Kforce Inc (KFRC) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Kforce 3rd Quarter 2012 Earnings conference call. At this time, all participants are in a listen only mode. Later we'll conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to hand the conference over to Mr. Michael Blackman, Chief Corporate Development Officer. Sir, you may begin.

Right, thank you. Good afternoon and welcome to the Kforce 3rd Quarter 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, expectations, and 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 this call over to David Dunkel, Chairman, Chief Executive Officer.

Thank you, Michael. You can find additional information about Kforce in our 10-Q, 10-K and 8-K filings with the SEC. We also provide substantial disclosure in our release to assist in better understanding our performance and to improve the quality of this call.

Before proceeding with the call, I'd like to acknowledge all of those affected by Hurricane Sandy. We continue to pray for the safety of our clients, consultants, and employees in these areas as the storm progresses. We'd like to highlight the fact that a significant portion, approximately 30%, of our revenue is based out of the northeast and Atlantic coast areas that are currently being impacted by Hurricane Sandy. Please note that all commentary in today's call is offered without consideration for any impact from the storm.

Before we discuss the firm's Q3 results, I wanted to take a few moments to recognize and celebrate some recent changes to our executive team, as was announced in yesterday's press release and related 8-K filing.

As a result of a succession planning exercise conducted over the past year by the firm's Board of Directors, effective January 1st, 2013, Joe Liberatore will become Kforce President, and Dave Kelly will become the firm's Chief Financial Officer. Bill Sanders, current Kforce President, was named Vice Chairman. The firm is fortunate that we will continue to have the regular benefit of Bill's wisdom and experience until his retirement in June, 2013. In addition, Bill may continue to serve the firm as Vice Chairman on a reduced schedule after June.

I want to express, both personally and on behalf of all of our stakeholders, my sincerest thanks to Bill for all he has done since joining the firm in 1999. His many contributions to the firm will serve as a lasting legacy as we continue to build on the foundation that he was instrumental in putting into place.

We're also very excited to have both Joe and Dave move into these key leadership positions as a result of our succession planning process. Both have demonstrated an extraordinary record of accomplishment in a number of roles within the firm.

As President, Joe will be working closely with our field and clients as the firm continually evolves to provide even greater levels of customer service. Joe brings a unique blend of operational and financial expertise to his role, as well as an extraordinary degree of knowledge of Kforce and the staffing industry. With Kforce at approximately 3% market share domestically, in Tech and in F&A, I am confident that he will be aggressive in moving the firm forward to capture increasing customer and market share.

Dave brings to the CFO role a very high level of financial expertise, and he has been instrumental in driving many of the operating efficiencies that have been realized over the past years. Under Dave's leadership, we will continue to build on our strong balance sheet and quality earnings, and look forward to fully leveraging our operating platform to drive strong returns for all of our stakeholders.

I'll now move on to share some perspective regarding the firm's Q3 results. Kforce reported Q3 revenue for the quarter of $270.2 million, a year-over-year increase of 5.1% on a billing day basis. Earnings per share of $0.26 demonstrate the success of our focus on cost containment and pricing discipline.

The environment for professional staffing and the demand for our services, particularly in technology staffing, continues to be positive. The war for talent across our staffing businesses also continues to be heated. The unemployment rate among college-degreed workers is currently 4.1%, roughly half of that overall U.S. rate of unemployment, and is substantially lower in several of the skill sets in which Kforce specializes.

Bill rates continue to increase, and supply for candidates is still tight. We continue to aggressively manage our client portfolio to optimize both volume and rate.

Over the past few quarters, however, revenue growth has slowed, particularly in our larger accounts, due to the uncertain economic outlook. Additionally, with productivity levels of our associates near all-time highs, it is increasingly necessary to add resources to sustain and accelerate growth. We are highly focused on understanding and adjusting to the recent shifts in demand, and are making the necessary adjustments to our model and client mix.

We expect to continue to reposition our resources and increase associate head count over the next few quarters, and anticipate revenue growth to accelerate in mid-2013 as our new associates ramp. We should continue to benefit from improving bill pay spreads, and previous infrastructure investments, to allow us to deliver support and provide operating leverage as we scale.

