kfrc-20220331

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, 2022


☐			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 29, 2022 was 21,384,450.

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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: expectations of financial or operational performance; 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 beliefs regarding the expected future benefits of our flexible working environment; the impact of the COVID-19 pandemic, inflationary pressures and/or supply constraints on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations; our ability to maintain compliance with our credit facility's covenants; our beliefs regarding potential government actions or changes in laws and regulations, including those related to the COVID-19 pandemic; anticipated costs and benefits of acquisitions, divestitures, joint ventures and other investments; effects of interest rate variations; financing needs or plans; expected funding or payment of employee benefits; estimates concerning the effects of litigation or other disputes; the occurrence of unanticipated expenses; 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,
	2022		2021
Revenue	$	416,967	$	363,225
Direct costs	293,081		264,543
Gross profit	123,886		98,682
Selling, general and administrative expenses	95,049		78,029
Depreciation and amortization	1,093		1,202
Income from operations	27,744		19,451
Other expense, net	1,433		1,285
Income from operations, before income taxes	26,311		18,166
Income tax expense	7,130		4,905


Net income	19,181		13,261
Other comprehensive income, net of tax:
Defined benefit pension plans	—		47
Change in fair value of interest rate swaps	2,302		939
Comprehensive income	$	21,483	$	14,247




Earnings per share – basic	$	0.94	$	0.63



Earnings per share – diluted	$	0.93	$	0.62

Weighted average shares outstanding – basic	20,319		20,932
Weighted average shares outstanding – diluted	20,730		21,361

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, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	116,627	$	96,989
Trade receivables, net of allowances of $2,520 and $2,342, respectively	278,064		265,322
Income tax refund receivable	3,243		3,010
Prepaid expenses and other current assets	7,520		6,790
Total current assets	405,454		372,111
Fixed assets, net	6,586		5,964
Other assets, net	92,414		92,629
Deferred tax assets, net	—		7,657
Goodwill	25,040		25,040
Total assets	$	529,494	$	503,401
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	90,328	$	81,408
Accrued payroll costs	86,629		71,424
Current portion of operating lease liabilities	5,447		6,338
Income taxes payable	757		1,239
Other current liabilities	37		22

Total current liabilities	183,198		160,431
Long-term debt – credit facility	100,000		100,000
Deferred tax liability, net	665		—
Other long-term liabilities	47,426		54,564
Total liabilities	331,289		314,995
Commitments and contingencies (Note K)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par; 250,000 shares authorized, 72,996 and 72,997 issued, respectively	730		730
Additional paid-in capital	492,985		488,036
Accumulated other comprehensive income	2,923		621
Retained earnings	455,365		442,596
Treasury stock, at cost; 51,636 and 51,493 shares, respectively	(753,798)		(743,577)
Total stockholders’ equity	198,205		188,406
Total liabilities and stockholders’ equity	$	529,494	$	503,401

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				Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Retained Earnings		Shares	Amount
Balance, December 31, 2021	72,997	$	730	$	488,036	$	621	$	442,596	51,492	$	(743,577)	$	188,406
Net income	—	—		—		—		19,181		—	—		19,181
Issuance for stock-based compensation and dividends, net of forfeitures	(1)	—		319		—		(318)		—	—		1
Stock-based compensation expense	—	—		4,437		—		—		—	—		4,437
Employee stock purchase plan	—	—		193		—		—		(3)	49		242
Dividends ($0.30 per share)	—	—		—		—		(6,094)		—	—		(6,094)
Defined benefit pension plan, no tax benefit	—	—		—				—		—	—		—
Change in fair value of interest rate swaps, net of tax benefit of $780	—	—		—		2,302		—		—	—		2,302
Repurchases of common stock	—	—		—		—		—		147	(10,270)		(10,270)
Balance, March 31, 2022	72,996	$	730	$	492,985	$	2,923	$	455,365	51,636	$	(753,798)	$	198,205


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income				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 swap, 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

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,
	2022		2021
Cash flows from operating activities:
Net income	$	19,181	$	13,261
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	8,321		931
Provision for credit losses	172		(852)
Depreciation and amortization	1,093		1,202
Stock-based compensation expense	4,437		3,403
Defined benefit pension plan expense	—		252

Loss on disposal or impairment of assets	168		—
Noncash lease expense	1,502		1,114
Loss on equity method investment	825		491
Other	190		242
Increase in operating assets
Trade receivables, net	(12,914)		(15,001)
Other assets	(2,577)		(324)
Increase in operating liabilities
Accrued payroll costs	15,447		12,203
Other liabilities	2,897		5,504
Cash provided by operating activities	38,742		22,426
Cash flows from investing activities:
Capital expenditures	(2,221)		(1,350)
Contributions to equity method investment	(500)		(2,000)


Cash used in investing activities	(2,721)		(3,350)
Cash flows from financing activities:


Repurchases of common stock	(10,270)		(16,313)
Cash dividends	(6,094)		(4,786)
Payments on other financing arrangements	(19)		(122)


Cash used in financing activities	(16,383)		(21,221)
Change in cash and cash equivalents	19,638		(2,145)
Cash and cash equivalents, beginning of period	96,989		103,486
Cash and cash equivalents, end of period	$	116,627	$	101,341

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	Three Months Ended March 31,
Supplemental Disclosure of Cash Flow Information	2022		2021
Cash Paid During the Period For:
Income taxes	$	314	$	332
Operating lease liabilities	1,812		1,690
Interest, net	547		634
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases	$	446	$	243
Employee stock purchase plan	242		170

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 2021 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 2021 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, 2021, was derived from our audited Consolidated Balance Sheet as of December 31, 2021, as presented in our 2021 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 relative to the remainder of the fiscal year. 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; 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. In addition, the potential economic consequences of the COVID-19 pandemic, inflationary pressures, and supply constraints, among others, 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.

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.

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.

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For the three months ended March 31, 2022 and 2021, 411 thousand and 429 thousand common stock equivalents were included in the diluted WASO, respectively. For the three months ended March 31, 2022 and 2021, there were 305 thousand and nil anti-dilutive common stock equivalents, respectively.

New Accounting Standards

Recently Issued Accounting Standards Not Yet Adopted

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, Financial Instruments - Credit Losses (Topic 326) - Trouble Debt Restructurings and Vintage Disclosures. These amendments eliminate the trouble debt restructuring (TDR) recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-01 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022. Early adoption of this ASU is permitted. We are currently evaluating the impact of ASU 2022-01 on our consolidated financial statements, however, we do not anticipate this having a material impact to our financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to: (1) recognition of an acquired contract liability; and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022. Early adoption of this ASU is permitted. We are currently evaluating the impact of ASU 2021-08 on our consolidated financial statements.

Other recently issued statements have been evaluated but are not listed here as it has been determined that they are not applicable to our Firm.

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Note B - Reportable Segments

Kforce provides services through our Technology and Finance and Accounting (“FA”) segments. Historically, and for the three months ended March 31, 2022, 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):


	Technology		FA		Total
Three Months Ended March 31,
2022
Revenue	$	359,905	$	57,062	$	416,967
Gross profit	$	102,450	$	21,436	$	123,886
Operating and other expenses					$	97,575
Income from operations, before income taxes					$	26,311
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

Note C - Disaggregation of Revenue

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

Technology

Total

Three Months Ended March 31,

SEC Form 10-Q filed by Kforce Inc.