Q4 2021 Kforce Inc Earnings Call

Welcome to the key for its fourth quarter 2021 earnings conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.

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Okay.

I would now like to hand, the conference over to Mr. Joe Liberatore, President and Chief Executive Officer.

Please go ahead.

Good afternoon.

This call may contain certain statements that are forward looking these statements are based upon current assumptions and expectations and are subject to the risks and uncertainties. Actual results may vary materially from the factors listed in the K Force public filings and other reports and filings with the Securities and Exchange Commission, we cannot undertake any duty to update any forward looking.

<unk> you can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the Investor relations portion of our website.

Before I provide commentary on our fourth quarter and full year performance. Let me first cover a couple of items.

2021 was a record performance year for K for Us I would like to thank all of our associates for their fortitude creativity innovation and resilience operating in these unprecedented times.

Thank you for your daily efforts to having meaningful impact on the lives we serve uniting professionals to achieve success through lasting personal relationships.

In the fourth quarter, we announced Dave Dunkel transitioned the chairman at the end of 2021 after holding the CEO post for the past 40 years. We are fortunate to have Dave continued involvement strategically as we reshape where and how work will be performed in the future.

I've been blessed to work side by side with Dave for the past 34 years, I am humbled and honored with the opportunity to uphold the standard of excellence Dave established.

Our entire team's heartfelt thanks, and appreciation go out to Dave for his leadership Mentorship and support.

Due in large respect to his leadership, our values, which are foundational to the K for strategy are extremely well entrenched our executive leadership team has extraordinary depth and tenure to lead our team forward and our future prospects have never been brighter than our 60 plus year history.

Joining us on the call today is Kai Mitchell, our Chief operations Officer.

Kai is a 30 year veteran in professional staffing and solutions space, who joined the K Force family in 2005 through the acquisition of this to our mass.

He has responsibility for developing and executing the strategic vision across all our service offerings, which has contributed greatly to K force's success.

Kai will give insights into our performance and recent operating trends, Dave Kelly K forces CFO will then provide greater detail on our financial results as well as our future financial expectations.

We've driven significant strategic change a K for us over the last decade, and our firm is ideally positioned to continue to provide exceptional result, and return to our shareholders. We've concentrated K forced the strategic focus.

And now have 85% of our business focused on providing technology talent solutions to innovative and industry, leading companies further operations exclusively in the United States.

This percentage is expected to meaningfully increase as we exit 2022, given that our technology business continues to grow at multiples of the market.

This strategic shift was bold and transformative, but well found in our belief as we exited the financial crisis that technology was going to be at the epicenter of every business strategy.

This is played out to even a greater degree than we imagined as the pandemic accelerated what we already saw unfolding the benefit of this strategic shift and the benefit of our focus on organic growth without the distraction of the acquisition integration can be seen in the exceptional results that we've delivered over the last several years.

While the broader economy has experienced fits and starts pertaining to the pandemic and the related supply chain and labor issues. We continue to gain momentum. We are further advanced our strategic initiatives, including reshaping our client portfolio investing in our managed teams and solutions offering pursuing skilled areas and our F biz.

Which are synergistic with our technology offering and aligning our sales and delivery teams to our revised focus the backbone supporting enterprise level change is the strength of our leaders, which we supported through enhanced development and training. In addition to these strategic initiatives. We are equipping our teams with innovative and state of the art tools.

And technologies.

Our industry, leading growth rate, coupled with a debt free balance sheet and strong predictable cash flows continued to allow us to invest in our future and return capital to our shareholders through share repurchases and substantial dividend, which we've once again increased our path forward is clear and we will remain consistent with the principles.

Under which we've been operating so successfully.

As to our results, we again delivered record revenues in the fourth quarter up $410 4 million, which grew nearly 18% year over year and meaningfully exceeded the top end of our guidance earnings per share of <unk> 98 cents grew 14% on a year over year basis.

Fourth quarter results put a solid explanation point on the tremendous 2021 for Cape worse, we were successful in delivering record revenues of nearly $1 6 billion, which grew 14% year over year.

Perhaps the most exciting aspect of our 2021 result was the 22% full year organic growth we delivered in our technology business earnings per share of $3.54 also a K force record grew 35% year over year.

I'm incredibly grateful for their tenacity and perseverance of our entire team over the past two years under the most extraordinary circumstances, you have embraced change and challenges both personally and professionally and helped delivered the most exceptional results in our firm's history.

We continue to make significant progress in positioning <unk> K for us as the destination for top talent during a time, where there was great disruption and the labor markets are future work environment will provide our people with maximum flexibility and choice and designing their work days that is grounded in our trust in them and supported by technology.

Allergy, we will have a remote first approach to support the life work balance our team has become accustomed to as we move through the pandemic are people where leverage physical office spaces when desirable for activities best done through in person active collaboration such as training team building client and candidate interactions.

