Good day, everyone, and welcome to the Kforce First Quarter 2024 Earnings Call. Today's call is being recorded. And I would now like to turn the call over to Joe Liberatore, President and CEO. Please go ahead, sir.

Good afternoon. Thank you for your time today. This call contains certain statements that are forward-looking and 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 SEC. 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. Our first quarter performance was generally consistent with our expectations, and we were encouraged by March trends in our Technology business. Operating trends over the past two quarters and discussions with our clients indicate to us that the current operating environment is more stable and constructive than it was throughout most of 2023. There remains uncertainty as to whether or not the U.S. economy will fall into recession. The dialogue surrounding interest rate cuts has shifted from a discussion referencing the number of anticipated cuts and when we should expect cuts in 2024, if there will be any cuts at all this year. Geopolitical concerns, including the war in Ukraine and the recent expansion of the war in Israel with Iran's aggression, further complicate forward-looking visibility. Against this backdrop, our clients, broadly speaking, have continued to exercise a degree of caution in initiating new technology investments. Importantly, this restraint does not appear to be increasing but rather appears to be fairly stable. As we look beyond the current uncertainties, we continue to be encouraged by the backlog of strategic imperative investments that we expect to be high priorities for our clients once the macro uncertainties begin to clear. Technology investments are simply not optional in today's competitive and disruptive business climate. Given the secular underpinning, there are simply no other markets we want to be focused on other than the technology talent solutions space. As we move throughout the upcoming second quarter and second half of 2024, we will closely monitor our performance indicators and trends and make any necessary adjustments to our business while continuing to invest in our long-term strategic priorities and retain our most productive associates. As to our first quarter results, revenues and earnings per share were both within our range of guidance. The improvement in our leading indicators that we spoke about on our last call translated into reasonably robust new assignment growth in March 2024, which encouragingly is expected to lead to sequential growth in our Technology business in the second quarter at levels close to historical seasonal prepandemic levels. Dave Kelly will expand upon our operating trends in his remarks. Our message to our people is unchanged. During these uncertain times, we must control what we can, stay close to our people and our clients, while maintaining a long-term view on our decision-making. We are blessed to have a tenured executive leadership team who has been through multiple economic cycles together and is prepared to quickly adjust to changing market conditions, and we are equally blessed to have a high-performing team that is tenured, dedicated, and passionate about what they do. While all economic cycles behave a bit differently, what remains clear is that broad and strategic use of technology, including the most recent technological secular shift associated with AI, will continue to evolve and play an increasingly instrumental role in powering businesses. Over the long term, we believe that AI and other technologies will continue to drive demand for rather than replace technology resources and that the pace of change will accelerate. We are ideally positioned to meet that demand. Our core competency is rooted in the ability to identify and provide critical resources real time and at scale to help world-class companies solve complex problems and help them competitively transform their businesses. Our operating model also allows us to be flexible in partnering with our clients to meet their needs across a broad spectrum of engagement forms, from direct hire, traditional staffing assignments to managed team engagements and managed projects. Our decision to grow our business organically with a consistently refined business model tailored to provide highly skilled technology talent solutions to world-class companies has been critical to our success over many years, and we remain confident that our firm is positioned well for improving market conditions. I'm tremendously proud of our team as they continue to execute with incredible passion to serve our clients, candidates, and consultants cohesively as one Kforce. I remain confident and excited about the future of Kforce. Dave Kelly, our Chief Operating Officer, will now give greater insights into our performance and recent operating trends; Jeff Hackman, Kforce's Chief Financial Officer, will then provide additional detail on our financial results as well as our future financial expectations. Dave?

