Kforce（KFRC）2026年第3四半期決算説明会：テクノロジー部門の成長が加速、第4四半期ガイダンスを発表

要約

• Kforceが発表した2026年第3四半期の売上高は3億5,780万ドルとなり、前年同期比7.5%増で、経営陣によるガイダンスの上限を上回りました。
• テクノロジー部門の売上高は、AI、データ、デジタル、クラウド、プラットフォーム・エンジニアリングにわたる幅広い需要に支えられ、前年同期比7.8%増、稼働日ベースの前期比で2.5%増となりました。
• 希薄化後1株当たり利益（EPS）は0.90ドルとなり、会社所有生命保険の利益0.12ドルが含まれています。この利益を除いたEPSは、前年同期比で約24%改善しました。
• 売上総利益率は前年同期比50ベースポイント上昇して28.2%となり、テクノロジーFlex売上総利益率は、請求・支払スプレッドの改善、価格規律、高付加価値ビジネスミックスが医療費コスト増加を相殺したことで、前年同期比60ベースポイント上昇しました。
• 2026年第4四半期について、経営陣は売上高を3億5,200万ドル〜3億6,000万ドル、EPSを0.62ドル〜0.70ドルと予想しています。中間値では、売上高は前年同期比7.2%増、稼働日ベースの前期比で2.7%増となります。
• 経営陣は、ビジネスミックスの改善、スケールメリット、営業レバレッジに支えられ、年換算売上高が17億ドルに回復した際には、Kforceが少なくとも8%の営業利益率を達成できると引き続き確信しています。

主要財務データ

事業および業績の状況

テクノロジー部門が引き続き主要な成長ドライバーとなりました。経営陣によると、購買パターンは過去4四半期にわたり改善しており、コンサルティングと伝統的な人材派遣の売上高がいずれも増加しました。コンサルティング・ソリューションズは、過去数年間にわたり年率10%を超えるペースで拡大しています。

需要は業界やスキル全般にわたり幅広いものでした。Kforceは、金融サービス、卸売業、専門・ビジネスサービスにおける顕著な堅調さを強調しました。AI関連のデータ、デジタル、クラウドプロジェクトでの活動が引き続き増加したほか、プラットフォーム・エンジニアリングの職種やプロジェクトへの需要も高まりました。

コンサルティング・ソリューションズは、当四半期中に新規受注額が過去最高に達し、パイプラインの成約率も過去最高を記録しました。経営陣は、AI関連のパイプラインが前年同期比で約20%増加したと述べました。同社のデリバリーモデルは、プネーのデリバリーセンターを含むオンショア、ニアショア、オフショアの人材を組み合わせています。

事業は、季節的に低調な7月を経て勢いを増しました。フロントエンドの活動および成約率は8月に改善し、9月および10月を通じて堅調を維持しました。経営陣はまた、離職率の上昇、対抗オファーの増加、複数の内定提示を、テクノロジー労働市場の活動がより健全化している兆候として挙げました。第3四半期の顧客コンバージョン率は、前四半期の30%強の増加に続き、前年同期比で約23%増加しました。

Kforceは、需要が供給能力を上回っている市場において、営業、採用、コンサルティング担当者を厳選して増員しました。経営陣は、これらは全面的な採用拡大ではなく、絞り込んだ人員追加であると説明しました。同社は、AIを活用した社内ツールと既存のキャパシティが、今後のさらなる生産性向上と営業レバレッジを後押しすると見込んでいます。

業績予想（ガイダンス）

Kforceは、2026年第4四半期の売上高を3億5,200万ドル〜3億6,000万ドル、希薄化後EPSを0.62ドル〜0.70ドルと予想しています。当四半期の稼働日は62日で、2025年第4四半期と同数ですが、2026年第3四半期より2日少なくなります。

ガイダンスの中間値では、売上高は稼働日ベースの前期比で2.7%増、前年同期比で7.2%増を見込んでいます。テクノロジー部門の売上高は、中間値で稼働日ベース前期比約3%増となる見通しです。

この見通しは、事業環境が安定しており、実効税率が約28.7%であること、および異例または非常常的な項目が存在しないことを前提としています。経営陣は、請求・支払スプレッドが前期比で概ね安定して推移すると予想していますが、休日・祝日の有給休暇取得に伴う通常の季節的影響により一部相殺される見込みです。

2026年以降を見据えると、経営陣はコンサルティング・ソリューションズとオフショア・デリバリーが追加の売上総利益改善機会をもたらすと期待しています。現在の傾向が続けば、2027年の販管費の増加ペースは売上高の伸びを下回る見通しです。Workday導入に伴うメリットは2027年後半から現れ始め、2028年にかけて本格化すると見込まれていますが、2027年初頭の本稼働に伴い、当初は非現金支出である減価償却費および無形資産償却費が増加します。

