Hello and thank you for joining us. My name is Regina and I will be your conference operator today. I would like to welcome everyone to the Kforce Fourth Quarter 2022 Earnings Conference Call. I will now hand over the conference to Joe Liberatore, President and CEO. Please proceed.

Good afternoon. This call contains 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 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. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within the Investor Relations portion of our website. On this call, we will discuss certain non-GAAP items. The non-GAAP financial measures provided should not be considered a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the impact these items and events have on the financial results. Our earnings press release provides the reconciliation of differences between GAAP and non-GAAP financial measures. Let me begin by offering some commentary about the current operating environment, which is informed by our internal metrics and discussions with clients and our associates. As we have mentioned on prior earnings calls, we experienced unprecedented demand in our technology business beginning in 2021 and continuing largely for the first half of 2022, driven by our clients’ acceleration of their digital spend and transformation efforts geared towards employee engagement in a more remote-centric environment and their customer experiences. The unprecedented demand fueled the two-year growth rate in our Technology business of approximately 44%, which yet again significantly exceeded the market benchmarks. We had previously noted a slowdown in demand during the second half of the year and more recently have seen a higher level of project scrutiny being exercised by our clients given the macroeconomic uncertainty. However, technology spend on critical technology initiatives across industries is still proceeding and provides a strong underpinning for our technology business. We continue to have an unwavering belief and expectation that the long-term secular drivers of demand in technology spend are more present than ever, irrespective of how the economic environment plays out. The strength of the secular drivers of demand in technology accelerated coming out of the Great Recession by advancements in mobility, big data, cloud, and the rapid expansion of consumer-facing technology initiatives. The pandemic has only accelerated the strategic imperative for all businesses to further digitize their business to enhance consumer and employee experiences. Technology is not optional and is core to all business strategies regardless of industry and we don’t see that changing. While our business is not immune from the impacts of economic turbulence, trends during periods of economic softness suggest that technology spend is increasingly resilient and less correlated than other areas where companies utilize flexible talent. This is informed by our performance in the Great Recession where our technology business was down approximately 7% versus general staffing market declines of roughly 25% to 30% and the 2020 pandemic where our technology business was virtually flat in comparison to the general staffing market which experienced 10% to 15% declines. We also believe that our focus on organic growth for the last 15 years and the divestiture of non-core businesses has dramatically sharpened our focus and contributed to our sustained success. It has also resulted in a clean balance sheet with virtually no debt and allowed us to return a tremendous amount of capital to our shareholders. Today’s announcement of a 20% increase in our dividend, the fifth increase in four years, and an increase in our share repurchase authorization is further evidence of our confidence in our business and intention to prioritize the return of capital going forward. We have significantly improved our profitability levels as evidenced by the nearly 300 basis points increase in operating margins since 2016. This has been accomplished while also reducing our concentration of cyclically sensitive Direct Hire revenues to less than 3% of revenues in the fourth quarter of 2022 versus 7.5% immediately preceding the Great Recession and 19.4% preceding the dot com recession. The quality of our business and revenue stream continues to improve. To that point, 2022 was an extremely successful year for Kforce. We met the financial objectives we outlined at the beginning of the year, despite the softening in demand we began to experience in the second half of 2022. We grew revenues in our Technology business by 18% on top of more than 22% growth in 2021. In addition, we further improved our profitability by 20% in 2022 over 2021 levels. Strategically, we advanced our integrated sales strategy to further integrate our managed teams and project solutions capability within our Technology business. We advanced the repositioning of our FA business toward more highly skilled positions. Our team made significant progress on the multi-year effort to transform our back office. And we fully transitioned to a hybrid work environment across all our markets and opened our new state-of-the-art headquarters in Tampa. Our Office Occasional work environment provides our people with maximum flexibility and choice in designing their workdays that is grounded in our trust in them and supported by technology. This has resulted in improved retention of our associates and positions Kforce as a destination for top talent. Kforce is proud to be certified as a Great Place to Work, which distinguishes Kforce as one of the best companies to work for in the country. As we look ahead to 2023, we will continue to make the necessary investments in our business to further advance our integrated sales strategy and the transformation of our back office to sustain our long-term growth ambitions and attain double-digit operating margins. We have built a solid foundation at Kforce and are partnering with world-class companies to solve complex problems and help them transform their businesses. There is simply no other market we would want to be focused on other than the domestic technology talent solutions space. In a macro sense, the near-term is uncertain, but our path forward couldn’t be clearer, and we will remain consistent with the principles under which we have been operating so successfully. We have a solid, highly tenured team in place with the expectation of continuing to capture additional market share and are prepared for the long-term and whatever the near-term environment may bring. We have a long track record of expanding our market share, particularly in times of market turbulence, and intend on continuing to deliver above-market performance. I am thankful for the tireless efforts of all Kforcers, from our incredible leadership team, our sales and delivery associates to our revenue enablement teams and our Executive Leadership team who have been together through multiple economic cycles. I could not be prouder of what this team has achieved in executing our strategy over many years. Kye Mitchell, our Chief Operations Officer, will now give greater insights into our performance and recent operating trends. Dave Kelly, Kforce’s Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations.

