Good day and welcome to the Kforce Inc. fourth quarter 2009 earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to Michael Blackman, Chief Corporate Development Officer; please go ahead, sir.

Thank you. Good afternoon and welcome to the Q4 Kforce conference call. Before we get started, I would like to remind you that this call may contain statements that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially because of 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. I would now like to turn this 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, 10-K, and 8-K filing with the SEC. We provide substantial disclosure in our release and our hope is that this will improve the dissemination of information about our performance and the quality of this call. We are very pleased with our firm’s performance in 2009, and it’s against the challenging and still somewhat uncertain economic environment. The objectives we had established at the beginning of the year that’s focused on markets and customer share gains, retaining our great people and maintaining positive cash flow are all achieved. Our longer term strategies are also bearing significant fruit, including our national recruiting center, strategic accounts and the narrow focus on our full service offering of technology, finance and accounting, health and life sciences and government. Over the past year we doubled the size of the NRSC and strategic account teams and significantly increase the business development staff in KGS. Additionally our infrastructure and technology investments provide a flexible and world class platform aimed driving productivity, streamlining our processes to gain efficiencies and increase operating leverage. These include business intelligences; people soft ERP, enhancements to our front end system, IP, Telectony, wireless offices and more. We are leveraging our offshore capability in Manila for our back offices and NRC as well as for our clients, allowing us to gain efficiencies to benefit from the time zone difference. Our objectives for 2010 second year of our three year plan, of the further penetrating and existing strategic accounts, take additional customer share and selectively target new account for our service offerings and business model and add value to perspectives clients. We believe the demand for our services is improving and together with the platform we have built, may fuel accelerated revenue and earnings growth as be recovery takes hold. We are pleased to have further reduced bank debt in the past quarter to a negligible $3 million, and anticipate using cash flow for continued debt retirement, share repurchase, and acquisitions that meet a very high hurdle. There have been several recent transactions within the staffing industry and we are continuing to see opportunities presented to us, but are maintaining our discipline and standards. I’ll turn the call over to Bill Sanders, Kforce President, who will provide his comments, and then Joe Liberatore, Kforce CFO, who will provide additional insights on operating trends and expectations; and then we will open up the call to questions. Thank you, Bill.

Thank you, Dave and thanks to all of you for your interest in Kforce. Before we did begin a detailed discussion of fourth quarter results, I wanted to take a moment to reflect at some of the key accomplishments of the past years. In the face of a very difficult operating environment, the great people of our firm continued to deliver exceptional results that have prepared us well to take advantage of the up cycle swing shot. We are pleased that we were able to retain our field and corporate leaders, and note that the life blood of our firm, the percentage of sale of assumptions with greater than four years of experience is at an all time high. As a result we were able to take market share, minimize a deterioration of our revenue stream, and deliver consistently strong results to our shareholders. Tech Flex in particularly outperformed throughout the year. Additionally, 2009 was a year of preparation, where we continue to build key differentiators such as our centralized national recruiting center, strategic accounts program and shared services platform, with significant investment in infrastructure and headcount. We believe the additional leverage we have developed, coupled with significant capacity and our existing sales force prepares us well to take advantage of this economic up turn. Specifically with respect to fourth quarter results we are please with our revenue and earnings performance and in particular our ability to grow revenue on a billing-day basis. Our results are driven by the great people we have in our team, and the strong relationship and culture we have built. We believe our operating platform and stable diversified portfolio of service offerings provides a strong foundation on which to perform in any economic environment. We are prepared for the economic up-cycle, and we believe the…