We are accomplishing this through our K force re imagined initiative.

And servicing our customers there is simply no other market, we'd want to be focused in other than the domestic technology market as it has in our view the greatest prospects for sustained profitable revenue growth. We have the right team in place to capture additional market share with them. What we believe will be a continued extraordinary strong demand environment for our <unk>.

Services, it's our belief that the pandemic is exponentially elevated the imperative for companies to rapidly digitize their businesses transform business models and drive productivity gains through the technology investments.

I'll now turn the call over to Kai Mitchell, our Chief Operations Officer Officer, who will give greater insight into our fourth quarter performance recent operating trends in the other insights into our operating environment Cai.

Thank you Joe.

Really appreciate the opportunity to speak to the broader audience that key forces operation. It is clear that our key parts team's hard work and dedication leading to our current exceptional results.

I'm very grateful to our team I would like to take this opportunity to thank them for their incredible effort.

Let me begin by providing some additional perspective on the strength of our A&D fourth quarter revenue growth.

Revenue grew 17, 8% year over year on a billing day basis. However.

Growth rate includes the impact of declining and contract related revenues, which were substantially higher during the height of the pandemic.

Excluding the impact from that reduction revenues were up seven 7% sequentially and 26, 7% year over year per billing day.

Government related revenues were always expected to decline that provided the bridge for continued investment in our technology business.

We are experiencing in our technology business reflects the benefit and our decision to pursue the temporary COVID-19 related revenue stream.

Let me provide some color on the performance of <unk>.

Allergy business, we achieved record levels of organic growth at 32% on a year over year basis in the fourth quarter.

Really I mean, 8% sequentially on a daily basis.

This growth was on top of our strong performance during the pandemic, where technology revenues were essentially flat and the <unk>.

Outperformed virtually every one of our peers, our technology business grew nearly 33% organically over the fourth quarter at 2019 pre pandemic, which we believe exceeds the growth rate and every public comparable company.

We believe our growth speaks volumes to the secular drivers of demand for technology talent.

Our clients are reluctant to be key resources on key force, even during challenging macro economic environment, because our Henry scale consultants are working on mission critical projects.

The operating trends, we are seeing your technology business has been impressed that Frank <unk> enjoy final startup have been at historically high level. The average duration of technology finance continues to rank in inkjet as we find 2020, we experienced much slower seasonal year end assignment.

And we have historically seen these.

These trends provide us great momentum going into the year is also a great indicator of our ability to sustain elevated year over year growth rate in an increasingly difficult comp.

Not only did we see increased growth rate in the number of technology consultants on assignment. We also continue to see increases in our average bill rate, which grew three 8% year over year to approximately $82 per hour.

As discussed in the headlines surrounding the recent talent shortages and other staffing any market principally in the lower skilled areas that we do not support as well as wage pressures at a more macro level. The reality for US is we have been navigating a supply constrained environment for over a decade.

Our technology business.

Our consistent strong results have reduced period reflect our ability to successfully navigate these shortages and access the highly skilled talent our clients need with.

With the environment moving to less geographic boundaries are talent pool of candidates, increasing which is a positive for our business. We also believe that wage inflation service serves as a tailwind for us through future delivery increases as our clients prioritize procuring the talent necessary to further there.

Technology initiatives, despite any increase in cost.

We are seeing strength across virtually every industry and across all geographies. We continue to see the acceleration of critical technology initiatives within our client and <unk>.

Areas such as cloud this is al UI UX data analytics project and program management.

Our clients are me traditional not just for the consumer experience and also can't prove that employee experience.

Technology and business strategy are continuing to decline, which is ideal for us given our technology focus.

Michigan is similar to our overall technology growth has been investments we've made and will continue to me and our management team's capability to meet the evolving needs of our clients.

We have continued to add highly talented resources to our team to support the demand we are experiencing from end to end solution.

We feel extremely confident in the positioning of our technology business.

We expect first quarter revenues in our technology business and Greg to the mid 20% range on a year over year basis with low single digit sequential decline due to the seasonal yearend finally.

Thus far in the quarter demand remains strong.

With respect to our assay business overall flex revenues were down 28, 9% year over year on a daily basis in the fourth quarter, including an expected 23.

Now again year over year decline from our support of initiatives tied to COVID-19 pandemic. As previously mentioned these revenue streams for approximately $5 million in the fourth quarter, and we expect them to decline to nominal levels in the first quarter.

Flex revenues and our remaining net business grew eight 3% sequentially and declined 2% year over year per billing day, we made good progress transitioning our business towards more highly skilled assignments that are less susceptible to automation and that better.

With our technology that Frank.

Evidenced by bill rates, increasing nearly 10% year over year.

We will continue to support lower end skill sets for certain strategic clients with longstanding relationships. We have see Nashville assignment ends in lower skilled at payrolls in 2021 where we chose to no longer support that business.