Thank you, Joe. Overall revenues grew slightly more than 2% year-over-year in the fourth quarter. Our Technology business, which continues to be the primary driver of our success, performed slightly ahead of our expectations with year-over-year growth of nearly 8% in the fourth quarter and 18% growth for the full year of 2022. Our technology business now has an annual run rate of $1.5 billion and represents approximately 90% of our total revenues. We believe our strong, consistent outperformance of the market over many years has resulted from our execution and dedicated focus in the domestic technology market. As Joe mentioned in his commentary, our recent operating trends and activity levels have experienced a degree of softening as clients appear to be more cautious given the uncertain macro-economic environment. This trend began in the second half of 2022 and has continued into the new year. Sales cycles are becoming longer due to extended interview processes and more scrutiny around budgets. Year-end assignment attrition was also slightly higher compared to the last few years. However, our clients continue to pursue essential technology projects, even as they become cautious due to the economic uncertainty. Overall average bill rates in Technology continued to improve with 1.7% sequential growth to approximately $90 per hour. While the pace of bill rate growth may moderate in the near-term, we expect that the continued scarcity of highly skilled technology talent will drive continued bill rate expansion over time. Further, as our portfolio of managed teams and solutions engagements continues to grow, we would expect average bill rates to expand along with improved revenue visibility and margins. Critical technology initiatives continue with our clients in areas of cloud, digital, UI/UX, data analytics, project, and program management. Conversations with our clients suggest that they will continue to prioritize significant technology investments to remain competitive regardless of the economic environment. Many of our engagements are multi-year initiatives that we expect to continue despite any changes in the macroeconomic environment. Clients continue to look to us to provide managed teams and project solutions engagements. Our integrated sales strategy allows our people to leverage their long-term relationships in this space as we seek to solve our clients’ challenges. Clients are looking for us to continue to move up the value chain providing more complex solutions. We feel an integrated strategy allows us to leverage our existing sales, recruiters, and consultants to effectively deliver in the solutions space. Our year-over-year growth was driven by a diverse set of industries. Sequentially, we are still seeing broad-based demand, but with some select softening. We have not yet seen any particular industry vertical as a whole experience acute reductions in demand. This remains true through the first month of 2023. We have a very diverse client portfolio of large, market-leading customers that are prioritizing technology spend, which we believe will be a positive catalyst to our long-term, sustainable, above-market growth. While we may be susceptible to short-term disruption with specific clients or industry-specific dynamics, we expect our diversification and concentration in world-class companies to serve our shareholders well over the long-term. We expect first quarter revenues in our Technology business to grow in the low to mid-single digits year-over-year and decline in the mid-single digits sequentially, which contemplates the softness we experienced at the beginning of the year. Our overall FA business declined 26.4% year-over-year, which reflects the continued runoff of business we are no longer pursuing due to our repositioning efforts. Sequentially, our FA business experienced 4.7% growth primarily due to a short-term project in support of Hurricane Ian recovery efforts with a strategic client. This project essentially ended in late January. We expect revenues to decline in the low to mid-teens sequentially and year-over-year to be down in the mid-20% range. We continue to support our FA business and improve its alignment with our Technology business. Evidence of this progress is that our average bill rate in FA, excluding the Hurricane Ian project, in the fourth quarter of 2022 is $51 compared to $37 in the fourth quarter of 2019. As Joe mentioned, direct hire comprises less than 3% of total revenues. We made the intentional decision to curtail investment to grow our direct hire business due to the volatility we typically see in this revenue stream in uncertain economic times. Our expectations for direct hire are for continued declines in the first quarter. We are pleased that we are not reliant on this business to make significant contributions to our growth and profitability. We believe the scalability of a flexible model is the best foundation for predictable, sustainable, and profitable growth. The investments we continue to make in our strategic priorities along with process improvements to increase productivity levels in our associate population provides capacity to continue to grow. While capacity exists, we have continued to make targeted investments in associate headcount to drive sustainable growth. This investment is predominantly in our managed teams and project solutions capabilities within our Technology business as we evolve to meet customer requests and grow share. We have supported and retained our best people and we have made significant changes to give our employees flexibility and choice in our office-occasional work environment. As mentioned last quarter, Kforce has earned Glassdoor's OpenCompany Designation, which recognizes employers that proactively promote and embrace workplace transparency through sharing workplace culture, being responsive to all reviews, and sharing our updates related to diversity, equity, and inclusion efforts along with our ESG priorities. I am grateful for the trust our clients, consultants, and candidates have in Kforce. I would like to thank our amazing people who helped our fourth-quarter results and impressive 2022 performance. They are the backbone of our success. I will now turn the call over to Dave Kelly, Kforce’s Chief Financial Officer. Dave?