Thank you, Bill. I also applaud our team in winning the first race of our three year strategic plan. From a financial standpoint, 2009 provided opportunity to position the firm from a cost structure and cash flow perspective to prepare for the economic up cycle, while still delivering solid results of $910 in revenue, $41.1 million in EBITDA and $12.9 million in net income. During 2009, we took the opportunity to rededicate our focus on providing the right people at the right prices. As a result, we had relatively good success maintaining Flex margins which were down 110 basis points Q4 to Q4. More impressively, our Tech Flex gross margins declined only 40 basis points over the same period. Bottom line performance benefited from this focus, as well as our disciplined approach to discretionary expenditures. Cash flow also continued to be strong in 2009 as we ended the year with essentially no net debt. We are well positioned to take advantage of the available opportunities in 2010, and return strong results to our shareholders. The firm continued to perform well during the fourth quarter of 2009, exceeding consensus expectations for revenue and earnings per share. Revenues for the quarter of $224.6 million decreased 1.6% sequentially, but increase 3.2% on a billing day basis. Year-over-year revenues decreased 6.8% from Q4, 2008. On a billing day basis, Flex revenues of $217.2 million increased 2.8% compared to Q3 2009. Flex revenues were down 4.8% year-over-year. When considering quarterly revenue trends we know that this was the second consecutive quarter of sequential revenue growth per billing day. Search revenues of $7.4 million increased 13% sequentially, and declined 42.1% year-over-year. Revenue trends for the beginning of the first quarter of 2010 are down slightly from pre holiday levels, as we felt the impact of year…

(Operator Instructions) Your first question comes from Tobey Sommer - Suntrust.

I had a question about, how to think about 2010, given the trajectory or rates of growth among your various segments. I‘m wondering if without giving us guidance and specific numbers, you could stratify them as to which ones you would expect to grow fastest and perhaps less fast? Thank you.

Tobey, this is Bill. KCR obviously will grow the fastest because it had PTO in the fourth quarter that was quite significant. So when you looked beyond that, we certainly expect Tech Flex to grow, FA Flex to grow. Healthcare and KCR will both grow we hope. I think the one that we’re working through at the very tough 2009 is KGS. So we’re looking forward to a pretty good year.

I wanted to get a sense; you’ve talked about sales force productivity and the ability to add a lot of revenue without significantly increasing the sales force. How should we think about that; is it productivity of gross profit dollars per sales person? Could you give us some color on what metrics we should keep an eye out over time?

Yes, we look at it from a couple on perspectives. Gross profit per associate is really the key metric, but obviously that ducktails into how many billable consultancy associate can support. So in an expanding margin environment that benefits you; in attracting margin environment, it hurts you a little bit in terms of the absolute performance that you can get out of the sales associates.

Then, are there any specific broad goals for that GP per associate overtime?

Yes, I will tell you Toby, if we go over time [below those are] to have those people as productive as possible and I believe in history we’ve ever really tapped what the true potential is and with the investments that we’ve made over the course of the last 10 years, with our infrastructure and a lot of other things we’ve done from a sales support standpoint, and the tools that we’re enabling those individuals with, not to mention the strategic account penetration that’s been taking place. I’m here to tell you that five or 10 years down the road, the objective is to have those people extremely productive, and in essence there are no options for them in terms of where to go, because there wouldn’t be another environment where they can be at that level of performance. So that really drives the retention and kind of feels the whole engine.

One last question and I’ll get back in the queue. The NRC has been a significant competitive advantage over several quarters now, that’s been evident. I was wondering if you could give us some color on the initiatives you are taking to stay out there on the edge, and try to keep that market share gaining momentum, maybe your offshore activities, any color you can give us there will be great?

I think we talked a couple of days about that. Certainly we are increasing our presence offshore, so that we can be accessed 24 hours a day, seven days a week and making sure everybody is fully productive, and when one group comes in the morning, the next group has prepared the team to carry on. When we look at the other things we’ve done with the NRC, we’ve gone through sig-sigma, we’ve gone through other types of processes and procedural improvements to make sure that this is a world class team as we continue to build it, and I think as we indicated in our prepared remarks, we have doubled the size of this group. So it’s a very significant group that is first class located in one place with the highest level of training and supervision and encouragement to accomplish a lot of different objectives. In addition what I would add there is, what we’ve been also doing is segmenting the sales process. Looking to really offload certain aspects of the sales cycle, that will have to take place in that cycle, so that we can get those activities sitting with dedicated individuals, which ultimately drive the higher degree of quality, and a higher degree of excellence, as well as increases efficiency when you have somebody focused on less pieces of the process.

