Q1 2024 Kforce Inc Earnings Call

Operator: Good day everyone, and welcome to the K-Force first quarter 2024 earnings call. Today's call is being recorded, and I would now like to turn the call over to Joe Liberatore, President and CEO. Please go ahead, sir.

Good day, everyone and welcome PDK for its first quarter 2024 earnings call. Today's call is being recorded and I would now like to turn the call over to Joel Laboratory, President and CEO. Please go ahead Sir.

Joseph J. Liberatore: Good afternoon. Thank you for your time today.

Good afternoon, and thank you for your time today. This call contains certain statements that are forward looking and 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 SEC.

Joseph J. Liberatore: This call contains certain statements that are forward-looking and are based on current assumptions and expectations and are subject to risk and uncertainties. The actual results may vary materially from the factors listed in Kforce's public filing and other reports and filings with the FCC. We cannot undertake any duty to update any forward-looking statement.

Right.

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

Joseph J. Liberatore: You can find additional information about our results in our earnings release and our SCC file. In addition, we have published our prepared remarks within our investor relations portion of our website. Our first quarter performance was generally consistent with our expectations, and we were encouraged by March trends in our technology business. Operating trends over the past two quarters and discussions with our clients indicate to us that the current operating environment is more stable and constructive than it was throughout most of 2020-3.

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.

Our first quarter performance was generally consistent with our expectations.

And we were encouraged by March trends in our technology business.

Operating trends over the past two quarters and discussions with our clients indicate to us that the current operating environment is more stable and constructive and it was throughout most of 2023.

Joseph J. Liberatore: There remains uncertainty as to whether or not the U.S. economy will fall into recession. The dialogue surrounding interest rate cuts has shifted from a discussion referencing the number of anticipated cuts and when we should expect cuts in 2024 to whether or not there will be any cuts at all this year.

There remains uncertainty as to whether or not the U S economy will fall into recession.

The dialog surrounding interest rate cuts has shifted from a discussion referencing the number of anticipated cards and when we should expect cuts in 2024, if there will be any cuts at all this year.

Joseph J. Liberatore: Geopolitical concerns, including the war in Ukraine and the recent expansion of the war in Israel with Iran's aggression, further complicate forward-looking visibility. Against this backdrop, our clients, broadly speaking, have continued to exercise a degree of caution in initiating new technology investments. However, importantly, this restraint does not appear to be increasing but rather appears to be fairly stable.

Geopolitical concerns, including the war in Ukraine. The recent expansion of the war in Israel with Iran's aggression further complicate forward looking visibility against this backdrop our clients broadly speaking have continued to exercise a degree of caution initiating new technology investments importantly.

This restraint does not appear to be increasing but rather appears to be fairly stable.

Joseph J. Liberatore: As we look beyond the current uncertainties, we continue to be encouraged by the backlog of strategic imperative investments that we expect to be high priorities for our clients once the macro uncertainties begin to clear. Technology investments are simply not optional in today's competitive and disrupted business climate. Given the secular underpinning, there is simply no other market we want to be focused on other than the technology talent solution space. As we move throughout the upcoming second quarter and second half of 2024, we will closely monitor our performance indicators and trends and make any necessary adjustments to our business while continuing to invest in our long-term strategic priorities and retain our most productive associates. As to our first quarter results, revenues and earnings per share were both within our range of guidance.

As we look beyond the current uncertainties, we continue to be encouraged by the backlog of strategic imperative investments that we expect to be high priorities for our clients once the macro uncertainties begin to clear.

Technology investments are simply not optional in today's competitive and disruptive business climate.

Given the secular underpinning there is simply no other market and we want to be focused in other than technology talent solution space.

As we move throughout the upcoming second quarter and second half of 2024, we will closely monitor our performance indicators and trends and make any necessary adjustments to our business, while continuing to invest in our long term strategic priorities and retain our most productive associates.

As to our first quarter results revenues and our earnings per share were both within our range of guidance the.

Joseph J. Liberatore: The improvement in our leading indicators that we spoke about on our last call translated into reasonably robust new assignment growth in March 2024, which is encouragingly expected to lead to sequential growth in our technology business in the second quarter at levels close to historic seasonal pre-pandemic levels. Dave Kelly will expand upon our operating trends in his remarks. Our message to our people is unchanged.

The improvement in our leading indicators that we spoke about on our last call translated into reasonably robust new assignment growth in March 2024, which encouragingly is expected to lead to sequential growth in our technology business in the second quarter at levels close to historic seasonal pre pandemic levels, Dave Kelly will expand.

David Kelly: Upon our operating trends in his remarks.

Our message to our people is unchanged.

Joseph J. Liberatore: During these uncertain times, we must control what we can, stay close to our people and our clients while maintaining a long-term view on our decision-making. We are blessed to have a tenured executive leadership team that has been through multiple economic cycles together and is prepared to quickly adjust to changing market conditions. And we are equally blessed to have a high-performing team that is tenured, dedicated, and passionate about what they do. While all economic cycles behave a bit differently, what remains clear is that broad and strategic use of technology, including the most recent technological secular shift associated with AI, will continue to evolve and play an increasingly instrumental role in powering businesses. Over the long term, we believe that AI and other technologies will continue to drive demand for, rather than replace, technological resources, and that the pace of change will accelerate.

David Kelly: In these uncertain times, we must control what we can stay close to our people and our clients while maintaining a long term view on our decision making we.

David Kelly: We are blessed to have a tenured executive leadership team, who has been through multiple economic cycles together and is prepared to quickly adjust to changing market conditions and we are equally blessed to have a high performing team that is 10 year dedicated and passionate about what they do.

David Kelly: While all economic cycles behave a bit differently, what remains clear is that broad and strategic use of technology, including the most recent technologies secular shifts associated with AI, we will continue to evolve and play an increasingly instrumental role empowering businesses.

David Kelly: Over the long term, we believe that AI and other technologies, we will continue to drive demand for rather than replace technology resources and that the pace of change will accelerate.

Joseph J. Liberatore: We are ideally positioned to meet that demand. Our core competency is rooted in the ability to identify and provide critical resources in real time and at scale to help world-class companies solve complex problems and help them competitively transform their businesses. Our operating model also allows us to be flexible in partnering with our clients to meet their needs across a broad spectrum of engagement forms, from direct hire, traditional staffing assignments, to managed team engagements and managed projects.

David Kelly: We are ideally positioned to meet that demand.

David Kelly: Our core competency is rooted in the ability to identify and provide critical resources real time and at scale to help world class company solve complex problems and help them competitively transform their businesses.

David Kelly: Our operating model also allows us to be flexible and partnering with our clients to meet their needs across a broad spectrum of engagement forms from direct hire traditional staffing assignments to manage team engagement and manage projects.

Joseph J. Liberatore: Our decision to grow our business organically with a consistent, refined business model tailored to provide highly skilled technology talent solutions to world-class companies has been critical to our success over many years, and we remain confident that our firm is positioned well for improving market conditions. I am tremendously proud of our team as they continue to execute with incredible passion to serve our clients, candidates, and consultants cohesively as one K-Force. I remain confident and excited about the future of K-Force.

David Kelly: Our decision to grow our business organically with a consistent refined business model tailored to provide highly skilled technology talent solutions for world class companies has been critical to our success over many years and we remain confident that our firm is positioned well for improving market conditions.

David Kelly: I'm tremendously proud of our team as they continue to execute with incredible passion to serve our clients candidates and consultants cohesively as one K for us I remain confident and excited about the future of K Force, Dave Kelly, Our Chief operating officer will now give greater insight into our performance and recent.

Joseph J. Liberatore: Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, Kforce's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations.

David Kelly: Operating trends, Jeff Hackman, K forces Chief Financial Officer will then provide additional detail on our financial results as well as our future financial expectations Dave.

David Kelly: Thank you Joe.

David Kelly: Total revenues for the first quarter were $352 million, down 7.7% sequentially and 13.3% year-over-year. Our technology business declined 6.9% sequentially and 11.4% year over year. As we mentioned on our last call, following a slower start to the year and higher year-end assignment ends, we experienced an improvement in our leading indicators in late January and believe that those higher activity levels would contribute positively to new assignment starts in our technology business later in the quarter.

David Kelly: Total revenues for the first quarter were $352 million down seven 7% sequentially and 13, 3% year over year.

David Kelly: Our technology business declined six 9% sequentially and 11, 4% year over year.

Jeffrey B. Hackman: As we mentioned on our last call following a slower start to the year and higher year end assignment ends we experienced an improvement in our leading indicators in late January and believes that goes higher activity levels will contribute positively to new assignment starts in our technology business later in the quarter.

David Kelly: As expected, we experienced a notable acceleration in our consults on assignment throughout March, which should lead to sequential growth in Q2 within the range we saw before the pandemic. Our clients continue to undertake mission-critical projects and also recognize the need to retain the highly skilled talent that we provide while they await a point of increased confidence to accelerate spending to address their increasing backlog of technology. Overall average bill rates in our technology business have remained stable over the past few quarters and continue to reflect our focus on providing highly skilled talent on both traditional staffing assignments and as part of managed teams or managed projects.

