Kforce Inc (KFRC) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kforce Q1 2022 Earnings Conference Call. (Operator Instructions) It is now my pleasure to turn today's call over to Mr. Joe Liberatore, President and CEO. Sir, please go ahead.

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 risks and uncertainties. Actual results may vary materially from factors listed in Kforce's public filings and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings.

In addition, we have published our prepared remarks within our Investor Relations portion of our website. We delivered another quarter of exceptional performance in the first quarter as both revenue and earnings per share meaningfully exceeded the top end of our guidance. It has been widely publicized that the COVID pandemic accelerated many years of technology adoption and advancement. This has resulted in corresponding acceleration in demand for highly skilled talent to assist companies across every industry to rapidly digitize business models. The strength in our financial performance continues to be led by strong growth in our technology business. As our business continues to become more highly concentrated in technology, it is also driving significant increases in profitability levels which meaningfully accelerated and were at firm record levels in the first quarter. Kye Mitchell and Dave Kelly will speak to our results in greater detail.

Since growth resumed shortly after the onset of the pandemic, we have quarter after quarter, improved our performance and raised our own internal expectations of what is possible. The improvement in our performance starts with our strategic positioning over the past 10 years. My thanks go out to our leadership team and associates for continuing to stay true to our strategic vision and for their relentless execution. Strategy without execution matters very little, and I'm proud of our team's consistent execution and unwavering commitment to serving our clients and candidates. We are clearly capturing market share and growing it over triple the market rate in our technology business in the strongest demand environment I have ever experienced in my 34 years at Kforce.

Our team continues to have a meaningful impact on all the lines that we serve and achieve success through lasting personal relationships, and this is translating into our superior results. The tumultuous macro environment continues to be shaped by the highest level of inflation that we've seen in over 40 years. The tragic and senseless humanitarian crisis occurring in Ukraine and further challenges to supply chain that is already strained by the pandemic. This has raised concern as to the sustainability of growth in our economy as well.

In terms of the impact of inflation, while we are certainly experiencing wage and cost pressure, it has thus far provided a further tailwind to our business. Bill rates continue to rise in tandem with pay increases as our clients continue to understand the need for the critical resources we provide.

As to the risk of the U.S. recession, technology is core to all business strategies regardless of industry. This secular shift began coming out of the dot com era and was further accelerated by mobility and the digital age resulting in our business demonstrating remarkable resilience and not only navigating the most recent recession brought on by COVID but also the Great Recession. During challenging and uncertain times like these, we are truly fortunate to have a footprint that is 100% domestic-focused with greater than 85% of our revenue concentrated in highly skilled technology talent solutions. The war for talent is real with far more open jobs than available skilled talent.

Our recruiting core competency, focused service offering and freedom from distractions of acquisition integration or any noncomplementary businesses has been a true differentiator to our consistent outperformance over the past few years. We have a pristine balance sheet, which allows us the ability to both invest in accelerating organic growth and advance our technology platform while also returning capital to our shareholders. We are executing and delivering record levels of performance and are significantly outpacing industry benchmarks.

We cannot be more excited about our future prospects regardless of the state of the macroeconomic environment. As the business environment continues to open up, so are we with the opening of our field offices to a new way of doing work, which we call office occasional. Our unique environment provides our people with maximum flexibility and choice in designing their workday that is grounded in our trust in them, supported by technology.

We have a remote first approach to support the life/work balance our team has become accustomed to as we've moved through the pandemic. We're an industry leader in talent solutions space, delivering superior financial results and are offering maximum flexibility to the current and future top talent in designing their workdays. We believe these factors, among others, will position Kforce as the destination for top talent in a time where there is great disruption in the labor markets.

Our path forward is clear, and we will remain consistent with the principles under which we've been operating so successfully. In servicing our customers, there are simply no other market where we want to be focused on other than in domestic technology talent solution space, as it has, in our view, the great respect for sustained 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. Kye Mitchell, our Chief Operating Officer, will now 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. Kye?

Thank you, Joe. I am incredibly proud of our team's hard work and dedication, which led to our exceptional results. Total revenues grew 13% year-over-year with all lines of business showing stronger-than-expected results. This overall growth rate was negatively impacted by the planned runoff of COVID-related project work we accepted during the pandemic. Excluding the impact of that COVID business, our ongoing business grew more than 21% year-over-year. We continue to deliver exceptional organic growth fueled by our technology business and complemented by our FA business.

