Kforce Inc.
Q1 2009 Earnings Call Transcript

Published: 6 May 2009

[Operator:]

Good day, everyone and welcome to the Kforce Incorporated First Quarter 2009 Earnings Results Conference Call. As a reminder today's call is being recorded. At this time, I would like to turn the call over to Mr. Michael Blackman, Senior Vice President of Investor Relations. Please go ahead, sir.

[Michael Blackman:]

Good afternoon and welcome to the Q1 Kforce conference call. Before we get started, I would like to remind you that this call may contain statements that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially because of factors listed in Kforce's 10-K, 10-Q and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duly to update any forward-looking statements. I would now like to turn the call over to David Dunkel, Chairman and Chief Executive Officer. Dave?

[David L. Dunkel:]

Thank you, Michael. And you can find additional information about Kforce on our 10-Q, 10-K and 8-K filings with the SEC. We provide substantial disclosure on our release and our hope is that this will improve the dissemination of information about our performance and the quality of this call. We are very pleased with our team's performance against the challenging macroeconomic environment. Our goal is to provide solutions to our clients to meet their talent needs, which we believe results in gaining market share even in this environment. We also believe the years of preparation and our focus on building a strong culture are allowing us to make progress toward our goals. Our revenue and EPS results compared very favorably in our sector and suggest we may be gaining share. Since the beginning of the year, I have personally traveled across the country and visited with over 20 clients representing a mix of our large national accounts and significant market-based clients, what came through consistently, is that our people are performing very well and are providing our clients the exceptional talent they require. As vendor lists consolidate, we will continue to be short listed due to our performance, quality, scale and delivery capability. The financial strength of Kforce is frequently mentioned as an important factor as well. While the economic downturn and uncertainty of constraint demand and slowed down the hiring process, we believe that the recession has massed the underlying secular drivers for highly skilled knowledge workers. Our clients remain concerned about their ability to meet their talent needs as the recovery takes hold. During the quarter, we completed the integration of dNovus and the KGS and we're very pleased with the success of that integration. Our KGS unit has now achieved sufficient scale at over 100 million to allow us to compete on larger more significant projects. I'm particularly pleased with the great team that has come together and look forward to great results. Taking stock of where we are strategically, we believe that the cards will play for this part of the cycle. As I have mentioned previously, we've been preparing since the last downturn and are pleased with our results. With that said we are now drawing our hand for the coming up cycle and implementing plans that should produce accelerated revenue in earnings growth. We believe that our portfolio of services positions us very well for the coming turn and that we have operating leverage to fuel EPS growth. We will use cash flow for debt retirement, share repurchase and acquisitions that meet a very high hurdle. I would also like to reiterate our priority to maintain positive cash flow and to retain and redeploy our great people. I will now turn the call over to Bill Sanders, Kforce's President; he will provide his comments followed by Joe Liberatore, Kforce CFO who will then provide additional insights on operating trends and expectations and I will conclude. William?

[William L. Sanders:]

