Q3 2022 Kforce Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the K for third quarter of 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 would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one.
Joe Liberatore, President and CEO you May begin your conference.
Good afternoon. This call contains certain statements that are forward looking these statements are based upon current assumptions and expectations and are subject to risks and uncertainties.
Actual results may vary materially from the factors listed in K forces public filing and other reports and filings with the security and Exchange Commission, we cannot undertake any duty to update any forward looking statements.
You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the investor relation portion of our website.
I'm pleased with our overall performance in the third quarter as revenues and earnings per share were near the top end of our guidance again led by strong sequential and year over year growth in our technology business. The macro environment, certainly became cloudy or in the third quarter with persistently elevated levels of inflation rapidly rising interest rates, which among other reasons is impact.
Seeing prospects for global and domestic economic growth.
We mentioned in our prior earnings call that we experienced a degree of moderation in our kpis towards the end of the second quarter, while trends in the third quarter were below levels experienced in 2021, and the first half of 2022, they remain above pre pandemic levels, though certain of our clients have become increasingly cautious as they prepare for the potential.
You are a U S recession, the criticality of the projects. We are supporting is continuing to drive demand for highly skilled technology talent.
The war for technology talent, Israel with far more open jobs and available skilled talent the strength of the secular drivers of demand in technology was accelerated coming out of the great recession by mobility Big data the cloud and the rapid expansion of consumer facing technology initiatives.
<unk> has only accelerated the strategic imperative for all businesses to further digitize their business to enhanced consumer and employee experiences. These.
These collective technology drivers give us an increased level of confidence in expecting our business to thrive during strong economic times and to be relatively insulated during adverse economic times technology is not optional and is core to all business strategies, regardless of the industry and we don't see that changing in fact, the CEO of a large.
Trade Association, representing technology and engineering industry recently stated that even if some sectors of the economy soften and pullback in their hiring demand for tech talent will continue to outstrip supply for the foreseeable future.
With deliberate strategic intent, we have built a solid foundation with nearly 90% of our business concentrated in providing high end domestic technology talent solution to a diversified set of world class companies in attractive end markets, our debt free balance sheet and strong predictable cash flow gives us flexibility to continue investing to grow our business.
Even in choppy or economic times.
Due to the strength in the secular drivers of technology demand and our client portfolio, which is primarily focused on serving the fortune 500 companies our technology businesses, both consistently grown at well above market rates during strong economic environment and displayed great resilience through the last two recession.
For additional color our organic CAGR is nearly 8% in 2007 is significantly above the market rate.
During the 2008 2009, great recession flexible revenues in our technology business comprise roughly 50% of total revenues and declined only 7% in comparison to the 25% to 30% declines experienced within the general staffing market.
And the 2020 pandemic driven recession, our technology revenues were approximately 75% of total revenues and were virtually flat in comparison to the general staffing market, which experienced 10% to 15% declines.
With 90% of our total revenues now in technology, we feel extremely well positioned to take advantage of both strong and more challenging market conditions to continue growing market share.
Our plans continue with the implementation what we call office occasional work environment and we are extremely excited about the opening of our new state of the art headquarters in Tampa Tomorrow. Our unique work environment provides our people with maximum flexibility and choice in designing the work days that is grounded in our trust in them and supported by technology.
<unk>.
We are an industry leader in the technology talent solution space, delivering exceptional financial results and our offering maximum flexibility to our people. We believe these factors among others are positioning K for us as the destination for top talent.
Our path forward is clear and we will remain consistent with the principles under which we've been operating so successfully.
There is simply no other mark we want to be focused on other than the domestic technology talent solutions space as it has in our view the greatest prospects for sustained growth. We have the right team in place to capture additional market share and are prepared for the long term and whatever near term environment made during.
My sincere thanks to our highly tenured leadership team and associates for continuing to stay true to our strategic vision and for their relentless execution. Our team continues to have a meaningful impact on all the lives. We serve it was inspiring to see how our teams rallied to support our clients consultants and employees they were impacted by.
Came in and for their support of rebuilding the communities around Us Kai Mitchell, our Chief operations Officer will now give greater insight into our performance and recent operating trends, Dave Kelly K forces Chief Financial Officer will then provide additional detail on our financial results as well as our future financial expectations.
Thank you Joe revenues grew eight 7% year over year in the third quarter normalized for our planned COVID-19 related run off year over year growth would have been 10, 7%.
