Kforce, Inc.

Welcome to the KFORCE 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Mr. Joe Librettori, President and Chief Executive Officer. Please go ahead.

Good afternoon. This call may contain certain statements that are forward-looking. These statements are based upon current assumptions and expectations and are subject to the risks and uncertainties. Actual results may vary materially from the factors listed in the K-4's public filings and other reports and filings with the Security and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the investor relations portion of our website. Before I provide commentary on our fourth quarter and full year performance, let me first cover a couple items. 2021 was a record performance year for CaveForce. I would like to thank all our associates for their fortitude, creativity, innovation, and resilience operating in these unprecedented times. Thank you for your daily efforts to having meaningful impact on the lives we serve, uniting professionals to achieve success through lasting personal relationships. In the fourth quarter, we announced Dave Dunkel's transition to chairman at the end of 2021 after holding the CEO post for the past 40 years. We are fortunate to have Dave's continued involvement strategically as we reshape where and how work will be performed in the future. I've been blessed to work side by side with Dave for the past 34 years. I'm humbled and honored with the opportunity to uphold the standard of excellence Dave established. Our entire team's heartfelt thanks and appreciation go out to Dave for his leadership, mentorship, and support. Due in large respect to his leadership, our values, which are foundational to the K-Force strategy, are extremely well entrenched. Our executive leadership team has extraordinary depth and tenure to lead our team forward, and our future prospects have never been brighter in our 60-plus year history. Joining us on the call today is Kai Mitchell, our Chief Operations Officer. Kai is a 30-year veteran in professional staffing and solution space who joined the K-Force family in 2005 through the acquisition of Vista RMS. Kai has responsibility for developing and executing the strategic vision across all our service offerings, which has contributed greatly to K-Force's success. Kai will give insights into our performance and recent operating trend. Dave Kelly, K-Force's CFO, will then provide greater detail on our financial results as well as our future financial expectations. We've driven significant strategic change at K-Force over the last decade, and our firm is ideally positioned to continue to provide exceptional results and return to our shareholders. We've concentrated K-Force's strategic focus and now have 85% of our business focused on providing technology talent solutions to innovative and industry-leading companies for their operations exclusively in the United States. This percentage is expected to meaningfully increase as we exit 2022, given that our technology business continues to grow at multiples of the market. This strategic shift was bold and transformative, but well-founded in our belief as we exited the financial crisis that technology was going to be at the epicenter of every business strategy. This has played out to even a greater degree than we imagined as the pandemic accelerated what we already saw unfolding. The benefit of this strategic shift and the benefit of our focus on organic growth without the distraction of acquisition integration can be seen in the exceptional results that we've delivered over the last several years. While the broader economy has experienced fits and starts pertaining to the pandemic and the related supply chain and labor issues, we continue to gain momentum. We have further advanced our strategic initiatives, including reshaping our client portfolio, investing in our managed teams and solutions offering, pursuing skilled areas in our FA business which are synergistic with our technology offering, and aligning our sales and delivery teams to our revised focus. The backbone supporting enterprise-level change is the strength of our leaders, which we've supported through enhanced development and training. In addition to these strategic initiatives, we are equipping our teams with innovative and state-of-the-art tools and technologies. Our industry-leading growth rate coupled with a debt-free balance sheet and strong predictable cash flows continue to allow us to invest in our future and return capital to our shareholders through share repurchases and substantial dividend, which we've once again increased. Our path forward is clear. and we will remain consistent with the principles under which we've been operating so successfully. As to our results, we again delivered record revenues in the fourth quarter of $410.4 million, which grew nearly 18% year-over-year and meaningfully exceeded the top end of our guidance. Earnings per share of $0.98 grew 14% on a year-over-year basis. Fourth quarter results put a solid explanation point on the tremendous 2021 for CaveForce. We were successful at delivering record revenues of nearly $1.6 billion, which grew 14% year-over-year. Perhaps the most exciting aspect of our 2021 results was the 22% full-year organic growth we delivered in our technology business. Earnings per share of $3.54, also a K-force record, grew 35% year-over-year. I'm incredibly grateful for the tenacity and perseverance of our entire team over the past two years. Under the most extraordinary circumstances, you've embraced change and challenges, both personally and professionally, and helped deliver the most exceptional results in our firm's history. We continue to make significant progress in positioning K-Force as the destination for top talent during a time where there is great disruption in the labor markets. Our future work environment will provide our people with maximum flexibility and choice in designing their workday that is grounded in our trust in them and supported by technology. We will have a remote-first approach to support the life-work balance our team has become accustomed to as we move through the pandemic. Our people will leverage physical office spaces when desirable for activities best done through in-person, active collaboration such as training, team building, client and candidate interactions. We are accomplishing this through our K-Force Reimagined initiative. In servicing our customers, there is simply no other market we'd want to be focused in other than the domestic technology market, as it has, in our view, the greatest prospects for sustained profitable revenue growth. We have the right team in place to capture additional market share within what we believe will be a continued extraordinary 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 the technology investments. I will now turn the call over to Kai Mitchell, our Chief Operations Officer, who will give greater insights into our fourth quarter performance, recent operating trends, and other insights into our operating environment. Kai?

