Kforce, Inc.

Thank you for standing by, and welcome to the K-4 Q4 2023 earnings conference call. I would now like to welcome Joe Libitori, President and CEO, to begin the call. Joe, over to you.

Good afternoon. This call contains certain statements that are forward-looking that are based upon certain assumptions and expectations and are subject to risk and uncertainties. Actual results may vary materially from the factors listed in K-Force's public filings 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 our SEC filings. In addition, we have published our prepared remarks within our investor relation portion of our website. I am tremendously grateful for the extraordinary efforts of the KFORCE team who executed well in 2023 in an environment that proved to be more challenging than originally expected. Our results, driven by solid execution and a focused business model, also allowed us to continue allocating significant capital towards strategic investments in our people and tools. As a result, we entered 2024 well-positioned to take additional market share and create significant long-term returns for our shareholders. The investments we are making include a continuation of our efforts to transform the back office, implementing AI in certain areas to drive efficiency and productivity, while further institutionalizing our 1K force organizational design and operating principles. During 2023, we selected Workday as our future state enterprise cloud application for our HCM and financials. which will complement our Microsoft front end application and create a unified and streamlined technology suite for the firm once fully implemented over the next few years. We are incredibly fortunate to be partnering with Workday and Microsoft, two companies at the forefront of investing in AI, which puts us in an ideal position to take advantage of these technologies as they become available. The foundational transformation will be a meaningful contributor to us meeting one of our long-term financial objectives of generating at least 10% operating margins. Our decision to grow our business organically with a consistent, refined business model tailored to provide highly skilled technology talent solutions to world-class companies in the domestic market has been critical to our success over many years, and we remain confident that our firm is positioned well for improving market conditions. We experienced a decline in technology revenues in 2023 that closely resembled what we experienced in the Great Recession in 2009. We believe the decline that we experienced in 2023 was due to an acceleration of strategic technology investments made during 2021 and 22 to address the implications of remote work and other digital transformation efforts combined with the caution exercised by companies in a very uncertain environment. Companies remain cautious due to the continued economic and geopolitical uncertainties, and we are encouraged to have grown our technology revenues sequentially in the fourth quarter of 2023 on a billing day basis in this difficult environment. We are blessed to have a tenured executive leadership team who has been through multiple economic cycles together and can quickly adjust to the changing market conditions. Our message to our people in 2023 was simple. and frankly it is no different as we begin 2024. There are many things that are uncontrollable. We must control what we can control, stay close to our internal associates, support our consultants, and continue listening to our clients while maintaining a long-term view in our decision making. We made some difficult adjustments in July 2023 to reduce our structural cost, which mitigated the impact of lower revenues on the profitability levels. Our strategic position is solid, and our prospects are excellent. With that said, tremendous uncertainty still exists in the macro landscape and there are conflicting views of economists on whether we will avert a recession, see a soft landing, or slip into a recession in the U.S. economy in 2024 following the aggressive monetary tightening by the Federal Reserve. The challenges in the geopolitical landscape continue to grow with the ongoing war in Ukraine, the effects across the region of the war in Israel, including the loss of American service members with dozens injured in the drone attack on their base in Jordan, along with the 2024 U.S. election uncertainties and many others. We will continue to closely monitor our performance indicators and trends and are prepared to make the necessary adjustments to our business without jeopardizing investments in our long-term strategic priorities. The strength of the secular drivers of demand and technology accelerated significantly coming out of both the Great Recession with the advancement of mobility, cloud computing, among others, and with the 2020 pandemic with further digitization of businesses and the continued headlines around gen AI technologies. I have seen a lot of economic cycles in my 35-plus years in the business, and each one behaves a bit differently. What remains clear to us, though, is that the broad and strategic use of technology, including AI technologies, will continue to evolve and play an increasingly instrumental role in powering businesses. Over the long term, we believe that AI and other technologies will continue to drive demand for rather than replace technology resources and that the pace of change will accelerate. We are ideally positioned to meet that demand. Our core competency is rooted in the ability to identify and provide critical resources real time at scale to help world-class companies solve complex business problems and help them competitively transform their businesses. Our operating model also allows us the flexibility in partnering with our clients to meet their needs across a broad spectrum of engagement forms, from direct hire, traditional staffing assignments, to manage team engagements and manage projects. While clients have been acting with restraint over the last 12 plus months, the backlog of desired investments continues to grow. We expect these important technology investments to be high priorities once the macro uncertainties begin to clear. Technology investments are simply not optional in today's competitive and disruptive business climate. There is simply no other market we would want to be focused on other than the domestic technology talent solution space. We have built a solid foundation at K-Force. Our balance sheet is clean. which allowed us to be opportunistic in repurchasing over $67 million of our stock in 2023, and we expect to continue to generate strong cash flows in 2024. Our board of directors recently approved an increase in our quarterly dividend and share repurchase authorization to support our ongoing objective in returning capital to our shareholders. Before transitioning the call to Dave, I wanted to reiterate, how proud I am of the performance and resiliency of our collective K-Force team. Together, we fought through a challenging operating environment, made some difficult decisions, and met each and every challenge. We are blessed to have a high-performing team that is tenured, dedicated, and passionate at K-Force. I am excited about the future of K-Force as our team continues to advance our office occasional model in combination with our integrated strategy, resulting in an overall team's ability to operate even more consistently as one firm. Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, K-Force's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave?

