KFRC - NASDAQ

Good afternoon, and welcome to the Kforce, Second Quarter Earnings Call. My name is Brianna and I will be your conference operator today. Please note, that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Joe Liberatore, Kforce’s 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 risk and uncertainties. Actual results may vary materially from the factors listed in Kforce’s public filings and other reports and filings with the security of change 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. Our results for the second quarter reflect the continuation of an uncertain economic environment, and we believe the actions being broadly taken across industries by our market-leading clients, to ensure they are prepared for the possibility of a slowdown. This view is informed by our internal metrics, discussions with clients and other industry and economic data points. There have been wide-spread concerns and frankly, expectations that the U.S. economy would fall into a recession of uncertain severity since the Federal Reserve began aggressively raising rates in March 2022 to address persistently high inflation. The yield curve continues to be significantly inverted, which has been a very strong indicator of a likely recession going back more than 50 years. We also experienced the collapse of several large financial institutions over this time. Though the pace of hiring has slowed, and we have seen an increasing level of layoffs, the labor markets have continued to be remarkably resilient with continued historically low levels of unemployment. More recently, there have been some indicators suggesting significant moderation in inflation, the increasing discussions of a possible soft-landing to the U.S. economy. While we are not economists, my point in sharing these data points is to articulate the significant uncertainties that exist in the macro-environment. We believe this is causing companies, broadly speaking, to exercise restraint and a number of new technology investments they initiate and to selectively trim existing projects that don’t create an immediate return. The restraint being exercised by companies, generally speaking, including our clients, continued in the second quarter and though we are still seeing new project awards, we have not seen any broad change in client mindset. This is reflected in our second quarter results and expectations or performance in the third quarter. While the Firm continues to operate efficiently due to our focused, technology-centric platform and produced results in the Technology business that are our top of our class, it became clear to us that we needed to adjust our structural costs to align them with lower levels of revenue that we are experiencing without compromising investment in key strategic initiatives. While actions that affect our Kforce team are tremendously difficult to make and never taken lightly, the impact of these macroeconomic uncertainties on our business drove us to take these actions. Dave Kelly, Kforce’s Chief Financial Officer, will provide insights into the costs and benefits associated with these actions in his remarks. As to our performance in the second quarter, overall revenues were slightly below the low end of our guidance. Despite lower-than-expected revenues, earnings per share was within the range of guidance. As we look further into the future, we remain steadfast in our belief in two areas. First, we believe that the long-term secular drivers in demand, in the technology are very much intact and will persist in the future irrespective of how the short-term economic environment plays out. The strength of the secular drivers of demand in technology accelerated significantly coming out of both the Great Recession and the 2020 Pandemic and it remains clear to us that broad and strategic uses of technology, including the recent headlines that GenAI technologies have garnered, will continue. While clients are acting with heightened caution today, we believe this is resulting in tremendous backlog of desirable investments that will be prioritized once the macro uncertainties begin to clear. Technology investments are simply not optional in today’s competitive and disruptive business climate. Our core competency is rooted in our ability to identify and provide critical resources, real-time and at scale, to solve business problems for our clients in virtually every industry. Our integrated strategy also allows us to be flexible in partnering with our clients to meet their needs as part of a traditional staffing assignment, a managed team or managed project engagement. There is simply no other market we would want to be focused on, other than the domestic technology talent solutions space. Second, we expect the sharpening in our focus to continue to contribute to our market outperformance. We have built a solid foundation at Kforce and are partnering with world-class companies to solve complex problems and help them competitively transform their businesses. Our balance sheet is clean, and we expect this and 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. A reflection of our preparedness is the success of our executive transition plan initiated in December 2021. At that time, our founder Dave Dunkel, announced his retirement as CEO and entered into a multi-year agreement to provide the Firm support in a non-executive employee role, in addition to continuing his role as a Board Chairman. The Board of Directors has determined that due to the success of the transition and the confidence it has in the Executive Management team, it is now comfortable accelerating this transition to a role solely as a Board Chairman effective immediately, and that those transition services are no longer necessary. I want to personally thank Dave for sharing his wisdom and guidance during this transition and I look forward to continuing to engage with Dave and the rest of the Board of Directors. Our highly experienced management team is navigating through the current macro climate well and we remain very excited about our future prospects. Kye Mitchell, Kforce’s Chief Operations Officer, will now give greater insights into our performance and recent operating trends, and Dave Kelly will then provide additional detail on our financial results as well as our future financial expectations. Kye.

