UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
________________________________________________________
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
OR | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-26058
Kforce Inc.
Exact name of registrant as specified in its charter
_______________________________________________________________ | | | | | | | | |
Florida | | 59-3264661 |
State or other jurisdiction of incorporation or organization | | IRS Employer Identification No. |
| | | | | | | | |
1001 East Palm Avenue, Tampa, Florida | | 33605 |
Address of principal executive offices | | Zip Code |
Registrant’s telephone number, including area code: (813) 552-5000
_______________________________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 per share | KFRC | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act: | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒x | | 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 July 30, 2021April 29, 2022 was 21,629,159.21,384,450.
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.I, Item 2.2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II.II, Item 1A.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, projectionsto: expectations 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,performance; developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions, our ability to maintain compliance with our credit facility's covenants,conditions; our beliefs regarding the expected future flexibilitybenefits of theour flexible working environment for Kforce,environment; the impact of the COVID-19 pandemic, inflationary pressures and/or supply constraints on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations,operations; our ability to maintain compliance with our credit facility's covenants; our beliefs regarding potential government actions or changes in laws and regulations, including those related to the COVID-19 pandemic; anticipated costs and benefits of acquisitions, divestitures, joint ventures and other investments; effects of interest rate variations; financing needs or plans; expected funding or payment of employee benefits; estimates concerning the effects of litigation or other disputes; the occurrence of unanticipated expenses; as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. Kforce undertakes no obligation to update any forward-looking statements.
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 June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | |
Revenue | Revenue | $ | 403,614 | | | $ | 343,020 | | | $ | 766,839 | | | $ | 678,228 | | Revenue | $ | 416,967 | | | $ | 363,225 | | | |
Direct costs | Direct costs | 284,683 | | | 245,659 | | | 549,226 | | | 486,343 | | Direct costs | 293,081 | | | 264,543 | | | |
Gross profit | Gross profit | 118,931 | | | 97,361 | | | 217,613 | | | 191,885 | | Gross profit | 123,886 | | | 98,682 | | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 84,616 | | | 80,546 | | | 162,645 | | | 159,762 | | Selling, general and administrative expenses | 95,049 | | | 78,029 | | | |
Depreciation and amortization | Depreciation and amortization | 1,192 | | | 1,380 | | | 2,394 | | | 2,773 | | Depreciation and amortization | 1,093 | | | 1,202 | | | |
Income from operations | Income from operations | 33,123 | | | 15,435 | | | 52,574 | | | 29,350 | | Income from operations | 27,744 | | | 19,451 | | | |
Other expense, net | Other expense, net | 3,112 | | | 1,427 | | | 4,397 | | | 2,808 | | Other expense, net | 1,433 | | | 1,285 | | | |
Income from operations, before income taxes | Income from operations, before income taxes | 30,011 | | | 14,008 | | | 48,177 | | | 26,542 | | Income from operations, before income taxes | 26,311 | | | 18,166 | | | |
Income tax expense | Income tax expense | 8,823 | | | 4,123 | | | 13,728 | | | 7,551 | | Income tax expense | 7,130 | | | 4,905 | | | |
| Net income | Net income | 21,188 | | | 9,885 | | | 34,449 | | | 18,991 | | Net income | 19,181 | | | 13,261 | | | |
Other comprehensive income (loss), net of tax: | | |
Other comprehensive income, net of tax: | | Other comprehensive income, net of tax: | | |
Defined benefit pension plans | Defined benefit pension plans | 3,056 | | | 0 | | | 3,103 | | | 0 | | Defined benefit pension plans | — | | | 47 | | | |
Change in fair value of interest rate swaps | Change in fair value of interest rate swaps | 10 | | | (470) | | | 949 | | | (1,591) | | Change in fair value of interest rate swaps | 2,302 | | | 939 | | | |
Comprehensive income | Comprehensive income | $ | 24,254 | | | $ | 9,415 | | | $ | 38,501 | | | $ | 17,400 | | Comprehensive income | $ | 21,483 | | | $ | 14,247 | | | |
| | Earnings per share – basic | Earnings per share – basic | $ | 1.02 | | | $ | 0.48 | | | $ | 1.66 | | | $ | 0.90 | | Earnings per share – basic | $ | 0.94 | | | $ | 0.63 | | | |
| Earnings per share – diluted | Earnings per share – diluted | $ | 1.00 | | | $ | 0.47 | | | $ | 1.61 | | | $ | 0.89 | | Earnings per share – diluted | $ | 0.93 | | | $ | 0.62 | | | |
| Weighted average shares outstanding – basic | Weighted average shares outstanding – basic | 20,673 | | | 20,790 | | | 20,802 | | | 21,171 | | Weighted average shares outstanding – basic | 20,319 | | | 20,932 | | | |
Weighted average shares outstanding – diluted | Weighted average shares outstanding – diluted | 21,282 | | | 21,078 | | | 21,331 | | | 21,469 | | Weighted average shares outstanding – diluted | 20,730 | | | 21,361 | | | |
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)
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
ASSETS | ASSETS | | ASSETS | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 117,279 | | | $ | 103,486 | | Cash and cash equivalents | $ | 116,627 | | | $ | 96,989 | |
Trade receivables, net of allowances of $2,509 and $3,204, respectively | 266,919 | | | 228,373 | | |
Trade receivables, net of allowances of $2,520 and $2,342, respectively | | Trade receivables, net of allowances of $2,520 and $2,342, respectively | 278,064 | | | 265,322 | |
Income tax refund receivable | | Income tax refund receivable | 3,243 | | | 3,010 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 7,492 | | | 7,033 | | Prepaid expenses and other current assets | 7,520 | | | 6,790 | |
Total current assets | Total current assets | 391,690 | | | 338,892 | | Total current assets | 405,454 | | | 372,111 | |
Fixed assets, net | Fixed assets, net | 4,753 | | | 26,804 | | Fixed assets, net | 6,586 | | | 5,964 | |
Other assets, net | Other assets, net | 87,132 | | | 77,575 | | Other assets, net | 92,414 | | | 92,629 | |
Deferred tax assets, net | Deferred tax assets, net | 9,517 | | | 10,738 | | Deferred tax assets, net | — | | | 7,657 | |
Goodwill | Goodwill | 25,040 | | | 25,040 | | Goodwill | 25,040 | | | 25,040 | |
Total assets | Total assets | $ | 518,132 | | | $ | 479,049 | | Total assets | $ | 529,494 | | | $ | 503,401 | |
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 | $ | 47,670 | | | $ | 35,533 | | Accounts payable and other accrued liabilities | $ | 90,328 | | | $ | 81,408 | |
Accrued payroll costs | Accrued payroll costs | 82,486 | | | 65,849 | | Accrued payroll costs | 86,629 | | | 71,424 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 6,642 | | | 5,520 | | Current portion of operating lease liabilities | 5,447 | | | 6,338 | |
Income taxes payable | Income taxes payable | 3,179 | | | 964 | | Income taxes payable | 757 | | | 1,239 | |
Other current liabilities | Other current liabilities | 124 | | | 300 | | Other current liabilities | 37 | | | 22 | |
Short-term debt - credit facility | 100,000 | | | 0 | | |
| Total current liabilities | Total current liabilities | 240,101 | | | 108,166 | | Total current liabilities | 183,198 | | | 160,431 | |
Long-term debt – credit facility | Long-term debt – credit facility | 0 | | | 100,000 | | Long-term debt – credit facility | 100,000 | | | 100,000 | |
Deferred tax liability, net | | Deferred tax liability, net | 665 | | | — | |
Other long-term liabilities | Other long-term liabilities | 91,752 | | | 90,948 | | Other long-term liabilities | 47,426 | | | 54,564 | |
Total liabilities | Total liabilities | 331,853 | | | 299,114 | | Total liabilities | 331,289 | | | 314,995 | |
Commitments and contingencies (Note M) | 0 | | 0 | |
