KFRC - NASDAQ

Well, hello everyone and welcome to the Kforce Q4 2024 Conference Earnings Call. Today's call is being recorded. I would now like to hand the call over to the President and CEO, 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 and 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 the Investor Relations portion of our website. Before I summarize our performance, our thoughts and prayers are with those impacted by the pure devastation the wildfires have caused in California. Tens of thousands of homes and businesses have been destroyed. And hundreds of thousands of people have been impacted by evacuation orders or warnings. As to our performance, we have been operating in an uncertain macro environment for more than two years, though demand for our technology services stabilized early in 2024, and remained stable throughout the year. I am extremely proud, of how our teams have operated in this relatively subdued environment, as evidenced by our industry-leading performance in our Technology business yet again in 2024. Our teams have continued to persevere, and make the necessary adjustments within the business to maintain these high levels of performance, while we also have maintained elevated investments on critical initiatives. This provides a great foundation moving forward to return higher levels of profitability as revenues inflect. We have made tremendous progress related to the implementation of Workday as our future state enterprise cloud application for HCM and financials, the evolution of our nearshore and offshore delivery capabilities with the official opening of our India Development Center in January 2025, and the further integration of all of the firm's capabilities across the full spectrum of our service offerings as One Kforce. Each of these strategic initiatives are transformational in nature, and will be a meaningful contributor to us meeting our longer-term financial objectives of generating greater operating margins, when we returned to $1.7 billion in annual revenues along with our standing goal of obtaining at least 10% operating margins at $2.1 billion in annual revenues. Conversations with our clients post-election, and the preponderance of economic views suggest to us that the operating environment as we move into 2025 may improve as we get further into the year. With that said, we have not yet seen signs of positive inflection point in our key performance indicators. Rather, we have continued to experience stability in our business, other than normal seasonality at the end of the year as clients naturally conclude projects, and begin to reassess budgets and technology priorities in the New Year. Regardless of the ultimate environment, we enter 2025 well positioned to take additional market share, as we have successfully been doing for years, while also continuing to lay the foundation to generate significant long-term return for our shareholders. While the political uncertainty has been resolved with President Trump, and his administration taking office on January 20, the impact from the potential policy changes is unclear. In addition, the prospects for further Fed rate cuts in 2025 appear less certain with inflation indicators proving a bit stickier, and continued strength in the labor markets. We believe that clients, broadly speaking, have been exercising caution in delaying the initiation of technology products partially, in anticipation of a recession that has not materialized, which has resulted in an increasingly strong backlog of strategically imperative technology investments. We believe that clients will begin to incrementally invest in technology initiatives, as they gain additional confidence in the U.S. economy. As for our fourth quarter performance, revenues exceeded the midpoint of our expectations with our technology business growing sequentially almost 1% per billing day. Earnings per share was at the midpoint of our guidance. As we move into the first quarter of 2025, we will continue to stay close to our performance indicator and trends, and make any necessary adjustments to our business. As been the case for the last several years, AI continues to dominate the headlines, perhaps the most recent being DeepSeek's AI advancement and the announcement of Stargate Venture to build new data centers in the U.S., to provide more computing power to OpenAI to develop and train their models. As we have previously articulated, over the long-term, we believe that AI and other innovative technologies, will continue to play an increasing role in powering businesses and that, that impact will follow the historic Jevons Paradox pattern or improved efficiency ultimately drives greater demand for, rather than replacement of technology resources, and that the pace of change will continue to accelerate. We are ideally positioned to meet that demand. We've built a solid foundation at Kforce as we look ahead to 2025, our priorities remain consistent. We will continue to make the necessary investments to transform our back office, advance our integrated strategy and further evolve our near and offshore capabilities inclusive of our India Development Center. Our organic growth strategy has resulted in us carrying a strong balance sheet and generating healthy predictable cash flows. This has again put us in a great position to support our ongoing objective of returning significant capital to our shareholders, through share repurchase and our quarterly dividend. In support of this, our Board of Directors recently approved an increase in our dividend for the sixth consecutive year. Before transitioning the call to Dave, I wanted to reiterate how proud I am of the performance and resiliency of our collective Kforce team. Together, we fought through a challenging operating environment, made some difficult decisions and met every challenge that arose. We are blessed to have a high-performing team that is tenured, dedicated and passionate at Kforce. I could not be more 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 $343.8 million exceeded the midpoint of our expectations for the fourth quarter, growing 0.4% sequentially on a billing day basis. Revenues in our technology business grew 0.6% sequentially, and declined 5.2% year-over-year per billing day. Consultants on assignment were relatively stable, throughout the fourth quarter at a slightly higher level than Q3, until we began experiencing usual year-end assignment ends. While we were certainly pleased with the sequential billing day growth in the fourth quarter, our results over the last four to six quarters, our KPIs and conversations with our clients continue to suggest a slightly more optimistic, but still relatively stable demand environment. Though mission-critical initiatives still continue to gain priority investments, it appears that clients continue to await a period of increased confidence, to begin more aggressively adding greater amounts of resources to address the significant backlog of other important technology initiatives that has built up over the last two-plus years. Our technology staffing service offering has evolved over the years beyond traditional staffing assignments, to include more consulting-oriented engagements based on the demand we are seeing from our clients. Clients continue to prioritize efficient access to highly skilled talent, and see our services as a cost-effective solution to meet their technology project requirements, leveraging our superior delivery capability. The demand for this consulting-oriented offering continued to contribute positively to the results of our technology business, while our traditional staff augmentation offering has been the driver of our overall technology revenue declines year-over-year. Our integrated strategy efforts capitalize, on the strong relationships we have with world-class companies, by utilizing our existing sales force for crews and consultants to provide high-value engagements that effectively 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, our development center in Pune, India is now fully operational. We believe this facility puts Kforce in a strong position, to compete on client opportunities that we were precluded from bidding on in the past. This development center, when combined with our strong U.S. sales and delivery capability, and a high-quality vendor network will help us to more fully address the evolving needs of our clients, whether onshore, nearshore or offshore. Overall, average bill rates in our technology business of $90 were stable again in the fourth quarter and in fact, have been stable for more than two years. The consistent demand for highly skilled talent on both traditional staffing assignments, and consulting-oriented engagements have kept bill and pay rate stable, even as the overall industry trends have slowed. Our clients remain focused on critical technology initiatives in our digital cloud data, and application engineering practices. Our core competency is sourcing quality talent at scale for our clients and demand for various skill sets change and evolve. We expect this to continue as clients increasingly look to us to provide data, and digital resources to support the data rationalization, and cleanup activities that are at the front end of their AI investments. As technology has evolved over the decades, we have efficiently evolved with the changing skill set demands of our clients. Flex margins of 25.3% in our technology business decreased 10 basis points year-over-year. Bill pay spreads in our technology business have been stable over the past year, which continues to be an encouraging data point given the relatively tepid demand environment. Our special decline in flex margins in our technology business was 80 basis points, due to a combination of higher healthcare costs that drove a 40 basis point decline, and the usual seasonal declines due to paid time off over the holidays. 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, we experienced stability, or sequential growth in nine of our top 10 industries. Our largest vertical, Financial Services, experienced improvement sequentially for the third consecutive quarter. We also experienced notable growth in technology and telecom as well as retail and transportation. Looking forward to Q1, year-end assignment ends appear to have approximated levels experienced, over the last two years. Our current expectations based upon the data we have and conversations we are having with clients, is for technology consultants on assignment, to gradually improve over the remainder of the quarter. Revenue may be down sequentially on a billing day basis in the low to single, mid-single-digits, which is consistent with what we were seeing in the year prior to COVID. Flex revenues in our FA business, currently 8% of our revenues, improved 0.5% sequentially. Our average bill rate of approximately $51 per hour has been relatively stable over the past year, and is reflective of the higher skilled areas we are pursuing that, are more synergistic with our technology service offering. We expect Q1 revenues in FA to be down sequentially on a billing day basis in the low-double-digits following greater-than-expected year-end assignment ends. Flex margins in our FA business decreased 120 basis points sequentially driven primarily by higher healthcare costs. We expect bill-pay spreads to remain fairly stable in Q1. We continue to make adjustments, to associate levels based upon productivity expectations. We remain focused on retaining our most productive associates in making targeted investments in the business, to ensure that we are well prepared to capitalize on the market demand when it accelerates. We have slightly invested in our sales teams, which have increased over the last two years, while rationalizing our delivery resources, which were down slightly 15% on a year-over-year basis. Even with these reductions, we believe we have ample capacity to absorb several quarters of demand should it improve without adding any significant resources. We also continue to invest in our Consulting Solutions business, and the integration of higher-value 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 well over a decade. The success we have as an organization doesn't happen without the unwavering trust that our clients, candidates and consultants place in us. I'll now turn the call over to Jeff Hackman, Kforce's Chief Financial Officer.

