Q1 2020 Earnings Call

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I would now like to hand, the conference over to the speaker today Mr., David Dunkel, Chairman and CEO. Thank you. Please go ahead Sir.

Good afternoon, I would like to remind you that this call may contain certain statements that are forward looking including statements regarding the impact opportunities and benefits from actions taken related to the cobot 19 X.

Comic and health crisis.

These statements are based upon current assumptions and expectations and are subject to risks and uncertainties actual results may vary materially.

From the factors listed NK forces public filings in the other reports and filings with the Securities and Exchange Commission.

We cannot undertake any duty to update any forward looking statements.

You can find additional information about this quarter's results in our earnings release and our FCC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our web site.

We're all navigating the unprecedented negative impacts of the cobot 19 help prices on the U.S. and global economies.

Beyond the economic impact is the very real and personal human cost, which has taken a measurable toll on global societies and families lost jobs uncertain futures and the ripple effect throughout small and large businesses nonprofits ministries and churches are staggering.

Okay Force, we have endeavor to balance our responsibility to each of these constituencies with a particular focus on our associates clients and consultants.

The sudden and dramatic impact has caused to each of us to reflect and appreciate some of the simpler and more important things in life.

Our families and relationships with each other.

We are forever changed.

I'd like to extend my deepest thanks to my executive team in each of our people, who suddenly had the balance working from home often with their spouses and tight quarters home schooling their children and with restrictions on a lack of support none of us have ever experienced you have been magnificent.

With respect to K forces performance as mentioned on our April Twentyth press release.

Our first quarter results met our expectations for both revenue and earnings per share.

The impact of the crisis in Q1 revenues didn't begin until mid March and was felt most significantly in our epay flex and direct hire businesses.

The ability of a firm to survive difficult times, such as these and ultimately position itself to prosper through dramatic change is directly related to the quality and experience of its management team.

I feel very fortunate to have a leadership team that has navigated multiple previous economic recessions as a publicly traded company.

Our team has successfully navigated through both the early two thousands recession brought on by the Dot Com bust and the 2008 to 2009 great recession.

Our priority during economic downturns has always been to retain our great people.

Maintain important strategic investments in our business. So that we are well positioned to take market share and accelerate growth rapidly as the situation improves.

We are approaching the current situation in much the same way.

Since moving to work from home, we have maintained normal business operations, while taking prudent cost containment measures, including temporarily suspending new hires eliminating discretionary spend and selectively reducing spend in other areas. We are well positioned to navigate through the current period without having to take drastic Act.

Funds to reduce costs or raise capital.

Rather we will continue to manage our business in a disciplined manner as we always have based upon operating trends.

As soon as it became necessary our technology enabled operating model along with investments we have made in cloud based technologies and our battle tested business continuity plans allowed us to seamlessly transition our entire workforce to be remote within 24 hours.

Our people have excelled in this virtual work environment and we are confident they will continue to be successful.

I'd like to thank our associates for their ingenuity and perseverance, all while providing exceptional service to our clients and consultants, while balancing their new responsibilities at home.

While successfully navigating previous difficult periods in each case, we emerged stronger and more focused from due to some key strategic decisions.

Most critical of these decisions was to narrow our focus and shed non core businesses reduce our reliance on direct hire as a percent of total revenue and focus on building a market leading capability to provide flexible technology resources to world class companies.

We expect that the technical and professional disciplines will hold up well. During this downturn has technology professionals are more capable of effecting effectively working remotely and the scarcity of higher and skill sets and technology continues.

We also believe that the current prices has only strengthened the secular drivers of demand and technology as companies assess their digital transformation efforts and evaluate geographical risk and positions in projects being supported internationally.

Our position as a 100% domestically focused organization with 80% of our business being concentrated in higher end technology staffing and solutions gives us great confidence moving forward.

We will continue to place priority and allocating capital to grow our technology business. The focus of our acquisition strategy in the higher end IP services and solutions market is unchanged, though we're being very cautious and don't expect to make any acquisitions in the near term.

Our current priority is to preserve our capital and financial position can while maintaining our dividends.

As we navigate through the rapidly changing landscape, we have already begun planning strategically for the new business models and practices that will emerge.

All of these changes will need to be enabled by technology and require expert resources to execute.

People have embraced work from home and mobility, while at the same time sustaining or increasing productivity.

This together with the use of online tools for collaboration and meetings will alter real estate footprints travel needs and the way we work in the future.

We are accelerating our investment in technology to drive greater efficiencies and enhanced service levels, which we expect to lead the faster growth and improved profitability.

Though these are difficult times, we're excited about what the future holds for our farm.

We continue to place an emphasis and providing a safe and satisfying work environment for our consultants and core employees. We realize they are the reason for our past success and all the key to success in the future.

I will now turn the call over to Joe Laboratory, President, who will give insights into our recent operating trends the impacts and opportunities we've experienced to date from the cobot 19, economic and health crisis and other insights into our operating environment, Dave Kelly CFO will then give greater detail in certain areas and address our cash flow expectations.

Balance sheet position and overall capital position Joe.

Thank you, Dave and thanks, all you for your interest in K for Us.

During the course of my 32 years of K for US we've navigated several economic downturns and taken proactive strategic steps that have strengthened our firm's ability to weather subsequent economic downturns.

