Earnings call transcript: Kforce Q1 2025 misses EPS forecast, stock falls

Kforce Inc. (KFRC) reported its financial results for the first quarter of 2025, revealing a slight miss on earnings per share (EPS) compared to analysts’ expectations. The company posted an EPS of $0.45, below the forecasted $0.47, alongside revenue of $330 million, which also fell short of the $334.61 million projection. Following the announcement, Kforce’s stock price dropped by 2.62% in aftermarket trading, closing at $41.79. According to InvestingPro analysis, the stock appears undervalued at current levels, with multiple financial health indicators suggesting strong fundamentals despite recent price weakness.

Key Takeaways

• Kforce’s Q1 2025 EPS of $0.45 missed the forecast of $0.47.
• Revenue for the quarter was $330 million, below the expected $334.61 million.
• The company’s stock fell by 2.62% in aftermarket trading.
• Despite the miss, Kforce maintained a strong return on equity exceeding 30%.
• The company continues to focus on strategic investments in AI and technology.

Company Performance

Kforce’s performance in the first quarter of 2025 reflects ongoing challenges in the technology consulting sector, with macroeconomic uncertainties impacting client investment behaviors. The company maintains impressive fundamentals with a return on equity of 32% and a healthy return on invested capital of 25%. InvestingPro data reveals strong financial health metrics, including a current ratio of 2.0 and an Altman Z-Score of 10.7, indicating solid financial stability. The company continues to outperform competitors in consulting solutions, supported by a diverse client base primarily composed of Fortune 1000 companies. InvestingPro subscribers have access to 12 additional key insights about KFRC’s financial health and growth potential.

Financial Highlights

• Revenue: $330 million, down 4.7% year-over-year
• Earnings per share: $0.45, slightly above internal guidance but below analyst expectations
• Gross margin: 26.7%, a decrease of 30 basis points sequentially
• Operating margin: 3.5%
• Shareholder returns: $28.3 million (dividends:$7 million, share repurchases: $21 million)

Earnings vs. Forecast

Kforce’s actual EPS of $0.45 was below the forecast of $0.47, representing a shortfall of approximately 4.3%. This performance contrasts with previous quarters where Kforce had consistently met or exceeded expectations, highlighting a potential shift in market conditions or internal challenges.

Market Reaction

Following the earnings release, Kforce’s stock price dropped by 2.62% in aftermarket trading, reflecting investor disappointment. The stock’s current price of $41.79 is closer to its 52-week low of $42.07, indicating a challenging period for the company amidst broader market volatility.

Outlook & Guidance

Looking ahead, Kforce provided Q2 2025 revenue guidance of $332 to $340 million and EPS guidance of $0.57 to $0.65. The company anticipates modest sequential growth in its technology business and aims for double-digit operating margins upon reaching an annual revenue of $1.7 billion. Strategic investments in AI and cloud applications remain a priority as Kforce positions itself for long-term growth. With a beta of 0.78 and strong cash flows sufficient to cover interest payments, InvestingPro analysis suggests the company is well-positioned to weather market volatility while pursuing growth initiatives.

Executive Commentary

CEO Joe Liberatore expressed cautious optimism about the demand environment, stating, "We are cautiously optimistic about the level of demand we are seeing against this more uncertain backdrop." COO Dave Kelly emphasized the importance of ongoing projects, noting, "These guys are doing critical work. They need to have it continue to be done."

Risks and Challenges

• Macroeconomic uncertainty affecting client investment decisions.
• Potential for further revenue misses if market conditions do not improve.
• Increased competition in the technology consulting sector.
• Dependence on strategic technology projects for growth.
• Minimal exposure to the federal government market, limiting diversification.

Q&A

During the earnings call, analysts inquired about the stability of bill rates and pay rates, to which Kforce confirmed they remain stable. Questions also focused on the demand for strategic technology initiatives and candidate availability, both of which the company reported as consistent. Analysts showed interest in the company’s AI readiness and strategic investments, reflecting broader industry trends.

Full transcript - Kforce Inc (KFRC) Q1 2025:

Greg, Conference Operator: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to Kforce Q1 twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer I would now like to turn the call over to Joe Liberatore, President and CEO.

Joe, please go ahead.

Joe Liberatore, President and CEO, Kforce: Good afternoon and thank you for your time today. This call contains certain statements that are forward looking or based upon current assumptions and expectations and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce’s public filings and other reports and filings with the SEC. We cannot undertake any duty to update any forward looking statements. You can find additional information about our results in our earnings release and our SEC filings.

In addition, we have published our prepared remarks within the Investor Relations portion of our website. Like many others, we entered 2025 with a general sense of optimism for The U. S. Economic growth with the expected derivative benefit being a boost in our clients’ confidence and accelerating investments in technology initiatives that have been deferred for the last several years. The signs of a slowing mid Q1 followed by the announcement of significant tariffs for which outcome and impact remains unclear reintroduced many uncertainties into The U.

S. Economic outlook. The general tonality as we sit here today is that the earlier optimism has waned to a degree and the macro uncertainties have increased, which may delay an acceleration of investment for many companies. With that said, the macro uncertainties have not resulted in a deterioration in our business. In fact, over the last six weeks, our consultants on assignments have improved and our front end KPIs have been elevated compared to first quarter levels.

