Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Q4 2019, K Force Inc. earnings Conference call.
This time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your Speaker today Mr., Michael Blackman, Chief Corporate Development Officer. Thank you. Please go ahead.
Good morning, before we get started I would like to remind you that this call may contain certain statements that are forward looking statements are based upon current assumptions and expectations and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in tape versus public filings and other reports and filings.
With the Securities and Exchange Commission, we cannot undertake any duty to update any forward looking statements I would now like turn the call over to David Dunkel.
Women and Chief Executive Officer, Dave. Thank you Michael you can find additional information about this quarter's results in our earnings released in RCC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our web site.
Unless otherwise indicated or commentary relates to results from our continuing operations.
I'd like to begin by providing some commentary in 2019 in the activities completed to position our firm for significant future success.
Last year with the successful divestitures over kgs and trauma affects businesses.
We completed a multiyear effort to exit all noncore businesses and focus our offerings solely on the domestic technical and professional staffing and solutions markets.
The completion of these efforts positions us to allocate our investments and dedicate our resources the growing our footprint and service offerings in technology and areas within finance and accounting, which complement the massive data.
Digital transformation efforts, taking place within all organizations.
These combined segments make up one of the largest and arguably more strategic investments to the long term success of organization served by specialty staffing and solutions bars.
Technology now comprises nearly 80% of overall revenues.
Clients looking to meet their talent needs and technology are looking for partners that are able to provide resources at scale across a diverse range of skill sets and project management modest across multiple geographies and with a focus on compliance.
Built a business that is able to do just that without distraction and it is helping us to increase clients in market share.
Our shareholders gains immediate benefit from the 2019 divestitures.
Our repurchase approximately 13% of outstanding shares utilizing the approximately 102 million of net proceeds derived from the transactions.
We were able to recapture all of the earnings per share loss from the kgs operations through the EPS accretion of the share repurchases by the end of the year, resulting in a highly focused more profitable from going forward.
Additionally, in 2019, we continue to invest in technology and process improvements aimed at enhancing the experience of our clients and candidates and improving the productivity of our associates.
With respect to our financial performance. During 2019, we were successful at once again driving significant above market growth and our tech watch business, which increased 6.8% over 2018.
Our compound annual growth rate in tech flex revenues over the last 10 years has been 8.5%.
We also significantly improved our profitability in 2019 as demonstrated by 13.4% increase in earnings per share in return on invested capital for the year of approximately 25%.
As we look ahead demand for technology resources continues to be quite strong.
Every organization across every industry is being confronted with imperative to invest and rapidly adopt to ever changing business models, new competitors and the changing preferences of their customers.
Market, leading companies understand the value of a flexible resource model to execute on the project work necessary to address this changing landscape, where specialized skills speed and flexibility are critical without sacrificing quality.
Discussions with many of these companies indicate leveraging flexible resources within their technology teams to meet these project driven needs remains a vital element of their overall top talent strategy.
These companies are also increasingly looking for their partners such as pay for us to both provide the resources necessary to execute on critical projects and to assume a greater role in more complex technical projects that require manage teams and solutions.
Our clients have increasingly expressed the desire to engage with us to serve as an effective more cost efficient alternative or complement to the larger scale integrators as evidenced by our success in recently, winning several strategic engagements.
Growing demand significantly expands our addressable market into the I'd see services market.
Which is significantly larger than the 30 billion dollar domestic technology staffing market.
We believe the SEC the secular drivers of demand in technology have fundamentally change the trajectory and persistence of technology investments and utilization of flexible labor to meet this demand.
Given the strength and these secular drivers we would expect the performance of the domestic technology market to perform well relatively speaking even during adverse macroeconomic environments.
Our confidence in the continued strengthen our business and in our future operating cash flows is further demonstrated by our board of directors approval of an 11% increase in our dividend to 80 cents per share annually effective in the first quarter.
I also wanted to update you on our board of directors refreshment activities.
Over the last five years, we've added three new members to our board and Dunwoody, Randall Mel and Johnson's each bring unique invaluable experience to the board.
These additions have been made knowing three long time board members would at some point choose to step down after long a distinguished tenders.
Last week, John all read Richard coach Arrow, and Gordon Tunstall, each informed the board that there was not stand for reelection at the April 2020 annual shareholders meeting.
