Q1 2025 Kforce Inc Earnings Call
Thank you for standing by my name is Greg and I will be your conference operator today at this time I would like to welcome everyone to K Forest Q1, 'twenty 25 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time.
Simply press Star followed by the number one on your telephone keypad once again, the star one and if you'd like to withdraw your question simply press Star one again. Thank you.
Speaker Change: I'd now like to turn the call over to Joe Liberatore, President and CEO Joe. Please go ahead.
Okay.
Speaker Change: Good afternoon, and thank you for your time today. This call contain certain statements that are forward looking are based upon current assumptions and expectations are subject to risks and uncertainties.
Speaker Change: Actual results may vary materially from the factors listed in K forces public filings and other reports and filings with the SEC, 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 inverse.
Speaker Change: The relation portion of our website.
Speaker Change: Like many others, we entered 2025 with a general sense of optimism for the U S economic growth, what they expected derivative benefit being a boost in our client confidence in accelerating investments in technology initiatives that had been deferred for the last several years.
Speaker Change: The signs of a slowing mid Q1, followed by the announcement of significant tariffs for which the outcome and impact remains unclear reintroduced many uncertainties into the U S economic outlook.
Speaker Change: The general tonality as we sit here today.
Speaker Change: The earlier optimism has waned to a degree in the macro uncertainties have increased which may delay and acceleration of the investment for many companies.
Speaker Change: With that said the macro uncertainties have not resulted in a deterioration in our business in fact over the last six weeks our consultants on assignments have improved and our front end kpis have been elevated compared to first quarter levels. We are cautiously optimistic about the level of demand we are seeing against this more uncertain backdrop.
Speaker Change: As to our first quarter performance it was generally consistent with our expectations.
Speaker Change: Regardless of the ultimate environment, we believe there remains an increasingly strong backlog of strategically imperative technology investments, we continue to be well positioned to take additional market share as we've been doing successfully for years and continue laying the foundation to generate significant long term returns for our shareholders.
Speaker Change: We're fortunate to have made the strategic decision more than five years ago to focus on the commercial space and divest our federal government business such that we no longer have any direct business with the federal government and limited indirect exposure through the support of our largest system integrator clients.
As we look ahead to the second quarter and the remainder of 2025 has been the case over the last few years, we will continue to stay close to our clients and monitor our key performance indicators and make any necessary adjustments to our business, while continuing to invest in our long term strategic priorities with a keen focus on the retention of our most productive.
Speaker Change: They've associates, our motto continues to be a control what we can control.
Speaker Change: Our teams are continuing to persevere and make the necessary adjustments within the business. While we also have continued to make significant investments in critical initiatives that will provide a great foundation moving forward positioning us to return higher levels of profitability as revenues inflect, we continued to make significant progress with the implementation.
Speaker Change: A workday as our future state enterprise cloud application for HCM and financials. They go live of this technology platforms expected in early 2026, and we expect to begin to generate immediate efficiency gains that will continue to improve as we rationalize the new platform.
Speaker Change: Yes.
Speaker Change: We also continued to evolve our nearshore and offshore delivery capabilities with our India Development Center and further integrate all the firm's capabilities across the full spectrum of our service offerings as one K force. Each of these strategic initiatives are transformational in nature and will be meaningful contributors to us meeting our financial objectives.
Speaker Change: AI continues to dominate the headlines as we have previously articulated over the long term, we believe that AI and other innovative technologies will continue to play an increasing role empowering businesses.
Speaker Change: We are ideally positioned to meet that demand and continuing to see an increased focus on AI foundational readiness work in areas such as data cloud and modernization along with AI projects and our consulting oriented engagements internally, we expect to benefit from the future leverage of AI and in that regard or extra.
Speaker Change: We are fortunate to have made the strategic decision to concentrate our platform technologies with Microsoft and Workday.
We have accelerated our investments in these technologies by acquiring enterprise licensing of office 365 co pilot.
Speaker Change: Sales co pilot for Microsoft we are taking active steps within the firm to provide these important productivity enhancing technologies to all of our associates and leaders. We have built a solid foundation of K Force and we'll continue to make the necessary investments to transform our business are domestically focused organic growth strategy continues to.
Speaker Change: Benefits of our organization by eliminating any unnecessary distractions for our people. So that they are full energy is directed to partnering with our clients to help them solve their most important business challenges.
Speaker Change: Before transitioning the call I wanted to reiterate how proud I am of the performance and resiliency of the collective K Force team. We are blessed to have a high performing organization that is United tenured dedicated and passionate I cannot be more excited about the future of K Force, Dave Kelly, Our Chief operating officer will now give greater.
Insights into our performance and recent operating trends, Jeff Hackman K forces Chief Financial Officer will then provide additional details on our financial results as well as our future financial expectations Dave.
Dave Kelly: Thank you Joe.
Dave Kelly: Total revenues of $330 million declined four 7% year over year on a billing day basis.
Dave Kelly: Revenues in our technology business declined five 2% sequentially and declined three 5% year over year per billing day.
Dave Kelly: We didn't see a typical recovery in the first quarter normally consultants on assignment decrease in January as year end projects are wrapped up and then gradually increase during the last two months of the quarter. This year, we actually saw slight declines mid quarter due to higher than expected assignment of attrition, which mirrored the tempering of economic expectations.