As expected we experienced a notable acceleration in our consultants on assignment throughout March which should lead to sequential growth in Q2 within the range. We saw before the pandemic are.

Our clients continue to undertake mission critical projects and also recognize the need to retain the highly skilled talent that we provide while they await appointed increased confidence to accelerate spending to address their increasing backlog and technology initiatives.

Jeffrey B. Hackman: Overall average bill rates in our technology business have remained stable over the past few quarters and continue to reflect our focus on providing highly skilled talent.

Jeffrey B. Hackman: Both traditional staffing assignments and as part of managed teams manage projects.

David Kelly: Our clients remain focused on critical technology initiatives in the areas of digital, data governance, AI and ML, user experience, cloud, data analytics, business intelligence, project and program management, and modernization. This represents a continuation of recent trends and reflects some of the foundational work required by companies to gain the eventual benefit of AI-related investment. Flex margins of 25.3% in our technology business declined 10 basis points sequentially and 60 basis points year-over-year. However, the sequential decline was less than expected as lower health care claims helped to offset the traditional annual tax receipts.

Jeffrey B. Hackman: Our clients remain focused on critical technology initiatives in the areas of digital data governance, AI and ml.

Jeffrey B. Hackman: Our UX cloud data analytics business Intelligence project and program management and modernization efforts. This.

Jeffrey B. Hackman: <unk> continuation of recent trends in employee and reflects some of the foundational work required by companies to gain the eventual benefit of AI related investment.

Flex margins of 25, 3% and our technology business declined 10 basis points sequentially, and 60 basis points year over year.

Jeffrey B. Hackman: <unk> decline was less than expected as lower health care claims helps to offset to traditional annual tax resets.

David Kelly: Our bill pay spreads continue to be stable on a sequential basis, which is an encouraging data point given the cloudiness of the economic environment. We've continued to broaden our service offerings beyond traditional staffing to include managed teams and project solutions. Clients consider access to the right talent essential to their success and see our services as a cost-effective solution to their project requirements. Our integrated strategy capitalizes on the strong relationships we have with world-class companies by utilizing our existing sales, recruiters, and consultants to provide higher-value teams and project solutions that effectively and cost-efficiently address our clients' challenges. Our client portfolio is diverse and is comprised primarily of large, market-leading companies. Market leaders typically prioritize technology investments to maintain their competitive advantage.

Jeffrey B. Hackman: Our bill pay spreads continued to be stable on a sequential basis, which is an encouraging data point given the cloudiness of the economic environment.

Jeffrey B. Hackman: We've continued to broaden our service offerings beyond traditional staffing to include manage teams and project solutions clients.

Jeffrey B. Hackman: Clients consider access to the right talent is essential to their success and see our services as a cost effective solution for their project requirements.

Jeffrey B. Hackman: Our integrated strategy capitalizes on the strong relationships, we have with world class companies by utilizing our existing sales recruiters and consultants to provide higher value teams and project solutions that effectively and cost efficiently address our client's challenge.

Jeffrey B. Hackman: Our client portfolio is diverse and is comprised primarily of large market leading companies.

Market leaders typically prioritize technology investments to maintain their competitive advantage our focus on addressing their needs continues to be critical in our ability to drive sustainable long term above market performance.

David Kelly: Our focus on addressing their needs continues to be critical in our ability to drive sustainable long-term above-market performance. Given the seasonal resets we see at year-end, a number of our industry verticals declined sequentially in the first quarter, but we saw relative stability in our retail, transportation, and manufacturing verticals and some headwinds in financial services after a steady performance in the fourth quarter. Looking forward to Q2, we expect technology consultants on assignment to remain relatively consistent with the levels we ended with in the first quarter, and for revenue to increase sequentially in the low single-digit, and year-over-year revenue declines will decelerate to the mid-single.

Jeffrey B. Hackman: Given the seasonal resets, we see a year and a number of our industry verticals declined sequentially in the first quarter, but we saw relative stability in our retail transportation and manufacturing verticals and some headwinds in financial services. After a steady performance in the fourth quarter.

Jeffrey B. Hackman: Looking forward to Q2, we expect technology consultants on assignment to remain relatively consistent with the levels. We ended with in the first quarter and for revenue to increase sequentially in the low single digits year over year revenue declines will decelerate to the mid single digits.

David Kelly: Our FAA business, currently 8.5% of our total revenues, declined approximately 16% sequentially and declined 27% year-over-year. The year-over-year decline reflects the impact of business we are no longer supporting due to our repositioning efforts and a more challenging macroeconomic environment. Our average bill rate has continued to exceed $50 per hour as we continue to drive this business towards a higher skill set of business that is more synergistic with our technology service. We expect Q2 FA revenues to be down year-over-year in the mid-20%.

Jeffrey B. Hackman: Our FA business currently eight 5% of our total revenues declined approximately 16% sequentially and declined 27% year over year.

Jeffrey B. Hackman: The year over year decline reflects the impact of business, we are no longer supporting due to our repositioning efforts and a more challenging macroeconomic environment.

Jeffrey B. Hackman: Our average bill rate has continued to exceed $50 per hour as we continue to drive this business towards a higher skill set a business that is more synergistic with our technology service offering.

Jeffrey B. Hackman: We expect Q2 revenues to be down year over year in the mid 20% range.

Jeffrey B. Hackman: Flex margins in our FAA business decreased 70 basis points sequentially due to a lower margin project with a strategic client, but they have improved 130 basis points over the last five years as our mix of business has significantly improved. We expect bill pay spreads to remain fairly stable at these levels in Q2. We've taken thoughtful measures to strike a balance between associate productivity and our revenue expectations. As we have done in prior economic downturns, we are focused on retaining our most productive associates and making targeted investments in the business to ensure that we're well prepared to capitalize on market demand when it accelerates.

Jeffrey B. Hackman: Flex margins in our FA business decreased 70 basis points sequentially due to a lower margin project with a strategic client, but have improved 130 basis points over the last five years as our mix of business has significantly improved we expect bill pay spreads to remain fairly stable at these levels in Q2.

Jeffrey B. Hackman: We have taken thoughtful measures to strike a balance between associate productivity and our revenue expectations as.

Jeffrey B. Hackman: As we've done in prior economic downturns, we are focused on retaining our most productive associates and making targeted investments in the business to ensure that we're well prepared to capitalize on the market demand when it accelerates.

Jeffrey B. Hackman: We continue to invest in our managed teams and project solutions capabilities and the integration of those offerings within the firm, which is progressing well. While the uncertainty in the macro environment has persisted longer than many expected, I remain excited about our strategic position and ability to continue delivering above-market performance. The success that we have as a firm wouldn't happen without the unwavering trust that our clients, candidates, and consultants place in us.

Jeffrey B. Hackman: We continue to invest in our managed teams and project solutions capabilities and the integration of those offerings within the FERC, which is progressing well.

Jeffrey B. Hackman: While the uncertainty in the macro environment has persisted longer than many expected I remain excited about our strategic position and ability to continue delivering above market performance.

Jeffrey B. Hackman: The success that we have as a firm doesn't happen without the unwavering trust that our clients candidates and consultants place in us.

Jeffrey B. Hackman: We've been able to continue delivering a strong relative performance during this difficult period while continuing to aggressively invest in the strategic initiatives that are critical to our long-term success and expect to continue to do so. I appreciate the dedication, creativity, and resilience displayed by our incredible team. I'll now turn the call over to Jeff Hackman, Kforce's Chief Financial Officer.

Jeffrey B. Hackman: We've been able to continue delivering strong relative performance during this difficult period, while continuing to aggressively invest in the strategic initiatives that are critical to our long term success and expect to continue to do so.

Jeffrey B. Hackman: I appreciate the dedication creativity and resilience displayed by our incredible team.

Jeffrey B. Hackman: I'll now turn the call over to Jeff Hoffman, <unk> Chief Financial Officer.

Jeffrey B. Hackman: Thank you, Dave. First quarter revenues of $352 million declined 13.3% year-over-year, and earnings per share of $0.58. We're at the midpoint of our expectations. Overall, gross margins in the first quarter declined 20 basis points sequentially due to seasonal payroll tax resets, which was partially offset by lower health care costs. However, margins declined 100 basis points year-over-year to 27.1 percent due to a combination of a lower mix of direct higher revenue and a decline in flex margins.

Thank you, Dave first quarter revenues of $352 million declined 13, 3% year over year and earnings per share of <unk> 58.

Jeffrey B. Hackman: We're at the midpoint of our expectations.

Jeffrey B. Hackman: Overall gross margins in the first quarter declined 20 basis points sequentially due to seasonal payroll tax resets, which was partially offset by lower healthcare costs.

Margins declined 100 basis points year over year to 27, 1% due to a combination of a lower mix of direct hire revenue and a decline in flex margins overall.

