Q1 2022 Kforce Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today at this time I would like to welcome everyone to the K Force Q1, 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question at that time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again Press Star one. It is now my pleasure to turn today's call over to Miss.
Sure Joel liberate Tory President and CEO , Sir Please go ahead.
Good afternoon. This call may contain certain statements that are forward. Looking these statements are based upon current assumptions and expectations that are subject to risks and uncertainties. Actual results may vary materially from factors listed NK forces public filings and other reports and filings with the Securities and Exchange Commission we cannot.
To undertake any duty to update any forward looking statements you can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within our investor relation portion of our website.
We delivered another quarter of exceptional performance in the first quarter as both revenue and earnings per share meaningfully exceeded the top end of our guidance. It has been widely publicized that the COVID-19 pandemic accelerated many years of technology adoption and advancement. This as a result in a corresponding acceleration in demand for highly skilled talent to assist.
Across every industry to rapidly digitize business models.
The strength in our financial performance continues to be led by strong growth in our technology business as our business continues to become more highly concentrated in technology. It is also driving significant increases in profitability levels, which meaningfully accelerated and we're a firm record levels in the first quarter, Cai Mitchell and Dave Kelly will speak to our resolve.
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Since growth resume shortly after the onset of the pandemic, we have quarter after quarter improved our performance and raised our own internal expectations of what is possible the improvement in our performance starts with our strategic positioning over the past 10 years. My Thanks go out to our leadership team and associates for continuing to stay true to our strategic vision and for.
Their relentless execution strategy without executed some matters very little and I'm proud of our teams consistent execution and unwavering commitment to serving our clients and candidates. We are clearly capturing market share and growing at over triple the market rate in our technology business and the strongest demand environment I have ever experienced in my 34 years.
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Our team continues to have a meaningful impact on all the lives that we serve and achieve success through lasting personal relationships and this is translating into our superior results. The temecula macro environment continues to be shaped by the highest level of inflation that we've seen in over 40 years, the tragic and senseless humanitarian.
Crisis occurring in Ukraine, and further challenges to supply chain that is already strained by the pandemic. This has raised concern as to the sustainability of growth in our economy as well in terms of the impact of inflation.
While we are certainly experiencing wage and cost pressure. It is thus far provided a further tailwind to our business bill rates continue to rise in tandem with pay increases as our clients continue to understand the need for the critical resources, we provide as to the risk of a U S recession technology is core to all business strategies rigs.
This industry. This secular chef began coming out of the dotcom era and was further accelerated by mobility and the digital age, resulting in our business demonstrating remarkable resilience and not only navigating the most recent recession brought on by Covid, but also the great recession.
During challenging and uncertain times like these we are truly fortunate to have a footprint that is 100% domestic focused with greater than 85% of our revenue concentrated in highly skilled technology talent solutions. The war for talent is real with far more open jobs than available skilled talent.
Our recruiting core competency focused service offering and freedom from distractions of acquisition integration or any non complementary businesses has been a true differentiator to our consistent outperformance over the past few years, we have a pristine balance sheet, which allows us the ability to both invest in accelerating organic growth in advance.
Our technology platform, while also returning capital to our shareholders, we are executing and delivering record levels of performance.
And our significantly outpacing industry benchmarks, we cannot be more excited about our future prospects regardless of state of the macroeconomic environment.
As the business environment continues to open up several away with the opening of our field offices to a new way of doing work, which we call office occasional our unique environment provides our people with maximum flexibility and choice and designing their work data that is grounding in our trust in them supported by technology.
We have a remote first approach to support the life work balance our team has become accustomed to as we've moved through the pandemic. We're an industry leader in talent solution space, delivering superior financial results and our offering maximum flexibility to current and future top talent in designing their work days. We believe these factors among others will.
<unk> K forces the destination for top talent in a time, where there is great disruption and the labor markets. Our path forward is clear and we will remain consistent with our principles under which we've been operating so successfully.
And servicing our customers there is simply no other market, we want to be focused on other than a domestic technology talent solutions space as it has in our view the greatest prospect for sustained growth we have the right team in place to capture additional market share within what we believe will be a continued extraordinarily strong demand environment for our services.
Kai Mitchell, our Chief operating officer will now 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 Cai.
Thank you Joe I am incredibly proud of our team's hard work and dedication, which led to our exceptional results total revenues grew 13% year over year with all lines of business showing a stronger than expected results.
Overall growth rate was negatively impacted by the planned runoff of Covid related project work.
And during the pandemic, excluding the impact of that cooking business, our ongoing business grew more than 21% year over year, we continue to deliver exceptional organic growth fueled by our technology business and complemented by our update.
In technology, we delivered another excellent quarter at organic year over year revenue growth at nearly 27% on a more difficult prior year comp we have been successful at driving high levels of compounded growth in our technology business as indicated.