Your next question comes from Kelly Flynn - Credit Suisse.

You mentioned a couple of times you’re potential to get back to prior peak earnings. I wonder if we could talk about that in a little more detail. So we brought far more jobs in this country in this downturn and recent other ones; and the expectation seems to be across the Board for a relatively slow recovery, which one might ensure would be to take a lot longer to get back to prior peak earnings than what we saw in prior cycles. Can you just address that thought, perhaps as it relates to the staffing industry in general, and then your company specifically? Any new answers that you think are relevant would be helpful? Thanks.

Kelly, this is David Dunkel. One of the things that we’re suggesting is our visit with many of our clients. The macro job loss picture was certainly challenging and doesn’t speak to what’s actually happening in some of the more technical areas where we specialize and in, and tech areas obviously show a substantial growth. In our fourth quarter performance I think you can see clearly that they we’re making a real progress there. In addition to that, a lot of opportunities are now coming back and being re-competed as there’s any kind of growth at all. Being one of the fewer remaining specialty firms, we believe that the opportunity for us to take additional share, both customer and market share, is substantially greater now. As the ball goes in the air again, the number of competitors that are distracted with acquisition and integration and the opportunity, now based on what we’ve been able to do with strategic accounts and National Recruiting Center, we think there is more market share for us to take. If you look at the last BLS report, you can see the tenant penetration numbers are going up substantially as well as the renewed job creation does appear to be moving into the temp area, as those that are hiring and are trusting the recovery in seeking greater flexibility.

Kelly, I’d also add for Kforce specifically, when we compare revenue impact down cycle to revenue impacts in the loss cycle, more revenues kind off the peak are down about 11.4%, whereas last time we were down 45.5%. When we start to look at that by our business mix, last time around flex revenues deteriorated about 35.7% versus roughly about 7.7% this time. Search revenues deteriorate 86.2% last time around versus if we did hit the bottom prior to this recent up, it deteriorated 67.2%. So from a Kforce perspective, we’re also starting from a higher day system where we were last time.

Could you just address, that you alluded to in the answer you just gave, how do you see the M&A that’s gone on in the space recently, with tech staffing, how do you see that impacting your business going forward. It seems like you think it’s a positive, but does it potentially have any negative impact on pricing.

We actually see it as a positive for us. Having gone through a number of acquisition integrations, we realize how distracting they can be. Even at the best of execution, we think that the many clients from our conversation with them prefer specialty firms due to the specialization required some of the highly specialized skills. I think the other factor that is significant of course is that many of the compensation plans change and some of the top performers look to go to the firms that we’re specialized in or known for; the earliest that they have their expertise in. So looking at Kforce in many respects, the last man standing in the large specialty firms we think are actually going to benefit.

Your next question comes from Mark Marcon - R.W. Baird

I was wondering if you could talk a little bit about, on the Tech side obviously you’ve been doing well they’re, the whole market is doing well in Tech. As we look out strategically you talked about essentially looking at strategic acquisitions. Should we surmise from your comments that you would focus primarily on the Tech side or are you still looking at HLS or government as being other potential areas to further increase your footprint?

Actually Howard Sutter who’s the Vice Chairman had programmed for us, and we have a pretty wide net cast. As you know the last acquisition we did has been almost a year ago. We have seen a number of transaction opportunities that have come across our desk. For one reason or another, we did not execute on them. The principle driver is still culture, and many don’t even get to that next step for that reason, but as far as acquisition opportunities are concerned, we have seen F&A opportunities, we have seen government opportunities, and we have seen Tech opportunities, all very recently. So the good news is that we don’t have to do one. We can be opportunistic and we will be opportunistic. It would be our desire to find one that would fit well with us, where the culture would be a great fit, and the economics would work. However, we’re not going to put ourselves in a position to damage what we’ve worked so far to build here and the culture that we’ve build.