Our revenue footprint is comprised of approximately 70% technology staffing, inclusive of those technology portions of our government and HIM businesses. We continue to benefit from our clients' desire for a flexible workforce during this uncertain economy, combined with significant uncertainty in regulatory, tax and healthcare reform. We remain optimistic about our prospects and are committed to our belief that temporary staffing penetration, which has improved from 1.34% at the beginning of this economic cycle, and is currently 1.9% of the workforce, will achieve historic highs in the U.S. during this economic expansion.

As we look ahead, we believe strongly in the long-term growth prospects in our Tech, FA, and Health Information Management businesses, and our ability to manage through the difficult environment impacting our government business.

We have demonstrated our ability to expand revenues and earnings in both strong and tepid economic conditions. We anticipate continued billing day growth in Q4. 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.

I will now turn the call over to Bill Sanders, who will provide commentary. Joe Liberatore will then provide additional insights on operating trends and expectations. William?

Thank you, David. And thanks to all of you for your interest in Kforce. We have built a foundation of great people, processes and tools that allow us to compete effectively in this market for our staffing solutions business units.

Over the past year, we have experienced changes in certain customer segments, and industries, that have impacted revenue growth. We are constantly adjusting to these changes to ensure our resources are most efficiently directed. Our highly tenured field sales and delivery operations are supported by a flexible National Recruiting Center, and strategic accounts model, that combined, allow us to adapt to these changes so that we take advantage of client opportunities that arise across geographies, industries and size.

Our overall flexible staffing business continued to grow in the quarter. Our Tech Flex staffing business once again grew sequentially and year-over-year on a billing day basis, while our FA Flex and HIM business declined sequentially, but still have grown year-over-year. Our government practice also had a sequential increase in revenues, despite the difficult operating environment. Permanent placement revenues decreased sequentially, but increased year-over-year.

Tech Flex is our largest business unit, and represents 61% of total firm revenues. On a billing day basis, Q3 revenues increased 1.2% sequentially, and 4.8% year-over-year. Overall, our key performance indicators for technology remain at healthy levels. Client visits and job orders remain at high levels, so growth continues to be impacted by increasing decision times, as well as a high level of conversions.

We continue to improve in prioritizing the highest quality job orders, and our fill ratios for these orders is at an all-time high level. Intra-quarter trends for Tech Flex revenue shows declines in July and August, but growth in September. The candidate pool for technology consultants remains very tight, particularly for skill sets in high demand, such as Epic, JAVA and .NET.

As Dave noted, we will provide you our 4th quarter expectations before the effects of Hurricane Sandy. Accordingly, we expect 4th quarter revenues to increase for Tech Flex from Q3 levels with consistent demand offsetting the reduction in billing days due to the holiday season.

Revenues for our Finance and Accounting Flex business represent 19% of our total revenues. On a billing day basis, Q3 revenues decreased 2% sequentially, but increased 9.2% year-over-year. Revenues declined in July and August, but increased in September. These results were driven by declines in lower bill rate processing assignments at our largest financial services clients. Current performance indicators suggest FA Flex revenues will increase on a billing day basis in the 4th quarter.

Currently, approximately 30% of Tech and FA revenues are being supported by the NRC, which is consistent with Q2. We are continuing to refine our NRC strategy to narrow its focus on high-demand skill sets, and strategic clients, to create even greater leverage.

Revenue growth for the quarter was driven by our small and medium-sized client basis, and some select strategic accounts. Our strategic accounts portfolio declined slightly as a percentage of the total revenue in the quarter due to declines at our financial services clients. Bill rates improved during the quarter, reflecting continued strong demand for consultants with desired skill sets.

On the aggregate, the firm provides consultants to approximately 3,000 clients at any time. We have an extremely diversified revenue stream, with no one client constituting more than 3% of total revenues. Our flexible model allows us to redeploy consultants in the industries with the greatest demand for our services, such as healthcare. Four of our top 25 clients are in financial services, and comprise approximately 7.1% of total revenues, which has declined from 9.1% a year ago. Financial services represent 16% of Tech revenue, which is down slightly from Q2 2012.

