Kforce, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the KFOR's third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Joe Liberatore. President and CEO, you may begin your conference.

Good afternoon. This call contains 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-Force's public filing 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 relation portion of our website. I'm pleased with our overall performance in the third quarter as revenues and earnings per share were near the top end of our guidance, again led by strong sequential and year-over-year growth in our technology business. The macro environment certainly became cloudier in the third quarter. with persistently elevated levels of inflation, rapidly rising interest rates, which among other reasons is impacting prospects for global and domestic economic growth. We mentioned in our prior earnings call that we experienced a degree of moderation in our KPIs towards the end of the second quarter. While trends in the third quarter were below levels experienced in 2021 and the first half of 2022, they remain above pre-pandemic levels. Though certain of our clients have become increasingly cautious as they prepare for the potential of a U.S. recession, the criticality of the projects we are supporting is continuing to drive demand for highly skilled technology talent. The war for technology talent is real, with far more open jobs than available skilled talent. The strength of the secular drivers of demand in technology was accelerated coming out of the Great Recession by mobility, big data, the cloud, and the rapid expansion of consumer-facing technology initiatives. The pandemic has only accelerated the strategic imperative for all businesses to further digitize their business to enhance consumer and employee experiences. These collective technology drivers give us an increased level of confidence in expecting our business to thrive during strong economic times and to be relatively insulated during adverse economic times. Technology is not optional and is core to all business strategies, regardless of the industry, and we don't see that changing. In fact, The CEO of a large trades association representing technology and engineering industry recently stated that even if some sectors of the economy soften and pull back in their hiring, demand for tech talent will continue to outstrip supply for the foreseeable future. With deliberate strategic intent, we have built a solid foundation with nearly 90% of our business concentrated in providing high-end domestic technology talent solution to a diversified set of world-class companies in attractive end markets. Our debt-free balance sheet and strong predictable cash flow gives us flexibility to continue investing to grow our business even in choppier economic times. Due to the strength in the secular drivers of technology demand and our client portfolio, which is primarily focused on serving the Fortune 500 companies, our technology business has both consistently grown at well above market rates during strong economic environment and displayed great resilience through the last two recessions. For additional color, Our organic CAGR is nearly 8% since 2007. It's significantly above the market rate. During the 2008-2009 Great Recession, flexible revenues in our technology business comprised roughly 50% of total revenues and declined only 7% in comparison to the 25% to 30% declines experienced within the general staffing market. In the 2020 pandemic-driven recession, Our technology revenues were approximately 75% of total revenues and were virtually flat in comparison to the general staffing market, which experienced 10% to 15% declines. With 90% of our total revenues now in technology, we feel extremely well positioned to take advantage of both strong and more challenging market conditions to continue growing market share. Our plans continue with the implementation of what we call office occasional work environments. and we are extremely excited about the opening of our new state-of-the-art headquarters in Tampa tomorrow. Our unique work environment provides our people with maximum flexibility and choice in designing their workdays that is grounded in our trust in them and supported by technology. We are an industry leader in the technology talent solution space, delivering exceptional financial results, and are offering maximum flexibility to our people. We believe these factors, among others, are positioning K-Force as the destination for top talent. Our path forward is clear, and we will remain consistent with the principles under which we've been operating so successfully. There is simply no other market we want to be focused on other than the domestic technology talent solution space, as it has, in our view, the greatest prospects for sustained growth. We have the right team in place to capture additional market share and are prepared for the long-term and whatever near-term environment may bring. My sincere thanks to our highly tenured leadership team and associates for continuing to stay true to our strategic vision and for their relentless execution. Our team continues to have a meaningful impact on all the lives we serve. It was inspiring to see how our teams rallied to support our clients, consultants, and employees that were impacted by Hurricane Ian and for their support of rebuilding the communities around us. Kai Mitchell, our Chief Operations Officer, will now give greater insights into our performance and recent operating trends Dave Kelly, K-Force's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Kai?