Thank you, Joe. Total revenues for the first quarter were $352 million, down 7.7% sequentially and 13.3% year-over-year. Our Technology business declined 6.9% sequentially and 11.4% year-over-year. As we mentioned on our last call, following a slower start to the year and higher year-end assignment additions, we experienced an improvement in our leading indicators in late January and believe that those higher activity levels would contribute positively to new assignment starts in our Technology business later in the quarter. As expected, we experienced a notable acceleration in our consultants on assignment throughout March, which should lead to sequential growth in Q2 within the range we saw before the pandemic. Our clients continue to undertake mission-critical projects and also recognize the need to retain the highly skilled talent that we provide while they await a point of increased confidence to accelerate spending to address their increasing backlog of technology initiatives. Overall, average bill rates in our Technology business have remained stable over the past few quarters and continued to reflect our focus on providing highly skilled talent on both traditional staffing assignments and as part of managed teams over managed projects. Our clients remain focused on critical technology initiatives in the areas of digital, data governance, AI and ML, UI/UX, cloud, data analytics, business intelligence, project and program management, and modernization efforts. This represents a continuation of recent trends and reflects some of the foundational work required by companies to gain the eventual benefit of AI-related investments. Flex margins of 25.3% in our Technology business declined 10 basis points sequentially and 60 basis points year-over-year. The sequential decline was less than expected as lower health care claims helped to offset the traditional annual tax resets. Our bill/pay spreads continued to be stable on a sequential basis, which is an encouraging data point given the cloudiness of the economic environment. We've continued to broaden our service offerings beyond traditional staffing to include managed teams and project solutions. Clients consider access to the right talent essential to their success and see our services as a cost-effective solution for their project requirements. Our integrated strategy capitalizes on the strong relationships we have with world-class companies by utilizing our existing sales recruiters and consultants to provide higher-value teams and project solutions that effectively and cost-efficiently address our clients' challenges. Our client portfolio is diverse and is comprised primarily of large market-leading companies. Market leaders typically prioritize technology investments to maintain their competitive advantage. Our focus on addressing their needs continues to be critical in our ability to drive sustainable long-term, above-market performance. Given the seasonal resets we see at year-end, a number of our industry verticals declined sequentially in the first quarter, but we saw relative stability in our retail, transportation, and manufacturing verticals and some headwinds in financial services, after a steady performance in the fourth quarter. Looking forward to Q2, we expect technology consultants on assignment to remain relatively consistent with the levels we ended with in the first quarter and for revenue to increase sequentially in the low single digits. Year-over-year revenue declines will decelerate to the mid-single digits. Our FA business, currently 8.5% of our total revenues, declined approximately 16% sequentially and declined 27% year-over-year. The year-over-year decline reflects the impact of business we are no longer supporting due to our repositioning efforts and a more challenging macroeconomic environment. Our average bill rate has continued to exceed $50 per hour as we continue to drive this business towards a higher skill set of business that is more synergistic with our technology service offering. We expect Q2 FA revenues to be down year-over-year in the mid-20% range. Flex margins in our FA business decreased 70 basis points sequentially due to a lower margin project with a strategic client but have improved 130 basis points over the last five years as our mix of business has significantly improved. We expect bill/pay spreads to remain fairly stable at these levels in Q2. We've taken thoughtful measures to strike a balance between associate productivity and our revenue expectations. As we've done in prior economic downturns, we are focused on retaining our most productive associates and making targeted investments in the business to ensure that we're well prepared to capitalize on the market demand when it accelerates. We continue to invest in our managed teams and project solutions capabilities and the integration of those offerings within the firm, which is progressing well. While the uncertainty in the macro environment has persisted longer than many expected, I remain excited about our strategic position and ability to continue delivering above-market performance. The success that we have as a firm doesn't happen without the unwavering trust that our clients, candidates, and consultants place in us. We've been able to continue delivering strong relative performance during this difficult period while continuing to aggressively invest in the strategic initiatives that are critical to our long-term success and expect to continue to do so. I appreciate the dedication, creativity, and resilience displayed by our incredible team. I'll now turn the call over to Jeff Hackman, Kforce's Chief Financial Officer.

