Kforce's (KFRC) CEO David Dunkel on Q4 2015 Results - Earnings Call Transcript

| About: Kforce, Inc. (KFRC)

Kforce Inc. (NASDAQ:KFRC)

Q4 2015 Earnings Conference Call

February 9, 2016 5:00 PM ET

Executives

Michael Blackman - Chief Corporate Development Officer

David Dunkel - Chairman and Chief Executive Officer

Dave Kelly - Chief Financial Officer

Joe Liberatore - President

Analysts

Tobey Sommer - Suntrust Robinson Humphrey

Kevin McVeigh - Macquarie Capital

Randle Reece - Avondale Partners

Anj Singh - Credit Suisse

Paul Ginocchio - Deutsche Bank

Greg Mendez - Robert W Baird

Operator

Good day, ladies and gentlemen. And welcome to the Q4 2015 Kforce Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

I would like to turn the call over to Michael Blackman, Chief Corporate Development Officer. You may begin.

Michael Blackman

Good afternoon and welcome to the call. Before we get started, I would like to remind you that this call may contain certain statements that are forward-looking. These statements are based upon current assumptions and expectations and are subject to risks and uncertainties. Actual results may vary materially from the factors listed in Kforce’s public filings and other reports and filings with the SEC. We cannot undertake any duty to update any forward-looking statements.

You can also find additional information about Kforce in our 10-Q, 10-K and 8-K filings with the SEC. We also provide substantial disclosure in our release to assist and better understand our performance and to improve the quality of the call.

I would now like to turn the call over to David Dunkel, Chairman and Chief Executive Officer. Dave?

David Dunkel

Thank you, Michael. I am very proud of our team's performance for the year ended in 2015. And we achieved record annual revenues of $1.32 billion which represents an 8.4% increase year-over-year. We also made significant progress for the longer- term profitability goals as full year operating margins of 5.6% and earning per share of a $1.52 improved 63% from earning per share from continuing operations of $0.93 in 2014. This represented the second consecutive year of approximately 50% earning per share growth.

Additionally, we returned nearly $50 million of capital to our shareholders via share repurchases and our quarterly dividend program. We are continually evaluating our use of capital to include share repurchases, debt retirement and acquisitions. Kforce has not completed an acquisition in seven years as we continue to focus on organic growth. As we move into the second half of the year, we experienced deceleration in year-over-year Tech Flex growth rates. This deceleration was greater than we had anticipated in the fourth quarter due predominately to specific large client dynamics.

We experienced early project end and a slowdown on hiring and believe the activities of these few clients are very natural given the magnitude of the changes. Recent communication with these customers led us to believe that there is extensive project plan but waiting budget approval. As a result fourth quarter revenues of $327.7 million are below our expectations. We continue to believe that this client specific headwinds are shorter term in nature and not a fundamental longer term shift in spend though we are anticipating improvement in the first quarter.

As we indicated on our call last quarter, we are working to further diversify our portfolio within other existing significant clients which are the destination for our large portion of our accelerated hiring of Tech Flex sales associates. We are encouraged and in January we are already seeing the expected improvement in key activities within our priority account. We continue to be very pleased with the exceptional performance of our FA team and a continued progress we are making in capturing customers share demonstrated by our excellent above market growth rates. Even the lower than anticipated revenue performance, operating margins remain strong at 6.2% and earning per share of $0.43 was within guidance.

Despite the recent widespread uncertainties in the macroeconomic environment and recent deceleration in growth rates more broadly in specialty staffing, we are seeing continued strength in the skilled labor market. And a low unemployment rate for college educator professionals particularly in the Tech and FA specialties that we serve. We believe that the broad based under current that are helping to drive technology staff and demand such as cloud computing, SaaS, data analytics, mobility and cyber security will continue. Our clients are focused on the development and enhancement of their customer basing applications and technologies to further enhance their customers' experience as they deliver online product and services. The scarcity of highly skilled technology resources is expected to continue with unemployment levels of these resources being very low. BLS temp penetration number remains near record high since the secular shift towards temporary staffing continues. The combination of the need for flexibility, highly specialized skills, the project nature of work and the regulatory environment is driving customers to greater use of flexible resources. Across the whole staffing sector, the average spending regulatory requirement particularly around employee classification have created a higher risk employment environment for clients. We believe this will contribute -- continue to contribute to larger staffing firms with robust compliance infrastructure increasingly being considered solution of choice for human capital.