リスクと注視すべき分野

• 経営陣は労働環境を「まちまち」と表現しました。テクノロジー分野の失業率は約2.9%と相対的に低い水準を維持していますが、直近の労働データは情報および専門サービス分野での緩やかな雇用減少を示しています。
• 地政学的リスクの高まり、金利上昇、世界のエネルギ一市場の変動が不透明感をもたらし続ける中、顧客はテクノロジー支出に引き続き慎重です。
• 医療費コストは四半期ごとの予測が困難な場合があり、第3四半期はやや高水準となりました。
• 休暇の時期は、12月の事業活動、有給休暇の取得、第4四半期のキャッシュ・フローに不確実性をもたらします。また、年間業績連動報酬の支払いも第4四半期に行われます。
• 営業活動によるキャッシュ・フローは大口顧客における一時的な入金遅延の影響を受けましたが、経営陣によれば10月初旬に入金が確認されており、売掛金ポートフォリオは引き続き健全です。
• AIはコーディング作業の多くを自動化する可能性があります。しかし経営陣は、需要が柔軟なテクノロジー人材の必要性を幅広く減らすのではなく、AIをビジネスプロセスに統合できるシニア専門家やプロフェッショナルへとシフトすると考えています。

アナリスト質疑応答の主なポイント

需要の回復と市場シェア： 経営陣は、成長の要因を市場需要の改善と同社独自の実行力の両方に求めました。延期されていたテクノロジー・プログラムが再開され、AI関連投資が増加しており、Kforceは市場全体の予想を上回る自社の成長が、市場シェアと顧客シェアの双方での拡大を示していると考えています。

利益率の拡大： コンサルティング案件は通常、人材派遣案件よりも400〜600ベースポイント高い利益率を確保しています。経営陣は、価格規律と相まって、コンサルティング・ソリューションズ、ニアショア、オフショア・デリバリーへの継続的なシフトが、時間の経過とともにさらなる利益率改善を後押しすると期待しています。

8%の営業利益率への道のり： 同社は、ビジネスミックスの改善に伴い、売上総利益率の拡大が比較的一調に進むと予想しています。販管費のレバレッジは、売上規模、生産性の向上、固定費の吸収からもたらされる見込みであり、Workday導入のメリットは2027年後半から2028年にかけて、より顕著な改善を生み出すと期待されています。

コンサルティング売上の収益化： 過去最高となった新規受注は、今後の四半期を通じて売上高に変換される見込みです。経営陣によると、デリバリー段階に入ったプロジェクトの一部は検討段階に1〜2四半期を費やしており、2027年に向けた継続的なモメンタムを後押ししています。

キャッシュ・フロー： Kforceは第4四半期にプラスの営業キャッシュ・フローを見込んでいます。ただし経営陣は、年間インセンティブの支払いなどの季節要因から、第4四半期は歴史的にキャッシュ創出力が低くなる傾向がある点に注意を促しました。

決算説明会トランスクリプト全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Ladies and gentlemen, thank you for joining us, and welcome to the Kforce Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Joe Liberatore, President and CEO. Please go ahead, sir.

Joseph Liberatore

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 that are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce'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 the Investor Relations portion of our website.

We are extremely pleased to deliver a quarter of accelerating revenue and earnings growth. Revenues, which exceeded the high end of our guidance reflect the continued build of momentum that began in the second half of 2025 as evidenced by another quarter of sequential growth and further accentuated with year-over-year growth rate in our technology business of nearly 8% that is roughly equivalent to our pre-pandemic compounded annual growth rate.

As Jeff Hackman will cover in more detail, this momentum has continued into the fourth quarter, where we're expected to deliver another quarter of strong sequential billing day growth.

During the challenging years of 2023 to 2025, we didn't hang our heads. We spent considerable time selectively and responsibly investing in our people, strengthening our service offerings and evolving our brand and go-to-market strategy, supported by our integrated strategy efforts and fine-tuning our world-class client portfolio.

We also weren't unerved when the dramatic evolution of technology that occurred with AI in the fall of 2022 because across Kforce 64-year history, we have navigated and helped our clients navigate several defining periods of technological change from mainframe and personal computing and the Internet to mobile technology and cloud computing. We witnessed that each transition reshaped the labor market, yet it also created new opportunities as workers, particularly technology professionals, develop new skills and adapted to the evolving demands.

Over time, these cycles ultimately expanded the number and breadth of technology-related roles. In fact, there is some recent evidence supporting our historical experience with technological changes playing out with AI.

Recent research and labor market data continues to reinforce the durability of technology talent demand even as AI automates a significant amount of coding activity. Indeed, data showed U.S. software development jobs postings have increased nearly 15% since February 2025, with that growth significantly concentrated in senior roles, which aligns well with where we have historically focused.

Longer term, the U.S. Bureau of Labor Statistics projects employment for software developers and related roles to grow approximately 10% through 2035, much faster than the average for all occupations.

Our approach to AI remains deliberate and balanced, both within Kforce and how we support our clients. Internally, we are examining our core processes and introducing AI-enabled capabilities where they can meaningfully improve the quality and speed of the associate and client experience, resulting in improved productivity and operating leverage.

Externally, we are continuing to build fluency across our sales team and leadership while expanding the specialized AI expertise within our consulting solutions organization. We believe that enterprise adoption of AI is still at the early stage and will likely develop over time, much like other major technology transitions.

The greatest opportunity will extend beyond the technology itself to the thoughtful and secure integration of AI into business processes and operating models. Capturing that value will require organizations to bring together strategy, talent, data, governance and change management to produce measurable outcomes.

We, therefore, expect growing demand for highly skilled professionals and teams capable of designing, implementing and scaling AI, data and broader digital transformation initiatives. We believe clients will progressively turn to outside expertise to redesign business to be AI native.