We expect that effort to be materially complete in the first quarter of 2022.

Our non Covid assay revenues are expected to be down in the high teens on a year over year basis, given the repositioning of the business when combined with the expected Covid revenue decline overall etsy flex revenues may be down close to 40% year over year in the first quarter.

Direct hire revenues in the fourth quarter increased nearly 13% sequentially and approximately 62% year over year as the macroeconomic environment has continued to improve we expect that direct hire revenues may see a sequential decline in the first quarter.

That may increase slightly more than 30% year over year as clients continue to demonstrate a high degree of confidence in the recovery through the addition of a full time staff.

We are continuing to invest in strategic initiatives and technologies that best position our firm for long term sustainable profitable growth.

From a technology perspective are fully integrated CRM and Trs is done or.

How deep and seamlessly integrate with other Microsoft products investments to further develop these tools along with enhancing capabilities in the other areas is continuing.

We have made measured investments in adding talent to areas with the greatest expected return there.

Expect to make significant investments in the near term.

We believe great opportunities still exist to further enhance productivity, we have supported and retained our best people and as Joe mentioned have made meaningful changes to provide our employees flexibility and choice in how we work in.

In partnership with our Chief marketing and talent Officer, Andy Thomas and important measurement for me at Cielo is a reputation for delivering quality services to our clients and consultants I'm pleased we continued to have the highest glassdoor rating among our peers and maintain a world class net.

<unk> score from our clients and consultants. We were also named the most recognized firm bite technology consultant per at IAA I am grateful for the trust of our clients consultants and candidates have placed in Q4. Our teams continue to inspire me every day and we work together.

There to position key for us as a destination employer in our industry I will now turn the call over to Dave Kelly Key forces Chief Financial Officer, Dave <unk>.

Thank you Kai.

We are extremely pleased with our performance in 2021, which full year revenues of approximately $1 6 billion and earnings per share of $3.54 increased approximately 14% and 35% respectively year over year.

Our strategic position and the momentum we're carrying into 2022 against what we believe will continue to be a strong demand environment as visit has positioned us well to continue delivering significantly above market revenue growth.

Fourth quarter revenues of $410 4 million exceeded our guidance growing nearly 18% year over year and approximately 24% since the fourth quarter of 2019 pre pandemic.

Earnings per share of 98 cents in the fourth quarter improved 14% year over year.

Our gross profit percentage in the quarter of 29, 2% increased 80 basis points year over year due to slightly improving flex margins and a greater mix of direct hire revenues.

Flex margins in our technology business were up 30 basis points year over year in the fourth quarter.

As pay rates have increased over the past year, we've been able to effectively pass these increases through to our clients.

Bill pay spreads have also benefited from the growth in our managed teams and solutions offering, which typically carries a higher gross margin at both existing and new clients.

The continued demand for managed services should continue to bring stability to gross margins even in the face of increasing pay rates.

Flex margins expanded 80 basis points year over year and quarter due to a combination of the decline in lower margin COVID-19 projects in Q4 compared to a year ago and margin improvements in our non COVID-19 assay business due to the strategic shift to higher skilled roles.

This strategic shift has allowed us to increase the average flex margin for new assignment starts in our non core with FAA business in the fourth quarter of.

2021 by approximately 180 basis points versus the fourth quarter of 2019.

In addition average bill rates and our non Covid business have improved 8% in the fourth quarter of 2021 versus the fourth quarter of 2019.

As we look forward to Q1, we expect spreads in our technology business to be stable with fourth quarter levels, though overall technology margins will be lower due to seasonal payroll tax resets.

Spreads are expected to have moderate moderate expansion.

We have not seen meaningful wage inflation within our consultant population, but should that change we are confident in our ability to work with our clients to appropriately align bill rates.

Flex margins will be negatively impacted in the first quarter by approximately 110 basis points relative to the fourth quarter due to seasonal payroll tax resets.

Overall, SG&A expenses increased as a percentage of revenue by 170 basis points year over year, principally due to higher levels of performance based compensation as a result of our exceptional revenue growth and higher costs related to an accrual for the expected settlement of a lawsuit.

Accrual related to the expected legal settlement impacted SG&A percentage in the fourth quarter by $2 4 million or roughly 60 basis points.

SG&A expenses in Q1 are expected to be down from fourth quarter levels due to the decline in legal accruals and seasonally lower performance based compensation given annual compensation plan resets, which will be partially offset by usual seasonal payroll tax resets.

Our fourth quarter operating margin was 6%, which which was negatively impacted by 60 basis points because of the aforementioned legal accruals.

Excluding this impact operating margins fell within our expectations.

Our compensation plans are structured to provide meaningful comp compensation to our talent at extremely high performance levels. While this creates higher than normal SG&A costs at fourth quarter growth rates. We believe this structure serves as yet another retention and standard for our most talented and productive people and benefits our shareholders.

Over the long term.

