KFORCE INC Q1 FY2025 earnings call

• Focused on commercial space and divested federal government business over five years ago, with limited indirect exposure to federal through system integrator clients.
• Workday implementation expected to go live in early 2026, with expected efficiency gains and contributing to long-term financial objectives.
• Continues to evolve nearshore and offshore delivery capabilities with India development center, integrating all firm's capabilities as One Kforce.
• AI dominates headlines, with focus on data, cloud, modernization, and consulting-oriented AI projects. Accelerated investments in Microsoft technologies like Office 365 copilot and Sales copilot for associates.
• Domestically focused organic growth strategy benefits organization by directing energy to partnering with clients to solve business challenges.

Total revenues were $330 million, declining 4.7% year-over-year on a billing day basis. The technology business saw revenues decline 3.5% year-over-year per billing day. Technology average bill rates were $90, stable sequentially and year-over-year. Flex revenues in the FA business, which is 6.1% of total revenues, declined 22% year-over-year on a billing day basis. The average bill rate in FA was approximately $52 per hour, improving slightly sequentially and year-over-year.

• Expect Q2 revenues to be in the range of $332 million to $340 million and earnings per share to be between $0.57 and $0.65.
• Guidance assumes a stable environment and does not consider unusual or nonrecurring items.
• Anticipates Workday implementation to contribute to improving operating margins, with an expected 1% improvement in operating margin after go-live.
• 2025 is expected to be the final year of significant net investment in strategic initiatives, with returns expected to grow from 2026 onward.

• Macro uncertainties due to slowing mid-Q1 and significant tariffs, which may delay investment acceleration.
• Health care costs in the first quarter impacting gross margins, with some unexpected severity in claims.
• Potential client pullbacks or cutbacks on projects, though strategic critical projects are less likely to be turned off unless environment worsens significantly.

Q: Could you give more color on what's heard from clients regarding project commitments and potential terminations?

A: Dave Kelly stated clients are in stable activity, not canceling projects, with some new business won and natural project ends, but no robust acceleration in new initiatives. Jeff Hackman added mid-quarter attrition was higher than expected but new assignments were consistent, with stability expected for the remaining quarter.

Q: What levers could be pulled if there are pullbacks in existing projects?

A: Jeff Hackman mentioned assessing operating trends, client visits, and job orders, with adjustments made like reducing delivery head count by close to 40% and investing in sales. Dave Kelly added focus on prudent cost management, SG&A spending, and continuing investments in strategic priorities like Workday implementation.

Q: How is capacity and visibility characterized?

A: Dave Kelly said sales capacity is strong with sales team size slightly greater than during $1.7B revenue period, and delivery resources reduced. Joe Liberatore mentioned monitoring frontend KPIs and internal dashboards leveraging Microsoft products for visibility. Jeff Hackman added average assignment length in technology business is about 10 months, and visibility is reasonably clear with no proactive client measures to restrict projects.

Q: Thoughts on candidate availability and health care costs?

A: Dave Kelly said candidate availability hasn't changed materially in the last few months. Jeff Hackman stated health care costs were higher in the first quarter due to unexpected severe claims, but they price in annual health care cost trends.