Our organic growth at 35% over the first quarter of 'twenty 'twenty it looks like the last quarter not materially impacted by the pandemic.
Our business performed exceptionally well.
And throughout the challenging macro economic environment caused by the pandemic, we believe that the Mistakable Aberdeen better secular demand drivers and the technology talent solutions space are more important to our long term success than any of the changes to the ACA.
I'd now like environment.
Our growth has meaningfully exceeded the industry growth benchmarks over the last 15 years. Furthermore, we believe our growth rates have been consistently near or at the top of the industry.
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Our clients are reluctant to be a key resources, even during challenging macroeconomic environment.
Our highly skilled work on mission critical projects now.
The operating trends, we are seeing in our technology business have remained strong our front end CPI in new assignment starts are at historically high levels. The average assignment duration continues to expand.
With what we saw in Q1 2021 we again experienced much slower seasonal year and if I may and then we have historically seen.
These indicators show our ability to sustain elevated year over year growth rate, even with increasingly difficult comps.
As Joe alluded to in his remarks, we saw acceleration of our average bill rates, which grew nearly 4% sequentially and just over 6% year over year to approximately $85 per hour. In addition, the average bill rate on our new assignment.
First quarter improved nearly 7% compared to the fourth quarter of 2021, which is a good indicator of what we should expect in the future at all their assignment.
More importantly that I'll, let David fill rates have not impacted the strength in the demand environment for highly skilled talent, which we believe supports the criticality of these resources gerrick highest strategic priority.
With the environment moving to less geographic boundary our talent pool of candidates is increasing which is also a positive for our business.
We continue to see acceleration of critical technology initiatives with our clients in areas such as cloud digital UI UX data analytics project and program management.
Our clients are leaning into digitalization not just for the consumer experience, but also to improve the employee experience.
Conversation suggests that clients must and will continue to make significant technology investment to remain competitive.
Technology and business strategy are continuing to intertwine a continued accelerant for our overall technology growth has been investments we continue to make in our managed teams and project solutions capability to meet their evolving client demand. We have continued to add <unk>.
Wanted to resources to our team to support the growth we are experiencing we.
We expect second quarter revenues in our technology business may continue to grow in the mid 20% range on a year over year basis, despite increasingly challenging prior year comps and in the mid to high single digits sequentially.
Our overall as a business, which declined 33% year over year also exceeded our expectations. The growth rate was negatively impacted as expected by the follow up that's our support of initiatives tied to the COVID-19 pandemic. These revenues contributed and.
Legible amount of revenue in the first quarter of 2022 and $24 million in the first quarter at 2021.
Excluding the $24 million impact our overall business declined five 8% year over year because of our strategic repositioning effort.
Our teams have embraced and executed our <unk>.
Strategic repositioning moving us to a more highly skilled assignments. These assignments are less susceptible to automation and it better with our technology footprint. Our strategy has contributed to the success of the firm, including at the average bill rate increasing approximately eight <unk>.
Sequentially, and 21% year over year to over $43 per hour, excluding any impacts from Covid related project work.
While we continue to refine our positioning never FTE business non COVID-19 growth rates will be negatively impacted by the assignment fall off a business, we no longer support that contributed to revenues last year.
As of the second quarter. The followup is essentially complete and the remaining business is providing a stable revenue when combined we expect our overall FTE revenues could decline in the low to mid single digit sequentially and may be down approximately 45% year over year.
In the second quarter as a reminder, the second quarter of 2021 included $34 8 million of Covid related project revenue.
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.
CRM systems are cloud based and seamlessly integrate with other Microsoft products investments to further develop these tools and enhanced capabilities continue.
We have made measured investments in adding talent to areas with the greatest expected return with a concentrated focus and our technology business and we will continue to take price in the near term.
We maintain sufficient capacity to sustain our current growth rate and believe opportunities still exist to further enhance productivity.
Have supported and retained our best people and as Joe mentioned had made meaningful changes to provide our employees flexibility and choice and our new office occasional work environment.
Glassdoor rating continues to be the highest amongst our peers, indicating our people love This new model.
We have continued to maintain a world class net promoter score from our clients and consultants.
I am grateful for the trust, our clients consultant candidate tap and pay for it.
Our teams continue to inspire me every day as we work together to make <unk> the destination employer and the talent solutions space I will now turn the call over to Dave Kelly K forces Chief Financial Officer, Dave.
Thank you Kai.
I am pleased to provide some additional color on our excellent results and prospects.
First quarter revenues of $417 million, Okay Force record grew 13% year over year and were 24% higher than the pre pandemic levels of Q1 2020.
Earnings per share of 93 cents in the first quarter improved 50% year over year and reflects the improving quality of our revenue streams and concentration of technology revenues.
