KFRC - NASDAQ

Well, good day everyone and welcome to the Kforce Q3 2024 Earnings Conference Call. At this time, I would like to hand the call over to Mr. Joe Liberatore. Please go ahead, sir.

Good afternoon and thank you for your time today. This call contains certain statements that are forward-looking that are based upon current assumptions and expectations that are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce’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 Relations portion of our website. Before I summarize our third quarter performance, I’d like to comment on the recent hurricanes that impacted the Tampa Bay area, where our corporate headquarters is located, and more broadly across Florida, North Carolina, and neighboring areas in the Southeast. Hurricanes Helene and Milton had devastating impacts across these areas and impacted our people, their families, our communities, and local businesses. These areas continue to recover and rebuild and many have long roads ahead. Despite these hardships, our teams’ resiliency was on full display and I am simply in awe of the tremendous efforts by our people to balance their personal safety, taking care of their families and being available for their team members while also ensuring the continuity of Kforce’s operations. That being said, the impacts are so much larger than Kforce, and I am pleased to announce that Kforce will be donating $500,000 to charitable organizations in the Tampa Bay area and North Carolina to aid in the broader recovery efforts. We are also organizing a Kforce-wide event dedicated to recovery efforts. We talk about the amazing culture we have at Kforce. Seeing it in action, once again, over the last several weeks is truly inspiring. As for our third quarter performance, revenues exceeded the midpoint of our expectations and earnings per share exceeded the top end of our guidance. Our technology business has largely been stable for the last four quarters and our third quarter performance was no exception. While much has been written about the uncertainty in technology hiring and demand, our internal trends and discussions with our clients continue to indicate to us that the current operating environment is more stable and constructive than it was throughout most of 2023. Our footprint of providing solutions to clients that require higher end skill sets remains in demand versus lower skill set areas where there might be a little more softness. We are seeing demand for technology resources and the desire for our clients to initiate new projects had remained consistent throughout 2024. Clients, broadly speaking, have continued to exercise a degree of caution initiating new technology investments though most critical projects continue to be initiated. There remains much economic uncertainty with the continuation of heightened geopolitical concerns, tensions in the Middle East and the war in Ukraine, as well as the potential outcome of the U.S. election next week to name a few. With that said, the 50 basis point rate cut in September with a probability of further rate reductions have strengthened expectations for a soft landing in the U.S. It is likely, however, that clients will remain cautious with their discretionary spending until there is more clarity in the economic outlook. The by-product of clients being cautioned in initiating new investments for a prolonged period is increasingly strong backlog of strategically imperative technology investments. We expect this backlog to be a high priority for our clients to initiate at an accelerated pace once the macro uncertainties begin to clear. As we execute through the final quarter of 2024, we will continue to stay close to our performance indicators and trends and make necessary adjustments to our business. We are continuing to invest in our strategic priorities, which we believe will greatly benefit both top line growth and profitability improvements as markets become more constructive over the longer term. One of our strategic priorities we have been progressing is the evolution of our nearshore/offshore delivery capabilities. Our teams have been at hard work listening to our clients and monitoring industry trends. Several of our executive team members took a trip to India in August to finalize our go forward plans. Following this visit, we have made the strategic decision to establish a development center in Pune, India. Pune is one of the leading technology cities in India and we are tremendously excited about leveraging this capability to further enhance our service offerings to our clients. Our office space in Pune is in the process of being built and we expect to be operational in January 2025. While all economic cycles behave a bit differently, what remains clear is that the broad and strategic uses of technology, including the early-stage technology evolution associated with AI, will continue to play an increasingly instrumental role in powering businesses. As we have previously articulated, over the long term, we believe that AI and other innovative technologies will follow the historic Jevons Paradox pattern where improved efficiency ultimately drives greater demand for, rather than replacing technology resources and that the pace of change will continue to accelerate. We are ideally positioned to meet that demand. Our core competency is rooted in the ability to identify and provide highly skilled critical resources, real-time at scale, to help world class companies solve complex problems and help them competitively transform their businesses. Our simple, focused operating model also allows us to be flexible and nimble in partnering with our clients to meet their needs across a broad spectrum of engagement forms. We are continuing to experience growth in our solutions offering, which we believe speaks to the depth of our client relationships along with our value proposition to provide cost effective and efficient IT solutions in an addressable IT solutions market that is many times greater than the technology staffing market. Our decision to grow our business organically with a consistent, refined business model has been critical to our success over many years and we remain confident that our firm remains well positioned. I remain confident and excited about the future of Kforce. Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends. Jeff Hackman, Kforce’s Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave?