These three outstanding individuals have been critical partners and advisors to our from from its entrance into the public markets through all stages of its growth.
We have been very blessed by their service and they will be missed.
However, the additions we have made results in a more diverse and independent board that should serve shareholders well in the upcoming years.
We are looking forward to celebrating our twentyth year as a public company.
As a moment of reflection, our total shareholder returns since going public has been approximately 1200% roughly two and a half times greater than the Russell 2000 over the same period.
Given that we're in the early innings or the massive digital transformation of the U.S. economy. We believe the future of K force has never been brighter.
Ill now turn the call over to Joe Laboratory, President, who will give greater detail into our operating results and trends and then Dave Kelly CFO well that further color in fourth quarter results, our intentions with use of cash proceeds and provide guidance on Q1 Joe.
Thank you, Dave and thanks, All you for your interest in K Force.
Before I begin discussion on our fourth quarter results I'd like to Echo Daves comments, and specifically congratulate and thank our team on the progress we've made over the course in many years.
We've built a platform team and client portfolio that should allow us to consistently outperform our competitors and meeting client needs for technology, and key finance and accounting talent across industries and skill sets.
We believe that focus will win in the future where the war for top talent is intense and the demands of the clients are growing significantly given the strong secular drivers.
As it relates to our fourth quarter performance.
Total revenues of 336.2 million or within a range of guidance, but certainly below our expectations due to a number of factors that are numerate throughout these remarks.
Let me begin the quarter, we discussion by providing some details about the performance in each of our business lines.
Our technology business continues to be our growth driver and now has exceeded the market growth rate for the ninth consecutive quarter in the fourth quarter, our technology Flex business grew 4.8% year over year.
The operating trends in this business sustain the strong trends we experienced in Q3 through October and the majority of November However, as we entered the holiday season, we saw a significant increase in year end planning activities by some of our large clients both to minimize fourth quarter expense and also.
Secure crucial talent for the upcoming year.
Specifically.
We saw a more significant furlough activity than we had anticipated coupled with a spike in conversions, which were almost 50% greater than the already elevated levels experienced in the fourth quarter of 2018.
We also experienced some client specific consult and then at levels, we hadn't anticipated, particularly in the financial services industry vertical.
These factors negatively impacted tech flex performs in the corner and also reduced the base of billable consultants on assignment is coming into the new year, which consequently will negatively impact first quarter revenues.
As it relates to our portfolio management strategy. We believe our continued focus on diversifying our activities beyond our largest clients, but within our existing client base, which includes relationships with roughly 70% of the fortune 500 is the right that.
These companies continue to be the largest consumers of technology talent and have been driving our growth.
The growth in these clients during 2019 allowed us to continue to generate above market growth rates, even while some of our largest clients have experienced declines.
With respect to the industries, we serve.
We are well diversified within our portfolio.
We experienced year over year growth in eight out of our top 10 industries with particular strength in business professional services insurance manufacturing products and healthcare.
However, we experienced broad weakness in our financial services vertical which was down approximately 5% year over year.
Overall average bill rates and technologies increased 3.5% year over year, but were stable sequentially.
Our strong relationships the nature and quality of skilled technology talent, we provide our clients and the way in which technology projects are executed is contributing to a higher average duration of client assignments, which is nearly 10 month.
We believe this trend may remain at historic high levels due to the scarcity of supply and the growth we are experiencing and higher value add manage teams and solution projects, which continue to grow faster than our core tech flex business.
Given the trends we experienced late in the quarter, we expect that year over year growth rates in our tech flex business may decelerate slightly from fourth quarter 2019 levels as we continue repositioning resources declines demonstrating ongoing high levels of demand.
All right they flex business declined 7.6% year over year.
Trends in this business were stable from Q3 to Q4 as revenues grew sequentially on a billing day basis for the second consecutive quarter.
However, a discrete project in the fourth quarter last year to support Hurricane relief efforts, which distorts year over year trends and drove a higher year over year decline did not reoccur this year.
The market for half a flex business continues to be stable and we expect year over year declines to decelerate into low single digits in the first quarter of 2020.
Direct hire revenue decreased 6.6% year over year, primarily as a result of seasonal declines our direct hire business continues to be an important capability and ensuring that we can meet talent needs of our clients through whatever means they prefer.
