We'll now turn the call over to Joe Liberatore, Kforce President and CEO. You may begin your conference.
Good afternoon. This call contains certain statements that are forward-looking. These statements are based upon current assumptions and expectations that are subject to risk and uncertainties. Actual results may vary materially from the factors listed in Kforce's public filings and other reports and filings with the Securities and Exchange Commission. We cannot undertake any duty to update any forward-looking statements. You can find additional information about our results in our earnings release and our SEC filings. In addition, we have published our prepared remarks within our investor relation portion of our website. Our results for the Q2 reflect a continuation of an uncertain economic environment, and we believe the actions being broadly taken across industries by our market-leading clients to ensure they are prepared for the possibility of a slowdown. This view is informed by our internal metrics, discussions with clients, and other industry and economic data points.
There have been widespread concerns, and frankly, expectations, the US economy would fall into a recession of uncertain severity since the Federal Reserve began aggressively raising rates in March of 2022 to address the persistently high inflation. The yield curve continues to be significantly inverted, which has been a very strong indicator of a likely recession going back more than 50 years. We also experienced the collapse of several large financial institutions over this time. Though the pace of hiring has slowed and we have seen an increase in level of layoffs, the labor markets have continued to be remarkably resilient, with continued historically low levels of unemployment. More recently, there have been some indicators suggesting significant moderation in inflation, the increasing discussions of a possible soft landing to the US economy.
While we are not economists, my point in sharing these data points is to articulate the significant uncertainties that exist in the macro environment. We believe this is causing companies, broadly speaking, to exercise restraint in the number of new technology investments they initiate, and to selectively trim existing projects that don't create an immediate return. The restraint being exercised by companies, generally speaking, including our clients, continued in the Q2, and though we are still seeing new project awards, we have not seen any broad change in client mindset. This is reflected in our Q2 results and expectations of performance in the Q3.
While the firm continues to operate efficiently due to our focused technology-centric platform and produce results in the technology business that are top of class, it became clear to us that we needed to adjust our structural costs to align them with lower levels of revenues that we are experienced without compromising investment in key strategic initiatives. While actions that affect our Kforce team are tremendously difficult to make and never taken lightly, the impact of these macroeconomic uncertainties on our business drove us to take these actions. Dave Kelly, Kforce's Chief Financial Officer, provided insights into the cost and benefits associated with these actions in his remarks. As our performance in the Q2, overall revenues were slightly below the low end of guidance. Despite lower than expected revenues, earnings per share was within the range of guidance.
As we look further into the future, we remain steadfast in our belief in two areas. First, we believe that the long-term secular drivers in demand in the technology are very much intact and will persist in the future, irrespective of how the short-term economic environment plays out. The strength of the secular drivers of demand and technology accelerated significantly coming out of both the Great Recession and the 2020 pandemic. It remains clear to us that broad and strategic use of technology, including the recent headlines that Gen AI technologies have garnered, will continue. While clients are acting with heightened caution today, we believe this is resulting in tremendous backlog of desirable investments that will be prioritized once the macro uncertainties begin to clear. Technology investments are simply not optional in today's competitive and disruptive business climate.
Our core competency is rooted in our ability to identify and provide critical resources real-time, at scale, to solve business problems for our clients in virtually every industry. Our integrated strategy also allows us to be flexible in partnering with our clients to meet their needs as part of a traditional staffing assignment, a managed team, or a managed project engagement. There is simply no other market we would want to be focused on other than domestic technology talent solution space. Second, we expect the sharpening in our focus to continue to contribute to our market outperformance. We have built a solid foundation at Kforce and are partnering with world-class companies to solve complex problems and help them competitively transform their businesses. Our balance sheet is clean, and we expect this and our strong cash flows to continue providing us great flexibility to return significant capital to our shareholders.
