케이포스(KFRC) 2026년 3분기 실적 발표회: 기술 부문 성장 가속화, 4분기 가이던스 제시

핵심 요약

• Kforce는 2026년 3분기 매출액이 전년 동기 대비 7.5% 증가한 3억 5,780만 달러를 기록하며 경영진이 제시했던 가이던스 상단을 상회했다고 발표했습니다.
• 인공지능(AI), 데이터, 디지털, 클라우드 및 플랫폼 엔지니어링 전반에 걸친 광범위한 수요에 힘입어 테크놀로지 부문 매출은 영업일수 기준 전년 동기 대비 7.8%, 전분기 대비 2.5% 증가했습니다.
• 희석 주당순이익(EPS)은 회사 소유 생명보험 정책에 따른 이익 0.12달러를 포함해 0.90달러를 기록했습니다. 이 이익을 제외하면 EPS는 전년 동기 대비 약 24% 개선되었습니다.
• 매출총이익률은 전년 동기 대비 50bp 상승한 28.2%를 기록했으며, 테크놀로지 플렉스(Flex) 매출총이익률은 강화된 청구-지급 스프레드, 가격 규율, 고부가가치 사업 믹스가 의료비 상승을 상쇄하면서 60bp 상승했습니다.
• 경영진은 2026년 4분기 매출액 가이던스로 3억 5,200만 달러~3억 6,000만 달러, EPS 가이던스로 0.62달러~0.70달러를 제시했습니다. 중간값 기준으로 매출액은 영업일수 기준 전년 동기 대비 7.2%, 전분기 대비 2.7% 증가하는 수치입니다.
• 경영진은 사업 믹스 개선, 규모의 경제, 영업 레버리지에 힘입어 연간 매출이 17억 달러 수준으로 회복될 경우 Kforce가 최소 8%의 영업이익률을 달성할 수 있을 것이라는 확신을 유지하고 있습니다.

주요 재무 데이터

사업 및 영업 실적

테크놀로지 부문이 핵심 성장 동력 역할을 지속했습니다. 경영진은 지난 4개 분기 동안 구매 패턴이 개선되었으며, 컨설팅과 전통적인 인력 증원 매출이 모두 증가했다고 밝혔습니다. 컨설팅 솔루션은 지난 수년간 연간 10% 이상의 성장률을 기록해 왔습니다.

수요는 여러 산업 및 전문 직무 전반에 걸쳐 광범위하게 나타났습니다. Kforce는 특히 금융 서비스, 도매업, 전문 및 비즈니스 서비스 부문에서 강세가 두드러졌다고 강조했습니다. AI 관련 데이터, 디지털 및 클라우드 프로젝트 활동이 지속적으로 증가했으며, 플랫폼 엔지니어링 직무 및 프로젝트에 대한 수요 역시 늘어났습니다.

컨설팅 솔루션은 이번 분기 신규 계약 수주액이 역대 최고치를 기록했으며, 수주 잔고(파이프라인) 전환율도 사상 최고 수준을 달성했습니다. 경영진은 AI 관련 파이프라인이 전년 동기 대비 약 20% 증가했다고 설명했습니다. 컨설팅 솔루션의 서비스 제공 모델은 푸네 딜리버리 센터를 포함해 온쇼어, 니어쇼어, 오프쇼어 인력을 결합한 구조입니다.

계절적 비수기인 7월 이후 사업은 성장에 가속도가 붙었습니다. 영업 전반의 활동과 전환율은 8월에 개선된 뒤 9월과 10월까지 견조한 흐름을 유지했습니다. 또한 경영진은 이직률 상승, 카운터오퍼(대안 제안) 증가, 복수 합격 사례 확대 등을 테크놀로지 노동 시장이 더욱 건강해졌다는 신호로 언급했습니다. 3분기 고객 전환율은 전분기 30%를 소폭 상회하는 성장에 이어 전년 동기 대비 약 23% 증가했습니다.

Kforce는 수요가 역량을 초과하는 시장을 중심으로 영업, 채용, 컨설팅 인력을 선별적으로 증원했습니다. 경영진은 이는 전면적인 채용 급증이 아닌 목표에 맞춘 인력 충원이라고 설명했습니다. 회사는 AI 기반 내부 툴과 기존 역량을 통해 향후 추가적인 생산성 향상과 영업 레버리지를 창출할 수 있을 것으로 기대하고 있습니다.

경영진 가이던스

Kforce는 2026년 4분기 매출액으로 3억 5,200만 달러~3억 6,000만 달러, 희석 EPS로 0.62달러~0.70달러를 예상합니다. 4분기 영업일수는 62일로 2025년 4분기와 동일하지만 2026년 3분기보다는 2일 적습니다.

