Kforce (KFRC) Q3 2025 Earnings Call Transcript

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DATE

Nov. 3, 2025 at 5:00 p.m. ET

CALL PARTICIPANTS

Chairman and Chief Executive Officer — Joseph J. Liberatore

President and Chief Operating Officer — David M. Kelly

Chief Financial Officer — Jeffrey B. Hackman

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TAKEAWAYS

Total Revenue -- $332.6 million, above the high end of guidance and represents a 1.1% sequential decline in the Technology segment and a 5.6% year-over-year decline in the Technology segment compared to fiscal Q3 2024 (period ended Sept. 30, 2024), while the Finance and Accounting (FA) segment grew approximately 7% sequentially but declined slightly more than 8% year over year.

Earnings Per Share (EPS) -- $0.63, surpassing the high end of guidance.

Consultants on Assignment -- Grew roughly 4% from early-quarter lows and this upward trend continued into the start of fiscal Q4 2025.

Gross Margin -- 27.7%, up 60 basis points sequentially and gross margins declined 20 basis points compared to fiscal Q3 2024, primarily due to a lower direct hire revenue mix.

Flex Margins (Technology Segment) -- Increased 50 basis points sequentially in the Technology segment, driven by lower healthcare costs and modestly expanding spreads, with year-over-year stability.

Average Technology Bill Rate -- Remained stable at approximately $90 per hour in the technology segment over the past three years, with the current mix favoring higher-skilled, higher-margin consulting work.

Average FA Bill Rate -- Approximately $53 per hour, reflecting a shift toward more skilled roles.

FA Flex Revenue -- Represents about 7% of total revenues; declined 7.3% year over year but grew 6.9% sequentially, marking consecutive sequential growth quarters for the first time in several years in the FA business.

SG&A Expense -- 22.8% of revenue, up 60 basis points compared to fiscal Q3 2024 due to deleveraging effects of lower revenue and gross profit.

Operating Margin -- 4.5% with a third-quarter effective tax rate of 22.3%.

Operating Cash Flow -- Operating cash flow of $23.3 million.

Return on Equity (ROE) -- Return on equity continues to exceed 30%.

Capital Return -- $6.8 million returned to shareholders through dividends and approximately $9.4 million through share repurchases; dividends totaled $6.8 million.

Share Repurchase Authorization -- Board approved a new aggregate buyback authorization of $100 million in October 2025.

Fiscal Q4 2025 Revenue Guidance -- Projected range of $326 million to $334 million, with a midpoint of $330 million and sequential billing day revenue growth expected in both Technology and FA segments.

Fiscal Q4 2025 EPS Guidance -- Anticipated range of $0.43 to $0.51; midpoint guidance reflects a $0.04 headwind from a higher tax rate due to reduced stock price and a $0.07 impact versus prior-quarter tax levels.

Credit Facility -- Current facility matures in October 2026; company is in advanced stages of refinancing to retain similar terms for an additional five-year term.

Consulting-Led Revenue Growth -- Consulting-related engagements now constitute a growing majority of technology business revenues, with projects in areas such as cloud, digital, data, and AI, and margin profiles 400 to 600 basis points above traditional staffing.

Offshore Capability -- The Pune, India, development center continues to mature and blended onshore/nearshore/offshore model enables greater delivery flexibility and cost-effective access to high-skill talent.

SUMMARY

Management attributed growth in consultants on assignment to both stabilized and increasing demand across multiple client industries and engagement models, including positive contributions from both staff augmentation and consulting services. Strategic investments, such as Workday implementation and enhancement of the Pune development center, are progressing and expected to deliver cost efficiencies and improved profitability, with most material benefits projected to begin in 2027. The board's increase in share repurchase authorization underlines a continued commitment to shareholder returns and confidence in long-term financial stability. The guidance for the fourth quarter indicates expectations of continued sequential revenue growth on a billing day basis in both operating segments. Cash flow and balance sheet strength support the company's ongoing organic growth strategy, further complemented by flexibility for accelerated capital returns as needed.

Joseph J. Liberatore said, "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."

Jeffrey B. Hackman noted, "Overall gross margins of 27.7%, up 60 basis points sequentially, meaningfully exceeded our expectations due to an increase in flex margins of 50 basis points and a slightly better than expected mix of direct hire revenues."

David M. Kelly highlighted that "consultants on assignment grew roughly 4% from the early third-quarter lows," and that this momentum continued into October.

Management indicated that, despite sequential and year-over-year declines in traditional staffing revenue, consulting-led engagements are gaining share and positioning the company for higher profitability.

Productivity-driven investments, such as Workday implementation and AI-enabling tools, may enable the company to absorb additional future demand without significant resource expansion.