It has been three years since we began the new era of Kforce and we are pleased with our progress thus far. We are continually evaluating, updating our strategy including our technology platform, service offerings and alignment to drive efficiency that enhance the customer experience and improve speed to market. We will maintain a watchful eye towards investment that we've made and we'll continue to make in the first quarter relative to our KPI data and remain cautiously optimistic.

I'll now turn the call over to Joe Liberatore, President, who will provide further details on our Q4 operating results. Dave Kelly, Chief Financial Officer will then add further color on Q4 operating trends and financial results as well as provide guidance in Q1. Joe?

Joe Liberatore

Thank you, Dave. And thanks to all you for your interest in Kforce. Our top line performance in Q4 was lower than we anticipated, primarily as a result of the deceleration in year-over-year growth rates in our Tech Flex business. Tech Flex, our largest business unit which now accounts for 65% of total revenues, grew 0.2% year-over-year in the fourth quarter. As Dave mentioned the declines we experienced within a few of our premier clients as result of internal organizational changes and other business disruptions in Q3 led to additional revenue decline in these clients in Q4.

We are well positioned within our premier clients including those with recent declines. And we believe these longstanding relationships provide longer term stability to overall revenue base. Early Q1 indicator show strong demand across many industries in our Tech Flex business. The ability to access talent continues to be the most significant constraints in Tech Flex as exhibited by the continued high level of conversion. Clients realize that talent scarce and are increasingly to looking to make sure they can keep key resources.

In the fourth quarter, we were aggressive and adding to our Tech Flex sales associate population given that our hiring over the past two years had been disproportionately focused on recruiting resources. The focus of our hiring has been to add resources at some of our largest clients and diversify within our current portfolio. This recent shift in investment allocation has already begun to influence our leading key performance metrics that levels in January did not accelerate.

Strength in demand remains at high levels and broad based which provides us an opportunity to further penetrate our expansive client base. As we continue to work through these client specific issues and further diversify our portfolio, we expect Tech Flex revenues to decline sequentially in Q1 due to typical fall off with assignment at yearend and for year-over-year revenue growth rates to be stable with Q4 2015. Our bill pay spread in Tech Flex remains stable and we don't see a need to compromise our pricing to resume Tech Flex growth.

Our philosophy continues to be to work with client and see the value of our services and recognize the shortage of supply of technology talent.

Finance and accounting flex, which represents 24% of total firm revenues, grew 15.7% year-over-year. This business continues to experience highs KPI levels, growth by industry is broad, but significant drivers to the year-over-year success have been in financial services and healthcare industries, both of which our national recruiting center positions us well to maximize.

Our decision to invest in talent, diversify our client base and implement operating model adjustments in this segment have contributed to market share gains. We expect Q1 flex revenues to increase sequentially on a billing day basis due to calendar year assignment end but for year-over-year growth rates to remain at or near Q4 levels.

Revenues for Kforce Government Solutions decreased 13.9% year-over-year. Services revenue, which make up approximately 85% of this business’ total revenue, has declined over the past year. The operating environment remains difficult for our government business but our team has executed well in this challenging landscape with 100% recompete success rate in 2015. As we look ahead into 2016, less than 25% of our government businesses revenue is schedule for recompete. The lower level of recompete is allowing us to allocate a greater portion of our business to capture resources on new, larger opportunities in areas of strength, healthcare and audit readiness.

We anticipate hearing the outcome of these new procurements in early Q2. We expect our government business to decline slightly on a sequential billing day basis in Q1 and decline on year-over-year billing day basis in Q1 at slightly lower levels than we experienced in Q4 of 2015.

Direct hire revenues from placements and conversions increased 12.6% year-over-year. And remains approximately 4% of total firm revenues. We’ve made some select investments in direct hires over the past few quarters from which we are deriving benefit and we will continue to do so as opportunities and productivity levels present themselves.

Our objective is to meet the talent needs of our clients through whatever means they prefer and providing the highly skilled capabilities to deliver resources through direct hire remains important in meeting those needs. We expect the seasonal improvement in Q1 for direct hire and year-over-year growth rate at or slightly below Q4 levels. We accelerated hiring in Q4 and revenue generating talent increased 9.5% year-over-year. As I mentioned earlier, hiring was focused on Tech Flex sales talent. We continue to add additional talent in Q1 with a bias on sales associates and expect the year-over-year growth rates to exceed 10% in the first quarter. Our profitability improvements throughout 2015 were realized more quickly than anticipated which positions us to continue allocate in investment towards talent additions without compromising our longer-term financial objectives.

