Q4 2022 Kforce Inc Earnings Call

Speaker 2: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the K-Force fourth quarter 2022 earnings conference call. I have no signaling Chalena is a member of the United States LORD

Speaker 3: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star one again.

Speaker 4: I would now like to turn the conference over to Joe Libertory, President and CEO . Please go ahead. Good afternoon. This call contains certain statements that are forward-looking. These statements are based upon current assumptions and expectations and are subject to risk and uncertainties. Actual results may vary materially from the factors listed in K-forces public filing offerings and other reports.

Speaker 5: On this call we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the impact that these items and events have on our financial results.

Speaker 6: Our earnings press release provides the reconciliation difference between GAAP and non-GAAP financial measures.

Speaker 7: Let me begin by offering some commentary about the current operating environment, which is informed by our internal metrics and discussions with our clients and our associates.

Speaker 8: As we've mentioned on prior earnings call, we experienced unprecedented demand in technology business beginning in 2021 and continuing largely for the first half of 2022. Driven by our clients acceleration of their digital spend and transformation efforts geared towards employee engagement in a more remote centric environment,

Speaker 9: and their customer experiences. The unprecedented demand fueled the two-year growth rate in our technology business of approximately 44 percent, which yet again significantly exceeded market benchmarks.

Speaker 10: We had previously noted a slowdown in demand during the second half of the year and more recently have seen a higher level of project scrutiny being exercised by our clients given the macroeconomic uncertainty. However, technology spend on critical technology initiatives across industries is still proceeding and provides a strong underpinning for our technology business.

Speaker 11: We continue to have an unwavering belief and expectation that the long-term secular drivers of demand and technology spend are more present than ever, irrespective of how the economic environment plays out. The strength of our secular drivers of demand and technology accelerated coming out of the Great Recession by advancements in mobility, and the development of the economy.

Speaker 12: big data, cloud, and the rapid expansion of consumer facing technology initiatives. The pandemic has only accelerated the strategic imperative for businesses to further digitize their business to enhance the consumer and employee experiences. Technology is not optional and is core to all business strategies regardless of industry and we don't see that changing.

Speaker 13: While our business is not immune from the impacts of economic turbulence, trends during periods of economic softness suggest that technology spend is increasingly resilient and less correlated than other areas where companies utilize flexible talent.

Speaker 14: This is informed by our performance in the Great Recession, where our technology business is down approximately 7% versus general staffing market declines of roughly 25 to 30%. And the 2020 pandemic, where our technology business was virtually flat in comparison to general staffing market, which experienced 10 to 15% declines.

Speaker 15: We also believe that our focus on organic growth for the last 15 years and the divestiture of non-core businesses has dramatically sharpened our focus and contributed to our sustained success. It has also resulted in a clean balance sheet with virtually no debt and allowed us to return a tremendous amount of capital to our shareholders.

Speaker 16: Today's announcement of a 20% increase in our dividend, the fifth increase in four years, and an increase in our share repurchase authorization is further evidence of our confidence in our business and our intention in prioritizing return of capital going forward. We have significantly improved our profitability levels as evidence by our nearly 300 basis point increase in operating margin.

Speaker 17: and 19.4% preceding the dot com recession.

Speaker 18: The quality of our business and revenue stream continues to improve. To that point, 2022 was an extremely successful year for K-Force. We met the financial objectives we outlined at the beginning of the year, despite the softening in demand we began to experience in the second half of 2022. We grew...

Speaker 19: revenues in our technology business by 18% on top of more than 22% growth in 2021.

Speaker 20: In addition, we further improved our profitability by 20% in 2022 over 2021 levels.

Speaker 21: Strategically, we advanced our integrated sales strategy to further integrate our managed teams and project solutions capability within our technology business. We advanced the repositioning of our FAA business towards more highly skilled positions.

Speaker 22: Our team made significant progress on the multi-year effort to transform our back office, and we fully transitioned to a hybrid work environment across all markets and opened our new state-of-the-art headquarters in Tampa. Our office occasional work environment provides our people with maximum flexibility and choice in designing their work days that is grounded in our trust in them and supported by technology.

Speaker 23: This has resulted in improved retention of our associates and positioned K-Force as a destination for top talent. K-Force is proud to be certified as a great place to work, which distinguishes K-Force as one of the best companies to work for in the country. As we look ahead to 2023, we will continue to make necessary investments in our business to further advance our integrated sales strategy and our business.

