Kforce Inc. (KFRC) Q4 2021 Earnings Report, Transcript and Summary

00:02 Welcome to the Kforce Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. 00:27 I would now like to hand the conference over to Mr. Joe Liberatore, President and Chief Executive Officer. Please go ahead.

00:45 Good afternoon. This call may contain certain statements that are forward-looking. These statements are based upon current assumptions and expectations and are subject to the risks and uncertainties. Actual results may vary materially from the factors listed in the 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. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website. 01:19 Before I provide commentary on our fourth quarter and full year performance, let me first cover a couple of items. 2021 was a record performance year for Kforce. I would like to thank all our associates for their fortitude, creativity, innovation and resilience operating in these unprecedented times. Thank you for your daily efforts to have a meaningful impact on the lives we serve, uniting professionals to achieve success through lasting personal relationships. 01:46 In the fourth quarter, we announced Dave Dunkel's transition to Chairman at the end of 2021 after holding the CEO post for the past 40 years. We are fortunate to have Dave's continued involvement strategically as we reshape where and how work will be performed in the future. I have been blessed to work side by side with Dave for the past 34 years. I am humbled and honored with the opportunity to uphold the standard of excellence Dave established. Our entire team's heartfelt thanks and appreciation goes out to Dave for his leadership, mentorship and support. 02:18 Due in large respect to his leadership, our values which are foundational to the Kforce's strategy are extremely well entrenched. Our executive leadership team has extraordinary depth and tenure to lead our team forward, and our future prospects have never been brighter in our 60 plus year history. 02:36 Joining us on the call today is Kye Mitchell, our Chief Operations Officer. Kye is a 30 year veteran in professional staffing and solutions space, who joined the Kforce family in 2005 through the acquisition of VistaRMS. Kye has responsibility for developing and executing the strategic vision across all our service offerings, which has contributed greatly to Kforce's successes. Kye will give insights into our performance and recent operating trends. Dave Kelly, Kforce's CFO will then provide greater detail on our financial results, as well as our future financial expectations. 03:10 We have driven significant strategic change at Kforce over the last decade and our firm is ideally positioned to continue to provide exceptional results and return to our shareholders. We have concentrated Kforce's strategic focus and now have 85% of our business focused on providing technology talent solutions to innovative and industry-leading companies for their operations, exclusively in the United States. This percentage is expected to meaningfully increase as we exit 2022 given that our technology business continues to grow at multiples of the market. 03:47 This strategic shift was bold and transformative, but well-founded in our belief as we exited the financial crisis that technology was going to be at the epicenter of every business strategy. This has played out to even a greater degree than we imagined as the pandemic accelerated what we already saw unfolding. The benefit of this strategic shift and the benefit of our focus on organic growth without the distraction of acquisition integration can be seen in the exceptional results that we have delivered over the last several years. 04:17 While the broader economy has experienced fits and starts pertaining to the pandemic and the related supply chain and labor issues, we continued to gain momentum. We have further advanced our strategic initiatives, including reshaping our client portfolio, investing in our managed teams and solutions offerings, pursuing skilled areas in our FA business, which are synergistic with our Technology offering and aligning our sales and delivery teams to our revised focus. The backbone supporting enterprise level change is the strength of our leaders, which we have supported through enhanced development and training. In addition to these strategic initiatives, we are equipping our teams with innovative and state-of-the-art tools and technologies. 05:00 Our industry-leading growth rate, coupled with a debt-free balance sheet and strong predictable cash flows continue to allow us to invest in our future and return capital to our shareholders through share repurchases and substantial dividend, which we have once again increased. Our path forward is clear and we will remain consistent with the principles under which we have been operating so successfully. 05:24 As to our results, we again delivered record revenues in the fourth quarter of $410.4 million, which grew nearly 18% year-over-year and meaningfully exceeded the top end of our guidance. Earnings per share of $0.98 grew 14% on a year-over-year basis. Fourth quarter results put a solid exclamation point on the tremendous 2021 for Kforce. We were successfully delivering record revenues of nearly $1.6 billion, which grew 14% year-over-year. Perhaps the most exciting aspects of our 2021 results was the 22% full year organic growth we delivered in our technology business. 06:05 Earnings per share of $3.54, also a Kforce record, grew 35% year-over-year. I'm incredibly grateful for the tenacity and perseverance of our entire team over the past 2 years. Under the most extraordinary circumstances, you have embraced change and challenges, both personally and professionally, and helped deliver the most exceptional results in our firm's history. 06:29 We continue to make significant progress in positioning Kforce as the destination for top talent during a time, where there is great disruption in the labor markets. Our future work environment will provide our people with maximum flexibility and choice in designing their workdays that is grounded in our trust in them and supported by technology. We will have a remote first approach to support the life/work balance our team has become accustomed to as we moved through the pandemic. Our people will leverage physical office spaces when desirable for activities best done through in-person, active collaboration such as training, team building, client and candidate interactions. We are accomplishing this through our Kforce Reimagined initiative. 07:15 In servicing our customers, there is simply no other market we want to be focused in other than the domestic technology market as it has, in our view, the greatest prospects for sustained profitable revenue growth. We have the right team in place to capture additional market share within what we believe will be a continued extraordinarily strong demand environment for our services. It's our belief that the pandemic has exponentially elevated the imperative for companies to rapidly digitize their businesses, transform business models and drive productivity gains through the technology investments. 07:49 I will now turn the call over to Kye Mitchell, our Chief Operations Officer, who will give greater insights into our fourth quarter performance, recent operating trends, and other insights into our operating environment. Kye?

