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KFORCE INC 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Kforce, Inc.

Filing date:

02/21/2025

TLDR:

Kforce Inc. experienced a revenue decline in 2024 due to macroeconomic uncertainty, particularly impacting its Finance and Accounting segment. The company is investing in strategic initiatives like Workday implementation and offshore development to position itself for future growth, while continuing to return capital to shareholders.

ELI5:

Kforce, a company that helps businesses find workers, had a tough year because the economy was uncertain. They’re spending money on new projects to improve their business in the future, but for now, things are a bit slow.

Accession #:

0000930420-25-000022

Published on

Analyst Summary

  • Revenue decreased by 8.3% year-over-year, with Technology revenue declining by 6.6% and Finance and Accounting revenue declining by 23.5%.
  • Gross profit margin decreased by 50 basis points to 27.4%.
  • Net income decreased by 17.5% to $50.4 million.
  • The company returned $64.7 million to shareholders through share repurchases and dividends.
  • Kforce is investing in Workday implementation, integrated strategy, and its India development center.
  • Cash position is very low at $0.3 million.
  • Free cash flow decreased slightly but remains positive at $79.3 million.
  • Current Ratio decreased from 2.37 to 2.00
  • Quick Ratio decreased from 2.37 to 2.00
  • Cash Ratio increased from 0.001 to 0.003
  • Debt-to-Equity Ratio increased from 1.25 to 1.31
  • Debt-to-Assets Ratio increased from 0.56 to 0.57
  • Interest Coverage Ratio decreased from 77.65 to 33.25
  • Days Sales Outstanding (DSO) increased from 55.6 days to 55.9 days
  • Days Payable Outstanding (DPO) decreased from 14.2 days to 13.7 days
  • Asset Turnover decreased from 4.28 to 3.93
  • Revenue Growth: -8.3%
  • Net Income Growth: -17.5%
  • EPS Growth: -14.8%
  • Adjusted EBITDA decreased from $115.7 million to $89.7 million (-22.5%)
  • Share Repurchases decreased from $75.0 million to $41.9 million (-44.1%)

Opportunities and Risks

  • Macroeconomic Uncertainty: Continued economic slowdown could negatively impact client spending and demand for Kforce’s services.
  • Competition: The staffing industry is highly competitive, with low barriers to entry.
  • Strategic Initiative Execution: Failure to successfully implement strategic initiatives (Workday, India development center) could hinder growth and profitability.
  • Cybersecurity: Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations.
  • Immigration Restrictions: Changes in immigration laws could impact the availability of skilled foreign nationals.
  • Technology Solutions Demand: Increasing demand for technology solutions provides an opportunity for Kforce to expand its services and increase revenue.
  • Integrated Strategy: Leveraging existing client relationships and integrating service offerings can drive revenue growth and improve profitability.
  • Offshore Delivery: The India development center offers a cost-effective solution for clients and expands Kforce’s service capabilities.

Potential Implications

Company Performance

  • The success of strategic initiatives and a recovery in the macroeconomic environment are crucial for future performance.
  • Monitor the progress of the Workday implementation and the performance of the India development center.
  • Evaluate the performance of the Technology and FA segments and identify opportunities for improvement.
  • Closely monitor cybersecurity threats and ensure adequate protection measures are in place.

Kforce Inc. (KFRC) 10-K Filing Analysis – Fiscal Year 2024

Executive Summary

This report analyzes Kforce Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Kforce, a solutions firm specializing in technology and finance & accounting staffing, experienced a revenue decline primarily due to macroeconomic uncertainty. While the Technology segment showed some stability, the Finance and Accounting segment faced significant headwinds. The company is investing heavily in strategic priorities, including a back-office transformation (Workday implementation), integrated strategy, and evolving its nearshore/offshore delivery model (India development center). Despite revenue declines, Kforce continues to return capital to shareholders through dividends and share repurchases. Overall, the company is navigating a challenging environment while positioning itself for future growth. A ‘Hold’ rating is suggested, pending clearer signs of economic recovery and the successful implementation of strategic initiatives.

