kfrc-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________________________________________________

FORM 10-Q

________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-26058

_________________________________________________________________

Kforce Inc.

Exact name of registrant as specified in its charter

_______________________________________________________________


Florida						59-3264661
State or other jurisdiction of incorporation or organization						IRS Employer Identification No.


1001 East Palm Avenue, Tampa, Florida						33605
Address of principal executive offices						Zip Code

Registrant’s telephone number, including area code: (813) 552-5000

_______________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 per share	KFRC	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.): Yes ☐ No x

The number of shares outstanding of the registrant’s common stock as of April 30, 2021 was 21,914,936.

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KFORCE INC.

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	25
Item 4.	Controls and Procedures.	25
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	26
Item 1A.	Risk Factors.	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26
Item 3.	Defaults Upon Senior Securities.	26
Item 4.	Mine Safety Disclosures.	26
Item 5.	Other Information.	26
Item 6.	Exhibits.	27
SIGNATURES		28

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

References in this document to the “Registrant,” “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context otherwise requires or indicates.

This report, particularly Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II. Item 1A. Risk Factors, and the documents we incorporate into this report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to, projections of financial or operational performance, our beliefs regarding potential government actions or changes in laws and regulations, anticipated costs and benefits of proposed investments, effects of interest rate variations, financing needs or plans, funding of employee benefit plans, estimates concerning the effects of litigation or other disputes, the occurrence of unanticipated expenses, developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions, our ability to maintain compliance with our credit facility's covenants, our beliefs regarding the future flexibility of the working environment for Kforce, the impact of the COVID-19 pandemic on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations, as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. Kforce undertakes no obligation to update any forward-looking statements.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


	Three Months Ended March 31,
		2021		2020
Revenue		$	363,225	$	335,208
Direct costs		264,543		240,684
Gross profit		98,682		94,524
Selling, general and administrative expenses		78,029		79,216
Depreciation and amortization		1,202		1,393
Income from operations		19,451		13,915
Other expense, net		1,285		1,381
Income from operations, before income taxes		18,166		12,534
Income tax expense		4,905		3,428


Net income		13,261		9,106
Other comprehensive loss:
Defined benefit pension plans, no tax benefit		47		—
Change in fair value of interest rate swaps, net of tax		939		(1,121)
Comprehensive income		$	14,247	$	7,985




Earnings per share – basic		$	0.63	$	0.42



Earnings per share – diluted		$	0.62	$	0.42

Weighted average shares outstanding – basic		20,932		21,553
Weighted average shares outstanding – diluted		21,361		21,860

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)


	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	101,341	$	103,486
Trade receivables, net of allowances of $2,216 and $3,204, respectively	244,226		228,373
Prepaid expenses and other current assets	6,904		7,033
Total current assets	352,471		338,892
Fixed assets, net	26,373		26,804
Other assets, net	79,980		77,575
Deferred tax assets, net	9,490		10,738
Goodwill	25,040		25,040
Total assets	$	493,354	$	479,049
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	38,382	$	35,533
Accrued payroll costs	77,883		65,849
Current portion of operating lease liabilities	4,487		5,520
Income taxes payable	4,622		964
Other current liabilities	198		300
Total current liabilities	125,572		108,166
Long-term debt – credit facility	100,000		100,000
Other long-term liabilities	91,126		90,948
Total liabilities	316,698		299,114
Commitments and contingencies (Note L)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par; 250,000 shares authorized, 72,615 and 72,600 issued, respectively	726		726
Additional paid-in capital	476,165		472,378
Accumulated other comprehensive loss	(3,437)		(4,423)
Retained earnings	396,849		388,645
Treasury stock, at cost; 50,740 and 50,427 shares, respectively	(693,647)		(677,391)
Total stockholders’ equity	176,656		179,935
Total liabilities and stockholders’ equity	$	493,354	$	479,049

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)				Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Retained Earnings		Shares	Amount
Balance, December 31, 2020	72,600	$	726	$	472,378	$	(4,423)	$	388,645	50,427	$	(677,391)	$	179,935
Net income	—	—		—		—		13,261		—	—		13,261
Issuance for stock-based compensation and dividends, net of forfeitures	15	—		271		—		(271)		—	—		—
Stock-based compensation expense	—	—		3,403		—		—		—	—		3,403
Employee stock purchase plan	—	—		113		—		—		(4)	57		170
Dividends ($0.23 per share)	—	—		—		—		(4,786)		—	—		(4,786)
Defined benefit pension plan, no tax benefit						47							47
Change in fair value of interest rate swaps, net of tax benefit of $319	—	—		—		939		—		—	—		939
Repurchases of common stock	—	—		—		—		—		317	(16,313)		(16,313)
Balance, March 31, 2021	72,615	$	726	$	476,165	$	(3,437)	$	396,849	50,740	$	(693,647)	$	176,656


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss				Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Retained Earnings		Shares	Amount
Balance, December 31, 2019	72,202	$	722	$	459,545	$	(1,526)	$	350,545	49,277	$	(642,023)	$	167,263
Net income	—	—		—		—		9,106		—	—		9,106
Adoption of new accounting standard, net of tax of $75	—	—		—				(214)		—	—		(214)
Issuance for stock-based compensation and dividends, net of forfeitures	(4)	—		218		—		(218)		—	—		—
Stock-based compensation expense	—	—		2,896		—		—		—	—		2,896
Employee stock purchase plan	—	—		93		—		—		(4)	49		142
Dividends ($0.20 per share)	—	—		—		—		(4,293)		—	—		(4,293)
Change in fair value of interest rate swap, net of tax benefit of $384	—	—		—		(1,121)		—		—	—		(1,121)
Repurchases of common stock	—	—		—		—		—		685	(20,380)		(20,380)
Balance, March 31, 2020	72,198	$	722	$	462,752	$	(2,647)	$	354,926	49,958	$	(662,354)	$	153,399