Dave Kelly: Head count levels did begin to increase in late March and that improvement continued into mid April though uncertainty remains mission critical initiatives continued to be prioritized by our clients. However, given the macroeconomic uncertainty clients appeared to be awaiting a period of increased confidence before more aggressively adding resources to address this.
Dave Kelly: Significant backlog of other important technology initiatives, our technology service offering has significantly evolved over the years expanding beyond traditional staffing assignments to encompass more consulting oriented engagements clients continued to prioritize cost efficient access to highly skilled talent and view our services as an effective solution to meet.
Dave Kelly: Their technology project requirements, leveraging our superior delivery capabilities.
Dave Kelly: The demand for our consulting oriented offerings has continued to significantly contribute to our results. This growth underscores our ability to adapt and meet the evolving needs of our clients, while our traditional staffing business has experienced year over year revenue declines growth and solutions oriented assignments highlights our strategic shift and the increasing.
Dave Kelly: <unk> clients place on our consulting capabilities.
Dave Kelly: Our integrated strategy Leverages, all aspects of the firm's capabilities to meet the needs of the world class companies. We serve an increasingly important aspect of providing cost effective solutions is our ability to source highly skilled talent from outside the United States.
Dave Kelly: Our development center in Pune, India positions <unk> well to compete for client opportunities that were previously unavailable to US. This development center combined with our robust U S sales and delivery capabilities and a heightened quality vendor network allows us to comprehensively address the evolving needs of our clients, whether onshore near shore or offshore.
Dave Kelly: Offshore.
Dave Kelly: Overall average bill rates in our technology business of $90 grew slightly sequentially and on a year over year basis, continuing a trend of stability that has persisted for nearly three years that.
Dave Kelly: The consistent demand for highly skilled talent in both traditional staffing assignments and consulting oriented engagements has played a crucial role in maintaining stable bill and pay rates. This demand is driven by clients' need for expertise in specialized areas such as AI and machine learning application engineering cloud digital data and cyber security.
Dave Kelly: Our ability to source and provide top tier professionals, who can address complex technological challenges has ensured that our services remain indispensable even as overall industry trends have slowed.
Dave Kelly: Our core competency lies in sourcing quality talented scale for our clients adapting to the evolving demand for various skill sets. We anticipate this trend to continue as clients increasingly rely on us to provide data and digital resources to support their data rationalization and cleanup activities, which are critical to their AI investments we have relation.
Dave Kelly: Chips with the largest providers in this space, including Microsoft and continue to strengthen our partnership models with these companies.
Dave Kelly: As technology has evolved over the decades, we've efficiently adapt to the changing skill set demands of our clients, ensuring we remain a trusted partner in their technological advancements.
Dave Kelly: Our client portfolio is diverse and is predominantly comprised of large market leading companies are focused on addressing their needs continues to be critical to our ability to drive sustainable long term above market performance.
Dave Kelly: The retail and transportation industries outperformed sequentially in Q1, while we experienced downward pressure in the relatively modest footprint with large consulting company supporting the federal government as well as in financial services.
Dave Kelly: Our footprint is focused on supporting very large clients all of whom have different needs. As a result, it's typical to see both increases and decreases in revenue for clients within the same industry vertical which has been the case in financial services, given our size and scale, it's difficult to extrapolate our performance with overall industry trends looking.
Dave Kelly: Forward to Q2, we expect modest sequential growth in our technology business flex.
Dave Kelly: <unk> revenues in our FAA business currently six 1% of our revenues declined 22% year over year on a billing day basis.
Dave Kelly: Our average bill rate of approximately $52 per hour improved slightly sequentially and year over year and is reflective of a highly skilled areas we are pursuing.
Dave Kelly: We expect Q2 revenues in <unk> to be down sequentially on a billing day basis in the mid single digits.
Dave Kelly: An area, where we have seen a more significant impact from the economic uncertainty is in our direct hire business, which represents approximately 2% of overall revenues. After a reasonably strong first quarter activity slowed in early April and we now expect direct hired a decline sequentially in Q2, and what is typically its strongest quarter.
Dave Kelly: We continue to make adjustments to associate staffing levels based on productivity expectations, focusing on retaining our most productive associates and making targeted investments to ensure we are well prepared to capitalize on market demand when it accelerates over.
Dave Kelly: Over the past three years, we selectively invested in our sales teams, while rationalizing our delivery resources, which have decreased by close to 40% over that time.
Dave Kelly: Despite these reductions we believe we have ample capacity to absorb several quarters of increased demand without adding significant resources. Additionally, we continue to invest in our consulting solutions business or <unk>.
Dave Kelly: Performance in the first quarter continue to outpace that of our competitors. We remain tremendously excited about our strategic position and our ability to continue delivering above market performance in our technology business as we have for well over a decade.
Dave Kelly: The success, we achieve as an organization is a testament to the unwavering trust that our clients candidates and consultants place in us.
Jeff: I'll now turn the call over to Jeff happened <unk> Chief Financial Officer.
Jeff: Thank you, Dave first quarter revenue of $330 million was at the low end of guidance and earnings per share of 45 cents was slightly above the low end of guidance overall gross margins decreased 30 basis points sequentially to 26, 7% due to a seasonal decline in flex margins of 50 basis points.
Jeff: Resulting from usual payroll tax resets, which was partially offset by a higher mix of direct hire revenues.
Jeff: On a year over year basis, overall spread and business mix had been stable, though gross margins declined 40 basis points due to higher health care costs.