Speaker 24: we want to be focused on other than domestic technology talent solution space.

Speaker 25: In a macro sense, the near term is uncertain, but our path forward couldn't be clearer, and we will remain consistent with the principles under which we have been operating so successfully. We have a solid, highly tenured team in place with the expectation of continuing to capture additional market share.

Speaker 26: and are prepared for the long term in whatever the near term environment may bring. We have a long track record of expanding our market share, particularly in times of market turbulence, and intend on continuing to deliver above market performance. I am thankful for the tireless efforts of all K-Forcers from our incredible leadership team, our sales and delivery associates, and our K-Forcers team.

Speaker 27: to our revenue-enablement team and our executive leadership team who have been together through multiple economic cycles. I cannot be prouder of what these teams have achieved in executing our strategy over so many years. Kai Mitchell, our chief operations officer, will now give greater insight into our performance.

Speaker 28: and recent operating trends, Dave Kelly, K-Force's Chief Financial Officer, will then provide additional detail on our financial results, as well as our future financial expectations.

Speaker 29: Thank you, Joe. Overall revenues grew slightly more than 2% year over year in the fourth quarter. Our technology business, which continues to be the primary driver of our success, performed slightly ahead of our expectations with year over year growth of nearly 8% in the fourth quarter and 18% growth for the full year of 2022.

Speaker 30: Our technology business now has an annual run rate of $1.5 billion and represents approximately 90% of our total revenues. We believe our strong, consistent outperformance of the market over many years has resulted from our execution of our economy.

Speaker 31: and dedicated focus in the domestic technology market. As Joe mentioned in his commentary, our recent operating trends and activity levels have experienced a degree of softening as clients appear to be more cautious given the uncertain macroeconomic environment.

Speaker 32: This trend began in the second half of 2022 and has continued into the new year. Snell cycles are becoming longer due to extended interview processes and more scrutiny around budgets. Year-end assignment attrition was also slightly higher compared to the last few years.

sequential growth to approximately $90 per hour. While the pace of bill rate growth may moderate in the near term, we expect that the continued scarcity of highly skilled technology talent will drive continued bill rate expansion over time.

Further, as our portfolio of managed teams and solution engagements continues to grow, we would expect average bill rates to expand along with improved revenue visibility and margins.

Critical technology initiatives continue with our clients in areas of cloud, digital, UI-UX, data analytics, project and program management. Conversations with our clients suggest that they will continue to prioritize significant technology investments to remain competitive regardless of the economic environment.

Many of our engagements are multi-year initiatives that we expect to continue despite any changes in that macroeconomic environment.

Clients continue to look to us to provide managed teams and project solutions engagements. Our integrated self-strategy allows our people to leverage their long-term relationships in this space as we seek to solve our client challenges.

Clients are looking for us to continue to move up the value chain, providing more complex solutions. We feel an integrated strategy allows us to leverage our existing sales, recruiters, and consultants to effectively deliver in the solutions space.

Our year-over-year growth was driven by a diverse set of industries. Sequentially we are still seeing broad-based demand but with select softening.

We have not yet seen any particular industry vertical as a whole experience acute reductions in demand. This remains true through the first month of 2023. We have a very diverse client portfolio of large market leading customers that are prioritizing technology spend.

which we believe will be a positive catalyst to our long-term, sustainable above-market growth. While we may be susceptible to short-term disruption with 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 first quarter revenues in our technology business to grow in the low to mid-single digits year over year and decline in the mid-single digits sequentially, which contemplates the softness we experienced at the beginning of the year.

Our overall FA business declined 26.4 percent year-over-year which reflects the continued runoff of business we are no longer pursuing due to our repositioning efforts. Sequentially our FA business experienced 4.7 percent growth primarily due to a short-term project in support of Hurricane and recovery efforts.

with a strategic client. This project essentially ended in late January . We expect revenues to decline in the low to mid-teens sequentially in year-over-year to be down at an amid 20 percent range. We continue to support our FA business and improve its alignment with our technology business.

Evidence of this progress is that our average bill rate in FA, excluding the Hurricane Ian project in the fourth quarter of 2022, is $51 compared to $37 in the fourth quarter of 2019. As Joe mentioned, direct hire comprises less than 3% of total revenue.

in the first quarter. We are pleased that we are not reliant on this business to make significant contributions to our growth and profitability. We believe the scalability of a flexible model is the best foundation for predictable, sustainable, and profitable growth.

