KFRC - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Q2 2018 Kforce earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Development Corporate Chief Blackman, Officer. Michael Mr. begin. Blackman, you may

Michael Blackman

Good morning.

now assumptions Before you certain that started, and I uncertainties. upon statements to may any Executive are to the listed remind like would like factors Chairman statements. current based this Exchange are Commission. and materially with the in are Kforce's Securities Actual call forward-looking this These we public expectations risks forward-looking. turn and and subject any filings get cannot to that and duty undertake statements over other I Dunkel, and update vary call would from results reports Officer. and may contain filings David to We to Dave? Chief

David Dunkel

Michael. you, Thank

release published environment remarks SEC we second website. and in addition, You of prepared Relations some our And high-level our QX. turn operating results will then greater then provide opening second on quarter's trends can into find additional earnings add quarter about our filings. color Financial have who further information within to will provide our will on who results will Dave it this portion give and our the remarks Officer, and guidance Joe and I our Investor results our results operating President, on quarter in Chief detail and Liberatore, Kelly, and over

We the quarter are with pleased very results. second

journey to and past through improve years two margins. the to improve a operating revenue improve embracing over standardized disciplined process, model been our messaging and productivity, on operating We and have enhance through accelerate technologies

Tech or our of financial revenue margins trajectory investments our X.X%. meaningful Manila opportunity of a to the business. we ahead operating are having on adjusted end the near when our to growth improving and the a at improve, milestone, share and with XX% people metrics have grew most revenue us technology our road significant expectations, business, While still and profitability was were which were notable Flex per The QX long and high year-over-year we have earnings as first results. our reached made for our in impact we further of our operating driver divestiture the of

Our diversification portfolios more also is talent portfolios acceleration contributing and efforts to client align segment and delivery strategically better and in Flex within revenue our our sales Tech are within to these the benefiting growth we expectation flows QX, our with was of in should particularly million. strength margins. Flex improvements profitability This Cash flow grow. operating continued strong cash $XX continue as due also to of

clients we spending to our the continue. and will that be well Our data the we suggest strong is many is in this economists continues capitalize. with robust, and positioned expecting Recent business strong internal that with leading and demand environment economic metrics growth very economy suggest believe conversations are US very to

new computing, well digital models optional. to We dynamics competitive and as the services. secular the have to going on patterns since their mobility These Non-traditional end world. for business be will of these believe in Big these increase in all leaders. not technology customer cybersecurity, artificial and strengthening pressure Companies We requiring cyclical demand virtually in innovation are investments transcend as accelerate recent experiences as the models. high across all traditional may of are this the but to experiencing with business tax evolution of the intelligence transformed. passage data, sizes keep companies to and seen thus drivers machine forward increasingly learning the industries, are drivers necessary in competitors growth marketing. adds The are they secular our cloud tech-driven investments continue demand, for increased pace Rather, their this of in invest putting survival market just confidence are and markets, entering also prospects some legislation, economy's continue. to environment only economic that reform spending anticipate as enhance

this As as human look capital across war large has but their in competitive drive limited the for also been These industries talent. not infrastructure stringent case are Kforce for challenges. the increasingly companies need cycle, increasing meet all There and such for to only entire quality the represent will timely to firms economic we to providers significant provide to requirements. talent, with advantages that solve to technology investments compliance expect today's

strength Our of demonstrated a of approval confidence the our Directors' third effective our increase in business sustained by of our dividend, is in XX% the quarter. Board in

growth we QX, accelerate to to continue leverage growth. revenue operating the with to our further look revenue consistent from we As and, expect improve profitability objectives, our

technology also are of to clients, continuing increasing improved our exceptional our service equips consultants, invest while that and deliver in capabilities also productivity candidates our with to organization We associates. the to

the words to recently realign very has always We time in proud refresh. launched our always the brand, employee the from business own and started have when came why perspective. relationships. personal Many came directly with sentiments in are you'll of the find update will people. also That's brand be, Kforce we been, and to of our brand Kforce our our

