Good day and thanks for standing by. Welcome to the Kforce Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentations, there will be question-and-answer session. [Operator Instructions] I would now like to turn the call over to David Dunkel, Chairman and Chief Executive Officer. Please, go ahead.

Good afternoon. I'd 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 Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. You can find additional information about this quarter's results in our earnings release in our SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website. The significant strife in our financial results leading into, during and now after the pandemic, continues to affirm a strategic decision to focus our business on domestic technology, staffing and solutions. Prior to the Great Recession, 50% of our business was providing technology solutions to commercial clients. Our executive and leadership teams and dedicated associates have all participated in completely reshaping the compensation of our business, using as a foundation our 50-plus years of experience in delivering quality solutions to our clients. This reshaping involve numerous divestitures evolving our client portfolio to be more significantly focused in industry-leading companies, and this proportionately investing in growing our technology business organically. Staffing industry analysts noted the domestic technology staffing market was the largest staffing market segment in 2020, with spend of nearly $31 billion, which represents growth of nearly 100% since the Great Recession. The technology solutions market is estimated at greater than $100 billion, which represents new growth opportunities for our manage teams and solutions efforts. As we look to the future, this market is expected to continue with rapid growth rate. With our revenues concentrated, approximately, 85% in technology, coupled with a complimentary finance and accounting footprint, we are ideally…

Thank you, Dave, and thanks to all you for your interest in Kforce. The momentum across our business is continuing to accelerate. Total revenue for the second quarter exceeded the high end of our guidance and grew 17.7% on a year-over-year basis and has improved 19.1%, compared to Q2 2019. Total firm year-over-year growth in the second quarter is the highest organic growth rate we have on record. The operating trends we continue to experience in our technology business have been impressive. New timing starts are not only reaching all-time highs, but they have been remarkably consistent and broad-based throughout the second quarter and thus far in the third quarter. We believe that this speaks volumes as to the vital, non-discretionary mission-critical work that we are performing across our blue chip client portfolio. While the clear driving factor to our record levels of technology growth is demand for additional resources, we continue to see increases in bill rates. Our average bill rate is now approximately $81 per hour, which is indicative of the demand for higher end technology talent for projects and solutions work. Billable consultants on assignments began increasing shortly after the inception of the pandemic and have grown, sequentially, for four consecutive quarters. Consultants on assignment are now at level 28% greater than in June 2020 and increased 6% from the beginning of the second quarter to the end of the quarter, which is a great indication for accelerated growth year over year in the third quarter. Job order flow has largely returned to pre-pandemic level, and we are also continuing to see higher fill ratios, due to the improved job order quality, as clients are executing against an overall higher mix of critical technology initiative. We also believe the trends we're experiencing are reflective of the growing…

Thank you, Joe. We are very pleased with second quarter revenues of $403.6 million exceeded the high end of our guidance, as we experienced record, organic sequential and year-over-year growth in our technology business. Profitability levels also exceeded the high end of our guidance, with record earnings per share of $1 in the second quarter, which represents an increase of nearly 113% year over year. Our gross profit percentage in the quarter of 29.5% increased 110 basis points year over year, as a result of a greater mix of direct higher revenues and an increase in overall flex gross profit margins, which improved 30 basis points year over year to 27.3% Flex margins that are technology business were essentially flat, as growth in our higher margin managed teams and solutions business is largely offset the slight spread compression we experienced in our traditional technology staffing business, due to the strong relative growth we are seeing in our largest clients, which carry a slightly lower margin. Overall, average bill rates and pay rates continue to modestly increase. Sequentially, spreads in our technology business expanded slightly from Q1, but overall margins improve, due to seasonal taxes and lower health care costs compared to Q1, plus margins and FA expanded 180 basis points year over year, primarily as a result of a higher margin, short-term COVID project that ended in June. When looking at the underlying FA business that we are migrating towards, we are seeing early indications of improvements in flex margins, and overall average bill rates. As we look forward to Q3, we expect spreads in our technology business to be stable with second quarter levels, while FA will improve, sequentially, from our repositioning efforts and the decline of lower margin COVID projects. Should we begin seeing wage inflation within our…

Sure, sir. [Operator Instructions] We'll pause for just a moment, compile the Q&A roster. Your first question comes from the line of Josh Vogel. Your line is now open.

Thank you. Good afternoon, everyone. Actually, just for -- thank you. First question -- sorry, first question I had. I know there's a lot of moving parts. But when we look at this 85% to 15% target revenue split, especially entering 2020, and we think about the nature of the work being done, you have increasing bill rates, consultants on assignment [indiscernible] direct hire, but you already have a gross margin profile is back for 2019 levels, even with mix working against you then. So I'm just wondering what sort of margin profile should we think that the business can get to later this year and then 2022?