Thank you, Dave. First quarter revenues of $352 million declined 13.3% year-over-year, and earnings per share of $0.58 were at the midpoint of our expectations. Overall, gross margins in the first quarter declined 20 basis points sequentially due to seasonal payroll tax resets, which was partially offset by lower health care costs. Margins declined 100 basis points year-over-year to 27.1% due to a combination of a lower mix of direct hire revenue and a decline in Flex margins. Overall, SG&A expenses as a percentage of revenue were 22.2%, which is an increase of 20 basis points year-over-year. Our variable base compensation structure, the adjustments we made in July 2023 to reduce our structural costs to the lower revenue levels, and disciplined cost management have significantly mitigated the impact of lower revenue and gross profit levels on our profitability. With that said, we are continuing to prioritize investments in retaining our most productive associates and advancing our enterprise initiatives, both of which are expected to significantly contribute to our long-term financial objectives. Our operating margin of 4.5% was toward the high end of our expectations. Our effective tax rate in the first quarter was 27.1%, which was higher than we anticipated due to greater nondeductible expenses and adjustments to certain tax credits. Operating cash flows were approximately $13 million, and our return on invested capital was nearly 40%. We have prudently managed our business by driving solid organic growth over many years, which has resulted in consistently strong results in a pristine balance sheet with minimal debt. Our pattern of returning significant capital to our shareholders has been consistent over many years and continued in Q1, with a total of approximately $9 million returned through dividends and share repurchases. All in, we have returned slightly more than $900 million in capital to our shareholders since 2007, which has represented approximately 75% of the cash generated while significantly growing our business and improving profitability levels. We remain committed to returning capital regardless of the economic climate, and our threshold for any prospective acquisitions remains very high. Our strong balance sheet and the flexibility we have under our credit facility provides us with the opportunity to get more aggressive in repurchasing our stock if there is a dislocation between expected future financial performance and the valuation of our shares. The second quarter has 64 billing days, which is the same as the first quarter of 2024 and the same as the second quarter of 2023. We expect Q2 revenues to be in a range of $352 million to $360 million, and earnings per share to be between $0.68 and $0.76. Our guidance does not consider the potential impact of any other unusual or nonrecurring items that may occur. We remain excited about our strategic position and prospects for continuing to deliver above-market results over the long term while continuing to make the necessary investments to help drive long-term growth and enable us to achieve our longer-term profitability objective of attaining double-digit operating margins at slightly greater than $2 billion in annual revenues. On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for all of their efforts. We would now like to turn the call over for questions.

We'll take our first question from Mark Marcon with Baird.

You mentioned that there was some improvement in your leading indicators in late January and you believe those higher activity levels will have a positive impact. Can you elaborate on that? Which specific areas are showing strength? How widespread is this improvement? Additionally, in your discussions with clients, what do you think could help alleviate some of the uncertainty they are experiencing? I understand that geopolitical factors are beyond their control, but are there domestic issues they are monitoring?

Yes, I'll start. We have observed activity levels indicated by client visits and the number of submissions showing significant increases. In fact, some of the job order flow activity levels were comparable to those we experienced before the pandemic, which is encouraging. We expected this increased activity to lead to more new starts, and this indeed happened in March, with weekly increases observed throughout the month. This pattern aligns with historical trends. However, we also noted similar spikes at the end of last year in September and October. As we enter the second quarter, there remains some unevenness in the data, and as previously mentioned, there is still a fair amount of uncertainty. Therefore, it may be premature to categorize these increases as a definite trend; we need to remain cautious. That said, conditions have certainly stabilized more than before, with some particularly successful periods noted. The strength we are witnessing is fairly widespread across various sectors. We primarily work with large companies in nearly every industry, and there is no single sector driving the activity. These large organizations continue to invest heavily in technology and critical projects. It's essential to evaluate this on a client-by-client basis. Even in the financial services sector, where we previously noticed some challenges, we found clients who exhibited substantial increases in spending. In summary, our success over the past couple of quarters can be attributed to our robust execution with a diverse range of clients across different regions.

Great. Can you discuss the pay bill spread? Specifically, what are your observations regarding pay rates? I've noticed that in the last two quarters, the hourly bill rate for Tech Flex has decreased slightly compared to the third quarter of 2023. I’m curious if this is due to a change in mix, or if there is some caution and perhaps overcapacity in the industry causing slight price pressure.