We saw sequential improvements in both flex margins and overall gross margins in the first quarter as a result of both stronger than anticipated direct hire revenues and higher flex revenues in both our technology and FAA businesses.
Gross margins increased 250 basis points year over year to 29, 7% in the first quarter.
While we don't expect continued growth at this pace and direct hire revenues, which constitute less than 4% of total revenues the benefit and a greater percentage of technology revenues is notable and provide significant margin stability given that both our ability to manage bill pay spreads and the increasing desire.
By our clients to engage our firm for project based work.
Flex margins in our technology business improved 150 basis points year over year, and bill pay spreads have been stable while wages are accelerating.
We are also benefiting from a lower percentage of overall payroll taxes and health insurance costs than we've seen historically due to technology being a higher percentage of overall revenues.
Our ability to drive more revenue on average from each billable consultant through higher bill rates and longer assignment duration continues to contribute to the reduced percentage of these costs and results in a structurally higher quality revenue stream that we expect to continue going forward.
Flex margins and RFA business expanded 400 basis points year over year due primarily to a decline in the lower margin Covid project work and improved bill rates and spreads, resulting from the strategic shift to higher skilled roles.
As we look forward to Q2, we expect spreads in our technology business to be stable with first quarter levels, coupled with seasonal improvements from payroll tax resets.
Spreads are expected to expand slightly due to the runoff of lower margin opportunities in the first quarter of 2022.
Overall flex margins will be positively impacted in the second quarter from reduced payroll taxes by approximately 50 basis points relative to the first quarter.
Okay.
Overall, SG&A expenses increased as a percentage of revenue by 130 basis points year over year, principally due to higher levels of performance based compensation as a result of our exceptional financial performance.
We expect SG&A expenses as a percentage of revenue to decline in the second quarter relative to the first quarter as a result of increased leverage from our revenue growth and lower payroll taxes from the seasonal annual first quarter resets.
Our first quarter operating margin was six 7%, which significantly exceeded the high end of our guidance as a result of the better than anticipated gross profit margins.
Our effective tax rate in the first quarter was 27, 1%.
Our business continues to generate significant operating cash flows which were nearly $39 million in the first quarter and our accounts receivable portfolio continues to perform exceptionally well.
We returned $16 $2 million in capital to our shareholders through $6 $1 million in dividends and $10 $1 million in share repurchases.
Our return on invested capital was approximately 48% in the first quarter.
To strengthen our balance sheet and availability under our $200 million credit facility allows us to be opportunistic in returning significant additional capital to our shareholders, while continuing to evaluate potential tuck in acquisitions with that said our belief is and our results suggest that our focus on oil.
Again, a growth provides us the best opportunity for long term success. Thus, we will continue to apply a very stringent cultural and financial filter on any transaction.
Given our confidence in our future growth prospects, we expect to remain active in repurchasing our shares.
We have consistently returned greater than 75% of operating cash flows annually to our shareholders over the past decade.
The strength and predictability of our platform allows us to do so while still providing ample capital to invest in the growth of our organic revenue stream.
With respect to guidance the second quarter has 64 billing days, which is the same number as the first quarter of 2022 and the second quarter of 2021, we.
We expect Q2 revenues to be in the range of 436 million to $444 million and earnings per share to be between $1 15 and $1 23.
Gross margins are expected to be between 34% and 36% while flex margins are expected to be between 27, 6% and 27, 8%.
SG&A as a percentage of revenue is expected to be between 22, 2% and 22, 4% and operating margin should be between seven 7% and eight 1%.
Second quarter operating margins are projected to benefit approximately 70 basis points sequentially from reductions in payroll taxes. This translates into a sequential earnings per share benefit of approximately 11 cents.
Weighted average diluted shares outstanding are expected to be approximately $27 million and our effective tax rate is expected to be 26%.
Our guidance does not consider the potential negative impact on the demand environment from a significant increase in COVID-19, Varian 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.
<unk> response towards regulatory legal or future tax law changes we.
We are tremendously excited about our future prospects given the momentum that we've continued to build.
We expect our continued significantly above market growth will also 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.
Last quarter during our earnings release, we indicated that we expected. The 2022 revenues would be at least $1 $7 billion and then earnings per share would be at least $4 in 'twenty.
Should the demand environment remains strong and full year trends remained stable with first quarter results and second quarter guidance, we would expect to significantly exceed those levels 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 huge dividends, we couldnt be more excited about our future prospects our shareholders continue to benefit from our strong performance and efficient capital allocation.
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On behalf of our entire management team I'd like to extend a sincere. Thank you to our teams for their efforts in continuing to outperform market expectations.
Operator, we'd now like to open up the call for questions.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
I would like to withdraw your question again press Star one.
