0000055135-26-000115
SEC filingRevenue declined 10.7% to $1.04B, resulting in a net loss of $5.9M, driven by lower demand from large customers and macroeconomic headwinds, partially offset by expense management.
Revenue decreased 10.7% to $1.04B in Q1 2026 compared to $1.16B in the prior year. The decline was primarily driven by lower demand from certain large customers and a more measured approach to hiring among employers, particularly in the U.S. The Education segment also faced headwinds from delayed contract decisions and enrollment declines. These decreases were partially offset by growth in Talent Solutions from new customer wins and volume increases.
Gross profit decreased 17.0% to $196.4M, with the gross profit rate contracting 1.4 percentage points to 18.9%. Management attributed the margin compression primarily to higher employee-related costs at the beginning of the year, which weighed on profitability across all segments. The gross profit decline outpaced the revenue decline, indicating that cost of services did not fall proportionally with revenue, a dynamic that investors should monitor for potential structural margin erosion.
Net cash used in operating activities was $25.4M, a significant swing from $23.9M generated in the prior year. This was driven by higher working capital needs, primarily trade accounts receivable, as the company continued to fund operations amid lower revenue. Management expects international cash to fund working capital growth as demand recovers.
Management emphasized stabilizing the business through expense discipline and strategic initiatives, including the formation of a Growth Office to unify go-to-market strategy and technology modernization to drive efficiency. The company noted that trends are stabilizing, with sequential improvement in ETM revenue and growth in Talent Solutions. However, the macroeconomic environment remains dynamic, with lower demand among certain large customers and a measured hiring approach by employers. The Education segment continues to face headwinds from delayed contract decisions and enrollment declines. Looking ahead, Kelly believes its liquidity and credit facilities are sufficient to meet anticipated cash requirements.