Kforce (NASDAQ:KFRC) reported first-quarter financial results on Monday. The transcript from the company’s first-quarter earnings call has been provided below.
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View the webcast at https://events.q4inc.com/attendee/458426539
Summary
Kforce Inc reported Q1 2026 revenues of $330.4 million, marking the first year-over-year growth since Q4 2022, with earnings per share of $0.46 exceeding expectations.
The company anticipates revenue growth in Q2 to accelerate to mid-single digits, driven by increased demand for flexible workforce solutions and AI-related projects.
Kforce Inc continues to focus on its integrated strategy and global talent strategy, including expanding its India Development center and establishing AI Innovation Studio and AI pods.
Management highlighted strong execution in pricing and service delivery, leading to higher gross margins and operating leverage.
The company returned $18.6 million to shareholders through dividends and share repurchases, maintaining a conservative leverage ratio of 1.2 times net debt to EBITDA.
Full Transcript
OPERATOR
Good day everyone and welcome to the Kforce Q1 2026 earnings call. As a reminder, this call is being recorded at this time. I would like to hand the call over to Mr. Joe Liberatore. Please go ahead Sir.
Joe Liberatore
Good afternoon and thank you for your time today. This call contains certain statements that are forward looking, are based upon current assumptions and expectations, are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce Inc’s public filing 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 Relation portion of our website. We are extremely pleased to have successfully driven results in the first quarter that again exceeded our expectations from both a revenue and profitability perspective. The momentum that we carried into the beginning of the year has continued to strengthen resulting in year over year revenue growth for the first time in several years. As Jeff Hackman will cover in more detail, our trajectory has continued to improve in the first month of the SECond quarter, which we expect will lead to accelerating year over year growth in Q2 in the mid single digits. I cannot be prouder of the tenacity of our people or more appreciative of the trust that our world class clients are increasingly placing in Kforce to drive more meaningful and valuable engagements with them. Our go to market approach which was born out of our integrated strategy efforts, appears to be paying dividends. Our people continue to operate more fully as one Kforce, leveraging the firm’s capabilities across all service offerings. While recent economic data continues to point to a generally softer labor market and professionally oriented roles, our performance reflects strong execution and a clear shift we’re seeing across our customer base. However, several of the leading indicators we track which have historically signaled strengthening demand for our services, are improving. Companies are increasingly turning to flexible talent strategies to move forward on significant backlog of high priority technology initiatives, especially in the age of artificial intelligence where CEOs remain cautious to add permanent headcount. At the same time, heightened geopolitical uncertainty, including the conflict involving Iran, has contributed to significant volatility in the global energy markets, resulting in sharp price increases across oil, gasoline, natural gas and electricity. In this environment, clients are focused on agility. We believe uncertainty is reinforcing the value of flexible workforce solutions as organizations seek to adapt while they gain greater clarity around geopolitical developments and the longer term impact of emerging technologies on their business and talent strategies. Against this backdrop, we remain optimistic that our recent operational data and several conSECutive quarters of improving revenue performance reflect a more typical historical cyclical pattern consistent with prior demand recoveries. As we have stated, we’ve witnessed and participated in transformative technology shifts before, such as personal computing, the emergence of the Internet, the mobile revolution and the move to cloud computing. Each of these periods of technological change impacted labor markets. Yet over time, workers, including technologists, have continued to upskill and retrain themselves to improve the relevancy of their skill sets. As technology has evolved over the last 50 plus years, we’ve placed skill sets that include mainframe operators, COBOL programmers, database administrators, web developers, mobile application developers, DevOps engineers, cloud architects, UI UX designers, data scientists, data engineers, AI platform engineers, AI product managers, prompt engineers, etc. The point is, the tasks change or in some cases completely go away. Job titles change, skill composition shifts and at the end of the day, new roles are created, new businesses are spurred, new industries are created resulting in a net positive amount of technology oriented job growth as society’s unquenchable thirst for technology advancements and productivity gains. We believe generative AI, and its offshoots into agentic AI and cognitive AI is in the early stages of the evolution and may just be starting to align with historical patterns we’ve experienced. Recruiting the right in demand talent, assembling effective teams and implementing target enterprise level initiatives are crucial for organizations seeking to successfully integrate and leverage these new tools to maintain a competitive advantage. Our strong position enables us to grow our client portfolio and bring on new client opportunities, thereby sustaining our history of consistent above market performance fueled by client share growth, ultimately strengthening the foundation that delivers enduring value to our shareholders. Our business model is intentionally simple, organically driven and intensely focused. By limiting inorganic growth within our existing service areas, we protect our teams from unnecessary complexity and distractions. That focus allows our people to do what they do best, build deep relationships and partner with clients to solve their most critical business challenges. Our strategy has been thoughtfully refined over time, not overhauled because it has proven durable. That focus, combined with unified and resilient culture, is a real differentiator for us and essential to our consistent market outperformance. As our operating trends continue to improve, we’re also making great progress on our key strategic initiatives, including the implementation of Workday scaling, our India Development center, advancing our internal AI initiatives and continued refinement of the execution of our integrated strategy. Further to that point, we are pleased to have recently announced the establishment of our AI Innovation Studio within our headquarters and associated AI pods in India to support evolving client needs. As I conclude my remarks, I want to acknowledge the outstanding people who make up the Kforce team. I’m incredibly proud of their fortitude, adaptability and dedication demonstrated across the firm, particularly given the challenging business environment over the past three years. I am grateful every day for the opportunity to work with colleagues who bring this level of skill and commitment. Thanks to their efforts, we are well positioned strategically and I feel confident in our trajectory and and the opportunities ahead. 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 detail on our financial results as well as our future financial expectations.