Exposure to the recent changes in H-1B visa fees is "essentially nothing effectively," according to David M. Kelly, supporting stability on talent acquisition and compliance.

Guidance calls for fourth-quarter revenues between $326 million and $334 million and EPS between $0.43 and $0.51, reflecting stable operational assumptions and no anticipated unusual items.

INDUSTRY GLOSSARY

Flex Margins: The gross margin derived from flexible staffing or contingent labor engagements, as opposed to direct hire or permanent placements.

Consulting-Led Engagements: Projects where Kforce (NYSE:KFRC) provides advisory and project-based services, typically delivering higher bill rates and gross margins than traditional staff augmentation placements.

Staff Augmentation: Supplying external personnel with specific skills to augment a client's workforce for a limited period, usually not under direct Kforce management.

Billing Day: A working day when services provided are billable to clients, serving as a basis for measuring revenue streams that can fluctuate with the calendar.

Full Conference Call Transcript

Joseph J. Liberatore: Good afternoon, and thank you for your time today. This call contains certain statements that are forward-looking, are based on current assumptions and expectations, and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce Inc.'s public filings 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 on the Investor Relations portion of our website.

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. We mentioned on our last call that we experienced unexpected early quarter assignment ends at a select few clients in our technology business. Subsequently, we were successful at driving a consistent expansion in the number of consultants on assignment throughout the third quarter. I also want to recognize the progress our team has made stabilizing and now meaningfully growing our FA business. I am very proud of our team's accomplishment in driving this business forward against a persistently challenging macro backdrop.

The momentum that we have seen has carried into the fourth quarter, which puts us in a position to expect to deliver sequential billing day growth in the fourth quarter in both our technology business and our FA business. The ongoing federal government shutdown, along with the continuing global trade negotiations, and potential derivative negative effects on the US consumer and broader US economy continue to make the near-term outlook hard to predict as exhibited by the continuation of mixed economic data. Recent data continues to suggest a persistently weak and largely frozen labor market marked by prolonged stagnation in job gains coming off the post-pandemic euphoric period.

However, our internal KPIs improved throughout the third quarter, and this translates to an increase in consultants on assignment, which has continued into early Q4. While it is too early to suggest that we will see sustained broad-based improvements in demand, our team's consistent execution of activities across our portfolio of market-leading companies that typically lead their industries in capital deployment within technology was a significant driver to strong Q3 results and early Q4 trends. Recent trends, when combined with the increasing backlog of critical technology initiatives, suggest to us that companies may not have sufficient capacity once the current macro uncertainties subside.

In addition, our historical experience is that companies typically turn to flexible talent solutions as an initial step prior to making core hires while they assess the durability of the macroeconomic conditions. The relative impact of AI on revenue trends versus the impact of weakening economic and softening labor markets continues to be hotly debated. Regardless, this uncertainty may intensify the use of flexible talent as companies prioritize agility until they gain clear insight into how these technologies will reshape their overall business and talent strategies. Generative AI remains a central topic in our discussions.

We are confident that AI and other emerging innovations will become increasingly vital in driving business success, though these benefits are likely some years away and will require investments that we are well-positioned to support. We have witnessed transformative shifts before, such as the migration from mainframe to distributed processing, the emergence of the Internet, the mobile revolution, and the move to cloud computing. The emergence of the Internet likely most closely aligns with AI. Unlike other secular technology shifts, the Internet and AI directly impact operating models and broadly touch virtually all white-collar roles in some manner.

The Internet secular shift followed a typical investment and integration cycle pattern: initial exuberance, massive infrastructure investment combined with fear-driven investment, premature abandonment of legacy systems, realization of integration and modernization needs, a return to balanced strategic investment, and finally, workforce transformation and skill shortage. In speaking with many executives, it is clear the realization stage has set in, and we might be in the early stage of transition to a return to balanced strategic investment where demand for our services began to accelerate during the Internet cycle. While initial phases of technology secular shift often bring concerns about workforce disruption, these transitions ultimately created new opportunities, expanded existing roles, and redefined responsibilities, fueling further investment in technology.

We believe generative AI, and its offshoots into AgenTic AI and cognitive AI, is in the early innings of evolution and may just be starting to mirror this historic pattern, which in past cycles has been an opportunity for Kforce Inc. Securing the right talent, organizing the right team, and launching focused initiatives is essential for organizations to successfully adopt and maximize these new tools. We are well-equipped to meet the growing need for foundational AI readiness and to deliver access to evolving skill sets as businesses advance their AI strategies.

Our strong position should allow us to increase client share and expand into new clients, continuing our track record of gaining market share and reinforcing the solid foundation that drives lasting value for our shareholders. We have established a strong foundation at Kforce Inc. and remain committed to investing in the evolution of our business through our strategic priorities, all of which are meaningfully progressing. Our domestically focused organic growth strategy continues to serve us well, minimizing distraction and enabling our people to fully concentrate on partnering with clients to solve their most critical business challenges. Before I conclude, I would like to take a moment to thank the remarkable people who make up our Kforce Inc. team.

