Ladies and gentlemen, thank you for standing by, and welcome to the Kforce Third Quarter 2022 Earnings Conference Call. [Operator Instructions]. Joseph Liberatore, President and CEO, you may begin your conference..

Good afternoon. This call contains certain statements that are forward looking. These statements are based upon current assumptions and expectations and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce's public filings and other reports and filings with the Securities and Exchange Commission.

We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website.

I'm pleased with our overall performance in the third quarter as revenues and earnings per share were near the top end of our guidance, again, led by strong sequential and year-over-year growth in our technology business.

The macro environment certainly became cloudier in the third quarter with persistently elevated levels of inflation, rapidly rising interest rates, which, among other reasons, is impacting prospects for global and domestic economic growth.

We mentioned in our prior earnings call that we experienced a degree of moderation in our KPIs towards the end of the second quarter. While trends in the third quarter were below levels experienced in 2021 and the first half of 2022, they remain above pre-pandemic levels.

Though certain of our clients have become increasingly cautious as they prepare for the potential of a U.S. recession, the criticality of the projects we are supporting is continuing to drive demand for highly-skilled technology talent. The war for technology talent is real with far more open jobs and available skilled talent.

The strength of the secular drivers of demand in technology was accelerated coming out of the Great Recession by mobility, big data, the cloud and the rapid expansion of consumer-facing technology initiatives.

The pandemic has only accelerated a strategic imperative for all businesses to further digitize their business to enhance consumer and employee experiences.

These collective technology drivers give us an increased level of confidence in expecting our business to thrive during strong economic times and to be relatively insulated during adverse economic times. Technology is not optional and is core to all business strategies regardless of the industry, and we don't see that changing.

In fact, the CEO of a large trade association representing technology and engineering industry recently stated that "even if some sectors of the economy soften and pull back in their hiring, demand for tech talent will continue to outstrip supply for the foreseeable future." With deliberate strategic intent, we have built a solid foundation with nearly 90% of our business concentrated in providing high-end domestic technology talent solution to a diversified set of world-class companies in attractive end markets.

Our debt-free balance sheet and strong predictable cash flow gives us flexibility to continue investing to grow our business even in choppier economic times.

Due to the strength in the secular drivers of technology demand and our client portfolio, which is primarily focused on serving the Fortune 500 companies, our Technology business has both consistently grown at well above market rates during strong economic environment and displayed great resilience through the last two recessions.

For additional color, our organic CAGR is nearly 8% since 2007 is significantly above the market rate. During the 2008-2009 Great Recession, flexible revenues in our Technology business comprise roughly 50% of total revenues and declined only 7% in comparison to the 25% to 30% declines experienced within the general staffing market.

In the 2020 pandemic-driven recession, our technology revenues were approximately 75% of total revenues and were virtually flat in comparison to the general staffing market, which experienced 10% to 15% declines.

With 90% of our total revenues now in Technology, we feel extremely well positioned to take advantage of both strong and more challenging market conditions to continue growing market share.

Our plans continue to -- with the implementation, what we call office-occasional work environment, and we are extremely excited about the opening of our new state-of-the-art headquarters in Tampa tomorrow.

Our unique work environment provides our people with maximum flexibility and choice in designing their workdays that is grounded in our trust in them and supported by technology. We are an industry leader in the technology talent solution space, delivering exceptional financial results and are offering maximum flexibility to our people.

We believe these factors, among others, are positioning Kforce as the destination for top talent. Our path forward is clear, and we will remain consistent with the principles under which we've been operating so successfully.

There is simply no other market we want to be focused on other than the domestic technology talent solution space as it has, in our view, the greatest prospect for sustained growth. We have the right team in place to capture additional market share and are prepared for the long term and whatever near-term environment may bring.

My sincere thanks to our highly tenured leadership team and associates for continuing to stay true to our strategic vision and for their relentless execution. Our team continues to have a meaningful impact on all the lives we serve.

It was inspiring to see how our teams rallied to support our clients, consultants and employees that were impacted by Hurricane Ian and for their support of rebuilding the communities around us. Kye Mitchell, our Chief Operations Officer, will now give greater insights into our performance and recent operating trends.

Dave Kelly, Kforce's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations.

Kye?.

Thank you, Joe. Revenues grew 8.7% year-over-year in the third quarter. Normalized for our planned COVID-related runoff, year-over-year growth would have been 10.7%. As expected, our Technology business continues to be the primary driver of our success, with year-over-year growth of 15.8% off increasingly difficult prior year comps.

