UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20202021
OR
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☐ | 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
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Florida | | 59-3264661 |
State or other jurisdiction of incorporation or organization | | IRS Employer Identification No. |
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1001 East Palm Avenue, Tampa, Florida | | 33605 |
Address of principal executive offices | | Zip Code |
Registrant’s telephone number, including area code: (813) 552-5000
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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:
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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 May 4, 2020April 30, 2021 was 21,921,984.21,914,936.
KFORCE INC.
TABLE OF CONTENTS
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Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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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��sManagement’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.
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, | | | | | Three Months Ended March 31, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 |
Revenue | Revenue | | $ | 335,208 | | | $ | 326,738 | | Revenue | | | $ | 363,225 | | | $ | 335,208 | |
Direct costs | Direct costs | | 240,684 | | | 233,562 | | Direct costs | | | 264,543 | | | 240,684 | |
Gross profit | Gross profit | | 94,524 | | | 93,176 | | Gross profit | | | 98,682 | | | 94,524 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 79,216 | | | 79,813 | | Selling, general and administrative expenses | | | 78,029 | | | 79,216 | |
Depreciation and amortization | Depreciation and amortization | | 1,393 | | | 1,650 | | Depreciation and amortization | | | 1,202 | | | 1,393 | |
Income from operations | Income from operations | | 13,915 | | | 11,713 | | Income from operations | | | 19,451 | | | 13,915 | |
Other expense, net | Other expense, net | | 1,381 | | | 923 | | Other expense, net | | | 1,285 | | | 1,381 | |
Income from continuing operations, before income taxes | | 12,534 | | | 10,790 | | |
Income from operations, before income taxes | | Income from operations, before income taxes | | | 18,166 | | | 12,534 | |
Income tax expense | Income tax expense | | 3,428 | | | 2,816 | | Income tax expense | | | 4,905 | | | 3,428 | |
Income from continuing operations | | 9,106 | | | 7,974 | | |
Income from discontinued operations, net of tax | | — | | | 18,881 | | |
| Net income | Net income | | 9,106 | | | 26,855 | | Net income | | | 13,261 | | | 9,106 | |
Other comprehensive loss: | Other comprehensive loss: | | | Other comprehensive loss: | | |
Defined benefit pension plans, no tax benefit | | Defined benefit pension plans, no tax benefit | | | 47 | | | 0 | |
Change in fair value of interest rate swaps, net of tax | Change in fair value of interest rate swaps, net of tax | | (1,121) | | | (280) | | Change in fair value of interest rate swaps, net of tax | | | 939 | | | (1,121) | |
Comprehensive income | Comprehensive income | | $ | 7,985 | | | $ | 26,575 | | Comprehensive income | | | $ | 14,247 | | | $ | 7,985 | |
| Earnings per share – basic: | | | |
Continuing operations | | $ | 0.42 | | | $ | 0.33 | | |
Discontinued operations | | — | | | 0.77 | | |
| Earnings per share – basic | Earnings per share – basic | | $ | 0.42 | | | $ | 1.10 | | Earnings per share – basic | | | $ | 0.63 | | | $ | 0.42 | |
Earnings per share – diluted: | | | |
Continuing operations | | $ | 0.42 | | | $ | 0.32 | | |
Discontinued operations | | — | | | 0.75 | | |
| Earnings per share – diluted | Earnings per share – diluted | | $ | 0.42 | | | $ | 1.07 | | Earnings per share – diluted | | | $ | 0.62 | | | $ | 0.42 | |
| Weighted average shares outstanding – basic | Weighted average shares outstanding – basic | | 21,553 | | | 24,516 | | Weighted average shares outstanding – basic | | | 20,932 | | | 21,553 | |
Weighted average shares outstanding – diluted | Weighted average shares outstanding – diluted | | 21,860 | | | 25,019 | | Weighted average shares outstanding – diluted | | | 21,361 | | | 21,860 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
ASSETS | ASSETS | | ASSETS | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 31,774 | | | $ | 19,831 | | Cash and cash equivalents | $ | 101,341 | | | $ | 103,486 | |
Trade receivables, net of allowances of $4,375 and $2,078, respectively | 235,587 | | | 217,929 | | |
Trade receivables, net of allowances of $2,216 and $3,204, respectively | | Trade receivables, net of allowances of $2,216 and $3,204, respectively | 244,226 | | | 228,373 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 7,401 | | | 7,475 | | Prepaid expenses and other current assets | 6,904 | | | 7,033 | |
Total current assets | Total current assets | 274,762 | | | 245,235 | | Total current assets | 352,471 | | | 338,892 | |
Fixed assets, net | Fixed assets, net | 29,462 | | | 29,975 | | Fixed assets, net | 26,373 | | | 26,804 | |
Other assets, net | Other assets, net | 67,678 | | | 72,838 | | Other assets, net | 79,980 | | | 77,575 | |
Deferred tax assets, net | Deferred tax assets, net | 8,546 | | | 8,037 | | Deferred tax assets, net | 9,490 | | | 10,738 | |
Goodwill | Goodwill | 25,040 | | | 25,040 | | Goodwill | 25,040 | | | 25,040 | |
Total assets | Total assets | $ | 405,488 | | | $ | 381,125 | | Total assets | $ | 493,354 | | | $ | 479,049 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable and other accrued liabilities | Accounts payable and other accrued liabilities | $ | 37,125 | | | $ | 33,232 | | Accounts payable and other accrued liabilities | $ | 38,382 | | | $ | 35,533 | |
Accrued payroll costs | Accrued payroll costs | 45,988 | | | 44,001 | | Accrued payroll costs | 77,883 | | | 65,849 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 5,201 | | | 5,685 | | Current portion of operating lease liabilities | 4,487 | | | 5,520 | |
Income taxes payable | Income taxes payable | 4,026 | | | 878 | | Income taxes payable | 4,622 | | | 964 | |
Other current liabilities | Other current liabilities | 954 | | | 1,168 | | Other current liabilities | 198 | | | 300 | |
Total current liabilities | Total current liabilities | 93,294 | | | 84,964 | | Total current liabilities | 125,572 | | | 108,166 | |
Long-term debt – credit facility | Long-term debt – credit facility | 100,000 | | | 65,000 | | Long-term debt – credit facility | 100,000 | | | 100,000 | |
Other long-term liabilities | Other long-term liabilities | 58,795 | | | 63,898 | | Other long-term liabilities | 91,126 | | | 90,948 | |
Total liabilities | Total liabilities | 252,089 | | | 213,862 | | Total liabilities | 316,698 | | | 299,114 | |
Commitments and contingencies (Note M) | | | | |
Commitments and contingencies (Note L) | | Commitments and contingencies (Note L) | 0 | | 0 |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.01 par; 15,000 shares authorized, NaN issued and outstanding | Preferred stock, $0.01 par; 15,000 shares authorized, NaN issued and outstanding | — | | | — | | Preferred stock, $0.01 par; 15,000 shares authorized, NaN issued and outstanding | 0 | | | 0 | |
Common stock, $0.01 par; 250,000 shares authorized, 72,198 and 72,202 issued, respectively | 722 | | | 722 | | |
Common stock, $0.01 par; 250,000 shares authorized, 72,615 and 72,600 issued, respectively | | Common stock, $0.01 par; 250,000 shares authorized, 72,615 and 72,600 issued, respectively | 726 | | | 726 | |
Additional paid-in capital | Additional paid-in capital | 462,752 | | | 459,545 | | Additional paid-in capital | 476,165 | | | 472,378 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (2,647) | | | (1,526) | | Accumulated other comprehensive loss | (3,437) | | | (4,423) | |
Retained earnings | Retained earnings | 354,926 | | | 350,545 | | Retained earnings | 396,849 | | | 388,645 | |
Treasury stock, at cost; 49,958 and 49,277 shares, respectively | (662,354) | | | (642,023) | | |
Treasury stock, at cost; 50,740 and 50,427 shares, respectively | | Treasury stock, at cost; 50,740 and 50,427 shares, respectively | (693,647) | | | (677,391) | |
Total stockholders’ equity | Total stockholders’ equity | 153,399 | | | 167,263 | | Total stockholders’ equity | 176,656 | | | 179,935 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 405,488 | | | $ | 381,125 | | Total liabilities and stockholders’ equity | $ | 493,354 | | | $ | 479,049 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
| | | Common Stock | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity |
| | Shares | | Amount | | | | | | Retained Earnings | | Shares | | Amount | | | Total Stockholders’ Equity | Shares | | Amount | | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | | Shares | | Amount | | Total Stockholders’ Equity |
Balance, December 31, 2019 | 72,202 | | | $ | 722 | | | $ | 459,545 | | | $ | (1,526) | | | $ | 350,545 | | | 49,277 | | | $ | (642,023) | | | $ | 167,263 | | |
Balance, December 31, 2020 | | Balance, December 31, 2020 | 72,600 | | | $ | 726 | | | $ | 472,378 | | | $ | (4,423) | | | $ | 388,645 | | | 50,427 | | | $ | (677,391) | | | $ | 179,935 | |
Net income | Net income | — | | | — | | | — | | | — | | | 9,106 | | | — | | | — | | | 9,106 | | Net income | — | | | — | | | — | | | — | | | 13,261 | | | — | | | — | | | 13,261 | |
Adoption of new accounting standard (Note E), net of tax of $75 | — | | | — | | | — | | | — | | | (214) | | | — | | | — | | | (214) | | |
Issuance for stock-based compensation and dividends, net of forfeitures | Issuance for stock-based compensation and dividends, net of forfeitures | (4) | | | — | | | 218 | | | — | | | (218) | | | — | | | — | | | — | | Issuance for stock-based compensation and dividends, net of forfeitures | 15 | | | — | | | 271 | | | — | | | (271) | | | — | | | — | | | 0 | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 2,896 | | | — | | | — | | | — | | | — | | | 2,896 | | Stock-based compensation expense | — | | | — | | | 3,403 | | | — | | | — | | | — | | | — | | | 3,403 | |
Employee stock purchase plan | Employee stock purchase plan | — | | | — | | | 93 | | | — | | | — | | | (4) | | | 49 | | | 142 | | Employee stock purchase plan | — | | | — | | | 113 | | | — | | | — | | | (4) | | | 57 | | | 170 | |
Dividends ($0.20 per share) | — | | | — | | | — | | | — | | | (4,293) | | | — | | | — | | | (4,293) | | |
Change in fair value of interest rate swaps, net of tax of $384 | — | | | — | | | — | | | (1,121) | | | — | | | — | | | — | | | (1,121) | | |
Dividends ($0.23 per share) | | Dividends ($0.23 per share) | — | | | — | | | — | | | — | | | (4,786) | | | — | | | — | | | (4,786) | |
Defined benefit pension plan, no tax benefit | | Defined benefit pension plan, no tax benefit | | 47 | | | 47 | |
Change in fair value of interest rate swaps, net of tax benefit of $319 | | Change in fair value of interest rate swaps, net of tax benefit of $319 | — | | | — | | | — | | | 939 | | | — | | | — | | | — | | | 939 | |
Repurchases of common stock | Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 685 | | | (20,380) | | | (20,380) | | Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 317 | | | (16,313) | | | (16,313) | |
Balance, March 31, 2020 | 72,198 | | | $ | 722 | | | $ | 462,752 | | | $ | (2,647) | | | $ | 354,926 | | | 49,958 | | | $ | (662,354) | | | $ | 153,399 | | |
Balance, March 31, 2021 | | Balance, March 31, 2021 | 72,615 | | | $ | 726 | | | $ | 476,165 | | | $ | (3,437) | | | $ | 396,849 | | | 50,740 | | | $ | (693,647) | | | $ | 176,656 | |
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| 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, 2018 | 71,856 | | | $ | 719 | | | $ | 447,337 | | | $ | 1,296 | | | $ | 237,308 | | | 45,822 | | | $ | (518,329) | | | $ | 168,331 | |
Net income | — | | | — | | | — | | | — | | | 26,855 | | | — | | | — | | | 26,855 | |
Reclassification of stranded tax effects | — | | | — | | | — | | | 168 | | | (168) | | | — | | | — | | | — | |
Issuance for stock-based compensation and dividends, net of forfeitures | 4 | | | — | | | 233 | | | — | | | (233) | | | — | | | — | | | — | |
Stock-based compensation expense | — | | | — | | | 2,620 | | | — | | | — | | | — | | | — | | | 2,620 | |
Employee stock purchase plan | — | | | — | | | 86 | | | — | | | — | | | (5) | | | 54 | | | 140 | |
Dividends ($0.18 per share) | — | | | — | | | — | | | — | | | (4,406) | | | — | | | — | | | (4,406) | |
Change in fair value of interest rate swap, net of tax of $95 | — | | | — | | | — | | | (280) | | | — | | | — | | | — | | | (280) | |
Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 432 | | | (14,688) | | | (14,688) | |
Balance, March 31, 2019 | 71,860 | | | $ | 719 | | | $ | 450,276 | | | $ | 1,184 | | | $ | 259,356 | | | 46,249 | | | $ | (532,963) | | | $ | 178,572 | |
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| 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) | | | — | | | — | | | 0 | |
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 | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
Net income | Net income | $ | 9,106 | | | $ | 26,855 | | Net income | $ | 13,261 | | | $ | 9,106 | |
Adjustments to reconcile net income to cash provided by operating activities: | Adjustments to reconcile net income to cash provided by operating activities: | | Adjustments to reconcile net income to cash provided by operating activities: | |
| Deferred income tax provision, net | Deferred income tax provision, net | (126) | | | (18,314) | | Deferred income tax provision, net | 931 | | | (126) | |
Provision for credit losses | Provision for credit losses | 2,229 | | | 349 | | Provision for credit losses | (852) | | | 2,229 | |