08:02 Thank you, Joe. I really appreciate the opportunity to speak to this broader audience about Kforce's operations. It's clear to us that our Kforce team's hard work and dedication is leading to our current exceptional results. I'm very grateful to our team and would like to take this opportunity to thank them for their incredible efforts. 08:25 Let me begin by providing some additional perspective on the strength of our outstanding fourth quarter revenue growth. Total revenues grew 17.8% year-over-year on a billing day basis. However, this overall growth rate includes the impact of declines in COVID-related revenues, which were substantially higher during the height of the pandemic. 08:51 Excluding the impact from that reduction, revenues were up 7.7% sequentially and 26.7% year-over-year per billing day. The COVID-related revenues were always expected to decline but provides a bridge for continued investment in our technology business. The growth we are experiencing in our technology business reflects the benefit of our decision to pursue the temporary COVID-related revenue stream. 09:25 Let me provide some color on the performance of our technology business. We achieved record levels of organic revenue growth of 32% on a year-over-year basis in the fourth quarter and grew nearly 8% sequentially on a billing day basis. This growth was on top of our strong performance during the pandemic, where our technology revenues were essentially flat, and we outperformed virtually every one of our peers. 09:59 Our technology business grew nearly 33% organically over the fourth quarter of 2019, pre-pandemic, which we believe exceeds the growth rate of every public comparable company. We believe our growth speaks volumes to the secular drivers and demand for technology talent. Our clients are reluctant to lose key resources from Kforce, even during challenging macro-economic environments because our highly skilled consultants are working on mission critical projects. 10:26 The operating trends we are seeing in our technology business have been impressive. Front end KPI's and new assignment starts have been at historically high levels. The average duration of technology assignments continues to lengthen and, just as we saw in 2020, we experienced much lower seasonal year-end assignment ends than we have historically seen. These trends provide us great momentum going into the new year. It is also a great indicator of our ability to sustain elevated year-over-year growth on an increasingly difficult comp. 11:03 Not only did we see increased growth rates in the number of Technology consultants on assignment, we also continue to see increases in our average bill rates, which grew 3.8% year-over-year to approximately $82 per hour. There has been much discussion and headlines surrounding the recent talent shortages in other staffing end markets, principally in lower skilled areas that we do not support, as well as wage pressures at a more macro level. 11:35 The reality for us is, we have been navigating a supply constrained environment for over a decade in our technology business. Our consistent strong results over this period reflect our ability to successfully navigate these shortages and access the highly skilled talent our clients need. With the environment moving to less geographic boundaries, our talent pool of candidates is increasing, which is a positive for our business. We also believe that wage inflation serves as a tailwind for us through future bill rate increases as our clients prioritize procuring the talent necessary to further their technology initiatives, despite any increasing costs. 12:21 We are seeing strength across virtually every industry and across all geographies. We continue to see the acceleration of critical technology initiatives within our clients in areas such as cloud, digital, UI/UX, data analytics, project, and program management. Our clients are leaning into digital, not just for the consumer experience, but also to improve their employee experience. 12:51 Technology and business strategy are continuing to intertwine, which is ideal for us given our technology focus. A significant accelerant to our overall technology growth has been the investments we've made and will continue to make in our managed teams and solutions capabilities to meet the evolving needs of our clients. 13:13 We have continued to add highly talented resources to our team to support the demand we are experiencing from end-to-end solutions and teams. We feel extremely confident in the positioning of our technology business. We expect first quarter revenues in our technology business may grow to the mid-20% range on a year-over-year basis, with low single-digit sequential decline due to the seasonal year-end assignment ends. Thus far in the quarter, demand remains strong. 13:50 With respect to our FA business, overall flex revenues were down 28.9% year-over-year on a billing day basis in the fourth quarter, including an expected $23.8 million year-over-year decline from our support of initiatives tied to COVID-19 pandemic as previously mentioned. These revenue streams were approximately $5 million in the fourth quarter, and we expect them to decline to nominal levels in the first quarter. 14:22 Flex revenues in our remaining FA business grew 8.3% sequentially and declined 0.2% year-over-year per billing day. We made good progress transitioning our FA business towards more highly skilled assignments that are less susceptible to automation and fit better with our technology footprint as evidenced by bill rates increasing nearly 10% year-over-year. 14:51 We will continue to support lower-end skill sets for certain strategic clients with long-standing relationships. We have seen natural assignment ends and lower skilled FA roles in 2021, where we chose to no longer support that business. We expect that effort to be materially complete in the first quarter of 2022. Our non-COVID FA revenues are expected to be down in the high teens on a year-over-year basis, given the repositioning of the business. When combined with the expected COVID revenue decline, overall FA Flex revenues may be down close to 40% year-over-year in the first quarter. 15:34 Direct Hire revenues in the fourth quarter increased nearly 13% sequentially and approximately 62% year-over-year as the macro-economic environment has continued to improve. We expect that Direct Hire revenues may see a sequential decline in the first quarter, but may increase slightly more than 30% year-over-year as clients continue to demonstrate a high degree of confidence in the recovery through the addition of full-time staff. 16:08 We are continuing to invest in strategic initiatives and technologies that best position our firm for long-term sustainable, profitable growth. From a technology perspective, our fully integrated CRM and TRM systems are cloud-based and seamlessly integrate with other Microsoft products. Investments to further develop these tools along with enhancing capabilities in other areas is continuing. 16:37 We have made measured investments in adding talent to areas with the greatest expected return, but don't expect to make significant investments in the near-term. We believe great opportunities still exist to further enhance productivity. We have supported and retained our best people and as Joe mentioned, have made meaningful changes to provide our employees flexibility and choice in how we work. 17:04 In partnership with our Chief Marketing and Talent Officer, Andy Thomas, an important measurement for me as COO is our reputation for delivering quality services to our clients and consultants. I'm pleased we continue to have the highest Glassdoor rating among our peers and maintain a world-class net promoter score from our clients and consultants. We were also named the most recognized firm by technology consultants per SIA. I'm grateful for the trust of our clients, consultants and candidates have placed in Kforce. Our teams continues to inspire me every day as we work together to position Kforce as the destination employer in our industry. 17:50 I will now turn the call over to Dave Kelly, Kforce's Chief Financial Officer. Dave?