As expected our technology business continues to be the primary driver of our success with year over year growth at 15.8%.
Increasingly difficult prior year comps, we are anticipating close to 18% growth for the full year of 2020.
We have continued to drive high levels of compounded growth in our technology business with revenues, having grown organically, 50% over the last two years following resilient top line growth throughout the pandemic.
We believe our strong consistent performance demonstrates an unmistakable correlation between the secular demand drivers of technology. These drivers are less susceptible to economic fluctuations in most businesses our technology growth has meaningfully exceeded the industry growth.
Benchmarks over the last 15 years and has been consistently near or at the top of our industry for the past three years.
As Joe mentioned, our current operating trends and activity levels have moderated to a degree that demand to remain strong and above pre pandemic levels. Our clients are reluctant to lose key resources, even during challenging macroeconomic environments because of emission.
Critical nature of our projects and consultants.
Another strong signal we experienced is the continued acceleration in our average bill rates, which grew one 4% sequentially and eight 3% year over year to approximately $88 per hour. They continued to increase in bill rates reflects the strong demand environment.
For highly skilled talent and the criticality of these resources to our clients' strategic priorities.
Last year graphic constraints.
I'll pull up candidates continues to increase.
We continue to see acceleration of critical technology initiatives that our clients in areas such as cloud digital UI UX data analytics project and program management conversations with our clients suggests that they will continue to prioritize significant technology investments.
Smith to remain competitive regardless of the economic environment.
Many of our engagements are multiyear initiatives that we expect to continue despite any changes in the macroeconomic environment.
Clients continue to look to us to provide managed teams and project solution engagements, we expect to bring even greater focus and driving disproportionate growth of these engagements as we move into 2023, which will help insulate margins are year over year growth was driven by a diverse set.
Of industries sequentially, we are still seeing broad based demand, but with some softness in select clients.
We have not yet seen any industry vertical as a whole experienced consistent reductions in demand rather even in industry verticals, where have we have seen softness at particular clients. We have seen other clients actually increased spend and award new projects, we haven't very diverse portfolio.
Those large customers servicing 70% of the Fortune 500, which we believe mitigates our risk as we have no significant concentration in any particular client our industry.
While we may be susceptible to short term disruption with our specific clients or industry specific dynamics, we expect our diversification and concentration in world class companies to serve our shareholders well over the long term.
We expect fourth quarter revenues in our technology business to continue to grow sequentially on a billing day basis and increase in the high single digits on a year over year basis.
Our overall at Fei business declined 28% year over year the growth rate was negatively impacted as expected by declines in COVID-19 revenues. These revenues contributed nearly seven 5 million in the third quarter of 2021.
Excluding this impact our overall our fee business declined 18, 7% year over year, largely due to our repositioning efforts.
New assignment starts were relatively flat in the third quarter as we continued to reposition our business, we saw a 6% sequential increase and a 28% year over year increase in our bill rates to over $50 per hour, we expect overall revenues to improve slightly.
Sequentially due to a project in support of Hurricane recovery efforts and declined approximately 29% year over year in the fourth quarter.
As a reminder, the fourth quarter of 2021 included $4 7 million of Covid project revenue.
We continue to support our SaaS business improve its alignment with our technology business.
The investments we continue to make in our strategic priorities along with process improvements to increase productivity levels in our associate population provide capacity to continue to grow while capacity exist. We have continued to make select investments in associate head count to drive sustainable growth.
We have supported and retained our best people and we have made significant changes to give our employees flexibility and choice and our office occasional work environment.
This is reflected in our top scores amongst our competitors on glassdoor across all seven measurement categories, including areas like diversity inclusion and culture.
Key first concern glass doors opening company designation, which recognizes employers that proactively promote and embrace workplace transparency theyre sharing workplace culture being responsive to all reviews and sharing our updates related to D. I N CSR.
I'm so grateful for the trust our clients consultants and candidates have put in K for us I would like to thank our amazing people out there who continue to deliver our impressive results.
Our truly the backbone of our success I will now turn the call over to Dave Kelly Key forces Chief Financial Officer, Dave.
Thank you Kai.
We continue to make progress growing our business and improving profitability levels as third quarter revenues of $437 6 million grew eight 7% year over year and earnings per share of $1.09 increased 13, 5% year over year.
Gross margins decreased 60 basis points year over year to 29% in the third quarter, primarily due to a decline in flex gross profit margins and a lower mix of direct hire revenues.