Depreciation and amortization | Depreciation and amortization | 1,393 | | | 1,972 | | Depreciation and amortization | 1,202 | | | 1,393 | |
Stock-based compensation expense | Stock-based compensation expense | 2,896 | | | 2,620 | | Stock-based compensation expense | 3,403 | | | 2,896 | |
Defined benefit pension plan expense | Defined benefit pension plan expense | 211 | | | 216 | | Defined benefit pension plan expense | 252 | | | 211 | |
Loss on deferred compensation plan investments, net | 39 | | | 89 | | |
Loss on disposal or impairment of assets | 15 | | | 801 | | |
| Noncash lease expense | Noncash lease expense | 1,521 | | | 1,662 | | Noncash lease expense | 1,114 | | | 1,521 | |
Loss on equity method investment | Loss on equity method investment | 595 | | | — | | Loss on equity method investment | 491 | | | 595 | |
Other | Other | 87 | | | 973 | | Other | 242 | | | 141 | |
(Increase) decrease in operating assets | | |
Increase in operating assets | | Increase in operating assets | |
Trade receivables, net | Trade receivables, net | (20,176) | | | (7,377) | | Trade receivables, net | (15,001) | | | (20,176) | |
Other assets, net | (452) | | | (393) | | |
Increase (decrease) in operating liabilities | | |
Other assets | | Other assets | (324) | | | (452) | |
Increase in operating liabilities | | Increase in operating liabilities | |
Accrued payroll costs | Accrued payroll costs | 2,129 | | | 380 | | Accrued payroll costs | 12,203 | | | 2,129 | |
Other liabilities | Other liabilities | 3,538 | | | 1,956 | | Other liabilities | 5,504 | | | 3,538 | |
Cash provided by operating activities | Cash provided by operating activities | 3,005 | | | 11,789 | | Cash provided by operating activities | 22,426 | | | 3,005 | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Capital expenditures | Capital expenditures | (1,971) | | | (1,496) | | Capital expenditures | (1,350) | | | (1,971) | |
Other | — | | | (1,000) | | |
Equity method investment | | Equity method investment | (2,000) | | | 0 | |
| | Cash used in investing activities | Cash used in investing activities | (1,971) | | | (2,496) | | Cash used in investing activities | (3,350) | | | (1,971) | |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Proceeds from credit facility | Proceeds from credit facility | 35,000 | | | 78,300 | | Proceeds from credit facility | 0 | | | 35,000 | |
Payments on credit facility | — | | | (67,600) | | |
| Repurchases of common stock | Repurchases of common stock | (19,470) | | | (14,875) | | Repurchases of common stock | (16,313) | | | (19,470) | |
Cash dividend | (4,293) | | | (4,406) | | |
Cash dividends | | Cash dividends | (4,786) | | | (4,293) | |
Payments on other financing arrangements | Payments on other financing arrangements | (328) | | | (540) | | Payments on other financing arrangements | (122) | | | (328) | |
| Other | — | | | (25) | | |
Cash provided by (used in) financing activities | 10,909 | | | (9,146) | | |
| Cash (used in) provided by financing activities | | Cash (used in) provided by financing activities | (21,221) | | | 10,909 | |
Change in cash and cash equivalents | Change in cash and cash equivalents | 11,943 | | | 147 | | Change in cash and cash equivalents | (2,145) | | | 11,943 | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 19,831 | | | 112 | | Cash and cash equivalents, beginning of period | 103,486 | | | 19,831 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 31,774 | | | $ | 259 | | Cash and cash equivalents, end of period | $ | 101,341 | | | $ | 31,774 | |
|
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | 2020 | | 2019 | Supplemental Disclosure of Cash Flow Information | 2021 | | 2020 |
Cash Paid During the Period For: | Cash Paid During the Period For: | | Cash Paid During the Period For: | |
Income taxes | Income taxes | $ | 399 | | | $ | 184 | | Income taxes | $ | 332 | | | $ | 399 | |
Operating lease liabilities | Operating lease liabilities | 1,987 | | | | 1,836 | | Operating lease liabilities | 1,690 | | | 1,987 | |
Interest, net | Interest, net | 541 | | | | 627 | | Interest, net | 634 | | | 541 | |
Non-Cash Investing and Financing Transactions: | Non-Cash Investing and Financing Transactions: | | Non-Cash Investing and Financing Transactions: | | |
ROU assets obtained from new operating leases | $ | 924 | | | $ | 817 | | |
ROU assets obtained from operating leases | | ROU assets obtained from operating leases | $ | 243 | | | $ | 924 | |
Employee stock purchase plan | | Employee stock purchase plan | 170 | | | 142 | |
| Unsettled repurchases of common stock | Unsettled repurchases of common stock | 910 | | | 369 | | Unsettled repurchases of common stock | 0 | | | 910 | |
Employee stock purchase plan | 142 | | | 140 | | |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 20192020 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 Kforcemanagement 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 20192020 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, 20192020 was derived from our audited Consolidated Balance Sheet as of December 31, 2019,2020, as presented in our 20192020 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 an increase inhigher costs in the first quarter of each fiscal year as a result of certain U.S. state and federal employment tax resets, which negatively impactsadversely 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; variable consideration for revenue recognition; income taxes; self-insured liabilities for workers’ compensation and health insurance; obligations for the pension plan; and any asset impairments.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.
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, and 2019, 307429 thousand and 503307 thousand common stock equivalents were included in the diluted WASO, respectively. For the three months ended March 31, 20202021 and 2019,2020, there were 332 thousandNaN and 3332 thousand anti-dilutive common stock equivalents, respectively.
New Accounting Standards
Recently Adopted Accounting Standards
In June 2016, the FASB issued authoritative guidance on accounting for credit losses on financial instruments, including trade receivables, and has since issued subsequent updates to the initial guidance. The amended guidance requires the application of a current expected credit loss model, a new impairment model, which measures expected credit losses based on relevant information, including historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for annual periods beginning after December 15, 2019. We adopted this standard using the modified retrospective approach as of January 1, 2020, as required. Refer to Note E - “Allowance for Credit Losses” additional accounting policy and transition disclosures related to our allowance for credit losses.
In March 2020, the FASB issued authoritative guidance, which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference LIBOR and are affected by reference rate reform if certain criteria are met. Entities may adopt the provisions of the new standard as of the beginning of the reporting period when the election is made between March 12, 2020 through December 31, 2022. We adopted this optional standard effective January 1, 2020 using the prospective method, and utilized the optional expedients for cash flow hedges to assume that a hedged forecasted transaction is probable of occurring and that the reference rate will not be replaced for the remainder of a hedging relationship.
Accounting Standards Not Yet Adopted
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 iswas effective for fiscal periods beginning after December 15, 2020, with the retrospective method required for all periods presented. The adoptionCompany adopted the provisions of this new accounting standard at the beginning of fiscal 2021. This guidance will modify ouraddresses disclosures but we doonly and did not expect this standard to have a material effectan impact on our consolidatedthe Company’s financial statements.
Note B - Discontinued Operations
During 2019, management completed the sale of our Government Solutions (“GS”) segment as a result of the Firm’s decision to focus solely on the commercial technical and professional staffing services and solutions space. The GS segment consisted of Kforce Government Solutions, Inc. (“KGS”), our federal government solutions business, and TraumaFX® Solutions, Inc. (“TFX”), our federal government product business. The results of operations for both KGS and TFX have been reported as discontinued operations in our consolidated financial statements for all prior periods presented.
The following table summarizes the line items of pretax profit of the GS segment for the three months ended March 31, 2019 (in thousands):
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| | | | | | | |
Revenue | | | | | | | $ | 26,426 | |
Direct costs | | | | | | | 19,015 | |
Gross profit | | | | | | | 7,411 | |
Selling, general and administrative expenses | | | | | | | 5,432 | |
Depreciation and amortization | | | | | | | 235 | |
Income from discontinued operations | | | | | | | 1,744 | |
| | | | | | | |
Other expense, net | | | | | | | 864 | |
Income from discontinued operations, before income taxes | | | | | | | 880 | |
Income tax benefit (1) | | | | | | | 18,001 | |
Income from discontinued operations, net of tax | | | | | | | $ | 18,881 | |
(1) During the three months ended March 31, 2019, we entered into a definitive agreement to sell KGS and recorded an increase of $18.5 million to deferred tax assets since it became apparent that the temporary difference for the excess of the outside tax basis in the equity of KGS over the amount of the inside basis in the assets of KGS would reverse in the foreseeable future. This deferred tax asset of $18.5 million was utilized and recorded as income tax expense during the three months ended June 30, 2019 when the divestiture was completed.
The accompanying Unaudited Condensed Consolidated Statements of Cash Flows are presented on a combined basis (continuing operations and discontinued operations). For the three months ended March 31, 2019, cash provided by operating activities and cash used in investing activities for discontinued operations were $5.7 million and $0.1 million, respectively.
Note C - Reportable Segments
Kforce provides services through our Technology (“Tech”) and Finance and Accounting (“FA”) segments. Historically, and for the three months ended March 31, 20202021 and 2019,2020, 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, | | Three Months Ended March 31, | |
2021 | | 2021 | |
Revenue | | Revenue | $ | 279,560 | | | $ | 83,665 | | | $ | 363,225 | |
Gross profit | | Gross profit | $ | 74,280 | | | $ | 24,402 | | | $ | 98,682 | |
Operating and other expenses | | Operating and other expenses | | $ | 80,516 | |
Income from operations, before income taxes | | Income from operations, before income taxes | | $ | 18,166 | |
2020 | | 2020 | |
Revenue | | Revenue | $ | 266,784 | | | $ | 68,424 | | | $ | 335,208 | |
Gross profit | | Gross profit | $ | 72,454 | | | $ | 22,070 | | | $ | 94,524 | |
Operating and other expenses | | Operating and other expenses | | $ | 81,990 | |
Income from operations, before income taxes | | Income from operations, before income taxes | | $ | 12,534 | |
| | | Tech | | FA | | Total | |
| Three Months Ended March 31, | | |
2020 | | |
Revenue | $ | 266,784 | | | $ | 68,424 | | | $ | 335,208 | | |
Gross profit | $ | 72,454 | | | $ | 22,070 | | | $ | 94,524 | | |
Operating and other expenses | | 81,990 | | |
Income from continuing operations, before income taxes | | $ | 12,534 | | |
2019 | | |
Revenue | $ | 255,643 | | | $ | 71,095 | | | $ | 326,738 | | |
Gross profit | $ | 68,822 | | | $ | 24,354 | | | $ | 93,176 | | |
Operating and other expenses | | 82,386 | | |
Income from continuing operations, before income taxes | | $ | 10,790 | | |
Note DC - Disaggregation of Revenue
The following table provides the disaggregation of revenue by segment and type (in thousands):
| | | | | | | | | | | | | | | | | |
| Tech | | FA | | Total |
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Three Months Ended March 31, | | | | | |
2020 | | | | | |
Revenue by type: | | | | | |
Flex revenue | $ | 262,569 | | | $ | 63,540 | | | $ | 326,109 | |
Direct Hire revenue | 4,215 | | | 4,884 | | | 9,099 | |
Total Revenue | $ | 266,784 | | | $ | 68,424 | | | $ | 335,208 | |
2019 | | | | | |
Revenue by type: | | | | | |
Flex revenue | $ | 250,216 | | | $ | 64,765 | | | $ | 314,981 | |
Direct Hire revenue | 5,427 | | | 6,330 | | | 11,757 | |
Total Revenue | $ | 255,643 | | | $ | 71,095 | | | $ | 326,738 | |
| | | | | | | | | | | | | | | | | |
| Tech | | FA | | Total |
Three Months Ended March 31, | | | | | |
2021 | | | | | |
Revenue by type: | | | | | |
Flex revenue | $ | 274,784 | | | $ | 79,063 | | | $ | 353,847 | |
Direct Hire revenue | 4,776 | | | 4,602 | | | 9,378 | |
Total Revenue | $ | 279,560 | | | $ | 83,665 | | | $ | 363,225 | |
2020 | | | | | |
Revenue by type: | | | | | |
Flex revenue | $ | 262,569 | | | $ | 63,540 | | | $ | 326,109 | |
Direct Hire revenue | 4,215 | | | 4,884 | | | 9,099 | |
Total Revenue | $ | 266,784 | | | $ | 68,424 | | | $ | 335,208 | |
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Note ED - Allowance for Credit Losses
The allowance for credit losses on trade receivables is determined based on a number of factors such as recent and historical write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of trade receivables among clients and the current state of the U.S. economy. 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, 2020.2021.