Jeff: Flex margins in our technology business decreased 40 basis points sequentially due to seasonal payroll tax resets flex margins in technology declined 40 basis points year over year as higher health care costs were partially offset by a slight improvement in bill pay spreads.
Jeff: This spread increase of 10 basis points is attributable to the continued demand for highly skilled talent and a higher mix of consulting oriented work as we look forward to Q2, we expect flex margins to increase sequentially due to the alleviation of seasonal payroll tax resets, while remaining stable otherwise.
Jeff: Overall SG&A expenses as a percentage of revenue of 22, 8% were within the range of our expectations as we have continued to manage productivity and profitability levels well.
Jeff: While we experienced higher health care costs in the first quarter those costs were offset by leverage gained from continued refinements in our head count and lower performance based compensation given slightly lower financial performance we.
Jeff: We are continuing to make targeted investments in our sales capabilities, while tightly scrutinizing spend in all other areas of our business.
Jeff: We also continue to advance our enterprise initiatives, including the implementation of workday, the maturation of our India Development Center and further integration of our solutions offering.
Jeff: 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: We expect 2025 to be the final year of significant net investment in these initiatives and for them each to begin providing meaningful and growing returns as we move into 'twenty six and beyond.
Jeff: Our operating margin was three 5% and our effective tax rate in the first quarter was 26, 4%.
Jeff: During the quarter, we accelerated our share repurchase activity returning an aggregate of $28 3 million in capital to our shareholders through dividends of roughly $7 million and share repurchases of approximately $21 million.
Jeff: Given the level of repurchase activity outstanding debt at the end of the first quarter was $65 5 million.
Jeff: We continue to carry a very solid balance sheet and historically conservative leverage against trailing 12 months EBITDA levels.
We have continued to be active in repurchasing our shares in April and have significant remaining availability under our credit facility.
Jeff: Operating cash flows were 0.2 million, which were lower than usual, primarily due to timing of payments from our clients.
And an allowable deferral by the IRS of our 2020 for federal income tax payments into the first quarter. Our return on equity continues to exceed 30%.
We continue to execute our organically driven business, well and we believe our industry, leading relative performance as a result of our intense focus and technology staffing and solutions in the U S augmented by our nearshore and offshore capabilities, we continue to carry a pristine balance sheet with conservative.
Jeff: At levels and return significant capital to our shareholders.
Jeff: This consistent repurchase activity continues to be strongly accretive to earnings.
Jeff: We have returned approximately $1 billion 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, our balance sheet and cash flows allow us to remain committed to investing in our business while aggressive.
Jeff: Returning capital regardless of the economic climate.
Jeff: Our threshold for any prospective acquisition remains very high.
Jeff: The second quarter has 64 billing days, which is one more day than the first quarter and the same as the second quarter of 2024, we expect Q2 revenues to be in the range of 332 million to $340 million and earnings per share to be between 57 and 65.
Jeff: 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 nonrecurring items that may occur. We remain excited about our strategic position and prospects for continuing to deliver above market results, while continuing to make the net.
Jeff: This area investments to help drive long term growth and enable us to achieve our longer term objective of attaining double digit operating margins. As we mentioned previously we expect operating margins to approximately 8% when we return to $1 7 billion in annual revenues, which is more than 100 basis points higher.
Jeff: Then when that revenue level was achieved in 2022.
This improvement is being driven by the expected benefits derived from investments in our strategic priorities, which will drive down operating costs.
Jeff: Though we have seen recent slight improvement in bill pay spreads our profitability expectations are not factoring in any additional meaningful benefit from further improvement in gross margin on behalf of our entire management team I'd like to extend a sincere. Thank you to our teams for their efforts, we'd now like to turn the call over for questions.
Alright, Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Once again star one and we will pause just a moment to compile the Q&A roster.
Speaker Change: Okay. It looks like our first question today comes from the line of Mark Marcon with Baird. Please go ahead.
Mark Marcon: Hey, good afternoon, everybody and thanks for taking my questions.
Mark Marcon: Joe and David You mentioned you know the the monthly trends that you were seeing particularly on the tech flex side and really appreciate that I was wondering if you could just give us just a little bit more color with regards to you know what you're hearing from clients. Obviously, it's an uncertain environment, but I'm wondering are you.
Mark Marcon: Are you hearing like a very firm commitment to sticking with.
Mark Marcon: Existing projects and just basically delaying those that haven't started or are you starting to see any contemplation at all of you know potentially ending some already underway.
Mark Marcon: Underway projects.
Mark Marcon: I appreciate the question Mark This is Dave so, yes, so to reiterate what we said we did see some growth.
Mark Marcon: The consultants on assignment.
Mark Marcon: March and then through mid April.
Mark Marcon: Joe also alluded to some of our front, our leading indicators are kpis continued to be strong and I'd also mentioned bill rates, we're seeing in some spread improvement. So I think generally speaking.
Mark Marcon: Stable activity stable environments discussions and things that we're hearing from our clients. We have not I would contrast is significantly to maybe slower periods.
In recessionary periods, we are not seeing.
Mark Marcon: Clients canceling projects on us.
Mark Marcon: Very steady as I think we articulated in the prepared remarks, certainly we are winning some new business, so youre seeing that.
Mark Marcon: Seeing some natural project and Youre, just not seeing robust acceleration in <unk>.