Thank you, Kye. We are pleased with our performance in 2022 as full year revenues of approximately $1.71 billion increased nearly 8% year-over-year, led again by market share gains in our Technology business. GAAP earnings per share were $3.68. Normalized for impairment charges related to our joint venture, adjusted earnings per share of $4.25 improved approximately 20% year-over-year. Fourth quarter revenues of $419.7 million grew 2.3% year-over-year and adjusted earnings per share were $0.93. Overall gross margins decreased 70 basis points year-over-year and 50 basis points sequentially to 28.5% in the fourth quarter principally due to a lower mix of direct hire revenue. Flex margins of 26.1% in our Technology business, which met our expectations in the fourth quarter, increased 10 basis points sequentially and declined 30 basis points year-over-year. For the full year 2022, Flex margins in Technology of 26.4% were unchanged from 2021 levels. Top technology talent remains scarce, and we have seen consistent wage increases over many years. We have had good success passing through these increases to our clients due to the critical work our consultants perform. This has led to relative stability in the margin profile of our Technology business throughout economic expansions and declines, which is our expectation as we move forward. Flex margins in our FA business declined 210 basis points sequentially as a result of a short-term lower margin project associated with Hurricane Ian relief. As we look forward to Q1, we expect spreads in our Technology business to be stable with fourth quarter levels, though overall Technology Flex margins will be lower due to seasonal payroll tax resets. Overall gross margins are also expected to decline due to lower direct hire revenues. While we believe that clients may be slightly more price sensitive in the current macro environment, we believe our nearly 90% concentration in technology provides relative margin stability over the long term due to the desire by our clients to increasingly engage us for projects critical to their ongoing success. We also expect that business in the managed teams and project solutions space should remain resilient in this environment, and those initiatives bring higher margins to the overall portfolio. Overall SG&A expenses, as adjusted for the impairment charges, as a percentage of revenue decreased by 90 basis points year-over-year, which is predominately driven by lower performance-based compensation, as it was elevated in 2021 due to extraordinary growth levels. We have a high degree of variable compensation within our plans, which creates operating leverage as growth slows. We have also been successful at driving greater cost efficiencies from our real estate portfolio given our office-occasional model, which has allowed us to reduce overall square footage by approximately 40%. As leases expire, we will continue to transition to the new office footprint, which will lead to further declines in real estate costs. We expect SG&A expenses as a percentage of revenue to increase sequentially due to the annual payroll tax reset in the first quarter. Our fourth quarter operating margin, as adjusted for the impairment charges, was 6.2% and improved 20 basis points over the fourth quarter of 2021 as a result of the reduction in SG&A expense. Our effective tax rate in the fourth quarter was 23.1%, which was higher than we anticipated because of a lower tax benefit on the vesting of restricted stock and other year-end tax adjustments. Operating cash flows were $12.7 million and, as expected, were negatively impacted by the final settlement of $20 million related to payroll taxes previously deferred under the CARES Act. We generated $141 million in EBITDA in 2022, which represents an increase of 11.4% year-over-year. Operating cash flows were $90.8 million for 2022. When adjusted for cash outflows in 2022 related to the settlement of our terminated pension plan and the deferred payroll taxes, operating cash flows would have been approximately $130 million. We returned slightly in excess of 100% of operating cash flows in 2022 to our shareholders through $24 million in dividends and nearly $68 million in open market repurchases. Our return on invested capital was approximately 46% in the fourth quarter. As Joe mentioned, our Board of Directors approved a 20% increase to our dividend to $1.44 per share and increased our share repurchase authorization to $100 million. Since we initiated our dividend in 2014, we have now increased it 360%. The current dividend yield is 2.6%. In addition, since 2007, we have reduced our weighted average shares outstanding from 42.3 million to 20.5 million, or slightly more than 50%. All in, we have returned in excess of $830 million in capital to our shareholders since 2007, which has represented approximately 75% of the cash we generated while significantly expanding our business. The increase in our dividend and share repurchase authorization demonstrates both our financial flexibility due to the strength of our balance sheet and our confidence in our organic growth model. We remain committed to returning capital to our shareholders regardless of the economic climate. With respect to guidance, the first quarter has 64 billing days, which is three additional days than the fourth quarter of 2022 and the same as the first quarter of 2022. We expect Q1 revenues to be in the range of $406 million to $414 million and earnings per share to be between $0.78 and $0.86. First quarter earnings per share is impacted by approximately $0.15 due to seasonal impacts of annual payroll tax resets. Our guidance does not consider the potential impact of unusual or nonrecurring items that may occur. Our performance has put us in an excellent position to continue to make incremental investments in our business, even in an uncertain environment. These include selective additions in our managed teams and project solutions capability and continued investments in our back-office transformation efforts. We believe these ongoing investments will benefit our shareholders in the long-term and are important drivers to our attainment of double-digit operating margins. Overall, we believe our strategy has put us in an exceptional place and we are fully prepared for the various economic possibilities that may lie ahead. On behalf of our entire management team, I’d like to extend a sincere thank you to our teams for their efforts.