Commitments and contingencies (Note K) | | Commitments and contingencies (Note K) | 0 | | 0 |
Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.01 par; 15,000 shares authorized, NaN issued and outstanding | 0 | | | 0 | | |
Common stock, $0.01 par; 250,000 shares authorized, 72,655 and 72,600 issued, respectively | 727 | | | 726 | | |
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding | | Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding | — | | | — | |
Common stock, $0.01 par; 250,000 shares authorized, 72,996 and 72,997 issued, respectively | | Common stock, $0.01 par; 250,000 shares authorized, 72,996 and 72,997 issued, respectively | 730 | | | 730 | |
Additional paid-in capital | Additional paid-in capital | 480,114 | | | 472,378 | | Additional paid-in capital | 492,985 | | | 488,036 | |
Accumulated other comprehensive loss | (371) | | | (4,423) | | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | 2,923 | | | 621 | |
Retained earnings | Retained earnings | 413,018 | | | 388,645 | | Retained earnings | 455,365 | | | 442,596 | |
Treasury stock, at cost; 50,961 and 50,427 shares, respectively | (707,209) | | | (677,391) | | |
Treasury stock, at cost; 51,636 and 51,493 shares, respectively | | Treasury stock, at cost; 51,636 and 51,493 shares, respectively | (753,798) | | | (743,577) | |
Total stockholders’ equity | Total stockholders’ equity | 186,279 | | | 179,935 | | Total stockholders’ equity | 198,205 | | | 188,406 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 518,132 | | | $ | 479,049 | | Total liabilities and stockholders’ equity | $ | 529,494 | | | $ | 503,401 | |
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 Income (Loss) | | Treasury Stock | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income | | Treasury Stock | | Total Stockholders’ Equity |
| | Shares | | Amount | | Retained Earnings | | Shares | | Amount | | | Shares | | Amount | | Retained Earnings | | Shares | | Amount | |
Balance, December 31, 2020 | 72,600 | | | $ | 726 | | | $ | 472,378 | | | $ | (4,423) | | | $ | 388,645 | | | 50,427 | | | $ | (677,391) | | | $ | 179,935 | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | 72,997 | | | $ | 730 | | | $ | 488,036 | | | $ | 621 | | | $ | 442,596 | | | 51,492 | | | $ | (743,577) | | | $ | 188,406 | |
Net income | Net income | — | | | — | | | — | | | — | | | 13,261 | | | — | | | — | | | 13,261 | | Net income | — | | | — | | | — | | | — | | | 19,181 | | | — | | | — | | | 19,181 | |
Issuance for stock-based compensation and dividends, net of forfeitures | Issuance for stock-based compensation and dividends, net of forfeitures | 15 | | | — | | | 271 | | | — | | | (271) | | | — | | | — | | | 0 | | Issuance for stock-based compensation and dividends, net of forfeitures | (1) | | | — | | | 319 | | | — | | | (318) | | | — | | | — | | | 1 | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 3,403 | | | — | | | — | | | — | | | — | | | 3,403 | | Stock-based compensation expense | — | | | — | | | 4,437 | | | — | | | — | | | — | | | — | | | 4,437 | |
Employee stock purchase plan | Employee stock purchase plan | — | | | — | | | 113 | | | — | | | — | | | (4) | | | 57 | | | 170 | | Employee stock purchase plan | — | | | — | | | 193 | | | — | | | — | | | (3) | | | 49 | | | 242 | |
Dividends ($0.23 per share) | — | | | — | | | — | | | — | | | (4,786) | | | — | | | — | | | (4,786) | | |
Dividends ($0.30 per share) | | Dividends ($0.30 per share) | — | | | — | | | — | | | — | | | (6,094) | | | — | | | — | | | (6,094) | |
Defined benefit pension plan, no tax benefit | Defined benefit pension plan, no tax benefit | — | | | — | | | — | | | 47 | | | — | | | — | | | — | | | 47 | | Defined benefit pension plan, no tax benefit | — | | | — | | | — | | | 0 | | — | | | — | | | — | | | — | |
Change in fair value of interest rate swaps, net of tax benefit of $319 | — | | | — | | | — | | | 939 | | | — | | | — | | | — | | | 939 | | |
Change in fair value of interest rate swaps, net of tax benefit of $780 | | Change in fair value of interest rate swaps, net of tax benefit of $780 | — | | | — | | | — | | | 2,302 | | | — | | | — | | | — | | | 2,302 | |
Repurchases of common stock | Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 317 | | | (16,313) | | | (16,313) | | Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 147 | | | (10,270) | | | (10,270) | |
Balance, March 31, 2021 | 72,615 | | | $ | 726 | | | $ | 476,165 | | | $ | (3,437) | | | $ | 396,849 | | | 50,740 | | | $ | (693,647) | | | $ | 176,656 | | |
Net income | — | | | — | | | — | | | — | | | 21,188 | | | — | | | — | | | 21,188 | | |
Issuance for stock-based compensation and dividends, net of forfeitures | 40 | | | 1 | | | 274 | | | — | | | (273) | | | — | | | — | | | 2 | | |
Stock-based compensation expense | — | | | — | | | 3,532 | | | — | | | — | | | — | | | — | | | 3,532 | | |
Employee stock purchase plan | — | | | — | | | 143 | | | — | | | — | | | (4) | | | 52 | | | 195 | | |
Dividends ($0.23 per share) | — | | | — | | | — | | | — | | | (4,746) | | | — | | | — | | | (4,746) | | |
Defined benefit pension plan, net of tax provision of $283 | — | | | — | | | — | | | 3,056 | | | — | | | — | | | — | | | 3,056 | | |
Change in fair value of interest rate swaps, net of tax benefit of $3 | — | | | — | | | — | | | 10 | | | — | | | — | | | — | | | 10 | | |
Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 225 | | | $ | (13,614) | | | (13,614) | | |
Balance, June 30, 2021 | 72,655 | | | $ | 727 | | | $ | 480,114 | | | $ | (371) | | | $ | 413,018 | | | 50,961 | | | $ | (707,209) | | | $ | 186,279 | | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | 72,996 | | | $ | 730 | | | $ | 492,985 | | | $ | 2,923 | | | $ | 455,365 | | | 51,636 | | | $ | (753,798) | | | $ | 198,205 | |
| |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | Total Stockholders’ Equity |
| | Shares | | Amount | | Retained Earnings | | Shares | | Amount | | | 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 | | |
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 | — | | | — | | | — | | | — | | | 9,885 | | | — | | | — | | | 9,885 | | Net income | — | | | — | | | — | | | — | | | 13,261 | | | — | | | — | | | 13,261 | |
Issuance for stock-based compensation and dividends, net of forfeitures | Issuance for stock-based compensation and dividends, net of forfeitures | 39 | | | — | | | 240 | | | — | | | (240) | | | — | | | — | | | 0 | | Issuance for stock-based compensation and dividends, net of forfeitures | 15 | | | — | | | 271 | | | — | | | (271) | | | — | | | — | | | — | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 2,903 | | | — | | | — | | | — | | | — | | | 2,903 | | Stock-based compensation expense | — | | | — | | | 3,403 | | | — | | | — | | | — | | | — | | | 3,403 | |
Employee stock purchase plan | Employee stock purchase plan | — | | | — | | | 62 | | | — | | | — | | | (5) | | | 72 | | | 134 | | Employee stock purchase plan | — | | | — | | | 113 | | | — | | | — | | | (4) | | | 57 | | | 170 | |
Dividends ($0.20 per share) | — | | | — | | | — | | | — | | | (4,162) | | | — | | | — | | | (4,162) | | |
Change in fair value of interest rate swap, net of tax benefit of $160 | — | | | — | | | — | | | (470) | | | — | | | — | | | — | | | (470) | | |
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 swap, net of tax benefit of 319 | | Change in fair value of interest rate swap, net of tax benefit of 319 | — | | | — | | | — | | | 939 | | | — | | | — | | | — | | | 939 | |
Repurchases of common stock | Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 342 | | | (9,213) | | | (9,213) | | Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 317 | | | (16,313) | | | (16,313) | |
Balance, June 30, 2020 | 72,237 | | | $ | 722 | | | $ | 465,957 | | | $ | (3,117) | | | $ | 360,409 | | | 50,295 | | | $ | (671,495) | | | $ | 152,476 | | |
Balance, March 31, 2021 | | Balance, March 31, 2021 | 72,615 | | | $ | 726 | | | $ | 476,165 | | | $ | (3,437) | | | $ | 396,849 | | | 50,740 | | | $ | (693,647) | | | $ | 176,656 | |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) | | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
Net income | Net income | $ | 34,449 | | | $ | 18,991 | | Net income | $ | 19,181 | | | $ | 13,261 | |
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 | 899 | | | (3,741) | | Deferred income tax provision, net | 8,321 | | | 931 | |