Thank you, Dave and thanks to all of you for your interest in Kforce. We are pleased with our performance in the first quarter against the backdrop of a difficult operating environment. We believe our relative success of maintaining our revenue stream and our earnings performance is primarily the result of our great people, adverse service offering that is primarily domestic, and the quality and speed of our national recruiting center, which is particularly effective delivering to our large national accounts. Revenues of $231.3 million declined 4% sequentially driven primarily by declines in our finance and accounting and technology flexible stats in businesses and our search business. Flex revenues, which represent 97% of our revenue stream, decreased 2.1% sequentially to $223.5 million, our largest 25 clients with 38.6% of our quarterly revenue. Our technology business segment declined 8.7% sequentially, technology search continued to struggle and declined 49.2% sequentially. Our technology flex business which represents roughly half of our total firm revenues decreased 7.1% sequentially and is down only 4.8% year-over-year. A decline in tech flex was anticipated due to the typical job ends that we see at the end of each year that must be rebuild during the first quarter. This rebuild happened at roughly the same pace as the last two years. However, the tech flex revenue run-rate began to stabilize in March at a lower level than Q4 2008, which contribute to the sequential decline. Recent trends for tech flex are slightly down from March levels but relatively stable. We therefore, expect tech flex to be down slightly in Q2. Our finance and accounting business, which now represents 17.5% of our total revenues, was down 12.6% sequentially and 29.5% year-over-year. This decline was felt in both our flex business which declined 8.1% sequentially and our F&A search business which declined 36.8% sequentially. One bright spot in our F&A business has been in providing mortgage related services. We have built a low cost centralized delivery model for this business through our national recruiting center and have seen approximately 10% growth here in Q1. However, given the relatively smaller size of our mortgage related business, it does not offset the weak market conditions for the rest of our F&A business which has been most significantly impacted by the current recession. We are seeing some promising signs as F&A flex revenues have been stable since February and Q2 revenues are expected to be flat to Q1. Our HLS business segment is made up of two businesses, clinical research and healthcare. During Q1, our clinical research business grew 8.7% sequentially and 3% year-over-year and healthcare declined 12.3% sequentially and 10.7% year-over-year. I would like to congratulate clinical research for being the recipient of Kforce's Edward & Duncan (ph) award for being recognized as the market of the year for 2008 and the recipient of the 2008 Pfizer Strategic Supplier of the Year recognition. We expect low revenue visibility for clinical research and potential revenue declines over the next two quarters, as we continue to see a consolidation and restructuring in the large biopharma space. In the longer-term, we believe the quality of our relationships with the strongest companies in this space will provide opportunities for continued growth. Our healthcare business started the year at a slower pace than recent years, and the trends are showing a continued slower pace in 2009 versus 2008. This revenue decline is largely due to a reduction in hospital centers and nine out of 10 hospitals reported cutting back to address economic concerns. The relative growth of this business over the past three years now requires us to restructure and expand the focus of business development to reach a greater population of clients. We expect revenues to decline in Q2 and be challenged throughout 2009 as a result of these impacts. Our government business had sequential growth of 35.1% and a year-over-year growth of 54.5%. Last quarter the firm acquired dNovus RDI, a $34 million government contractor in the technology space, which has been substantially integrated into KGS at this point. We continue to be very pleased with the excellent job being done by Larry Grant and Glen Shaffer in regards to integrating and growing our government business. This integration is now substantially complete and we will not be able to differentiate its revenues contribution moving forward. However, our Q1 results suggest that revenue for KGS exclusive of any contribution from the acquisition was up 8.9% sequentially and 7.5% year-over-year despite the loss of our billing day due to closing of federal businesses on inauguration day. Though 2009 is a year where we have recompete in some of our largest contracts, we continue to be optimistic about the growth prospects of this business, as some of our recent contract awards suggest that the recent delays we have experienced are starting to ease. Federal activity looks to be promising in the areas such as healthcare, data integrity finance, and technology services where our business is concentrated. We expect continued growth in KGS throughout Q2 and 2009 and believe they will be a key component of our long-term growth strategy. Search revenues which were only 3.4% of total revenues in Q1 declined 38.8% sequentially and 56% year-over-year. Search activity continued to decline in Q1, more rapidly than in previous downturn. We expect search to continue to decline in Q2. As we continue to navigate through the current economic environment, we looked at our internal, KPIs is one of our primary near-term forecasting tool. These KPIs were down in Q1 from Q4 level, but had begun to stabilize near the end of the quarter. We continue to diligently manage the performance of our sales associates with heightened focus on productivity and exiting under performers more quickly. As a result, sales per employee has increased by 1.2% year-over-year reflecting this 12% productivity and aligning head count with the revenue stream. We will continue to balance revenue and expenses. Our focus includes retaining and inspiring our top performers for the eventual economic upturn. While, total revenues have decreased 7.5% year-over-year, total sales head count is 6.9% less than last quarter, and 17.1% less than a year ago. As we consider the total Kforce business footprint, we believe we are very well positioned to both maximize market share in this current recession as well as to be poisoned to take advantage of opportunities when the economy rebounds. As I mentioned, our government and KPI businesses, which constitutes 25% of our revenue stream are focused on stable long-term contract. Our decision coming out of the last downturn to manage search to be less than 10% of total revenues has allowed us to minimize it's impact on our profitability and future prospects. We believe our stable primarily domestic diversified portfolio of service offerings is a significant differentiator in the marketplace and a key contributor to our long-term financial stability. We also continue to look to ways to strengthen our operating model to more efficiently meet the needs of our clients, improve profit potential and expand market share. The examples of this include leveraging our centralized national recruiting center to provide fast, cost efficient access to high quality candidates for our clients. The continued implementation and scale of our volume account strategy, and a continued investment in a stable and profitable prime federal government contracting business. We believe that we are well prepared to weather the weak labor markets and we continue to lay the foundation to accelerate growth to reach new revenue and earnings peaks in the coming economic cycle. We understand that our clients believe our services are cost effective way to acquire talent. Our immediate plans are to continue to have a relentless focus on keeping our great people and to improve client satisfaction while balancing revenue and expenses. I'll turn the call over to Joe Liberatore, our Chief Financial Officer. Joe?

