Kforce, Inc.

Good day, and thank you for standing by. Welcome to the KFORCE first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then zero. I would now like to do so through this conference call. David Dunkel, Chairman and CEO, you may begin.

Good afternoon. I would like to remind you that this call may contain certain statements that are forward-looking. These statements are based upon current assumptions and expectations and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in K-4's public filings and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. You can find additional information about this quarter's results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the investor relations portion of our website. I am incredibly proud of the continued outstanding execution by the entire K-Force team in delivering first quarter results that were at the high end of our elevated expectations and that improved as the quarter progressed. This extraordinary execution follows on the heels of a great 2020. where our largest business, technology, demonstrated remarkable resilience against the backdrop of an unprecedented macro environment. The momentum we have built and increasing expectations of demand for technology resources have significantly raised our expectations for the second quarter and our ongoing performance, which Dave Kelly will cover in some detail in a moment. As I reflect on our strategic decision to focus our business on domestic technology staffing and solutions, it's important to remember that prior to the Great Recession, the domestic technology staffing market was roughly 20 billion in size and the third largest staffing market segment behind industrial and clerical staffing. The most recent update from staffing industry analysts noted that the domestic technology staffing market became the largest market segment in 2020. with spend of nearly $31 billion. Over the same period, our technology business grew in excess of two times the market rate. Additionally, the technology professional services market exceeds $100 billion. Companies have significantly increased their technology spend over the past decade, and the rate of growth in this market is accelerating. In fact, FIA currently anticipates the domestic technology staffing market will grow by 9% in 2021. This confirms the wisdom of our strategic decision to focus our energy and technology and complementary functional skills in FA and related skill sets. As we look to the future, there is no other single market segment where we would want to be focused, and we are incredibly excited about K-Force's future prospects. The strength in the secular drivers of demand, coupled with improving corporate prospects across virtually every industry, allowed our talented team to deliver services to our blue-chip client portfolio at a level above our expectations, with technology in the first quarter growing more than 3% sequentially and 6% year-over-year on a billing day basis. Additionally, we made nice progress in our objective of migrating our FA business toward higher-end skill sets for decision support and analytics in the quarter. Our FA results, excluding COVID revenues, also exceeded our expectations. This strategic shift, we believe, will provide an important complement to the technology services we provide our clients, which Joe will elaborate on during his remarks. We also continue to make great progress in positioning our firm to have a more flexible work environment post-pandemic through our Reimagine initiative by leveraging many of our ongoing internal technology investments in utilizing available tools such that our employees will have a blend of in-office and remote work. We expect that this shift will result in fewer offices and a smaller physical footprint per office. This vision includes both the revenue-generating and revenue-enabling components of our workforce. As per our release last week, we have entered into an agreement to sell our corporate headquarters and are actively seeking a new facility in Tampa Bay. Our business continues to generate significant operating cash flows, and we were active in repurchasing approximately $16 million in stock in the first quarter. The strength in our balance sheet and availability under our credit facility allows us to be opportunistic with respect to deploying capital. While we continue to evaluate potential acquisitions, we will apply our stringent cultural and financial criteria to any potential transaction. In addition to the proceeds from the sale of our building, we expect to continue generating solid operating cash flows in the second quarter. Given the strength in our balance sheet and our belief in our future growth prospects, we expect to remain active in repurchasing our stock at current levels. From a governance perspective, four years ago, we began in earnest a mission to refresh our board with individuals possessing necessary skill sets and backgrounds to lead K-Force into the future. Earlier in the quarter, we provided detail on two additions to our board. Ms. Catherine Cloudman joined our Board of Directors in the fourth quarter of 2020, and Mr. Derek Brooks joined the Board in the first quarter of 2021. Each of these extraordinarily accomplished individuals, both professionally and personally, bring diverse and valuable perspectives to our Board. As we look ahead, we are very excited about our strategic position and ability to execute within what we believe will be a continued strong demand environment for our services. It's our belief that the pandemic has exponentially elevated the imperative for companies to rapidly digitize their businesses, transform business models, and drive productivity gains through technology investment. I will now turn the call over to Joe Liberatore, President, who will give greater insights into our performance, recent operating trends, and other insights into our operating environment. Dave Kelly, CFO, will then give greater detail on our financial results and position, as well as our financial expectations and guidance for the second quarter. Joe?