We are cautiously optimistic about the level of demand we are seeing against this more uncertain backdrop. As to our first quarter performance, it was generally consistent with our expectations. Regardless of the ultimate environment, we believe there remains an increasingly strong backlog of strategically imperative technology investments. We continue to be well positioned to take additional market share as we have been doing successfully for years and continue laying the foundation to generate significant long term returns for our shareholders. We are fortunate to have made the strategic decision more than five years ago to focus on the commercial space and divest our federal government business such that we no longer have any direct business with the federal government and limited indirect exposure through the support of our larger system integrator clients.

As we look ahead to the second quarter and the remainder of 2025, as been the case over the last few years, we will continue to stay close to our clients and monitor our key performance indicators and make any necessary adjustments to our business while continuing to invest in our long term strategic priorities with a keen focus on the retention of our most productive associates. Our motto continues to be control what we can control. Our teams have continued to persevere and make the necessary adjustments within the business while we also have continued to make significant investments in critical initiatives that will provide a great foundation moving forward positioning us to return higher levels of profitability as revenues inflect. We continue to make significant progress with the implementation of Workday as our future state enterprise cloud application for HCM and Financials. The go live of this technology platform is expected in early twenty twenty six and we expect to begin to generate immediate efficiency gains that will continue to improve as we rationalize the new platform.

We also continue to evolve our near shore and offshore delivery capabilities with our India Development Center and further integrate all the firm’s capabilities across the full spectrum of our service offerings as one Kforce. Each of these strategic initiatives are transformational in nature and will be meaningful contributors to us meeting our financial objectives. AI continues to dominate the headlines. As we have previously articulated over the long term, we believe that AI and other innovative technologies will continue to play an increasing role empowering businesses. We are ideally positioned to meet that demand and continue to see an increased focus of AI foundational readiness work in areas such as data, cloud and modernization along with AI projects in our consulting oriented engagements.

Internally, we expect to benefit from the future leverage of AI and in that regard are extremely fortunate to have made the strategic decision to concentrate our platform technologies with Microsoft and Workday. We have accelerated our investments in these technologies by acquiring enterprise licensing of Office three sixty five Copilot and sales Copilot for Microsoft. We are taking active steps within the firm to provide these important productivity enhancing technologies to all of our associates and leaders. We have built a solid foundation at Kforce and will continue to make investments to transform our business. Our domestically focused organic growth strategy continues to benefit our organization by eliminating any unnecessary distractions for our people so that their full energy directed to partnering with our clients to help them solve their most important business challenges.

Before transitioning the call, I wanted to reiterate how proud I am of the performance and resiliency of the collective Kforce team. We are blessed to have a high performing organization that is united, tenured, dedicated and passionate. I could not be more excited about the future of Kforce. Dave Kelly, our Chief Operating Officer will now give greater insights into our performance and recent operating trends. Jeff Hackman, Kforce’s Chief Financial Officer will then provide additional details on our financial results as well as our future financial expectations.

Dave?

Dave Kelly, Chief Operating Officer, Kforce: Thank you, Joe. Total revenues of $330,000,000 declined 4.7 year over year on a billing day basis. Revenues in our technology business declined 5.2% sequentially and declined 3.5% year over year per billing day. We didn’t see a typical recovery in the first quarter. Normally, consultants and assignment decreased in January as year end projects are wrapped up and then gradually increased during the last two months of the quarter.

This year, we actually saw slight declines mid quarter due to higher than expected assignment attrition, which mirrored the tempering of economic expectations. Headcount levels did begin to increase in late March and that improvement continued into mid April. Though uncertainty remains, mission critical initiatives continue to be prioritized by our clients. However, given the macroeconomic uncertainty, clients appear to be awaiting a period of increased confidence before more aggressively adding resources to address the significant backlog of other important technology initiatives. Our technology service offering has significantly evolved over the years, expanding beyond traditional staffing assignments to encompass more consulting oriented engagements.

Clients continue to prioritize cost efficient access to highly skilled talent and view our services as an effective solution to meet their technology project requirements, leveraging our superior delivery capabilities. The demand for our consulting oriented offerings has continued to significantly contribute to our results. This growth underscores our ability to adapt and meet the evolving needs of our clients. While our traditional staffing business has experienced year over year revenue declines, growth in solutions oriented assignments highlights our strategic shift in the increasing value clients place on our consulting capabilities. Our integrated strategy leverages all aspects of the firm’s capabilities to meet the needs of the world class companies we serve.

An increasingly important aspect of providing cost effective solutions is our ability to source highly skilled talents from outside The United States. Our development center in Pune, India positions Kforce well to compete for client opportunities that were previously unavailable to us. This development center combined with our robust U. S. Sales and delivery capabilities and a high quality vendor network allows us to comprehensively address the evolving needs of our clients, whether onshore, nearshore or offshore.

Overall average bill rates in our technology business of $90 grew slightly sequentially and on a year over year basis, continuing a trend of stability that has persisted for nearly three years. The consistent demand for highly skilled talent in both traditional staffing assignments and consulting oriented engagements has played a crucial role in maintaining stable bill and pay rates. This demand is driven by clients’ need for expertise in specialized areas such as AI and machine learning, application engineering, cloud, digital, data and cybersecurity. Our ability to source and provide top tier professionals who can address complex technological challenges has ensured that our services remain indispensable even as overall industry trends have slowed. Our core competency lies in sourcing quality talent at scale for our clients, adapting to the evolving demand for various skill sets.