Our first question will come from Mark Marcon with Baird. Please go ahead.

Hi, good afternoon and thanks for taking my question. Wondering if you can provide a little bit more color in terms of what you're seeing with regards to the clients on the IT Flex side? You mentioned that for the most part, the impacts are relatively moderate by vertical, but can you talk a little bit about which verticals, I know there are no drastic impacts, but any sort of changes that you're seeing just on the margin of certain verticals, which ones are the strongest, which ones are showing a little bit more of the macro uncertainty?

You know, this is Kye Mitchell. We didn't see a lot of significant client-wide trends. Most of it has been very much pruning by select clients, there's nothing to indicate that any industry or any particular client is down significantly, it's just a bit sluggish. We've seen in the last couple of weeks front-end indicators picked back up, job orders for instance is one that we look at, but nothing that would indicate anything industry-wide or client-specific, it's just more pruning after a busy couple of years.

Got it. And then with regards to the pricing, you kind of give us an indication with regards to how we should think about the bill rates, do you think that continues over the course of the year in terms of just slightly more moderate increases in terms of the bill rates or are there any chances that we could end up seeing bill rates decline if the environment becomes a little bit more challenging?

Mark, this is Dave Kelly. So in terms of bill rates, I think obviously we've seen some pretty significant increases over the last couple of years, but there has been very much stability in margins, flexible margins themselves. I would say generally speaking, we've been saying this for quite some time, we expect ongoing stability in margins in terms of bill rates, if you look at times if there is a slowdown, you see pretty stable bill rates, if there is anything, it's been relatively minor. So again, I think as it relates to both margins and bill rates, you're going to see a pretty stable picture based on what we're seeing today.

Great. And then question for Joe and Kye, I know it's only been less than a month since chat GPT emerged. But there's clearly a lot of buzz around AI, which there has been buzz around AI before, but this is really making it even more obvious. I'm wondering if you can talk a little bit about your early impressions regarding the opportunities for Kforce to leverage the opportunities that they're going to come there specifically with regards to either practices that you might unfold or what you may end up doing with regards to increasing the efficiencies on the SG&A side?

That's a great question Mark. It kind of takes me back and obviously, I'm sure you've seen what's going on with Google as well. So we have the AI arms race going on and it takes me back to 2018 with a great book that one of our probably the most strategic clients recommended to me, called AI superpowers. If you haven't read that book, I strongly recommend it because you could see all these things coming and evolving. We sit here and we look at all these technology innovations as opportunistic on both fronts. One, we've applied a lot of different technologies internally that have allowed us to continue to drive productivity. So from that standpoint, great opportunity to further drive greater efficiencies in a lot of what we do inside our firm, applying whether it's chat technology and various other artificial intelligence type technologies. From an opportunity standpoint, as well on the client front, one of the things I love about what we do for a living is we are not dependent on any particular technology, any particular industry, or any particular type of methodologies that are evolving as time goes on a kind of takes me back to when I first got into this business. Everything