We continue to focus on client, consultant and core associate relationships to drive result. And expect to reaccelerate our momentum in 2016.

I'll now turn the call over to Dave Kelly, Kforce's Chief Financial Officer who provides additional insights on operating churns and expectations. Dave?

Dave Kelly

Thank you, Joe. Total revenues for the quarter were $327.7 million, which represented $2.8 million increase year-over-year. Our Flexible staffing revenues collectively grew 4% year-over-year while our government business declined 13.9% year-over-year. Direct hire revenues of $13.4 million increased 12.6% year-over-year.

Fourth quarter net income and earnings per share were $11.9 million and $0.43. Fourth quarter net income and earning per share represent 33% and 43% year-over-year improvements versus Q4 of 2014 results of $8.9 million and $0.30.

Our gross profit percentage in Q4 of 31.6% increased 70 basis points year-over-year. The year-over-year increase is a result of both improvements in our Flex margins and a greater mix of direct hire revenues.

Our Flex gross profit percentage of 28.7% in Q4 increased 50 basis points year-over-year primarily driven by an increase in spread in our FA Flex business and higher margins in our government business resulting from a mix of product sales is higher which also carries a higher margin profile. We are seeing continued stability and pricing spread in our Tech Flex business. This stability and spread is a reflection of flat bill and pay rates year-over-year as customers remain very cost sensitive. Looking forward, we expect bill pay spreads to remain relatively stable at the slightly higher levels but for Q1 flex margins to decline by approximately 1% primarily as a result of the reset payroll taxes seen annually in Q1.

Also of note, we continue to experience favorable trends in federal and state unemployment tax rates. After years of very high costs, the states began lowering their rates in 2015. These reductions are driving unemployment taxes down and we expect this to continue to benefit Flex margins in 2016 as additional states have lower their rates.

SG&A as a percentage of revenue was 24.6% in Q4 which is flat with Q3, but declined 90 basis points year-over-year from 25.5% in Q4 2014. The decline was driven by ongoing expense discipline and lower compensation costs within the quarter. As we look forward we expect SG&A percentage to increase in Q1 due to the acceleration in hiring in Q4 and Q1 and the annual increase in payroll taxes.

Q4 2015 operating margins of 6.2%, improved 160 basis points from 4.6% in Q4 2014, driven by a combination of revenue growth, gross margin improvements and SG&A leverage achieved over the past year. We still expect to meet or exceed our 7.5% operating margin target when $1.6 billion in annualized revenues is reached. The near term profitability will be impacted by hiring trends.

As we look at our balance sheet and cash flows, our accounts receivable portfolio continues to perform well. Operating cash flows in the fourth quarter were $15 million. Capital expenditures for Q4 were approximately $600,000 while more typical annual remain in the $8 million range, but quarterly variability to be expected. We continue to maintain significant borrowing capacity in our $170 million credit facility. Long-term debt at the end of the quarter was $83.8 million as compared to $81.4 million at the end of Q3, an increase of $2.4 million.

The firm repurchased 503,000 shares in Q4 at a total cost of $13.2 million. There is approximately $53 million available for repurchases under current board authorization. We expect to continue balancing the allocation of our capital after consideration of capital expenditures and dividends between stocks repurchases and debt retirement as conditions warrant.

With respect guidance the first quarter of 2016 has 64 billing days, which is two days more than the fourth quarter of 2015 and is one more day than the first quarter of 2015. We expect Q1 revenue to be in the $323 million to $328 million range, and our earnings per share to be between $0.24 and $0.27. The combined impact of Flex margin and SG&A of annual payroll tax increases in Q1 relatively to Q4 is expected to be approximately $0.11 per share.

Gross margins are expected to be between 30.6% and 30.9%. SG&A as a percentage of revenue is expected to be between 26.3% and 26.6%. Operating margins are expected to be between 3.4% and 3.8%. Our effective tax rate in Q1 is expected to be 39%. This guidance assumes weighted average diluted shares outstanding of approximately $27.3 million in Q1.

This guidance does not consider the effect, if any, of charges related to the impairment of intangible assets, any one-time costs, costs related to any pending tax or legal matters, the impact on revenues of any disruption in government funding or the firm’s response to regulatory, legal or tax law changes.