On a billing day basis, revenues for our HIM business decreased 7.7% sequentially, but increased 6.3% year-over-year. This business experienced a decline in Q3, as expected, due to large project completions. However, 4th quarter revenues will improve as new business began to ramp in September, and was expected to continue into Q4. We believe there is strong demand for this profitable business unit, and its synergies with our Tech Flex business, as we continue to capitalize on the growing spend in healthcare around ICD-10 and electronic medical records.

On a billing day basis, revenues for Kforce Government Solutions increased 6.8% sequentially, but decreased 3.5% year-over-year, as the overall market visibility for government contractors remains extremely limited. While revenues for this unit may have stabilized, there remains continued uncertainty around funding levels of various federal government programs and agencies as they await the outcome and potential impact of sequestration.

KGS continues to strategically focus on opportunities with federal agencies that are less impacted by these fiscal concerns, such as the healthcare space, which comprises over 35% of KGS revenues. We anticipate slightly improving revenues in Q4, assuming the funded projects continue to add consultants.

Perm revenues from direct placements and conversions, which constitute 4.6% of total revenues, decreased 6.3% sequentially, but increased 6.6% year-over-year. The war for talent continues to create an environment of strong demand for candidates, and the pace of conversions remain elevated for the past three quarters. Perm revenues are difficult to predict, but we expect perm revenues to be slightly down in Q4, which is typical of the seasonal pattern for this revenue stream.

In terms of core head count trends, we continue to make investments in head count from Q2 to Q3. Sales head count, inclusive of the NRC and strategic account, increased 5.6% sequentially, and 9.5% year-over-year. We believe in the continued demand for our services, and associate performance metrics remain near peak levels. Therefore we plan to continue to make selective investments in our sales associate head count and geographies and industries that we believe represent the greatest opportunity.

We had solid performance in the 3rd quarter, and have a very strong foundation for success. Our platform of tenured field teams, National Recruiting Center, and strategic accounts model, allows us to adapt to changing market dynamics and client and industry trends.

As we experience challenges in certain industry segments, as has been the case specifically with our largest strategic account clients in financial services, it impacts revenue growth in the short-term. However, as we shift these resources to more promising industries, and client opportunities, and narrow our focus, we expect these changes, along with continued investment in associate head count, to positively impact revenue growth as we move further through this economic cycle.

As we continue on our three-year expedition to attack the summit, our priorities continue to include a relentless focus on retaining our great people, and improving client satisfaction, while driving continued profitable revenue growth.

This being my last call, I would like to thank our shareholders for their interest and support, to Mr. Dunkel for his leadership, and to Joe, Dave Kelly, and Michael Blackman for making me appear much smarter than I am.

I will now turn the call over to Joe Liberatore, Kforce's incoming President, who will provide additional insights on operating trends and expectations. Joe?

Thank you, Bill. The firm delivered solid results in the 3rd quarter. Total revenues for the quarter were $270.2 million, which represented a billing day increase of 0.1% sequentially, and an increase of 5.1% year-over-year.

Quarterly revenues for Flex were $257.8 million, which represented a billing day increase of 0.4% sequentially, and 5% year-over-year. Search revenues of $12.4 million decreased by 6.3% sequentially, and increased 6.6% year-over-year.

Staffing sequential Flex revenue trends in Q3 declined in July and August, and showed improvements in September. Search revenues declined in July, and increased in August and September. Flex revenue trends for the beginning of the 4th quarter of 2012 have improved from September levels.

For the first three weeks of October, Tech Flex is up 4% year-over-year, Finance and Accounting Flex is up 4.4% year-over-year, and HIM is down 4% year-over-year. Search revenues are up 8.7% year-over-year for the first four weeks of Q4 2012. We caution that early quarter trends don't necessary accurately reflect potential full quarter results.

The firm recorded 3rd quarter net income and earnings per share from continuing operations of $9.3 million and $0.26, respectively. Net income increased 4.8% sequentially, and EPS increased 8.3% sequentially, when normalized for the Q2 2012 goodwill impairment.

Year-over-year net income from continuing operations increased 46.6%, from $6.3 million in Q3 2011, and earnings per share from continuing operation increased 52.9%, from $0.17 in Q3 2011. These improvements were driven from a combination of improving revenues and gross profit, as well as a reduction in operating expenses.