The following table presents the activity within the allowance for credit losses on trade receivables for the three months ended March 31, 20202021 (in thousands):
| | | | | |
| |
| |
Allowance for credit losses, January 1, 2020 (1)2021 | $ | 1,8432,757 | |
Current period provision | 2,229 (852) | |
Write-offs charged against the allowance, net of recoveries of amounts previously written off | (182)(164) | |
| |
Allowance for credit losses, March 31, 20202021 | $ | 3,8901,741 | |
(1) As a result of the adoption of the new credit losses accounting standard, we recorded a cumulative effect adjustment to increase the allowance for credit losses of $0.3 million as of January 1, 2020.
The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.5 million and $0.4 million at March 31, 20202021 and December 31, 20192020, respectively, for reserves unrelated to credit losses.
Management consideredDuring 2020, in response to the ongoing COVID-19 economic and health crisis and its impact on our clients’ ability to pay outstanding receivables. We analyzed receivables, concentrated within specific industries most significantly impacted, reviewed specific clients with credit ratings that were in a higher risk categorymanagement performed an in-depth analysis and applied higher credit loss rates in order to estimate our potential credit loss exposure, which resulted in an increase to ourincreased the Company’s allowance for credit losses duringlosses. During the three months ended March 31, 2020.2021, management continued to perform similar analyses and determined that as a result of continued strong collections, low write-off experience, minimal client-specific credit loss concerns, and an overall improvement in the aging of our portfolio, the allowance for credit loss should be reduced.
Note FE - Other Assets, Net
Other assets, net consisted of the following (in thousands):
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Assets held in Rabbi Trust | Assets held in Rabbi Trust | $ | 30,843 | | | $ | 35,413 | | Assets held in Rabbi Trust | $ | 37,231 | | | $ | 36,164 | |
Right-of-use assets for operating leases, net | Right-of-use assets for operating leases, net | 17,606 | | | 18,344 | | Right-of-use assets for operating leases, net | 15,907 | | | 16,835 | |
Capitalized software, net (1) | Capitalized software, net (1) | 9,841 | | | | 8,759 | | Capitalized software, net (1) | 13,811 | | | 12,802 | |
Equity method investment (2) | Equity method investment (2) | 7,574 | | | 8,169 | | Equity method investment (2) | 11,997 | | | 10,488 | |
Deferred loan costs, net | Deferred loan costs, net | 766 | | | 855 | | Deferred loan costs, net | 413 | | | 501 | |
| Other non-current assets | Other non-current assets | 1,048 | | | 1,298 | | Other non-current assets | 621 | | | 785 | |
Total Other assets, net | Total Other assets, net | $ | 67,678 | | | $ | 72,838 | | Total Other assets, net | $ | 79,980 | | | $ | 77,575 | |
(1)Accumulated amortization of capitalized software was $34.4 million and $34.2$34.0 million as of March 31, 20202021 and December 31, 2019,2020, respectively.
(2)In June 2019, Kforce entered into a joint venture resulting in a 50% noncontrolling interest in WorkLLama, LLC (“WorkLLama”), which is accounted for as an equity method investment. The loss on equity methodthis WorkLLama investment was $0.5 million and $0.6 million duringfor the three months ended March 31, 2020.2021 and 2020, respectively. Refer to Note ML - “Commitments and Contingencies” for more information on contingencies related to WorkLLama.
Note GF - Current Liabilities
The following table provides information on certain current liabilities (in thousands):
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Accounts payable and other accrued liabilities: | Accounts payable and other accrued liabilities: | | Accounts payable and other accrued liabilities: | |
Accounts payable | Accounts payable | $ | 23,918 | | | $ | 20,267 | | Accounts payable | $ | 28,746 | | | $ | 20,177 | |
Accrued liabilities | Accrued liabilities | 13,207 | | | 12,965 | | Accrued liabilities | 9,636 | | | 15,356 | |
Total Accounts payable and other accrued liabilities | Total Accounts payable and other accrued liabilities | $ | 37,125 | | | $ | 33,232 | | Total Accounts payable and other accrued liabilities | $ | 38,382 | | | $ | 35,533 | |
Accrued payroll costs: | Accrued payroll costs: | | Accrued payroll costs: | |
Payroll and benefits | Payroll and benefits | $ | 40,141 | | | $ | 38,035 | | Payroll and benefits | $ | 41,516 | | | $ | 38,257 | |
Payroll taxes | | Payroll taxes | 30,512 | | | 21,842 | |
Health insurance liabilities | Health insurance liabilities | 3,976 | | | 3,907 | | Health insurance liabilities | 4,720 | | | 4,641 | |
Payroll taxes | 870 | | | 992 | | |
Workers’ compensation liabilities | Workers’ compensation liabilities | 1,001 | | | 1,067 | | Workers’ compensation liabilities | 1,135 | | | 1,109 | |
Total Accrued payroll costs | Total Accrued payroll costs | $ | 45,988 | | | $ | 44,001 | | Total Accrued payroll costs | $ | 77,883 | | | $ | 65,849 | |
Our accounts payable balance includes vendor and independent contractor payables. Our accrued liabilities balance includes the current portion of the deferred compensation plans liability, contract liabilities from contracts with customers (such as rebates) and other accrued liabilities. Included within payroll taxes in the table above is approximately $19.3 million in payroll tax deferrals as a result of the Coronavirus Aid, Relief and Economic Security Act (the “CARES ACT”)I, which is expected to be paid in 2021.
Note HG - Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
| | | March 31, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
Deferred compensation plan | Deferred compensation plan | $ | 24,044 | | | $ | 30,361 | | Deferred compensation plan | $ | 36,635 | | | $ | 34,501 | |
Supplemental executive retirement plan | Supplemental executive retirement plan | 18,290 | | | 18,080 | | Supplemental executive retirement plan | 20,833 | | | 20,628 | |
Operating lease liabilities | Operating lease liabilities | 14,235 | | | 14,627 | | Operating lease liabilities | 13,813 | | | 14,692 | |
Interest rate swap derivative instruments | Interest rate swap derivative instruments | 1,684 | | | 179 | | Interest rate swap derivative instruments | 516 | | | 1,774 | |
Other long-term liabilities(1) | Other long-term liabilities(1) | 542 | | | 651 | | Other long-term liabilities(1) | 19,329 | | | 19,353 | |
Total Other long-term liabilities | Total Other long-term liabilities | $ | 58,795 | | | $ | 63,898 | | Total Other long-term liabilities | $ | 91,126 | | | $ | 90,948 | |
(1) As a result of the application of the CARES Act, we have approximately $19.3 million in payroll tax deferrals recorded within Other long-term liabilities as of March 31, 2021 and December 31, 2020 that is expected to be paid in 2022.
Note IH - Employee Benefit Plans
Supplemental Executive Retirement Plan
Kforce maintains a Supplemental Executive Retirement Plan (“SERP”) for the benefit of two, which benefits 2 executives. The SERP is a non-qualified benefit plan and does not include elective deferrals of covered executive officers’ compensation.
The following table presents the components of net periodic benefit cost (in thousands):
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | 2019 | | | | 2021 | | 2020 |
Service cost | Service cost | | | $ | 86 | | | $ | 65 | | Service cost | | | $ | 149 | | | $ | 86 | |
Interest cost | Interest cost | | | 125 | | | 151 | | Interest cost | | | 103 | | | 125 | |
Net periodic benefit cost | Net periodic benefit cost | | | $ | 211 | | | $ | 216 | | Net periodic benefit cost | | | $ | 252 | | | $ | 211 | |
The service cost is recorded in SG&A and the interest cost is recorded in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.
The projected benefit obligation as of March 31, 20202021 and December 31, 20192020, was $18.3$20.8 million and $18.1$20.6 million, respectively, and is recorded in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. There is no requirement for Kforce to fund the SERP and, as a result, 0 contributions were made to the SERP during the three months ended March 31, 2020.2021. Kforce does 0t currently anticipate funding the SERP during the year ended December 31, 2020.2021.
Kforce’s Board of Directors terminated the SERP effective April 30, 2021. Please see Note M - “Subsequent Events” for additional disclosure.
Note JI - Stock Incentive Plans
On April 28, 2020, Kforce22, 2021, Kforce’s shareholders approved the 20202021 Stock Incentive Plan (the “2020“2021 Plan”). The 20202021 Plan allows for the issuance of stock options, stock appreciation rights (“SAR”), stock awards (including restricted stock awards (“RSAs”) and restricted stock units (“RSUs”)) and other stock-based awards. The aggregate number of shares reserved under the 20202021 Plan is approximately 3.6 million shares.3.9 million. Grants of an option or SAR reduce the reserve by one1 share, while a stock award reduces the reserve by 2.72 shares. The 20202021 Plan terminates on April 28, 2030.22, 2031.
Restricted stock (including RSAs and RSUs) are granted to directors, executives and management either for awards related to Kforce’s annual long-term incentive program or as part of a compensation package for attraction and retention purposes. Restricted stock granted during the three months ended March 31, 2021, will vest over a period of one to ten years, with vesting occurring in order to retain directors, executivesequal annual installments.
During the three months ended March 31, 2021 and management.2020, stock-based compensation expense from continuing operations was $3.4 million and $2.9 million, respectively.
The following table presents the restricted stock activity for the three months ended March 31, 20202021 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | |
| Number of Restricted Stock | | Weighted-Average Grant Date Fair Value | | Total Intrinsic Value of Restricted Stock Vested |
Outstanding at December 31, 2019 | 1,180 | | | $ | 29.51 | | | |
Granted | 7 | | | $ | 29.60 | | | |
Forfeited | (12) | | | $ | 22.62 | | | |
Vested | (8) | | | $ | 22.15 | | | $ | 279 | |
Outstanding at March 31, 2020 | 1,167 | | | $ | 29.63 | | | |
| | | | | | | | | | | | | | | | | |
| Number of Restricted Stock | | Weighted-Average Grant Date Fair Value | | Total Intrinsic Value of Restricted Stock Vested |
Outstanding at December 31, 2020 | 1,137 | | | $ | 33.63 | | | |
Granted | 15 | | | $ | 42.82 | | | |
| | | | | |
Vested | (8) | | | $ | 21.77 | | | $ | 389 | |
Outstanding at March 31, 2021 | 1,144 | | | $ | 33.83 | | | |
As of March 31, 2020,2021, total unrecognized stock-based compensation expense related to restricted stock was $29.0$32.8 million, which will be recognized over a weighted-average remaining period of 3.33.2 years. During the three months ended March 31, 2020 and 2019, stock-based compensation expense from continuing operations was $2.9 million and $2.5 million, respectively.
Note KJ - Derivative Instruments and Hedging Activity
On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A (“Swap A”). Swap A was effective on May 31, 2017 and matures on April 29, 2022. Swap A has a fixed interest rate of 1.81% and a, which we add to our interest rate margin to determine the fixed rate that the Firm will pay to the counterparty during the term of Swap A based on the notional amount of $65.0 million at March 31, 2020, which decreases toSwap A. The notional amount of Swap A through maturity is $25.0 million in May 2020.million.
On March 12, 2020, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A.N.A (“Swap B”, together with Swap A, the "Swaps"). Swap B was effective on March 17, 2020 and matures on May 30, 2025. Swap B has a fixed interest rate of 0.61% and a notional amount of $35.0 million at March 31, 2020, which increases to $75.0 million and increases to $100.0 million in May 2020 and May 2022, respectively, and subsequently decreases to $75.0 million and $40.0 million in May 2023 and May 2024, respectively. The increasesincrease in the notional amount of Swap B correspondin May 2022 corresponds to the decreasesdecrease in the notional amount for Swap A.
