Good day, ladies and gentlemen, and welcome to the Kforce Q1 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Michael Blackman, Chief Corporate Development Officer. Please go ahead.

Thank you. Good afternoon, and welcome to the Kforce First Quarter 2012 Earnings Call. Before we 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 -- current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from the factors listed in Kforce 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 the call over to David Dunkel, Chairman, Chief Executive Officer. Dave?

Thank you, Michael. You can find additional information about Kforce in our 10-Q, 10-K and 8-K filings 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. As previously announced on March 31, we completed the sale of our Clinical Research business. Information pertaining to this transaction was disclosed in the 8-K that was filed on April 3, 2012, and additional required disclosures will be included in our 10-Q filing later this week. As a general note, all numbers cited during our call today will be from continuing operations, and therefore, exclude any results from this transaction and the Clinical Research business unless specifically indicated. We are pleased with our Q1 results and the outlook for the remainder of 2012. Kforce reported revenue for the quarter ended March 31, 2012, of $268.4 million, a year-over-year increase of 13.5% and a sequential increase of 3.5%. We remain optimistic about the firm's prospects in what we believe continues to be a secular shift towards a greater use of flexible staffing in an environment of high demand for skilled professionals. The unemployment rate among college degree workers is currently 4.2%, roughly half that of the overall U.S. rate of unemployment and it's substantially lower in several of the specialized skill sets Kforce specializes in, particularly technology. During the quarter, many of our clients pursued direct hire strategies and elected to convert tenured consultants which resulted in lost billings and no realized conversion fees to Kforce. In addition, our Strategic Accounts experienced a sequential decline in Tech Flex revenues, primarily driven by our largest financial services clients. Our revenue footprint and domestic platform remain focused in the areas of greatest demand in today's…

Thank you, Dave, and thanks to all of you for your interest in Kforce. We are pleased with the first quarter of our new 3-year strategic plan, The Expedition. We had built a foundation of great people, processes and tools that allow us to compete effectively in what we foresee is a solid market for our staffing and solutions business unit. Our highly tenured field sales and delivery operations are supported by a highly flexible National Recruiting Center and Strategic Accounts model that combined allow us to effectively service a broad spectrum of clients across geographies, industry and size. All of our flexible staffing business units grew sequentially and year-over-year growth accelerated from Q4. Our Permanent Placement revenues, driven by a strengthening Tech Perm environment, increased sequentially and year-over-year. As Dave noted, our government business unit is beginning to realize the benefit of its rebuilt business development team, as exhibited by the multiple contract wins in the first quarter. Tech Flex is our largest business unit and represents 60% of total firm revenues. Tech Flex continued to perform well in the quarter and, again, achieved record revenues. Q1 revenues increased 2.5% sequentially and 15% year-over-year. Overall, our key performance indicators for technology remain at high level, though the tightening market for Canada may be slightly tempering growth. The year-end assignment ends were more significant than last year and the rebuild hasn't happened as quickly as last year, though revenue grew sequentially in each month of the quarter. The candidate pool for technology consultants is particularly tight for skill sets in high demand, such as FA, Java and .NET. We are focused on continuing to evolve our National Recruiting Center to source candidates and expect second quarter revenues to increase for Tech Flex. Revenues for our Finance & Accounting Flex business,…

Thank you, Bill. The firm continued to perform well in the first quarter. Total revenues for continuing operations for the quarter of $268.4 million increased 3.5% sequentially and increased 13.5% year-over-year, driven by broad-based growth in our flexible staffing businesses. Quarterly revenues for Flex of $257.3 million increased 3.3% sequentially and increased 13.6% year-over-year. Search revenues of $11 million increased by 8.4% sequentially and increased 12.3% year-over-year. Overall, sequential Flex revenue trends in Q1 showed a decline in January, as it's typically seen at the beginning of the year. We're flat in February and improved in March. Search decreased in January, then strengthened in February and March. Flex revenue trends for the beginning of the second quarter 2012 are flat from March. For the first 3 weeks of April, Tech Flex is up 12.2% year-over-year, Finance & Accounting Flex is up 11.7% year-over-year and HIM is up 19.9% year-over-year. Search revenues are down 6.8% year-over-year for the first 4 weeks of Q2 2012. We caution that early quarter trends don't necessarily accurately reflect potential full quarter results. Total net income, inclusive of discontinued operations of $4.1 million and earnings per share of $0.12 in Q1 2012, decreased sequentially 42.5% and 40%, respectively, compared to Q4 2011. Year-over-year net income decreased 15.8% from $4.8 million in Q1 2011. Earnings per share were flat year-over-year at $0.12. Our overall gross profit percentage of 30.1% decreased 160 basis points sequentially and decreased 10 basis points year-over-year. Our Flex gross profit percentage of 27.1% in Q1 2012 decreased 180 basis points sequentially and decreased 10 basis points year-over-year. Overall, bill/pay spreads were flat sequentially. The sequential decrease was driven by 130 basis point increase in payroll tax-related cost in Q1, which was slightly higher than we had anticipated, as well as a 50 basis…