Provision for credit losses | Provision for credit losses | (181) | | | 2,835 | | Provision for credit losses | 172 | | | (852) | |
Depreciation and amortization | Depreciation and amortization | 2,394 | | | 2,773 | | Depreciation and amortization | 1,093 | | | 1,202 | |
Stock-based compensation expense | Stock-based compensation expense | 6,936 | | | 5,799 | | Stock-based compensation expense | 4,437 | | | 3,403 | |
Defined benefit pension plan expense | Defined benefit pension plan expense | 2,157 | | | 422 | | Defined benefit pension plan expense | — | | | 252 | |
| (Gain) loss on disposal or impairment of assets | (1,987) | | | 1,092 | | |
Loss on disposal or impairment of assets | | Loss on disposal or impairment of assets | 168 | | | — | |
Noncash lease expense | Noncash lease expense | 2,443 | | | 3,086 | | Noncash lease expense | 1,502 | | | 1,114 | |
Loss on equity method investment | Loss on equity method investment | 1,022 | | | 1,134 | | Loss on equity method investment | 825 | | | 491 | |
Other | Other | 445 | | | 600 | | Other | 190 | | | 242 | |
Increase in operating assets | Increase in operating assets | | Increase in operating assets | |
Trade receivables, net | Trade receivables, net | (38,365) | | | (27,585) | | Trade receivables, net | (12,914) | | | (15,001) | |
Other assets | Other assets | (4,890) | | | (2,510) | | Other assets | (2,577) | | | (324) | |
Increase in operating liabilities | Increase in operating liabilities | | Increase in operating liabilities | |
Accrued payroll costs | Accrued payroll costs | 17,002 | | | 10,588 | | Accrued payroll costs | 15,447 | | | 12,203 | |
Other liabilities | Other liabilities | 14,250 | | | 25,482 | | Other liabilities | 2,897 | | | 5,504 | |
Cash provided by operating activities | Cash provided by operating activities | 36,574 | | | 38,966 | | Cash provided by operating activities | 38,742 | | | 22,426 | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Capital expenditures | Capital expenditures | (2,919) | | | (3,793) | | Capital expenditures | (2,221) | | | (1,350) | |
Equity method investment | (4,500) | | | (2,500) | | |
Proceeds from the sale of assets held within the Rabbi Trust | 0 | | | 3,548 | | |
Net proceeds from the sale of assets | 23,742 | | | 0 | | |
Cash provided by ( used in) investing activities | 16,323 | | | (2,745) | | |
Contributions to equity method investment | | Contributions to equity method investment | (500) | | | (2,000) | |
| Cash used in investing activities | | Cash used in investing activities | (2,721) | | | (3,350) | |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
Proceeds from credit facility | 0 | | | 35,000 | | |
| | Repurchases of common stock | Repurchases of common stock | (29,371) | | | (29,593) | | Repurchases of common stock | (10,270) | | | (16,313) | |
Cash dividends | Cash dividends | (9,532) | | | (8,455) | | Cash dividends | (6,094) | | | (4,786) | |
Payments on other financing arrangements | Payments on other financing arrangements | (201) | | | (633) | | Payments on other financing arrangements | (19) | | | (122) | |
| Cash used in financing activities | Cash used in financing activities | (39,104) | | | (3,681) | | Cash used in financing activities | (16,383) | | | (21,221) | |
Change in cash and cash equivalents | Change in cash and cash equivalents | 13,793 | | | 32,540 | | Change in cash and cash equivalents | 19,638 | | | (2,145) | |
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 103,486 | | | 19,831 | | Cash and cash equivalents, beginning of period | 96,989 | | | 103,486 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 117,279 | | | $ | 52,371 | | Cash and cash equivalents, end of period | $ | 116,627 | | | $ | 101,341 | |
| | | Six Months Ended June 30, | | Three Months Ended March 31, |
Supplemental Disclosure of Cash Flow Information | Supplemental Disclosure of Cash Flow Information | 2021 | | 2020 | Supplemental Disclosure of Cash Flow Information | 2022 | | 2021 |
Cash Paid During the Period For: | Cash Paid During the Period For: | | Cash Paid During the Period For: | |
Income taxes | Income taxes | $ | 10,500 | | | $ | 1,043 | | Income taxes | $ | 314 | | | $ | 332 | |
Operating lease liabilities | Operating lease liabilities | 3,564 | | | 3,949 | | Operating lease liabilities | 1,812 | | | 1,690 | |
Interest, net | Interest, net | 1,280 | | | 1,281 | | Interest, net | 547 | | | 634 | |
Non-Cash Investing and Financing Transactions: | Non-Cash Investing and Financing Transactions: | | | Non-Cash Investing and Financing Transactions: | | |
ROU assets obtained from operating leases | ROU assets obtained from operating leases | $ | 3,852 | | | $ | 2,971 | | ROU assets obtained from operating leases | $ | 446 | | | $ | 243 | |
Employee stock purchase plan | Employee stock purchase plan | 365 | | | 276 | | Employee stock purchase plan | 242 | | | 170 | |
| |
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 20202021 Annual Report on Form 10-K.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnotes normally required by GAAP for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 20202021 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, 20202021, was derived from our audited Consolidated Balance Sheet as of December 31, 2020,2021, as presented in our 20202021 Annual Report on Form 10-K.
Our quarterly operating results are affected by the number of billing days in a particular quarter, the seasonality of our clients’ businesses and increased holiday and vacation days taken. In addition, we typically experience higher costs in the first quarter of each fiscal year as a result of certain U.S. state and federal employment tax resets, which adversely affects our gross profit and overall profitability. The impactprofitability relative to the remainder 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 associated variants) and the actions implemented to combat the virus as reported in the official agency reports.fiscal year. As such, the results of operations for any interim period may be impacted by these factors, among others, and are not necessarily indicative of, nor comparable to, the results of operations for a full year.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most critical of these estimates and assumptions relate to the following: allowance for credit losses; income taxes; self-insured liabilities for health insurance; and the impairment of goodwill, other long-lived assets and the equity method investment. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. The severity, magnitude and duration, as well asIn addition, the potential economic consequences of the COVID-19 pandemic, inflationary pressures, and supply constraints, among others, have been and may continue to be uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future periods in response to the COVID-19 pandemic.periods.
Health Insurance
Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss per participant for each health insurance claim up to $600 thousand in claims annually. Additionally, for all claim amounts exceeding $600 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of $200 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and incurred but not reported claims, which are primarily based upon an evaluation of historical claims experience, completion factors determined by an actuary and a qualitative review of our health insurance exposure including the extent of outstanding claims and expected changes in health insurance costs.
Earnings per Share
Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per share is computed by dividing net income by diluted WASO. Diluted WASO includes the dilutive effect of potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.
For the three and six months ended June 30,March 31, 2022 and 2021, 609411 thousand and 529429 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended June 30, 2020, 288 thousandMarch 31, 2022 and 298 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended June 30, 2021, there were insignificant anti-dilutive common stock equivalents. For the three and six months ended June 30, 2020, there were 352305 thousand and 346 thousandnil anti-dilutive common stock equivalents, respectively.