In technology, we delivered another excellent quarter of organic year-over-year revenue growth of nearly 27% off a more difficult prior year comp. We have been successful at driving high levels of compounded growth in our technology business as indicated by our organic growth of 35% over the first quarter of 2020, which was the last quarter not materially impacted by the pandemic.

Our business performed exceptionally well, leading up to and throughout the challenging macroeconomic environment caused by the pandemic. We believe this is unmistakable evidence that our secular demand drivers in the technology, talent, solution space, are more important to our long-term success than any of the changes to the economic environment. Our growth has meaningfully exceeded the industry growth benchmarks over the last 15 years.

Furthermore, we believe our growth rates have been consistently near or at the top of the industry since the pandemic began. Understandably, our clients are reluctant to lose key resources even during challenging macroeconomic environment because our highly skilled consultants work on mission-critical projects. The operating trends we are seeing in our technology business have remained strong. Our front-end KPIs and new assignment starts are at historically high levels. The average assignment duration continues to expand and consistent with what we saw in Q1 2021, we again experienced much lower seasonal year-end assignment ends than we have historically seen. These indicators show our ability to sustain elevated year-over-year growth rates even with increasingly difficult comps.

As Joe alluded to in his remarks, we saw acceleration of our average bill rates, which grew nearly 4% sequentially and just over 6% year-over-year to approximately $85 per hour. In addition, the average bill rates on our new assignments in the first quarter improved nearly 7% compared to the fourth quarter of 2021, which is a good indicator of what we should expect in the future as older assignments end.

More importantly, the elevated bill rates have not impacted the strength in the demand environment for highly skilled talent, which we believe supports the criticality of these resources to our clients' strategic priorities. With the environment moving to less geographic boundaries, our talent pool of candidates is increasing, which is also a positive for our business.

We continue to see acceleration of critical technology initiatives with our clients in areas such as cloud, digital, UI/UX, data analytics, project and program management. Our clients are leaning into digitization, not just for the consumer experience, but also to improve the employee experience. Our conversation suggests that clients must and will continue to make significant technology investments to remain competitive.

Technology and business strategy are continuing to intertwine. A continued accelerant for our overall technology growth has been the investments we continue to make in our managed teams and project solutions capabilities to meet the evolving client demand. We have continued to add talented resources to our team to support the growth that we are experiencing.

We expect second quarter revenues in our technology business may continue to grow in the mid-20% range on a year-over-year basis despite increasingly challenging prior year comps and in the mid- to high single digits sequentially. Our overall FA business, which declined 33% year-over-year, also exceeded our expectations. The growth rate was negatively impacted as expected by the falloff of our support of initiatives tied to the COVID-19 pandemic. These revenues contributed a negligible amount of revenue in the first quarter of 2022 and $24 million in the first quarter of 2021. Excluding the $24 million impact, our overall FA business declined 5.8% year-over-year because of our strategic repositioning efforts.

Our teams have embraced and executed our FA strategic repositioning, moving us to more highly skilled assignments. These assignments are less susceptible to automation and fit better with our technology footprint. Our strategy has contributed to the success of the firm, including FA average bill rates increasing approximately 8% sequentially and 21% year-over-year to over $43 per hour, excluding any impact from COVID-related project work. While we continue to refine the positioning of our FA business, non-COVID growth rates will be negatively impacted by the assignment falloff of business we no longer support that contributed to revenues last year.

As of the second quarter, the follow-up is essentially complete and the remaining business is providing stable revenues. When combined, we expect our overall FA revenues to decline in the low to mid-single digits sequentially and may be down approximately 45% year-over-year in the second quarter. As a reminder, the second quarter of 2021 included $34.8 million of COVID-related project revenue. 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 CRM systems are cloud-based and seamlessly integrate with other Microsoft products, investments to further develop these tools and enhance capabilities continue. We have made measured investments in adding talent to areas with the greatest expected return with a concentrated focus in our technology business, and we'll continue to take a similar approach in the near term. We maintain sufficient capacity to sustain our current growth rate and believe 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 our new office occasional work environment.

Our Glassdoor rating continues to be the highest amongst our peers, indicating our people love this new model. We have continued to maintain a world-class Net Promoter Score from our clients and consultants. I am grateful for the trust our clients, consultants, candidates have in Kforce. Our teams continue to inspire me every day as we work together to make Kforce the destination employer in the Talent Solutions space I will now turn the call over to Dave Kelly, Kforce's Chief Financial Officer. Dave?

Thank you, Kai. I'm pleased to provide some additional color on our excellent results and prospects. First quarter revenues of $417 million of Kforce record, grew 13% year-over-year and were 24% higher than the pre-pandemic levels of Q1 2020. Earnings per share of $0.93 in the first quarter improved 50% year-over-year and reflects the improving quality of our revenue stream and concentration of technology revenues.