Thank you, Joe. Total revenues of $353.3 million were above the midpoint of our expectations for the third quarter, declining 0.8% sequentially and down 6.8% year-over-year on a billing day basis. Flex revenues in our technology business declined 0.6% sequentially and declined 5.1% year-over-year on a billing day basis. After experiencing some early July assignment ends, consultants on assignment in our technology business were stable throughout the third quarter. It remains clear that our clients, broadly speaking, are still awaiting a period of increased confidence to begin more aggressively adding resources to address the significant backlog of important technology initiatives that has built up over the last 2 plus years of measured investment. It does appear clear from our performance over the past three or four quarters that trends have stabilized. Based upon our slightly stronger start to October and expected seasonal holiday impacts, we anticipate relatively stable sequential trends in our technology business in the fourth quarter on a billing day basis. Encouragingly, overall average bill rates in our technology business of $90 were flat sequentially and over the last eight quarters have largely remained stable. The consistent demand for highly skilled talent on both traditional staffing assignments and project engagements have kept bill rates and pay rates stable, even as the overall industry trends have slowed in recent years. Our clients remain focused on critical technology initiatives in the areas of digital, cloud, data governance and analytics, AI and ML, UI/UX, business intelligence, project and program management, and modernization efforts. We have established a foundation of sourcing quality talent, at scale, for our clients as demand from various skillsets change and evolve. We expect this to continue as clients look to us to provide AI-related resources as that demand increases. As technology has evolved over the decades, we have efficiently evolved with the changing skillset demands of our clients. Flex margins of 26.1% in our technology business increased 20 basis points sequentially and 60 basis points year-over- year. Bill pay spreads in our technology business modestly improved sequentially, which continues to be an encouraging data point given the cloudiness in the economic environment. We have continued to broaden our service offerings beyond traditional staffing assignments to include managed teams and project solution engagements. 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 by utilizing our existing sales teams, recruiters, and consultants to provide higher value teams and project solution engagements that effectively and cost efficiently address our clients’ challenges. An increasingly important vehicle to providing cost effective solutions is the ability to source highly skilled talent outside the United States. As Joe mentioned, we have made the decision to establish a development center in Pune, India. This development center is expected to begin supporting project engagements with our U.S. based clients in January 2025. The establishment of the development center was a strategic imperative informed by conversations with our clients, which further strengthens an offering that has relied primarily on longstanding relationships with a number of nearshore and offshore partners. The India facility puts Kforce in a strong position to effectively compete on client opportunities that we were precluded from bidding on in the past. This development center, when combined with a strong U.S. delivery capability and a high-quality vendor network, will help us to more fully address and evolve the evolving needs of our clients. Our client portfolio is diverse and is mostly comprised of large, market-leading companies. Our focus on addressing their needs continues to be critical in our ability to drive sustainable, long-term above-market performance. From an industry perspective, our largest vertical, Financial Services, experienced improvement sequentially for the second consecutive quarter after some previous headwinds. We also experienced notable growth in both our manufacturing and professional services industries. Purchasing activity, even within the same industry, is uneven. We have seen significant growth in some of our largest clients, while others have taken a more conservative approach. This pattern is not industry specific, but rather reflected across the corporate landscape. Looking forward to Q4, we expect technology consultants on assignment to remain relatively consistent with the levels we saw at the conclusion of the third quarter. Revenue maybe stable to slightly up sequentially on a billing day basis should current patterns persist and year-over-year declines should be close to third quarter levels. Our FA business, currently 8% of our revenues, declined 2.2% sequentially and declined 21.4% year-over-year on a billing day basis. The year-over-year decline reflects the impact of business we are no longer supporting due to our repositioning efforts and a more challenging macro environment. Our average bill rate of approximately $52 per hour improved sequentially and is reflective of the higher skilled areas we are pursuing that are more synergistic with our technology service offering. We expect Q4 FA revenues to be down sequentially on a billing day basis in the low single-digits. Flex margins in our FA business decreased 30 basis points sequentially and we expect bill pay spreads to remain fairly stable at these levels in Q4. We continue to manage associate levels based upon productivity expectations. As we have 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. For example, we have selectively invested in our sales teams while rationalizing our delivery resources, which are down roughly 11% on a year-over-year basis. Even with these reductions, we believe we have ample capacity to absorb near-term demand should it improve without adding any resources. We also continue to invest in our managed teams and project solutions capabilities and the integration of those offerings within the Firm, which is progressing well. While the uncertainty in the macro environment has persisted longer than most have expected, I remain tremendously excited about our strategic position and ability to continue delivering above-market performance in our technology business as we have for over 15 years. The success that we have as an organization doesn’t happen without the unwavering trust that our clients, candidates and consultants place in us. I echo Joe’s sentiments in appreciation of the incredible dedication, creativity, and resilience displayed by our teams over the last several weeks balancing personal and professional commitments through devastating hurricanes. I will now turn the call over to Jeff Hackman, Kforce’s Chief Financial Officer.

