Q2 2026 Kforce Inc Earnings Call

July 27, 2026

Operator 3: Ladies and gentlemen, thank you for joining us, welcome to the Kforce Q2 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Joseph Liberatore, President and CEO. Please go ahead, sir.

Operator: Ladies and gentlemen, thank you for joining us, welcome to the Kforce Q2 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Joseph Liberatore, President and CEO. Please go ahead, sir.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Joe Liberatore, President and CEO.

Speaker #1: Please go ahead, sir.

Speaker #2: Good afternoon, and thank you for your time today. This call contains certain statements that are forward-looking or based upon current assumptions and expectations, and are subject to risks and uncertainties.

Joseph Liberatore: Good afternoon, and thank you for your time today. This call contains certain statements that are forward-looking or based upon current assumptions and expectations and are subject to risk and uncertainties. Actual results may vary materially from the factors listed in Kforce's public filing 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 SEC filings. We have published our prepared remarks within the investor relation portion of our website. We are extremely pleased to have delivered results in Q2 that again exceeded our expectations from both a revenue and profitability perspective. Overall revenues positively inflected in Q1 of 2026, meaningfully expanded in Q2, and our guidance for Q3 contemplates continued sequential improvement.

Speaker #2: Actual results may vary materially from the factors listed in Kforce's public filings and other reports and filings with the SEC. We cannot undertake any duty to update any forward-looking statements.

Speaker #2: You can find additional information about our results and our earnings release and SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website.

Speaker #2: We are extremely pleased to have delivered results in the second quarter that again exceeded our expectations from both our revenue and profitability perspective. Overall revenues were positively affected in the first quarter of 2026, meaningfully expanded in the second quarter, and our guidance for the third quarter contemplates continued sequential improvement.

Speaker #2: As a point of reflection, the year-over-year growth rate in Q2 for our Technology business was at its highest level since the end of 2022, and our sequential improvement was the best we've experienced in four years.

Joseph Liberatore: As a point of reflection, the year-over-year growth rate in Q2 for our technology business was at its highest level since the end of 2022, and our sequential improvement was the best we've experienced in 4 years. I am incredibly proud of the determination of our people and deeply appreciative of the trust of our world-class clients continue to place in Kforce as we help them advance more meaningful, high-value engagements. Our go-to-market approach, shaped by our integrated strategy efforts, is clearly gaining traction. Across the firm, our people are operating more fully as one Kforce, bringing the full breadth of our capabilities to bear across our service offerings.

Speaker #2: I am incredibly proud of the determination of our people and deeply appreciative of the trust our world-class clients continue to place in Kforce, as we help them advance more meaningful, high-value engagements.

Speaker #2: Our go-to-market approach, shaped by our integrated strategy efforts, is clearly gaining traction. Across the firm, our people are operating more fully as one Kforce, bringing the full breadth of our capabilities to bear across our service offerings.

Speaker #2: The revenue inflection that we experienced in our business in the first half of 2026 is consistent with the improving macro demand environment for talent, as evidenced by indicators such as the ISM Services PMI, ASA Staffing Index, and the SIA Bullhorn Staffing Indicator, which have strengthened over the last several months.

Joseph Liberatore: The revenue inflection that we experienced in our business in H1 of 2026 is consistent with the improving macro demand environment for talent, as evidenced by indicators such as the ISM Services PMI, ASA Staffing Index, and the SIA | Bullhorn Staffing Indicator that have strengthened over the last several months. Overall US job growth has moderated in recent months, but recent gains have been increasingly concentrated in professional and business services, which are far more aligned to Kforce's end markets than the growth drivers over the past 2 years. Our results reflect disciplined execution and a meaningful shift in client behavior. Organizations are increasingly turning to flexible talent models to advance large backlogs of high-priority technology initiatives, particularly as AI accelerates transformation and CEOs remain measured in adding permanent headcount.

Speaker #2: In addition, overall U.S. job growth has moderated in recent months, but recent gains have been increasingly concentrated in professional and business services, which are far more aligned to Kforce's end markets than the growth drivers over the past couple of years.

Speaker #2: Our results reflect disciplined execution and a meaningful shift in client behavior. Organizations are increasingly turning to flexible talent models to advance large backlogs of high-priority technology initiatives, particularly as AI accelerates transformation and CEOs remain measured in adding permanent headcount.

Speaker #2: Broader uncertainty, including the geopolitical tensions and related volatility in the global energy markets, has further reinforced the need for agility. We believe these dynamics highlight the value of flexible workforce solutions as clients adapt to near-term uncertainty while assessing the longer-term implications of emerging technologies on their business and talent strategies.

Joseph Liberatore: Broader uncertainty, including the geopolitical tensions and related volatility in the global energy markets, has further reinforced the need for agility. We believe these dynamics highlight the value of flexible workforce solutions as clients adapt to near-term uncertainty while assessing the longer-term implications of emerging technologies on their business and talent strategies. We remain encouraged that our operating trends and consecutive quarters of revenue improvements are consistent with a more typical cyclical demand recovery. Kforce has a very rich 64-year operating history, and as such, we've witnessed and participated in major technology shifts before, including personal computing, the emergence of the internet, the mobile revolution, and the move to cloud computing. Each of these periods affected the labor markets, but over time, workers, and specifically technologists, adapted by upskilling and retraining as technology evolved, resulting in net increase of technology-related roles.

Speaker #2: As a result, we remain encouraged that our operating trends and consecutive quarters of revenue improvements are consistent with a more typical, cyclical demand recovery.

Speaker #2: KFORCE has a very rich 64-year operating history, and, as such, we've witnessed and participated in major technology shifts before—including personal computing, the emergence of the internet, the mobile revolution, and the move to cloud computing.

Speaker #2: Each of these periods affected the labor markets, but over time, workers, and specifically technologists, adapted by upskilling and retraining as technology evolved, resulting in a net increase of technology-related roles.

Speaker #2: From an AI perspective, we continue to take a disciplined approach both internally and externally. Internally, we are evaluating our core business processes and selectively deploying AI-enabled solutions where we see the greatest opportunity to enhance productivity.

Joseph Liberatore: From an AI perspective, we continue to take a disciplined approach both internally and externally. Internally, we are evaluating our core business processes and selectively deploying AI-enabled solutions where we see the greatest opportunity to enhance productivity, improve the associate and client experience, and drive operating leverage. Externally, we continue to educate and train our sales associates and leaders while adding specialized AI expertise within our consulting solutions organizations. We believe AI as one of the most significant technology shifts over the last several decades. However, we believe enterprise adoption remains in the early stages and is likely to follow a progression similar to prior transformative technology cycles. While much of the current focus remains on the underlying technology, our experience suggests the greatest value creation will come from effectively integrating AI into business processes and operating models.

Speaker #2: Improve the associate and client experience and drive operating leverage. Externally, we continue to educate and train our sales associates and leaders, while adding specialized AI expertise within our consulting solutions organizations.

Speaker #2: We believe AI is one of the most significant technology shifts over the last several decades; however, we believe enterprise adoption remains in the early stages and is likely to follow a progression similar to prior transformative technology cycles.

Speaker #2: While much of the current focus remains on the underlying technology, our experience suggests the greatest value creation will come from effectively integrating AI into business processes and operating models.

Speaker #2: Successful adoption will require organizations to align strategy, talent, data, governance, and change management capabilities in order to translate AI potential into measurable business outcomes.

Joseph Liberatore: Successful adoption will require organizations to align strategy, talent, data, governance, and change management capabilities in order to translate AI potential into measurable business outcomes. As a result, we believe demand will continue to grow for highly skilled professionals and talented teams who can help organizations design, implement, and scale AI, data, and digital transformation initiatives. Through our technology talent solutions and consulting capabilities, we believe Kforce is well-positioned to help clients navigate this transformation, accelerate modernization efforts, and realize the value of their technology investments, creating a competitive advantage. Regardless of how quickly the underlying technology evolves, organizations will continue to require skilled professionals and teams of individuals who can bridge the gap between innovation and execution. We believe this dynamic supports the long-term demand environment for technology talent and consulting solutions that are central to our strategy. Our business model is intentionally simple, organically driven, and intensely focused.

Speaker #2: As a result, we believe demand will continue to grow for highly skilled professionals and talented teams who can help organizations design, implement, and scale AI, data, and digital transformation initiatives.

Speaker #2: Through our technology talent solutions and consulting capabilities, we believe KFORCE is well positioned to help clients navigate this transformation, accelerate modernization efforts, and realize the value of their technology investments, creating a competitive advantage.

Speaker #2: Regardless of how quickly the underlying technology evolves, organizations will continue to require skilled professionals and teams of individuals who can bridge the gap between innovation and execution.

Speaker #2: We believe this dynamic supports the long-term demand environment for technology talent and consulting solutions that are central to our strategy. Our business model is intentionally simple.

Speaker #2: Organically driven and intensely focused. By limiting inorganic growth within our existing service areas, we protect our teams from unnecessary complexities and distractions. That focus allows our people to do what they do best: build deep relationships and partner with clients to solve their most critical business challenges.

Joseph Liberatore: By limiting inorganic growth within our existing service areas, we protect our teams from unnecessary complexities and distractions. That focus allows our people to do what they do best, build deep relationships and partner with clients to solve their most critical business challenges. Our strategy has been thoughtfully refined over time, not overhauled, because it is proven durable. That focus, combined with a unified and resilient culture, is a real differentiator for us and central to our consistent market outperformance. Before I hand it off to Dave, I am grateful every day for the opportunity to work alongside such talented and dedicated colleagues. Their passion, expertise, and commitment continue to strengthen our business, advance our enterprise initiatives, and position us well for the future. Because of their efforts, I remain confident in our strategy, our momentum, and the opportunities ahead.

Speaker #2: Our strategy has been thoughtfully refined over time—not overhauled—because it has proven durable. That focus, combined with a unified and resilient culture, is a real differentiator for us and central to our consistent market outperformance.

Speaker #2: Before I hand it off to Dave, I am grateful every day for the opportunity to work alongside such talented and dedicated colleagues. Their passion, expertise, and commitment continue to strengthen our business, advance our enterprise initiatives, and position us well for the future.