We have a solid, highly tenured team in place with the expectation of continuing to capture additional market share. Our executive leadership team has been through multiple economic cycles and has the experience to skillfully navigate through whatever may lie ahead. A reflection of preparedness is the success of our executive transition plan initiated in December 2021. At that time, our founder, Dave Dunkel, announced his retirement as CEO and entered into a multi-year agreement to provide the firm support in a non-executive employee role, in addition to continuing his role as a board chairman. The board of directors has determined that due to the success of the transition and the confidence it has in the executive management team, it is now comfortable accelerating this transition to a role solely as a board chairman, effective immediately, and that those transition services are no longer necessary.
I want to personally thank Dave for sharing his wisdom and guidance during this transition. I look forward to continuing to engage with Dave and the rest of the board of directors. Our highly experienced management team is navigating through the current macro climate well. We will remain very excited about our future prospects. Kye Mitchell, Kforce's Chief Operations Officer, will now give greater insight into our performance and recent operating trends. Dave Kelly will then provide additional details on our financial results, as well as our future financial expectations. Kye?
Thank you, Joe. Overall revenues in Q2 declined 10.8% year-over-year, with revenues in our technology, staffing, and solutions business declining 8.5% off very difficult prior year comps, where our technology business grew approximately 24%. As Joe mentioned, our clients exercised more caution in starting new technology investments than we anticipated. Additionally, they continued to selectively trim resources on existing projects. With that said, we have not experienced clients terminating existing large projects. While the caution being exercised was seen across our client portfolio in 2023, it has been more prevalent in our largest clients. As you look at overall trends within the quarter, we saw some relative stability in April after a weaker than usual Q1, which was followed by a continued slight softening in May and June.
During the last two months of the quarter, the number of technology resources placed on new engagements declined from April levels, and assignment ends continued to slightly outpace new consultants on assignment. To that point, we experienced relatively modest declines in the total number of consultants on assignment throughout the Q2, and our guidance reflects a continuation of that trend as we have not yet seen an inflection point. Overall average bill rates in our technology business remain near record levels at approximately $90 per hour, which improved 1.3% sequentially and 3.5% year-over-year. The increase is primarily driven by the increasing mix of higher-skilled workers on assignment. In the near term, we expect that average bill rates will remain stable or show slight improvement.
This is primarily due to a highly skilled technology talent mix and an increase in the proportion of managed teams and project engagements within our overall technology business. Looking ahead, we believe average bill rates will continue to work in our favor in the long term. This is especially true as our mix of higher-value service offerings continues to rise. Our clients remain focused on critical technology initiatives in the areas of cloud, digital, UI/UX, data analytics, project and program management, and modernization efforts. Our clients tell us they are committed to starting new mission-critical projects for their organizations, leading to wins across multiple industries, though the pace of initiation is slower. Although clients are currently exercising more caution in their project investments, based on our historical experience, we expect companies to swiftly shift their priorities and increase their technology investments once the macroeconomic landscape becomes clearer.
Our clients expect us 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. We are utilizing our existing sales, recruiters, and consultants to provide higher-value teams and project solutions that effectively address our clients' challenges. Our client portfolio is diverse and includes large, market-leading customers, which we believe will drive sustainable above-market performance in the long term. While short-term disruption may occur with certain clients or industries, our diverse client base of world-class companies will ultimately benefit our shareholders. We saw sequential declines in most of our large industry verticals, with the exception of our energy and utilities industry.
On a relative basis, we experienced stabilizing sequential trends in the technology, hardware, and software industry. This sector had previously garnered attention due to the headlines about workforce reductions. Our guidance contemplates Q3 revenues in our technology business to decline sequentially in the mid-single digits and decline in the low teens on a year-over-year basis. Our FA business declined approximately 10% sequentially and 28% year-over-year. The year-over-year declines reflect the impact of business we no longer are supporting due to the repositioning efforts, as well as a more challenging macroeconomic environment. We expect revenues to be down sequentially in the low double digits and approximately 30% on a year-over-year basis in the Q3 . We continue to support our FA business and improve its alignment with our technology business.
