Q3 2024 Kforce Inc Earnings Call
Speaker Change: Welcome to the K-4Q-3 2024 earnings conference call. At this time, I would like to hand the call over to Mr. Joe Liberatori. Please go ahead, sir.
Joe Liberatori: Good afternoon and thank you for your time today. This call contains certain statements that are forward-looking that are based upon current assumptions and expectations, and are subject to risk and uncertainties. Actual results may vary materially from the factors listed in K-Pourses Public filings and other reports and filings with the SEC.
Joe Liberatori: We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website.
Joe Liberatori: Before a summarize our third quarter performance, I like to comment on the recent hurricanes that impacted the Tampa Bay Area where our corporate headquarters is located. And more broadly across Florida, North Carolina and neighboring areas in the southeast.
Joe Liberatori: Hurricanes, Huleen and Milton had devastating impacts across these areas and impacted our people, their families, our communities, and local businesses. These areas continue to recover and rebuild and many have long roads ahead.
Joe Liberatori: Despite these hardships, our teens resiliency.
Joe Liberatori: was on full display. And I am simply in awe of the tremendous effort by our people to balance their personal safety, taking care of their families, and being available for their team members while also ensuring the continuity of K-forces operations.
Joe Liberatori: That being said, the impacts are so much larger than K-force, and I am pleased to announce that K-force will be donating $500,000 to charitable organizations in the Tampa Bay area and North Carolina to aid in the broader recovery efforts.
Joe Liberatori: We are also organizing a K-force wide event dedicated to recovery efforts. We talk about the amazing culture we have at K-force, seeing in an action once again over the last several weeks is truly inspiring.
Joe Liberatori: As for a third quarter performance, Revenue's exceeded the midpoint of our expectations and earnings per share exceeded the top end of our guidance.
Joe Liberatori: Our technology business has largely been stable for the last four quarters and our third quarter performance was no exception.
Joe Liberatori: While much has been written about the uncertainty in technology, hiring and demand, our internal trends and discussions with our clients continued to indicate us that the current operating environment is more stable and constructed than it was throughout most of 2020 through A.
Joe Liberatori: Our footprint of providing solutions to clients that require higher-end skill sets remains in demand versus lower skill set areas where there might be a little more softness.
Joe Liberatori: We are seeing demand for technology resources and the desire for a client to initiate new projects had remained consistent throughout 2024.
Joe Liberatori: Clients broadly speaking have continued to exercise the degree of caution, initiating new technology investments, though most critical projects continue to be initiated.
Joe Liberatori: There remains much economic uncertainty with the continuation of the heightened geopolitical concerns, tensions in the Middle East and the war in Ukraine, as well as the potential outcome of the U.S. election next week the name of the U.S.
Joe Liberatori: With that said, the 50 basis point rate cut in September with a probability of further rate reductions have strengthened expectations for a soft landing in the U.S.
Joe Liberatori: It is likely, however, that clients were remain cautious with their discretionary spending until there is more clarity in the economic outlook.
Joe Liberatori: The byproduct of client-themed caution in initiating new and that investments.
Joe Liberatori: For a prolonged period is increasingly strong backlog of strategically imperative technology investments. We expect this backlog to be a high priority for our clients to initiate at an accelerated pace once the macro uncertainties begin to clear.
Joe Liberatori: As we execute through the final quarter of 2024, we will continue to stay close to our performance indicators and trends and make necessary adjustments to our business.
Joe Liberatori: We are continuing to invest in our strategic priorities, which we believe will greatly benefit both top line growth and profitability improvements as markets become more constructive over the long term.
Joe Liberatori: One of our strategic priorities that we've been progressing is the evolution of our near shore offshore delivery capabilities. Our team has been this hard work.
Joe Liberatori: Listening to our clients and monitoring industry trends
Joe Liberatori: Several of executive team members took a trip to India in August to finalize our GoForewards plans. Following this visit, we have made the strategic decision to establish a development center in Pune, India.
Joe Liberatori: Pune is one of the leading technology cities in India, and we are tremendously excited about leveraging this capability to further enhance our service offerings to our clients. Our office space in Pune is in the process of building build, and we expect the operational in January 2025.
Speaker Change: While all economic cycles behave a bit differently.
Speaker Change: What remains clear is that the broad and strategic use of technology, including the early stage technology evolution associated with AI, will continue to play an increasingly instrumental role in powering businesses.
Speaker Change: As we have previously articulated over the long term, we believe that AI and other innovative technologies will follow the historic Jevon's Paradox pattern, where improved efficiency ultimately drives greater demand for.
Speaker Change: Rather than replacing technology resources and that the pace of change will continue to accelerate. We are ideally positioned to meet that demand.
Speaker Change: Our core competency is rooted in the ability to identify and provide highly skilled critical resources real-time at-scale to help world-class companies solve complex problems and help them competitively transform their businesses.
Speaker Change: Our simple, focused operating model also allows us to be flexible and nimble, and partnering with our clients to meet their needs across a broad spectrum and engage in forms.
Speaker Change: We are continuing to experience growth and our solutions offering.
Speaker Change: which we believe speaks to the depth of our client relationships, along with our value proposition to provide cost effective, and efficient IT solutions in an addressable IT solutions market that is many times greater than the technology staffing market.
Speaker Change: Our decision to grow our business organically with a consistent, refined business model has been critical to our success over many years. And we remain confident that our firm remains well positioned.
Speaker Change: I remain confident and excited about the future of K-Force.