Speaker #2: Because of their efforts, I remain confident in our strategy, our momentum, and the opportunities ahead. Dave Kelly, our Chief Operating Officer, will now provide greater insights into our performance and recent operating trends. Jeff Hackman, Kforce's Chief Financial Officer, will then provide additional detail on our financial results, as well as our future financial expectations.

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

Speaker #2: Dave.

Speaker #3: Thank you, Joe. Total revenues of $349.3 million represented overall revenue growth of 4.5% on a year-over-year basis and 4.1% on a sequential billing day basis, both of which represent levels not seen in nearly four years.

David Kelly: Thank you, Joe. Total revenues of $349.3 million represented overall revenue growth of 4.5% on a year-over-year basis and 4.1% on a sequential billing day basis, both of which represent levels not seen in nearly four years. There has been a lot of discussion about whether we and the broader sector can continue to deliver revenue growth given the much-speculated negative demand impact of AI tools and technologies. Encouragingly, we've been successful at delivering three consecutive quarters of revenue growth that has returned to pre-pandemic, and thus pre-AI advancement norms. This growth is being seen both in our consulting revenues and our traditional staff augmentation business. The strength in direct hire revenues across both our technology and FA businesses was also a positive contributor for us in Q2, further signaling the desire for companies to add critical long-term talent.

Speaker #3: There has been a lot of discussion about whether we, in the broader sector, can continue to deliver revenue growth, given the much-speculated negative demand impact of AI tools and technologies.

Speaker #3: Encouragingly, we've been successful at delivering three consecutive quarters of revenue growth that has returned to pre-pandemic, and thus pre-AI advancement, norms. This growth is being seen both in our consulting revenues and our traditional staff augmentation business.

Speaker #3: The strength in direct hire revenues across both our Technology and FA businesses was also a positive contributor for us in the second quarter, further signaling the desire for companies to add critical, long-term talent.

Speaker #3: Our client portfolio is exceptional; our strategic direction is clear and unchanged, and our culture is unmatched. We recognize that there is still uncertainty in the geopolitical and macroeconomic environment.

David Kelly: Our client portfolio is exceptional, our strategic direction is clear and unchanged, and our culture is unmatched. We recognize that there is still uncertainty in the geopolitical and macroeconomic environment. While we've been successful in our go-to-market strategy, leveraging the progress made with our integrated strategy efforts, clients continue to take a measured approach to technology spend. With that said, our results and operating trends suggest that they are actively prioritizing critical initiatives in areas such as data, digital, and the platforms that underpin AI strategies, among other areas that may have been previously postponed, and that we are taking client and overall market share. Importantly, the improvement in our business has been broad-based, with positive trends evidenced across a wide range of industries and skill sets within our client portfolio.

Speaker #3: While we've been successful in our go-to-market strategy, leveraging the progress made with our integrated strategy efforts, clients continue to take a measured approach to technology spend.

Speaker #3: With that said, our results in operating trends suggest that they are actively prioritizing critical initiatives and areas such as data, digital, and the platforms that underpin AI strategies, among other areas that may have been previously postponed.

Speaker #3: And that we are taking client and overall market share. Importantly, the improvement in our business has been broad-based, with positive trends evidenced across a wide range of industries and skill sets within our client portfolio.

Speaker #3: We continue to see growth in AI-related, data, digital, and cloud projects, while also experiencing a ramp in demand for platform and application development roles and projects.

David Kelly: We continue to see growth in AI-related data, digital, and cloud projects, while also experiencing a ramp in demand for platform and application development roles and projects. Overall technology demand remains broad, with eight of our top 10 industries showing sequential growth and similar performance on a year-over-year basis. We continue to make targeted organic investments to fortify the depth of expertise in our consulting solutions business to meet rising client demand for cost-effective access to highly skilled talent. Our consulting-led offerings are contributing positively to the performance of our technology business, supported by an increasing volume of opportunities. Our fully integrated sales and delivery model, which also leverages a combination of onshore, nearshore, and offshore talent from our Pune delivery center, addresses a growing need in the market, offering clients a seamless experience across consulting, project-based work, and more traditional staffing assignments spanning multiple technologies and skill sets.

Speaker #3: Overall, technology demand remains broad, with eight of our top ten industries showing sequential growth and similar performance on a year-over-year basis. We continue to make targeted, organic investments to fortify the depth of expertise in our consulting solutions business to meet rising client demand for cost-effective access to highly skilled talent.

Speaker #3: Our consulting-led offerings are contributing positively to the performance of our technology business, supported by an increasing volume of opportunities. Our fully integrated sales and delivery model, which also leverages a combination of onshore, nearshore, and offshore talent from our Pune delivery center, addresses a growing need in the market, offering clients a seamless experience across consulting, project-based work, and more traditional staffing assignments spanning multiple technologies and skill sets.

Speaker #3: We are seeing clear signs of a healthy demand environment across the full spectrum of our service offerings, as clients are increasingly receptive to discussions on potential opportunities, many of which are focused outside the CIO function, as evidenced by a meaningful year-over-year improvement in client visits.

David Kelly: We are seeing clear signs of a healthy demand environment across the full spectrum of our service offerings as clients are increasingly receptive to discussions on potential opportunities, many of which are focused outside the CIO function, as evidenced by a meaningful year-over-year improvement in client visits. Indicators in our business that support this and suggest a continuation of sustained strong demand, in addition to meaningful gross margin expansion, include approximately 18% year-over-year improvement in both job orders and in new assignment starts in Q2. Though June and early July are typically slightly slower months for front-end activities and new starts due to increased client PTO, more normal activity levels have resumed over the last two weeks, and these indicators suggest a healthy demand environment that is conducive to driving continued sequential revenue growth in Q3, which is contemplated in our guidance.

Speaker #3: Indicators in our business that support this and suggest a continuation of sustained strong demand, in addition to meaningful gross margin expansion, include approximately 18% year-over-year improvement in both job orders and new assignment starts in Q2.

Speaker #3: Though June and early July are typically slightly slower months for front-end activities and new starts due to increased client PTO, more normal activity levels have resumed over the last two weeks, and these indicators suggest a healthy demand environment that is conducive to driving continued sequential revenue growth in Q3, which is contemplated in our guidance.

Speaker #3: The net is that we are driving disproportionately better results than the macro-industry readings would suggest, and the momentum in the business is good.

David Kelly: The net is that we are driving disproportionately better results than the macro industry readings would suggest, and the forward momentum in the business is good. We've maintained a stable average bill rate of approximately $90 per hour over the last four years while continuing to build a higher quality, higher margin revenue stream. This reflects the growing mix of consulting-oriented engagements, which command higher bill rates and stronger margin profiles, as well as disciplined management of wage inflation in core technology skill sets. Together, these factors have effectively offset the bill rate pressure associated with a greater mix of consultants based outside the US. Frankly, we would expect to continue seeing stability in our average bill rate as we look forward, with the potential for slight enhancements as technology labor continues to upskill in the face of advancements in AI.

Speaker #3: We've maintained a stable average bill rate of approximately $90 per hour over the last four years, while continuing to build a higher-quality, higher-margin revenue stream.

Speaker #3: This reflects the growing mix of consulting-oriented engagements, which command higher bill rates and stronger margin profiles, as well as disciplined management of wage inflation in core technology skill sets.

Speaker #3: Together, these factors have effectively offset the bill rate pressure associated with a greater mix of consultants based outside the U.S. Frankly, we would expect to continue seeing stability in our average bill rate as we look forward, with a potential for slight enhancements as technology labor continues to upskill in the face of advancements in AI.

Speaker #3: Demand remains strong across core practice areas, including data and AI, digital platform engineering, and cloud. The number of opportunities in our consulting solutions offering continues to expand and will be a primary driver for our sequential growth in Q3.

David Kelly: Demand remains strong across core practice areas, including data and AI, digital platform engineering, and cloud. The number of opportunities in our consulting solutions offering continues to expand and will be a primary driver for our sequential growth in Q3. These disciplines are foundational to the development and deployment of AI solutions, and we believe organizations will increasingly require specialized talent to execute their strategies. This creates meaningful and durable growth opportunities for our firm. Looking forward to Q3, we expect the pace of overall technology activities to continue to improve along historical pre-pandemic levels and for revenue to improve sequentially in the low single digits, which will result in further improvements in our year-over-year performance.

Speaker #3: These disciplines are foundational to the development and deployment of AI solutions, and we believe organizations will increasingly require specialized talent to execute their strategies.

Speaker #3: This creates meaningful and durable growth opportunities for our firm. Looking forward to Q3, we expect the pace of overall technology activities to continue to improve across long historical pre-pandemic levels and for revenue to improve sequentially in the low single digits.

Speaker #3: Which will result in further improvements in our year-over-year performance. Over the last several years, we've made responsible adjustments to align headcount levels with revenue levels and productivity expectations.

David Kelly: Over the last several years, we've made responsible adjustments to align headcount levels with revenue levels and productivity expectations. We believe we have sufficient capacity to absorb near-term improvements in demand without requiring significant incremental resources, particularly as we continue to drive greater efficiency through AI-enabled solutions. At the same time, we remain committed to investing in our consulting solutions business and other strategic initiatives that we believe will support long-term revenue and profitability growth. We remain energized by the opportunities ahead and confident in our ability to sustain recent momentum while continuing to deliver strong results that exceed overall market averages. Our success is grounded in the deep trust and the longstanding partnerships we've built with our clients, candidates, and consultants. These relationships remain the foundation of our growth, innovation, and long-term success. I'll now turn the call over to Jeff Hackman, Kforce's Chief Financial Officer.

Speaker #3: We believe we have sufficient capacity to absorb near-term improvements in demand without requiring significant incremental resources, particularly as we continue to drive greater efficiency through AI-enabled solutions.

Speaker #3: At the same time, we remain committed to investing in our consulting solutions business and other strategic initiatives that we believe will support long-term revenue and profitability growth.

Speaker #3: We remain energized by the opportunities ahead and confident in our ability to sustain reasonable momentum while continuing to deliver strong results that exceed overall market averages.