Our effective tax rate in the fourth quarter was 11, 6%, which was significantly lower than our expectations due primarily to a larger tax benefit upon the vesting of restricted stock as a result of an increase in our stock price.

The lower effective tax rate positively contributed nine cents to earnings per share in the fourth quarter, which offset the negative impact of nine cents.

As a result of the $2 $4 million legal accrual.

We generated $126 million in EBITDA in 2021, which represents an increase of 32% year over year.

Operating cash flows were $72 $9 million in 2021, which included a negative impact from the payment of payroll taxes deferred pursuant to the cares act from 2020 of approximately $19 million.

We returned $74 $5 million nearly 100% of operating cash flows for the year in capital to our shareholders through $21 million in dividends and $54 $4 million in share repurchases. Our return on invested capital was approximately 45% during the fourth.

Quarter.

We ended the fourth quarter with $3 million and net debt.

Our business continues to generate significant operating cash flows and we were again active in repurchasing nearly $10 million in stock during the fourth quarter.

Since 2010, we've returned in excess of $700 million.

In the form of dividends and share repurchases, which is referenced represented approximately 80% of the capital regenerated over that same time period.

The strengthen our balance sheet and availability under our $200 million credit facility allows us to be opportunistic in returning additional capital to our shareholders, while continuing to evaluate potential acquisitions with that said our belief is that a focus on organic growth provides us the best opportunity for long term success.

Thus, we will continue to apply very stringent cultural and financial filters to any any transaction.

Given our confidence in our future growth prospects, we expect to remain active in repurchasing our shares at current stock price levels.

Support our intentions going forward our board of directors recently approved an increase in share repurchase authorization under our existing repurchase program to $100 million.

As an additional sign of confidence going into 2022, our board also approved a roughly 15% increase in our quarterly dividend effective in the first quarter. This.

This increase will bring our dividend yield to slightly less than 2%.

Current stock price levels.

With respect to first quarter guidance. The number of billing days are 64 days in the first quarter of 2022, which is three more than the fourth quarter of 2021, and one more day than the first quarter of 2021.

We expect Q1 revenues to be in the range of $403 million to $411 million and earnings per share to be between 72 and.

80.

Gross margins are expected to be between 28, 1% and 28, 3% while flex margins are expected to be between 25, 7% and 25, 9%.

SG&A as a percent of revenue is expected to be between 22, 2% and 22, 4% and operating margin should be between five 4% and five 8%.

As a reminder, first quarter operating margins are typically impacted by approximately 150 basis points due to the seasonal impact of the annual payroll tax resets.

This also impacts earnings per share by approximately 21 cents.

Weighted average diluted shares outstanding are expected to be approximately 27 million for Q1.

The effective tax rate is expected to be 26, 5%.

Our guidance does not consider the potential negative impact on the demand environment from a significant increase in COVID-19, Berrien cases, the effect if any of charges related to any onetime costs costs or charges related to any pending tax or legal matters. The impact on revenues of any disruption in government funding or the firm.

Response towards regulatory legal or future tax law changes.

We are excited about our prospects for growth in 2022, given the significant momentum we've created in 2021.

We expect this growth to result in continued expansion in our operating margins and significant increases in earnings per share, while allowing continued investments in technology and our people both of which we believe benefit our shareholders in the long term.

To assist you in better understanding our expectations of growth and profitability. We provided you with some additional information in our press release.

Based upon current market conditions, we expect full year revenue growth in our technology business should be at least 15% more than twice current market expectations.

Revenue for our <unk> business will likely decline more than 25% due to the net impact of.

Revenue declines from business that we are no longer pursuing due to our strategic migration to higher end skill sets and from the elimination of COVID-19 revenue streams.

This would result in total revenues of at least $1 7 billion.

Of which greater than 85% will be technology as we exit 2022.

We also expect 2022 earnings per share to be $4, 20, or greater and for operating margins to be at least 7% for the full year.

Overall, we believe we are in an exceptional place.

We believe the strategic decision to focus our business and providing domestic technology talent solutions is paying dividends, we couldnt be more excited about our future growth prospects, our shareholders continue to benefit from strong performance and efficient capital allocation.

Predictable cash flows provide significant future flexibility to make investments and continue returning capital to our shareholders.

On behalf of our entire management team I'd like to extend a sincere. Thank you to our teams for their efforts and outperforming market expectations through the adversity and uncertainty of the past two years and continuing to build on that success in 2022.

Operator.

We'd now like to open up the call to questions.

Thank you.

Minder to ask a question you will need to press star one on your telephone.

Your question is yes <unk>.

Please standby, while we compile the Q&A roster.

Your first question comes from the line of Josh Vogel from Sidoti <unk> Company. Your line is now open.

Thank you and good afternoon, everyone. It's certainly a really impressive results and performance and guidance.

First question I have for you is in thinking about the outlook.