Our its the and Kforce brand Liberatore, new phrase personal Love woven brand do. turn What empathy President, really it, now our have of over what itself over Joe our we and never the to livelihoods has core the people love natural that to several and We that. it's the I'll that details. important we at impacts convey of tagline into to Joe. into years are call provide further we and – embraced Who my Serve Kforce's serve. so Do And has it's only last update. belief forget to We organically our – that official those Love people made We We needed This way it reflects

Joseph Liberatore

Flex the investments have our made taken are revenues. the the roughly The which business being And thanks you divestiture We and business, in have of is year-over-year expectations, all This of years. benefits year-over-year Tech now growth the accelerating quarter, rate actions for Thank reported, Most Manila acceleration times overall rate. from your our quarter for last to XX% rate in we quarter. reflective is Kforce. the results reported in X.X%, over believe of Dave. XX.X% the of second and interest as for continued exceeded our second you, the is to adjusted few the notable realized the up XXXX the we growth roughly this business, growth, three industry projected last when growth X.X% of from in

during overall and average were from quarter early quarter quarter. third has this second continued higher bill the the our last into in starts of and the momentum month strongest rate, the During new quarter, also assignment benefited we the the

a compares This which bill Our average rate hour $XX.XX in QX, is bill up $XX X.X% a of rate per was X.X% improvement of year-over-year. to year-over-year.

segment client have to talent We and portfolio, of alignment optimizing diversify tailoring to occur. our better the we calls with delivery our expect growth commented to the our client on efforts and on incentives that our prior sales and portfolio

Fortune largest flexible consumers to be the XXXX companies continue of technology talent.

over This the us been growth are very for our so to industry to an customers staffing five solutions. that beyond this diversification flexible Our of standpoint, increase the efforts in was several experienced bill/pay broader where rates understand facing fourth into clients growth enabled a focus Fortune craft more the of in deeper bill has largest services result The mentioned, issues broad-based. established we sequentially our XXXX they largely growth virtually all of revenue relationships. spreads industries, our I again have coupled we better quarters significant to and other and on broad-based us the has users growth, much previously past has last with From increasing allowed quarters. time technology

focus users staffing this is and sourcing by field attraction us United capability, well again has with of delivery levels our Our focus application quarter. also to deliver platform, This our leveraging the us candidate mature allows at capability, to improved increase and supported offices, centralized productivity scale combined on technology, enhanced States. across which flexible our large of the consultants allowed the of execution

gains, believe productivity additional are While with capacity significant we exists. we pleased certainly the

We in that will efficiencies our yield productivity. technology also additional believe continued investments and

expect accelerate growth for sequentially the Tech XX%. quarter Flex and XXXX, revenues to exceed year-over-year of For again we third rates and to grow

Flex revenues, X.X% declined year-over-year. diversification, in to roughly a our aligning better FA and represents mind. we with technology more portfolio overall business, what our in XX% business, sales which focused talent on accomplished delivery of Similar Our are client strategic we

a FA. In addition, balanced as of skilled larger are end, in mix roles actively we higher projects pursuing more

this some seeing X.X% increased indicators bill early form increasing year-over-year. of are to focus in rates, positive have which We the

than we been However, anticipated, through as have starts transition, revenue which new assignment declines. this lower is driving the work

environment growth future are We we demand solid. business for positioning believe that is against this a

half levels. be to begin to down improve activity revenues year-over-year XXXX of to quarter declines and the We in expect third sequentially, quarter second as to second slightly levels flat approximate

this revenue sequentially in a we call in two represented base. XXXX. expect XXXX. third our winning were of In in business were from turn of prime approximately this the the awarded fourth to the KGS revenues that of strategic business quarter as XX.X% we grew referenced contracts that last addition, We XX% our continues that year-over-year significant services successful re-compete quarter positive to benefit during

certain to that and risk the margins operate the However, XX.X% in the inherently in than going of insignificant favorably as for XXXX protest there is and protested. recompete especially We in product in revenues, quarter. the is profitability was common, being volatile are a said, which in expect KGS. we remainder KGS on more believe existing of cost second services KGS business environment to on secured accelerated put was focused for to strategically business, its With resolved contracts expected the XXXX and continues improve KGS, KGS recompete award This sequentially improving is competitive margins year-over-year. forward. QX. services pressure are the