Mark Marcon: A lot of new initiatives as we've been saying for a number of quarters, we see that pipeline, we continue to hear and eagerness to spend but obviously I think there's a fair amount of caution due to the uncertainty.
Mark Marcon: In the environment for clients to say I'm going to go full board and spending so more of what we saw at that it's more of what we saw last quarter.
Mark Marcon: Okay, and then it seems relatively clear, but just want to 100% absolutely confirm this it sounds like the guidance that you're basically.
Providing with basically.
Mark Marcon: Suggest you know relatively stable sequential trends on a go forward basis through the remainder of the quarter.
Mark Marcon: And doesn't really contemplate maybe the environment gets worse and some clients decide that they need to cut back a little bit more sharply is that correct.
Mark Marcon: Yes, and Mark this is Jeff good to talk to you again this quarter here.
Speaker Change: I think they've made a couple of points I know we touched on this in his remarks, but.
Mark Marcon: Mid quarter in the February timeframe attrit.
Speaker Change: Attrition levels ran a little bit higher.
Mark Marcon: Than we had anticipated.
Mark Marcon: The new assignments that we saw during the quarter were actually fairly consistent with what we expected.
Speaker Change: And I think it was in both Joanne Dave's scripts over the last four to six weeks. So as we closed out the first quarter and started.
Speaker Change: April actually grew our consultants on assignment during that period.
So that gives us a point mark for guidance.
Speaker Change: Yes from the remaining to go period for the quarter, we expect stability from here on out.
Speaker Change: The growth that we saw in late March and April and put us in a position where at the midpoint of our guide our technology businesses up sequentially, a little bit less than 1%.
Speaker Change: Yes, you are correct mark that the assumption at the midpoint of the guide is stability for the remaining to go period.
Speaker Change: Second quarter here.
Speaker Change: And obviously nobody knows exactly what's going to happen because nobody knows exactly where tariffs are going up.
Speaker Change: And we don't know where other countries are going to respond, but if things do get worse, what what are some of the levers that you could pull on.
Speaker Change: Or how would you.
Speaker Change: React if we started.
Speaker Change: Being some.
Speaker Change: Some pullbacks in terms of existing.
Speaker Change: In terms of existing projects.
Mark Marcon: Yes, I think mark the.
Mark Marcon: So hopefully you can appreciate over the last couple of years, obviously in 'twenty, three and 'twenty four.
Mark Marcon: Revenues were declining in our technology business, just given the macro headwinds.
Mark Marcon: We've been making as an overall organization and necessary adjustments I think it was mentioned and Dave Kelly's prepared remarks that when you look at our overall delivery head count over the last several years, it's down close to 40%.
Mark Marcon: We've been investing in our business from a sales.
Mark Marcon: Roll standpoint so.
Mark Marcon: So I think mark we're going to take a good hard look as we always do at our operating trends.
Mark Marcon: We'll assess what we're seeing in terms of client visits in terms of job orders and continue to make the necessary adjustments in the business.
Mark Marcon: Just as we've done over the last couple of years to make sure that we're returning a responsible level of profitability yes.
Dave Kelly: Add to that Dave a couple a couple of things right, Yes, obviously talking about the sales and delivery folks we have always.
Dave Kelly: Managed the business quantitatively and have expectations for those people and that's part of the reason why.
Dave Kelly: Percentages of Jeff quoted are where they are obviously from a cost perspective, SG&A, we're always being prudent making sure we're not.
Dave Kelly: We're not unnecessarily spending.
Dave Kelly: I think we've been very prudent in Nash, we're hoping I would continue to stress based upon where we are today and its strong cash that we're generating.
Dave Kelly: We think about this business not just in the near term, but certainly in the long term and the long term benefits, we touched on the workday implementation.
Dave Kelly: Critical for us to continue to invest to make sure that we bring that to fruition because thank Jeff had said in prior calls we're looking at probably about a 1% improvement in operating margin. After that goes lag. We've also obviously I want to continue to invest in those other strategic priorities that we have.
Dave Kelly: Building, our offshore capability et cetera. So we're thinking about this certainly being prudent in the near term, but making sure that we maintain focus on what the big long term benefits, we think that we need to generate long.
Dave Kelly: Long term objectives.
Dave Kelly: This is Joe I'll add one piece, because I think both Jeff and Dave kind of gave a good backdrop of how we look at this managing the business internally, but I want to shift a little bit to the external to the client front.
Dave Kelly: The majority of the work that we're focused on.
Joe Liberatore: Our model today is what I would call a strategically critical projects that organizations don't turn off they can't turn off I mean, obviously, they could turn them off but I'll tell you things would have to get pretty pretty bad will be in a whole different world and I. Thank God, how K forces performing would be the least if anybody's worries.
Joe Liberatore: So my main point was that we have not seen projects being cut short we've seen projects, bringing come to completion.
Joe Liberatore: Not seeing a lot of trimming in and around the strategic projects. So I think that that's a important piece. My main reason for sharing that as we would see probably less initiation of new projects, which gives us time to prepare.
Joe Liberatore: And react to those situations. So I don't think we get blindsided by anything I just wanted to give that that part of the story as well.
I appreciate that Joe and one last one for me and then I'll jump back into queue. Just in terms of the gross margins.
Dave Kelly: You know Dave.
Mark Marcon: They are holding in relatively steady what are you seeing in terms of price competition, just with regards to.
Dave Kelly: The the traditional <unk>.