Speaker #3: Our success is grounded in the deep trust and long-standing partnerships we've built with our clients, candidates, and consultants. These relationships remain the foundation of our growth, innovation, and long-term success.

Speaker #3: I'll now turn the call over to Jeffrey Hackman, Kforce's Chief Financial Officer.

Speaker #2: Thank you, Dave. Second quarter revenue of $349.3 million was up 4.5% on a year-over-year basis, and earnings per share of $0.73 were up approximately 24% year-over-year.

Jeff Hackman: Thank you, Dave. Q2 revenue of $349.3 million was up 4.5% on a year-over-year basis, and earnings per share of $0.73 was up approximately 24% year-over-year. Our Q2 results not only demonstrate our ability to drive revenue growth in the face of secular growth concerns, but were parlayed with stronger than expected gross margins and enhanced profitability levels. Overall gross margin was 28.5% up 140 basis points year-over-year, driven by expanding flex margins and stronger than expected direct hire revenues. Sequentially, gross margin increased 120 basis points, reflecting improved flex spreads, a stronger than expected direct hire mix, and a typical seasonal recovery from Q1 payroll tax resets. The enhanced gross margin profile has been a true standout for us, especially as revenues have inflected positively. This success reflects the value we deliver to our clients and our focus on improving the quality of our business mix.

Speaker #2: Our second quarter results not only demonstrate our ability to drive revenue growth in the face of secular growth concerns, but were paired with stronger-than-expected gross margins and enhanced profitability levels.

Speaker #2: Overall gross margin was 28.5%, up 140 basis points year-over-year, driven by expanding flex margins and stronger-than-expected direct hire revenues. Sequentially, gross margin increased 120 basis points, reflecting improved flex spreads, a stronger-than-expected direct hire mix, and a typical seasonal recovery from Q1 payroll tax resets.

Speaker #2: The enhanced gross margin profile has been a true standout for us, especially as revenues have inflected positively. This success reflects the value we deliver to our clients and our focus on improving the quality of our business mix.

Speaker #2: As discussed previously, solutions-oriented engagements, along with our offshore business, typically carry higher margins. Growth in these areas has been an important contributor to our overall margin expansion.

Jeff Hackman: As discussed previously, solutions-oriented engagements along with our offshore business typically carry higher margins, and growth in these areas have been an important contributor to our overall margin expansion. Looking ahead to Q3, we expect bill pay spreads to remain stable sequentially, reflecting the continued benefits of our pricing discipline and business mix strategy. SG&A expense was 22.7% of revenue in the quarter, an increase of 50 basis points year-over-year. The increase was primarily driven by higher performance-based compensation, which is rebounding from historically low levels, reflecting the strong financial results we achieved thus far in 2026. While the initial positive inflection of revenues and strength in gross profit is resulting in some SG&A deleverage, we do not expect this to perpetuate at even higher revenue levels. In fact, as revenues grow, improving productivity levels will create meaningful improvements in operating leverage as the business scales.

Speaker #2: Looking ahead to the third quarter, we expect bill-pay spreads to remain stable sequentially, reflecting the continued benefits of our pricing discipline and business mix strategy.

Speaker #2: SG&A expense was 22.7% of revenue in the quarter, an increase of 50 basis points year-over-year. The increase was primarily driven by higher performance-based compensation, which is rebounding from historically low levels and reflects the strong financial results we have achieved thus far in 2026.

Speaker #2: While the initial positive inflection of revenues and strength in gross profit is resulting in some SG&A deleverage, we do not expect this to perpetuate at even fact. As revenues grow, improving productivity levels will create meaningful improvements in operating leverage as the business scales.

Speaker #2: We are beginning to see tangible benefits through improved productivity metrics across the organization. As these initiatives mature, we expect the resulting efficiency gains to drive additional operating leverage over time.

Jeff Hackman: We are beginning to see tangible benefits through improved productivity metrics across the organization. As these initiatives mature, we expect the resulting efficiency gains to drive additional operating leverage over time. While we are likely to see some elevated non-cash depreciation and amortization expense in early 2027 post go live from our Workday implementation, consistent with our prior commentary, we continue to anticipate realizing more meaningful benefits towards the end of 2027 and more fully into 2028, which should further enhance operational effectiveness and support long-term margin expansion. Our operating margin was 5.4%, and our effective tax rate in Q2 was 30.6%. On a year-to-date basis, we have experienced operating cash flows of -$6.7 million, which is consistent with historical trends in periods where revenues have meaningfully and positively inflected.

Speaker #2: While we are likely to see some elevated non-cash depreciation and amortization expense in early 2027, post-GoLive from our work to implementation, consistent with our prior commentary, we continue to anticipate realizing more meaningful benefits toward the end of 2027 and more fully into 2028, which should further enhance operational effectiveness and support long-term margin expansion.

Speaker #2: Our operating margin was 5.4%, and our effective tax rate in the second quarter was 30.6%. On a year-to-date basis, we have experienced negative operating cash flows of $6.7 million, which is consistent with historical trends in periods where revenues have meaningfully and positively inflected.

Speaker #2: We expect to resume generating positive operating cash flows in the second half of 2026 as we monetize the higher levels of accounts receivable. We continue to carry a very high-quality accounts receivable portfolio, and days sales outstanding was stable with prior year levels.

Jeff Hackman: We expect to resume generating positive operating cash flows in H2 2026 as we monetize the higher levels of accounts receivable. We continue to carry a very high-quality accounts receivable portfolio, and days sales outstanding was stable with prior year levels. During the quarter, we continued to return capital to shareholders with $9.6 million distributed through dividends of $6.7 million and share repurchases of approximately $2.9 million. We were more aggressive with our repurchase activity in Q1 2026, leveraging the strength of our balance sheet, given what was believed to be, and has proven to be, a disconnect between our operating performance and demand trends and the current valuation of our stock. As a result, net debt increased to $106.8 million at quarter end from $90.2 million in the prior quarter.

Speaker #2: During the quarter, we continued to return capital to shareholders, with $9.6 million distributed through dividends of $6.7 million and share repurchases of approximately $2.9 million.

Speaker #2: We were more aggressive with our repurchase activity in the first quarter of 2026, leveraging the strength of our balance sheet, given what was believed to be—and has proven to be—a disconnect between our operating performance and demand trends and the current valuation of our stock.

Speaker #2: As a result, net debt increased to $106.8 million at quarter end from $90.2 million in the prior quarter. Despite this increase, our balance sheet remained strong, with leverage of approximately 1.4 times trailing 12 months EBITDA, which we continue to view as a conservative level.

Jeff Hackman: Despite this increase, our balance sheet remains strong with leverage of approximately 1.4x trailing 12 months EBITDA, which we continue to view as a conservative level. Looking ahead, we expect to continue balancing returning excess cash generated beyond our capital requirements and quarterly dividend commitments to shareholders through share repurchases and paying down debt. Our return on equity remains strong at approximately 30%, underscoring the effectiveness of our capital allocation strategy and our ability to generate attractive returns while continuing to invest in long-term growth initiatives. Turning to our outlook, Q3 includes 64 billing days, consistent with both Q2 2026 and Q3 2025. We expect Q3 revenue to be in the range of $349 million to $357 million, and earnings per share to be between $0.71 and $0.79. Our guidance assumes an effective tax rate of approximately 30%.

Speaker #2: Looking ahead, we expect to continue balancing the return of excess cash generated beyond our capital requirements and quarterly dividend commitments to shareholders through share repurchases and paying down debt.

Speaker #2: Our return on equity remained strong at approximately 30%, underscoring the effectiveness of our capital allocation strategy and our ability to generate attractive returns while continuing to invest in long-term growth initiatives.

Speaker #2: Turning to our outlook, the third quarter includes 64 billing days, consistent with both the second quarter of 2026 and the third quarter of 2025.

Speaker #2: We expect third quarter revenue to be in the range of $349 million to $357 million, and earnings per share to be between $0.71 and $0.79.

Speaker #2: Our guidance assumes an effective tax rate of approximately 30%. At the midpoint of guidance, revenue is expected to increase approximately 1.1% sequentially and 6.1% year-over-year.

Jeff Hackman: At the midpoint of guidance, revenue is expected to increase approximately 1.1% sequentially and 6.1% year-over-year. Notably, earnings per share at the midpoint of guidance represents a 19% increase compared to the prior year. Our outlook assumes a stable operating environment and excludes the impact of any unusual or non-recurring items. We remain confident in our strategic position and our ability to deliver growth that outpaces the broader market. The progress we have made in improving the quality of our business, expanding margins, and enhancing operating leverage reinforces our confidence in the earnings power of the company as market conditions continue to improve. We also remain confident in our ability to generate an operating margin of at least 8% when annual revenue returns to $1.7 billion.

Speaker #2: Notably, earnings per share at the midpoint of guidance represent a 19% increase compared to the prior year. Our outlook assumes a stable operating environment and excludes the impact of any unusual or non-recurring items.

Speaker #2: We remain confident in our strategic position and our ability to deliver growth that outpaces the broader market. The progress we have made in improving the quality of our business, expanding margins, and enhancing operating leverage reinforces our confidence in the earnings power of the company as market conditions continue to improve.

Speaker #2: We also remain confident in our ability to generate an operating margin of at least 8% when annual revenue returns to $1.7 billion. The 8% annual operating margin expectation represents more than 100 basis points of improvement compared to the margin profile we achieved the last time we operated at that revenue level in 2022.

Jeff Hackman: The 8% annual operating margin expectation represents more than 100 basis points of improvement compared to the margin profile we achieved the last time we operated at that revenue level in 2022. As a reference point, Q2 operating margin of 5.4% is notably higher than the 4.5% operating margin in Q2 of 2020, when revenues were at approximately the same level. We believe this demonstrates the benefits of our disciplined execution, improved business mix, pricing strategy, and investments in our sales, solutions, and enterprise capabilities. On behalf of the entire management team, I would like to thank our associates for their dedication, hard work, and continued commitment to serving our clients. Their efforts have been instrumental in delivering our strong results and positioning the company for continued success in the future. We would now like to turn the call over for questions.