increase single-digits for X.X% growth quarter, in on high year-over-year. the will a of expect though basis, decline quarter. be to rate Direct roughly X.X% revenue, double the sequentially total For revenues overall the of to by which second year-over-year represents growth to digits third revenues, we compared Hire KGS and declined

ensuring continues important talent in capability Our meet of prefer. means needs to Direct Hire they clients business can our an the whatever we that through be

have for volatility have selectively necessary ramp investing cyclical this and of we past Given in business as economic to the this been cycles. business, talents, economic sensitivity cycles we cycles line in in the

the be seasonal to and decrease slightly. typical year-over-year in a expect down third We quarter

We of a consultant These sourcing technologies time system, management directed improving management training, tools the new consultants, and and and intelligence our our continue for include in capability others. system with customer tools, the business of improving expense talent candidate significantly as people. productivity greater management well investments clients among technology, and as experience system, that other to make relationship targeted towards are our level matching,

year-over-year. XX.X% We have approximately improved the talent of our revenue-generating productivity by

we improving at model, our refine to continue to we headcount for levels. exists to as associate we targeted identify have additions therefore, grow and, capacity not As made continue significant opportunities productivity revenue believe to

tied is ensuring tools arming our by success improve them are associate productivity and and leadership. engaging ability right to consistently customers to with Our the best the with they

to efforts on operating Dave? trends Financial Our everyone's appreciate executed to firm well, the as Kforce's over turn Kelly, I Officer, we to I'll and team provide expectations. call has Chief now and continue our insight forward. Dave move additional

David Kelly

Thank you, growth, of improved $XXX.X per X.X% $X.XX quarter year-over-year in Joe. from represent accelerated Earnings the which Revenues XX% share year-over-year. last of X.X% quarter. million

increased a of Flex percentage and a XX is continuing margin in decline to decline year-over-year, related in points the staffing XX.X%, KGS now commercial margins, in core the Flex Flex The in to in continued point quarter Flex pricing decline of basis year-over-year. an profit XX% mix improvement and year-over-year services gross FA margins to basis profit spreads Flex gross due margins basis primarily which have have businesses in improve, pressures our due declined also basis XX.X% points our of Hire Tech year-over-year to XX.X%. are percentage Direct however. XX increased points bill/pay revenues to our XX Our business. XX

its to now success five margin in our reflects bill/pay increasing further quarters demand businesses, rates in of the seen spreads four last higher in a staffing penetrating have in sequential strong bill improvement and and pricing discipline accounts. We due which

contributed shared, and X.X% rates, for grown to rate Global previously sale have and Global Flex rate. divesture, low the X.X% acceleration Tech improvement Overall As business Flex rate operations second average This of half in bill in Tech increases Flex in bill the Flex our of the slight Tech X.X% year-over-year has business. a also and respectively. the FA our approximately FA quarter normalized our for represents the Flex bill our bill in from X.X% last XXXX

stable are relatively basis SG&A our margins of revenue to which quarter, Flex in XX% improve firm. to expected for percent business expenses points as businesses, declined while low Tech historic in is quarter expected margins and second are be to Third a sequentially. Government Flex in Flex our FA year-over-year the our service XXX a

continue in in progress by technology We improve This make operating productivity leverage to improving allowed us generating and has expenses. our significantly margins. to to investments while SG&A continuing controlling increase

Looking essentially QX sequentially leverage on providing business improving improving SG&A flat forward and revenues, contemplate expenses intelligence expense margins. the QX, further and should in further continued in candidate to and focus investments technology, a with our on capabilities. expanding be dollar consultant experience SG&A greater

technology firms productivity We with and and partner also aggressively that our are improves to relationships. leading embrace enhances experience pursuing customer opportunities to

exceed the milestone to $XXX set quarter operating Second X.X% quarterly margins were XX improved million. exceeding of year-over-year, revenues we when points XXXX basis