We anticipate this trend to continue as clients increasingly rely on us to provide data and digital resources to support their data rationalization and cleanup activities, which are critical to their AI investments. We have relationships with the largest providers in this space, including Microsoft and continue to strengthen our partnership models with these companies. As technology has evolved over the decades, we’ve efficiently adapted to the changing skill set demands of our clients, ensuring we remain a trusted partner in their technological advancements. Our client portfolio is diverse and is predominantly comprised of large market leading companies. Our focus on addressing their needs continues to be critical to our ability to drive sustainable long term above market performance.

The retail and transportation industries outperformed sequentially in Q1, while we experienced downward pressure in the relatively modest footprint with large consulting companies supporting the federal government as well as in financial services. Our footprint is focused on supporting very large clients, all of whom have differing needs. As a result, it’s typical to see both increases and decreases in revenue for clients within the same industry vertical, which has been the case in financial services. Given our size and scale, it’s difficult to extrapolate our performance with overall industry trends. Looking forward to Q2, we expect modest sequential growth in our technology business.

Flex revenues in our FA business, currently 6.1% of our revenues, declined 22% year over year on a billing day basis. Our average bill rate of approximately $52 per hour improved slightly sequentially and year over year and is reflective of the highly skilled areas we are pursuing. We expect Q2 revenues in F and A to be down sequentially on a billing day basis in the mid single digits. An area where we have seen a more significant impact from the economic uncertainty is in our direct hire business, which represents approximately 2% of overall revenues. After a reasonably strong first quarter, activity slowed in early April and we now expect Direct Hire to decline sequentially in Q2 in what is typically its strongest quarter.

We continue to make adjustments to associate staffing levels based on productivity expectations, focusing on retaining our most productive associates and making targeted investments to ensure we are well prepared to capitalize on market demand when it accelerates. Over the past three years, we selectively invested in our sales teams while rationalizing our delivery resources, which have decreased by close to 40% over that time. Despite these reductions, we believe we have ample capacity to absorb several quarters of increased demand without adding significant resources. Additionally, we continue to invest in our consulting solutions business. Our performance in the first quarter continued to outpace that of our competitors.

We remain tremendously excited about our strategic position and our ability to continue delivering above market performance in our technology business as we have for well over a decade. The success we achieve as an organization is a testament to the unwavering trust that our clients, candidates and consultants place in us. I’ll now turn the call over to Jeff Hackman, CareFirst’s Chief Financial Officer.

Joe Liberatore, President and CEO, Kforce: Thank you, Dave. First quarter revenue of $330,000,000 was at the low end of guidance and earnings per share of $0.45 was slightly above the low end of guidance. Overall gross margins decreased 30 basis points sequentially to 26.7% due to a seasonal decline in Flex margins of 50 basis points resulting from usual payroll tax resets, which was partially offset by a higher mix of Direct Hire revenues. On a year over year basis, overall spread and business mix have been stable, though gross margins declined 40 basis points due to higher healthcare costs. Flex margins in our technology business decreased 40 basis points sequentially due to seasonal payroll tax resets.

Flex margins in technology declined 40 basis points year over year as higher healthcare costs were partially offset by a slight improvement in bill pay spreads. This spread increase of 10 basis points is attributable to the continued demand for highly skilled talent and a higher mix of consulting oriented work. As we look forward to Q2, we expect Flex margins to increase sequentially due to the alleviation of seasonal payroll tax resets while remaining stable otherwise. Overall SG and A expenses as a percentage of revenue of 22.8% were within the range of our expectations as we have continued to manage productivity and profitability levels well. While we experienced higher healthcare costs in the first quarter, those costs were offset by leverage gained from continued refinements in our headcount and lower performance based compensation given slightly lower financial performance.

We are continuing to make targeted investments in our sales capabilities while tightly scrutinizing spend in all other areas of our business. We also continue to advance our enterprise initiatives, including the implementation of Workday, the maturation of our India development center and further integration of our solutions offering, all of which are expected to significantly contribute to our longer term financial objectives and prepare us well for when companies more aggressively invest in their technology initiatives. We expect 2025 to be the final year of significant net investment in these initiatives and for them each to begin providing meaningful and growing returns as we move into 2026 and beyond. Our operating margin was 3.5% and our effective tax rate in the first quarter was 26.4%. During the quarter, we accelerated our share repurchase activity returning an aggregate of 28,300,000 in capital to our shareholders through dividends of roughly $7,000,000 and share repurchases of approximately 21,000,000 Given the level of repurchase activity, outstanding debt at the end of the first quarter was $65,500,000 We continue to carry a very solid balance sheet and historically conservative leverage against trailing twelve month EBITDA levels.

We have continued to be active in repurchasing our shares in April and have significant remaining availability under our credit facility. Operating cash flows were $200,000 which were lower than usual primarily due to timing of payments from our clients and an allowable deferral by the IRS of our 2024 federal income tax payment into the first quarter. Our return on equity continues to exceed 30%. We continue to execute our organically driven business well and we believe our industry leading relative performance is a result of our intense focus in technology staffing and solutions in The U. S.

Augmented by our nearshore and offshore capabilities. We continue to carry a pristine balance sheet with conservative debt levels and return significant capital to our shareholders. This consistent repurchase activity continues to be strongly accretive to earnings. We have returned approximately $1,000,000,000 in capital to our shareholders since 02/2007, which has represented approximately 75% of the cash generated while significantly growing our business and improving profitability levels. Our balance sheet and cash flows allow us to remain committed to investing in our business while aggressively returning capital regardless of the economic climate.