[Joseph J. Liberatore:]

Thank you, Bill. The firm continued a strong performance in Q1. Coming in as a middle of guidance for revenue and the high end of guidance for earnings per share. We're pleased with our relative performance in this challenged business environment. We believe the first quarter is a reflection of our strong culture, an extreme focus on execution with our client as well as those items that we can control such as expense management. Revenue for the quarter of 231.3 million were down 7.5% from Q1 2008 and down 4% sequentially. Flex revenues of 223.5 million were down 2.1% sequentially and 3.8% year-over-year. Generally speaking, Flex revenues on a monthly basis is compared to prior year levels were down in each month of the quarter. Though they began to stabilize in March; particularly in technology and F&A Flex. Search revenues of 7.8 million continue to see the increasing impacts of the economic slowdown. Search declined 38.8% sequentially and 56% year-over-year. Monthly search revenues were also down each month of the quarter compared to prior year and have not yet seen signs of stabilization. Revenue trends for the beginning of the second quarter of 2009 has been mixed versus 2008 activity. Flex revenues for the first four weeks of April are down 6% year-over-year with Tech Flex down 9.7% year-over-year and finance and accounting down 20.5% year-over-year. For comparability purposes, these numbers exclude the week of Easter and Good Friday due to the fact that Easter fell into Q1 in 2008. The deterioration in search revenues which is -- have declined significantly the past two quarters continued the search is down 71.9% year-over-year for the first five weeks of Q2 2009. We caution that it's difficult to draw conclusions for Q2 based upon this limited data. The firm recorded net income of 3.2 million and earnings per share of $0.08 in Q1 2009. For comparability purposes Q4 2008 net income was 7.4 million and earnings per share was $0.19 on a pro forma basis; after excluding the affect of the 129.4 million pre-tax impairment charge. These declines are largely the result of the reduction in search revenues and Flex gross margins which were primarily offset by the reduction in operating expenses. Our overall gross profit percentage of 31.2% has decreased 320 basis points year-over-year and decreased 230 basis points sequentially. The sequential and year-over-year decline are primarily the result of changes in business mix attributable to the decline in our search business. Our Flex gross profit percentage of 28.8% in Q1 2009 has declined only 60 basis points year-over-year and a 100 basis points sequentially from Q4 2008. The sequential decline in Flex gross margin was impacted by approximately 50 basis points by the increase in payable taxes, payable at the beginning of each year. The relative stability in our Flex gross profit percentage is the result of aggressive management of the spread between bill rate and pay rate. This is especially true in Tech Flex, our largest business; where gross margins have declined only 30 basis points year-over-year. In general, we've been successful with balance in pay rate reductions, which reduced bill rate, as we have passed client bill rate reductions to our available consultants. As we look forward to Q2 and beyond, we would expect continuation in bill rate, pay rate compression due to pricing pressure and the lag of our ability to reduce pay rates as quickly as decline in bill rates. However, this impact will somewhat be mitigated by the continued shift of our business mix, to higher margin business as well as increase in support in the recruiting process by our national recruiting center. The firm is aggressively managing operating expenses. We continue to highly scrutinize every expense to ensure a proper return on our investments and alignment of cost structure with the revenue stream, including variable cost such as travel and entertainment, lease cost and FTEs. Operating expense, which include 20 basis point increase is the result of increased payroll taxes, remain well at 28.7% in Q1, an increase of 10 basis points from 28.6% in Q4 2008 and a decrease of a 100 basis points from 29.7% in Q1 2008. The majority of our cost structure is variable, and compensation expense which is highly correlated to gross profit, comprises over 75% of our operating expenses. We continue to see leverage on our non-compensation based cost structure, as a result of the infrastructure investments made over the past four years and completed in late 2007. These significant capital expenditures have prepared the firm well for the future without requiring significant additional expenditures. We expect operating efficiencies to continue to evolve and corresponding leverage and earnings over the next few years as these efforts become fully depreciated. Capital expenditures are expected to continue to moderate into this year. Should revenues continue to decline, we will continue to manage expenses aggressively, but with a priority on keeping the great people on our firm and maintaining positive cash flow. So operating expenses will decline as revenues decline, they will likely do so with a slower rate resulting in decreased profitability. EBITDA an indication of the firm's strong cash flow was 9.8 million or $0.25 per share in Q1 2009 as compared to $17.5 million or $0.43 per share in Q1 2008. Our strong operating cash flow is a source of significant stability. Debt increased to $44 million at the end of Q1 from 38 million largely as the result of the timing of compensation related items in Q1. However as of today, debt is currently 37.3 million. There were no material stock repurchases during Q1 and the firm had 74.5 million available for future stock repurchases under the current Board of Directors authorization. The firm has always taken a conservative view on balancing the use of it's cash flows between debt retirement, stock repurchases, and acquisitions as evidenced by our proven track record of significant debt retirement after an acquisition. We will continue to balance the opportunity that present themselves with respect to stock repurchases and acquisitions. Our priority is to maintain maximum flexibility in this uncertain environment with a focus on debt reduction. The firm continues to have significant availability under it's credit facility, which does not expire until November 2011, to meet its funding needs. Our accounts receivable portfolio continues to perform very well with only minimal write-offs in Q1. Receivable based over 60 days decreased from 8.6 million at the end of Q4 to 5 million at the end of Q1. However, we believe that significant risk remains for future defaults in this uncertain economic environment. Our allowance for doubtful accounts is currently 6.2 million and we believe it is sufficient to account for the current risk. In terms of dilutes for the second quarter, we expect revenues maybe in the 220 million to 227 million range, total firm earnings per share maybe between $0.05 and $0.09, which reflects an effective tax rate of 41.7%, and approximately 39 million weighted average diluted shares outstanding. The bottom end of guidance reflects the continued deterioration from April results for Flex revenue and results consistent with April trends for search revenue, as well as a decline in Flex gross profit attributable to continued margin compression. The second quarter of 2009 has 64 billing days versus 62 billing days in the first quarter of 2009. Our guidance does not consider the potential of non-cash charge related to the acceleration of investing of long-term incentive equity grants made to management. These grants contain a performance provision to accelerate investing should the firm stock price appreciate from it's issue price by 50% for 10 trading days. We continue to invest in our business to prepare for the upturn, but also we have moved to aggressively to control cost during this recession. We believe we are well positioned during these difficult times as a result of the actions taken the over past few years to increase flexibility and leverage. From a financial perspective, we are pleased with first quarter results. We have the quality of revenue stream and balance sheet that will survive this recession and allows strong performance in the up cycle. I would like to now turn the call back over to our CEO, Dave Dunkel for questions. Dave?