Your first question comes from the line of Mark Mark Hahn with Baird. Your line is open.
Hey, good afternoon, everybody and congratulations on the strong results I'm wondering you mentioned you know the strengthen in flex that you're seeing.
And I was wondering if you could give a little bit more detail with regards to the verticals in terms of like how broad based the strength was I imagine it was broad based but love to get some confirmation there.
If you saw any sort of particular client activity.
That really stood out and then one thing that you mentioned in your prepared remarks was you know.
Companies not only putting in place digital transformation efforts for the benefit of.
For their clients to involve their consumers, but also two to better engage with their own employees and I was wondering if you could give a little bit more color there.
Sure. Thank you for the question, we are seeing broad based growth across all the industries. You know it's interesting we've really focused in on industry diversification what industries do we want to play in over the last several years and no single industry has more than 20% of our.
Business and we saw every industry, we support up in double digits for great growth across the board, we're seeing a lot of growth and are continuing as you said and in digital and in regards to the comments. They made clients are spending a lot of money on digital transformation.
A lot on everybody knows everything today is being done digitally you know I think 80% of transactions are now going through digital platforms, but they're also putting in that employee experience with the great resignation, that's been going on it's more important than ever that that employees are supported.
That they can communicate with employees quickly that the onboarding experience is good.
And that they have different tools necessary to do their job and they're all taking a digital approach to that too to make it a better experience for those employees to be able to retain long term. So we're seeing a lot of growth in that area as well. So I expect that to continue as we move forward.
<unk> also seen a lot in cloud and cloud is another area, where clients are definitely continuing to make those investments it's not an optional thing for most of them.
With us today in cyber security and everything else cloud is the way our clients are going and we're continuing to benefit from that work.
That's terrific and then can you talk a little bit about.
On the on the Yesterdays side.
Do you expect the second quarter to kind of assuming that the economic environment stays study would you expect the second quarter to kind of be the low watermark or for M&A or would there still be some runoff in terms of some of the areas that you're supporting tool.
To a lesser degree as we start going beyond the second quarter.
You know the biggest impact for us as we go into Q2 as I mentioned in my comments is that we do have $35 million of Covid business that was in Q2 of 2021 coming off that.
That will be we.
We now have hit.
For the most part all of the business has run out so it's very minimal, but we did have it last year in each of our quarters and we're not going to be able to outrun that year over year impact for the rest of the year. However, it will be to a much less degree from a sequential basis, we're seeing a lot of pick up.
Right now from our Bill rates as I mentioned, our bill rates have gone up over 20% and FAA. So we're continuing to see.
Fit from that move and transition into the higher level jobs that won't be automated and as easily and it fits much better into what we're seeing on the technology side too. So we're really excited about where we're going in this transformation with our FAA business. However, it will continue as technology has.
Continuing to grow at the pace that that that's going to be really where our big stories.
Sure Ryan Thanks Schmidt.
I was just wondering whether or not on a sequential basis, we would see an improvement in SA.
I think it all I think get Fei is going to continue to trend down just slightly because we have moved a lot of those FBA associates over to our technology teams and so the levels. We're at right now I think you'll see it start to level off on that.
Now I would anticipate a little bit of sequential decline next quarter great.
Great and then hey, Mark.
Mark This is Joe I was going to give you a little bit more flavor, there because I think the way that you.
You should look at RF businesses, our RSA business is about the quality of the FAA business and and how it aligns with our technology footprint.
So I wouldn't get hung up on what's happening with it sequentially I mean look at what's happening with bill rates as Kai mentioned in her comments I mean, we're really go on upstream here and those roles and there are much more synergistic with tech because again I would take you back to especially with the Covid that we're going to be dealing with here through Q2.
Now moving into the recession and we gave.
Gave the market the indication we were going to go after that business. It was by design when no one knew where the world was going so that we could support our business.
In the back in the early part of 2020.
When that started to become a big revenue stream. We basically said, we're going to run that business out and then basically transcend from that business in the attack and I think we've accomplished that if you look at our tech business up 35% over that two year period, we pretty much have more than outrun, what we brought on from that business.
Great and then can you talk a little bit more about on the tech side, what percentage of the placements are now for virtual positions in other words.
Not necessarily working in the office and how far along do you think we are in terms of that progression in terms of the acceptance.
All of work from home.
Being <unk>.
Completely adapted even in a post COVID-19 environment.
And to what extent does that give you competitive advantages.
To be able to continue to grow above market, particularly relative to regional players that just don't have the same level of capabilities that you do.
Yes, I'll give you the backdrop and then if there's anything she wants to tag on but I would say I think we're really in the early innings I believe it or not of remote work and the reason that I say that is clearly there is those companies that have adopted and accepted remote work, which really provides us a great opportunity to expand.