A recent example of a major U.S. financial institution bringing in 1,000 technology consultants to help align their internal systems with recently acquired AI tools is indicative of how outside expertise can be leveraged.

With our technology talent solutions and consulting capabilities, Kforce is well positioned to help clients modernize their operations, translate technology investments into business value and build competitive advantage. No matter the pace of innovation, organizations will continue to need experienced professionals who can connect emerging technologies with practical execution. We believe that need supports the long-term demand for technology talent and consulting solutions that is at the center of our strategy.

The demand for flexible technology talent is broadly based and extends beyond AI. The labor environment remains a bit mixed with IT unemployment rates remaining relatively low at approximately 2.9%, indicative of a tight market for technology talent.

At the same time, recent [ BLS ] data indicates modest job declines in the information and professional services sector. This is an environment where many companies remain hesitant to add full-time staff, while the project-based nature of technology work may further incentivize clients to leverage flexible talent solutions.

Organizations are also increasingly turning to flexible talent models to advance large backlogs of high-priority technology initiatives. Broader uncertainty, including geopolitical tensions, rising interest rates and related volatility in the global energy markets has further reinforced the need for agility. We believe these dynamics highlight the value of flexible workforce solutions as clients adapt to near-term uncertainty while assessing the longer-term implications of emerging technologies on their business and talent strategies.

As a result, we remain encouraged that our operating trends and revenue improvements since late 2025, are consistent with a more typical cyclical demand recovery.

Our business model is intentionally simple, organically driven and intensely focused. By limiting inorganic growth within our existing service areas, we protect our teams from unnecessary complexities and distractions. That focus allows our people to do what they do best, build deep relationships and partner with clients to solve their most critical business challenges. Our strategy has been thoughtfully refined over time not overhauled because it is proven durable. That focus, combined with a unified and resilient culture is a real differentiator for us and central to our consistent market outperformance.

I am incredibly proud of the determination of our people and deeply appreciative of the trust our world-class clients continue to place in Kforce. The way our teams collaborate, serve our clients, and move our strategic priorities forward is creating meaningful momentum across Kforce and clear evidence to me that our people are operating more fully as One Kforce.

With that, I will turn the call over to Dave Kelly, our Chief Operating Officer, for additional perspective on our performance and operating trends. Jeff Hackman, our Chief Financial Officer, will then review our financial results and outlook in greater detail. Dave?

David Kelly

Thank you, Joe. Total revenues exceeded guidance on the strength of our technology revenue growth of 7.8% year-over-year and 2.5% on a sequential billing day basis. While there's been a considerable debate about whether AI tools and technologies will constrain demand across our sector, over the last 4 quarters, we're seeing buying patterns improve and have delivered revenue growth that is at or above pre-pandemic norms.

Both consulting and traditional staff augmentation revenues are growing, and our Consulting Solutions business has been growing in excess of 10% annually for the last few years. Our client portfolio is exceptional. Our go-to-market and integrated strategy efforts are gaining traction, and our culture is unmatched. Clients remain measured in their technology spending through our recent acceleration in revenue growth and leading indicators suggest that more projects are being greenlighted and demand for our services is increasing.

Our results and operating trends indicate that clients are prioritizing critical initiatives in digital and the platforms that support AI strategies and other critical projects that may have been deferred. Our growth rights provide concrete evidence that we are gaining share with our clients and across the broader market.

Importantly, the improvement in our business has been broad-based with positive trends evident across a wide range of industries and skill sets within our client portfolio. We continue to see growth in AI-related data, digital and cloud projects while also experiencing a ramp in demand for platform engineering roles and projects. It seems increasingly clear that the demand for flexible talent with high-end skill sets and technology is strengthening despite overall technology job growth being tepid, which further validates our focus on delivering high-end solutions to clients.

Overall technology demand by industry remains broad, but with particular strength in financial services, wholesale trade and in professional and business services. As part of delivering innovative solutions to our clients, we continue to make targeted organic investments to deepen our consulting expertise, assist our clients in translating business problems within AI use cases and more rapidly developing potential technology solutions. These investments include an increase in our innovation capabilities and increasing the depth and size of our team of domestically based technology experts and ensuring they are engaging in tandem with our talented sales associates to assist with early-stage client exploration and use case advancement.

During the third quarter, our Consulting Solutions business achieved record levels of new contract award value and converted the highest percentage of pipeline opportunities in its history. Our fully integrated sales and delivery model combines onshore, nearshore and offshore talent from our [ Pune ] delivery center to give clients a unified experience across consulting, project-based work and traditional staffing needs spanning a broad range of technologies and skill sets.

Demand is strengthening across our service portfolio with clients increasingly open to discussing new opportunities. After a relatively slower start to the quarter in July, which is fairly typical during the summer, we saw front-end activity levels and conversion ratios meaningfully improved in August, and we've seen continued strength in September and October. These elevated activity levels and improving conversion ratios are translating into increasing project wins and accelerating revenue growth.

Assigned and attrition also performed better than expected in the third quarter, which speaks to the overall health and sustainability of the operating environment. We continue to outperform broader industry trends and momentum in the business has clearly strengthened as reflected in our Q4 guidance.

We've maintained a stable to slightly improving average bill rate in technology over the past 4 years, which is encouraging and reflective of our higher quality, higher margin revenue stream. Our average bill rate in Q3 was $91 per hour. This reflects the growing mix of consulting-oriented engagements which command higher bill rates and stronger margin profiles as well as disciplined management of wage inflation and core technology skill sets.