Flex margins of 26% and our technology business declined 90 basis points sequentially and on a year over year basis. This decline was largely expected due to higher utilization of pay time off by our consultants.
Slight spread compression and elevated health care costs.
Top technology talent remains scarce and we have seen wage increases fairly consistent consistently throughout the year.
Over many years, we've had great success, passing through these increases to our clients and our bill rates due to the critical work of our consultants perform.
This has led to very stable margins in our technology business we.
We believe the third quarter decline represents a fluctuation in margins within our typical range is there are always leads and lags in bill rate and pay rate dynamics.
Flex margins in our Fas business expanded 50 basis points sequentially, and 240 basis points year over year due to a decline in the lower margin Covid project work and repositioning efforts.
As we look forward to Q4 flexible margins in our technology business, which would typically declined sequentially are expected to remain at Q3 levels as we recover from the higher than normal pay time off impacts in Q3.
Overall gross margins are expected to decline due to seasonally lower direct hire revenues.
While we believe the clients may be slightly more price sensitive in the current macroeconomic environment. We believe our nearly 90% concentration in technology provides relative margin stability over the long term due to the desire by our clients to increasingly engage us for projects critical to their ongoing success.
Overall SG&A expenses as a percentage of revenue decreased by 60 basis points year over year, mainly as a result of lower incentive based compensation given significant prior year accelerating growth and real estate savings under our office occasional model. These factors are offsetting ongoing investments to improve our back office productivity.
We expect SG&A expenses as a percent of revenue to be flat year over year and increased sequentially due to three fewer billing days in the fourth quarter, along with continued investments in our business.
Our third quarter operating margin was seven 2%, which was down slightly year over year.
Our effective tax rate in the third quarter was 26, 8%.
Operating cash flows were $7 $3 million and as expected were negatively impacted by a $20 million payment the subtle benefits owed under our previously terminated executive retirement plan.
Our accounts receivable portfolio continues to perform exceptionally well and we continue to prioritize the return of capital to our shareholders. During the quarter. We continued to be active in repurchasing $22 $5 million of our stock.
Given our confidence in our future prospects, we now expect to return nearly 100% of operating cash flows to our shareholders. This year through share repurchases and dividends. This compares to historical levels of approximately 75%.
Our return on invested capital was approximately 48% in the third quarter.
The 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 a focus on organic growth.
Rides us the best opportunity for long term success.
With respect to guidance the fourth quarter has 61 billing days, which is three fewer days than the third quarter of 2022, and the same as the fourth quarter of 2021.
We expect Q4 revenues to be in the range of $414 million to $422 million and earnings per share to be between 88.
And 96.
Our guidance does not consider the potential impact of unusual or nonrecurring items that may occur.
Our financial performance has put us in an excellent position to continue to make incremental investments in our business, which we believe benefits our shareholders in the long term, while also allowing us to improve profitability levels as we grow.
During our Q4 2021 earnings release, we indicated that we expected. The 2022 revenues would be at least $1 7 billion and net earnings per share would be at least $4 20.
The midpoint of our guidance for Q4 indicates that we expect to slightly exceed these levels.
Overall, we believe our strategy has put us in an exceptional place even with the ongoing macroeconomic uncertainties. We believe the strategic decision to focus our business and providing domestic technology talent solutions is paying huge dividends and provides us with unique resiliency and whatever may occur in the economy are.
Shareholders continue to benefit from our strong performance and efficient capital allocation.
On behalf of our entire management team I'd like to extend a sincere. Thank you to our teams further efforts.
Operator, we'd now like to turn the call over for questions.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Tim Mulrooney with William Blair. Your line is open.
Yes. Good afternoon, thanks for taking my question.
My first question is for Kai.
<unk> been doing this a long time and I know this isn't your first period.
Period of macro uncertainty. So can you just talk a little bit about client behavior in this environment, what youre hearing from clients. These days.
Both from the demand side.
As well as client behavior on the process side, so in terms of procurement behavior and bringing on the asset.
Sure.
Yes, Thanks, Tim.
<unk> seen a little bit.
Well in terms of just the hiring cycle. There is still very strong demand, especially in the places we're playing in technology cloud Big data digital transformation demand.
Clients are wanting to see where they.
You might have seen one or two cabinet count or maybe three or four so that's E. One gating actually it's really normalizing.
Not where it was in 'twenty one.
It's much more normal to what we have seen is still higher demand and higher pace than pre pandemic. So.