was assembler and COBOL, and then as co-generation came that became about it was going to impact our business, and it didn't actually enhance the business. This is just, I mean this is a constant evolution. So will it change how that happens over time as it continues to evolve? There’s no question it will, but then that's going to create needs in other areas in terms of the overall what it takes to really deploy as well as create technology and then drive change management with technology within organizations. I don't know, Kye, if you have anything else that you wanted to add?

No, I think you hit it, Joe.

So that market, it's really opportunity on both fronts, in terms of it will create new business opportunities. I think it's just too early to tell on that front and then obviously internal opportunities in terms of how we can deploy and apply things.

And then one last one, just on the SG&A side, you've already rationalized your real estate footprint. How much more should we expect over the course of this year?

So, Mark, as far as the real estate footprint, and obviously, we've been talking about obfuscation and deploying that across the country. Actually, we reduced our real estate footprint by about 40%, but we still probably got about three years to annualize the leases that currently exist. And as we do that, we plan to deploy that same type of footprint across the country. So we've got some time to go there. So I think there's opportunity there for us and we're always looking at opportunity as it relates to other areas. We've been pretty consistent in investing in our business over the years. We've talked at length about the improvements we've seen in productivity because of the front office tools, our CRM and TRM tools. We're currently in the process that we started last year, we're looking at the reengineering of all of our back office tools, which, although, it's going to take a little bit of time, will be another big leg up. So as it relates to the business, as we grow, obviously, we get the benefits of scale, we expect continued productivity improvements that will help from an SG&A standpoint in the front of the house, and we expect to overlay that over time with back-office improvements as well. So we think there is a fair run rate as we grow to continue to increase operating margins. We've said in the past, double-digit operating margins are that which we should expect, we still expect that to be the case.

Terrific, thank you.

Your next question comes from the line of Tim Mulrooney with William Blair. Please go ahead.

Hi, this is Sam for Tim. Thanks for taking the questions here. I guess to start we've seen a lot of announcements about headcount reductions recently, particularly across the tech industry, but then payrolls came out last week and were much stronger than expected. How would you characterize the tightness of the IT labor market right now relative to last quarter, is it easy or pretty much steady state?

In regards to candidate supply, we've been in a very candidate constrained environment for well over a decade and frankly that has changed and likely will change in the current environment. It does appear that some of the largest companies may have overhired and as I mentioned, are doing a little bit of pruning over the last few months, and I think that you're seeing selective pruning in those investments. There might be a bit of incremental supply, but clients are still being really selective in our hiring process and we don't see that impacting any future expectation for what that candidate supply looks like. I think it's going to continue to be a tight one. And I think also, we're seeing some folks looking to go into the office, again, which is probably a little bit of any pressure off through those candidates that are out there. So overall, it's very similar to what it has been and I don't expect to see a lot of change there.