Together, these factors have effectively offset the bill rate pressure associated with a greater mix of consultants based outside the U.S. We expect to continue seeing a stable to slightly improving average bill rate as technology labor continues to upskill in the face of advancements in AI.

Demand remains strong across our core practice areas, including data and AI, digital platform engineering and cloud. The number of opportunities in our consulting solutions offering continues to expand and will be a key driver for our sequential growth in Q4. These disciplines are foundational to the development deployment of AI solutions and we believe organizations will increasingly require specialized talent to execute their strategies.

Looking forward to Q4, we expect overall revenues to improve sequentially in the low single digits on a billing day basis, and for year-over-year growth to be stable with third quarter levels even against the more difficult prior year comp. Over the last several years, we made responsible adjustments to aligned head count with revenue levels and productivity expectations. We selectively added head count in the third quarter given our exceptional operating trends. We expect the productivity improvements that we are driving, particularly the greater efficiencies expected from AI-enabled solutions to generate additional leverage as we grow.

At the same time, we've continued to invest in our Consulting Solutions business and other strategic initiatives that we believe will support long-term revenue and profitability growth.

We remain energized by the opportunities ahead and confident in our ability to sustain recent momentum while continuing to deliver strong results that exceed overall market averages. Our success is grounded in the deep trust and long-standing partnerships we've built with our clients, candidates and consultants. These relationships remain the foundation of our growth, innovation and long-term success.

I'll now turn the call over to Jeff Hackman, Kforce's Chief Financial Officer.

Jeffrey Hackman

Thank you, Dave. Third quarter revenues of $357.8 million increased 7.5% year-over-year and exceeded our expectations. Earnings per share of $0.90 benefited in the third quarter by the recognition of a $0.12 gain under our corporate owned life insurance policies. Excluding this gain, earnings per share would have been near the high end of guidance for the third quarter improving approximately 24% over the year ago period.

All aspects of the business continued to improve in the third quarter, driving very strong results from top to bottom. Our overall gross profit margin was at the midpoint of our expectations, increasing 50 basis points year-over-year to 28.2%. The stronger gross margin profile reflects not only strong demand but also a continuation of highly disciplined pricing by our people and further improvements in the quality of our revenue streams from a business mix standpoint that we are strategically driving.

As revenue growth has accelerated over the last 12 months, we have also increased our gross profit margins, which is not a trend that has been universally delivered across our sector. We are really proud of how our firm has executed and that our clients are recognizing the value that Kforce provides across both our technology talent and solutions offerings.

Sequentially, gross profit margins decreased as expected by 30 basis points, driven by a lower mix of Direct Hire revenues and slightly higher health care costs.

Flex gross profit margins improved 60 basis points year-over-year and was in line with the midpoint of our expectations. As stronger-than-anticipated bill pay spreads offset slightly higher health care costs.

Health care costs have generally come in as planned year-to-date, but can be difficult to project by quarter. As we look beyond 2026, we expect our higher-margin solutions engagements and offshore delivery to continue supporting further margin expansion opportunities. As to the fourth quarter, we expect bill pay spreads to remain broadly stable sequentially and for us to experience typical seasonal impacts from higher paid time off around the holidays.

SG&A as a percentage of revenue was 21.6% and benefited by 60 basis points because of the aforementioned gain under our corporate owned life insurance policies. Adjusting for this gain, SG&A costs were at the low end of our guidance of 22.2% to 22.4%, demonstrating an ability to continue delivering operating leverage as revenues expand.

As Dave mentioned, we made selective investments in our sales and recruiting teams to support the accelerating growth and added further depth to our consulting teams. We are largely absorbing the near-term cost implications of these investments through the leverage that our revenue growth is providing.

As previously discussed, the Workday implementation is expected to result in higher noncash depreciation and amortization expense following the early 2027 go-live. We continue to expect the more significant benefits to emerge in late 2027 and build more fully throughout 2028, enhancing operational efficiency and supporting long-term margin expansion.

Our operating margin was 6.3%, which benefited by 60 basis points due to the gain and our effective tax rate in the third quarter was 28.6%, lower than anticipated because of the tax-free nature of this gain. After factoring in this game, our operating margin and effective tax rate met the high end of our expectations.

Operating cash flow was $9.5 million in the third quarter. below our expectations due to a temporary payment delay at a large client that was resolved in early October. The overall quality of our accounts receivable portfolio remains very strong. During the quarter, we returned approximately $6.7 million to shareholders through dividends. We did not repurchase shares, which reflects our near-term priority of maintaining current debt levels.

We have repurchased approximately 15 million shares at an average price below $30 per share thus far in 2026. And returned another $20.2 million in dividends. an aggregate amount that has exceeded operating cash flows.

Net debt was effectively unchanged quarter-to-quarter. Our balance sheet remains strong with leverage of approximately 1.3x trailing 12-month EBITDA and providing continued financial flexibility.

Looking ahead, we will remain disciplined in deploying excess cash after funding our capital needs and quarterly dividend, balancing debt reduction with opportunistic share repurchases. Our return on equity remains strong at approximately 30%, reflecting disciplined capital allocation and our ability to generate attractive returns while investing to support long-term growth.