The Firm uses interest rate swapsthe Swaps as an interest rate risk management tool to mitigate the potential impact of rising interest rates on variable rate debt. The fixed interest rate for each swap,Swap (which will remain throughout the remainder of the hedging arrangement), plus the applicable interest margin under our credit facility, is included in interest expense and recorded in Other expense, net in the accompanying Unaudited Condensed Consolidated Financial Statements of Operations and Comprehensive Income. Both Swap A and B have been designated as cash flow hedges and were effective atas of March 31, 2020.2021. The change in the fair value of the swaps isSwaps are recorded as a component of Accumulated other comprehensive incomeloss in the unaudited consolidated financial statements.
The following table sets forth the activity in the accumulated derivative instrument activity (in thousands):
| | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2020 | | 2019 | | |
Accumulated derivative instrument (loss) gain, beginning of period | $ | (179) | | | $ | 900 | | | |
Net change associated with current period hedging transactions | (1,505) | | | (375) | | | |
| | | | | |
Accumulated derivative instrument (loss) gain, end of period | $ | (1,684) | | | $ | 525 | | | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 | | |
Accumulated derivative instrument loss, beginning of period | $ | (1,774) | | | $ | (179) | | | |
Net change associated with current period hedging transactions | 1,258 | | | (1,505) | | | |
| | | | | |
Accumulated derivative instrument loss, end of period | $ | (516) | | | $ | (1,684) | | | |
Note LK - Fair Value Measurements
Our interest rate swaps are measured at fair value using readily observable inputs, which are considered to be Level 2 inputs and are recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. Refer to Note KJ - “Derivative Instruments and Hedging Activity” for a complete discussion of our interest rate swaps.
There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the three months ended March 31, 2020.2021. The following table sets forth by level, within the fair value hierarchy, estimated fair values on a recurring basis (in thousands):
| Asset/(Liability) Measured at Fair Value: | Asset/(Liability) Measured at Fair Value: | Asset/(Liability) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | Asset/(Liability) Measured at Fair Value: | Asset/(Liability) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
At March 31, 2020 | | |
At March 31, 2021 | | At March 31, 2021 | |
| Interest rate swap derivative instruments | Interest rate swap derivative instruments | $ | (1,684) | | | $ | — | | | $ | (1,684) | | | $ | — | | Interest rate swap derivative instruments | $ | (516) | | | $ | 0 | | | $ | (516) | | | $ | 0 | |
At December 31, 2019 | | |
At December 31, 2020 | | At December 31, 2020 | |
| Interest rate swap derivative instrument | Interest rate swap derivative instrument | $ | (179) | | | $ | — | | | $ | (179) | | | $ | — | | Interest rate swap derivative instrument | $ | (1,774) | | | $ | 0 | | | $ | (1,774) | | | $ | 0 | |
Note ML - Commitments and Contingencies
Employment Agreements
Kforce has employment agreements with certain executives that provide for minimum compensation, salary and continuation of certain benefits for a six-monthsix-month to a three-yearthree-year period after their employment ends under certain circumstances. Certain of the agreements also provide for a severance payment ranging from one to three times annual salary and one-half to three times average annual bonus if such an agreement is terminated without good cause by Kforce or for good reason by the executive subject to certain post-employment restrictive covenants. At March 31, 2020,2021, our liability would be approximately $39.7$45.0 million if, following a change in control, all of the executives under contract were terminated without good cause by the employer or if the executives resigned for good reason and $16.8$17.3 million if, in the absence of a change in control, all of the executives under contract were terminated by Kforce without good cause or if the executives resigned for good reason.
Litigation and Loss Contingencies
ThereUnless otherwise noted below, there have been no material developments with regard to any of the legal proceedings previously disclosed in our 20192020 Annual Report on Form 10-K.
On February 19, 2021, a first amended complaint was filed against Kforce and its client, Verity Health System of California (Verity) in the Superior Court of California, County of Los Angeles. Ramona Webb v. Kforce Flexible Solutions, LLC, et. al. case no. 20STCV47529. Former consultant Ramona Webb, who worked for client Verity, has sued both Kforce and Verity alleging gender discrimination (sex harassment), disability discrimination, wrongful discharge in violation of California public policy, retaliation for engaging in protected activity, failure to produce employment records, and a California Private Attorneys General Act (“PAGA”) claim based on violations of various provisions of the California Labor Code. With respect to her individual claims, plaintiff seeks to recover medical expenses, past and future economic loss, pain and suffering, punitive damages, attorney’s fees and costs. With respect to the PAGA claim, Plaintiff seeks to recover on their behalf, on behalf of the State of California, and on behalf of all current and former allegedly aggrieved employees of defendants, the civil penalties provided by PAGA, attorney’s fees and costs. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding.
On March 19, 2021, a complaint was filed against Kforce Inc. in United States District Court, Central District of California, and served on March 25, 2021. Jessica Cook, et. al. v. Kforce Inc., case no. 2:21-cv-02453. On behalf of herself and all others similarly situated, the plaintiff purports to bring a collective action challenging the exempt classification of a select class of recruiters. Plaintiff alleges that due to the misclassification of the recruiter class Kforce violated the Fair Labor Standards Act by failing to pay overtime and failing to make, keep, and preserve records with respect to each employee sufficient to determine their wages. The class action is brought pursuant to California state law, on behalf of the same class of California recruiters, and alleges: (i) classification and overtime violations under California law; (ii) untimely payment of wages; (iii) legally deficient wage statements; (iv) violations of meal and rest period requirements; and (v) violation of California's Unfair Competition Law. Plaintiff, on behalf of herself and the class and/or collective, seeks damages in the amount of unpaid overtime compensation, double time pay as applicable (for the California class), liquidated damages, attorney’s fees, interest, and other relief. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding.
On October 13, 2020, Kforce Inc. was served with a complaint brought in the U.S. District Court, Eastern District of Pennsylvania. Hope Gofton and Adam Kimbrel, et al. v. Kforce Inc., Case No.: 2:20-cv-04886 on behalf of themselves
and other similarly situated current and former employees. The plaintiffs purport to bring a collective action for alleged violations of the Fair Labor Standards Act, 29 U.S.C. § 201, et seq., and a class action for alleged violations of the Pennsylvania Minimum Wage Act, 43 P.S. §§ 333.101, et seq., based upon the defendant’s purported failure to pay federal and state overtime wages. The plaintiffs allege that the defendant improperly classified as exempt the plaintiffs and other putative collective and class members, and allegedly failed to pay overtime wages. The plaintiffs seek payment of unpaid overtime wages, liquidated damages, interest, attorney’s fees, costs and other relief deemed equitable by the Court. On April 22, 2021, the parties reached a preliminary settlement of the case, which is subject to approval by the Court. We believe that this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.
We are involved in other legal proceedings, claims and administrative matters from time to time, and may also be exposed to loss contingencies, that arise in the ordinary course of business. We have made accruals with respect to certain of these matters, where appropriate, thatwhich are reflected in our unaudited condensed consolidated financial statements butstatements. While the ultimate outcome of these matters cannot be determined and any amounts accrued are inherently uncertain estimates, we currently do not expect that these matters, individually or in the aggregate, considered material.will have a material effect on our financial position.
Equity Method Investment
Under the joint venture operating agreement for WorkLLama, Kforce is obligated to make additional cash contributions, which are contingent on WorkLLama's achievement of certain operational and financial milestones. Our maximum potential capital contributions were $22.5 million. The original operating and financial milestones established in the joint venture operating agreement were not achieved, in part, due to the impacts of the COVID-19 pandemic on WorkLLama’s business. We have continued to provide capital contributions to the joint venture due to our belief in the long-term value of the joint venture. We contributed $2.0 million and we contributed $9.0$4.0 million of capital during the three months ended March 31, 2021 and the year ended December 31, 2019. There is uncertainty as to the attainment of the milestones given the joint venture is in the early stages and at March 31, 2020, there are no contingent contributions recorded.respectively. Refer to Note FE - “Other Assets, Net” for more details on WorkLLama.
Note M - Subsequent Events
Sale of Corporate Headquarters
Kforce entered into a purchase and sale agreement (the “Agreement”) with an independent third party (the “Buyer”) to sell its corporate headquarters for $24.0 million and lease it back for a period of 18 months. This transaction was subject to the completion of due diligence by the Buyer, the negotiation of a lease agreement between the parties, among other items, during an investigation period that concluded on April 19, 2021 (the “Investigation Period”). Up to the conclusion of the Investigation Period, either party could terminate the Agreement for any reason or no reason. While there are certain risks and uncertainties that still exist surrounding the successful closing of this transaction; with the completion of the Investigation Period, Kforce now believes that it is more likely than not that this transaction will close in mid-May 2021. As of March 31, 2021, the net book value of the assets contemplated by the Agreement was approximately $21.5 million. Assuming this transaction closes, we would expect to recognize a gain of approximately $2.0 million in the second quarter of 2021.
Termination of the SERP
Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed to the 2 participants under the SERP as of April 30, 2021 amount to approximately $20 million in the aggregate, which has been fully accrued in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. Kforce intends on making the benefit payments to the participants no earlier than 12 months and no later than 24 months following the termination date of April 30, 2021.
As a result of the termination of the SERP, Kforce anticipates recognizing a net loss of $2.0 million in the second quarter ending June 30, 2021,
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EXECUTIVE SUMMARY
The following is an executive summary of what Kforce believes are highlights as of and for the three months ended March 31, 2020,2021, which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto.
•Revenue for the three months ended March 31, 20202021, increased 2.6% (1.0% on a billing day basis)8.4%, to $335.2$363.2 million from $326.7$335.2 million in the comparable period in 2019. We began to experience negative impacts to our operating trends as a result of the COVID-19 economic2020. Revenue increased 4.8% and health crisis in March 2020, most notably within22.3% for Tech and FA, Flex and Direct Hire.respectively.
•Flex revenue for the three months ended March 31, 20202021, increased 3.5% (1.9%10.2% on a billing day basis)basis, to $326.1$353.8 million from $315.0$326.1 million in the comparable period in 2019.2020. Flex revenue increased 4.9% (3.3%6.3% and 26.4%, on a billing day basis)basis for Tech and decreased 1.9% (3.4%FA, respectively, on a billing day basis)year-over-year basis.
•Revenues from contracts we secured to support government-sponsored COVID-19 related initiatives (the “COVID-19 Business”) was $24.0 million for FA.the three months ended March 31, 2021, which benefited our FA Flex business. Excluding revenues from the COVID- 19 Business, our FA Flex business would have declined 12.8% in 2021 on a year-over-year basis.
•Direct Hire revenue for the three months ended March 31, 2020 decreased 22.6%2021, increased 3.1% to $9.1$9.4 million from $11.8$9.1 million in the comparable period in 2019.2020 .
•Gross profit margin for the three months ended March 31, 2021, decreased 100 basis points to 27.2%. Flex gross profit margin for the three months ended March 31, 2020 increased 402021, decreased 100 basis points to 26.2%25.2% from 25.8%26.2% in the comparable period in 2019 as a result of a more favorable payroll tax environment in the first quarter of 2020. For the three months ended March 31, 2020, Flex gross profit increasedmargin decreased 70 basis points for Tech due primarily to spread compression as a result of business mix but also a result of higher health insurance and payroll tax costs and decreased 80200 basis points for FA.FA primarily as a result of the COVID-19 Business carrying a lower Flex gross profit margin.
•SG&A as a percentage of revenue for the three months ended March 31, 20202021, decreased to 23.6%21.5% from 24.4%23.6% in the comparable period in 2019 as a result of improved2020 due to leverage gained from our revenue growth, associate productivity reduced annual performance-based compensation expectations given the COVID-19 economic and health crisis and reduced discretionary spendimprovements, reductions in certain areas such as travel and other office-related expenses.office related expenses given ongoing travel restrictions and a decline in our credit expense.
•Income from continuing operations for the three months ended March 31, 20202021, increased 14.2%45.6% to $13.3 million, or $0.62 per share, from $9.1 million, or $0.42 per share, from $8.0 million, or $0.32 per share, in the comparable period in 2019. The increase in diluted EPS was partially driven by significant open market common stock repurchases in 2019.
•In March 2020, Kforce entered into a forward-starting interest rate swap agreement with a fixed interest rate of 0.61% (which is added to the applicable margin under our credit facility), resulting in an increase in the notional amount of our interest rate swaps of $35.0 million, for a total of $100.0 million. We executed this swap in order take advantage of historically low interest rates and reduce liquidity risk as we navigate the COVID-19 economic and health crisis.2020.