Evidence of this progress is that our average bill rate in the Q2 of 2023 is $51. compared to $38 in the Q1 of 2020 and more recently, up 7.7% over the Q2 of 2022. Not surprisingly, our higher skill set business is where we see relatively better performance. We have taken necessary and thoughtful measures to strike a balance between associate productivity and revenue expectations. Our primary focus is on retaining our most productive associates, ensuring that we are well-prepared to capitalize on market demand when it accelerates. At the same time, we are also making targeted investments to improve our managed teams and project solutions capabilities. I am truly grateful for the unwavering trust that our clients, candidates, and consultants place in us.
It fills me with immense appreciation to witness the dedication, creativity, and resilience displayed by our incredible team. Without a doubt, it is their dedication and commitment that drives our success, and I am truly grateful. I will now turn the call over to Dave Kelly, Kforce's Chief Financial Officer. Dave?
Thank you, Kye. Q2 revenues of $389.2 million declined 10.8% year-over-year, and earnings per share were $0.95. Overall, gross margins increased 20 basis points sequentially and declined 170 basis points year-over-year to 28.3% in the Q2, due to a combination of a lower mix of direct hire revenue and a decline in flex margins. Flex margins of 25.9% in our technology business were flat sequentially on modest bill rate increases, as clients understand that qualified, highly skilled candidates remain in short supply. Technology flex margins declined 100 basis points year-over-year due to higher healthcare costs and modest declines in bill pay spreads, due to heightened price sensitivities and changes in business mix.
The decline in Tech Flex margins on a year-over-year basis that we experienced over the last several quarters is fairly typical of what we have seen in prior slowdowns, and we typically see margins recover as the macroeconomic environment stabilizes. As additional reference, margins in our technology business in 2022 were consistent with 2021 and 2020 levels. Technology talent has been scarce for more than a decade, and we expect to see continued wage increases over the longer term and relative margin stability. Flex margins in our FA business increased 150 basis points sequentially and have improved nearly 400 basis points over the last three years as our mix of business has improved due to repositioning efforts.
Much like our technology business, we anticipate flex margins to remain fairly stable at these levels now that the significant majority of business that we are no longer pursuing has run off. As we look forward to Q3, we expect spreads in our technology business to decline slightly, due primarily to higher utilization of paid time off during the summer months, reasonably consistent with what we experienced in the Q3 of 2022. As we look beyond Q3, as clients increasingly engage us for projects critical to their ongoing success, including managed teams and project solutions engagements that are typically higher margin opportunities, we expect this to support overall margin stability. Overall, SG&A expenses as a percentage of revenue decreased 70 basis points year-over-year.
Given our exceptional growth in 2021 and 2022, our compensation plan structure rewarded our top-performing associates with very significant bonuses and commissions. With growth coming off those historically very high levels, we are generating leverage in our SG&A costs through lower overall performance-based compensation costs. We've also been successful at driving greater cost efficiencies from our real estate portfolio, given our office occasional model, which has allowed us to reduce overall square footage by more than 40%. As we continue to transition our remaining office leases over the next two to three years, we expect to generate additional savings from further reductions in overall square footage. In this environment, we are also tightly managing other areas of discretionary spend. Our Q2 operating margin was 6.7%, which was at the middle of the range of our expectations.
Our overall effective tax rate in the Q2 was 27.5%. Operating cash flows were $21 million, and our return on invested capital was approximately 40% in the Q2. We have a balance sheet with very little debt and expect to be generating more than $100 million in operating cash flows in 2023. We've had a long history of returning capital to our shareholders. Since we initiated our dividend in 2014, we've increased it 360%. In addition, since 2007, we've reduced our weighted average shares outstanding from 42.3 million to 19.3 million, or more than 50%, at an average price of approximately $21 per share.