I am deeply proud of the performance, resilience, and unwavering commitment shown across the organization. We are privileged to work alongside such a talented, united, and passionate group of professionals. It is because of the people who make up Kforce Inc. that we are in such a strong strategic position, one I would not trade with anyone in our space. We are confident in our path forward, and I could not be more excited about what lies ahead. Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, Kforce Inc.'s Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave?

David M. Kelly: Thank you, Joe. Total revenues of $332.6 million exceeded the high end of our expectations. Revenues in our technology business declined 1.1% sequentially and 5.6% on a year-over-year basis, and our finance and accounting business grew approximately 7% sequentially and declined slightly more than 8% year over year. Macroeconomic uncertainties have largely persisted throughout the quarter. However, our clients continue to prioritize mission-critical initiatives, although many are taking a measured approach as they await greater confidence in their technology roadmaps and AI investment strategy along with greater visibility in the macroeconomic environment. We saw a sustained improvement in our KPIs and consultants on assignment throughout the third quarter.

As a point of reference, consultants on assignment grew roughly 4% from the early third-quarter lows. The improvements in our business spanned many industries and were not driven by a few large projects. Rather, we saw positive impacts across many clients and talent acquisition models inclusive of both our legacy staff augmentation business as well as consulting engagement. The increase in demand also spans skill sets from application development to digital, data, AI, and the cloud. Impacts from earlier Doge efforts and the more recent federal government shutdown have been and are expected to be nominal given our limited exposure to this space.

We continue to execute on our strategic enhancement of our consultant-oriented solutions capabilities responding to increased client demand for cost-effective access to highly skilled talent. This evolution positions us to deliver greater value through flexible delivery and differentiated expertise. Our consulting-led offerings have continued to contribute positively to the overall results of our technology business supported by a robust pipeline. This approach has been a key driver to the performance of our technology business and has enabled us to maintain stability in our margin profile and average bill rate. The expansion of solutions-based engagements underscores our adaptability and commitment to meeting evolving client needs, strengthening long-term relationships, and market relevance.

Although traditional staffing revenue has declined year over year, the continued growth of consulting-led engagements validates our strategic direction and positions us for sustained growth and enhanced profitability. An increasingly important aspect of providing cost-effective solutions is our ability to source highly skilled talent from outside the United States. Our development center in Pune, combined with robust US sales and delivery capabilities, and a high-quality vendor network enables us to comprehensively address client needs through onshore, nearshore, offshore, and blended delivery models. The average bill rate in our technology segment has remained steady at approximately $90 per hour over the last three years, even amid macroeconomic uncertainty.

This stability is driven by a growing mix of consulting-oriented engagements, which typically command higher bill rates and deliver a stronger margin profile. Demand across our core practice areas, data and AI, digital, application engineering, and cloud, continues to be robust and our pipeline of consulting-led opportunities is expanding. These disciplines are essential for the development and deployment of AI tools and we expect companies will increasingly require access to specialized talent to achieve their objectives, creating significant opportunities for our firm. Our ability to provide flexible talent, whether through traditional staff augmentation or consultant-oriented engagements, positions Kforce Inc. to capitalize on growing investments in AI, including readiness initiatives while continuing to support core technology areas that remain active.

Many companies lack in-house AI expertise, so they rely on external providers such as Kforce Inc. for strategy conversations, talent sourcing, and solutions engagements and execution. Our core strength lies in delivering quality talent at scale and adapting to evolving skill demand. By providing access to top-tier professionals, we can solve complex technological challenges and ensure our services remain indispensable even in broader industry trends fluctuate. As technology has advanced over the decades, we have consistently evolved alongside it, reinforcing our role as a trusted partner in driving clients' technological progress. Our client portfolio is diverse and is predominantly comprised of large market-leading companies. Staying focused on their evolving priorities remains essential to driving sustainable long-term above-market performance.

Looking ahead to Q4, with momentum and new engagements building throughout Q3 and carrying into early Q4, we anticipate a sequential billing day increase in our technology business during the quarter. Flex revenues in our FA business, currently about 7% of total revenues, declined 7.3% year over year but saw a 6.9% sequential growth in the third quarter. The first time in several years that FA has shown consecutive quarters of sequential growth. Our average bill rate of approximately $53 per hour notably improved year over year and is reflective of the higher skilled areas we are pursuing. We expect Q4 revenues in FA to be up sequentially on a billing day basis.