•The Firm returned $24.6$21.0 million of capital to our shareholders with a quarterly dividendin the form of $4.3 million ($0.20 per share) and open market common stock repurchases of $20.3totaling $16.2 million and quarterly dividends totaling $4.8 million during the three months endedyear ending March 31, 2020. In March 2020, the2021. We have $68.4 million under our current Board approved an increase in our stock repurchase authorization to an aggregate of $100.0 million.authorization.
•Cash provided by operating activities was $3.0$22.4 million during the three months ended March 31, 20202021, as compared to $11.8$3.0 million for the three months ended March 31, 2019.2020. Our operating cash flows were negativelypositively impacted overby improved profitability, solid management of our working capital and payment delays by our clients at the last few weeksonset of the pandemic in 2020 that impacted operating cash flows in the first quarter of 2020.
•Cash and cash equivalents, net of long-term debt of $100.0 million, was $1.3 million as of March 2020 as a result of certain clients delaying payment of outstanding receivable balances to preserve cash flow at the beginning of the COVID-19 economic and health crisis.31, 2021.
RESULTS OF OPERATIONS
Business Overview
Kforce provides professional staffing services and solutions to our clients on both a temporary (“Flex”) and permanent (“Direct Hire”) basis through our Tech and FA segments. We operate through our corporate headquarters in Tampa, Florida with 50and our various field offices located throughout the United States.States (U.S.). As of March 31, 2020,2021, Kforce employed over 2,200approximately 2,000 associates, including approximately 1,300 supporting the revenue-generating aspects of our business and weapproximately 700 supporting the revenue-enabling aspects. We also had over 10,000approximately 12,100 consultants on assignment.assignment providing flexible staffing services and solutions to our clients. Kforce serves clients across many industries and geographies as well as organizations of all sizes, with a particular focus on Fortune 1000 and other large companies. We believe that our portfolio of service offerings is aand client portfolio are key contributorcontributors to our performance during the COVID-19 pandemic and long-term financial stability.
During
In December 2020 and early 2021, the U.S. Food and global macro-economic environmentsDrug Administration authorized the distribution and administration of certain vaccines for the prevention of COVID-19 in the U.S. The availability of COVID-19 vaccines, economic stimulus measures initiated in the U.S., among other factors, has significantly lifted the prospects of economic growth in the U.S. While the level of vaccinations and potential variants of COVID-19 are difficult to predict and could negatively impact our business, growth in our business as accelerated over the last several quarters. From an economic standpoint, total and temporary employment figures and trends have historically been severely impacted by the COVID-19 economic and health crisis. Certain data we follow that isimportant indicators of staffing demand. Based on information published by the Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”) such as, these figures and trends have been trending positively since the end of the third quarter of 2020. While uncertainty still remains around the future trends and impact on staffing demand, the penetration rate (the percentage of temporary staffing to total employment) remained at 1.9% and the unemployment rate which were 1.9%decreased again to 6.0% in March 2021, down from 6.2% in December 2020. In the latest U.S. staffing industry forecast published by SIA in April 2021, the technology temporary staffing industry and 4.4%finance and accounting temporary staffing industry are estimated to grow by 9% and 14%, respectively, in March 2020, is expected to change materially2021, and by 6% and 5%, respectively, in the near-term as this crisis unfolds. Through the week ending April 25, 2020, the U.S. Department of Labor reported 3.8 million additional claims for unemployment bringing the total over a six-week period to more than 30 million.
Certain sectors of the U.S. economy have been more acutely impacted by the COVID-19 economic and health crisis, such as the hospitality, transportation, retail, entertainment, health services and manufacturing sectors, though very few sectors appear to be immune. Kforce generates revenue within each of these sectors of the U.S. economy although the composition of our revenue by sector is, by intent, diversified. Our top three industries served include financial services, business services and telecommunications.
Towards the end of the first quarter and into the second quarter, the U.S. economy increasingly began to feel the negative impacts of the COVID-19 economic and health crisis. Accordingly, we have been working with our clients to assist them in navigating these turbulent waters. These discussions for certain clients resulted in the reduction or elimination of consultants on previous projects and assignments, reducing bill rates, granting extended payment terms, and/or temporary furloughs for consultants, among other impacts. We have also experienced a decrease in our leading indicators, such as job orders, new assignment demand and direct hire placements. This crisis continues to be extremely fluid and there is significant uncertainty as to the extent of the potential negative impact on our business, clients, consultants and candidates. Thus, it is increasingly difficult to predict our near-term operating results.
Although we have seen some impact to our business from this abrupt and unprecedented economic disruption, we believe our strategic decisions to focus our offerings in2022. In addition, SIA noted that the domestic technology staffing market became the largest market segment in 2020, with spend of nearly $31 billion, and professionalovertaking industrial staffing and solutions market, limitfor the concentration of Direct Hire revenue (now less than 3% of total revenue) and maintain afirst time.
We were successful delivering strong balance sheet provides us great confidence moving forward. In addition, we have made investmentsresults in recent years to implement new and upgrade existing technologies that we believe have increased2020 with our operating efficiencies and enabled us to be more responsive to our consultants and clients. Most of these technologies can be securely accessed remotely, which put us in a good position to seamlessly transition to alargest business, Technology, only being down 1% for the full work remote posture in Marchyear 2020.
Our client relationships and capability to source and deliver resources at scale significantly contributed to us securing several large opportunitiesthe COVID-19 Business during 2020. While trends related to assistour COVID-19 Business are difficult to predict, it contributed $24.0 million in FA Flex revenue for the U.S. economythree months ended March 31, 2021 and is expected to continue into the second quarter of 2021. While the business climate related to this economic and health crisis, along with related governmental legislation (including that which is aimed at stimulating the economy) is still extremely fluid, we believe that we are very well positioned to continue capturing additional market share in our Technology business and delivering strong operating results to our shareholders.
We have conducted multiple employee satisfaction surveys during this crisispandemic and the results indicate that our associates have embraced the ingenuity required to work remotely and have been successful in areas such as customer service, loan processing and administration. While this work is anticipatedestablishing new, productive routines. We continue to be temporary in nature, we expect it will partially offset some of the negative impacts over the near-termmake great progress in our business.“Kforce Reimagined” initiative that was started in 2020, which is an effort to position Kforce to provide a more flexible work environment for our associates. This initiative involves efforts to streamline our real estate footprint and make investments in technology and other tools necessary to provide a seamless in-office and remote experience. We believe that the culmination of these efforts will provide significant contributions to improving productivity and profitability.
Operating Results - Three Months Ended March 31, 20202021 and 20192020
The following table presents certain items in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue:
| | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | |
| | | | | March 31, | | |
| | | | | 2020 | | 2019 |
Revenue by segment: | | | | | | | |
Tech | | | | | 79.6 | % | | 78.2 | % |
FA | | | | | 20.4 | | | 21.8 | |
Total Revenue | | | | | 100.0 | % | | 100.0 | % |
Revenue by type: | | | | | | | |
Flex | | | | | 97.3 | % | | 96.4 | % |
Direct Hire | | | | | 2.7 | | | 3.6 | |
Total Revenue | | | | | 100.0 | % | | 100.0 | % |
Gross profit | | | | | 28.2 | % | | 28.5 | % |
Selling, general and administrative expenses | | | | | 23.6 | % | | 24.4 | % |
Depreciation and amortization | | | | | 0.4 | % | | 0.5 | % |
Income from operations | | | | | 4.2 | % | | 3.6 | % |
Income from continuing operations, before income taxes | | | | | 3.7 | % | | 3.3 | % |
Income from continuing operations | | | | | 2.7 | % | | 2.4 | % |
Income from discontinued operations, net of tax | | | | | — | % | | 5.8 | % |
Net income | | | | | 2.7 | % | | 8.2 | % |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2021 | | 2020 |
Revenue by segment: | | | | | | | |
Tech | | | | | 77.0 | % | | 79.6 | % |
FA | | | | | 23.0 | | | 20.4 | |
Total Revenue | | | | | 100.0 | % | | 100.0 | % |
Revenue by type: | | | | | | | |
Flex | | | | | 97.4 | % | | 97.3 | % |
Direct Hire | | | | | 2.6 | | | 2.7 | |
Total Revenue | | | | | 100.0 | % | | 100.0 | % |
Gross profit | | | | | 27.2 | % | | 28.2 | % |
Selling, general and administrative expenses | | | | | 21.5 | % | | 23.6 | % |
Depreciation and amortization | | | | | 0.3 | % | | 0.4 | % |
Income from operations | | | | | 5.4 | % | | 4.2 | % |
Income from operations, before income taxes | | | | | 5.0 | % | | 3.7 | % |
| | | | | | | |
| | | | | | | |
Net income | | | | | 3.7 | % | | 2.7 | % |
Revenue. The following table presents revenue by type for each segment and the percentage change from the prior period (in thousands):
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | Increase (Decrease) | | 2019 | | | | 2021 | | Increase (Decrease) | | 2020 |
Tech | Tech | | | Tech | | |
Flex revenue | Flex revenue | | | $ | 262,569 | | | 4.9 | % | | $ | 250,216 | | Flex revenue | | | $ | 274,784 | | | 4.7 | % | | $ | 262,569 | |
Direct Hire revenue | Direct Hire revenue | | | 4,215 | | | (22.3) | % | | 5,427 | | Direct Hire revenue | | | 4,776 | | | 13.3 | % | | 4,215 | |
Total Tech revenue | Total Tech revenue | | | $ | 266,784 | | | 4.4 | % | | $ | 255,643 | | Total Tech revenue | | | $ | 279,560 | | | 4.8 | % | | $ | 266,784 | |
FA | FA | | | FA | | |
Flex revenue | Flex revenue | | | $ | 63,540 | | | (1.9) | % | | $ | 64,765 | | Flex revenue | | | $ | 79,063 | | | 24.4 | % | | $ | 63,540 | |
Direct Hire revenue | Direct Hire revenue | | | 4,884 | | | (22.8) | % | | 6,330 | | Direct Hire revenue | | | 4,602 | | | (5.8) | % | | 4,884 | |
Total FA revenue | Total FA revenue | | | $ | 68,424 | | | (3.8) | % | | $ | 71,095 | | Total FA revenue | | | $ | 83,665 | | | 22.3 | % | | $ | 68,424 | |
| Total Flex revenue | Total Flex revenue | | | $ | 326,109 | | | 3.5 | % | | $ | 314,981 | | Total Flex revenue | | | $ | 353,847 | | | 8.5 | % | | $ | 326,109 | |
Total Direct Hire revenue | Total Direct Hire revenue | | | 9,099 | | | (22.6) | % | | 11,757 | | Total Direct Hire revenue | | | 9,378 | | | 3.1 | % | | 9,099 | |
Total Revenue | Total Revenue | | | $ | 335,208 | | | 2.6 | % | | $ | 326,738 | | Total Revenue | | | $ | 363,225 | | | 8.4 | % | | $ | 335,208 | |
Our quarterly operating results are affected by the number of billing days in a quarter. The following table presents the year-over-year revenue growth rates, on a billing day basis, for the last five quarters:
| | | Year-Over-Year Revenue Growth Rates | | | Year-Over-Year Revenue Growth Rates |
| | (Per Billing Day) | | | (Per Billing Day) |
| | Q1 2020 | | Q4 2019 | | Q3 2019 | | Q2 2019 | | Q1 2019 | | Q1 2021 | | Q4 2020 | | Q3 2020 | | Q2 2020 | | Q1 2020 |
Billing Days | Billing Days | | 64 | | 62 | | 64 | | 64 | | 63 | Billing Days | | 63 | | 62 | | 64 | | 64 | | 64 |
Tech Flex | Tech Flex | | 3.3 | % | | 4.8 | % | | 6.5 | % | | 6.2 | % | | 9.8 | % | Tech Flex | | 6.3 | % | | 0.8 | % | | (4.2) | % | | (3.0) | % | | 3.3 | % |
FA Flex | FA Flex | | (3.4) | % | | (7.6) | % | | (5.3) | % | | (9.4) | % | | (11.7) | % | FA Flex | | 26.4 | % | | 26.0 | % | | 51.6 | % | | 28.7 | % | | (3.4) | % |
Total Flex | Total Flex | | 1.9 | % | | 2.1 | % | | 3.9 | % | | 2.6 | % | | 4.6 | % | Total Flex | | 10.2 | % | | 5.9 | % | | 6.9 | % | | 3.4 | % | | 1.9 | % |
Flex Revenue. The key drivers of Flex revenue are the number of consultants on assignment, billable hours, the bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce.