Thank you, Joe. Overall revenues in Q2 declined 10.8% year-over-year with revenues in our technology staffing and solutions business declining 8.5% off very difficult prior year comps, where our technology business grew approximately 24%. As Joe mentioned, our clients exercised more caution in starting new technology investments than we anticipated. Additionally, they continued to selectively trim resources on existing projects. With that said, we have not experienced clients terminating existing large projects. While the caution being exercised was seen across our client portfolio in 2023, it has been more prevalent in our largest clients. As you look at overall trends within the quarter, we saw some relative stability in April after a weaker than usual Q1, which was followed by a continued slight softening in May and June. During the last two months of the quarter, the number of technology resources placed on new engagements declined from April levels and assignment ends continued to slightly outpace new consultants on assignment. To that point, we experienced relatively modest declines in the total number of consultants on assignment throughout the second quarter and our guidance reflects a continuation of that trend, as we have not yet seen an inflection point. Overall average bill rates in our technology business remain near record levels at approximately $90 per hour, which improved 1.3% sequentially and 3.5% year-over-year. This increase is primarily driven by the increasing mix of higher-skilled workers on assignment. In the near term, we expect that average bill rates will remain stable or show slight improvement. This is primarily due to highly skilled technology talent mix and an increase in the proportion of managed teams and project engagements within our overall technology business. Looking ahead, we believe average bill rates will continue to work in our favor in the long-term. This is especially true as our mix of higher value service offerings continues to rise. Our clients remain focused on critical technology initiatives in the areas of cloud, digital, UI/UX, data analytics, project and program management and modernization efforts. Our clients tell us they are committed to starting new mission critical projects for their organizations, leading to wins across multiple industries, though the pace of initiation is slower. Although clients are currently exercising more caution in their project investments, based on our historical experience, we expect companies to swiftly shift their priorities and increase their technology investments once the macro-economic landscape becomes clearer. Our clients expect us 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. Our integrated strategy capitalizes on the strong relationships we have with world-class companies. We are utilizing our existing sales, recruiters, and consultants to provide higher value teams and project solutions that effectively address our clients’ challenges. Our client portfolio is diverse and includes large, market-leading customers, which we believe will drive sustainable, above market performance in the long term. While short-term disruption may occur with certain clients or industries, our diverse client base of world-class companies will ultimately benefit our shareholders. We saw sequential declines in most of our large industry verticals, with the exception of our energy and utilities industry. On a relative basis, we experienced stabilizing sequential trends in the technology hardware and software industry. This sector had previously garnered attention due to the headlines about workforce reductions. Our guidance contemplates third-quarter revenues in our Technology business to decline sequentially in the mid-single digits and decline in the low teens on a year-over-year basis. Our FA business declined approximately 10% sequentially and 28% year-over-year. The year-over-year declines reflect the impact of business we are no longer are supporting due to the repositioning efforts as well as a more challenging macro environment. We expect revenues to be down sequentially in the low double digits and approximately 30% on a year-over year basis in the third quarter. We continue to support our FA business and improve its alignment with our Technology business. Evidence of this progress is that our average bill rate in the second quarter of 2023 is $51 compared to $38 in the first quarter of 2020, and more recently up 7.7% over the second quarter of 2022. Not surprisingly, our higher skill set business is where we see relatively better performance. We have taken necessary and thoughtful measures to strike a balance between associate productivity and revenue expectations. Our primary focus is on retaining our most productive associates, ensuring that we are well prepared to capitalize on market demand when it accelerates. At the same time, we are also making targeted investments to improve our managed teams and project solutions capabilities. I am truly grateful for the unwavering trust that our clients, candidates and consultants place in us. It fills me with immense appreciation to witness the dedication, creativity and resilience displayed by our incredible team. Without a doubt, it is their dedication and commitment that drives our success, and I am truly grateful. I will now turn the call over to Dave Kelly, Kforce’s Chief Financial Officer. Dave.