We saw sequential improvements in both Flex margins and overall gross margins in the first quarter as a result of both stronger-than-anticipated direct higher revenues and higher Flex revenues in both our technology and FA businesses. Gross margins increased 250 basis points year-over-year to 29.7% in the first quarter. While we don't expect continued growth at this pace in Direct Hire revenues, which constitute less than 4% of total revenues, the benefit in a greater percentage of technology revenues is notable and provides significant margin stability given that both our ability to manage bill pay spreads and the increasing desire by our clients to engage our firm for project-based work.

Flex margins in our technology business improved 150 basis points year-over-year and bill pay spreads have been stable while wages have accelerated. We are also benefiting from a lower percentage of overall payroll taxes and health insurance costs than we've seen historically due to technology being a higher percentage of overall revenues. Our ability to drive more revenue on average from each billable consultant through higher bill rates and longer assignment duration continues to contribute to the reduced percentage of these costs and results in a structurally higher quality revenue stream that we expect to continue going forward.

Flex margins in our FA business expanded 400 basis points year-over-year due primarily to a decline in the lower-margin COVID project work and improved bill rates and spreads resulting from the strategic shift to higher-skilled roles. As we look forward to Q2, we expect spreads in our technology business to be stable with first quarter levels, coupled with seasonal improvements from payroll tax resets. In FA, spreads are expected to expand slightly due to the runoff of lower margin opportunities in the first quarter of 2022.

Overall Flex margins will be positively impacted in the second quarter from reduced payroll taxes by approximately 50 basis points relative to the first quarter. Overall, SG&A expenses increased as a percentage of revenue by 130 basis points year-over-year, principally due to higher levels of performance-based compensation as a result of our exceptional financial performance. We expect SG&A expenses as a percentage of revenue to decline in the second quarter relative to the first quarter as a result of increased leverage from our revenue growth and lower payroll taxes from the seasonal annual first quarter resets.

Our first quarter operating margin was 6.7%, which significantly exceeded the high end of our guidance as a result of better-than-anticipated gross profit margins. Our effective tax rate in the first quarter was 27.1%. Our business continues to generate significant operating cash flows, which were nearly $39 million in the first quarter, and our accounts receivable portfolio continues to perform exceptionally well. We returned $16.2 million in capital to our shareholders through $6.1 million in dividends and $10.1 million in share repurchases.

Our return on invested capital was approximately 48% in the first quarter. The strength in our balance sheet and availability under our $200 billion credit facility allows us to be opportunistic in returning significant additional capital to our shareholders while continuing to evaluate potential tuck-in acquisitions. With that said, our belief is and our results suggest that a focus on organic growth provides us the best opportunity for long-term success. Thus, we will continue to apply a very stringent cultural and financial filter on any transaction.

Given our confidence in our future growth prospects, we expect to remain active in repurchasing our shares. We've consistently returned greater than 75% of operating cash flows annually to our shareholders over the past decade. The strength and predictability of our platform allows us to do so while still providing ample capital to invest in the growth. of our organic revenue stream.

With respect to guidance, the second quarter has 64 billing days, which is the same number as the first quarter of 2022 and the second quarter of 2021. We expect Q2 revenues to be in the range of $436 million to $444 million and earnings per share to be between $1.15 and $1.23.

Gross margins are expected to be between 30.4% and 30.6%, while Flex margins are expected to be between 27.6% and 27.8%. SG&A as a percent of revenue is expected to be between 22.2% and 22.4% and operating margin should be between 7.7% and 8.1%. Second quarter operating margins are projected to benefit approximately 70 basis points sequentially from reductions in payroll taxes. This translates into a sequential earnings per share benefit of approximately $0.11. Weighted average diluted shares outstanding are expected to be approximately 20.7 million, and our effective tax rate is expected to be 26%.

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 onetime 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. We are tremendously excited about our future prospects given the momentum that we've continued to build. We expect our continued significantly above market growth will also 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.

Last quarter, during our earnings release, we indicated that we expected the 2022 revenues would be at least $1.7 billion and that earnings per share would be at least $4.20. Should the demand environment remains strong and full year trends remain stable with quarter results and second quarter guidance, we would expect to significantly exceed those levels for the full year.

Overall, we believe we are in an exceptional place. We believe the strategic decision to focus our business in providing domestic technology talent solutions is paying huge dividends. We couldn't be more excited about our future prospects. Our shareholders continue to benefit from our strong performance and efficient capital allocation. On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for their efforts in continuing to outperform market expectations. Operator, we'd now like to open up the call for questions.

