Operator: Our next question comes from Trevor Romeo with William Blair.
Trevor Romeo: First one, Yes, I know you talked about clients being slower to improve their budgets this year. But I kind of had a question about the size of the IT budgets you’re seeing relative to last year. I think maybe last quarter, you talked about potentially flat to slightly up versus 2023. Is that kind of still your expectation? And then if we do happen to see an increase in macro confidence later this year? How quickly do you think those clients can adjust and potentially increase project spending?
Joe Liberatore: Yes, I would say nothing’s really changed at this point in time. I mean, in general, we are hearing flat to slightly increasing budgets over 2023. Again, with that emphasis on projects focused to gain efficiencies, both internally and externally. But I think as I might have even mentioned last quarter, needless to say, I mean, there are industry and specific client drivers which we believe play to our favor in terms of the quality and diversity of our overall portfolio. I mean we are seeing also the budgets, as they’re being discussed, I mean, they are being allocated a little bit differently than in prior years. There’s really a focus on stretching the dollar to get more out of it. I think the good news for us is that’s opening up more opportunities, as clients are no longer exclusively looking at just traditional consulting firms to do their very high cost type work which provides us an opening for firms such as us to really go after this hybrid type work in a more efficient with staffing and solutions and servicing it through multiple means there.
So nothing’s really changed from that standpoint. I do believe, if we do see the interest rates start to step down and we see a positive reaction, I think clients could move very quickly because their backlog is just incredible. I mean they’re not able to get done what they need to get done in terms of staying competitive and with disruptive factors that are out there. And then with — throw Gen AI on top of that and everybody’s desire is there, because we are seeing the majority of the clients that we work with, I would say, that are non-technology-specific from an industry standpoint, they’re very much in the early innings. I mean they’re getting after rationalizing their data organizing their data to position their opportunities. So while they’re making investments there, I’m sure no different than here at Kforce.
I wish we had more SG&A dollars to accelerate certain things. So there’s a balance there. And I think that’s — we’re just a microcosm of what we’re experiencing with our clients. But as things start to get — become greater visibility, more predictable, I think we’ll see things loosen up.
Trevor Romeo: Okay, great. That’s helpful. And then I guess just following up on some of the improvement you’ve seen in the leading project indicators lately, does the Q1 guidance assume that, I guess, assignment starts to improve a little bit throughout the quarter as you described could happen, or would that be kind of more upside to the guidance that it happens?
David Kelly: Yes. I think, Trevor, there’s obviously a lag as these indicators start to become more robust. So the improvement that we might see in the first quarter is pretty mild. But the trajectory as we look into the second quarter and beyond for the year will improve. So as we sit here, on the fifth of February, we’ve seen improvements and it takes a few weeks, right? So you only have a few weeks left in the quarter to see revenue improvement in the quarter. So we’re not expecting a great lift in the first quarter. It’s really the momentum as we move forward.
Operator: Our next question comes from the line of Kartik Mehta with Northcoast Research.
Kartik Mehta: Joe, can you talked about leading indicators. And I just wanted to understand, are these resulting in conversion? Has there been a change in the sales cycle, I guess, ultimately getting from some inquiries to final sales. How is that progressing or what changes have you seen?
Joe Liberatore: Yes, I would say in terms of those indicators, no, we haven’t really seen anything change with the sales cycle. The sales cycle has been elongated for — really since the back half of 2022, when uncertainty started to creep in. So no material changes there. I would say, you had asked about conversions, we’ve actually, over the course of the last 4 or 5 quarters, we’ve seen our conversions come down rather significantly as in comparison to where we were. And again, I think that’s what the clients are looking for, a little bit more flexibility. So they’re holding on to the consultants longer versus converting them into FTEs which, again, this goes back to what I’ve discussed on prior calls, it’s the normal cycle that I’ve seen for the 35 years in multiple recessionary periods and tough periods of time where the first thing they do is exit consultants.
The second thing, they rightsize their internal resources. And then the third thing they do is they start bringing consultants back on. And then the fourth phase is when they start to really start to bring on back FTEs. So I think that’s all we’re seeing, is that traditional cycle playing out.
Kartik Mehta: And then you obviously talked about companies wanting to stretch their dollars which makes a lot of sense. I’m wondering, is this resulting in any changes from your competition or maybe more competition than you’ve seen in the past 6 to 12 months?
Joe Liberatore: Yes. I would actually say — from a competitive standpoint, all the traditional competitors we deal with are still viable competitors. One of the things that typically happens as we go through these cycles is you do see those organizations that were not well prepared, didn’t have good balance sheets, maybe had a high customer concentration and they see a receivable go bad. So I don’t think we’re seeing anything different this cycle than we’ve historically seen in tougher times. If anything, we see the overall competitive landscape shrinking but it’s really more of the smaller players that are exiting the marketplace. And we don’t see as many new competitors coming in. But in terms of those that we typically see day in and day out, the larger or mid-tier providers, whether they’re professional staffing or they’re on the solution side, nothing’s really changed materially with that landscape.
David Kelly: The thing I would add and Joe touched on it in the last sentence, right? So the larger players, the suite of services that they could offer from traditional staff [indiscernible] to manage teams is really an important differentiator. So part of the reason why we can do what we can do is because we’ve got long-standing relationships with a lot of significant clients who have trust in our ability to deliver across the spectrum of services. And that’s what, frankly, they’re looking for in the competitive landscape and the winners are going to be those companies that can do that across the spectrum.
Joe Liberatore: Yes. And that’s why we’re seeing the larger players are making those investments because they can afford to, the smaller entities, they can’t afford to bring on the resources to bring those credentials to the table to get them in front of the organization because it’s an expensive proposition. So I would say that’s another strategic dynamic that is evolving in the marketplace versus if you’re just in a traditional step of which is a much lower expense type model to get involved with.
Operator: Our next question comes from the line of Josh Chan with UBS.
Josh Chan: You mentioned the slower ramp-up this year. So I was wondering, in the past years that have been slower to ramp up do you see or expect kind of a catch-up where you get back on to the pace? Or do slower start years usually suggest kind of a slower year overall?
David Kelly: Yes. I mean, I think every year is a little bit different, right? So Josh, so I think the way that we characterize this year is, obviously, 2023 is an uncertain year. Companies looking at their IT budgets are being very thoughtful about it and they took longer, right? So this is a phenomenon that we’ve seen in 2023. You haven’t heard us say this in years past. What we’ve seen is as we — as they’ve sorted through that, it’s taken them a little bit longer. And now they’ve finally said, okay, I’ve got these things [indiscernible], I know what I’m going to do. Now I need to go find the people to do the work that I need to do. So we’ve seen literally over the course of the last couple of weeks, what we probably would have seen a week or 2 earlier in a given year. So it’s more than, more — it’s not a different model. It’s just probably from our perspective, at least from what we’ve seen so far, a bit of a lag in getting things started.