I want to thank this team for its perseverance in driving positive momentum in this space. We continue to align our associate staff levels with productivity expectations, prioritizing the retention of our most productive associates, while making targeted investments to ensure we are well-positioned to capitalize on accelerating market demand. Over the past three years, we have selectively invested in our sales teams while rationalizing delivery resources, which have decreased by nearly 45% during that period and investing in productivity tools. Despite these reductions, we believe we have sufficient capacity to absorb several quarters of increased demand without adding significant resources, particularly as we enable AI solutions to gain greater efficiency.

Additionally, we remain committed to investing in our consulting solutions business. We believe the stabilization we experienced in Q3 signals growing confidence in the market and reinforces the strength of our strategic positioning. We are energized by the opportunities ahead and remain committed to delivering exceptional results. With a proven track record of above-market performance in our technology business for well over a decade, we are confident in our ability to sustain this momentum. Our success reflects the deep trust and partnerships we share with our clients, candidates, and consultants, relationships that continue to drive our growth and innovation. I will now turn the call over to Jeff Hackman, Kforce Inc.'s Chief Financial Officer.

Jeffrey B. Hackman: Thank you, Dave. Third-quarter revenue of $332.6 million and earnings per share of $0.63 exceeded our expectations. Our teams have done a nice job working effectively with our clients to recognize the value of our service from a pricing perspective. Overall gross margins of 27.7%, up 60 basis points sequentially, meaningfully exceeded our expectations due to an increase in flex margins of 50 basis points and a slightly better than expected mix of direct hire revenues. On a year-over-year basis, overall spread has been stable, though gross margins declined 20 basis points due to lower direct hire mix.

Flex margins in our technology business increased 50 basis points sequentially due to lower healthcare costs and slightly expanding spreads and were stable year over year. As we look forward to Q4, we expect flex margins to remain stable outside of typical seasonal impacts due to higher consultant utilization of PTO around the holidays. Overall, SG&A expenses as a percentage of revenue of 22.8% increased 60 basis points year over year, primarily driven by deleverage from lower revenue and gross profit levels. We continue to make targeted investments in our sales capabilities while maintaining disciplined cost management across the rest of the business.

At the same time, we are advancing key enterprise initiatives that, while contributing to near-term SG&A pressure, are critical to our long-term strategy. These include the implementation of Workday, the ongoing maturation of our India development center, and deeper integration of our solutions portfolio. Our consulting business and offshore capabilities are positively contributing to stabilizing revenues and gross margins, and we expect all of these initiatives to drive higher levels of profitability as the demand environment improves and revenues grow. We anticipate beginning to realize benefits from our Workday implementation more significantly in 2027 as we stabilize post-go-live. Our operating margin was 4.5%, and our effective tax rate in the third quarter was 22.3%.

During the quarter, we remained active in returning capital to our shareholders with $6.2 million in capital being returned through dividends of $6.8 million and share repurchases of approximately $9.4 million. We continue to maintain a strong balance sheet with conservative leverage relative to trailing twelve-month EBITDA. Looking ahead, we expect to reasonably maintain net debt levels consistent with the third quarter, with any excess cash generated beyond our capital requirements and quarterly dividend programs to be directed towards share repurchases. Our dividend remains an important driver for returning capital to shareholders, the level of which leaves ample room for continued share repurchases.

We continue to maintain significant capacity under our credit facility, which provides ample flexibility to accelerate repurchases should we see fit. In addition, in October 2025, our board of directors approved an increase to its share authorization to an aggregate of $100 million, which we believe reaffirms to our investors our future intentions to continue driving our business forward organically and returning significant capital to our shareholders. Our current credit facility is scheduled to mature in October 2026. As a result of favorable market conditions, we have taken steps to refinance our existing credit facility with a new credit facility that we expect to close over the next week or two.

We expect to retain essentially the same very attractive terms and conditions as are currently in place over the next five-year term. Operating cash flows were $23.3 million, and our return on equity continues to exceed 30%. We continue to execute our organically driven strategy with strong results, and we believe our industry-leading performance reflects our focused approach in providing U.S. technology staffing and solutions complemented by our nearshore and offshore capabilities. Our balance sheet remains pristine with conservative debt levels, and we consistently return significant capital to shareholders.

Share repurchases remain highly accretive to earnings, and since 2007, we have returned approximately $1 billion, representing about 75% of cash generated while growing our business and building a foundation for meaningful profitability gains as revenues expand. Our threshold for any potential acquisition remains very high. The fourth quarter has sixty-two billing days, which is two fewer days than 2025, but the same as 2024. We expect Q4 revenues to be in the range of $326 million to $334 million and earnings per share to be between $0.43 and $0.51.