(Operator Instructions) Your first question comes from the line of Mark Marcon with Baird.

Congratulations on the strong results. I'm wondering Kye, you mentioned the strength in IT Flex that you're seeing. And I was wondering if you could give a little bit more detail with regards to the verticals in terms of like how broad based the strength was? I imagine it was broad-based, but I'd love to get some confirmation there, if you saw any sort of particular client activity that really stood out. And then one thing that you mentioned in your prepared remarks was company is not only putting in place digital transformation efforts for the benefit of -- for their clients to involve their consumers, but also to better engage with their own employees. And I was wondering if you could give a little bit more color there.

Sure. Thank you for the question. We are seeing a broad-based growth across all the industries. It's interesting we've really focused in on industry diversification, what industries do we want to play in over the last 12 years. And no single industry is more than 20% of our business. And we saw every industry we support up in double digits. Great growth across the board.

We're seeing a lot of growth in continuing, as you said, in digital. And in regards to the comments I made, clients are spending a lot of money on digital transformation. A lot on -- everybody knows everything today is being done digitally. I think 80% of transactions are now going through digital platforms. But they're also investing in that employee experience with the great resignation that been going on.

It's more important than ever that employees are supported. That they can communicate with employees quickly. That the onboarding experience is good. That they have different tools necessary to do their job, and they're all taking a digital approach to that, too, to make it a better experience for those employees to be able to retain long term. So we're seeing a lot of growth in that area as well.

So I expect that to continue as we move forward. We're also seeing a lot in cloud. And cloud is another area where clients are definitely continuing to make those investments is not an optional thing for most of them with -- today in cybersecurity and everything else, cloud is the way our clients are going, and we're continuing to benefit from that work.

That's terrific. And then can you talk a little bit about on the F&A side, do you expect the second quarter to kind of -- assuming that the economic environment stays steady, would you expect the second quarter to kind of be the low watermark for F&A? Or would there still be some runoff in terms of some of the areas that you're supporting to a lesser degree as we start going beyond the second quarter?

The biggest impact for us as we go into Q2, as I mentioned in my comments, is that we do have $35 million of COVID business that's in Q2 of 2021 coming off. That will be -- we now have hit -- for the most part, all of our COVID business has run out. So it's very minimal, but we did have it last year. In each of our quarters, and we're not going to be able to outrun that year-over-year impact for the rest of the year. However, it will be to a much less degree from a sequential basis.

We're seeing a lot of pickup right now from our bill rates, as I mentioned. Our bill rates have gone up over 20% in FA. So we're continuing to see from that move and transition into the higher-level jobs that won't be automated as easily, and it fits much better into what we're seeing on the technology side, too. So we're really excited about where we're going in this transformation with our FA business. However, it will continue as technology is continuing to grow at the pace that that's going to be really where our big story is of investment.

I was just wondering whether or not on a sequential basis, we would see an improvement in FA.

I think it'll -- I think FA is going to continue to trend down just slightly because we have moved a lot of those FA associates over to our technology teams. And so the levels we're at right now, I think you'll see it start to level off, but I would anticipate a little bit of sequential decline next quarter.

And then...

Mark, this is Joe. I was going to give you a little bit more flavor there. So I think the way that you should look at our FA business, our FA business is about the quality of the FA business and how it aligns with our technology footprint. So I won't get as hung up on what's happening with it sequentially. I mean, look at what's happening with bill rates, as Kye mentioned in her comments, I mean, we're really going upstream here. And those roles that they're much more synergistic with tech. Because, again, I would take you back to, especially with the COVID that we're going to be dealing with here through Q2.

We (inaudible) into the recession and we gave the market the indication we were going to go after that business. It was by design. When no one knew where the world was going so that we could support our business back in the early part of 2020. When that started to become a big revenue stream, we basically said that we're going to run that business out and then basically transcend from that business into tech. And I think we've accomplished that. If you look at our tech business of 35% over that 2-year period. We pretty much have more than outrun what we brought on from that business.

Great. And then can you talk a little bit more about on the tech side what percentage of the placements are now for virtual positions? In other words, not necessarily working in the office? And how far along do you think we are in terms of that progression in terms of the acceptance of work from home being completely adapted even in a post-COVID environment. And to what extent does that give you competitive advantages to be able to continue to grow above market, particularly relative to regional players that just don't have the same level of capabilities that you do?