Flex revenue for Tech increased 6.3% on a billing day basis, during the three months ended March 31, 2020 by 4.9% (3.3% on a billing day basis)2021, as compared to the same period in 2019, primarily due to2020. Flex revenue in our Tech business improved 3.1%, on billing day basis sequentially in the first quarter of 2021, which is the strongest sequential performance that we have on record. Importantly, the growth we experienced during the first quarter of 2021 accelerated as the quarter progressed. The growth we are experiencing in Tech is being driven by higher levels of consultants on assignment as well as an increase in billable hours and higher average bill rates. Our trends to startrates, which increased 1.3% sequentially and 4.5% year-over-year in the first quarter of 2021. While the overall economy is still feeling the effects of the COVID-19 pandemic, our Tech Flex business displayed a high level of resiliency during the COVID-19 pandemic with Tech Flex revenues only being down approximately 1% for the full year 2020. We have made significant progress in growing our technology consultants on assignment since June 2020. Given the acceleration we are experiencing in Tech Flex growth, we expect revenues in the second quarter indicate that Flex revenuesof 2021 to grow in technology are down approximately 1%the mid to high teens on a year-over-year basis in April. In September 2019 SIA projected that temporary technology staffing would experience growth of 3% in 2020, which was updated in April 2020 with a projected decline of 14% for 2020 and a resumption of 17% growth in 2021.billing day basis. We believe that the current crisis has only strengthened the secular drivers of demand in technology have only strengthened as companies continue to assess their digital transformation efforts and capabilities to conduct business in what may be a more virtually-biasedvirtual operating environment.
Our FA segment experienced a decreasean increase in Flex revenue of 1.9% (3.4% on a billing day basis)24.4% during the three months ended March 31, 20202021, as compared to the same period in 2019, which was2020, primarily driven by a decreasethe COVID-19 Business, which contributed approximately $24.0 million in billable hours and was partially offsetrevenue during the three months ended March 31, 2021. This positively impacted FA Flex revenue growth rates by a year-over-year increase in average bill rates of 4.7%. Our trends to start37.8% for the three months ended March 31, 2021. As we move into the second quarter indicate that Flexof 2021, we expect overall revenues in the FA are down approximately 20% on abusiness to remain relatively stable year-over-year basis in April, which excludes the contributionas we continue to migrate our FA Flex revenues of large-scale business we securedtowards highly-skilled roles that are less susceptible to support government-sponsored COVID-19 related initiatives. This recent business is expected to benefit second quarter revenues in a range between $20 million to $30 million. In September 2019, SIA projected that financetechnological change, location and accounting temporary staffing would experience growth of 4% in 2020; however, this was updated in April 2020 with a projected decline of 15% for 2020.automation.
Future forecasts and predictions about the demand for temporary staffing and solutions are inherently uncertain due to the unknown and continued impacts of the current macro-economic environment in which we are currently operating as a result of the COVID-19 economic and health crisis and political uncertainty, and any forward-looking information could fluctuate materially.
The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands):
| | | | | Three Months Ended | | | | | Three Months Ended |
| | | | March 31, 2020 vs. March 31, 2019 | | | | | March 31, 2021 vs. March 31, 2020 |
| | | | Tech | | FA | | | | Tech | | FA |
Key Drivers - Increase (Decrease) | Key Drivers - Increase (Decrease) | | | Key Drivers - Increase (Decrease) | | |
Volume - hours billed | Volume - hours billed | | | $ | 5,645 | | | $ | (4,036) | | Volume - hours billed | | | $ | 1,363 | | | $ | 27,264 | |
Bill rate | Bill rate | | | 6,813 | | | 2,859 | | Bill rate | | | 11,686 | | | (11,603) | |
Billable expenses | Billable expenses | | | (105) | | | (48) | | Billable expenses | | | (834) | | | (138) | |
Total change in Flex revenue | Total change in Flex revenue | | | $ | 12,353 | | | $ | (1,225) | | Total change in Flex revenue | | | $ | 12,215 | | | $ | 15,523 | |
The following table presents total Flex hours billed by segment and percentage change over the prior period (in thousands):
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | Increase (Decrease) | | 2019 | | | | 2021 | | Increase (Decrease) | | 2020 |
Tech | Tech | | | 3,410 | | | 2.2 | % | | 3,335 | | Tech | | | 3,428 | | | 0.5 | % | | 3,410 | |
FA | FA | | | 1,662 | | | (6.2) | % | | 1,772 | | FA | | | 2,376 | | | 43.0 | % | | 1,662 | |
Total Flex hours billed | Total Flex hours billed | | | 5,072 | | | (0.7) | % | | 5,107 | | Total Flex hours billed | | | 5,804 | | | 14.4 | % | | 5,072 | |
For the three months ended March 31, 2021, FA Flex hours billed included 849 thousand hours from the COVID-19 Business.
Direct Hire Revenue. The key drivers of Direct Hire revenue are the number of placements and the associated placement fee. Direct Hire revenue also includes conversion revenue, which may occur when a consultant initially assigned to a client on a temporary basis is later converted to a permanent placement for a fee.
Direct Hire revenue decreased 22.6%increased 3.1% during the three months ended March 31, 2020,2021, as compared to the same period in 2019,2020, primarily driven by a decreasesignificant increase in the number of placements made and a lower average placement fee. We experienced a significant decline in volume of Direct Hire placements towards the end offee during the first quarter and expect a significant decline in revenue on a year-over-year basis inof 2021. As we look to the second quarter, of 2020 primarily due to the expected drop in demand for placements. Our trends to start the second quarter indicate thatwe expect Direct Hire revenues are down approximately 55% on a year-over-year basis in April.revenue could approximate first quarter levels.
The following table presents the key drivers for the change in Direct Hire revenue by segment over the prior period (in thousands):
| | | | | Three Months Ended | | | | | Three Months Ended |
| | | | March 31, 2020 vs. March 31, 2019 | | | | | March 31, 2021 vs. March 31, 2020 |
| | | | Tech | | FA | | | | Tech | | FA |
Key Drivers - Increase (Decrease) | Key Drivers - Increase (Decrease) | | | Key Drivers - Increase (Decrease) | | |
Volume - number of placements | Volume - number of placements | | | $ | (1,028) | | | $ | (1,390) | | Volume - number of placements | | | $ | 21 | | | $ | (973) | |
Placement fee | Placement fee | | | (184) | | | (56) | | Placement fee | | | 540 | | | 691 | |
Total change in Direct Hire revenue | Total change in Direct Hire revenue | | | $ | (1,212) | | | $ | (1,446) | | Total change in Direct Hire revenue | | | $ | 561 | | | $ | (282) | |
The following table presents the total number of placements by segment and percentage change over the prior period:
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | Increase (Decrease) | | 2019 | | | | 2021 | | Increase (Decrease) | | 2020 |
Tech | Tech | | | 243 | | | (19.0) | % | | 300 | | Tech | | | 244 | | | 0.4 | % | | 243 | |
FA | FA | | | 367 | | | (21.9) | % | | 470 | | FA | | | 294 | | | (19.9) | % | | 367 | |
Total number of placements | Total number of placements | | | 610 | | | (20.8) | % | | 770 | | Total number of placements | | | 538 | | | (11.8) | % | | 610 | |
The following table presents the average placement fee by segment and percentage change over the prior period:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended March 31, | | | | |
| | | | | | | 2020 | | Increase (Decrease) | | 2019 |
Tech | | | | | | | $ | 17,347 | | | (4.2) | % | | $ | 18,106 | |
FA | | | | | | | $ | 13,294 | | | (1.1) | % | | $ | 13,447 | |
Total average placement fee | | | | | | | $ | 14,908 | | | (2.3) | % | | $ | 15,260 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | | 2021 | | Increase (Decrease) | | 2020 |
Tech | | | | | | | $ | 19,559 | | | 12.8 | % | | $ | 17,347 | |
FA | | | | | | | $ | 15,643 | | | 17.7 | % | | $ | 13,294 | |
Total average placement fee | | | | | | | $ | 17,419 | | | 16.8 | % | | $ | 14,908 | |
Gross Profit. Gross profit is calculated by deducting direct costs (primarily consultant compensation, payroll taxes, payroll-related insurance and certain fringe benefits, as well as independent contractor costs) from total revenue. There are no consultant payroll costs associated with Direct Hire placements, thus all Direct Hire revenue increases gross profit by the full amount of the placement fee.
The following table presents the gross profit percentage (gross profit as a percentage of total revenue) by segment and percentage change over the prior period:
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | Increase (Decrease) | | 2019 | | | | 2021 | | Increase (Decrease) | | 2020 |
Tech | Tech | | | 27.2 | % | | 1.1 | % | | 26.9 | % | Tech | | | 26.6 | % | | (2.2) | % | | 27.2 | % |
FA | FA | | | 32.3 | % | | (5.8) | % | | 34.3 | % | FA | | | 29.2 | % | | (9.6) | % | | 32.3 | % |
Total gross profit percentage | Total gross profit percentage | | | 28.2 | % | | (1.1) | % | | 28.5 | % | Total gross profit percentage | | | 27.2 | % | | (3.5) | % | | 28.2 | % |
The change in total gross profit percentage for the three months ended March 31, 2020,2021, as compared to the same period in 2019,2020, is primarily driven by thea 100 basis point decrease in our Flex gross profit margin driven by spread compression, higher healthcare costs, higher payroll taxes and lower margins from the COVID-19 Business. A lower mix of Direct Hire revenue, partially offset by an improved Flex gross profit percentage.revenues also contributed to the decline.
Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insight into the other drivers of total gross profit percentage driven by our Flex business such as changes in the spread between the consultants’ bill rate and pay rate, changes in payroll tax rates or benefits costs, as well as the impact of billable expenses, which provide no profit margin.
The following table presents the Flex gross profit percentage by segment and percentage change over the prior period:
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | Increase (Decrease) | | 2019 | | | | 2021 | | Increase (Decrease) | | 2020 |
Tech | Tech | | | 26.0 | % | | 2.8 | % | | 25.3 | % | Tech | | | 25.3 | % | | (2.7) | % | | 26.0 | % |
FA | FA | | | 27.0 | % | | (2.9) | % | | 27.8 | % | FA | | | 25.0 | % | | (7.4) | % | | 27.0 | % |
Total Flex gross profit percentage | Total Flex gross profit percentage | | | 26.2 | % | | 1.6 | % | | 25.8 | % | Total Flex gross profit percentage | | | 25.2 | % | | (3.8) | % | | 26.2 | % |
OurOverall, our Flex gross profit percentage increased 40 basis pointsdecreased slightly for the three months ended March 31, 2020,2021, as compared to the same period in 2019. 2020, although there were notable fluctuations within our segments.
•Tech Flex gross profit margin increaseddecreased 70 basis points for the three months ended March 31, 2020,2021, as compared to the same period in 20192020, primarily due to spread compression as a more favorableresult of changes in business mix, higher healthcare costs and higher payroll tax environment, improvement in the spread between bill and pay rates, and a reduction in the amount of billable expenses. taxes.
•FA Flex gross profit marginsmargin decreased 80200 basis points for the three months ended March 31, 2020,2021, as compared to the same periodperiods in 2019,2020, primarily due to spread compression in bill and pay spreads and partially offsethigher healthcare costs. The decrease was also impacted by the COVID-19 Business, which contributed a lower payroll taxes.
Due togross profit margin than the current COVID-19 economic and health crisis, there is uncertainty regarding howrest of the economic climate and financial market conditions will impact ourFA portfolio. For the three months ended March 31, 2021, the estimated Flex gross profit percentage, however we experienced negative impacts in our spreads during prior economic downturns. As we navigate this unprecedented environment, we expect to continue working with select, strategic clients, tomargin for the COVID-19 Business was 23.3%, which is roughly 250 basis points lower bill rates in providing some relief as they navigate these turbulent waters. While our expectation is thatthan the spread between bill and pay rates may decline in the near-term, we have not yet experienced these declines in Tech as we look at April trends.remaining FA Flex gross profit margins are expected to be negatively impacted by the business we secured, described above.business.