So, Kye, let me add. Sam, just to kind of as a reminder, our technology footprint is pretty high at the value chain right. We talk about things like cloud, application modernization, data analytics, and digital transformation and our average bill rate is $90 an hour. As you might expect, do you think about what that means from a payroll perspective? Kye mentioned scarce talent, four years, right, the world has not produced enough of those skill sets and that is still the case, so a big driver to the expectation of continued scarcity in the areas that we play.

That's very helpful. Appreciate the color there. You touched on this in your prepared remarks, but can you maybe expand a little bit more about client behavior in this environment, what you're hearing from clients these days from both the demand side as well as client behavior on the process side and have they given any indication on how they're thinking about their own staffing needs in the months ahead here?

As we mentioned, I think there's more scrutiny on budget than what we've seen in the last two years. It's not anything unusual to prior cycles, but there is more scrutiny around that. However, clients are very much committed to continuing in the areas of strategic investments. For example, cloud, digital transformation. If they're doing a cloud project, they're not going to stop migrating to the cloud. So we believe we're very well positioned strategically in the right areas where clients are continuing to invest. We've seen some good wins as we come into the first of the year, we had a recent win with a healthcare company to help them in their cloud migration. We had a recent win with the customer to help them create new tools that help improve employee productivity. So I think the space, we're playing in, we continue to see clients making investments there.

Yes, I would add, as Kye mentioned, clients are still funding critical projects that have been true historically. I'll just remind you during the Great Recession, technology critical spend was far more robust than other industries and other disciplines within staffing, and just recently in the pandemic, our technology revenues actually were flat when we had obviously a significant decline. So kind of a reflection of what we're seeing is that on top of significant growth in technology prior to that and then subsequent to that. So a lot of resilience in the technology revenue stream here regardless of the climate.

That's helpful. I appreciate that both. I think we'll leave it there. Thank you.

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

Thank you. Wanted to ask you about managed teams and project solutions. Can you give us some color there along basic dimensions either size, kind of margin profile? If not specifics, maybe juxtapose it and compare it with existing businesses. You talk about project nature, maybe description of what kind of things you take on versus things you won't. Any kind of things that will help us get a better overall understanding of what you're doing, where you're going with that would be helpful. Thanks.

Yes, thanks Tobey relative, relative to that solution set that we're bringing to market, we've taken a little alternative approach to maybe what you hear from some of our direct competitors in the marketplace because we view that this is integrated into who we are, with our technology focus DNA and how we can leverage all of our capabilities within Kforce through our integrated sales strategy, because that's really what unlocks the value here. And so I think we stated in the past, our margin profile is roughly 400 basis points higher when we do this type of work because of the additional value that we're bringing and moving up that value chain and the further we go up the chain, the more that margin expands on average about 400 basis points. In terms of the footprint that we're after, the key areas we focus on are cloud and data, and various other ones because they play off of each other. When a client is working and has an initiative going on with cloud, well that's going to also drive their data needs, so based upon when we get engaged, it allows us to hone in on these different areas and teach them at the different phases of an overall macro project. And from a duration standpoint, our efforts in this area are typically over a longer duration than that average roughly 10 contract that we spoke about. So we see some of these projects are multi-year, but on average, they're going to be of a greater duration. Kye, I don't know if you want to talk a little bit more of the particulars.

Yes, Tobey, we notice, as Joe mentioned, a longer duration. We are seeing clients in areas where spending continues, looking for everything from solutions to managed teams. We are experiencing significant demand for managed teams, as clients want a whole team to support their projects. This is creating great opportunities for us, and we continue to see strong demand in this area.

And when you reference margins, is that at the GP level? Or is that sort of more at the bottom line level?

Yes, Tobey, the answer here is really both. We're sitting here at a higher gross margin profile. As you'd expect, right? As we deliver more at that mine, it translates. So it's an important business for us.