We have typically experienced the sequential improvement in direct hire revenues in the first quarter.
However, initial trends to the started the quarter have been softer than expected.
We believe this is partially due to the timing of the holiday, but also due to the continued tightness of the labor markets were highly skilled professionals have many options and are receiving multiple offers and heightened levels of counteroffers.
We continue to make significant technology and process investments in order to drive further improvements in our associate productivity.
We are particularly focused on our new talent relationship management system.
Which we expect will be available to our associates midway through 2020.
We also continue to make technology investments focused in areas that improve the interaction with an experience of our candidates with the goal of more effectively and efficiently sourcing qualifying matching deploying and retaining talent.
We continue to drive productivity improvements.
And a reduced level of turnover in our technology business, which has allowed us to accelerate revenue growth, while maintaining a relatively stable level of sales and delivery associates.
We expect this trend to continue and believe we have significant capacity available to drive further growth.
We don't expect to make material additions to head counts beyond specific areas, where productivity levels are extremely high and building further capacity is warranted.
Our simplified business model client portfolio and focused service offerings has is well positioned for long term growth.
Our focus on the relationship with our clients and candidates as well recognized as we continue to carry a world class net promoter score from our clients and glass doors highest rating within our industry.
I appreciate the trust our clients and candidates at placed in K for us and our team's efforts in driving the from forward.
Ill now turn the call over to Dave Kelly Cape worse, as Chief Financial Officer provide additional insights on operating trends in expectations Dave.
Thanks, very much Joe.
Revenues of $336.2 million in the quarter grew 1.8% year over year and earnings per share from continuing operations of 66 cents grew 22.2% year over year.
Our gross profit percentage in the quarter of 29.2% decreased 40 basis points year over year as a result of a lower direct hire revenue mix and the decline and our flex gross profit percentage.
Our flex gross profit percentage decreased 20 basis points year over year as it relates specifically to the tech flex business. The year over year 20 basis point decline is the result of slightly higher health care costs Bill pay spreads in this business have been stable over the past year, due primarily to diversifying and expanding relay.
I should chips outside of our very largest client. This next year clients typically has a more attractive margin profile.
Additionally, revenue from managed services projects, which also have a more attractive margin profile is also increasing.
The 20 basis point decline in Epay flex margins is being driven by slightly lower spreads.
Looking forward, we expect continued success in both our portfolio management activities and the growth in revenue from managed services project.
We expect these efforts to result in stable Tech flex margins prospectively exclusive of seasonality impacts.
Specifically in the first quarter, we expected overall flex margins will be negatively impacted by approximately 110 basis points relative to Q4 due to seasonal payroll tax resets.
We've been able to maintain a consistent level invest DNA dollar spent year over year and drive operating leverage while growing revenues and significantly increasing technology investments.
This is the result of continuing to drive operating efficiencies and improving the productivity of our associates SGN as a percent of revenue declined 50 basis points year over year.
Our fourth quarter operating margin of 5.8% was on track with our operating margin objectives. During this economic cycle. Our gross margins have declined by approximately 200 basis points due to a decline in both the percentage of direct hire business and compression in our flex spreads. Despite this compression operating margins if impact.
Fruit nearly 400 basis points, which reflects our success in deepening relationships in our existing client base, while aligning our infrastructure to optimize efficiency in serving these large complex clients.
Our effective tax rate in the fourth quarter was 20%, which was consistent with our expectations. The fourth quarter included a tax benefit related to the vesting of restricted stock of approximately $1.1 million, which reduced the rate in the quarter by approximately 600 basis points.
The incremental benefit year over year basis was driven by the 31% increase in K forces stock during 2019.
Due to divesting schedules of our long term incentive grants the impact of this discrete adjustment is or isn't reflected almost entirely in the fourth quarter of each year.
Our business continues to generate significant operating cash flows which were $20.1 million in the fourth quarter, we repurchased 700000 shares of K for stock in the quarter for $26.5 million. This repurchase completed the deployment of the $102 million and net proceeds from from the kgs.
Divestiture more quickly than we'd anticipated as a result, as we look forward, we've been able to fully replace the EPS generated from kgs operating performance with EPS accretion from the repurchases.