This guide implies a midpoint of $330 million in revenue, which reflects the sequential improvement in both technology and FA revenues on a billing day basis and a further improvement in our year-over-year comparisons. The expected income tax rate for the fourth quarter of approximately 32.5% contemplates a lower deduction on the vesting of restricted stock, given the decline in our stock price. This presents an EPS headwind of $0.04 in the fourth quarter relative to last year, and a $0.07 impact from Q3 2025 tax rate levels. Our guidance assumes a stable operating environment and excludes the potential impact of any unusual or nonrecurring items.

We remain confident in our strategic position and our ability to deliver above-market results while continuing to invest in initiatives that drive long-term growth and support our profitability objective of achieving double-digit operating margins and approximately 8% when annual revenues return to $1.7 billion, more than 100 basis points higher than when that level was achieved in 2022. These objectives reflect anticipated benefits from our strategic investments, which are expected to reduce operating costs. On behalf of our entire management team, I want to extend our sincere appreciation to our teams for their outstanding efforts. We would now like to turn the call over for questions.

Operator: Thank you, sir. And, everyone, if you would like to ask a question today, please press 1 on your telephone keypad. Once again, that is 1 if you have a question today. We will pause for just a moment. We will take the first question today from Trevor Romeo with William Blair.

Trevor Romeo: Hi. Good afternoon, gentlemen. Thanks so much for taking the questions. The first one I had was, you know, I guess the 4% increase in consultants on assignment you talked about from the low point of the quarter to the end. Nice to see that for one. I guess my question is, can you give us a sense maybe considering, I guess, we have not had a year in a while, but what a typical July through September period would look like in a prior year?

Just maybe try to get a sense of would you view this as a return to normal seasonality or just kind of more than that or how are you kind of thinking about this pattern?

David M. Kelly: Yeah. Hi, Trevor. This is Dave Kelly. So to your point, we did see some nice improvement in consultants on assignment, the 4% you mentioned, and I will just reiterate the comment that has continued in through the month of October as well. So we are seeing some nice sustained growth. As I kind of compare it, it is hard to compare it, right, because what is normal. But if I kind of think about pre-pandemic levels, it probably was slightly higher than that. Although this is, you know, for us, a reasonably healthy growth rate here but certainly, we have seen higher growth rates in the past. But, again, this is a positive statement, we think.

Trevor Romeo: Okay. Great. Thank you, Dave. And then a question on your gross margins. I think, you know, flex gross margins came in above the guide coming into the quarter, it sounds like healthcare was less of a drag on the cost side. You did have, I think, a comment about slightly expanding spreads. So I just wanted to ask one, I do not know if the mix shift to consulting is included in that comment. So how much that helped? And then if there was an increase in sort of the underlying spreads, on a like-for-like basis, what do you think were the drivers of that?

Jeffrey B. Hackman: Yeah. And, Trevor, it is Jeff. Good to talk with you. I think, certainly, we have talked about healthcare costs for the last couple of quarters and certainly what you heard from the scripted comments in the third quarter that was certainly much less so. It was actually favorable in the quarter. So that ran better than we expected. When you look at these spreads in the business, I guess I will start with what I mentioned in my prepared remarks, and I think our teams have done a really nice job of working closely with our clients to ensure that we are effectively pricing the value that we are bringing to the equation.

You know, I think, Trevor, you look at the components of this, and certainly, we have talked in the past about our overall technology business, in terms of traditional staffing, and the solutions work that we do. I think certainly a mix of growth is definitely a driver there. We have talked about our consulting-oriented engagements contributing positively to our technology performance. Those historically and still today, those typically carry 400 to 600 basis points of higher margin. So with that mix of growth, that is certainly benefiting us there. I also think when you look at the client drivers, there are some puts and takes. Certainly, from a mix perspective, that is benefiting us from a spread perspective.

Traditionally, as we have talked about the higher skilled areas that we play in, our average bill rate being roughly $90 an hour has been very stable for several years. You know, certainly in that higher skilled area, you would expect a little bit more durability from a pricing perspective. So I think the higher quality skill sets that we continue to focus on in technology are certainly boding well. And then I would say the other is internal. This is a continued emphasis for us even more so in 2025. And I think our people stepped up to the plate in recognizing the value that we are bringing to the equation.

Trevor Romeo: Okay. Great, Jeff. Thank you for that. And then if I could maybe sneak one more in just on H-1B's and potential for the much higher fees. Just to kind of get you on the record here. I believe you do essentially no, maybe very little new H-1B sponsorships. You do have some experienced people on H-1B's. So maybe just help us understand your overall exposure there. You know, is there any concern that eventually this could flow through to your talent pipeline? And then conversely, is there any potential benefits to your domestic talent?