Our overall gross profit percentage of 32.9% increased 20 basis points sequentially, and 50 basis points year-over-year. Our Flex gross profit percentage of 29.6% in Q3 2012 increased 30 basis points sequentially, and 40 basis points year-over-year. Overall, bill pay spreads were flat sequentially, and increased 80 basis points year-over-year.

To provide further insight into margin changes in our staffing business units, we provide the following breakdown in the year-over-year and sequential drivers. From a year-over-year perspective, Tech Flex margins improved 70 basis points Q3 2012 over Q3 2011, driven by 130 basis point improvement in bill pay spread. This was partially offset by increases in other costs, including taxes, benefits and billable expenses.

FA Flex margins improved 80 basis points, driven by a 60 basis point improvement in bill pay spread. HIM margins decreased 70 basis points, driven primarily by a decrease in spread.

From a sequential perspective, Tech Flex margins improved 50 basis points Q3 2012 over Q2 2012, with a 30 basis point improvement in bill pay spread, and a 20 basis point improvement in other costs, including taxes and billable expenses.

FA Flex margins declined by 10 basis points, driven by a 20 basis point decrease in bill pay spread. HIM Flex margins declined by 60 basis points, as a 110 basis point decrease in bill pay spread was partially offset by improvements in other costs, including taxes, benefits and billable expenses.

The improvement in bill pay spreads for Tech Flex was slightly greater than we had anticipated and is expected to moderate somewhat in Q4. The decline in FA Flex bill pay spreads was largely due to a shift in the mix of client that is expected to be relatively flat in Q4.

Overall, we expect a slight decline in Flex margins in the 4th quarter, as increased levels of PTO and large client shutdowns that are typical in our business in Q4 offset the improvement in bill pay spreads.

We believe we have a world class back office infrastructure that is poised to take the firm to the next level, while delivering operating leverage as we continue to take market share. Q3 SG&A levels of 26% remain at low levels, and we expect to generate continued operating leverage as we maintain a disciplined approach to improving cost efficiencies in our operating platform.

The firm realized an income tax benefit from the recognition of certain net operating loss carry forward related to a previous acquisition of approximately $500,000 tax impacted, which reduced the effective tax rate by 2.9% and contributed approximately $0.01 of EPS in Q3.

Our accounts receivable portfolio continues to perform well, as write offs were down sequentially and the percentage of receivables aged over 60 days remains at very low levels.

Our cash flow from operations continues to be strong. EBITDA for Q3 2012, up $18.4 million, increased 0.4% sequentially and 12.3% year-over-year. Our profitable operations is now generating annual EBITDA of approximately $70 million.

The firm had zero bank debt, and $5.4 million in cash at quarter end, compared to $11 million in bank debt at the end of Q2 2012, and $59.4 million at the end of Q3 2011. Borrowing availability under our credit facility, as at the end of Q3, was $85.9 million.

The firm repurchased approximately 826,000 shares of stock at an average price of $11.03 in Q3. There is currently $58.8 million available for future stock repurchases under our current Board of Director's authorization. We'll continue to evaluate future repurchases as cash flow and market conditions warrant.

With respect to guidance, the 4th quarter of 2012 had 62 billing days, compared to 63 billing days in the 3rd quarter. We expect revenues may be in the $267 million to $273 million range. Earnings per share may be $0.22 to $0.24. Our effective tax rate in Q4 is expected to be 42%. We anticipate weighted average diluted shares outstanding to be approximately $35.9 million for Q4.

This guidance does not consider the effect, if any, of changes related to the impairment of intangible asset, costs related to the settlement of any pending legal matters, the impact on revenues of any disruption in government funding, or the firm's response to regulatory, legal or tax law changes.

While we have significant operations in the northeast and Atlantic coast areas, we are not able to estimate the impact of the ongoing storm that currently is affecting that region, therefore this guidance does not contemplate any impact of that storm.

We are pleased with our 3rd quarter results, and in particular the continued improvement in operating income, resulting from our increased gross profit margin, and a reduction in SG&A. We expect to continue to make selective investments in revenue generating assets to drive top line performance.

We have a high quality revenue stream and balance sheet, a highly tenured associate population, and a very strong management team. We remain confident in our near-term and long-term prospects, and expect to capitalize on the operating platform we have built to grow revenue and improve earnings.