17:57 Thank you, Kye. We are extremely pleased with our performance in 2021 as full year revenues of approximately $1.6 billion and earnings per share of $3.54 increased approximately 14% and 35%, respectively, year-over-year. Our strategic position and the momentum we are carrying into 2022, against what we believe will continue to be a strong demand environment has positioned us well to continue delivering significantly above market revenue growth. 18:33 Fourth quarter revenues of $410.4 million exceeded our guidance, growing nearly 18% year-over-year and approximately 24% since the fourth quarter of 2019 pre-pandemic. Earnings per share of $0.98 in the fourth quarter improved 14% year-over-year. Our gross profit percentage in the quarter of 29.2% increased 80 basis points year-over-year due to slightly improving flex margins and a greater mix of direct higher revenues. 19:08 Flex margins in our technology business were up 30 basis points year-over-year in the fourth quarter. As pay As pay rates have increased over the past year, we have been able to effectively pass these increases through to our clients. Bill pay spreads have also benefited from the growth in our managed teams and solutions offering, which typically carries a higher gross margin at both existing and new clients. 19:29 The continued demand for managed services should continue to bring stability to gross margins, even in the face of increasing pay rates. Flex margins in FA expanded 80 basis points year-over-year in the quarter, due to a combination of the decline in lower margin COVID projects in Q4 2021 compared to a year ago and margin improvements in our non-COVID FA business due to the strategic shift to higher skilled roles. 19:56 This strategic shift has allowed us to increase the average Flex margin for new assignments starts in our non-COVID FA business in the fourth quarter of 2021 by approximately 180 basis points versus the fourth quarter of 2019. In addition, average bill rates in our non-COVID FA business have improved 8% in the fourth quarter of 2021 versus the fourth quarter of 2019. 20:26 As we look forward to Q1, we expect spreads in our Technology business to be stable with fourth quarter levels, though overall Technology margins will be lower due to seasonal payroll tax resets. In FA, spreads are expected to have moderate expansion. We have not seen meaningful wage inflation within our consultant population, but should that change, we are confident in our ability to work with our clients to appropriately align bill rates. 20:54 Flex margins will be negatively impacted in the first quarter by approximately 110 basis points relative to the fourth quarter due to seasonal payroll tax resets. Overall SG&A expenses increased as a percentage of revenue by 170 basis points year-over-year, principally due to higher levels of performance-based compensation as a result of our exceptional revenue growth and higher costs related to an accrual for the expected settlements of a lawsuit. The accrual related to the expected legal settlement impacted SG&A percentage in the fourth quarter by $2.4 million, or roughly 60 basis points. SG&A expenses in Q1 are expected to be down from fourth quarter levels, due to the decline in legal accruals and seasonally lower performance-based compensation, given annual compensation plan resets, which will be partially offset by usual seasonal payroll tax resets. 21:52 Our fourth quarter operating margin was 6%, which was negatively impacted by 60 basis points, because of the aforementioned legal accrual. Excluding this impact, operating margins fell within our expectations. Our compensation plans are structured to provide meaningful compensation to our talent at extremely high performance levels. While this creates higher than normal SG&A costs at fourth quarter growth rates, we believe this structure serves as yet another retention incentive for our most talented and productive people and benefits our shareholders over the long-term. 22:32 Our effective tax rate in the fourth quarter was 11.6%, which was significantly lower than our expectations due primarily to a larger tax benefit upon the vesting of restricted stock as a result of an increase in our stock price. The lower effective tax rate positively contributed $0.09 to earnings per share in the fourth quarter, which offset the negative impact of $0.09, that was a result of the $2.4 million legal accrual. 23:00 We generated $126 million in EBITDA in 2021, which represents an increase of 30.2% year-over-year. Operating cash flows were $72.9 million in 2021, which included a negative impact from the payment of payroll taxes deferred pursuant to the CARES Act from 2020 of approximately $19 million. We returned $74.5 million, nearly 100% of operating cash flows for the year and capital to our shareholders through $20.1 million in dividends and $54.4 million in share repurchases. Our return on invested capital was approximately 45% during the fourth quarter. 