Speaker #2: As a reference point, second quarter operating margin of 5.4% is notably higher than the 4.5% operating margin in Q2 of 2020, when revenues were at approximately the same level.

Speaker #2: We believe this demonstrates the benefits of our disciplined execution, improved business mix, pricing strategy, and investments in our sales solutions and enterprise capabilities. On behalf of the entire management team, I would like to thank our associates for their dedication, hard work, and continued commitment to serving our clients.

Speaker #2: Their efforts have been instrumental in delivering our strong results and positioning the company for continued success in the future. We would now like to turn the call over for questions.

Speaker #1: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Operator 3: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mark Marcon with Baird. Your line is open. Please go ahead.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mark Marcon with Baird. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mark Markin with Baird.

Speaker #1: Your line is open. Please go ahead.

Speaker #3: Good afternoon, and thanks for taking my questions, and congratulations on the strong progress, particularly on the margin front, as well as the inflection in terms of revenue continuing and accelerating.

Mark Marcon: Good afternoon. Thanks for taking my questions, and congratulations on the strong progress, particularly on the margin front, as well as the inflection in terms of revenue continuing and accelerating. In terms of the revenue growth, Joe or Dave, you mentioned that there's an 18% increase in terms of the number of orders that you had in Q2. How does that compare to the year-over-year increase that you had in the orders in Q1, and how's that trending as we get into Q3, and how should we think about fill rates?

Speaker #3: In terms of revenue growth, Joe or Dave, you mentioned that there’s an 18% increase in the number of orders you had in Q2.

Speaker #3: How does that compare to the year-over-year increase that you had in the orders in Q1, and how is that trending as we get into Q3?

Speaker #3: And how should we think about fill rates?

Speaker #4: Yeah, Mark, I appreciate the question and the comments. So, I would say in the comments that I made, both related to just general activity levels and visits, as well as starts activity—which I had mentioned approximated about 18% year-over-year in the second quarter.

David Kelly: Mark, appreciate the question and the comments. I would say in the comments that I had made, both related to just general activity levels and visits, as well as starts activity, which I had mentioned approximated about 18% year-over-year in Q2. That is roughly what it was in Q1 as well. We have had good, consistent demand. As we look at, and I mentioned this in my prepared remarks as well, at least some of the visit activity, we have seen some good results. I think I said 2 weeks. It is actually the last 3 weeks of really strong activity levels as well. We feel good about not only what we have seen from a consistency perspective, but additionally, what we are looking at in Q3. Some good momentum.

Speaker #4: That's roughly what it was in the first quarter as well. So we've had good consistent demand and as we look at and I mentioned this in my prepared remarks as well, some of the at least some of the visit activity we've seen some good results I think I said two weeks.

Speaker #4: It's actually the last three weeks of really strong activity levels as well. So we feel good about not only what we've seen from a consistency perspective, but also what we are looking at in the third quarter.

Speaker #4: So, some good momentum. And I would tell you, obviously, we've had some improvement in year-over-year growth rates in Q2. We expect the same—some incremental, additional year-over-year improvement in technology revenue growth in Q3.

David Kelly: I would tell you, obviously, we have had some improvement in year-over-year growth rates in Q2. We expect the same, some incremental additional year-over-year improvement in technology revenue growth in Q3. I think that basically reflects a pretty consistent fill ratio. About the same, which I think continue to be very positive.

Speaker #4: I think that basically reflects a pretty consistent fill ratio, so about the same, which I think continues to be very positive.

Speaker #3: That's great. And then I thought the gross margins were particularly impressive. And while the hourly bill rate has been in the same neighborhood, it did have a nice sequential uptick.

Mark Marcon: That is great. Then I thought the gross margins were particularly impressive. While the hourly bill rate is in the same neighborhood, it did have a nice sequential uptick. I am wondering if we can dig down a little bit with regards to the revenue split that is enabling you to generate these higher gross margins. Obviously, your offshore has higher gross margins. Your consulting has higher gross margins. Can you just talk a little bit about the sustainability in terms of increasing those gross margins or how we should think about the mix and how that is trending and where gross margins could go?

Speaker #3: So, I'm wondering if we can dig down a little bit with regards to the revenue split that's enabling you to generate these higher gross margins.

Speaker #3: Obviously, your offshore has higher gross margins. Your consulting has higher gross margins. But can you just talk a little bit about the sustainability in terms of increasing those gross margins, or how we should think about the mix and how that's trending, and where gross margins could go?

Speaker #2: Yeah, Mark, this is Jeff. Maybe I'll start, and maybe Dave Kelly can take part too here. I anticipated the question, and it's good to be with you again here, Mark.

Jeff Hackman: Mark, this is Jeff. Maybe I will start, and maybe David Kelly can take part 2 here. Anticipated the question, good to be with you again here, Mark. Certainly the margin story for us, in addition to the significant inflection that we have had, certainly with our revenue trends, has been a really positive part of the story. I think when you look at our technology flex margins, they improved about 120 basis points on a year-over-year basis in Q2, and I think they were up about 80 basis points on a year-over-year basis in Q1. Certainly some sequential improvement there in our bill paid spreads, which is great to see. When you layer that on top of the direct higher revenues that sequentially were up pretty strongly, I think up 20% sequentially, that really gives you a pretty powerful margin story overall.

Speaker #2: Certainly, the margin story for us, in addition to the significant inflection that we've had—certainly with our revenue trends—has been a really positive part of the story.

Speaker #2: I think when you look at our Technology Flex margins, they improved about 120 basis points on a year-over-year basis in the second quarter. And I think they were up about 80 basis points on a year-over-year basis in the first quarter.

Speaker #2: So, certainly, some sequential improvement there. And our bill pay spreads, which is great to see—when you layer that on top of the direct hire revenues—sequentially were up pretty strongly.

Speaker #2: I think up 20% sequentially, that really gives you a pretty powerful margin story overall. We’ve talked about this probably, Mark—gosh, probably for the last four or five calls—that we’ve really seen some really nice margin enhancements.

Jeff Hackman: We've talked about this, probably Mark, gosh, probably for the last four or five calls, that we've really seen some really nice margin enhancements. I think frankly, in Q2, not much has changed. The success that we're seeing not only is by the increase in demand and some of the harder to find talent. We've talked on prior calls that we really are focused in that highly skilled technology skill set area, and I think that continues to bode well as far as pricing. Also several strategic initiatives. We've talked about the better pricing discipline to help ensure that our rates better reflect the value that we're providing to our clients. I think, certainly the business mix has also helped. You mentioned two of those. Our consulting solutions business continues to carry pretty significantly higher margins.

Speaker #2: And I think, frankly, in the second quarter, not much has changed. The success that we're seeing is not only due to the increase in demand in some of the harder-to-find talent. We've talked on prior calls that we really are focused in that highly skilled technology skill set area.

Speaker #2: And I think that continues to bode well as far as pricing, but also several strategic initiatives we’ve talked about—the better pricing discipline to help ensure that our rates better reflect the value that we’re providing to our clients.

Speaker #2: And I think certainly the business mix has also helped. You mentioned two of those. Our consulting solutions business continues to carry pretty significantly higher margins.

Speaker #2: We continue to improve the overall mix of revenue in KCS engagements. In addition, our nearshore and offshore business continues to expand both sequentially and year-over-year.

Jeff Hackman: We continue to improve the overall mix of revenue in KCS engagements. Also, our nearshore and offshore business continues to expand sequentially and year-over-year, that continues to benefit us. I'd be remiss, Mark, if I didn't say thank you to our people. Really, really proud of what our team has accomplished over the last 12 to 15 months against an overall not so great macro environment. I think from a spread perspective, I mentioned it in my prepared remarks, that we're expecting stability Q2 to Q3. A reflection point for me, when you look at our technology flex margins in Q2 of 2022, flex GP was 26.9%, and we sit here today at 26.8%. I think a lot to be proud of. Very thankful to all of our associates and leaders for their efforts.

Speaker #2: So that continues to benefit us. And I'd be remiss, Mark, if I didn't say thank you to our people—really, really proud of what our team has accomplished over the last 12 to 15 months against an overall not-so-great macro environment.

Speaker #2: So, I think from a spread perspective, I mentioned in my prepared remarks that we're expecting stability from Q2 to Q3. A reflection point for me: when you look at our technology flex margins in Q2 of 2022, FlexGP was 26.9%.

Speaker #2: And we sit here today at 26.8%. So I think there's a lot to be proud of, and I'm very thankful to all of our associates and leaders for their efforts.

Speaker #4: Yeah, maybe adding a couple of things to Jeff's comments. So, first of all, I think—and we've talked about this a lot, right? We've got a pretty highly concentrated set of skills, right?

David Kelly: Yeah, maybe adding a couple things to Jeff's comments. First of all, I think, we've talked about this a lot, right? We've got a pretty highly concentrated set of skills, right? High-end skills that we regularly place, highly concentrated around, and we mentioned $90 bill rate. I think this frankly, is also a reflection of the demand for that scarce talent, right? It continues, it has been, it continues to be an area where there's a scarcity of talent. We meet those needs well, maybe better than any in our space. Just to kind of remind you of a couple things to add on to Jeff's point, the margins in our consulting business are typically four to 600 basis points higher than in our traditional staff augmentation business. You mentioned our offshore operations, as we've mentioned in the past.

Speaker #4: High-end skills that we regularly place are highly concentrated around—we mentioned—a $90 bill rate. I think this, frankly, is also a reflection of the demand for that scarce talent, right?

Speaker #4: It continues. It has been. It continues to be an area where there's a scarcity of talent. We meet those needs well, maybe better than any in our space.

Speaker #4: Just to kind of remind you of a couple of things to add on to Jeff's point, the margins in our consulting business are typically 400 to 600 basis points higher.

Speaker #4: Then, in our traditional staff augmentation business, you mentioned our offshore operations. As we've mentioned in the past, we've built that predominantly in support of our solutions business.