Speaker Change: Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, K-Fource's Chief Financial Officer, will then provide additional detail on a financial result as well as our future financial expectations. Dave?
Dave Kelly: Thank you, Joe. Total revenues of $353 million were above the midpoint of our expectations for the third quarter, declining 0.8% sequentially and down 6.8% year of year on a billing day basis.
Dave Kelly: Flecture revenues in our technology business declined 0.6% sequentially into declined 5.1% year over year on a billing day basis.
Dave Kelly: After experiencing some early July assignments, consultants on assignment in our technology business were stable throughout the third quarter.
Dave Kelly: It remains clear that our clients broadly speaking are still awaiting a period of increased confidence to begin more aggressively adding resources to address the significant backlog of important technology-related initiatives that has built up over the last two plus years of measured investment.
Dave Kelly: It does appear clear from our performance over the past three or four quarters, the Trent Habs stabilized.
Dave Kelly: Based upon our slightly stronger start to October, and expected seasonal holiday impacts, we anticipate relatively stable sequential trends in our technology business in the fourth quarter on a billing day basis.
Dave Kelly: Incurately, overall average bill rates in our technology business of $90 were flat sequentially and over the last eight quarters have largely remained stable.
Dave Kelly: The consistent demand for highly skilled talent on both traditional staffing assignments and project engagements have kept Bill rates and pay rates stable, even as the overall industry trends have slowed in recent years.
Dave Kelly: Our clients remain focused on critical technology initiatives in the areas of digital, cloud, data governance and analytics, AI and ML, U-I-U-X, business intelligence, project and program management, and modernization efforts.
Dave Kelly: We have established a foundation of source and quality talent at scale for our clients, as demand from various skillsets change and evolve. We expect this to continue as clients look to us to provide AI-related resources as that demanding crisis.
Dave Kelly: As technology is evolved over the decades, we have efficiently evolved with the changing skills at the hands of our clients.
Speaker Change: Flex margins of 26.1% in our technology business increased 20 basis points sequentially in 60 basis points year over year.
Speaker Change: Bill Pacebreds and our technology business modestly improves sequentially, which continues to be an encouraging data point given the cloudiness in the economic environment.
Speaker Change: We have continued to broaden our service offerings beyond traditional staffing and gauge engagements to include managed teams and project solution engagements.
Speaker Change: Clients consider access to the right-tall of the essential to their success and see our services as a cost-effective solution for their project requirements.
Speaker Change: Our integrated strategy capitalizes on the strong relationships we have with world-class companies by utilizing our existing sales teams, recruiters and consultants to provide higher value teams and project solution engagements that effectively and cost efficiently address our clients' challenges.
Speaker Change: And increasingly important vehicle to providing cost-effective solutions is the ability to source highly skilled talent outside the United States
Speaker Change: As Joe mentioned, we've made the decision to establish a development center in Pune, India.
Speaker Change: This development center is expected to begin supporting project engagements with our US-based clients in January 2025.
Speaker Change: The establishment of the Development Center was a strategic comparative informed by conversations with our clients, which further strengthens an offering that has relied primarily on longstanding relationships with a number of near-shore and offshore partners.
Speaker Change: The India facility puts a K-force in a strong position to effectively compete on client opportunities that we were recruited from bidding on in the past.
Speaker Change: This development center, when combined with a strong US delivery capability and a high quality vendor network, will help us to more fully address and evolve evolving needs of our clients.
Speaker Change: Our client portfolio is diverse and is mostly comprised of large market-leading companies.
Speaker Change: Our focus on addressing their needs continues to be critical in our ability to drive sustainable, long-term, above-market performance.
Speaker Change: From an industry perspective, our largest vertical financial services experienced improvements in quenchily for the second consecutive quarter after some previous headwins.
Speaker Change: We also experienced notable growth in both our manufacturing and professional services industries.
Speaker Change: Persuishing activity, even within the same industry, is not even. We've seen significant growth in some of our largest clients while others have taken a more conservative approach. This pattern is not industry-specific but rather reflected across the corporate landscape.
Speaker Change: Looking forward to Q4, we expect technology consultants on assignment to remain relatively consistent with the levels we saw at the conclusion of the third quarter. Revenue may be stable to slightly up sequentially on a billing day basis, should current patterns persist and year of year to clients should be close to third quarter levels.
Speaker Change: Our FA business currently 8% of our revenues, declined 2.2% sequentially into $1.24 per cent year over year at a billing day basis.
Speaker Change: The year of a year decline reflects the impact of business. We are no longer supporting due to our repositioning efforts in a more challenging macro environment.
Speaker Change: Our average bill rate of approximately 52 dollars per hour improves the quenchily and is reflective of the higher skilled areas we are pursuing that are more synergistic with our technology service offering.
Speaker Change: We expect two four FAA revenues to be down sequentially on a billing day basis in the low single digits.
Speaker Change: Flex margins in our FAVivisus decreased 30 basis points sequentially and we expect Bill Pacebreds to remain fairly stable at these levels in Q4. We continue to manage associate levels based upon productivity expectation.
Speaker Change: As we've done in prior economic downturns, we are focused on retaining our most productive associates in making target investments in the business to ensure that we're well prepared to capitalize on the market demand when it accelerates.
Speaker Change: For example, we selectively invested in our sales teams while rationalizing our delivery resources, which are down roughly 11% in a year of your basis.
Speaker Change: Even with these reductions, we believe we have ample capacity to absorb near-turned-demand should it improve without adding any resources.