23:47 We ended the fourth quarter with $3 million in net debt. Our business continues to generate significant operating cash flows and we were again active in repurchasing nearly $10 million in stock during the fourth quarter. Since 2010, we have returned in excess of $700 million in the form of dividends and share repurchases, which has represented approximately 80% of the capital we generated over that same time period. 24:16 The strength in our balance sheet and availability under our $200 million credit facility allows us to be opportunistic in returning additional capital to our shareholders, while continuing to evaluate potential acquisitions. With that said, our belief is that a focus on organic growth provides us the best opportunity for long-term success. Thus, we will continue to apply very stringent cultural and financial filters to any transaction. 24:44 Given our confidence in our future growth prospects, we expect to remain active in repurchasing our shares at current stock price levels. To support our intentions going forward, our Board of Directors recently approved an increase in share repurchase authorizations under our existing repurchase program to $100 million. 25:14 As an additional sign of confidence going into 2022, our Board also approved a roughly 15% increase in our quarterly dividend effective in the first quarter. This increase will bring our dividend yield to slightly less than 2% at current stock price levels. With respect to first quarter guidance, the number of billing days are 64 days in the first quarter of 2022, which is three more than the fourth quarter of 2021 and one more day than the first quarter of 2021. 25:42 We expect Q1 revenues to be in the range of $403 million to $411 million and earnings per share to be between $0.72 and $0.80. Gross margins are expected to be between 28.1% and 28.3%, while Flex margins are expected to be between 25.7% and 25.9%. SG&A as a percent of revenue is expected to be between 22.2% and 22.4%, and operating margins should be between 5.4% and 5.8%. 26:21 As a reminder, first quarter operating margins are typically impacted by approximately 150 basis points due to the seasonal impacts of the annual payroll tax resets. This also impacts earnings per share by approximately $0.21. Weighted average diluted shares outstanding are expected to be approximately 20.7 million for Q1. The effective tax rate is expected to be 26.5%. 26:51 Our guidance does not consider the potential negative impact on the demand environment from a significant increase in COVID-19 variant cases, the effect, if any, of charges related to any one-time costs, costs or charges related to any pending tax or legal matters, the impact on revenues of any disruption in government funding, or the firm's response towards regulatory, legal or future tax law changes. 27:16 We are excited about our prospects for growth in 2022, given the significant momentum we have created in 2021. We expect this growth to result in continued expansion in our operating margins and significant increases in earnings per share, while allowing continued investments in technology and our people, both of which we believe benefit our shareholders in the long-term. 27:39 To assist you in better understanding our expectations of growth and profitability, we have provided you with some additional information in our press release. Based upon current market conditions, we expect full year revenue growth in our Technology business should be at least 15%, more than twice current market expectations. Revenue for our FA business will likely decline more than 25%, due to the net impact of revenue declines from business that we are no longer pursuing due to our strategic migration to higher end skill sets and from the elimination of COVID-19 revenue streams. This would result in total revenues of at least $1.7 billion, of which greater than 85% will be Technology as we exit 2022. We also expect 2022 earnings per share to be $4.20 or greater and for operating margins to be at least 7% for the full year. 28:32 Overall, we believe the strategic decision to focus our business in providing domestic technology talent solutions is paying dividends. We couldn't be more excited about our future growth prospects. Our shareholders continue to benefit from strong performance and efficient capital allocation. Our predictable cash flows provide significant future flexibility to make investments and continue returning capital to our shareholders. 29:01 On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for their efforts in outperforming market expectations through the adversity and uncertainty of the past two years and continuing to build on that success in 2022. 29:18 I'd like to open up call to questions.

