impact from the acquisition, revenue from staffing services decreased 6.0% and revenue from outcome-based services decreased 9.4% from the prior year. Revenue from talent solutions increased 1.1% and permanent placement revenue decreased 20.9% from the prior year, excluding the impact from the acquisition.
Gross profit decreased 3.4% on lower revenue volume, partially offset by the acquisition of MRP. Excluding the impact from the acquisition, gross profit decreased 9.7%. The gross profit rate decreased 30 basis points to 20.1% and was favorably impacted by the acquisition of MRP. Excluding the acquisition, the gross profit rate declined 70 basis points. The decrease is due primarily to changes in business mix, higher employee-related costs and lower permanent placement revenue. Permanent placement revenue has higher gross profit due to very low direct costs of services and thus has a disproportionate impact on gross profit rates. The gross profit rate decreased in the ETM and SET segments and had a slight increase in the Education segment.
Total selling, general and administrative (“SG&A”) expenses increased 0.9%, primarily due to the acquisition of MRP. Excluding the impact of the acquisition, SG&A expenses decreased 4.8%. Included in SG&A expenses in 2025 were $27.8 million of integration and realignment costs related to initiatives to integrate MRP and other prior acquisitions, consolidating operating segments and further aligning processes and technology. Also included in SG&A was $2.7 million of executive transition charges and $0.8 million of transaction costs. Included in SG&A expenses in 2024 were $17.9 million of transaction costs arising from the sale of our EMEA staffing operations and acquisition of MRP, $10.0 million of integration costs related to initiatives to integrate MRP and aligning Company processes and technology, $6.1 million of restructuring and transformation costs and $2.3 million of executive transition charges. Excluding the impact of the acquisition, as well as transaction, integration, restructuring and executive transition charges—and excluding depreciation and amortization—SG&A expenses decreased 4.7% primarily due to momentum on structural and demand-driven expense optimization initiatives and lower variable, performance-based incentive compensation expenses in response to lower revenue volume. Depreciation and amortization represents the total company depreciation and amortization of intangibles, including the amortization of hosted software.
The goodwill impairment charge in 2025 was primarily driven by reduced demand, integration of MRP and Softworld acquisitions and the realignment of reporting units in the SET segment. The goodwill impairment charge in 2024 related to our Softworld reporting unit which delivers technology staffing and workforce services and is included in the SET segment. Changes in internal projections of financial performance due to continued challenging market conditions resulted in a lower estimated fair value for the reporting unit and an impairment charge of $102.0 million and $72.8 million for 2025 and 2024, respectively. The impairment of assets in 2024 represents the impairment of certain right-of-use (“ROU”) assets related to our leased headquarters facility.
Loss from operations in 2025 totaled $69.8 million, compared to a loss from operations of $15.1 million in 2024. The decrease is primarily related to the goodwill impairment charges, increased costs for integration, realignment and restructuring activities, the impact of lower revenue and gross profits and higher SG&A as compared to the prior year.
The change in other income (expense), net is primarily the result of an increase in interest expense related to the long-term debt taken on in 2024 in conjunction with the acquisition of MRP.
Income tax expense was $175.3 million in 2025 compared to an income tax benefit of $21.3 million in 2024. The 2025 expense was impacted by $197.6 million of federal and state valuation allowances established against U.S. general business credit carryforwards and other deferred tax assets, and a $6.2 million impact from a non-tax deductible goodwill impairment charge. This was offset by an $18.4 million benefit from the impairment of tax-deductible goodwill. In 2024, the benefit was driven by an $18.4 million tax benefit from the impairment of tax-deductible goodwill.
Operating Results By Segment
(in millions)
% Change
% Change
Revenue From Services:
Enterprise Talent Management
Science, Engineering & Technology
Education
International
Less: Intersegment revenue
Consolidated Total
ETM revenue includes the impact from the acquisition of Sevenstep, the MRP talent solutions business. Revenue excluding the acquisition decreased 9.1%. Revenue from staffing services decreased 11.7%, resulting from lower demand primarily at certain large customers and revenue from outcome-based services decreased 12.1%, primarily due to the ramping down of a large contact-center customer that has fully ended as of the third quarter of 2025, which was offset by an increase of 1.1% in talent solutions, excluding the acquisition.