We are very focused on those actions necessary to reaccelerate revenue growth in particular in our Tech Flex business. The demand environment remains positive and our client relationships remain strong. We continue to manage our investments and profitability and return a significant amount of capital to our shareholders in the form of dividends and share repurchases which is further confirmation of our believe in the strength of our business.

We believe the acceleration and hiring along with diversification within our client base shall allow to reaccelerate revenue growth while generating significant returns for our shareholders.

Michelle, we'd now like to turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from Tobey Sommer of Suntrust. Your line is open.

Tobey Sommer

Thank you very much. My first question is if you excluded the premier accounts what was the underlying Tech Flex growth rate in the fourth quarter? How much --

Joe Liberatore

Yes. This is Joe. What we experienced from what we had anticipated coming out of Q3 and Q4 that was -- that we had not anticipated was really two things. We had a little bit more of continued deterioration than we expected in a couple of those large customers which at this point in time is pretty much plateaued. And we also had an elevation of furlough which is really time off during the holidays at a little bit greater rate than we had experience with some of those clients in the past. So if you put those two things together for the small set of customers, we probably had about $6 million to $7 million impact in the quarter.

Tobey Sommer

Thank you. That's helpful. Can you size how relevant these -- how big are these customers? How much revenue do they represent?

David Dunkel

Yes. I mean from competitive purposes we don't really talk about how much revenue -- I think we said it before no one customer makes up a significant portion of our overall revenue. But these are some of our larger customers in our portfolio. So they are within the Top 10 customers within the portfolio. The other thing that I will add to that when we look across our from a Tech Flex standpoint, our Top 25 customers, we experienced about two thirds of that portfolio actually grew sequentially on a billing day basis.

Tobey Sommer

So did you say two thirds grew sequentially?

Joe Liberatore

Two thirds of Top 25 Tech Flex clients.

Tobey Sommer

Okay. Thank you. That's helpful. Just two for me now and I'll get back in the queue. I saw that you miss -- you were talking about your internal hiring plans, what are your internal hiring plans for 2016 and is there any kind of color you can give about the contour of those hiring plans throughout the year if you don't anticipate it just being kind of steady state. Thanks.

Joe Liberatore

Yes. I mean as we all know we start to target that our hiring is not a really linear practice because you are managing turnover and everything else. But we've pretty much stated that our target is to net up 10% on a quarterly basis on a year-over-year. Needless to say we are keeping a close eye on all the forward looking KPIs and anything that we may see taking place there. So we have the ability to really turn these dials quickly if there were to be anything that will happen in the market place or very specific to some of our overall portfolio. The bulk of the hires that we are focused on at this point time, obviously we are continuing to fuel our FA service ordering when you are looking at 15% plus year-over-year growth. And then from a Tech Flex standpoint the majority of the hires that we are making in Tech Flex at this point in time are on the sales side of the house.

Tobey Sommer

Thank you. Two last questions. One at today's share price what do you see as the most lucrative use of free cash flow?

Dave Kelly

Yes. So Tobey this is Dave Kelly. So you can see for us that in the fourth quarter we repurchased about $50 million of stock, we thought that was a good investment as we looked at it. As we mentioned we think we got a very attractive credit facility, interest rates are very low and we see value in our stock as we have over the course of the last couple of years.

Tobey Sommer

And then my last question has to do with the thoughts or plans of your large clients that are temporary slowdown on spending now. How big could those, spending of those clients be when they take these projects off the shelves and they are funded, and maybe not necessarily comparing it to where those clients are now in terms of their spend, but where they have been six or nine months ago and some sort of more normalized day. Thank you.

Joe Liberatore

Yes. I mean a couple of the more significant ones I mean for a number of years they were back to back 20% plus grow or so, they will grow in north and almost double what our traditional Tech Flex our portfolio was at any given point in time. I mean we have very deep relationships within these customers. And we are hearing about tremendous amount of pent up demand. And so I would really attribute to, it is less that we are waiting for budgets to be released, it is more as they go through their organization realignment and they settle those organizations to give those individuals opportunity to reassess. We are hearing from them that there is a tremendous pent up demand in terms of project load.

Operator

Our next question comes from Kevin McVeigh of Macquarie. Your line is open.