New Accounting Standards
Recently AdoptedIssued Accounting Standards Not Yet Adopted
In August 2018,March 2022, the FASBFinancial Accounting Standards Board (FASB) issued authoritativeAccounting Standards Update (ASU) No. 2022-02, Financial Instruments - Credit Losses (Topic 326) - Trouble Debt Restructurings and Vintage Disclosures. These amendments eliminate the trouble debt restructuring (TDR) recognition and measurement guidance regarding changes toand, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirement for defined benefit plans including additionsrequirements and deletionsintroduce new requirements related to certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The guidance wasmodifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-01 is effective for fiscalannual periods, including interim periods within those annual periods, beginning after December 15, 2020, with the retrospective method required for all periods presented. The Company adopted the provisions2022. Early adoption of this new accounting standard atASU is permitted. We are currently evaluating the beginningimpact of fiscal year 2021. This guidance didASU 2022-01 on our consolidated financial statements, however, we do not haveanticipate this having a financialmaterial impact on the Company’sto our financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to: (1) recognition of an acquired contract liability; and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022. Early adoption of this ASU is permitted. We are currently evaluating the impact of ASU 2021-08 on our consolidated financial statements.
Other recently issued statements have been evaluated but are not listed here as it has been determined that they are not applicable to our Firm.
Note B - Reportable Segments
Kforce provides services through our Technology (“Tech”) and Finance and Accounting (“FA”) segments. Historically, and for the three and six months ended June 30, 2021,March 31, 2022, we have reported sales and gross profit information on a segment basis. Total assets, liabilities and operating expenses are not reported separately by segment as our operations are largely combined.
The following table provides information on the operations of our segments (in thousands): | | | Tech | | FA | | Total | | Technology | | FA | | Total |
Three Months Ended June 30, | | |
Three Months Ended March 31, | | Three Months Ended March 31, | |
2022 | | 2022 | |
Revenue | | Revenue | $ | 359,905 | | | $ | 57,062 | | | $ | 416,967 | |
Gross profit | | Gross profit | $ | 102,450 | | | $ | 21,436 | | | $ | 123,886 | |
Operating and other expenses | | Operating and other expenses | | $ | 97,575 | |
Income from operations, before income taxes | | Income from operations, before income taxes | | $ | 26,311 | |
2021 | 2021 | | 2021 | |
Revenue | Revenue | $ | 310,728 | | | $ | 92,886 | | | $ | 403,614 | | Revenue | $ | 279,560 | | | $ | 83,665 | | | $ | 363,225 | |
Gross profit | Gross profit | $ | 88,235 | | | $ | 30,696 | | | $ | 118,931 | | Gross profit | $ | 74,280 | | | $ | 24,402 | | | $ | 98,682 | |
Operating and other expenses | Operating and other expenses | | $ | 88,920 | | Operating and other expenses | | $ | 80,516 | |
Income from operations, before income taxes | Income from operations, before income taxes | | $ | 30,011 | | Income from operations, before income taxes | | $ | 18,166 | |
2020 | | |
Revenue | $ | 255,750 | | | $ | 87,270 | | | $ | 343,020 | | |
Gross profit | $ | 72,192 | | | $ | 25,169 | | | $ | 97,361 | | |
Operating and other expenses | | $ | 83,353 | | |
Income from operations, before income taxes | | $ | 14,008 | | |
| Six Months Ended June 30, | | |
2021 | | |
Revenue | $ | 590,288 | | | $ | 176,551 | | | $ | 766,839 | | |
Gross profit | $ | 162,515 | | | $ | 55,098 | | | $ | 217,613 | | |
Operating and other expenses | | $ | 169,436 | | |
Income from operations, before income taxes | | $ | 48,177 | | |
2020 | | |
Revenue | $ | 522,534 | | | $ | 155,694 | | | $ | 678,228 | | |
Gross profit | $ | 144,646 | | | $ | 47,239 | | | $ | 191,885 | | |
Operating and other expenses | | $ | 165,343 | | |
Income from operations, before income taxes | | $ | 26,542 | | |
|
Note C - Disaggregation of Revenue
The following table provides the disaggregation of revenue by segment and type (in thousands): | | | Tech | | FA | | Total | | Technology | | FA | | Total |
Three Months Ended June 30, | | |
Three Months Ended March 31, | | Three Months Ended March 31, | |
2022 | | 2022 | |
Revenue by type: | | Revenue by type: | |
Flex revenue | | Flex revenue | $ | 351,716 | | | $ | 50,150 | | | $ | 401,866 | |
Direct Hire revenue | | Direct Hire revenue | 8,189 | | | 6,912 | | | 15,101 | |
Total Revenue | | Total Revenue | $ | 359,905 | | | $ | 57,062 | | | $ | 416,967 | |
2021 | 2021 | | 2021 | |
Revenue by type: | Revenue by type: | | Revenue by type: | |
Flex revenue | Flex revenue | $ | 304,645 | | | $ | 86,717 | | | $ | 391,362 | | Flex revenue | $ | 274,784 | | | $ | 79,063 | | | $ | 353,847 | |
Direct Hire revenue | Direct Hire revenue | 6,083 | | | 6,169 | | | 12,252 | | Direct Hire revenue | 4,776 | | | 4,602 | | | 9,378 | |
Total Revenue | Total Revenue | $ | 310,728 | | | $ | 92,886 | | | $ | 403,614 | | Total Revenue | $ | 279,560 | | | $ | 83,665 | | | $ | 363,225 | |
2020 | | |
Revenue by type: | | |
Flex revenue | $ | 251,948 | | | $ | 84,469 | | | $ | 336,417 | | |
Direct Hire revenue | 3,802 | | | 2,801 | | | 6,603 | | |
Total Revenue | $ | 255,750 | | | $ | 87,270 | | | $ | 343,020 | | |
Six Months Ended June 30, | | |
2021 | | |
Revenue by type: | | |
Flex revenue | $ | 579,429 | | | $ | 165,780 | | | $ | 745,209 | | |
Direct Hire revenue | 10,859 | | | 10,771 | | | 21,630 | | |
Total Revenue | $ | 590,288 | | | $ | 176,551 | | | $ | 766,839 | | |
2020 | | |
Revenue by type: | | |
Flex revenue | $ | 514,517 | | | $ | 148,009 | | | $ | 662,526 | | |
Direct Hire revenue | 8,017 | | | 7,685 | | | 15,702 | | |
Total Revenue | $ | 522,534 | | | $ | 155,694 | | | $ | 678,228 | | |
|
Note D - 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 and six months ended June 30, 2021.March 31, 2022.
The following table presents the activity within the allowance for credit losses on trade receivables for the sixthree months ended June 30, 2021March 31, 2022 (in thousands): | | | | | |
| |
| |
Allowance for credit losses, January 1, 20212022 | $ | 2,7571,729 | |
Current period provision | (181)172 | |
Write-offs charged against the allowance, net of recoveries of amounts previously written off | (673)(78) | |
| |
Allowance for credit losses, June 30, 2021March 31, 2022 | $ | 1,9031,823 | |
The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.7 million and $0.6 million and $0.4 million at June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, for reserves unrelated to credit losses.
During the six months ended June 30, 2021, management performed an analysis of our allowance for credit losses 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 E - Sale of Corporate Headquarters
On May 19, 2021, Kforce completed the sale of its corporate headquarters, which had a net book value of $21.7 million, to an independent third party. Kforce received net proceeds of $23.7 million and recognized a gain on the sale in the amount of $2.0 million, which is recorded in SG&A expenses.
