KFORCE INC (KFRC)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 revenue and EPS exceeded the high end of guidance and consensus, driven by better-than-expected flex gross margins and sequential strength in both Technology and FA; revenue was $332.6M and diluted EPS $0.63, with operating margin at 4.5% (vs consensus EPS $0.564* and revenue $328.2M*; bold beat) (Values retrieved from S&P Global).
• Gross profit margin rose 60 bps sequentially to 27.7% on lower healthcare costs and slightly expanding spreads; flex margin was 26.3% (up 50 bps seq), while SG&A deleveraged to 22.8% of revenue on lower volumes .
• Q4 2025 guidance implies sequential billing-day growth in both Technology and FA, with revenue $326–$334M and EPS $0.43–$0.51; tax rate headwind (~$0.04 vs last year and ~$0.07 vs Q3) tempers EPS despite margin stability .
• Capital returns remain a focal point: Board approved a $0.39 dividend for Q4 and lifted buyback authorization to $100M, positioning repurchases as highly accretive amid stable net debt capacity .

What Went Well and What Went Wrong

What Went Well

• Beat on top and bottom line: revenue $332.6M and EPS $0.63 both exceeded the high end of the Q3 guide; management highlighted consistent expansion in consultants on assignment through the quarter .
• Margin execution: overall gross margin 27.7% (up 60 bps seq) and flex margin 26.3% (up 50 bps seq) benefited from lower healthcare costs and improving spreads; Technology flex margins were stable YoY .
• FA momentum: FA flex revenue grew 6.9% sequentially; management noted “meaningfully” growing FA and expects sequential billing-day growth into Q4 .

What Went Wrong

• Year-over-year decline persisted: total revenue down 5.9% YoY; Technology flex -5.5% YoY and FA flex -7.3% YoY amid a demand-constrained environment .
• SG&A deleverage: SG&A was 22.8% of revenue, up 60 bps YoY and sequentially, reflecting lower revenue/gross profit and ongoing strategic investments (Workday, India development center, solutions integration) .
• Macro/tax headwinds: management cited a “persistently weak and largely frozen labor market,” ongoing federal government shutdown risk, and a Q4 tax-rate-driven EPS headwind of ~$0.04 vs last year and ~$0.07 vs Q3 .

Financial Results

Segment revenue and mix

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Results for the third quarter exceeded our expectations across the board, with overall revenues of $332.6 million and earnings per share of $0.63, both surpassing the high end of guidance.” — Joe Liberatore, CEO .
• “Consultants on assignment grew roughly 4% from the early third quarter lows... not driven by a few large projects... spanned many clients and talent acquisition models.” — Dave Kelly, COO .
• “Overall gross margins of 27.7%, up 60 basis points sequentially... due to an increase in flex margins of 50 basis points and a slightly better-than-expected mix of direct hire revenues.” — Jeff Hackman, CFO .
• “We expect Q4 revenues to be in the range of $326 million–$334 million and earnings per share to be between $0.43 and $0.51... tax rate presents an EPS headwind of approximately $0.04 vs last year and $0.07 vs Q3.” — Jeff Hackman .
• “In October 2025, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million.” — Earnings release .

Q&A Highlights

• Seasonality vs normalization: Management saw ~4% growth in consultants on assignment from early quarter lows, continuing into October; while healthy, not yet declaring a sustained upturn .
• Margin drivers: Flex margins benefited from lower healthcare costs and slightly expanding spreads; consulting engagements carry 400–600 bps higher margins, supporting overall GP .
• H1B visa fee policy: Minimal near-term impact given Kforce’s model of sponsoring transitions for talent already in the U.S.; potential competitive opportunity due to strong compliance record .
• AI engagements: Focus on data readiness, legacy modernization, cloud/security/governance; mainstream companies are narrowing use cases to operational areas with measurable ROI; consulting pipeline in digital/data expanding .
• Budget reallocation: Issues noted in Q2 were not repeated in Q3; demand broad-based across industries/geographies with positive sequential contributions from many markets .

Estimates Context

• Q3 results beat consensus on both revenue and EPS; the upside was driven by stronger flex margins (lower healthcare costs, expanding spreads), and sequential growth in FA and stabilization/improvement in Technology consultants on assignment .
• Values retrieved from S&P Global.

Key Takeaways for Investors

• Quality beat: Revenue and EPS exceeded guidance and consensus, with margin execution the key driver; near-term narrative is improving as internal KPIs strengthen .
• Mix shift supports margins: Consulting-led engagements (higher bill-rate/higher margin) and offshore capabilities provide margin durability even as traditional staffing remains down YoY .
• Watch Q4 tax-rate headwind: Guidance embeds a materially higher ETR, creating an EPS headwind despite stable flex margins and sequential billing-day growth expectations .
• Capital return catalyst: $0.39 dividend maintained and buyback authorization lifted to $100M; management intends to direct excess cash to repurchases within conservative leverage .
• Macro sensitivity: Management’s tone remains cautious on labor market and policy uncertainty, but demand appears broad-based across industries/geographies; flexibility of talent models may accelerate adoption as visibility improves .
• FA recovery: Second consecutive sequential growth with expectations for Q4 billing-day growth—monitor trajectory to assess breadth of recovery .
• Medium-term thesis: As AI readiness drives investments in data/digital/cloud, Kforce’s integrated staffing/solutions model and consulting mix position it to gain share and expand operating margins as revenues normalize .