Our threshold for any prospective acquisition remains very high. The second quarter has sixty four billing days, which is one more day than the first quarter and the same as the second quarter of twenty twenty four. We expect Q2 revenues to be in the range of $332,000,000 to $340,000,000 and earnings per share to be between $0.57 and $0.65 Our guidance is based upon assumption of the continuation of a stable environment and does not consider the potential impact of any other unusual or non recurring items that may occur. We remain excited about our strategic position and prospects for continuing to deliver above market results while continuing to make the necessary investments to help drive long term growth and enable us to achieve our longer term objective of attaining double digit operating margins. As we mentioned previously, we expect operating margins to approximate 8% when we return to $1,700,000,000 in annual revenues, which is more than 100 basis points higher than when that revenue level was achieved in 2022.

This improvement is being driven by the expected benefits derived from investments in our strategic priorities, which will drive down operating costs. Though we have seen recent slight improvement in bill pay spreads, our profitability expectations are not factoring in any additional meaningful benefit from further improvement in gross margin. On behalf of our entire management team, I’d like to extend a sincere thank you to our teams for their efforts. We’d now like to turn the call over for questions.

Greg, Conference Operator: All right. Thank you. It looks like our first question today comes from the line of Mark Marken with Baird. Mark, please go ahead.

Mark Marken, Analyst, Baird: Hey, good afternoon, everybody, and thanks for taking my questions. Joe and David, you mentioned the monthly trends that you were seeing, particularly on the Tech Flex side, really appreciate that. I was wondering if you could just give us just a little bit more color with regards to what you’re hearing from clients. Obviously, it’s an uncertain environment. But I’m wondering, are you hearing like a very firm commitment to sticking with existing projects and just basically delaying those that haven’t started?

Or are you starting to see any contemplation at all of potentially ending some already, underway projects?

Dave Kelly, Chief Operating Officer, Kforce: Yes. I appreciate the question, Mark. This is Dave. So yes, so to reiterate what we said, we did see some growth in the consultants on assignment in March and then through mid April. Joe also alluded to some of our front leading indicators.

Our KPIs continue to be strong. I’d also mentioned bill rates. So we’re seeing some spread improvement. So I think generally speaking, stable activity, stable environments, discussions and things that we’re hearing from our clients, we have not I would contrast this significantly to maybe slower periods in recessionary periods. We are not seeing clients canceling projects on us.

It’s very steady, as I think we articulated in the prepared remarks. Certainly, we are winning some new business, so you’re seeing that. You’re seeing some natural project ends. You’re just not seeing robust acceleration in some a lot of new initiatives, as we’ve been saying for a number of We see that pipeline. We continue to hear an eagerness of spend.

But obviously, I think there’s a fair amount of caution due to the uncertainty in the environment for clients to say, I’m going to go full board in spending. More of what we saw that more of what we saw last quarter.

Tobey Sommer, Analyst, Truist: Okay. And then

Mark Marken, Analyst, Baird: it seems relatively clear, but just want to 100% absolutely confirm this. It sounds like the guidance that you’re basically providing would basically suggest, you know, relatively stable sequential trends on a go forward basis through the remainder of the of the quarter, and and doesn’t really contemplate, you know, maybe the environment gets worse and, you know, some clients decide that they need to cut back a little bit more sharply. Is that correct?

Joe Liberatore, President and CEO, Kforce: Yeah. And and, Mark, this is Jeff. Good to talk to you again this this quarter here. I think Dave made a couple of points. I know he touched on this in his remarks.

But mid quarter in the February timeframe, attrition levels ran a little bit higher than we had anticipated. The new assignments that we saw during the quarter were actually fairly consistent with what we expected. And I think it was in both Joe and Dave’s scripts over the last four to six weeks. So as we closed out the first quarter and started April, actually grew our consultants on assignment during that period. So that gives us a point mark for guidance where yes from the remaining to go period for the quarter we expect stability from here on out.

The growth that we saw in late March and April put us in a position where at the midpoint of our guide our technology business is up sequentially a little bit less than 1%. So yes, you are correct, Mark, that the assumption at the midpoint of the guide is stability for the remaining to go period of the second quarter here.

Mark Marken, Analyst, Baird: And obviously nobody knows exactly what’s going to happen because nobody knows exactly where tariffs are going to end, and we don’t know where other countries are gonna respond. But if things do get worse, what what are some of the the levers that you could pull on? Or how would you, react if if we started seeing some pullbacks in terms of existing projects?

Joe Liberatore, President and CEO, Kforce: Yes. I think, Mark, the so hopefully, can appreciate over the last couple of years obviously in 2023 and 2024 revenues were declining in our technology business just given the macro headwinds. We’ve been making as an overall organization the necessary adjustments. I think it was mentioned in Dave Kelly’s prepared remarks that when you look at our overall delivery headcount over the last several years, it’s down close to 40%. We’ve been investing in our business from a sales role standpoint.

So I think, Mark, we’re going to take a good hard look, as we always do, at our operating trends. We’ll assess what we’re seeing in terms of client visits, terms of job orders and continue to make the necessary adjustments in the business just as we’ve done over the last couple of years to make sure that we’re returning a responsible level of profitability.

Dave Kelly, Chief Operating Officer, Kforce: Yeah. I’d just add to that. This is Dave. A couple of things. Right?