Mark Marcon: Flex staffing not the consulting but just.
Mark Marcon: Flex staffing.
Yes, I think Barco. This is Jeff I'll take part one and then Dave can add some color here.
Mark Marcon: I think mark as you look at our flex margin spreads specifically in technology.
Mark Marcon: After the earlier declines that we saw in 2023, our spreads have been actually quite stable since that period of time, I think Dave mentioned earlier.
Mark Marcon: Answer to a question on the average bill rate also being stable as well at roughly $90 I think.
Mark Marcon: If you look across that Mark I think we've been stable from an average bill rate standpoint, now for better part of three years.
Mark Marcon: Margins have been very steady for the last couple of years as well.
Mark Marcon: Of course in the fourth quarter and again in the first quarter, we saw a little bit higher health insurance cost I think that distorts the flex margin lines, a little bit, but I think encouraging for us that we continue to see the operational spread stability.
Mark Marcon: Of course, we've talked about the continued progress that we're making in our more solutions oriented work.
Mark Marcon: That work continues to have a margin profile, that's 400 basis points or higher so of course as we continue to benefit from a higher mix of business in that space.
Mark Marcon: Also benefiting the overall margin profile for us.
Mark Marcon: Then just to add further and kind of goes towards Joe in a minute ago about us seeing projects come to their natural conclusion, we're not seeing any extraordinary difference from that.
Mark Marcon: That type of typical environment right, we obviously.
And when we're talking about more of the traditional staffing engagements.
Mark Marcon: Deal with a lot of large companies still looking from time to time to consolidate.
Mark Marcon: They're less of vendors.
Mark Marcon: Looking for some concessions still seeing that but we arent seeing any wholesale hey, you need to cut prices, if youre going to.
Mark Marcon: Keep business because we are under pressure, we being our clients.
Mark Marcon: To save money I think that is to me a reflection of what Joe said. These guys are doing critical work they need to have it continued to be done.
Mark Marcon: We are still in an environment, where high quality technology talent is important to find and needs to be paid for and they recognize that so we've seen stable bill rates to Jeff's point, we've seen stable pay rates. So I think a very typical environment, we're not seeing any rash decisions that companies are making.
Mark Marcon: Really appreciate the color I'll jump back in line. Thank you.
Speaker Change: Thanks Mark.
And our next question comes from the line of Kartik Mehta with Northcoast excuse me Northcoast Research. Please go ahead.
Speaker Change: Thank you.
Speaker Change: I wanted to ask a little bit about capacity, maybe you know obviously, you've made cuts and obviously you had to come out.
Speaker Change: Restructure of the organization with the current environment and I'm wondering where you stand in capacity and if things get better.
Speaker Change: Rather than worse.
Speaker Change: How much business could could you do without having to increase personnel.
Dave Kelly: Yeah Kartik this is Dave.
Speaker Change: Good question.
Speaker Change: Maybe helpful to kind of characterize what we've done what we've done I think Jeff had mentioned that delivery resources are down certainly, but I think important to note as we kind of look at where we are today.
Speaker Change: The folks that we have on the sales side of the business actually from a number of people is actually slightly greater than it was back when we were doing $1 $7 billion in business obviously.
Speaker Change: Debt.
Speaker Change: Those folks are.
Speaker Change: In critical roles that are very relationship driven with their clients 10 years very important and frankly.
Speaker Change: That population and our organization is more tenured relieve us than it's ever been so.
Speaker Change: And those people obviously because of the criticality of those relationships are harder to ramp right and we've made comments in the past that is not necessarily the case in the delivery side of the equation, so theres opportunity and we've taken it to.
Speaker Change: To refine.
Speaker Change: A number of resources, we have there and we've enhanced the tools that they have to work with that.
Speaker Change: That population typically can ramp very quickly so.
Speaker Change: So when you think about it really the.
Speaker Change: Be determinant as to what capacity is is that the sales capacity right and so the fact that we've got.
Speaker Change: The same number and they are doing a lot more to get a sale today as you would expect than they were during a very robust time in that would necessarily likely happen again. If you just kind of do the simple math, we probably have got just from that perspective about 40% capacity. So we are in no.
Speaker Change: Way in a place where we would fall short in meeting the needs of any of our clients from a sales perspective anytime soon so feel very good about where we are yeah and the only thing that I would add to Dave's comments as are we.
Speaker Change: Mentioned in my my opening remarks, we are making some investments relative to office 365, co pilot and sales co pilot being there.
Speaker Change: A dynamic shop, and we can integrate these things and we're not baking in any assumptions in terms of any productivity lifts from the investments that we're making in these tools that we'll be providing our people as well.
Speaker Change: And then just a follow up.
Speaker Change: Just don't have visibility, obviously visibility today is a lot lower than it was.
Speaker Change: But if you try to compare it to when things were a little bit more normal and.
Speaker Change: Look at kind of visibility from a revenue stand point or project standpoint, how would you characterize or is there a way to look like you feel comfortable with about 60% of the revenue.
Speaker Change: Kpis, you're looking at in terms of visibility.
Speaker Change: Yes, I would say you know having been through multiple cycles, we're always monitoring similar kpis, which are really our front end.
Speaker Change: Indicators, they gave us a good sense on what's to come so.
Speaker Change: During uncertain times during recessionary periods during robust times, it's really balancing those things and monitoring those kpis. We also monitor the ratios because the ratios is really what starts to move.