David M. Kelly: Yeah. It is Robert. Dave Kelly again. So to your point, the proclamation that came out I guess, what, about a month or so ago, month and a half ago, and this the $100,000 fee, as we understand it, and I think there has been some clarification on the proclamation just over the last couple of weeks, that this fee specifically relates to new visas. Right? So to your point, we do virtually zero new H-1B visas. We do not bring anybody in. So our model is to sponsor visas and transition employees from people who are already in the United States. So to your point, our exposure in the immediate sense is essentially nothing effectively.

And I think it is important to note for the individuals here, you know, they have an opportunity to renew their visas. That also is not covered by the proclamation and eventually maybe a path to citizenship. So for us, in the near term, as at least it relates to the access to talent, we do not expect there to be any real impact on our business. Now, obviously, theoretically, if this is a permanent change, here that will have an impact on more resourced talent. But I will remind you, right, our core competence is in recruitment. So we have, in many ways, the ability to access talent through H-1B's, other visas, domestic talent.

So for us, you know, we just see this as something that we are going to have to think about as it evolves and make sure that we still have access to talent. The other thing that I would mention to you as we think about this scrutiny in the visa process is probably even more important than you know, we are very proud of our compliance record and the approval rates that we have in transitioning visas. Amongst, if not the best in the industry. So for us, from a competitive standpoint, we feel good about where this is. And the minimal impact that it will have on our business.

Frankly, we have got companies who have come to us when they have got difficult situations still the case. And if there is uncertainty, they look to us from a quality standpoint as, in some cases, the first place they will go when they want to transition H-1B or other employees from other providers that they might have. So there is a competitive opportunity for us here in the near term as well.

Joseph J. Liberatore: Yeah. And this is Joe. The last thing I would give you if you play it out, if, one, obviously, you know, there are a number of lawsuits that have already been filed, we are not sure where this will end up. But if it were to become law and play out, you know, when do you start to feel that, you know, probably four or five, maybe six years from now, which would impact all the people that are currently on visas. But it is important to note as well, you know, there are 85,000 visas that are typically approved on an annualized basis.

The applications are typically, in any given year, four to ten times the amount that is granted. And we play in the high-end skill, the highest demand skill area. So more than likely, you know, those are the individuals who are going to be gobbling up the majority of those visas. So you know, really do not see any long-term impact for us as well.

Trevor Romeo: Alright, guys. I really appreciate it. Thanks so much.

David M. Kelly: Sure. Thank you, Trevor.

Operator: The next question is Alex Sinatra from Robert Baird.

Alexander Sinatra: Hi. This is Alex. I am from Mark Marcon. I was just wondering, you know, you mentioned higher interest in AI-related projects. I was kind of wondering if you could give some more detail on the types of engagements you have been more involved with and what kind of work that entails. And also, I guess, what outlook you are seeing so far on demand for those services and how those engagements may change over time?

Joseph J. Liberatore: Yeah. I would say, you know, the majority of the work that we see our teams onboarding continues to be in and around foundational readiness work. Aspects associated with data. You know, I just came back from the IT Gartner symposium, and you did not there well, I do not think there was a conversation I was engaged with, whether it was with a CIO or a senior tech person, or a CEO, where they are not dealing with data challenges. Tremendous amount of modernization of legacy systems as well to prepare for AI. And, obviously, cloud touches everything, and then you have security and governance.

So most of the organizations, they are really getting after the preparation phase associated with AI. And what we are also seeing on the use case side of the equation, you know, we have seen a number of clients that are ahead of the curve, predominantly technology-oriented companies, that are executing some AI initiatives. I would say in general business, we have seen general business pull back a lot on their AI use cases. And they have really narrowed their focus to more of an operational type AI use case where they have a very centralized data repository where they can control that data to look at those opportunities.

You know, we are also hearing, you know, the ROI challenges out there. People, as they get deeper into these projects, are really being challenged to get the ROI from things that they are doing on the AI upfront. So the good news is all this preparation work still has to happen to take advantage of it irrespective of how long it takes AI to ultimately play out. So I would say that is pretty much the backdrop. So it has been broad-based and, you know, pretty much the things that we are really aligned in and around, especially from our solution side of our business. Those are all areas that we have key practice in.

David M. Kelly: The only other thing I would add to what Joe said, and I think this is particularly relevant in the readiness work that is being done, the buying behavior of clients is not exclusive to long-term project acquisition as well. Right? We are seeing demand in any number of our talent acquisition models all the way, obviously, from solutions-based, deliverable-based project work, but all the way through to staff augmentation. So this is a positive contributor to the demand and staff augmentation as well. So it is important to kind of make sure you make a specific distinction in how the buying behavior is being done by clients.

Alexander Sinatra: Got it. That makes a lot of sense. And then on the consulting side, obviously, that has been a positive contribution to results both from a growth and margin perspective. I was wondering if you could give some more color on the type of engagements you are in and the magnitude of that contribution. As well as where you expect that to go as things like AI become a bigger focus.