Coming out of the dotcom recession, we began evolving and diversifying our target client portfolio by building significant relationships that would strategically position us as a top provider within four to 1000 companies.

Who are the largest uses a flexible technology services.

We now have client relationships across virtually every industry with very little concentration in any one specific industry or client.

To better serve the high volume demand from this client base, we began building out the initial phases of our centralized delivery capability.

We also redesigned our operating model to significantly reduce reliance on direct hire as a percentage of revenue, while making the necessary structural adjustments to overcome the loss of that profitable revenue stream and significantly improve our operating margins.

These adjustments to our model yielded results during the 2008 2009, great recession.

As we experienced revenue deterioration of less than 8% overall and declines in our technology business of only 6.5% in comparison to the overall sector revenue declines in the mid Twentys.

Coming out of the great recession.

We began a strategic journey to narrow focus by shedding non core business.

With limited market size and growth potential and focusing investments in our largest business to take greater advantage of the secular shift in technology demand that was beginning to unfold is all organizations.

Began investing in their digital transformation efforts as new business models emerge.

Throughout the most recent cycle, we continued to experience the acceleration in technology, driven mission critical strategic consumer facing initiatives within world class companies.

We believe our 100% domestically focused service offerings.

In high demand technology, driven skills, which can effectively the performed remotely has positioned us extremely well to navigate these unprecedented times.

Our first quarter and early second quarter trends support this belief.

Additionally, our operating model and centralized delivering capability.

Have allowed us to also support large scale critical government sponsored coded 19 related initiatives.

Which are expected to drive significant project revenue in our at a business.

Let me next discuss the performance of each business line by providing color on first quarter results as well as early second quarter trends.

With respect to our technology business flex revenues improved 3.3% on a year over year billing day basis in the first quarter.

We really didnt experience noticeable impact from Cove in 19 crisis until the last week in March.

On a year over year basis technology Flex revenues were up 3% for the month of March were down 1% for the month of April.

With the last week of April down slightly less than 2%.

As you might expect the significant majority of the declines which occurred in early April.

Were principally concentrated in certain clients in the travel and leisure retail and healthcare sectors, which had been impacted the greatest by the virtual shutdown of travel in store consumer spending and elective medical procedures.

The pace of revenue deterioration has meeting fleet accelerated over the last few weeks.

And it's been more widely distributed both geographically and by industry among clients, where we have less significant relationships.

More recent revenue declines have been driven primarily from those clients choosing not to replace or extend consultants, who assignments are complete rather than ending assignments prematurely.

Starts activity and job order flow seem to stabilize over the last several weeks, though to lower level than prior to the crisis.

These signs point to a stabilizing environment.

And suggest that we may see further deceleration of ends in coming weeks driven by lower attrition of billable consultants due both to the critical nature of their project work and the ability to effectively perform their task to remotely.

We have matured our capabilities to source and deliver diverse skill sets of qualified talent at scale. These large users that have priority needs for large scale talent across the us.

With 80% of our revenue focused in technology, we are well positioned to further evolve our offerings to meet these clients changing needs inclusive of expanding demand for managed services and solutions historically provided by large solution providers.

We strongly believe that companies will look increasingly to firms such as ours, especially during periods of economic uncertainty.

Due to our longevity in the market.

Service offered capability scale geographic presence and financial stability.

The collective combination of these attributes allows us to consistently and constantly meet their needs.

We feel extremely confident in the positioning of our technology business and the ability to expand our market share as competitive disruption in staffing companies emerge with those less capable or financially viable.

The navigate these economic downturns.

Flex revenues within our Epay business were down 3.4% in the first quarter.

We felt the negative impact from the current crisis earlier and more deeply in this line of business.

On a year over year basis.

Flex revenues were down roughly 6.5% for the month of March.

Were down 20% for the month of April.

So much like our tech business the rate of decline is decelerating with the last week of April down roughly 23%.

Also near the ended the quarter, we began to partner with several companies that are supporting roles associated with the government's response to the pandemic, including customer service and call center agents as well as loan processing specialist.

These opportunities provide a level of support to our core Epay flex business as we navigate the revenue reductions brought on by the crisis.

Our long standing personal relations fortified by experience with these clients during prior natural disasters and our ability to quickly source and deliver talent on a large scale, primarily due to our centralized delivery capability uniquely positioned us to support these critical initiatives.

These engagements are fluid and in their early stages, but we could see revenues for this coded 19 project related business in the second quarter in the range of $20 million to $30 million.

Direct hire revenues in the first quarter decreased 22.6% year over year.

And represented less than 3% of overall revenues.

We experienced a significant impact in this service offering in March which was down nearly 34% due primarily to the lack of hiring at the co. The 19 crisis began to impact the U.S. economy.

As we look to early second quarter trends direct hire revenues are down roughly 55% for the month of April on a year over year basis.

As the most recent recessionary cycles. This service offering tends to be the most impacted by the economic uncertainty and we have consistently reduce our concentration of direct hire revenue over the years.

At the peak of the economic expansion prior to the Dot Com bus.

Direct hire revenues were 22.5% of revenues.

At the peak of the economic expansion prior to the great recession.

Direct hire revenues were 7.5% of revenues.