Thank you, Kye. Second quarter revenues of $389.2 million declined 10.8% year-over-year and earnings per share were $0.95. Overall gross margins increased 20 basis points sequentially and declined 170 basis points year-over-year to 28.3% in the second quarter due to a combination of a lower mix of direct hire revenue and a decline in the Flex margins. Flex margins of 25.9% in our Technology business were flat sequentially on modest bill rate increases as clients understand that qualified highly skilled candidates remain in short supply. Technology Flex margins declined 100 basis points year-over year due to higher healthcare costs and modest declines in bill-pay spreads due to heightened price sensitivities and changes in business mix. The decline in Technology Flex margins on a year-over-year basis that we experienced over the last several quarters is fairly typical of what we have seen in prior slowdowns; and we typically see margins recover as the macroeconomic environment stabilizes. As additional reference, margins in our Technology business in 2022 were consistent with 2021 and 2020 levels. Technology talent has been scarce for more than a decade and we expect to see continued wage increases over the longer term and relative margin stability. Flex margins in our FA business increased 150 basis points sequentially and have improved nearly 400 basis points over the last three years as our mix of business has improved due to repositioning efforts. Much like our Technology business, we anticipate Flex margins to remain fairly stable at these levels now that the significant majority of business that we are no longer pursuing has run off. As we look forward to Q3, we expect spreads in our Technology business to decline slightly, due primarily to higher utilization of paid time off during the summer months, reasonably consistent with what we experienced in the third quarter of 2022. As we look beyond Q3, as clients increasingly engage us for projects critical to their ongoing success, including managed teams and project solutions engagements that are typically higher margin opportunities, we expect this to support overall margin stability. Overall SG&A expenses as a percentage of revenue decreased 70 basis points year-over-year. Given our exceptional growth in 2021 and 2022, our compensation plan structure rewarded our top performing associates with very significant bonuses and commissions. With growth coming off those historically very high levels, we are generating leverage in our SG&A costs through lower overall performance-based compensation costs. We have also been successful at driving greater cost efficiencies from our real estate portfolio, given our Office-Occasional model, which has allowed us to reduce overall square footage by more than 40%. As we continue to transition our remaining office leases over the next two to three years, we expect to generate additional savings from further reductions in overall square footage. In this environment, we are also tightly managing other areas of discretionary spend. Our second quarter operating margin was 6.7%, which was at the middle of the range of our expectations. Our overall effective tax rate in the second quarter was 27.5%. Operating cash flows were $21 million and our return on invested capital was approximately 40% in the second quarter. We have a balance sheet with very little debt and expect to be generating more than $100 million in operating cash flows in 2023. We’ve had a long history of returning capital to our shareholders. Since we initiated our dividend in 2014, we have increased it 360%. In addition, since 2007 we have reduced our weighted average shares outstanding from $42.3 million to $19.3 million or more than 50%, at an average price of approximately $21 per share. All in, we have returned nearly $900 million in capital to our shareholders since 2007, which has represented approximately 75% of the cash generated, while significantly growing our business and improving profitability levels. In the second quarter, we returned nearly 100% of operating cash flows to our shareholders through repurchases and dividends. This is a continuation of the levels we’ve seen over the past two years. Our plans going forward are unchanged. We remain committed to returning capital regardless of the economic climate. Our balance sheet and the flexibility we have under our credit facility provides us the opportunity to get more aggressive in repurchasing our stock if there is a dislocation between expected future financial performance and the valuation of our shares. The third quarter has 63 billing days, which is one fewer than the second quarter of 2023 and one fewer than the third quarter of 2022. We expect Q3 revenues to be in the range of $359 million to $367 million and earnings per share to be between $0.60 and $0.68. As Joe referenced in his opening remarks, we implemented some very difficult changes this month that immediately reduced our costs to better align overall support of the firm with current and expected near-term revenue levels. These reductions do not impact our commitment to investments contemplated in critical initiatives. Our overall operating performance at these revenue levels remains well above what it had been previously seen, which is reflective of the return we are seeing from previous strategic investments. Contemplated in our third quarter guidance is a charge of approximately $5.5 million or $0.22 per share related to these actions. Excluding this charge, the range of earnings per share would be $0.82 and $0.90. We anticipate that these actions will reduce annual operating costs from current run rates by approximately $14 million or $3.5 million [ph] per quarter. We will partially benefit from the savings in Q3 due to the timing of the actions. Our guidance does not consider the potential impact of any other unusual or nonrecurring items that may occur. Looking beyond the expected short-term macroeconomic uncertainties, we remain extremely excited about our strategic position and prospects for continuing to deliver above-market growth, while continuing to make the necessary investments in our integrated strategy and back-office transformation efforts that will help drive long-term growth and put us in a position to attain double-digit operating margins as we grow. On behalf of our entire management team, I’d like to extend a sincere thank you to our teams for all of their efforts. Operator, we'd now like to turn the call over for questions.