Thank you, Joe. Revenue for the fourth quarter came in just above the midpoint of our guidance. We were encouraged to see overall revenues increase sequentially by 0.6%, led by sequential growth in our technology business. For fiscal 2023, overall revenues were down 10%, while flex revenues in our technology business were down approximately 7%. As a reminder, our technology business significantly outperformed the market in 2022 and 2021, growing 43.5% over that two-year period. The Q4 sequential growth in our technology business is reflective of the stability in the number of consultants on assignment we began to see beginning in mid-Q3, which was followed by a modest increase through the fourth quarter. As we look into early Q1 trends, year-end assignment ends in our technology business were slightly greater than prior year levels as clients were generally slower than usual to approve 2024 IT budgets, which resulted in fewer redeployments of our consultants as projects were completed at year-end within existing clients. This also contributed to a slightly later start in the typical acceleration of new orders from our clients at the beginning of the year. With that said, Over the last two weeks we've seen an improvement in our leading indicators and as a result we believe that the level of new assignment starts could improve from current levels as we get later in the quarter. This suggests we may see a more traditional pattern of growth in the number of technology consultants on assignment, albeit beginning slightly later in the quarter than usual. Our clients recognize the need to retain the highly skilled talent that we provide while they await a point of increased confidence to address their increasing backlog of critical technology initiatives more aggressively. Overall average bill rates in our technology business remained near record levels at approximately $90 per hour. While bill rates have been stable over the past few quarters, we expect them to increase over the longer term as highly skilled talent will remain in short supply as demand improves. In addition, we're continuing to benefit from an increased mix of managed teams and project engagements within our overall technology business, which carries an average higher bill rate. Our clients remain focused on critical technology initiatives in the areas of digital, UI UX, cloud, data governance, data analytics, business intelligence, project and program management, and modernization efforts. This represents a continuation of recent trends and reflects some of the front-end work needed by companies to take advantage of planned AI-related investments. Flex margins of 25.4% in our technology business saw a seasonal decline of 10 basis points sequentially and 70 basis points year over year. As we've mentioned on prior calls, the year-over-year declines in technology flex margins that we've seen recently are typical of what we have seen in prior slowdowns, and we normally see margins recover as the macroeconomic environment stabilizes. As we look forward to Q1, we expect bill pay spreads in our technology business to continue to be stable, though overall flex margins will be lower due to seasonal payroll tax resets. We've continued to broaden our service offerings beyond traditional staffing to include managed teams and project solutions. Clients consider access to the right talent essential to their success and see our services as a cost-effective solution for their project requirements as demonstrated by more than the 90 percent of managed teams and project solutions being executed within existing clients. Our integrated strategy capitalizes on the strong relationships we have with world-class companies by utilizing our existing sales, recruiters, and consultants to provide higher value teams and project solutions that effectively and cost-efficiently address our clients' challenges. Our client portfolio is diverse and includes large, market-leading customers. Market leaders typically prioritize technology investments to maintain their competitive advantage. Our focus on addressing their needs continues to be critical in our ability to drive sustainable, long-term, above-market performance. While short-term disruption may occur within certain clients or industries, our diverse client base provides an outstanding platform for consistent, long-term growth. We experienced stabilization in some of our larger industry verticals in Q4, including financial services and technology services. Elsewhere, we saw quarter over quarter improvement in transportation and retail trade and some headwinds in manufacturing. Looking forward to Q1, we expect technology revenue to decline between 10 and 12% year over year, which is consistent with Q4 2023. Our FAA business grew approximately 2% sequentially but declined 28% year-over-year as the prior year period included a project to support hurricane relief efforts. The year-over-year decline also reflects the impact of business we are no longer supporting due to our repositioning efforts in a more challenging macro environment. We expect revenues to be down approximately 25% year-over-year. Our average bill rate has continued to exceed $50 per hour reflecting our success in repositioning this business towards a higher skill set of business which is more synergistic with our technology service offering. Flex margins in our FAA business decreased 70 basis points sequentially due to a lower margin project with a strategic client but have improved 330 basis points since the first half of 2020 as our mix of business has significantly improved. We expect bill pay spreads to remain fairly stable at these levels now that the significant majority of business that we are no longer pursuing has run off. However, overall FAA margins will decrease sequentially due to seasonal payroll tax recess. We've taken the necessary and thoughtful measures to strike a balance between associate productivity and our revenue expectations. As we've done in prior economic downturns, we are focused on retaining our most productive associates and making targeted investments in the business to ensure that we are well-prepared to capitalize on the market demand when it accelerates. We continue to invest in our managed teams and project solutions capabilities and the integration of those offerings within the firm, which is progressing well. We are fortunate to have one of the most recognized brands in the market for providing technology talent solutions. Our reputation has been established over our 60-plus year operating history, and we continue to carry the highest overall Glassdoor rating within our peer group. I'm tremendously excited about our strategic position and the ability to continue delivering above-market performance. The success that we have as an organization doesn't happen without the unwavering trust that our clients, candidates, and consultants place in us, and I appreciate the dedication, creativity, and resilience displayed by our incredible team. I'll now turn the call over to Jeff Hackman, K-Force's Chief Financial Officer.