For the full year 2019, our operating cash flows coupled with the cash proceeds from my divestitures allowed us to returned nearly $135 million in capital to our shareholders through share repurchases and cash dividends and also reduce net debt by $26.6 million.
Our net debt at the end of the fourth quarter was approximately $45 million or approximately 0.5 times trailing 12 month EBITDA.
The strength of our balance sheet healthy operating cash flows low capital requirements and $300 million credit facility provide us maximum flexibility to both pursue strategic acquisitions that enhance our service offerings and also returned capital to our shareholders.
There are 64 billing days in the first quarter, which is two days more than Q4 is one day more than the first quarter of 2019.
A single billing day equates to roughly $5.4 million in revenue.
With respect to guidance, we expect Q1 revenues to be in the range of 333 million to $339 million and for earnings per share to be between 43, and 47 cents gross margins are expected to be between to be between 27.7% and 27.9%.
While flex margins are expected to be between 25.6% and 25.8%.
SGN as a percent of revenue is expected to be between 22.9% and 23.1% and operating margins should be between 4.3% and 4.5%.
Weighted average diluted shares outstanding are expected to be approximately 22.2 million.
We anticipated effective tax rate is 26.5% in the first quarter.
As a reminder, the first quarter operating margins are typically impacted by approximately 150 basis points due to seasonal impacts of annual payroll tax resets. This also impacts earnings per share by approximately 17 cents.
As we mentioned in prior calls we anticipated approximately two cents impact related to our share quarterly losses from the work Lima joint venture. We established in June of 2019, we anticipate that our share of the losses in this joint venture should approximately approximate these levels over the next several quarters. These costs are reflected.
In other expense on the income statement.
Our guidance does not consider the effect if any of charges related to any one time costs cost or charges related to any pending tax or legal matters. The impact on revenues of any disruption in government funding or the firm's response to regulatory legal or future tax law changes.
During the last decade, we've grown revenues in our continuing operations at a compound annual growth rate of 8% and growing earnings per share at a compound annual rate exceeding 20%.
Over the same time period, we've repurchased a total of $467 million in stock and an average cost of $19 in 10 cents and also returned $120 million to shareholders through our dividend program.
As Dave mentioned, our board approved an 11% increase in our quarterly dividend effective in the first quarter, which will return anticipated quarterly cash outlays for dividends to levels approximating those experienced prior to our share repurchases this year and bring the dividend yield to approximately 2%.
While we were particularly pleased with for fourth quarter operating results, we understand the unexpected volatility will periodically occur in client spending in talent acquisition patterns.
We remain confident however in the overall strength of the market, our strategic direction and our ability to sustain above market growth rates and continue to improve profitability.
We expect 2020 to be another strong year for K force and for growth to accelerate as the year progresses. We are poised to take advantage of our competitive differentiators and focused put in focus footprint, our future prospects have never been brighter.
Jimmy I think we're now ready to open the call for questions.
Thank you as a reminder to ask a question you will need to press Star then the one key on your touched on telephone to withdraw your question press the pound key.
Please stand by what we can pile the culinary roster.
Our first question comes from Tobey Sommer with Suntrust. Your line is now open.
Thank you.
Within the Tech Flex business could you quantify the impact of elevated furloughs and conversions on the rate of topline growth.
Hi, Tobey this is Dave Kelly.
I don't have the precise number I would tell you that as we have in the past, we typically get furloughs late in the year, but they certainly were magnified. This year I think we probably because of how the holidays fell.
The fact that both Christmas New years was on Wednesday, we had a very short period of time between Thanksgiving. So I would tell you we anticipated some furloughs, but I mean, I think materially more than we would have anticipated. Additionally, as we talked about I think really important that talks about demand for tech talent, Joe talked about the elevated level.
Furloughs Im sorry of conversions that we saw you combine those things, we're probably talking about collectively somewhere $5 million to $8 million more than we had anticipated.
Thank you.
And then I wanted to ask a question on the managed services.
Sort of margin differential is there in that part of your business versus the rest of the book and as you.
Think about you're hitting your target over a multiyear period.
Are you going to be able to comp set organically or is it going to require some acquisitions. Thanks.
Hi, Toby so.
Let me start with the backend in Java, Joe elaborate after if he wants to so clearly this is a.
An important part of our business, it's been growing in well in excess of all overall tech flex rates I.
