Kforce, Inc.

Please stand by. We're about to begin. Good afternoon, ladies and gentlemen. Welcome to the K-4's first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. And if you would like to withdraw your question, simply press star 1 again. And now at this time, I'd like to turn things over to Mr. Joe Liberatore, President and CEO. Please go ahead, sir.

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 filings and other reports and filings with the Securing 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 our investor relation portion of our website. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the impact these items and events have on our financial results. Our earnings press release provides the reconciliation of the difference between GAAP and non-GAAP financial measures. Let me start by offering a few comments about the current operating environment, which is informed by our internal metrics, discussions with clients, and other industry data points. There is a heightened degree of uncertainty in the macroeconomic environment as we sit here today versus one quarter ago, With two 25 basis point Fed interest rate hikes, the collapse of several financial institutions, a recent rise in unemployment claims, and other factors that all point to a higher likelihood that the U.S. economy could fall into recession. Our clients, broadly speaking, continue to exercise restraint against the backdrop of this uncertainty as it relates to certain technology spend that can be moderated without significant impacts. We have not seen, however, instances of mission-critical projects being postponed. As to our financial performance in the first quarter, revenues were at the low end of guidance, and our technology staffing and solution business continued to grow on a year-over-year basis, even off of tremendous prior year comps. Earnings per share were at the midpoint of our expectations, despite revenues falling at the bottom end of our guidance, which reflects our highly variable and performance-based cost model. The pace of decline as we finished the first quarter moderated significantly in our technology business, as compared to the month following our last earnings call. As to our second quarter expectations, we anticipate the average number of billable consultants on assignment to be relatively stable with current levels. As we look further into the future, we remain steadfast in our belief in two areas. First, we believe the long-term secular drivers of demand and technology are very much intact and will persist in the future, irrespective of how the short-term environment plays out. The strength of the secular drivers of demand and technology accelerated coming out of both the Great Recession and the pandemic, and it remains clear to us that the broad and strategic use of technology, including the recent headlines that Gen-I technologies have garnered, will continue. Said simply, technology investments are simply not optional in today's competitive and disruptive business climate where the talent necessary to make those advancements remains in short supply. Our core competency is rooted in the ability to identify and provide these critical resources real-time at scale in virtually every industry. While our business is not immune from the impacts of economic turbulence, technology spend is increasingly resilient and less correlated than other areas where companies utilize flexible talent, as was reflected in the two most recent economic downturns. There is simply no other market we would want to be focused in other than the domestic technology talent solution space. Second, we expect the sharpening in our focus that has occurred over the last decade to continue to contribute to our market outperformance. We have built a solid foundation at K-Force and are partnering with stable, world-class companies to solve complex problems and help them competitively transform their business. Our balance sheet is clean, and we expect our strong cash flows to continue providing us great flexibility to return significant capital to our shareholders. We have a solid, highly tenured team in place, with the expectation of continuing to capture additional market share. Our executive leadership team has been through multiple economic cycles and has the experience to skillfully navigate through whatever may lie ahead. We have continued to make strategic investments to both enhance internal productivity and meet the needs of our customers in various engagement models. Our team also continued to meaningfully advance our multi-year effort to transform our back office operations. In addition, We published our 2022 sustainability report in mid-February 2023, which not only memorialized our recent accomplishments, but also outlined our opportunities for continued growth and evolution with our 2023 goals that push for even greater progress in each of the areas of ESG. We remain committed to our office occasional work environment, which continues to positively impact the lives of our associates, by providing our people with maximum flexibility and choice in designing their workday that is grounded in our trust in them and supported by technology. This has resulted in improved retention of our associates and positions K-Force as a destination for top talent. K-Force is proud to be certified as a great place to work, which distinguishes K-Force as one of the best companies to work for in the country. As we look ahead, We expect to continue making the necessary investments in our business to further advance our enterprise priorities to sustain