by cycle, businesses economic more that gross points margins. of compression Flex firm two the basis than overall despite overall now this more in margins profitable were our operating averages, XXX and the profit During non-core improved divestiture than we've

when We revenues are to very operating we of pleased with next reach margins exceed X.X% quarterly milestone track on made $XXX have our are million. and the firmly progress

rate second Our quarter tax was the XX.X%. effective in

effective $XXX.X to million QX expect remainder sheet under tax approximately to flows of in this million regard to We facility debt were cash our flow for was the one As will close second XX-month $XX we and of track the by cash balance of and the credit cash strong. quarter times very With year, our it to rate income end million. relates operating used Long-term flows, June levels. the at EBITDA. trailing $XX.X debt our decrease this

our were between identify $X.X if or price to cash Our or acquisitions flexibility performance tuck-in partnerships. and to in maintaining strategic returning the to were strong expenditures stock flows the cash million. dislocations while our balance are us sheet continue quarter allow action if shareholders, take to Capital we and or there second

Board our dividend. with approved This quarter dividend As effective to Dave brings bringing our dividend X%. to dividend, increase payout the mentioned, and earnings level yield approximately of quarterly third the share to XX% to approximately a $X.XX per increase XX% our the

and comfortable make quite with and performance at Board the plan levels flows strong to Our will dividend cash us dividend annually. levels a evaluate these

same million. second than billing earnings and day The With has $X.XX guidance, billing $XXX the third of last are range per be XX.X%, Flex are and XXXX XXXX as $X.X Revenue one XX.X% and was QX of percent less XX.X%. quarter for QX million is million XX expected year. Gross to between be $X.XX. XX.X% revenue respect XXXX days, between a is of which QX $XXX per we to be to the quarter while revenues the in to day as in to between expect share to between to and and and XX.X% SG&A XX.X%. expected margins be of margins expected be

next legal costs XX.X%. operating effective margins XX% or on be to million future one-time intangible margin Flex any, progress changes. the charges legal exceeding operating rate charges third firm's not to regulatory, contemplates consider end an funding guidance XX.X tax the response The assets, the also diluted disruption if reflects milestone revenues government the or average of Our guidance law towards Guidance of related of costs, does of be matters, for X.X% tax tax and approximately should X.X%. Tech any the or to or QX. any any between pending impact to in This impairment effect, an are growth outstanding Weighted our expected on assumes year-over-year rates as-reported shares of continued for basis. guidance high quarter and related

SG&A are Flex is pleased and the a our We Flex our gained continued business productivity profitability. associate believe Sequentially, in revenue from leverage continued to acceleration foundation solid and for benefit Tech growth, from margin sustained have in improved with improvements growth we continued discipline. very expected the stable operating margins, revenue expense and

continued make million. incremental without milestone impacts, X.X% next margins operating of in where to quarter, meeting $XXX in revenues expect our We a reach improvements seasonality

are in that call demand questions. about now the remain We are our we continue will open and for significant will believe prospects. future up Sherry, businesses we in to excited

Operator

Thank you. [Operator Instructions].

W. from Marcon R. Our with Mark first question Baird. comes

Mark Marcon

$XXX right. improvement. towards talk was on All quarterly results little good SG&A mark. And bit more as and result you wondering morning. Good would congratulations million a that trend within get the the IT margin you the and if the revenue capacity have could I currently about expect the system you would you how

Joseph Liberatore

we've can capacity, improvements. have to Mark. historically. levels Yeah, plenty I'll of productivity We're we Relative not room part We nice near part It's that your the go. handle second and Joe. of to seen seen Kelly first Dave the question. still address have

mix population Also, population. So, very almost our X-plus-year grown comfortable. of the XX%. our We've

calls, on prior we of get tenure. discussed out we've tremendous As leverage

on individuals, those So, as built people focused the move that they X-plus tenure that firm. the they've holding we're their over leveraging with the really into the relationships and quality category of on to

capacity. with comfortable very we're So,

As I from but a on means, a believe, a we in more those there relationships we're on technology, opportunity through future. equip big strategic and those pure doing is capacity. well model, see partnerships had as to operating our things people. just become as, And And mentioned, into our embedded bit quite ample not the standpoint we