Jeffrey B. Hackman: Overall SG&A expenses as a percentage of revenue were 22.2%, which is an increase of 20 basis points year over year. Our variable-based compensation structure, the adjustments we made in July 2023 to reduce our structural costs to lower revenue levels, and discipline cost management have significantly mitigated the impact of lower revenue and gross profit levels on our profitability. With that said, we are continuing to prioritize investments in retaining our most productive associates and advancing our enterprise initiatives, both of which are expected to significantly contribute to our long-term financial objectives.

Jeffrey B. Hackman: Overall SG&A expenses as a percentage of revenue was 22, 2%, which is an increase of 20 basis points year over year.

Jeffrey B. Hackman: Our variable based compensation structure. The adjustments we made in July 2023 to reduce our structural costs to the lower revenue levels.

Jeffrey B. Hackman: Disciplined cost management have significantly mitigated the impact of lower revenue and gross profit levels on our profitability with that said, we are continuing to prioritize investments in retaining our most productive associates and advancing our enterprise initiatives, both of which are expected to significantly contribute to.

Jeffrey B. Hackman: Our long term financial objectives, our operating.

Jeffrey B. Hackman: Our operating margin of 4.5% was toward the high end of our expectations. Our effective tax rate in the first quarter was 27.1%, which was higher than we anticipated due to greater non-deductible expenses and adjustments to certain tax credits.

<unk>, a four 5% was toward the high end of our expectations, our effective tax rate in the first quarter was 27, 1%, which was higher than we anticipated due to greater non deductible expenses and adjustments to certain tax credits operating.

Jeffrey B. Hackman: Operating cash flows were approximately $13 million, and our return on invested capital was nearly 40%. We have prudently managed our business by driving solid organic growth over many years, which has resulted in consistently strong results and a pristine balance sheet with minimal debt. Our pattern of returning significant capital to our shareholders has been consistent over many years and continued in Q1, with a total of approximately $9 million returned through dividends and share repurchase.

Operating cash flows were approximately $13 million and our return on invested capital was nearly 40%.

Jeffrey B. Hackman: We have prudently managed our business by driving solid organic growth over many years, which has resulted in consistently strong results and a pristine balance sheet with minimal debt.

Jeffrey B. Hackman: Our pattern of returning significant capital to our shareholders has been consistent over many years and continued in Q1 with a total of approximately $9 million returned through dividends and share repurchases. All in we have returned slightly more than $900 million in capital to our shareholders since 2007.

Jeffrey B. Hackman: All in, we have returned slightly more than $900 million in capital to our shareholders since 2007, which has represented approximately 75% of the cash generated while significantly growing our business and improving profitability levels. We remain committed to returning capital regardless of the economic climate, and our threshold for any prospect of acquisitions remains very high. Our strong balance sheet and the flexibility we have under our credit facility provide us with the opportunity to be more aggressive in repurchasing our stock if there is a dislocation between expected future financial performance and the valuation of our shares.

Jeffrey B. Hackman: Which is represented approximately 75% of the cash generated while significantly growing our business and improving profitability levels.

Jeffrey B. Hackman: We remain committed to returning capital regardless of the economic climate and our threshold for any prospective acquisitions remains very high.

Jeffrey B. Hackman: Our strong balance sheet and the flexibility we have under our credit facility provides us with the opportunity to get more aggressive in repurchasing our stock. If there is a dislocation between expected future financial performance and the valuation of our shares.

Jeffrey B. Hackman: The second quarter has 64 billing days, which is the same as the first quarter of 2024 and the same as the second quarter of 2023. We expect Q2 revenues to be in a range of $352 million to $360 million, and earnings per share to be between $0.68 and $0.76. Our guidance does not consider the potential impact of any other unusual or non-recurring items that may occur.

Jeffrey B. Hackman: The second quarter has 64 billing days, which is the same as the first quarter of 2024 and the same as the second quarter of 2023.

Jeffrey B. Hackman: We expect Q2 revenues to be in a range of $352 million.

Jeffrey B. Hackman: $360 million and earnings per share to be between 60 and 76.

Jeffrey B. Hackman: Our guidance does not consider the potential impact of any other unusual or nonrecurring items that may occur. We remain excited about our strategic position and prospects for continuing to deliver above market results over the long term, while continuing to make the necessary investments to help drive long term.

Operator: We remain excited about our strategic position and prospects for continuing to deliver above-market results over the long term while continuing to make the necessary investments to help drive long-term growth and enable us to achieve our longer-term profitability objectives of attaining double-digit operating margins at slightly greater than $2 billion in annual revenue. On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for all of their efforts. We would now like to turn the call over to questions.

Jeffrey B. Hackman: Growth and enable us to achieve our longer term profitability objectives.

Jeffrey B. Hackman: Of attaining double digit operating margins at slightly greater than $2 billion in annual revenues on behalf of our entire management team I'd like to extend a sincere. Thank you to our teams for all of their efforts.

Speaker Change: We would now like to turn the call over for questions.

Operator: Thank you. If you would like to ask a question on the phone lines today, please press star one on your telephone keypad. If your question has been answered, please press star one again to remove yourself from the queue. We'll take our first question from Mark Marcon on behalf of Baird.

Speaker Change: Thank you if you would like to ask a question on the phone lines today. Please press star one on your telephone keypad. If your question has been answered. Please press star one again to remove yourself from the queue.

Speaker Change: We'll take our first question from Mark Mark Hahn with Baird.

David Kelly: Good afternoon and thanks for taking my question. You mentioned that you did see some improvement in terms of your leading indicators in late January and believe that, I think, higher activity levels would contribute positively. Can you just talk a little bit more about that? Like, exactly, which areas are you seeing the strength in? How broad-based is it? And in your client discussions, you know, what do you think would end up resolving some of the uncertainty that they're facing? I know the geopolitical things are not within their control, but are there domestic things that they're looking for? Thank you. Yeah, Mark, I'll start. This is Dave Kelly.

Mark Steven Marcon: Hey, good afternoon, and thanks for taking my question.

Mark Steven Marcon: You mentioned that you did see some improvement in terms of your leading indicators in late January and believe those higher activity levels would contribute positively can you just talk a little bit more about that like what exactly which areas are you seeing the strength and how broad based is it.

Mark Steven Marcon: And in your client discussions.

Mark Steven Marcon: What do you think would end up resolving some of the uncertainty that they are facing the geopolitical.

Mark Steven Marcon: Within their control, but are there domestic things that theyre looking for thank you.

Mark Steven Marcon: Yeah, Mark I'll I'll start this is Dave Kelly.

David Kelly: Yeah, as you mentioned, and we actually mentioned this on the call in January, we'd seen activity levels that the front end indicators that we typically look at, you know, client visits, the amount of submittals, right? We saw a lot of increasing activity, and, as a matter of fact, some of the job order flow, a lot of those activity levels were at levels that we had seen prior to the pandemic. So that was promising. And as we had indicated, you know, the expectation is that the flow through would lead to some increase in new start activity. And that actually did occur in March.

David Kelly: Yes, as you mentioned and we actually mentioned this on the call in January.

David Kelly: We've seen activity levels.

David Kelly: The front end and indicators that we typically look at client visits the modest middles right. We saw a lot of increasing activity and as a matter of fact.

David Kelly: Some of the job order flow a lot of those activity levels were at levels that we had seen prior to the pandemic. So that was promising as we had indicated the expectation is the flow through would lead to.

David Kelly: Some increase in new starts activity and that actually did occur in March as a matter of fact in each week in the month of March we did see an increase so it is very typical of what we have historically seen now I'll point out we saw that a couple of times right at the end of last year, we saw that in September October.

David Kelly: As a matter of fact, each week in the month of March, we did see an increase. So it is very typical of what we have historically seen. Now, I'll point out, we saw that a couple times, right?

David Kelly: At the end of last year, we saw that in September and October, as we look into, as I commented and in the prepared remarks into the second quarter, we're still seeing, you know, a little bit of unevenness there. So, I think, as Joe said, there's certainly a fair amount of uncertainty still that we're seeing. So it's probably, from our perspective, too early to call those increases a trend per se; we want to be cautious about that.

David Kelly: Over.

David Kelly: As we look into as I commented in the prepared remarks into the second quarter, we're still seeing a little bit of unevenness there. So.

Speaker Change: Clearly as Joe said, there is certainly a fair amount of uncertainty still that we're seeing so it's probably from our perspective too early to call those increases a trend per se, we want to be cautious about that but certainly it's clear that things have become quite a bit more stable than they have been.

David Kelly: But certainly, it's clear that things have become quite a bit more stable than they have been. And there have been some, obviously, some periods of actually greater amounts of success and activity. And I would say, I think you asked about where we're seeing this. It's pretty broadly based. You know, we obviously do business with predominantly very large companies across effectively every industry, and I couldn't point to any one particular industry driver or client type of driver.

Speaker Change: There's been some obviously some periods are actually greater amounts of success in activity and I would say I think you'd asked about where we're seeing that it's pretty broadly based we obviously do business with predominantly very large companies across effectively every industry and I couldnt point to any one particular industry.