David Kelly: We've built that predominantly in support of our solutions business, that is a contributor to that point, Mark, to that incremental margin. We feel good about the pipeline for that business. I had mentioned in my prepared remarks that the growth that we expect sequentially in our technology business is predominantly going to be driven by growth in the solutions business, which again, has got very strong margins. Pipelines in that business continue to be very good. I didn't mention, but I will. I think pipelines for, generally speaking, that profile of business are up 30% year-over-year. We feel really good about that. That is distributed pretty broadly, whether it be in the AI space or more of our traditional application development work.

Speaker #4: So, that is a contributor to that point, Mark, to that incremental margin. We feel good about the pipeline for that business. I had mentioned in my prepared remarks that the growth we expect sequentially in our technology business is predominantly going to be driven by growth in the Solutions business, which, again, has got very strong margins.

Speaker #4: Pipelines in that business continue to be very good. I didn't mention it, but I will. I think pipelines, generally speaking, for that profile of business are up 30% year over year.

Speaker #4: We feel really good about that. That is distributed pretty broadly, whether it be the AI space or more of our traditional application development work.

Speaker #4: So we feel very good about the trajectory of that business, and consequently, really very good about where the margin profile is and where it'll continue to go.

David Kelly: We feel very good about the trajectory of that business and consequently, really very good about where the margin profile is and where it'll continue to go.

Speaker #3: That's great. I was just wondering if you were being a little conservative with regards to the Flex gross margin guide, given that the higher margin areas are the ones that are growing the fastest.

Mark Marcon: That's great. I was just wondering if you were being a little conservative with regards to the flex gross margin guide, given that the higher margin areas are the ones that are growing the fastest. I look at Q3, because obviously sequentially, you got that benefit from the normal seasonal tax thing. It seems like if those areas are growing faster, then what would be the reason why flex gross margins wouldn't be slightly higher in Q3 relative to Q2?

Speaker #3: As I look at the third quarter—because obviously, sequentially, you got that benefit from the normal seasonal tax thing—but it seems like if those areas are growing faster, then what would be the reason why flex gross margins wouldn't be slightly higher in the third quarter relative to the second quarter?

Speaker #2: Yeah, there's a little bit, Mark. I think maybe at the midpoint, they were expected to be down 10 basis points. So I think, on the margin, not that significant of a change.

Jeff Hackman: Yeah, there's a little bit, Mark. I think maybe at the midpoint, they were expected to be down 10 basis points. I think, on the margin, not that significant of a change. There is a little bit of a seasonality between Q2 and Q3. Typically, it's a little bit higher paid time off within certain of our clients. We typically see that a little bit in Q3, if you remember back, Mark, in recent history. Q4, of course, has a much greater concentration of PTO, but Q3 does have a little bit. That's contributing partly to that seasonality.

Speaker #2: There is a little bit of seasonality between Q2 and Q3. Typically, there's a little bit higher paid time off within certain of our clients.

Speaker #2: So, we typically see that a little bit in Q3, if you remember back, Mark, in recent history. Q4, of course, has a much greater concentration of PTO. Q3 does have a little bit.

Speaker #2: So that's contributing partly to that seasonality.

Speaker #3: Okay, great. And then lastly, and then I'll jump off, but the incremental flow-through in terms of GP to the operating line was also pretty impressive.

Mark Marcon: Okay, great. Lastly, then I'll jump off, the incremental flow-through in terms of GP to the operating line was also pretty impressive. How were you thinking about, what's that portend with regards to your ultimate targets with regards to, you talked about getting to 8% margins at $1.7 billion, it seems like your incremental margins are running a lot higher. Are you getting close to diminishing your excess capacity, or where would you say your excess capacity is right now? How much more revenue could we end up absorbing before you have to meaningfully step up on SG&A?

Speaker #3: How are you thinking about what that portends with regard to your ultimate targets? You talked about getting to 8% margins at $1.7 billion, but it seems like your incremental margins are running a lot higher.

Speaker #3: Are you getting close to diminishing your excess capacity, or where would you say your excess capacity is right now? How much more revenue could we end up absorbing before you have to meaningfully step up on SG&A?

Speaker #2: Yeah, so maybe Jeff, if you've got some quantitative comments, I'd say a couple of things, right? We've had some really nice productivity improvements, and we, I think, do an excellent job.

David Kelly: Yeah. Maybe Jeff, if you've got some quantitative comments. I'd say a couple things, right? We've had some really nice productivity improvements, and we, I think, do an excellent job. Our people are very strong. We, as I've mentioned, are confident that they've got some incremental capacity. Frankly, are passionate and we continue to be about running this business and maximizing productivity of our people and therefore the income that they generate as well. We certainly think there is more room to go there. You mentioned at $1.7 billion. I wouldn't say that's our ultimate operating margin objective.

Speaker #2: Our people are very strong. But we, as I mentioned, are confident that they've got some incremental capacity. And so, frankly, we are passionate and continue to be passionate about running this business and maximizing the productivity of our people, and therefore the income that they generate as well.

Speaker #2: So, we certainly think there's more room to go there. You mentioned our ultimate—well, you mentioned it at $1.7 billion. I wouldn't say that's our ultimate operating margin objective.

Speaker #2: Certainly, 8% is a waypoint from our perspective. But when you add to that some of the expectation of growth that we will see in the longer term—offshore—Jeff mentioned in the remarks that he made comments on the ongoing implementation of our ERP system and the fact that we're going to be going live with that in early 2027.

David Kelly: Certainly 8% is a waypoint from our perspective. When you add to that some of the expectation of growth that we will see in the longer term offshore, Jeff mentioned in the remarks that he made, he made comment on the ongoing implementation of our ERP system and the fact that we're going to be going live in that in early 2027, the incremental operating margin, I think Jeff can remind us, I think it has a meaningful positive impact on operating margin. There's a number of levers that we are in the process of pulling. Things are, quite frankly, going according to plan on all of those fronts. We think there's real opportunity in a number of different places. I don't know if you have anything to add.

Speaker #2: The incremental operating margin—Jeff can remind us—I think it has a meaningful, positive impact on operating margin. So, there are a number of levers that we are in the process of pulling.

Speaker #2: Things are, quite frankly, going according to plan on all of those fronts. So, we think there's real opportunity in a number of different places.

Speaker #2: I don't know if you have anything to add. Yeah, and Mark, the only thing I'd add to that—you probably noticed last quarter that, as it relates to the $1.7 billion and the 8% at $1.7 billion, we previously referred to that as approximately 8%.

Jeff Hackman: Yeah. Mark, the only thing I'd add to that, you probably noticed last quarter, that as it relates to the 1.7 and the 8% at $1.7 billion, we previously referred to that as approximately 8%. Last quarter, we changed that to at least 8%. Certainly the relative degree of confidence quarter to quarter, given the productivity and the investments that we're continuing to make in technology to drive productivity, has increased our confidence with our profitability objectives. Part of this, Mark, also, the reason that we included in my prepared remarks, a little bit of a reflection back to Q2 of 2020. We had relatively similar revenue levels as we did in Q2 of 2026. We had 4.5% operating margin back in Q2 of 2020 and just achieved 5.4%.

Speaker #2: Last quarter, we changed that to at least 8%. So, certainly, the relative degree of confidence quarter to quarter, given the productivity and the investments that we're continuing to make in technology to drive productivity, has increased our confidence with our profitability objectives.

Speaker #2: Part of this, Mark, and also the reason that we included it in my prepared remarks, is a little bit of a reflection back to Q2 of 2020.

Speaker #2: We had relatively similar revenue levels as we did in Q2 of 2026. And we had a 4.5% operating margin back in Q2 of 2020.

Speaker #2: And just achieved 5.4%. So certainly generating increased operating leverage because when you look at the gross margin line across those two periods, they're actually very close.

Jeff Hackman: Certainly generating increased operating leverage, because when you look at the gross margin line across those two periods, they're actually very close. I think we're on the path that we've described with a bit of increased confidence. Our integrated strategy efforts clearly are resulting in the flex margin improvement that we expected. Dave mentioned our Workday implementation as well. We expected a full 100 basis points of operating margin benefit from that. Part of that, of course, is no longer investing at the pace that we are today. The other one is the benefits associated with it. Still very much on path.

Speaker #2: So, I think we're on the path that we've described, with a bit of increased confidence. Our integrated strategy efforts are clearly resulting in the flex margin improvement that we expected.

Speaker #2: And Dave mentioned our Workday implementation as well. We expected a full 100 basis points of operating margin benefit from that. Part of that, of course, is no longer investing at the pace that we are today.

Speaker #2: And then, the other one is the benefits associated with it. So, still very much on path.

Speaker #1: Yeah, and one last point, Mark, that I would share with you. When we look at 2021, 2022, and we look at peak performance for our sales associates, we look at these populations based upon their tenure with the firm.

Joseph Liberatore: Yeah. One last point, Mark, that I would share with you. When we look at 2021, 2022, and we look at peak performance for our sales associates, we look at these populations based upon their tenure with the firm. The people who've been here less than a year, people who have been here 2 to 4 years, people that have been here 4 plus years, because as I've articulated for many years, it's a compounding effect in terms of what those people are capable from a performance standpoint. In all of those buckets, people are significantly off where they were at that point in time, which leads us to believe we have ample capacity, and we actually look forward to watching our people get back to those prior peak levels.

Speaker #1: The people who've been here less than a year, the people who have been here two to four years, and people that have been here four-plus years—because, as I've articulated for many years, it's a compounding effect in terms of what those people are capable of from a performance standpoint.

Speaker #1: And all of those buckets, people are significantly off where they were at that point in time, which leads us to believe we have ample capacity.

Speaker #1: And we actually look forward to watching our people get back to those prior peak levels. These have been a grueling four years for them as well.

Joseph Liberatore: These have been a grueling 4 years for them as well. Nothing makes us happier than when we can provide them the platforms, the tools, the environment to be successful and capture those opportunities, both on the solutions front as well as on the talent front, because of our integrated approach, and so that they can capitalize and start to obtain their goals and objectives from a financial earnings potential. Very enthusiastic about that. I know our leaders are, and I think our people are seeing the benefits of all the hard work over these past 4 years.

Speaker #1: And nothing makes us happier than when we can provide them the platforms, the tools, the environment to be successful, and capture those opportunities both on the solutions front as well as on the talent front, because of our integrated approach.