Kevin McVeigh

Great, thanks. Hey nice job on kind of the margins in Q1. Dave, can you just help us understand good leverage despite -- EPS looks pretty strong relative to where the revenues coming in. Were there any additional and if you said this I apologize, any additional kind of initiatives did help drive that or was it just less pseudo taxes as we think about 2016, just anything that helps explain the bridge between kind of the better expected EPS relative to the revenue.

Dave Kelly

Yes. I think Kevin this is a reflection of really what we've been experienced over the course of the last couple years. We continue to be efficient in our spent and generate leverage. As we look at Q1, I had already mentioned as you said the payroll taxes that we are getting a little bit of benefit, it's not significant there. And there are incremental costs as we expect that there would be for the hiring that we are going to do, but it's just continued management of the business. We don't expect any big improvements in margins or any just change just run in the business. I mean day to day basis. The plan really that is laid out continues to work and we think it's the right plan.

Kevin McVeigh

Is any of that just mix too maybe some of these larger accounts aren't doing what you thought they would, they are coming at lower margin to that helping margin profile as well.

Joe Liberatore

Yes. Really when we look at the larger accounts I mean on a percentage of our total revenue for example in Tech Flex, it hasn't materially changed nothing year-over-year basis. So now it's really not the margin difference in those accounts that's driving the additional profitability means what David said it's really the overall infrastructure, the leverage that we are gaining and the overall plan that we put in place.

Dave Kelly

The only thing I would add to Joe's point, Kevin, I mean there is a couple things. In terms of margin profiles of those large clients especially in tech, it's not too dissimilar from our smaller clients i.e. the gap it continue to close. The other thing as we think about operating leverages the real cost to deliver service these larger clients at scale on a dollar for dollar basis is less. So profitability really comes at approximately the same level regardless of client size.

Kevin McVeigh

Got it. That's helpful. And then just the other question I had is obviously the group overall saw the pretty dramatically to say the least on the recessionary concerns. I know you not economist but is there anything in terms of KPI you are looking at that just says we are still far from what the stock should discounting or just things we should look at to help guide kind of the current environment overall.

David Dunkel

Kevin, this is Dave. I think we were probably surprised at what was an overreaction. One of the key point that we've made consistently over the past couple of years and we believe strongly that we are really operating in a much more secular environment than a cyclical environment than in the past. We saw during 2008 and 2009 where the tax spend didn't decline as much as it had in the past and if you look at what's happening now with where the tax spend is, they really can't opt out of spending because they are now customer facing, it's data business intelligence, it's cyber security, data security, and those are things you just can't decide you don't want to do anymore. Because competitively the delivery of their products, their service is being delivered over multiple platforms and over the web. So we see continued spend there and I don't think that you are going to see a significant drop. Would there be a slowdown demand? Yes. Is it a recessionary, cyclical kind of thing? No. So surprised that the reaction, surprise at the change in the stock valuations and not consistent with what we are seeing in the market. As of this point, there is no question that we saw in the fourth quarter with oil prices and market volatility, it really caused a great deal of concern perhaps overreaction but for us and the clients that we are dealing with in the market place today, we believe that the demand is intact and as we move past this period, repositioning from these clients that assuming the rest of the market intact, that we will reaccelerate growth and should these clients comeback online we could see that growth accelerate substantially.

Kevin McVeigh

It's helpful. Dave, can you just remind us what percentage of the business is tied to energy or just oil and gas?

David Dunkel

A very small percentage. I mean we are less than 1% tied, it's peanuts.

Operator

Our next question comes from Randle Reece of Avondale Partners. Your line is open.

Randle Reece

Yes, good afternoon. I was trying to just kind of hit on similar vein once again. It seems like that maybe we had a pause of some activities with some customers as the weak spot in the economy where they fall are weak and you also seemed to be affected by other influences that aren't exactly macro related. That's -- what I am trying to clarify here getting an understanding of the trends in your Tech Flex business is how much you think there is some temporary uncertainty related slowing and how much is related to other reasons.

David Dunkel

Hi, Randy, this is Dave. I would say a speculative comment would be that there might be CEO holding budget back to gauge what the reaction is in the market and to see if there is a level of consistency or flattening out if you will. That is possible but it's almost impossible to measure and we really couldn't even come up with some kind of a number to quantify. So is it possible? Yes. The people naturally become more conservative when they see this kind of volatility yes but it does come to point eventually where we have to make a decision, a strategic decision on, we can't opt out of some of the initiatives that we are in including the cyber security initiatives, including mobilization of platform. So those things just have to continue. Unless we are coming to a dead stop, which I mentioned I don’t see that.

