kfrc-20230331

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, 2023


☐			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.


1150 Assembly Drive, Suite 500, Tampa, Florida						33607
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 every Interactive Data File required to be submitted 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 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

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

The number of shares outstanding of the registrant’s common stock as of May 5, 2023 was 20,341,265.

T a b l e o f C o n t e n t s

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.	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	22
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	23
Item 1A.	Risk Factors.	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	23
Item 3.	Defaults Upon Senior Securities.	23
Item 4.	Mine Safety Disclosures.	23
Item 5.	Other Information.	23
Item 6.	Exhibits.	24
SIGNATURES		25

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, including our expectations regarding the future growth or decline in revenue of each segment of our business; the impact of the economic environment on our business; the Firm’s commitment to return significant capital to its shareholders regardless of the economic climate; the intent and ability to declare and pay quarterly dividends; growth rates in temporary staffing; a constraint 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; our ability to maintain compliance with our credit facility's covenants; potential government actions or changes in laws and regulations; anticipated costs and benefits of acquisitions, divestitures, joint ventures and other investments; effects of interest rate variations; financing needs or plans; 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.

T a b l e o f C o n t e n t s

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,
	2023		2022
Revenue	$	405,997	$	416,967
Direct costs	292,021		293,081
Gross profit	113,976		123,886
Selling, general and administrative expenses	89,339		95,049
Depreciation and amortization	1,234		1,093
Income from operations	23,403		27,744
Other expense, net	1,045		1,433
Income from operations, before income taxes	22,358		26,311
Income tax expense	6,148		7,130


Net income	16,210		19,181
Other comprehensive income, net of tax:
Change in fair value of interest rate swaps	—		2,302
Comprehensive income	$	16,210	$	21,483




Earnings per share – basic	$	0.83	$	0.94



Earnings per share – diluted	$	0.82	$	0.93

Weighted average shares outstanding – basic	19,455		20,319
Weighted average shares outstanding – diluted	19,667		20,730

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

T a b l e o f C o n t e n t s

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	171	$	121
Trade receivables, net of allowances of $1,437 and $1,575, respectively	266,525		269,496
Prepaid expenses and other current assets	8,213		8,143
Total current assets	274,909		277,760
Fixed assets, net	10,036		8,647
Other assets, net	71,682		75,771
Deferred tax assets, net	3,485		4,786
Goodwill	25,040		25,040
Total assets	$	385,152	$	392,004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	69,615	$	72,792
Accrued payroll costs	46,893		48,369
Current portion of operating lease liabilities	3,800		4,576
Income taxes payable	5,449		5,696


Total current liabilities	125,757		131,433
Long-term debt – credit facility	22,300		25,600

Other long-term liabilities	51,370		52,773
Total liabilities	199,427		209,806
Commitments and contingencies (Note L)
Stockholders’ equity:
Preferred stock, $0.01 par value; 15,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par value; 250,000 shares authorized, 73,247 and 73,242 issued, respectively	732		732
Additional paid-in capital	512,572		507,734
Accumulated other comprehensive income	—		6
Retained earnings	501,630		492,764
Treasury stock, at cost; 52,920 and 52,744 shares, respectively	(829,209)		(819,038)
Total stockholders’ equity	185,725		182,198
Total liabilities and stockholders’ equity	$	385,152	$	392,004

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

T a b l e o f C o n t e n t s

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, 2022	73,242	$	732	$	507,734	$	6	$	492,764	52,744	$	(819,038)	$	182,198
Net income	—	—		—		—		16,210		—	—		16,210
Issuance for stock-based compensation and dividends, net of forfeitures	5	—		340		—		(341)		—	—		(1)
Stock-based compensation expense	—	—		4,326		—		—		—	—		4,326
Employee stock purchase plan	—	—		172		—		—		(5)	73		245
Dividends ($0.36 per share)	—	—		—		—		(7,003)		—	—		(7,003)
Repurchases of common stock	—	—		—		—		—		181	(10,244)		(10,244)
Other	—	—		—		(6)		—		—	—		(6)
Balance, March 31, 2023	73,247	$	732	$	512,572	$	—	$	501,630	52,920	$	(829,209)	$	185,725


	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)
Change in fair value of interest rate swap, 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

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

T a b l e o f C o n t e n t s

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	16,210	$	19,181
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	1,301		8,321
Provision for credit losses	371		172
Depreciation and amortization	1,234		1,093
Stock-based compensation expense	4,326		4,437
Noncash lease expense	1,130		1,502


Loss on equity method investment	750		825
Other	50		358
(Increase) decrease in operating assets
Trade receivables, net	2,601		(12,914)
Other assets	243		(2,577)
Increase (decrease) in operating liabilities
Accrued payroll costs	(1,230)		15,447

Other liabilities	(7,930)		2,897
Cash provided by operating activities	19,056		38,742
Cash flows from investing activities:
Capital expenditures	(1,872)		(2,221)
Proceeds from the sale of our joint venture interest	5,059		—
Note receivable issued to our joint venture	(750)		—
Equity method investment	—		(500)

Cash provided by (used) in investing activities	2,437		(2,721)
Cash flows from financing activities:
Proceeds from credit facility	174,200		—
Payments on credit facility	(177,500)		—