. [Operator Instructions] Our first question is from Mark Marcon with RW Baird. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: I was wondering on the IT side, it sounds -- could you just give a little more color with regards to the tax accrual? And then secondly, the item with regards to the 2 clients. Because it sounds like the Flex gross margin should go back to historical levels on that side, if I'm understanding correctly.

Mark, you are understanding correctly. In fact, if you look at -- as we look from Q1 to Q2, we would anticipate that we'll recapture about 100 basis points to 110 basis points from a payroll tax standpoint. And then on the tax audit item, we will recapture the full 50 basis points there. So if you just put those 2 numbers together, that starts to get you there. The impact in Q1 associated with the tax audit specific to tax was a -- to Tech Flex was about 80 basis points. And related to the 2 larger clients that we're onboarding the investments on those fronts, that's just a timing, so we don't really necessarily believe we're going to see any material pickup from those 2 clients in Q2. But as the course of the year unfolds, we'll start to recapture margin there and then as future years look out, there's even more opportunity. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And can you give a little bit more clarity with regards to what the tax audit was about?

It's just a standard tax audit. I mean, nowadays, we're probably averaging state -- so this was state-oriented. We all understand the condition that states are in. So we're experiencing 10 to 15 different state audits on an annualized basis at this point in time. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Got it. And then can you give a little more clarity with regards to SG&A as a percentage of revenue as it should trend given the current expense structure? Because it sounds like we have 2 factors that are likely to occur, one would basically be -- because just from a GAAP accounting perspective, the stock-based compensation is going to be reduced by the amount that you talked about on the call. And then in addition to that, we should end up with some overhead or shared services that could become more efficient over time that are probably still being used to support KCR. Is that correct?

That's correct. Some of the cost infrastructure that's associated with supporting KCR through our transition services agreement, that actually shows up in disc ops. But there is other infrastructure that's associated with the support of that business. So when we look at SG&A, based upon the forward-looking guidance that we provided for Q3 to Q4, and I'm sure you'll see this when you start to go into any of your modeling, you'll start to see that SG&A percentages start to drive down into the low 25% as you move towards the back end of the year. And then as we start to look out into 2013, which when we did our initial release, we kind of confirmed analyst expectations associated with that, you can see that SG&A percentage will continue to trail down from there.

Our next question is from Kevin McVeigh of Macquarie.

Any sense of the revenue opportunity from the onboarding of those new clients? And would it materially change kind of the mixes kind of larger versus small to medium?

Well, they're both larger clients. One, we have a strong partnership with and the other one has been a client that just increased our partnership. So over time, revenue will increase. Certainly, as it increases, we would expect margins to come back because -- that's why we made the investment, to encourage further business with them at certainly at a normal margin.

Is this primarily in Tech Flex or across all service lines?

No, it's just Tech Flex.

Just Tech Flex. And then just thinking about the kind of the proceeds from the acquisition, are you pretty comfortable with the client mix now? Or as you think about kind of potential acquisitions, would they be across any particular areas, F&A or Technology?

Kevin, this is Dave. We actually are looking at a couple of different opportunities now. As you can imagine, pricing is a consideration and we've talked in the past, the primary focus would be in Tech. And we'd look at tuck-ins to existing markets to strengthen existing markets or to bring in specific clients. But at this point, we still have substantial growth opportunities that are available to us just even within the existing clients. So we don't have to do anything. It would really be opportunistic. We also, by the way, are considering opportunities in the HIM area as a result of the opportunities with ICD-10 and electronic medical records. So those would be the 2 areas that we're seeing activity. But again, we're being very disciplined about it because pricing is certainly up in those areas.