Note F - Other Assets, NetNet
Other assets, net consisted of the following (in thousands): | | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Assets held in Rabbi Trust | Assets held in Rabbi Trust | $ | 39,608 | | | $ | 36,164 | | Assets held in Rabbi Trust | $ | 38,213 | | | $ | 41,607 | |
Right-of-use assets for operating leases, net | Right-of-use assets for operating leases, net | 17,699 | | | 16,835 | | Right-of-use assets for operating leases, net | 13,376 | | | 15,395 | |
Capitalized software, net (1) | Capitalized software, net (1) | 14,696 | | | 12,802 | | Capitalized software, net (1) | 14,796 | | | 14,666 | |
Equity method investment (2) | Equity method investment (2) | 13,966 | | | 10,488 | | Equity method investment (2) | 16,683 | | | 17,008 | |
Deferred loan costs, net | Deferred loan costs, net | 324 | | | 501 | | Deferred loan costs, net | 1,057 | | | 1,115 | |
| Interest rate swap derivative instruments | | Interest rate swap derivative instruments | 3,905 | | | 823 | |
Other non-current assets | Other non-current assets | 839 | | | 785 | | Other non-current assets | 4,384 | | | 2,015 | |
Total Other assets, net | Total Other assets, net | $ | 87,132 | | | $ | 77,575 | | Total Other assets, net | $ | 92,414 | | | $ | 92,629 | |
(1) Accumulated amortization of capitalized software was $34.8$35.4 million and $34.0$35.5 million as of June 30, 2021March 31, 2022 and December 31, 2020,2021, 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 this WorkLLama investment was $0.5$0.8 million and $1.0$0.5 million for the three and six months ended June 30,March 31, 2022, and March 31, 2021, respectively. In addition, Kforce contributed $4.5$0.5 million and $4.0$9.0 million of capital during the sixthree months ended June 30, 2021March 31, 2022 and the year ended December 31, 2020,2021, respectively. Refer to Note MK - “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): | | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Accounts payable and other accrued liabilities: | Accounts payable and other accrued liabilities: | | Accounts payable and other accrued liabilities: | |
Accounts payable | Accounts payable | $ | 33,421 | | | $ | 20,177 | | Accounts payable | $ | 48,855 | | | $ | 40,241 | |
Accrued liabilities | Accrued liabilities | 14,249 | | | 15,356 | | Accrued liabilities | 41,473 | | | 41,167 | |
Total Accounts payable and other accrued liabilities | Total Accounts payable and other accrued liabilities | $ | 47,670 | | | $ | 35,533 | | Total Accounts payable and other accrued liabilities | $ | 90,328 | | | $ | 81,408 | |
Accrued payroll costs: | Accrued payroll costs: | | Accrued payroll costs: | |
Payroll and benefits | Payroll and benefits | $ | 49,986 | | | $ | 38,257 | | Payroll and benefits | $ | 51,724 | | | $ | 43,738 | |
Payroll taxes | Payroll taxes | 26,704 | | | 21,842 | | Payroll taxes | 29,791 | | | 22,466 | |
Health insurance liabilities | Health insurance liabilities | 4,736 | | | 4,641 | | Health insurance liabilities | 4,342 | | | 4,474 | |
Workers’ compensation liabilities | Workers’ compensation liabilities | 1,060 | | | 1,109 | | Workers’ compensation liabilities | 772 | | | 746 | |
Total Accrued payroll costs | Total Accrued payroll costs | $ | 82,486 | | | $ | 65,849 | | Total Accrued payroll costs | $ | 86,629 | | | $ | 71,424 | |
Our accounts payable balance includes vendor and independent contractorthird party payables. Our accrued liabilities balance includes the current portion of theour deferred compensation plans liability, contract liabilities from contracts with customers (such as customer rebates) and, other accrued liabilities. Included within payroll taxes inliabilities and amounts owed under 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”), which is expected to be paid in 2021.
Note H - Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands): | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Deferred compensation plan | $ | 37,894 | | | $ | 34,501 | |
Supplemental executive retirement plan (1) | 19,965 | | | 20,628 | |
Operating lease liabilities | 14,067 | | | 14,692 | |
Interest rate swap derivative instruments | 503 | | | 1,774 | |
Other long-term liabilities (2) | 19,323 | | | 19,353 | |
Total Other long-term liabilities | $ | 91,752 | | | $ | 90,948 | |
(1) The Company terminated its supplemental executive retirement plan on April 30, 2021.
(2) 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 June 30, 2021 and December 31, 2020 (expected to be paid in 2022).
Note I - Employee Benefit Plans
Supplemental Executive Retirement Plan
Prior to April 30, 2021, Kforce maintained a Supplemental Executive Retirement Plan (“SERP”), which benefited 2 executives. The (‘SERP was a non-qualified benefit plan and did not include elective deferrals of covered executive officers’ compensation. The related net periodic benefit costs were comprised of service cost and interest cost. The services cost amounted to $50 thousand and $199 thousand in the three and six months ending June 30, 2021, respectively, and $86 thousand and $172 thousand in the three and six months ended June 30, 2020, respectively, and were recorded in SG&A. The interest cost amounted to $34 thousand and $138 thousand in the three and six months ending June 30, 2021, respectively, and $125 thousand and $250 thousand in the three and six months ended June 30, 2020, respectively, and were recorded in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.
”). 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 June 30, 2021March 31, 2022, amount to $20.0$20.0 million in the aggregate.
Our payroll taxes as of March 31, 2022 and December 31, 2021 include approximately $19.3 million in the aggregate, which is recorded in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. Kforce must make the benefitpayroll tax payments to the participants within 24 months of the termination date but no sooner than 12 months of the termination date, however, we anticipate making the benefit payments subsequent to June 30, 2022. NaN contributions were made to the SERP during the six months ended June 30, 2021.
Asas a result of the terminationapplication of the SERP, Kforce recognized a net loss of $1.8 million in the quarter ending June 30, 2021. The lossCARES Act 2020, which is reflected in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.anticipated to be repaid no later than December 31, 2022.
Note JG - Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands): | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Deferred compensation plan | $ | 37,273 | | | $ | 42,623 | |
Operating lease liabilities | 10,136 | | | 11,919 | |
Other long-term liabilities | 17 | | | 22 | |
Total Other long-term liabilities | $ | 47,426 | | | $ | 54,564 | |
Note H - Stock Incentive Plans
On April 22, 2021, Kforce’s shareholders approved the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 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 2021 Plan is approximately 3.9 million. Grants of an option or SAR reduce the reserve by 1 share, while a stock award reduces the reserve by 2.72 shares. The 2021 Plan terminates on April 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 sixthree months ended June 30, 2021,March 31, 2022, will vest over a period ofone to ten years, with vesting occurring in equal annual installments.
During the three and six months ended June 30,March 31, 2022 and March 31, 2021, stock-based compensation expense was $3.5$4.4 million and $6.9$3.4 million, respectively. During the three and six months ended June 30, 2020, stock-based compensation expense was $2.9 million and $5.8 million, respectively.
The following table presents the restricted stock activity for the sixthree months ended June 30, 2021March 31, 2022 (in thousands, except per share amounts): | | | Number of Restricted Stock | | Weighted-Average Grant Date Fair Value | | Total Intrinsic Value of Restricted Stock Vested | | 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 | | | |
Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | 1,083 | | | $ | 48.86 | | |
Granted | Granted | 55 | | | $ | 52.14 | | | Granted | 6 | | | $ | 55.40 | | |
| Forfeited | | Forfeited | (8) | | | $ | 43.97 | | |
Vested | Vested | (42) | | | $ | 25.57 | | | $ | 2,313 | | Vested | (8) | | | $ | 25.74 | | | $ | 589 | |
Outstanding at June 30, 2021 | 1,150 | | | $ | 34.79 | | | |
Outstanding at March 31, 2022 | | Outstanding at March 31, 2022 | 1,073 | | | $ | 49.12 | | |
As of June 30, 2021,March 31, 2022, total unrecognized stock-based compensation expense related to restricted stock was $31.3$45.7 million, which will be recognized over a weighted-average remaining period of 3.24.4 years.
Note KI - 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 maturesmatured on April 29, 2022. Swap A has a fixed interest rate of 1.81%, 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 Swap A. The notional amount of Swap A through maturity is $25.0 million.