Turning to our outlook. The fourth quarter includes 62 billing days, consistent with the fourth quarter of 2025, but two fewer billing days than the third quarter of 2026. We expect fourth quarter revenue to be in the range of $352 million to $360 million and earnings per share to be between $0.62 and $0.70.

Our guidance assumes an effective tax rate of approximately 28.7%. At the midpoint of guidance, revenue is expected to increase 2.7% sequentially and 7.2% year-over-year. Our outlook assumes a stable operating environment and does not reflect any unusual or nonrecurring items.

We remain confident in our competitive position and our ability to grow faster than the market, continued progress in business mix, margin expansion and operating leverage strengthens our earnings potential as demand improves. We remain confident in our ability to achieve an operating margin of at least 8% and as annual revenue returns to $1.7 billion, representing more than 100 basis points of improvement from the margin achieved when we last operated at that revenue level in 2022.

Operating margins that we have delivered thus far in 2026 are significantly greater than the operating margins reached previously at similar revenue levels, which reflects disciplined execution, a stronger business mix, effective pricing and continued investment in our sales, solutions and enterprise capabilities.

On behalf of the management team, I want to thank our associates for their continued dedication and commitment to our clients. Their contributions remain central to our performance and our confidence in the opportunities ahead. We would now like to turn the call over for questions.

Operator

[Operator Instructions] Your first question comes from the line of Mark Marcon with Baird. Please go ahead.

質疑応答

Mark Marcon

Good afternoon, great results. Wondering if you can talk a little bit about -- you're seeing demand pick up. There's a lot of companies that are coming off the sidelines and implementing on programs that were deferred. To what extent do you think your results are a function of just the broad increase in demand relative to picking up share? And specifically what you've been doing both offshore as well as with some of your specialized higher-margin solutions?

David Kelly

I appreciate the question, Mark. This is Dave. So I would say a few things, and we alluded to these, I think, in some of our remarks that we've been sitting here for the last 3 or 4 quarters now indicating that we've seen a pickup of indicators. We've seen improving client conversations.

Obviously, there's been a lot of discussion in the marketplace about AI and AI-related investments, I would say. Certainly, that is a part of it. Our consulting services team has had a really nice period of growth. We've seen significant improvement in pipelines there. I think our AI and related pipelines are up something like 20% year-over-year. So certainly, that is part of the story. And our expectation is that it's going to continue to be the case as we move forward here, frankly, isn't anything in the marketplace that we're seeing that suggests that it's going to slow down.

I would say in addition to that, we've been talking for quite some time about a lot of deferrals that companies have had in terms of the other technology initiatives that they've wanted to do, right? They've always been trying to prioritize mission-critical things and they've really gotten to a point in many respects that have said, we really got to do this. We can't wait for things to turn around. We've got at least some visibility that things are going to continue to improve for our business, and we've got to make these investments. Certainly, still some uncertainty in the marketplace, but they're spending there as well.

Their expectations, obviously, and it's reflective of some of the changes that we've made in our model. It's to make sure that they're effective in meeting those needs in a very cost-effective manner. So certainly, our offshore facility is helping facilitate that.

We've talked in the past, especially about the idea of blended projects in our consulting services area. So we're seeing it pretty broadly across different types of business, not just AI, but general technology spend. We're seeing it broadly across many industries. So I wouldn't suggest to you that there is any particular industry driver as well. I think, in fact, 8 of our 10 industry sectors have been stable or growing year-over-year. So I think Joe used the word broad-based or I did. I can't remember, maybe both of us did. It clearly is has been and we expect will continue to be the case as it relates to demand.

Joseph Liberatore

Yes, Mark, the last part to your question that Dave didn't touch upon was overall market share. Yes, I have to complement our teams. Our teams have really been executing. We really -- we did a lot of training over the last several years. We've put a lot of new programs in place over the last several years. And I couldn't -- we couldn't be more proud of our team, the leadership and just how people are executing.

So based upon the data that we're seeing relative to the space, if you were to look at performance this quarter and our guide, it would appear that, that is that that's above what our market is projected. So obviously, that would lead one to the conclusion that we are capturing market share. We also do know that we're capturing client share.

David Kelly

Mark, there is one other way I think we need to slice this business as well. we've talked about as a core staff augmentation is an important part of our business as is solutions work, right? Our objective has always been to meet client needs from a talent perspective in any way they want to buy.

And so that strength that we're seeing is across that spectrum as well from staff augmentation all the way through our solution space. So broaden that sense as well.

Mark Marcon

Great. That actually led to one of my other questions, which is can you give us a sense for your gross margins on a year-over-year basis, on Tech Flex has been improving, despite the higher medical care costs and various elements along those lines.

But what are you seeing with regards to the mix of your business that's now offshore and solutions relative to domestic staff on. How much is that increase? Can you give us a sense for how big that is? And can we see the gross margins continuing to increase as we look out a little bit further into next year and the following year if this mix shift continues.

David Kelly

Yes, Mark, this is Dave again. So it's still certainly a small part of our footprint. We opened up that facility in [ Pune ] gosh, a year, 1.5 years ago now. We've had some nice growth. Our focus has been obviously in supporting our consulting solutions business. And so we've been very diligent about doing that. We've touched on that. So it is still a small percentage of the business.