We expect direct hire to constitute less than 2% of revenues in the second quarter.

While direct hire remains an important part of our service offering to clients over the long term.

We have not allocated significant investments here impart due to the sensitivity of the revenue stream to economic cycles and also the disruptive technologies that have continued to evolve in this space.

Additionally, we are able to provide direct hire capability in our technology practice through the same channel utilizing our technology flex business as the skill sets. We service are similar.

As Dave stated, we've continued to invest in strategic initiatives to better position our from for the long term.

We continue to invest in our most critical technology initiatives.

Including technologies to drive the efficiency and activities from the identification to the matching of talent.

Along with our innovative talent relationship management system, which we expect to be deployed in several phases throughout the second and third quarters.

We have the suspended new hiring.

As we navigate this crisis.

And are continuing to manage the productivity our associates as we typically do with an elevated focus on retaining our most productive associates. So we're best positioned to take advantage of the market's subsequent to the crisis.

We therefore anticipate declined in our overall staffing levels due to the natural performance managed attrition.

But we do not currently expect any large scale reductions in force.

Our experience has been that recessionary cycles result in a shift in the competitive environment and we believe we are ideally situated to take advantage of the market as conditions recover and what we believe could be an accelerated digitally led expansion.

I Echo daves thoughts on the appreciation for the trust, our clients consultants and candidate to placing K for us and our team's efforts executing in a fully remote capacity, while managing through these remarkable times I'll now turn the call over to Dave Kelly K forces Chief Financial Officer, Dave.

Thank you Joe.

I'll first give some additional details and insights into first quarter performance and then given the current environment provide some commentary around the strengthen our liquidity and cash flows.

Revenues of $335.2 million in the quarter grew 1% year over year and earnings per share of 42 cents grew 31.3% year over year or 10.5% after excluding a charge related to actions taken as a result of the kgs divestiture in the first.

Quarter in 2019.

Our gross profit percentage in the quarter of 28.2% decreased 30 basis points year over year, primarily as a result of the lower direct hire revenue mix, which was partially offset by improved flex gross margins.

Flex gross profit margins improved 40 basis points year over year, driven by a 70 basis point improvement in Tech flex, which was partially offset by declines in Epay flex margins.

Flex margins in the first quarter benefited principally from a favorable payroll tax environment kind of year over year basis.

Bill pay spreads were stable sequentially in our technology business and down slightly in RFP business.

Looking at April results Bill pay spreads in our Tech flex business have remained stable and we've seen an increase in our tech average bill rates.

The Bill rate increase is primarily result of changes in assigned mix. The revenue reductions we've seen in our technology business had been more concentrated in lower bill rate assignments, well those with higher level skill sets have seen less attrition relatively speaking likely due to a combination of criticality of role and work.

Capability.

We will experience overall declines in Epay flex margins, primarily as a result of the large scale support of the coded 19 related initiatives, Joe mentioned, which while driving significant revenue have average margins lower than our core epay business.

We've continued to gain operating leverage and improved cash flows as revenues have grown through significant improvements in associate productivity and diligently managing our SNA spend while still significantly increasing our spend on technology initiatives.

DNA as a percentage of revenue in the first quarter declined 80 basis points year over year.

By way of comparison over the last five years annual SGN expenses have been essentially flat, while revenues have grown by $125.5 million.

Roughly 80% of arresting expenses are variable in nature, which allows us to naturally reduce costs by continuing to manage the performance of our associates and suspending new hires.

There is typically a slight lag and cost reductions relative to revenue reductions.

These actions taken over the last several years to gain significant operating leverage along with some of the cost containment actions noted earlier by Dave and our quality revenue stream have put us in a position to navigate the current crisis without taking drastic action.

Our first quarter operating margin of 4.2% was on track with our operating margin objectives. In addition, our effective tax rate in the first quarter was 27.3%, which was slightly higher than we anticipated due to discrete item related to the kgs divestiture as we filed final tax returns.

As noted in our April 20th press release, we've heard returned nearly $34 million and capital to our shareholders as of April 15th through our quarterly dividend and share repurchases.

We also affirmed our attention to maintain our quarterly dividend based upon our confidence in continuing to generate significant positive future cash flows.

Let me spend a few minutes discussing our liquidity position as well as future cash flows.

We have a 300 million dollar revolving credit facility that matures in May 2022, with Wells Fargo administrative agent along with eight other top financial institutions. Our trailing 12 month EBITDA as of March 31, 2020 was what was roughly $93 million, which currently.

Provides incremental borrowing capacity should we needed a roughly $155 million.

Net debt as of March 30, Onest was approximately $68 million or roughly 0.7 times trailing 12 month EBITDA.

As we noted on our April Twentyth release, we decided to take advantage of the historically low interest rates by entering into interest rate swaps on $100 million in debt at an all in rate of 1.86%. The tenure of these swaps is between three and five years in.

In doing so we also drew down incremental cash from our credit facility, which is currently sitting on our balance sheet to further reduce any liquidity concerns we exited the quarter with outstanding borrowings of $100 million and cash on hand, a roughly $32 million.

Our working capital balance as of March 30, Onest net of cash on hand was approximately $150 million, which serves as another reliable source of liquidity as revenues contract.