Yeah, Josh. Hi, this is David Kelly. So when we think about margins, prospectively, we think about them, at least in the near future to be stable, right? They've been relatively stable, as you pointed out, for the last couple of years return to the 2019 levels. I've mentioned sequentially, that we're looking at state stability in our tech margins of 85% of the revenue stream. I think we're doing a really marvelous job balancing the growth in the portfolio with appropriately pricing. So we look at this as a pretty stable environment with the foreseeable future.

All right, great. And, obviously, very impressive results with the tech staffing business, who you think you can share it from? And when we get the 9% in a sequential number 1% year-over-year growth, parse out may be just coming their gains versus pent-up they know that may not eased, but any of -- thoughts there?

Hi, Josh. This is Joe Liberatore. I think it's really -- we look at the competitive landscape, I think you have full awareness of the publicly all comps that are out there. And so, I think you can -- you can say part of it's coming from there, part of it's coming from the local operators, regional operators. You know what we're saying is demand is broad-based across all geographies and industry. And it's also very balanced in our portfolio. So we compete with different types of companies inside different organizations the large organizations, typically, national scale players, when we get into local -- more local-based company, or regional based companies, that's when we run into the regional and local providers. And I think it's really indicative, when we look at where our growth is coming from, our top 25 accounts grew at a rate of about 20.2%. And our non-top 25 accounts grew at 21.6%. So very balanced across the portfolio regardless of the size of this type of company that we're working with. And we're also capturing some solutions business is embedded in our overall mix. And we have the competitors they were up against in the solution space. You know a lot of them are what I would consider local or regional huge players. And then also, we are capturing some business from the larger, more global providers. But that's really typically carve-out type projects where we have a unique expertise and relationship within the organization.

I appreciate all those insights. And one more, and I'll hop back in the queue, but knowing that we should expect COVID-related business to significant decline and output a strategic move that you're doing on your end. But as the pandemic lingers, the Delta variant spreads, is there potential that there could be significant upside to that business? And I guess I want to get an idea around how easy -- how easily you could scale that back up if need be?

Yeah, and say, could we scale it back up? The answer is yes. Because our teams did a tremendous job in surfacing tens of thousands of candidates over a very short period of time. So we still have connectivity with the candidate pool, the service need. But also, the flip side of that is we've been very clear on these were a byproduct of long-standing relationships we had with certain organizations. And so, unless this kind of the same specific types of engagements reengaged, I would say more than likely he won't see us turning out on COVID-related revenue, irrespective of what might happen with the Delta variant. And when you look at where our concentration of business was, I think it's even a lower probability that those engagements would reengage, based on conversations that we've had with our with our partners that we helped out during that time period.

Understood, well, let me pass the results. And thanks for taking my questions.

Thank you, Josh.

Thanks, Josh.

Your next question comes from the lines of Mark Marcon. Your lines now open.

Hey, good afternoon, everybody. I was wondering, can you talk a little bit about the strong growth that you saw in perm, and just how you're thinking about that long-term strategically, considering the continued labor shortages that are out there that don't seem to be abating anytime soon?

Yeah, Mark, on all roots go back to problem. While we have a lot of people that are highly competent and capable, which is why I really referenced them in my opening comments, and they have a lot of deep, long-standing relationships. So I really -- probably very important to the offerings that we bring to our clients. As we've articulated, countless times the way we service that on the technology side, which is the bulk of the revenue that we derive, is really more in a blended model. So if the client has a firm need, will service that firm need, if it's strategic and makes sense and it's a value add for the client. We are dedicated perm teams on the FA side of the house. We haven't invested extensively to build those teams. However, we are selectively adding to those teams, where we have a really good footprint, we have capacity, and we can use additional resources on those teams. But that's how it fits within our strategy. We made this strategic move many years ago. I mean, you remember the days during dotcom, when we saw our quarterly revenues go from about $42 million a quarter down to $6 million a quarter over a course of six quarters, highly cyclical and sensitive to the economic drivers that are out there. So we really -- we like how we're positioned from a planning standpoint. And that's not strategically -- we've been very consistent on how we've been approaching this.

Okay, you've been very consistent, and the -- and the reasons have been consistent over the years. I was just wondering if there was, perhaps, any sort of downturn, just given how strong the level of demand has been, but you answered that. And then with regards to the additional investments that you're making across the board, how soon do you think you can ramp up your new people, in order to get them up to productivity levels, particularly with the new systems that you've been laying in?

I would say everything we're doing is really to drive two things, which is the increased productivity capability of our proven seasoned people. And we've really started to see some of the fruits of the investments we've been making, I mean, our productivity, from a technology standpoint's up over 25% year of the year, and FA is actually a little bit north of that in our core FA business. And I think this also dovetails back into your ability to ramp up new hires. A lot of what we've been doing here over the course of the pandemic is looking at different ways that we can create more leverageable training and development platforms. And our team has done a fabulous job. And we're just getting to the point now, where we're starting to deploy some of the work that we've been pursuing for the better part of the last 16 months as part of our Kforce Reimagined strategy. So I think all those things will play into our ability to more quickly ramp new hires, as well as continue to provide tools, technology and process to further drive productivity gains of our existing people.