Thank you, Dave. In my commentary, I will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered as a substitute for, or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items, to aid investors in further understanding the impact of certain costs on our financial results. Our press release provides the reconciliation of differences between GAAP and non-GAAP financial measures. Overall revenues in 2024 of $1.41 billion decreased approximately 9% year-over-year. Earnings per share in 2024 and was $2.68, which declined 14% year-over-year on a GAAP basis and 23% on a non-GAAP basis. The non-GAAP adjustments to EPS for 2023 related to expenses associated with actions to reduce our structural costs and the settlement of outstanding legal matters. Fourth quarter revenues of $343.8 million, we're above the midpoint of our expectations. Earnings per share of $0.60 were at the midpoint of our guidance, as we experienced higher-than-expected healthcare costs from a handful of unexpectedly large claims in the fourth quarter, which negatively impacted flex margins and SG&A. Overall, gross margins in the fourth quarter decreased 90 basis points sequentially, to 27% due to higher healthcare costs, which drove a 40 basis point sequential decline, normal holiday seasonality, and lower direct hire mix. On a year-over-year basis, gross margins declined 30 basis points. Flex margins in our technology business decreased 80 basis sequentially, due to normal holiday seasonality and higher healthcare costs. Notably, flex margins and technology only declined 10 basis points year-over-year, as the higher healthcare costs in the fourth quarter were offset by a slight improvement in spreads year-over-year. This spread increase is attributable to the continued strong demand for highly skilled talent, and the evolution of our business to include a more significant amount, of consulting-oriented work. As we look forward to Q1, we expect flex margins to decline sequentially due to seasonal tax resets, though be stable on a year-over-year basis. Overall SG&A expenses as a percentage of revenue of 22%, were lower than our expectations. While we experienced higher healthcare costs in the fourth quarter, those costs were more offset by leverage gains, from continued refinements in our headcount and solid management of overall spend. We are continuing to make targeted investments in our sales capabilities, while managing down other areas of our business. 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 offering, 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. We expect 2025, to be the final year of significant net investment in these initiatives, and for them each to begin providing a meaningful and growing return, as we move into 2026 and beyond. Our operating margin of 4.5% was at the midpoint of our expectations. Our effective tax rate in the fourth quarter was 26.6%. Operating cash flows were approximately $22 million, and our return on equity continues to exceed 30%. We generated $90 million in EBITDA in 2024. Operating cash flows were approximately $87 million for 2024, and we returned with $65 million in capital, representing approximately 75% of operating cash flows to our shareholders via dividends and open market repurchases. As Joe mentioned, our Board of Directors recently, approved an increase to our quarterly dividend, which represents the sixth consecutive annual increase. We continue to execute our organically driven business well, and we believe our industry-leading relative performance is a result of our intense focus on technology staffing and solutions in the U.S., augmented by our nearshore and offshore capabilities. We continue to carry a pristine balance sheet, with minimal debt and return significant capital to our shareholders. This consistent repurchase activity continues to be strongly accretive to earnings. We have returned nearly $1 billion 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 and solid balance sheet 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. The first quarter has 63 billing days, which is one more day than the fourth quarter of 2024, and one less than the first quarter of 2024. We expect Q1 revenue to be in the range of $330 million to $338 million and earnings per share, to be between $0.44 and $0.52. 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 annual revenue. As Joe mentioned in his prepared remarks, we expect to generate higher levels of profitability when we return to $1.7 billion in annual revenues, which was our prior peak achieved in 2022. Based on the timing and extent of the expected benefits from our strategic priorities, we would expect to see 100 basis points or more, of enhanced operating leverage when we return to that revenue level. 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 over for questions.