[Operator Instructions] Your first question comes from Mark Marcon with Baird. Your line is open.

Hey, good afternoon. Joe and Kye, I was wondering if you could talk just a little bit more about what you're hearing from some of your larger Tech Flex clients, just in terms of how they are thinking about the remainder of the year, and when they think that they might get a little bit more clarity with regards to their outlook.

Yes Mark, its Joe. I would say, and you know this is – I mean, you've heard this countless times already. I mean given how well forecasted the times that we're in have been, we believe that our clients have been [inaudible] in preparation for what I'll say is more of a shallow type recession, and those activities started probably about a year ago, and they've continued to respond in that nature. You've been around this sector for quite some time and I don't know if it will be different this time, but historically, the first thing that I've seen and I think this is my 5th cycle in my 25-year career. What happens first is, first thing organizations do is they start to cut back on their use of flexible workers, whether they are a staff of or whether they are contract oriented. The next phase, if things get tougher, they start to reduce their permanent staffs and then the next phase, when they start to believe that there is some forward look, they start to quickly bring flexible resources back on, to address all the pent-up demand that is built up throughout the down cycle, and then once they have confidence, they start re-hiring the full-time staff. So we are – where we see our clients at this point in time is they are in a wait and see like everybody else in the market. They don't know what's around the corner, and you know we work with predominantly Fortune 500 organization, some of the most sophisticated organizations on the planet. No one has that crystal ball. So they are operating with caution. The good news is, unlike some of the more abrupt, I guess cycles that I've been involved with in the past, which has really been just about every cycle, has been an abrupt wake-up call. I think the foreshadowing of this has caused organizations to react very differently. So I'd say, the positive with that, usually when it's abrupt, we see projects ended and we see mass exits of consultants and projects coming to a complete halt. We haven't seen that this cycle. All that we've seen is really a trimming around the edges to basically keep projects moving along, albeit maybe deliver them in a little bit longer time period. So Kye, I don't know if you have any additional color you may want to add.

No, I think you covered it, Joe. I mean, that's the main thing we’re seeing is, is projects aren't getting canceled. They are delaying them. They may be taking longer to get approval done, but they are still staying on a path with their strategic initiative. We’re seeing a lot in modernization efforts, we’re seeing them continue to look at cloud migration, those types of things, but they are definitely trimming back as they wait and see what the future holds.

Mark, important to note, when we talk churn back, what we're seeing with our clients is similar, [inaudible] of microcosm, which means we are spending more on a year-over-year basis in terms of technology. We have more projects than we have capital to be able to address right now. And by the way, in this climate, every day that backlog of pent-up demand and projects is just building. And we see that with our clients, because the patient need for technology has not changed. That's why we get excited about managing through this and playing for the other side. Our business has always take the peak, ended up higher, not just from a revenue standpoint, but also from a profitability standpoint, and we see a lot of demand being built up during these times as all of the organizations are having to operate with this degree of caution.

I appreciate the answer there. Can we talk a little bit more about what you're seeing in terms of the Flex gross margin with regards to this quarter? You mentioned there's obviously some additional health costs. And then in addition to that some – a little bit of bill pay compression. How much – how should we think about this past quarter and the implications or what's implied in terms of the guidance for Q3? Is it going to be relatively close to Q2 or should we expect a little bit more compression? Kind of like what you ended up seeing a year ago going from Q2 to Q3?

Yes. Excuse me. Hey Mark, this is Dave. So yes, I think, and obviously we're talking about technology here. You are right, in the second quarter we saw a little bit higher health care costs spread themselves sequentially. We're pretty stable and we've seen that in the last couple of quarters, so the year-or-year decline which happened about three quarters ago. So, as we look forward, we expect to your point for the spreads and overall flex margins and technology to be relatively stable. And I think important to note, and Joe and Kye both touched on the critical need for resources, bill rates are up again sequentially. So there’s still demand out there for us. So we view that as a good sign as we sit here in a bit slower environment that we're not seeing any declines in bill rates. So again, we have said for a long time that we expected stability in spreads and margins and our viewpoint has not changed.