[David L. Dunkel:]

Thank you Joe. Also joining us today for Q&A is Larry Grant, our President of KGS, we thought it would be helpful to have Larry here to answer specific questions of all things that are going on in the government. Kevin, we'd like to go ahead and open up the call to questions.

[Operator:]

(Operator Instructions). And we'll go first to Kevin McVeigh with Credit Suisse.

[Kevin McVeigh:]

Great, thank you very much. Hey, nice churn in the quarter in obviously very difficult environment.

[David Dunkel:]

Thank you, Kevin.

[Kevin McVeigh:]

You are welcome. I wondered if you could just spend a minute obviously the Tech business on a relative basis it's been very, very resilient, if you could kind of rank order things like a benefit from vendor consolidation, cross selling opportunities just to try out or get our hands around what's being driving a lot of resiliency obviously that helps the balance sheet chopping as well?

[William Sanders:]

Kevin, this is Bill. I would say the number one reason that we continue to perform fairly well relative to the sector in Tech is because of our volume -- national account strategy, and one was a national recruiting center. These two have -- these two groups combined have put together a platform for which it's working extremely well with our national accounts and continues to be we continue to be selected as a preferred provider as Dave mentioned earlier in his prepared remarks. So that's, the primary reason is simply high quality candidates being delivered at a very high speed. So, that along with the culture that we have built over the last ten years is working to our best advantage.

[Kevin McVeigh:]

Hey Bill, if you think about a percentage and I am not trying to get the correct numbers, percentage of that business in national accounts today as opposed to last cycle. Can you frame that out for us?

[William Sanders:]

Well, as I said in my prepared remarks the largest 25 accounts are 38.6% of our revenue. I would say in our last cycle, it would not -- it would, I don't have that number in front of me. But it would be significantly less, Kevin. And so I think we are performing in that particular area. We are well out performing how we performed in the bottom of the last cycle in this particular area. And that is what is substantially building the platform for us to continue to produce and by the way it will help us very much so in the up cycle and we continue to perform.