While days sales outstanding increased by approximately two days in the first quarter due to payment extensions by our clients. We believe our accounts receivable portfolio is comprised of high quality companies. We have not seen any significant extension request within the last three weeks and Dsos have stabilized at the same time.

We are taking prudent steps to defer significant cash outflows, where possible to future quarters and minimize expenses overall, we expect operating cash flows to be strong in the second quarter.

We believe we earned an enviable enviable position due to our low debt levels healthy cash flows high liquidity high quality accounts receivable portfolio and resilient revenue stream.

We continue to make responsible investments in our business that we believe position us to outperform the market as the crisis subsides. Our number one priority continues to be the health and safety of our employees clients and consultants.

Given the significant uncertainty as noted in our press release, we will not be providing guidance for the second quarter, but expect that the additional insights we provided into March and April monthly trends were helpful.

Our weighted average shares outstanding and effective tax rate for the second quarter are expected to be 21.1 million and 26.5% respectively.

Hey force outperform the market during the great recession at that time technology on the comprised 50% of total revenues versus 80% today.

We believe we earned an even better positioned to outperform as we navigate the current cobot 19, economic and health crisis.

Ill end my prepared remarks with a sincere. Thank you to all of our teams for their efforts over the last six weeks to ensure that we are living up to our brand promise of providing great results through Sta, two strategic partnership and knowledge sharing.

Operator, we'd now like to turn the call over for questions.

As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound key please standby and while we compile the Q and a roster.

Our first question comes from Tobey Sommer Suntrust. Your line is now open.

Okay.

One of the start up I ask that question about M&A in the project related business that you said might contribute 20 or 30 million bucks in the quarter.

When we did the or does that start in do you have any vacation for how long it may go beyond the quarter.

Thanks.

The Tobey. This is this is Joe laboratory, yes that business has already engaged the different projects. Some of those started several weeks ago. Some of those are just engaging now because they're in different.

Parts of the overall government and we're we're hearing from all the partner that we're working on with this business is probably most of it is expected to go four to six months.

There's obviously some of the projects could extend further than that just based upon how the overall crisis plays out.

Great and social fair enough just going at 20 to 30 million Bucks is not at.

A full quarter run rate of project ramps, but something less than that.

What would the affinity business had been growth had been in the month of April if you strip that out or did you make that adjustment when you gave us the monthly figures.

Yes, I know the monthly figure that item that I gave in my opening comments that was the look that was the legacy at they business with that stripped out so that you could do your modeling as as soon as necessary.

Hi.

Tech business, obviously holding up well today.

Very well could you talk about.

The way you think that business unfolds, maybe referencing prior cycles as people get back to work and perhaps they realize demand for their own services links are back kind of functioning at a more normal rate.

Isn't as high and they pull in their own purse strings et cetera, do how do we think about it beyond this current kind of locked down stay at home phase.

Yeah, I would say in general you know what we've experienced to date is really two different playbooks being exar exercise by the end clients. Obviously you have our clients on the one end that it had been involved in industries that are directly impacted and then I would put everybody else in a separate playbook in terms of those that obviously they.

We're being impact, but not anything like travel and leisure or the bricks and mortar retail where they've had to do really parsed reaction. So I would say those that have directly been impacted you know they reacted very quickly to adjust their expenses I expenses inclusive of scaling back or eliminating certain project and obviously the.

So she added resources based upon how critical those projects where clients that work directly impact negatively impacted in industries like financial services or communication. They more shows shifted into what I would say is a stabilization mode or really some of them or even operating businesses.

Usual so subsequent to all that initial hard stop on what we did see most clients do was basically go through and look at what technology Rolls were not really equipped are capable of being handled remotely and so there was some alignment that went through all those some some organizations just furlough.

The people others reduce those staff and a lot of that how to do with how critical the nature of the roles were and so here more recently, what we've been seeing his clients really evaluating their broad overall project portfolio.

With we've seen really nominal total elimination of projects at least the ones that our teams are working on however, we have seen some of those projects extend out further so to adjust for cost of what theyre doing as their extending the project and aligning some resources.

With that so the project has fewer people on it but its intended to go from a for a longer duration to manage costs. So we've also seen and began to hear about some early request for bids.

For work, which organizations are looking at bringing back onshore from offshore because of some of the exposures that they dealt with with those countries that don't have quite as a robust infrastructure and then I would say in closing the last thing that we're seeing is really companies are looking at where the opportunity areas too.

Accelerate what they'd already been working on in terms of digitizing their business. So I think I think this has a big potential to be one of those positives on that may come of this unfortunate situation.

It's just a little too early to tell right now if theres going to be a real significant push in that area, but we are hearing companies talk about that.

Thank you last question for me as you think about the portfolio.

You've been shifting more and more to focus on on tech.

Yes definitely is getting some significant project work over the next four to six months, but.

The organic decline demonstrates a little bit more cyclical how do you think about that business and if you could comment on your appetite for share repurchase having.

The Tenbfive one lapse here recently.

Yeah, I'll I'll handle the first part of that question on and then I'll, let Dave handle the second part of the question. So on the first part of that question as we look at our Epay business, Yes, similar to what you have heard from on many of our competitors that play in that space or in and around that space. You know many those roles not capable of really being able to be.

Handled remotely.