Speaker Change: We also continue to invest in our managed teams in project solutions capabilities and the integration of those offerings within the firm, which is progressing well.
Speaker Change: While the uncertainty in the macro environment has persisted longer than most of expected, I remain tremendously excited about our strategic position and ability to continue delivering a above-market performance in our technology business as we have for over 15 years.
Speaker Change: The success that we have as an organization doesn't happen without the unwavering trust that our clients, candidates and consultants, place in us.
Speaker Change: I echo Joe Sentiment in appreciation of the incredible dedication, creativity and resilience displayed by our teams over the last several weeks, balancing personal and professional commitments through devastating hurricanes. Now, now turn the call over to Jeff Hackman, K. Force's Chief Financial Officer.
Jeff Hackman: Thank you Dave. Third quarter revenues of 353.3 million were above the midpoint of our expectations. Erring's per share of 75 cents exceeded the high end of our guidance.
Jeff Hackman: Overall, gross margins in the third quarter exceeded our expectations increasing 10 basis points sequentially and 20 basis points year over year to 27.9%.
Jeff Hackman: Due to a combination of improved, bill-pays, breads, and more favorable health insurance claims experience, which more than offset the lower direct higher next year of year.
Jeff Hackman: Flex margins in Q3 and our technology business increased 20 basis points sequentially and 60 basis points year of a year Due to a slightly more constructive pricing environment in progress growing our solutions business
Jeff Hackman: As we look forward to Q4, we expect more margins to the kind sequentially due to the typical seasonal impact of paid time off for our consultants. So, average dough rates are expected to remain stable.
Jeff Hackman: Overall SGNA expenses as the percentage of revenue was 22.2% which was slightly above our guidance expectations.
Jeff Hackman: We are continuing to make targeted investments in our sales capabilities while naturally managing down our delivery population.
Jeff Hackman: We also continue to advance our enterprise initiatives including the implementation of Workday, the establishment of our India Development Center, and further integration of our Solutions Business.
Jeff Hackman: all of which are expected to significantly contribute to our longer-term financial objectives and prepare us well for when companies more aggressively invest in their technology initiatives.
Jeff Hackman: Our operating margin of 5.3% was toward the high end of our expectations as we benefited from improved flex margins.
Jeff Hackman: Our effective tax rate in the third quarter was 22.3%, which was lower than we expected due to the recognition of 2023 and 2024 research and development tax credits related to the initiative to implement workday and transform our back office of roughly $1 million.
Jeff Hackman: These tax credits benefit it earnings per share by roughly four cents in the quarter.
Jeff Hackman: Further to that point, we expect to benefit from these tax credits in 2025 and perhaps beyond.
Jeff Hackman: Operating cash flows were approximately 31 million and our return on equity was 33%.
Jeff Hackman: We continue to execute our organically driven business well, and we believe our strong relative performance is a result of our focus and technology staffing and solutions in the U.S. augmented with our near-shore offshore capabilities.
Jeff Hackman: We continue to carry a pristine balance sheet with minimal debt and return capital to our shareholders with over 17 million returned through dividends and share repurchases in the third quarter. This consistent repurchase activity continues to be strongly accretive to earnings.
Jeff Hackman: Our current dividend yield is 2.7% and is the months the highest in our industry.
Jeff Hackman: We have returned 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.
Jeff Hackman: Our strong predictable cash flows allow us to remain committed to investing in our business while aggressively returning capital regardless of the economic climate.
Jeff Hackman: Our threshold for any prospective acquisition remains very high.
Jeff 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.
Jeff Hackman: We have already begun our typical repurchase activity for the fourth quarter, and thus far have repurchased nearly $9 million in stock under our 10-B51 corporate repurchase plan.
Jeff Hackman: The fourth quarter has 62 billing days, which is 2 fewer days than the third quarter of 2024 and 1 more than the fourth quarter of 2023.
Jeff Hackman: We expect Q4 revenues to be in the range of $337 million to $345 million in our ease for share to be between 56 and 64 cents.
Jeff Hackman: Our guidance includes a two-cent negative impact from the $500,000 charitable contribution related to Hurricane Recovery efforts.
Jeff Hackman: Our guidance is based upon the assumption of the continuation of a stable environment and does not consider the potential impact of any other unusual or non-recurring items that may occur.
Jeff Hackman: We remain excited of our strategic position and prospects for continuing to deliver above market results over the long term.
Jeff Hackman: While continuing to make the necessary investments to help drive, long-term growth, and enable us to achieve our longer-term profitability objective of a teeny double-digit-operative margins that's slightly greater than $2 billion in revenues.
Jeff Hackman: On behalf of our entire management team, I'd like to extend its sincere thank you to our teams for the efforts.
Speaker Change: We would now like to turn the call over for questions.
Speaker Change: Thank you and everyone if you would like to ask a question, please press star 1 on your telephone keypad. We'll go to Mark Markham, fired.
Mark Markham: Good afternoon. First of all, I just want to extend my best wishes to the entire team in terms of recovering from the.
Mark Markham: from their hurricanes certainly appreciate how is ruptive that can be.
Mark Markham: I'm wondering on the gross margins, can you discuss a little bit how much was nice to see the improvements, sequentially?
Mark Markham: on the gross margins, particularly on flex both sequentially as well as year over year. I'm much of that benefit was due to the improved health insurance cost relative to the improvement in the bill case thread.
Jeff Hackman: Yes, in Mark this is Jeff. First, thank you for your comments about the hurricane recovery I've never seen a snowdelft. That was a tremendous impact.