Driver client type of a driver in a.

David Kelly: You know, large companies, as we said, are big spenders on technology, and they continue to spend money on mission-critical projects. So it's really a client-by-client type of evaluation you want to do. I've mentioned a number of industries, but even in financial services, where I said we saw some headwinds, we actually had clients there that actually had pretty robust increases in spend. So again, it's an execution game for us. We've got the benefit of being with many clients, many market-leading clients, and execution for us in those clients in our portfolio, the strength of it across geographies, has really led us to some success here over the last couple of quarters, Frank.

Speaker Change: A large companies as we said are big spenders in technology and they continue to spend.

Speaker Change: Spend money on mission critical project projects, So it's really a client by client.

Speaker Change: Of an evaluation you want to do it.

Speaker Change: You mentioned, a number of industries, but even in financial services, where I said, we saw some headwinds we actually had clients fear that actually had pretty robust increases in spend so.

Speaker Change: So again, it's an execution game for US we've got the benefit of being in many clients many market leading clients in execution for us in those clients in our portfolio the strength of it across geographies.

Speaker Change: Really led us with some success here over the last couple of quarters frankly.

Speaker Change: Yes.

Jeffrey B. Hackman: And then can you talk a little bit about, you know, pay bills spreading, and specifically, what are you seeing with regard to pay rates?

Speaker Change: Great and then can you talk a little bit about.

Speaker Change: You know pay bill spread and specifically what are you seeing with regards to.

Speaker Change: Pay rates noticed that over the last.

Jeffrey B. Hackman: I noticed that, you know, over the last, um,

Jeffrey B. Hackman: For two quarters, we've had a, you know, if we're looking at tech flex, the hourly bill rate has come down very modestly relative to Q3 2023. And I'm wondering, is there some mixed change or is there, you know, just with some caution maybe and some overcapacity in the industry, flight price pressure?

Speaker Change: Two quarters, we've had a if we're looking at tech flex.

Speaker Change: The hourly bill rate has come down very modestly relative to.

Q3 in 2023, and I'm wondering is there some mix change or is there just with.

The caution maybe in some overcapacity in the industry.

Right.

Speaker Change: This pressure.

Jeffrey B. Hackman: Yeah, and Mark, this is Jeff Hackman. Good to talk with you. I think we talked about this last quarter. I think the relatively modest decline in the average bill rate, I wouldn't read too much into that. I think it's still roughly $90 an hour. Very modest, I think, sequential decline. Q3 to Q4 of last year, Q4 to Q1 of this year was a very, very slight, you know, tick down.

Speaker Change: Yes, Mark this is Jeff asked when good to talk with you.

Jeff: I think we talked about this last quarter I think the relatively modest decline in the average bill rate I wouldn't read too much into that I think it's still roughly $90 an hour.

Jeff: Very modest I think sequential decline Q3 to Q4 of last year Q4 to Q1 of this year was a very very slight.

Ticked down for the very large part of 2023 and that largely has continued into Q1 of this year. The average bill rate has been actually quite stable in this environment I think thats a good dynamic in an encouraging sign for us.

Jeffrey B. Hackman: For the very large part of 2023, and that largely has continued in the Q1 of this year, the average bill rate's been quite stable. And in this environment, I think that's a good dynamic and an encouraging sign for us.

David Kelly: I think as it relates to spread, I think the comment that I would give you is early in 2023, we certainly saw some pricing pressures early in the year. And for the large part of the second half of 2023, our spreads in our technology business actually were quite stable. When you look at the Q4 to Q1 trend and overall margins, I think in our technology business, they were only down 10 basis points.

Jeff: As it relates to spreads I think the comment that I would give you is early on in 2023, we certainly saw some pricing pressures early on in the year.

Jeff: For the large part of the second half of 'twenty three our spreads in our technology business actually were quite stable.

Jeff: When you look at the Q4 to Q1 trend in overall margins I think in our technology business, they're rolling down 10 basis points and typically in a Q4 to Q1, you see that a little bit a little bit more of a decline and part of what Dave mentioned in his script as we saw some favorable healthcare cost that came in a little bit lower.

David Kelly: And typically, in Q4 to Q1, you see that a little bit more of a decline. And part of what Dave mentioned in his script is that we saw some favorable health care costs. They came in a little bit lower than we expected. I think to answer your two questions, Mark, I would say spreads are continuing to be quite stable, and as it relates to our average bill rates, it's still roughly $90 an hour. So that's also quite stable as well.

Jeff: Then we expected there but.

Jeff: I think to answer your two questions Mark I would say spreads are continuing to be quite stable.

Jeff: And as it relates to our average bill rates, it's still roughly $90 an hour. So that's also quite stable as well.

David Kelly: Yeah, the only other thing, Mark, that I would add to this, right, so you'd ask in terms of supply, supply continues to be tight here, right, even in a slower time, to have the marginal change in bill rates, it's really been almost inconsequential, and that is true with pay rates as well, suggests, again, even in slower periods of technology spend, to find the right talent is going to require us to pay the market rates, and our clients, obviously, understanding that, continue to understand that, and that's why bill rates haven't moved either, so much like it's been for many years, right, a supply of highly skilled talent, in particular, continues to be very difficult. And then if I could squeeze one more in, just with regards to, you know, current capacity, you did mention, you know, hey, if we get into the $2 billion mark, from a revenue perspective, we're going to have significant expansion with regards to the margins.

Speaker Change: The other thing Mark that I would add to this right. So you'd asked in terms of supply supply continues to be tight here right. Even in a slower time to have the marginal change.

Speaker Change: Change in Bill rates, it's really been almost inconsequential and that is true with pay rates well suggests again, even in slower periods of technology spend to find the right talent is going to require us to pay the market rates and our clients, obviously understanding that continue to.

Speaker Change: Understand that and that's why bill rates have moved either so much like it's been for many years our supply of highly skilled talent in particular continues to be very difficult time.

Speaker Change: Great and then if I could squeeze one more in.

Speaker Change: Just with regards to current capacity.

Speaker Change: You did mention <unk>.

Speaker Change: Get into the $2 billion Mark.

Speaker Change: From a revenue perspective, we're going to have significant expansion with regards to the margins.

Speaker Change: How much how much excess capacity you have in your field sales and recruiting force how much.

David Kelly: How much excess capacity do you have in your field sales and recruiting force? How much, you know, how should we think about the incremental margin trajectories from here? Is it going to be a fairly straight line or a smooth line in terms of the uptick, or would we end up having some fairly significant increases in terms of...

Speaker Change: How should we think about the incremental margin trajectory from here is it going to be a fairly straight line or smooth line in terms of the uptake or would.

Speaker Change: Would we end up having some fairly significant increases in terms of personnel as we get towards back towards $2 billion.

David Kelly: increases in terms of personnel as we get back towards two billion.

David Kelly: Yeah, Mark, this is Dave again. I think, first off, and you've heard this often from us in slower periods, maintaining our critical resources is very important. So we've always made sure that we've carried enough capacity, one, because those are the people who are going to lead you out of the recession. And two, obviously, when things break, we don't want to be shorthanded.

Speaker Change: Yes, Mark this is Dave again, I think first off and you've heard this often from us in slower periods, maintaining our critical resources is very important. So we've always made sure that we've carried enough capacity one because those are the people who are going to lead you out of the recession in two obvious.

Speaker Change: <unk> when things break we don't want to be shorthand is so we certainly have ample capacity. We had mentioned I think in the past obviously in terms of focus we actually have more sales. So sales related associates than we did a year ago right. So theres always a bit of a mix shift here to ensure that we've got appropriate total capacity.

David Kelly: So we certainly have ample capacity. We've mentioned in the past, obviously, in terms of focus, we actually have more sales, so sales-related associates than we did a year ago, right? So there's always a bit of a mix shift here to ensure that we've got the appropriate total capacity. So, clearly, additionally, we continue to invest in technology and things like process improvements that create additional productivity opportunities for us. We feel very comfortable, very comfortable that when things return, I think, to a trajectory of growth in technology spend, we'll be able to take advantage of that.

Speaker Change: So.

Speaker Change: Clearly Additionally, we continued to invest in technology and things like that process improvements that creates additional productivity opportunities for us we feel very comfortably very comfortable that.

Speaker Change: When things.

Speaker Change: Return I think to a trajectory of growth in technology spend will be able to take advantage of that doesn't it doesn't mean, we won't need to add resources, we expect to be able to do so but certainly productivity improvements are what's driven a lot of the profitability if not all of the profitability improvements that we've seen in the past that is certainly the biggest draw.

David Kelly: This doesn't mean we won't need to add resources; we expect to be able to do so. But certainly, productivity improvements are what've driven a lot of the profitability, if not all of the profitability improvements that we've seen in the past. That is certainly the biggest driver to get to the operating margins that we expected. In terms of how that plays out, obviously, nothing is purely linear. As things start to improve, we are going to see a gradual improvement in operating margins, but we've got some other big opportunities as well.