Thank you, Dave. Third quarter revenues of $353.3 million were above the midpoint of our expectations. Earnings per share of $0.75 exceeded the high-end of our guidance. Overall gross margins in the third quarter exceeded our expectations increasing 10 basis points sequentially and 20 basis points year-over-year to 27.9% due to a combination of improved bill pay spreads and more favorable health insurance claims experience, which more than offset the lower direct hire mix year-over-year. Flex margins in Q3 in our technology business increased 20 basis points sequentially and 60 basis points year-over-year due to a slightly more constructive pricing environment and progress growing our solutions business. As we look forward to Q4, we expect flex margins to decline sequentially due to the typical seasonal impact of paid time off for our consultants, though average bill rates are expected to remain stable. Overall, SG&A expenses as a percentage of revenue was 22.2%, which was slightly above our guidance expectations. We are continuing to make targeted investments in our sales capabilities while naturally managing down our delivery population. We also continue to advance our enterprise initiatives, including the implementation of Workday, the establishment of our India development center and further integration of our solutions business, all of which are expected to significantly contribute to our longer term financial objectives and prepare us well for when companies more aggressively invest in their technology initiatives. Our operating margin of 5.3% was toward the high-end of our expectations as we benefited from improved flex margins. Our effective tax rate in the third quarter was 22.3%, which was lower than we expected due to the recognition of 2023 and 2024 research and development tax credits related to the initiative to implement Workday and transform our back office of roughly $1 million. These tax credits benefited earnings per share by roughly $0.04 in the quarter. Further to that point, we expect to benefit from these tax credits in 2025 and perhaps beyond. Operating cash flows were approximately $31 million and our return on equity was 33%. We continue to execute our organically driven business well. And we believe our strong relative performance is a result of our focus in technology staffing and solutions in the U.S. augmented with our nearshore/offshore capabilities. We continue to carry a pristine balance sheet with minimal debt and return capital to our shareholders, with over $17 million returned through dividends and share repurchases in the third quarter. This consistent repurchase activity continues to be strongly accretive to earnings. Our current dividend yield is 2.7% and is amongst the highest in our industry. We have returned more than $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. Our strong predictable cash flows allow us to remain committed to investing in our business, while aggressively returning capital regardless of the economic climate. Our threshold for any prospective acquisition remains very high. Our strong balance sheet and the flexibility we have under our credit facility, provides us with the opportunity to get more aggressive in repurchasing our stock. We have already begun our typical repurchase activity for the fourth quarter and thus far have repurchased nearly $9 million in stock under our 10b5-1 corporate repurchase plan. The fourth quarter has 62 billing days, which is 2 fewer days than the third quarter of 2024 and 1 more than the fourth quarter of 2023. We expect Q4 revenues to be in the range of $337 million to $345 million and earnings per share to be between $0.56 and $0.64. Our guidance includes a $0.02 negative impact from the $500,000 charitable contribution related to hurricane recovery efforts. Our guidance is based upon the assumption of the continuation of a stable environment and does not consider the potential impact of any other unusual or non-recurring items that may occur. We remain excited about our strategic position and prospects for continuing to deliver above-market results over the long-term while continuing to make the necessary investments to help drive long-term growth and enable us to achieve our longer term profitability objective of attaining double-digit operating margins at slightly greater than $2 billion in revenues. On behalf of our entire management team, I’d like to extend a sincere thank you to our teams for their efforts. We would now like to turn the call for questions.

Thank you. [Operator Instructions] We’ll go to Mark Marcon, Baird.

Hey, good afternoon. First of all, I just want to extend my best wishes to the entire team in terms of recovering from the hurricanes. Certainly appreciate how disruptive that can be and hopefully, everybody came through it okay. Wondering on the gross margins, can you discuss a little bit how much of – it was nice to see the improvement sequentially on the gross margins, particularly on Flex, both sequentially as well as year-over-year. How much of that benefit was due to the improved health insurance costs relative to the improvement in the bill pay spread?