Jeff’s obviously talking about the sales and delivery folks. We have always managed the business quantitatively and have expectations for those people, that’s part of the reason why those percentages that Jeff quoted are where they are. Obviously, from a cost perspective, SG and A, we’re always being prudent, making sure we’re not unnecessarily spending money. I think we’ve been very prudent on that. The one thing I would continue to stress based upon where we are today and the strong cash that we’re generating, we think about this business not just in the near term, but certainly in the long term and the long term benefits.

Touched on the work, the implementation, critical for us to continue to invest to make sure that we bring that to fruition because I think Jeff has said in prior calls, we’re looking at probably about a 1% improvement in operating margin after that goes live. We’ve also obviously want to continue to invest in those other strategic priorities that we have, building our offshore capability, etcetera. So we’re thinking about this certainly being prudent in the near term, but making sure that we maintain focus on what the big long term benefits we think that we need to generate to our long term objectives.

Joe Liberatore, President and CEO, Kforce: Hey, Mark. And now this is Joe. I’ll add one piece because I think both Jeff and Dave kind of gave a good backdrop of how we look at this managing the business internally. But I want to shift a little bit to the external, to the client front. The majority of the work that we’re focused on in our model today is what I would call strategically critical projects that organizations don’t turn off, they can’t turn off.

I mean, obviously, they could turn them off, but I’ll tell you things would have to get pretty bad. We’ll be in a whole different world, and I think how Kforce is performing would be the least of anybody’s worries. So my main point with that, we have not seen projects being cut short. We’ve seen projects bring come to completion. We’re not seeing a lot of trimming in and around the strategic projects.

So I think that that’s an important piece. My main reason for sharing that is we would see probably less initiation of new projects, which gives us time to prepare, and and react to those situations. So I don’t think we get blindsided by anything. I just wanted to give that, that part of, the story as well.

Mark Marken, Analyst, Baird: I appreciate that, Joe. And one last one from me and then I’ll jump back in the queue. Just in terms of the gross margins, they’ve they’re holding in relatively steady. What are you seeing in terms of price competition just with regards to the traditional IT flex staffing, not the consulting,

Joe Liberatore, President and CEO, Kforce: but just IT flex staffing? Yes. I think Mark, I’ll this is Jeff. I’ll take part one and then Dave can add some color here. I think Mark as you look at our flex margin spreads specifically in technology, after the earlier declines that we saw in 2023, our spreads have been actually quite stable since that period of time.

I think Dave mentioned in an earlier answer to a question on the average bill rate also being stable as well at roughly $90 I think you look across that Mark, I think we’ve been stable from an average bill rate standpoint now for the better part of three years. The margins have been very steady for the last couple of years as well. Of course, in the fourth quarter and again in the first quarter, saw a little bit higher health insurance costs. I think that distorts the flex margin lines a little bit. But I think encouraging for us that we continue to see the operational spread stability.

Of course, we’ve talked about the continued progress that we’re making in our more solutions oriented work. That work continues to have a margin profile that’s 400 basis points or higher. So of course, as we continue to benefit from a higher mix of business in that space, that’s also benefiting the overall margin profile for us.

Dave Kelly, Chief Operating Officer, Kforce: Yes. And then just to add a little further, it kind of goes to where Joe went a minute ago about us seeing projects come to their natural conclusion. We’re not seeing any extraordinary difference from that type of typical environment, right? We obviously in when we’re talking about more of the traditional staffing engagements, we deal with a lot of large companies still looking from time to time to consolidate their list of vendors, looking for some concessions, still seeing that. But we aren’t seeing any wholesale, hey, you need to cut prices if you’re going to keep business because we are under pressure, we being our clients, to save money.

I think that is, to me, a reflection of what Joe said. These guys are doing critical work. They need to have it continue to be done. We are still in an environment where high quality technology talent is important to find and needs to be paid for, and they recognize that. So we’ve seen stable bill rates.

To Jeff’s point, we’ve seen stable pay rates. So I think a very typical environment. We’re not seeing any rash decisions that companies are making.

Mark Marken, Analyst, Baird: Really appreciate the color. I’ll jump back in line. Thank you.

Greg, Conference Operator: Thanks, Mark. And our next question comes from the line of Kartik Mehta with Northcoast Research. Kartik, please go ahead.

Kartik Mehta, Analyst, Northcoast Research: Thank you. Hey, I wanted to ask a little bit about capacity. Maybe you know, obviously, you’ve made cuts and, obviously, you had to kinda restructure the organization with the current environment. And I’m wondering, you know, where you stand in capacity and if things get better rather than worse, how much business could the could you do without having to increase personnel?

Dave Kelly, Chief Operating Officer, Kforce: Yeah. Kartik, this is Dave. Good question. Maybe helpful to kind of precharacterize what we’ve done. I think we’ve done, I think Jeff had mentioned that delivery resources are down certainly.

But I think important to note as we kind of look at where we are today, the folks that we have on the sales side of the business actually from a number of people is actually slightly greater than it was back when we were doing $1,700,000,000 in business. Obviously, those folks are in critical roles and are very relationship driven with their clients. Tenure is very important, and frankly, that population in our organization is more tenured really than it’s ever been. So and those people, obviously, because of the criticality of those relationships, are harder to ramp, right? And we’ve made comments in the past that it’s not necessarily the case in the delivery side of the equation.

So there’s opportunity, and we’ve taken it to refine the number of resources we have there. We’ve enhanced the tools that they have to work with. That population typically can ramp very quickly. So when you think about it, really, the determinant as to what capacity is, is the sales capacity. Right?