David Kelly

we're a today. progression, income think statement Mark, So, where little think this I looking at looks, a from at think, linear Dave put improvements, we is operating margin bit point, are around we of as how about pretty Kelly. To color the this we

very had Joe improving to be mentioned And going going scenario that still And targets. to drive expected, operating And of productivity the – levels. to margins. looking we're contributor down we the margin attain SG&A here. we're going a that's the as business, that to improve the We're continue are As is going stable are will decreasing is drive where incrementally the technology that that's productivity to and how the going revenues the margins profile to operating the grow, SG&A improvements that levels Flex to productivity really and at – seeing operating those margins.

Mark Marcon

Great. And the the Like, up a your relationships in most nice attribute meaningful then, with bit ramping relative talk breadth way clients was some to could of you're you that Flex, in spend. to? if wondering regards IT terms more just more their penetrating of I acceleration seeing little a of about there. you perhaps what would to deeper acceleration

David Dunkel

accounts. coming latter of we accounts the significant this is what enterprise. what those is point of portfolio. sits other you right into more established footprint the We're of reflected. had spectrum, our relationships still then, – significant is on in and two the where at wider then, of we're being going a our where time. out following Those higher It's haven't and it win. the seeing And between portfolio call, majority are the see we've where acceleration we three growth The growth growing in can large grabbing are footprint categories. groupings, those customers And are call out that towards we of the really consumers major of we what we're relationships I We've bulk enterprise. of a had the you And this And think percentage two a penetration. deeper those and we're clients. side our within spend good large that into And kind our driven. very There the our very existing broken market-based what those

clear So, diversification demonstration working. the that's I is think that

in And on Mitchell, portfolio, presence, and Kye been and market think of a really vertical job seeing regional think been and the the focus field. our of has driving efforts. execution there, president, shift focus. our around the it's traction that we're So, I the just gaining results our those did marvelous the in I our

David Kelly

spread those a has rates clients Flex that is I I the would the to on margins, stability over bit of on the That very, That So, is clients mentioned add major This five and in Dave better reflective margin quarters. have. clients profile, Kelly. we benefit we've our than that four seen right? strategy are also added of large Joe's that those profile we've very bill/pay comment. bringing improvement that have in improved last that growth the of an

benefit So, it's got duplicate a there.

Joseph Liberatore

in at Dave's see margins point are a our those I To of look enterprises. that probably think clients within XXX when outside that we point, we portfolio, basis delta

all As when become of rate there's you exchange an know, very for we significant. volume

And Dave's so, us. well playing for point, to that's

Mark Marcon

But That's you on confidence how see pure you uptick great. fourth sequential quarter. And if then, Are can think we accounting, of starting there? a build you about about orders that in in talk I already know the than IT up should we'll is other focus. Or seasonality? wondering some see gives just what to the terms that

Joseph Liberatore

seasonality. Part of it is

we've the part been FA of is, period a other business The after time. for

of higher the by benefit business right, will some in long is longer are. it we've of been I at we our numbers have our bit think a look I walking as we design, that extent to relationship so resources comps been certain profile that consider, engagements would little quality well, what margin this that the focused term. a the that to to So, to work start There's that consider, what cycle when certain, of would were favor And from has design. can a by on, large what lower from I away

all and optimism So, that that's together, sequentially as of when into out relative things us we to to what some we turning XXXX. gives it positive us put gives you as to QX look start confidence those head

Mark Marcon

what enterprises on to side you going share comment are those the Great. business benefiting to that? And of versus or just some how some extent characterize IT but had you gaining then, providers IT spending other from increased gaining penetration from would really relationships. in back more of could To you with, terms the that just deepen relative your earlier

David Dunkel

are it's this into demonstrated And period because I finally our capable. space as well there certain And competitors now, there have been for a of you think those moving has we're clearly, the there IT time. ZIP codes. what end. on follow This that you out know, closely, spend execution is

go-to-market team. back. We at marketplace executing this again, need goes So, the years when that in and the back ago process plan step And a methodology. We large benefits a traction to of we're looked plan. I to to our of in we strategy, put our think This differently. we're just I rather place attack in put with sales the made two on see the investment we those associated and some back We in starting the how things.