Speaker Change: River to get to the operating margins that we had expected in terms of how that plays out obviously nothing is purely linear as things start to improve we are going to see a gradual improvement in operating margins, but we've got some other big opportunities as well. So it is going to be a bit uneven mark there are pieces that are linear there are pieces that are.

David Kelly: So it's going to be a bit uneven, Mark. There are pieces that are linear, and there are pieces that are not. So I would say, still, our thought process and thesis have not changed. When we get to something a little over $2 billion, 10% is where we expect to continue to be from an operating margin.

Speaker Change: So I would say, we still are our thought process and thesis has not changed.

When we get to something a little over $2 billion, 10% is where we expect to continue to be from an operating margin.

David Kelly: Yeah, Mark, the only other thing that I would add to everything that Dave just shared with you is throughout 2023, here into 2024, we've continued to build our sales capacity because, needless to say, to ramp up salespeople relationships, getting entry points into clients is a much longer process. So, we've actually increased our headcount from a sales standpoint within our technology area. From a recruiting standpoint, plenty of capacity to service existing needs as well as market turns, and there's a ramp up in job orders coming in to service those job orders.

Speaker Change: Yes, Mark the only other thing that I would add to everything that they've just shared with you is throughout 2023 here into 2024, we've continued to build our sales capacity because needless to say to ramp up salespeople relationship getting entry points and declines as a much more process. So we've.

Speaker Change: Actually increased our our head count from a sales standpoint within our technology area.

Speaker Change: From a recruiting standpoint plenty of capacity to service existing needs as well as.

Speaker Change: The market turns and Theres a ramp up in job orders coming in to service. Those job orders will also our team is clearly demonstrated because we've invested a lot in technologies and automation on the delivery front.

David Kelly: Also, our team has clearly demonstrated, because we've invested a lot in technologies and automation on the delivery front, that we can turn that dial very quickly if and when necessary. But we have plenty of capacity to address anything for quite some time. But then, as we needed to accelerate that, we'd be able to do that. Likewise, I would say, especially here, over the course of the last 24 months, we've continued to add a lot of capacity within our KCS, our consulting solutions organization, bringing on a lot of industry expertise and subject matter expertise.

We can turn that dial very quickly if and when necessary, but we have plenty of capacity to address any of that.

Speaker Change: Quite some period of time, but then as we needed to accelerate that we'd be able to do that likewise I would say, especially here over the course of the last 24 months. We've continued to add a lot of capacity within our K CSR consulting solutions organization, bringing on a lot of industry expertise subject.

Speaker Change: Matter expertise.

David Kelly: And they're really making a difference in terms of elevating our game, taking our conversations and the work that we're pursuing within clients to a whole new level. So, we've been making a lot of investments on those fronts, and I think all these things are just building greater capacity as well.

And they are really making a difference in terms of elevating our game, taking our conversations and the work that we're pursuing within clients to a whole another level. So we've been making a lot of investments on those funds, which I think all these things are just building greater capacity as well.

Operator: Perfect. I appreciate the answers. Thank you.

Speaker Change: Perfect I appreciate the answers thank you.

Operator: We'll take our next question from Kartik Mehta with North Coast Research. Please go ahead. Thank you.

Speaker Change: Thank you Barbara.

Speaker Change: We'll take our next question from Kartik Mehta with Northcoast Research. Please go ahead.

Joseph J. Liberatore: Thank you. Joe, you mentioned something about AI and obviously having a positive impact on the company in the long run, but I'm wondering, in the short run, is it causing any pause for your clients as they figure out maybe how to implement it, maybe how to use it internally, what resources they need from an external perspective, and could that be causing any delays in orders or jobs?

Kartik Mehta: Thank you.

Kartik Mehta: Joe You mentioned something about AI, and obviously, having a positive impact on the company.

Kartik Mehta: In the long run, but I'm wondering in the short run is it causing any pause for your clients as they figure out maybe how to implement it maybe how to use it internally what resources need from an external perspective and could that be causing any.

Delays in orders or jobs.

Joseph J. Liberatore: Yeah, but the way I would characterize what we're experiencing within our clients is that they're all in the, I would say, preparatory phase in areas such as building out their infrastructure and data to take advantage of Gen AI, as well as large language models. For example, you know, we're supporting clients with integration work to ensure that their segmented systems are talking more seamlessly with each other. And in many instances, that also means moving things to the cloud.

Kartik Mehta: Yeah, but I kind of the way I would characterize what we're experiencing within our clients as they are all in I would say preparatory.

Kartik Mehta: Efforts in areas, such as building out their infrastructure and data to take advantage of Gen AI as well as large a language models. For example, we're supporting clients with integration work to ensure that they are segmented systems are talking more seamlessly with each other and in many instances.

Kartik Mehta: Is that also means moving things to the cloud and then likewise, you know from a data standpoint.

Joseph J. Liberatore: And then likewise, you know, from a data standpoint, there are major massive data efforts going on, whether that be they're addressing data structure, governance, and data cleansing efforts. So, we've been successful at winning engagements in these areas and also have been assisting our clients with what I'll call exploratory efforts, understanding the technology and evolving their strategies and potential use cases. So, no, I don't believe it. I don't believe that it's causing anything.

Theres major massive data efforts going on whether that be theyre addressing data structure governance data cleansing efforts. So we've been successful at winning engagements in these areas and also have been assisting our clients with what I'll call. The exploratory efforts understanding the technology and evolving their strategy.

Kartik Mehta: <unk> and potential use cases, so no I don't believe I don't believe that it's pausing anything we're seeing a lot of energy in those areas as organizations organize themselves. So that they can take advantage of things and by the way I don't think this is something that's going to change anytime in the near term future meaning for for.

Joseph J. Liberatore: We're seeing a lot of energy in those areas as organizations organize themselves so that they can take advantage of them. And by the way, I don't think this is something that's going to change anytime in the near future, meaning for entities such as K-Force, who are not a strategy firm like McKinsey, this is where the sweet spot is and where the true revenue is going to be generated. It's going to be in these infrastructure areas.

Kartik Mehta: Our entities such as the K force, who is not a strategy firm like and Mackenzie. This is where the sweet spot and where the true revenue is going to be generated is going to be in in these infrastructure areas, it's going to be in the in cloud, it's going to be in the data areas for the foreseeable future I mean, I would say that it's highly probability.

Joseph J. Liberatore: It's going to be in the cloud. It's going to be in data areas for the foreseeable future. I mean, I would say that it's highly probable that the application of generative AI and the use of large language models will ultimately prove to be a beyond powerful and widespread accelerator for our business for a long time to come. So, we're really excited about how we're positioned, and where our focus already was. It kind of everything played to our favor on those fronts. So, hopefully that gives you a little bit of a backdrop.

Kartik Mehta: The application of generative AI and the use of large language models will ultimately prove to be.

Kartik Mehta: Beyond powerful and widespread accelerator for our business for for a long time to come. So we're really excited about how we're positioned where our focus already was it kind of everything play to our favor on those fronts. So hopefully that gives you a little bit of a backdrop.

David Kelly: Yeah, it does. And I just wanted to make sure I understood your commentary on margins, and I think if we continue to see a sequential increase in revenue, do you think that portends wealth for margins, or as you're adding capacity, could there be just some volatility in margins for the rest of the year?

Kartik Mehta: Yes.

Speaker Change: And I just wanted to make sure I understood your commentary on margins and I think.

Speaker Change: If we continue to see a sequential increase in revenue.

Speaker Change: Do you think that pretends well for margins or as you are adding capacity could there be some volatility in margins for the rest of the year.

David Kelly: Yeah, I think, Kartik, generally speaking, as revenues improve, margins are going to improve, right? So that has been consistently how we've been managing the business. The capacity that we talked about, obviously some of that will get absorbed, we'll continue to invest, but we'll be prudent to make sure that we return, you know, appropriately, revenue to the bottom line. So I expect margins will expand as revenue expands. Thank you.

Speaker Change: Yes, I think Kartik generally speaking as revenues improved margins are going to improve so that has been consistently how we've been managing the business. The capacity that we talked about obviously some of that will get absorbed will continue to invest.

Speaker Change: But we'll be prudent to make sure that we return appropriately.

Speaker Change: The revenue to the bottom line, so I expect margins will expand as revenue expands.

Operator: Thank you very much. I appreciate it.

Perfect. Thank you very much I appreciate it.

Operator: We'll take our next question from Trevor Romeo with William Blair.

Speaker Change: Sure.

Speaker Change: We will take our next question from Trevor Romeo with William Blair.

Operator: Hi, good afternoon. Thanks so much for taking the questions.

Hi, good afternoon. Thanks, so much for taking the questions first one I had was.

Joseph J. Liberatore: The first one I had was just on project types. I know you have an integrated sales function. It's not necessarily two different businesses, but I was just wondering if you could comment on trends for managed teams and project solutions versus kind of more staff augmentation work, what kind of demand you're seeing for each one, and whether client preferences are kind of evolving or changing in this environment.

Just on project types, I guess I know you have.