29:23 Thank you [Operator Instructions]. Your first question comes from the line of Josh Vogel from Sidoti & Company. Your line is now open.

29:44 Thank you. Good afternoon, everyone. Certainly, really impressive results and performance and guidance. First question I have for you is, thinking about the outlook, can you quantify what direct hire added to EPS last year? And then given you full year what level of activity is baked into your base revenue and EPS guidance numbers? Thank you.

30:14 Hey, Josh. This is Dave Kelly. So obviously, direct hire, because it's a strong market overall, was accretive to EPS. We don't have a specific breakout of that. But as I think about 2022, our expectations in terms of growth rates are not to – not the same type of growth. So the predominant leverage that we're going to see in earnings are going to be driven really by the technology revenues that we see, right? And direct hire is just a small -- just a couple percent of revenues anyway. So the big driver clearly is technology growth. 31:01 And I'm sorry, your second question, Josh, quickly.

31:05 No, that pretty much covered it.

31:07 Okay.

31:14 And shifting gears a little bit and understanding how you strategically moved to focus on tech – domestic tech and clearly, you're taking share. Maybe just a little bit more thoughts on where it's coming from. Is it that competitors don't have the available pool of resources? Or are you seeing larger enterprises or clients that are just finding it too difficult to find the talent through in-house channels? Basically, what's driving it? What do you think are your key differentiators?

31:41 Yeah, Josh. This is Joe Liberatore. I would say, just the market backdrop, it's a big piece of it. I mean, when you look at, especially the pandemic accelerating everything, I think I mentioned it last quarter. I mean, pretty much digitization of one's business, its table stakes at this point in time. No company can afford to opt out and even be really slow to adopt. So I mean, I've been in the tech space now for 34 years and it's never been this robust. All things are hitting at the right time. You have high demand for resources, you have increased project demands, because of the way everybody is having to move their businesses forward. So it's really the backdrop that's driving it. I mean -- and again, obviously, if you look at SIA numbers, we are taking market share. But I think the overall space has been performing very well. I would attribute our performance specifically, it really started with our journey, probably back in the '15, '16 timeframe with all the investments we've made in technology to enable our people, as well as revamping our go-to-market with what we call our K-way approach to bring our services to market. 33:03 And then it's -- we've invested a lot in leadership development. I mean, our people are leading better than they have ever led. So I would really attribute a lot of it to our team and the efforts of our team. So, secular for sure, I mean, we've been saying that since coming out of the financial crisis that we saw, it’s really a secular shift taking place versus historically how tech had been viewed from a cyclical downturns. And I think, if you look at the course of our performance through the last 2 downturns, it's clearly proven out that tech is at the heart of everything and every business. And then I would say the other big piece is our productivity. If we go back and we look at pre-pandemic, out productivity is up 32%. So, I'd say, all of those things are really driving it.

33:44 Those are good insights. Thank you. And a little bit on a tangent, can you just talk about -- we know that it's a very supply-constrained market, especially among specific skill sets. Just can you talk about some of the successes that you're having on the candidate engagement front that maybe some of your competitors aren't?

34:12 This is Kye Mitchell. I think we're doing a fabulous job on that front. Our recruiters are highly skilled, they are used to working in demand constrained environments that are tight like this. We've really invested in technology platforms consistent in doing their jobs and it's paying off. I think, there is a lot of struggle to find that talent. So with us, we have that reputation, like I said, we're the most recognized by technology professionals. We represent 70% of the Fortune 500. And consultants and candidates want to work for us. So I'm very pleased with the progress that our recruiters are making and how they're continuing to deliver time and time again for our clients.

34:58 Thank you. And just 2 more quick ones and I'll hop off. You noted, we're seeing bill rates in Tech Flex up just under 4% year-over-year. What were pay rates up year-over-year? A – Joe Liberatore: 35:09 Yeah, Josh, Dave Kelly again. So pay rates we up slightly less than that. I think kind of interesting dynamics in our technology business, we feel very good about it, right? So bill rates were up. I think if you kind of look at in aggregate dollars, about $3 an hour. Obviously, as we've indicated, we see that as really a tailwind to our business, and additionally, a really nice improvement in spreads. So not only are we getting higher bill rates, we're getting higher margins. So bill rates are expanding as a result of that at faster rates than pay rates. So we feel really good about where we're going here in terms of being able to manage this with the mix of business that we have.

35:49 All right. Great. And lastly, I'm sorry, if I missed in you prepared remarks, but what was the nature behind the lawsuit?

35:58 Yeah, Josh, So -- and this is -- these are -- these types of things obviously are unusual four us and we previously made some disclosures in our 10-Q and 10-K. It's a wage and hour related suit, kind of unusual for us, and we've reached tentative settlement on it. So, not a typical thing for us, so we felt important to call that out.

36:25 Got you. Well, thanks for answering all my questions and congrats on a great year. A – Joe Liberatore: 36:31 Thank you, Josh.

36:32 Thank you, Josh.

36:35 Your next question comes from the line of Mark Marcon from Baird. Your line is now open.