Yes and Mark, this is Jeff. First, thank you for your comments about the hurricane recovery efforts. No doubt, that was a tremendous impact for our folks. So, your question on margins, I think I mentioned that overall Technology Flex margins were up 20 basis points sequentially and 60 basis points year-on-year. I think, Mark, what we saw is a bit of an uptick sequentially and certainly the bill pay spread that was a predominant driver certainly sequentially. We saw a little bit of bill pay spread on a year-over-year basis, I’d probably say 10 to 20 points – basis points there as well. Certainly, health insurance had a contributing factor on a year-over-year basis, but not sequentially. And I think it’s helpful, Mark, when you think about our business overall as it relates to our Flex margins, our concentration in the high-end technology resources that are placed on assignment through either a traditional staffing assignment or a managed team or project solution engagement, that focus hasn’t changed for us. So, as you think about our overall Technology Flex margins, we continued to benefit from that healthier mix of solutions engagements as that business has continued to grow. I think we’ve talked on prior calls that the margin in our more solutions-oriented business is 400 basis points or higher. So certainly, the traction that we’ve made in growing that business, both sequentially and year-on-year has certainly benefited us from a mix perspective. And I think the last comment I’d give you on that, I think it was in Dave’s script, he mentioned that average bill rates sequentially were flat. And when you think about the bill spread – bill pay spread improvement sequentially, much of that was on the pay rate side. So I think for us, internally, it’s a particular focus for us. We have a lot of education and training in and around that with our people, and as you might expect, with a little bit of imbalance between supply and demand, a little bit more conducive environment as well. So hopefully, Mark, that covers it for you.

That’s very helpful. And it certainly was encouraging to see that the year-over-year decline just in terms of revenue on IT services really did flatten out and you’re seeing some stability. So I’ve got a couple of part question with regards to just thinking about IT Flex. One would basically be like as you’re currently set up, what do you – how are you thinking about the environment in terms of seeing some improvement with regards to the revenue trends? We’ve clearly been stable for the last four quarters. How much of a lift do you think we would need to see in terms of your clients’ profitability for them to start engaging in some of their pent-up demand efforts? That’s one part of it. And then, completely separately, I’m wondering if you can discuss to a greater extent your decision to set up an offshore facility in Pune. Specifically, what percentage or fraction of your clients are asking for it? What would the impact be? How should we think about the cost layering in and then the revenue? How should we think about that as we model out 2025?

Yes, Mark, this is Joe. And again, thank you for the comments relative to our people throughout the back-to-back hurricanes that we dealt with. I would say on the client front, when we’re looking at what catalyst is it going to take I still believe this comes back to confidence. Clients need to have confidence. They need to start seeing things pull through for improvement in their revenues and/or services is really what the catalyst is going to be, I would say, for people to start releasing a lot more of the discretionary spend. As I’m sure, you get the similar reporting that we see. 2025 budgets in technology are projected to increase over 2024. Now, I do think some of that is going to be driven by cloud and storage, as everybody continues to prepare for AI and deal with the foundational aspects associated with that. I would also say the one thing that we see when you’re talking about our India development center is, with the clients that we work with, we have some really great partners that we’ve leveraged both nearshore and offshore in servicing more of these blended teams, which are a combination of U.S.-based resources, as well as whether certain roles are nearshore or offshore. And we’ve been precluded from working with clients where we have really have longstanding relationships where they will not allow the leverage of any third-party entities, where we have to be direct. And so, we’ve been after this strategically working through and then identifying. I couldn’t be more proud of the action by our team and how quickly we’ve moved to action and how quickly things will be set up and our ability to service and get after this additional footprint within our clients.

Yes. Maybe just to add a couple of things, I think Joe is right, as it relates to the market. I think it’s maybe less about improved profitability, more about foresight and the ability to expect an increase in demand on a sustained basis. Yes. As it relates to our facility in India, I think there is a few things, right. Obviously, especially with the client base that we deal with, large clients, they are always looking for opportunities, especially in times where, frankly, the environment is not as strong as maybe it is in robust times to find price leverage. We’ve been, as Joe said, supporting them through some great vendor partners, continue to expect to do so for a long period of time. But I think in particular, as it relates to these managed solutions that Joe is talking about, we’re seeing an increased driver from them and saying, we need to put together blended teams. Certainly, for us, the ability to do that efficiently will be enhanced by this facility, I would say. And we’ve been after this for a while. I think we moved, relatively speaking, pretty quickly. But we’ve been thinking about it for a little bit of time. The focus of this business is really going to be to support those clients from a managed services, at least initially, managed capacity perspective. We’re going to be thoughtful about this. So when we think about the contribution to revenue, it will ramp probably relatively slowly. We’re looking at focusing the efforts on supporting our clients. I think it’s important to point out, in their domestic business requirements we are not looking to build a center and a revenue stream outside the United States. So we’re going to be thoughtful about this. We’re going to let our clients lead us to the opportunities that are going to be best suited in the high skill demand areas where our business is focused. So over time, it’s certainly going to grow. But if you kind of look to 2025 and beyond, it’s more of a matter of being able to say, yes, more often as the opportunities arrive and gradually ramp that.

