Good day, ladies and gentlemen, and welcome to the Kforce, Inc. Q2 2016 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 be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Mr. Michael Blackman, Chief Corporate Development Officer. Sir, you may begin.

Great. Good afternoon and welcome to the call. For your convenience, we have published our prepared remarks within the Investor Relations portion of our website. From the about Kforce tab, select the Investor Relations tab. You’ll find our prepared remarks in the download library under shareholder tools. Before I get started, I would like to remind you that this call may contain 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 SEC. We cannot undertake any duty to update any forward-looking statements. You can also find additional information about Kforce in our 10-Q, 10-K, and 8-K filings with the SEC. We also provide substantial disclosure in our release to assist and better understand our performance and to improve the quality of the call. I would now like to turn the call over to David Dunkel, Chairman and Chief Executive Officer. Dave?

Thank you, Michael. You can find additional information about Kforce in our 10-Q and 8-K filings with the SEC. We also provide substantial disclosure in our release to assist in better understanding our performance and to improve the quality of this call. We have published our prepared remarks within the Investor Relations portion of our website as Michael referenced. Revenues in the second quarter improved to $335 million and were in line with our guidance. The improvement from Q1 was primarily due to 3.9% sequential growth in our Tech Flex business where we saw the reversal of prior period revenue declines in certain large clients to contribute positively to our sequential growth. Earnings per share of $0.41 was slightly higher than the midpoint of our expectations. Skilled labor markets in the US continue to reflect solid demand. Unemployment remains low for college educated workers, the temp penetration rate continues to be near all-time highs, and job additions in the month of June were encouraging. In addition, the expanding and evolving regulatory and employment law environment, including the new wage and hour requirements, mandatory sick leave benefits, employee classification, among others have created a higher risk and burdensome employment environment for clients. This trend should continue to benefit the staffing industry, and in particular, larger staffing firms with greater capacity and infrastructure around areas of compliance. We believe the secular drivers for technology investment, in particular mobility, cloud computing, cyber security, ecommerce, digital marketing and big data and the overall desire of companies to leverage technology for efficiency gains, will also contribute to demand for technology resources. Advancements in these areas will be critical across all industries for companies to remain competitive and meet evolving customer expectations. The shortage of supply for these resources and the need for specialized skill sets…

Thank you Dave and thanks to all of you for your interest in Kforce. Over the past three quarters, we’ve made significant strides in diversifying our business to mitigate risk and take advantage of the strength of our client portfolio. These efforts are showing promising signs as clients outside our top 25 grew sequentially at twice the pace of our top 25 clients, and should continue to provide additional opportunities to grow our business. However, it is taking longer than anticipated to gain greater presence at many clients, so revenue acceleration typically takes place gradually. We also remain dedicated to providing exceptional service to our largest customers with whom we have long-term relationships. We believe we are pursuing the mix of business that will lead to the greatest long term success. Tech Flex, our largest business unit, which accounts for 65% of total revenues, performed well and improved 3.9% sequentially, though declining growth rates the prior three quarters has led to the business to being down 2.9% on a year-over-year basis. As Dave mentioned, those few large clients that have impacted Tech Flex growth rates have stabilized and positively contributed to the sequential growth we experienced. In terms of performance by industry, we experienced sequential growth in 9 of our top 10 industry verticals which suggest that demand remains solid across industries. Financial services, which is our largest industry concentration, grew both sequentially and year-over-year. Over the past several quarters, we’ve added a significant number of sales associates in Tech Flex. The intent of this concentrated effort has been to ensure the proper ratio of sales to recruiting associates. Our teams continue to focus on areas of greatest demand and competency in the application development market, our largest population by skill set in areas, such as .net, java and UI/UX.…

Thank you, Joe. Total revenue for the quarter of $335 million, which was in line with our guidance, grew 4% sequentially and declined 0.7% year-over-year. Total flexible staffing revenues, which exclude our government business, grew 3.4% sequentially and declined 0.8% year-over-year. Earnings per share of $0.41 was flat on a year-over-year basis. Second quarter net income of $10.9 million increased $4.5 million, or 70.7%, from adjusted net income, a non-GAAP financial measure, of $6.4 million in the first quarter, but declined 6.3% year-over-year. Our gross profit percentage in Q2 of 31.7% increased 150 basis points sequentially and 30 basis points year-over-year. The year-over-year improvement in gross profit margins of 30 basis points was driven by a 50 basis point increase in Flex gross profit margins, which was partially offset by a lower mix of Direct Hire revenue. Our Flex gross profit margins, and particularly bill/pay spreads in our staffing businesses, continue to trend slightly better than expectations due to solid demand. Our Flex gross profit percentage of 28.8% in the second quarter increased 150 basis points sequentially and 40 basis points year-over-year. The sequential increase was primarily driven by the seasonal reduction in payroll taxes, which positively impacted Flex margins by 110 basis points, as well as an increase in government margins resulting from fewer holidays and lower health care expense in Q2 relative to Q1. On a year-over-year basis, Tech Flex and FA Flex margins both improved 20 basis points, as bill/pay spreads improved 10 basis points in Tech Flex and 40 basis points in FA Flex. Government margins improved 310 basis points on a year-over-year basis mainly driven by a provision made in the second quarter of 2015 for expected losses under one of KGS’ contracts. We expect the margin profile in Tech Flex, FA Flex and Government…

Thank you. [Operator Instructions] And our first question comes from the line of Tobey Sommer with SunTrust. Your line is now open.