Can you go into tougher times or when you go into more robust times right. Your ratio is typically improve during the good times and then during the tougher times those ratios start to expand a little bit. So now we have a we've spent years building out our internal dashboards again, we leverage a lot of Microsoft products on this front.
Speaker Change: So our people have access to real time information and that's how we how we stay on top of and run the business.
Speaker Change: And I think Kartik, just add a couple of points I think the <unk>.
Average assignment length in our technology business does not move significantly I know, we haven't talked about that maybe recently, but that's still about 10 months.
Speaker Change: And to Joe's point very metric driven.
Speaker Change: And certainly through these times, where you've got a little bit more of the macro to pay attention to.
Speaker Change: We rely heavily on our field leaders and field associates to keep in tune with the clients.
Speaker Change: Kind of drive us on what they are seeing.
Joe Liberatore: In those conversations and I think Joe and Dave both mentioned it we're not seeing clients take proactive measures to restrict or delayed or canceled. So in that regard I think the visibility still is reasonably clear to us.
Speaker Change: That regard so.
Thank you I appreciate that.
Speaker Change: Thank you. Thank you.
Speaker Change: And our next question comes from the line of Tobey Sommer with Truest Tobey. Please go ahead.
Speaker Change: Thank you.
Speaker Change: With respect to your own internal initiatives like workday.
Speaker Change: Your <unk>.
Speaker Change: Capacity in India.
Is the timeline for those projects are how would you characterize it.
Speaker Change: On schedule in line behind schedule, how are you managing the completion of those efforts.
Speaker Change: Yes.
Dave Kelly: Yes, you mentioned those two that those are probably the most visible here Tobey This is Dave.
Certainly with respect to the workday implementation, we refer to it internally as Gemini.
Dave Kelly: That has as we've mentioned it's been a multi year project to go lives that we're talking about in the first quarter 2026 is an on time.
Dave Kelly: Delivery of that and so we've been kind of foreshadowing the expectations of what we would see with that and looking to 2026. So feel very good about where we are the team.
Dave Kelly: As been intensively working as an exceptional job.
Dave Kelly: And I've got all the confidence.
Dave Kelly: In the world and the team so feel very good about that.
Dave Kelly: That program as it relates to our.
Dave Kelly: Facility in Pune, India actually.
Dave Kelly: More than on time, that's operational right, we went live with that.
Dave Kelly: Facility at the beginning of this year. So we're about four months in a very pleased.
Dave Kelly: As we've mentioned before that has built strategically to support our domestic footprint. We've already won a couple of projects there.
Dave Kelly: And things are going quite well.
Dave Kelly: We built it with a reasonable degree of variable cost, but it can scale.
Dave Kelly: And although we don't have a specific target of how quickly it will grow because it will obviously be dependent upon how would <unk>.
Dave Kelly: Imports to the U S business again that was a very well executed project by a lot of people on the team here again, it couldnt be more proud of them as well so things are going quite well.
Dave Kelly: All of these indications for us.
Dave Kelly: Thanks.
Dave Kelly: You mentioned health care.
Dave Kelly: Little bit higher in the quarter.
Impacting gross margin is that.
Dave Kelly: Utilization generally running hires or something discrete in the first quarter that occurred.
Speaker Change: What are you seeing so far in <unk>.
Jeff: Yes, I don't think its anything Toby this is Jeff.
Speaker Change: To hear your voice here.
Speaker Change: Cal scare you remember from the fourth quarter and the first quarter of this year Toby healthcare costs ran a little bit higher.
Speaker Change: That's more of a claims severity than it is a volume driven dynamic. So you can look across the space with some of the health care providers as well just a general increase in healthcare costs. In addition to the severity. So nothing that we would say is pervasive within the health insurance.
Speaker Change: The offerings themselves.
Speaker Change: Okay that makes sense and then.
Speaker Change: You mentioned.
Speaker Change: The indirect exposure.
Speaker Change: K force has to D C large system integrators.
Speaker Change: Would you discuss.
Speaker Change: <unk> discussed that a little bit more like I don't know.
Speaker Change: <unk> exposure, which I think is relatively small and what youre seeing there.
Speaker Change: Also maybe talk about financial services vertical.
Speaker Change: Sure sure Yeah.
Speaker Change: I'd start by saying I wish I could give you some perspective on those industries per se our exposure relatively speaking.
Speaker Change: As small, but but I'll start with our exposure to government I think Joe mentioned it. We obviously I know you know this divested of our.
Speaker Change: Our prime government contracting business kgs about five years ago.
Speaker Change: So pleased obviously in this environment certainly to have done that.
Speaker Change: Well in our rearview mirror and I would also mentioned obviously.
Toby: We've got a very diversified commercial portfolio right so to your point Toby.
Toby: In the government space, providing services to these integrators is certainly in.
Toby: In the mid single digits as the entire portfolio and when you think about the percentage of the business that might be impacted by government spending cuts. It's even a fraction of that so really for us the impact is nominal so as I'd mentioned in terms of an industry bellwether as to what we're seeing.
Toby: As I'm going to tell you in the financial services business. It is client by client there are not huge amounts of clients. So it would be.
Toby: I would be giving you information that is only partially informed that give you an opinion about the industry, but clearly.
Toby: A small amount of business impact for us.
Toby: There as it relates to financial services.
Toby: Vertical we've said in the past this is our largest vertical.