And so the fact that we’ve got the same number, and they’re doing a lot more to get a sale today as you would expect than they were during a very robust time, and that wouldn’t necessarily likely happen again. You just kind of do the simple math, we probably have got, just from that perspective, about 40 capacity. So we are in no way in a place where we would fall short in meeting the needs of any of our clients from a sales perspective anytime soon. So we feel very good about where we are.

Joe Liberatore, President and CEO, Kforce: Yes. And the only thing that I would add to Dave’s comments is, we as I mentioned in my opening remarks, we are making some investments relative to Office three sixty five Copilot and Sales Copilot being that we’re a dynamic shop and we can integrate these things. And we’re not baking in any assumptions in terms of any productivity lifts from the investments that we’re making in these tools that we’ll be providing our people as well.

Kartik Mehta, Analyst, Northcoast Research: And then just a follow-up. Just on the visibility, obviously, visibility today is a lot lower than it was. But if you try to compare it to when things were a little bit more normal and you look at kind of visibility from a revenue standpoint or project standpoint, how would you characterize, or is there a way to look like you feel comfortable with about 60% of the revenue? Where whatever KPIs you’re looking at in terms of visibility.

Joe Liberatore, President and CEO, Kforce: Yeah. I would say, you know, having, been through multiple cycles, we’re always monitoring similar KPIs, which are really our front end indicators. They give us a good sense on what’s to come. So during uncertain times, during recessionary periods, during robust times. It’s really balancing those things and monitoring those KPIs.

We also monitor the ratios because the ratios is really what starts to move when you go into tougher times or when you go into more robust times, right? Your ratios typically improve during the good times and then during the tougher times those ratios start to expand a little bit. We’ve spent years building out our internal dashboards. Again, we leverage a lot of Microsoft products on this front So our people have access to real time information, and that’s how we stay on top and run the business. And I think Kartik, just to add a couple of points.

I think the average assignment length in our technology business does not move significantly. I know we haven’t talked about that maybe recently, but that’s still about ten months. And to Joe’s point, very metric driven. And certainly through these times where you’ve got a little bit more of a macro to pay attention to, We rely heavily on our field leaders and field associates to keep in tune with the clients and kind of drive us on what they are seeing in those conversations. And I think Joe and Dave both mentioned that We’re not seeing clients take proactive measures to restrict or delay or cancel.

So in that regard, I think the visibility still is reasonably clear to us in that regard.

Kartik Mehta, Analyst, Northcoast Research: Thank you. I appreciate that.

Mark Marken, Analyst, Baird: Thank you. Thank you.

Greg, Conference Operator: And our next question comes from the line of Tobey Sommer with Truist. Tobey, please go ahead.

Tobey Sommer, Analyst, Truist: Thank you. With respect to your own internal initiatives like the Workday, your capacity in India, is the timeline for those projects, how would you characterize it? On schedule, in line, behind schedule? How are you managing the completion of those efforts?

Dave Kelly, Chief Operating Officer, Kforce: Yeah. You know, you mentioned those two. Those are probably the most, visible here. Toby, this is Dave. Certainly, with respect to the Workday implementation, we refer to it internally as Gemini.

That has, as we’ve mentioned, been a multiyear project. The go live that we’re talking about in the first quarter twenty twenty six is an on time delivery of that. And so been kind of foreshadowing the expectations of what we would see with that and looking to 2026. So feel very good about where we are. The team has been intensively working.

It’s done an exceptional job, and I’ve got all the confidence in the world and the team. So I feel very good about that program. As it relates to our facility in Pune, India, actually more than on time, that’s operational, right? We went live with that facility at the beginning of this year, so we’re about four months in. Very pleased, as we’ve mentioned before, that is built strategically to support our domestic footprint.

We’ve already won a couple of projects there, and things are going quite well. We’ve built it with a reasonable degree of variable cost, but it can scale. And although we don’t have a specific target of how quickly it will grow because it will obviously be dependent upon how it supports The U. S. Business, again, that was a very well executed project by a lot of people on the team here.

Again, couldn’t be more proud of them as well. So things are going quite well on all these key initiatives for us.

Tobey Sommer, Analyst, Truist: You mentioned health care a little bit higher in the quarter impacting gross margin. Is that utilization generally running higher? Is there something discrete in the first quarter that occurred? And what are seeing so far in 2Q?

Joe Liberatore, President and CEO, Kforce: Yeah. I don’t think it’s anything. Tobey, this is Jeff. Good to hear your voice here. I think Healthcare, you remember from the fourth quarter and the first quarter of this year, Tobey Healthcare costs ran a little bit higher.

That’s more of a claim severity than it is a volume driven dynamic. You can look across the space with some of the healthcare providers as well, just a general increase in healthcare costs in addition to the severity. So nothing that we would say is pervasive within the health insurance offerings themselves.

Tobey Sommer, Analyst, Truist: K. That makes sense. And then you mentioned the indirect exposure that Kforce has to DC, large system integrators. Could you discuss that a little bit more? Like, I don’t know, the size of the exposure, which I think is relatively small, and what you’re seeing there?

And, also maybe talk about financial services as a vertical.

Dave Kelly, Chief Operating Officer, Kforce: Sure. Sure. Yeah. I I could start by saying I wish I could give you some perspective on those industries per se. Our exposure, relatively speaking, you know, is is small, but but I’ll start with our exposure to government.