I think we've said in the past that.
These accelerated growth rates, we think we can read some of the targets that we have internally organically, but but as we think about acquisitions and our focus it clearly is in this area not necessary, but potentially additive.
In terms of the margin profile as you'd expect I.
I guess number one first of all these are longer term assignments generally speaking so good for the overall stability in the revenue stream I think important to note there more sophisticated project. So so bill rates are strong in these in these.
And these projects if we kind of look at what we've done so far.
Hard to measure project by project, obviously, there are different but the margins tech flex margins or at least 300 basis points better on average than the typical tech flex staff augmentation.
A project that we would have.
Thanks, and last question I'll get back in the Q.
Last quarter, you gave us kind of an illustrative view of.
A little bit longer term not necessarily guidance, but kind of a cadence.
Are you still comfortable with the.
6%.
Rate of growth or better over a longer stretch of time in tech flex.
Hi, Tobey this is Dave again, yes, I appreciate that yes, so Joe as a reminder, obviously, we wanted to kind of bring some better understanding on a on a quarterly basis to what the impacts of the seasonality of our business were and as to your point give you some reflection of what.
What we believe is a very strong environment and tech flex. So I'll remind you Dave's comment I think over the last decade, our compound annual growth rate.
In an environment that continues to evolve and continues to require more teck resources has been a behalf percent. So.
Do we think on a sustained basis, 6% is a reasonable number do expect from US clearly history says history suggests that it in so we feel very good I had mentioned, we think as the year goes by we will see improvement in our growth rates in tech flex again because of demand environment because of the skill sets. We deploy so that's still feel very good.
Confident about the market and our prospects.
Thank you.
Thank you. Our next question comes from Marc Mcconnell with Baird. Your line is now open.
Good morning, Thanks for taking my questions.
Just to start.
At the fourth quarter, when we started seeing.
Elevated level of conversions, how broad based was that.
Yes, Mark This is Joe Laboratory I would say it it's broad based but it was very highly concentrated in what we call our enterprise clients, which are some of the largest consumers in this space, we definitely saw a much more elevated levels taking place within those customers.
In fact, we just came out of one of our quarterly reviews with one of those key customers and they actually made the statement that they converted more people than they have ever done in the past in the in Q4. So we saw that across a number of key customers, we called out specifically our financial services that we also did see.
But in certain other large clients as well.
Joe what was the underlying rationale that they provided I mean, I've got my suspicions, which.
Obvious, but just wondering what they were articulated and then what are they articulating in terms of.
Thoughts about the same level of activity going forward.
Now I'd say the real the key the key driver too it is that the nature of this cycle and that really the secular aspects associated with the engagements that they're deploying this alan on.
They proceed the long term need for the talent. So as people have been in there on contract and Theyve gotten to know the organization. The organization has gotten to know their capabilities are there basically securing the talent from a long term standpoint, and I'd say, even we see this happening within the financial services and it's been out.
There were certain.
Executives in financial services, stating that they are preparing for imminent recession at some given point in time I believe as I read through those tea leaves with they're saying is we're going to need these resources irrespective of what happens in the market. So even in a recessionary period, they're gonna have to continue to deploy.
Those applications that are customer facing our consumer driven to stay competitive with traditional and non traditional players. So I think thats, playing a big big part in that.
If that continues and that it goes.
Potentially increasing rate.
To what extent is that end up.
Making it more difficult to achieve.
X percent.
Longer term growth rate.
Yes, we feel we feel confident with the 6%, 6% what we're seeing partially happening here Mark is basically things are moving from a from a direct hire where you would typically see that into direct hire to these write to higher or conversions. So it's kind of its just moving from one bucket to the other bucket doesn't change.
Changed the overall demand within this space.
So we don't really have concerns about that I have we've been stating this bird the better part of the last three or four years. It was probably about four years ago, where we saw conversion levels, our store to escalate higher than what we had experienced in the past the neighbor remained at those levels. This Q4 in particular, which was as David as I'd mentioned.
50% higher off for us than we experienced last year and that was very specific to certain certain clients and their talent strategy. So I wouldn't extrapolate that that was something that was broad based across the entire sector.
Yes, I would add mark just a little bit more colors. So during the cycle just generally.