I appreciate that, David. Can you just talk a little bit about – just on a specific basis, obviously, for Q1, we’re going to have the normal seasonal resets in terms of all the statutory costs. How much more would margins typically go down in Q1 than normal just because of ramping up this facility? How should we think about that just so that we can all be conservative with regards to our models?

Yes. It’s not going to have a meaningful impact. I think as we look forward to 2025, it is what you would typically see. This India facility will not have an impact. We’re not first – we’re not going to start generating any type of revenue until Q1, and it will be a very small amount. So it is more a typical year reset of payroll taxes that we would typically see.

Yes. And I think, Mark, it’s certainly true from a flex margin standpoint. I think Joe and Dave covered the strategic intent of our Pune development center. I think the other thing, given the amount of planning that we put into this, to have our teams prepared in January 2025 to be assigned to projects in support of our U.S. based clients also allows us to mitigate any relative investments that we are making there, which are not that significant. Clearly, people costs, real estate costs and others are certainly not what they are here in the U.S. So, I think our planning efforts around that, I think has been quite good to minimize that. And I think over the longer term, Mark, when you look at average bill rates and flex margins, we have talked about the stability that we have been seeing from a flex margin perspective, I don’t see this India development center impacting that.

Yes. The only other thing I would add on India, again, so I said we are starting small. The beauty of our model and the real estate commitments as an example, very flexible, allows us to expand as our clients’ needs arise, whether that would be slowly or very quickly. So, we will not be limited in our model in taking advantage of our capabilities there.

That’s great to hear. Appreciate all the comments. And again, best wishes for everybody to recover from all the disruption as quickly as possible. Thanks.

Appreciate it. Thank you, Mark. Appreciate it.

The next question is from Trevor Romeo, William Blair.

Hi. Good afternoon. Thanks so much for taking the questions. I also want to echo Mark’s comments on the hurricanes. Hope everybody at the company is doing okay and making the best of it. Just wanted to maybe do one quick follow-up on the India center, I would just be curious to know how did you think about India versus maybe another region like Latin America, and as you build this out in the future, could other regions like Latin America be an opportunity over time?

Yes. Trevor, this is Dave Kelly. Yes, I think the word I would use is additive, right. So, we understand that there are dynamic client needs and each client has separate requirements, right. Joe specifically mentioned, clearly, the ability to have employees meet the needs are specific requirements that we see with some companies. I think it’s also obvious to everybody that the amount of technology resources that exist in India and the amount that they create every year is far surpasses any other country, probably even the United States. So, we think that is a logical first place to be as it relates to a facility that is part of the Kforce enterprise. We talk about our vendor partners. I agree with you, Trevor. I think there are clients that look to meet their needs near-shore because of the time zone requirements, and we certainly have built capability there through third-parties as we have in India and other places. So, we are looking at that. We think this is the right place to start. We haven’t taken anything off the table, but certainly, thinking about what we need and what we have heard. And we spend a fair amount of time listening to our clients before we develop the strategy. So, we will continue to do so. We will evolve the strategy. But first things first, starting at the place where we think we can get the biggest advantage is where we went and where we are going, so more to come. Certainly, we are hopeful that this can continue to evolve as a meaningful part of the business, and we will keep you apprised.

Okay. Thanks Dave. That’s helpful. And then I had another question on AI demand. I think, Joe, I really liked how you framed the long-term story around the Jevons Paradox. I think in kind of near-term, though, I was just wondering if there was any way you could frame how much new demand in your pipeline is being driven, I guess either directly or indirectly by sort of this foundational AI prep work like data analytics, cloud, etcetera, and how those conversations have evolved in the past few months?