Company Overview

Kforce Inc. (KFRC) is a solutions firm specializing in technology, finance and accounting, and other professional staffing services. The company operates through two reportable segments: Technology (92% of revenue) and Finance and Accounting (FA). Kforce provides Flex (temporary staffing) and Direct Hire services. The company’s strategic priorities include back-office transformation, integrated strategy, and evolving its nearshore and offshore delivery strategy. Kforce faces competition from national and local staffing firms, as well as consulting and advisory firms.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

  • Key Highlights: Revenue decreased 8.3% year-over-year. Technology revenue declined 6.6%, while FA revenue declined 23.5%. Gross profit margin decreased 50 basis points to 27.4%. The company returned $64.7 million to shareholders through share repurchases and dividends.
  • Strategic Priorities: Kforce is investing heavily in Workday implementation, integrated strategy, and its India development center. Management expects these investments to yield meaningful returns in 2026 and beyond.
  • Macroeconomic Environment: The company acknowledges the ongoing macroeconomic uncertainty impacting client spending. They note the U.S. economy demonstrated consistent growth in 2024, but the unemployment rate increased.
  • Red Flags: The MD&A highlights the ongoing macroeconomic uncertainty and its impact on revenue. The significant decline in FA revenue is a concern. The success of the strategic initiatives is crucial for future growth.

Financial Statement Analysis

Income Statement

Metric 2024 2023 2022 Change (2023-2024)
Revenue (Millions USD) 1,405.3 1,531.8 1,710.8 -8.3%
Gross Profit Margin 27.4% 27.9% 29.3% -50 bps
SG&A as % of Revenue 22.0% 21.9% 22.2% +10 bps
Net Income (Millions USD) 50.4 61.1 75.4 -17.5%

Key Ratios: The declining revenue and gross profit margin are concerning. The slight increase in SG&A as a percentage of revenue indicates some deleveraging. Net income decreased significantly.

Balance Sheet

Metric 2024 2023
Cash and Cash Equivalents (Millions USD) 0.3 0.1
Trade Receivables, Net (Millions USD) 215.7 233.4
Goodwill (Millions USD) 25.0 25.0
Total Assets (Millions USD) 357.8 358.0
Long-term debt – credit facility (Millions USD) 32.7 41.6
Total Liabilities (Millions USD) 203.2 198.9

Key Observations: Cash position is very low. Trade receivables decreased, reflecting lower revenue. Goodwill remained constant. Long-term debt decreased slightly.

Cash Flow Statement

Metric 2024 2023 2022
Cash from Operations (Millions USD) 86.9 91.5 90.8
Capital Expenditures (Millions USD) (7.6) (7.8) (8.1)
Free Cash Flow (Millions USD) 79.3 83.7 82.7
Repurchases of Common Stock (Millions USD) (41.9) (75.0) (74.9)
Cash Dividends (Millions USD) (28.2) (27.6) (24.0)

Key Insights: Cash from operations decreased slightly. The company continues to generate positive free cash flow, which is used for share repurchases and dividends.

Risk and Opportunity Assessment

  • Risks:
    • Macroeconomic Uncertainty: Continued economic slowdown could negatively impact client spending and demand for Kforce’s services.
    • Competition: The staffing industry is highly competitive, with low barriers to entry.
    • Strategic Initiative Execution: Failure to successfully implement strategic initiatives (Workday, India development center) could hinder growth and profitability.
    • Cybersecurity: Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations.
    • Immigration Restrictions: Changes in immigration laws could impact the availability of skilled foreign nationals.
  • Opportunities:
    • Technology Solutions Demand: Increasing demand for technology solutions provides an opportunity for Kforce to expand its services and increase revenue.
    • Integrated Strategy: Leveraging existing client relationships and integrating service offerings can drive revenue growth and improve profitability.
    • Offshore Delivery: The India development center offers a cost-effective solution for clients and expands Kforce’s service capabilities.

Uncommon Metrics

  • Billing Days: Kforce provides revenue growth rates adjusted for billing days to provide a clearer picture of underlying revenue trends.
  • Consultant Net Promoter Score (NPS): Kforce uses NPS surveys to measure consultant satisfaction and identify areas for improvement.
  • Average Bill Rate: The average bill rate in the fourth quarter of 2024 was approximately $90 per hour for Technology and $51 per hour for FA.
  • Average Assignment Duration: The average assignment duration was 10 months in 2024, which is consistent with the prior period.

Conclusion and Actionable Insights

Kforce is facing a challenging environment due to macroeconomic headwinds. The company is making significant investments in strategic initiatives to position itself for future growth. While the company continues to return capital to shareholders, the declining revenue and gross profit margin are concerning. The success of the strategic initiatives and a recovery in the macroeconomic environment are crucial for future performance.

Overall Assessment: Hold

Recommendations:

  • Monitor the progress of the Workday implementation and the performance of the India development center.
  • Track key economic indicators and their impact on client spending.
  • Evaluate the performance of the Technology and FA segments and identify opportunities for improvement.
  • Closely monitor cybersecurity threats and ensure adequate protection measures are in place.