[David Dunkel:]

Hey, Kevin this is Dave. I think one of the things that's important also that the culture and the team work between our field team and the NRC is really taking it's taken a long time to get that process to this level. But the way they are working together has really spread out the business, delivered very high quality talent to the clients. And as I mentioned in my cross country trip, I consistently heard from our clients that the two people are doing exceptionally a good job delivering great people for us. And that's, those are clients, that are national clients and also significant market based clients as well.

[Kevin McVeigh:]

Great, and David, this question free and then I will back in the queue and I really think it make sense. Obviously, the health of the company during this cycle is much stronger relative to the last cycle, given that the diversification of revenue, things like that. What you have able to do through this down cycle, that you weren't able to do last cycle, and what shows, as we think about coming out of this as we are, will you really be benefit as a result of actions you have taken this cycle as opposed to last cycle?

[David Dunkel:]

Thank god, it's not like it was in last cycle. I don't think I can live through another one of those. The biggest difference is we have just gone through a major acquisition and gone through the whole internet strategy. And so, we have gone through a fairly significant transition. Search, at that time was 23% of our revenues. But, I would say to you that there is a maturation and a gelling process that's taken place. As we mentioned before, we began preparing for this downturn after the last one. We made various specific strategic decisions, that related to such things as the evolution and creation of our national recruiting center, which grew out of our internet strategy, the way we went after national accounts. The specific service offerings, we went after as Bill mentioned in his remarks, the way we attack Search, delivering that from power centers and supporting it with the team and the NRC. There are number of things that we did. There were also significant strategic decisions, one being the exiting of Nursing and Scientific and focusing HLS and healthcare and KCR and then of course the big one was going in to the government business. And that decision really was made for almost five year ago, as we look forward strategically and systematically brought the team together. So as I look at it I would say, it really wasn't one big thing. It was just a process and an evolution, watching the management team gel and the way the culture has formed and I've always believed the culture is the most difficult thing to build and it's the hardest to replicate and I'm very pleased with where our culture is today.

[Joseph Liberatore:]

And Kevin this is Joe. What I would add to that given I was, I was in the field during my last downturn. The way I would describe it is last time around our field leaders were doing everything they could to survive. This time around, they are doing everything they can do to survive. We have markets that are actual growing in this environment and I'll tell you what, that everyone of our field leaders objective is to grow in this environment and to take market share and that wasn't even on the radar last time around.

[Kevin McVeigh:]

Great, that's helpful. Thank you.

[David Dunkel:]

Thank you.

[Operator:]

We'll go next to Mark Marcon with R W Baird.

[Mark Marcon:]

Good afternoon and clearly you're winning share on the IT Flex side. I'm wondering who are you gaining it from and secondly the Flex gross margins degradation there is the minimum considering the environment. I know that you are passing along the bill rate declines to your clients. But when we take look at your hourly rate, they haven't changed that much. It looks like you're holding pricing up. I am wondering if you could talk a little bit about how you are able to do that.

[David Dunkel:]

I'll take the market share piece of it and give it over to Bill. But I think that talking to our clients is really interesting, because what I asked them specifically is what are you seeing with local partners, regional partners and national partners? And many local providers have gone out of business. Many of those businesses frankly have finance and home equity loans and with happened with real estate they are not able to finance the businesses. So, we've seen many of them, except national players. I think one of the things that I've heard from our national accounts very clearly was they were looking strategically. It was going to be their partner and not just today but 3, 4, 5 years from now who had a strategy that was going allow them to, not only in this environment where we have reduced demand, but in the coming up cycle, where once again shortages is will likely come. Who is going to be able to deliver, add scale across the platform and then the final thing that I've heard consistently was financial strength. Very concerned about who is going to survive this downturn and who had the ability to be their partner for the long-term. So, market share comes in a lot of different ways. I will say that we've got an aggressive and competitive field team. They want to win. They relish it and Joe said it well, they're focused on share this time, not surviving. Bill?

[William Sanders:]

Well, the thing I would add Dave is as we watch this take place as we did in last cycle, we see a lot of our competition also letting go of their associates and recruiters as market share continues to decline for them. When you turn to margin, I think when you look at our large national accounts and they are aggressive on margins, more so than anybody else. But as we indicated, we have been -- as Joe had said in his prepared remarks that we are passing that onto our consultants and so that is helping the percentage itself to stay fairly healthy although sometimes the dollar amount is compressing. Joe you want to add?