David M. Kelly: Yeah. As I think we mentioned and Jeff mentioned, it continues to be a real bright spot for us, right? When we think about the revenue trajectory, certainly the engagements that are being supported by our consulting team have been a real bright spot. And their practice areas, as we have said in the past, right, are in cloud, they are in digital, data, AI, and development engineering. So pretty broadly across all those things. I would tell you as we think about the demand environment there, we have seen a real uptick.

And I think you mentioned this last quarter, even more so this quarter, the pipeline of opportunities in the digital and data space continues to grow as well. So you are certainly seeing investments in the readiness work that Joe was just alluding to coming our way as well. So just tell where you would think it is coming.

Operator: We will take the next question today from Tobey Sommer with Truist Securities.

Tobey O'Brien Sommer: I want to go back to the AI point and how you are helping companies with roadmaps. Can you maybe touch on how much revenue you think you guys are confirming today? And maybe what is the margin profile of these engagements like?

David M. Kelly: Yeah. So it is certainly a growing part of our business. Right? It has been, as I said, a bright spot for us, but we have never really disclosed the percentage of revenue stream that we are seeing here. You know, it is certainly a significant portion of the business, the majority of the business at this point in time. Margin profile, generally, in fact, we have had very stable gross margins. Part of that is because this has been a growth part of our business for the last couple of years.

We typically see margins for a lot of these consulting-related projects could be at least four or 600 basis points higher than the traditional stock cap on the base model. So it is a benefit in terms of mix because of the growth trajectory.

Tobey O'Brien Sommer: Got it. Makes sense. And then you mentioned consulting growth. Do you but with being this has facing staffing revenue declines. Can you maybe talk about how close you are to a staffing revenue bottom? And when we can return to growth or the elements that could allow us to return to growth in staffing?

David M. Kelly: Yeah. So I would maybe I will reiterate the trajectory of the business that we have seen. Right? So we have mentioned some of the declines that we saw right at the end of the second and the beginning of the third quarter. But prior to that, if you think about the last couple of quarters, we really have seen a stabilization of the consultants that we had on assignment. And that is across the spectrum of business we have seen. Right? Staff augmentation and our consulting services both as well.

And as I have mentioned in my prepared remarks, as we saw the consulting growth of 4% growth from that low point that we saw at the beginning of the quarter, and even higher than that as we moved into October. Again, broad-based, that is inclusive of contributions from staff augmentation and consulting. So I do not want to say they are called off. Right? Because we have not seen many, many data points of growth. Right?

I do not want to go out on a limb here, but it is certainly promising as we saw stability Q1 to Q2 after those specific client dynamics and then some growth in our staff augmentation business in Q3 and what appears to be a positive Q4. We guided sequentially up again in our technology business. So we are certainly seeing some signs here that things are certainly occurring and we will see where it goes from here.

Joseph J. Liberatore: And what I would add on to what Dave just mentioned there, being we saw growth in both staff augmentation and the solution side. I would really attribute it back to the integrated model that we have deployed within our organization. We are really leveraging relationships and being able to bring those services to the customer that the customer needs at a given point in time versus trying to push one service versus another. So I think unlike, you know, many others that we have heard about out there that are talking about deep declines on the staff augmentation side, with growth more on the consulting side. I am hearing Q3.

We saw seeing trends also point to growth in both of those areas into Q4. The other thing I would say that is really promising about this and, again, I alluded to this, this is not industry-specific. This is not geographically specific either. So we are seeing it broadly. Right? I mean, obviously, we have got a high-level skill set that we focus on. But we are seeing it across industry. We are seeing it across geography. And so, you know, we have had a lot of positive contributions from a number of markets this quarter. So it seems to be, again, relatively broad-based.

Tobey O'Brien Sommer: Thank you for the detailed answers.

Operator: The next question will come from Josh Chan from UBS.

Joshua K. Chan: Hi. Good afternoon. This is Josh Consignano on for Josh. If, like, I am of, you saw some of the projects that you are working on received some additional funding over there.

David M. Kelly: Yeah. If you recall last quarter, to your point, there were a couple of specific clients where we had seen some reallocation of budgets, which is I think what you were referring to. I would say as we have gone through the third quarter, we have not heard that. As a matter of fact, obviously, as we have been talking about, there is a lot of pent-up demand, a pretty significant pipeline of activities. Joe alluded, I think, in his remarks to the fact that, you know, there are critical things that need to get done.

It is a natural tendency for companies when there is uncertainty, and I think there still is uncertainty in the marketplace, that they will look for flexible talent first. So we could be, as I think you alluded to, be entering a typical period here that we have seen in previous beginnings of recoveries in the flex cycle.