On March 12, 2020, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, 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 $75.0 million and increases to $100.0 million in May 2022, and subsequently decreases to $75.0 million and $40.0 million in May 2023 and May 2024, respectively. The increase in the notional amount of Swap B in May 2022 corresponds to the decrease in the notional amount for Swap A.
The Firm uses the 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 (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 Consolidated Financial Statements of Operations and Comprehensive Income. Both Swap A and B have been designated as cash flow hedges and were effective as of June 30, 2021.March 31, 2022. The change in the fair value of the Swaps areis recorded as a component of Accumulated other comprehensive income (loss) in the unaudited consolidated financial statements.
The following table sets forth the activity in the accumulated derivative instrument activity (in thousands): | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 | | |
Accumulated derivative instrument loss, beginning of period | $ | (1,774) | | | $ | (179) | | | |
Net change associated with current period hedging transactions | 1,271 | | | (2,135) | | | |
| | | | | |
Accumulated derivative instrument loss, end of period | $ | (503) | | | $ | (2,314) | | | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 | | |
Accumulated derivative instrument gain (loss), beginning of period | $ | 823 | | | $ | (1,774) | | | |
Net change associated with current period hedging transactions | 3,082 | | | 1,258 | | | |
| | | | | |
Accumulated derivative instrument gain (loss), end of period | $ | 3,905 | | | $ | (516) | | | |
Note LJ - 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 JI - “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 sixthree months ended June 30, 2021.March 31, 2022. 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 June 30, 2021 | | |
At March 31, 2022 | | At March 31, 2022 | |
| Interest rate swap derivative instruments | Interest rate swap derivative instruments | $ | (503) | | | $ | 0 | | | $ | (503) | | | $ | 0 | | Interest rate swap derivative instruments | $ | 3,905 | | | $ | — | | | $ | 3,905 | | | $ | — | |
At December 31, 2020 | | |
At December 31, 2021 | | At December 31, 2021 | |
| Interest rate swap derivative instrument | Interest rate swap derivative instrument | $ | (1,774) | | | $ | 0 | | | $ | (1,774) | | | $ | 0 | | Interest rate swap derivative instrument | $ | 823 | | | $ | — | | | $ | 823 | | | $ | — | |
Note MK - 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-month to a three-year period after theirpost employment endsbenefits 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 June 30, 2021,March 31, 2022, our liability would be approximately $45.0$38.2 million if, following a change in control, all of the executives under contract were terminated without cause by the employer or if the executives resigned for good reason and $17.3$13.7 million if, in the absence of a change in control, all of the executives under contract were terminated by Kforce without cause or if the executives resigned for good reason.
Litigation and Loss Contingencies
Unless otherwise noted below, thereThere have been no material developments with regard to any of the legal proceedings previously disclosed in our 20202021 Annual Report on Form 10-K.
On December 17, 2019, Kforce Inc., et al. was served with a complaint brought in Superior Court of the State of California, Alameda County. Kathleen Wahrer, et al. v. Kforce Inc., et al., Case Number: RG19047269. The former employee purports to bring a representative action on her own behalf and on behalf of other allegedly aggrieved employees pursuant to California Private Attorneys General Act of 2004, California Labor Code Section 2968, et seq. (“PAGA”) alleging violations of the California Labor Code, §201, et seq. (“Labor Code”). The plaintiff seeks civil penalties, interest, attorneys’ fees, and costs under the Labor Code for alleged failure to: provide and pay for work performed during meal and rest periods; properly calculate and pay all earned minimum and overtime wages; provide compliant wage statements; timely pay wages during employment and upon termination; and reimburse business expenses. The parties halted early resolution attempts, and we intend to continue to vigorously defend the claims. 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 November 18, 2020, Kforce Inc., et al. was served with a complaint brought in the Superior Court of the State of California, San Diego County, which was subsequently amended on January 21, 2021, to add Kforce Flexible Solutions as a party. Bernardo Buchsbaum, et al. v. Kforce Inc., et al., Case Number: 37-2020-00030994-CU-OE-CTL. The former employee purports to bring a representative action on his own behalf and on behalf of other allegedly aggrieved employees pursuant to PAGA alleging violations of the Labor Code. The plaintiff seeks civil penalties, interest, attorney’s fees, and costs under the Labor Code for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide and pay for work performed during meal and rest periods; reimburse business expenses; provide compliant wage statements; and provide unused vacation wages upon termination. The parties reached a preliminary settlement agreement to resolve this matter along with Elliott-Brand, et al. v. Kforce Inc., et al. and Lewis, et al. v. Kforce Inc., which is subject to approval by the Court. Plaintiff Buchsbaum has been added as a plaintiff to the Elliott-Brand lawsuit, and this lawsuit will be dismissed after the Court’s approval of the settlement. 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.
On February 19, 2021,December 11, 2020, 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.Angeles, which was subsequently amended on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC, et.et al. case no., Case Number: 20STCV47529. Former consultant Ramona Webb who worked for client Verity, has sued both Kforce and Verity alleging gender discrimination (sex harassment), disability discrimination, wrongful dischargecertain individual claims in violation of California public policy, retaliation for engaging in protected activity, failureaddition to produce employment records, and a California Private Attorneys General Act (“PAGA”)PAGA claim based on alleged 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 theirher 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. We intend to continue to vigorously defend the claims.
On December 24, 2020, a complaint was filed against Kforce Inc., et al. in Superior Court of the State of California, Los Angeles County. Sydney Elliott-Brand, et al. v. Kforce Inc., et al., Case Number: 20STCV49193. On January 7, 2022, the lawsuit was amended to add Bernardo Buchsbaum and Josie Meister as plaintiffs and to add claims under PAGA and the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. On behalf of themselves and a putative class and collective of talent recruiters and allegedly aggrieved employees in California and nationwide, the plaintiffs purport to bring a class action for alleged violations of the Labor Code, Industrial Welfare Commission Wage Orders, and the California Business and Professions Code, §17200, et seq., a collective action for alleged violations of FLSA, and a PAGA action for alleged violations of the Labor Code. The plaintiffs seek payment to recover unpaid wages and benefits, interest, attorneys’ fees, costs and expenses, penalties, and liquidated damages for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide meal and rest periods or provide compensation in lieu thereof; provide accurate itemized wage statements; reimburse for all business expenses; pay wages due upon separation; and pay for all hours worked over forty in one or more workweeks. Plaintiffs also seek an order requiring defendants to restore and disgorge all funds acquired by means of unfair competition under the California Business and Professions Code. The parties reached a preliminary agreement to resolve this matter along with Lewis, et al. v. Kforce Inc. and Buchsbaum, et al. v. Kforce Inc., et al., which is subject to approval by the Court, and we have set reserves accordingly. 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.
On August 30, 2021, Kforce Inc. was served with a complaint brought in the U.S. District Court, Southern District of California. Darryn Lewis, et al. v. Kforce Inc., Case Number: 3:21-cv-01375-AJB-JLB. On behalf of himself and others similarly situated, the plaintiff brings a one-count class action complaint for alleged violations of the FLSA, and specifically, failure to pay overtime wages to a putative class of commissioned employees who work or have worked for Kforce, nationwide, in the past three (3) years. Plaintiff and class members seek the amounts of unpaid wages and benefits allegedly owed to them, liquidated damages, compensatory damages, economic and/or special damages, attorneys’ fees and costs, interest, and other legal and equitable relief for alleged failure to: maintain a policy that compensates its employees for all hours worked; properly classify employees as nonexempt from overtime; and pay overtime pay for all hours worked over forty in one or more workweeks. The parties reached a preliminary settlement agreement to resolve this matter along with Elliott-Brand, et al. v. Kforce Inc., et al. and Buchsbaum, et al. v. Kforce Inc., et al., which is subject to approval by the Court. This lawsuit will be dismissed as part of the settlement, once approved 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.