Frankly, I think it will grow, but we're seeing improving bill rates in our consulting services, which, as we've said in the past, we typically carry margins 400 to 600 basis points higher than a staff organization assignment. So you're getting that offset.

The other thing I would say is margin improvements also, I think, are a good reflection of scarcity account and demand for high skilled labor, right? We've got a very concentrated revenue footprint in the high skill area, and we've been very diligent about maintaining that because we think that, that is an area where clients are willing to pay for value and scarcity of talent.

Jeffrey Hackman

And I think, Mark, this is Jeff. I think you're hitting on a key point to our story as well. I mean it's pretty neat when you see the revenue trajectory meaningfully inflecting us starting to throw off growth. It's comparable to our pre-pandemic technology growth rates. If we look across our business.

Our average bill rate actually expanded, I think, for the second consecutive quarter, so it's approaching $91 an hour. The margin profile has continued to be very attractive. I think it was up 60 basis points in our technology business year-over-year.

To Dave's point, he touched on the strategic, continuing to drive that higher mix, both within our Consulting Solutions group in addition to the business that we have nearshore and offshore. We've talked about that having dramatically higher gross margins, but at a tactical level as well. I would give it to our teams. We've talked about the last couple of quarters at a tactical level. We are exercising really, really strong pricing discipline.

Joe talked about some of the training that we've done. We've done training in and around that as well. So our people from soup to nuts are just executing at a high level. And my compliments go out to the team. And that's frankly something Mark that within our peer set, you haven't heard a lot about margin enhancements on a year-over-year basis and with us you have. So I think it's my compliments to the team again.

Mark Marcon

Yes. I mean if I'm hearing you correctly, I'm hearing you indicate that you think that we can continue to increase the margins because it sounds like that's the direction where there's a greater percentage on both ends of the higher margin that you're working on. And then you've got price discipline with regards to domestic back augmentation. So correct me if I'm wrong, but I think you're basically saying the margins should continue to go up?

Joseph Liberatore

Yes. I think strategically, Mark, we are with intent driving a higher mix of business, and I don't expect that intent and what we're driving to necessarily change.

If you look at the long-term trajectory and the more traditional staff augmentation arena, and certainly, over time, that has become a bit more compressed. But I think we're overcoming that through some of the tactical measures that we're doing. You saw that over the kind of year-over-year comparisons. So yes, I think it's a balance, Mark, as you look at the long-term trajectory in our business.

Mark Marcon

Okay. Great. And then one last one. Just on the free cash flow, Jeff, you mentioned that you had that client that just basically delayed the payment but that's coming through. So should the free cash flow improve in a noticeable way in the fourth quarter?

Jeffrey Hackman

Yes. I think, Mark, I think you hit the nail on the head. Our operating cash flows normalized for that client that kind of straddled Q3 and Q4 were effectively at our expectations. Q4, we're expecting also to be a cash flow positive quarter as well.

Year-to-date through Q3, we turned cash flow positive at the operating cash flow line. And I think, Mark, we would trade probably all day, any day working through some of the working capital constraints that we've seen in our business. We're trading that for certainly the revenue payouts.

Naturally, as you look back, Q4 and Q1 are historically some of our lighter operating cash flows, Q1 from a profitability, from a payroll tax perspective, and then in Q4, we have a lot of our annualized performance-based compensation plans. Those payments fall in the fourth quarter as well. So it will be certainly compared to Q3 a little bit more subdued. But certainly expect positive operating cash in Q4.

Operator

Your next question comes from the line of Trevor Romeo with William Blair. Your line is open Trevor. Please go ahead.

Trevor Romeo

Good evening to the team. I did want to follow up maybe on the demand environment a little bit differently and particularly the progression over the past few months. So it sounds like you saw an improvement kind of from the low point in July and saw strength continuing in September and October.

So question here is, would you say what you're seeing now is kind of similar to, I guess, it's been a few years since we've seen a normal here. But similar to maybe a normal build that you would see into year-end? Or is it maybe a bit stronger than that given the momentum that you've been seeing lately?

David Kelly

Yes. Trevor, I appreciate the question. So as you alluded to, July was a little lower. I think that's more of a summer dynamic.

Frankly, yes, a nice build in August, September, October, I think we can actually feel very good about that. The strength that we're seeing here is reflective of a very good environment. So as I kind of think about where we are as a business, we've alluded to in the past, some pre-pandemic growth. This very much feels like a very normal environment where you've got talent that's shortage, you've got client demand, certainly, of work that they want to do. So flexible talent is really important.

So I think we can look at this very typically, right? The thought process that all of the AI dynamics might have a long-term or at least short-term impact on the need for Flex certainly appears to be a bit overstated, right? We're not seeing that. We're seeing a much more normal environment where skills and skill set needs have changed. And we, as a flexible provider of talent, our core competency is recruiting in the space and making sure that we can identify that talent. We do it very well. and we're taking advantage of that and meeting our clients' needs where that need is.

Trevor Romeo

That's helpful. And then for my follow-up here, I know you talked about kind of selectively adding some head count in Q3 given the revenue trends you're seeing I think you've also talked in the past about having pent-up capacity on the sales side and you're also getting some productivity benefits from technology. So I guess I'm curious for a little more detail there, kind of more on what you're adding. And then kind of what gives you the confidence to add resources now rather than trying to maybe harvest more of that excess capacity and operating leverage?