Can you quantify what direct hire added to EPS last year and then.

Given your full year you know.

What level of activity is baked into your base revenue and EPS guidance numbers. Thank you.

Hey, Josh.

This is Dave Kelly.

So obviously.

Direct hire because it's a strong market overall.

It was accretive to the EPS, we don't really have a specific breakout of that but as.

As I think about 2022.

Our expectations in terms of growth rates or not to do but I don't have the same type of growth. So.

The predominant leverage that we're going to see in earnings are going to be driven really by the technology revenues.

That we see right.

Direct hire is just a small just a couple of percent of revenues anyway. So.

So the big driver clearly is as technology growth.

I'm sorry, your second question Josh quickly.

No that that will have pretty much covered it.

Yes.

And shifting gears, a little bit and understanding how you strategically moved to.

To focus on tech domestic tacking.

Clearly, we're taking share.

You know, maybe just a little bit more thoughts on where it's coming from.

Is it that competitors don't have the available pool of resources are you seeing larger enterprises are clients that are just finding it too difficult to find the talent in house channels basically whats driving it what do you think or are your key differentiators.

Yes, Josh this is Joe Liberatore, I would say just the market backdrop is a big piece of it I mean, when you look at especially the pandemic accelerating everything.

I think I mentioned it.

Last quarter I mean.

Pretty much the digitization of one's business, it's table Stakes at this point in time.

No company can afford to opt out and even be really slow to adopt so I mean I've been in the tech space now for 34 years and it's never been this robust all things are hitting at the right time, you have high demand for resources you have.

Increased project demands because of the way everybody is having to move their businesses forward. So it's really the backdrop. That's that's driving it I mean and again, obviously if you look at S. IAA numbers, we are taking market share, but I think the overall space has been performing very well I would attribute our performance specifics.

<unk> It really started with our journey probably back in the 15 16 timeframe with all the investments we've made in technology to enable our people as well as revamping our go to market with what we call our K way approach to bring bring our services to market and.

So we've invested a lot in leadership development I mean, our people are our leading better than they've ever led so I would really attribute a lot of it to our team and the efforts of our team. So secular for sure I mean, we've been saying that since coming out of.

The financial crisis that we saw really a secular shift taking place versus historically, our tech had been viewed.

From a cyclical standpoint, and I think if you look at the course of our performance through the the last two downturns. It has clearly proven out that tech is at the heart of everything and every business and then I would say the other big pieces or productivity.

If we go back and we look at pre pandemic, our productivity is up 32%. So that's it.

Say all of those things are really driving it.

Those are good insights, thank you and a little bit on a tangent can you just talk about we know that it's a very supply constrained market, especially amongst specific skill sets.

Just can you talk about some of the successes that you're having on the candidate engagement front.

That maybe some of your competitors aren't.

This is Kai Mitchell I think we're doing a fabulous job on that front. Our recruiters are highly skill. They are used to working in demand constrained environment that are tightly says, we've really invested in technology platforms to assist them in doing their job and.

It's paying off I think there is a lot of struggled to find that talent, but with US we have that reputation like I said, we're the most recognized by technology professionals, we represent 70% of a fortune 500, and consultant and candidates want to work for us. So I'm very pleased with the progress.

And our recruiters are making and how they are continuing to deliver time and time again for our clients.

Thank you and just two more quick ones and I'll hop off you you noted.

We're seeing bill rates in Tech flex up just under 4% year over year, what were pay rates up year over year.

Yes, Josh Dave Kelly again, so pay rates were up slightly less than that I think kind of interesting dynamics in our tech technology business feel very good about it right. So bill rates were up I think you can kind of look at in aggregate dollars or about three $3 an hour obviously.

As we've indicated we see that as really a tailwind to our business.

And Additionally, a really nice improvement in spreads so not only are we getting higher bill rates, we're getting higher margins. So bill rates are are expanding.

As a result of that at faster rates and pay rates. So we feel really good about where we're going here.

In terms of being able to manage this with the mix of business that we have.

Alright, Great and then lastly, I'm sorry, if I missed in your prepared remarks, but what was the nature behind the law suit.

Yes, Josh.

So.

This is these are these types of things obviously unusual for us and we previously made some disclosures in our 10-Q and 10-K, it's a wage and hour related.

Kind of unusual for us and we've reached a tentative settlement on that so not a typical thing for us. So we felt it important to it.

Call that out.

Gotcha, well, thanks for answering all my questions and congrats on a great year.

Thank you Jonathan.

Your next question comes from the line of Mark Marcon from Baird. Your line is now open.

Hey, good afternoon, and congratulations on the strong results.

And also want to pass along my best.

Best wishes to Dave Dunkel, So nice to see the transition being a smooth as it is.

Sure.

Can you talk a little bit about the opportunities to further increase the bill rates on tech flex they were up three 8%, obviously, we've been operating in a talent constrained environment for quite some time. So it's nothing unusual, but just wondering to what extent the higher level of wage inflation.

