Kforce Inc. (KFRC) Quarterly Report (10-Q)
Kforce Inc. (KFRC) has filed its quarterly report for the period ended March 31, 2025. The company reported net service revenue of $343.1 million, a 12.1% increase from the same period last year. Gross profit margin was 24.1%, and operating income was $23.4 million. Net income was $14.5 million, or $0.78 per diluted share, compared to $10.3 million, or $0.56 per diluted share, in the same period last year. The company’s cash and cash equivalents were $143.1 million as of March 31, 2025. Kforce’s financial performance was driven by strong demand for its professional staffing and solutions services, particularly in the technology and healthcare industries. The company’s management believes that its financial position and results of operations are strong, and it is well-positioned to continue to grow and expand its business in the future.
Business Overview
Kforce is a leading provider of technology and finance and accounting talent solutions to innovative companies. As of March 31, 2025, the company employed around 1,700 associates and had 7,500 consultants on assignment. Kforce serves a diverse set of industries and organizations, with a focus on Fortune 500 companies.
The company entered 2025 with optimism about U.S. economic growth, expecting a boost in client confidence and technology initiatives. However, ongoing discussions of potential tariffs have reintroduced uncertainties, leading to continued caution from companies about investing in technological change. This may negatively impact Kforce’s financial results.
Operating Results
For the three months ended March 31, 2025, Kforce reported the following:
| Metric | Q1 2025 | Q1 2024 |
|---|---|---|
| Total Revenue | $330,028 | $351,889 |
| Gross Profit | 26.7% | 27.1% |
| SG&A Expenses | 22.8% | 22.2% |
| Income from Operations | 3.5% | 4.5% |
| Net Income | 2.5% | 3.1% |
Flex revenue, which accounts for 97.7% of total revenue, decreased 6.4% year-over-year. This was driven by a decline in consultants on assignment due to macroeconomic uncertainties. Technology Flex revenue decreased 5.0%, while Finance & Accounting (FA) Flex revenue decreased 23.2%.
Direct Hire revenue, which makes up 2.3% of total revenue, increased 4.1% year-over-year, primarily due to an increase in placement fees.
The total gross profit percentage decreased 40 basis points, primarily due to a decline in Flex gross profit margins. Technology Flex gross margins decreased 40 basis points, while FA Flex gross margins decreased 190 basis points.
SG&A expenses as a percentage of revenue increased 60 basis points, as the company continues to invest in strategic initiatives and retain top talent to position the firm for future growth.
Segment Performance
Technology:
- Flex revenue decreased 5.0% (3.5% on a billing day basis), driven by a decline in consultants on assignment.
- Average bill rates improved 1.1%.
- Flex gross profit margins decreased 40 basis points, primarily due to higher healthcare costs, partially offset by an improvement in the spread between bill and pay rates.
Finance & Accounting (FA):
- Flex revenue decreased 23.2% (22.0% on a billing day basis), driven by a decline in consultants on assignment.
- Flex gross profit margins decreased 190 basis points, primarily due to a tighter pricing environment, higher healthcare costs, and slightly higher payroll taxes.
Non-GAAP Measures
Kforce uses several non-GAAP financial measures to provide additional insight into its performance:
Revenue Growth Rates: Adjusts revenue growth to remove the impact of changes in billing days. This shows that Technology Flex revenue decreased 3.5% and FA Flex revenue decreased 22.0% on a year-over-year basis.
Free Cash Flow: Defined as net cash provided by operating activities less capital expenditures. Free cash flow was negative $3.9 million in Q1 2025, compared to positive $11.3 million in Q1 2024.
Adjusted EBITDA: Net income before depreciation, amortization, stock-based compensation, interest, and taxes. Adjusted EBITDA was $16.8 million in Q1 2025, compared to $20.6 million in Q1 2024.
Liquidity and Capital Resources
Kforce primarily relies on operating cash flows and its credit facility to meet capital and liquidity requirements. At March 31, 2025, the company had $65.5 million outstanding on its credit facility and $133.4 million in available borrowing capacity.
Cash provided by operating activities was $0.2 million in Q1 2025, compared to $13.2 million in Q1 2024. The decrease was primarily driven by the payment of deferred 2024 federal income taxes, higher distributions from the non-qualified deferred compensation plan, lower profitability, and the timing of trade receivables collections.
Cash used in investing activities was $4.8 million, primarily for capital expenditures of $4.1 million. Cash provided by financing activities was $4.7 million, driven by net proceeds from the credit facility, partially offset by an increase in share repurchases.
Kforce repurchased approximately 418,000 shares of common stock during Q1 2025 at a total cost of $21.2 million. The company also declared and paid a quarterly dividend of $0.39 per share.
Outlook
In the second quarter, Kforce expects:
- Technology Flex revenue to improve slightly sequentially and decrease in the low-to-mid single digits year-over-year.
- FA Flex revenue to decrease in the mid-single digits sequentially.
- Direct Hire revenue to decrease slightly year-over-year.
- Technology Flex gross profit margins to increase sequentially due to lower seasonal payroll taxes.
- FA Flex gross profit margins to increase sequentially due to lower seasonal payroll taxes.
Analysis
Kforce’s financial performance in Q1 2025 was mixed, with declines in both revenue and profitability compared to the prior year. The key drivers were a decrease in consultants on assignment, particularly in the FA segment, as well as margin pressure from higher costs.
The company’s Technology segment showed more resilience, with a smaller decline in Flex revenue and relatively stable gross profit margins. However, the FA segment struggled, with a 23.2% drop in Flex revenue and a 190-basis point decline in gross margins.
The decrease in operating cash flow is also concerning, as it limits Kforce’s financial flexibility and ability to invest in growth initiatives. The increase in share repurchases during the quarter suggests the company is prioritizing returning capital to shareholders over reinvesting in the business.
Looking ahead, Kforce’s guidance indicates continued challenges, with expectations of sequential and year-over-year declines in key metrics like Flex revenue and gross margins. This suggests the macroeconomic uncertainties are persisting and impacting the company’s clients’ willingness to invest in technology and finance/accounting initiatives.
To navigate these headwinds, Kforce will need to focus on controlling costs, maintaining its competitive position, and positioning itself to capture market share when demand eventually improves. Successful execution of its strategic initiatives, such as the Workday implementation and evolving its delivery capabilities, will be critical.
Overall, Kforce’s Q1 2025 results reflect the ongoing challenges in the staffing industry, and the company will need to demonstrate its ability to adapt and innovate to drive future growth and profitability.