Thank you, sir. [Operator Instructions]. We'll go first to Mark Marcon, Baird.

Hi, good afternoon and thanks for taking my questions. With regards to the current environment that you're seeing, it sounds like data cleanup is one area that you would see some improvement in as AI initiatives continue to increase. And you did mention that financial services and tech and telecom, are starting to see a little bit of improvement. I'm just wondering if you can talk a little bit about, what you're seeing from the clients? Just a little more color. And then maybe - perhaps you can size, what you're seeing in terms of that data cleanup, the AI initiatives. To what extent could that end up being a driver as the year unfolds?

Good afternoon, Mark, it's Dave. So yes, you're right. When we talked a little bit about industries, and we talked about AI and data and digital, certainly, we're hearing that lot more, right? There's a lot of conversation in and around AI, but all of - what we are hearing, and this is true with our consulting-based offering, in particular, there's a lot of data cleanup work, especially because we work with very, very large companies. And we know we're going through a lot of even data rationalization in our efforts, to transform our systems as well. So it is an increasing topic of conversation. Obviously, it has been, by the way, I would say for the last couple years. But I mean, it will become probably over time, a bigger and bigger part of the business opportunity as we move forward, hard to size it right now. It certainly isn't a majority of what we're seeing today. And so, I think it's an opportunity. I mean, I think - and we've talked about it, Joe mentioned it, in his opening remarks about the fact that as companies rationalize their data as we think about AI right? It leads to a desire to move more quickly and improve things more and faster. So we think it's a real business opportunity for us. And I wouldn't say necessarily that this is industry specific. I'd mention, right nine of our 10 industries grew financial services, for the third consecutive quarter as well. So it's pretty broadly based, I would say.