Understood. And Dave, as you think about kind of where we are in the cycle and obviously that supply demand is relatively tight, conversations around price with some of the larger clients, are they becoming easier to have as you kind of work your way through the course of the year?

Yes. It depends on the client. As we mentioned, financial services clients, we have 3 of our larger ones. We saw a significant shift in their strategy towards actually going to direct hires, a number of our consultants for converted. So not only did we lose the billing but we also didn't get the conversion because these were long-tenured consultants. So there's still a question as to whether that will even recover as the year goes on and then whether pricing would return. And financial services is one of the big consumers of Tech Flex staffing and also is about 18% of our business. That's the bad news. The good news is that our penetration into those clients is actually improving and the conversations that we're having with them have shifted more towards quality and away from price because there's a recognition that they can't control the market through pricing and the quality does have a significant impact on the outcome of their project. So the conversation has changed. We do believe that pricing is starting to shift. But I think as Joe said earlier, it's not moving as quickly as we would have thought, Although we're seeing other firms that are prospering in the mid- to lower-level clients. And I would say that we're experiencing the same thing with our portfolio of clients that the midsized and smaller clients we're seeing greater pricing power.

Got it. And then if I could, Dave, one more. Obviously, there's been a sizable transaction in the sector. Does that change the competitive landscape at all? And had you seen those folks in the market in the past and kind of any thoughts from a competitive perspective around that?

It's an interesting deal. We do hats off for those guys. We think it's a great deal for both of them. Kind of pushing the chips to the middle of the table. But if they can pull that off, I think they've done a fantastic job with it. And yes, we compete predominantly with the target in many of our markets. They're a very good competitor and we have a lot of respect for them. So I don't think that -- I don't think it will be a negative. I think it will actually be a positive. Our view of the competition actually is it makes us better because when you get good competition, it makes you examine your strategy, it makes you examine your -- the way that you've approached the business model. We have some razors on our team and our team wants to win too. So we're watching to see what these other guys are doing and we're looking for any openings to take some of their talent and have them join our team and take some of their clients and start building them from our account. So it's actually a good thing, I think, ultimately for the industry because it's raising the bar competitively and also raising the standard of quality for the clients as they now expect more from their national providers. So it's a good thing for all of us, I think.

Our next question is from Paul Ginocchio of Deutsche Bank Securities.

You talked a little about labor market scarcity. Can you just talk about recruiter productivity and maybe what you think it'd cost to find somebody today in Tech Flex versus a year ago and how you're sort of managing that? And then I've got a couple of housekeeping questions.

This is Bill, Paul. Performance for us, as you can see, our revenues continue to grow and we are not -- we've been very judicious in the hiring patterns that we have. So our performance pathway has turned out to be very good. And so revenue per employee in the firm is near all-time high. In fact, it's a dollar up [ph]. So we're pleased with performance, especially if you were to look at something like our NRC. Our NRC is up 40% on revenue with a flat headcount year-over-year. So performance is strong and we continue to be laying the uncertainties of the economy and being very deliberate in our higher employee onboarding.

So you're not as -- focused on the cost to recruit a new Tech Flex consultant? So what does that look like on a year-on-year basis, the cost to find and place, just the search cost for finding a new Tech Flex consultant?

Paul, this is Dave. The machine is running all the time in the recruitment. The cost of the supply is going up. That would be the pay rate. So vis-à-vis the pay rate, that affects the margin and the bill rate. So the good news about staffing is that as the contracts end and they refresh every 90 to 180 days, you can reprice the market. You get to reprice both pay rate and bill rate. So certainly, pay rates are coming up. You've seen that, and therefore, bill rates accordingly are also coming up. And the realization especially in the last several quarters has hit the clients. The clients understand it because they're watching their own people exit and they're watching consultants that they have on assignment, long-term assignment, as a key part of their intellectual capital is actually walking off assignments at the end of their assignments and getting significant increases. So the good news is the market is pure, it's just a matter of time before they actually start to experience it. But no question, we're paying more particularly for the high demand skills, but we are in turn also billing more for those same skills.