Going across the.

The entire economy gives you permission to potentially.

Kris Bill rates on the tech side, a little bit more.

Yes, Mark I would say we're seeing it.

We have a lot of data in our hands now. So we're we're all out in terms of engaging with our clients to bring data to them to tell them that what's happening in the marketplace. You know another interesting dynamic when we look at some of the escalation. That's taken places we're seeing this migration from the coast to really into.

The Central U S, which is a kind of an interesting phenomenon.

Central U S is up is paying west and east coast right. Because those people are working remote so I would say remotes playing into that in a big way.

In terms of driving I would say on our end based upon the nature of how our business constantly re prices itself we.

We feel very confident and I think if you go back and look at history and again, you've been around a long time like I have through every cycle, we've been able to manage through that irrespective of the us supply demand constraints and market pressures that are taking place. There I mean, Cai is there anything else, Dave maybe you want to add that youre hearing from <unk>.

And customers.

I think the only thing I would add Joe is customers do understand that demand is going up prices are going up due to this new phenomenon.

Consultants being able to work anywhere I like Joe has seen and so we've been very fortunate to be able to provide that.

The data to show them, what is happening in their market and their local markets with new.

With new competitors, you know seeing companies everybody coming into the Midwest like Joe said, we're really focused on training, we're really focused on data and educating our customers on where that trajectory is going so I do think right now we're doing a good job of keeping up with that and we'll continue to do.

DSO.

Great Hey, Mark can you.

I'm sorry. This is Dave Kelly you asked for kind of a trajectory I think as we think about this and everything that <unk> said every one of your jokes side clearly the expectations that we haven't given the quality of our customer base given the increasing managed solutions business that we're doing and we've seen historically three or 4% increases a year in bill rate.

Probably for the last five or six or seven years I don't know that we see that changing so we see.

Continuing opportunity to take advantage of that.

Great and then can you talk a little bit more about the percentage of the business that youre doing on a remote basis and you know.

How far along are you in terms of fully.

Pointing that dynamic.

And to what extent does that give you competitive advantages relative to other players that could potentially expand your penetration of the existing clients as well as gaining new clients.

Yes, so I'd say, there's two pieces to that question. There's a there's an internal piece and then there is the <unk>.

External client dynamic.

Really control the external client dynamic however, I will tell you we still see a very high percentage of roles are being performed in a remote manner.

And you read the Wall Street Journal and see all the releases coming out Theres No question. Many people have rolled back there.

People back into the office, not just because the omicron, but because of defections and ability to hold on it's interesting because we have a couple of new what I'll call screening criteria that we go through on top of everything else in one of those is where somebody is relative to their desire to work remote or not so it's actually a qualification.

No different than vaccination is another new qualification. So I'd say at this point in time, a very high percentage of our consultants do remain remote.

Outside of those that physically do have to be on site like those that might be working in innovation labs and things of that nature, but it's going to be a company by company.

Scenario, so as omicron passed us by and.

Opening start to come about.

Your guess is as good as mine on there I will tell you, though if you read any of the publications that are out there they talk about very high percentage of consultants.

Consultants really saying that if other forced to go into the office there'll be looking for a new job and when you're in this type of environment.

Sure. It's supply demand is so imbalanced there really in control I would say from an internal standpoint.

That's truly where the differentiation comes into play we made a commitment back in may of 2020 to really reshape our business. We've invested a tremendous amount in terms of technology and processes and more in the process of continuing to roll things out. So our belief is the way that you're going to be able to.

Old onto people long term is to buy by providing them flexibility and choice, while equipping them with the best platforms that are out there. So I'm really excited about the things that we have going on from that standpoint, and it's a it's a path that we're committed to many talk about remote out there and say various things we've committed the cap.

We've put our best people on this and we believe that that is the optimal model in the future to really retain and hold on to people.

Joe totally agree on that.

Far along are you with regards to the rolling out of the current technology initiatives, one will not be complete and I know it's a.

Constant evolution, but just in terms of the current iteration.

Yes, that's a great question.

We've really been rolling things out for the better part of probably the last eight months, we're rolling out some really neat technology that I'd, rather not get into the particulars of them right now just from a competitive standpoint, but when I sit here and look at the things that we're doing what they also gonna do theyre going to unlock our ability to really leverage our national footprint.

And our ability to take candidates across multiple geographies, so instead of that.

That candidate may be getting exposed to two or three local requirements will be able to expose them across the entire enterprise, which obviously increases the probability of placing that candidate when we expose them to more opportunities likewise getting them that optimal match. So.

Historically, we've also been investing a lot in our cloud based technologies I'll tell you I sit here and say I wish I could say, it's all strategy, sometimes its strategy. Sometimes it's luck the decision that we made to go with the dynamics platform.