Kforce Inc. (KFRC) Financial Analysis – 2024

Kforce Inc. experienced a challenging year in 2024, with revenue and net income declining compared to the previous year. The company’s profitability margins also contracted, reflecting increased cost pressures. Despite these challenges, Kforce maintained a solid balance sheet and continued to return capital to shareholders through dividends and share repurchases. The company’s focus on technology staffing and solutions remains a key strength, but it needs to address the declining revenue in both its Technology and FA segments to improve future performance.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit / Revenue = $385,445 / $1,405,308 = 27.4%
    • Trend: 2024: 27.4%, 2023: 27.9%. Percentage Change: (27.4 – 27.9) / 27.9 = -1.8%
    • Industry: The staffing industry typically has gross profit margins between 25% and 35%. Kforce’s gross profit margin is within this range but trending towards the lower end.
  • Operating Profit Margin

    • Ratio/Metric: Income from Operations / Revenue = $69,721 / $1,405,308 = 5.0%
    • Trend: 2024: 5.0%, 2023: 5.7%. Percentage Change: (5.0 – 5.7) / 5.7 = -12.3%
    • Industry: Operating profit margins in the staffing industry typically range from 4% to 8%. Kforce’s operating profit margin is within this range but trending towards the lower end.
  • Net Profit Margin

    • Ratio/Metric: Net Income / Revenue = $50,414 / $1,405,308 = 3.6%
    • Trend: 2024: 3.6%, 2023: 4.0%. Percentage Change: (3.6 – 4.0) / 4.0 = -10.0%
    • Industry: Net profit margins in the staffing industry typically range from 3% to 6%. Kforce’s net profit margin is within this range but trending towards the lower end.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Income / Total Assets = $50,414 / $357,834 = 14.1%
    • Trend: Not enough information to calculate
    • Industry: ROA for staffing companies typically ranges from 8% to 15%. Kforce’s ROA is within this range.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Income / Total Stockholders’ Equity = $50,414 / $154,618 = 32.6%
    • Trend: Not enough information to calculate
    • Industry: ROE for staffing companies typically ranges from 15% to 25%. Kforce’s ROE is significantly higher than the industry average, which could be due to its capital structure and share repurchase program.
  • Earnings Per Share (EPS) – Basic

    • Ratio/Metric: $2.71
    • Trend: 2024: $2.71, 2023: $3.18. Percentage Change: (2.71 – 3.18) / 3.18 = -14.8%
    • Industry: EPS varies widely based on company size and profitability.
  • Earnings Per Share (EPS) – Diluted

    • Ratio/Metric: $2.68
    • Trend: 2024: $2.68, 2023: $3.13. Percentage Change: (2.68 – 3.13) / 3.13 = -14.4%
    • Industry: EPS varies widely based on company size and profitability.

Liquidity

  • Current Ratio

    • Ratio/Metric: Current Assets / Current Liabilities = $225,406 / $112,457 = 2.00
    • Trend: 2024: 2.00, 2023: $244,459 / $102,975 = 2.37. Percentage Change: (2.00 – 2.37) / 2.37 = -15.6%
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. Kforce’s current ratio is within this range.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since inventory is not listed, we will assume it is 0. $225,406 / $112,457 = 2.00
    • Trend: 2024: 2.00, 2023: $244,459 / $102,975 = 2.37. Percentage Change: (2.00 – 2.37) / 2.37 = -15.6%
    • Industry: A quick ratio of 1.0 or greater is generally considered healthy. Kforce’s quick ratio is above this level.
  • Cash Ratio