Okay, perfect. Where do you see Flex gross margins trending in the quarter? If we look at the model, Flex gross margins on a year-over-year basis did start to contract a little bit. And I'm just trying to reconcile that because I don't know whether managed teams and other things muddy the waters in the way that we can sort of extract and draw conclusions from those kind of numbers. Thanks.

Yes, I think a couple of things. If I look at full year margins, they're actually in Technology is where we're focused they were flat. Yes, they were down in a very minor way as I think about the spreads to that business, that's unchanged, right? So as I've mentioned, as I look sequentially, obviously, we get impacted by payroll taxes in the first quarter. But I think the buzzword here is stability. We're not looking for any significant change from where we're at. And we're not seeing anything that suggests that we should do otherwise.

Okay. And then I'm curious, you touched on this in another question, but I'm going to ask you differently. When you plan for recessions and you think about how the business will perform, we have, I guess, three examples in the last 20-some years. You've got the tech bubble, the Great Recession in 2020. They all have peculiarities, different depths. Which ones do you use to inform your planning for the business? And are there any adjustments you'd make because we often hear from investors that 2020 was unique and for IT maybe unique in that the pandemic encouraged some spending on IT that a normal recession absent a pandemic may not. Thanks.

Yes, it's a great question. As you all know, no two situations are the same and they all respond differently. We are likely in a unique environment right now, especially if we consider the possibility of a recession. This has been the most anticipated recessionary period in history. If it unfolds that way, what stands out this time is the overall labor market. We've seen the labor market affected; however, it has never been impacted as severely as believed, particularly in high-skilled areas. The last two recessions—the financial crisis and the pandemic—had a greater labor impact than prior ones over the last 50 years. Currently, the job market is still strong, with more jobs available than people. In the tech sector, which has always faced supply and demand challenges, we are optimistic. Our business model is flexible and adaptable, with variable costs that adjust as needed. During the pandemic, we didn't experience revenue impacts, and even in the financial crisis, our business demonstrated resilience. We are in a strong position now with minimal debt and a solid balance sheet. We have been cautious with hiring post-pandemic, basing it on actual needs. Overall, we feel strong and prepared, similar to how we navigated the pandemic. Throughout this 35-year journey and across four different economic cycles, we have never been better positioned than we are today, regardless of what challenges may arise.

So Tobey, let me amplify a point that Joe made in terms of managing through various cycles. He had mentioned we just increased our dividend. We just increased the authorization on our buyback. In good times and bad, we generate a significant amount of cash. I think in excess of $130 million, certainly in operating cash flows this coming year. And so we have been very consistent in how we've thought about the use of that cash. I don't have any expectation that that's going to change either. So this is the last piece kind of about how we think about managing the business.

Okay, if I just double-click on my question. When you look back at 2020, do you think that there were unique features to the pandemic that contributed to IT's resilience, that if we have a sort of a similar contoured economic contraction without unique pandemic features, would the business and industry perform differently?

The pandemic served as a significant wake-up call for many organizations that were slow to digitize their operations and leverage data effectively. This shift propelled a rapid increase in investment in technology and advanced the adoption of technological solutions by several years. At Kforce, we have been able to utilize technologies we previously struggled to implement, such as various collaboration tools. This acceleration has undeniably created a surge in demand for technology. It's important to separate these workforce reductions in the market from the actual impact technology has had. Organizations must digitize their business, transition to the cloud, and find ways to monetize data to remain competitive. Investing in these areas is essential, regardless of the economic situation. While certain technology initiatives may face cutbacks in a challenging economic environment, critical projects need to be prioritized to ensure long-term sustainability and competitive advantage. Overall, we are experiencing a more typical operating environment now, as opposed to the chaotic period following the pandemic, which is still a healthy situation for businesses.

Thank you very much.

Your next question will come from the line of Kartik Mehta with Northcoast Research. Please go ahead.

Thank you. Have you seen a change at all in the competitive landscape, maybe since you're seeing a little bit of softening? Has there been any change?