The following table presents the key drivers for the change in Flex gross profit by segment over the prior period (in thousands):
| | | | | Three Months Ended | | | | | Three Months Ended |
| | | | March 31, 2020 vs. March 31, 2019 | | | | | March 31, 2021 vs. March 31, 2020 |
| | | | Tech | | FA | | | | Tech | | FA |
Key Drivers - Increase (Decrease) | Key Drivers - Increase (Decrease) | | | Key Drivers - Increase (Decrease) | | |
Revenue impact | Revenue impact | | | $ | 3,130 | | | $ | (341) | | Revenue impact | | | $ | 3,174 | | | $ | 4,199 | |
Profitability impact | Profitability impact | | | 1,714 | | | (497) | | Profitability impact | | | (1,909) | | | (1,585) | |
Total change in Flex gross profit | Total change in Flex gross profit | | | $ | 4,844 | | | $ | (838) | | Total change in Flex gross profit | | | $ | 1,265 | | | $ | 2,614 | |
SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 81.3%85.7% for the three months ended March 31, 2020,2021, as compared to 83.5%81.3% for the samecomparable period in 2019.2020. We believe this increase mostly results from the fact that in the first quarter of 2020, we had lower bonus accruals due to the uncertainty of the potential impact of the pandemic on our business. Commissions and other bonus incentives for our revenue-generating talent are variable costs driven primarily by revenue and gross profit levels, and associate performance.levels. Therefore, as gross profit levels change, these expenses would also generally be anticipated to change, but remain relatively consistent as a percentage of revenue.
The following table presents components of SG&A as a percentage of revenue (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | % of Revenue | | 2019 | | % of Revenue |
| | | | | | | |
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| | | | | | | |
Three Months Ended March 31, | | | | | | | |
Compensation, commissions, payroll taxes and benefits costs | $ | 64,367 | | | 19.2 | % | | $ | 66,635 | | | 20.4 | % |
Other (1) | 14,849 | | | 4.4 | % | | 13,178 | | | 4.0 | % |
Total SG&A | $ | 79,216 | | | 23.6 | % | | $ | 79,813 | | | 24.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | % of Revenue | | 2020 | | % of Revenue |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Three Months Ended March 31, | | | | | | | |
Compensation, commissions, payroll taxes and benefits costs | $ | 66,874 | | | 18.4 | % | | $ | 64,367 | | | 19.2 | % |
Other (1) | 11,155 | | | 3.1 | % | | 14,849 | | | 4.4 | % |
Total SG&A | $ | 78,029 | | | 21.5 | % | | $ | 79,216 | | | 23.6 | % |
(1) Includes bad debtcredit loss expense, lease expense, professional fees, travel, telephone, computer and certain other expenses.
SG&A as a percentage of revenue decreased 80210 basis points for the three months ended March 31, 2020,2021, as compared to the same periodperiods in 2019.2020. The decrease wasis primarily duerelated to the expense recorded in the three months ended March 31, 2019 of approximately $2.0 million due to actions taken as a result of the GS divestiture. Additionally, SG&A expenses benefitedleverage from furtherour revenue growth, continued improvements in associate productivity, reduced annual performance-based compensation expectations given the current crisis and reduced discretionary spendreductions in certain areas such as travel and other office-related expenses.office related expenses, declines in credit expense due to larger reserves taken in the first quarter of 2020 at the onset of the pandemic given inherent risk and our efforts to manage spend. These benefitsdecreases were partially offset by an increase in credit loss expense due to the expected increaseprofessional fess driven by our investments in the risk of default in our accounts receivable portfolio due to the current crisis.information technology initiatives and increased legal costs.
At the end of the first quarter of 2020, we began taking prudent cost containment measures, including temporarily suspending new hires, eliminating discretionary spend and selectively reducing spend in other areas. The Firm continues to focus on improving thegenerating increased operating leverage by improved productivity of our associates and will continuecontinuing to exercise solid expense discipline, especially in light of the potential adverse impacts that could occur as a result of the macro-economic uncertainties related to the current crisis.discipline.
Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands):
| | | | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
| | | | 2020 | | Increase (Decrease) | | 2019 | | | | 2021 | | Increase (Decrease) | | 2020 |
Fixed asset depreciation (includes finance leases) | Fixed asset depreciation (includes finance leases) | | | $ | 1,176 | | | (11.1) | % | | $ | 1,323 | | Fixed asset depreciation (includes finance leases) | | | $ | 810 | | | (31.1) | % | | $ | 1,176 | |
Capitalized software amortization | Capitalized software amortization | | | 217 | | | (33.6) | % | | 327 | | Capitalized software amortization | | | 392 | | | 80.6 | % | | 217 | |
Total Depreciation and amortization | Total Depreciation and amortization | | | $ | 1,393 | | | (15.6) | % | | $ | 1,650 | | Total Depreciation and amortization | | | $ | 1,202 | | | (13.7) | % | | $ | 1,393 | |
Other Expense, Net. Other expense, net for the three months ended March 31, 2021 and 2020 and 2019 was $1.4$1.3 million and $0.9$1.4 million, respectively. Other expense, net includes interest expense related to outstanding borrowings under our credit facility, net ofwhich is partially offset by the interest income on cash held in government money market funds.
During the three months ended March 31, 2020,2021, Other expense, net also includes our proportionate share of the loss from WorkLLama, our equity method investment, of $0.6$0.5 million. Although theThe impact of the COVID-19 economic and health crisis remains highly uncertain,uncertain. Therefore, it could have a material adverse impact on the fair value of our equity method investment in WorkLLama;WorkLLama and if the fair value falls below the book value of the equity method investment, we would be required to evaluate whether an other-than-temporary impairment has occurred.
Income Tax Expense. Income tax expense as a percentage of income from continuing operations, before income taxes (our “effective tax rate” from continuing operations) for the three months ended March 31, 2021 and 2020 was 27.0% and 2019 was 27.3% and 26.1%, respectively.
Discontinued Operations, Net of Tax. During 2019, we sold the GS segment and reported it as discontinued operations in the consolidated statements of operations for all periods presented. Refer to Note B - “Discontinued Operations” to the Notes to the Unaudited Condensed Consolidated Financial Statements for a more detailed discussion.
Non-GAAP Financial Measures
Free Cash Flow. “Free Cash Flow,” a non-GAAP financial measure, is defined by Kforce as net cash provided by operating activities determined in accordance with GAAP, less capital expenditures. Management believes this provides an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and is useful information to investors as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities including investing in our business, making acquisitions, repurchasing common stock or paying dividends. Free Cash Flow is limited, however, because it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view Free Cash Flow as a complement to (but not a replacement of) our Unaudited Condensed Consolidated Statements of Cash Flows. For the three months ended March 31, 2019, Free Cash Flows includes results from discontinued operations.
The following table presents Free Cash Flow (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 3,005 | | | $ | 11,789 | | | Net cash provided by operating activities | $ | 22,426 | | | $ | 3,005 | | |
Capital expenditures | Capital expenditures | (1,971) | | | (1,496) | | | Capital expenditures | (1,350) | | | (1,971) | | |
Free cash flow | Free cash flow | 1,034 | | | 10,293 | | | Free cash flow | 21,076 | | | 1,034 | | |
Change in debt | Change in debt | 35,000 | | | 10,700 | | | Change in debt | — | | | 35,000 | | |
Repurchases of common stock | Repurchases of common stock | (19,470) | | | (14,875) | | | Repurchases of common stock | (16,313) | | | (19,470) | | |
Cash dividend | (4,293) | | | (4,406) | | | |
Cash dividends | | Cash dividends | (4,786) | | | (4,293) | | |
Equity method investment | | Equity method investment | (2,000) | | | — | | |
| Other | Other | (328) | | | (1,565) | | | Other | (122) | | | (328) | | |
Change in cash and cash equivalents | Change in cash and cash equivalents | $ | 11,943 | | | $ | 147 | | | Change in cash and cash equivalents | $ | (2,145) | | | $ | 11,943 | | |
Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before income from discontinued operations, net of tax, depreciation and amortization, stock-based compensation expense, interest expense, net, income tax expense and loss from equity method investment. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our past and future financial performance, and this presentation should not be construed as an inference by us that our future results will be unaffected by those items excluded from Adjusted EBITDA. Adjusted EBITDA is a key measure used by management to assess our operations including our ability to generate cash flows and our ability to repay our debt obligations and management believes it provides a good metric of our core profitability in comparing our performance to our competitors, as well as our performance over different time periods. Consequently, management believes it is useful information to investors. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is thus susceptible to varying calculations. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.
In addition, although we excluded amortization of stock-based compensation expense because it is a non-cash expense, we expect to continue to incur stock-based compensation in the future and the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our shareholder ownership interest. We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position.
The following table presents a reconciliation of Adjusted EBITDA to net income (in thousands):
| | | | | | | | | | | |
| 2020 | | 2019 |
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Three Months Ended March 31, | | | |
Net income | $ | 9,106 | | | $ | 26,855 | |
Income from discontinued operations, net of tax | — | | | 18,881 | |
Income from continuing operations | 9,106 | | | 7,974 | |
Depreciation and amortization | 1,393 | | | 1,650 | |
Stock-based compensation expense | 2,896 | | | 2,534 | |
Interest expense, net | 791 | | | 923 | |
Income tax expense | 3,428 | | | 2,816 | |
Loss from equity method investment | 595 | | | — | |
Adjusted EBITDA | $ | 18,209 | | | $ | 15,897 | |
Adjusted EBITDA for the three months ended March 31, 2019 included $2.0 million due to actions taken as a result of the GS divestiture. | | | | | | | | | | | |
| 2021 | | 2020 |
Three Months Ended March 31, | | | |
Net income | $ | 13,261 | | | $ | 9,106 | |
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| | | |
Depreciation and amortization | 1,202 | | | 1,393 | |
Stock-based compensation expense | 3,403 | | | 2,896 | |
Interest expense, net | 797 | | | 791 | |
Income tax expense | 4,905 | | | 3,428 | |
Loss from equity method investment | 491 | | | 595 | |
Adjusted EBITDA | $ | 24,059 | | | $ | 18,209 | |
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LIQUIDITY AND CAPITAL RESOURCES
To meet our capital and liquidity requirements, we primarily rely on our operating cash flow as well as borrowings under our credit facility. At March 31, 20202021 and December 31, 2019,2020, we had $31.8$101.3 million and $19.8$103.5 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds,funds. At both March 31, 2021 and December 31, 2020, we had $100.0 million and $65.0 million outstanding under our credit facility, respectively.and $198.5 million available under our credit facility. The amounts outstanding under our credit facility were hedged by interest rate swaps, as discussed below.
Heading into the COVID-19 induced economic and health crisis, we believe we were in a position of financial strength with a strong balance sheet, healthy operating cash flows, low capital requirements and our $300.0 million credit facility. Nonetheless, we took a proactive measure in March 2020 to draw down $35.0 million under our credit facility (bringing the total outstanding balance to $100 million) and simultaneously fixed the incremental $35.0 million in debt under a new interest rate swap. We took this proactive action to take advantage of historically low interest rates and reduce potential risks of not being able to access the availability under our credit facility.
We expect that we will see declines in our revenue and, accordingly, our profitability over the near term as a result of the COVID-19 economic and health crisis. Our working capital, excluding cash, was roughly $150.0 million as of March 31, 2020 and, we believe, provides a reliable source of liquidity as we experience revenue declines. We assess future liquidity based on a multi-year forecast (using assumptions that we believe are sufficiently conservative) to validate that we can generate positive cash flows while continuing to invest in our business and seeking to maintain our quarterly cash dividend. Based on these forecasts and assumptions, we continue to believe we are in a position of financial strength. As we navigate this crisis, we will continue to take actions to improve our liquidity and further fortify our cash position.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. The CARES Act includes, among other things, deferment of employer social security payments, employee retention credits and technical amendments related to depreciation, which allows for retroactive 100% bonus depreciation on qualified improvement property. We are still assessing all of the financial impacts of the CARES Act on our business, but expect that our cash flows will benefit significantly from several of the provisions.
Cash Flows
We are principally focused on achieving an appropriate balance of cash flow across several areas of opportunity such as: generating positive cash flow from operating activities; returning capital to our shareholders through our quarterly dividends and common stock repurchase program; maintaining appropriate leverage under our credit facility; investing in our infrastructure to allow sustainable growth via capital expenditures; selectively pursuing acquisition opportunities; and maintaining sufficient liquidity for operations.
In 2019, we sold the GS segment, which has been reflected as discontinued operations. Our Unaudited Condensed Consolidated Statements of Cash Flows are presented on a combined basis (continuing operations and discontinued operations). Forprovided by operating activities was $22.4 million during the three months ended March 31, 2019, cash provided by operating activities and cash used in investing activities for discontinued operations were $5.7 million and $0.1 million, respectively.
Cash provided by operating activities was2021, as compared to $3.0 million during the three months ended March 31, 2020, as compared to $11.8 million during the three months ended March 31, 2019.2020. Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. The decrease isincrease was primarily due to delays in the timing of payments from our clients, which we believe is partially the start of the impacts from the COVID-19 economic and health crisis, as well as a decrease in cash provideddriven by the GS segment due to the divestiture.continued positive performance of our accounts receivable portfolio and profitable revenue growth.