Yes. And Mark, this is Jeff Hackman. Good to talk with you. I think we talked about this last quarter. I think the relatively modest decline in the average bill rate, I wouldn't read too much into that. I think it's still roughly $90 an hour. Very modest, I think, sequential decline Q3 to Q4 of last year, Q4 to Q1 of this year was a very, very slight tick down. For the very large part of 2023, and that largely has continued into Q1 of this year, the average bill rate has been actually quite stable. And in this environment, I think that's a good dynamic and an encouraging sign for us. I think as it relates to spreads, I think the comment that I would give you is early on in 2023, we certainly saw some pricing pressures early on in the year. And for the large part of the second half of '23, our spreads in our Technology business actually were quite stable. When you look at the Q4 to Q1 trend in overall margins, I think in our Technology business, they're rolling down 10 basis points. And typically, in a Q4 to Q1, you see that a little bit more of a decline. And part of what Dave mentioned in his script is we saw some favorable health care costs that came in a little bit lower than we expected there. But I think to answer your two questions, Mark, I would say spreads are continuing to be quite stable. And as it relates to our average bill rates, it's still roughly $90 an hour, so that's also quite stable as well.

Yes. Only the other thing, Mark, that I'd add to this, right? So you'd asked in terms of supply. Supply continues to be tight here, right, even in a slower time to have the marginal change in bill rates. It's really been almost inconsequential, and that is true with pay rates as well. Suggests, again, even in slower periods of technology spend, to find the right talent is going to require us to pay the market rates and our clients, obviously, understanding that continue to understand that, and that's why bill rates haven't moved, either. So much like it's been for many years, right? A supply of highly skilled talent in particular continues to be very difficult to find.

Great. If I could ask one more question regarding current capacity. You mentioned that reaching the $2 billion revenue mark would lead to significant margin expansion. How much excess capacity do you currently have in your field sales and recruiting teams? How should we view the incremental margin trajectory moving forward? Will it be a consistent increase, or should we expect some notable spikes in personnel as we approach the $2 billion target?

Yes, Mark, this is Dave again. First, as we've mentioned before during slower periods, it's crucial for us to maintain our essential resources. We have always ensured that we have sufficient capacity because those individuals will help lead us out of a recession. Additionally, when issues arise, we want to avoid being understaffed. We definitely have enough capacity. As we've indicated in the past, we actually have more sales-related associates today than we did a year ago. There's always a shift in the mix to ensure we have the right total capacity. Furthermore, we continue to invest in technology and process improvements that enhance our productivity. We are confident that when technology spending returns to a growth trajectory, we will be poised to capitalize on that. This does not mean we won't need to hire more resources; we anticipate being able to do so. However, productivity improvements have been a significant factor, if not the sole reason, for the profitability gains we've experienced recently. This is the main driver behind achieving the operating margins we expected. In terms of how this will unfold, it won't be entirely linear. As conditions improve, we will see gradual increases in operating margins, but there are also substantial opportunities ahead. Some factors will behave predictably, while others will not. Our outlook and thesis remain unchanged. When we reach a revenue level slightly above $2 billion, we expect to maintain around a 10% operating margin.

Yes, Mark, the only other thing that I would add to everything that Dave just shared with you is, throughout 2023 and here into 2024, we've continued to build our sales capacity because, needless to say, to ramp up salespeople relationship, getting entry points into clients is a much longer process. So we've actually increased our headcount from a sales standpoint within our technology area. From a recruiting standpoint, plenty of capacity to service existing needs as well as market turns and there's a ramp-up in job orders coming in to service those job orders. Also, our team has clearly demonstrated because we've invested a lot in technologies and automation on the delivery front, that we can turn that dial very quickly if and when necessary. But we have plenty of capacity to address anything for quite some period of time. But then as we needed to accelerate that, we'd be able to do that. Likewise, I would say, especially here over the course of the last 24 months, we've continued to add a lot of capacity within our KCS, our consulting solutions organization, bringing on a lot of industry expertise, subject matter expertise, and they're really making a difference in terms of elevating our game, taking our conversations and the work that we're pursuing within clients to a whole another level. So we've been making a lot of investments on those fronts, which I think all these things are just building greater capacity as well.