We are anticipating close to 18% growth for the full year of 2022. We have continued to drive high levels of compounded growth in our Technology business with revenues having grown organically 50% over the last 2 years following resilient top line growth throughout the pandemic.

We believe our strong, consistent performance demonstrates an unmistakable correlation between the secular demand drivers of technology. These drivers are less susceptible to economic fluctuations in most businesses.

Our technology growth has meaningfully exceeded the industry growth benchmarks over the last 15 years and has been consistently near or at the top of our industry for the past 3 years. As Joe mentioned, our current operating trends and activity levels have moderated to a degree that demand remains strong and above pre-pandemic levels.

Our clients are reluctant to lose key resources, even during challenging macroeconomic environments because of the mission-critical nature of our projects and consultants. Another strong signal we experienced is the continued acceleration in our average bill rates, which grew 1.4% sequentially and 8.3% year-over-year to approximately $88 per hour.

The continued increase in bill rates reflects the strong demand environment for highly-skilled talent and the criticality of these resources to our clients' strategic priorities. With less geographic constraints, our talent pool of candidates continues to increase.

We continue to see acceleration of critical technology initiatives that our clients in areas such as cloud, digital, UI/UX, data analytics, project and program management. Conversations with our clients suggest that they will continue to prioritize significant technology investments to remain competitive regardless of the economic environment.

Many of our engagements are multiyear initiatives that we expect to continue despite any changes in the macroeconomic environment. Clients continue to look to us to provide managed teams and project solution engagements.

We expect to bring even greater focus in driving disproportionate growth of these engagements as we move into 2023, which will help insulate margins. Our year-over-year growth was driven by a diverse set of industries. Sequentially, we are still seeing broad-based demand, but with some softness in select clients.

We have not yet seen any industry vertical as a whole experience consistent reductions in demand. Rather, even in industry verticals where we have seen softness at particular clients, we have seen other clients actually increase spend and award new projects.

We have a very diverse portfolio of large customers servicing 70% of the Fortune 500, which we believe mitigates our risk as we have no significant concentration in any particular client or industry.

While we may be susceptible to short-term disruption with our specific clients or industry-specific dynamics, we expect our diversification and concentration in world-class companies to serve our shareholders well over the long term.

We expect fourth quarter revenues in our Technology business to continue to grow sequentially on a billing day basis and increase in the high single digits on a year-over-year basis. Our overall FA business declined 28% year-over-year. The growth rate was negatively impacted as expected by declines in COVID-19 revenues.

These revenues contributed nearly $7.5 million in the third quarter of 2021. Excluding this impact, our overall FA business declined 18.7% year-over-year, largely due to our repositioning efforts.

While new assignment starts were relatively flat in the third quarter as we continue to reposition our business, we saw a 6% sequential increase and a 28% year-over-year increase in our bill rates to over $50 per hour.

We expect overall FA revenues to improve slightly sequentially due to a project in support of Hurricane Ian recovery efforts and decline approximately 29% year-over-year in the fourth quarter. As a reminder, the fourth quarter of 2021 included $4.7 million of COVID project revenue.

We continue to support our FA business improve its alignment with our Technology business. The investments we continue to make in our strategic priorities, along with process improvements to increase productivity levels in our associate population, provide capacity to continue to grow.

While capacity exists, we have continued to make select investments in associate headcount to drive sustainable growth. We have supported and retained our best people, and we have made significant changes to give our employees flexibility and choice in our office-occasional work environment.

This is reflected in our top scores amongst our competitors on Glassdoor across all 7 measurement categories, including areas like diversity, inclusion and culture.

Kforce has earned Glassdoor's OpenCompany designation, which recognizes employers that proactively promote and embrace workplace transparency through sharing workplace culture, being responsive to all reviews and sharing our updates related to DEI and CSR. I am so grateful for the trust our clients, consultants and candidates have put in Kforce.

I would like to thank our amazing people out there who continue to deliver our impressive results. They are truly the backbone of our success. I will now turn the call over to Dave Kelly, Kforce's Chief Financial Officer.

Dave?.

Thank you, Kye. We continue to make progress growing our business and improving profitability levels as third quarter revenues of $437.6 million grew 8.7% year-over-year and earnings per share of $1.09 increased 13.5% year-over-year.