There's been a slight softening as we said in our opening comments, we did see a little bit higher than usual attrition numbers at the end of the year. And I think the way the holiday fell to it just pushed everything out a little bit. So it was sluggish coming out of it, we have seen, like I mentioned, partake in the last couple of weeks, we've seen that front-end indicators pick back up. It will be interesting too, with clients seeing the latest BLS numbers and everything. I think a lot of it was clients taking longer to scrutinize and wondering where the macroeconomic is going, but I think there's some positive indicators now for them.

Yes. And Kartik, I think you're also asking about, I'm assuming the direct competitive landscape?

Yes, correct. Yes.

Yes. So what we're seeing from a competitive landscape standpoint is with the larger players that we compete with, things have remained pretty constant. Probably the biggest place that we've seen some competitive dynamics is when we look at the local operators and the smaller players in the space, they are feeling a little bit of pressure. And by the way, this is typically what we see as the cycles evolve and the environment becomes a little bit more difficult, right? They're typically more single company dependent. And as you look at defaults going up on credit and those types of things, they don't have a lot of room to play with nor do they have really strong balance sheets. So I suspect if things were to be tougher throughout the course of 2023, the competitive landscape is going to shrink, mobile operators or regional operators, which just provides us more market share opportunity. And that's why historically, if you go back and look at Kforce's performance, we always come out on the back end stronger than where we went in, and I don't foresee this being any different irrespective of how the market plays out this year.

And then you've talked about obviously the sales cycle lengthening a little bit, and we're coming off some pretty tough comparisons where things really were really good. If you compare that to pre-pandemic levels, how would that compare rather than the last kind of two years that were really strong? Just comparing it to previous to pandemic before there was this big surge in demand?

We're still very stable compared to what we saw during pre-pandemic. We haven't seen a real dip from those levels.

Hi, good evening. I want to express my appreciation for the update regarding the return of capital to shareholders. It's substantial and definitely nice to see. However, I am curious about your perspective on whether the positive outlook for the company and the feedback from clients has changed since your last call in the third quarter. Have there been any developments in that timeframe that have influenced your outlook, whether it be positive or negative, or any indicators that have shifted in the past few months?

Yes. I would say we've been bullish for quite some time now. I mean, I think the pandemic, while it was a heretic experience to go through, I think it's forever changed Kforce, and I think it changed the trust within Kforce, and I think it also has changed our ability to move quickly, adjust rapidly because our teams had to learn how to deal with so much change management over those periods of time that I think we are a very different organization than we were in the early part of 2020 prior to going into that. And that really excites me because when I look at what our team has been able to accomplish over the course of the last three years, in the face of some of the most emotionally and mentally challenging situations that probably anybody in the business world has ever faced, I'm just blown away with our teams have accomplished and where we are today with our Office Occasional model with real technology applied, with real cultural shifts taking place and then just how we've also elevated our game with our end clients. So no, I mean, nothing has changed since we spoke to you back end of October of last year. We've been on this attitude for quite some time. We are playing offense, and we are going to continue to play offense and why is that? Because we can and we have the right team to do it.

I was wondering if you could discuss whether your client engagements have been affected by increased M&A activity or business transitions. Has there been any notable impact, or is it largely consistent with what we observed? We know that M&A activity significantly slowed down last year, so I'm curious if any of that has influenced how clients are approaching things. Thank you.

No. We haven't seen any significant impacts from that. Clients are pretty much business as usual. As you know, we haven't done any M&A in many, many years. We have a couple of clients, but their largest client makes up only 5% of revenue. We have a couple of clients right now that we're benefiting from them going through some M&A activity, but it's really not an impact on what we're seeing.

Sure. Thank you.

We have no further questions at this time. I'll hand the call back over to Joe Liberatore for any closing remarks.

Well, thank you for your interest and support of Kforce. I'd like to thank every Kforcer for your extraordinary efforts and to our consultants and our clients for your trust in Kforce and partnering with you and allowing us the privilege to serve you. We look forward to talking to you again after our first quarter of 2023.

Ladies and gentlemen, that concludes today's meeting. Thank you all for joining. You may now disconnect.