Kforce, Inc.

Good afternoon, everyone, and welcome to the KFORCE Q2 2025 earnings call. As a reminder, this call is being recorded. At this time, I would like to hand things over to Mr. Joe Liberatore, President and CEO. Please go ahead, sir.

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, and are subject to risk and uncertainties. Actual results may vary materially from the factors listed in K-Force'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 within our investor relation portion of our website. Against the backdrop of a macroeconomic environment that has faced heightened uncertainty for a prolonged period of time, We are pleased to have delivered sequential flex revenue growth in both our technology and finance and accounting businesses in the second quarter. Overall results were largely consistent with the expectations, and I'm proud of how our teams are continuing to execute and take market share. While the enactment of the one big beautiful bill removes some uncertainty related to tax policy, the global trade negotiations and potential retaliatory measures are far from settled, and the potential derivative negative effects on the U.S. consumer and broader U.S. economy remain highly uncertain as exhibited by continued mixed economic data. Conversations with our clients, which are predominantly market-leading companies, and our operating trends suggest that we are continuing to operate in a demand-constrained environment. With that said, our clients continue to carry a significant backlog of strategically imperative technology investments that they expect to execute once greater positive visibility exists. Over the past three years, job gains have been concentrated in a handful of sectors, healthcare, leisure and hospitality, construction, education and government. These areas have driven the bulk of the labor market growth. Outside of these sectors where our client presence is modest, job creation has been minimal to nonexistent. Unemployment claims have remained low, which suggests that companies, broadly speaking, continue to be reluctant to lay off workers after allowing natural attrition to downsize their workforce over the last three years. These data points, when combined with the increasing backlog of critical technology initiatives, suggest to us that companies may not have sufficient capacity in an expanding economic environment that is free of the current significant macro uncertainties. In addition, Our historical experience 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 emergence of AI may intensify this trend as companies prioritize agility until they gain clear insight into how these technologies will reshape their overall talent strategies. Generative AI continues to dominate the headlines as it becomes a fixture in conversations with our clients and our people. As we have previously articulated, over the long term, we believe that AI and other innovative technologies will continue to play an increasing role empowering businesses. This is informed by decades of experience operating in the technology sector, where we have seen new and disruptive technologies introduced, such as the rise of the Internet, the mobility revolution and prolification of applications, and the transition to cloud-based technologies, to name a few. Each of these technology evolutions went through similar phases where companies looked to understand the technology, assess the implications on their business, determine their strategy, begin to assemble their roadmaps, and take advantage of the technology. There were also concerns in the early phases of these evolutions of disruption to certain areas of the labor market. What eventually unfolded through each was the creation of new roles, expansion of existing roles, and redefinition of roles, which led to the acceleration of additional technology investment. We believe we are in the early phases of Gen AI, and while the demand we are seeing is not yet evident at scale, we are seeing meaningful opportunities with market-leading companies to assist them in aspects of their overall Gen AI journey. Dave Kelly will cover this in more detail. Access to the right talent will be at the heart of companies' success in preparing and utilizing these new tools. We are ideally positioned to meet what we expect to be an increasing demand in AI foundational readiness work in combination with our ability to access evolving skill sets that will be required as companies move deeper into their AI roadmaps. We remain strongly positioned to further expand our footprint within existing clients while continuing to expand in new clients to take additional market share as we've been doing successfully for years. reinforcing the foundation we are building to deliver substantial long-term value for our shareholders. As we look ahead to the third quarter and the remainder of 2025, as has been the case over the last few years, we will continue to stay close to our clients and monitor our key performance indicators and make any necessary adjustments to our business while continuing to invest in our long-term strategic priorities with a keen focus on retention of our most productive associates. We remain encouraged by recent trends that continue to affirm the stability of our technology business. We've established a strong foundation at K-Force and remain committed to investing in the transformation 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 distractions, and enabling our people to fully concentrate on partnering with clients to solve their most critical business challenges. Before turning the call over, I want to take a moment to recognize the incredible people who make up our KFORCE team. I am deeply proud of the performance, resilience, and unwavering commitment shown across the organization. We're privileged to work alongside such talented, united, and passionate group of professionals. It's because of the people who make up K-Force we're in such a strong strategic position, one I wouldn't trade with anyone in our space. The future is bright, and I couldn't be more excited about what lies ahead. Dave Kelly, our Chief Operating Officer, will now give greater insights into performance and recent operating trends. Jeff Hackman, K-Force's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave?