The pieces that I would add to that is, the activities required by the recruiter to yield the output are higher at this point in time because of supply-demand dynamics. This happens every cycle as supply demand starts to tighten. So they're having to do more activities, they get the same output. We're not necessarily having to add more individuals, which is increasing the cost. So I'd say that the energy required is going up. Now the benefit there is you get a residual byproduct benefit of that over time because the effort that's put in today that doesn't yield a result, there's a relationship that is established that then can yield the result down the road.

Okay. And then just a couple housekeeping. SG&A cost is a clean number for the first quarter, clean continuing about $72.7 million. And then, Joe, on those 7 contracts in KGS, what's the annualized revenues? Can you size it at all for us?

Yes. On the SG&A, Q1 is a really, really challenging number to reconcile continuing operations. I would say, the best way to get to the clean number is if you take the guidance that we provided to Q2 and plug that into your model, that would probably get you much closer to the SG&A number than trying to reconcile Q1. And I'm sorry, could you mention again what the second part of your question?

So I think you mentioned or Bill had mentioned 7 new contracts in KGS. What's the annualized revenues roughly or can you size it at all?

So we believe in Q3 and Q4, that we will be up approximately $10 million. If you were to analyze it over time, that could be obviously as much as $20 million to $30 million.

Our next question is from Tobey Sommer of SunTrust.

On the KGS, what customers did you win contracts with? And are those standard kind of multiyear, 4-year contracts with a 1-year option?

One, we haven't asked clients for permission to use their name. But I would tell you they are more civilians than DoD type of contracts. And yes, they are, as you expressed, they have 1-year options after the initial.

Are they different? Are any of them new customers or is it additional work with your legacy portfolio customers?

It's additional work with our legacy portfolio customers. But when you talk in terms of the government, that's not -- if you were to pick one agency or one civilian group, that has many, many, many different components to it. And so it's well diversified within a particular client with different groups, and therefore, we're pleased with that. But it's not just a single customer. But we are actually not even doing certain work with existing customers as we refine our business development strategy. As you know, the government is changing a lot. We are very nimble. We have built up a new business development team that can acquire business under the new constraints. Obviously, since 2010, things have changed dramatically, and so we're really pleased with how this new business development team has been able to work around the issues of the day.

How much revenue and profit are you currently servicing? What proportion through the NRC?

Approximately 27%.

And from a goal perspective, do you have a target for how high you think you can get there?

Tobey, this is Dave. We're not going to target it. We're going to allow it to go to where the channels are best going to utilize it. The issue is, as we leverage that model, is the efficiency of the delivery and the ability to deliver at scale and at speed. So what we don't want to do is to bias the field to utilize them if it's more efficient for them to do it in the field-based delivery team dealing with local market clients, which are typically small to midsize. We have seen the NRC to be most effective in surge demand and also in large-scale clients. So from that perspective, we've been able to capture a greater share of the available business in the larger clients. We've also seen them be very successful in highly specialized skills like EPIC and some of the emerging health care technology skills that we need to build a practice in. So in the ways that we've specialized them, we found them to be more productive and generated greater volume. So we don't have a desire to outcome other than maximizing productivity. As Bill said, we're very close on a revenue basis to where we've been at peak from a productivity standpoint, which tells us that we're starting to realize the benefit of the model. And what it also says is that as we are looking at the business and the model and how much more productivity is there and what other tweaks do we want to make to, to optimize, to drive further revenue growth and where do we want to make selective investments. So as we've said all along, the NRC really came to a level of maturity during the downturn. This is the first time we've had to manage through an upturn when it's -- we're really learning now to how to tweak and adjust and where to best utilize it. But in the end, right, the demand is so great in every field market, in every industry that it's impossible for us to fill all these positions. So we've got to be very selective and targeted in the way that we're deploying them. And that's something, frankly, we're still learning to do.