    • Ratio/Metric: Cash and Cash Equivalents / Current Liabilities = $349 / $112,457 = 0.003
    • Trend: 2024: 0.003, 2023: $119 / $102,975 = 0.001. Percentage Change: (0.003 – 0.001) / 0.001 = 200%
    • Industry: A cash ratio of 0.5 to 1.0 is generally considered ideal, but this varies by industry. Kforce’s cash ratio is very low, indicating a reliance on other current assets to meet short-term obligations.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $203,216 / $154,618 = 1.31
    • Trend: 2024: 1.31, 2023: $198,899 / $159,080 = 1.25. Percentage Change: (1.31 – 1.25) / 1.25 = 4.8%
    • Industry: A debt-to-equity ratio of 1.0 to 2.0 is common. Kforce’s debt-to-equity ratio is within this range.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Liabilities / Total Assets = $203,216 / $357,834 = 0.57
    • Trend: 2024: 0.57, 2023: $198,899 / $357,979 = 0.56. Percentage Change: (0.57 – 0.56) / 0.56 = 1.8%
    • Industry: A debt-to-assets ratio below 0.6 is generally considered healthy. Kforce’s debt-to-assets ratio is within this range.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Income from Operations / Interest Expense = $69,721 / $2,097 = 33.25
    • Trend: 2024: 33.25, 2023: $87,121 / $1,122 = 77.65. Percentage Change: (33.25 – 77.65) / 77.65 = -57.2%
    • Industry: An interest coverage ratio above 1.5 is generally considered safe. Kforce’s interest coverage ratio is very high, indicating a strong ability to meet its interest obligations.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Not applicable, as Kforce is a service company and does not have significant inventory.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Trade Receivables / Revenue) * 365 = ($215,690 / $1,405,308) * 365 = 55.9 days
    • Trend: 2024: 55.9 days, 2023: ($233,428 / $1,531,756) * 365 = 55.6 days. Percentage Change: (55.9 – 55.6) / 55.6 = 0.5%
    • Industry: DSO varies by industry. For staffing companies, DSO typically ranges from 45 to 60 days. Kforce’s DSO is within this range.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Direct Costs) * 365 = ($38,315 / $1,019,863) * 365 = 13.7 days
    • Trend: 2024: 13.7 days, 2023: ($42,842 / $1,104,690) * 365 = 14.2 days. Percentage Change: (13.7 – 14.2) / 14.2 = -3.5%
    • Industry: DPO varies by industry. For staffing companies, DPO typically ranges from 10 to 20 days. Kforce’s DPO is within this range.
  • Asset Turnover

    • Ratio/Metric: Revenue / Total Assets = $1,405,308 / $357,834 = 3.93
    • Trend: 2024: 3.93, 2023: $1,531,756 / $357,979 = 4.28. Percentage Change: (3.93 – 4.28) / 4.28 = -8.2%
    • Industry: Asset turnover varies by industry. For staffing companies, asset turnover typically ranges from 2.0 to 4.0. Kforce’s asset turnover is within this range.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Stock Price / EPS = $48.52 / $2.71 = 17.9
    • Trend: Not enough information to calculate
    • Industry: The average P/E ratio for the staffing industry is around 15-25. Kforce’s P/E ratio is within this range.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price. Shares Outstanding = 73,835 (in thousands) – 54,619 (in thousands) = 19,216,000. Market Cap = 19,216,000 * $48.52 = $932,351,000. P/B = $932,351,000 / $154,618,000 = 6.03
    • Trend: Not enough information to calculate
    • Industry: The average P/B ratio for the staffing industry is around 2-4. Kforce’s P/B ratio is higher than the industry average, which could indicate that the stock is overvalued.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Revenue = $932,351,000 / $1,405,308,000 = 0.66
    • Trend: Not enough information to calculate
    • Industry: The average P/S ratio for the staffing industry is around 0.5-1. Kforce’s P/S ratio is within this range.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA. EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization = $50,414 + $2,097 + $17,210 + $5,922 = $75,643 (in thousands). Total Debt = $32,700 (in thousands). Cash = $349 (in thousands). EV = $932,351 + $32,700 – $349 = $964,702 (in thousands). EV/EBITDA = $964,702 / $75,643 = 12.75
    • Trend: Not enough information to calculate
    • Industry: The average EV/EBITDA ratio for the staffing industry is around 8-12. Kforce’s EV/EBITDA ratio is slightly higher than the industry average.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($1,405,308 – $1,531,756) / $1,531,756 = -8.3%
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($50,414 – $61,075) / $61,075 = -17.5%
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($2.71 – $3.18) / $3.18 = -14.8%

Other Relevant Metrics

  • Adjusted EBITDA

    • Metric: Adjusted EBITDA decreased from $115.7 million in 2023 to $89.7 million in 2024.
    • Trend: (89.7 – 115.7) / 115.7 = -22.5%
    • Significance: Adjusted EBITDA is a non-GAAP metric that provides insight into the company’s operating performance by excluding certain non-cash expenses and other items. The decrease in Adjusted EBITDA reflects the decline in revenue and profitability.
    • Assessment: The adjustments made to arrive at Adjusted EBITDA appear reasonable, as they exclude non-cash expenses such as depreciation and amortization, as well as other items such as stock-based compensation expense.
  • Share Repurchases

    • Metric: The company repurchased $41.9 million of common stock in 2024, compared to $75.0 million in 2023.
    • Trend: (41.9 – 75.0) / 75.0 = -44.1%
    • Significance: Share repurchases reduce the number of outstanding shares, which can increase EPS and ROE. The decrease in share repurchases reflects the company’s lower cash flow from operations.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️