Jeff Hackman: for our folks. So, your question on margins, I think I mentioned that overall technology flux margins were up.
Jeff Hackman: 20 basis points, a quenchily in 60 basis points year on year.
Jeff Hackman: I think Mark will be so as a bit of an uptick sequentially and certainly the bill pay.
Jeff Hackman: A spread that was a predominant driver
Jeff Hackman: Certainly sequentially.
Jeff Hackman: We saw a little bit of built-a-face spread on a year-of-year basis. I'd probably say 10 to 20 points.
Jeff Hackman: Base is points there as well.
Jeff Hackman: Certainly health insurance at a contributing factor on a year of your basis, but not sequentially.
Jeff Hackman: I think it's helpful more than you think about our business overall as it relates to our, you know, Flex margins.
Jeff Hackman: our concentration in a high-end technology resources that are placed on a assignment through either a traditional staffing assignment or a managed team or project solution engagement. That focus has it changed for us.
Jeff Hackman: So, as you think about a roof-roll technology, flex margins.
Jeff Hackman: We continue to benefit from that, you know, healthier mix of solutions and engagements. Does that business continue to grow?
Jeff Hackman: I think we've talked on prior calls that the margin and our more solutions are into businesses for underbases points for higher. So certainly the traction that we've made and growing that business post sequentially in year on year.
Jeff Hackman: and certainly benefited us from a next perspective. And I think the last comment I did to you on that, I think it was in Dave's script. He mentioned that average bill rates sequentially were flat.
Jeff Hackman: When you think about the bill spread, bill pay spread and improvements sequentially much of that was on the pay rate side.
Jeff Hackman: You know, I think for us internally, it's a particular focus for us.
Jeff Hackman: We have a lot of education and training in and around that with our people. And as you might expect with a little bit, you know, then balance between supply and demand a little bit more conducive environment as well. So hopefully mark that covers the pouring.
Speaker Change: That's very helpful.
Speaker Change: Certainly was encouraging to see that the year over year to climb just in terms of revenue on IT services is really the black-nottener seeing some stability. So I've got
Speaker Change: A couple of part question with regards to just thinking about IT flex.
Speaker Change: One would basically be like as you're currently set up.
Speaker Change: What are you thinking about the environment in terms of?
Speaker Change: How much of a lift do you think we would need to see in terms of your clients offered a ability for them to start engaging in some of their pent-up demand efforts? That's one part of it.
Speaker Change: And then completely separately wondering if you can discuss to a greater extent.
Speaker Change: You're decision to set up an offshore facility in Pune, specifically, what percentage of fractions do your clients are asking for it?
Speaker Change: What would the impact the, how should we think about the cost layering in and then the revenue? How should we think about that as we model out 2025?
Speaker Change: Thank you for the comments relative to our people. Throughout the back of our hurricanes that we dealt with.
Speaker Change: I would say on the client front when we're looking at what what catalyst is it going to take? I still believe this comes back to confidence.
Speaker Change: clients need to have confidence. They need to start seeing things pulled through for improvement in their revenues and or services is really what the catalyst is going to be. I would say for people to start releasing a lot more of the discretionary spend.
Speaker Change: You know, as I'm sure you get the similar reporting that we say, you know, 2,025 budgets in technology are projected to increase over 2,024. Now I do think I'll...
Speaker Change: Some of that is going to be driven by cloud and storage. Everybody continues to prepare for AI and deal with the foundational aspects associated with that.
Speaker Change: Um...
Speaker Change: I would also say the one thing that we see when you're talking about our India development center.
Speaker Change: is
Speaker Change: You know, with the clients that we work with, we have some really great partners that we've leveraged both near shore and offshore, in service same more of these blended teams, which are a combination of US-based resources as well as whether certain roles are near shore or offshore.
Speaker Change: And we've been precluded from working with clients where we really have long standing relationships where they will not allow the leverage of any third party.
Speaker Change: And today's where we have to be direct. And so we then after this strategically working through and then identifying, I couldn't be more proud of the...
Speaker Change: The action by our team and how quickly we've moved to action and how quickly things will be set up in our ability to service and get after this additional footprint within our clients.
Speaker Change: Yeah, maybe just add a couple things. I think Joe's right is a relates to the market. I think it's maybe less about improved profitability, more about foresight.
Speaker Change: and the ability to expect an increase in demand on a sustained basis.
Speaker Change: Yeah, as it relates to our facility in India, I think there's a few things, right? Obviously, especially with the client-based that we deal with a large client.
Speaker Change: They're always looking for opportunities, especially in times where, you know, frankly, the environment is not
Speaker Change: As strong as maybe it is in robust times to find price leverage. You know, we've been, as Joe said, supporting them through some great vendor partners continue to expect to do so for a long period of time.
Speaker Change: But I think in particular as it relates to these managed.
Speaker Change: Solutions that Joe is talking about, we're seeing an increased driver from them and saying, we need to put together blended teams certainly for us.
Speaker Change: The ability to do that efficiently will be enhanced by this facility. I would say, and we've been after this, you know, for a while, you know, I think we've moved relatively speaking pretty quickly, but we've been thinking about it for a little bit of time. You know, the focus of this business is really going to be to support.
Speaker Change: Those clients from a managed service is at least initially managed capacity, perspective, we're going to be thoughtful about this. So when we think about the contribution to revenue.