Trevor Romeo: Integrated sales function, it's not necessarily two different businesses, but I was just wondering if you could comment on trends for the managed teams and project solutions versus kind of more staff augmentation work, what kind of demand youre seeing for each one and whether client preferences are kind of evolving or changing in this environment.

Joseph J. Liberatore: Yeah, I'd say we're seeing demand on both fronts, and that's one of the reasons why we like approaching this from an integrated strategy standpoint, because, you know, there are professional staffing needs tied to every project, and then the project opportunities allow us to gain greater visibility, get involved more strategically with the clients. But we continue to see our opportunity pipeline as we move through Q1 continue to build, and it has continued to build here into the early part I'd say our existing projects and our strongest pipelines have been in and around application development, probably, you know, around digital transformation initiatives, which often focus on the customer and their internal experiences, as well as realizing that much of that work also touches the cloud.

Speaker Change: Yes, I'd say, we're seeing demand on both fronts and Thats one of the reasons why we like approaching this from an integrated strategy standpoint, because there's there there's.

Speaker Change: Theres professional staffing needs tied to every project and then the project opportunities allow us to gain greater visibility get involved more strategically with declines, but we continue to see our opportunity pipeline.

Speaker Change: As we move through Q1 continued to build and has continued to build here into the early part of Q2, I would say our existing projects and our strong pipelines have been in and around application development, probably around digital transformation initiatives, which often focus on.

Speaker Change: The customer and their internal experiences as well as realizing that much of that work also touches. The cloud. We also continue to continue to see a lot of projects that are data oriented, which often also require interfacing to the cloud and requirements on that front. So we've continued to see that.

Joseph J. Liberatore: We also continue to see a lot of projects that are data-oriented, which often also require interfacing with the cloud and requirements on that front, so we've continued to see those pipeline opportunities for traditional data work. However, as I mentioned a little bit earlier in my last response, we continue to engage more in and around data opportunities as clients are preparing for AI and ML in the future. So I'd say with all that said, we're seeing development, cloud, data, and digital all continue to remain very healthy in terms of areas of need, so we feel we're positioned very well in terms of the market.

Speaker Change: Those pipeline opportunities for traditional data work.

Speaker Change: However, we also as I mentioned, a little bit earlier in my last response, we continue to engage more in and around data opportunities as the clients are preparing for AI and ml in the future.

Speaker Change: So I would say with all that said.

Speaker Change: We're seeing development cloud data digital all continue to remain very healthy in terms of areas of need. So we feel we're positioned very well in terms of market.

Joseph J. Liberatore: Okay, great. That makes sense, Joe. Thanks.

Speaker Change: Okay, great that makes sense Gerald Thanks, and then follow up on.

David Kelly: And then just a follow-up on, I guess, competition. It feels like we've been kind of in this stable but, you know, lower level of demand for a while now. Have you guys started to see any changes in the way competitors are positioning themselves to win business? And, I guess, similarly, have you seen any changes in the way clients look to choose a provider? And I guess, generally speaking, does it feel like you're gaining, maintaining, or losing market share in this type of environment?

Speaker Change: I guess competition it feels like we've been kind of in a stable but low.

Gerald: Lower level of demand for a while now and you guys started to see any changes in the way competitors are positioning themselves to win business and I guess similarly have you seen any changes in the way clients look to choose a provider and I guess generally does it feel like.

Gerald: Regaining maintaining or losing market share in this type of environment.

David Kelly: Uh, Trevor, I think a couple of things. I think one thing that is clear is that the clients that we do business with, obviously, are looking for those things that we do quite well, right? We can provide services across the country. But certainly, the trends, and you hear it from us, you've been hearing it from us repeatedly, and Joe just touched on it, right? The ability to deliver a spectrum of services from staff augmentation all the way through managed solutions is critical because clients are looking for companies such as Kforce who can deliver the talent in whatever way that they'd like it to be delivered.

Speaker Change: Yes, Trevor I think a couple of things I think one thing that is clear.

Speaker Change: Sure.

Speaker Change: The clients that we do business with obviously are looking for those things that we do quite well right. We can provide services.

Speaker Change: Across the country, but certainly the trends and you hear it from US you've been hearing it from us repeatedly and Joe just touched on it right the ability to deliver a spectrum of services from staff augmentation. All the way through managed solutions is critical because clients are looking for.

Speaker Change: Poor for companies, such as <unk>, who can deliver the talent in whatever way that they'd like it to be delivered and there are obviously within these large clients a number of different projects structures that they will see so that is clearly a growing trend that we've seen.

David Kelly: And there are obviously, within these large clients, a number of different project structures that they will see. So that is clearly a growing trend that we've seen. And so for us, and you hear it across the industry, repeatedly, the ability to deliver those services in various ways is a huge, hugely important competitive advantage.

Speaker Change: And so for us when you hear it across the industry repeatedly the ability to deliver those services in various ways.

Speaker Change: A huge hugely important competitive advantage.

David Kelly: And what I would add to that is, you know, realizing a lot of our focus is on those larger organizations, large consumers of the services that we provide. These aren't organizations where any competitor can just walk in the door and get requirements. I mean, they're very sophisticated in their vendor management.

Speaker Change: What I would add to that is realizing a lot of our focus is in those larger organizations large consumers of.

Speaker Change: The services that we provide these arent organizations, where any competitor can you just walk in the door and get requirements I mean, they're very sophisticated from their vendor management. Most of them have had been going through for years vendor consolidation. So it's very difficult to get an entry point and get your foot in the door. Those organization. So we don't see a lot.

David Kelly: Most of them have been going through years of vendor consolidation, so it's very difficult to get an entry point and get your foot in the door at those organizations. So we don't see a lot changing in the competitive landscape there. I'd say inside those organizations, when we're dealing with larger competitors that also have compliance, regulatory, delivery capabilities, services capabilities, similar to Kforce, we haven't seen any competitors, you know, predatory pricing or anything of that nature.

Speaker Change: Changing from the competitive landscape there I would say inside those organizations, where we're dealing with larger competitors that also have compliance regulatory delivery capabilities services capabilities similar to K force, we haven't seen any competitors predatory pricing or anything of that nature, it's been pretty much business as you.

David Kelly: It's been pretty much business as usual, competing as usual, so no major fundamental shifts there. I would say then when you get into, you know, more localized business where, you know, maybe it's a billion dollar or two billion dollar local organization where they may utilize what I'll call more, you know, market-based organization, the mom and pop, the smaller organizations, you know, we're seeing the same thing that we usually see at this point in the cycle, where yes, they are willing to, you know, give things away, give their services away for nominal margin, which puts pressure, but what we're also seeing is the pressure on those organizations in terms of, you know, they're typically one account away from bankruptcy because they don't have a lot of reserves for, you know, bad debt and those types of things.

Speaker Change: Usual competing as usual so no major fundamental shifts there I would say then when you get into more localized business where.

Maybe it's a billion dollar or $2 billion local organization, where they may utilize what I'll call more.

Speaker Change: <unk> based organization, the mom and pop to smaller organizations.

Speaker Change: We're seeing the same thing that we usually see at this point in the cycle, where yes, they are willing to.

Speaker Change: Give things away give their services away for nominal margin, which puts pressure, but what we're also seeing is the pressure on those organizations in terms of they're typically one account away from from bankruptcy because they don't have a lot of reserves for bad debt and those types of things. So we do start to see those.

David Kelly: So we do start to see those organizations are being pressured because of those practices, and then when something goes south, it puts them in a difficult situation. You know, this is my fourth cycle through this, and in every one of these cycles, we see a flushing take place. As we move through these cycles, it's not typically the larger providers who are more disciplined and financially astute. It's more the local, the regional players that really haven't organized effectively, and when something goes south on them, then they are typically headed down a very difficult path. So we're seeing those same things unfold.

Speaker Change: <unk> are being pressured because of those practices and then when something goes out that puts them in a difficult situation. This.

Speaker Change: This is my fourth cycle through this and every one of these cycles, we see a flushing take place.

Speaker Change: As we move through these cycles, it's not typically the larger providers, who are more disciplined and financially astute it's more of the local or the regional players that really havent havent organized effectively and when something goes south on them than they typically are headed down a very difficult past. So we are seeing.

Speaker Change: Those same things unfold.

Operator: Okay, thanks so much for all the comments. Sure.

Okay. Thanks, so much for all the comments.

Speaker Change: Sure.

Operator: We'll take our next question from Mark Riddick with Sidoti.

Speaker Change: We will take our next question from Marc Riddick with Sidoti.

Operator: I wanted to touch on a little bit on just a different way of looking at things, I guess. I wanted to sort of get your views on a couple of things. One, have we seen much of a difference in behavior from your larger versus slightly smaller customer base as far as prioritization of things that they want to act on sooner rather than later?

Marc Frye Riddick: Hi, good evening.

Marc Frye Riddick: So I wanted to I wanted to touch a little bit on just a different way of dosing and I guess I wanted to sort of get your views on a couple of things one how are we seeing much of a difference.

