KFRC Shareholder/Stockholder Letter Transcript:
TO G E T H E R TOWA R D TO M O R R O W
ANNUAL REPORT 2023
TO OUR FELLOW
SHAREHOLDERS, CLIENTS,
CONSULTANTS AND EMPLOYEES:
I AM TREMENDOUSLY GRATEFUL for the extraordinary
efforts of the Kforce team who executed well in 2023 in an
environment that proved to be more challenging than originally
expected. Our message to our people in 2023 was simple, and
frankly, it is no different as we begin 2024. There are many things
that are uncontrollable. We must control what we can control,
stay close to our internal associates, support our consultants,
and continue listening to our clients while maintaining a long-term
view in our decision making. Our results, driven by solid execution
and a focused business model, allowed us to continue allocating
significant capital towards our strategic priorities and in our
people and tools.
As to our strategic priorities, we meaningfully advanced our
integrated strategy, which capitalizes on the strong relationships
we have with world-class companies by utilizing our existing
sales, recruiters, and consultants to provide higher value teams
and project solutions that effectively and cost efficiently address
our clients challenges. We also made significant progress in our
multi-year back-office transformation efforts with the selection
of Workday as our future state enterprise cloud application
for HCM and financials and the selection of our implementation
partner. Workday will complement our Microsoft front-end
applications to create a unified and streamlined technology suite
for the Firm once fully implemented over the next few years.
We are incredibly fortunate to be partnering with these two
market-leading companies who are at the forefront of investing
in artificial intelligence. As we look ahead to 2024, we expect to
continue to make the necessary investments in our strategic
priorities to sustain our long-term growth ambitions and achieve
our financial objective of attaining double-digit operating margins
at slightly greater than $2 billion in annual revenues.
FULL YEAR 2023 FINANCIAL HIGHLIGHTS
Revenue for the year ended December 31, 2023, of $1.53 billion
decreased 10.5% year-over-year (10.1% on a billing day basis).
Technology revenue of $1.38 billion decreased 8.2% year-overyear (7.8% on a billing day basis).
A s reported, operating margins were 5.7% for the year ended
December 31, 2023, which decreased 110 basis points yearover-year. As adjusted, operating margins of 6.2% for the year
ended December 31, 2023, decreased 70 basis points from 6.9%
for the year ended December 31, 2022.
A s reported, diluted earnings per share for the year ended
December 31, 2023, were $3.13 per share, a decrease of 14.9%
year-over-year. As adjusted, diluted earnings per share were
$3.49 and $4.25 for the years ended December 31, 2023 and
2022, respectively, a decrease of 17.9%.
As we look ahead to 2024, we expect to
continue to make the necessary investments
in our strategic priorities to sustain our
long-term growth ambitions and achieve our
financial objective of attaining double-digit
operating margins at slightly greater than
$2 billion in annual revenues.
We returned $94.7 million of capital to our shareholders through
$67.1 million of share repurchases and $27.6 million in dividends
during the year ended December 31, 2023, which exceeded
100% of operating cash flows.
We took action in July 2023 to reduce our structural costs to
the lower revenues that we were experiencing and announced
certain executive organizational changes in September 2023
consistent with our One Kforce organizational design and
operating principles. While actions that affect our Kforce
team are tremendously difficult to make and are never taken
lightly, these changes allow us to navigate through the ongoing
macroeconomic uncertainties and situate us well strategically
for the future.
In February 2024, our Board of Directors (the Board ) approved
an increase of 5.5% in our annual dividend from $1.44 per
share to $1.52 per share, our fifth consecutive annual increase.
Additionally, the Board approved an increase in our stock
repurchase authorization, bringing the total to $100 million.
OUR SERVICE LINES
TECHNOLOGY
Our decision to grow our business organically with a consistent,
refined business model tailored to provide highly skilled
technology talent solutions to world-class companies in the
domestic market has been critical to our success over many years,
and we remain confident that our Firm is positioned well for
improving market conditions. In 2023, we experienced a decline
in flex revenues in our Technology business of approximately
7%, which closely resembled what we experienced in the Great
Recession in 2008. As a reminder, our Technology business
significantly outperformed the market in 2022 and 2021,
growing 40% over that two-year period. After experiencing
sequential billing day declines in the first three quarters of 2023,
KFORCE INC. AND SUBSIDIARIES | 1
importantly, our Technology business grew sequentially in the
fourth quarter of 2023, which was reflective of the stability in the
number of consultants on assignment we began to see beginning
in mid-Q3 and the modest increase throughout the fourth
quarter. Overall average bill rates in our technology business were
stable in 2023, remaining near record levels at approximately
$90 per hour, which was encouraging given the macro backdrop.