Thank you, Joe. Total revenues of $334.3 million declined 6.2% year-over-year and were largely consistent with our expectations. Flex revenues in our technology and finance and accounting businesses both improved slightly sequentially in the second quarter, while direct higher revenues were more challenged in the quarter given the sensitivity in this line of business to macro conditions and came in below our expectations. While macroeconomic uncertainties had largely persisted, our clients continue to prioritize mission-critical initiatives, though given the backdrop, continue to take a measured approach while they await a period of greater confidence. As increasingly requested by our clients, we've continued to drive, with strategic intent, a greater mix of our business through consulting-oriented solutions that align with the desire to access highly skilled talent in a cost-effective manner. Demand for our consulting-led offerings remains strong, as evidenced by continued sequential and year-over-year growth and a growing pipeline of qualified opportunities. This offering continued to be a key driver to our overall technology top-line outperformance versus our peers and stability in our margin profile and average bill rate. This growth highlights our adaptability and our success in meeting the changing needs of our clients. While our traditional staffing business has seen year-over-year revenue declines, the expansion of solutions-based engagements underscores our strategic shift in the increasing value clients place on our capability to provide talent through various delivery structures. 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 our robust U.S. sales and delivery capabilities and a high-quality vendor network, enables us to comprehensively address the evolving needs of our clients, whether onshore or blended onshore, nearshore, or offshore team. The overall average bill rate in our technology business of $90 has remained stable over the past three years, despite the uncertain economic environment due to a higher mix of consulting-oriented engagements, which carry a higher average bill rate and margin profile. The demand within each of our practice areas, data and AI, digital, application engineering, and cloud, has continued to be strong, and the pipeline of consulting-oriented engagements has continued to improve. Each of these areas are critical to the preparation and implementation of AI tools and companies are expected to need access to critical talent to meet their objectives, which we believe provides significant opportunity for our firm. Joe referenced the opportunities we're seeing in the overall AI space. We thought it'd be helpful to articulate a few examples and how we're partnering with clients. In a recent engagement with a market leading technology company, We're partnering with one of their key organizations to implement agentic AI workflows. These AI-driven solutions enhance end-user productivity and efficiency, while also unlocking deeper insights through improved visibility into data patterns and trends. In another engagement with a top-tier networking technology company, we help drive measurable value by equipping their sales organization with agentic AI-powered workflows. These solutions are designed to sharpen pipeline visibility and guide sales teams toward the most strategic next actions, ultimately accelerating deal velocity and improving alignment with customer priorities. Our focus on providing flexible talent via traditional staff augmentation engagements or through our consulting-oriented engagements, especially in times of uncertainty, positions K-Force ideally to participate in the growing investments in AI. including the required readiness work in addition to more traditional areas of technology that are still progressing. Our ability to source and provide top-tier professionals who can address complex technological challenges has ensured that our services remain indispensable, even as overall industry trends have slowed. Our core competency lies in sourcing quality talent at scale for our clients, adapting to evolving demand for various skill sets. As technology has evolved over the decades, We've efficiently adapted to the changing skillset demands of our clients, ensuring we remain a trusted partner in their technological advancements. Our client portfolio is diverse and is predominantly comprised of large market leading companies. Our focus on addressing their needs continues to be critical to our ability to drive sustainable long-term above market performance. Looking forward to Q3, the pace of overall new engagements and project ends remain stable with Q2 levels, though clients continue to reallocate spend within their businesses to areas they find most promising. As a result of such actions and a small number of clients at the end of Q2, we experienced some unanticipated project ends and therefore expect a modest sequential decline in our technology business in Q3. Flex revenues in our FA business, currently about 6% of revenues, declined 16.8% year over year, But as previously noted, we saw sequential growth in the second quarter, the first time in several years that this quarter has seen expansion. Our average bill rate of approximately $54 per hour notably improved sequentially and year over year and is reflective of the higher skilled areas we are pursuing. We expect Q3 revenues in FA to be up sequentially on a billing day basis in the mid-single digits. I want to thank this team for their perseverance in driving positive momentum in this space. An area where you've seen the most significant impact from the economic uncertainty is indirect hire, which represents approximately 2% of overall revenues. We expect direct hire to be relatively flat sequentially in Q3. We continue to align our associates and staffing levels with productivity expectations, prioritizing the retention of our most productive associates while making targeted investments to ensure we're well prepared to capitalize on market demand as it accelerates. Over the past three years, we've selectively invested in our sales teams while rationalizing our delivery resources, which have decreased by close to 45% over that time period. Despite these reductions, we believe we've ample capacity to absorb several quarters of increased demand without adding significant resources. Additionally, we continue to invest in our consulting solutions business. We believe the slight sequential growth we experienced in Q2 reflects the continued stabilization of demand. We remain tremendously excited about our strategic position and our ability to continue delivering above-market performance in our technology business, as we have for well over a decade. The success we achieve as an organization is a testament to the unwavering trust that our clients, candidates, and consultants place in us. I'll now turn the call over to Jeff Hackman, K-Force's Chief Financial Officer.