Speaker Change: You know, it will ramp probably relatively slowly. We're looking at focusing the efforts of supporting our clients. I think it's important to point out in their domestic business requirements. We are not looking to build a center and a revenue stream outside the United States. So we're going to be thoughtful about this. We're going to let our clients.
Speaker Change: Lead us to the opportunities that are going to be best suited in the high skilled demand areas where our business is focused.
Speaker Change: So over time it's certainly going to grow, but if you kind of looked at 2025 and beyond it's more of a matter of being able to say yes or more often is the opportunities arrive and gradually ramp that.
Speaker Change: I appreciate that, David. Can you just talk a little bit about this on a specific basis? Obviously for Q1, we're going to have the normal seasonal resets in terms of all the statutory costs.
Speaker Change: How much more would margins typically go down into one than normal, just because of ramping up this facility, how should we think about that, just so that we can all be conservative with regards to our models.
Speaker Change: Yeah, it's not going to have a meaningful impact. I think, you know, as we look forward to 2025.
Speaker Change: It is what you would typically see on this indi-e facility. We will not have an impact. We are not first, we are not going to start.
Speaker Change: generating any type of revenue until Q1 and it will be very small amount. So it is more a typical year reset of payroll taxes that we would typically see. Yeah, and I think Mark is certainly true from a Flex Martins standpoint. I think Joe and Dave cover the strategic intent of our Coenade Development Center.
Speaker Change: I think the other thing given the amount of planning that we put into this, to have our teams prepared in January 2025, to be assigned to projects and support of our U.S.-based clients.
Speaker Change: Also allows us to mitigate any relative investments that we're making there. Which are not that significant clearly, you know, people cause.
Speaker Change: Real estate costs and others are certainly not what they are here in the U.S.
Speaker Change: So I think our planning efforts around that, I think it's been good to minimize that. I think over the longer term, mark, you look at, you know, average bill rates and flex margins.
Speaker Change: We've talked about this ability that we've been seeing from a flex margin perspective.
Speaker Change: Don't see this in the development center impacting that.
Mark: Yeah, the only thing I'd add is I'm on the idea again. You know, so I said we're starting to follow the beauty of our model. And the real estate commitments, as an example, very flexible allows us to expand as our clients need to rise whether that be slowly or very quickly.
Mark: So we will not be limited in our model in taking advantage of our capabilities there.
Speaker Change: It's great to hear. Appreciate all the comments and again, best wishes for everybody to recover from all the disruptions as quickly as possible. Thanks. Appreciate it. Thank you.
Speaker Change: The next question is from Trevor Romeo William Blair.
Trevor Romeo: Hi, good afternoon. Thanks so much for taking the questions. I also want to echo, you know, marks comments on the hurricanes. Hope everybody at the companies.
Trevor Romeo: doing okay and making the dust of it.
Trevor Romeo: I just wanted to maybe do one quick follow-up on the India Center. I just think about India versus maybe another region like Latin America. And as you build this out in the future, could other regions like Latin America be an opportunity over time?
Trevor Romeo: In the end,
Trevor Romeo: Yeah, I'll try over this is Dave Kelly. Yeah, I think the word I would use is additive, right? So we understand that there are dynamic client needs and each client has separate requirements, right? Joe specifically mentioned.
Trevor Romeo: You know, clearly the ability to have employees meet the needs or our specific requirements, that we see with some companies. I think it's also how these to everybody that the amount of technology resources that exist in India and the amount that they create every year is.
Trevor Romeo: For our surpasses any other country, probably even the United States. So we think that is a logical first place to be, as it relates to a facility that is part of the K-force enterprise.
Speaker Change: We talk about our vendor partners. I agree with you, Trevor. I think there are clients that look.
Speaker Change: to meet their needs near shore because of the time zone requirements and we certainly have built capability there through third parties.
Speaker Change: As we have in India and in other places so we're looking at that we think this is the right place to start
Speaker Change: We haven't taken anything off the table, but certainly thinking about what we need and what we've heard. We spent a fair amount of time listening to our clients before we develop this strategy. So we will continue to do so. We will evolve this strategy. But first things first.
Speaker Change: Starting at the place where we think we can get the biggest advantage is where we went and where we're going. So more to come certainly we're hopeful that this can continue to evolve as a meaningful part of the business and we'll keep you a price.
Speaker Change: i
Speaker Change: Okay, thanks, David. That's the top bowl. And then.
Speaker Change: I have another question on AI demand. I think Joe, I really like how you framed the long-term story around the Japanese paradox.
Speaker Change: I think in kind of near-term though, it's just wondering if there's any way you could frame how much new demand in your pipeline is being driven. I guess either directly or indirectly by sort of a foundational AI prep work like data analytics, cloud, etc. and how those conversations have been built past few months.
Speaker Change: It's a great question, and let's say the majority of the actual work our teams continue to focus on.
Speaker Change: With our clients are on those foundational aspects associated with, you know, governance, data, cloud, and security.
Speaker Change: Most organizations are, you know, remain in that preparation type stage. So, you know, these are all practices, by the way, when you look at, when you look at data and cloud specifically.
Speaker Change: They are practices within our managed teams, solutions, offering. So we're seeing considerable amount of work on those fronts. We don't break out specific revenue by service offering, but it's meaningful. And we're seeing that broad base across all industries, all clients.
Speaker Change: And we really have a talent to team that's open that a lot of doors for us. And we believe that this position does as the foundational pieces get put in place.
Speaker Change: And organizations now are prepared to start to look at use cases and piloting use cases. It really puts us in a very good position from a relationship standpoint, then participate in that whole-true business.