Great. And I mean, aside from just the data cleanup, I mean, based on the conversations that you are having with clients, obviously, there's a lot of policy uncertainty and policy seems to change intraday on some occasions. But I'm wondering like how are they - how are your clients actually talking about, what they would need to see in order to have the confidence to pull the trigger, and to see a meaningful move towards addressing some of these pent-up projects that they have?

Yes Mark, it's Joe. It's a great question. And I would say in the client conversations that I've been involved, with as well as here throughout the course of January and talking with our people that are meeting with our clients, which by the way, I would mention, our client visits are significantly up here in the beginning of the year. So I think, it's saying something that our clients are taking more of our meetings. I mean that's also translated into our job orders being up. But we haven't seen any of that manifest itself in outcomes at this point. But really, there is no one thing. It's just - sentiment has been much more positive, I would say, as we enter 2025, which has resulted in those additional client meetings. We're hearing more about clients looking at their budgets, trying to get after some of the backlog. Whether that happens or doesn't happen, I mean we'll see how some of these policies ripple through, because it's an unknown. I don't think any of us have really a general feel on, which industries could be impacted, how they'd be impacted based upon the nature. So it's very fluid. The one thing that I would say is having been - Kforce around for over 60 years. We have a very diverse client base. We have a very diverse customer base across all industries, we're going to pivot. One of the things with professional staffing and solutions, the friend of it, our disruption change and growth, so we feel very comfortable. But in terms of specifically what they're looking for, they're looking for some predictability and stability. And so, I think that is wrapped up in the sentiment. I think now they're look starting to look for some of the pull through, with consumer spend and things of that nature. I think would start to open things up.

Great. Can you talk a little bit about your initiative in Pune? What sort of client response are you getting? How big can that be over say, in the second half of this year as it ramps up, what are your plans as you think about next year? And are there any issues with regards to - obviously, there's varying thoughts with regards to immigration and work being done overseas? So just also how are you thinking about that element from a policy perspective?

Yes. So there's a few questions in there. So I'll try to remember them all, I miss them, Mark. Obviously - repeat one of them. But as it relates to the development center, we're very excited and that couldn't be more thrilled, with the work that the team did. We moved very quickly to stand this up, right? So what was the driver? Frankly, the driver was a desire, by our clients for us to be able to meet their needs in a manner that, obviously, cost is a driver here, right? So we, especially in the consulting-oriented business that we are doing have seen over the last couple of years, a desire for our clients to look at blended models to meet their needs. We, as you know, historically hadn't had that capacity outside the United States, other than through a very high-quality vendor network. But that, as I'd mentioned in the prepared remarks, precluded us. From, in some cases from actually being able to bid on business, because there are some client policies that require us to have employees providing that service. So we're really having done this based upon the desire of our clients, and what they want. So where is the opportunity? Clearly, and I think I've mentioned this on the last call, it's a huge market. We all know that, right? There is a lot of demand. There are more technology professionals being generated in India, than any other place in the world on a year-to-year basis, there's still a significant cost arbitrage opportunity there. So you've got highly skilled workers, at an attractive price. So I don't see necessarily that going away. We are building this in a very flexible manner, right? We've made a commitment of not a huge amount of capital, but we've built a lot of flexibility to be able to grow this very, very quickly, if need be. It will be solely based upon what our client, our requirements are. Our objective here is to be able to meet those needs, and not have to say no. So what can it be is going to be reflected by, what our clients want, right? You've got examples in the marketplace, where these types of initiatives grow very, very quickly, tens then hundreds then thousands frankly, hard for us to size it, but we're prepared in any respect as to what our clients want, and we'll be able to meet those needs.

Yes, Mark, I would add, we're really going after a niche market. And what I mean by niche is really. And this started to evolve coming out of the great shutdown, is we are seeing more of these blended teams, a combination of onshore, nearshore, offshore and that's really the business that we're after. So we're not looking at wholesale offshoring, to compete with the global providers. They just have the sales. So that's not the space we're going after. So we're really to fit this need that our customers, are bringing to us with more of these blended teams. So that's also going to impact, how we scale on those dynamics.