As the firm evolves to this next stage of growth, I'd like to take a moment to personally thank Bill Sanders for the many years of partnership. I'm humbled by the trust and faith our Board of Directors and Dave Dunkel has placed in me. I'm confident in the diversified roles that I've been blessed to hold in our field operation and corporate over the past 24 years will provide a wealth of knowledge to draw upon.

These experiences, in combination with our highly talented leadership team, passionate associates, and incredible infrastructure, position Kforce, unlike any other time in our 50 year history, to aggressively attack capturing market share.

I'm honored to be part of such an incredible team, and look forward to playing my part as the firm strives to exceed all levels of past performance.

Operator, we'd like to now open up the call for questions.

Thank you. (Operator Instructions). Our first question comes from Mark Marcon from Robert W. Baird.

I'm wondering if you could talk a little bit more about the anticipation in terms of head count additions to drive growth. How are you envisioning that? What sort of percentage change? Is that going to be primarily in the NRC or are we going to see it in the field offices as well? And how should we think about the margins in terms of the SG&A leverage going forward, since it sounds like people are fairly productive right now?

Yeah, Mark, this is Joe. Relative to head count, you know we've pretty much, over time, have demonstrated that we map our head count to what the market conditions warrant. You know, typically during the more opportunistic times of the cycle, you'll see us adding head counts, or when KPIs are looking strong. And then when the economy becomes more challenging, I think our history shows we have a discipline of aligning head count.

Fortunately, we have over 40% of our total head count is in newer associates, so there is opportunity to ramp those people up. Most of our four plus year population, they're performing at very high levels, so we don't have a lot of capacity with those individuals, even given our infrastructure.

The nice thing is if the economy were to flip, national attrition really takes care of a bulk of alignment of head count as it becomes much more challenging for those new associates to be productive. So that kind of almost, to some extent, really takes care of itself. And we saw that the last downturn when we were able to hold on to the majority of our two plus year people. And the majority of our attrition came with less than one year, or less than two year people.

So I would say that's what you could expect from us. We do feel optimistic relative to what the market demand conditions are. We've seen our KPIs, especially here over the last three to four weeks, eclipsing 13 week averages. So while we increased some of our head count in Q3, at a little bit greater rate than year-over-year, revenue is growing. We anticipate to selectively continue to invest in markets where we're experiencing growth.

What that will mean, from a margin standpoint, is we've been realigning our fixed infrastructure costs associated with the transition services agreement, which we're supporting, related to our KCR business, which the parties from Kforce [saw] earlier in the year. And I think our team's done a nice job on that.

And we believe, at this point in time, that we have a fixed infrastructure, which is inclusive of personnel, in seats that can support a much larger revenue base. So that's where we'll obtain quite a bit of our operating margin as we look out to the future, as we layer on more revenues on top of that fixed operating platform.

And just a follow-up on that. What percentage of the positions are now being filled by the NRC, and where are you anticipating future adds being, in the NRC or in the field level?

Yeah, roughly about 30% of positions are being filled by the NRC at this point in time. What we would anticipate is really balanced addition. So we've aligned certain roles in our field operations where we're going to be leveraging a lot of the training aspects that we're doing with newer associates in the NRC, so that we can drive even greater consistency and leverage of all of our training approaches and having common metrics on how we measure those field-based new hires versus NRC new hires.

I think that will provide us a lot of leverage in the future. So it will be more of a balanced approach. We do believe there is an ongoing need to continue to hire into the field, and develop populations in the field, while also growing and developing our NRC.

We're also moving down the path of leveraging our NRC for more deployment of people out of the NRC into our field location. That's kind of naturally been happening here over the course of the last, really especially the better part of the last 12 months, where our field has been aggressively pursuing our top performers in the NRC, which is a great thing, and we want to promote that. And we're really organizing more programs and approaches in and around that so that we can have that take place in a more orchestrated fashion on a move forward basis.

Great. And I'll follow-up more offline on that point. With regards to the last couple of days in the northeast, obviously you're not giving -- you're not telling us what the impact is going to be. Obviously it's going to have some impact. From the last two days, what are you hearing in terms of the impact in terms of your northeastern branches?

Yeah, what we're hearing is New York is really still very much up in the air, the greater New York marketplaces, which is inclusive of Jersey. What we're hearing in the DC area is people are already starting to go back to work, so we're starting to see that come back.