So we did see some some pretty sharp declines there as they align staff just because they couldn't keep those people and then be able to perform their role. So we are going to be taken this is an opportunity to step back and say as we rebuild that business coming out of this what do we want the business to look.

Like so we do believe this will provide us an opportunity to look at what our true capabilities are to deliver at scale in volume quickly a highly talented resources. So we see some opportunities at for repositioning of some aspects of the business, while still staying very.

Firmly entrenched and what we look at and so definitely skills that are going to be imperative on a move forward basis, especially with everything that's happening in the business intelligence in the analysts world and everything else. We've made some good strides in that area. So we'll continue to push and those direction because actually we've seen a lot of those positions.

Hey, onboard and be able to be handled from a little mode standpoint, So that's kind of how we're looking at the overall that they business.

It's over this is Dave Duncan with respect to the share repurchase.

As we watch the.

The crisis unfolding.

I'm, sorry, what was effectively a collapse in.

The staffing sector pricing it was clear to us that.

And that the it was it was too unpredictable to know how long it how deep it would go.

So we made the decision to withdraw that to preserve capital and at the same time to let our shareholders know that we were still performing well.

As we look in the future.

We will be.

Balancing that against any other capital needs as I mentioned in my prepared remarks, we've got an M&A pause on right now.

We're not going to be pursuing that.

At the at this point or in the near term, although we are going to continue to evaluate prospects.

Because we're going to preserve the capital, but as we look at the next couple of quarters, if we do see.

Isn't stabilization or improving.

Certainly our look and allocating capital back to share repurchase again.

Thank you.

Thank you.

Thank you. Our next question comes from Tim Mulrooney with William Blair. Your line is no.

Yes, good afternoon.

It looks like hours worked in year Flex IP business were up 2% year over year, I guess on a pretty tough comp in the first quarter last year.

Can you tell us how this metric trended through April and the same thing for bill rates in your Flex Tech business, which were up 3% I think how did that how is that trended or how did that trend through April. Thank you.

Yes, Tim this is Dave Kelly. So so in terms of hours worked well I think Joe is giving you in his prepared remarks.

Mic metric metrics as it relates to tech in terms of total revenues total revenues in March I think was down <unk> percent. We ended I am sorry March April were down <unk> percent we ended.

In the last week in April them down about.

2% that last week.

Also one of the things that I noted is some of the.

And that we've seen in our tech business were from.

Positions that had actually lower bill rates, so that 2%.

Decline that we're seeing is really a mix of two things certainly we've seen a reduction and I have a precise number in terms of hours worked that are down but it is down from where we entered the quarter.

But we bolstered that by by an increase in building a because I think our average bill rate.

Tech.

Is up.

About $2 at least if we look at April versus the first quarter again speaks to the criticality of the roles that we place in tech.

We've always talked about our average bill rate being in that sweet spot of areas, where companies have critical needs and we think thats, helping us here.

As we look at this as it relates to our RF business.

Joe It parse this business clearly.

We talked about in April a decline of.

23% I think.

In the last week in April Bill rates in that business are relatively stable.

Core Epay business and so so you think about hours work is number of people on assignment down again.

This is in large part about how this business has done right tech business very much a business that remote capabilities exists certainly less so in the M&A business that we are in.

Okay. That's helpful.

About that building on your comment.

About the types of work being done I mean, your tech flex business can you just talk a little bit more about where you're seeing pockets of strength the key trends and skill set some conversely, when there's been maybe more softness than what you were expecting.

Yeah. This is Joe I'd say, you know with most of the majority of our of our Tech business, where we've really positioned isn't that App Dev project management be API and other high skill areas and I think if you were to look at our average tax bill rate versus somebody on the other competitors out there you would see that's really what's causing that.

So we probably don't do quite as much business and in that help desk support infrastructure area. Some others I think thats, partially benefited us here because we've seen these higher skilled roles have really been much more equipped to move remote.

So the other thing that you know that we look at is they're they're much more strategic assignments in nature and linked to very critical projects.

So that's really where we've been positioning ourselves through within the client base that we operate within.

Okay.

Okay. Thanks, Joe.

Maybe one more from me so you talked about accelerating investments in technology in your prepared remarks can you talk about some of the other take technology based investments that you've been making recently I know you've talked about your talent management relationship system, but I also know talking to Dennis that you are making investment.

From a number of different areas, obviously, we know competitors, but some of these calls but is there anything you can talk about with investors today about where you've been focusing resources.

Yeah, I would I guess I'd answer that maybe a little bit more broadly versus specific just from a competitive standpoint, I'd say, but with our core team as we've mentioned, we've been making investment for many years and technologies in and around not just the technologies themselves, but how they link into our processes, how it ties into our operating model and I.

I think this has been one of the big positives of our simplified operating model because it allows us to go much faster. So I guess part. This is part by design in part by lock the where we're beyond fortunate.

The commitments that we made several years ago with a Microsoft dynamics platform, which is what we built our customer relationship management system in and now our town pallet relation because the ties into outlook and teams has just really paid use dividend, especially for us over these last several weeks offer.

For a seamless transition so really a fully remote work environment, because we were already up and running our teams I would say what is really meant for us as we kind of went from face to face meetings. The basically virtual video meetings overnight and our people have actually gotten to know each other a lot better through that platform has been interesting.