가이던스 중간값 기준으로 경영진은 매출이 영업일수 기준 전분기 대비 2.7%, 전년 동기 대비 7.2% 증가할 것으로 기대합니다. 테크놀로지 매출은 중간값 기준 영업일수당 전분기 대비 약 3% 성장할 것으로 예상됩니다.

이 전망치는 안정적인 경영 환경, 약 28.7%의 실효세율 및 일회성 항목의 부재를 가정합니다. 경영진은 청구-지급 스프레드가 전분기 대비 대체로 안정적으로 유지될 것으로 보지만, 연휴 기간 유급 휴가 증가라는 통상적인 계절적 요인으로 일부 상쇄될 것으로 예상합니다.

2026년 이후를 보면, 경영진은 컨설팅 솔루션과 오프쇼어 딜리버리가 추가적인 매출총이익률 창출 기회를 제공할 것으로 기대하고 있습니다. 현재 추세가 계속된다면 2027년 판매관리비(SG&A) 증가율은 매출 증가율을 하회할 것으로 예상됩니다. 워크데이(Workday) 도입 효과는 2027년 하반기부터 본격화되어 2028년까지 확대될 것으로 예상되나, 2027년 초 출시 초기에는 현금 유출이 없는 감가상각비가 우선 증가할 예정입니다.

리스크 및 주시할 항목

• 경영진은 노동 환경에 대해 혼조세를 보이고 있다고 평가했습니다. 테크놀로지 분야 실업률은 약 2.9%로 비교적 낮은 수준을 유지했으나, 최근 고용 데이터에서는 정보 및 전문 서비스 부문의 일자리가 소폭 감소한 것으로 나타났습니다.
• 고객사들이 테크놀로지 지출에 있어 여전히 신중한 태도를 취하고 있는 가운데, 지정학적 긴장, 금리 인상, 글로벌 에너지 시장의 변동성이 불확실성을 가중시키고 있습니다.
• 의료비용은 분기별 예측이 어려울 수 있으며, 3분기에는 소폭 상승했습니다.
• 연말 휴가철 시기는 12월 영업 활동, 유급 휴가 및 4분기 현금흐름과 관련된 불확실성을 높입니다. 또한 연간 성과급 지급 역시 4분기에 실행됩니다.
• 영업활동 현금흐름은 대형 고객사의 일시적인 대금 지급 지연으로 영향을 받았으나, 경영진은 해당 대금이 10월 초 수령되었으며 매출채권 포트폴리오도 견조하게 유지되고 있다고 밝혔습니다.
• AI가 코딩 작업의 상당 부분을 자동화할 수 있습니다. 그러나 경영진은 유연한 테크 인력에 대한 수요가 전반적으로 줄어들기보다는 AI를 비즈니스 프로세스에 통합할 수 있는 시니어 전문가 및 전문 인력 중심으로 이동할 것이라고 판단합니다.

애널리스트 Q&A 주요 내용

수요 회복 및 시장 점유율: 경영진은 성장의 원인으로 시장 수요 개선과 회사 자체의 실행력을 모두 꼽았습니다. 지연되었던 테크놀로지 프로그램이 재개되고 있고 AI 관련 투자가 늘어나고 있으며, Kforce는 전체 시장 전망치를 상회하는 자사의 성장이 시장 점유율 및 고객 점유율 상승을 의미한다고 보고 있습니다.

수익성(마진) 확대: 컨설팅 프로젝트는 일반적으로 인력 증원 프로젝트보다 400~600bp 높은 마진을 가져옵니다. 경영진은 컨설팅 솔루션, 니어쇼어 및 오프쇼어 딜리버리로의 지속적인 전환이 가격 규율과 결합되어 향후 추가적인 마진 개선을 뒷받침할 것으로 기대하고 있습니다.

영업이익률 8% 달성 경로: 회사는 사업 믹스 개선에 따라 매출총이익률 확대가 비교적 안정적으로 진행될 것으로 예상합니다. 판매관리비(SG&A) 레버리지는 매출 규모, 생산성 향상 및 고정비 흡수를 통해 나타날 것이며, 워크데이(Workday) 효과는 2027년 하반기부터 나타나 2028년까지 더욱 두드러진 개선을 이끌어낼 것으로 기대됩니다.

컨설팅 매출 전환: 사상 최고치를 기록한 계약 수주액은 향후 수 분기에 걸쳐 매출로 전환될 것으로 기대됩니다. 경영진은 딜리버리 단계에 진입하는 일부 프로젝트가 1~2분기 동안 검토 과정을 거쳤으며, 이는 2027년까지 지속적인 모멘텀을 뒷받침한다고 밝혔습니다.

현금흐름: Kforce는 4분기에 플러스 영업활동 현금흐름을 예상하고 있습니다. 다만 경영진은 연간 인센티브 지급 및 기타 계절적 요인으로 인해 4분기가 역사적으로 현금 창출액이 적은 시기라고 당부했습니다.

실적발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

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.

질의응답

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.