Kforce Inc. (KFRC) Annual Report (10-K) for the fiscal year ended December 31, 2024

Financial Performance Overview

Kforce, a leading professional staffing services firm, has released its financial results for the year ended December 31, 2024. The company experienced a challenging year, with revenue declining 8.3% to $1.41 billion compared to the prior year. This decrease was primarily driven by a 6.6% drop in Technology revenue and a 23.5% decline in Finance and Accounting (FA) revenue, reflecting the ongoing macroeconomic uncertainty that impacted client demand.

Flex revenue, which makes up the majority of Kforce’s business, decreased 7.9% to $1.38 billion. This was due to a decline in the number of consultants on assignment, with Technology Flex revenue down 6.4% and FA Flex revenue down 23.5%. Direct Hire revenue, which includes permanent placements, also fell 24.0% to $28.9 million.

Profitability Trends

Gross profit margin decreased 50 basis points to 27.4% in 2024, mainly due to the lower proportion of higher-margin Direct Hire revenue. Flex gross profit margin declined 10 basis points to 25.9%, with Technology Flex margins remaining flat and FA Flex margins decreasing 80 basis points.

The company’s Selling, General and Administrative (SG&A) expenses as a percentage of revenue increased slightly to 22.0%, as Kforce continued to invest in strategic initiatives and retain key personnel despite the revenue declines. To mitigate the pressure on profitability, the company implemented cost-cutting measures such as reducing headcount, particularly in delivery roles, and tightly controlling discretionary spending.

Net income for the year decreased 17.5% to $50.4 million, or $2.68 per share, compared to $61.1 million, or $3.13 per share, in the prior year.

Strengths and Weaknesses

One of Kforce’s key strengths is its diversified business model, with a significant presence in both the Technology and FA segments. However, the company’s performance was heavily impacted by the macroeconomic uncertainty, which led to a decline in client demand, particularly in the FA business.

The company’s ability to manage costs and maintain profitability in the face of revenue declines is a testament to its operational discipline. Kforce’s continued investment in strategic initiatives, such as the implementation of Workday and the development of nearshore and offshore delivery capabilities, positions the firm for future growth.

On the other hand, the significant drop in Direct Hire revenue, which typically provides higher margins, was a weakness for the company. Kforce will need to focus on rebuilding its permanent placement business as the economic environment improves.

Outlook and Future Prospects

Looking ahead, Kforce expects the macroeconomic challenges to persist in the near term. In the first quarter of 2025, the company anticipates a sequential decline in Technology Flex revenue in the low to mid-single digits, and a low double-digit sequential decline in FA Flex revenue.

However, the company remains cautiously optimistic about the long-term outlook. The U.S. economy demonstrated consistent growth in 2024, with real GDP expanding 2.8%, driven by increased government spending and a healthy consumer. While the unemployment rate rose to 4.1% in December 2024, employment grew across most sectors in the final quarter of the year.

Kforce’s strategic investments, such as the implementation of Workday and the development of nearshore and offshore delivery capabilities, are expected to position the company to capture increased market share when the demand environment eventually improves. The company’s strong balance sheet and cash flow generation provide the flexibility to continue returning capital to shareholders through dividends and share repurchases, while also funding strategic initiatives.

Conclusion

Kforce faced a challenging year in 2024, with revenue and profitability declines driven by the ongoing macroeconomic uncertainty. The company’s diversified business model, operational discipline, and strategic investments provide a solid foundation for future growth. However, the company will need to focus on rebuilding its permanent placement business and navigating the near-term macroeconomic headwinds. Kforce’s strong financial position and commitment to returning capital to shareholders demonstrate its resilience and ability to weather the current market conditions.