And I am not.
Not only that the candidates that we bring to those clients, but also from a candidate perspective, we get we're able to provide them more job opportunities, which only increases that probability of snow.
As well as getting to the right match and the reason that I say, it's the early innings.
The things that we're seeing from clients that have been more aggressive about trying to drive technology and I'm, just going to talk about technology and not the market as a whole given that 85% of our footprint and growing.
But those that are trying to drive the technology back into the office and basically said you've got to be back in five days, we have seen that now migrating to okay. You only have to be in three days you only have to be in two days.
So that's why I say I still believe we're in the early innings from that standpoint overall, it provides a tremendous opportunity for us, especially with our national footprint and being able to be on ground with candidates and meet them.
Likewise for our clients just with our footprint across the domestic U S. So very positive from a opportunity opportunity from our standpoint.
Every day more and more companies are embracing remote work and I would say part of that is out of necessity.
It's widely publicized this grade rising nation and just how mobile the world is at this point in time and those organizations are reacting theyre, having trouble attracting and retaining talent. So it's clear if you look out there, especially from a technologists the.
Surveys that are being done out there seven out of 10 technologists that if I'm forced to go in the office more than I want to go into the office up on another job and when you look at where their current unemployment rates are at a macro level and we all know it's much more severe within the technology skill set there.
They are in control so the opportunities are out there and customers are going to be adapting and adjusting.
That's great and then.
Given the strong trends that youre seeing in technology.
Barring a severe recession, we would anticipate that that would.
You would continue to see growth.
Should we think about like the you know.
The operating margin is.
We start approaching closer to $500 million.
And quarterly revenue, how should we think about that.
Hey, Mark Dave Kelly how are you.
So clearly is obviously first quarter results suggest.
And as revenues accelerating into the second quarter.
We're having some nice success driving that improvement to the bottom line.
So the.
The expectation as we grow the business.
Is that clearly as.
As we grow we're going to generate additional operating margin just because of the scale the quality of the revenue stream right technology for us, we talked a little bit and some of the prepared remarks about the health of the gross margin profile.
<unk> technology helps us there.
We've said in the past as we grow that.
We think we're on a path as we continue to grow to double digit operating margins. We haven't put a number out there and said what should it be a $500 million precisely, but I can tell you. Although obviously, we continue to invest in our business as we continue to grow we think it will expand into double digits at some point.
Great.
Follow up with additional questions at the end of the queue.
Yeah.
Your next question comes from the line of Marc Riddick with Sidoti Your line is open.
Hey, good evening everyone.
Good evening.
So I was wondering.
Certainly a lot of detail in the prepared remarks, and thank you for that I was wondering if you could spend a little bit of time.
Bringing us up to date on.
The Bill rate commentary I was wondering if you could talk a little bit about what you were seeing as far as pay rates go and then I have a couple of follow ups there.
Okay.
Yes.
This is Dave Kelly again, Mark nice to meet you.
So.
So what we've seen is quite frankly, what we've continued to see over the course of the last couple of years right. So we're sitting here in an environment, where both bill rates and pay rates are increasing Joe mentioned, the shortage of the supply constraints in the market and our ability to find those obviously our clients understand that they have to pay more.
And we've been doing this for years right. So this is not an environment. That's changed so certainly bill rates are going up in tandem with pay rates. The spreads themselves have been basically stable over the course of the last couple of years, even in a very supply constrained market our expectation as we move forward.
We continue to expect that to be the case. So I think the trajectory here for our business is improving bill rates right. The way, we think and pay rates are going to continue to go up the percentage of that which is generating gross margin is going to be about the same as what it has been historically so more gross profit dollars, obviously as well so.
Really pretty much what we've been experiencing can we expect to continue to experience.
Yes, Mark Hey, Joe.
I'd also just add to that just kind of lifting things.
I mean, we all know one of the biggest macro trends out there is inflation in certain aspects of inflation are more directly related to our business such as wage inflation, which I believe the last numbers put out there as you know surged about 11, 7% year over year in March so one of the things that.
And Cai had mentioned some of this.
Comments that our team has done a nice job on increasing the bill rates and that associated.
Wage increase that kind of flows through to our consultants I mean, one of the interesting dynamics as our clients understand wage inflation better in this cycle than what I've seen in any other cycle in my 34 year career here K Force I mean, no doubt the broad based understanding and awareness has to do with.
All the news and companies are feeling this firsthand with their with their core populations. During this great resignation point being clients are more informed and probably more receptive than ever in working with us to make sure that we're doing everything necessary to adjust so that they can attract top technology talent.
Just want to make sure we lift this up from a bigger perspective on what's taking place.
Excellent and then that actually leads me to the next part of the question I was sort of thinking about when you think.