Yes. I'll give you the backdrop and then if Kye has anything she wants to tag on. But I would say, I think we're really in the early innings, believe it or not, of remote work. And the reason that I say that is clearly, there's those companies that have adopted and accepted remote work, which really provides us a great opportunity to expand not only the candidates that we bring to those clients. But also from a candidate perspective, we get -- we're able to provide them more job opportunities, which only increases that probability of fill as well as getting to the right match.

And the reason that I say it's the early innings, some of the things that we're seeing from clients that have been more aggressive about trying to drive technologies. And I'm just going to talk about technologies and not the market as a whole, given that's 85% of our footprint and growing. But those that are trying to drive the technologies stack into the office and basically said, you got to be back in 5 days. We've seen them now migrating to, okay, you only have to be in 3 days. You only have to be in 2 days. So that's why I say I still believe we're in the early innings from that standpoint.

Overall, it provides a tremendous opportunity for us, especially with our national footprint, being able to be on ground with candidates and meet them. Likewise, for our clients just with our footprint across the domestic U.S. So very positive from opportunity from our standpoint. I mean every day, more and more companies are embracing remote work. And I would say part of that is out of necessity. It's widely publicized, this great resignation and just how mobile the world is at this point in time. And those organizations aren't reacting. They're having trouble attracting and retaining talent.

So it's clear if you look out there, especially from a technologist, the surveys that are being done out there, 7 out of 10 technology set, if I'm forced to go in the office more than I want to go in the office, I'll find another job. And when you look at where the current unemployment rates are at a macro level, and we all know it's much more severe within the technology skill set. I mean they're in control. So the opportunities are out there. So end customers are going to be adapting and adjusting.

That's great. And then given the strong trends that you're seeing in technology, barring a severe recession, we would anticipate that, that would -- you continue to see growth. How should we think about like the operating margins as we start approaching closer to $500 million in quarterly revenue? Or should we think about that?

Mark, Dave Kelly. So clearly, obviously, first quarter results suggest and as revenues accelerate into the second quarter, we're having some nice success driving that improvement to the bottom line. So the expectation is we grow the business is that, clearly, as we grow, we're going to generate additional operating margin just because of the scale, the quality of the revenue stream, right. Technology for us.

We talked a little bit in some of the prepared remarks about the health of the gross margin profile. Technology helps us there. We've said in the past, as we grow that we think we're on a path as we continue to grow to double-digit operating margins. We haven't put a number out there and said, what should it be a $500 million precisely, but I can tell you, although, obviously, we continue to invest in our business as we continue to grow, we think it will expand into double digits at some point.

Your next question comes from the line of Marc Riddick with Sidoti.

So I was wondering -- certainly a lot of detail in prepared remarks, I was wondering if you could spend a little bit of time bringing us up to date on -- I know you had the bill rate commentary. I was wondering if you could talk a little bit about what you were seeing as far as pay rates go. And then I have a couple of follow-ups there.

Yes. This is Dave Kelly again. Marc, nice to meet you. So what we've seen is, quite frankly, what we've continued to see over the course of the last couple of years, right? So we're sitting here in an environment where both bill rates and pay rates are increasing. Joe mentioned, the shortage of the supply constraints in the market and our ability to find those, obviously, our clients understand that they have to pay more. And we've been doing this for years, right? So this is not an environment that's changed.

So certainly, bill rates are going up in tandem with pay rates. The spreads themselves have been basically stable over the course of the last couple of years, even in a very supply-constrained market. Our expectation as we move forward is that we continue to expect that to be the case. So I think the trajectory here for our business is improving bill rates, right? Bill rates we think and pay rates are going to continue to go up. The percentage of that, which is generating gross margin is going to be about the same as what it has been historically. So more gross profit dollars, obviously as well. So really pretty much what we've been experiencing and we expect to continue to experience.

Marc, this is Joe. I'd also just add to that, just kind of lifting things a little bit. I mean we all know one of the biggest macro trends out there is inflation and certain aspects of inflation are more directly related to our business, such as wage inflation, which I believe the last numbers put out there, it surged about 11.7% year-over-year in March. So one of the things that Kye had mentioned some of this in our comments that our team has done is a nice job on increasing the bill rates and that associated wage increase that kind of flows through to our consultants.

I mean one of the interesting dynamics is our clients understand wage inflation better in this cycle than what I've seen in any other cycle in my 34-year career here at Kforce. I mean, no doubt the broad-based understanding and awareness has to do with all the news. And companies are feeling this firsthand with their core populations during this great resignation. Point being, clients are more informed and probably more receptive than ever and working with us to make sure that we're doing everything necessary to adjust so that they can attract top technology talent. I just want to make sure we lift this up from a bigger perspective on what's taking place.