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 grow. While capacity exists we have continued to make targeted investments in associate headcount.

to drive sustainable growth. This investment is predominantly in our managed teams and project solutions capabilities within our technology business as we evolve to meet customer requests and grow, share.

We have supported and retained our best people and we have made significant changes to our

to give our employees flexibility and choice in our office occasional work environment.

As mentioned last quarter, K-Force has earned Glassdoor's Open Company designation, which recognizes employers that proactively promote and embrace workplace transparency through sharing workplace culture, being responsive to all reviews, and sharing our updates related to diversity, equity, and inclusion efforts along with our ESG priorities.

Kelly, K-Force's Chief Financial Officer. Dave? Thank you, Kai. We are pleased with our performance in 2022, as full year revenues of approximately $1.71 billion increased nearly 8% year over year, led again by market share gains in our technology business.

Gap earnings per share were $3.68. Normalized firm pyramid charges related to our joint venture, adjusted earnings per share of $4.25 improved approximately 20% year over year.

Fourth quarter revenues of $419.7 million grew 2.3% year-over-year and adjusted earnings for share were 93 cents.

Overall, gross margins decreased 70 basis points year over year and 50 basis points sequentially to 28.5% in the fourth quarter principally due to a lower mix of direct higher revenue.

Flex margins of 26.1% in our technology business, which met our expectations in the fourth quarter, increased 10 basis points sequentially and declined 30 basis points year over year.

For the full year 2022, flex margins in technology of 26.4% were unchanged from 2021 levels.

Top technology talent remains scarce and we've seen consistent wage increases over many years.

We've had good success passing through these increases to our clients due to the critical work our consultants performed.

This is led to relative stability in the margin profile of our technology business throughout economic expansions and declines, which is our expectation as we move forward.

Flex margins in our FA business declined 210 basis points sequentially as a result of a short-term lower margin project associated with Hurricane Ian relief.

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

Overall, gross margins are also expected to decline due to the lower direct higher 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. We also expect that business and the managed teams in project solution space should remain resilient in this environment and those initiatives bring higher margins to the overall portfolio.

Overall, SGNA expenses, as adjusted for the impairment charges as a percent of revenue, decrease 90 basis points a year over year, which is predominantly driven by lower performance based compensation, as it was elevated in 2021 due to extraordinary growth levels.

We have a high degree of variable compensation within our plans, which creates operating leverage as growth slows.

We've also been successful at driving greater cost efficiencies from our real estate portfolio given our office occasion model, which has allowed us to reduce overall square footage by approximately 40%.

As leaks expire, we will continue to transition to the new office footprint, which will lead to further declines in real estate costs.

We expect SG&A expenses as a percentage of revenue to increase sequentially due to the annual payroll tax reset in the first quarter.

Our fourth quarter operating margin as adjusted for the impairment charges was 6.2 percent and improved 20 basis points over the fourth quarter of 2021 as a result of the reduction in SG&A expense.

Our effective tax rate in the fourth quarter was 23.1%, which was higher than we anticipated because of a lower tax benefit on the vesting of a stricted stock and other year end tax adjustments.

Operating cash flows were $12.7 million dollars and as expected were negatively impacted by the final settlement of $20 million dollars related to payroll taxes previously deferred under the CARES Act. We generated $141 million dollars in EBITDA in 2022.

to deferred payroll taxes, operating cash flows would have been approximately $130 million.

We returned slightly in excess of 100% of operating cash flows in 2022 to our shareholders, through $24 million in dividends and nearly $68 million in open market repurchases.

A return on invested capital was approximately 46% in the fourth quarter.

As Joe mentioned, our Board of Directors approved a 20% increase to our dividend to $1.44 per share and increased our share repurchase authorization to $100 million.

Since we initiated our dividend in 2014, we have now increased it 360%. The current dividend yield is 2.6%. In addition, since 2007, we've reduced our weighted average shares outstanding from $42.3 million to $2.3 million.

to $20.5 million or slightly more than 50 percent. All in, we've returned in excess of $830 million dollars in capital to our shareholders since 2007, which has represented approximately 75 percent of the cash we generated while significantly expanding our business.

The increase in our dividend and share repurchase authorization demonstrates both our financial flexibility due to the strength of our balance sheet and our confidence in our organic growth model. We remain committed to returning capital to our shareholders regardless of the economic climate.