The digital transformation that you're seeing your customers sort of embark upon and sort of what stage. They are in that process. I was wondering if you talk a little bit about maybe what that does for you on two fronts, one how that sort of adjusted or changed if at all the level of visibility that you have and are working with with.
Are your customers and sort of the projects that they have in mind, how has that maybe changed your level of visibility for your own our results and then maybe you could touch a little bit about on the competitive advantages and how those have either expanded.
With.
With your clients sitting in that direction. Thank you.
I think from a visibility perspective, it hasn't changed that much. Although we do see long range. On this this is not just coming in and doing one project. This is long range full enterprise transport transformation. When do you think about our customer base, 70%.
<unk> of our clients are in the Fortune 500, and they don't have an option.
Money so.
We do see this as continuing long term and great partnerships with our companies I mean, it ranges from everything from you know in the retail space, you're seeing clients, who are really trying to have digital platforms now to handle shipping and returns queue.
And in insurance Tech Youre seeing everything is done now over the mobile apps and those types of things. So you just see it throughout <unk>.
Every industry that were touching but I do think it's continuing to improve the longevity of our of our clients.
And those assignments too we have seen our average assignment length continues to grow we're at roughly 10 months now and it's very sustainable clients don't have an option. They have to do that so I think this is a trend we're going to continue to see for a very long time.
Okay, Great and then the competitive advantage of.
Where do you stand currently and how that's expanded over time. Thank you.
I think the competitive advantage that we have and I'll, let Joe add to that but we we've been after this we were very early in looking and partnering with various cdos chief digital officers across our client base.
We have built out a lot of capability and we've hired some outstanding subject matter experts in this field and then obviously our national footprint is a big advantage for us in this space clients are doing most of the work can be done remote so we're able to have access across the country to identify that.
At top talent, we've invested in great tools that help us recognize who the best and brightest star and our people have really become experts in recruiting at this type of individuals' sell really proud of the progress. The team has made in this space focus wins and this is a big focus for us.
Hi, Martin Thank you very much.
So I was just.
Got it.
Just add quickly guys talking about the competitive advantage just kind of numerically here focus absolutely. When you look at our $85 an hour ability business, even during the pandemic that business Didnt go away. So one of the advantages that we have is being focused here make us a necessity in the eyes of our.
Customers and it's and it led to basically even in the worst of times relative to the market as a whole our revenue held up probably better than anybody in the space.
Excellent. Thank you.
Thank you Mark.
Your next question comes from the line of Tobey Sommer with true with Securities. Your line is open.
Thank you I kind of wanted to expand on that last question could you give us context for the assignment.
In recent history, and maybe describe just described the changes overtime and.
And bring it home if you could with.
What those changes mean and now 10 months on average so your ability and how you manage your business.
What seems like more visibility.
Yes, Hi, Tobey, Dave Kelly, so so to put it in historical context context, so 10 months as compared to I would say if you looked at maybe right. After the great recession. It was probably five or six months. So it's.
So it has really doubled since that time, so what youre seeing is clients holding on to our our our consultants more we get on one of the things that we've touched on and tied mentioned in the remarks, obviously our clients are looking for.
Companies, such as K force to do more project based work those are obviously longer in duration.
So for us it's a combination of the need to hold onto the talent and the type of work that we're doing.
And really that helps us obviously deepen our relationship as Guy said with our clients as well. So so on an ongoing basis as we look to the future as the shape of the business that we're doing continues to move down this path. It just gives us a much more.
Sustainable revenue stream generally speaking.
And do you think we're topping out at 10 months or is there.
Room, after doubling to keep going a little bit.
Well I mean, there's definitely room to go yeah, Yeah, I would agree with Chi right. So so as we see that project based work increase those are typically longer.
The license of assignments. So on average it's going to increase right. So.
So that's just kind of the nature of technology talent is procured these days.
Yes until we were in the <unk> as you're well aware we're in the most imbalanced supply demand in terms of resources in these key technology roles. I mean, this is more severe than it was during the peak of the dotcom and by default we are seeing clients hold onto people longer even when its not in and around the managed.
Team and solutions space, because they realize how difficult it is going to be to find somebody else. We also are seeing clients redeploy our consultants inside their organization, meaning when one assignments wrapping up there are actually helping that that consultant find another initiative inside that organization when they have.
Somebody that has some of that domain knowledge now so that's also playing into this as well.
You kind of prompted a follow up there.
Is that does that change the way you can utilize your.
Recruiting force to cut.
To be more productive hunting, if it's to some degree you're getting.
Renewals or longer assignments as a result of your clients actually redeploying tell us on your behalf.