So Mark, I think the second question you may have had was related to immigration, some of the discussions from the administration - around immigration. So obviously we're paying attention to how immigration reform may impact our business. We've obviously been listening very carefully in recent comments from the administration, at least from our perspective, compare to be a very pro-business and suggests to us. It's quite less likely than really highly skilled scarce workers, such as those that we employ really will be impacted. So at this point, we don't expect a significant disruption in our business, right? We deal with higher skilled individuals. I mentioned that Jeff mentioned, we've got a $90 average bill rate. So you've got many experienced people immigration, as you know, is not something that we do directly. So we don't bring in new - we don't sponsor visas for people who are coming over directly from any country. We actually transition those visas from other clients. So again, for us, again, the pro-business stance, I think, is the most important thing. If you look back at the first Trump administration, the impact on the highly skilled H1B, for example, population was virtually nothing. So I don't think from our perspective, this is something that is a great concern. Actually, I think, quite frankly, potentially a bit of an advantage for us here in terms of regulations, right? There is a higher, I think, degree of compliance requirements from the Trump administration, at least in the first administration versus the Biden administration, and we have a competitive advantage there in terms of our compliance statistics. So actually, I'm going to be optimistic here and say, based upon what we've heard and based upon our structure, and the years of experience, this could potentially be a positive for us.

That's great. And then one last one, and then I'll jump into the queue. Just - Jeff, on your very last sentence in terms of expecting 100 basis points, or more of enhanced operating leverage when you get to the $1.7 billion, is that 100 basis points over what you end achieving in 2022, which was roughly 6.9%?

Mark, you read that correctly. That's the way that we're thinking about it. I know we've talked at length about the contributors to certainly double-digits, operating margins at the $2.1 billion. I would tell you that the activities that we are driving internally, as a management team. Joe and Dave touched on the strategic priorities with the implementation of Workday. Certainly our integrated strategy efforts related to our solutions offering and then the IDC. Those are no different, of course, Mark. So we wanted to give a sense, given that we finished the year at $1.4 billion here in 2024, what that path looked like to $2.1 billion in double-digits. So, but you're thinking about it the right way, Mark.

Terrific. Thank you.

Thank you, Mark.

The next question is from Trevor Romeo, William Blair.

Hi, good afternoon. Thanks everyone for taking the questions. First one, maybe just a slightly different take on, sort of the overall demand environment question. I think we've seen some of the CEO and business confidence surveys increase the past few months to your point in the prepared remarks, there's still a bunch of uncertainties out there, whether it's policy or what have you. But we'll see if that confidence increase kind of sustained itself. But I was kind of just wondering if you could point to your historical experience through cycles. I mean all cycles are different, but is there some way to think about how long in the past it's taken for those increases and confidence, to kind of translate into new hiring and project spend based on what you see?

Yes. Trevor, I would say, if I go back to the cycles that I've been involved with going back, really, we'll talk to the dot-com forward. The first thing, right, you have to see is you have to see that sentiment shift, and we've been waiting for this for the last couple of years. So I am optimistic that we've seen that shift take place, because without that, nothing else transpires. I would say all cycles have been, a little bit different in terms of timing associated with that. Here in January, this has probably been one of the most interesting Januaries in almost 37 years I've been in this industry, with just how some of the holidays fell and then we had Jimmy Carter Day, we had Martin Luther King. So we've had a lot of noise. And our CVs and job orders are even up irrespective of those dynamics. And also, we saw more activity between Christmas and New Year's this year than we've seen the last several years as well, again, another positive indicator. So our hope would be, as we start to move through Q1 and we start to move into Q2, we would start to see some of the staff augmentation type work manifest itself. And then the project work takes a little bit longer than that. So that would start pushing us into the back end of Q2 right into Q3. So that was why my comments gives us some optimism towards the second half of the year, how we're early it manifests itself. It's a little bit tough to say. And as I've said before on prior calls, Remember, the first thing we always see is organizations bringing back in contract temp work when they start to gain confidence. And then following that, then they start to rebuild their staff. So we also did see a good number of conversions coming into the beginning of the year, which again, I also take as a positive sentiment. The clients were making those decisions, to hold on to some of that intellectual capital that they had, to retain that, which gives me some optimism in terms of the workload, and the necessity for those people that they're seeing. So maybe that just gives you a little bit more flavor.

Yes. So Trevor, the only thing I would just add to Joe's point, right? So if we make a distinction on this client - this consulting-oriented work, that has continued to be relatively robust demand, right? That part of this business, and I think in the marketplace has continued to be strong. So you've still got a piece of the business that has got, quite a strong bit of demand in addition, to how the staff augmentation portion of our business may play out.

Okay. Got it. Well, thank you both, I know it's hard to say, but those are some helpful data points. So thanks. And then on my follow-up, maybe another one for Joe. I think you mentioned being well positioned to take additional market share going into this year, just on that subject. Any way you can kind of quantify how much markets has taken over the past maybe few years, and then in terms of the overall competitive landscape. Do you think the number of your competitors has increased or decreased over the past few years? And just what give you confidence you can continue to take going forward? Thanks.