Sure on calls I've gotten to know everybody's Patterson and their kids and everything else is they show up in the cameras. So.

Right.

As I'm sure, we're all dealing with right, yes, yes exactly.

But I think this current operating environment for us what it's really played out as I think it's been an accelerator because I think in a matter of six or seven weeks, we probably have accomplished what it would have taken a several years in terms of adoption and coming up with best practices. So just a very very powerful platform, but you know what do they you know what's.

That old staying right I mean crisis is a is that is the mother of invention and I think thats part of what we're experiencing so I would attribute it a lot to Dennis I mean, our CIO is a very visionary CIO and our tech team is top I mean, there just top class and they work very well with our operations. So we.

Turning to do a lot in our innovation area. Our prime examples like when we were staffing everything a with these really high volume need some of the platforms that we had put in place in and around referral capabilities. I mean, we were generating thousands of referrals in a matter of 24 hours. So we're really getting dividends out of work that we've been working on.

For the better part of the past three or four years.

Yeah. This is Dave Dunkel out comment on how quickly we were able to go to work from home.

Being in the part of the country that we're in we battled tested our systems to be able to do that and unfortunately in the past due to weather conditions, we've often have to test it so.

As Joe said or a tech team did a fantastic job in.

We were actually shocked at how smoothly everything went.

We were sharing at our board meeting and several of our directors serve another boards and they were kind of astounded. They said, we have we seen or the board they've never seen how smoothly everything went on any of our other board. So it's really hats off to our team and they've been very responsive as weve adjusted to be I needs in the special tools and.

So a lot of the work that was done in the past starting to pay off.

With that said Theres still lot more go and we still have a.

As Joe mentioned with our CRM tool lots of leverage there for us as well. So we're very optimistic about it if you look at the other side.

I wanted to add one other thing if you look at the other side of this.

What's it going to look like.

No I mentioned in my prepared remarks, we're going to have less real estate likely we're going to be doing less travel using more tools driving greater productivity as a result to those tools.

So we're actually excited about it we've already shifted gears and started thinking about what's the other side look like.

Making adjustments to to the way that we're thinking about that Joe do you want to add something else.

Yeah. The one thing I was going to act I didn't really touched upon this but it's the other side of equation right because we're talking about the core tools, but our teams have also become pretty darn profession with some the online tools that support.

Really more virtual project type work, where we're working with our clients and some of these are really more agile development methodologies, which is about his face to face as it gets from a methodology, but our teams have really gone or come a long way and being able to handle combined boards virtual.

Really handling daily standoffs really in a completely virtual situation. So no doubt. This is just another area that's going to be impacted from a long term on how we drive efficiencies within our business as we're doing projects for for the end client I would also say what we've discovered over the better part of the last.

Seven weeks is I think theres a lot of aspects of our business our normal day to day operations that will live long past, what we're experiencing in this 100% work environment, because we really picked up some productivity and efficiencies on certain parts of.

The overall placement process, so just really exciting what we're seeing come about.

And as I mentioned earlier, given where we stand.

With the balance sheet and whatnot, we're going to continue to invest as we think the enabling tools really are going to be one of the determining factors.

In house successfully we're able to capture share on the other side.

Okay understood. Thanks, Thanks for all the color everybody.

Thank you we appreciate it.

Thank you. Our next question comes from Kevin Mclean with Credit Suisse. Your line is no.

Great, Thanks, and who who you enroll a SIFI marketing.

Yes.

Endemic.

He gave root for Joe just it seems like you're definitely better position in todays event than any other I mean.

Relative to what it was tanker GFT.

Each talked a lot about merging stronger what are some key foods that you're focused on if you think of that incremental share shift and I want to tie that into.

Your client mix in terms of you know how much of the Cline. She shares were kind of it directly impacted by this versus kind of not directly impacted.

Yeah, I think I'll take the last piece for us.

Paul percentage of our overall clients. Fortunately, we're in those industries that were directly impact that we do some business within there.

Hi concentration in certain customers within there, but as a percentage of the overall portfolio very small percentage.

When we when we look at at attack and how we're positioning and how we're thinking about this that part of you know and I didn't mean to go long on the front end up my opening comments, but I thought it was very important to step back too.

How we came out of the dotcom, what we did to the business to reposition the business on a move forward basis and I think we made all the right moves at that point in time and then when we came out of the financial crisis. We did the same thing we stepped back and we said what do we learn from this experience and how can we have a healthier business. The next time something hits US you know thats when we started our long journey.

Really narrowing down the business lines, we were in and I think you know if you look at where we are today domestic pack is probably out of all the sectors that you could be in its the it's the best place to be right now for a variety of reasons, it's because of the secular drivers that are going on in tech, which are the things we saw back in 2008 and.

2009, and then be up beyond that you know now when you look at this remote work environment and being in the upper end attacks, which are very remote capable. So that obviously wasn't part of our thinking when we did that so that we got lucky on that one but it plays well, but I think it just tells you the critical nature of technology to come.

Bunnies today, they are not turning off their customer facing activity. They cannot turned those things down and in fact, what we saw in the retail spaces. Those organizations that have migrated more into the digitizing their business they've held up much better as those that were laggers are the ones that have felt the pain. So now how are they going to react yeah, obviously and positioning.