We'll take our next question from Kartik Mehta with Northcoast Research.

Joe, you mentioned something about AI and obviously having a positive impact on the company in the long run. But I'm wondering, in the short run, is it causing any pause for your clients as they figure out maybe how to implement it, maybe how to use it internally, what resource they need from an external perspective? And could that be causing any delays in orders or jobs?

Yes. What we're experiencing with our clients is that they are fully engaged in preparatory efforts, such as developing their infrastructure and data to leverage generative AI and large language models. We are assisting clients with integration work to ensure that their systems communicate more effectively, which often involves moving to the cloud. Additionally, there are significant data initiatives underway, including addressing data structure, governance, and data cleansing. We have successfully secured engagements in these areas and are helping clients explore the technology while evolving their strategies and potential use cases. I don't believe this is causing any delays; rather, there is a lot of activity in these sectors as organizations set themselves up to benefit from these advancements. Moreover, I don't anticipate this changing in the near future. For companies like Kforce, which aren't strategy firms like McKinsey, this is where the real revenue will be generated, focusing on infrastructure, cloud, and data for the foreseeable future. I believe that the application of generative AI and large language models will ultimately serve as a powerful and widespread catalyst for our business for a long time. We're excited about our positioning, as it aligns perfectly with our focus. I hope this provides some context.

Yes, it does. And I just wanted to make sure I understood your commentary on margins. And I think if we continue to see a sequential increase in revenue, do you think that portends well for margins? Or as you're adding capacity, could there be just some volatility in margins for the rest of the year?

Yes. I think, Kartik, generally speaking, as revenues improve, margins are going to improve, right? So that has been consistently how we've been managing the business. The capacity that we talked about. Obviously, some of that will get absorbed. We'll continue to invest, but we'll be prudent to make sure that we return appropriately the revenue to the bottom line. So I expect margins will expand as revenue expands.

We'll take our next question from Trevor Romeo with William Blair.

First one I had was just on project types, I guess. I know you have an integrated sales function. It's not necessarily two different businesses, but I was just wondering if you could comment on trends for the managed teams in project solutions versus kind of more staff augmentation work, what kind of demand you're seeing for each one? And whether clients' preferences are kind of evolving or changing in this environment?

Yes, we are observing demand on both fronts, which is why we value our integrated strategy approach. Professional staffing needs are linked to every project, and these project opportunities enhance our visibility and enable us to engage more strategically with clients. Our opportunity pipeline has been building as we progress through Q1 and continues to strengthen into early Q2. Our existing projects and strongest pipelines are centered around application development, particularly digital transformation initiatives that focus on enhancing customer and internal experiences, much of which is connected to the cloud. Additionally, we are seeing numerous data-oriented projects that also require cloud integration. We are increasingly involved in data opportunities as clients prepare for future AI and ML developments. Overall, we see development, cloud, data, and digital areas all remaining very robust, positioning us well in the market.

Okay. Great. That makes sense, Joe. And then just a follow-up on, I guess, competition. It feels like we've been kind of in the stable but lower level of demand for a while now. Have you guys started to see any changes in the way competitors are positioning themselves to win business? And I guess, similarly, have you seen any changes in the way clients look to choose a provider? And I guess, generally, does it feel like you're gaining, maintaining, or losing market share in this type of environment?

Yes. Trevor, I think a couple of things. I think one thing that is clear, the clients that we do business with, obviously, are looking for those things that we do quite well, right? We can provide services across the country. But certainly, the trends, and you hear it from us, you've been hearing it from us repeatedly, and Joe just touched on it, right? The ability to deliver a spectrum of services from staff augmentation all the way through managed solutions is critical. Because clients are looking for companies such as Kforce who can deliver the talent in whatever way that they'd like it to be delivered. And they're obviously within these large clients, a number of different project structures that they will see. So that is clearly a growing trend that we've seen.

