Kforce's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Kforce (KFRC)

Q1 2012 Earnings Call

May 01, 2012 5:00 pm ET

Executives

Michael Blackman - Chief Corporate Development Officer

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

William L. Sanders - President

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

Analysts

Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division

Kevin D. McVeigh - Macquarie Research

Paul Ginocchio - Deutsche Bank AG, Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Giridhar Krishnan - Crédit Suisse AG, Research Division

Presentation

Operator

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

Michael Blackman

Thank you. Good afternoon, and welcome to the Kforce First Quarter 2012 Earnings Call. Before we get started, I would like to remind you that this call may contain certain statements that are forward looking. These statements are based upon current assumptions -- current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from the factors listed in Kforce public filings and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. I would now like to turn the call over to David Dunkel, Chairman, Chief Executive Officer. Dave?

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.

As previously announced on March 31, we completed the sale of our Clinical Research business. Information pertaining to this transaction was disclosed in the 8-K that was filed on April 3, 2012, and additional required disclosures will be included in our 10-Q filing later this week.

As a general note, all numbers cited during our call today will be from continuing operations, and therefore, exclude any results from this transaction and the Clinical Research business unless specifically indicated.

We are pleased with our Q1 results and the outlook for the remainder of 2012. Kforce reported revenue for the quarter ended March 31, 2012, of $268.4 million, a year-over-year increase of 13.5% and a sequential increase of 3.5%. We remain optimistic about the firm's prospects and what we believe continues to be a secular shift towards a greater use of flexible staffing in an environment of high demand for skilled professionals.

The unemployment rate among college degree workers is currently 4.2%, roughly half that of the overall U.S. rate of unemployment and it's substantially lower in several of the specialized skill sets Kforce specializes in, particularly technology.

During the quarter, many of our clients pursue direct hire strategies and elected to convert tenured consultants, which resulted in lost billings and no realized conversion fees to Kforce.

In addition, our Strategic Accounts experienced a sequential decline in Tech Flex revenues, primarily driven by our largest financial services clients. Our revenue footprint and domestic platform remain focused in the areas of greatest demand in today's economy. We continue to benefit from our client desire for a flexible workforce during this slow economic recovery combined with significant uncertainty in regulatory tax and health care reform.

Despite some recent mix data on the near-term economic backdrop, we continue to believe that the analyst consensus estimates of approximately $1.1 billion in revenues from continuing operations is conservative and EPS of $0.88 are reasonable expectations for full year 2012 results.

Our strategy remains intact, and we believe the divestiture of our Clinical Research business will result in a less complex and ultimately more leveragable operating model. We are continuing to refine our delivery model and narrow our focus to accelerate growth. We believe there is significant opportunity for continued strong growth in our Tech and F&A businesses, as well as our Health Information Management business, which is well positioned for continued success due to the implementation of ICD-10 electronic medical records.

Additionally, our government business had a very successful Q1, so we are now beginning the staffing process on the new contract awards, which should lead to sequential revenue growth in this business in each of the next 3 quarters.

Looking ahead, we are pleased with the firm's positioning and our opportunity to capture market share. We remain excited 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 1.87% of the workforce, will achieve historic highs in the U.S. during this economic expansion.

Before I turn the call over to Bill, I want to thank all of our associates for their contributions to Kforce as we celebrate our 50th anniversary on May 12.

I'll turn the call over to Bill Sanders, Kforce President, who will provide his comments. Joe Liberatore, Kforce CFO, will then provide additional insights on operating trends and expectations. William?

William L. Sanders

Thank you, Dave, and thanks to all of you for your interest in Kforce. We are pleased with the first quarter of our new 3-year strategic plan, the expedition. We had built a foundation of great people, processes and tools that allow us to compete effectively in what we foresee is a solid market for our staffing and solutions business unit.

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