Speaker #1: And so that they can capitalize and start to obtain their goals and objectives from a financial earnings potential. So, very enthusiastic about that. I know our leaders are.

Speaker #1: And I think our people are seeing the benefits of all the hard work over these past four years.

Speaker #3: That's great to hear. Thank you so much.

David Kelly: It's great to hear. Thank you so much.

Speaker #1: Thank you, Mark.

Joseph Liberatore: Thank you, Mark.

Speaker #2: Thanks, Mark.

Jeff Hackman: Thanks, Mark.

Speaker #4: Your next question comes from the line of Trevor Romeo with William Blair. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Trevor Romeo with William Blair. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Trevor Romeo with William Blair. Your line is open. Please go ahead.

Speaker #5: Hi, good evening. Thanks for taking the questions. Great to see the data and the pipeline improve. I had a question, particularly on the AI and data-related projects.

Trevor Romeo: Hi, good evening. Thanks for taking the questions. Great to see the demand and the pipeline improve. I had a question particularly on the AI and data-related projects. I think you talked about making some investments in the consulting solutions business there, including adding some specialized AI expertise. Maybe if you could shed a little more light on maybe how many experts you're looking to add, what specific skills or expertise they have, and then how hard is it to just find talent with the right skills in those types of areas right now?

Speaker #5: I think you talked about making some investments in the consulting solutions business there, including adding some specialized AI expertise. So maybe you could shed a little light on how many experts you're looking to add, what specific skills or expertise they have, and then how hard is it to find talent with the right skills in those areas right now?

Speaker #1: Yeah, Trevor, I would say we incrementally bring people onto that team based on the demands that we're seeing. So we've done a lot of work on bringing in individuals, and we're hiring those individuals out of all the name brands that you would hear out there from a consulting standpoint.

Joseph Liberatore: Yeah, Trevor, I would say we incrementally bring people onto that team based upon the demands that we're seeing. We've done a lot of work on bringing in individuals, and we're hiring those individuals out of all the name brands that you would hear out there from a consulting standpoint. They're mainly being brought in those areas of focus that we constantly talk about, that are the key pillars of our go-to market. Whether they be app engineering, whether they be modernization, whether they be data, whether they be cloud. Obviously here, over the last several years from an AI standpoint. We're sizing our teams based upon the demand that we're generating from our customer base. There is a long lead time because of the nature of this talent. It's some of the most in-demand talent.

Speaker #1: They're mainly being brought in in those areas of focus that we constantly talk about that are the key pillars. Of our go-to-market. Whether they be app engineering, whether they be modernization, whether they be data, whether they be cloud, and obviously here over the last several years from an AI standpoint.

Speaker #1: So we're sizing our teams based on the demand that we're generating from our customer base. There is a long lead time because of the nature of this talent and some of the most in-demand talent.

Speaker #1: We have a really good internal recruiting capability, as well as a partner network that we look at. Obviously, some of our people are working with individuals as well.

Joseph Liberatore: We have a really good internal recruiting capability as well as we have a partner network that we look at, as well as obviously some of our people are working with individuals, so we have an internal referral program. So this is front and center. Again, I go back to one of our core competencies is recruitment. We're all over this, and we're going to continue to size the group to the appropriate size based on what our pipeline demand is.

Speaker #1: So, we have an internal referral program, so this is front and center. Again, I go back to one of our core competencies, which is recruitment.

Speaker #1: And so, we're all over this, and we're going to continue to size the group to the appropriate size based upon what our pipeline demand is.

Speaker #3: Yeah, the only other thing, just as a reminder, right? So that combination of excellent talent works seamlessly with our sales and recruiting organization. Joe touched on recruiting as a competency.

David Kelly: Yeah, the only other thing, just as a reminder. Combination of excellent talent works seamlessly with our sales and recruiting organization. Joe touched on recruiting as a competency. Our integrated strategy, we continue to believe when you combine that with the relationships that we've got at a fantastic portfolio of companies, has worked quite well, right? I've mentioned, and I think just important to reiterate, the growth we're seeing here is being driven from the consulting solutions business and in the staff augmentation business. The whole idea here for us is to meet our clients' needs how they want it met, right? The talent models can change. It doesn't change the teams on the field that are providing these services and identifying the opportunities for them. I think that also continues to be a significant differentiator for us.

Speaker #3: Our integrated strategy, we continue to believe, when you combine that with the relationships that we've got, and a fantastic portfolio of companies, has worked quite well, right?

Speaker #3: I had mentioned, and I think it's just important to reiterate, the growth we're seeing here is being driven by the consulting solutions business and the staff augmentation business.

Speaker #3: So the whole idea here for us is to meet our clients' needs, how they want them met, right? The talent models can change. It doesn't change the teams on the field that are providing these services and identifying the opportunities for them.

Speaker #3: So, I think that also continues to be a significant differentiator for us.

Speaker #5: That's great. Thank you. Thank you both for that. And then I had a follow-up on the direct hire business, which I think Jeff had mentioned was a big driver for the gross margin expansion.

Trevor Romeo: That's great. Thank you both for that. I had a follow-up on the direct hire business, which I think Jeff had mentioned was a big driver for the margin, the gross margin expansion. I think you had a nice acceleration this quarter, and it was better than you expected in direct hire. At the same time, it's kind of interesting, you mentioned in the prepared remarks that this is what we're hearing too, I think CEOs are still measured in adding permanent staff generally. What's your confidence in direct hire continuing to improve from here? If you look over a longer period of time, I think that business was more than 3% of revenue and double-digit percent of your GP in the past peaks.

Speaker #5: So, I think you had a nice acceleration this quarter, and it was better than you expected in direct hire. At the same time, it's kind of interesting—you mentioned in the prepared remarks that this is what we're hearing too.

Speaker #5: I think CEOs are still measured on adding permanent staff, generally. So what's your confidence in direct hire continuing to improve from here? And then, if you look over a longer period of time, I think that business was more than 3% of revenue and a double-digit percent of your GP in past peaks.

Speaker #5: So, is there anything different about the business today that would prevent it from getting back to those levels, as this rebound continues to progress here?

Trevor Romeo: Is there anything different about the business today that would prevent you from getting back to those levels, I guess, as this rebound continues to progress here?

Speaker #3: Yeah, Trevor, yeah, I think, first of all, it's an important part of our model. It is not a critical place for significant investment, right?

David Kelly: Trevor. I think, first of all, it's an important part of our model. It is not a critical place for significant investment, right? We will meet those needs as we need to make investments. As we see demand, we'll make it. Intentionally, this is a small percentage of our revenue base. I don't expect it to be meaningfully different from what we see as a percentage of total revenue, because we quite frankly think that the opportunities in the project space and in the staff augmentation space are the place that we should invest, and that's a much more predictable, sustainable revenue stream for us. That is a strategy that we've undertaken and will remain committed to. As it relates to the expectation, though, in the demand environment for direct hire, first of all, I'll say our expectation sequentially is for direct hire to be down.

Speaker #3: We will meet those needs as we need to make investments, as we see demand. We'll make them, but intentionally this is a small percentage of our revenue base, and I don't expect it to be meaningfully different from what we see as a percentage of total revenue, because we quite frankly think that the opportunities in the project space and the staff augmentation space are the places that we should invest, and that's a much more predictable, sustainable revenue stream for us.

Speaker #3: So, that is a strategy that we've undertaken and will remain committed to. As it relates to the expectation, though, in the demand environment for direct hire, first of all, I'll say our expectation sequentially is for direct hire to be down.

Speaker #3: That is a seasonal thing. We see that every year. Our projection and our guidance for Q3 contemplate that, both in the revenue and the margin line.

David Kelly: That is a seasonal thing. We see that every year. Our projection and our guidance for Q3 contemplates that, both in the revenue and the margin line. As we think about the long term, I think we think it's, again, we're talking about a scarce talent source that clients need both on a flexible basis and on a permanent basis. I think that they're clearly in the long term as a market for that talent and the needs in the direct hire space. I think we feel good about it. For us, we will take the opportunities to meet our clients' needs, but again, I don't see it accelerating as a percentage of total revenue.

Speaker #3: As we think about the long term, I think we're talking about a scarce talent source that clients need both on a flexible basis and on a permanent basis.

Speaker #3: I think that they're clearly, in the long term, there is a market for that talent and the needs in the direct hire space. So I think we feel good about it.

Speaker #3: For us, we will take the opportunities to meet our clients' needs. But again, I don't see it accelerating as a percentage of total revenue.

Speaker #5: Okay, understood. Thank you very much.

Trevor Romeo: Okay, understood. Thank you very much.

Speaker #2: Thanks, Trevor.

David Kelly: Thanks, Trevor.

Speaker #4: Your next question comes from the line of Karthik Mehta with North Coast Research. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Kartik Mehta with North Coast Research. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Kartik Mehta with North Coast Research. Your line is open. Please go ahead.

Speaker #3: Hey, good afternoon. There's been a lot of talk, obviously, about AI, both in terms of helping drive revenue and helping maybe lower costs for you.

Kartik Mehta: Hey, good afternoon. There's been a lot of talk, obviously, about AI, both in terms of helping drive revenue and helping maybe lower costs for you. I'm wondering, as you look at the AI opportunity, what do you think is a bigger opportunity? Is it a revenue opportunity for the company over the next 12 months, or is it the opportunity to help drive down costs for you?

Speaker #3: And I'm wondering, as you look at the AI opportunity, what do you think is a bigger opportunity? Is it the revenue opportunity for the company over the next 12 months, or is it the opportunity to help drive down cost for you?

Speaker #1: Yeah, this is Joe. I would say it's both, which is why we have an internal AI strategy to align with our firm strategy, and then, obviously, we have a go-to-market external AI focus.

Joseph Liberatore: Yeah, this is Joe. I would say it's both. Which is why we have an internal AI strategy to align with our firm strategy, obviously we have a go-to-market external AI focus, we're pursuing it from both fronts. They're completely independent of each other. Obviously, we get to play off of some things that we learn from exterior clients when we're working with them, if we can apply some of those things internally, which closes the gap, which is part of the nature of this type of technology. It's not an either/or, it's a both.