Speaker Change: We're also doing quite a bit internally. I always like to, you know, if you can't work with a kind of a microcosm to the broader marketplace.
Speaker Change: And, you know, we've been very inquisitive in terms of the things that we're looking at internally. As I've mentioned on previous calls, you know, having our two-foundation platform being worked a Microsoft.
Speaker Change: We're doing a lot from the Microsoft standpoint with, you know, 365 as well as
Speaker Change: You know, for sales and various other things, and then we're also doing things outside of these two platforms.
Speaker Change: In and around the recruitment side of the business and the sales side of business looking at other AI technologies
Speaker Change: Again, just so that we can become familiar internally and it also helps us position things externally as we're talking with our clients.
Speaker Change: We're also working with clients. We're starting to see more and more on the front-end strategy aspects of looking at how they're looking to position AI and where they're greatest opportunities might be and to kind of promigate that across the customer base when we're seeing unique opportunities. I would say.
Speaker Change: Last on this is our team. We thought what we're seeing is like if I look at the technology
Speaker Change: client base within our portfolio versus non-technology. We are actually working on a number of AI initiatives for those products that organizations in the technology side of the business are looking at implementing into their product line. So, that's one of the nice things about having a very diverse customer base is we get to learn through experience and one industry. I head up what starts to translate into other industries. So, we're seeing a lot of opportunity on those fronts to gain experience and exposure.
Speaker Change: Chris, thanks, your own. Thanks for the whole team I really appreciate it.
Speaker Change: Sure. Thanks for watching.
Speaker Change: We'll take the next question from Toby Summer, Truth Security.
Speaker Change: Hey, good evening everyone. This is Jasper Bibon for Toby. I think in the past a couple of years when there's been hurricanes in Florida, you picked up some project work in the business.
Speaker Change: Is there any expectation you could see some associated project work in the fourth quarter? And just to clarify, is there any response work embedded into the guidance?
Speaker Change: Yeah, Jasper. Yeah, I appreciate you bringing that up. Right. I mean, obviously, we've done some meaningful work in the past.
Speaker Change: but as it relates to...
Speaker Change: Where we are today and the evolution of our finance and accounting strategy and our focus, obviously, in technology, we made the decision. This was.
Speaker Change: frankly, probably two years ago, that we would no longer, and we've informed all the great partners that we've had, and they continue to do meaningful work, that this wasn't an area where we were focusing our capabilities, right, obviously we've talked about the evolution of our finance and accounting model, the $52 bill rate, those skill sets.
Speaker Change: where we are focused our business right now. And so that capability that we might have had previously is not something that we're focused on continuing to build. So no, we're not supporting any, as important as those support efforts are, K-Force is not supporting any of that.
Speaker Change: Thanks for that. And then just one other follow-up on the India Development Center. I think you mentioned...
Speaker Change: not having that capability in-house maybe locked you out from certain opportunities in the past. Is there any way to frame how much incremental addressable market gets unlocked by adding offshore delivery to your service offerings?
Speaker Change: Well, Jasper, I think, you know, clearly, when we look, especially in the managed solution space, right, those projects I would say typically
Speaker Change: Include.
Speaker Change: some portion of the workforce that's that's offshore. So you know for us
Speaker Change: I think it unlocks a significant amount of incremental opportunity in a more cost-effective way. So, clearly, it's hard to quantify exactly what it means. I think it's fair to say that it's something we, frankly, needed to do.
Speaker Change: and are excited that it's going to be beneficial. We've got a lot of longstanding relationships with our clients. We learn a lot of, I mean, we probably hear every week or two that there's an opportunity and the ability to say yes. I think.
Speaker Change: Again, difficult to quantify is going to be significant for us and certainly expect to be a meaningful part as the years go by of the revenue stream.
Speaker Change: That makes sense. Thank you for taking the questions.
Speaker Change: Thank you. Appreciate it, Jasper.
Speaker Change: We'll go next to CAR TIC MEDA, North Coast Research.
Speaker Change: Good evening.
Speaker Change: You know, I just wanted to follow up. Maybe you talked about October being a little bit better, and I'm wondering if that's a trend that started in October, or as you look throughout the quarter, things improved a little bit each month. Curious as to when you started seeing maybe a little bit better trend.
Dave Kelly: Yeah, so this is Dave. So first of all, I want to be a little bit cautious about this. We try to be as transparent as we can and provide you what happens.
Dave Kelly: But, you know, as we reflect back, that clearly on a week-to-week basis, there are top periods where maybe things are not as good. We have seen the benefit here recently of a good start, but I think it's an important data point. I don't think that we, as we think about, and I'll let Jeff comment in a minute about how we think about the fourth quarter, we have not extrapolated that to be a trend.
Dave Kelly: Because we want to be cautious, right? We've talked a lot on this call and in prior calls about the stability that we've seen Sometimes slightly better sometimes slightly worse than stable. So You know, we did see some positive You know
Dave Kelly: you know, benefits in terms of activity late in the quarter and the first couple weeks of October. But again, want to be cautious to not overstate that we think we're off to the races by any stretch.
Speaker Change: Yeah, and the only thing I'd add to that, you know, today's point, you know, the very end of September and into the first couple of weeks in October, and we use words like modest and our transcripts, we did see a modest level of improvement.
Speaker Change: But as you look at the fourth quarter, obviously we're losing two billing days because of the holidays.
Speaker Change: And then also because of the way the holidays are falling with both on a Wednesday.