Great. And then, you took some actions. You gave us a feel for what – you know that would reduce your run rate costs on a per quarter basis, but it sounds like that's only going to be partially reflected in the coming quarter. What percentage of the full run rate cost would you end up absorbing here or benefiting from here in the third quarter?

Yes, so Mark maybe I'll just repeat first what I said in the prepared remarks. So the annualized cost savings are expected to be about $14 million, which is about $3.5 million per full quarter. The actions that we’re taking, that is going to reduce that structure actually just happened frankly today. So we have about two-thirds of the quarter that we will benefit from that. As I had mentioned, that reflected in the quarter, it's about a $0.22 impact, the charge itself, so about 1.5% impact on SG&A costs. So we're going to get two-thirds of the benefit now, but as we move forward obviously, we'll see that full benefit on a quarterly basis.

Great. I'll hop back in the queue. Thanks.

Your next question comes from Trevor Romeo with William Blair. Your line is open.

Hi, good afternoon. Thanks for taking the call. Maybe first, just wanted to touch on kind of demand trends throughout the quarter. I think maybe Kye had mentioned April was kind of relatively stable. There was a slight softening in May and June. I guess, is there kind of a way to maybe quantify how much demand softened in May and June, and then if you kind of compare June to the guidance of the Q3 revenue guidance, the June demand stays kind of similar to those June levels or is it more of a step down from that run rate?

Yes, generally as we talked about clients, they have just been really cautious and they are stretching out the length of projects, they are being more selective. They are also delaying some projects. But again, I think that'll speak to things when we come out of this, but they are not canceling them, which again encourages me, but we're seeing a lot higher levels of approval, its decision-making process too. So I don't think it's necessarily just about the demand. I think it's really about that lengthening of approval process, in looking at more candidates and client speed, more selective than what we saw in the previous couple of years.

Yes Trevor, this at Dave Kelly again. So just to kind of amplify Kye's comments there in her prepared remarks as well. So we are seeing obviously projects that are completed, right? So as we looked at May, June, and into July, we're still getting new starts. There's no question that there was demand in the marketplace, but those projects that we're seeing are quite slim, very slightly exceeding those new people that we’re putting out of assignment. So as we contemplated guidance in the third quarter, we didn't make any change to that expectation. Obviously, Joe touched on uncertainty. Basically, we just take a mathematical approach to third-quarter guidance and that's how we built it.

Okay, thanks. That was helpful. And then just like I said, following-up on the cost reductions, I understand those are some difficult decisions to make. Just kind of wanted to get your assessment on whether you think the cost structure is fully right-sized at this point and I guess if the macro did happen to get even worse from here, how much room you might have for further cost reductions and where you might be able to make those cuts?

Yes, I guess a couple of comments that I would make right. I think it’s important for you to understand how we think about things when things are a little slower. Certainly we made some reductions. Obviously, you can see the top line and so we've made sure that we're appropriately building a cost structure to support that, to maintain capacity, as well as continue to invest in strategic initiatives, so we think it will help us in the long term. So we're very comfortable with the actions that we took. We think that they were appropriate for what we're seeing here and the trends that we're seeing. So unless things change, we're comfortable. I don't think anybody here is an economist. So Joe mentioned mild recession. If something happens, I would say that it's significantly worse than that and we'll look at it. So hard to tell you whether things will change until you can tell me what's going to happen with the economy. So I think we're very comfortable with who we are, feel good about this. I had mentioned, obviously when you look at the actions that we've taken, you look at the profile that we have as a firm, our profitability levels, if you look at these revenue levels are far higher than they were before, so we've gotten a lot of benefit from the investments that we've made in the past and expect to continue to do that. And again, we've always talked about capacity. I said it already, we feel very good when we see an inflection point, that we will be able to capitalize on that without being behind the curve. So we think prudent decisions have been made here.

Yes, understood. All right, thank you very much.

Your next question comes from Kartik Mehta with Northcoast Research. Your line is open.