Great.

So, Mark, I know the answer to that, right? So the idea of investment, especially in technology for us, isn't particularly new, right? So we've been investing, and Joe mentioned the productivity enhancements that we've seen over the years. This is an opportunity, as we said, to accelerate this investment. It is as much long-term, as it is an opportunity to take advantage of a great operating environment. Obviously, the productivity enhancements driving that 20% plus of growth. So, this is technology, as well as the talent, as well as, I think, specifically, as we had mentioned, in the investments in the capabilities of highly skilled people in the managed teams and managed services offering. So it's a -- it's a holistic look at that and continuing to evolve our model, and so just a little bit more on that.

That's great. And then just on the manage team and solution capabilities within technology and tapping into an even bigger market, who are you running into the most? What's the most common scenario that you're being brought in? And what's gone better? And then, the new expected where are you seeing the best opportunities?

Yeah. So I'll say -- and I touched upon this a little bit earlier. But we mainly run into regional and local on niche solution providers. We also are capturing a number of what I've called internal projects where the clients looking to hand those off to someone with the expertise in areas where we have a capability. And we also are getting some carve-out type projects, where large integrators might be in there, as the dominant provider on a large scope and scale project that there's a niche opportunity. And so, we also -- we've continued to hire a lot of SMEs from a large solution providers that are highly capable and competent in playing in the space for quite some time. And we've been very fortunate with the individuals that we've been able to bring on for our team to just continue to further build out on our capabilities on that front.

That's terrific. Thank you.

Sure.

[Operator Instructions] Your next question comes from the line of Sam Fishroom [ph]. Your line is now open.

Hey, guys. Thanks for taking the questions here. Relating to remote work, do you have a sense for what percent of your client base was offering remote work solutions prior to the pandemic? And how does that compare to the situation today? I guess I'm just trying to get a sense of how fast the market is shifting towards this new way of working and also this has any implications for your margin structure.

Yeah, I would say pre-pandemic, we saw some -- you saw some remote work going on. It was usually much more specific to unique needs, whether it be the -- whether it be the candidates' need, and they found that their unique skills were or certain client opportunities where maybe they didn't have adequate space, so they were resolving people and having them work remotely. That wall got turned on and said, when the pandemic hit. Virtually 100% of our technology, resources were working remote outside of those that were physically working in labs on actual physical technology where they had to be there from a hardware standpoint. What we've seen at this point in time, because we've seen the majority of our customer base is still predominantly functioning in a remote capacity, we do have a number of customers, and you read about those in the media, the large customers that are -- that are trying to bring people back on premise. However, I will tell you what we've seen here probably in the last three weeks, is we've seen people backtracking on their back office programs, mainly associated, because of the things that are happening with Delta. So, we -- the majority of our -- of our clients are very flexible and hiring remote talent. Some prefer that talent to actually be closer in market, but work remote -- are those that are really, truly after getting the best talent are completely flexible on having that talent be located anywhere. In fact, I would say from what we're doing on the manage change solutions run is really, I guess, showing us that because those customers are looking for the best talent in the marketplace and we're more engaging in those type of projects, we're seeing a much higher percent of flexibility for those people to be based anywhere, they're really after the best talent.

Great, appreciate the color there. Maybe switching gears a little bit here. But labor availability has been a huge issue that many companies have been struggling with. I imagine many ways this benefited your business as these companies partnering with you to help address their labor shortage. But I also wonder if there's some positions you'd like to have built that you can't because the right labor's so scarce. Can you share your thoughts on the issue and its impact with business right now?

I would say from a labor shortage standpoint, the areas, where we typically play have been labor short categories, long before the pandemic hit. You know high-end technology in individuals even when unemployment was running mid to upper single digit still running negative in terms of the amount of openings there are for the amount of people capable of performing those. So in our world, it really boils down to what is our recruiting capability to go out and identify that top talent, and then secure that talent for our clients. And that's really the core competency at Kforce. That's what we do for a living. If there's -- if there's one thing that I would say, is all core competency it's on the recruitment side to be able to go out, identify and attract, and then retain that talent for our clients. So, we're not really seeing any particular openings, where we can't fill the position. Some are obviously more difficult than they are. But that's all supply demand driven. And then we're really working with the client to get the client flexible enough to open up their requirements so that we can identify the talent, based on within the marketplace.

Great, appreciate the answers. Thanks.

Sure.

We have no further question at this time. I will now turn the call back to David Dunkel for closing remarks.

That's great. Well, thank you, again, for your interest in support of Kforce. And I -- once again, I'd like to say thank you to each and every member of our field and corporate teams, once again, just incredible efforts and incredible results to our consultants and our clients for you to trust in Kforce and partnering with you and, again, allowing us the privilege of serving him. We've delivered another quarter of exceptional results, and we look forward to speaking with you again after a third quarter. Thank you very much and good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.