Can you talk a little bit more about what you’re seeing on the Tech side, just in terms of the types of positions; verticals where you’re seeing the growth come from? Then what you are seeing in terms of kind of the bill pay rates. As demand is growing are you seeing any sort of pressure on the pay side or is that still pretty manageable?

Skill sets haven’t changed all that much. Mark, this is Bill. Our security engineers, software developers, PMs, SAP and Oracle expertise, Java/.NET, I think it’s been pretty steady over the last year or two. We’ve got some unique activities such as Peg or some of those areas in Tech flats that are interesting and starting to come aboard. For the most part it stayed pretty steady. I’ll let Joe to address the bill rate, pay rate.

From a tax rate standpoint, our bill rates declined 0.6% sequentially and 4.3% year-over-year, while pay rates increased 0.4% sequentially, and declined 3.3% year-over-year. So as one more to expect, you’re starting to see that what I had mentioned in my comments, supply demand coming into place, and some of the lead lag where historically we see pay rate accelerating here at typically a little faster pace before we see bill rate expansion start to take place and we’re seeing that kind of unfold.

Can you talk a little bit about the SUTA, in terms of what the impact is on the gross margins; in terms of the general expectation for the quarter and the year? You mentioned $0.05 for the first quarter in terms of the impact and then the 30, 40 bips in terms of the year, but can you break that out between SG&A versus GP?

Yes, when we look at GP, if I look at the first quarter, we’d anticipate that it could be up to 150 basis point impact in Q1, just because of how we get impacted by payroll taxes because of the make up of our population, and when we look out through the course of the fully year, we could be impacted up to 100 basis points.

Okay, and that 150 basis points to be clear is on year-over-year basis?

No, that would be from a Q4 to Q1, sort of on a sequential.

Do you think that would be a fairly steady state across all of the various sub segments or we do expect any to…?

Absolutely not, because when we get into our HLS businesses and we get into the KGS business, those are long term employees. So we have much less of an impact on those populations versus our more transactional businesses, so it’s very different by segment.

So, biggest impacts will be on the Tech Flex and on the F&A side?

F&A that would be fairly accurate, Tech Flex, we have pretty reasonable length of assignments on the Tech Flex front as well, typically those people aren’t with us for a career like what we experiencing in KGS or an HLS, more people are with us in many instances for five or 10 years.

Then can you talk a little bit more about what you are expecting in the short term on HLS and government? It sounded like on the HLS side, there were some moving parts, so some puts and some takes, but it sounded like generally speaking if we put it all together we’re kind of looking at relatively stable revenue, was that a correct interpretation of what your comments were?

I would say speaking with KGS, and as Bill mentioned first quarter we expect would be down from Q4 and as the year unfolds, we were expect to see growth return in KGS as we go to the back end at the year. As you know in that particular business, we have much greater visibility into that by virtual contracts and so forth. So while there’s still some estimation at on some uncertainty we feel pretty comfortable that as we go through this first quarter period that back end of the year for KGS will be good. Bill mentioned, KCR will be up in the first quarter and healthcare will be up slightly in the first quarter and I think the trend for the rest of the year we still somewhat uncertain by M&A activity, but those units fair to be stable to improvement.

Your next question comes from Josh Vogel - Sidoti & Co. Josh Vogel - Sidoti & Co.: I just wanted to build up one of the earlier questions talking about the Tech business. I was wondering if you can just go into more detail maybe parts out the areas are exact specialties of the Tech or IT professional that you are seeing the most demand for and how does this fit for, if it all to the last recession because it seems like you guys are taking share and I just wondering if there’s any distinct competitive advantage that is emerging during this cycle?

This is Bill. As I indicate before, the skill sets have been required in this particular area are continue to be relatively the same over the last couple of years. I would say in taking share, that comes much more from the tenure while where our population supported by the NRC, which just as makes our sales and delivery adjacent. I think that is good or better than anyone, so it’s really just our hustling in our performing in providing quality candidates that they’re trying to looking for, but I don’t think there’s any secret here as execution, if you go out and you get the job done with the world class infrastructure and you got something. Josh Vogel - Sidoti & Co.: Now it seems like some of your larger competitors have obviously an increased appetite for IT exposure and I was just wondering, if the strategic direction of your Firm involved maybe you’re looking to sell part of the IT business, or the whole Firm, or would you be an acquirer instead?