With respect to guidance, the first quarter had 64 billing days, which is three additional days than the fourth quarter of 2022, and the same as the first quarter of 2022.

We expect Q1 revenues to be in the range of $406 million to $414 million, and earnings per share to be between 78 cents and 86 cents. First quarter earnings per share is impacted by approximately 15 cents due to seasonal impacts on annual payroll tax resets.

Our guidance does not consider the potential impact of unusual or non-recurring items that may occur. Our performance has put us in an excellent position to continue to make incremental investments in our business, even in an uncertain environment.

These include selective additions in our managed teams and project solutions capability, and continued investments in our back office transformation efforts. We believe these ongoing investments will benefit our shareholders in the long term, and are important drivers to our attainment of double digit operating margins.

Overall, we believe our strategy has put us in an exceptional place and we are fully prepared for the various economic possibilities that may lie ahead.

On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for all their efforts. Operator, we would now like to return the call over for questions.

At this time, if you'd like to ask a question, simply press star one on your telephone keypad. Again, that is star one for any questions. Our first question will come from the line of Mark Markin with Baird. Please go ahead.

Hey, good afternoon and thanks for taking my question. One thing if you can provide a little bit more color in terms of what you're seeing with regards to the clients on the IT flux side, you mentioned that for the most part, the impacts are relatively moderate.

by vertical, but can you talk a little bit about which verticals? I know there's no drastic impacts, but any sort of like changes that you're seeing, you know, just on the margin of certain verticals, which ones are the strongest, which ones are showing a little bit more of the macro uncertainty.

You know, this is time I'm telling you. I didn't we didn't see a lot of significant client wide trends. Most of it has been very much pruning by select clients. There's nothing to indicate that any industry or any particular client is sound significantly. It's just been pruning.

a busy couple of years. About it. And then with regards to the pricing, you kind of give us an indication with regards to how we should think about the bill rates. Do you think that continues over the course of the year in terms of just slightly more moderate increases in terms of the bill rates? Or are there any...

chances that we could end up seeing bill rates decline if the environment becomes a little bit more challenging.

Mark, this is Dave Kelly. So in terms of rates, I think, you know, obviously we've seen some pretty significant increases over the last couple of years, but very much stability in margins, flexible margins themselves. I would say generally speaking,

We've been saying this quite some time. We expect ongoing stability in margins in terms of bill rates. If you look at times, if there is a slowdown, you see pretty stable bill rates. If there is anything, it's relatively minor. So again, I think as it relates to both margins.

and Bill Rates, you're gonna see a pretty stable picture. I assume I'm gonna see you today. Great, and then question for Joe and Kai. I know it's only been, you know. I'm gonna see you today.

You know, less than a month since, you know, chat, GPT, you know, emerged. And, but there's clearly a lot of buzz around AI, which, you know, there's been buzz around AI before, but this is really making it, you know, even more obvious.

I'm wondering if you can talk a little bit about your early impressions with regards to you know the opportunities for K-Force you know to leverage you know the opportunities that are going to come there specifically with regards to either practices that you might unfold or what you may end up doing with regards to increasing the efficiencies on the sgna side.

That's a great question Mark. It kind of takes me back and obviously I'm sure you see what's going on with Google as well. So we have the AI arms race going on and it takes me back to 2018 with a great book that one of our...

problems with strategic clients recommended to me called AI superpowers. If you haven't read that book, strongly recommended because you can see all these things coming in evolving. We sit here and we look at all of these technology innovations as opportunistic on both fronts. One, we've applied a lot of different technologies internally that has allowed us to continue to drive productivity.

well on the client front. You know, one of the things I love about what we do for a living is we are not dependent on any particular technology, any particular industry, any particular type of methodologies that are evolving. As time goes on, you know, it kind of takes me back to when I first got into this business, right, everything was assembler and COBOL. And then as code generation came up.

to really deploy as well as create technology and then drive change management with technology within organizations. Kyle, know if you have anything else that you wanted to add? No, I think you're thinking you had it too.

Nationalized your real estate footprint. How much more should we expect over the course of this year? So Mark, as far as a real estate footprint, obviously we've been talking about off-cars on the plug that across the country. Actually, we reduced real estate footprint by about 40%. But we still probably got about three years to...

remarks and we've been pretty consistent in investing in our business over the years, right? We've talked at length about the improvements we've seen in productivity because of the front office tools, our CRM and TRM tools. We're currently in the process. We started it last year of looking at the reengineering of all of our back office tools, which...