Mark Marcon

That's great. I'll jump back in the queue. Thank you.

David Dunkel

Thanks, Mark.

Operator

Thank you. [Operator Instructions].

Our Blair. from with Tim next comes question McHugh William

Trevor Romeo

Hi, for good the Thanks morning. This is Trevor Tim. taking call. for Romeo in

first is rate to for So, that question, up bill pick mentioned Flex you growth starting the segments. on both side

the wanted going you be type increases think see similar to see rate to moving bill if any X% for do point? a And room up continuing that at this if we you solid will continue backdrop. Just to forward economic see norm

David Dunkel

here and to Yeah. in down. good to is about ability for in going that X% Clearly, suggest Trevor, ability And to Flex. to quarters Tech that we're the so And rate in true – increase FA pay bill of on rate able reflected slow rates. the between is bill we're is rate maintain spreads is our that us, obviously, our news the Flex and side. X% the in environment seeing X% growth was doesn't couple last that growth

change. So, – have will for to trajectory I that to is economy change there and in don't something that the know

Trevor Romeo

guess, internal with guess, levels, to, though add about productivity I the you giving headcount, even then, And not sense. the I you growth improving ability talked you're makes Okay, expecting.

adding out at that you think you think guess, I what growth long-term without several is, level a question can bit years, start you growing growth my the next the do do more headcount? objectives of reach aggressively? headcount to would need So, And looking you

David Dunkel

we and the plays strategy have a relationships this place, lot Yeah, technology we the other I believe November, put of that strategic that we'll year hold, of my around is, as investments in to haven't see This that as XXth that business. overall and celebrate time And I models. seen and productivity in historically. takes we these part out, places and go levels personally,

when any on ramp a something those add we jumping don't blue, along front. we've make see ample or we're us place of compression headcount people, to taking providing those of lines. sure that not to up sudden, to a to think say out find headcount that time will I all have So, we lot but optimism a of ramped we start will That's you'll that to we on call up and XX% the there

So, it will be measured.

Trevor Romeo

Okay, got then, maybe And more it. one me. for just

would revenue around the I Hire know volatile, you're that forward maybe Hire despite could Direct revenue And seeing on targets? margin On more a bit is bit why at you a strong environment. to a think just but more lower side, of you elaborate business that do going your down XX% hurt the mix ability economic Direct all reach the

David Dunkel

of those that days. out of back downturn made decisions coming those were the in dotcom these We part for actually been our it's Hire, plan. Direct around

mix XX% of north Our XX% Direct total contributing of north was of gross of Hire profit. almost revenue,

quarter and of quarters and down and to of on there. this equation watched the you been other at a we've quarter a six the look tear aspect required infrastructure million a $X run side So, rate million matter drop when in that's $XX

downturn, that Hire. we made a Direct decision measured the in of more out conscious terms coming to So, mix be of of

have We capacity, where Direct in are teams, we right have the we makeup. the where client Hire we right strategically investing have

and where we're terms of So, in profitability. very is, our that's comfortable mix been our models all into built with

up. to that go does need So, not percentage

down it to could hit targets go the we've established. and that I'm we'd fact, tell In you here

Trevor Romeo

thank you the much Well, detail. very Great. for

David Dunkel

you. Thank

Operator

for I would now to David Mr. any Ladies back turn and gentlemen, thank today's call question-and-answer like Dunkel you of for the portion participating the over to in closing remarks. call.

David Dunkel

for team. you lot thank work that The and the your result Well, our and decisions Kforce. results tough we've by of of experiencing Great. is hard support of a interest

to each and the Thank I'd and and and every to much. clients you. privilege serving say more of member of you corporate consultants much like allowing have our you field very thank us do, we While for to teams to our

Operator

conclude does the you Ladies for conference. and gentlemen, program. participating thank today's This in

may You a day. wonderful and all disconnect have

Kforce (KFRC) 1 Aug 182018 Q2 Earnings call transcript