Dave Kelly (Chief Operating Officer)
Thank you, Joe. Total revenues of $330.4 million represented a return to overall revenue growth for the first time since the fourth quarter of 2022. Encouragingly, we were successful at delivering year over year flex revenue growth in both our technology and FA&A businesses. The first quarter is typically characterized by sequential revenue declines on a billing day basis due to calendar year assignment ends. This is a very normal part of our business and the broader sector. There’s been a lot of discussion about our ability and the sector’s ability to deliver revenue growth given the much speculated demand impact of AI tools, and technologies. A data point that we think is particularly relevant is that our first quarter performance was meaningfully better than the average sequential decline over the past 15 years. Prior to AI becoming an hourly topic of conversation. Our results were driven by a combination of lower levels of project ends and a faster than normal rebound in new assignment activity. Further to this point, as Jeff Hackman will cover in his particular remarks, the midpoint of our guidance contemplates year over year growth in Q2 of approximately 4%. While clients continue to take a measured approach to technology spending amid an uncertain macroeconomic environment, investments in critical initiatives, particularly in data, digital and platforms that underpin long term AI strategies are actively being prioritized by our clients. Our recent momentum and operating trends suggest clients are increasingly green lighting long postponed initiatives through the use of flexible workforce solutions that are strategic to their needs and don’t have an easy or obvious AI related solution. Importantly, improvements in our business have been broad based with positive trends evident across a wide range of industries within our client portfolio and utilizing a wide range of skill sets. While we certainly continue to see growth in AI related data, digital and cloud projects, we’re also seeing a ramp in demand for platform and application development roles and projects. The demand for technology is broad based. We continue to make targeted organic investments in our consulting solutions business to meet rising client demand for cost effective access to highly skilled talent. These investments are strengthening our value proposition by expanding flexible delivery models and deepening differentiated expertise. As a result, our consulting led offerings are positively contributing to the performance of our technology business supported by a strong pipeline of high quality opportunities. Our fully integrated delivery model offering a seamless client experience across consulting, project based work and staff augmentation spanning multiple technologies and skill sets remains a clear point of differentiation in the market. We’ve seen clear signs of improvement improving demand across the entire spectrum of our service models. This integrated approach has been a core driver of our technology performance, enabling meaningful gross profit expansion over the past year despite a challenging macroeconomic backdrop while maintaining stability in average bill rates. We leverage long standing client relationships as the foundation of our model and focus on simplifying the buying process and accelerating decision making. An increasingly important component of our ability to deliver cost effective solutions is our global talent strategy, including access to highly skilled professionals outside the United States. Our development center in Pune, combined with strong domestic sales and delivery capabilities and a high quality vendor network enables a scalable multi shore delivery model that comprehensively addresses client needs. Demand for this channel continues to accelerate, reinforcing its strategic importance and strengthening our confidence in the durability of this model. We now have a multi shore delivery model being utilized within 60% of our 25 largest clients. We’ve been able to maintain a stable average bill rate of approximately $90 per hour over the last three years while building a higher quality, higher margin revenue stream. The increasing mix of consulting oriented engagements which command higher bill rates and significantly stronger margin profiles, along with disciplined management of wage inflation and core technology skill sets is effectively offset the downward pressure on bill rates from a greater mix of consultants based outside of the US Demand across our core practice areas including data and AI, digital platform engineering and cloud remains strong and our pipeline of consulting opportunities continues to expand. These disciplines represent foundational capabilities for the development and deployment of AI solutions and we believe organizations will increasingly require access to specialized talent to execute their strategies, creating meaningful and durable growth opportunities for our firm. Over the last several years, we have made responsible adjustments to align headcount levels with revenue levels and productivity expectations. As noted in last quarter’s call, we implemented further refinements to our organization in the first quarter. Despite these actions, we believe we have sufficient capacity to absorb the near term improvements in demand levels without the need for significant incremental resources, particularly as we continue to enable greater efficiency through our use of AI Solutions. We remain committed to investing in our consulting solutions business and other strategic initiatives that we believe will drive long term revenue and profitability growth. The actions taken in the quarter provide increased confidence in our ability to continue making these investments while maintaining our previously stated profitability objectives. We are energized by the opportunities ahead and confident in our ability to sustain recent momentum while continuing to deliver strong results. Our success reflects the deep trust and long standing partnerships we built with our clients, candidates and consultants. These are relationships that continue to serve as the foundation for our growth and innovation. I will now turn the call over to Jeff Hackman, Kforce’s Chief Financial Officer.
Jeff Hackman (Chief Financial Officer)
Thank you Dave first quarter revenue of 330.4 million exceeded our expectations and earnings per share of 46 cents was above the high end of our guidance. Our results for the first quarter demonstrate our ability to grow revenues while also driving a higher quality of business as evidenced by better than expected gross margins in the quarter as well as generating enhanced operating leverage. Overall gross margins of 27.3% were up 60 basis points on a year over year basis due to expanding flex margins which more than offset the impact from lower direct hire mix. Sequentially, gross margins were up 10 basis points in a quarter when they were expected to be seasonally down as improved flex spreads and favorable health care costs more than offset the seasonal payroll tax resets. The success we have had expanding our margin profile can be attributed to our teams pricing more effectively with clients to more appropriately reflect the value of our services and the benefit of higher quality business that we have been strategically driving. We have discussed that solutions oriented engagements have an appreciably higher …
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