Their business so weird, we're just very.

Optimistic in terms of the things that we've done from our client portfolio our market segmentation efforts that we went through back in 2015, and 16, which is really where we looked at industry concentration and everything else. Those have really played out well for us up to this point.

Kevin This is Dan.

At times, you're Lucky, sometimes you're smart I don't know, which one we were but when we look back at 2008, nine and realized where the market was going with the transition with Joe stepping into the President's role in 2012 and 13.

We had a strategic discussion and agree that it was time to exit the other businesses and now our focus on tech and concentrate here domestically. So looking back its has been something that we started seven eight years ago.

And it wasn't something that we just woke up one day, well Gee, let's let's go after tax so.

We saw what was coming and whether we were lucky are good we don't know, but it appears that we were right about where we've been position. So tech domestic right now at least [noise].

What we can see in the foreseeable future certainly looks like the place to be [noise].

And as Dave Kelly mentioned in his opening remarks, we went from 50% of our revenue being tech now today being 80%.

Yes, that's degree and I would say that the hurting you work the Lucky our day.

[laughter] My other question was just around.

You know cutting that business in terms of Indian Tech is that more come to play.

What percentage of that business is truly able to work remotely as opposed to needs to be on Prem.

Essentially 100% all pushes on that.

Yeah, Relet relative to our attack at this point in time, you know the people that we have out with with clients outside of those that now might be migrating back into office in certain non marketplace. This very very high percentage of the overall population in a remote capacity again that was part of what I was talking about just the nature.

Sure of that type of work and projects that were putting people on.

Facilitated that capability, we don't we don't do a lot of the lower end roles that aren't as capable of being moved to remotely.

Yeah, I would say that most severely when the crisis was at its peak.

Nearly everybody was working remote.

In the tech side, the skills that that were rolled off for the ones that either assignment ended or they weren't capable of working remotes. So.

At a point in time right. After everyone was told to quarantine and stay at home nearly all of our tech consultant population was working remote.

And as you Skijus Kapler us as an example of that.

Because you know our tech department covers the whole spectrum, we moved our entire and Tyratech population was remote and that was inclusive of all skill set now easier for us to do that because we control those functions as a similar it's similar with the end clients that we work with I mean tech is just very geared to be able to function.

Well in a remote environment and as we sit here with a pandemic today and now things are starting to open up you know we don't know what the fall is going to hold or anything else. So we're very just very confident and blessed to be positioned the way we are what the footprint that we have.

Thank you. Our next question comes from Andre Childress with Baird. Your line is now open.

This is auto children's calling in for Mark Mark on I'm, just want to say thanks for taking my questions and that I hope everyone, a safe and healthy healthy. So you kind of provided some color that with SGN, 80% is variable and as well you taking several cost cutting measures. How are you expecting your expenses.

To trend throughout quarter too.

Yes. This is Dave Kelly so.

I would say a couple of things.

I think important to reinforce our philosophy as to how we're managing this business, which is we think we're as David Joe Both said, we're in an enviable position and our goal here is to continue to make strategic investments and keep the key critical resources that we have to allow us to grow quickly as things turn so.

So.

I would say you're not going to see a situation where the costs are going to align as they might have historically.

I made a comment as well as we look to managing the business and the productivity of our associates, sometimes there's a bit of a lag there.

I think generally speaking I think costs are somewhat difficult to predict as well.

And.

Because we don't know what's going to happen. So I think generally the important point to know here is we want to retain the people that we have a we want to make sure that we have that are very productive theyre going to drive us out of this we've got the financial strength to cash flows that allow us to do that so.

So generally speaking we're looking to the future. So that's going to have an impact in terms of where expenses are relatively speaking to what they otherwise might have been.

We're looking to the future.

And I would I would add a couple other comments the number one.

We are not and have not with number one we have not done a NRF and two we don't planet.

Because as Joe's comments, so we just manage this business.

Operationally consistently throughout this process. So it wasn't a need to do that.

And I would say also that.

Due to the 10 year of our people, particularly our four plus people and even our two to four people are now moving up.

Their performance and productivity continuing to go up Theres really no need to want to do any a staff reductions are all in fact, our focus is on retaining them and giving them the tools to help them be more productive.

Alright, thank you for that and I'm on the IP like side, you gave some color about contracts weren't being lifted or ended prematurely, but new starts were still bit lower what are you seeing in terms of like new starts on a year over year basis.

Yeah, we havent historically provided starts level, so I'm not I'm not going to I'm not going to go there on this on this call, but what I will tell you.

If I look at it from an earlier indicator you know in summary, we're experiencing decreased job order levels, probably like you've heard from everybody else as one would expect over one thing that we have observed is the job orders that were getting our of a higher quality. There were also have a higher Bel ray.

Right and we're actually experiencing higher fill rates within the jobbers, we're getting so we believe this can yield the same or better results over the long run.

Driven by you know less time being wasted reduced competition, which we always experienced during these times and really a greater and client focus to fill the roles just because the ones that they have out there they are critical in nature.

Okay. Following on with that pay Bill spreads have you seen a uptick and request for concessions recently.

Yes. This this is Dave Kelly so.

I would say that the way to think about it.