Yes, I would say from a competitor standpoint, we haven't really heard of any major competitors disruptions there. So I think if you start to look at those top 100 or 200 providers in the space, I think the competitive landscapers remain pretty consistent. But as we go through any tougher times, we see a lot of local and/or regional entities that are not well capitalized, that might have a portfolio. There in many instances, one client receivable going bad away from out of business. So there's no question that, that landscape is narrowed, but how much I really couldn't tell you on that front. In terms of what we're looking at, and I think SIA usually comes out with that information. So on the market share standpoint, really what we look at is we look at SIA. And what they're saying the market is growing by, how do we perform relative to that? And I think if we go back over the course of the last 10-plus years, we historically have performed two-x whatever that market dynamic is coming out from SIA. And we would anticipate that same type of performance.

Okay. Great. Thanks so much for all the color.

Sure.

Next up, we'll hear from Kartik Mehta, Northcoast Research.

Good afternoon. I just was wondering about capacity. Obviously, you want to maintain enough capacity just in case things turn around, but you've taken out, is there any way to measure maybe where you're running at, or what capacity you're running at? Or how much will revenue could be added without adding capacity of people?

Yes, Kartik, this is Dave. I would say this, right? So - and we've been very intentional about how we've thought about our associate population over the last couple of years, right? So the dynamics in the marketplace have changed, I'd mentioned that we've actually added salespeople, because the activity levels to find business and to generate additional business, have needed to increase. So if I look at a particular capacity equation, it's hard because the dynamics of the marketplace change. In addition to that, I've mentioned that the recruiters count in our associate population is actually down. I think I said down 15% in the remarks that I've made. So we've been intentional about that, because we measure this business based upon an expectation of productivity, for our salespeople and our recruiting associates. And we always like to maintain enough capacity, so we're not caught short. I made a comment that we've got a few months of time where we would, if necessary, have to add headcount. So we feel very comfortable with that. Another comment that I would make, is to the extent things ramp very quickly, and recruiting resources are necessary, those are resources that are more quickly ramped in our model. So we feel very comfortable that we're well positioned, right? So we manage this business by metrics, by the expectations of performance. We add people by the expectations and performance through many years of expectations that we've built. So we feel very comfortable that we won't be caught short here. You think I'm going to be optimistic and say when things improve? We will not be caught short. We've proven that cycle-after-cycle. So I don't - I think you can rest comfortably that we'll manage this efficiently, and we'll be able to meet the needs of our clients whenever they're necessary.

Just one last question. Your facility in India, is there an opportunity to maybe leverage that more than you initially thought, if things come back? And you have - maybe leverage the SG&A line so have a chance to leverage your operating income?

Yes. So I'll repeat what I said before just briefly. I think we've built this to be very flexible. So as the revenue opportunities and the client dynamics shift, we'll be able to shift to it very comfortably. Our folks right now, I will tell you, is to make sure that we can meet our clients' needs. That's why we opened it, that's how we've originally built it. That's how we're currently operationalizing it. It's not lost on us that wage arbitrage and cost arbitrage, is something can translate into profitability on the back of the house as well, right? So we're thinking about all those things as we grow. We're being very thoughtful about it, because one of the things we don't want to do is open up a new business and not be able to operate and meet our clients' needs. So yes, we're thinking about all of those things. We're going to be thoughtful about that. But certainly, our initial focus is on meeting the external client needs that we are seeing.

Thank you very much. I appreciate it.

Sure.

The next question is from Tobey Summer, Truist Securities.

Thanks. Of the 100 basis point operating margin improvement that you think you could get if you get back to prior peak revenues, are there several strategic priorities driving that? Could you give us a little bit more color on the largest pieces of those, sort of the big drivers? Thanks.

Yes. Tobey, this is Jeff. Good to chat with you. I think one of the more significant driver of course, until we've got the scale, that gets us back to the $1.7 billion and everything that we're driving internally. Dave just talked about capacity and productivity management of our associate population. We're going to continue to make the necessary investments, and continuing to throttle internal capacity. Be it AI, or any other productivity tools, to make the engine from a sales and delivery standpoint that much more efficient. We've talked about our back-office transformation program. As you all know, we've been assets for a couple of years now. We are well into that project. I think we've quantified the anticipated benefits there of roughly 90 basis points, compared to the level of investment that we're making today. And certainly, we sit here at $1.4 billion, we will be likely by $1.7 billion through that initiative, and into some of the subsequent phases, and beginning to realize the benefits associated with that program. So that's a meaningful contributor to it. Obviously, we sit here today with a mix from a solutions offering standpoint, that offering carries 400 basis points of higher margin. Of course, Dave mentioned that we're seeing that be a positive contributor to the overall technology story for us. Expect that mix to continue to improve for us. And given the margin differential there, expect that to be a meaningful contributor, to profitability as we move forward as well. So those are, I think, some of the more significant contributors to that.