36:41 Hey, good afternoon and congratulations on the strong results. And I also want to pass on best wishes to Dave Dunkel, so nice to see the transition being as smooth it is. Can you talk a little bit about the opportunities to further increase the bill rates on Tech Flex, they were up 3.8%. Obviously, we've been operating in a talent-constrained environment for quite some time. So it's nothing unusual, but just wondering to what extent the higher level of wage inflation that’s going across the entire economy gives you permission to potentially increase bill rated on the tech side a little bit more? A – Joe Liberatore: 37:22 Yeah, Mark. I would say, we're seeing it right. We have a lot of data in our hands now. So we're all out in terms of engaging with our end clients to bring data to them to tell them what's happening in the marketplace. Another interesting dynamic when we look at some of the escalation that's taking place is, we're seeing this migration from the coast to really into the Central US, which is kind of an interesting phenomenon where Central US is paying West and East Coast rates, because those people are working remote. So I’d say remote is playing into that in a big way in terms of the driving. 38:00 I would say on our end, based upon the nature of how our business constantly re-prices itself, we feel very confident. And I think if you go back and look at history, and again, you've been around long time like I have. Through every cycle, we've been able to manage through that irrespective of supply demand constrains and market pressures that are taking place there. 38:23 I mean, Kye, is there anything else that maybe you want to add that you are hearing from direct end customers?

38:32 I think the only thing I would add Joe is, customers do understand that demand is going up, prices are going up due to this new phenomenon of consultants being able to work anywhere like Joe was saying. And so, we've been very fortunate to be able to provide the data to show them what is happening in their -- in their local markets with new competitors, fin companies, everybody coming into the Midwest, like Joe said. We're really focused on training. We're really focused on date and educating our customers on where that trajectory is going. So I do think, right now we're doing a good job of keeping up with it, and we'll continue to do so.

39:18 Great. And can you [Multiple Speakers]

39:20 I'm sorry, this is Dave Kelly. You has asked kind of a trajectory. I think as we think about this and everything that Kye and everything that Joe said. Clearly, the expectations that we have, given the quality of our customer base, given the increasing managed solutions business that we're doing. And we've seen historically 3% or 4% increases a year in bill rates probably over the last 5 years or 6 years or 7 years. I don't know that we see that changing. So we see continuing opportunity to take advantage of that.

39:54 Great. And then can you talk a little bit more about the percentage of the business that you're doing on a remote basis? And how far along are you in terms of fully exploiting that dynamic? And to what extent does that give you competitive advantages relative to other players that could potentially expand your penetration of the existing clients, as well as gaining new clients?

40:22 Yeah. So I'd say there's two pieces to that question. There's an internal piece and then there's the external client dynamic. We don't really control the external client dynamic. However, I will tell you, we still see a very high percentage of roles being performed in a remote manner. And you read Wall Street Journal and see all the releases coming out. There is no question, many people have rolled back their -- push people back into the office, not just because of Omicron, but because of defections, in ability to hold on. 40:53 It's interesting, because we have a couple of new, what I will call, screening criteria that we go through on top of everything else and one of those is where somebody is relative to their desire to work remote or not. So it's actually a qualification, no different than vaccination as another new qualification. So I'd say, at this point in time, a very high percentage of our consultants do remain remote, outside of those that physically do have to be on-site like those that might be working in innovation labs and things of that nature. But it's going to be a company-by-company type scenario. 41:28 So, as Omicron passes by, and openings start to come about, your guess is as good as mine on there. I will tell you though, if you read any of the publications that are out there, they talk about a very high percentage of consultants really saying that if they're forced forced to go into the office, they'll be looking for new job. And you're in this type of environment, where supply-demand is still in balance, they're really in control. 41:55 I would say from an internal standpoint, that's truly where the differentiation comes into play. We made a commitment back in May of 2020 to really reshape our business. We've invested a tremendous amount in terms of technology and processes and we're in the process of continuing to roll things out. So our belief is, the way that you're going to be able to hold on to people long-term is by providing them flexibility and choice, while equipping them with the best platforms that are out there. So I'm really excited about the things that we have going on from that standpoint. And it's a path that we're committed to. Many talk about remote out there and say various things. We've committed to the capital. We put our best people on this, and we believe that, that is the optimal model in the future to really retain and hold on to people.

42:59 Joe, I totally agree on that. How far along are you with regards to the rolling out of the current technology initiatives? When will that be complete? And I know it's a constant evolution, but just in terms of the current iteration?

43:14 Yeah, it's a great question. We've really been rolling things out for the better part, probably over the last 8 months. We are rolling out some really need technology that I'd rather not get into the particulars of them right now just from a competitive standpoint. But when I sit here and look at the things that we're doing, what they also are going to do, they're going to unlock our ability to really leverage our national footprint and our ability to take candidates across multiple geographies. So instead of -- that candidate may be getting exposed to two or three local requirements, we'll be able to expose them across the entire enterprise, which obviously increase probability of placing that candidate when we expose them to more opportunities, likewise, getting them that optimal match. 43:52 So, historically we have also been investing a lot in our cloud-based technology. I’ll tell you, I sit here and say, I wish I could say it’s all strategy, sometimes its strategy, sometimes it's luck. The decision that we made to go with the dynamics platform ahead of the pandemic happening. And then when you look at what Microsoft has been doing with their platforms, it’s not just from a team standpoint, but what they're doing with Veeva, what they're doing with Glint and various other things and linking things back together through Linkedin. I mean those decisions to move in that direction and cloud-based, really it just made a big difference for us. So a lot of exciting things coming. Our people are being incredible in terms of embracing the change and embracing the technologies. I give our leadership a lot of credit and also when you look at what our people will accomplish. And by the way I would say this just goes back to a corporate mentality. Back on March 17 when we took the while entire firm virtual. Our people were up on Teams doing video and so and so forth. I still talk to some Fortune 500 companies today where they really still have an embrace video, they are waiting for the world to go back to the way to it was. I will go back to the way it was in terms of the human interaction and getting to together, but I think when people can have that in office when necessary, remote and not deal the 5 day grind commute, and all that time back just turns into productivity and higher quality of life.