The increase in SET revenue from services was primarily driven by the acquisition of MRP staffing and outcome-based solutions businesses. Excluding the acquisition, revenue from services decreased 9.3%, primarily driven by lower staffing services demand related to U.S. federal government contractors. Excluding the acquisition, revenue in our outcome-based services decreased 5.5%. Permanent placement fees decreased, reflecting continued lower market demand.
The increase in Education revenue from services was driven by the impact of higher fill rates and higher bill rates on stable demand for our services as compared to a year ago, partially offset by the impact of weather-related school closures early in the year.
The decrease in ETM revenue from services was due primarily to a 3.9% decline in staffing services resulting from lower demand, partially offset by higher bill rates. Revenue from outcome-based services decreased 0.9% due to lower demand for our call-center solutions, partially offset by higher revenue from other specialties.
The increase in SET revenue from services was driven by the acquisition of MRP in May 2024. Excluding the acquisition, revenue from services decreased 6.6%, primarily due to lower demand in our staffing specialties, partially offset by higher bill rates. Excluding the acquisition, revenues from outcome-based services decreased 6.3%.
The increase in Education revenue from services reflects increased demand for our services as compared to a year ago. Increased demand for our services reflects new customer wins and an increased fill rate related to demand of existing customers.
International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our ETM segment.
Operating Results By Segment (continued)
(in millions)
% Change
% Change
Gross Profit:
Enterprise Talent Management
Science, Engineering & Technology
Education
International
Consolidated Total
Gross Profit Rate:
Enterprise Talent Management
(0.7) pts.
(0.7) pts.
Science, Engineering & Technology
Education
International
Consolidated Total
(0.3) pts.
0.5 pts.
Gross profit for the ETM segment decreased on lower revenue volume. Factors impacting the gross profit rate included higher employee-related costs and changes in business mix, which reduced the gross profit rate by 70 basis points.
SET gross profit increased primarily due to the acquisition of MRP. The change in the SET gross profit rate was driven by a 50 basis point decrease reflecting the impact of changes in business mix and higher employee-related costs and a 50 basis point decrease as a result of lower permanent placement revenue, partially offset by a 70 basis point increase due to the MRP acquisition, which generates higher gross profit rates.
Gross profit for the Education segment increased on higher revenue volume. The gross profit rate increased 10 basis points due to lower employee-related costs, partially offset by changes in business mix.
Gross profit for the ETM segment decreased on lower revenue volume. In comparison to the prior year, the gross profit rate decreased 70 basis points primarily due to changes in business mix and lower permanent placement revenue, partially offset by lower employee-related costs.
SET gross profit increased resulting from the acquisition of MRP, partially offset by the decrease in revenue volume in other components of the segment. The gross profit rate increased 80 basis points due to the acquisition of MRP, which generates higher gross profit rates. This impact was partially offset by a 60 basis point decrease in the gross profit rate in other components of SET reflecting changes in business mix and lower permanent placement revenue, partially offset by lower employee-related costs.
Gross profit for the Education segment increased on higher revenue volume. The gross profit rate decreased 90 basis points due primarily to changes in business mix, lower permanent placement revenue and higher employee-related costs.
International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our ETM segment.
Operating Results By Segment (continued)
(in millions)
% Change
% Change
SG&A Expenses (excluding depreciation and amortization):
Enterprise Talent Management
Science, Engineering & Technology
Education
International
Corporate expenses
Consolidated Total
The decrease in ETM SG&A expenses excluding depreciation and amortization was primarily due to lower salary-related costs and performance-based incentive compensation as a result of operating efficiencies and expense management actions in response to lower revenue volume compared to the prior year, partially offset by the addition of the Sevenstep business and integration and realignment charges. Excluding the acquisition, expenses decreased 4.5% from the prior year.