I appreciate that, thank you. And then I was wondering if you could offer us a couple more comments, about the financial services vertical, and what customers are saying there you cited. Now we've had, I think, three quarters of a little bit of improvement there. But what are you hearing from them, as far as why they are more active and what it might take for that activity level, to improve even further?

Yes. Tobey, I think it's no different, I think, than what we've always seen, right? And I would be careful not to draw generalities of an industry because, obviously, we know although we're a reasonable size, we don't do business with every financial institution, right in the United States. But what work are they doing? They're doing the work that they've traditionally done. I've already touched on - obviously, there is data work, there's digital work. There's a lot of application development work on major projects, the successes that we're having are with large market-leading companies that continue to invest in their technology infrastructure, across a spectrum of things. So I don't know that generally speaking, there has been a specific area of focus that, we're seeing that's driving revenue other than a broad spectrum of those things that, we've always provided services for - to these customer.

If I could ask one more industry question, I'll get back in the queue. What's the firm's experience with demand from systems integrators, and other sort of entirely focused IT consulting businesses, to the extent you have relationships with those?

Yes. We do, Tobey. I mean, I mentioned, right we've got a very diversified portfolio and the integrators that we do business with are less than 10% of our business. And so, the work that they're doing and providing business for if we're talking about, for example, in the government space, right? There - we are in - and we are not in areas like I would first say that. We think are at significant risk of disintermediation based on at least what we're hearing, the type of projects that they are doing. I would say, are no different than what we would do for any industry. By the way, I would remind you, I'd mentioned the government, we don't do any prime work with the government, by the way. But I would say the type of projects that they are doing for their clients, are no different than the type of business, the projects that we're doing across industries. And Joe did a nice job talking about the fact that we meet skill set, meet the customers' needs for skill sets across all industries. And I think most if all industries including these integrators have the same type of needs as financial services clients, as retail clients do, as transportation clients do.

Thank you very much.

We'll take the next question from Josh Chan from UBS.

Hi, good afternoon. Thanks for taking my questions. It sounds like you guys are saying demand is relatively stable. But then I also heard Joe say, client visits, job orders are up. I guess are these typically the indicators you would look at to get more optimistic? And if so, could you just kind of reconcile the - maybe a little bit of a hesitancy that maybe I'm picking up here?

Yes. Those are the front-end indicators that we look at. So you have to see those indicators move, before you start to get the pull-through in the actual outcome in placements, or accelerated project wins. So all I was simply stating is, we are seeing more of these front-end indicators, are at higher levels than we've experienced in the last several years coming into the beginning of the year. You couple that with a positive sentiment, which one would have to believe is playing into that, because as I mentioned, clients are more receptive to taking meetings, which means obviously, they're thinking more about getting after backlog, and budgets and funding and things of that nature. But that has not - the stability piece is that has not translated into more placements at this point in time. Accelerated project wins, realizing that our project business has been growing at a faster rate than our staff augmentation business. So this is one of timing, whether that pull-through ultimately happens only time will tell on that. And so all we're mentioning is - from an optimism standpoint, these are the things that we look for, and have been looking for, we did not see these things playing out in the beginning of 2023. Or did we see them playing out in the beginning of 2024. And if you recall, in both of those years, I believe a lot of analysts, a lot of economists, models we're talking about a second half of the year recovery, which never manifested itself in either of those years. And so, we are seeing these things that we have not seen in the last several years. So that's all that we're putting out there. And whether it translates into ultimately an acceleration of billable consultants out, which would translate into revenue growth. Only time will tell on that.

Yes. So then the only thing I would add, right? So as we look at this year, right, I had mentioned the year end at [ph] were about what we had historically seen, right? We - as Joe said, we have not yet seen that optimism, and some increased activity translate into a significant uptick in new starts. So our expectation here, because we don't want to get ahead of ourselves given that there still is, some uncertainty here that we're at least in the first quarter, are looking for things to transpire similarly to what happened in 2023 and 2024.

Great. Yeah, I think that that's really helpful. Thank you for the color there.

Sure.

Maybe a quick one. I guess, is there any thought about whether the tech direct hire market is bottoming. The numbers seem just a little bit better this quarter? Thank you.