All in, we've returned nearly $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. In the Q2, we returned nearly 100% of operating cash flows to our shareholders through repurchases and dividends. This is a continuation of the levels we've seen over the past two years. Our plans going forward remain unchanged. We remain committed to returning capital regardless of the economic climate. Our balance sheet and the flexibility we have under our credit facility provides us the opportunity to get more aggressive in repurchasing our stock if there's a dislocation between expected future financial performance and the valuation of our shares.
The Q3 has 63 billing days, which is one fewer, fewer than the Q2 of 2023, and one fewer than the Q3 of 2022. We expect Q3 revenues to be in the range of $359 million-$367 million, and earnings per share to be between $0.60 and $0.68. As Joe referenced in his opening remarks, we implemented some very difficult changes this month that immediately reduced our costs to better align overall support of the firm with current and expected near-term revenue levels. These reductions do not impact our commitment to investments contemplated in critical initiatives. Our overall operating performance at these revenue levels remains well above what it had been previously, which is reflective of the return we are seeing from previous strategic investments.
Contemplated in our Q3 guidance is a charge of approximately $5.5 million, or $0.22 a share, related to these actions. Excluding this charge, the range of earnings per share would be $0.82-$0.90. We anticipate that these actions will reduce annual operating costs from current run rates by approximately $14 million or $3 million per quarter. We will partially benefit from the savings in Q3 due to the timing of the actions. Our guidance does not consider the potential impact of any other unusual or non-recurring items that may occur.
Looking beyond the expected short-term macroeconomic uncertainties, we remain extremely excited about our strategic position and prospects for continuing to deliver above-market growth, while continuing to make the necessary investments in our integrated strategy and back office transformation efforts that will help drive long-term growth and put us in a position to attain double-digit operating margins as we grow. On behalf of our entire management team, I'd like to extend a sincere thank you to our teams for all of their efforts. Operator, we'd now like to turn the call over for questions.
At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Thank you. Your first question comes from Mark Marcon with Baird. Your line is open.
Hey, good afternoon. Joe and Kye, I was wondering if you could talk just a little bit more about, you know, what you're hearing from, you know, some of your larger Tech Flex clients, just in terms of how they're thinking about the remainder of the year, when they think that they might get a little bit more clarity with regards to, you know, to their outlook.
Yeah, Mark, it's Joe. I would say, and, you know, this is... you've heard this, countless times already. Given how well forecasted, the times that we're in have been, we believe that our clients have been reacting in preparation for what I'll say is more of a shallow-type recession. Those activities started, probably about a year ago, and they've continued to respond in that nature.
You know, you've been around this sector for quite some time, and, you know, I don't, I don't know if it will be different this time, but historically, you know, the first thing that I've seen, and I think this is my fifth cycle, in my 35-year career, what happens first is, first thing organizations do is, they start to cut back on their use of flexible workers, whether they're staff aug or whether they're contract-oriented. You know, the next phase, if things get tougher, they start to reduce their permanent staff. The next phase, when they start to believe that there's some forward look, they start to quickly bring flexible resources back on to address all the pent-up demand that is built up throughout the down cycle.
Then once they have confidence, they start rehiring, the, the full-time staff. Where our- where we see our clients at this point in time is they are in a wait and see. Like everybody else in the market, they don't know what's around the corner. You know, we work with predominantly, you know, Fortune 500 organizations, some of the most sophisticated organizations on the planet. No one has that crystal ball, so they, they're operating with caution. The good news is, unlike some of the more abrupt, I guess, cycles that I've been involved with in the back, in the past, which has really been just about every cycle, has been an abrupt wake-up call. I think the for- the foreshadowing of this has caused organizations to react very differently.
I'd say the positive with that, usually when it's abrupt, we see projects ended, and we see mass exodus of consultants and projects coming to a complete halt. We haven't seen that this cycle. All we've seen is really a trimming around the edges to basically keep projects moving along, albeit maybe deliver them in a little bit longer time period. Kye, I don't know if you have any additional color you may want to add.