Gross margins decreased 60 basis points year-over-year to 29% in the third quarter, primarily due to a decline in Flex gross profit margins and a lower mix of direct hire revenues. Flex margins of 26% in our Technology business declined 90 basis points sequentially and on a year-over-year basis.

This decline was largely expected due to higher utilization of paid time-off by our consultants, slight spread compression and elevated health care costs. Top technology talent remains scarce, and we have seen wage increases fairly consistently throughout the year.

Over many years, we've had great success passing through these increases to our clients in our bill rates due to the critical work our consultants perform. This has led to very stable margins in our technology business.

We believe the third quarter decline represents a fluctuation in margins within our typical range as there are always leads and lags in bill rate and pay rate dynamics.

Flex margins in our FA business expanded 50 basis points sequentially and 240 basis points year-over-year due to a decline in the lower-margin COVID project work and repositioning efforts.

As we look forward to Q4, flexible margins in our Technology business, which would typically decline sequentially are expected to remain at Q3 levels as we recover from the higher-than-normal paid time-off impacts in Q3. Overall gross margins are expected to decline due to seasonally lower direct hire revenues.

While we believe the clients may be slightly more price sensitive in the current macroeconomic environment, we believe our nearly 90% concentration in technology provides relative margin stability over the long term due to the desire by our clients to increasingly engage us for projects critical to their ongoing success.

Overall SG&A expenses as a percentage of revenue decreased by 60 basis points year-over-year, mainly as a result of lower incentive-based compensation given significant prior year accelerating growth and real estate savings under our office-occasional model. These factors are offsetting ongoing investments to improve our back office productivity.

We expect SG&A expenses as a percent of revenue to be flat year-over-year and increased sequentially due to 3 fewer billing days in the fourth quarter, along with continued investments in our business. Our third quarter operating margin was 7.2%, which was down slightly year-over-year. Our effective tax rate in the third quarter was 26.8%.

Operating cash flows were $7.3 million and, as expected, were negatively impacted by a $20 million payment to settle benefits owed under a previously terminated executive retirement plan. Our accounts receivable portfolio continues to perform exceptionally well, and we continue to prioritize the return of capital to our shareholders.

During the quarter, we continue to be active in repurchasing $22.5 million of our stock. Given our confidence in our future prospects, we now expect to return nearly 100% of operating cash flows to our shareholders this year through share repurchases and dividends. This compares to historical levels of approximately 75%.

Our return on invested capital was approximately 48% in the third quarter. The strength in our balance sheet and availability under our $200 million credit facility allows us to be opportunistic in returning significant additional capital to our shareholders while continuing to evaluate potential tuck-in acquisitions.

With that said, our belief is and our results suggest that a focus on organic growth provides us the best opportunity for long-term success. With respect to guidance, the fourth quarter has 61 billing days, which is 3 fewer days than the third quarter of 2022 and the same as the fourth quarter of 2021.

We expect Q4 revenues to be in the range of $414 million to $422 million and earnings per share to be between $0.88 and $0.96. Our guidance does not consider the potential impact of unusual or nonrecurring items that may occur.

Our financial performance has put us in an excellent position to continue to make incremental investments in our business, which we believe benefits our shareholders in the long term while also allowing us to improve profitability levels as we grow.

During our Q4 2021 earnings release, we indicated that we expected the 2022 revenues would be at least $1.7 billion and that earnings per share would be at least $4.20. The midpoint of our guidance for Q4 indicates that we expect to slightly exceed these levels.

Overall, we believe our strategy has put us in an exceptional place, even with the ongoing macroeconomic uncertainties. We believe the strategic decision to focus our business in providing domestic technology talent solutions is paying huge dividends and provides us with unique resiliency in whatever may occur in the economy.

Our shareholders continue to benefit from our strong performance and efficient capital allocation. On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for their efforts. Operator, we'd now like to turn the call over for questions..

[Operator Instructions]. Your first question comes from the line of Tim Mulrooney with William Blair..

My first question is for Kye. Kye, you've been doing this a long time, and I know this isn't your first period of macro uncertainty.

So can you just talk a little bit about client behavior in this environment? What you're hearing from clients these days both from the demand side as well as client behavior on the process side in terms of procurement behavior and bringing on the asset?.

Yes. Thanks, Tim. We're seeing a little bit slowdown in terms of just the hiring cycle. There's still very strong demand, especially in the places we're playing in technology, cloud, big data, digital transformation. Demand is strong. The clients are wanting to see where they might have seen 1 or 2 candidates. Now they want to interview 3 or 4.