Marc Frye Riddick: In behavior from your larger versus.

Marc Frye Riddick: Slightly smaller customer base as far as prioritization of things that they want to act on sooner rather than later.

David Kelly: Yeah, yeah, Mark, this is Dave. I wouldn't say so in terms of client size, though, right? So all of them are looking for ways to make sure that they fund those initiatives that are critical for them from a technology perspective, you know, behaviorally, you know, obviously, things here have been a little bit slower, but that doesn't necessarily mean that they're not undertaking those projects; they may be looking to do them a little bit more efficiently, taking a little bit longer to do those projects, because they're obviously very cost conscious.

Marc Frye Riddick: Yes.

Marc Frye Riddick: Mark This is Dave I wouldn't say so in terms of client size right. So all of them are looking for ways to make sure that they fund those initiatives that are critical for them from a technology perspective behaviorally.

David Kelly: Things here had been a little bit slower that doesn't mean necessarily that theyre not undertaking those projects. They may be looking to do them, a little bit more efficiently, taking a little bit longer to do those projects because they're obviously very cost conscious.

David Kelly: But the behavioral change of continuing to invest in those things that are strategically critical has not changed. And that is not size specific. You know, obviously, as we've mentioned, a significant majority of our businesses have very, very large customers. So maybe we're not a great proxy, but we haven't seen it even within our portfolio, a different mindset. Really, no.

David Kelly: But the behavioral change of continuing to invest in those things that are strategically critical has not changed and that is not size specific.

David Kelly: Obviously as we've mentioned the significant majority of our businesses with very very large customers.

David Kelly: So maybe we're not a great proxy, but we havent seen it even within our portfolio a different mindset really no.

David Kelly: Okay, great. And then I wanted to shift on to, and a lot of the things I would have asked you about have already been asked, so I want to save you time on that. I was sort of curious as to your views as far as talent availability and, you know, maybe some of the things that might bring some talent into the fold now relative to maybe year end or the like. Have you seen much to sort of make folks move from the sidelines onto the playing field?

Speaker Change: Okay, Great and then I wanted to shift onto a lot of the things that would've last about have already been asked so I wanted to save you. The time on that I was sort of curious as to your views as far as talent availability.

Speaker Change: Maybe some of the things that might bring bring some talent into the fold now relative to maybe at year end or the like.

Speaker Change: Are you seeing much sort of.

Speaker Change: Make folks move from the sidelines onto the playing field.

David Kelly: Yeah, for us, and I've made this comment before, right? So we're sitting here, and this has, quite frankly, been true for the last 20 years, right?

Speaker Change: Yes for us and I've made this comment before right. So we're sitting here and this is quite frankly been true for the last 20 years. The for highly skilled talent there are always opportunities and that's effectively where the focus of our our recruiting efforts are we don't have a lot of people were on the sidelines you said.

David Kelly: For highly skilled talent, there are always opportunities, and that's effectively where the focus of our recruiting efforts is. We don't have a lot of people who are on the sidelines who suddenly say, I want to work. They have always been difficult to find.

Speaker Change: Suddenly you said I want to work as they have always been difficult to find.

David Kelly: And typically, again, highly skilled people have a number of opportunities. So I don't think anything really has changed, generally speaking. Yeah, I would say probably.

Speaker Change: And typically again the highly skilled people.

Speaker Change: A number of opportunities. So I don't think anything really has changed generally speaking, yes, I'd say, probably the only dynamic where we have seen a little bit of a shift. So when you look at things such as conversions are conversions are significantly down on a year over year.

Joseph J. Liberatore: I would say probably the only dynamic where we have seen a little bit of a shift is when you look at things such as conversions. Our conversions are significantly down on a year-over-year basis, and I think that also ties into, and you see the same data we see, when you look at the quit rate.

Speaker Change: Basis, and I think that also ties into and you see the same data we see when you look at quit rate. So there is no question that even even in these high demand technology professionals that are on the consulting side of the of the equation. They are not as active in the marketplace as they were during that euphoria.

Joseph J. Liberatore: So there is no question that even these high-demand technology professionals that are on the consulting side of the equation are not as active in the marketplace as they were during that euphoria of 2021 and the first half of 2022, mainly because there was an opportunity to make moves, and with wage inflation, we all experienced what was happening on that front. So people were making moves for money. People are not making those moves because that's not what the landscape provides today.

Speaker Change: <unk> of 2021 first half of 2022, mainly because there was an opportunity to make moves and with wage inflation. We all experienced what was happening on that front. So people were making moves for money people were not making those moves because that's not what the landscape provides today. So I would say that's probably the one <unk>.

Joseph J. Liberatore: So I would say that's probably the one dynamic that has shifted here over the course of the last six to nine months, on that front. But still, in the space we play in, there's always been high demand for talent. There's always been a supply-demand imbalance there. So this goes back to what I always believed at Kforce; one of our number one core competencies is the ability to recruit and identify the best talent in the market at a given time.

Speaker Change: <unk> that is as shifted here over the course of the last.

Speaker Change: Six to nine months would.

Speaker Change: It would be on that front, but still the space, where we play there has always been high demand for for talent, there's always been a supply demand imbalance. There. So and this goes back to what I will always have believed at Kay for US one of our number one core competency is the ability to recruit and identify the best <unk>.

Speaker Change: <unk> in the market at a given time so that real time aspect is also why I believe we've made a lot of progress related to our consulting solutions type business, because we're providing those clients with the best available talent on the market at a given point in time at the at market prices versus giving them.

Joseph J. Liberatore: So that real-time aspect is also why I believe we've made a lot of progress related to our consulting solutions business because we're providing those clients with the best available talent on the market at a given point in time at market prices versus giving them bench people that might not have the right skills for those engagements. We are seeing that make a difference.

Speaker Change: <unk> people that might not have the right skills for those engagements we are seeing that make a difference.

Speaker Change: Yes.

Operator: I appreciate all the commentary. Thank you so much.

Speaker Change: I appreciate all the commentary thank you so much.

Operator: As a reminder, everyone, that is star number one to ask a question. And we'll take our next question from Josh Chan.

Speaker Change: Sure.

Speaker Change: As a reminder, everyone that is star one to ask a question. We will take our next question is from Josh Chan with UBS.

Operator: Hi, good afternoon, Joe, Dave, and Jeff. Thanks for taking my question. I guess if you took a step back, you know, over the last 3, 6, 9 months, has the activity recovery or demand recovery played out a little bit more slowly than you would have guessed? And if so, why do you think that?

Joshua K. Chan: Hi, Good afternoon, Joe Dave and Geoff Thanks for taking my questions.

Joshua K. Chan: Gotcha.

Joshua K. Chan: I guess you can take a step back you know over the last 369 months has the activity recovery or demand recovery played out a little bit more slowly than you would've gas and if so why why do you think that has been so far.

Yeah.

David Kelly: Yeah, this is Dave, Josh. One, I would say it's played out more slowly than we would have hoped. I think that's fair. Right.

Yeah. This is Dave Josh.

David Kelly: One I would say it's played out more slowly than we would have hoped I think thats fair right.

David Kelly: But as I mentioned a few minutes ago, it has been a bit uneven, right? We've seen slight periods where we've seen some benefits, but generally speaking, you know, the economic environment continues to be challenged. It continues to be uncertain, right? For us, and Joe alluded to at the beginning of this call, some of the drivers, right? Clients are being very cautious because they don't want to overcommit. And so, you know, it's slower than we had anticipated. I think, you know, slower than some economists have been saying, but, you know, there have been predictions of a recession. We don't know what's going to happen when Joe touched on rate cuts. So it's clear.

David Kelly: I've mentioned a few.

David Kelly: Minutes ago.

David Kelly: It has been but a bit uneven right, we've seen slight periods, where we've seen some benefits, but generally speaking.

The economic environment continues to be challenged it continues to be uncertainty right for us as Joe alluded to at the beginning of this call. Some of the drivers right clients or are being very cautious because they don't want to overcommit.

David Kelly: And so.

David Kelly: Slower than we had anticipated I think slower than some economists had been saying but.

David Kelly: There had been predictions over recession, we don't know what's going to happen with Joseph touched on rate cuts. So it's clear if theres one thing I think thats clear I don't think anybody knows what's going to happen right and so I think that's just in part a significant amount of caution that continues to be the case across effectively every industry.

Operator: Sure, that makes sense. I appreciate that.

Jeffrey B. Hackman: And then you mentioned that the sequential increase in activity is similar to normal seasonality going from Q1 to Q2. Is the margin development similar as well to pre-COVID? Or how do you think about the margin expansion going from Q1 to Q2 versus normal?

Sure.

Speaker Change: I appreciate that.

Speaker Change: And then you mentioned that the sequential increase in activity is similar to normal seasonality going from Q1 that Q2 is the margin development similar as well pre COVID-19 or how do you think about the margin expansion going from Q1 to Q2 versus normal.