Dave, just to hit on the cost of actions you took, you talked about saving about $3.5 million on a full run rate quarter. And I'm wondering, is that $3.5 million absolute dollars you anticipate saving or is that just – you still have to deal with inflation, so it's really not $3.5 million that we'll see throughout a quarter.

Now, we'll see $3.5 million a quarter. Perfect. Yes, so we're confident in that number.

Great, and I realize. And when we look at… [Cross Talk]

Oh, go ahead.

No, no, no. Go right ahead. I apologize.

No, no, ask your question.

Oh, thank you. You know, I know you Kye, you talked a little bit about maybe sales cycles. And I'm wondering, projects are being elongated, but our sales cycles not being elongated. And if so, are you a little surprised by that?

The sales cycles are being elongated, because again, as I mentioned there's longer approval process. There's a more scrutiny around budgets than we've seen in recent years. There's still proving – most of our clients are still proving new projects. We're still having staff at the rate we’ve seen in the past couple of years because of the cautiousness like being out there in the marketplace.

Yes, I'd say think of it this way. As organizations get more cautious, there's more steps in the process to get those approvals. Where a direct line management might have had the authorization to make those approvals, now it's having to go up the chain of command or maybe even going into the finance organization. Because again, everybody's looking forward on what's happening with their revenue trajectories and so on and so forth, and that's what just slows down that overall approval process.

Perfect. Hey, thank you very much.

Sure.

Your next question comes from Josh Chan with UBS. Your line is open.

Hi, good afternoon. Thanks for taking my questions. I was wondering if you could comment on whether you're seeing any differences in trend between the staffing versus managed team versus managed projects sides of the business. I know that they have different lengths, but just wondering if you feel like clients are valuing those pieces differently.

I would say that our managed team, managed projects, those types of things are holding up a little better. Again, clients are looking at what do we need to do? Okay, if this is mission critical, we need it done today, yes, they're continuing at the levels that we've committed to from a managed team managed project perspective. There's been – we haven't seen any of those get canceled. We have seen a couple of them where they said, we'd rather elongate the delivery date and expand the project out a few more months and so they can trim a little bit from the firm run rate. But I think overall you're seeing those higher level skill rates, you're seeing the managed teams, manage projects have a little bit more certainty and trajectory than what you're seeing in some of the other space.

That's very helpful. Thank you. I guess my follow-up is I guess Joe, you mentioned that the first spending and how they usually come back. Could you kind of talk about how long do you think your clients can defer these spending without impacting their competitive space on what you know about the projects?

Yes, I would say, while given that everybody's really industry by industry dealing with the same dynamics, there aren't really outliers. So the only dynamics that really differentiates anybody is if you had a disruptive or disruptor organization within that space, you know that would come into play. We've also seen a lot of pullbacks from our GC funding and things of those nature. So that landscape has not been immune to what's going on as well. So they're going to react collectively, unless somebody happens to make a different bet and elect to spend more money at the expense of managing their P&L and their quarterly earnings and things of that nature. And then I think we'll see the competitors react, but we have yet to see any breakout organizations go move from that whole herd mentality. So, it's going to be when visibility of the market becomes more stable. That's what we'll see everybody migrate all at once, which is going to create then in a whole other frenzy, no different than what experience coming out of the pandemic, where everybody is now competing massively for the same talent to try and accelerate all their projects. So that day will come. It does every cycle and with technology being more dependent on every business strategy, even more so today than it was during the great recession, when mobility and data and cloud were all coming about, we will see that on the other side of this, how – to what to what extent I'm not sitting here by any means calling that we're going to see something like we did from a pandemic standpoint of the last two years, where the market was probably the most robust market I've seen in my 35 years in this business, but we will see a very healthy operating climate.

Great, that makes a lot of sense. And thanks for the color and thanks for the time.

Sure.

Your next question comes from Tobey Sommer with Truist Securities. Your line is open.

A very good afternoon. This is Jasper Bibb on for Tobey. You mentioned a stabilization in technology clients earlier on the call. So I just wanted to ask if there are any other specific industry verticals where demand trends have maybe surprised you to the downside or the upside in the past few months.

I think the area where we've seen growth as I mentioned in my comments is really in the energy and utility space. There's a lot of critical transformation going on right now. There's a lot of modernization looking to apply technology to both help them be more productive, but also just modernize their system. So that's been the area where we've seen more increases in projects since then.