The visibility we're seeing client demand is still there.
Maybe a little bit more selective with kinder.
Yes, Tim This is Joe what I would add on to that is I.
I think what we experienced in 2021 in early 2022 was very similar to what we saw during the Dotcom era is probably the last time that we saw.
Really the kinetic pace of hiring and I think that's really what caused touching upon is everybody with shortening their process steps because everybody was fighting for the same talent and what we're seeing at this point in time, it's really as Scott mentioned, it's really more normalized to what we would normally see.
Irene cycle.
Alright Thats helpful. Thank you and then Joe I mean, you've shared in the past how your demand for your services are kind of tied more to IP spending by your clients and not so much the labor market. So I was hoping you could comment on what youre seeing with risk.
We expect to spend relative to a couple of months ago, what youre hearing as far as budgets as we head into 2023. Thank you.
Yes, it's a great question right. Because this is one of the things that we always try and clarify sometimes people Miss when you when youre looking at everything Thats in the past about tech companies aligning.
Their head counts and so on and so forth right, where services based organization and not linked to necessary necessarily technology.
<unk> <unk> devices that people are acquiring so I think that gets confusing sometimes but you know all the data that we've been seeing in terms of budgets.
Budgets were very robust pointing into 2023.
Have they have.
Tapped down slightly but still everything the more recent peak.
Pieces that I've seen are all projected to be up on a year over year basis, and realizing that we predominantly work with the fortune 500.
70% of them.
Have to make the investments, especially in all the areas that <unk> mentioned and that I mentioned in my opening comments and that's really where we're hauling Dan. So we haven't really seen necessarily any.
Budget hold back in terms of those areas. We play I mean sure we're seeing unique dynamics client by climbing client by client, but when you go across an industry.
Where we might see one client tightening their belt, a little bit we're seeing the opposite client in an industry expanding their efforts. So nothing of a material nature has changed over the course of the last quarter on from a budget standpoint looking into 2023.
Got it.
Great color, thanks for taking my questions.
Sure.
Your next question comes from the line of Mark Marcon with Baird. Your line is open.
Hey, good afternoon, and thanks for taking my questions.
With regards to your last comments, Joe can you can you talk a little bit about.
The types of investments that are being pulled back by some clients.
And then what areas are you seeing the other clients that are that are picking them up.
What areas specifically are you seeing that in.
If theres any commonalities or if it's just completely random then.
Maybe there is not a conclusion to draw.
Yes, I think your last statement, we believe Theres a conclusion to draw I think it's very client specific and based upon the load of projects that different clients are going after as I mentioned in my opening comments everything, especially in and around digitizing the business, whether it be from addressing the consumer.
Or whether it be addressing the employee to drive efficiencies.
All efforts are wholesale forward on those fronts I would say.
You see clients, maybe potentially pulling certain things back and we don't do a lot of business in the device space.
Per se, but obviously with inflation and consumer spend you do see a ripple in the carry through to some organizations that are really on more of those consumer type devices.
So I think you're seeing a little bit of a pullback on that Brian I don't know if you won't have any other color you'd want to add.
I think we're seeing good demand, but again Cif isn't it.
They are scrutinizing the budget, maybe a little bit more closely and the areas. We're very fortunate as the majority of our businesses in those spaces, where they have they can see that the cloud has.
Thank you Keith.
Like Joe said, this salt and Theres still pushing digital does France.
Their customer experience as well as their employee experience in fact, we're seeing a lot of talk.
Talk about how do we get more out of that employee experience. So their employees can be more productive. So we've continued to have some wins there.
But there definitely is more scrutiny I would say in more like Joe that we had a couple of small things, where it was device space and people aren't spending as much money there, but in those high end.
When you talk to a CIO Cts they have they continue down this path.
Yes, Mark.
To close on this.
<unk> was a big wake up call for all organizations for those that were making the investments in these areas. They realize how they were competitive position for those that may be were slow to the game and making investments in digitizing their business, they've got caught flat footed and really add a lot of heavy lifting to do to keep their business.
There's a line as they were moving through the pandemic. So in both of those situations.
Those that were already making those investments they've accelerated their investments to keep their competitive advantage and those that were caught flatfooted there rapidly trying to catch up and make the investments so that they can better enable their business holistically from a digitization standpoint.