So that's elongating. Actually, it's really normalizing the process. It's not where it was in '21, but it's much more normal to what we have seen and still higher demand and higher pays than pre-pandemic. So the visibility we're seeing client demand still there. It's just may be a little bit more selective with the candidates level..

Yes, Tim. This is Joe. What I would add on to that is I think what we experienced in 2021 and early 2022 is very similar to what we saw during the dotcom era.

It's probably the last time that we saw really the kinetic pace of hiring, and I think that's really what Kye is touching upon is everybody was shortening the process, skipping steps because everybody was fighting for the same talent.

And what we're seeing at this point in time is really, as Kye mentioned it, it's really more normalized to what we would normally see in a hiring cycle..

All right. That's helpful. And then Joe, I mean you've shared in the past how your demand for your services have kind of had more to IT spending by your clients and not so much the labor market.

So I was hoping you could comment on what you're seeing with respect to IT spend relatively to a couple of months ago, what you're hearing as far as IT budgets as we head into 2023?.

Yes. So it's a great question, right, because this is one of the things that we always try and clarify.

And sometimes people miss the point when you're looking at everything that's in the press about tech companies, aligning their headcounts and so on and so forth, right? We're a services-based organization and not linked to necessarily technology products and/or devices that people are acquiring. So I think that gets confusing sometimes.

But all the data that we've been seeing in terms of budget, budgets were very robust pointing into 2023. They have tapped down slightly. But still, everything, the more recent pieces that I've seen, they're all projected to be up on a year-over-year basis.

And realizing that we predominantly work with the Fortune 500, about 70% of them, they have to make the investments, especially in all the areas that Kye had mentioned and that I mentioned in my opening comments, and that's really where we're honed in. So we haven't really seen necessarily any budget pullback in terms of those areas we play.

I mean, sure, we're seeing unique dynamics client by client. But when you go across an industry where we might see one client tightening their belts a little bit, we're seeing it [indiscernible] clients in an industry, expanding their efforts.

So nothing of a material nature has changed over the course of the last quarter on -- from a budget standpoint looking into 2023..

Your next question comes from the line of Mark Marcon with Baird..

With regards to your last comments, Joe, can you talk a little bit about the types of investments that are being pulled back by some clients? And then what areas are you seeing -- the other clients that are picking them up, what areas specifically are you seeing that in? If there's any commonalities or if it's just completely random, then maybe there's not a conclusion to draw..

Yes. I think your last statement, I don't really believe there's a conclusion to draw. I think it's very client-specific and based upon the load of projects that different clients are going after.

As I mentioned in my opening comments, everything, especially in and around digitizing the business, whether it be from addressing the consumer or whether it be addressing the employee to drive efficiencies, all efforts are full tilt forward on those fronts.

I would say, really, you see clients may be potentially pulling certain things back, and we don't do a lot of business in the device space as per se.

But obviously, with inflation and consumer spend, you do see a ripple and a carry-through to some organizations that are really on more of those consumer-type devices, so I think you're seeing a little bit of a pullback on that front. Kye, I don't know if you want to have any other color you want to add..

Yes. No, I think we're seeing good demand. But again, CIOs and CMOs are scrutinizing the budget maybe a little bit more closely. And the areas, we're very fortunate, the majority of our business is in those spaces where they have to continue to invest. The cloud, you have to continue to move to the cloud.

Like Joe said, digital, they're still pushing digital both from their customer experience as well as their employee experience. In fact, we're seeing a lot of places, talk about how do we get more out of that employee experience, so their employees can be more productive. So we've continued to have some wins there.

But there definitely is more scrutiny, I would say, in more -- like Joe did. We had a couple of things, small things, where it was device-based and people aren't spending as much money there. But in those high end, when you talk to CIOs, CTOs, they have to continue down this path..

Yes, Mark, we kind of close on this. The pandemic was a big wake-up call for all organizations. For those that were making the investments in these areas, they realized how they were competitively positioned.

For those that maybe were slow to the game and making investments in digitizing their business, they got caught flat-footed and really had a lot of heavy lifting to do to keep their businesses aligned as they were moving through the pandemic.

So in both of those situations, those that were already making those investments, they've accelerated their investments to keep their competitive advantage. And those that were caught flat-footed, they're rapidly trying to catch up and make the investments so that they can better enable their business holistically from a digitization standpoint..