Randle Reece

And when I look at the Tech Flex margin, gross margin in the fourth quarter was down sequentially. How much of that sequential decline in the gross margin was related to the furlough that you didn't anticipate in the fourth quarter that kind of caught you there.

Dave Kelly

Yes. So Randy as we look Q3 to Q4, there was very slight impact there because furloughs, we don't have bill or pay so it's a minor amount. It really if I look sequentially nothing big that drove that yes we certainly got a little bit of pay time off, but there was no significant individual driver to the decline. This is typical as you look back we see a little bit lower margins in Q3 and Q4 in Tech Flex.

Randle Reece

So I guess it never happened before I was just wondering what the driver was.

Dave Kelly

Yes.

Operator

Our next question comes from the line Anj Singh of Credit Suisse. Your line is open.

Anj Singh

Hi. Thanks for taking my questions. I wanted to first follow up on an earlier question. I think you said that there was about $6 million to $7 million of revenue coming from significant clients that didn't come through this quarter. So it seems even if we add that to the total of Tech Flex it would imply maybe low 3% growth despite comps being about 3.5 easier, just wanted to know if that's accurate for what overall growth would have been in Tech Flex if there was no pause from these clients. And then if you could just help us understand why Tech Flex is just being so disproportionately impacted versus FA Flex amidst any hesitation or pullback in plans from your clients. Thanks.

Joe Liberatore

I would say directionally I would say that be fairly accurate. Unfortunately when you roll that into Q1 you can't just add that $6 million or $7 million right back in because the overall business we typically have beginning at the year fall off from contract and assignment and then we typically spend better part of the first six to eight weeks rebuilding on to those pre holiday highs and then start to accelerate above that. So there is a rebuild process that naturally happens not just within those clients but within the overall portfolio for the most part.

Anj Singh

Okay. Got it. And if we had to adjust that, the second part of my question, why is there more of disproportionate fall off in the Tech Flex revenue growth rate than a FA Flex even adjusting for these significant clients?

Joe Liberatore

I mean I would say the overall Tech Flex business just you have a couple of things. One you have the scale of the business and then we have decline specific dynamics within that business.

Anj Singh

Okay, got it. And I guess could you talk about what your best sense is as to when the revenue from these clients may start coming in again? It seems like you are being cautious with Q1. So should we anticipate maybe Q2 is a correction return to normalcy?

David Dunkel

I mean that's what we are hearing from inside the client based upon what they are communicating to us. But realize we are not speaking to the CEO of these Fortune 50 companies. So Dave made some comments on that earlier, we are typically dealing with VP level, director level, individuals and that's what they are telling us at this point in time as their organizations now are fairly close to being settled. That they anticipate some of those projects being released as we move into the back of Q1 and into Q2.

Anj Singh

Okay, got it. And one last one and I apologize if I am not understanding this but you guys are talking about diversifying your portfolio within your significant clients and then you are adding more headcount at these clients also. So could you just describe in layman terms how you are diversifying just apologize if I don't understand that.

David Dunkel

Yes. So at any given point in time from -- and I'll just talk Tech Flex specifically, we are probably touching a 1,000 clients in any given point in time. So bulk of our revenue concentration probably comes out of the Top 150 clients within that space. We've historically focused extensively on the Top 25, so what we are doing is we are going down into that 26 through 150, our customer base where we have long standing relationships, we have a track record, we have a master service agreement in place and then we are adding more sales people to penetrate those customers more deeply to nurture relationships as we just didn't have enough capacity to go after more relationships within those customers.

Anj Singh

Okay, got you. And I think historically you guys have given a concentration of revenue within your Top 25 clients. Could you just provide that figure again?

Joe Liberatore

Yes. 37% within Tech Flex

Operator

[Operator Instructions]

Our next question comes from Paul Ginocchio of Deutsche Bank. Your line is open.

Paul Ginocchio

Hey, thanks for taking my question. Sorry if I missed this, but do we talk about what industries these couples companies were in that cause the revenue miss? Can you speak to that? And then second, you mentioned headcount was up 9.5%. Was that on an average basis in the fourth quarter or is that currently? And could you just give us what headcount also the revenue generating headcount was up year-on -year on the fourth quarter was looking like in the first. And sort of is that the key reason you are looking for reacceleration of the headcount because your headcount is up or is there other thing beside the client conversation that suggests revenues going to reaccelerate or just mainly focused on headcount. Thanks.

