• Total Revenue: $353.3 million, above the midpoint of expectations, down 0.8% sequentially and 6.8% year over year.
• Earnings Per Share (EPS): $0.75, exceeded the high end of guidance.
• Gross Margin: 27.9%, increased 10 basis points sequentially and 20 basis points year over year.
• Flex Margins (Technology Business): 26.1%, increased 20 basis points sequentially and 60 basis points year over year.
• SG&A Expenses: 22.2% of revenue, slightly above guidance expectations.
• Operating Margin: 5.3%, toward the high end of expectations.
• Effective Tax Rate: 22.3%, lower than expected due to R&D tax credits.
• Operating Cash Flows: Approximately $31 million.
• Return on Equity: 33%.
• Capital Returned to Shareholders: Over $17 million through dividends and share repurchases in Q3.
• Dividend Yield: 2.7%.
• Q4 Revenue Guidance: $337 million to $345 million.
• Q4 EPS Guidance: $0.56 to $0.64, includes a $0.02 negative impact from hurricane-related charitable contribution.

• Warning! GuruFocus has detected 2 Warning Signs with TREX.

Release Date: October 28, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Kforce Inc (NYSE:KFRC) exceeded the midpoint of revenue expectations and surpassed the top end of earnings per share guidance for Q3 2024.
• The technology business has remained stable over the last four quarters, with consistent demand for high-end skill sets.
• Kforce Inc (NYSE:KFRC) is establishing a development center in Pune, India, to enhance service offerings and support client needs.
• The company is experiencing growth in its solutions offering, indicating strong client relationships and a robust value proposition.
• Kforce Inc (NYSE:KFRC) has a strong balance sheet with minimal debt and continues to return capital to shareholders through dividends and share repurchases.

Negative Points

• Total revenues declined 0.8% sequentially and 6.8% year over year on a billing day basis.
• Flex revenues in the technology business declined 0.6% sequentially and 5.1% year over year per billing day.
• Clients remain cautious with discretionary spending due to economic uncertainties, impacting the initiation of new technology investments.
• The FA business, which constitutes 8.0% of revenues, declined 2.2% sequentially and 21.4% year over year on a billing day basis.
• SG&A expenses as a percentage of revenue were slightly above guidance expectations, indicating higher operational costs.

Q & A Highlights

Q: Can you discuss the improvement in gross margins, particularly on Flex, and the impact of health insurance costs versus bill-pay spread? A: Jeffrey Hackman, CFO, explained that technology Flex margins increased by 20 basis points sequentially and 60 basis points year-over-year, primarily driven by an improvement in the bill-pay spread. Health insurance had a contributing factor on a year-over-year basis but not sequentially. The focus on high-end technology resources and solutions-oriented business also contributed to the margin improvement.

Q: What are your thoughts on the IT Flex environment and the decision to set up an offshore facility in Pune, India? A: Joseph Liberatore, CEO, emphasized that client confidence is key for releasing discretionary spend. The Pune facility addresses client needs for direct offshore capabilities, which were previously limited by third-party restrictions. David Kelly, COO, added that the facility will initially support managed services and will ramp up gradually, enhancing Kforce's ability to say yes to more opportunities.

Q: Why did you choose India for the development center over other regions like Latin America? A: David Kelly, COO, stated that India was chosen due to its vast pool of technology resources and client demand for offshore capabilities. While India is the starting point, Kforce remains open to exploring other regions like Latin America based on client needs and strategic opportunities.

Q: How is AI demand impacting your business, and what foundational work is being done? A: Joseph Liberatore, CEO, noted that most current work focuses on foundational aspects like governance, data, cloud, and security. These areas are part of Kforce's managed teams solutions offering. The company is well-positioned to capitalize on AI-related opportunities as they arise, leveraging internal initiatives and client engagements.

Q: How does the backlog of projects relate to economic conditions, and what will unlock this spend? A: David Kelly, COO, explained that mission-critical projects are prioritized by clients to maintain market leadership. Unlocking further spend depends on clients gaining confidence in a continuously improving economic environment. Joseph Liberatore, CEO, added that Kforce is well-positioned to benefit from increased demand once economic conditions stabilize.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.