The increase in SET SG&A expenses excluding depreciation and amortization was primarily related to higher employee-related costs due to the acquisition of MRP. Excluding the acquisition, expenses decreased 6.5% from the prior year due to lower shared service costs which are included in other segment expenses and lower direct salaries reflecting expense management actions in response to lower revenue volume compared to the prior year, partially offset by an increase in integration and realignment charges in 2025 as compared to prior year restructuring and transformation costs.
The increase in Education SG&A expenses excluding depreciation and amortization primarily related to increased costs to support year-over-year revenue growth.
The decrease in Corporate expenses was primarily driven by lower employee-related costs and transaction costs, partially offset by an increase in integration and realignment charges in 2025 as compared to prior year.
The decrease in total SG&A expenses excluding depreciation and amortization in ETM includes the impact of restructuring and transformation charges and the impact from the addition of the Sevenstep business. Excluding the impact of these items, expenses decreased by 10.5% primarily due to lower direct salaries as a result of cost management in response to lower revenue volume compared to the prior year, as well as the impact of transformation-related actions. Other segment expenses declined primarily due to lower shared service costs for IT, finance, human resources and legal support and lower facilities and equipment-related costs.
The increase in total SG&A expenses excluding depreciation and amortization in SET is due to the MRP acquisition. Excluding the impact from the acquisition, expenses decreased 10.3% from the prior year primarily due to lower shared service costs which are included in other segment expenses and lower direct salaries reflecting the response to lower revenue volume compared to the prior year, as well as the impact of transformation-related actions.
The increase in total SG&A expenses excluding depreciation and amortization in Education is primarily due to increased direct salaries and other segment expenses as revenue levels increased and were partially offset by the impact of transformation-related actions.
International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our ETM segment.
The decrease in Corporate expenses includes the impact of transaction, integration and executive transition costs. Excluding these impacts, expenses decreased 12.6%. This decrease primarily reflects lower legal settlement costs and employee
compensation costs. Transaction, integration and executive transition costs were $21.5 million and restructuring and transformation charges were $5.1 million in 2024. Restructuring and transformation charges were $19.9 million and transaction costs were $6.9 million in 2023.
Operating Results By Segment (continued)
(in millions)
% Change
% Change
Business Unit Profit (Loss)
Enterprise Talent Management
Science, Engineering & Technology
Education
International
Business Unit Profit (Loss)
Corporate
Asset impairment charge
Gain on sale of EMEA staffing operations
Gain on sale of assets
Depreciation and amortization
Consolidated Total Earnings (loss) from Operations
ETM reported profit decreased versus the prior year primarily due to lower revenue and gross profit with lower demand among certain large customers, partially offset by lower SG&A expenses. These results include the impact from the addition of the Sevenstep business.
SET reported loss includes an increase in goodwill impairment charges and the impact of the 2024 acquisition of MRP. Excluding the goodwill impairment and acquisition impacts, SET business unit loss increased from the prior year due to lower revenue and gross profit, partially offset by lower SG&A expenses.
Education reported profit increased versus the prior year primarily driven by higher revenue and gross profit driven by the impact of higher fill rates and bill rates, partially offset by an increase in SG&A expenses.
Corporate expenses decreased over the prior year primarily driven by lower employee-related costs and transaction costs, partially offset by an increase in integration and realignment charges in 2025.
ETM reported profit increased versus the prior year due primarily to lower SG&A expenses, partially offset by lower revenue and gross profit. These results include the impact of $1.0 million of business unit profit from the addition of the Sevenstep business.
SET reported profit in 2024 includes a $72.8 million goodwill impairment charge related to Softworld and $11.8 million of business unit profit from the acquisition of MRP. Excluding the goodwill impairment and acquisition impacts, the decrease in profit was essentially flat to prior year.
Education reported profit increased versus the prior year primarily due to higher revenue and gross profit.