That's great color. And then can you talk a little bit about the bill rates? I mean, obviously, it's pretty impressive to see the 8.3% year-over-year increase in the bill rates.

How much of that would you say is kind of apples-to-apples inflation as opposed to just moving up a little bit more in terms of the skill sets that you're providing or doing some consulting or consulting-like projects?.

I think we've had a good fortune to be the beneficiary of both. We have seen some of the uptick from an inflationary environment, but we've also seen a really good uptick as, again, we're moving up that food chain into those higher-level spots.

And so I think from that perspective, we're going to continue to see things approaching that $90 an hour bill rate. And a lot of that's being driven as managed teams and project solutions offering continue to be a significant driver to our above-market growth in technology, and we're really proud.

We're at 16% again year-over-year and continue to see that acceleration taking place..

Yes, Mark. This is Joe. I think it's even more significant than that because Kye is not taking all credit that maybe is due here.

That is against the backdrop, but we've actually seen more moderation in bill rate expansion in what I would call our top 25 of our largest customers, which means, disproportionately, bill rates are expanding in those organizations that we call really our market-based accounts or our major accounts, which those are really the customers that are in that really heavy evolution stage.

So I mean, I think that even gives us more optimism in terms of how our business is positioned..

That's great.

And I mean what's your confidence level with regards to that bill rate inflation continuing? And to what extent does that insulate you a little bit in terms of volume declines if we do go into a significant recession?.

Yes. I think what we've been seeing -- and part of -- there's kind of 2 pieces of that, and then I'll let Kye add some additional color. From a bill rate inflationary dynamics, we are seeing some softening. We're also starting to see some softening in terms of wage escalation.

But there's still -- I mean there's still escalation out of what I would say above normal market conditions, but there's no question that there has been some loosening.

And I would say, at some of the large organizations that maybe had overhired are aligning their resources, and those resources are going into more moderate-sized organization, nothing's changed from a supply/demand standpoint. But we probably are starting to see a little bit of softening.

How that rolls into 2023? I don't have that crystal ball at this point in time, but that's kind of what we're currently seeing.

Kye, any additional color?.

I mean we've never really seen a bill rate decline in a recession. And as we continue to move up into those higher-end skill sets, the way we have been, I think we're very well insulated from any type of changes out there. Our folks are continuing to sell in the core areas of investment by CTO, CIO. So again, I think we are playing in the right space.

We're continuing to move up that value team. I don't think there's any change in demand for consultants. They're still really hard to find and -- the right technology. People get a little worried because they hear what's going on in big tech companies, but it's not at the levels where we're placing those people.

Those types of folks, you know your cloud engineers and your full stack developers, they are still very much in demand. And quite frankly, there's negative unemployment in those spaces. So we're seeing our teams continue to really be able to price things aggressively..

That's really great color. If I could squeeze one more in, which is a two-part.

Can you talk a little bit about the pay rate expectations among the consultants that you're placing in IT Flex? And then also, just what we should think about, particularly going into next year in terms of comp levels for your own folks, in terms of dealing with the inflationary pressures that they're facing?.

Well, we haven't -- I'll answer the first part of your question. We have not seen pay rates for consultants come down. And again, I think you go back to this demand for highly-skilled technical workers is still strong. So we have not seen any changes in consultant pay.

Dave, do you want to answer that second part?.

Sure. Yes. So as we kind of look forward, and we made some commentary even this quarter with respect to SG&A, right? So if you look at the last couple of years, we've been an extraordinary high levels because of the performance of our people in terms of compensation.

And as we get to, I would say, for us, more normal levels of growth that are up twice the market still, we've seen those levels as a percentage of revenue come down just based upon the structure of our compensation plan.

So as we kind of look forward, if we maintain this somewhat more normal environment, we would see kind of that natural decline in incentive comp. This is true for our commissionable associates. Even our leadership is very highly leveraged in terms of how we compensate them.

So it's kind of a natural way of thinking about where SG&A is based upon our growth rates..

Yes, and I would piggyback on that a little bit.

With all the investments that we've been making in our business over the course of really going back to 2016 from a technology standpoint, from a leadership development, all the things that we're doing in and around our office occasional and equipping our people so that they can work anywhere and have the right tools and be able to communicate and collaborate against the backdrop of what's happening with the consultant population, a remote workforce, which is opening up additional candidate basis for all of our clients, likewise opening up additional opportunities for all the candidates that we're working with across the broader world-class client base.