Thank you, Dave, and thanks to all of you for your interest in K-Force. The momentum across our business is accelerating. Total revenues for the first quarter grew 10.1% on a year-over-year billing date basis, As the improvements we're seeing in our technology business and strategic areas in FAA are being complimented by the COVID business. I'm extremely pleased with the 3.1% sequential and 6.3% year-over-year billing day growth in our technology business. This is the best sequential growth in first quarter we have on record and perhaps the best March performance we've ever experienced at K-Force. More typically, we experienced a sequential revenue decline on a billing day basis in the first quarter given seasonal year-end assignment ends. However, we had remarkably low assignment ends at the end of 2020 and very strong first quarter with respect to new assignment starts. In fact, we returned the pre-holiday levels of consultants on assignment by the end of January. Typically, it takes until the end of the quarter to return to these levels. For additional perspective, going back to the Great Recession, The range of sequential billing day declines in our technology business is about 1% to nearly 6%. So this result is tremendously encouraged relative to that range. We believe that this speaks volumes as to the vital non-discretionary mission-critical work that we are performing across our client portfolio, which I'll further elaborate on shortly. Enhancing our growth rate is an improving bill rate trend. Bill rates have increased 4.4% year-over-year in technology to $80 an hour. Volume, however, is the most significant driver to our growth. Billable consultants on assignment began increasing shortly after the inception of the pandemic and have grown sequentially for three consecutive quarters. Consultants on assignment are now at levels 21% greater than in June 2020. We're benefiting from a combination of solid new assignment activity as well as a continued lower-level assignment end. Both strong bill rates and volume increases have continued into the second quarter and provide us a solid foundation to meaningfully accelerate our sequential growth of the first quarter levels. Job order flow has recently returned to pre-pandemic levels, and new assignment activity in the month of March and thus far in April has significantly surpassed levels seen prior to the pandemic. We are also continuing to see higher fill ratios due to improved job order quality as clients are executing against an overall higher mix of critical technology initiatives. We also believe the trends we are experiencing are reflective of growing confidence in restarting projects that may have been deferred or delayed, the scarcity of high-end IT resources, and securing resources for new transformative initiatives. We continue to see the acceleration of critical technology initiatives within our clients in areas such as cloud, mobile, data analytics, project and program management, with a strong focus geared towards improving the consumer's digital experience. The investment we have made in front-end technology and process over the last several years have matured our capability to efficiently provide these clients with highly diverse top talent at scale in a now boundaryless environment across the U.S., A significant accelerant to our overall technology growth has been the investments we've made in our managed team and solutions capabilities in order to provide higher value, differentiated offerings to our clients. This offering provides a strong complement to our traditional staffing business. We have been experiencing tremendous success bringing this offering to our clients due to the strong, longstanding partnerships we have built and our reputation for delivering quality services. We intend on making further investments in this capability throughout 2021 and in the foreseeable future. We feel extremely confident in the positioning of our technology business and the ability to continue expanding our market share. There remains broad strength in demand across virtually every industry. We experience growth sequentially in professional services, insurance, and retail industries, while nearly all the other key industry sectors experience modest growth or stability. Financial services, insurance, and professional services have shown relative resilience throughout the pandemic and have been significant contributors to our growth on a year-over-year basis. Given the momentum we have carried into the second quarter, we expect revenues in our technology business could increase in the mid to high teens on a year-over-year basis. This well above market growth is compounding our success as technology revenues significantly outperformed the market in the depths of the pandemic, only declining 3% in the second quarter last year. We are clearly continuing to take market share, which we would attribute to our team's execution against the backdrop of an acceleration of overall technology spend. Our FAA Flex revenues were up 26.4% year-over-year on a billing day basis in the first quarter. primarily as a result of the contribution of approximately $24 million of revenue from our support of government-sponsored initiatives tied to the economic fallout and recovery efforts from the COVID-19 pandemic. The COVID revenue stream remains fluid, as we expect that revenues could be in the range of $28 million to $33 million in the second quarter. Our non-COVID F8Flex business was stable sequentially and declined 12% year-over-year on a billing day basis. As we mentioned previously, we began to intensify our efforts to migrate our FA business towards more highly skilled assignments such as analytics and decision support roles that are less susceptible to the technological change and automation and more synergistic with our technology footprint. We will continue to support lower-end skill sets for certain clients where we have long-standing relationships and are strategically important to K-4's ongoing success in our technology business. We have seen natural assignment ends of lower-scaled FAA roles in the first quarter of 2021 where strategic client relationships do not exist and expect that to continue into the second quarter. We expect our non-COVID FAA revenues to be up on a year-over-year basis as our repositioning gains traction. When combined with the midpoint of the range of the COVID revenue, total FAA flex may be up sequentially in mid-single digits but down slightly year-over-year on a billing day basis due to the expected decline of COVID revenue. Direct hire revenues in the first quarter increased nearly 1% sequentially and 5% year-over-year on a billing day basis. Direct hire remains an important part of our service offering to clients, though we have not allocated significant investment here due primarily to its sensitivity to economic cycles. We expect direct hire revenues may see slight growth sequentially and increase approximately 50% year-to-year in the second quarter as clients demonstrate a high degree of confidence in the recovery through the addition of full-time staff. We are continuing to invest in strategic initiatives to better position our firm for long-term, sustainable, profitable growth. Our most recent significant investment in our talent relationship management system, which went fully live in the first quarter, Both our CRM and TRM systems are cloud-based and seamlessly integrate with other Microsoft product offerings, thus providing us significant efficiencies. Our team has also significantly advanced efforts in the evolution of a fully integrated hybrid operating model to enhance the online experience of our internal team and the interaction with our clients, candidates, and consultants. The sale of our corporate headquarter building announced last week positions us to build out a state-of-the-art facility with a smaller real estate footprint aligned with how work will be performed in the future, deploying a high-tech, high-touch hybrid operating model. These and many other efforts will position us for the continued evolution of an operating model that provides maximum flexibility regardless of what lies ahead. Productivity metrics continue to improve across our experienced associate base. We are very bullish in our long-term prospects, and also began making selective investments to increase the number of associates in our technology business late last year so to be able to take advantage of what we believe will be sustained strong growth in the technology staffing market for years to come. Overall capacity currently remains sufficient to support above market growth rates and should improve due to our continued investments in technology and greater enablement of communication and collaboration tools and processes that have been so successful for us during this transition to remote work. This allows us the opportunity to continue to invest in growing our resources to address growth beyond 2021. We have supported and retained our best people, structurally reduced our fixed costs, and are refining a more leverageable model that we expect will result in positive leverage as growth accelerates as we reimagine the future. Our customers and employee satisfaction levels are at an all-time high. We continue to carry the highest Glassdoor rating among our peers and maintain a world-class net promoter school from our clients and consultants and are the most recognized firm by technology consultants per SIA. I greatly appreciate the trust our clients, consultants, and candidates have placed in K-Force, and I couldn't be prouder of our team's attitude and efforts executing in a fully remote capacity while operating under the circumstances of the past year. I will now turn the call over to Dave Kelly, K-Forces Chief Financial Officer. Dave?