International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our ETM segment.
Corporate expenses decreased year-over-year primarily due to lower transformation-related charges, partially offset by higher transaction-related expenses from the sale of our EMEA staffing operations and integration costs related to the acquisition of MRP.
Results of Operations
Financial Condition
Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly or monthly and customer accounts receivable, which is generally invoiced to customers weekly or monthly and is outstanding for longer periods. Since receipts from customers lag payroll payments to temporary employees, working capital requirements increase and operating cash flows may decrease substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease and operating cash flows increase. Such increases dissipate over time if the economic downturn continues for an extended period.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash totaled $37.7 million at year-end 2025, compared to $45.6 million at year-end 2024. As further described below, during 2025, we generated $122.6 million of cash from operating activities, generated $22.3 million of cash from investing activities and used $161.1 million of cash for financing activities.
Operating Activities
In 2025, we generated $122.6 million of net cash from operating activities, as compared to generating $26.9 million in 2024 and generating $76.7 million in 2023. The increase from prior year is primarily due to decreased working capital requirements.
Trade accounts receivable totaled $1.2 billion at year-end 2025 and $1.3 billion at year-end 2024. Global DSO was 61 days for 2025 and 59 days for 2024 .
Deferred tax expense of $168.5 million in 2025 compared to a deferred tax benefit of $27.8 million in 2024 is due to an increase in the valuation allowance on deferred tax assets in 2025. This allowance was principally due to cumulative losses in recent years, which were driven by goodwill impairment charges. Cumulative losses are a significant piece of negative evidence that limits the ability to consider other evidence, such as projections for future growth, when assessing the recoverability of deferred tax assets.
Our working capital position (total current assets less total current liabilities), was $446.5 million at year-end 2025 and $539.0 million for 2024, including the impact of our 2024 acquisition of MRP of $71.2 million. The decrease in working capital is due to lower trade accounts receivable from reduced revenue and the cash collected during the year was used to pay down debt balances. The current ratio (total current assets divided by total current liabilities) was 1.5 at year-end 2025 and 1.7 at year-end 2024.
Investing Activities
In 2025, we generated $22.3 million of net cash for investing activities, compared to using $361.6 million in 2024 and $14.1 million in 2023. Included in cash from investing activities in 2025 is $21.8 million of cash proceeds received in connection with the settlement of the receivable related to the sale of EMEA staffing operations and $6.4 million of cash from the sale of the PersolKelly investment (see Acquisitions and Dispositions footnote). This was partially offset by $8.5 million of cash used for capital expenditures.
Included in cash used for investing activities in 2024 was $431.9 million of cash used for the acquisition of MRP in May 2024 and CTC in November 2024, net of cash received, $11.1 million of cash used for capital expenditures, partially offset by $77.1 million of proceeds from the sale of the EMEA staffing operations, net of cash disposed.
Included in cash used for investing activities in 2023 is $15.3 million of cash used for capital expenditures, partially offset by $2.0 million for the receipt of the final payment in connection with an investment that was sold in 2021.
Capital expenditures in 2025, 2024 and 2023 primarily related to our IT infrastructure and technology programs.
Financing Activities
In 2025, we used $161.1 million of cash for financing activities, as compared to generating $214.8 million in 2024 and using $59.6 million in 2023. The cash used from financing activities is driven by net payments of $137.5 million in 2025 compared to
net proceeds of $239.4 million in 2024 on our credit facilities in connection with the acquisition of MRP. The acquisition of MRP represents the primary driver of the change in cash from 2024. The change in cash used for financing activities from 2023 to 2024 was primarily related to a decrease in Class A common stock repurchases. In 2025, w e repurchased $10.0 million of our Class A common stock compared to $10.0 million in shares repurchased in 2024 an d $42.2 million i n 2023.
Dividends paid per common share were $0.30 in 2025, 2024 and 2023. Payments of dividends are restricted by the financial covenants contained in our debt facilities. Details of this restriction are contained in the Debt footnote in the notes to our consolidated financial statements.
Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure our relative capital structure and leverage. Our ratio of debt-to-total capital was 9.4% at year-end 2025 and 16.2% at year-end 2024 .
Liquidity
We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents and our credit facilities. Additional funding sources could include additional bank facilities or sale of non-core assets. To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies.
We have historically managed our cash and debt closely to optimize our capital structure. As our cash balances build, we tend to pay down debt as appropriate, unless it is needed for organic or inorganic investments that align with our overall growth strategy. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the global cash pooling arrangement (the “Cash Pool”) first, and then access our borrowing facilities. We expect our working capital requirements to increase if demand for our services increases.
We assess and monitor our liquidity and capital resources globally. We use the Cash Pool, intercompany loans, dividends, capital contributions, and local lines of credit to meet funding needs and allocate our capital resources among our various subsidiaries. We periodically review our foreign subsidiaries’ cash balances and projected cash needs. As part of those reviews, we may identify cash that we feel should be repatriated to optimize our overall capital structure. As of year-end 2025, these reviews have not resulted in specific plans to repatriate a majority of our international cash balances. We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth.
At year-end 2025, we had $150.0 million of available capacity on our $150.0 million revolving credit facility and $105.5 million of available capacity on our $250.0 million securitization facility. The revolving credit facility carried no long-term borrowings on the floating or term benchmark lines of credit. The securitization facility carried $101.9 million of long-term borrowings and $42.6 million of standby letters of credit related to workers’ compensation. The credit facilities also include an accordion feature to increase our combined borrowing capacity by $250.0 million.
Together, the revolving credit and securitization facilities provide us with committed funding capacity that may be used for general corporate purposes subject to financial covenants and restrictions. We believe our cash flow from operations, the availability of liquidity under our credit facilities, including the accordion feature which allows us to increase our borrowing capacity and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements, while maintaining sufficient liquidity for normal operating purposes. Throughout 2025 and as of the 2025 year end, we met the debt covenants related to our revolving credit facility and securitization facility.
At year-end 2025, we had additional unsecured, uncommitted short-term local credit facilities totaling $3.2 million, under which we had no borrowings. Details of our debt facilities as of the 2025 year end are contained in the Debt footnote in the notes to our consolidated financial statements.
We repurchased $10.0 million of our Class A common stock in fiscal 2025 pursuant to the $50.0 million share repurchase program, which was approved by our board of directors in November 2024. A total of $30.0 million remains available under the share repurchase program as of year-end 2025.
We monitor the credit ratings of our banking partners on a regular basis and have regular discussions with them. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash.
Contractual Obligations and Commercial Commitments
In addition to our discussion of liquidity and capital resources, consideration should also be given to the following contractual obligations:
• Long-term debt - We maintain a revolving credit facility and securitization facility as discussed above in Liquidity. Further details regarding these facilities, including terms, rates and conditions, can be found in the Debt footnote in the notes to our consolidated financial statements.
• Leases - We have operating leases for headquarters and field offices and various equipment. Our leases generally have remaining lease terms of one year to 10 years. As of December 28, 2025, we have lease payment obligations of $67.7 million, with $15.1 million payable within the next 12 months. See the Lease footnote in the notes to our consolidated financial statements for further information.
• Accrued workers compensation - We have a combination of insurance and self-insurance contracts in the U.S. under which it bears the first $1.0 million of risk per accident. As of December 28, 2025, the accrual for workers' compensation claims, net of related receivables, was $46.9 million, with $20.9 million payable within the next 12 months. Management utilizes actuarial methods to estimate the future cash payments for these claims, including an allowance for incurred-but-not-reported claims. Further details can be found in the Summary of Significant Accounting Policies footnote in the notes to our consolidated financial statements.