Thank you.

And its regulated, so you have [Cross Talk] yes, and you just have to continue with the regulations too, so.

Yes, I know that makes sense. Is there any way to quantify how much incremental G&A you might save with the exit of the remaining office footprint over the next two or three years?

Yes, well I think the comments that we made here, we probably got as you said another two or three years. You know, it's – we've already had a significant reduction in footprint. It's probably a couple million dollars on this. So there's still some benefit here that will occur over time, but it's not a huge amount any longer. We've done a lot of that work.

Thanks for that. Last one for me, just based on the prepared remarks, it sounds like the repositioning in the FA business is now basically complete. So is there anything that you could share with us about maybe a new go-to-market there and how that business might be more surfaced? I guess synergistic with the core tech business going forward.

You know as I mentioned, I think we've made good progress. We’re continuing to see bill rates go up even in this environment. I think right now the bigger issue for us is just a macroeconomic environment in the finance and accounting space.

No, that makes sense. Thanks for taking the questions.

[Operator Instructions]. Your next question comes from Marc Riddick with Sidoti. Your line is open.

Hey, good afternoon everyone.

Good afternoon Marc.

I wanted to – you covered a lot already, but I did want to sort of circle back on when you're talking to clients as far as the types of projects that they may be moving forward, granted it's slow and delayed. I was wondering if you've seen much in the way of changes to the catalyst that are driving the projects that are under consideration. Are you seeing anything that would sort of – could end up being potential future green shoots when we sort of get client activity going again at a greater pace, and then I have a quick follow-up after that.

Yes, I would say, in general, I mean it’s the same areas were clients have been focused, they're continuing to focus. So there is not anything of a material nature out there. We are hearing a little bit more in and around GenAI and how organizations are looking to leverage AI as a collective haul, which we really love because of the work that we do in data and cloud, those things further support and are necessary on that front. So I would say that that's probably a futuristic green shoot. I don't think there's anything material of nature happening right now. But, that's the nature of technology. There's always new technologies on the horizon, which again, which is why we love what we do, because we always adapt to where the demand is, because of how nimble our model is and because of the real time nature of going out into the market and getting the best candidates that happen to be in the field, so we're optimistic on those fronts. But I would say, customers are after the same things that they've been after. I mean modernization, data, cloud and digitization of their businesses. I mean, those things are not going away and no one by any means has remotely come close to completing their roadmap of where they need to get on that front. Again, I go to back to Kforce is the microcosm of that. You know, we get to run our front office operations and systems for a matter of about five or six years. We've turned our attention to modernizing and digitizing our back office. And in parallel with that, we have a huge backlog that's building in terms of our front office and this is what are our same clients are dealing with this. This is endless.

Okay, thank you for that. And then I was wondering. I guess my follow-up is around candidate availability. And maybe if you can share a little bit about what you're seeing as far as, are there particular areas where you're beginning to see more candidates or be it skill levels or geographies or is there anything that we should be thinking about where you're beginning to see more talent available to you. Thank you.

I'll take that one. From a talent perspective in those highly skilled area, you know some of the areas that Joe just mentioned, cloud engineers, data analytics, those types of positions are still competitive. They are still hard to find quality people, still very much in demand. Where we're seeing the softening is in those lower level positions. There's definitely been a softening as you move down from those areas into more your production support or those types of things. There's been a QA. There's been a softening, but in the high-scale areas, which is the majority of what we plan, it's still very competitive.

I mean, the high skill for the better part of the last 10 years has either been very low single digits, unemployment or actually negative and we haven't seen any of that change. So even with the softening that's taking place, there is still so much demand. It's just those individuals are being moved around a little bit, maybe out of the more enterprise organizations that were much further ahead of the curve of adjusting work, this softening that we're seeing, but then they are being absorbed by more mid-tier organizations that weren't able to compete for that talent.

No, that's very helpful. That's exactly what I was looking for. Thank you.

Sure.

There are no further questions at this time. I will now turn the call back over to Joe Liberatore.

Well, thank you for your interest and support of Kforce. I'd like to say thank you to every Kforcer for your efforts and to our consultants and our clients for the trust in Kforce, allowing us to partner with you and allowing us to – pretty much we look forward to speaking with you following our Q3. Thank you.