David Kelly

Yes, I think it's a combination because I do think, Trevor, we are harvesting that capacity as well. So for us, let me answer your questions that I can remember them. So I'll start with the back end. Where are we adding those resources. We're adding them geographically in the areas where we've had the strongest growth and in the particular markets where we outstrip capacity, we need to make sure we don't fall behind the curve there, number one.

Number two, we're adding capabilities within our consulting services business. I've alluded to the growing pipeline there. And I think as our thought process here is to make sure that we're putting ourselves in a position where we're meeting our clients' needs, we were able to take the opportunity to gain client share certainly is the case.

And yes, we've got capacity. But frankly, growing near 8% when we came into the beginning of this year. I don't know that our expectation necessarily was to do that. So we want to make sure because our outlook is quite positive, that we don't get into a position where in a particular market, we don't -- we miss an opportunity because we don't have capacity.

So this is not a huge surge in adding. This is selective investments in particular markets, where we're doing extremely well with our clients. And then in addition to that, making sure that we're building the capacity for the building pipelines and our consulting services business.

Operator

Your next question comes from the line of Kartik Mehta with Northcoast Research.

Kartik Mehta

Jeff, maybe to start off on just the margin conversation discussion we're having. I think in the past, you've said in '27, you still have some Workday implementation left and maybe that's in the first half. As you look at kind of revenue growth as we go into '27, if these trends continue, would you anticipate SG&A to grow slower than revenue growth and then also have a positive impact on gross margins as you were answering the question, do you expect improvement in margins as we go into '27? Or does that the improvement moderate and the real improvement happened to '21 after all the implementation.

Jeffrey Hackman

So Kartik, good to be with you -- good to hear from you. So to answer your question on our Workday implementation, some of the benefits, I did put in the script, and this has been consistent with our prior calls that a lot of the benefits that we expect from leveraging the Workday products are going to start towards the tail end of 2027, and then we'll ramp more fully to the intended benefits as we work into 2028.

From an overall posture perspective, look at our business, growing close to 8% year-over-year in the fourth quarter, growing at 7% at the midpoint of our guide. Dave just talked about some of the investments that we've made in that demand and then deepening further our consulting expertise.

I think, Kartik, as you look into 2027, I would expect as you -- as it relates to in proportion to the revenue growth. I certainly would expect SG&A to increase at a lower rate than the overall revenue growth. So we do think that is certainly the expectation. And frankly, what we've been seeing over time.

You can look back. I think at similar revenue levels is what we're delivering today, you look back to fourth quarter of and you kind of look at a revenue per performer. We've done a really nice job and have improved the revenue per performer over that time span by 30%.

So to Dave's earlier comments about capacity and harvesting some of the productivity gains, we're certainly doing that. So hopefully, that helps, Kartik.

David Kelly

Yes. Kartik, I would just add a couple of other things. So kind of put the whole picture together. So we've got the benefits that we're going to derive from the Workday implementation. Jeff has already talked about the margins as we think about a strategic mix and the consulting business growing, that's going to be additive to margins. Certainly, gross margins as well.

As we grow our share of our business, it's in India, that is also a higher profit business. mix for us. That's adding as well. And then we've got scale opportunities, right? Leadership scale, and SG&A scale on fixed costs that we're going to have. So you take all of those things together, and that gives us great confidence in our ability to continue to improve margins well beyond where they are today.

Kartik Mehta

And just as a follow-up, if I think about the consulting solutions contract and how long it takes to convert that to revenue. And I think you said in the third quarter, you had record activity. And I'm trying to just determine when that turns to revenue and how much of an impact do you think that could have in 2027.

David Kelly

Well, I would make -- well, things are -- we're at record levels because the business as well continues to grow, right? I alluded to the fact that, that part of our business has been growing for a number of years at a double-digit rate. Our expectation is for that to continue. So as far as that lead lag, we've got things that are coming into the chute in the coming quarter, that had been a quarter or 2 out an investigation as well. So it's really just a momentum build on itself.

Operator

Your next question comes from the line of Josh Chan with UBS. Please go ahead.

Joshua Chan

Congrats on a good quarter. I was wondering if you could talk to sort of your commercial success, I suppose, with the consulting and even in the staff augmentation what do you think is kind of leading you to be able to achieve kind of this level of success versus like the market?

David Kelly

Gosh, I think that there's a number of things that come to mind. We've touched a lot on the execution of the team. So our team has done an excellent job executing on a plan focused plan it goes to our strategic model as well, right? We are an organic story that is not distracted by anything outside of our core effectively technology business, in our F&A business, which is also doing a nice job.

Our model is very focused on a pretty narrow group of skill sets for which there is consistent demand. And we've got a client portfolio that we are focused on growing client share obsessively. And so you put all of those things together, it's a model that we've been executing on for a number of years, unchanged. All of those things, I think, have allowed us over a long period of time to outperform our peers.

Joseph Liberatore

And I would also add, I believe the backdrop has shifted a little bit. I mean we've seen now the last couple of quarters, rising conversions. Also, we see more resignations taking place which I think is creating a replacement demand aspect.

We basically view that as a positive signal regarding market health. That's the churn that's really been missing in the marketplace for a number of years now. which is really a sign of an overall healthier employment market. I mean I think this past quarter, our conversions were -- I think they were up about 23% year-over-year. Last quarter, they were up a little over 30% year-over-year. And I think that really reflects a greater client willingness to hire talent directly.