Absolutely that really gives us some good good opportunities to continue to expand the business. We're really rethinking about how we think about redeployment. We're looking at how do we continue to infiltrate within clients how do we redeploy with other clients. We recently had.
For example, a project that ended it had about 30 people on it and we redeployed 28 of them. So it's definitely something that's working.
For us and with this type of demand will continue to obviously the people that have worked for us improving themselves are the ones that we want to continue to place time and time again.
And if I could just ask you to touch on sort of the consulting value added side of all of the services in contrast, the staff fog.
What is the assignment length look there and are.
Are you comfortable that you can still build that.
At scale on a.
On a pure organic basis.
Yes, I would clarify that yes go ahead.
Yeah go ahead.
Yes, Tobey I would say from a standpoint of the progress we've made with our.
And solutions efforts.
We're very comfortable that we can go this.
Organically if need be we're staying remaining active in the market and looking for that potential right.
Right fit that would bring value added services to our team that we could take across our broad base of customers. We just haven't found that right fit and so to what Kai had mentioned, we're bringing on a lot of skilled individuals that are coming out of solutions organizations that have really allowed us.
To build a strong team and we continue to outpace our growth within this area versus our overall tech growth you know roughly 27%. So we're growing at a faster rate in these areas.
Yeah, and I, even would add to that it's nice not to have the distraction to I think that again is why we're accelerating so quickly.
Thank you for that.
How would you think that the.
Tech Flex business would perform in a longer recession in 2020, because in fact that was.
Severe and Swift.
Right right.
Sort of the great recession, I can't recall, if you had any unique factors either beneficial or or that work against the business at that time to consider.
And sort of evaluating what it would look like this go around should there be one.
Okay.
Yes, I would say I would say and probably the best parallel even versus.
The financial crisis is when you go back to the dotcom because I believe that cycle was very tech centric. This cycle is very tech centric however, their tech centric and very different.
Areas Dotcom as we all know is the Internet came about everybody was scrambling to get websites up everybody was worried about disruptive.
Business models that are out there it was very hypothetical so that's what drove a lot of the bubbles during the dotcom.
This cycle is structurally sound everything that's happening is as we said to digitize individuals' business, whether it be on the consumer front, whether it be on the employee front I mean these are non optional for organizations to not move forward their digital efforts.
I think that plays a lot into how the business would perform in a longer a recessionary period again, let's go back to even the great recession, I mean, the financial crisis at that that was a much longer and the business performed extremely well.
And that cycle. So when we look at the dynamics. There go on them you know we're no longer in the eighties or nineties, where technology was the first place where people went to cut expenses I mean, everything everything has to do with that experience and now with data on top of that so I mean.
We're in the right areas on everything that we're focused on with the end clients in terms of the competitive opportunity and the strategic approach that we've taken for the overall business.
Yes.
Thank you last question from me that some investors have been focused on customer concentration I've heard other companies had a large project.
Could you remind us what is the largest customer represented or maybe the top 10 customers. If that's how.
How you'd like to slice it and give us a comparison for how thats changed in recent history, maybe pre pandemic. Thank you.
Yes, Tobey, Dave Kelly, So so I can tell you that prepay.
Pre pandemic post pandemic, we've always been extremely well diversified from an industry standpoint, Cai I touched on it.
There's no industry as a whole is.
I mean, everything is great less than 20% from an individual customer we don't have any customer concentration of any note right.
Robley less than 5% or so.
So we're not reliant upon any one industry nor are we already won.
And that is I would say by the way Tobey that has been the case for a long time so.
The dynamic it would not really changed over time.
And so if we were a little worse.
We're a little bit different type business, meaning to Dave's point, even when we talk customer concentration realized we have many different initiatives going on within within customers. So.
In any one given project as is.
Our percentage of whatever revenue, we are deriving from a specific client I mean, I think it's also important to put a footnote on that.
Thank you very much.
Sure.
Your next question comes from the line of Kartik Mehta with Northcoast Research. Your line is open.
Hi, Good afternoon, I think you've talked about obviously, what wage inflation has been so far I'm wondering as.
As you look forward to the rest of 2022 whats your expectations are for wage inflation are we kind of at the peak or do you think.
Theres still greater pressure.
That will occur on wages.
Yes, I think I'll leave it.
Great.
Please go ahead Sir.
I think the simple answer is.
In the technology space, we've been seeing wage pressure for the last number of years and I don't think we have any expectation that that is going to change what I can tell you is we've been dealing with this for a long time and we are very confident that.
And I think Joe touched on it our customers really understand it as well so our ability to pass that through to our customers.
We feel very strongly about as well frankly.
Rising wage is really as a tailwind to our business. So I don't know that.
<unk> and quite frankly, I think it's a good thing for us.
And then believe it or not.
Go ahead I apologize.
No go ahead.