Excellent. And that actually leads me to the next part of the question. I was sort of thinking about when you think through the digital transformation that you're seeing your customers sort of embark upon and sort of what stage they're in that process. I was wondering if you could talk a little bit about maybe what that does for you on two fronts.

One, how that's sort of adjusted or changed, if at all, the level of visibility that you have working with your customers and sort of the projects that they have in mind, how has that maybe changed your level of visibility for your own results? And then maybe you could touch a little bit about the -- on the competitive advantages now those have either expanded with your client sitting in that direction?

I think from a visibility perspective, it hasn't changed that much, although we do see long range on this. This is not just coming in and doing 1 project. This is long range full enterprise transformation. When you think about our customer base, 70% of our clients are in the Fortune 500. And they don't have an option for spending this money.

So we do see this as continuing long term and great partnerships with our companies. I mean it reaches from everything from in the retail space, you're seeing clients who are really trying to have digital platforms now to handle shipping and returns to insurance tech, you're seeing everything done now over the mobile apps and those types of things.

So you just see it throughout every industry that we're touching. But I do think it's continuing to improve the longevity of our clients and those assignments too. We have seen our average assignment length continue to grow. We're at roughly 10 months now, and it's very sustainable. Clients don't have an option. They have to do this. So I think this is a trend we're going to continue to see for a very long time.

Okay. Great. And then the competitive advantage of where you stand currently and how that's expanded over time?

I think the competitive advantage that we have, and I'll let Joe add to that, that we've been. After this, we were very early in looking and partnering with various CDOs, Chief Digital Officers, across our client base. We have built out a lot of capabilities. We've hired some outstanding subject matter experts in this field. And then obviously, our national footprint is a big advantage for us. And in this space, clients are doing most of the work can be done remote.

So we're able to have access across the country to identify that top talent. We've invested in great tools that help us recognize who the best and brightest are and our people have really become experts in recruiting this type of individual. So really proud of the progress the team has made in this space. Focus wins, and this is a big focus for us.

I was just going to just add quickly, Kye talking about the competitive advantage just kind of numerically here focused absolutely when you look at our $85 in our bill rate business even during the pandemic, right? That business didn't go away. So one of the advantages that we have is being focused here make us a necessity in the eyes of our customers, and it led to basically even in the worst of times relative to the market as a whole, our revenue held up probably better than anybody in the space.

Your next question comes from the line of Tobey Sommer with Truist Securities.

I kind of want to expand on that last question. Could you give us context for the assignment length in recent history and maybe describe the changes over time. And bring it home, if you could, with what those changes mean in now 10 months on average to your ability and how you manage your business as you have what seems like more visibility?

Tobey, Dave Kelly. So to put it in historical context, so 10 months is compared to -- I would say, if you look at maybe right after the Great Recession, it was probably 5 or 6 months. So it's -- so it has really doubled since that time. So what you're seeing is clients holding on to our consultants more. One of the things that we've touched on and Kye mentioned in the remarks, obviously, our clients are looking for companies such as Kforce to do more project-based work. Those are, obviously, longer in duration.

So for us, it's a combination of the need to hold on to talent and the type of work that we're doing. And then really, that helps us, obviously, deepen our relationship, as Kye said, with our clients as well. So on an ongoing basis as we look to the future, as the shape of the business that we're doing continues to move down this path. It just gives us a much more sustainable revenue stream, generally speaking.

And do you think we're topping out at 10 months? Is there room after doubling to keep going a little bit.

I'd say, there's definitely room to go.

Yes, I would agree with Kye, right? So as we see that project-based work increase, those are typically longer lengths of assignments. On average it is going to increase, right? So that's just kind of the nature of how technology talent is procured these days.

Yes. And Tobey, we were in the -- as you're well aware, we're in the most imbalanced supply/demand in terms of resources in these key technology roles. I mean this is more severe than it was during the peak of the dot com. And by default, we are seeing clients hold on to people longer even when it's not in around the managed team and solution space because they realize how difficult it's going to be to find somebody else.

We also are seeing clients redeploy our consultants inside their organization, meaning when one assignment is wrapping up, they're actually helping that consultant find another initiative inside that organization when they have somebody that has some of that domain knowledge now. So that's also playing into this as well.

You kind of prompted a follow-up there. Does that change the way you can utilize your recruiting force to kind of be more productive hunting to some degree, you're getting renewals or longer assignments as a result of your clients actually redeploying talents on your behalf?