Toby: And I think I'd mentioned I know I'd mentioned in my prepared remarks that that was off a little bit.
Toby: Q4 to Q1 by the way I've mentioned Thats after two quarters of sequential growth.
Toby: As I said in the past.
Toby: We do business with very large institutions and I can tell you just look at the portfolio. We had some actually they grew revenue for US we had some certainly that.
Toby: And then Ed declines as well.
Toby: So on balance the total dollars were down a little bit, but again I don't think we are a bellwether.
Toby: And I wouldn't hang your head on what industry trends are in financial services by our performance. So again, it could change quarter to quarter based upon project by project and client by client.
Toby: Thank you.
Toby: Thank you.
Speaker Change: Thanks, and our next question comes from the line of Trevor Romeo with William Blair. Trevor. Please go ahead.
Speaker Change: Hey, good evening guys. Thanks, so much for taking the questions.
Speaker Change: One I had was you've talked about the success of the consulting focused offerings I think even in the softer type of demand environment broadly.
Speaker Change: I guess are there any common themes among the type of project work that clients are kind of still have been ending to a large degree for your consulting type offerings or maybe asked differently.
Speaker Change: Are there any specific types of projects do you think <unk> in particular has kind of carved out a unique offering that has really resonated well.
Speaker Change: Yes, so Trevor yes, I mean, we've organized this offering in a couple of different areas, but frankly, and we get quarterly updates from from our team here.
Speaker Change: We've had pretty broad success.
Speaker Change: Even in the application engineering space, we're continuing to see growth obviously that is at the heart of a lot of.
Speaker Change: Our development work that we're doing.
Speaker Change: We are seeing.
Speaker Change: Advancements in the digital space obviously.
Speaker Change: Clearly there is a ton of data and data rationalization work, that's being done obviously in advance of a lot of companies efforts and I think we're certainly seeing growing pipelines in.
Speaker Change: In particular in those last two areas and but frankly across.
Speaker Change: All of the Acs engagements in our cloud and the cloud is also a big area of focus so so.
Speaker Change: Those places where.
Speaker Change: The engagement with the end customer.
Speaker Change: The use of.
Speaker Change: The cloud really important as well.
Speaker Change: I've mentioned.
Speaker Change: No.
Speaker Change: All all very strong.
Speaker Change: We're proud of that business as well right. As we've mentioned we've had good growth that has been really the driver of our outperformance I think generally speaking over the last few quarters certainly.
Speaker Change: Got it. Thanks, that's helpful and then I guess I wanted to ask.
Speaker Change: Starting in AI related question I know the.
Speaker Change: Long term do you have and generally agree that new use cases from AI will ultimately sports for more demand.
Speaker Change: But just in terms of the near term I guess, maybe there is some negative impact on certain roles. Maybe there's some new rules be created I guess are the new opportunities youre seeing now offsetting any of that near term disruption or do you think.
Speaker Change: One side of that is kind of moving faster than the other at this point.
Speaker Change: Yes, I would say from from what we're seeing realizing.
Speaker Change: Who makes up our customer base, which are enterprise fortune 1000 organizations, what we're seeing pretty much across the board within that client set is AI readiness a lot of energy being spent around data around migrating systems to the cloud or preparing to migrate them to <unk>.
Speaker Change: The cloud.
Speaker Change: In and around digitizing the various systems. So that they are prepared as they start to build out their use cases, they have to have the foundation in place and the infrastructure and so that's where we're seeing a lot of the energy so yes.
Speaker Change: Are we seeing a rolls that are being created I would say, they're re reshaping of existing roles.
Speaker Change: Data scientists now are you now.
Speaker Change: Becoming AI engineer oriented or architect related roles. So.
Speaker Change: We're seeing the AI tied to a lot of rules versus what I would say is purely newly created roles.
Speaker Change: And that's just providing more opportunity for us to <unk>.
Speaker Change: To tap into those high demand skill set areas, but it really the work that we are seeing coming through the pipe specific AI is in and around their readiness versus major implementations of us of a use case with especially within these fortune 1000 organizations, where data governance and a lot of other things have to be locked down.
Speaker Change: And they have to being in good shape to be able to execute per se. The implementation of a large use case.
Speaker Change: Alright Super helpful. Thank you.
Speaker Change: Sure. Thank you.
Speaker Change: Thank you Trevor.
Speaker Change: And our next question comes from the line of Josh Chan with UBS, Josh. Please go ahead.
Speaker Change: Good afternoon, Joe Dave Jeff.
Speaker Change: Maybe to quickly clarify on your comments about the environment.
Speaker Change: Leading indicators improving.
Speaker Change: Through April I guess I think it typically improves around this time of the year or so so I guess are you interpreting this improvement is fairly normal from a seasonal perspective, just from a from a magnitude angle.
Speaker Change: Yes, Josh Yes, just to kind of clarify what I said, so and I tried to give some color in terms of what happened in the first quarter right. So typically in the first quarter as I had mentioned, we see growth in the second two months of the quarter, we actually didn't see growth in the second month of the first quarter. So we did see some growth in March that would be.
Speaker Change: <unk>.
Speaker Change: Into April.
Speaker Change: Into mid April specifically.
And that growth trajectory has been has flattened a little bit so.
Speaker Change: I would say a traditional in a row and a strong growth environment, you would see continuation of growth through the quarter right part of the reason why is as we've mentioned obviously the uncertainty that we're seeing in our guidance contemplates.