That's great color. Thank you and then can you talk a little bit about the bill rates I mean, obviously, it's pretty impressive to see that the eight 3% year over year increase in the bill rates how much of that would you say is kind of apples to apples inflation as opposed to just moving up a little bit more in terms of the skill sets.
That you're that you are providing or doing some consulting where consulting like.
Projects.
I think we've had the good fortune to be beneficiary. So we have seen some uptick from an inflationary environment that we've also seen a really good uptick.
Again, we're moving up that bill gene into those higher level spot and so.
From that perspective, we're going to continue.
<unk> is a protein that $90 and our bill rate and a lot of that's being driven.
Managed teams in practice solutions offering continued to be a significant driver to our above market growth in technology.
Really proud grew at 16% again year over year and continue to see that acceleration taking place yes. Mark. This is Joe I think it's even more significant than that because its not taken all credit that may be is due here that is against the backdrop.
We've seen more moderation in bill rate expansion in what I would call our top 25 of our largest customers, which means disproportionately bill rates are expanding in those organizations that we felt really are market based accounts are our major accounts, which those are really that the customers that are in that really have.
The evolution stage, so I mean, I think that even gives us more optimism in terms of how our business is positioned.
That's great and I mean, what what's your confidence level with regards to.
The bill rate inflation, continuing and.
To what extent is that insulate you a little bit in terms of.
Volume declines if we do go into a significant recession.
Yes, I think what we've been saying part of it.
There's kind of two pieces of that and then I'll, let I'll, let Todd.
<unk> color.
From a bill rate inflationary dynamics, we are seeing some some softening. We're also starting to see some softening in terms of wage escalation, but theyre still.
I mean, theres still escalation at a what I would say above normal market conditions, but theres. No question that there has been some loosening and I would say at some of the organizations that maybe you had over hired are aligning their resources and those resources are going into.
More moderate size organization nothing's changed from a supply demand standpoint, but we probably are starting to see a little bit of softening how that rolls into 2023, I don't have that crystal ball at this point in time, but that's kind of what we're currently seeing any additional color.
Sure.
<unk> never really seen a bill rate decline in a recession and as we continue to move up into the higher end skill sets. The way we have been I think we're very well insulated from any type of.
Changes.
Out there.
Our folks are continuing to sell.
In the core areas of investment by <unk>. So again I think we're playing in the right space are continuing to move up that Daiichi I don't think there is any change in demand for consulting.
We're still really hard to find.
<unk> technology people get a little worried to play here and what's going on in big companies.
It's not at the levels, where we're placing those people those types of folks.
Yeah.
Develop our senior still very much in demand.
Quite frankly, there is negative.
Unemployment in that space.
We're seeing we're seeing our teams continue to really.
Pricing aggressively.
That's really great color, if I could squeeze one more in.
A two part can you talk a little bit about the pay rate expectations. Among the consultants that you are placing in flex and then also just.
You know, what we should think about particularly going into next year in terms of comp levels for your own folks in terms of dealing with.
With the inflationary pressures that they're facing.
Well, we have and I'll answer the first part of your question, we have not seen pay rates for consultants come down and again I think it.
Thank you.
This demand for highly skilled technical workers, who is still strong. So we have not seen any changes.
Consult to pay.
Dave do you want to answer that second part sure. Yes, so as we kind of look forward and we made some commentary even this.
This quarter with respect to SG&A right. So if you look at the last couple of years, we've been an extraordinary high levels because of the performance of our people and in terms of compensation and as we get to I would say for us more normal levels of gross water twice the market still.
We've seen those levels as a percentage of revenue come down just based upon the structure of our compensation plan. So as we kind of look forward if we maintain this.
More normal environment.
We would see kind of that natural decline in incentive comp. This is true for our commercial associates, even our leadership is very highly leveraged in terms of how we compensate them. So it's kind of a natural.
Way of thinking about.
Where SG&A is based upon our growth rates, yes, I would.
Piggyback on that a little bit with all the investments that we've been making in our business over the course of really going back.
2016 from a technology from a leadership development all the things that we're doing in and around our office occasional and equipping our people. So that they can work anywhere and have the right tools and be able to communicate and collaborate against the backdrop of what's happening with the consultant population a remote workforce, which.
Opening up additional candidate basis for all of our clients Likewise opening up additional opportunities.
For all the candidates or working with across a broader a world class client base.
I think we're making those investments they're going to allow us to continue to increase productivity of our people. It's everything that we've been about our productivity levels. Today are the highest that they've been I've been here 135 years. So there is the highest levels and better experiences a berm, which means our people are making more money than they've ever made so we're going to continue to.