Absolutely. That really gives us some good opportunities to continue to expand the business. We are really rethinking about how we think about redeployment. We're looking at how do we continue to infiltrate within clients. How do we redeploy with other clients. We recently had, for example, a project that ended. It had about 30 people on it, and we redeployed 28 of them. So it's definitely something that's working for us. And with this type of demand, we'll continue to. Obviously, the people that have worked for us and proven themselves are the ones that we want to continue to place time and time again.

And if I could just ask you to touch on sort of the consulting value-added side of the services you contrast the staff, what does the assignment length look there? And are you comfortable that you can still build that at scale on a pure organic basis.

Tobey, can you clarify that? Yes, go ahead. Joe, go ahead.

Yes, Tobey. I would say from a standpoint of the progress we've made with our managed pace and solutions efforts. We're very comfortable that we can go this organically, if need be. We're staying remaining active in the market and looking for that potential right fit that would bring value-added services to our team that we could take across our broad base of customers. We just haven't found that right fit to what Kye had mentioned. We're bringing on a lot of skilled individuals that are coming of solutions organizations that have really allowed us to build a strong team. And we continue to outpace our growth within this area versus our overall tech growth, roughly 27%. So we're growing at a faster rate in these areas.

Yes. And I even would add to that, it's nice not to have the distraction too. I think that, again, is why we're accelerating so quickly.

How would do you think that the Tech Flex business would perform in a longer recession in 2020 because, in fact, that was severe and swift, but quite brief. I'll sort of the Great Recession. I can't recall if you had any unique factors either beneficial or that worked against the business at that time to consider in sort of evaluating what it would look like this go around should there be one?

I would say, and probably the best parallel even versus the financial crisis is when you go back to the dot com because I believe that cycle was very tech-centric. This cycle is very tech-centric. However, they're tech-centric in very different areas. Dotcom, as we all know, as the Internet came about, everybody was scrambling to get websites up. Everybody was worried about disruptive business models that are out there. It was very hypothetical. So that's what drove a lot of the bubbles during the dot com.

This cycle is structurally sound. Everything that's happening is, as we said, to digitize individuals business, whether it be on the consumer front, whether it be on the employee front. I mean these are non-optional for organizations to not move forward their digital efforts. So I think that plays a lot into how the business would perform in a longer recessionary period. Again, let's go back to even the Great Recession, I mean, the financial crisis. At that -- that was a much longer and the business performed extremely well in that cycle.

So when we look at the dynamics they're running, we're no longer in the 80s or 90s where technology was the first place where people went to cut expenses. I mean everything has to do with that experience and now with data on top of that. So I mean we're in the right areas on everything that we're focused on with the end clients in terms of the competitive opportunity and the strategic approach that we've taken to the overall business.

Last question for me. some investors have been focused on customer concentration after another company had a large project in. Could you remind us what does the largest customer represent or maybe the top 10 customers. How you'd like to slice it in. Give us a comparison for how that's changed your recent history may be pre-pandemic?

Yes. Tobey, Dave Kelly. So I can tell you that pre pandemic, post pandemic, we've always been extremely well diversified. From an industry standpoint, Kye touched on it that no industry as a whole is -- I mean everything is great, less than 20% from an individual customer -- we don't have any customer concentration of any note, right, probably less than 5%. So we're not reliant upon any one industry nor are we on any one customer. And that is -- and I would say, by the way, Tobey, that has been the case for a long time. So that dynamic has not really changed over time.

And Tobey, we're a little bit different type business, meaning to Dave's point. Even when we talk customer concentration realize, we have different initiatives going on within customers. So I mean any one given project is a percentage of whatever revenue we're deriving from a specific client. I mean I think it's also important to put a footnote on that.

Your next question comes from the line of Kartik Mehta with Northcoast Research.

I think you've talked about obviously what wage inflation has been so far. I'm wondering as you look forward to the rest of 2022, what your expectations are for wage inflation? Are we kind of at the peak? Or do you think there's still greater pressure that will occur on wages?

Please go ahead, Joe. Yes. I think the simple answer is in the technology space, we've been seeing wage pressure for the last number of years. And I don't think we have any expectation that, that is going to change. What I can tell you is we've been dealing with this for a long time, and we are very confident that. And I think Joe touched on it, our customers really understand it as well. So our ability to pass that through to our customers we feel very strongly about as well. Frankly, rising wage is really the tailwind to our business. So I don't know if that changes. And quite frankly, I think it's a good thing for us.