On March 19, 2021,January 6, 2022, a complaint was filed against Kforce Inc. in United States Districtthe Superior Court Central Districtof the State of California for the County of Los Angeles and was served on March 25, 2021.January 21, 2022. Jessica Cook et.and Brianna Pratt, et al. v. Kforce Inc., case no. 2:21-cv-02453.Case Number: 22STCV00602. On behalf of herselfthemselves and all others similarly situated, the plaintiff purportsplaintiffs purport to bring a collectiveclass action alleging violations of Labor Code and the California Business and Professional Code and challenging the exempt classification of a select class of recruiters. Plaintiff alleges that due to the misclassificationPlaintiffs and class members seek damages for all earned wages, statutory penalties, injunctive relief, attorney’s fees, and interest for alleged failure to: properly classify certain
recruiters as nonexempt from overtime; timely pay all wages earned, including 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 deficientpremium pay; provide accurate wage statements; (iv) violations ofprovide meal and rest period requirements;periods; and (v) violation ofcomply with 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. The parties reached agreement to attempt resolution by mediation, andKforce anticipated this action would be filed as a result filed a Joint Stipulation for Dismissal Without Prejudice on June 28, 2021. If mediation is unsuccessful, it is expected that Plaintiff will re-file her class and collective action claimsof failed early resolution attempts in a subsequent action.the previously disclosed Jessica Cook v. Kforce, et al. lawsuit. 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. We intend to vigorously defend the claims.
On October 13, 2020,January 6, 2022, a complaint was filed against Kforce Inc. in the United States District Court for the Middle District of Florida and was served with a complaint brought in the U.S. District Court, Eastern District of Pennsylvania. Hope Gofton and Adam Kimbrel,on February 4, 2022. Sam Whiteman, et al. v. Kforce Inc., Case No.: 2:20-cv-04886 onNumber: 8:22-cv-00056. On behalf of themselves
himself and otherall others similarly situated, current and former employees. The plaintiffs purport to bringthe plaintiff brings a one-count collective action complaint 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 failedFLSA by failing to pay overtime wages. The plaintiffs seek paymentPlaintiff, on behalf of himself and the putative collective, seeks to recover unpaid overtime wages, liquidated damages, interest, attorney’sattorneys’ fees and costs, and other relief deemed equitable byprejudgment interest for alleged failure to properly classify specified recruiters as nonexempt from overtime and properly compensate for all hours worked over 40 hours in one or more workweeks. At this stage in the Court. On April 22, 2021,litigation, it is not feasible to predict the parties reached a preliminary settlementoutcome of the case. The Court approved the preliminary settlement on June 22, 2021 and scheduled a final fairness hearing for September 30, 2021. We believe that this matter is unlikelyor reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.vigorously defend the claims.
On August 23, 2019, Kforce Inc. was served with a complaint, as amended, brought in the U.S. District Court, Middle District of Florida, Tampa Division. Maurcus Smith, Alvin Hodge and David Kortright, et al. v. Kforce Inc., Case No.: 8:19-cv-02068-CEH-CPT. The plaintiffs purport to bring claims on their own behalf and on behalf of a putative class of consumers/applicants who were the subject of consumer reports used for employment purposes for alleged violations of the Fair Credit Reporting Act of 1970, as amended, (“FCRA”), 15 U.S.C. § 1681 et seq. based upon the defendant’s purported failure to provide stand-alone FCRA disclosures and obtain valid authorizations. The plaintiffs seek statutory damages, punitive damages, costs, attorney’s fees and other relief under the FCRA. On February 10, 2020, the parties reached a preliminary settlement of the case. The Court entered a Final Approval Order on June 28, 2021 approving the settlement agreement and dismissing the action with prejudice. 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 also 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, which are reflected in our unaudited condensed consolidated financial statements. While the ultimate outcome of these matters cannot be determinedoutcomes and any amounts accrued are inherently uncertain, estimates, we currently do not expect that these matters, individually or in the aggregate, will have a material effect on our financial position.position.
Equity Method Investment
In June 2019, we entered into a joint venture whereby Kforce obtained a 50% noncontrolling interest in WorkLLama. We determined, based on the corporate structure and governance, that WorkLLama is a VIE and not subject to consolidation, as we are not the primary beneficiary of WorkLLama because we do not have the power to direct the activities that most significantly impact WorkLLama’s economic performance. As a result, WorkLLama is accounted for as an equity method investment.
Under the joint venture operating agreement for WorkLLama, Kforce iswas originally obligated to make additional cash contributions which aresubsequent to the initial contribution, contingent on WorkLLama's achievement of certain operational and financial milestones. OurUnder the operating agreement, our maximum potential capital contributions arewere $22.5 million. The original operatingAlthough the operational and financial milestones established in the joint venture operating agreement were not achieved, in part, due towe contributed the impactsfull $22.5 million as 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.March 31, 2022. We contributed $4.5$0.5 million and $4.0$9.0 million of capital during the sixthree months ended June 30, 2021March 31, 2022 and the year ended December 31, 2020,2021, respectively. While we are not obligated to make additional future capital contributions, we may make additional contributions to WorkLLama in support of their strategic objectives.
Lease commitments
We lease office space and certain equipment under operating leases that expire between 2022 and 2033. The terms of the leases provide for rental payments on a graduated scale, options to renew the leases (one to five years), landlord incentives or allowances, and periods of free rent.
During the year ended December 31, 2021, we entered into a lease agreement for office space in Tampa, Florida, that will become our new corporate headquarters. This new lease for office space is intended to replace our current headquarters, also in Tampa, Florida, the lease for which expires November 2022. Lease payments will be required beginning July 1, 2023, however, we expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin at the start of the fourth quarter of 2022.
Note L - Subsequent Events
On April 29, 2022, Kforce’s forward-starting interest rate swap agreement, Swap A, which had a notional amount of $25.0 million matured. On May 1, 2022, Kforce’s Swap B, which had a notional amount of $75.0 million, increased by $25.0 million to $100.0 million. Refer to Note FI - “Other Assets, Net”“Derivative Instruments and Hedging Activity” for more details on WorkLLama.a complete discussion of our interest rate swaps.
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 sixthree months ended June 30, 2021,March 31, 2022, 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 sixthree months ended June 30, 2021,March 31, 2022, increased 13.1%13.0%, on a billing day basis, to $766.8$417.0 million from $678.2$363.2 million in the comparable period in 2020.2021. Revenue increased 13.0%26.7% for Technology and 13.4%decreased 32.9% for TechFA, on a billing day basis primarily as a result of the planned decrease in the COVID-19 related business. There was a nominal amount of COVID-19 related business in the first quarter of 2022 and FA, respectively.was $24m in the first quarter of 2021.
•Flex revenue, year-over-year, for the sixthree months ended June 30, 2021,March 31, 2022, increased 13.4%11.8% on a billing day basis, to $745.2$401.9 million from $662.5$353.8 million in the comparable period in 2020.2021. Flex revenue increased 13.5%26.0% and 12.9%decreased 37.6%, on a billing day basis for TechTechnology and FA, respectively, on a year-over-year basis.
•Flex revenue in our Technology business increased 20.9% on a year-over-year basis in the three months ended June 30, 2021, per billing day.
•Revenues from contracts we secured to support government-sponsored COVID-19 related initiatives (the “COVID-19 Business”) was $34.8 million and $35.1 million for the three months ended June 30, 2021 and 2020, respectively.
•Direct Hire revenue for the sixthree months ended June 30, 2021,March 31, 2022, increased 37.8%61.0% to $21.6$15.1 million from $15.7$9.4 million in the comparable period in 2020.2021.
•Gross profit margin for the sixthree months ended June 30, 2021,March 31, 2022, increased 10250 basis points to 28.4%. 29.7%, compared to the same period in 2021 primarily as a result of a higher mix of Direct Hire business and improved Flex gross profit margins.