Speaker #1: So we're pursuing it from both fronts. They are completely independent of each other. Obviously, we get to play off some things that we learn from exterior clients when we're working with them.

Speaker #1: If we can apply some of those things internally, which closes the gap—which is part of the nature of this type of technology—so it's not an either/or; it's a both.

Speaker #3: And then, Joe, I know you mentioned June was seasonally slow and then the early part of July, but the last two weeks of July have picked up.

Kartik Mehta: Joe, I know you mentioned June was seasonally slow, early part of July, the last two weeks of July have picked up and normalized. When you talk about normalization, are we talking back to the kind of job order growth you were seeing before, or is it a little bit different? I know it's only two weeks, but just to get maybe a little bit more granularity on how things are shaping up.

Speaker #3: And when you talk about normalization, are we talking about returning to the kind of job order growth you were seeing before, or is it a little bit different?

Speaker #3: I know it's only two weeks, but just to get maybe a little bit more granularity on how things are shaping up.

Speaker #1: Yeah, hey Karthik. Actually, this

David Kelly: Yeah. Hey, Kartik. Actually, this is Dave. It was my comment, and I corrected myself.

Speaker #2: This is Dave. It was my comment, and I corrected myself—just to make sure. No, no worries, Karthik. But I'll correct myself. Actually, I had mentioned two weeks.

Kartik Mehta: Oh, I apologize.

David Kelly: Just to make sure. No worries, Kartik. I'll correct myself. Actually, I had mentioned two weeks. It's actually the last three weeks. I would characterize those activity levels as actually improving from where they had been. We've had a really nice three weeks. Three weeks does not a long-term trend make, but if we can sustain that as we've seen gradual improvement, it'll continue the gradual improvement that we're seeing. Again, I think I would characterize it as continued positive momentum and revenue growth momentum in our technology business in particular.

Speaker #2: It's actually the last three weeks. And I would characterize those activity levels as actually improving from where they had been. We've had a really nice three weeks—three weeks does not make a long-term trend, but if we can sustain that—as we've seen gradual improvement, it'll continue the gradual improvement that we're seeing.

Speaker #2: So again, I think I would characterize it as continued positive momentum and revenue growth momentum in our technology business in particular.

Speaker #3: Perfect. Thank you very much. I really appreciate it.

Kartik Mehta: Perfect. Thank you very much. I really appreciate it.

Speaker #2: Thanks, Karthik.

David Kelly: Thanks, Kartik.

Speaker #4: Your next question comes from the line of Josh Chan with UBS. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Josh Chan with UBS. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Josh Chan with UBS. Your line is open. Please go ahead.

Speaker #5: Hi, good afternoon Joe, Dave, Jeff. Congrats on a good quarter. I was wondering if you could talk about your flex margin within technology. You mentioned that a lot of different drivers contributed to the improvement, but I was wondering if you can bucket it between, I guess, mix, price, and cost. What is the most impactful currently in terms of driving this type of margin improvement?

Josh Chan: Hi, good afternoon, Joe, Dave, Jeff. Congrats on a good quarter. I was wondering if you could talk about your flex margin within technology. You mentioned a lot of different drivers that contributed to the improvement, I was wondering if you can bucket between, I guess, mix, price, cost. What is the most impactful currently, in terms of driving this type of margin improvement. Thank you.

Speaker #5: Thank you.

Speaker #1: Yeah, Josh, thanks

Jeff Hackman: Yeah. Josh, thanks for the comments. Good to be with you. It's probably difficult to precisely break down each of those. Certainly, pricing overall has been a very strong point for us in the marketplace. Some of that is the market in which we are playing in, also the efforts from all of our people. We put a lot of focus and energy around this last year. It's very clear that that's paying off. You can also see the business mix over time has also improved. You look over the last year and the things that we talk about, like our consulting solutions mix, as well as our nearshore and offshore, those aren't parts of our business that we've only been investing in for the last 12 months. That's much more of a longer-term margin enrichment opportunity, that being business mix.

Speaker #2: Thank you for the comments. Good to be with you. It's probably difficult to precisely break down each of those, but certainly, pricing overall has been a very strong point for us in the marketplace.

Speaker #2: Some of that is the market in which we are playing, but also the efforts from all of our people. We put a lot of focus and energy into this last year, and it's very clear that that's paying off.

Speaker #2: You can also see the business mix over time has also improved. You look over the last year and the things that we talk about, like our consulting solutions mix, as well as our nearshore and offshore—those aren't parts of our business that we've only been investing in for the last 12 months.

Speaker #2: So that's much more of a longer-term margin enrichment opportunity than being business mix. So I would say pricing overall and prioritizing that within the firm, and then of course, business mix has also been a tailwind for quite some time.

Jeff Hackman: I would say pricing overall, and prioritizing that within the firm, and then, of course, business mix has been also a tailwind for quite some time.

Speaker #3: Yeah, the only thing I'd add to Jeff's comments is, as we kind of look across the space, I think, frankly, our margin improvements have been best in class, right?

David Kelly: Yeah. The only thing I'd add to Jeff's comments as we kind of look across the space, I think, frankly, our margin improvements have been best in class. They just have. I think I would kind of reflect, there's a lot of great companies in the space. One of the things that we've said many times, we've got a very simple business model that's focused, that's unchanged over the years. Our people are very good at what they do, and they're focused on just a couple things. Meeting the needs of our clients and doing it in a focused way, I think, it's a meaningful reason why margins have improved. It's a meaningful reason why revenues for us have, over a sustained period of time, been better than industry benchmarks. I think it's execution as well.

Speaker #3: They just have. But I think I would kind of reflect that there are a lot of great companies in the space. One of the things that we've said many times is we've got a very simple business model that's focused, that's unchanged over the years.

Speaker #3: Our people are very good at what they do and they're focused on just a couple of things. And meeting the needs of our clients and doing it to the and doing it in a focused way, I think as a meaningful it's a meaningful reason why margins have improved.

Speaker #3: It's a meaningful reason why revenues for us have, over a sustained period of time, been better than industry benchmarks. So I think it's execution as well.

Speaker #1: Yeah, and I'll touch upon that because Dave touched upon the execution, and it goes even further back than that, being an operator of this business for many years.

Joseph Liberatore: Yeah. I'll touch upon, because Dave touched upon the execution, and that it goes even further back than that. Being an operator of this business for many years, this all goes back to leadership, training, education, and I couldn't be more proud of our teams on the efforts that they've put forth on that front. Our field leadership on executing the plan, our corporate partners on building the plans in an integrated manner. That's where this all starts, because margins just don't magically happen. You have to lay all the right pieces of the puzzle and pull the puzzle together, and then you got to be able to execute it. Our team has just done a phenomenal job.

Speaker #1: This all goes back to leadership, training, and education, and I couldn't be more proud of our teams for the efforts they put forth on that front.

Speaker #1: Our field leadership on executing the plan, our corporate partners on building the plans, in an integrated manner. I mean, that's where this all starts, because margins just don't magically happen.

Speaker #1: You have to have all the—you have to lay all the right pieces of the puzzle and pull the puzzle together, and then you’ve got to be able to execute it.

Speaker #1: And our team has just done a phenomenal job.

Speaker #5: Right. Yeah, congrats on the results that are being seen. That's impressive. And then I guess my follow-up—I think you've been increasingly referring to this as, like, a cyclical improvement.

Josh Chan: Right. Yeah. Congrats on the results that are being seen. That's impressive.

Josh Chan: Thank you.

Josh Chan: I guess my follow-up on, I think you've been increasingly referring to this as like a cyclical improvement. I was just wondering on the cycle, was there like a catalyst looking backwards to why your customers are growing their demand, or was it just like a point of where projects were deferred so long that it just must continue? I guess, looking back, did you see anything change over the last one to three quarters?

Speaker #5: So I was just wondering, on the cycle, was there like a catalyst—looking backwards—to why your customers are growing their demand, or was it just a point where projects were deferred so long that it just must continue?

Speaker #5: I guess, looking back, did you see anything change over the last one to three quarters?

Speaker #1: Yeah, I mean, I think you're starting to see some of the truth of this come out in the mainstream media at this point in time.

Joseph Liberatore: Yeah, I think you're starting to see some of the truth of this come out in the mainstream media at this point in time. We've been talking for a number of years. We were in a job recession. The jobs that were being created were not the jobs that drive the economic engine. Also, we stated for many years, AI was being used as a scapegoat for downsizing and rightsizing.

Speaker #1: We've been talking for a number of years. We were in a job recession, and the jobs that were being created were not the jobs that drive the economic engine.

Speaker #1: Also, we stated for many years, AI was being used as a scapegoat for downsizing a right sizing. It was a strategically it was a strategic benefit to say that you're downsizing because of AI productivity and efficiency gain versus to be candid and truthful and saying we did a little bit of overhiring in the pandemic and we need to right size our organization.

Joseph Liberatore: It was a strategic benefit to say that you're downsizing because of AI productivity and efficiency gains, versus to be candid and truthful in saying, We did a little bit of over-hiring in the pandemic, and we need to rightsize our organization. All of that now has kind of worked its way through, and now we're seeing what we believe is more indicative of a normal cycle recovery coming out of a recessionary period, this time being a job recession versus being a broad recession for a variety of reasons. I'm not going to get into the economics of that. That's not my expertise. But from the workforce and the employment world, that's just the truth of what's happened here. Now also you have the air coming out of the balloon in terms of AI job destruction.

Speaker #1: So, all of that now has kind of worked its way through, and now we're seeing what we believe is more indicative of a normal cycle recovery—coming out of a recessionary period, this time being a job recession versus being a broad recession, for a variety of reasons.

Speaker #1: I'm not going to get into the economics of that—that's not my expertise—but from the workforce and the employment world, I mean, that's just the truth of what's happened here.

Speaker #1: And now also, you have the air coming out of the balloon in terms of AI job destruction. You've seen the CEOs of the two major players walk back their comments.