Thus far selling, the IT part of the business is kind of took us for a surprise. As you look at what we’ve been doing, we haven’t acquirer and we expect to continue to be in acquirer. At the same time obviously, we’re fiduciaries to our shareholders. We think, we benefit from being last man standing, part of our responsibility as a founder has been to represent the Board with the succession that will allocate for us to continue as an independent comrade with the future, we’ve done a fine job with that, the up righting. We continue to do perform at these levels is no reason that Kforce can continue to be an independent company, and pursue acquisition, so that’s our current thinking. Josh Vogel - Sidoti & Co.: Just shifting to KGS, I’m really sure of the seasonality in the bidding cycle for government programs, but did the short suspension cause you to miss out on any significant opportunities, or is there really just a non-event?

As far as new opportunities, no there was one opportunity that I believe we missed out on, but that’s. It was pretty much evolve on must been a non-event. Certainly, was an event that we were not accustomed to and we took very seriously and aggressively, completed the situation and very happy with the government work with us to get that done, but now it does not have a material impact on our business. Josh Vogel - Sidoti & Co.: Are you looking to take any steps now going forward to make sure something like that doesn’t arise again? What kind of steps are you taking?

We’re under an administrative agreements, that’s a three year agreement with the department of interior and we had additional training and controls we had to put in place. We are very aggressively going after that, putting those controls in place, working with that entire unit, and it’s a very strong solid unit with a great management team. So we believe that we work through this easily and quickly, and the Tech balances initiated certainly satisfy the government. We have just had a GSA regional order in and it left with a very positive impression, so we’re quite pleased with where that is as we go today. Josh Vogel - Sidoti & Co.: Just lastly a housekeeping question; I was wondering if you had an idea of what CapEx are look like in 2010 if maybe we were going to sort of get back towards historical levels, maybe near to $10 million range. Are we still going to expect to be where we were in ’09?

Based upon some of the initiatives that we have going on this year, because we bowled out a couple of key strategic initiative to provide that our future platform that further enable the firm, and we’re evaluating the timing of some of those at this point in time based upon how the recovery unfolds. If everything were to play out in that, yes we’d probably move back to approximately those historical levels. If we leave some of that out and carry a little bit over into 2011, we’ll be at lower levels.

Your next question comes from Jim Janesky - Stifel Nicolaus.

I had a question around how we should look at Search over the next cycle. You’re at a run rate now of less than half of what you did in 2008 in terms of these. How do you look at it over the next cycle in terms of how it’s going to grow? How much revenues can you do without adding new headcount, and at what point would you consider reducing headcount, if it would have to contract or what are your thoughts?

Jim, this is Dave. We have substantial capacity in place, the folks that would better live us today or our long 10 year professional associates and we believe there’s substantial capacity there. As we mentioned earlier, we are using the NRC’s tool to improve the productivity. So we would hope and expect as the cycle unfolds that we’d actually be able to exceed past performance, by utilizing some these new tools and techniques and helping our top performers. It’s not our intension to reduce headcount at all. In fact obviously in this environment we hope that we would continue to grow. We have monitored our model and that model includes leveraging our existing sales force. So I would say to you, that it is not our intension to do a massive amounts of hiring in Search, that we will do selective hiring to meet client demand, and take full advantage of the team that we already have in the national account program that we have and concentration of Search Associates that we have. So as we look forward in Search, I would expect that modeling it out, that you would be somewhere between where we are today and where we were previously, as a percentage of total revenue based on where the market goes. Our own view of what’s happening now is that many of the clients that had cut so deeply are hiring back to get to kind of normal operating levels. We’re not viewing this as the beginning of this great new Search cycle. We think we’ll get to a point where they’ll start to act selectively and that flex will still be in the predominant service offering or choice about our clients.