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	13,261	$	9,106
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	931		(126)
Provision for credit losses	(852)		2,229
Depreciation and amortization	1,202		1,393
Stock-based compensation expense	3,403		2,896
Defined benefit pension plan expense	252		211


Noncash lease expense	1,114		1,521
Loss on equity method investment	491		595
Other	242		141
Increase in operating assets
Trade receivables, net	(15,001)		(20,176)
Other assets	(324)		(452)
Increase in operating liabilities
Accrued payroll costs	12,203		2,129
Other liabilities	5,504		3,538
Cash provided by operating activities	22,426		3,005
Cash flows from investing activities:
Capital expenditures	(1,350)		(1,971)
Equity method investment	(2,000)		—


Cash used in investing activities	(3,350)		(1,971)
Cash flows from financing activities:
Proceeds from credit facility	—		35,000

Repurchases of common stock	(16,313)		(19,470)
Cash dividends	(4,786)		(4,293)
Payments on other financing arrangements	(122)		(328)


Cash (used in) provided by financing activities	(21,221)		10,909
Change in cash and cash equivalents	(2,145)		11,943
Cash and cash equivalents, beginning of period	103,486		19,831
Cash and cash equivalents, end of period	$	101,341	$	31,774

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	Three Months Ended March 31,
Supplemental Disclosure of Cash Flow Information	2021		2020
Cash Paid During the Period For:
Income taxes	$	332	$	399
Operating lease liabilities	1,690		1,987
Interest, net	634		541
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases	$	243	$	924
Employee stock purchase plan	170		142

Unsettled repurchases of common stock	—		910

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies

Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 1 - “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of the 2020 Annual Report on Form 10-K.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnotes normally required by GAAP for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2020 Annual Report on Form 10-K. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from our audited Consolidated Balance Sheet as of December 31, 2020, as presented in our 2020 Annual Report on Form 10-K.

Our quarterly operating results are affected by the number of billing days in a particular quarter, the seasonality of our clients’ businesses and increased holiday and vacation days taken. In addition, we typically experience higher costs in the first quarter of each fiscal year as a result of certain U.S. state and federal employment tax resets, which adversely affects our gross profit and overall profitability. The impact of the COVID-19 pandemic on our business was somewhat unpredictable in 2020, but based on our current assessment, we do not expect any material impact on our long-term strategic plans, operations and liquidity due to COVID-19. However, we continue to assess the effect on our operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus as reported in the official agency reports. As such, the results of operations for any interim period may be impacted by these factors, among others, and are not necessarily indicative of, nor comparable to, the results of operations for a full year.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most critical of these estimates and assumptions relate to the following: allowance for credit losses; income taxes; self-insured liabilities for health insurance; obligations for the pension plan; and the impairment of goodwill, other long-lived assets and the equity method investment. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. The severity, magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, have been and may continue to be uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future periods in response to the COVID-19 pandemic.

Health Insurance

Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss per participant for each health insurance claim up to $600 thousand in claims annually. Additionally, for all claim amounts exceeding $600 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of $200 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and incurred but not reported claims, which are primarily based upon an evaluation of historical claims experience, completion factors determined by an actuary and a qualitative review of our health insurance exposure including the extent of outstanding claims and expected changes in health insurance costs.

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Earnings per Share

Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per share is computed by dividing net income by diluted WASO. Diluted WASO includes the dilutive effect of potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.

For the three months ended March 31, 2021 and 2020, 429 thousand and 307 thousand common stock equivalents were included in the diluted WASO, respectively. For the three months ended March 31, 2021 and 2020, there were nil and 332 thousand anti-dilutive common stock equivalents, respectively.

New Accounting Standards

Recently Adopted Accounting Standards

In August 2018, the FASB issued authoritative guidance regarding changes to the disclosure requirement for defined benefit plans including additions and deletions to certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The guidance was effective for fiscal periods beginning after December 15, 2020, with the retrospective method required for all periods presented. The Company adopted the provisions of this new accounting standard at the beginning of fiscal 2021. This guidance addresses disclosures only and did not have an impact on the Company’s financial statements.

Note B - Reportable Segments

Kforce provides services through our Technology (“Tech”) and Finance and Accounting (“FA”) segments. Historically, and for the three months ended March 31, 2021 and 2020, we have reported sales and gross profit information on a segment basis. Total assets, liabilities and operating expenses are not reported separately by segment as our operations are largely combined.

The following table provides information on the operations of our segments (in thousands):


	Tech		FA		Total
Three Months Ended March 31,
2021
Revenue	$	279,560	$	83,665	$	363,225
Gross profit	$	74,280	$	24,402	$	98,682
Operating and other expenses					$	80,516
Income from operations, before income taxes					$	18,166
2020
Revenue	$	266,784	$	68,424	$	335,208
Gross profit	$	72,454	$	22,070	$	94,524
Operating and other expenses					$	81,990
Income from operations, before income taxes					$	12,534

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Note C - Disaggregation of Revenue

The following table provides the disaggregation of revenue by segment and type (in thousands):

Tech

Total

Three Mon

SEC Form 10-Q filed by Kforce, Inc.