Speaker Change: We've got some experience to tell us that we should anticipate some disruption and you know fewer consultant hours
Speaker Change: As we're dialing that into it as well.
Speaker Change: But I think, Karthik, the other thing I'd say, we've been talking about stability in our technology business now for running, let's call it a year.
Speaker Change: When you look at the midpoint of our expectation, our technology business is flat Q3 to Q4. I think more stability even with some of the holiday disruption, and part of that was the slightly improved trends that Dave commented on.
Karthik: Jeff, thank you. That's helpful. Just one last question. And Jeff, as you look at 2025 and if, you know, I know it's hard to predict revenues, things are so a little bit uncertain in the elections, but
Karthik: If revenues were to stay flat,
Karthik: based on all the cost-cutting measures you've done.
Karthik: Can you keep your margins about the same or, you know, are there other circumstances like SG&E expenses going up because you need to give merit increases and the like that could impact margins in 2025 if revenues stay flat?
Speaker Change: Yeah, and Karthik, I think it's a good question first. Thank you for that. You know, the enterprise priorities that we've been investing in over the last couple of years, we will continue to invest in those going into 2025.
Speaker Change: Certainly carded to your point.
Speaker Change: You know, we will see some level of merit increases, vendor renewal increases, et cetera, between 24 and 25. But I would also tell you, and this was in Dave Kelly's commentary, that we've been continuing to make the adjustments in the business as the year has progressed.
Speaker Change: And of course, you know, some of those adjustments will get the full year annualized benefit of that.
Speaker Change: You know, we're currently comfortable, I would say, with the capacity that we have.
Speaker Change: within our sales and delivery teams to take on, you know, any level of improvement that we might see in the near term there. So, I think, you know, Carter, to the extent that, you know, top line is flat, have we taken measures to largely mitigate any pressures on cost? I think the answer is yes.
Speaker Change: Jeff, thank you. I really appreciate it.
Jeff Hackman: Sure thing. Thanks, Carl.
Speaker Change: The next question is from Josh Chan, UBS.
Josh Chan: Hey, good afternoon guys best wishes respect to the hurricanes as well. I guess, with respect to the backlog of projects that you guys mentioned, is there a way to think about how critical they are? And I guess the implication of that is.
Josh Chan: Will time automatically unlock the spend or will there need to be a better economy that can unlock the spend? Thank you.
Josh Chan: Thank you.
Josh Chan: Yeah, Josh, hi, this is Dave. Yeah, so we talk about medical mission critical projects, right? We, we.
Josh Chan: Do business as we talk about all the time with really market leaders right it's those things that they think are meaningful to make sure that they maintain their market leadership there's also investments as joe mentioned in things like a or at least preparation for a so those things that they need to maintain their competitive advantage where they continue to invest.
Josh Chan: That's why we talk about those things as mission critical.
Josh Chan: Um, I, I think, you know, that's, and as we've talked about, right, that's exactly how we're thinking about our investments, right? The strategic long term benefits that we're getting from our investments are those that we cannot not do.
Josh Chan: because it'll put us at a disadvantage as we move forward.
Josh Chan: Um, as we think about unlocking future opportunities, I think Joe touched on it before, um, you know, our clients are seeing, and we talked to, obviously we've got deep, close relationships and there are a lot of things that they'd like to do, but getting green lighted, I think is clearly going to be reflective of them having, seeing, having some foresight that things are going to, on a continuous basis.
Josh Chan: Improve right in terms of their prospects in terms of their ability to sell their solutions their projects they clearly have not reached the conclusion that they're in a big expansion environment yet when we start to see that I think history would tell us.
Josh Chan: It will also unlock spend because they want to take advantage of the return that they would get from those investments when they can make those investments. So I think it's more foresight and a bit of confidence that they should see a continuing, improving environment.
Speaker Change: Yeah, what I would kind of wrapper that with, which I think is very important, and I've mentioned this in a number of prior calls, is we do believe we are positioned in such a good spot when that does come about. Because if you look at cycles, historically, and I've been through a number of downturns going back to 1988, savings and loan crisis, and they always follow a similar pattern.
Speaker Change: which once that optimism comes in, what comes post-stability is the utilization of staff augmentation and or solutions oriented before they start to rebuild full-time teams and everything else. When that comes, we're in a great spot with the relationships we have, and now with the additional capabilities that we also have from an offshore standpoint. We like the spot that we're in. Unfortunately, we don't control economic cycles, but we've done everything to prepare. I think when you look at the firm's performance coming out of the pandemic, you look at our more recent performance, I couldn't be more proud of our people in terms of their execution.
Speaker Change: forging relationships, maintaining relationships. One of the things that I really like about tough times like this, is it requires us to diversify and get into new clients that might have different spending patterns during the tough times, but we maintain those relationships with our legacy organizations that we work with, and so when things turn, basically we get a two for one. That's why we perform so well coming out of the pandemic with having
Speaker Change: strong footprint.
Speaker Change: in some of the industries that got hit hardest during the pandemic. We maintained those relationships, we worked with those clients, demand went down with those clients, we diversified into other clients.
Speaker Change: And then as things improved, basically we get to double down because now we have all the new relationships that have ongoing demand. We have those legacy relationships that now their demand comes back online. And our people have done a phenomenal job in continuing to position us for when this does turn.
Speaker Change: That's great, Carlo. Thank you for that, Joe and Dave. I really appreciate that. And then maybe just one question for Jeff.