No, I think you covered it, Joe. I mean, that's the main thing we're seeing is, is projects aren't getting canceled. They're delaying them. They may be taking longer to get approvals done, but they're still staying on a path with their strategic initiatives. We're seeing a lot in modernization efforts. We're seeing them continue to look at cloud migration, those types of things, but it, it, they're definitely trimming back as they wait and see what the future holds.
Mark, important to note, you know, when we talk trim back, as what we're seeing with our clients is similar. I view Kforce as a microcosm, which means we are spending more on a year-over-year basis in terms of technology.
We have more projects than, than we have capital to be able to address right now. By the way, in this climate, every day, that backlog of pent-up demand and projects is just building. We see that with our clients because the, the, the patient need for technology has not changed. That's why we get excited about managing through this and playing for the other side. Our business is always peak to peak, ended up higher, not just from a revenue standpoint, but also from a profitability standpoint, and we see a lot of demand being built up during these times as all of the organizations are having to operate with this degree of caution.
I appreciate the answer there. Can you talk a little bit more about what you're seeing in terms of the flex gross margin with regards to this quarter? You mentioned, you know, there's obviously some additional health costs, and then in addition to that, some, you know, a little bit of bill pay compression. How much should we think about this, you know, this past quarter and the implications or what's, what's implied in terms of the guidance for Q3? Is it gonna be relatively close to Q2, or should we expect a little bit more compression, kind of like what you ended up seeing a year ago, going from Q2 to Q3?
Yeah. Excuse me. Hey, Mark, this is Dave. Yeah, I, I think, and I-- obviously, we're talking about technology here. You are right. In the, in the Q2, we, we saw, saw a little bit higher healthcare costs. Spreads themselves sequentially, we're, we're pretty stable, and we've seen that in the last couple of quarters. The year-over-year decline happened about three quarters ago. As we look forward, we expect, to your point, for the spreads and, and overall flex margins in technology, to be relatively stable. I think important to note, and, and Joe and Kye both, touched on, you know, the critical need for resources, bill rates are up again sequentially.
There's still demand out there for us, so we, we, we view that as a good sign, as we sit here in a bit slower environment, that we're not seeing any declines in, in bill rates. Again, we have said for a long time that we expected stability in spreads and margins, and our viewpoint has not changed.
Great. You took some actions, you gave us a feel for what, you know, that would reduce your run rate costs on a per-quarter basis, but it sounds like that's only gonna be partially reflected in the coming quarter. What percentage of the full run rate cost would you end up absorbing here or benefiting from here in the Q3 ?
Yeah. Mark, maybe I'll just repeat first what I said in the prepared remarks. The annualized cost savings are expected to be about $14 million, which is about $3.5 million for a full quarter. The actions that were taken that was gonna reduce that structure actually just happened, frankly, today. We have about two-thirds of the quarter that we will benefit from that. As I'd mentioned, that, that is reflected in the quarter as about a $0.22 impact, the charge itself, about 1.5% impact on SG&A costs. We're gonna get two-thirds of the benefit now, but as we move forward, obviously, we'll, we'll see that full benefit on a quarterly basis.
Great. I'll hop back in the queue. Thanks.
Your next question comes from Trevor Romeo with William Blair. Your line is open.
Hi, good afternoon. Thanks for taking the call. Maybe first, just wanted to touch on kind of demand trends throughout the quarter. I think maybe Kye had mentioned April was kind of relatively stable. There was a slight softening in May and June. I guess, is there, you know, kind of a way to maybe quantify how much demand softened in May and June? Then, if you kind of compare, you know, June to the guidance, does the Q3 revenue guidance assume demand stays kind of similar to those June levels, or is it more of a step down from that run rate?