[Joseph Liberatore:]

No, I mean I really summarize as that just a recap. When we look at year-over-year bill rates down, 2.6% in tax and pay rates were down 2.4% sequentially. Bill rates down 1.4% and pay rates just down to 0.1%. So, for most part that what's happening and speaking with our field leaders, I think there is a broader awareness this time around and last time, just because of the nature of this downturn and how it impacted so many consumers. So, I think that our consultant base out there understands the dynamics that are going on. So, I think they are much more of a partner this time around than what we experienced last time.

[Mark Marcon:]

Great. And I am wondering if you can talk a little bit about the healthcare side and just -- you made some comments about that being a little bit challenging in the near-term. Can you give us a little bit more of a feel in terms of how much of a degradation you would expect there and what you are doing to address that?

[William Sanders:]

Sure Mark this is Bill. As I mentioned there is that consensus is down, doctors and hospitals are reporting budget constrains due to the economic downturn. We're seeing in healthcare, a decrease driven primarily by traveler population and the reduction also in project solution type business. We're not seeing it necessarily, should -- we used to always see a shortage of each of medical records professionals. We're not seeing that of course now, as this is happening. But some of the money that's coming into the healthcare business, the American Recovery and Reinvestment Act of 2009 and other urban administration healthcare initiatives will require significant resources. So, as we look at this, we see this as a time to really -- this group is grown so fast, so much that we see this is a time as to really reorganize and restructure that group which we have done. And so that they can pretty dramatically increase their business development effort. And, as we go through that and the healthcare issues in hospitals continue for, I would say two, three quarters is what we're looking at, we will be taking advantage of that time to make sure that we are poised to come out of this thing in a very positive way. So, I'm not sure what I'll tell you about this, as we will see as the recessionary covers and the censors picks it up back in the hospitals and the hospitals get a undergoing with some profitable results, then I think, our business will pick up as well.

[Mark Marcon:]

And you think that the package gets turned on as it relates to the recovery by the end of this year or...

[William Sanders:]

I really don't know how fast that money is going to get out and how fast they will start computerizing the records. And all of that is our sweet spot. It's not only our sweet spot in healthcare, it's also we have a specialized group in our technology group, and we are very, very strong in healthcare and KGS which of course can extrapolate and utilize those people and all different parts of the offerings of our firm. So we see this is -- we're prepared for this. This will be a big win for us once its get under way.

[Mark Marcon:]

Great. And then last question and then I'll jump off. But on the KGS side, I was wondering if Larry could talk about the areas where you're seeing specific demand and interested in the sequential improvement that we saw going from Q4 to Q1, exclusive of the note.

[Larry Grant:]

Sure, and thanks a lot Mark. Just a kind of step back and talk just a minute to the basically what the markets are looking right now; with the change in the Presidential administration, what they're actually doing is they've brought in a number of initiatives which really falls well among the lines of how we are organized within our business. The acquisition of dNovus gave us an entry into the present administration healthcare market which is a very large full funded agency within the government to the tune of 55 billion a year. And President Obama has increased their funding by an additional 25 billion. There's a number of healthcare objectives that he has in place and we're very well positioned with approximately 20% of our business within the President's administration. In addition, President Obama has also the funding for the intelligence operations obviously as it began to withdraw from Iraq and Afghanistan overtime, about the half ears and eyes to be able to keep abreast of the global terror situations that are still in the current right now. So he's actually increased that and acquisition of dNovus gave us the ability to be able to see into this health market and included Glen Shaffer, who is a retired Major General on the Air Force his last job, was the Director of Intelligence for Joint Chiefs of Staff at Pentagon and Glen is very well connected and still consulted into the faith of defense agency and all and the intelligence apparatus. And so Glen gives his entry into that market as well. Another area which we also brought through dNovus and enhanced was our Air Force global network operations where we have a broad contract and responsible for about 75% of the Air Force as our global operations with air combat command which is our number one combat operational command. So we're very well positioned there and in addition to that would be legacy KGS we have the very strong strings in our financial accounting which are included the award of having the only company -- or being the only company among all the companies out there. This will include the top four; KMPG, Accenture, Deloitte & Touche, PricewaterhouseCoopers. We're the only company that has achieved six of core orders in the DOD, has not been replicated by anybody. And no one is even close to that. We can further enhance with our data confidence which is a proprietary and registered methodology that we have enabling information sharing collaboration across the government right now which we've managed to win some very enhanced contracts and enhanced for the fact that what they are looking at the top homeland security is the hot top of the defense in total so to say. At the top of other agencies within the government right now or helping them to map out and be able to start changing business transportation.