Obviously, we've seen a fair amount of conversion activity consistently this was as Joe said, a heightened quarter here, but even with that elevated relative to last cycle conversion activity as I mentioned, our tech flex growth rates are still.
Our still half percent.
Additionally, as we talk about lengthening assignment and.
We also talk about some some of the individuals that we might have an assignment that are more difficult to can convert I think frankly, we feel very good about the sustainability of the revenue stream.
Of course clients are going to war on talent, but being able to outrun that.
We've got a high degree.
The last piece that I would add onto that market I've mentioned this in the past having entered this industry really on the direct hire front back in 1988.
There is no greater complements we got them when a consultant converts the full time employment with an organization because that means our people are living out our mission our vision that we're getting the right people with the right organization. So while there are some near term pain associated with losing that billable.
The long term gain to the organization by having an ally inside the organization and somebody that we fell further their career and also solve a client problem I mean, it's.
It's well worth the near term pain associated with that from from how it plays out in terms of what we're doing for People's careers.
That's great perspective.
With regards to.
You know the.
Talent management system.
It's going to be deployed.
Can you talk a little bit about the productivity gains and also.
Potential expense savings that you may end up getting as well.
You're thinking about that.
Yes, I will touch upon the productivity and then I'll hand, it over to Dave to talk about from the expense standpoint.
In reality, what we're doing here as we're moving into completely digitizing.
How we're interacting with our clients in candidates within our our talent relationship management this kind of mirrors, what we've done.
From a client relationship management. So it allows us to kind of bring that holistic solutions to the table. So what we foresee over time as with the technology will allow us to do is to leverage those things that technology is capable of accelerating so that our people can spend much more of their time focused on the relationship.
Aspects of the business the things that only people can do especially in the employment space, which is highly complex as people are navigating their careers. So when it comes to things such as identification of talent when it comes to matching in those types of things, that's where we see on a lot of operate.
Community for technology to come into play out to drive efficiencies and productivity for our individuals so that they can focus in on working with people through the more complex.
Women interaction relationship aspect that that take place through really any type of employment, whether it be temporary employment or from a full time direct hire standpoint.
Yeah, Mark This is Dave Kelly, So let me start when you talked about expense by.
Starting with the end, which is we've made operating margin commitments with the full expectation that these technology investments are going to continue to drive increasing productivity and therefore, increasing operating margins, who they're already baked in to the expectations that we've had and we know that because over the course in last few years.
Cemented.
RM were in the process of making other technology investments inclusive of this PRM and those are currently driving the beginning part and productivity improvement so.
These are SaaS based licenses, they're being baked in to SGN, a but SGN a staying flat I think I'd mentioned SGN $8 year over year are flat.
Year over year so.
We feel very confident that we're going to get improved productivity improved efficiency actually SGN a dollar as a percentage of revenue are going to go down overtime even.
Even with these incremental costs.
And EPS, obviously is going to continue to improve so this is all part of a long term strategy no different than what we've been talking about from last few years.
Okay. Thanks, Thanks for confirming.
I was assuming that the cost would go down overtime and the efficiencies would have otherwise you would be put again and I was just wondering if you were running like tool costs and if there was any going to be in sort of step function.
In terms of alright, once the implementations Don.
In the old systems off and everybody's on.
But there will be a step function. So that's why I'm just trying to get that.
Okay.
With their potentially be any sort of step function ones.
Completions Doug.
The step this step function that you would see there that that would basically improved operating leverage in comparison to cost is going to come through acceleration of productivity.
Because of the nature of how systems have changed from there really being a capex item.
Everything migrating to more SaaS licensing because realize what we're doing with our TRL I missed the CRM is just the core platform that platform now allows us to plug in a lot of innovative technologies that are evolving in the marketplace, which will then kind of be accelerators to productivity gain opportunities.
For our associates.
Great.
And David in your opening comments.
It did seem like you were.
Talking a little bit more about.
Potentially.
Already been doing things in terms of managed services.
Potentially looking at.
Acquisitions can you just give us given the the wide experiences that you've had.
And all the lessons learned over there.
Decades, like what are some of the ideal characteristics that you would be looking for.
In terms of selecting.
Potential.
Add on to the overall platform.
Actually we were thinking about running a Super Bowl edmar too.
[laughter].