Yeah, it's really -- at this early state, it's virtually impossible to tell what's going to happen, because what we've experienced before, realizing we're sitting here in the hub of hurricane alley in Florida, so we deal with this on a very regular basis in those marketplaces. There are certain instances where we've completely recouped billable hours, based upon dynamics. And then there's been other times where we haven't been able to recoup those over the course of a quarter.

So it's very client specific, and it's also very market specific in terms of what's happening, the nature, whether it's floods, whether it's power. Because we've experienced where people have lost power, but where they work there's power, so they can still go and be billable. Likewise there's the opposite, where if the location is unavailable, people can't get to work and perform those duties. But sometimes we work with clients so that they can make up those things to get projects back on track.

So that's why, at this point in time, we really can't put any framework around what we can expect coming out of this.

Got it. Thank you.

Thanks Mark.

Thank you. Our next question comes from Otto Garrett from Deutsche Bank.

And I was wondering, can you give us an update on your head count growth year-to-date?

It is --- I said in my prepared remarks that it was up, what was it? 9 --?

Almost 10% year-over-year.

9.5% year-over-year, 5.6% sequentially.

Oh, that's year-to-date. I thought that was just for 3Q. Okay. So you said 9.6%? All right.

No, 9.5%.

9.5%, thank you.

Year-over-year.

Great. Looking back at 2011, as well as comparing your EBIT per employee to one of your other white-collar IT staffing peers, it seemed that that was a little bit lighter. You guys are around $25,000 versus that peer at about $39,000. And it seemed that your EBIT growth, year-to-date, is about 16%, and that's ahead of your year-to-date head count growth. I was wondering, do you think you guys could make up that gap in the EBIT per head, EBIT per employee growth? And about how long do you think that might take?

Yeah, relative to EBIT per employee, there's a lot of factors that go into that, because you're looking at total employees versus sales employees. So we really -- when we look at our contribution by employee, we look at it more from a revenue generating seat and how productive those individuals are and where our overall cost structure is, and compensation structures associated with that.

The other issue we deal with is we're supporting four different business models. And one of them is compliance heavy, which is the government business. We're also in the process of transitioning out of KCR, which is also a very heavy compliance business.

So one of the things that we are focused on, as we go forward, is to simplify the model as we narrow the focus on our product offerings, and seeking additional leverage out of the back office. So we believe that that will improve as time goes on.

All right. Thank you.

Thank you. Our next question comes from Kelly Flynn from Credit Suisse.

Thanks. I have a couple of questions related to the comments you made about the strategic accounts. You talked a couple times about some of the pressures facing some of your larger strategic accounts. I just wanted to clarify, are you talking only about financial services or are there other verticals that you would like to cull out more specifically?

Our strategic account portfolio is somewhat diversified. We're focusing on even further diversification because we did have very heavy concentration in the financial services, just because of the run up post, you know, the 2007 timeframe and all the compliance activities, as well as M&A activities that were taking place within that sector. There was a tremendous amount of opportunity, and as we all know, a number of those customers are on the backend.

Other M&A activities, and compliance, has somewhat slowed to some extent, as well as they've been challenged, financial services has been challenged on other fronts. So they've been a little bit more rigorous in terms of new project starts and those types of dynamics. So we continue to diversify our strategic account portfolio. And we anticipate that, over time, we'll continue to have a more balanced portfolio.

But that's -- when you talk about the challenges facing those strategic accounts, are you mainly talking about financial services?

No, there's 25 clients that are strategic accounts, and four of those are financial services. However, that's about 7.1% of total revenues, or it's about 16% of Tech revenue.

Oh, okay. That was my next question. You are saying financials, it's about 7% of revenue?

7.1%, yes.

In strategic accounts.

Oh, okay. What about, can you give us a total for financial services as an industry?

Oh, 7.1% of revenue.

Total revenue.

Total.

Yeah.

Oh. So 7. --

Financial.

Yeah, sorry. Go ahead.

7.1% of total revenues.

Okay, got it. And then how does that split if you, I don't know if you'll give me this, but how much of that is in technology versus other areas?

16% is in Tech. The financial services are 16% of Tech. Is that your question?