Joseph Liberatore: You've seen the CEOs of the two major players walk back their comments. AI is not going to be a job apocalypse at this point in time. Now it's AI is going to drive efficiencies for the individuals. It's all these pieces are coming together, which really gives us a lot of excitement of where we are at this point in time based upon the landscape, based upon the competencies that we've built out, and based upon how our teams are executing.

Speaker #1: AI is not going to be a job apocalypse at this point in time. Now, AI is going to drive efficiencies for individuals.

Speaker #1: So, it's all these pieces coming together which really gives us a lot of excitement about where we are at this point in time, based on the landscape, based on the competencies that we've built out, and based on how our teams are executing.

Speaker #3: Yeah, and then the other thing I would add to Joe's comments, Josh, is we mentioned it, right? Joe mentioned what might be happening in AI. Certainly, there's uncertainty geopolitically, and in the economy there's some uncertainty there as well.

David Kelly: The other thing I would add to Joe's comments, Josh, are we mentioned it, right? Joe mentioned what might be happening in AI. Certainly, there's uncertainty geopolitically in the economy. There's some uncertainty there. What do companies do when they need to get things done? They look for talent, flexible talent, right? You're seeing some of those characteristics play through as well.

Speaker #3: And what do companies do when they need to get things done? They look for talent—flexible talent, right? So, you're seeing some of those characteristics play through as well.

Speaker #5: Sure. Yeah, I appreciate the color, and congrats on the results.

Operator 2: Sure. Yeah. Appreciate the color and congrats on the results.

Operator: Sure. Yeah. Appreciate the color and congrats on the results.

Speaker #2: Thank you, Josh.

Josh Chan: Thank you.

Josh Chan: Thank you, Josh.

Speaker #4: A reminder: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again.

Operator 3: A reminder. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Your next question comes from the line of Tobey Sommer with Truist. Your line is open. Please go ahead.

Operator: A reminder. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Your next question comes from the line of Tobey Sommer with Truist. Your line is open. Please go ahead.

Speaker #4: Your next question comes from the line of Tony B. Sommer with Truist. Your line is open. Please go ahead.

Speaker #1: Thank you. One of them asked a question on the gross margins within the managed services in the context of ramping your Indian operations. Within those, are the Indian operations—even—are they accretive even to the broader category, or consistent with the broader category differential?

Tobey Sommer: Thank you. Wanted to ask a question on the gross margins within the managed services in the context of ramping your Indian operations. Within those, is the Indian operations, are they accretive even to the broader category or consistent with the broader category differential?

Speaker #3: Oh, I think, Toby, maybe to make sure I understand your question—are you saying I mentioned that our consulting solutions business has margins 400 to 600 basis points higher than our staff augmentation business?

David Kelly: Toby, I think maybe to make sure I understand your question, are you saying I mentioned that our consulting solutions business has got margins 400 to 600 basis points higher than our staff augmentation business? What I was trying to say is that is inclusive of what we're seeing with our offshore business. It is not accretive to that. It is generally accretive to the firm as a whole. I think if I understood your question correctly.

Speaker #3: What I was trying to say is that it is inclusive of what we're seeing with our offshore business, so it is not accretive to that.

Speaker #3: It is generally accretive to the firm as a whole. Yeah, I think if I understood your question correctly.

Speaker #1: Yeah, yeah, you did. And then in India, is it primarily services, or are you able to provide discrete resources from a more traditional staffing perspective? And if you do both, what's the nature of the split now, and over the longer term, if you have a vision of it?

Tobey Sommer: Yeah. You did.

David Kelly: Okay.

Tobey Sommer: In India, is it primarily services, or are you able to provide discrete resources from a more traditional staffing perspective? If you do both, what's the nature of the split now and over the longer term, if you have a vision of it?

Speaker #3: Yeah, I would say, Toby, the vast majority of the work that we're doing in India is in support of our solutions business. Might there be opportunities to support our staff augmentation business?

David Kelly: Yeah. I would say, Tobey, the vast majority of the work that we're doing in India is in support of our solutions business. Might there be opportunities to support our staff augmentation business? Yes. Are we looking at that and are we doing some of that business right now? Yes. We're certainly earlier on in that. I think the story is yet to be told there. We're hopeful. Certainly, we're making the right investments to test the hypothesis that we can do that. Right now it is very significantly weighted towards supporting our solutions business.

Speaker #3: Yes. Are we looking at that, and are we doing some of that business right now? Yes. We're certainly earlier on in that, so I think the story is yet to be told there.

Speaker #3: We're hopeful. Certainly, we're making the right investments to test the hypothesis that we can do that. But again, right now, it is very significantly weighted towards supporting our solutions business.

Speaker #1: I appreciate that. And one more on this topic, if I could. From a TAM perspective, did establishing that operation at scale increase your TAM or increase your GP?

Tobey Sommer: I appreciate that. One more on this topic, if I could. From a TAM perspective, did establishing that operation at scale increase your TAM, increase your GP? Because I'm just wondering if there were any projects that can be serviced via this mechanism that.

Speaker #1: Because I'm just wondering if there were any projects that can be serviced via this mechanism that you, as a company, maybe weren't in a position to execute on a couple of years ago.

David Kelly: Yeah

Tobey Sommer: you as a company maybe weren't in a position to execute on a couple of years ago.

David Kelly: That's definitely the case, Tobey. I think we've touched on this in past calls. It's clear clients are looking to identify talent. They're looking to identify it in a cost-effective way. They're looking to identify it in an efficient way that maybe they can meet the clock, 24-hour clock, any number of reasons. There were places that we were provided opportunities from our client portfolio that historically we might have had to say no to. This is built to support that business because of those trends that our clients are asking for. Certainly we're expanding the addressable market, and we're showing some positive signs here. Yeah, and I think frankly, it would surprise, I think everybody around the table here, if that didn't become even more significant to have that capability. It's table stakes at this point.

Speaker #3: That's definitely the case, Toby, right? I mean, and I think we've touched on this in past calls. It's clear clients are looking to identify talent.

Speaker #3: They're looking to identify it in a cost-effective way. They're looking to identify it in an efficient way, so maybe they can meet the 24-hour clock.

Speaker #3: Any number of reasons. And there were places that we were provided opportunities from our client portfolio that, historically, we might have had to say no to.

Speaker #3: So this is built to support that business because of those trends that our clients are asking for. And so, certainly we're expanding the addressable market, and we're showing some positive signs here.

Speaker #3: So, yeah, and I think, frankly, it would surprise, I think, everybody around the table here if that didn't become even more significant to have that capability.

Speaker #3: It's table stakes at this point.

Speaker #1: I appreciate that. And then just one question on cash and capital allocation. I understand the seasonal, sequential drain on cash from operations when you're growing revenue sequentially at this pace.

Tobey Sommer: I appreciate that. Then just one question on cash and capital allocation. I understand the seasonal sequential drain on cash from ops when you're growing revenue sequentially at this pace. For the year, based on the Q3 guide, what sort of cash generation do you anticipate for the company? Broad range.

Speaker #1: For the year, based on the Q3 guide, what sort of cash generation do you anticipate for the company? Broad range.

Speaker #2: Yeah, Toby, this is Jeff. Good to talk with you. Yeah, so certainly, year-to-date, you acknowledged negative operating cash of roughly $7 million.

Jeff Hackman: Yeah. Tobey, this is Jeff, good to talk with you. Certainly, year to date, you acknowledged it, roughly -$7 million operating cash. That's largely to be expected given the meaningful inflection that we've seen from a revenue standpoint. Of course, we're paying our consultants weekly. Our DSO is about 58 days. It's been very stable year-over-year. You would expect a bit of working capital creep in these early innings. Certainly in Q3 and Q4, expecting meaningful operating cash flows. When you look back to last year, we were probably generating somewhere around $20 million on average in the H2. That should give you a reasonable sense of what the possibility is there. Of course, Tobey, the leverage that we're currently carrying of 1.4x, the good news is the denominator being trailing 12 months EBITDA has been improving.

Speaker #2: That's largely to be expected, given the meaningful inflection that we've seen from a revenue standpoint. Of course, we're paying our consultants weekly. Our DSO is about 58 days.

Speaker #2: That's been very stable year over year, so you would expect a bit of working capital creep in these early innings. Certainly in Q3 and Q4, we're expecting meaningful operating cash flows. When you look back to last year, we were probably generating somewhere around $20 million on average.

Speaker #2: And the back half of the year, so that should give you a reasonable sense of what the possibility is there. Of course, Toby, the leverage that we're currently carrying of 1.4 times—the good news is the denominator, being trailing 12 months EBITDA, has been improving, up 20% year on year.

Jeff Hackman: It is up 20% year on year. Very comfortable with the balance sheet flexibility. Share buybacks for us, when you look at our balance sheet, we have crossed the $1 billion in total return of capital. Yeah, we feel very good about the balance sheet and the flexibility and the path that we are on from a cash perspective.

Speaker #2: So, very comfortable with the balance sheet flexibility. Share buybacks for us—when you look at our balance sheet, we've crossed the $1 billion mark in total return of capital.

Speaker #2: So, yeah, we feel very good about the balance sheet and the flexibility and the path that we're on from a cash perspective.

Speaker #1: Thank you.

Tobey Sommer: Thank you.

Speaker #2: Thanks, Toby.

David Kelly: Thanks, Tobey. Thanks, Tobey.

Speaker #3: Thanks, Toby.

Speaker #4: There are no further questions at this time. I will now turn the call back to Joe Liberatore for closing remarks.

Operator 3: There are no further questions at this time. I will now turn the call back to Joseph Liberatore for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Joseph Liberatore for closing remarks.

Speaker #1: Well, thank you for your interest in and support of KFORCE. I'd like to express my gratitude to every KFORCER for your efforts, and to our consultants and clients for your trust and faith in partnering with KFORCE and allowing us the privilege of serving you.

Joseph Liberatore: Well, thank you for your interest in and support of Kforce. I'd like to express my gratitude to every Kforcer for your effort and to our consultants and clients for your trust and faith in partnering with Kforce and allowing us the privilege of serving you. We look forward to talking to you again after Q3 of 2026. Have a good evening.

Speaker #1: We look forward to talking to you again after the third quarter of 2026. Have a good evening.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 Kforce Inc Earnings Call

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