David Dunkel

Hey, Paul. Nice to hear from you. I'll take the first part and I'll flip it back to Joe for the second part. We cannot disclose the industries; if we told you the industries then you would know who the client was. We have confidentiality agreements with these clients and it would not be wise for us to do that because if we told you, you would know immediately who it was, and as we mentioned previously they are involved significant transactions. So it would be very clear so in respect of our clients so we would respectfully decline say the industry that they are in. And I'll let Joe handle the second half of the question.

Joe Liberatore

Yes. The 9.5% that we referenced that was Q4 year-over-year number. And then we had basically managed expectations in Q1. We are looking right around 10%, slightly over 10%. If we were to hit our exact hiring targets.

Paul Ginocchio

Great. Is there anything besides the comments that you just mentioned all about clients talking to you, that the sales people are talking to; they are talking about maybe reacceleration to the second quarter. Is there else that's giving you confidence and talk about reacceleration. I know you don't have that baked into your Q1 guidance but what gives you -- is there any other thing we should be focused on that hoping next revenue reaccelerate in the second quarter. Thanks.

David Dunkel

Yes. I would actually kind of take the flip side of that. In our weekly calls with our regional presidents, they pretty much run the business on a day in and day out basis and then also and speaking with the variety of clients throughout the quarter. We are not hearing is we are not hearing negative. So we are not hearing from the frontline that clients are shutting down or clients are pulling back or clients going through downsizing. Everything we are hearing anecdotally is on a positive front. Likewise we haven't seen any deterioration and what I would call some of the front end indicator KPIs. Our client visits are actually at all time highs here in Q1 which means the end client is taking the visit to meet with somebody in professional staffing. We are also seeing our job orders which have been at elevated levels we haven't really seen a deterioration in those job order levels on a sequential basis. And then they are up on a year-over-year basis.

Operator

Our next question comes from Greg Mendez of Baird. Your line is open.

Greg Mendez

Hi. Thanks for taking my question. It's Greg in Mark. Just circling back to headcount, just wondering can you provide the split on what growth was for recruiting versus sales. I know in Tech Flex you had mentioned literally that was sales but just wondering if you can provide a little more color.

Joe Liberatore

Yes. The bulk of the hiring was in Tech Flex and it was predominately on the sale side of the house.

Greg Mendez

Okay. So the growth of sales -- sale growth will probably similar or pretty close to that total growth for the quarter

Joe Liberatore

Yes. I mean obviously we are adding some of that headcount is going into our direct hire business because of the performance there. So we are selectively hiring in there. Some of that headcounts going into -- continue to support the growth in our FA business which grew north of 15%. So we are continuing to add some headcount into there. We typically haven't broke out the number of associates that we have by service line, direct hire, Tech Flex, FA Flex, what you are really asking is for me to even go through another level which is to talk about the number of people buy sales versus delivery which we are not going to do for competitive reasons.

Operator

Our next question is a follow up from Tobey Sommer of Suntrust. Your line is open.

Tobey Sommer

Thank you very much. Just a couple of small questions. On the KPI that you referenced as sort of the front end -- pretty solid dramatically. Do you have any thing that measures time to fill or sort of something that would maybe indicative of urgency within customers?

Joe Liberatore

Yes. I can tell you in general we are seeing time to fill here in the beginning of the year has been a little extended for a variety of reasons. I mean I wouldn't say it's extended to a point where it starts to set off any red flags or alarm bells. I think it's just typical we normally see this in the beginning of the year as people are getting reengaged. So it is slightly elongated from maybe what we were experiencing back in Q2 or early Q3 but nothing material.

Tobey Sommer

Okay. And then just a real housekeeping, do you have an expectation for the tax rate for the full year?

Dave Kelly

Yes. So Tobey our expectations for the tax rate for the full year is same as they are for Q1 about 39%.

Operator

There are no further questions at this time. I'd like to turn the call back over to David Dunkel, Chairman and CEO for any closing remarks.

David Dunkel

All right. Well, thank you all for your interest and support of Kforce. And I'd like to say thank you again to each and every member of our field and corporate teams and to our consultant and our clients for allowing us the privilege of serving you. Thank you very much. We look forward to speaking with you regarding our Q1 results.

Operator

Ladies and gentleman, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day.

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