Oh, okay. Well I was more wondering how much of financial services revenue is tech related.

16%.

16%.

I thought you said 16% of tech was financial services. I'm trying to figure out --

No, 16% of tech revenues comes from financial services.

Okay. All right.

So I think we're answering the question, we just inverted the terms from financial service --

Yeah, I can figure out the answer. Okay, got it. All right, thank you. Sorry for this.

That's no problem. Thank you.

Thank you. (Operator Instructions). Our next question comes from Tobey Sommer from SunTrust.

This is Frank in for Tobey. I wanted to ask a question on health information management. Have you seen any delays or has the tone changed at any of your clients regarding kind of political uncertainty, as we look forward, as what may or may not happen as an administration changes?

You know I think everything right how leads to the uncertainty, tax policy, healthcare policy, regulatory policy, whether or not there's going to be change in the executive branch. As you know, and most people know, there's a hesitancy to deploy capital for the long-term when you don't know how you're going to get taxed on it or how you're going to get a return on it.

So as a result, we've actually benefited, to some degree, in the early part of the cycle. But I think that's now kind of caught up with people, and we're now at a point where this -- the next four years, and the resolution of who will actually be leading the country in the next four years, is really important in settling where the investment's going to take place, or whether we're hunkering down for another four years.

Okay. And also in that segment you talked a little bit about the bill pay spread being down. Can you describe some of the pressures there and if you see any changes in that going forward?

Are you talking just HIM?

That's correct, yes.

Well HIM is -- we're one of the top tier coding firms in HIM, with over 500 hospitals as clients. And within what we do is not only coding, but it's also special projects. So special projects generally have a higher degree of, higher percent of margins than the everyday work coding that we do.

And the projects had declined somewhat in the 3rd quarter, and that's why revenue's down. Although at the end of September, and beginning of October, we've picked up several more projects. So we anticipate that we will see an improvement, not only in revenue, but in margin profile for the 4th quarter.

Yeah, and as we look to the 3rd quarter, the spread impact in that quarter was very isolated to one specific client, where we had a major project end at that client, where the margins were extremely good margins, based upon the nature of the work that we were doing in Q3.

Okay, great. And in the technology segment, can you talk a little bit about pricing and on the search side? That ticked down a little bit. Is that a result of some mix or is that just a temporary blip, or are you seeing some pressure, pricing pressure here?

Yeah, what happened is you'll see that move around a little bit based upon the volume of conversions that happen in any given quarter, because we don't recognize our conversions in our Flex line, we recognize those in our Search business. So if we have a little bit higher tick up in conversions, typically those fees associated with those conversions are much smaller, so they dilute the overall average (inaudible).

Okay, so a lot of the conversion trends were in Technology there?

That would have been driving Technology. I mean Technology didn't really move materially, and that can just also be a makeup of the certain skill sets, or it could be certain customers where we have aggressive fee structures because there's volume placements at that particular client.

Okay, great. Thank you very much.

Thank you.

Thank you. Our next question comes from Randy Reece from Avondale Partners.

I was wondering if you had seen significant differences in the supply demand balance in the Tech Flex area according to skill level or skill type?

No, there continues to be a very high demand for people with in demand skill sets, such as I mentioned, Epic, JAVA or .NET. So no, very tight, very tight supply parameters for specific skill sets. It hasn't changed over the last year, two years probably.

And you recently concluded this updated deal with Monster and got some technology in the process. I was wondering how the Seymour technology would be incorporated in your business processes.

Well it certainly makes our associates much more efficient. And so, yes, we integrate that, those type of activities where we see the cost benefit of it. Anything to make our associates more efficient and therefore that makes them more successful. That means they stay with us longer, and that's our operating model.

All right. Thank you very much.

Thank you. I'm showing no questions at this time.

All right. Well thank you. We appreciate your interest in, and support for Kforce. I would once again like to congratulate Joe and Dave on their new roles, and thank Bill for his significant contributions during his tenure with the firm. Actually it's Bill who's made us look smarter than we were. But thanks to his teaching, he leaves us tested and ready.

Thanks to each and every member of our field and corporate teams, and to our consultants and our clients for allowing us the privilege of serving you. I look forward to talking with you again on the 4th quarter call. Good night.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.