• Accrued retirement benefits - We provide nonqualified retirement plans for officers and certain other employees. As of December 28, 2025, the value of our obligations under these plans are $289.3 million, with $25.6 million payable within the next 12 months. The timing of payments related to the plans vary based on individual elections and specific plan provisions. See the Retirement Benefits footnote in the notes to our consolidated financial statements for further information.
• Purchase obligations - Our purchase obligations represent unconditional commitments relating primarily to technology services and online tools which we expect to utilize generally within the next three fiscal years, in the ordinary course of business. As of December 28, 2025, the value of our non-cancelable purchase obligations is $61.5 million, with $44.0 million expected to be paid within the next 12 months.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. In this process, it is necessary for us to make certain assumptions and related estimates affecting the amounts reported in the consolidated financial statements and the attached notes. Actual results can differ from assumed and estimated amounts.
Critical accounting estimates are those that we believe require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those estimates may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following estimates to be most critical in understanding the judgments involved in preparing our consolidated financial statements.
Workers’ Compensation
In the U.S., we have a combination of insurance and self-insurance contracts under which we effectively bear the first $1.0 million of risk per single accident. There is no aggregate limitation on our per-accident exposure under these insurance and self-insurance programs. We establish accruals for workers’ compensation utilizing actuarial methods to estimate the undiscounted future cash payments that will be made to satisfy the claims, including an allowance for incurred-but-not-reported claims. We retain an independent consulting actuary to establish ultimate loss forecasts for the current and prior accident years of our insurance and self-insurance programs. The consulting actuary establishes loss development factors and loss rates, based on our historical claims experience as well as industry experience and applies those factors to current claims information to derive an estimate of our ultimate claims liability. In preparing the estimates, the consulting actuary may consider factors such as the nature, frequency and severity of the claims; reserving practices of our third-party claims administrators; performance of our medical cost management and return to work programs; changes in our territory and business line mix; and current legal, economic and regulatory factors such as industry estimates of medical cost trends. Where appropriate, multiple generally accepted actuarial techniques are applied and tested in the course of preparing the loss forecast. We use the ultimate loss forecasts, as developed by the consulting actuary, to establish total expected program costs for each accident year by adding our estimates of non-loss costs such as claims handling fees and excess insurance premiums. When claims exceed the applicable loss limit or self-insured retention and realization of recovery of the claim from existing insurance policies is deemed probable, we record a receivable from the insurance company for the excess amount.
We evaluate the accrual quarterly and make adjustments as needed. The ultimate cost of these claims may be greater than or less than the established accrual. While we believe that the recorded amounts are reasonable, there can be no assurance that changes to our estimates will not occur due to limitations inherent in the estimation process. In the event we determine that a smaller or larger accrual is appropriate, we would record a credit or a charge to cost of services in the period in which we made such a determination. The accrual for workers’ compensation, net of related receivables which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet, was $46.9 million and $44.4 million at year-end 2025 and 2024, respectively.
Business Combinations
We account for business combinations using the acquisition method of accounting, in which the purchase price is allocated for assets acquired and liabilities assumed and recorded at the estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Management is required to make significant assumptions and estimates in determining the fair value of the assets acquired, particularly intangible assets. Purchased intangible assets are primarily comprised of acquired trade names and customer relationships that are recorded at fair value at the date of acquisition. We utilize third-party valuation specialists to assist us in the determination of the fair value of the intangibles. The fair value of trade name intangibles is determined using the relief-from-royalty method, which relies on the use of estimates and assumptions about expected future revenue growth rates, royalty rates and discount rates. The fair value of customer relationship intangibles is determined using the multi-period excess earnings method, which relies on the use of estimates and assumptions about expected future revenue growth rates, customer attrition rates, profit margins and discount rates. Determining the useful lives of intangible assets also requires judgment and are inherently uncertain. There is a measurement period of up to one year in which to finalize the fair value determinations and preliminary fair value estimates may be revised if new information is obtained during this period.
Income Taxes
Income tax expense is based on expected income and statutory tax rates in the various jurisdictions in which we operate. Judgment is required in determining our income tax expense.