In addition to this, our teams are experiencing a lot more counteroffers today than what we were experiencing even a year ago. Along with consultants receiving multiple offers.

So while that creates challenges, it's actually very positive challenges and the kind of challenges that our team is very well equipped to deal with. So I do believe we have an overall backdrop that is also improving for us in addition to the execution points that Dave had touched upon.

Joshua Chan

Okay. That's really helpful color. I appreciate that. And then maybe one on the guidance. I guess, I know December is always a tricky month to predict. So I guess what does the guidance assume in terms of sort of the momentum into December and into the holidays?

Jeffrey Hackman

Yes. And Josh, this is Jeff. I appreciate chatting with you again this quarter. we've got visibility, Josh. I think the -- certainly, the Christmas holiday and the New Year's falls at a weekend. We've certainly got a lot of experience in navigating through the holidays. Those are, to your point, always a bit tricky and uncertain -- we have taken into account all of what we would know to take into account from a fourth quarter perspective.

When you look at our guide at the midpoint in our technology business, it's up overall, we said in the script, 2.7%. Our technology business is expected to be up at the midpoint about 3%. As you look back to the fourth quarter of last year, we delivered 3% per billing day sequential growth. And last year, what we saw was somewhat similar to what we started seeing in the third quarter of this year.

Mid-August through the end of the quarter, and it was particularly strong. October started off very well last year and this year. Last year, as you remember, Josh, the momentum that we built went through the Thanksgiving Day holiday and went through the first week in December. Time will tell whether we see a repeat of last year. But we've taken into account our certainly our recent trends and as best as we can tell what we expect from a fourth quarter standpoint.

Operator

The next question comes from the line of Tobey Sommer with Truth Securities.

Tobey Sommer

I wanted to ask a question about the path towards an 8% EBIT margin as we get back up to prior revenue levels. Do you expect the margin expansion to be evenly or just portionally driven by gross margin versus G&A leverage?

Jeffrey Hackman

Yes. Tobey, it's Jeff. I think you're going to have a little bit more of a linear equation when you look at the gross margin and the Flex margin contribution towards that. Dave Kelly touched upon our continued strategic drive of a healthier business mix more geared towards our consulting solutions and more geared towards our nearshore and offshore business. Each one of those has significantly higher overall Flex margins that we have been driving, and I would continue to expect us to drive that into the future. .

We've talked about SG&A leverage. We certainly expect the benefits from our Workday implementation. I would imagine that's going to be a little bit more of a step function into it as opposed to a linear equation. I mentioned in my prepared remarks that we would expect to start to work into those benefits towards the end of 2027 and then more fully into 2028.

And then, of course, Tobey, between now and the $1.7 billion to get the natural lift from a scale perspective. So those three components, and I would tell you, the productivity comment that I made from earlier in addition to our Workday, we are constantly trying to look to give our people the tools and the technology to position them for the most success in driving productivity. So those are some of the components, I would say, the only one that's more of a step function versus linear would be the benefits that we expect from our work to implementation. Hopefully, that helps, Tobey.

Tobey Sommer

It does. In the F&A business, do you have an opportunity to leverage your offshore presence in an equivalent fashion to technology? Or is there -- are there elements of that, that are different?

David Kelly

Yes, Tobey, this is Dave. No, not nearly to the extent when you think about our technology business and those are much more larger for us, larger project-oriented blended models that's what has led itself to the use of our offshore. Our F&A business is less of that type of business. So it's probably smaller assignments at clients. maybe a little bit shorter duration assignments as well. So it is not expected, at least at this point to utilize a lot of the offshore. That we're building.

Joseph Liberatore

Yes. The key is we're not doing BPO type oriented work, which is where you'd really see that come into play from an FA standpoint. And as David mentioned, remember, going back to one of our key drivers of going to India is because we saw more of this need for blended teams, a combination of onshore, nearshore, offshore teams for a variety of reasons.

One of those is access to talent, which is obviously why we're in India because of the access to the talent pools, especially from an AI standpoint in comparison to where the U.S. talent pool is at this point in time. So those are really the drivers, not necessarily in support of the FA business because, again, this went back to the solutions-oriented the types of projects that we are working on.

Tobey Sommer

Great. And then last question for me is like from a visibility perspective and assignment length perspective when you blend in your exposure offshore, how is that trending? And do you have momentum into sort of visibility of that project duration elongating?

Jeffrey Hackman

Tobey, this is Jeff. Yes, it's been pretty stable. Of course, we've talked in the past that our consulting solutions offering has longer overall assignment lengths -- the business that we have offshore is predominantly supporting our consulting solutions offering as well. So there's a little bit of a mix benefit there.

But overall, Tobey, when you look at the visibility in the business has been very, very stable, if not slightly elongating but nothing meaningful that I will call out.

Operator

We have reached the end of the Q&A session. I will now turn the call back to Joe Liberatore for closing remarks.

Joseph Liberatore

Well, thank you for your interest and support of Kforce. I'd like to express my gratitude to every Preserve for your efforts. And to our consultants and clients for your trust and faith in partnering with Kforce and allowing us the privilege of serving you. We look forward to talking with you again after fourth quarter of 2026. Thank you.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.