[Mark Marcon:]

Great, thank you for the color.

[David Dunkel:]

I think you got all you wanted there buddy.

[Mark Marcon:]

Thanks.

[David Dunkel:]

You're welcome.

[Operator:]

We'll go next to Michael Baker with Raymond James.

[Michael Baker:]

Thanks. I was wondering if you could give us a little bit of color around the clinical business, give some sense of any change you anticipate there and also give us indication of the head count, how much of that's focused in kind of big pharma versus biotech and how that might change overtime?

[William Sanders:]

This is Bill. The large biopharma companies certainly remain challenged with the blockbuster drug patent expiration, and the lack of new approvals to overcome, the revenue decline to go along with that. They have cut back expenses, that's one issue that we're dealing with. Secondly, the mega mergers that have taken place in that space, that are having affect, luckily the winners in that game have been our existing clients. But still the companies are basically freezing the hiring population as they go though this the acquisition strategy that they are looking in and therefore its hard for us to add people as certain things are happening there. And therefore, we see this flat through declining revenue for the near-term and possibly depending on when the mergers are supposed to be completed, as you know these are very large public companies. And that's going to take a while so we're hoping that all of this is done by the end of the year. We believe because of our very strong relationship because of how well we have branded in that space. Basically, it's employee of choice that we will continue to be very successful though.

[Michael Baker:]

Can you just -- a follow-up can you give us a sense or maybe efforts to target some of the biotech companies rather than big pharma where lot of the development effort continues?

[William Sanders:]

We've -- within KPI, we have a specialized group that does that and also I can tell you is that the, we have focused on expansion of those activities in sales process, but it takes a while to gain the confidence. But we have the brand and the recognition in the space to be successful that I believe.

[Michael Baker:]

Okay. And then I just had a follow-up question on KGS and I'll direct it towards Larry, I was wondering if you could give us a sense of the level of activity around job orders or awards something to give us a sense of timing and when some of this might pick up in terms of revenue recognition?

[Larry Grant:]

Yeah, thanks I'd be glad to do that. Right now as we've talked about before, there has been some increase in the activity of awards which we've been recipient of, which turn us to drive a strong Q2 for us. However, there is still a problem in the government which we all redevelop the fact that there is a short in acquisition, professionals within the DoD and within the simple side and that has lead to continued delays which we see that will continue not quite to the level of Q4 '08, Q3 '08 but definitely will continue right now. It's -- we have announced 25 proposals that we've submitted and waiting award of approximately 12 of those proposals are incurred in Q4 - Q3 '08.

[Michael Baker:]

That's helpful. Thanks.

[Operator:]

We'll go next to Jim Janesky with Stifel Nicolaus.

[James Janesky:]

Yes, good afternoon. I'm trying to get my arms around each individual competitor in this space or companies within the space. The definition of stability and certainly don't blame me for using that word because it served any of your predecessors well who have used in those who haven't not as well in the market. So does it -- what is stabilizing. It doesn't seem like revenue and declines have stabilized yet. Does it feel or in taking to your clients that maybe we're just not moving on a rapid pace towards zero anymore or your margins have stabilized, which you've done a good job of keeping those up in a very difficult environment, where does it feel like we are in this cycle?

[Joseph Liberatore:]

Maybe Bill or Dave can add colors since I am the fat guy. So the way that I would articulate it, when we look at how the quarter played out is revenue sequentially declined February over January, March over February. And what we saw in April across all service lines was basically a flat week-to-week revenue stream. Now whether it stays there, I would have to have a crystal ball to be able to give you an answer that question. So revenue was stabilized albeit at a lower level and where were in March or February or January, but in April we basically week-over-week it is stabilized on specifically in F&A Flex and Technology Flex.

[David Dunkel:]

And that's over several weeks so there is your new definition for Webster of what relative stability means. Answer to it's the sound of the crushing all of the treasure, one of the two we haven't figured it out yet.

[James Janesky:]

And do you think that stability going back to the market share gains, or do you feel that clients are starting to kind of losing up their relative bid and using more of your services?