Yeah, generally, as we talked about, clients have just been really cautious, and they're stretching out the length of projects. They're being more selective. They're also delaying some projects, but again, I think that'll speak to things when we come out of this, but they're not canceling them, which again, encourages me that we're seeing a lot higher levels of approval. It's decision-making process, too. I don't think it's necessarily just about the demand. I think it's really about that lengthening of approval process and looking at more candidates, and clients being more selective than what we saw in the previous two years.
Yeah, Trevor, this is Dave Kelly again. Just to kind of amplify Kye's comments, in her prepared remarks as well. We are seeing obviously, projects that are completed, right? As we looked at May, June, and into July, we're still getting new starts. There's no question that there is demand in the marketplace, but those projects that we're seeing are very slightly exceeding exceeding those new people that we're putting on assignments. As we contemplated guidance in the third quarter, we didn't make any change to that expectation. Obviously, Joe touched on uncertainty. Basically, we chose to take a mathematical approach to Q3 guidance, and that's how we built it.
Okay, thanks. That, that was helpful. Then just I guess following up on the, the cost reductions, I understand those are, you know, some difficult decisions to make. Just kind of wanted to get your assessment on...
... you know, whether you think the cost structure is fully right-sized at this point, and I guess if the macro did happen to get even worse from here, you know, how much room you might have for further cost reductions and where you might be able to make those cuts?
Yeah, I guess a couple of comments that I would make, right? I think it's important for you to understand how we think about things when things are a little slower. Certainly, we made some reductions. Obviously, you can see the top line, so we've made sure that we're appropriately building a cost structure to support that, to maintain capacity, as well as continue to invest in strategic initiatives that we think will help us in the long term. We're very comfortable with the actions that we took. We think that they were appropriate for what we're seeing here and the trends that we're seeing. Unless things change, you know, we're, we're comfortable. I don't think anybody here is an economist, so Joe mentioned mild recession.
If something happens, I would say, you know, that it's significantly worse than that, we'll look at it. Hard to tell you whether things will change, until you can tell me what's gonna happen with the economy. I think we're very comfortable where we are, feel good about this. I, I'd mentioned, obviously, when you look at the actions that we've taken, you look at the profile that we have as a firm, our profitability levels, if you look at these revenue levels, are far higher than they were before. We've gotten a lot of benefit from the investments that we've made in the past, expect to continue to do that. Again, we've always talked about capacity.
I, I said it already, we feel very good when we see an inflection point, that we will be able to capitalize on that, without, you know, being behind the curve. We think prudent decisions have been made here.
Yep, understood. All right. Thank you very much.
Your next question comes from Kartik Mehta with Northcoast Research. Your line is open.
Steve, just to hit on the cost actions you took. You talked about, you know, saving about $3.5 million on a full run rate quarter. I'm wondering, is that $3.5 million absolute dollars you anticipate saving, or is that just, you know, you still have to deal with inflation, so it's really not $3.5 million that we'll see throughout a quarter?
No, we'll see $3.5 million a quarter, Kartik. Yeah. We're confident in that number.
Great.
Yeah, I realize, and when, when we look at... Oh, go ahead.
No, no, no. Go right ahead. I apologize.
No, no. Ask your questions.
Oh, thank you. You know, I, I know you, Kye, you talked a little bit about, maybe sales cycles, and I'm wondering, Projects are being elongated, but are sales cycles not being elongated? If so, are you a little surprised by that?
The sales cycles are being elongated because, again, as I mentioned, there's longer approval processes and more scrutiny around budgets than we've seen in recent years. Most of our clients are still approving new projects. We're still adding staff. It's just not at the rate we've seen in the past couple of years because of the cautiousness, I think, out there in the marketplace.
Yeah, I'd say think of it this way: as, as organizations get more cautious, there's more steps in the process to get those approvals. You know, where a, a direct line manager might have had the authorization to make those approvals, now it's having to go up the chain of command or maybe even going into the finance organization. Again, everybody's looking forward on what's happening with their revenue trajectories and so on and so forth, and that's what just slows down that overall approval process.