Make investments to drive efficiencies and productivity no different than our end clients are investing in their tools and technologies to drive those things is that whole digitization to address the employee we're going to continue to make those so I would even say against the headwinds of a more challenging economic climate.
I think the competitive landscape changes and you start to see competitors struggle, which means we're just going to go after a greater market share and maybe a market that wouldn't be as large in that type of situation. So I have all the optimism or are people are going to continue to elevate their performance, hence make more money, but we get more leverage out of those.
Visuals.
And the SG&A standpoint, as well so everybody wins in that scenario.
Sounds great. Thanks for all the comments.
Your next question comes from the line of Kartik Mehta with Northcoast Research. Your line is open.
I just wanted to get your feel for how you are feeling this quarter versus last quarter in the sense that it seems like maybe sequentially. There has been a little slowing but you don't see at all worried about 2023 budgets and if youre going to think about 2023 today versus when you reported last quarter any changes.
In behavior from your customer or any concerns that would make you a little bit less negative or positive about two.
2023.
Yes, I would say there is a couple of dynamics.
Our business performed exceptionally well.
Through the pandemic and then 2021 beginning of 2022, probably the best Tech market that I've ever seen.
35 years that I've been in this industry I mean, we're up 50% on a two year comp I think that speaks volumes. So part of that is we're dealing with very challenging comps.
As as a data point, but in terms of anything materially changing.
At our customer base I think Kai added a lot of color on the front end of the call. There if youre looking for something more specific.
Hone in on that and myself.
Myself would be more than happy to provide specifics, but I don't want to be redundant on what <unk> had mentioned on the front end of the call.
No I guess I wasn't looking for anything more specific I think.
Just looking for your feel for how the industry looks in kind of your past experience and what youre seeing today and how that usually plays out obviously, what's happening today and what's happened in past recessions do you have an idea of how thats going to play out.
Wanted to get more just a feel for.
What's your thinking.
I mean, kartik I think it's very important to realize two we're very different than we've been in past recessions, we earned 90% technology today and in the past we had a much broader footprint in various different.
Industry. So I think we're better positioned today, if something were to happen macro economic environment than we've ever been and I do believe the day. When you look at businesses in general they're more dependent on technology now continuing to Mfa's don't continue.
We can move things forward.
And their business.
Like I said, there is clients looking to get more efficiencies out of their employees by investing in technology whether that.
Looking at the data and how you're sort of you know the data to figure out where you should be investing.
Investing in expanding our pulling back in certain areas or whether that condition we had.
An interesting win this last week, where a client of ours in the healthcare space is really looking to improve their digital experience for their own employees because of what healthcare workers have been through in the last.
Two years throughout the pandemic and they know that they are facing some burn out and they need to help people be able to do more and the administrative burden for those folks be less so.
Feel like technology.
Is it a big part of corporate America today, and you're going to see a continuation.
<unk> forward in different ways than we've seen in other downturns.
Any other position at 90%.
Yeah, and Kai touched upon it and when she talks about us being different is not just that we're 90% Tech focus now versus and I had a lot of color in my opening comments and around so I won't be redundant, but part of the reason that I laid that out.
We've been the last two more challenging economic times as well as I can go back even to the dotcom and it would have probably been exaggerated as every cycle, we get less disrupted by what's going on these are technology is not optional you cannot opt out of the technology at this point in time.
Even the 90% technology, we have focus today. It is much more focused in on those areas that are not optional organization. So as I mentioned.
Don't want to trade our market position with anybody.
Body in the marketplace at this point in time, especially when I couple not just our not just our client and the services that we're bringing to those clients that you couple that with the balance sheet that we have we're well prepared for whatever might unfold.
Under any circumstances.
Fair enough. Thank you I really appreciate it.
Sure.
Your next.
Question comes from the line of Tobey Sommer with Truest Securities. Your line is open.
Thank you good afternoon.
How are you dealing with your the hiring of your sales focused staff at this point you've talked about significant productivity improvements over time and on this call are you at.
Adding just asked and if so kind of at what pace.
Where we're making incremental investments, where we think we need to.
Theres always going to be different dynamics amongst the markets, where we're still seeing.
And that we can get.
Seamless investments, we're investing in that.
As you know.
We're able to respond and get what we need to in the marketplace, but we're inc.
Incrementally areas like.