45:26 Absolutely agree. And appreciate the comments.

45:31Thank you.

45:33 Your next question comes from the line of Tim Mulrooney from William Blair. Your line is now open.

45:41 Yeah. Good afternoon. Just a couple from me. Congrats on a nice quarter. So you just talked about a strong backdrop driving your results and I can appreciate that, but your IT Flex business has performed better than many of your public peers throughout the pandemic. So I'm hoping maybe you can just unpack that a little for us. What do think is driving that outperformance? And if you think you're taking share from other staffing firms, is it the sub-verticals you're focused on or maybe taking share from other traditional IT services companies? A – Joe Liberatore: 46:18 Yeah. I'll kind of lead in, and then I'll let Kye add a little bit of color, because she's really been responsible for driving these strategies. So I'm not going to reiterate the things that I mentioned earlier in terms of the investments and the changes in our overall models that we've been getting after. But I would say, a big piece of this also is, we're continuing to move upstream with our managed teams and solutions business is playing a piece in that. 46:45 Kye, maybe you can give a little bit of flavor on that front, just on some of the types of things that we're seeing.

46:54 Yeah. Thanks for the question. I think we're doing a great job continuing to move upstream. Part of our success in outpacing our competitors is really the footprint we're playing in. Today, you hear about digital transformation everywhere, that's a big area of focus for us. It has been for several years and companies if they weren't pre-pandemic looking at digital transformation, they are today. So that's the big one. 47:21 But really, I think we focused several years ago on looking at our business, how do we want our portfolio to be -- moving FA recruiters over into technology, no distraction from acquisitions, really focused on simplifying the business model and then going after the areas that we know we can perform in time and time again with digital strategy, with cloud, with big data. So I'm really proud. 47:51 I do think our people are just hitting all-time productivity high. So while demand is there, as you said, it's really about the ability of our people and the environment we've created for them to be able to excel and capture that market share. So really pleased with what the teams are doing.

48:13 Well, you guys certainly seem to be doing a great job capitalizing on the environment and continue outperforming. Just one more from me. It looks -- this is on your operating cost structure. So it looks like your SG&A, I guess, grew a little faster than your gross profit in the third and fourth quarters of 2021. But based on your full year guide for '22, it looks like you expect that trend to reverse at some point during the fiscal year, right? I know you've done some work on improving your cost structure. Is it fair to assume that your guidance for full year ‘22 is based upon getting leverage on your SG&A and seeing that decline as a percentage of sales for the full year.

48:54 Yeah. Tim, thanks for the question. So yes, right. So when we think -- I think I've made commentary that we expect operating margins of at least 7%. That's as compared to, I think, 6.7% in 2021. And yes, we're expecting that to come from leverage predominantly in the operating costs. These are couple of things I think I would say, and then we've alluded to this in our remarks and in the past. 49:22 We think we're making great investments in higher compensation costs to generate, I think, Kye, you mentioned 32%, 33% growth in tech Q4 to Q4. We have pay designs that provide exceptional pay for exceptional performance. And to your point earlier, we believe that is the case. And we think that's the right investment for the shareholders to drive significant earnings per share. We think it’s beneficial for us in the longer term, because it helps retention. If we can grow in excess, again, at 50% as we've said in technology in 2022, might we have slightly higher compensation costs that we would have – if we would have only -- only been growing at 8% to 10%. Sure, we do, expect a little bit higher. So we're trying to bake that in, so it’s a combination of probably a little higher compensation costs, because of the exceptional growth, but we are getting leveraged overall as well. So there is a couple of different things. And then I’ve mentioned, obviously, in the fourth quarter at least SG&A was affected by a onetime item, which drove up cost a little -- by about 60 basis points as well. So, combination of things. All-in-all, I think we're making the right choices and the right investments.

50:38 Right. [Multiple Speakers] A – Joe Liberatore: 50:43 Tim, I just -- I would add. Well, go ahead.

50:43 No. Sorry. Go ahead A – Joe Liberatore: 50:44 The one thing, I might have missed it if Dave touched up on it. Here for the better part over the last 5 years or 6 years, we've been growing our productivity on a year-over-year basis by roughly 10%. As I mentioned, it's accelerated here through the pandemic. As I mentioned earlier, it's up 32% from Q4 2019. And we believe that we still have lot of capacity there and we are just beginning to get the traction with the lot of the investment. So we do believe that we are going to continue to see increased productivity across the board. I mean, just looking at how our teams have been performing across all 10 -- and this is across all 10 year cycle. So it's not just our most tenured people. But even our less than 1 year productivity is up pretty substantially. So I mean, I think that just speaks volumes, so some of this will come from continued productivity.