Perfect. Hey, thank you very much.
Sure.
Your next question comes from Josh Chan with UBS. Your line is open.
Hi, good afternoon. Thanks for taking my questions. I was wondering if you could comment on whether you're seeing any differences in trends between the staffing versus managed team versus managed projects sides of the business. I, I, I know that they have different lengths, but just wondering if, if you feel like clients are valuing those pieces differently.
I would say that our managed teams, managed projects, those types of things are holding up a little better. Again, clients are looking at what do we need to do? Okay, if this is mission critical and we need it done today, yes, they're continuing at the levels that we've committed to from a managed team, managed project perspective. We haven't seen any of those get canceled. We have seen a couple of them where they've said, "You know, we'd rather elongate the delivery date and expand the project out a few more months," and so they can trim a little bit from the current run rates. I think overall, you're seeing those higher level skill rates, you're seeing the managed teams, managed projects have a little bit more certainty and trajectory than what you're seeing in some of the other space.
That's very helpful. Thank you. I guess my follow-up is, I guess, Joe, you mentioned the deferred spending and, and how they usually come back. Could you kind of talk about how long do you think your clients can defer these, these spending without impacting their competitiveness based on what you know about the projects?
Yeah, I would say, you know, well, given that everybody's really industry by industry dealing with the same dynamics, there, there aren't really outliers. The only dynamic that really differentiates anybody is if you had a disruptive or disruptor organization within that space, you know, that would come into play. You know, we've also seen a lot of pullbacks from VC funding and things of those nature. That landscape has not been immune to, to what's going on as well.
They're gonna, they're gonna react collectively unless somebody happens to make a different bet and elect to spend more money at the expense of managing their P&L and their quarterly earnings and things of that nature. I think you, you will see the competitors react, but we have yet to see any breakout organizations go move from that whole herd mentality. It's, it's gonna be when visibility of the market becomes more stable. That's when we'll see everybody migrate all at once, which is gonna create then a whole another frenzy, no different than what we experienced coming out of the pandemic, where everybody is now competing massively for the same talent to try and accelerate all their projects. That, that, that day will come.
It does every cycle, and with technology being more dependent on every business strategy, even more so today than it was during the Great Recession, when mobility and data and cloud were all coming about. We will see that on the other side of this. How to what extent? I'm not sitting here by any means calling that we're gonna see something like we did from a pandemic standpoint over the last two years, where the market was probably the most, most robust market I've seen in my 35 years in this business, but we will see a very healthy operating climate.
Great! That, that makes a lot of sense, and, thanks for the color, and thanks for your time.
Sure.
Your next question comes from Tobey Sommer with Truist Securities. Your line is open.
Hey, good afternoon. This is Jasper Bibb for Toby. You mentioned the stabilization in technology clients earlier in the call. I just wanted to ask if there are any other specific industry verticals where demand trends have maybe surprised you to the downside or the upside in the past few months?
I think the area where we've seen growth, as I mentioned in my comments, is really in the energy and utility space. There's a lot of critical transformation going on right now. There's a lot of modernization. They're looking to apply technology to both help them be more productive, but also just modernize their systems. That's been the area where we've seen more increases in projects and spend.
Thank you.
It's regulated, so you have. Yeah, you just have to continue with the regulations, too.
Yeah. No, that, that makes sense. Is there any way to quantify how much incremental G&A you might save with the exit of the remaining office footprint over the next two or three years?
Yeah. Well, I think the comment, the comments that we made here, we've probably got, as you said, about another two or three years. You know, it, it's, it's, you know, we've, we've, we've already had a significant reduction in footprint. You know, it's probably $2 million only. There's still some benefit here that will occur over time, but it's not a huge amount any longer. We've done a lot of that work.