Thank you. With respect to the reticence you’re seeing in some customers in recent weeks, could you describe how you’re seeing it in your KPIs relative to either job orders, time to fill, etcetera? Thanks.

Yeah Tobey, it’s – this is Joe. Yeah, so what we’re seeing is, we’re seeing strong front-end indicators from a demand standpoint in terms of job orders that has remained pretty stable at elevated levels. We’re seeing send out activity increased slightly. We are seeing some elongated process with people having to go on multiple interviews and so just a little bit more cautioned. We’re seeing a little bit less of that in our Flex business, it’s a little bit more of that in our Direct Hire business.

Is there a difference by industry, because you did mention kind of broad based improvement within the quarter itself across your industries? And also I guess maybe a little more color on financial services which you highlighted once or twice.

Well so, from an activity standpoint it’s we’re really not seeing at isolated with any industry. Part of that could be driven by we’re in the thick of the summer months, so you have coordination activities with hiring authorities. So it’s really tough to say right now if it’s the summer months that are driving that or if we’re starting to see a true more cautionary approach by the clients, I think it’s going to become much more relevant as we start to move through August and into September whether it’s an economic backdrop and customers are reacting to that or whether this is just a summer dynamic.

Okay. What are your plans to increase your internal sales consultants and recruiting staff at this point?

I’d say as I mentioned in my opening comments, I think we’ll see year-over-year stay pretty much in the same ballpark of where we were in Q2. Partially because what we have to do is, we have to observe the hires that we made on the back end of last year and in the beginning of this year and let the teams gel, and as we discontinue to rebalance from our sales and delivery ratio. So we’ll continue to add on the sales side, probably stay a little bit more stable on the delivery side.

Okay. And then I had a question about the government business if I could. I think you mentioned in your prepared remarks about a significant volume of RFPs I think as you put it, are those task orders specifically with the T4 contract or you’re talking about sort of the seasonal final fiscal quarter of the government’s – for the federal government’s fiscal year?

Tobey, this is Dave. Those were T4. So the issues with T4 were settled, there was a protest where three large prime contracts were awarded. Congressional guidance early on was 12 large, 12 small and ultimately that’s where they ended up, so that resolved all of the protests and the VA has now moved to earnest. So the significant increase in the RFPs have been totally related to T4 Next Gen and that’s what we were referring to in our prepared remarks. That also by the way is consistent with the timing that we expected that assuming that they stay with that timing and actually do make the awards that we will see that Q4 inflection that we’ve been anticipating. And so at this point, based on our previous comments in Q1 and what we have now experienced in Q2 we’re pretty much on schedule for seeing this inflection in KGS in Q4, assuming that we are successful in winning these awards that we’ve targeted.

And I think you mentioned about $23 million in new awards in 2Q in the business. I can’t recall seeing that kind of metric referenced overtime, does that standout as a good number for the business or you put some more context around that number?

Yeah, Tobey this is Dave Kelly. So it was a sizable award – a multiyear award in Q2, wanted to basically point out that it wasn’t T4 there were other businesses and the government business is well diversified outside of the VA as well. And that 9.4% sequential growth that we saw in KGS, we wanted to make clear as a result of the efforts that they’ve had outside of the VA in generating new business with the investable efforts.

Okay, understand. And one question back to Tech Flex and then I’ll wrap up with just numbers question. With respect to how you – with customers by size, have you felt any palpable difference in their – I guess not just appetite but ability to execute in kind of executed according to plan rather than elongate time horizons? To the extent you have exposure to more mid and smaller size businesses, I know that’s generally not your cup of your tea. And then Dave, could you refresh me on the billing days 4Q? Thank you.

Yeah, so I’ll jump on first Tobey. So what I would say we’re seeing – because we do business with customers across various size organizations. So we are seeing things probably not as delayed in what I would consider more mid-tier organizations. So when they have the needs they’re pretty much moving forward. Their processes are a little bit more simplified, you don’t see a lot of MSV, BMS penetration there, so you’re dealing more with direct line managers. So, we are seeing those moves. So my comments earlier were really more specific to what I would consider of large customer segments.

And Tobey, to answer your [indiscernible] question are 61 billing days in the fourth quarter.

61.

61 in the fourth quarter. 64 in Q3, 61 in Q4.

Thank you very much.

Sure.

Thank you. [Operator Instructions] I’m showing no further questions at this time. I would now like to turn the call back over to David Dunkel, Chairman and Chief Executive Officer for closing remarks.

Okay, well thank you very much for your interest and support of K4. And I would like, as always to say thank you to each and every member of our field and corporate teams and to our consultants and our clients for allowing us the privilege of serving you.

Ladies and gentlemen, thank you for participation in today's conference. This does conclude the program. And you may now disconnect. Everyone, have a great day.