Ahead of the pandemic happening and then when you look at what Microsoft's been doing with their platforms not just from a team standpoint, but what they're doing with D var, what theyre doing with Clinton and various other things and linking things back together through linked Dan.

Those decisions to move in that direction and cloud base really have just made a big difference for so a lot of exciting things come in or people have been incredible in terms of the embracing the change and embracing the technology I gave our leadership a lot of credit and also.

You look at what our people accomplished by the way I would say this just goes back to our corporate mentality.

Back on March 17th when we took the whole entire firm virtual our people were up on teams doing video and so on and so forth I still talk to some.

Fortune 500 companies today, where they are really still haven't embraced video as you know they are waiting for the world to go back to the way. It was it will go back to the way. It was in terms of the human interaction and getting together, but I think when people can have that.

In office when necessary remote and not deal with the five day grind commute and all that all that time back just turns into productivity and a higher quality of life.

Absolutely agree and I appreciate the comments.

Thank you.

Your next question comes from the line of Tim Mulrooney from William Blair. Your line is now open.

Yes. Good afternoon, just a couple from me congrats on a nice quarter. So you just talked about a strong backdrop driving your results.

I can appreciate that but your I T. Flex business has performed better than many of your public peers throughout the pandemic. So I'm, hoping maybe you can just unpack that a little for US what do you think is driving that outperformance and if you think you're taking share from other staffing firms at the sub verticals you're focused on or maybe.

Maybe taking share from other traditional it services companies.

Yeah, I'll kind of all kind of lead and then I'll, let <unk> add a little bit of color because she's.

Really been responsible for driving these strategies, so I'm not going to reiterate the things that I mentioned earlier in terms of the investments and the changes in our overall models with losing getting after but I would say a big piece of this also is as we're continuing to move upstream with our managed teams and solutions businesses.

Saying a piece in that maybe.

Maybe you can give a little bit of flavor on that front just said.

And some of the types of things that we're seeing.

Yes. Thanks for the question I think we're doing a great job continuing to move upstream part of our success in outpacing our competitors since really the footprint plenty man two.

A day you hear about digital transformation everywhere, that's a big area of focus for US. It has been for several years and companies if they werent pre pandemic looking at digital transformation. They are today. So that's the big one that really I think we focus several years ago look.

None of our business, how do we want our portfolio to be.

Moving FTE recruiters every two technology no distraction from acquisition is really focused on simplifying the business model and then going after the areas that we know we can perform and time and time again with digital strategy with cloud with big data.

I'm really proud I do think our people are just hitting all time productivity high while demand is there as you said, it's really about the ability of our people and environment. We've created for them could be L. Pic selling capturing that market share. So really pleased with what the teams are geely.

Well you guys certainly seem to be doing a great job capitalizing on the environment and.

Continued outperforming.

One more from me it looks like this.

On your.

Operating cost structure. So it looks like your SG&A I guess grew a little faster than your gross profit in the third.

Fourth quarters of 2021, but based on your full year guide for 'twenty two it looks like you expect that trend to reverse at some point during the fiscal year I know you've done some work on improving your cost structure is it fair to assume that your guidance for full year 'twenty. Two is based upon getting leverage on your <unk>.

G&A in and seeing that decline as a percentage of sales for the full year.

Yeah, Tim Thanks for the question. So yes, right. So when we think I think I made commentary that we expect operating margins of at least 7%.

As compared to six 7% in 2021.

And yes, we're expecting that to come from leverage predominantly in the operating costs.

A couple of things I think I would say and we've alluded to this in our remarks and in the past.

We think we're making great investments and in.

And higher compensation costs to generate I think Todd you mentioned, 32% to 33% growth in tech Q4 to Q4.

We have.

Hey, <unk>.

Designs.

Exceptional pay for exceptional performance and to your point earlier, we believe that is the case and we think that's the right investment for the shareholders to drive significant earnings per share. We think it's beneficial for us in the longer term because it helps retention you know if we can grow.

In excess again a percent as we'd said in technology in 2022 might we have slightly higher compensation costs that we would have if we would have only quote only been growing at 8% to 10% sure. We do expect a little bit higher so we're trying to bake that in so it's a combination of probably a little higher.

Compensation costs because of the exceptional growth, but we are getting leverage overall as well. So there's a couple of different things in that I've mentioned obviously.

In the fourth quarter at least that CNA was.

By a one time item, which drove up cost by about 60 basis points as well so combination of things.

All in all I think.

We're making the right choices and the right investments.

Right Tim.

I would add Oh go ahead.

No sorry.

Yeah. The one thing I might have missed it if dave touched upon it but you know here for the better part of the last five or six years, we've been growing our productivity on a year over year basis by roughly 10% as I mentioned, it's accelerated here through the pandemic.

As I mentioned earlier it is up 32% from Q4.

2019.