Yes. I would add that our main focus is on larger organizations that are significant consumers of the services we provide. These organizations are sophisticated in their vendor management, making it challenging for competitors to enter and meet their requirements. They have been consolidating vendors for years, making it hard to gain entry into these businesses. We don’t anticipate many changes in the competitive landscape. Inside these organizations, when we encounter larger competitors with similar compliance, regulatory, and service capabilities, we have not observed any predatory pricing tactics. It remains business as usual, with no major shifts. In terms of more localized businesses, such as those worth $1 billion or $2 billion that might work with smaller market-based organizations, we are noticing the same behavior we see during this part of the cycle. These businesses are often willing to offer services at low margins, which increases price pressure. However, they are usually just one account away from financial difficulties due to limited reserves for bad debt. This puts them in a precarious situation when challenges arise. I have gone through this cycle four times, and each time we see a cleansing effect. It’s typically the smaller, regional players who struggle more because they haven't structured themselves effectively. When they face challenges, it often leads to significant difficulties for them. We observe these trends continuing to unfold.

We'll take our next question from Marc Riddick with Sidoti.

Hi, good evening. I wanted to explore a different perspective. I’d like to get your thoughts on a couple of things. First, are we observing any significant differences in behavior between your larger and slightly smaller customer bases regarding their prioritization of actions they wish to take sooner rather than later?

Yes. Yes, Mark, this is Dave. I wouldn't say so in terms of client size, right? So all of them are looking for ways to make sure that they fund those initiatives that are critical for them from a technology perspective. Behaviorally, obviously, things here have been a little bit slower. That doesn't mean necessarily that they're not undertaking those projects. They may be looking to do them a little bit more efficiently, taking a little bit longer to do those projects because they're obviously very cost-conscious. But the behavioral change of continuing to invest in those things that are strategically critical has not changed, and that is not size-specific. Obviously, as we've mentioned, a significant majority of our business is with very, very large customers. So maybe we're not in a great proxy, but we haven't seen it even within our portfolio a different mindset, really. No.

Okay, great. I wanted to shift to another topic, and since many of my questions have already been asked, I’ll be brief. I’m curious about your perspective on talent availability and what might encourage talent to join now compared to the end of the year. Have you noticed any factors that could motivate people to come off the sidelines and become active?

Yes. I have mentioned this before. We have observed this reality for the past 20 years. For highly skilled talent, opportunities are always available, and that is where our recruiting efforts are concentrated. We don't have many individuals who were previously inactive expressing a desire to work; they have always been challenging to locate. Usually, highly skilled individuals have multiple opportunities. Therefore, I don't think much has changed in that regard.

Yes, I would say the only dynamic where we have seen a shift is in conversions, which are significantly down compared to last year. This also connects to the quit rate data. It's clear that even among high-demand technology professionals in consulting, they are less active in the marketplace than they were during the boom of 2021 and the first half of 2022. During that time, there were opportunities to change jobs, and wage inflation played a role in this, as people were moving for better pay. Currently, the landscape does not provide the same incentives for movement. This shift is probably the most significant change we've observed over the last six to nine months. Nonetheless, in our space, there has always been high demand for talent, and a supply-demand imbalance persists. At Kforce, one of our core competencies is recruiting and identifying the best talent available. This real-time capability has contributed to our progress in consulting solutions, as we provide clients with the best talent at market prices instead of individuals who may not have the right skills for specific projects. We are seeing that make a difference.

We'll take our next question from Josh Chan with UBS.

I guess if you took a step back over the last three, six, nine months, has the activity recovery or demand recovery played out a little bit more slowly than you would have guessed? And if so, why do you think that has been so far?

Yes. This is Dave, Josh. One, I would say it's played out more slowly than we would have hoped. I think that's fair, right? But I'd mentioned a few minutes ago, it has been a bit uneven, right? We've seen slight periods where we've seen some benefits. But generally speaking, the economic environment continues to be challenging. It continues to be uncertain, right? For us. And Joe alluded to at the beginning of this call, some of the drivers, right? Clients are being very cautious because they don't want to overcommit. And so slower than we had anticipated. I think slower than some economists have been saying, but there have been predictions over a recession. We don't know what's going to happen. When Joe touched on rate cuts. So it's clear, if there's one thing I think that's clear is, I don't think anybody knows what's going to happen, right? And so I think it's just imparting a significant amount of caution that continues to be the case across effectively every industry.