Thank you, Joe. Revenues grew 8.7% year-over-year in the third quarter. Normalized for our planned COVID-related runoff, year-over-year growth would have been 10.7%. As expected, our technology business continues to be the primary driver of our success, with year-over-year growth of 15.8% off increasingly difficult prior year comps. We are anticipating close to 18% growth for the full year of 2022. We have continued to drive high levels of compounded growth in our technology business, with revenues having grown organically 50% over the last two years following resilient top-line growth throughout the pandemic. We believe our strong, consistent performance demonstrates an unmistakable correlation between the secular demand drivers of technology. These drivers are less susceptible to economic fluctuations than most businesses. Our technology growth has meaningfully exceeded the industry growth benchmarks over the last 15 years and has been consistently near or at the top of our industry for the past three years. As Joe mentioned, our current operating trends and activity levels have moderated to a degree, but demand remains strong and above pre-pandemic levels. Our clients are reluctant to lose key resources even during challenging macroeconomic environments because of the mission-critical nature of our projects and consultants. Another strong signal we experienced is the continued acceleration in our average bill rates, which grew 1.4% sequentially and 8.3% year-over-year to approximately $88 per hour. The continued increase in bill rates reflects a strong demand environment for highly skilled talent and the criticality of these resources to our clients' strategic priorities. With less geographic constraints, our talent pool of candidates continues to increase. We continue to see acceleration of critical technology initiatives that our clients in areas such as cloud, digital, UI UX, data analytics, project, and program management. Conversations with our clients suggest that they will continue to prioritize significant technology investments to remain competitive regardless of the economic environment. Many of our engagements are multi-year initiatives that we expect to continue despite any changes in the macroeconomic environment. Clients continue to look to us to provide managed teams and project solution engagements. We expect to bring even greater focus in driving disproportionate growth of these engagements as we move into 2023, which will help insulate margins. Our year-over-year growth was driven by a diverse set of industries. Sequentially, we are still seeing broad-based demand, but with some softness in select clients. We have not yet seen any industry vertical as a whole experience consistent reductions in demand. Rather, even in industry verticals where we have seen softness at particular clients, we have seen other clients actually increase spend and award new projects. We have a very diverse portfolio of large customers servicing 70% of the Fortune 500s. which we believe mitigates our risk as we have no significant concentration in any particular client or industry. While we may be susceptible to short-term disruption with our specific clients or industry-specific dynamics, we expect our diversification and concentration in world-class companies to serve our shareholders well over the long term. We expect fourth quarter revenues in our technology business to continue to grow sequentially on a billing day basis and increase in the high single digits on a year-over-year basis. Our overall FA business declined 28% year-over-year. The growth rate was negatively impacted, as expected, by declines in COVID-19 revenues. These revenues contributed nearly $7.5 million in the third quarter of 2021. Excluding this impact, our overall FA business declined 18.7% year-over-year, largely due to our repositioning efforts. While new assignment starts were relatively flat in the third quarter, as we continued to reposition our business, we saw a 6% sequential increase and a 28% year-over-year increase in our bill rates to over $50 per hour. We expect overall FA revenues to improve slightly sequentially, due to a project in support of hurricane Ian recovery efforts and decline approximately 29% year over year in the fourth quarter. As a reminder, the fourth quarter of 2021 included 4.7 million of COVID project revenue. We continue to support our FA business and prove its alignment with our technology business. The investments we continue to make in our strategic priorities along with process improvements to increase productivity levels in our associate population, provide capacity to continue to grow. While capacity exists, we have continued to make select investments in associate headcount to drive sustainable growth. We have supported and retained our best people, and we have made significant changes to give our employees flexibility and choice in our office occasional work environment. This is reflected in our top scores amongst our competitors on Glassdoor across all seven measurement categories, including areas like diversity, inclusion, and culture. K-Force has earned Glassdoor's Open Company designation, which recognizes employers that proactively promote and embrace workplace transparency through sharing workplace culture, being responsive to all reviews, and sharing our updates related to DEI and CSR. I am so grateful for the trust our clients, consultants, and candidates have put in K-Force. I would like to thank our amazing people out there who continue to deliver our impressive results. They are truly the backbone of our success. I will now turn the call over to Dave Kelly, K-Force's Chief Financial Officer. Dave?