Although it's going to take a little bit of time, will be another big leg up. So as it relates to the business, as we grow, obviously we get the benefits of scale. We expect continued productivity improvements that will help from an SG&A standpoint in the front of the house. And we expect to overlay that over time with back office improvements as well. So we think there's a fair runway here as we grow to continue to increase operating margins. We've said in the past.

double digit operating margins or that which we should expect, still expect that to be the case. Terrific, thank you. Your next question comes from the line of Tim Larumi with William Blair. Please go ahead. Hey, this is Sam Cusler, Mount for Tim. Thanks for taking the questions here.

I guess the start, you know, we've seen a lot of announcements about head counter reductions recently, particularly across the tech industry, but then payrolls came out last week and were much stronger than expected. How would you characterize the tightness of the IT labor market right now? Well, it could last quarter. Is it easy or pretty much steady state? Well, in regards to candidate supply, we've been in a very...

there might be a bit of incremental supply. The clients are still being really selective and in our hiring process, and we don't see this impacting any future expectation for what that candidate supply looks like. I think it's gonna continue to be a tight one, and I think also we're seeing...

Some folks looking to go into the office again, which is probably a little bit of any pressure off. Some of those candidates that are there out there, so we're seeing overall it's very similar to what it has been and I don't expect to see a lot of change there. So kind of.

dollars an hour as you might expect. You think about what that means from a pay rate perspective. I mentioned scarce talent for years, right? The world has not produced enough of those skill sets and that is still the case. So a big driver to the expectation of continued scarcity in the areas that we play.

That's very helpful. I appreciate the color of the air. You know, you touched on the finger prepared remarks, but can you maybe expand a little bit more about client behavior in this environment? What are you hearing from clients these days from both the demand side as well as client behavior on the process side?

and have they given any indication of how they're thinking about their own staff it needs in the month ahead here. You know, as we mentioned, I think there's more scrutiny on budgets than what we've seen the last two years. It's not anything unusual to the prior cycles, but there is more scrutiny around it. However, plenty of severe...

in the right areas, where clients are continuing to invest and seeing some good wins as we come into the first of the year. We had a recent one with the healthcare company to help them in their cloud migration. We had a recent one with the customer to help them create new tools to help improve.

employee productivity. So I think the space we're planning in, we continue to see client investment there. Yeah, I would add, as Kai matches, client still funding critical projects that has been true historically, right? I'll just remind you during...

The Great Reception, right? Technology, critical spend, was far more robust than other industries, other disciplines than staffing, and just recently in the pandemic, our technology revenue is actually flat when we had obviously a significant data line. So kind of a reflection of what we're seeing. And that is on top of obviously significant growth in technology prior to that, and then subsequent to that.

Please go ahead. Thank you. I wanted to ask you about managed teams and project solutions. Can you give us some color there along basic dimensions, either size, kind of margin profile of that specifics, maybe juxtapose it and compare it with...

existing businesses you talk about, project nature, maybe description of what kind of things you take on versus things you won't. Any kind of things that will help us get a better overall understanding of what you're doing where you're going with that would be helpful.

Yeah, thanks, Toby. Relative to that solution set that we're bringing to market, right, we've taken a little alternative approach to maybe what you hear from some of our direct competitors in the marketplace, because we view that this is integrated into who we are with our technology-focused DNA.

and how we can leverage all of our capabilities within K-4s through our integrated sales strategy. That's where we would unlock the value here. I think we've stated in the past, our market profiles roughly 400 basis points higher when we do this type of work because of the additional value that we're bringing and moving up that value chain. The further we go up that chain.

The more that that margin expands, but on average we've been roughly about 400 basis point. In terms of the footprint that we're after, I mean, Kai had articulated the key areas and part of the reason why we focus in the areas that we do, you know, cloud data and various other ones, they play off of each other. Because often when a client is working...

and has an initiative going on with cloud. Well, that's going to also drive their data needs. So based upon when we get engaged, it allows us to get honed in on these different areas and catch them at the different phases of an overall macro project. And from a duration standpoint, our efforts in this area typically are of a longer duration than that average roughly 10-1 contract.

We're spending continued to look for everything from solutions through managed teams. You know, managed teams is something we're getting a lot of demand for. People don't want to have to go to various different staff providers. They want somebody within in the game to bring on a whole pod or bring on a whole team.