Yes. It’s a great question. And I would say the majority of the actual work our teams continue to focus on with our clients are on those foundational aspects associated with governance, data, cloud and security. Most organizations are – remain in that preparation type stage. So, these are all practices, by the way, when you look at data and cloud specifically. They are practices within our managed teams solutions offering. So, we are seeing considerable amount of work on those fronts. We don’t break out specific revenue by service offering, but it’s meaningful. And we are seeing that broad-based across all industries, all clients. And we really have a talented team that’s opened a lot of doors for us. And we believe that this positions us – as the foundational pieces get put in place and organizations now are prepared to start to look at use cases and piloting use cases, it really puts us in a very good position from a relationship standpoint to then participate in that pull-through business. We are also doing quite a bit internally. I always like to view Kforce as kind of a microcosm to the broader marketplace. And we have been very acquisitive in terms of the things that we are looking at internally. As I have mentioned on previous calls, having our two foundation platforms being Workday and Microsoft, we are doing a lot from a Microsoft standpoint with 365 as well as for sales and various other things. And then, we are also doing things outside of these two platforms in and around the recruitment side of the business and the sales side of the business, looking at other AI technologies, again, just so that we can become familiar internally, and it also helps us position things externally as we are talking with our clients. We are also working with clients. We are starting to see more and more on the front-end strategy aspects of looking at how they are looking to position AI and where their greatest opportunities might be and to kind of promulgate that across the customer base when we are seeing unique opportunities. I would say, last on this is our team. We have done – what we are seeing is like if I look at the technology client base within our portfolio versus non-technology, we are actually working on a number of AI initiatives for those products that organizations in the technology side of the business are looking at implementing into their product line. So, that’s one of the nice things about having a very diverse customer base is we get to learn through experience in one industry ahead of what starts to translate into other industries. So, we are seeing a lot of opportunity on those fronts to gain experience and exposure.

Okay. Thanks Joe. Thanks the whole team. I really appreciate it.

Sure.

We will take the next question from Tobey Sommer, Truist Securities.

Hey. Good evening everyone. This is Jasper Bibb on for Tobey. I think in the past couple of years, when there has been hurricanes in Florida, you picked up some project work in the F&A business. Is there any expectation you could see some associated project work in the fourth quarter? And just to clarify, is there any response work embedded in your guidance?

Yes, Jasper, yes, I appreciate you bringing that up, right. I mean obviously, we done some meaningful work in the past. But as it relates to where we are today and the evolution of our finance and accounting strategy and our focus, obviously, in technology, we made the decision. This was frankly, probably 2 years ago that we would no longer – we have informed all the great partners that we have had, and they continue to do meaningful work that this wasn’t an area we were focusing our capabilities, right. Obviously, we have talked about the evolution of our finance and accounting model, the $52 bill rate. Those skill sets are where we are focused our business right now. And so, that capability that we might have had previously is not something that we are focused on continuing to build. So, no, we are not supporting any – as important as those support efforts are, Kforce is not supporting any of that.

Thanks for that. And then just wanted to follow-up on the India development center, I think you mentioned not having that capability in-house maybe locked you out from certain opportunities in the past. Is there any way to frame how much incremental addressable market gets unlocked by adding offshore delivery to your service offerings?

Well, Jasper, I think clearly, when we look especially in the managed solutions space, right, those projects, I would say, typically include some portion of the workforce that’s offshore. So, for us, I think it unlocks a significant amount of incremental opportunity in a more cost-effective way. So, clearly, it’s hard to quantify exactly what it means. I think it’s fair to say that it is something we frankly needed to do and are excited that it’s going to be beneficial. We have got a lot of longstanding relationships with our clients. We learn a lot of – I mean we probably hear every week or two weeks that there is an opportunity and the ability to say, yes, I think again difficult to quantify, is going to be significant for us and certainly expect to be a meaningful part, as the years go by, of the revenue stream.

That makes sense. Thank you for taking the questions.

Thank you.

We will go next to Kartik Mehta, Northcoast Research.

Good evening. I just wanted to follow-up, maybe you talked about October being a little bit better, and I am wondering if that’s a trend that started in October, or as you look throughout the quarter, things improved a little bit each month. Curious as to when you started seeing maybe a little bit better trend.

Yes. So, this is Dave, Kartik. So, first of all, I want to be a little bit cautious about this. We try to be as transparent as we can and provide you what happens. But as we reflect back that clearly, on a week-to-week basis, there are tough periods where maybe things are not as good. We have seen the benefit here recently of a good start. But I think it’s an important data point. I don’t think that we as we think about – and I will let Jeff comment in a minute about how we think about the fourth quarter. We have not extrapolated that to be a trend because we want to be cautious, right. We have talked a lot on this call and in prior calls about the stability that we have seen, sometimes slightly better, sometimes slightly worse than stable. So, we did see some positive benefits in terms of activity late in the quarter, in the first couple of weeks of October. But again, I want to be cautious to not overstate that we think we are off to the races by any stretch.

Yes. And Kartik, the only thing I would add to that, to Dave’s point, the very end of September and into the first couple of weeks in October, and we use words like modest in our transcripts, we did see a modest level of improvement. But as you look at the fourth quarter, obviously, we are losing two billing days because of the holidays. And then, also because of the way the holidays are falling with both on a Wednesday, we have got some experience that tell us that we should anticipate some disruption and fewer consultant hours. So, we are dialing that into it as well. But I think, Kartik, the other thing I would say, we have been talking about stability in our technology business now for running, let’s call it, a year. And when you look at the midpoint of our expectation, our technology business is flat Q3 to Q4. So, I think more stability even with some of the holiday disruption, and part of that was the improved – slightly improved trends that Dave commented on.