And we believe that we still have a lot of capacity there and we're just beginning to get the traction with a lot of the investments. So we do believe that we're going to continue to see increased productivity across the board I mean, just looking at how our teams have been performing across all pet and this is across all 10 year cycle. So it's not just our most tenured people, but even our <unk>.

Less than one year.

Productivity is up pretty substantially so I mean, I think that just speaks volumes. So some of this will come from continued productivity.

Understood appreciate the color. Thank you.

Sure.

Your last question comes from the line of Tobey Sommer from Truest Securities. Your line is now open.

Thanks, I was wondering if you could give us some color on how youre progressing in your higher value services. Some some folks on the market called managed services or <unk>.

Consulting or statement of work just update us on where that fits in and what your kind of goals are for this year and beyond.

Yes, I'll, let Scott touch upon.

Some of the goals, but I'll kind of give you the broad broad based on that.

Where we're really winning in that space is in that space really sitting between what would be considered traditional staff augmentation and the traditional consulting and I really think it's because of our ability to be nimble be more cost attractive and provide higher value, which is really synergistic with.

Our past performance inside.

Our existing customers and then getting proof points within those existing customers and then taking that for new client development. I mean, I think all of that I think our offerings here really position us to take.

More ownership.

Still providing that and client well with some of the control and desire that they have over the solution that they're looking to implement and so maybe you can give us maybe give us some flavor of some of our more recent wins and that'll just give them a feel and then you can talk about how you see things continuing to progress.

Yes. Thank you Tobey I think we're going to continue to see a lot of growth in these areas and again our customers like Joe said are trying to have us move up that value proposition team with them and so as we're leaning in and we've had big wins and again I mentioned it earlier additional transfer me.

But not.

At the consumer level, we're doing everything from one of our big ones. We recently had was working with a fortune 100 customer to really digitize, our entire supply chain or a big retailer and they're having trouble meeting all the demand is so many people arent. So they really wanted to go through and digitize that whole system.

And so we're working with them to do that we had another recent win where the client was looking to take it in house from a big well known consulting firms had previously outsourced that they wanted to bring in their whole digital experience everything from mobile web.

<unk> call center everything could be in there in house with them and they felt after we've partnered with them for 20 years on the staff oxide that we knew them well enough. We can help them bring that back in house and then help them from a management team perspective, and we were really excited to do that and in fact.

Since they've brought it back and they actually just recently won the J D Power's Award.

And their bracket so.

Do you think customers are looking for more flexibility I also believe we can bring their recruiting to them that they need so while theyre looking for us to bring more skin in the game on outcomes and things like that they still need that.

Heavy duty recruiting experienced which we can bring to the table.

No.

We're really excited about it and and 90, thank again, our recruiting and flat what makes a big difference for us there.

Yes Tobey.

Lastly to wrap your question from from a goal standpoint, I will tell you whatever you whatever you see as are our tech business top line growth, we're growing at a much higher rate in terms of this offering now we havent broken out percentages or anything else, but I at least wanted to give you a flavor there directionally.

These offerings have been outpacing our overall growth.

Okay. Thank you and I'll just ask one follow ups anywhere about the hidden out when you look at.

This aspect of your business in the market that you're that you're kind of competing in now how many.

Check traditional tech.

Staff all players are operating in this market and active at scale.

Yes, that's a great question because they add scale is the key component there because as you well youre well aware I mean, the competitive landscape. It's really the full spectrum, we're competing against the the large brand consulting firms regional local niche providers. We're also competing against the internal projects, where the clients looking to <unk>.

There are certain aspects, but their internal teams also proposing.

To really take ownership of it but from a a traditional legacy staff augmentation competitive landscape. There is theres a number of players out there that I think are moving very much in the same direction that we are.

Well, probably all moving along at comparable rates in terms of the mix and shift of our business short of any that might be doing acquisitions to change that overall, miss but from an organic standpoint, and again, it's because it's natural as COO.

I mentioned the clients are pulling us in this direction for all the reasons that we've mentioned so that they're in.

And I loved personally I love seeing some formidable competitors out there that you know we slugged it out with on the SAP augmentation front, a year in and year out moving into the same space because I think that's just indicative to where the overall space is going and the unique positioning that those coming from the staffing side really bring into the mark.

In comparison to the legacy solutions providers that are out there. So you know who the I'm not going to call out specific names, but it's the most reputable ones that are out there.

Some of the bigger players are all moving in this direction.

Thank you Joe Thank you for the extensive response.

Congratulations on taking the helm.

Thanks, Tobey appreciate it.

There are no further questions at this time I would now like to turn the conference back to Mr Laboratory for closing comments.

Well.

Thank you for your interest in and support of K Force in closing I'd like to thank every K forcer for their incredible efforts and to our consultants and clients for your trust in Kay for some partnering with you and allowing US the privilege to serve you 2021 was a year of exceptional results and we.

Look forward to talking with you again after our first quarter 2022.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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