Well, I was going to say, I think you talked a little bit about remote work and we're kind of in the early innings. I'm wondering if that opens up the ability to recruit people, maybe internationally and the ability to do that or maybe if there are hurdles in doing that, especially with customers?

Yes. Probably the biggest hurdles that you run from an international work standpoint has to come in and around some of the cyber aspects. So it's very client specific in terms of where their appetite is there. We believe, and again, this goes back to domestically, we're one of the top 5 providers here domestically at 4% market share.

So there's just a tremendous talent pool here in the U.S., and it's a talent pool that we've been involved with and developing relationships with since the day we moved into technology, which I believe was back in about 1980s slightly before I joined Kforce. So our focus is on the domestic talent pool. And also those foreign workers that are on ground in the U.S. that have experiences working within the organization. So that's really what Kforce's focus is.

And then if you could just go back to wage inflation. I think you said that, that obviously is a tailwind. I'm wondering -- have you seen any signs where maybe your clients might be pushing back because the costs are getting prohibitive or the costs are much more than they anticipated. I realize this is kind of mission-critical stuff. So maybe that doesn't apply. But I'm just wondering if there's the other part of wage inflation that could potentially have a negative impact.

I mean we could potentially see at some point, right, because organizations can only assume the inflation for such a period of time until it starts to come back and impact their P&L. But again, going back to when you look at how technology is centric to every business strategy today, this is probably one of the last places that organizations go to in terms of trying to reduce expense. And so we do see wages continuing to probably increase throughout the remainder of the year.

There's been more economists reports coming out that it could be -- we could be more at the top point. So maybe we start to see that subside to some extent. But again, the projects that we're focused on are mission-critical projects to the business. These aren't elective. So I believe the organizations are going to have to go to other areas to look at reduction of expenses or they're going to have to cut back on the amount of things they're doing and focus on the highest priority initiatives in the perm. I mean, if you really want to play that forward.

Your next question comes from the line of Mark Marcon with Baird.

I just wanted to ask a follow-up question. Clearly, IT Flex is mission-critical. And if we go back even during 2020 when the impact of COVID was significant, you saw just minimal declines in terms of IT Flex revenue. On the other hand, there was a decline in terms of perm. And despite that, you were -- and certainly in F&A, to a certain degree, but you were able to preserve the margins at a very strong level. I'm just wondering what were some of the lessons that you've learned that if we go into another recession, there's parts of the business that aren't going to be impacted. There's going to be other parts that are going to be impacted. To what extent, do you think you're going to be able to maintain profitability as well as you did back in 2020 time period?

Mark, we were game scenarios all the time, especially as different things are evolving. And we have a very seasoned management team. I mean most of us have been together for over 20 years. So we've seen different cycles. We know they all come with a little bit different flavor. And I think if you go back and you look at our history, if you look at how we navigated through the financial crisis and now how we've navigated through this most recent pandemic crisis. We're going to make the right calls and we're going to always preserve profitability of the firm to keep the business. But we also are going to do and make the right calls to hold on to the talent because we also realize there's always another side to it.

Again, I'll go back to today. Unlike either one of those, even with the pandemic even more recent here, 85% of our business is wrapped up in technology, and that's not on the -- with what less than 4% of our total revenue stream in the permanent noncyclical. To answer your question, we learned from every one of these cycles, and they've driven our strategic decisions going back to as far as I can remember, coming out of the dot com. When we came out of the dot com, what we experienced if we weren't significant inside customers, we were being exited.

That changed our account portfolio strategy to become significant within our organizations, and we're seeing the byproduct through these last two downturns of that. We also saw a permanent revenue stream go from was it $40 million a quarter down to $6 million a quarter and all the real estate overhang and everything else, and that's when we consciously made the decision to not see that exposed on the permanent side.

So through this last cycle, what we learned, is we learned with our people, speaking in truth and transparency, that improves the trust and that's no small part of why Kforce is performing the way it is because we work through this as a team, through a lot of surveys, gathering their feedback, doing what they were asking and telling us their needs were, which is really driven where we are with our office occasional, which is choice and flexibility that are really empowered by trust and technology. So these things don't just come out of the ether. I mean, we have a really solid team with a lot of tenure, and we're going to make the right calls.

There are no further questions at this time. I will now turn the call back over to Mr. Liberatore for closing remarks.

Well, thank you for your interest and support of Kforce. I'd like to say thank you to every Kforcer for your extraordinary effort and to our consultants and clients for your trust in Kforce and partnering with you and allowing us the privilege to serve you. We look forward to talking with you again after the second quarter 2022. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.