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KFORCE INC (KFRC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenues of $330.0M and EPS of $0.45 came in at the low end of guidance and modestly below S&P consensus; revenue fell 4.0% QoQ and 6.2% YoY as Technology Flex and F&A Flex softness persisted while spreads and average bill rates remained stable .
  • Gross margin contracted 30 bps QoQ to 26.7% on seasonal payroll tax resets and higher health care costs; operating margin declined 100 bps QoQ to 3.5% despite continued mix shift toward consulting-oriented work .
  • Q2 2025 guidance implies a modest sequential topline uptick with revenue of $332–$340M, EPS of $0.57–$0.65, GP% of 27.2–27.4%, and operating margin of 4.4–4.8% as seasonality eases; Board declared a $0.39 dividend .
  • Management emphasized stable demand for mission-critical projects, improving consultants on assignment late March/April, and continued investment in Workday (go-live early 2026) and India development center as multi-year margin levers .

What Went Well and What Went Wrong

  • What Went Well

    • Stable pricing: Technology average bill rate (~$90) was steady with slight spread improvement; consulting solutions carry ~400 bps higher margins, supporting mix resilience .
    • Demand signals: Consultants on assignment increased in late March into mid-April; front-end KPIs elevated vs Q1 levels, underpinning Q2 stability assumptions .
    • Strategic execution: India development center launched in early 2025; Workday transformation (“Gemini”) on schedule for early 2026; both expected to drive operating leverage post-2025 .
    • Quote: “We are ideally positioned to meet [AI] demand… with increased focus of AI foundational readiness work in areas such as data, cloud and modernization” – CEO Joe Liberatore .

  • What Went Wrong

    • Macro drag and attrition: Higher-than-expected assignment attrition mid-Q1 and waning macro optimism weighed on sequential trends; Tech Flex down 5.2% on a billing day basis QoQ .
    • Margin headwinds: Gross margin -30 bps QoQ; Flex margin -50 bps QoQ on seasonal payroll tax resets; health care cost severity added pressure YoY .
    • F&A softness and Direct Hire slowdown: F&A Flex down 22% YoY (billing day basis); Direct Hire activity slowed in April, expected to decline sequentially in Q2 (seasonally strongest quarter) .
    • Analyst concern: Project cancellation risk addressed—management noted projects are not being cut short, but new project initiation remains cautious amid tariff uncertainty .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$353.3 $343.8 $330.0
Diluted EPS ($)$0.75 $0.60 $0.45
Gross Profit Margin %27.9% 27.0% 26.7%
Flex Gross Profit Margin %26.3% 25.5% 25.0%
SG&A % of Revenue22.2% 22.0% 22.8%
Operating Margin %5.3% 4.5% 3.5%
Adjusted EBITDA ($USD Millions)$23.8 $20.6 $16.8

YoY Reference:

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$351.9 $330.0
Diluted EPS ($)$0.58 $0.45
Gross Profit Margin %27.1% 26.7%
Flex Gross Profit Margin %25.6% 25.0%

Actual vs S&P Global Consensus

MetricConsensusActualSurprise
Revenue ($USD Millions)$333.8*$330.0 Miss
EPS ($)$0.469*$0.45 Miss

Values marked with * were retrieved from S&P Global.

Segment Breakdown

Segment MetricQ3 2024Q4 2024Q1 2025
Technology Total Revenue ($000s)$325,511 $317,274 $306,284
Technology Flex Revenue ($000s)$322,118 $314,019 $302,435
Technology Flex GP %26.1% 25.3% 24.9%
Technology Hours (000s)3,553 3,488 3,337
Technology Direct Hire Revenue ($000s)$3,393 $3,255 $3,849
F&A Total Revenue ($000s)$27,808 $26,508 $23,744
F&A Flex Revenue ($000s)$23,714 $23,085 $20,135
F&A Flex GP %29.4% 28.2% 27.2%
F&A Hours (000s)455 453 389
F&A Direct Hire Revenue ($000s)$4,094 $3,423 $3,609

KPIs

KPIQ3 2024Q4 2024Q1 2025
Flex Hours (000s)4,008 3,941 3,726
Direct Hire Placements342 322 342
Average Fee ($)$21,907 $20,756 $21,830
Billing Days64 62 63
Diluted WASO (000s)18,823 18,573 18,241
Free Cash Flow ($USD Thousands)——$(3,900)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2025$330–$338 —n/a
EPS ($)Q1 2025$0.44–$0.52 —n/a
GP %Q1 202527.0–27.2% —n/a
Flex GP %Q1 202525.4–25.6% —n/a
SG&A % of RevenueQ1 202522.8–23.0% —n/a
Operating Margin %Q1 20253.6–4.0% —n/a
WASO (M)Q1 202518.5 —n/a
Effective Tax RateQ1 202527.0% —n/a
Revenue ($M)Q2 2025—$332–$340 New
EPS ($)Q2 2025—$0.57–$0.65 New
GP %Q2 2025—27.2–27.4% New
Flex GP %Q2 2025—25.7–25.9% New
SG&A % of RevenueQ2 2025—22.2–22.4% New
Operating Margin %Q2 2025—4.4–4.8% New
WASO (M)Q2 2025—17.9 New
Effective Tax RateQ2 2025—26.0% New
Dividend per ShareQ2 2025—$0.39 (record 6/13; pay 6/27) New