I think Joe mentioned it. We obviously, I know you know this, divested of our prime government contracting business, KGS, about five years ago. And so pleased, obviously, in this environment, certainly to have done that and have that well in our rearview mirror. And I would also mention, obviously, we’ve got a very diversified commercial portfolio, right? So to your point, Tobey, in the government space, providing services to these integrators is certainly in the mid single digits within the entire portfolio.

And when you think about the percentage of the business that might be impacted by government spending cuts, it’s even a fraction of that. So really for us, the impact is nominal. So as I’ve mentioned in terms of an industry bellwether as to what we’re seeing, as I’m going to tell you in the Financial Services business, it is client by client. There are not huge amounts of clients. So I would be I would be giving you information that’s only partially informed to give you an opinion about the industry, but clearly, a small amount of business impact for us there.

As it relates to the financial services vertical, we’ve said in the past, this is our largest vertical. And I think I’d mentioned I know I’d mentioned in my prepared remarks that, that was off a little bit from Q4 to Q1. By the way, I’d mentioned that’s after two quarters of sequential growth. As I had said in the past, obviously, we do business with very large institutions. And I can tell you just looking at the portfolio, we had some actually that grew revenue for us.

We had some certainly that had declines as well. So on balance, the total dollars were down a little bit. But again, I don’t think we are a bellwether, and I wouldn’t hang your head on what industry trends are in Financial Services by our performance. So again, it could change quarter to quarter based upon project by project and client by client.

Greg, Conference Operator: And our next question comes from the line of Trevor Romeo with William Blair. Go ahead.

Trevor Romeo, Analyst, William Blair: Hey, good evening, guys. Thanks so much for taking the questions. One I had was, you’ve talked about the success of the consulting focused offerings, I think, even in this softer type of demand environment broadly. I guess, there any common themes among the type of project work that clients are kind of still demanding to a large degree for your consulting type offerings? Or maybe asked differently, are there any specific types of projects you think Kforce, in particular, has kind of carved out a unique offering that’s really resonated well?

Dave Kelly, Chief Operating Officer, Kforce: Yeah. So, Trevor, yeah, I mean, we’ve we’ve we’ve organized this offering in a in a couple different areas. But but, frankly and and we get quarterly updates from our team here, we’ve had pretty broad success. Even in the application engineering space, we’re continuing to see growth. Obviously, that is at the heart of a lot of our development work that we’re doing.

We’re seeing advancements in the digital space. Obviously, clearly, there’s a ton of data and data rationalization work that’s being done, obviously, in advance of a lot of companies’ AI efforts. And I think we’re certainly seeing growing pipelines, in particular in those last two areas. But frankly, across, all of the KCS engagements, cloud the cloud is also a big area of focus. So those places where the engagement with the end customer, the use of the cloud is really important as well as, as I’ve mentioned, all very strong.

So we’re proud of that business as well, right? As we’ve mentioned, we’ve had good growth. That has been really the driver of our outperformance, I think, generally speaking, over the last few quarters, certainly.

Trevor Romeo, Analyst, William Blair: Got it. Thanks, Dave. That’s helpful. And then I guess I wanted to ask sort of an AI related question. I know, you know, the long term that you have and generally agree that new use cases from AI will ultimately spur more demand.

But just in terms of the near term, I guess, you know, maybe there’s some negative impact on certain roles. Maybe there’s some new roles being created. I guess, are the new opportunities you’re seeing now offsetting any of that near term disruption? Or do you think one side of that is kind of moving faster than the other at this point?

Joe Liberatore, President and CEO, Kforce: Yes. I would say, what we’re seeing, realizing who makes up our customer base, which are enterprise, Fortune 1,000 organizations, what we’re seeing pretty much across the board within that client set is AI readiness. A lot of energy being spent around data, around migrating systems to the cloud or preparing to migrate them to the cloud, in and around digitizing, the various systems so that they’re prepared as they start to build out their use cases. They have to have the foundation in place and the infrastructure. And so that’s where we’re seeing a lot of the energy.

So yes, are we seeing roles that are being created? I would say they’re reshaping of existing roles where data scientists now are becoming AI engineer oriented or architect related roles. So we’re seeing the AI tied to a lot of roles versus what I would say is purely newly created roles. And that’s just providing more opportunity for us to tap into those high demand skill set areas. But it really the work that we are seeing coming through the pipe specific to AI is in and around the readiness versus major implementations of a use case, especially within these Fortune 1,000 organizations where data governance and a lot of other things have to be locked down and they have to be in good shape to be able to execute per se the implementation of a large use case.

Trevor Romeo, Analyst, William Blair: All right. Super helpful. Thank you.

Dave Kelly, Chief Operating Officer, Kforce: Sure. Thank you,

Greg, Conference Operator: Thank you, Trevor. And our next question comes from the line of Josh Chan with UBS. Josh, please go ahead.

Josh Chan, Analyst, UBS: Hi, good afternoon, Joe, Dave, Jeff. Maybe to quickly clarify on your comments about the environment. You mentioned leading indicators improving through April. I guess I think it typically improves around this time of the year. So I guess are you interpreting this improvement as fairly normal from a seasonal perspective just from a magnitude angle?

Dave Kelly, Chief Operating Officer, Kforce: Yes, Josh. No, yes, just to kind of clarify what I said, so and I tried to give some color in terms of what happened in the first quarter, right? So typically, in the first quarter, as I’d mentioned, we see growth in the second two months of the quarter. We actually didn’t see growth in the second month of the first quarter. So we did see some growth in March that would be typical and into April into mid April specifically.