Kind of way I wonder how many people remember.
We as a matter of record we opened our board meeting with a 20 year.
Look back and ran the Super Bowl.
By the way.
Sorry, it was surprisingly prophetic.
As we looked at the things that we anticipated.
We were reminiscing about how we had division we just happen to mess.
The technology infrastructure that was necessary to deliver on the brilliant strategy that we had we do note that a couple of the firms that were identified in the Super Bowl AD hoc jobs and Monster announced gone.
Who had indicated to us that that we were going to be gone. So.
If we look back on it.
We made our call back and 12 and 13 to to focus on technology domestic tech, we could see clearly the secular shift.
And during that time, we've also seen the migration up with the clients as they are looking to us, particularly with agile methodologies and the other tools that are coming in the speed of of innovation.
To utilize our firm and our services to come upstream.
So as we look at that we've seen the opportunity we've had a very disciplined.
Acquisition strategy over the past several years, we'll point out that we haven't done in an acquisition since 2008.
We've had a very focused effort to accomplish that whole team. We've identified characteristics that we're looking for size that we're looking for skill sets that we're looking for one of the important elements is the continuing contribution from management. We believe we have a great story to tell as we integrate and populate the.
Gil sets into our organization.
Number one considerations culture.
Well the they fit with us so we feel very confident that.
Based on where we are that we will identify something.
But we are going to stay disciplined when we do it so it's going to be additive. It's not something we have to do as we've demonstrated that organically, we can grow and still grow very well.
The growth rates within our solutions and team businesses are growing and substantially faster rates than tech.
And our traditional tech business.
But we do believe that that we will identify something we don't have to do it but we would like to do it.
So all those that are listening on the call that we'd like to join the team we'd be happy to have a conversation.
David and you know culture is pre eminent and obviously strategic fit from a size perspective how.
What's kind of the deal parameter.
We can do depending on pricing of course, we can go anywhere into the business hundreds.
I don't think that we're going to do something in the billions, yet, but that may be coming but certainly in the revenue of area and the hundreds would make sense on 100 plus.
We'd like to get something with enough scale that it would give us a platform.
But at the same time would also allow us to onto to take what they've already done and roll that out to other clients.
With some of the qualifications that theyve already demonstrated so we would bring that also in with our what we've already accomplished which by the way is pretty substantial.
It's amazing to see just how quickly we've been able to the grab a whole to some some very very significant managed solutions kinds of businesses.
Just one markets one of the big Big opportunities is.
Those organizations that we have spoke with up to this point in time.
They see the value being associated with.
Somebody at the scale of the K force and the access to the pedigree client portfolio that our people of nurtured relationships. So you know this is one of those scenarios, where we are looking for one plus one to be much greater than two as we consider those those targets that were pursuing.
Terrific I appreciate the perspective.
Thank you.
Thank you feel better thank you.
Thank you. Our next question comes from Tim Mulrooney with William Blair. Your line is now open.
Good morning, everybody.
Morning.
So in your prepared remarks, you mentioned length of assignment now 10 months and Tech flex.
If I recall correctly not it wasn't that long ago that it was eight months and even six months only a few years ago, what's driving that increase in the length of assignment and what are the implications. If any that has on your financial profile. If it continues to increase.
Yes, I'll address the first part and then I'll let.
Dave Kelly addressed patients on the financials.
From a standpoint of what's driving it it's just the nature of what's happening in business much of the work that we're doing now is focused on the customer facing type applications that organizations are addressing so that they can serve their consumer base.
And they can protect either their footholds relative to organizations that are coming at them from a disruptive standpoint, the non traditionals.
As well as their traditional.
Competitors that are making strides on these front. So we're not the nature of this environment in comparison to like what we saw during a dotcom environment, which dotcom everybody was trying to figure out.
What's this new medium and how my going to do business on this new medium.
Those days are passed and everybody now has that the internet somewhat figured out and what's happening is now. There's these platform plays coming about which is how do I leverage the technology to drive operational efficiencies and improve the customer experience and the customer journey and so we see those is as ongoing and I think thats part of whats dry.
Moving on the duration of assignment is it's moving from one project to the next project to the next project so they're keeping the consultants and basically rolling them from engagement to engagement and engagement. Unlike the past when somebody's implementing an ERP system in somebody might be in there for two years because it was just this.