Yes. Thank you. That’s helpful. Just one last question, and Jeff, as you look at 2025, I know it’s hard to predict revenues. Things are so – a little bit uncertain in the elections. But if revenues were to stay flat, based on all the cost-cutting measures you have done, can you keep your margins about the same, or are there other circumstances like SG&A expenses going up because you need to give merit increases, one, and like that could impact margins in 2025 if revenues stay flat?

Yes. Kartik, I think it’s a good question. First, thank you for that. The enterprise priorities that we have been investing in over the last couple of years, we will continue to invest in those going into 2025. Certainly, Kartik, to your point, we will see some level of merit increases, vendor renewal increases, etcetera, between ‘24 and ‘25. But I would also tell you, and this was in Dave Kelly’s commentary, that we have been continuing to make the adjustments in the business as the year has progressed. And of course, some of those adjustments will get the full year annualized benefit of that. We are currently comfortable, I would say, with the capacity that we have within our sales and delivery teams to take on any level of improvement that we might see in the near-term there. So, I think, Kartik, to the extent that top line is flat, have we taken measures to largely mitigate any pressures on costs, I think the answer is yes.

Yes. Thank you. I really appreciate it.

Sure. Thanks Kartik.

The next question is from Josh Chan, UBS.

Hey. Good afternoon guys. Best wishes with respect to the hurricanes as well. I guess with respect to the backlog of projects that you guys mentioned, is there a way to think about how critical they are? And I guess the implication of that is, will time automatically unlock the spend, or will there need to be a better economy that kind of unlocks the spend? Thank you.

Yes, Josh. Hi, this is Dave. Yes. So, when we talk about mission-critical projects, right, we do business, as we talk about all the time, with really market leaders, right. It’s those things that they think are meaningful to make sure that they maintain their market leadership. There is also investments, as Joe mentioned, in things like AI or at least preparation for AI. So, those things that they need to maintain their competitive advantage is where they continue to invest. That’s why we talk about those things as mission-critical. I think that’s – and as we have talked about, right, that’s exactly how we are thinking about our investments, right. The strategic long-term benefits that we are getting from our investments are those that we cannot do because it will put us at a disadvantage as we move forward. As we think about unlocking future opportunities, I think Joe touched on it before, our clients are seeing – and we talked – obviously, we have got deep close relationships, and there are a lot of things that they would like to do, but getting green-lighted, I think is clearly going to be reflective of them having – seeing having some foresight that things are going to, on a continuous basis, improve, right, in terms of their prospects, in terms of their ability to sell their solutions, their projects. They clearly have not reached the conclusion that they are in a big expansion environment yet. When we start to see that, I think history would tell us it will also unlock spend because they want to take advantage of the return that they would get from those investments when they can make those investments. So, I think it’s more foresight and a bit of confidence that they should see a continuing improving environment.

Yes. And what I would kind of wrapper that with, which I think is very important, and I have mentioned this in a number of prior calls, is we do believe we are positioned in such a good spot when that does come about because if you look at cycles historically, and I have been through a number of downturns going back to 1988, savings and loan crisis, and they always follow a similar pattern, which once that optimism comes in, what comes post stability is the utilization of staff augmentation and/or solutions oriented before they start to rebuild full-time teams and everything else. And so, when that comes, we are in a great spot with the relationships we have and now with the additional capabilities that we also have from an offshore standpoint. So, we like the spot that we are in. Unfortunately, we don’t control economic cycles, but we have done everything to prepare. And I think when you look at the firm’s performance coming out of the pandemic, you look at our more recent performance, I couldn’t be more proud of our people in terms of their execution, forging relationships, maintaining relationships. One of the things that I really like about tough times like this is it requires us to diversify and get into new clients that might have different spending patterns during the tough times, but we maintain those relationships with our legacy organizations that we work with. And so, when things turn, basically, we get a two for one. That’s why we performed so well coming out of the pandemic with having such a strong footprint in some of the industries that got hit hardest during the pandemic. We maintained those relationships. We worked with those clients. Demand went down with those clients. We diversified into other clients. And then, as things improve, basically, we get to double down because now we have all the new relationships that have ongoing demand. We have those legacy relationships that now their demand comes back online. And our people have done a phenomenal job in continuing to position us for when this does turn.

That’s great color. Thank you for that Joe and Dave. I really appreciate that. And then, maybe just one question for Jeff. It sounds like you kind of answered it a little bit with the guidance comment about December. But I guess I am wondering how much of a holiday shutdown uncertainty are you guys baking in? Is that a pretty conservative assumption in the guidance with respect to what could happen in the back half of December here?