And just to add on to that. Because with the NRC, this is organic and it's ever evolving. One of the things as a prime example with some of the wins from KGS in Q1 and because of the demand that's coming from that, so we deployed an NRC team focused specifically on that business to assist with building the pipeline so that we can get ahead of the demand curve on that. So I mean, that's why we're constantly looking on how we evolve the NRC. And the number that Bill gave you, that was the concentration that's attacking that bay business. Now all of a sudden when KGS rolls in, it's constantly moving. It's all about focus on the performance and maximizing capacity is really where the focus is.

That's helpful. It sounds like pricing in the conversations with customers are proceeding as you would expect in a cycle. But is there any pruning that needs to be done of low-margin clients which aren't keeping up with the marketplace?

This is Bill. Yes, that's always the case. As clients feel the pressures of the uncertainty and different supply and demand characteristics that they have. So is that something we do? Yes, client selection is a very important part of our business.

But anything on the horizon that comes to mind?

That's normal course of business. We're looking at the portfolio of clients on a regular basis and if we have clients that are too far behind the curve in terms of where their expectations are relative to the market, we're constantly moving away from clients that find themselves in those states. And I could cite specific examples where those clients have come back around and come back onboard as clients as they woken up to the reality of the marketplace. So I mean, that's just normal operations course of business. To answer your question, is there any significant revenue stream that's on the horizon that would potentially be a risk? I don't see anything of that nature.

Last question for me. How much did you increase recruiter headcount, either year-over-year or sequentially, in the quarter?

Approximately 9.4% in the field.

Our next question is from Giridhar Krishnan of Credit Suisse. Giridhar Krishnan - Crédit Suisse AG, Research Division: I have a clarification on a different question. I guess the clarification on KGS, did you, Joe, say that you expect revenue to increase sequentially as you proceed from Q2 through Q4?

This is Bill. Yes, it will increase in Q2 somewhat because it takes 4 to 6 weeks to clear someone after we have identified them. And so we have this process -- we go through this process with our client. We're trying to work with our clients to speed that up some, so that they can start sooner. But assuming that is the case, you're talking late May to early June before any start and then since it's a large number of people that they are requiring it will take some time. So we are suggesting that there will be some improvement in revenue from these wins in Q2. They really will start taking effect in Q3 and in full bloom in Q4.

So we will start to see the sequential increase as well as year-over-year increase in KGS in Q2. Giridhar Krishnan - Crédit Suisse AG, Research Division: Okay. And with respect to the recruiter headcount, as we think about the different service lines, where -- as we go down the different service lines, where is the bulk of that focused on, essentially if you think about demand in the quarters going ahead?

It's by far and away this last year, it has been in Tech Flex. As we look forward, 50% of our business is in Tech Flex. So I would assume that, that would continue to be the case. Second quarter for F&A Flex has a kind of historical seasonal stabilization. So as we look forward, certainly in the near future, it would be in Tech Flex.

[Operator Instructions] I'm showing no additional questions at this time. I would now like to turn the conference back over to Mr. Dunkel for any further remarks.

That's great. Thank you very much. We appreciate your interest and your support for Kforce. And once again, thanks to each and every member of our field -- I'm sorry, we do have Mark Marcon come up. Mark? Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Wondering if you could talk just a little more about the balance sheet and how we should think about that? Joe, you had mentioned we're debt free now, but then we've got something that's coming up, so we'll basically end up being net debt around $20 million by the time we get to the end of Q2. Is that right?

Well, yes. In Q2, just because of the timing of some stock repurchases, we'll incur the about close to $60 million stock repurchase expense. That's all I was really putting out there. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Okay. Great. And then you did indicate that you would trend towards the 25-ish range in terms of SG&A by the time we get to Q4. Is that -- did I hear that correctly?

You heard that correctly. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And that would encompass some savings, but not full savings in terms of the things -- the items that you mentioned coming out, correct?

That would be correct. And you'll see that, Mark, as you start to model out the second half of the year, when you start to drive your margin assumptions, you will see that it will start driving you right to those SG&A levels.

Okay. Now we can say good night. We got some people here that are hungry in the East Coast. So thanks to each and every member of our field and corporate team and also to our consultants and clients, again, for allowing us the privilege of serving you. And once again, Happy 50th Anniversary, Kforce. Thank you very much and good night.

Ladies and gentlemen, thank you for your participation. That concludes the presentation. You may disconnect and have a wonderful day.