Thanks for that. Last one for me. Just based on the prepared remarks, it sounds like the repositioning in the FAA business is now basically complete. Is there anything that you could share with us about maybe a new go-to-market there and how that business might be more sort of like, I guess, synergistic with the CoreTech business going forward?
You know, as I mentioned, I think we've made good progress. We're continuing to see bill rates go up, even in this environment. I think right now the bigger issue for us is just the macroeconomic environment in the finance and accounting space.
Yeah, that, that makes sense. Thanks for taking the questions.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from Marc Riddick with Sidoti. Your line is open.
Oh, good afternoon, everyone.
Good afternoon, Marc.
You covered a lot already, but I did want to sort of circle back and when you're talking to clients as far as the types of projects that they may be moving forward on. Granted, it's slow and delayed, but I was wondering if you've seen much in the way of change as to, you know, the catalysts that are driving the projects that are under consideration. Are you seeing anything that would sort of, you know, could end up being potential future green shoots when we sort of, you know, get client activity going again at a greater pace? Then I have a quick follow-up after that.
Yeah, I would say in general, I mean, the, the same areas where, where clients have been focused, they're continuing to focus. There's not anything of a material nature out there. You know, we are hearing a little bit more in and around GenAI and, and how organizations are looking to leverage AI as a collective whole, which we really love because of the work that we do in data and cloud. You know, those things further support and are necessary on that front. I would say that that's probably a, a futuristic green shoot. I don't think there's anything material of nature happening right now, but, you know, that's the nature of technology.
There's always new technologies on the horizon, which again, which is why we love what we do, because we always adapt to where the demand is, because of how nimble our model is and because of the real-time nature of going out into the market and getting the best candidates that have the given skills. We're optimistic on those fronts, but I would say, you know, customers are after the same things that they've been after. I mean, modernization, you know, data, cloud, and digitization of their businesses. I mean, those things are not going away, no one by any means has remotely come close to completing their roadmap of where they need to get on that front. Again, I go to back to Kforce, the microcosm of that.
You know, we did some work on our front office operations and systems for a matter of about five or six years. We've turned our attention to modernizing and digitizing our back office. In parallel with that, we have a huge backlog that's building in terms of our front office. This is what our same clients are dealing with this. This is endless.
Okay, thank you for that. That was one of the, I guess my follow-up is around candidate availability, and maybe if you could share a little bit about what you're seeing as far as are there particular areas where you're beginning to see more candidates, or be it skill levels or geographies, or is there anything that we should be thinking about where you're beginning to see more, more talent available to you? Thank you.
I'll take that one. From a talent perspective, in those highly skilled areas, you know, some of the areas that Joe just mentioned, cloud engineers, data analytics, those types of positions are still competitive. They're still hard to find quality people, still very much in demand. Where we're seeing the softening is in those lower level positions. There's definitely been a softening, you know, as you move down from those areas and more your production support or those types of things. There's been QA, there's been a softening, but in the high skill areas, which is the majority of what we play in, it's still very competitive.
I mean, the high skill for the, for the better part of the last 10 years has either been very low, single digits, you know, unemployment or actually negative. We haven't seen any of that change. Even with the softening that's taken place, there is still so much demand. It's just those individuals are being moved around a little bit, maybe out of the more enterprise organizations that were much further ahead of the curve of adjusting for this softening that we're seeing. Then they're being absorbed by more mid-tier organizations that weren't able to compete for that talent.
No, that's very helpful. That's exactly what I was looking for. Thank you.
Sure.
There are no further questions at this time. I will now turn the call back over to Joe Liberatore.
Thank you for your interest in support of Kforce. I'd like to say thank you to every Kforcer for your efforts and to our consultants and our clients for the trust in Kforce, allowing us to partner with you and pretty much, we look forward to speaking with you following our Q3 group. Thank you.
This concludes today's conference call. You may now disconnect.