Commentary: Q2 guidance midpoints imply modest sequential revenue growth and margin improvement as seasonal headwinds abate (64 billing days vs 63 in Q1) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 2024)Current Period (Q1 2025)Trend
AI/technology initiativesEmphasis on AI foundational work; stable high-end Tech demand; consulting mix growing Increased focus on AI readiness (data, cloud); Microsoft 365 Copilot and Sales Copilot licenses acquired Improving focus; execution ongoing
Workday back-office programIn-flight; expected benefits ~90 bps longer-term; tax credits recognized in Q3 On schedule (“Gemini”) go-live early 2026; expected margin gains post-2025 On track
Nearshore/offshore (India)Pune development center decision; go-live early 2025 Operational; early projects won; supports blended teams, no margin drag expected near term Scaling
Macro/tariffs & demandStable environment; slight improvement late Q3/early Q4; cautious initiation Waning optimism mid-Q1; consultants on assignment improved late March/April; guidance assumes stability Mixed/stable
Pricing and spreadsTech Flex margin up sequentially (Q3); spreads stable Spreads slightly better; average bill rate ~ $90 stable ~3 years Stable to modestly positive
Health care costsQ4 severity increased, pressuring margins Continued higher claim severity impacting gross margin Pressure
Financial services verticalSequential improvement through Q3/Q4; uneven across clients Slight pressure vs Q4; mixed client dynamics Mixed
Candidate availabilityStable availability; pay rates stable Remains stable; no material change Stable
Capital returnsOngoing buybacks and dividend growth; $900M+ since 2007 Returned $28.3M in Q1; continued April buybacks Active

Management Commentary

  • Strategy: Continue investing in long-term priorities (Workday transformation, India development center, integrated consulting solutions) while “controlling what we can control” amid macro uncertainty .
  • Quote (CEO): “There remains an increasingly strong backlog of strategically imperative technology investments” .
  • Efficiency and capacity: Delivery resources reduced ~40% over several years; sales capacity maintained/slightly higher than at $1.7B revenue, implying ~40% capacity without significant hiring .
  • Margin aspirations: Expect ~8% operating margin when annual revenues return to $1.7B (vs 2022), driven by Workday and solutions mix; double-digit OM targeted at ~$2.1B revenues longer-term .

Q&A Highlights

  • Project stability: Clients are not canceling mission-critical projects; cautious on new starts; guidance assumes stability for the rest of Q2 .
  • Levers if macro worsens: Ongoing productivity management, SG&A prudence, retention of most productive associates; flexibility to adjust delivery vs sales mix .
  • Health care costs: Elevated claim severity (not utilization) pressured margins; pricing assumptions reflect annual trend, but quarter-to-quarter variability persists .
  • Capacity & scalability: Sales headcount slightly above prior peak; can absorb several quarters of demand increase; India center built with variable cost to scale .
  • Visibility: Average assignment length ~10 months; real-time dashboards/KPIs support stable visibility; no proactive client restrictions observed .

Estimates Context

  • Q1 2025: Revenue $330.0M vs S&P consensus $333.8M*; EPS $0.45 vs $0.469* — both slight misses as seasonal payroll tax resets and health care costs weighed on margins despite stable spreads and late-quarter assignment improvement .
  • Prior quarters: Q4 2024 revenue $343.8M vs $342.1M* and EPS $0.60 vs $0.594* — slight beats; Q3 2024 revenue $353.3M vs $351.2M* and EPS $0.75 vs $0.688* — beats on margin/spread improvement and consulting mix .

Values marked with * were retrieved from S&P Global.

Key Takeaways for Investors

  • Modest miss in Q1 against consensus, but Q2 guide implies sequential improvement from seasonal margin headwinds easing and stable demand—watch execution against the GP% and OM midpoints .
  • Mix shift toward higher-margin consulting solutions and stable ~$90 bill rates support spread resilience even in subdued demand; this should underpin margin recovery as volumes inflect .
  • Structural margin levers (Workday go-live early 2026, India center scale-up) remain intact; management reiterated ~8% OM at $1.7B and double-digit OM at ~$2.1B longer term .
  • Capital returns remain a core pillar: $28.3M returned in Q1 and a $0.39 dividend declared for Q2; continued share repurchases in April signal confidence .
  • Near-term monitoring: health care cost trend severity, attrition stabilization, F&A Flex softness (mid-single-digit sequential decline expected in Q2) and Direct Hire trajectory (seasonal slowdown) .
  • Trading setup: Narrative inflection could come from signs of accelerating project initiations (AI readiness pull-through) and consultants on assignment growth beyond seasonal patterns; conversely, tariff/macro shocks could delay recovery .

Sources: Q1 2025 press release and 8-K, Q1 2025 call transcript, prior quarter materials (Q4 2024, Q3 2024), and S&P Global consensus where noted .