Massive project that was going on and on and on so I'd say, that's one driver. The other driver is the nature of the types of engagements that we're working with with our end customers, where they're looking for us to take on a little bit more of their responsibility within the engagement also we're moving up that value chain.
And we're playing a different roll on that project versus just putting somebody in a staff bogs spot on a team we're putting in groups of the individuals that are playing key roles in the nature of the project work this tight.
Taking place so it's really when you kind of put those two things together those are some of the market drivers that are really extending those project durations in the third piece of the legged stool is just top talent is not easy to find so when when organizations are procuring top talent and they realized they add that top talent.
They are wanting to hold onto that talent and looking for other opportunities where they can redeploy that talent because they know how difficult. It as you go back out into the market to procure that same level of talent all over again, if they can even get it.
So so Tim before a little on the financials, but first of due to amplify and Joe's point remember our average bill rate of $75. An hour you look across the technology space. Its amongst the highest that is also the place where its hardest defined talent. So the desire for our clients defined in higher paid talent.
Is it is something again I think that differentiates our firm. So that is driving some of that I think tenure increase in terms of what it does from our financials. It I mean again not not surprising is that what you'd expect when you've got lengthening assignments, you've got the opportunity for.
Our associates to work on those those other things rented helps with revenue growth that helps with productivity certainly helps with turnover of our associates I'd helps on many different fronts. So.
I guess, meaning the client's needs our clients were happy we're going to come to US again give us an opportunity because we have access to that top talent for opportunities that others might not see so he's got multiple positive impacts for us.
Got it very helpful. Thank you and good luck is here.
Thank you very much.
Yes.
Thank you and as a reminder to ask a question you will need to press Star then one on your touched on telephone to withdraw your question press the pound key.
Our next question comes from John Haley with Northcoast Research. Your line is now open.
I think you wanted to ask a big picture question.
2019 in Canada, the rear view and then there's a lot of moving parts with weather and client activity and things like that but if you just like to add orders.
Our potential assignments, how would you characterize that growth relative to revenue growth for the company on the I'd like side and in 2019, and maybe how that might compare to the last couple of years.
Yes. This is Joe I would say from an order flow order flow arm has been at elevated levels. As is and has continued to be at elevated levels. In fact as this year started out we saw order flow immediately pick right back up to where it left off so the demand in the marketplace that.
The health of the market.
I've been doing this going on 32 years now.
The closest comparison that I can give in terms of.
This.
Demand environment was the peak of the Dot Com era I as I mentioned earlier I do believe what we're dealing with from a business standpoint today versus dot com is very different because the technology drivers are much more secular versus cyclical or panic driven on like the dotcom laws.
Organizations realize that they need to be making these investments the investments are proven out to be real and obtainable in terms of driving business results. So much different from that standpoint. So we've really seen we've seen no blips that all from an order flow standpoint in demand standpoint.
Great and Thats helpful. And then I'm just a couple of housekeeping questions for me on is there way to think about tax rate for this year as well as potential just.
Capex for this year.
Yes. So John this is Dave Kelly, So capex is going to be about where it has been right. So we typically see about $10 million. The last couple of years, because some of the technology investments that we're making so not meaningful when you think about the cash flows that we generate.
In terms of tax rate I think I'd indicated to you that at the expectation of tax rate in the first quarters 26 and a half.
That is an expectation that I would have.
On a regular basis throughout the year, obviously I mentioned this quarter and we would see the same although to a lesser impact.
Research tax credit in the fourth quarter next year as the next tranche of long term incentives fast, but again I don't think it's going to be a 600 basis point impact, it's probably again it depends on how high the stock as this year as.
As to how big of a difference. It is you kind of look for the full year, you kind of blend the fourth quarter in you're probably looking at closer to 26%.
Okay. Thank you guys.
You bet Thanks, Jeff.
Thank you and I'm showing no further questions in the queue. At this time I will now turn the call back to David Dunkel, Chairman and CEO for any closing remarks.
Okay, great well. Thank you all for your interest and support for K for Us and while we always have much to do again I'd like to say, thank you to each and every member of our field and corporate teams into our consultants and our clients for allowing us to privilege of serving as soon as we've stated we believed that the future for K forces very bright thank you very much.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
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