Joshua K. Chan: Got it. Okay. That is helpful. And as my follow-up on this one, I think it looks like you are all these kinds of stabilization or any windshields over there?

David M. Kelly: Yeah. I will just reiterate the comment I previously made. It is bright. Has every industry been up? No. But have there been many disparate industries that have grown for us? Sequentially? Absolutely. Now I have said in the past, we need to be careful here because the demand that we see, we do not do business with every client in every industry. So clients are not driving behavior and they are in every industry clients that we have seen increases from. And probably some mild, you know, reductions when projects end there as well. So no, it is not industry-specific.

It is broadly, you know, if we were trying to pinpoint a driver, I would not pinpoint a driver of any type of activity. I mean so, no, it is definitely broad-based.

Joseph J. Liberatore: You know, one of the drivers for potentially this being broad-based is, you know, I do not want to date myself here. But if we go back to the .com era and we look at how that cycle played out, you know, the first phase was with hype, investment surge, and new technologies driven by fear of missing out or being disrupted. It is well as investments in building out infrastructure. Then right at shortly thereafter, we saw a whole thing legacy investments with organizations pausing or reducing their spending. Out of fear of, you know, those systems imminently being obsolete. And then, ultimately, what happened was the reality check hit.

Where organization realized that the new technology is not a cure-all. Significant work needed to integrate and modernize their legacy systems. And then once that reality has basically, we saw the a balanced investment come back in where they really returned to investing in legacy modernization while strategically positioning to leverage new technology. Then the last stage was really an overall workforce and skill redistribution where technology's role shifted. Some disappeared. Many new roles created. Many others had to integrate additional skills. You know, it is clear when you start to read white papers, when you start to read some other mainstream things out there. Reality check has hit.

Again, coming out of the Gartner IT symposium, that was the main theme that you heard in speaking, whether it be the presenters that, you know, reality has hit everybody on what it really takes to leverage AI and what organizations have to do. And if we are coming out of that reality into that rebalancing, it is the same thing that we saw during the .com. Coming out of that is when we saw the need for our services start to pick up. As people started to rebalance their investments across the board. So I am not calling that is exactly where we are. But there are an awful lot of similarities.

And I use the .com specifically because out of all the secular technology shifts that I have seen in my career, been doing this for thirty-eight years. That one parallels AI most because those both of those impact work models, operating models, and they touch all white-collared individuals within organizations. So there are a lot of parallels and a lot of similarities.

Joshua K. Chan: Very helpful. Thank you.

David M. Kelly: Sure.

Operator: And just a reminder, everyone, that is. We will go next to Marc Riddick from Sidoti and Company.

Marc Riddick: Hey. Good evening. A lot of my questions have already been sort of touched on. I just maybe want to throw in maybe one or two others as far as what you are seeing with the AI digital and the like. I was wondering could you maybe talk a little bit about do you have a sense as to current growth drivers, maybe the mix between, you know, cost savings driven versus growth driven?

Joseph J. Liberatore: Yeah. I think, you know, and again, a lot of this was discussed at the Gartner conference as well. I think everybody started out on the productivity side, and everybody is struggling with getting the ROI on the productivity side. I was with I had the opportunity. I was invited to spend time with 19 other CEOs to really hear firsthand what they are experiencing. And if there was one key thing that I heard is everybody started out because of a lot of pressure from boards and to get after AI out of disintermediation, fear of missing out, went after a lot of use cases. Most of them have really scaled back those use cases.

Many of them went after productivity. And where I was hearing where people are having success are really on what I will call operationalizing business processes that are very focused and very narrowed. Where it is very measurable to get the return. And so that is really where we are seeing organization shift. And, I am not talking about the large tech organizations that obviously are getting after AI to embed into their products so that they can sell their products. I mean, I am talking general mainstream business. So we have really seen and what I heard is a real narrowing of the focus to get after an AI initiative.

The other thing, that many are struggling with is the ROI in terms of everybody's scope AI initiatives out. Just based upon the technological cost and then the added cost that people are now experiencing because of the amount of change management training, and all the post-implementation costs. That is really making the hurdles even that much more difficult from an ROI standpoint.

Marc Riddick: Excellent. Thank you very much.

David M. Kelly: Sure. Thank you, Marc.

Operator: Everyone, at this time, there are no further questions. I would like to hand the call back to Mr. Joe Liberatore for any additional or closing remarks.

Joseph J. Liberatore: Well, I would like to thank you for your interest and your support in Kforce Inc. I would like to express my gratitude to every Kforcer for your efforts. And to our consultants and clients for your trust and faith in partnering with Kforce Inc. and allowing us the privilege of serving you. We look forward to talking to you again after our fourth quarter 2025. Thank you.

Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.

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