[David Dunkel:]

I would say it's a predominantly, because of market share gains, we're competing and winning. On the playing field, our clients -- I can say this that from my meetings with the clients, the concerns are still there, but I would say that the fear of gee where is the bottom in this thing that we saw last year that really caused everything to freeze up, because it was primarily fear driven. That fear has somewhat mitigated, and people are now looking at it and saying okay it looks like that we are at slow to defense and we could now stop looking out instead of looking day-to-day and week-to-week and wondering when the next shoe is going to drop. The wildcard of course is where there is still things like consumer debt out there, commercial real estate and other factors that are going to influence this. So we're not going to take an economic stand here. All we can do is tell you, what we've seen and that's what we've seen and we believe we'll win that in the market share game.

[James Janesky:]

Okay, thanks. That's very helpful.

[Operator:]

We'll go next to Tobey Sommer with Suntrust.

[Unidentified Analyst:]

Good afternoon, this Frank (ph) in for Tobey. Wanted to focus on the technology segment a little bit. Can you talk about any areas of strength or weakness in terms of geography or individual specialties you're seeing there?

[William Sanders:]

Well, I'm not sure as the geography versus the quality of leadership and team in an individual market, but the market of the quarter for us happened to be New York and New Jersey, which suggest that there is some strength in the East. The scopes and demand, our security engineers, software developers, CAs, Java,.net so that the people and specialties built that that you normally see are haven't changed much.

[David Dunkel:]

I can go out and add here. I'm going to tell you that New York won because they did an unbelievable job in market share with the financial services collapse. These guys just flat executed and did a phenomenal job, even no excuses environment and I think New York, New Jersey for us it's grown several quarters sequentially is just flat leadership and team.

[William Sanders:]

Yeah, Frank, I haven't been around the operations for over 21 years and work in the field for many of those years. At the end of the day, high quality leadership and a bad market will outperform our marginal leadership in a good marketplace. So from our perspective when we look at all landscape that's what it blows down to.

[Unidentified Analyst:]

Okay, great. And you may have touched on this already but can you talk a little bit about turnover trends?

[William Sanders:]

Sure; relative to turnover when we look at our sales force, our turnover of our two flush year population has remained in single-digit and our turnover of less than two year population on as increased but that's by design as we continue to focus on where people are in terms of ramping up. This is a much more difficult environment for new people to ramp up and we continue to see our population move through ten year gates and what I mean by that is if we already to go back to Q4 2007 in comparison to Q1 2009, we have 25% more people that have been here two years today than we had back at that pint in time. And we have about 38% less, less than two year people which means we're holding onto the people as they're gaining experience.

[Unidentified Analyst:]

All right, great. Thank you very much.

[David Dunkel:]

Welcome.

[Operator:]

(Operator Instructions). And we'll go next to Josh Vogel with Sidoti & Company.

[Josh Vogel:]

Great, thank you. Just to confirm what you said earlier and touching on the head count, that you're just talking about. Did you say it was down about 7% sequentially and 17% year-over-year?

[David Dunkel:]

17.1% year-over-year.

[Josh Vogel:]

Okay. And was that just the mix of firings and voluntary if you could maybe break that down for us?

[David Dunkel:]

I would say that the majority of that would be attributable to performance management.

[Josh Vogel:]

Okay. Now circling back to the clinical research business, as some of your competitors have noted that, in addition to just the economic pressures, the biopharma, some of them are looking to outsource overseas to cut costs and I was wondering if you're losing any business to overseas outsourcing?

[Joseph Liberatore:]

We hear some of the same time, but no, we're not aware of significant business that affected us, that has been transferred overseas.

[Josh Vogel:]

Okay. And how much was the impact of the reset in payroll taxes in the quarter?

[Joseph Liberatore:]

When we compare to Q4 about $0.04, and then in our guidance, we would recapture about two of those cents.

[Josh Vogel:]

Okay.

[Joseph Liberatore:]

Because we don't pick the whole $0.04 back up in one quarter, I mean it kind of bleeds in throughout the beginning part of the year.

[Josh Vogel:]

Right, okay. And I may have missed this, but what you did you guys get back to where the DSOs were?

[Joseph Liberatore:]

No, we didn't really see ourselves. It's very low at this point in time.

[Josh Vogel:]

Okay, thank you.

[David Dunkel:]

Welcome.

[Operator:]

And that does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Dunkel for any additional or closing remarks.

[David Dunkel:]

Very well, we're going home for dinner. We want to thank everyone again for your interest and support for Kforce and really our thanks goes out to our team who've just done a phenomenal job in very challenging conditions. And so thanks to each one of you on the field, and our corporate teams and our consultants and clients for allowing us the privilege of serving you again. So we'll see you next quarter. Thank you very much.

[Operator:]

And that does conclude today's call. We do appreciate everyone's participation.