And his team since the loose ends and those types of areas, where we are still continuing to build out in that format.
We are hiring that we if we if we need to at some point we cannot pull.
Pull back on that but right now we're still looking at where do we need to incrementally invest and then I'm sure Dave had mentioned some of that.
Technology, though that is enabling us to do more and more with less.
The people, we do have so I expect to see productivity gains continue that we do want to make investments, where we think we can continue to take on market share.
Yes, I mean, I think as Scott said, we've had for the last number of years and objective of increasing productivity using that to reinvest it.
Weather improved productivity.
Could you give us a fair amount of capacity gives us a lot of flexibility as Joe said, we're going to continue.
Our application model provides additional opportunities for our team to become increasingly productive. So all of the things that we do are really tailored to increase productivity and if we have surges and opportunity. We can selectively add if we see things change we still got plenty of capacity so as Joseph.
Okay.
To kind of put a bow on this we've built out a very strong capability to hire into the marketplace. The team that has been built out is just world class I've seen many iterations of our internal recruiting capabilities and this is the best thing that I've seen a K force in my my tenure at K Force.
Surprisingly, we're having to turn that down a little bit because one of the other things that we're seeing over the course of the last.
12 months is we've really seen our voluntary turnover has dropped like a rock and I would say a lot of that has to do with the culture. We're evolving here K force how productive our people are becoming so we're not having to hire at the same volume of people that we've historically had to be netting up as well.
But we're well positioned and as Guy mentioned, there is a natural throttle on that so we can adjust to whatever market conditions, there, but by the way I'd be remiss if I didn't mention this.
Things were to get more challenging I would never want to imply that we're going to be reducing because thats an opportunity for us to go after market share and to continue to build because we are here for the long term, we're not here for playing for a quarter or any short term, we're going to do the right things and I think if you go back and you look at our history.
Our very prudent in terms of managing our overall capital budgets as well as our SG&A line items.
Thank you. Thank Toby answer the answer is the occasional has been netease draw for us as employees are seeing gas prices and different things come up.
Option to work from home and then also the productivity that you don't have community back and forth.
Really good uptake.
For our people and our productivity.
Thanks.
Could you give us an update on your.
Some folks in the industry call. It managed services some difficult consulting.
Does that stand in terms of how important it is to the company size and growth rates any kind of update you can give us there would be helpful.
Oh, Great question, let me start out by saying that this service offering continues to resonate with our clients and we are really excited about the opportunities in that space.
The total addressable market for that is several times larger than commercial technology staffing. So we ended the team's project solutions offerings continue to be a significant driver for us. So we will keep.
<unk> investment and <unk>.
And looking at that area.
Okay.
Just feel like we used to talk about it more of a few quarters ago and havent heard much sense in terms of the growth in contribution.
Thank you Graeme.
Great.
Alright.
Could you frame the hurricane.
Project.
Maybe.
Size its contribution in the quarter or or even.
Give us an analog experience with.
Maybe maybe prior natural disasters that drove some business.
Yeah, Hey, Tobey this is Dave yes. So.
We've supported.
So.
<unk> strategic clients, who have been doing hurricane relief for years, obviously hurricane is important.
Supporting.
Our partners this is not a big <unk>.
Graham no for us even in the fourth quarter. It's just a couple of million dollars. So it's not something that we.
We focus our efforts on growing so don't get the impression that this is a critical part of our our F&I business. It's not this is really in support of our long time strategic partner of ours. So.
So I wouldn't read anything more into it than kind of a.
The right thing to do for an important an important partner and that's it.
And last one from me.
If you.
Absent economic changes and if we go into recession, maybe throw things off but what what inning do you think you're in in the.
Repositioning of FMA.
I think we're almost there.
I think we're a list there.
I would.
There is still like I mentioned in my opening comments, there's still four 5 million in Q4 'twenty one revenues.
That were almost done and I'm just so pleased with the progress our people have made.
You look at them I mean, our bill rates.
<unk>, 8% year over year to $50 an hour.
I'm really pleased with what they've been able to do in that space and feel like this.
It is that we have had Tim.
Again, just like in Tech, we are moving higher up the food chain to areas that aren't as easily automate it and those types of gene therapy.
It's going well.
Starting to round the stretch on.
The only other thing I would add kind of talks about the bill rates caused a more profitable business right. So.
That margin is.
What 50 basis points up sequentially.
It is much more closely aligned with how we provide services for our technology clients.
In technology, it's up.
