Kforce's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Kforce (KFRC)

Q3 2011 Earnings Call

November 01, 2011 5:00 pm ET

Executives

Joseph J. Liberatore - Chief Financial Officer, Executive Vice President and Secretary

David L. Dunkel - Chairman, Chief Executive Officer and Chairman of Executive Committee

William L. Sanders - President

Michael Blackman - Chief Corporate Development Officer

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Kforce Inc.'s Third Quarter 2011 Earnings Conference Call [Operator Instructions] As a reminder, this conference may be recorded. And now, I'll turn the program over to Michael Blackman, Chief Corporate Development Officer. Sir, the floor is yours.

Michael Blackman

Great. Thank you, good afternoon, and welcome to the Kforce third quarter conference 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 on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from the factors listed in Kforce's public filings and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements.

I would now like to turn this call over to David Dunkel, the Chairman and Chief Executive Officer. Dave?

David L. Dunkel

Thank you, Michael. You can find additional information about Kforce in our 10-Q, 10-K and 8-K filings with the SEC. We provide substantial disclosure in our release, and our hope is that this will improve the dissemination of information about our performance and the quality of this call.

We are very pleased our record third quarter revenues of $289 million, as well as earnings per share of $0.22. These results represent year-over-year growth of 11.4% and 37.5%, respectively. All of our flexible staffing businesses grew sequentially on a billing day basis for the first time since Q4 2007, contributing to record quarterly Flex revenue of $277.1 million. Total Technology revenue of $165.5 million in Technology Flex of $160.3 million also represent high watermarks for those businesses.

Staffing continues to perform differently in this cycle versus prior ones. We continued to experience solid growth in the tepid GDP environment. While the jury is still out long term on the Flex super cycle, the data increasingly supports that it really is different this time.

We continue to see a recovery where a disproportionate amount of private sector hiring is being created through the temp sector, as 21% of job creation in this cycle has been through the temp sector versus just 7% in the last cycle.

High skill niches and particularly technology jobs are very supply-constrained, as college-educated unemployment was just 4.2% in September.

We believe these dynamics are significant contributors to the strength of our technology Flex business, which constitutes over half of our revenues.

Additionally, continued uncertainty for the U.S. economy may result in clients increasingly turning to flexible staffing, which allows them to quickly adjust to this constantly shifting economic environment and the significant uncertainties surrounding regulatory, tax and health care reform. Many clients have confirmed that they are reluctant to go on in human capital against this macro backdrop.

We remain confident in our belief that there is a sustained secular shift towards a flexible staffing model, and the temporary staffing penetration of the workforce may achieve historic highs in the U.S.

As demand strengthens, we are seeing improvements, not only an increased volume but also improvements in the rate that we are able to bill for our services. The improvement in bill/pay spreads and in particular, bill rate increases drove the 50 basis points sequential increase in Flex gross margin. This spread improvement and the leverage that exists on our operating platform allowed us to make continued investments in associate headcount, while still delivering strong bottom line results.

The firm also repurchased 4.6 million shares of stock during the quarter, which represented 10.8% of outstanding shares for a total of $43 million. We believe Kforce is well positioned to service our clients' increasing desire for more flexible workforce during this unique employment cycle. We remain committed to our goal to surpass prior peak earnings with a higher quality revenue stream that is less dependent upon Permanent Placement revenue.

We remain confident at our highly leverageable operating model and believe that we may be the beneficiary of the secular shift towards increase flexible staffing. We anticipate continued uncertainty during this presidential election year, may positively affect demand for flexible talent.

I'll now turn the call over to Bill Sanders, Kforce President, who will provide additional insights on operating trends and expectations, and then Joe Liberatore, CFO, will provide remarks on overall financial performance. Bill?

William L. Sanders

Thank you, Dave, and thanks to all of you for your interest in Kforce. We are very pleased, we have a record revenues quarter. Kforce is committed to growing revenue and earnings. I n fact, providing exceptional synergies to our clients and consultants. During the quarter, we experienced broad-based strengthening in demand across services. We were able to take advantage of our highly advanced sales and delivery platforms that leverages the combination of our field associates, strategic account executives and our National Recruiting Center to profitably grow revenue with both large and small clients.

Tech Flex continues to have strong demand in the quarter, In Q3, we achieved record revenue in Tech Flex, which is our largest business unit, and represents 55% of total firm revenues. Q3 revenues increased 6.9% sequentially and 16.7% year-over-year. Our key performance indicators such as job orders and clients visits remain the highest level, and fill ratios are improving, which reflects increased efficiency in prioritization of requisitions.

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