Repurchases of common stock	(11,126)		(10,270)
Cash dividends	(7,003)		(6,094)
Payments on other financing arrangements	(14)		(19)

Cash used in financing activities	(21,443)		(16,383)
Change in cash and cash equivalents	50		19,638
Cash and cash equivalents, beginning of period	121		96,989
Cash and cash equivalents, end of period	$	171	$	116,627

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

T a b l e o f C o n t e n t s


	Three Months Ended March 31,
Supplemental Disclosure of Cash Flow Information	2023		2022
Cash Paid During the Period For:
Income taxes	$	5,108	$	314
Operating lease liabilities	1,303		1,812
Interest, net	248		547
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases	$	566	$	446
Employee stock purchase plan	245		242



Equipment and software additions included in accounts payable and other accrued liabilities	957		—

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

T a b l e o f C o n t e n t s

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 2022 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 2022 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, 2022, was derived from our audited Consolidated Balance Sheet as of December 31, 2022, as presented in our 2022 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 and other long-lived assets. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. 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 $280 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.

T a b l e o f C o n t e n t s

For the three months ended March 31, 2023 and 2022, 212 thousand and 411 thousand common stock equivalents were included in diluted WASO, respectively. For the three months ended March 31, 2023 and 2022, there were 264 thousand and 305 thousand anti-dilutive common stock equivalents, respectively.

Equity Method Investment and Note Receivable

In June 2019, we entered into a joint venture whereby Kforce obtained a 50% noncontrolling interest in WorkLLama, which was accounted for as an equity method investment. As of December 31, 2022, the equity method investment was fully impaired. We recorded a loss related to our equity method investment of $0.8 million for each of the three months ended March 31, 2023 and 2022. During the year ended December 31, 2022, Kforce executed a series of promissory notes (the “Note Receivable”) to our joint venture for a total of $6.8 million and recorded a credit loss of $1.9 million, resulting in a balance of $4.8 million at December 31, 2022. There were no payments received on the Note Receivable during the year ended December 31, 2022.

On February 23, 2023, Kforce received $6.0 million in exchange for the sale of our 50% noncontrolling interest in WorkLLama to an unaffiliated third party and in full settlement of the outstanding balance of the Note Receivable. These proceeds, net of customary transaction costs, amounted to $5.1 million and is presented in the investing section of the Unaudited Condensed Consolidated Statements of Cash Flows.

Excise Tax

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into Federal law. The IRA provides for, among other things, a new U.S. Federal 1% nondeductible excise tax on certain repurchases of stock by publicly-traded U.S. domestic corporations occurring after December 31, 2022. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain stock issuances against the fair market value of stock repurchases during the same taxable year, with certain exceptions. For the three months ended March 31, 2023, we recorded $0.1 million in excise tax related to the IRA, which was included in Treasury stock in the unaudited condensed consolidated financial statements.

New Accounting Standards

Recently Adopted Accounting Standards

In March 2020, the FASB issued guidance for reference rate reform, which provided temporary optional guidance to ease the potential burden in accounting for reference rate reform in contracts and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The FASB has since issued subsequent updates to the initial guidance in December 2022, which extends the final sunset date for reference rate reform from December 31, 2022 to December 31, 2024. We adopted this standard as of January 1, 2023 and do not expect it to have a material impact on our consolidated financial statements.

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, 2023, 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.

T a b l e o f C o n t e n t s

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


	Technology		FA		Total
Three Months Ended March 31,
2023
Revenue	$	364,844	$	41,153	$	405,997
Gross profit	$	98,411	$	15,565	$	113,976
Operating and other expenses					$	91,618
Income from operations, before income taxes					$	22,358
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

Note C - Disaggregation of Revenue

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


	Technology		FA		Total
Three Months Ended March 31,
2023
Revenue by type:
Flex revenue	$	359,524	$	36,008	$	395,532
Direct Hire revenue	5,320		5,145		10,465
Total Revenue	$	364,844	$	41,153	$	405,997
2022
Revenue by type:
Flex revenue	$	351,716	$	50,150	$	401,866
Direct Hire revenue	8,189		6,912		15,101
Total Revenue	$	359,905	$	57,062	$	416,967

Note D - Allowance for Credit Losses

The allowance for credit losses on trade receivables is determined by estimating and recognizing lifetime expected losses, rather than incurred losses, which results in the earlier recognition of credit losses even if the expected risk of credit loss is remote. As part of our analysis, we apply credit loss rates to outstanding receivables by aging category. For certain clients, we perform a quarterly credit review, which considers the client’s credit rating and financial position as well as our total credit loss exposure. Trade receivables are written off after all reasonable collection efforts have been exhausted. Recoveries of trade receivables previously written off are recorded when received and are immaterial for the three months ended March 31, 2023.

The following table presents the activity within the allowance for credit losses on trade receivables for the three months ended March 31, 2023 (in thousands):




Allowance for credit losses, January 1, 2023	$	1,006
Current period provision	371
Write-offs charged against the allowance, net of recoveries of amounts previously written off	(442)

Allowance for credit losses, March 31, 2023	$	935

T a b l e o f C o n t e n t s

SEC Form 10-Q filed by Kforce Inc.