Yes. I think part of that is reflected in the statement, I made a little bit earlier. We did see more conversions, which - those conversions. Some of those conversions show up in our direct hire number. So I would say overall sentiment, organizations have continued to bring on full-time hires from a tech standpoint, we haven't seen an acceleration. We haven't seen a deceleration. I would really categorize it is stability. So that's kind of where we are at this point. And tying back to the earlier discussion, one of the things as I reflect upon the last couple of years, which is a little bit interesting, we've been operating in this subdued environment where there really have not been catalysts to drive the need for the services that we provided in an accelerated pace. And it's kind of interesting, having been through a lot of different cycles through multiple recessions. Our business has been operating like it has been in a recessionary climate, albeit GDP has been a reasonable GDP. And we're always asked about that. I think part of it this is we have to look at where GDP is being generated from, in terms of the growth areas that have really been supporting GDP, are not areas that are big catalysts to per se our business. Also, the M&A market has been very subdued, which is also very friendly to the services that we provide. So hopefully, rates, if we continue to see a little bit more activity, and I'm sure you hear this as I do. I mean, I'm hearing more engaged in conversation about M&A activity. Nothing would make us happier than to see that dam break a little bit, because I think that would also play well to our business.

Great. Thank you for the spots and your time, and good luck in Q1.

Sure. Thank you.

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

Hi, good evening.

Hello, Marc.

So I wanted to touch a little bit on cash usage. One of the things that we had to touch a little more so on the increase in dividend, which is certainly nice to see. I just wanted to talk a little bit about thoughts around comfort levels as far as I'm looking at. I know there's not historically a lot of M&A in the - from you guys, but I was wondering if you sort of are looking at some things that might make sense, or whether or not there's anything attractive out there, or maybe just general thoughts on what's out there and what is clearly a very fragmented industry, but also sort of maybe some of your thoughts on share repurchase activity, especially as attractive as sort of where the levels are currently?

Yes. And Marc, good to talk with you. I think from a - I'll address maybe your second question first. I think from a share repurchase activity, you saw us continuing a long-standing share buyback in the fourth quarter for the full year. You look at the total return of capital, and we were at about 75% of what the business generated. I'll remind you that in 2023, we returned in excess of operating cash. And when you look back, I think, since 2007, I think I mentioned this in my prepared remarks, we've returned about $1 billion of capital through dividends, and share repurchases. As we move into 2025, you should expect more of the same. We oftentimes say that we've been buying a really good company over the last 15 years and that Kforce and that investment for us has been bearing fruit, from an accretion to earnings per share standpoint. From an M&A perspective, we always keep our - ear to the ground on the market itself. We do talk through potential opportunities, et cetera. But the filter within Kforce continues to be very, very tight. Back in our earlier days of Kforce, we did a lot of acquisitions. I think our historical experience has taught us that one-plus-one rarely equals a number of two, oftentimes is less. So we've had an organic model, Marc, as you well know, we haven't done an acquisition over 15 years. And as we look into 2025, we'll continue to return capital to our shareholders, annually continue to evaluate the dividend, our Board of Directors approved, as we mentioned, an increase for the sixth consecutive year, and we'll continue to look at that. But more of the same as we go forward, Marc.

And one of the other things I want to touch on, and I know you mentioned of the disasters in California, but sort of reminded that you guys had your own challenges at the very beginning of the quarter, which you see you've navigated fairly well. Maybe touch just a little bit on that, and if there's any disruptions that you experienced there in the Tampa area, because that was right at the very beginning of the fourth quarter that I know it's been a little bit now, but maybe sort of remind folks of kind of some of the things that you guys navigated, through to sort of get to where you are?

No. Marc, I think you're speaking to the three hurricanes that we dealt with towards the tail end of the third, and into the fourth quarter. Aside from just the remarkable support of our consultants, and our clients during that and our internal people, super proud of all the efforts there. Out in California just as we always do, support of our internal people and stay in tune with any clients that may be impacted, unfortunate, for us. The devastation out there has not impacted us, from a business perspective of a lot of travesty. Obviously, in California, but business disruption for us, there's nothing there within the first quarter to speak about?

Yes, Marc, I'd say there's two pieces to that, though. There's the revenue impacts, which given the concentration of our business in Florida, North Carolina that were impacted by that, and even per se the fires out on the West Coast. Really no business impact from a revenue standpoint, however I would be remiss, if I didn't mention with being Florida-based, and with the amount of disruption those hurricanes caused. The progress that what our people were able to accomplish on keeping all of our strategic initiatives moving forward, and hitting deliverables with our back-office transformation and various other strategic priorities, it is rather amazing that they're fortitude while dealing with personal situations, dealing with family situations, their own homes. And continuing to move all of that work forward, not setting us back as a firm on those timelines. I just commend our people - for their commitments and their efforts. So I just wanted to at least get that out there.

That's much appreciated. Thank you very much.

Thank you, Marc.

And everyone, at this time, there are no further questions. I'd like to hand the conference back to Mr. Joe Liberatore for any additional or closing remarks.

Thank you for your interest in and support of Kforce. I'd like to express my gratitude to every Kforce for your efforts, and to our consultants and our clients for your 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 first quarter of 2025.