51:37 Understood. Appreciate the color. Thank you.

51:40 Sure.

51:41 Your next question comes from the line of Tobey Sommer from Truist Securities. Your line is now open.

51:50 Thanks. I was wondering if you could give us some color on how you're progressing in your higher value services. Some folks in the market called managed services, consulting or statement of work. Just update us on where that fits and what your kind of goals are for this year and beyond? A – Joe Liberatore: 52:11 Yeah. I'll let Kye touch upon some of the goals, but I'll kind of give you the broad base on that, Tobey. Where we're really winning in that space is, in that space really sitting between what would be traditional staff augmentation and the traditional consulting. And I really think it's because of our ability to be nimble, be more cost attractive and provide higher value, which is really synergistic with our past performance inside our existing customers and then getting proof points within those existing customers and then taking that for our new client development. 52:49 I mean, I think our offerings here really position us to take more ownership, while really still providing that end client with some of the control and desire that they have over the solution that they're looking to implement. And so, Kye, maybe you can give -- maybe give us some flavor of some of our more recent wins, and that will just give you a feel and then you can talk about how you see things continuing to progress.

53:21 Yeah. Thank you, Tobey. I think we're going to continue to see a lot of growth in these areas. Again, our customers, like Joe said, are trying to have us move up that value proposition team with them. And so, as we're leaning in, we've had big wins in -- again, I mentioned it earlier, digital transformation, but not just at the consumer level, we are doing everything from one of our big wins we’ve recently had was working with the Fortune 100 customer to really digitize their entire supply chain. They're a big retailer, and they're having trouble meeting all the demand, as so many people are. So they really want to go through and digitize that whole system. And so we're working with them to do that. 54:07 We had another recent win where the client was looking to take it in-house from a big -- one of the well-known consulting firms had previously outsourced it. They wanted to bring in their whole digital experience, everything from mobile, to web, to call center, everything to be in their in-house with them and they felt after we've partnered with them for 20 years on the staff aug side that we knew them well enough, we could help them bring that back in-house and then help them from a managed team perspective. And we were really excited to do that. And in fact, since they brought it back in, they actually just recently won the J.D. Powers award in their bracket. 54:49 So I do think customers are looking for more flexibility. I also believe we can bring the recruiting to them that they need. So while they're looking for us to bring more skin in the game, outcomes and things like that, they still need the heavy-duty recruiting experience, which we can bring to the table. So we're really excited about it. And I do think, again, our recruiting is what makes a big difference for us there.

55:16 Thanks. [Multiple Speakers] A – Joe Liberatore: 55:15 Yeah. And Tobey -- to wrap your question from a goal standpoint, I will tell you, whatever you see as our tech business top line growth, we're growing at a much higher rate in terms of this offering. Now we haven't broken out percentages or anything else, but I at least wanted to give you a flavor there directionally. These offerings have been outpacing our overall growth.

55:42 Okay. Thank you. And I'll just ask one follow-up. I know we're about to hit an hour . When you look at this aspect of your business and the market that you're kind of competing in now, how many tech -- traditional tech staff aug players are operating in this market and active at scale? A – Joe Liberatore: 56:07 Yeah, it's a great question. To be at scale is the key component there, because as you're well aware, I mean, the competitive landscape, it's really the full spectrum. We're competing against the large brand consulting firms, regional, local and niche providers. We're also competing against internal projects where the clients are looking to hand off certain aspects, but their internal teams also proposing to really take ownership of it. 56:35 But from a traditional legacy staff augmentation, competitive landscape, there's a number of players out there that I think are moving very much in the same direction that we are. We're probably all moving along at comparable rates in terms of the mix and shift of our business short of any that might be doing acquisitions to change that overall mix, but from an organic standpoint. And again, it's because it's natural. 57:01 As Kye mentioned, the clients are pulling us in this direction for all the reasons that we've mentioned. So -- but they're -- and I love -- personally, I love seeing some of the formidable competitors out there that we've slugged it out with on the staff augmentation front year-in and year-out moving into the same space. Because I think that's just indicative to where the overall space is going and the unique positioning that those coming from the staffing side really bring in to the market in comparison to the legacy solutions providers that are out there. So I'm not going to call out specific names, but it's the most reputable ones that are out there. Some of the bigger players are all moving in this direction.

57:46 Thank you, Joe. Thanks for the expansive response and congratulation on taking the help.

57:51 Thanks, Tobey. I appreciate it.

57:53 There are no further questions at this time. I would now like to turn the conference back to Mr. Liberatore for closing comments.

58:03 Well, thank you for your interest and support of Kforce. In closing, I’d like to thank every Kforcer for their incredible efforts and to our consultants and clients for your trust in Kforce and partnering with you and allowing us the privilege to serve you. 2021 was a year of exceptional results, and we look forward to talking with you again after our first quarter 2022.

58:28 Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.