In addition, we continued to benefit from an increased mix of
managed teams and project engagements, which carries a higher
average bill rate (and greater flex margin %). Our clients remain
focused on critical technology initiatives in the areas of digital, UI/
UX, cloud, data governance, data analytics, business intelligence,
project and program management, and modernization efforts.
We believe the decline that we experienced in 2023 was due
to an acceleration of strategic technology investments made
during 2021 and 2022 to address the implications of remote
work and other digital transformation efforts, combined with the
caution exercised by companies in a very uncertain environment.
Companies remain cautious due to continued economic and
geopolitical uncertainty. While clients have been acting with
restraint over the last 12 plus months, the backlog of desired
investments continues to grow. We expect these important
technology investments to be high priorities once the macro
uncertainties begin to clear. Technology investments are simply
not optional in today s competitive and disruptive business climate.
There is simply no other market we would want to be focused in
other than the domestic technology talent solutions space.
We have continued to broaden our technology service offerings
beyond traditional professional staffing to include managed
teams and project solutions. Clients consider access to the right
talent, at the right time, essential to their success and see our
services as a cost-effective solution for their project requirements
as demonstrated by more than 90% of our managed teams
and project solutions being executed with existing clients. Our
integrated strategy capitalizes on the strong relationships
built over the past 60 plus years within world-class companies
by utilizing our existing sales, recruiters, and consultants to
provide higher value teams and project solutions that effectively
and cost efficiently address our clients challenges.
Our client portfolio is diverse and includes market-leading
customers, which are the largest consumers for the services we
provide. Market leaders across all industries typically prioritize
technology investments to maintain their competitive advantage.
Our focus on addressing their strategic needs continues to be
critical in our ability to drive sustainable, long-term above-market
performance. While short-term disruption may occur with
certain clients or industries, our diverse client base provides
an outstanding platform for consistent, long-term growth.
FINANCE AND ACCOUNTING
Our FA business declined approximately 28% year-over-year
as a result of the impact of business we strategically are
no longer supporting due to our repositioning efforts and a
2 | KFORCE INC. AND SUBSIDIARIES
more challenging macro-environment. Our average bill rate
has continued to exceed $50 per hour, which has improved 37%
from $37 per hour pre-pandemic and our Flex margins have
improved 140 basis points over that same time period, which is
reflective of our success in repositioning this business towards
higher-skilled roles.
Our core competency is rooted in the
ability to identify and provide
critical resources, real-time and at scale,
to help world-class companies solve
complex problems and competitively
transform their businesses.
ALIGNING FOR THE FUTURE
Our strategic position is solid, and our prospects are excellent.
With that said, tremendous uncertainties still exist in the macro
landscape and there are conflicting views of economists on
whether we avert a recession, see a soft landing, or slip into a
recession in the U.S. economy in 2024, following the aggressive
monetary tightening by the Federal Reserve. The challenges in
the geopolitical landscape continue to grow with the ongoing
war in Ukraine, the affects across the region of the war in Israel
along with 2024 U.S. election uncertainties, and many others.
We will continue to closely monitor our performance indicators
and trends and are prepared to make the necessary adjustments
to our business without jeopardizing investments in our longterm strategic priorities.
AS WE LOOK AHEAD TO 2024
The strength of the secular drivers of demand in technology
accelerated significantly coming out of both the 2008 Great
Recession, with advancements in mobility, cloud computing,
among many others, and the 2020 Pandemic, with further
digitalization of businesses and the continued headlines around
GenAI technologies. I have seen a lot of economic cycles in
my 35 plus years in this business and each one behaves a bit
differently. What remains clear to us though is that the broad
and strategic uses of technology, including AI technologies,
will continue to evolve and play an increasingly instrumental role
in powering businesses. Over the long term, we believe that AI
and other technologies will continue to drive demand for, rather
than replace technology resources, and that the pace of change
will accelerate. We are ideally positioned to meet that demand.
Our core competency is rooted in the ability to identify and
provide critical resources, real-time and at scale, to help worldclass companies solve complex problems and competitively
transform their businesses. Our operating model also allows us
to be flexible in partnering with our clients to meet their needs
across a broad spectrum of engagement forms, from direct hire,
traditional professional staffing assignments to managed teams
participate in causes and organizations they are passionate
about. For example, this year we donated about 400 laptops to
organizations in need. Below are a few examples of the many
other initiatives we host and charities we partner with.
engagements and managed projects. We are fortunate to have
one of the most recognized brands in the market for providing
technology talent solutions. Our reputation has been established
over our 60 plus year operating history, and we continue to carry
the highest overall Glassdoor rating within our peer group.