our long-term growth ambitions and attain double-digit operating margins while prudently managing our operating costs. Kai Mitchell, our Chief Operations Officer, will now give greater insight 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 in our technology staffing and solutions business grew 1.4% on a year-over-year basis. Overall revenues declined 2.6% year-over-year. On our prior earnings call, we indicated the sales cycle had become longer than usual because of uncertainty in the macroeconomic environment, and select clients had begun pruning resources. We typically see a gradual increase in consultants on assignment throughout Q1, but that was not the case this year. Clients are telling us that they are committed to starting new projects that are mission critical to them, and we have seen many recent wins across multiple industries. Overall average bill rates in our technology business remain near record levels at approximately $89 per hour, and we're up 4.7% year over year. The slight decline sequentially is primarily due to a change in business mix. and we expect average bill rates in the near term to be relatively stable given the continued scarcity of highly skilled technology talent. Our longer term view continues to be that average bill rates should help us in our business, especially as the mix of higher value service offerings increases. Most of our consultants are in higher skill set areas which are not as sensitive to the changes in the economy. We do very little business in lower bill rate areas, which are most affected by the economy. This mix is expected to provide significant revenue and margin stability. Our clients remain focused on critical technology initiatives in the areas of cloud, digital, UI UX, data analytics, project and program management. Clients are telling us that they want to keep investing in technology to stay competitive. even if the economy is uncertain. While clients are currently being more careful about which projects they choose to invest in, our historical experience is that companies quickly shift their priorities and invest more in technology once the macroeconomic landscape becomes clearer. Our clients want us to continue to expand our service offerings from traditional staffing to managed teams and project solutions. Our integrated strategy leverages the relationships we have with world-class companies and all our existing sales, recruiters, and consultants to bring higher value teams and project solutions to solve our clients' challenges. We have a broad portfolio, which includes large, market-leading customers, leading to our sustained above-market growth rates. We believe this customer base will be a positive catalyst for continued long-term sustainable above-market growth. Our largest industry vertical, financial services, comprises less than 17% of our technology revenues and is concentrated in what we believe are large stable financial institutions. Layoffs within technology companies have continued to dominate the headlines in 2023. To offer you some perspective, only five of our top 25 clients are in the technology services or technology manufacturing space. Total revenues for those five companies were down approximately 4% year over year as compared to our overall growth of approximately 2% in the first quarter. Even though we might be susceptible to short-term disruption with certain clients or industries, we expect our diverse client base of world-class companies will benefit our shareholders in the long term. We expect second quarter revenues in our technology business to decline sequentially in the low single digits and decline in the mid single digits year over year off very strong comps in the second quarter of 2022. Our FA business, declined approximately 28% year-over-year, which reflects the year-over-year impact of business we no longer support due to our repositioning efforts as well as more challenging macro environment. Sequentially, our FA business experienced a 17% decline largely due to the expected wind-down of a short-term project supporting Hurricane Ian recovery efforts. We expect revenues to be down in the mid-20% range on a year-over-year basis in the second quarter, which reflects a sequential decline of near double-digit levels as short-term projects conclude. We expect revenues to be down in the mid-20% range on a year-over-year basis in the second quarter, which reflects a sequential decline of near double-digit levels as the short-term project concludes. We continue to support our FA business and improve its alignment with our technology business. Evidence of this progress is that our average FA bill rates, excluding the Hurricane Ian project, in the first quarter of 2023 is $52 compared to $38 in the first quarter of 2020. As usual, we are managing associates productivity and are focused on retaining our most productive associates so that we are positioned to take advantage of the market when it re-accelerates. We also continue to make targeted investments to improve our managed teams and project solutions capabilities. We are happy to announce that we recently received the highest rating for corporate culture from Glassdoor, as well as the highest ranking in our industry. We are thankful for the trust our clients, consultants, and candidates and employees have in us, and we could not have achieved our first quarter results without our incredible team. Our people are the reason for our success, and we are grateful for their hard work and dedication. I will now turn the call over to Dave Kelly, K-Force's Chief Financial Officer. Dave?