More than 2% in terms of margins year over year. So.
Even as she said, we're repositioning almost done its already bearing fruit for us.
Thank you very much.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Your next question comes from the line of Marc Riddick with Sidoti Your line is open.
Hi, good evening everyone.
Good evening good evening. So I know you guys have covered quite a lot. So I'll keep it brief because I really do appreciate all the detail that you provided I was wondering if you could talk a little bit about maybe some of the things you might be seeing as far as.
Client industry vertical behaviors any any standouts call out things that we should be thinking about as far as maybe some differentiation there and then I have one quick follow up after that.
Yes, I would say across the across all of our industry verticals, we haven't seen any.
Shift within any industry.
There's puts and takes meaning there are certain clients that are going through certain dynamics, but then the flip side of that there's others that are really going to be very positive and ramping up.
Their strategic initiatives and what they're doing with technology I mean, just when I look at the performance of our industry. Our top 10 industry verticals I mean to say they are all nice year.
Year over year basis, and then from a sequential on the majority of them are up nicely from a sequential standpoint, I mean, a couple flat, but I would say that's less about that industry vertical and more specific to the client makeup that we have within that industry vertical.
Okay, Great and then this might be a little squishy question, but I got to ask it anyway.
Are you getting any.
More recently tobacco.
Sort of growth driven as far as what you're experiencing with your clients or are you beginning to see any evidence of folks taking on projects that are more cost savings driven.
And do you think we're seeing cost savings driven to like I said.
Clients are looking at it.
So <unk>, obviously, they're taking some cost out of those models as clients are looking to digitize.
They're looking to do more with less so.
It's a good mix of both.
There's a lot of capital investment going on but there are some things that were seeing were.
Well intact as from that cost savings perspective that they're looking to use technology to make them more efficient and effective and therefore reduce some of their car.
Quickly.
For consulting.
Do you if people have seen just very client specific a couple of client swings from day one.
In fact, more and using consultants to give them that flexibility versus.
Sure.
Necessarily hiring full time, but that's been very client specific.
We've been saying this for the better part of 10 years I mean, there has been a secular shift in terms of technology and how technology is embedded in everybody's strategic plans and the reality is even in a in a slowing environment or recessionary environment you have the flip side.
That has never talked about which is companies accelerating their investments in move initiatives forward faster playing for the other side, which again it comes back to technology as it's not an on off switch any longer.
I got into this industry back in the 1988 I mean, it was an on off switch I mean, secondly, things got tough people put projects on hold they held onto hardware longer you can't you can't do those things any longer and be competitive unless you are basically going to put your entire business at risk. So instead I believe the opposite happens.
Organization sit there and look at what can I accelerate that I was already doing to play for the other side. If it is going to drive efficiencies and reduce cost and things of that nature and then improved.
The consumer experience.
Great and then the last thing for me you actually touched on this a little bit earlier as far as some of the headlines that we've seen from some of the big Tech companies and some layoffs here and there so wanted to talk a little bit about maybe how that might.
Eventually.
Play out as far as potentially adding available talent in and maybe how that could sort of sort of filter through or is that a reasonable way of potentially looking at that going forward. Thanks.
I was glad to see that happen.
I think if we saw a little bit of loosening on the talent.
It's a great thing for us, but we haven't seen it yet I mean again I think people see the headlines, but it's really not in the spaces that we're playing in it's not like I said, it's not your cloud engineers not your full stack Java developers that's not.
Your big data architecture.
But if we were to see a level of listening enough I know my recruiters.
Yes, again at aerospace skill areas and Scott mentioned it I mean, we're we're negative employment.
In terms of many of these skill area. So a lot would have to happen for that to flip in the other direction and again as you see larger organizations may be realigning some of their cost because maybe they over higher and grabbed a lot of talent that talents just being absorbed and other organizations that haven't been able to compete for talent.
Excellent. Thank you very much.
Sure.
There are no further questions I'd like to turn the call back to Mr Laboratory for closing remarks.
Well. Thank you for your interest and support in K force for those who might have missed it there was a great piece in Tampa Bay Times yesterday section talking about our opening of our corporate headquarters. So I'd like to say. Thank you to every case for your extraordinary efforts into our consultants and clients for your trust in <unk>.
In partnering with you and also allowing us the privilege of serving you. We look forward to talking with everybody again after our fourth quarter call.
2022, thank you.
This concludes today's conference call you may now disconnect.
Okay.
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