Yes. Josh, I don’t know that I would use the word conservative. Certainly, we have got a long history of dealing with different dates where the holidays fall, and we leverage that. Of course, we leverage conversations with clients on when they might be shutdown and going through some furloughs for themselves as well. We commented on the relative mild level of improvement that we saw to close out the quarter and to start the fourth quarter as well. So, I wouldn’t characterize it as conservative. I think we have taken a nice scientific approach to coming up with our guidance. You look at, Josh, how our technology business has performed throughout the year, Q1 to Q2, we were sequentially positive. Q2 to Q3, we were very slightly sequentially negative. And Q3 to Q4 at the midpoint, we have got a flat technology business against a stable environment that we have commented on. So, I would say balanced. I wouldn’t say conservative.

Thank you for the color and for your great time.

Thanks Josh.

Thank you, Josh.

[Operator Instructions] We will go next to Marc Riddick, Sidoti.

Hi. Good evening.

Hi. Good evening.

So, I just wanted to add my appreciation and please certainly, and all the best to those who went through such devastation there. And it’s really glad to hear that the folks are okay, so all the best to your teams there and workers and everybody there and their families. I wanted to sort of maybe shift – you made some commentary around some of the returning capital to shareholders and some of the actions that you are looking at already here in the fourth quarter. I was wondering if you could sort of maybe expand on as far as the potential prioritization of use of cash and maybe some of the opportunities that you see there.

Yes. I think, Marc, we took the opportunity, given the progress in the fourth quarter, just to update investors and analysts on our progress thus far. We have had a long track record, of course, in returning capital to shareholders. I mentioned in my prepared remarks that we have returned, since 2007, greater than $900 million in capital between our quarterly dividends and our share buybacks. That’s equated to about 75% of the cash that we have generated. That certainly, as we continue to move forward, I wouldn’t expect a change in that capital deployment approach as we move into the fourth quarter and 2025. So, no change from what you have seen, Marc, historically speaking, from us. And you can see the results, I guess to that point on our focused model, our organic model and our relative performance in our technology business across the space, and relative to the market. We see that as the best avenue for our firm moving forward.

Excellent. And then you made in your prepared remarks, commentary around the access to talent and the pipeline and the like. I was wondering if you have sort of a general view as to maybe where you stood there versus peers or industry because it seems as though that might be an area of something for you guys to sort of gain share on.

Yes. I would say, when we look at the competitive landscape, we have some great competitors that we go up with day-in and day-out. At the end of the day, it’s all about execution, again. And Jeff touched upon this. We like the simplicity of our model. We like the focus. We focused very hard on building out a world-class customer base. And then, I think when you couple that with our office occasional model, providing our people flexibility, empowered with technology and the trust and respect that we have for them so that they can have a great life work balance, it’s – there are so many pieces that go into the overall equation. But at the end of the day, we are going to stay true to the course and continue to focus on controlling what we can control and execute. And I believe if our people continue to do that, it not only positions us well to power through these times, but it really positions us for the other side.

Excellent. And then the last one for me, in the prepared remarks, there was some commentary around the activity with financial services. I was wondering if there was – if that was sort of – was there any particular catalyst that you saw, whether it was timing or any particular areas of financial services that sort of sparked a little better demand that you are seeing there, or if it was just sort of broad-based within the entire sector? Thank you.

Yes, Marc, this is Dave. Yes, I would say, and I have said this before, our experience is with a number of clients in financial services, right. We are – I think I would caution you again saying, we are a barometer about the entire, for example, financial services industry. I can tell you that there are a number of clients in financial services who obviously increased spend. That is not to say there weren’t others that actually decreased their spend. So, again, I think much thematically similar to what we have been talking about today. I think I am not – I don’t want to suggest that we are seeing that financial services is an area that we are going to say quarter-to-quarter is going to continue to grow. Obviously, the interest rate environment may be increasingly conducive. But for us, I wouldn’t say that is a driver to the spend we have seen. It is more along the lines of what we talked about before, these mission-critical projects in financial services that they felt compelled to spend that they did, so nothing really more than that. And I would say that’s true effectively across every industry that we do business with.

Great. Thank you very much.

Appreciate it. Thank you.

And at this time, there are no further questions. I will hand things back to our speakers for any additional or closing remarks.

Well, thank you for your interest in and support of Kforce. I would like to express my gratitude to every Kforcer for your efforts and to our consultants and clients for the trust and faith in partnering with Kforce and allowing us the privilege of serving you. We look forward to talking with you again after the fourth quarter 2024.