KFORCE INC Q3 FY2025 earnings call

• Q3 results exceeded expectations with revenues of $332.6 million and EPS of $0.63.
• The FA business has been stabilized and meaningfully grown against a challenging macro backdrop, with momentum carrying into Q4.
• Internal KPIs improved in Q3, leading to an increase in consultants on assignment, which continued into early Q4.
• The Technology business has a robust pipeline of consulting-led opportunities in areas like data and AI, digital, application engineering, and cloud.
• The ability to source talent globally through onshore, nearshore, offshore, and blended delivery models to address client needs.
• AI and emerging innovations are seen as vital for business success, though benefits are expected in years to come, and the company has evolved alongside technology advancements.

Total revenues were $332.6 million. The Technology business had revenues that declined 1.1% sequentially and 5.6% year-over-year. The Finance and Accounting (FA) business grew approximately 7% sequentially and declined slightly more than 8% year-over-year. The Technology business's average bill rate has remained steady at approximately $90 per hour over the last 3 years, driven by a growing mix of consulting-oriented engagements. The FA business saw flex revenues, currently about 7% of total revenues, decline 7.3% year-over-year but had a 6.9% sequential growth in the third quarter.

• Q4 revenues are expected to be in the range of $326 million to $334 million and earnings per share to be between $0.43 and $0.51.
• The midpoint of $330 million in revenue reflects sequential improvement in both Technology and FA revenues on a billing day basis.
• Guidance assumes a stable operating environment and excludes the potential impact of unusual or nonrecurring items.
• Anticipates benefits from strategic investments to drive long-term growth and double-digit operating margins when annual revenues return to $1.7 billion.

• Ongoing federal government shutdown, global trade negotiations, and potential negative effects on the U.S. consumer and broader economy make the near-term outlook hard to predict.
• Persistently weak and largely frozen labor market with prolonged stagnation in job gains.
• Uncertainty around the relative impact of AI on revenue trends versus the impact of weakening economic and softening labor markets.

Q: Trevor Romeo asked about the 4% increase in consultants on assignment and seasonality.

A: Dave Kelly said there was a nice improvement in consultants on assignment, which continued into October, and compared it to pre-pandemic levels though hard to define normal.

Q: Trevor Romeo asked about gross margins and spread drivers.

A: Jeff Hackman mentioned health care costs were less of a drag in the quarter, spreads were positively impacted by working closely with clients to price value, and mix shift to consulting-oriented engagements (which have higher bill rates) helped.

Q: Alexander Sinatra asked about AI-related engagements.

A: Joseph Liberatore said most work is around foundational readiness work in data, modernization of legacy systems, cloud, security, and governance; demand is in various talent models including staff augmentation.

Q: Tyler Barishaw asked about AI revenue contribution and staffing revenue.

A: Joseph Liberatore said AI is a growing part of the business with better margin profile for consulting; David Kelly talked about stabilization of consultants on assignment and firming trends in the business with growth in both staff augmentation and consulting.

Q: Karandeep Singhania asked about budget reallocation and industry stabilization.

A: David Kelly said they haven't heard about budget reallocation issues in Q3, and growth is broad-based not industry-specific; Joseph Liberatore compared to the dot-com era pattern as a parallel for current trends.