Well I was going to say I think you talked a little bit about remote work and were kind of in the early innings I am wondering if that opens up your ability to recruit people maybe internationally.
The ability to do that or maybe if there are hurdles and doing that especially with your customers.
Yes, probably the biggest hurdles that you run from an international work standpoint has to come in and around some of the cyber aspects. So it's very client specific in terms of where the appetite is there.
We believe and again this goes back to domestically, we're one of the top five providers here domestically at 4% market share. So there's just a tremendous talent pool here in the U S and it's a talent pool that we've been involved with and developing relationships relationships with since the day.
We moved into technology, which I believe was back in November .
19 as strike slightly before I joined <unk>. So our focus is on the domestic talent pool.
And also those foreign workers that are on ground in the U S that have experiences working within the organizations. So thats really where K forces focuses.
And then could you just go back to wage inflation I think you saw.
<unk> said that.
It obviously is a tailwind I'm wondering.
Have you seen any signs where maybe your clients might be pushing back because the cost are getting prohibitive.
Costs are much more than they anticipated I realize this is kind of mission critical stuff. So maybe that doesn't apply but I'm. Just wondering if there is the other part of wage inflation that could.
Potentially have a negative impact.
I mean, we could we could potentially see at some point right because organizations can only assume the the inflation for such a period of time until it starts to come back and impact our P&L, but again going back to when you look at how technology is us centric to every bit as this strategy today.
This is probably one of the last places that organizations go to in terms of trying to reduce expense.
So we do see wages continuing to probably increase throughout the remainder of the year there theres been more.
Economists reports coming out there.
That it could be we could be more at the top point. So maybe we start to see that subside to some extent, but again the projects that we're focused on our mission critical projects to the business.
These arent elective.
So I believe the organizations are going to have to go to other areas to look at a reduction of expenses or theyre going to have to cut back on the amount of things. They are doing and focus on the highest priority initiatives in the firm I mean, if you really want to play that forward.
Thank you very much I appreciate it.
Sure.
Your next question comes from the line of Mark to Mark <unk> with Baird. Your line is open.
So just wanted to ask a follow up question.
Clearly.
Flex is mission critical and if we go back even during 2020 when the impact of Covid.
Significant you saw just minimal declines in terms of flex revenue on the other hand, there was a decline in terms of Perm and despite that you were in certainly in an effort.
To a certain degree, but you were able to preserve the margins.
At a very strong level and I'm just wondering what were some of the lessons that you've learned that you know if we go into another recession.
There's parts of the business that arent going to be impacted theres going to be other parts that are going to be impacted you know to what extent do you think youre going to be able to maintain profitability.
As well as you did back in the 2020 time period.
Yes, Mark we war games scenarios, all the time, especially as different things are evolving and we have a very seasoned management team I mean, most of us have been together for over 20 years. So we've seen different cycles, we know they all come with a little bit different flavor and.
I think if you go back and you look at our history. If you look at it.
How we navigated through the financial crisis and now how we've navigated through this most recent pandemic crisis.
We're going to make the right calls and we're gonna have always preserve profitability of the firm.
To keep the business, but we also are going to do and make the right calls to hold onto the talent because we also realized there's always another side again I'll go back to today. Unlike.
Unlike either one of those even with the pandemic even more recent here.
85% of our businesses is wrapped up in technology and that's that's not on the with what less than 4% of our total revenue stream in the permanent non cyclical.
To answer your question, we learn from every one of these cycles and they've driven our strategic decisions going back as far as I can remember coming out of the dotcom. When we came out of the dot com, what we experienced if we werent significant inside customers, we were being exited that changed our account portfolio strategy to become significant within organizations and we're seeing.
The byproduct through these last two downturns of that we also saw.
A permanent revenue stream go from.
It was a $40 million a quarter down to $6 million a quarter and all the real estate overhang and everything else and Thats. When we consciously made the decision to not be that expose them on the permanent side. So through this through this a.
Last cycle, what we learned is we learned with our people speaking in truth and transparency that that improves the trust and that's no small part of why <unk> is performing the way. It is because we work through this as a team through a lot of surveys gathering their feedback doing what they were asking and telling us there.
Needs, where which is really driven where we are with our office occasional witches choice and flexibility.
That are really empowered by trust in technology. So these things don't just come out of the east are I mean, we have we have a really solid team with a lot of 10 year and we're going to make the right calls.
Terrific. Thank you.
Sure sure.
There are no further questions at this time I will now turn the call back over to Mr. Deliberate Tory for closing remarks.
Well. Thank you for your interest and support of K Force I'd like to say, thank you to every K Forrester for your extraordinary effort and to our consultants and clients for your trust in K force in partnering with you and allowing US the privilege to serve you. We look forward to talking with you again after second quarter 2022. Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
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