Cash used in investing activities was $3.4 million and $2.0 million, during the three months ended March 31, 2021 and March 31, 2020, as compared to $2.5 millionrespectively. Cash used in investing activities during the three months ended March 31, 2019, which2021 includes capital expenditures.expenditures and payments for capital invested in WorkLLama. We expect to continue selectively investing in our infrastructure, primarily focusing on implementing new and upgrading existing technologies that will provide the most benefit. Assuming that the sale of our corporate headquarters closes in the second quarter, we expect to receive net cash proceeds of approximately $23.0 million. Refer to Note M - “Subsequent Events” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report on Form 10-Q, for a complete discussion of the sale of our corporate headquarters.
Cash used in financing activities was $21.2 million during the three months ended March 31, 2021, as compared to cash provided by financing activities wasof $10.9 million during the three months ended March 31, 2020, as compared to $9.1 million of cash used in financing activities during the three months ended March 31, 2019. This2020. The change was primarily driven by the aforementioned $35.0 million draw down fromon our credit facility during the three months ended March 31, 2020, partially offset by an increasea decrease in cash used for repurchases of common stock.
The following table presents the cash flow impact of the common stock repurchase activity (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Open market repurchases | Open market repurchases | | $ | 19,382 | | | $ | 14,775 | | Open market repurchases | | $ | 16,190 | | | $ | 19,382 | |
Repurchase of shares related to tax withholding requirements for vesting of restricted stock | Repurchase of shares related to tax withholding requirements for vesting of restricted stock | | 88 | | | 100 | | Repurchase of shares related to tax withholding requirements for vesting of restricted stock | | 123 | | | 88 | |
Total cash flow impact of common stock repurchases | Total cash flow impact of common stock repurchases | | $ | 19,470 | | | $ | 14,875 | | Total cash flow impact of common stock repurchases | | $ | 16,313 | | | $ | 19,470 | |
| Cash paid in current period for settlement of prior year repurchases | | $ | — | | | $ | 556 | | |
|
On January 31, 2020, Kforce’s Board approved an 11% increase to the Company's quarterly dividend from $0.18 per share to $0.20 per share. During the three months ended March 31, 20202021 and 2019,2020, Kforce declared and paid quarterly dividends of $4.8 million ($0.23 per share) and $4.3 million ($0.20 per share) and $4.4 million ($0.18 per share), respectively. The declaration, payment and amount of future dividends are discretionary and will be subject to determination by our Board each quarter following its review of, among other things, the Firm’s current and expected financial performance as well as the ability to pay dividends under applicable law.
We believe that existing cash and cash equivalents, cash flow from operations and available borrowings under our credit facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months. However, a material deterioration in the economic environment or market conditions, among other things, could negatively impactadversely affect operating results and liquidity, as well as the ability of our lenders to fund borrowings. Actual results could also differ materially from these indicated as a result of a number of factors, including the use of currently available resources for capital expenditures, investments, additional common stock repurchases or dividends.
Credit Facility
On May 25, 2017, the Firm entered into a credit agreement with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank of America, N.A., as syndication agent, Regions Bank and BMO Harris Bank, N.A., as co-documentation agents, and the lenders referred to therein (the “Credit Facility”). The maturity date of the Credit Facility is May 25, 2022. Borrowings under the Credit Facility are secured by substantially all of the tangible and intangible assets of the Firm, excluding the Firm’s corporate headquarters and certain other designated collateral. As of March 31, 2020,2021, $100.0 million was outstanding and $197.9$198.5 million was available on our credit facility,Credit Facility, subject to certain covenants, and as of December 31, 2019, $65.02020, $100.0 million was outstanding. As of March 31, 2020,2021, we are in compliance with our credit facility covenants as described in the 20192020 Annual Report on Form 10-K and currently expect that we will be able to maintain compliance with these covenants. However, we cannot predict the impact from the COVID-19 pandemic, which could have a material adverse effect on our results of operations that could result in an event of default.
Kforce has two forward-starting interest rate swap agreements, which have been designated as cash flow hedges, to mitigate the risk of rising interest rates. Refer to Note K - “Derivative Instruments and Hedging Activity” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report on Form 10-Q, for a complete discussion of our interest rate swaps. At March 31, 20202021 and December 31, 2019,2020, the fair value of our interest rate swaps were a liability of $1.7$0.5 million and $0.2$1.8 million, respectively.
Stock Repurchases
In March 2020, the Board approved an increase in our stock repurchase authorization to an aggregate total of $100.0 million. During the three months ended March 31, 2020,2021, Kforce repurchased approximately 0.70.3 million shares of common stock on the open market at a total cost of approximately $20.3$16.2 million and $93.6$68.4 million remained available for further repurchases under the Board-authorized common stock repurchase program at March 31, 2020.
Off-Balance Sheet Arrangements
There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to our off-balance sheet arrangements previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 Annual Report on Form 10-K.2021.
Contractual Obligations and Commitments
Other than the changes described elsewhere in this Quarterly Report, there have been no material changes during the period covered by this report on Form 10-Q to our contractual obligations previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 20192020 Annual Report on Form 10-K.
CRITICAL ACCOUNTING ESTIMATES
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP.
Due to the COVID-19 economic However, because future events and health crisis, there has been uncertainty and disruption in the U.S. and global macro-economic environments, which could impact the inputs and assumptions for our critical accounting estimates. We are not currently aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of any assets or liabilities. However,their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Refer to Note 1A – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in our 20192020 Annual Report on Form 10-K for a more detailed discussion of our significant accounting policies and critical accounting estimates.
Goodwill and Equity Method Investment Impairment
For our goodwill and equity method investment fair value estimates, the valuation methodologies employed are sensitive to critical estimates which could be impacted by the COVID-19 economic and health crisis, including forecasted operating results and long-term growth rates, expectations for future economic cycles and market multiples. At this time, the impact of the crisis on our forecasts is uncertain and increases the subjectivity that will be involved in evaluating our goodwill and equity method investment for potential impairment going forward.
Allowance for Credit Losses
The allowance for credit losses on trade receivables is determined based on a number of factors such as recent and historical write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of trade receivables among clients and the current state of the U.S. economy. 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.
Due to the ongoing COVID-19 economic and health crisis, we analyzed receivables concentrated within specific industries most significantly impacted, reviewed specific clients with credit ratings that were in a higher risk category and applied higher credit loss rates in order to estimate our potential credit loss exposure. At this time, the impact of the crisis on these estimates is uncertain and increases the subjectivity of our allowance for credit losses.
NEW ACCOUNTING STANDARDS
Refer to Note A - “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1. Financial Statements of this report for a discussion of new accounting standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Unless otherwise noted below,With respect to our quantitative and qualitative disclosures about market risk, there have been no material changes to quantitative and qualitative disclosures about market riskthe information included in Part II, Item 7A, “Quantitative��Quantitative and Qualitative Disclosures About Market Risk” in our 2019 Annual Report on Form 10-K.
On March 12, 2020, Kforce entered into an additional forward-starting interest rate swap agreement with Wells Fargo Bank, N.A., which was effective on March 17, 2020 and matures on May 30, 2025. This swap has a fixed interest rate of 0.61% and a notional amount of $35.0 million at March10-K for the fiscal year ended December 31, 2020, which increases to $75.0 million and $100.0 million in May 2020 and May 2022, respectively, and subsequently decreases to $75.0 million and $40.0 million in May 2023 and May 2024, respectively.2020.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of March 31, 2020,2021, we carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”) under the supervision and with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”). Based on the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
Management has evaluated, with the participation of our CEO and CFO, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.
Inherent Limitations of Internal Control Over Financial Reporting
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This Item of this report, which you are currently reading, is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are involved in legal proceedings, claims and administrative matters that arise in the ordinary course of business. We do not believe that any of our current such proceedings, claims or matters are material. There have been no material developments with regard to any of the legal proceedings previously disclosed in our 2019 Annual Report on Form 10-K.For further information regarding legal proceedings, refer to Note ML - "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements in the section entitled "Litigation and Loss Contingencies," included in Item 1. Financial Statements of this report. While the ultimate outcome of these legal proceedings cannot be determined, we currently do not expect that these matters, individually or in the aggregate, will have a material effect on our financial position.
ITEM 1A. RISK FACTORS.
Unless otherwise noted below, thereThere have been no material changes in the risk factors previously disclosed in our 20192020 Annual Report on Form 10-K.
The recent COVID-19 global pandemic may have a material adverse effect on our business and financial results.
The recent COVID-19 economic and health crisis could impact, and has impacted, many of our clients’ business operations due to reduced demand in their businesses, which in some cases was caused by government-mandated or voluntary closures, or due to initiatives to reduce costs or preserve cash, thereby decreasing demand for our staffing services and/or negatively impacting our profitability or our ability to timely collect our accounts receivable. More specifically, we have experienced, among other impacts, a reduction or elimination of consultants on previous projects and assignments, a reduction in bill rates, extended payment terms, and temporary furloughs for consultants. We have also experienced a decrease in our leading indicators, such as job orders, new assignment demand and direct hire placements due to hiring freezes.
Additionally, our employees, consultants and independent contractors may be, and have been, impacted by the occurrence of these types of events, or we may face difficulties in sourcing or onboarding these individuals, including slowdowns in critical processes such as interviewing, I-9 verification, background checks, or other compliance processes, which could impair our ability to serve our clients or respond timely to their needs. The occurrence of these types of events has resulted in, and may result in further, worker absences, lower billable hours, closure of our offices and delivery centers, travel restrictions on our employees or other disruptions to our business. The potential negative impacts on our operations could result in an event of default under our credit facility covenants, which might require us to seek alternative sources of financing, which may not be available on favorable terms or at all. The COVID-19 pandemic continues to be fluid and uncertain, making it difficult to forecast the entirety of the impact it could have on our business, customers, financial condition and operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Purchases of Equity Securities by the Issuer
In March 2020, the Board approved an increase in our stock repurchase authorization to an aggregate total of $100.0 million. Purchases of common stock under the Plan are subject to certain price, market, volume and timing constraints specified in the plan. The following table presents information with respect to our repurchases of Kforce common stock during the three months ended March 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
January 1, 2020 to January 31, 2020 | — | | | $ | — | | | — | | | $ | 44,297,260 | |
February 1, 2020 to February 29, 2020 | 284,333 | | | $ | 33.59 | | | 281,748 | | | $ | 34,834,323 | |
March 1, 2020 to March 31, 2020 | 400,357 | | | $ | 27.05 | | | 400,357 | | | $ | 93,634,225 | |
Total | 684,690 | | | $ | 29.76 | | | 682,105 | | | $ | 93,634,225 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
January 1, 2021 to January 31, 2021 | — | | | $ | — | | | — | | | $ | 84,540,188 | |
February 1, 2021 to February 28, 2021 | 110,435 | | | $ | 48.80 | | | 107,810 | | | $ | 79,273,336 | |
March 1, 2021 to March 31, 2021 | 206,271 | | | $ | 52.96 | | | 206,271 | | | $ | 68,350,234 | |
Total | 316,706 | | | $ | 51.51 | | | 314,081 | | | $ | 68,350,234 | |
(1) Includes 2,5852,625 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period February 1, 20202021 to February 29, 2020.28, 2021.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| | | | | | | | |
Exhibit Number | Description | |
| | |
3.1 | Amended and Restated Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 33-91738) filed with the SEC on April 28, 1995. | |
| Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. | |
| Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. | |
| Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. | |
| Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 17, 2000. | |
| Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 29, 2002. | |
| Amended & Restated Bylaws, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on April 29, 2013. | |
| Kforce Inc. 20202021 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-237957)333-255480) filed with the SEC on May 1, 2020.April 23, 2021. | |
| Form of Restricted Stock Award Agreement under the 20202021 Stock Incentive Plan. | |
| Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| Certification by the Chief Executive Officer of Kforce Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| Certification by the Chief Financial Officer of Kforce Inc. pursuant to 18 U.S.C. Section 2350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.1 | The following material from this Quarterly Report on Form 10-Q of Kforce Inc. for the period ended March 31, 2020,2021, formatted in XBRL Part I, Item 1 of this Form 10-Q formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income; (ii) Unaudited Condensed Consolidated Balance Sheets; (iii) Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows; and (v) related notes to these financial statements. | |
104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | |
| | | KFORCE INC. | |
| | | | |
Date: | May 7, 20205, 2021 | By: | | /s/ DAVID M. KELLY |
| | | | David M. Kelly |
| | | | Executive Vice President, and Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
Date: | May 7, 20205, 2021 | By: | | /s/ JEFFREYJEFFRY B. HACKMAN |
| | | | Jeffrey B. Hackman |
| | | | Senior Vice President, Finance and Accounting |
| | | | (Principal Accounting Officer) |