Speaker Change: It sounds like you kind of answered it a little bit with the guidance coming in about December, but I guess I'm wondering how much of a holiday shutdown uncertainty are you guys baking in? Is that a pretty conservative assumption in the guidance with respect to what could happen in the back half of December here?
Speaker Change: Yeah, Josh, I don't know that I would use the word conservative, you know, certainly we've got a long history of dealing with.
Speaker Change: You know, different dates where the holidays fall, and we leverage that of course, we leverage conversations with clients on when they might be shut down and going through some furloughs for themselves as well.
Speaker Change: You know, we commented on the, you know.
Speaker Change: relative mild level of improvement that we saw to close out the quarter and to start the fourth quarter as well.
Speaker Change: Um, so I wouldn't characterize it as conservative. I think we've taken a nice scientific approach to coming up with our guidance.
Speaker Change: You look at Josh, how our technology business is performed.
Speaker Change: You know, throughout the year.
Speaker Change: You know, Q1 to Q2, we were sequentially positive. Q2 to Q3, we were very slightly sequentially negative. And Q3 to Q4, at the midpoint, we've got a flat technology business against a stable environment that we've commented on. So, I'd say balanced. I wouldn't say conservative.
Speaker Change: Thank you for the call and thank you for your time.
Speaker Change: Thanks, Josh. Thank you.
Speaker Change: And everyone, just a reminder that it is Star 1 if you have a question. We'll go next to Mark Riddick, the Doty.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Have a good evening.
Speaker Change: So, I just wanted to add my...
Speaker Change: appreciation and please certainly and all the best to those who
Speaker Change: went through such
Speaker Change: such devastation there and it's really glad to hear that folks are okay so all the best to your teams there and workers and everybody there and their families.
Speaker Change: I wanted to sort of maybe shift, you made some commentary around some of the returning capital shareholders and some of the actions that you're looking at already here in the fourth quarter. I was wondering if you could sort of maybe expand on this as far as the potential prioritization of use of cash and maybe some of the opportunities that you see there.
Speaker Change: Yeah, I think Mark, you know, we took the opportunity given the progress in the 4th quarter, just update, you know, investors and analysts on our progress thus far.
Speaker Change: You know, we've had a long track record, of course, in returning capital to shareholders.
Speaker Change: I mentioned in my prepared remarks that we've returned since 2007 greater than $900 million in capital between our quarterly dividends and our shared buybacks.
Speaker Change: That's equated to about 75% of the cash that we've generated. That certainly, as we continue to move forward, I wouldn't expect a change in that capital deployment approach as we move into the fourth quarter in 2025, so no change from what you've seen, Mark, historically speaking.
Speaker Change: From us.
Speaker Change: You can see the results, I guess, to that point on our focused model, our organic model, and our relative performance in our technology business across the space and relative to the market. We see that as the best avenue for our firm moving forward.
Mark Markham: Excellent. And then you've made in your prepared remarks commentary around the access to talent and the pipeline and the like. I was wondering if you have sort of a general view as to maybe where you stood there versus peers or industry because it seems as though that might be a you know might be an area of something for you guys to sort of gain share on.
Speaker Change: Yeah, I would say when we look at the competitive landscape, we have some great competitors that we go up with day in and day out. At the end of the day, it's all about execution, again, and Jeff touched upon this. We like the simplicity of our model. We like the focus.
Speaker Change: We focused very hard on building out a world-class customer base.
Speaker Change: And then I think when you couple that with our office occasional model, providing our people flexibility, empowered with technology and the trust and respect that we have for them, so that they can have a great life-work balance. There's so many pieces that go into the overall equation. But at the end of the day, we're going to stay true to the course and continue to focus on controlling what we can control.
Speaker Change: and execute and I believe if our people continue to do that, it not only positions us well to power through these times, but it really positions us for the other side.
Speaker Change: Excellent. And then the last one for me, in the prepared remarks there was some commentary around the activity with financial services. I was wondering if there was, if that was sort of, was there any particular...
Speaker Change: catalyst that you saw whether it was timing or any particular areas of financial services that sort of sparked a little better demand that you're seeing there or if it was just sort of a broad base within the entire sector. Thank you.
Dave Kelly: Yeah, Mark, this is Dave. Yeah, I would say, and I've said this before, you know, our experience is with a number of clients in financial services, right? We are, I think I would caution you against saying we are a barometer about the entire, for example, financial services industry. I can tell you that there are a number of clients and in financial services who obviously increase spend. That is not to say there weren't others.
Dave Kelly: that actually decreased their spend. So again, I think much thematically.
Dave Kelly: Similar to what we've been talking about today. I think I'm not
Dave Kelly: I don't want to suggest that we're seeing that financial services is an area that we're going to say quarter to quarter is going to continue to grow. Obviously, the interest rate environment may be increasingly conducive, but for us, I wouldn't say that as a driver to the spend we've seen. It is more along the lines of.
Dave Kelly: what we talked about before, these mission-critical projects and financial services that they felt compelled to spend that they did. So nothing really more than that, and I would say that's true effectively across every industry that we do business with.
Speaker Change: Thank you very much.
Speaker Change: Appreciate it. Thank you.
Speaker Change: And at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.
Speaker Change: Well, thank you for your interest in and support of K-Force. I'd like to express my gratitude to every K-Forcer for your efforts, and to our consultants and clients for their trust and faith in partnering with K-Force and allowing us the privilege of serving you. We look forward to talking with you again after the fourth quarter 2024.
Speaker Change: And everyone that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.