Jeffrey B. Hackman: Yeah, Josh, this is Jeff. Good to talk with you. Yeah, I think the anticipation, Josh, and what we contemplated in our guide is a fairly seasonal improvement in our bottom line profitability and overall operating margin. You know, when you look at the first quarter, obviously seasonally lower because of the payroll tax dynamic. Clearly, we're getting the alleviation of that in our second quarter guide. The margins, as we've mentioned a couple of times, have been, you know, very stable from a flex margin standpoint.

Speaker Change: Yes, Josh this is Jeff good to talk with you.

Jeff: Yes, I think the anticipation Josh and contemplated in our guide is a fairly seasonal improvement in our <unk>.

Speaker Change: Bottomline profitability and overall operating margin.

Jeff: When you look at the first quarter, obviously seasonally lower because of the payroll tax dynamic.

Jeff: Clearly we are getting the alleviation of that in our second quarter Guide.

Jeff: The margins as we've mentioned a couple of times have been very stable from a flex margin standpoints. So absent the alleviation of the payroll tax is expect that to be stable Q1 to Q2, David Joe each touched on the capacity that we have within our current.

Jeffrey B. Hackman: So, absent the alleviation of the payroll taxes, expect that to be, you know, stable from Q1 to Q2. Dave and Joe each touched on the capacity that we have within our current associate population. And I think that, you know, gets you to a point, Josh, where we can absorb capacity if we were to, you know, see some additional revenue growth higher than perhaps what we, you know, contemplate. So, that gets you into, what we expect to see, a profitability kind of normal seasonal uptick.

Jeff: Associate population and I think that get to a point, Josh where we can absorb capacity if we were to.

Jeff: See some additional revenue growth higher than perhaps what we contemplate so that gets you into a when we expect to see a profitability kind of normal seasonal uptick and I think the answer to that is yes.

Jeffrey B. Hackman: And I think the answer to that is yes. You know, we are still, as we've talked about in the past, investing in our enterprise priorities and continuing to advance those as we look to the long term. You know, as we talk about the slightly greater than $2 billion in annual revenue and double-digit operating margin, our enterprise priorities play a significant role in that. So, we're still making those investments for the long term, but yeah, I think the short answer is yes.

Jeff: We are still as we've talked about in the past investing in our enterprise priorities continuing to advance those as we look to the long term.

Jeff: As we talk about the slightly greater than $2 billion in annual revenue and double digit operating margin our enterprise priorities play a significant role in that.

Jeff: So we're still making those investments for the long term, but.

Speaker Change: Yes, I think the short answer is yes.

Operator: Great, thanks for the color and good luck in Q2.

Speaker Change: Okay, Great and then thanks for the color and good luck in Q2.

Speaker Change: Thank you Jack Thank you.

Operator: Thank you, Josh. Thank you.

Speaker Change: We will take our next question from Tobey Sommer with truest.

Operator: We'll take our next question from Tobey Sommer with Truist.

Speaker Change: Thanks.

Tobey O'Brien Sommer: With respect to the sequential growth youre anticipating in tech.

Operator: Thanks. With respect to the sequential growth you're anticipating, the tax

Tobey O'Brien Sommer: Are you accessing new customers to achieve that and then taking some share or is this.

David Kelly: Tech. Are you accessing new customers to?

Tobey O'Brien Sommer: A pickup in sort of sustained customer growth.

Operator: [inaudible] Yeah, Toby, this is Dave. So, the answer is both, right? So, you know, we obviously have had some success. It's been pretty broad-based, I would say, across every industry, as I said, across many different clients. As you might expect, some larger clients, when you don't necessarily have a lot of incremental spend, you know, we obviously have a very strong sales engine, and diversification is always an important part of what we are doing and what we continue to attempt to do.

Speaker Change: Yes Tobey.

David Kelly: Tobey this is Dave.

David Kelly: So the answer is both right so.

David Kelly: We obviously have had some success has pretty been pretty broad based I would say across every industry as I said across many different clients.

David Kelly: You might expect.

David Kelly: Some larger clients when you when you don't necessarily.

David Kelly: Have a lot of incremental spend we obviously have a very strong sales engine and diversification is always an important part of what we what we are doing and what we continue to attempt to do so is some of that growth from new client logos. It sure is yes. So it's a combination of those things.

Operator: So, is some of that growth from new client logos? It sure is, yeah. So, it's a combination of those things that we're seeing, but I would say in a footprint that we've consistently been attacking. So, large clients. We don't do business with every large client, and there are certainly plenty of opportunities to build business, both with new clients and to gain additional client shares. So, again, a combination of both of those things.

David Kelly: That we're seeing but I would say in a footprint that we've consistently been attacking so large clients. We don't do business with every large client and there are certainly plenty of opportunities to build business, both with new clients into gain traditional client share. So again, a combination of both of those things.

Operator: Thanks, I'd love to get your perspective on your customers' internal recruiting capacity because we talk about

Speaker Change: Thanks, I wanted to get your perspective on your customers' internal recruiting capacity, because we talk about cycles and so forth.

Operator: https://www.youtube.com

Speaker Change: This has not been a recession, what's been a drift down for 18 months two years outsourcing recruiting Meg we've had GDP growth and we had pretty good job growth.

Operator: Recruiting the man, you know, we've had GVP growth, and we've had a pretty good job.

Operator: I'm trying to get your perspective.

Speaker Change: I'm trying to get your perspective on what growth would look like in the staffing industry in your own business in the first year of sort of an acceleration in growth.

Operator: https://www.youtube.com

Operator: Can your customers satisfy more of that themselves, or do you think they're going to have to turn to you?

Speaker Change: Where there is more demand you can your customers satisfied kind of more of that themselves or do you think theyre going to have to turn to you pretty quickly.

Joseph J. Liberatore: Do you think they're going to have to turn to you pretty quickly? Yeah, Toby Chauffeur.

Joseph J. Liberatore: Yeah, Toby's show. You know, if we're going to see the same cycle that we always see. I mean, this is another pattern that has existed probably going back into the 90s at the advent of the monsters and kind of the level field, leveling the playing field a little bit on talent access. And ultimately, what happens is that during this port in the site, their recruiting capabilities have been decimated. You know, what's going to happen when it turns out is, yes, they're going to be pointing to providers such as the K forces and others in the world because they're not going to have recruiting capacity.

Jeff: Yes, Tobey its Jeff.

Jeff: If we're going to see the same cycle that we always say I mean this is another pattern that has existed probably going back into the the 90 that the advent of the monsters and kind of the level field leveling the playing field a little bit on talent Act access and ultimately what happens is during this port in the site.

Jeff: They're recruiting capabilities have been decimated.

Jeff: You know what what's going to happen when it turns is yes, theyre going to be pointing to providers such as the Cape horses and others in the world because they're not going to have recruiting capacity and then what's going to happen is they're going to start to hire grew recruiting capacity build recruiting capacity and then we're in the.

Joseph J. Liberatore: And then what's going to happen is they're going to start to hire recruiting capacity, build recruiting capacity. And then we're in the, you know, the thick of the cycle where there's demand across the board for everybody. So we don't really feel that.

Jeff: Think of the cycle, where there is demand across the board for everybody. So we don't really feel that I mean this is one of the things I try and coach individuals' on this when they're making moves for money purely money that ultimately what happens is when we go into tougher times. The first function. That's cut inside these large corporate customers is they're recruiting function insurer.

Joseph J. Liberatore: I mean, this is one of the things I try and coach individuals on when they're making moves for money, purely money. Ultimately, what happens is when we go into tougher times, the first function that's cut inside these large corporate customers is the recruiting function. And sure enough, that's what happened to many of our individuals this cycle, as it's happened in other cycles. And then they find themselves in difficult spots in terms of, you know, career wise and those types of things. So this cycle, this is one of those ones that just keeps coming around and plays out the same way every, every time.

Jeff: That's what happened to many of our individuals' this cycle as it has happened in other cycles and then they find themselves in difficult spots in terms of career wise and those types of things. So this is the cycle. This is one of those ones that just keeps coming around and plays out the same way every every time.

Joseph J. Liberatore: And that concludes the question and answer session. I'd like to turn the call back over to Joe Liberatore for any additional or closing remarks.

Speaker Change: Thank you.

Speaker Change: Sure.

Speaker Change: And that concludes the question and answer session I would like to turn the call back over to Joe <unk> for any additional or closing remarks.

Joseph J. Liberatore: Thank you for your interest and support in K-Force. I'd like to say thank you to every K-Forcer for your efforts and to our consultants and clients for your trust in K-Force and partnering with you and allowing us the privilege of serving you. We look forward to talking with you again after our second quarter of 2024.

Well. Thank you for your interest and support in K for Us I'd like to say, thank you to every <unk> for your efforts and to our consultants and clients for your trust in Kay for some partnering with you and allowing US the privilege of serving you. We look forward to talking with you again after our second quarter 2024.

Operator: Thank you, and that does conclude today's presentation. Thank you for your participation today, and you may now disconnect.

Speaker Change: Thank you and that does conclude todays presentation. Thank you for your participation today and you may now disconnect.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.