Yes. I think we're making those investments that are going to allow us to continue to increase productivity of our people. It's everything that we've been about. I mean, our productivity levels today are the highest that they've been. I've been here going on 35 years.

So the highest levels and very, very experienced as a firm, which means our people are making more money than they've ever made. So we're going to continue to make investments to drive efficiencies and productivity, no different than our end clients are investing in their tools and technologies to drive those things.

This is that whole digitization to address the employee, we're going to continue to make those. so I would even say against the headwinds of a more challenging economic climate.

I think the competitive landscape changes and you start to see competitors struggle, which means we're just going to go after greater market share and maybe a market that wouldn't be as large in that type of situation. So I have all the optimism in the world.

Our people are going to continue to elevate their performance, hence, make more money, but we get more leverage out of those individuals from an SG&A standpoint as well. So everybody wins in that scenario..

Your next question comes from the line of Kartik Mehta with Northcoast Research..

I just wanted to get your feel for how you're feeling this quarter versus last quarter in the sense that it seems like maybe sequentially, there's been a little slowing, but you don't seem at all worried about 2023 IT budgets.

And if you kind of think about 2023 today versus when you reported last quarter, any changes in behaviors from your customer? Or any concerns that would make you a little bit less negative or positive about 2023?.

Yes. I would say there's a couple of dynamics. Again, our business performed exceptionally well through the pandemic and then 2021, beginning 2022, probably the best tech market that I've ever seen in the 35 years that I've been in this industry. I mean we're up 50% on a 2-year comp. I think that speaks volumes.

So part of that is we're dealing with very challenging comps as a data point.

But in terms of anything materially changing at our customer base, I think Kye added a lot of color on the front end of the call there, if you're looking for something more specific, please, hone in on that, and Kye and myself would be more than happy to provide specifics, but I don't want to be redundant on what Kye had mentioned on the front end of the call..

No. I guess I wasn't looking for anything more specific. I think I was just looking for your feel for how the industry looks and kind of your past experience and what you're seeing today and how that usually plays out. Obviously, what's happening today and what's happened in past recessions, you have an idea how that's going to play out.

So I just wanted to get more -- just a feel for what you're thinking?.

I mean, Kartik, I think it's very important, though, to realize we're very different than we've been in past recessions. We are 90% technology today. And in the past, we had a much broader footprint in various different industries.

And so I think we're better positioned today if something were to happen in macroeconomic environment than we've ever been. And I do believe today, when you look at businesses in general, they're more dependent on technology, still continuing to innovate and still continuing to move things forward in their business.

And like I said, there's clients looking to get more efficiencies out of their employees by investing in technology, whether that's looking at big data and how you're storing the data to figure out where you should be investing and expanding or pulling back in certain areas or whether that's in digital.

We had an interesting win this last week where a client of ours in the health care space is really looking to improve their digital experience for their own employees because of what health care workers have been through in the last 2 years throughout the pandemic, and they know that they're facing some burnout and they need to help people be able to do more and administer the burden for those folks to be less.

So I feel like technology is a big part of corporate America today, and you're going to see it continue to move forward in different ways than we've seen in other downturn, and I wouldn't want to be in any other position than 90% tax rate now to be honest with you..

Yes. And Kye touched upon it. And when she talks about us being different, it's not just that we're 90% tech-focused now versus -- and I had a lot of color in my opening comments in around, so I wouldn't want to be redundant.

But part of the reason that I laid that out of where we've been the last 2 more challenging economic times as well as I could go back even to the dotcom, and it would have probably been exaggerated. It's every cycle we get less disrupted by what's going on. These are -- technology is not optional.

You cannot opt out of the technology at this point in time. So even the 90% technology we have focused today, it is much more focused in on those areas that are not optional to organizations.

So as Kye mentioned, I wouldn't want to trade our market position with anybody in the marketplace at this point in time, especially when I couple not just our client and the services that we're bringing to those clients, but you couple that with the balance sheet that we have, we're well prepared for whatever might unfold under any circumstances..

Your next question comes from the line of Tobey Sommer with Truist Securities..

How are you dealing with your -- the hiring of your sales-focused staff at this point? You've talked about significant productivity improvements over time and on this call.

Are you adding to staff? And if so, kind of at what pace?.

We're making incremental investments where we think we need to. There's always going to be different dynamics amongst the markets where we're still seeing that we need to invest and sustain those investments we're investing. But as you know, we're able to respond and do what we need to in the marketplace.