Our effective tax rate includes the impact of accruals and changes to accruals that we consider appropriate, as well as related interest and penalties. A number of years may lapse before a particular matter, for which we have or have not established an accrual, is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our accruals are appropriate under generally accepted accounting principles. Favorable or unfavorable adjustments of the accrual for any particular issue would be recognized as an increase or decrease to our income tax expense in the period of a change in facts and circumstances. Our current tax accruals are presented in income and other taxes in the consolidated balance sheet and long-term tax accruals are presented in other long-term liabilities in the consolidated balance sheet.
Tax laws require items to be included in the tax return at different times than the items are reflected in the consolidated financial statements. As a result, the income tax expense reflected in our consolidated financial statements is different than the liability reported in our tax return. Some of these differences are permanent, which are not deductible or taxable on our tax return and some are temporary differences, which give rise to deferred tax assets and liabilities. We establish valuation allowances for our deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Our net deferred tax asset is recorded using currently enacted tax laws and may need to be adjusted in the event tax laws change.
The U.S. work opportunity credit is allowed for wages earned by employees in certain targeted groups. The actual amount of creditable wages in a particular period is estimated, since the credit is only available once an employee reaches a minimum employment period and the employee’s inclusion in a targeted group is certified by the applicable state. As these events often occur after the period the wages are earned, judgment is required in determining the amount of work opportunity credits accrued for in each period. We evaluate the accrual regularly throughout the year and make adjustments as needed.
Goodwill
We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. GAAP requires that goodwill be tested for impairment at a reporting unit level. For segments with a goodwill balance, we determine if our reporting units are the same as our operating and reportable segments based on our organizational structure or one level below our operating segments (the component level).
We may first use a qualitative assessment (“step zero”) for the annual impairment test if we have determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value. In conducting the qualitative assessment, we assess the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. Such events and circumstances may include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, entity-specific events and events affecting a reporting unit.
If we elect to forgo the qualitative assessment for a reporting unit, goodwill is tested for impairment by comparing the estimated fair value of a reporting unit to its carrying value (“step one”). If the estimated fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is not considered impaired and no further testing is required. If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of a reporting unit, goodwill is deemed impaired and is written down to the extent of the difference.
For the step one quantitative test, we utilized a third-party valuation specialist to assist in determining the fair value of our reporting units using the income and market approach. Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured. Estimated future cash flows are based on our internal projection model and reflects management’s outlook for the reporting units. Under the market approach, the use of pricing multiples derived from an analysis of comparable public companies multiplied against historical and/or anticipated financial metrics of each reporting unit was used. Assumptions and estimates about market comparables, future cash flows, discount rates and long-term growth rates are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends and internal factors such as changes in our business strategy and our internal forecasts. Our analysis used significant assumptions by reporting unit, including: expected future revenue growth rates, profit margins and discount rates.
Although we believe the assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. Different assumptions of the anticipated future results and growth from our business could result in an impairment charge, which would decrease operating income and result in lower asset values on our consolidated balance sheet.
We completed our annual impairment test for all reporting units with goodwill in the fourth quarter of 2025. Pursuant to the segment changes in first quarter of 2025, the goodwill reporting units were reassessed (see the Segment Disclosures footnote in the notes to our consolidated financial statements). As of year-end 2025, the Company determined that there are three reporting units with assigned goodwill. The three reporting units tested in the fourth quarter of 2025 were SET, Education and RPO. The RPO reporting unit is part of the ETM segment and contains goodwill transferred from Sevenstep, (the RPO business acquired with MRP in 2024). Prior period components related to SET and Education were aggregated into one reporting unit as of year-end 2025. Because the reporting units had been reassessed during the year, and due to the goodwill impairment recognized in the third quarter of 2025, our annual goodwill impairment testing included a step one quantitative analysis for each reporting unit. As a result of the quantitative assessments, we determined that the estimated fair value of the each reporting unit exceeded its carrying value with headroom greater than 10%; therefore goodwill was not impaired as of year-end 2025 (see the Goodwill and Intangible Assets footnote in the notes to our consolidated financial statements). However, if current expectations of future revenue and profit margins are not met, or if market factors outside of our control change significantly, including discount rate, then the goodwill of our reporting units may be impaired in the future, resulting in goodwill impairment charges.