The additional color that I provide on that front is that, if we look at our dedicated Search population today, versus coming out of the last downturn, we basically carried about 60% more of a population through this time. So we have more Search people today, than we did have coming out of the last cycle, as well as they’re much more tenured than what they were. Virtually the majority of this thing, of search population, has been here greater than two plus years and most of them are greater than four plus years.

Shifting gears a little bit towards your comments in the release about, that your gudaince doesn’t assume any weather related where we’ve been, DC has been slammed very hard, the government’s been closed. They’re going to get another potentially foot to another two feet of snow. So, we have had weather disruptions. I mean are you taking that into account in your government solutions practice or other practices for the entire East Coast, and is that something your warranty taken into consideration with your guidance or is that something that would be incremental to your guidance?

That’s why specifically I broke it out relative to guidance. We want to provide a baseline of where the business is and where we anticipate the business is going in Q1, instead of partitioning this and going. What’s happened as of 5 o’clock today, when we know there’s another storm that’s right around the corner, that some say is just going to hit D.C., some say it’s going to go up to New York, some say it may now expand to Boston. So they are trying to provide that broader range. So I guess the color that I could provide you is, I mean DC is one of our largest markets. We have our government business there, as well as we have our commercial business, as well as we have our CapEx business that is heavily based there. So by that office closing, we anticipate our impact to be as great as $800,000 on a daily basis, and so that would be coming down off of the guidance that we provided. If things do expand up further into the Northeast, our impacts could go a little bit north of $1 million of full impact on a daily basis.

I would imagine outside of the government business, since this last storm was over the weekend, it didn’t have as much of an impact. I mean things were somewhat back to normal by Monday or am I wrong.

Actually government was closed on Monday…

No, outside of the government I mean, because…?

Actually most businesses were closed on Monday. I believe DC shut schools down for the entire week. Now we are looking at things to mitigate the impact as much as possible. We have a pretty noble workforce, so we’re looking at work from home opportunities, in KGS. One of the other important points to note is anything that’s fixed price contracts, which is a significant amount of our business. Those aren’t adversely impacted, as well as many of these projects are going to now get extended a little bit further. So it’s going to be a delay in recognizing that revenue more in the commercial side.

But the storm is more standard in that. Also at Ohio Valley, we had several offices closed in Ohio valley in the Midwest into the north. So this is a difficult thing for us, and to estimate at this point Jim, but it is going to be significant.

Your final question comes from Tobey Sommer - SunTrust

Just want to speak in one or two more on government services. In terms of your initial look at the budget, that will be the Obama administration’s put out, how did your largest customers fair in terms of the outlook for fiscal 2011 budget allocations?

We’re about 50/50 civilian and defense. Our largest clients are in the healthcare area. So the VA and those types of areas which are fairing very well, on the civilian side, on the education and other areas we are also fairly very well. So from this administration view, we seem to be fairly well positioned and so I’m pretty happy about the way it’s turning out at the moment.

Are there other agencies in which you would like to gain additional exposure, and then lastly I was wondering if you could comment on the size of your pipeline within the government area and/or the kind of value of the bid that you have awaiting?

Do we have a pipeline? Our pipeline as I indicated early is 63% of our activity. 53% of our revenue base in 2009 was re-compete. So we were very, very internally out focused on those re-compete, so our pipeline for 2010 is not as big as we would it to be, but it is significant, at the same time we only have 16% of our revenue base being re-competed. So we are going to be very outward focus. We have added to our process of identifying, proposing and capturing awards from the federal government. So we think we are well positioned as we indicated earlier. I believe Dave said it well; when we expect that we will be down for the first quarter, but then sequentially up for the remaining quarters and should see some pretty good acceleration in revenue in the second half of 2010.

Okay, we’ll close, and once again thank you for your interest in Kforce and support. Also again, thanks to our team for just performing very well, for winning on the field. For each member of Rockfield and corporate teams and our consultant and clients, I want thank you for allowing us the privilege of serving you, and we look forward to talking with you during the next call. Thank you very much.

Thank you everyone. That does conclude today’s conference. We thank you for your participation.