And that growth trajectory has been has flattened a little bit. So I would say a traditional in a strong growth environment, you would see continuation of growth through the quarter, right? Part of the reason why is, as we’ve mentioned, obviously, uncertainty that we’re seeing in our guidance contemplates flat consultants on assignment from here through the rest of the quarter. So as we’re thinking about where we are in this cycle relative to what we would see typically in a strong growth environment, we haven’t suggested that we’re looking at a continuation of that.

Tobey Sommer, Analyst, Truist: Okay. Yes, that’s really helpful. Thank you, Dave.

Josh Chan, Analyst, UBS: And then on the health care costs, I guess, are you guys thinking of those as relatively random or unexpected events? Or I guess, at what point do you try to price through those health care costs into your bids to have that not be as big of an impact? Thank you.

Dave Kelly, Chief Operating Officer, Kforce: Yes. And Josh,

Joe Liberatore, President and CEO, Kforce: this is Jeff. I think from a healthcare standpoint, I had mentioned that this is the second quarter that the costs have been a bit higher than we anticipated. That was preceded probably by three or four quarters where the costs were either consistent or a bit below what we had expected. So naturally, Josh, you can imagine, healthcare costs a bit difficult to predict. Of course, every year we take a look at what the health care cost trends are and price it accordingly.

Some quarters you get a little bit, I’ll say unexpected surprise by some of the more severe claims that you just can’t predict. But we do price in kind of an annual health care cost trend. So hopefully that helps, Josh. Yeah. It does.

Yeah. Thanks, Jeff, and thank you, everybody, for the color and the time.

Dave Kelly, Chief Operating Officer, Kforce: Thank you,

Greg, Conference Operator: And our next question comes from the line of Mark Riddick with Sidoti. Mark, please go ahead.

Kartik Mehta, Analyst, Northcoast Research: Hi. Good evening, everyone.

Tobey Sommer, Analyst, Truist: I want to thank you for all the color that you’ve already provided. You’ve already answered pretty much most of my questions. One of the things I was sort of curious about is maybe you could share some thoughts as to what you’re seeing on candidate availability and whether has changed much over the last few months or if there were any particular areas where you’re beginning to see things loosen up a bit and maybe how you see things sort of playing out there?

Dave Kelly, Chief Operating Officer, Kforce: Yeah. Mark, I think the simple answer is in terms of candidate availability, it really hasn’t changed materially at all over the course of, I would say, more than the last couple of months, right? Over the course of the last, I would say, certainly nine months to a year, certainly. And I think maybe reflective of that is, we’re looking at stability in pay rates, right? So no, I think the other thing I would say is, this is what we do well, right?

So we are excellent, I think, at identifying the right candidates for the roles, right? And so frankly, an ongoing question in good times and bad, how do you find the consultants? It’s a lot to do with our people. It’s a lot to do with our processes. So it’s not something that keeps us up at night.

But no, we haven’t seen any material change at all in candidate availability.

Tobey Sommer, Analyst, Truist: Okay, great. And then

Dave Kelly, Chief Operating Officer, Kforce: last one for me, and you touched on

Tobey Sommer, Analyst, Truist: this certainly during your prepared remarks as far as the share repurchase activity during the quarter. And I guess it seemed to hint into a little bit into April, which kind of lends toward the share count guide for 2Q? Maybe you could sort of share some thoughts there. I mean, obviously, it makes a lot of sense to take advantage of where the shares are, but maybe you could talk a little bit about that as well.

Joe Liberatore, President and CEO, Kforce: Yeah. And Mark, this is Jeff. It’s a good question that you asked. I think what you saw certainly from the first quarter is we got a little bit more aggressive with our share repurchase activity. Of course, the first quarter is traditionally the lower quarter of operating cash flows when you look across the full year.

And because of that, we typically have a lighter amount of share buyback activity in the first quarter. As we looked across the space and certainly given the volatility that we were seeing and where we expect and the confidence that we have moving forward as a firm, we got a bit more aggressive in the first quarter and wanted to be transparent with that activity continuing into April. So I think when you look across, Mark, and I did mention this in some of the prepared remarks, but since 02/2007, we’ve through dividends and share buybacks returned about $1,000,000,000 in capital to shareholders. You look across that and that’s about 75% of the cash that we’ve generated. So the consistency that we’ve shown over a long period of time as a firm in getting aggressive and being consistent with our return of capital.

And I think I mentioned maybe last quarter that we’ve been returning capital and buying back stock before it was both to do this. So we’re serious about it. And as we look forward, don’t see us changing course in this regard. Joe and Dave have given commentary about the organic growth strategy. That is the strategy that we believe is best for Kforce.

And fortunately, we came into the year with a very strong balance sheet, and we’re using it.

Tobey Sommer, Analyst, Truist: Excellent. Thank you very much.

Mark Marken, Analyst, Baird: Thanks, Mark.

Greg, Conference Operator: And that looks to be all the questions we have today. So I will now turn it back over to Joe for closing remarks. Joe?

Joe Liberatore, President and CEO, Kforce: Well, thank you for your interest and support of Kforce. I would like to express my gratitude to every Kforce for your efforts and to our consultants and clients for your trust and faith in partnering with Kforce and allowing us the privilege of serving you. We look forward to talking with you again after second quarter twenty twenty five. Have a great evening.

Greg, Conference Operator: Thanks, Joe. And ladies and gentlemen, that does conclude today’s call. Again, thank you for joining and you may now disconnect. Have a great evening.

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