Thank you, Joe. I really appreciate the opportunity to speak to this broader audience about KeyForce's operations. It's clear to us that our KeyForce team's hard work and dedication is leading to our current exceptional results. I am very grateful to our team and would like to take this opportunity to thank them for their incredible effort. Let me begin by providing some additional perspective on the strength of our outstanding fourth quarter revenue growth. Total revenues grew 17.8% year over year on a billing day basis. However, this overall growth rate includes the impact of declines in COVID-related revenues, which were substantially higher during the height of the pandemic. Excluding the impact from that reduction, revenues were up 7.7% sequentially and 26.7% year-over-year per billing day. The COVID-related revenues were always expected to decline, but provided a bridge for continued investment in our technology business. The growth we are experiencing in our technology business reflects the benefit of our decision to pursue the temporary COVID-related revenue stream. Let me provide some color on the performance of our technology business. We achieved record levels of organic growth of 32% on a year-over-year basis in the fourth quarter and grew nearly 8% sequentially on a billing day basis. This growth was on top of our strong performance during the pandemic, where our technology revenues were essentially flat, and we outperformed virtually every one of our peers. Our technology business grew nearly 33% organically over the fourth quarter of 2019 pre-pandemic, which we believe exceeds the growth rate of every public comparable company. We believe our growth speaks volumes to the secular drivers and demand for technology talent. Our clients are reluctant to lose key resources from K-Force, even during challenging macroeconomic environments, because our highly skilled consultants are working on mission-critical projects. The operating trends we are seeing in our technology business have been impressive. Front-end KPIs and new assignment starts have been at historically high levels. The average duration of technology assignments continues to lengthen, and just as we saw in 2020, we experienced much lower seasonal year-end assignment ends than we have historically seen. These trends provide us great momentum going into the new year. It is also a great indicator of our ability to sustain elevated year-over-year growth rates on an increasingly difficult comp. Not only did we see increased growth rates in the number of technology consultants on assignment, we also continued to see increases in our average bill rate. which grew 3.8% year over year to approximately $82 per hour. There has been much discussion and headlines surrounding the recent talent shortages and other staffing and markets, principally in lower-skilled areas that we do not support, as well as wage pressures at a more macro level. The reality for us is we have been navigating a supply-constrained environment for over a decade in our technology business. Our consistent strong results over this period reflect our ability to successfully navigate these shortages and access the highly skilled talent our clients need. With the environment moving to less geographic boundaries, our talent pool of candidates is increasing, which is a positive for our business. We also believe that wage inflation service serves as a tailwind for us through future bill rate increases as our clients prioritize procuring the talent necessary to further their technology initiatives despite any increasing costs. We are seeing strength across virtually every industry and across all geographies. We continue to see the acceleration of critical technology initiatives within our clients in areas such as cloud, digital, UI UX, data analytics, project and program management. Our clients are leaning into digital, not just for the consumer experience, but also to improve the employee experience. Technology and business strategy are continuing to intertwine, which is ideal for us given our technology focus. A significant accelerant to our overall technology growth has been the investments we've made and will continue to make in our managed teams and solutions capabilities to meet the evolving needs of our clients. We have continued to add highly talented resources to our team to support the demand we are experiencing from end-to-end solutions and teams. We feel extremely confident in the positioning of our technology business We expect first quarter revenues in our technology business to grow to the mid-20% range on a year-over-year basis with low single-digit sequential decline due to the seasonal year-end assignment end. Thus far in the quarter, demand remains strong. With respect to our FA business, overall flex revenues were down 28.9% year-over-year on a billing day basis in the fourth quarter, including an expected $23.8 million year-over-year decline from our support of initiatives tied to COVID-19 pandemic, as previously mentioned. These revenue streams were approximately 5 million in the fourth quarter, and we expect them to decline to nominal levels in the first quarter. Flex revenues in our remaining FAA business grew 8.3% sequentially and declined 0.2% year-over-year per billing day. We made good progress transitioning our FE business towards more highly skilled assignments that are less susceptible to automation and fit better with our technology footprint as evidenced by bill rates increasing nearly 10% year-over-year. We will continue to support lower-end skill sets for certain strategic clients with long-standing relationships. We have seen natural assignment ends in lower-skilled FA roles in 2021 where we chose to no longer support that business. We expect that effort to be materially complete in the first quarter of 2022. Our non-COVID FA revenues are expected to be down in the high teens on a year-over-year basis given the repositioning of the business. When combined with the expected COVID revenue decline, overall FASlex revenues may be down close to 40% year-over-year in the first quarter. Direct higher revenues in the fourth quarter increased nearly 13% sequentially and approximately 62% year-over-year as the macroeconomic environment has continued to improve. We expect that direct hire revenues may see a sequential decline in the first quarter that may increase slightly more than 30% year-over-year as clients continue to demonstrate a high degree of confidence in the recovery through the addition of full-time staff. We are continuing to invest in strategic initiatives and technologies that best position our firm for long-term, sustainable, profitable growth. From a technology perspective, our fully integrated CRM and TRM systems are cloud-based and seamlessly integrate with other Microsoft products. Investments to further develop these tools along with enhancing capabilities in other areas is continuing. We have made measured investments in adding talent to areas with the greatest expected return that don't expect to make significant investments in the near term. We believe great opportunities still exist to further enhance productivity. We have supported and retained our best people and, as Joe mentioned, have made meaningful changes to provide our employees flexibility and choice in how we work. In partnership with our Chief Marketing and Talent Officer, Andy Thomas, an important measurement for me as COO is our reputation for delivering quality services to our clients and consultants. I'm pleased we continue to have the highest Glassdoor rating among our peers and maintain a world-class net promoter score from our clients and consultants. We were also named the most recognized firm by technology consultants per SIA. I am grateful for the trust of our clients, consultants, and candidates have placed in K-Force. Our teams continue to inspire me every day as we work together to position K-Force as the destination employer in our industry. I will now turn the call over to Dave Kelly, K-Force's Chief Financial Officer. Dave?