In those industries that we're most heavily into fresh and we saw this early we saw some requests but I would say no I mean recently there has not been.

A significant wave of those so just as Joe said, we've seen some seeing signs of stabilization is probably one of those other things that.

That we aren't seeing that much of as we did just few weeks ago I would tell you by the way.

Comments.

I made comments that our spreads in the aggregate.

Our stable so those things are being in from a mix standpoint, offset by some of the higher bill rate activity that we're seeing so we think we're in a really good place in terms of the portfolio as a whole.

And frankly that is inclusive of the clients that we do business with so we've got great relationships with them.

So.

Well that gives you the coverage probably looking for.

Yes, I'm wondering what I would add on.

Can I just add onto that a little looks I think there's a really important point that we don't want them as Sarah.

When we worked with clients I mean, these are very strategic relationships. So we are in a long term partnership with them and when they're going through certain dynamics. We're not we're not taking our heels and then just watching out for a one dollar margin, we're working with them for the long term positioning of their business to help them help.

Them through certain periods of time, so we've worked different types of arrangements with different organization.

That that fit within what they're trying to strategically accomplished because it's the end of the day, even some of those organizations that were directly impacted they really needed to keep certain of our talent on onboard because the strategic initiatives. They were focused on so client by client we handle these things and it's.

In the partnership because the clients that were working with these aren't clients that we just started relationships with last year may. These clients, we've been working with for decades, and you don't just abandoned somebody during tough times you hang in there with them and those that those kinds of decisions have been more paid us dividends over the years coming out of the dotcom going through the financial crisis and so we are about.

Out the long term relationship with our clients and with our consults and doing right by both of them.

That's great to hear a thank you for the color.

Thank you. Our next question is a follow up from Tobey Sommer with Suntrust. Your line is now open.

Thanks, I was just wondering if you could touch on two topics.

One would be the NRC, which we used to talk about about 10 11 years ago as being a differentiator for the company I'm not sure how that's involved or whether either it's even a relevant topic you could just refresh us and then.

With respect to permit you mentioned technology pressure in competition.

Could you elaborate a little bit in maybe delineate as to why is there is higher but not on the tech flex.

Yeah, So NRC, which really weve recast how we handle that delivery capability, it's really more of a centralized delivery capability now so it's not it's not really identical to what it used to bake right. This has been a 20 year journey in building out.

That capability, but that capability provides us the service bulk opportunities quickly and efficiently and source things through some of the technologies that we've been deploying such as our K force connect technology as well as you know because we're in essence, we've utilized that.

That platform.

And that offering to service basically some of these.

Projects you can see it by the revenue estimates that we gave you for for Q2 I mean, we we surface you know I.

I don't want to say tens of thousands of candidates, but I mean north of mid mid thousands.

Candidates in a matter of two or three days in process those candidates through and started people you know hundreds on a monday and without that centralized.

Our ability we would have never been able to do that so and I give those teams credit because when these are when these requirements come in they always seem to come in on we worked out the arrangement on on a Thursday, we locked down on a Friday, our people work all weekend and we're starting hundreds of people on on a Monday. So it's not good there because they have the commitments.

On their end that they will deliver that on a Monday and what what our teams have done has just been totally mindblowing I'm. So that's on that side of the equation relative to that the perm versus the tech flex.

It's not a if it's a demand problem, it's not a if it's it's not a supply problem and it's not a delivery problem I mean as these cycles always happen. The first thing that locked down is is direct hire and I don't care. If its tech direct hire I don't care, if its M&A direct hire because everybody goes into a mode.

Load up they want to protect their core people they want to keep those consultants that are critical mission critical in place. So they stop from hiring for the most part outside of having to backfill critical need and then as the cycle starts to stabilize they typically start to bring flex backend till they get confidence in the cycle and then they have common.

Since in the cycle than that typically where that direct hire perm business starts to kick back in you know we started this ppas in this in this when we were in the Dot com, 22.5% of our revenue was direct hire that's how I came into this industry 32 years ago, and we literally went from doing over 40.

$5 million a quarter in direct hire to finding ourselves. This quarter's later doing $6 million and then at $6 million was virtually zero tax because of how tech century deck dotcom was how this one's going to play out I wish I wish I could tell you Toby but the point is is this is why we've been shifting our mix.

Over the course of the last 20 years, because it's happened every time you go through one of these down cycles. The direct hire business just get decimated. Unfortunately, and then you try and carries many people through is as you can which is why coming out of the last cycle, we repositioned our R Tech direct hire Perm business, so that we service that through.

The same resources, because guess, what we're not having to exit hundreds of people. Those same people will be here when it comes back around and that that Perm business becomes hot again.

Thanks for a level set now I'll handle the question offline. Thanks.

Okay.

Thank you.

Im not showing any further questions at this time, so now let's turn the call back over to David Dunkel, Chairman and CEO for any closing remarks.

Thank you very much on a daily appreciate it. Thank you all for your interest in support of pay force or these are truly unprecedented times and electrical like to say, thank you to each and every member of our field and corporate teams for their tremendous efforts over the last four to six weeks to our consultants on our clients for your trust and K portion partnering with you during these tremendously uncertain.

Times, and allowing us to privilege of serving here, we're excited about our future and we're looking for to talking with you again next quarter. Thank you very much.

Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.

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