Speaker Change: Flat consultants on assignment from here through the rest of the quarter. So as we're thinking about where we are in this cycle relative to what we would see.
Speaker Change: Typically in a strong growth environment.
Speaker Change: We haven't suggested that we're looking at a continuation of that.
Mark Marcon: Yeah, that's really helpful. Thank you Dave.
Speaker Change: And then on the on the healthcare costs I guess are you guys thinking of those as.
Speaker Change: Relatively random or unexpected events or I guess at what point do you try to price through those health care costs into your bids to to have that not be as big of an impact. Thank you.
Speaker Change: Yes.
Jeff: Josh This is Jeff.
Speaker Change: I think from a healthcare standpoint I.
Speaker Change: I had mentioned that this is the second quarter that the costs have been a bit higher than we anticipated that was preceded probably by three or four quarters, where the costs were either consistent or a bit below what we had expected. So naturally Josh as you can imagine healthcare cost a bit difficult to predict of course every year we.
Look at what the health care cost trends are and price it accordingly.
Speaker Change: Some quarters, you get a little bit I'll say unexpected surprise by some of the more severe claims that you just can't predict.
Speaker Change: But we do price in kind of a.
Speaker Change: Annual healthcare cost trend so.
Speaker Change: Hopefully that helps Josh.
Josh Chan: Thanks, Jeff and thank you everybody for the color and the time.
Speaker Change: Thank you Josh.
Speaker Change: Yeah.
Speaker Change: And one last reminder, if you would like to ask a question Press Star then the number one on your telephone keypad once again starwood.
And our next question comes from the line of Marc Riddick with Sidoti. Please go ahead.
Speaker Change: Hey, good evening, everyone I want to thank you for all the color that you've already provided you you've already answered pretty much most of my questions.
Speaker Change: One of the things that was sort of curious about is maybe you could share some thoughts as to what youre seeing on candidate availability.
Speaker Change: Whether that.
Speaker Change: That has changed much over the last few months.
Speaker Change: Or if there were any particular areas, where youre beginning to see things loosen up a bit and maybe.
Speaker Change: Do you think sort of playing out there.
Mark Marcon: Yes, Mark I think the simple answer is in terms of candidate availability it really hasnt changed.
Mark Marcon: Materially at all over the course of I would say more than the last couple of months right over the course of the last I would say certainly nine months to a year certainly and I think may be reflective of that is.
Speaker Change: We're looking at stability and pay rates right. So.
Mark Marcon: So no I think.
Speaker Change: The other thing I would say is.
Mark Marcon: This is what we do well right so.
Speaker Change: We are excellent I think.
Identifying the right candidates for the role right and so frankly.
Speaker Change: Ongoing question in good times and bad how do you find consultants.
Speaker Change: It has a lot to do with our people is a lot to do with our processes. So it's not something that keeps us up at night, but no. We haven't seen any material change at all and candidate availability.
Speaker Change: Okay, Great and then.
Speaker Change: Last one from me and you touched on this certainly during your prepared remarks as far as the share repurchase activity.
Speaker Change: During the quarter and I guess, it seemed to enter into a little bit into April, which which kind of lens towards the share Count guide for <unk>, maybe you could sort of shed some thoughts there I mean, obviously it makes it a lot of sense to us to take advantage of where the where the shares all but maybe you can talk a little bit about that as well.
Jeff: Yes, Mark this is Jeff.
Good. Good question that you asked I think what you saw certainly from the first quarter, we got a little bit more aggressive.
Jeff: Aggressive with our share repurchase activity.
Jeff: Of course, the first quarter is traditionally the lower quarter of operating cash flows when you look across the full year and because of that we typically have a light or amount of share buyback activity in the first quarter.
Jeff: As we looked across the space and certainly given the volatility that we're seeing.
Jeff: And where we expect and the competence that we have moving forward as a firm we've got a bit more aggressive in the first quarter.
Jeff: And wanted to be transparent with that activity.
Jeff: Continuing into April so.
Jeff: When you look across market and it did mentioned this in some of the prepared remarks, but.
Jeff: Since 2007, we've through.
Jeff: Through dividends and share buybacks returned about $1 billion in capital to shareholders, you look across that and Thats about 75% of the cash that we've generated so.
Jeff: Consistency that we've shown over a long period of time.
Jeff: As a firm and getting aggressive and being consistent with our return of capital and.
Jeff: And I think I mentioned, maybe last quarter that we've been returning capital and buying back stock before was both to do this so we're.
Speaker Change: We're serious about it and as we look forward don't see us changing course in this regard Joe and Dave have given commentary about the organic growth strategy that is the strategy that we believe is best.
Speaker Change: For K force. Unfortunately, we came into the.
Speaker Change: The year with a very strong balance sheet and we're using it.
Excellent. Thank you very much.
Mark Marcon: Thanks Mark.
Joe Liberatore: And that looks to be all the questions. We have today. So I will now turn it back over to Joe for closing remarks, Joe.
Joe Liberatore: Well. Thank you for your interest and support of K for US I would like to express my gratitude to every K for us or for your efforts and to our consultants and clients for your trust and faith in partnering with <unk> and allowing us the privilege of serving you. We look forward to talking with you again after second quarter of 2025 have a great evening.
Speaker Change: Thanks, Joe and ladies and gentlemen that does conclude today's call again. Thank you for joining and you may now disconnect have a great evening.
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