We have taken necessary and thoughtful measures to strike
a balance between associate productivity and our revenue
expectations. As we have done in prior economic downturns,
we are focused on retaining our most productive associates and
making targeted investments in the business to ensure that
we are well prepared to capitalize on the market demand when
it accelerates. We continue to invest in our managed teams
and project solutions capabilities and the integration of those
offerings within the Firm, which is progressing well.
ESG AND STEWARDSHIP
Our 2023 Sustainability Report, which was published in February
2024, outlines the considerable progress we made in our overall ESG
efforts in 2023. We continued to prioritize investing in our people
as our number one priority and strengthened our governance and
environmental processes starting with the formal inclusion of ESG
oversight and governance in the board committee charters. We also
calculated our value chain emissions for 2023, which have declined
55% over our 2019 baseline, primarily as a result of our intentional
focus on reducing our real estate footprint to align with our Office
Occasional work environment. There is always more to be done,
and our desire to learn and evolve has us eager to discover the next
best steps in our ESG journey. Our goals for 2024 have us pushing
for even greater equity and inclusion throughout the Firm.
STEWARDSHIP AND COMMUNITY ENGAGEMENT
Our goal is to leave a lasting, positive impact on the world.
Our hope is that by partnering with charitable organizations,
connecting with diverse associations and engaging in projects
that have meaningful impacts, we will empower our employees
to empower others each and every day.
Under our guiding principle, Empowering People Through
Knowledge SharingSM, we focus on programs that help people
develop skills, gain knowledge and pursue meaningful careers.
Our employees lead the way in our community engagement
efforts. Their passion for education, community development
and human services guides our community engagement strategy.
We bring a unified approach to philanthropy with special
emphasis on our Firm s four corporate-sponsored charities:
Best Buddies, Feeding America, Junior Achievement and Special
Operations Warrior Foundation. In addition to supporting
our Firm-sponsored charities, we encourage our people to
Season of Impact: What began as an annual day of giving
evolved into a Season of Impact where Kforce employees
are encouraged to give their time, talent and treasure to
organizations of their choice throughout the holiday season.
Junior Achievement: Kforce is sponsoring a new 3DE program
at a local educational institution, which is a program that
reimagines education by linking school districts with the
business community so students can problem-solve real-world
challenges. 3DE schools provide access to in-demand careers,
fostering stability and building a culture of inclusionary
instruction and individual value. In 2023, Kforce sponsored
and participated in the inaugural program.
Best Buddies: Kforce participated in the 2023 Best Buddies
Champion of the Year Gala and Friendship Walk. Kforce is also
a proud participant of the Best Buddies Jobs Program, which
gives individuals with intellectual and developmental disabilities
opportunities for meaningful and fulfilling work.
IN SUMMARY
We have built a solid foundation at Kforce to advance our
Mission Uniting professionals to achieve success through lasting
personal relationships and Vision To have a meaningful impact
on all the lives we serve . Our balance sheet is clean, which allowed
us to deliver predictable dividends for our shareholders and to
be opportunistic in repurchasing our stock in 2023, and we expect
to continue to generate strong cash flows in 2024.
I want to reiterate how proud I am of the performance and
resiliency of our collective Kforce team through their daily actions
living out our tagline We Love What We Do. We Love Who We Serve .
Together, we fought through a challenging operating environment,
made some difficult decisions and met each challenge. We are
blessed to have a tenured Executive Leadership team who has
been through multiple economic cycles together and can quickly
adjust to changing market conditions. We will continue to invest in
our strategic priorities that will help drive long-term growth and
achieve our longer-term financial objective of attaining doubledigit operating margins. We believe the key contributors achieving
double-digit operating margins are increased scale, productivity
improvements including through our back-office transformation
program and advancements in AI technologies, driving a greater
mix of managed teams and solutions business and further reducing
our fixed costs such as real estate. We enter 2024 well positioned
to take additional market share and continue creating significant
long-term returns for our shareholders.
Joseph J. Liberatore
President and Chief Executive Officer
Director
KFORCE INC. AND SUBSIDIARIES | 3
3/15/2024 Letter Continued (Full PDF)