And it creates great opportunities for us and we're continuing to see strong demand in that space. And when you reference margins, is that at the GP level or is that sort of more at the bottom loan level? Yeah, Toby.

The answer here is really both, right? So we're sitting here, it has a higher gross margin profile as you'd expect, right? As we deliver more at that line, it translates. So it's an important business force.

Okay, perfect. Where do you see Flex?

gross margins trending in the quarter. If we look at the model flex gross margins on a year-over-year basis it did start to contract a little bit and I'm just trying to...

Reconcile that because I don't know whether manage teams and other things. Muddy the waters and any in the way that we can. Sort of sort of extracted in draw conclusions from those kind of numbers. Thanks.

Yes, I think a couple things. So if I look at full year, full year margins, they're actually in technology is what we're focused. They were flat. Yeah, they were down in a very minor way. Because I think about the spreads to that business that's unchanged, right? So as I mentioned, as I look sequentially, obviously we get impacted by the spread of COVID-19.

Payroll taxes in the first quarter, but I think the the buzzword here is really stability We're not looking for any significant change from where we're at And we're not seeing anything that suggests that we should do otherwise Okay And then

I'm curious that you touched on this in another question, but I'm going to ask you a different one. When you plan for recessions and you think about how the business will perform, we have I guess three examples in the last 20 some years. You've got the tech bubble, the great recession and 2020. They all have peculiarities, different depths. What Docker chip typically offers to the users and some of depl addressable alcoholic

Which ones do you use to inform your planning for the business? And are there any adjustments you'd make? Because we often hear from investors that 2020 was unique for IT, maybe unique in that the pandemic encouraged some spending on IT.

a normal recession absent a pandemic may not. Thanks. Yeah, it's a great question and as you well know, because you've been around the space for a while, no two are the same and they all react differently. I think we're in probably one of the more unique environments. This will be, well, if recession truly ever.

labor market. You know, we've seen labor markets are impacted by the way, they're never impacted as severely, especially in the high skilled areas as what one believes, although the last two recessions have been impacted, or I should say, if I look at the financial crisis, and we look at what happened during the pandemic, those probably had more labor impact than any of the other prior recessions, if you go back over the course of the last.

always been an outlier in terms of supply demand. We feel very good about those fronts. So we have a very flexible and elastic model that has natural throttles within it. We have a variable cost structure. So as things, if things were to get tight and there were to be revenue impacts, even although we really didn't experience any of that during the pandemic.

about how we staff coming out of the pandemic. So we have an over hired. We hired based upon need. So I mean, we feel we're in a real place of strength right now. And we do no different than where we were blessed to be when we went through the pandemic. We operated from a position of strength throughout the pandemic. And we're in a real place of strength throughout the pandemic.

set up and how are we positioned to operate. And I've been here for 35 years now and been through four different cycles. And we've never been stronger or better positioned than we are today, no matter what comes around the corner. So Toby, let me amplify a point that Joe made in terms of managing

through various cycles, right? He had mentioned we just increased our dividend, we just increased the authorization on our buyback. In good times and bad, we generate a significant amount of cash.

I think in excess of $130 million certainly in operating cash flows this coming year. And so we have been very consistent how we've thought about the use of that cash. I don't have any expectation that that's going to change either. So this is the last piece kind of about how we think about managing the business.

Okay, if I kind of just double click on my question, when you look back at 2020, do you think that there were unique features to the pandemic that contributed to IT's resilience that if we have a sort of similar contoured economic contraction without?

unique pandemic features with the business and industry perform differently.

I think coming out, I think the pandemic was a big wake up call for many organizations that were slow in getting after digitizing their business, looking at how they were leveraging data, moving their businesses to the cloud. I think that was a huge wake up call for all businesses. So there is no question that that created an acceleration of investment in technology. However, what it also did is it actually.

It moved forward the adoption of technologies by years. I mean, I can't sit here and say exactly how many years, but I even look at us at K-Force and I look at how we're deploying and leveraging technologies that we already had, that we were having trouble getting traction with, that now are fully embraced, you know, whether it be teams or various other tools that we've implemented. So that acceleration, there's no question, it created an excess of demand.

option to invest in these areas. So we see the need continuing on in these areas irrespective of what economic backdrop. I mean, I think if it was a tougher economic climate, would you see some back in certain technology initiatives? Absolutely, but these mission critical, imperative skill areas and projects that companies have to work on, they have to do this or they're putting their business at risk.

at it. Thank you very much.