Sure. That makes sense. I appreciate that. And then you mentioned that the sequential increase in activity is similar to normal seasonality going from Q1 to Q2. Is the margin development similar as well to pre-COVID? Or how do you think about the margin expansion going from Q1 to Q2 versus normal?

Yes, Josh, this is Jeff. Good to talk with you. Yes, I think the anticipation, Josh, and contemplated in our guide is a fairly seasonal improvement in our bottom line profitability and overall operating margin. When you look at the first quarter, obviously, seasonally lower because of the payroll tax dynamic. Clearly, we're getting the alleviation of that in our second quarter guide. The margins, as we've mentioned a couple of times, have been very stable from a Flex margin standpoint. So absent the alleviation of the payroll taxes, expect that to be stable Q1 to Q2. Dave and Joe each touched on the capacity that we have within our current associate population. And I think that gets to a point, Josh, where we can absorb capacity if we were to see some additional revenue growth higher than perhaps what we contemplate. So that gets you into what we expect to see, a profitability kind of normal seasonal uptick. And I think the answer to that is yes. We are still, as we've talked about in the past, investing in our enterprise priorities and continue to advance those as we look to the long term. As we talked about the slightly greater than $2 billion in annual revenue, in double-digit operating margin, our enterprise priorities play a significant role in that. So we're still making those investments for the long term. But yes, I think the short answer is yes.

We'll take our next question from Tobey Sommer with Truist.

With respect to the sequential growth you're anticipating in tech, are you accessing new customers to achieve that and taking some share? Or is this a pickup in sort of staying customer growth?

Yes, Tobey, this is Dave. The answer is both. We have had some success that is quite broad-based across every industry and many different clients. As you might expect, with larger clients, we don’t always see a lot of incremental spending. We have a strong sales engine, and diversification is an important part of our strategy. Some of our growth is indeed from new client logos. It’s a combination of factors, but I would say we're consistently focusing on a market where we see opportunities. While we don’t do business with every large client, there are numerous chances to build relationships with new clients and to increase our share with existing ones. So again, it's a mix of both aspects.

I want to get your perspective on your customers' internal recruiting capacity because we talk about cycles and so forth, but this has not been a recession. It's been a drift down for 18 months, 2 years in outsourcing, recruiting demand. We've had GDP growth, and we've had pretty good job growth. I'm trying to get your perspective on what growth would look like in the staffing industry and in your own business in the first year of sort of an acceleration in growth where there is more demand. Can your customers satisfy kind of more of that themselves? Or do you think they're going to have to turn to you pretty quickly?

Yes, Tobey, it's Joe. We are going to experience the same cycle we have seen before, which dates back to the '90s with the rise of major players and more equal access to talent. What typically happens during this phase is that their recruiting capabilities diminish significantly. Once the cycle turns, they will seek out providers like us because they won't have the capacity to recruit. Then, they will begin to rebuild their recruiting capabilities, leading us into a phase where demand increases for everyone. We don't feel this impact greatly. I often advise individuals that when they chase jobs purely for financial reasons, they may find that during tough times, the first area corporate clients cut back on is recruiting. This has happened to many during this cycle, as it has in past cycles, leaving them in challenging career situations. This cycle tends to repeat itself in a consistent manner.

And that concludes the question-and-answer session. I'd like to turn the call back over to Joe Liberatore for any additional or closing remarks.

Thank you for your interest and support in Kforce. I'd like to say thank you to every Kforcer for your efforts and to our consultants and clients for your trust in Kforce and partnering with you and allowing us the privilege of serving you. We look forward to talking with you again after our second quarter of 2024.

Thank you. And that does conclude today's presentation. Thank you for your participation today, and you may now disconnect.