KFORCE INC Q3 FY2024 earnings call

• Responded to hurricanes by donating $500,000 to charitable organizations in Tampa Bay area and North Carolina and organizing a Kforce-wide recovery event. - Third quarter revenues exceeded midpoint of expectations and earnings per share exceeded top end of guidance. - Technology business has been stable, with demand for higher end skill sets remaining in demand; clients cautious on new investments but critical projects still initiated. - Established a development center in Pune, India, expected to be operational in January 2025. - Continuing to invest in strategic priorities like nearshore/offshore delivery capabilities. - FA business declined due to repositioning efforts and challenging macro environment; management focused on retaining productive associates and making targeted investments.

Total revenues for the third quarter were $353.3 million, which were above the midpoint of expectations. The technology business: Revenues declined 0.8% sequentially and 6.8% year-over-year on a billing day basis. Flex revenues in the technology business declined 0.6% sequentially and 5.1% year-over-year on a billing day basis. Overall average bill rates in the technology business were $90, flat sequentially. Flex margins in the technology business were 26.1%, increasing 20 basis points sequentially and 60 basis points year-over-year. The FA business, which is 8% of revenues, declined 2.2% sequentially and 21.4% year-over-year on a billing day basis. The average bill rate in the FA business improved sequentially, and flex margins in the FA business decreased 30 basis points sequentially.

• Q4 revenues expected to be in the range of $337 million to $345 million and earnings per share between $0.56 and $0.64, with a $0.02 negative impact from the $500,000 charitable contribution. - Anticipates relatively stable sequential trends in the technology business in Q4 on a billing day basis. - Expects FA revenues in Q4 to be down sequentially on a billing day basis in the low single-digits.

• Continuation of heightened geopolitical concerns, tensions in the Middle East and the war in Ukraine. - Potential outcome of the U.S. election. - Economic uncertainty leading to clients remaining cautious with discretionary spending.

Q: Mark Marcon asked about the gross margins, specifically how much of the improvement was due to improved health insurance costs relative to the improvement in the bill pay spread.

A: Jeff Hackman responded that overall Technology Flex margins were up, with bill pay spread being a predominant driver sequentially, some year-over-year bill pay spread, and health insurance contributing on a year-over-year basis but not sequentially. Dave Kelly added on the market and the India facility.

Q: Trevor Romeo asked about expectations of project work in the F&A business in Q4 and about the incremental addressable market unlocked by adding offshore delivery.

A: Dave Kelly said Kforce is not focusing on F&A project work related to hurricanes and that adding offshore delivery unlocks significant incremental opportunity in the managed solutions space in a more cost-effective way.

Q: Kartik Mehta asked about how to think about 2025 margins if revenues stay flat.

A: Jeff Hackman said the enterprise priorities will continue, and adjustments in the business have been made to mitigate cost pressures if top line is flat.

Q: Josh Chan asked about the backlog of projects and how critical they are and about holiday shutdown uncertainty in guidance.

A: Dave Kelly said mission-critical projects are those for maintaining market leadership and competitive advantage, and Jeff Hackman said the guidance was based on a balanced approach considering holiday impacts.

Q: Marc Riddick asked about the view on talent pipeline versus peers and about the catalyst in financial services.

A: Joe Liberatore talked about the focus on execution, world-class customer base, and flexibility, while Dave Kelly said financial services spend was related to mission-critical projects rather than a specific catalyst