Your next question will come from the line of Kartik Mehta with North Coast Research. Please go ahead. Thank you. Have you seen a change at all in the competitive landscape, maybe since you're seeing a little bit of softening? Has there been any change?

There's been a slight softness, as we said in our opening comments, we did see a little bit higher than usual attrition numbers at the end of the year. And I think the way the holiday felt too, it just pushed everything out a little bit. So while it was sluggish coming out of it, we had a slight softness, and we had a slight softness, and we had a slight softness.

and wondering where the macroeconomic was going, but I think there's some positive indicators now for them. Yeah, Cori, I think you're also asking about, I'm assuming the direct competitive landscape. Yeah. Is that correct? Yeah. Yeah, so what we're seeing from a competitive landscape standpoint is, with the larger...

This is typically what we see as the cycles evolve and the environment becomes a little bit more difficult, right? They're typically more single company dependent and as you look at as you look at defaults going up on credit and those types of things they don't they don't have a lot of room to play with nor do they have really strong balance sheets.

That's why historically, if you go back and look at K-forces performance, we always come out on the back end of the stronger than where we went in. And I don't foresee this being any different, irrespective of how the marketplace out this year.

And then, you've talked about obviously the sales cycle lengthening a little bit, and we're coming off some pretty tough comparisons where things are really, really good. If you compare that to pre-pandemic levels, how would that compare? Rather than the last kind of two years that were really strong, just comparing it to

to previous to pandemic, before there was this big surge in demand.

We're still very stable to what we saw during pre-pandemic. We haven't seen a real dip from those levels. Perfect. Thank you very much. Really appreciate it.

very stable to what we saw during pre-pandemic. We haven't seen a real dip from those levels. Perfect. Thank you very much. Really appreciate it. Sir.

Once again for any questions please press star 1. Your next question comes from the line of Mark Riddick with Sidoti.

I can hear me!

Good evening. Good evening.

So I wanted to first, I really do appreciate the update as far as the return of capital to shareholders. Certainly that is substantial in times like this. It's certainly nice to see. But I was wondering if, and this is sort of I guess maybe just trying to sort of look at this as a slightly different vantage point. I was kind of curious as to whether or not.

The things that you're seeing with your your bullishness on the company as well as what you're seeing with clients. I was sort of curious as to how much that's actually changed from when we last from your last call in the third quarter. I mean was there is there anything that you've seen in that time frame that's

been bullish for quite some time now. I mean, I think the pandemic, while it was a horrific experience to go through, I think it forever changed K-Force, and I think it changed the trust within K-Force. And I think it also has changed our ability to move quickly, adjust rapidly, because our teams had to learn a few laws, more than anything elseafie communication. And to experience Rangers. Yeah, exactly.

and how to deal with so much change management over those periods of time that I think we're a very different organization than we were in the early part of 2020 are going into that and that really excites me because when I look at what our team has been able to accomplish over the course of the last three years in the face of some of the most.

emotionally and mentally challenging situations that probably anybody in the business world has ever faced. I'm just blown away with our teams of accomplished and where we are today with our office occasional model with real technology applied, with real cultural shift taking place, and then just how we've also elevated our game.

with our clients so no i mean nothing's changed since we spoke to you back in you know back end of October of last year we've been of this attitude for quite some time we are playing off and so we are going to continue to play off and so why is that because we can we have the right team to do it.

Excellent. I was wondering if you'd talk a little bit about if with some of your engagements with clients, has there been much of an impact or benefit from either increased or stalled M&A activity or business transitions that you're seeing or is that fairly similar to others?

what we saw here we know a lot of mna sort of dried up last year i was sort of curious as to whether or not any of that was driving changes or the way they were looking at things.

Now, we haven't seen any significant impacts from that. Clients are pretty much business as usual. As you know, we haven't done any M&A in many, many years. We have a couple of clients.

But there are, you know, our largest client makes up only 5% of revenues. We have a couple of clients right now that are more benefiting from them going through some M&A activity. But it's really not an impact on what we're seeing.

Okay, great. Thank you very much.

Sure, thank you.

We have no further questions at this time. I'll hand the call back over to Joe Liberatori for any closing remarks.

Well, thank you for your interest and support of K-Force. I'd like to say thank you to every K-Forcer for your extraordinary efforts and to our consultants and our clients for your trust in K-Force and partnering with you and allowing us the privilege to serve you. We look forward to talking to you again after our first quarter of 2023.