As a measure of sensitivity of the fair value for the three reporting units tested in 2025, while holding all other assumptions constant, an increase in the discount rate of 100 basis points or a decrease of 100 basis points in the revenue growth rate assumptions for each forecasted period used to determine the fair value of the reporting unit would not result in an impairment of goodwill.
We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2024. For the PTS and Education reporting units, we performed step zero qualitative analyses and have concluded that there are no indications that the fair values of the PTS and Education reporting units are less than their respective carrying values and therefore no further testing was required. For the Softworld and MRP reporting units, our annual goodwill impairment testing included step one quantitative tests. As a result of the quantitative assessment, we determined that the estimated fair value of the MRP reporting unit was more than its carrying value and that the estimated fair value of the Softworld reporting unit no longer exceeded the carrying value. Softworld's 2024 financial performance was lower than internal projections due to continued challenging market conditions. As a result, management’s expectation for near-term financial performance and projected long-term growth rates were revised accordingly. These changes in circumstances were also indicators that the respective long-lived assets may not be recoverable. Softworld has definite-lived intangible assets, consisting of trade names, customer relationships and non-compete agreements, which are amortized over their estimated useful lives. We performed a long-lived asset recoverability test for Softworld and determined that undiscounted future cash flows exceeded the carrying amount of the asset group and were recoverable. Based on the result of our annual goodwill impairment test, we recorded an impairment charge of $72.8 million, which was included in goodwill impairment charge in the consolidated statements of earnings for the year ended 2024, to write-off a portion of Softworld's goodwill balance. Included in the impairment charge was an $18.4 million tax benefit associated with the impairment. The remaining goodwill balance for the Softworld reporting unit was $38.5 million as of year-end 2024.
We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2023 and as a result of the quantitative and qualitative assessments performed, we determined goodwill was not impaired as of year-end 2023.
At year-end 2025 and 2024, total goodwill amounted to $202.1 million and $304.2 million, respectively. See the Goodwill and Intangible Assets footnote in the notes to our consolidated financial statements for more information.
Litigation
Kelly is subject to legal proceedings, investigations and claims arising out of the normal course of business. Kelly routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the accruals required, if any, for these contingencies is made after analysis of each known issue. Development of the analysis includes consideration of many factors including: potential exposure, the status of proceedings, negotiations, discussions with our outside counsel and results of similar litigation. The required accruals may change in the future due to new developments in each matter. For further discussion, see the Contingencies footnote in the notes to our consolidated financial statements. At year-end 2025 and 2024, the gross accrual for litigation costs amounted to $2.8 million and $1.5 million, respectively, which is included in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.
NEW ACCOUNTING PRONOUNCEMENTS
See New Accounting Pronouncements footnote in the notes to our consolidated financial statements presented in Part II, Item 8 of this report for a description of new accounting pronouncements.
Certain statements contained in this report and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our Company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance and we have no specific intention to update these statements.
Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, (i) changing market and economic conditions, (ii) disruption in the labor market and weakened demand for human capital resulting from technological advances, loss of large corporate customers and government contractor requirements, (iii) the impact of laws and regulations (including federal, state and international tax laws), (iv) unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, (v) litigation and other legal liabilities (including tax liabilities) in excess of our estimates, (vi) our ability to achieve our business's anticipated growth strategies, (vii) our future business development, results of operations and financial condition, (viii) damage to our brands, (ix) dependency on third parties for the execution of critical functions, (x) conducting business in foreign countries, including foreign currency fluctuations, (xi) availability of temporary workers with appropriate skills required by customers, (xii) cyberattacks or other breaches of network or information technology security and (xiii) other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of this report.