But we're -- incrementally, areas like managed teams and solutions and those types of areas where we are still continuing to build out muscle mass, we are hiring but we -- if we need to, at some point, we cannot pull back on that. But right now, we're still looking at where do we need to incrementally invest.

And then I'm sure Dave could mention some of the technology, though, that is enabling us to do more and more with the people we do have. So I expect to see productivity gains continue, but we do want to make investments where we think we can continue to take on market share..

Yes. I mean, I think, as Kye said, we've had for the last number of years an objective of increasing productivity, using that to reinvest to further improve productivity. It gives us a fair amount of capacity. It gives us a lot of flexibility.

As Joe said, we're going to continue our office-occasional model, provide additional opportunities for our teams to become increasingly productive. So all the things that we do are really tailored to increase productivity. And if we have surges and opportunity, we can selectively add. If we see things change, we still got plenty of capacity.

So as Joe said, we're in a great place..

Yes, and I would kind of put a bow on this. We've built out a very strong capability to hire into the marketplace. The team that has been built out is just world-class. I've seen many iterations of our internal recruiting capabilities, and this is the best team that I've seen at Kforce in my tenure at Kforce.

And surprisingly, we're having to turn that down a little bit because one of the other things that we're seeing over the course of the last 12 months is we've really seen our voluntary turnover has dropped like a rock. And I would say a lot of that has to do with the culture we're evolving here at Kforce, how productive our people are becoming.

So we're not having to hire the same volume of people that we historically had to be netting up as well, but we're well positioned. And as Kye mentioned, there's a natural throttle on that so we can adjust whatever market condition is there. But by the way, I'd be remiss if I didn't mention this.

If things were to get more challenging, I would never want to imply that we're going to be reducing because that's an opportunity for us to go after market share and to continue to build because we are here for the long term. We're not here for playing for a quarter or any short term. We're going to do the right things.

And I think if you go back and you look at our history, we are very prudent in terms of managing our overall capital budgets as well as our SG&A line items..

And I do think, Tobey, the office occasional has been a huge draw for us, as employees are seeing gas prices and different things come up. Having that option to work from home and then also the productivity that you don't have commuting back and forth has been a really good uptick for our people and our productivity..

Could you give us an update on your, some folks in the industry call it managed services, some people call it consulting? Where does that stand in terms of how important it is to the company size and growth rates? Any kind of update you can give us there would be helpful..

Great question. Let me start out by saying that the service offering continues to resonate with our clients, and we are really excited about the opportunities in this space as the total addressable market for that is several times larger than commercial technology staffing.

So managed teams, project solutions, offerings continue to be a significant driver for us. So we will continue to be making investments and looking at that area..

Okay. I just feel like we used to talk about it more a few quarters ago and haven't heard much sense in terms of the growth and contribution.

Could you frame the hurricane project in maybe size, its contribution in the quarter or even give us an analog experience with maybe prior natural disasters that drove some business?.

Yes. Tobey, this is Dave. Yes. So we've supported some important strategic clients who have been doing hurricane relief for years. Obviously, Hurricane Ian is important, and we want to make sure that we're supporting our partners. This is not a big program, though, for us, even in the fourth quarter.

It's just a couple of million dollars, and it's not something that we focus aren't for time growing. So don't get the impression that this is a critical part of our F&A business. It's not. This is really in support of a long-time strategic partner of ours.

So I wouldn't read anything more into it than kind of the right thing to do for an important partner, and that's it..

That makes sense. And last one for me.

If you -- absent economic changes and if we go into recession, maybe it throws things off, but what inning do you think you're in, in the repositioning of F&A?.

I think we're almost there, Tobey. I think we're always there. We -- I would expect there is still -- like I mentioned in my opening comments, there's still $4.5 million in Q4 '21 revenue. But we're almost done, and I'm just so pleased with the progress our people have made.

When you look at them, I mean our bill rates, 28% year-over-year to $50 an hour. I just -- I'm really pleased with what they've been able to do in that space and feel like those initiatives that we have had to move -- again, just like in tech were moving higher up the food chain to areas that aren't as easily automated and those types of things.

I think it's going well, and we're starting to round the stretch on that..

Yes. The only other thing I'd add, Kye talks about that bill rate. It's also more profitable business, right? So that margin is what, 50 basis points up sequentially, it is much more closely aligned with how we provide services to our technology clients. In technology, it's up more than 2% in terms of margins year-over-year.

So even, as she said, where the repositioning is almost done, it's already bearing fruit for us..

[Operator Instructions]. Your next question comes from the line of Marc Riddick with Sidoti..

So I know you guys have covered quite a lot, so I'll keep it brief because I really do appreciate all the detail that you provided. I was wondering if you could talk a little bit about maybe some of the things you might be seeing as far as client industry vertical behaviors.

Any standouts, call-outs, things that we should be thinking about as far as maybe some differentiation there? And then I have one quick follow-up after that..

I would say across all of our industry verticals, we haven't seen any material shift within any industry. There's puts and takes, meaning there are certain clients that are going through certain dynamics.

But then the flip side of that, there's others that are really going to be very positive and ramping up their strategic initiatives and what they're doing with technology. I mean just when I look at the performance of our industry, our top 10 industry verticals, I mean we used to say they're all up nice on a year-over-year basis.

And then from a sequential, the majority of them are up nicely from a sequential standpoint. I mean a couple flat, but I would say that's less about that industry vertical and more specific to the client makeup that we have within that industry vertical..

Okay. Great. And then this might be a little squishy question, but I got to ask it anyway.

Are you getting any more recent feedback of -- is everything sort of growth-driven as far as what you're experiencing with your clients? Or are you beginning to see any evidence of folks taking on projects that are more cost savings-driven?.

I do you think we're seeing cost savings-driven, too. Like I said, as clients are looking to automate things, obviously, they're taking some cost out of those models. As clients are looking to digitize things, they're looking to do more with less. So we -- I think it's a good mix of both.

There's a lot of capital investment going on, but there are some things that we're seeing where it won't impact us from that cost savings perspective, but they're looking to use technology to make them more efficient and effective and, therefore, reduce some of their costs.

And typically, for consultants, if they do -- if people -- we have seen just very client-specific. A couple of clients swing from they want to invest more and using consultants to give them that flexibility versus necessarily hiring full time, but that's been very client-specific..

I mean, we've been saying this for the better part of 10 years. I mean there has been a secular shift in terms of technology and how technology is -- it's embedded in everybody's strategic plan.

And the reality is, even in a slowing environment or a recessionary environment, you have the flip side that is never talked about, which is companies accelerated their investments to move initiatives forward faster claim through the other side, which, again, it comes back to technology, it's not an on-off switch any longer.

Like when I got into this industry back in 1988, I mean it was an on-off switch. I mean the second things got tough people put projects on hold, they held on to hardware longer. You can't do those things any longer and be competitive unless you're basically going to put your entire business at risk. So instead, I believe the opposite happens.

Organizations sit there and look at what can I accelerate that I was already doing to play for the other side if it's going to drive efficiency and reduce costs and things of that nature and improve the consumer experience..

Great. And then the last thing for me. You actually touched on this a little bit earlier as far as some of the headlines that we've seen from some of the big tech companies and some layoffs here and there.

So I wonder if you could talk a little bit about maybe how that might eventually play out as far as potentially adding available talent and maybe how that could sort of filter through.

Or is there -- is that a reasonable way of potentially looking at that going forward?.

I would love to see that happen. I mean if we saw a little bit of loosening on the talent side, it would be a great thing for us, but we haven't seen it yet. I mean talent, it can -- I think people see the headlines, but it's really not in the spaces that we're playing in it.

It's not your -- like I said, it's not your cloud engineers, it's not your full stack java developer, it's not your big data architects. But if we were to see it, well, loosing up, I know my recruiters would welcome that..

Yes. Again, these skill areas, I -- Kye mentioned it. I mean we're negative employment in terms of many of these skill areas. So a lot would have to happen for that to flip in the other direction.

And again, as you see larger organizations maybe realigning some of their costs because maybe they overhired and grabbed a lot of talent, that talent is just being absorbed in other organizations that haven't been able to compete for the talent..

There are no further questions. I'd like to turn the call back to Mr. Liberatore for closing remarks..

Well, thank you for your interest and support in Kforce. For those who might have missed it, there was a great piece in Tampa Bay times yesterday, a section talking about our opening of our corporate headquarters.

So I'd like to say thank you to every Kforce for your extraordinary efforts and to our consultants and clients for your trust in Kforce and partnering with you and also allowing us the provision of serving you. We look forward to talking with everybody again after our fourth quarter call 2022. Thank you..

This concludes today's conference call..