•Flex gross profit margin for the sixthree months ended June 30, 2021, decreased 30March 31, 2022, increased 190 basis points to 26.3% from 26.6% in the comparable period in 2020. Tech27.1%, compared to March 31, 2021. Technology Flex margins decreased 40increased 150 basis points due primarily to spread compression as a result of business mixlower payroll taxes and slightly higher health insurance and payroll taxlower healthcare costs. FA Flex margins remained flat.gross profit margin increased400 basis points for the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to a decrease in the amount of lower margin COVID-19 related business, the repositioning of the business towards higher skilled areas (that also have higher average spreads), lower payroll taxes and lower healthcare costs.
•SG&A as a percentage of revenue for the sixthree months ended June 30, 2021, decreasedMarch 31, 2022, increased to 21.2%22.8% from 23.6%21.5% in the comparable period in 20202021, primarily due to leverage gained fromhigher performance-based compensation given the strength in our revenue growth associate productivityand profitability improvements lower spending in areas such as travel and lease expenses, a declinean increase in our credit expense andresulting from a gain on the sale ofreduction in our corporate headquarters.
•Other income and expense, net, increased 56.6% to $4.4 million from $2.8 millionreserves in the comparable period in 2020, primarily due to expenses related to the terminationfirst quarter of the SERP on April 30, 2021.
•Income from continuing operations for the sixthree months ended June 30, 2021,March 31, 2022, increased 81.4%44.6% to $34.4$19.2 million, or $1.61$0.93 per share, from $19.0$13.3 million, or $0.89$0.62 per share, in the comparable period in 2020.2021.
•The Firm returned $39.1$16.2 million of capital to our shareholders in the form of open market repurchases totaling $29.6$10.1 million and quarterly dividends totaling $9.5$6.1 million during the sixthree months ending June 30, 2021.
•On July 30, 2021, our Board of Directors approved an increase to our third-quarter dividend from $0.23 per quarter ($0.92 per annum) to $0.26 per quarter ($1.04 per annum), an increase of approximately 13%. This was the second increase to our dividend in 2021.March 31, 2022.
•Cash provided by operating activities was $36.6$38.7 million during the sixthree months ended June 30, 2021,March 31, 2022, as compared to $39.0$22.4 million for the sixthree months ended June 30, 2020.March 31, 2021.
•Cash and cash equivalents, net of outstanding borrowings under our credit facility, was $17.3$16.6 million as of June 30, 2021.March 31, 2022.
RESULTS OF OPERATIONS
Business Overview
Kforce provides professional staffing servicesis a leading domestic provider of technology and finance and accounting talent solutions to our clients on both a temporary (“Flex”)innovative and permanent (“Direct Hire”) basis through our Techindustry-leading clients. Our Technology and FA businesses represent our two operating segments. Our corporate headquarters is in Tampa, Florida and we have field offices located throughout the United States (U.S.). As of June 30, 2021,March 31, 2022, Kforce employed approximately 2,000 associates, including approximately 1,300 supporting the revenue-generating aspects of our business and approximately 700 supporting the revenue-enabling aspects. We also had approximately 13,40010,500 consultants on assignment providing flexible staffing services and solutions to our clients.clients, the vast majority of which are also employees of Kforce. 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 100% domestic U.S. focus, concentration on technology staffing andtalent solutions (representing nearly 86% of overall revenues) and client portfolio comprised of world-class companies have been key contributors to our continued strong performance in 2020 and 2021 and will be key drivers to our future success.
In December 2020 and early 2021, the U.S. Food and Drug 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 and economic stimulus measures initiated in the U.S., among other factors, have significantly lifted the 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 has meaningfully accelerated over the last few quarters. From an economic standpoint, total and temporary employment figures and trends have historically been important indicators of staffing demand. Based on information published by the Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”), 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,In addition, the penetration rate (the percentage of temporary staffing to total employment) remained roughly stable at 1.8%2.09%, the new all-time high and the unemployment rate decreased again to 5.9%reached 3.6% in June 2021,March 2022, down from 6.0%3.9% in MarchDecember 2021. In the latest U.S. staffing industry forecast published by SIA in April 2021, the technology temporary staffing industry and finance and accounting temporary staffing industry are estimated to grow 9% and 14%, respectively, in 2021, and 6% and 5%, respectively, in 2022.
We have successfully delivered strong results, especially in our largest business, Technology, which has revenues that are 17.1% greater than the second quarter of 2019. Our client relationships and capability to source and deliver resources at scale significantly contributed to us securing the COVID-19 Business during 2020. While trends related to our COVID-19 Business are difficult to predict, it contributed $58.8 million in FA Flex revenue for the six months ended June 30, 2021 and is expected to continue into the third quarter of 2021, although at significantly lower levels than the second quarter of 2021 due to certain projects ending. 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,Further, we strongly 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.
The results of multiple employee surveys conducted over the last twelve months indicate that our associates have embraced the ingenuity required to work remotely and have been successful in settling into new, productive routines. We continue to make great progress in our “Kforce Reimagined” initiative that was started in 2020, which is an effort to position Kforce to provide a more flexible hybrid 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 experience while our employees are occasionally in the office and while they are predominately working remotely. The effort to streamline our real estate footprint also resulted in the sale of our corporate headquarters facility in the second quarter of 2021 and we have already begun our search for our future location that is aligned with our Kforce Reimagined hybrid work environment. In addition, we engaged an independent third-party consulting firm to assist us in our assessment of our middle and back office capabilities. We believe that the culmination of these and other efforts will provide a differentiated employee experience,unemployment rate in the casespecialties we serve, especially in certain technology skill sets, is significantly lower than the published averages. We believe this speaks to the overall secular drivers of demand in technology, the critical nature of the technology initiatives being driven by our Kforce Reimagined effort,clients, and significant contributions to improving productivity and profitability in both cases.the challenges of finding an adequate supply of qualified talent.
Operating Results - Three and Six Months Ended June 30,March 31, 2022 and 2021 and 2020
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 | | Six Months Ended | | Three Months Ended | | |
| | June 30, | | June 30, | | March 31, | | |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | |
Revenue by segment: | Revenue by segment: | | Revenue by segment: | | |
Tech | 77.0 | % | | 74.6 | % | | 77.0 | % | | 77.0 | % | |
Technology | | Technology | 86.3 | % | | 77.0 | % | | |
FA | FA | 23.0 | | | 25.4 | | | 23.0 | | | 23.0 | | FA | 13.7 | | | 23.0 | | | |
Total Revenue | Total Revenue | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total Revenue | 100.0 | % | | 100.0 | % | | |
Revenue by type: | Revenue by type: | | Revenue by type: | | |
Flex | Flex | 97.0 | % | | 98.1 | % | | 97.2 | % | | 97.7 | % | Flex | 96.4 | % | | 97.4 | % | | |
Direct Hire | Direct Hire | 3.0 | | | 1.9 | | | 2.8 | | | 2.3 | | Direct Hire | 3.6 | | | 2.6 | | | |
Total Revenue | Total Revenue | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total Revenue | 100.0 | % | | 100.0 | % | | |
Gross profit | Gross profit | 29.5 | % | | 28.4 | % | | 28.4 | % | | 28.3 | % | Gross profit | 29.7 | % | | 27.2 | % | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 21.0 | % | | 23.5 | % | | 21.2 | % | | 23.6 | % | Selling, general and administrative expenses | 22.8 | % | | 21.5 | % | | |
Depreciation and amortization | Depreciation and amortization | 0.3 | % | | 0.4 | % | | 0.3 | % | | 0.4 | % | Depreciation and amortization | 0.3 | % | | 0.3 | % | | |
Income from operations | Income from operations | 8.2 | % | | 4.5 | % | | 6.9 | % | | 4.3 | % | Income from operations | 6.7 | % | | 5.4 | % | | |
Income from operations, before income taxes | Income from operations, before income taxes | 7.4 | % | | 4.1 | % | | 6.3 | % | | 3.9 | % | Income from operations, before income taxes | 6.3 | % | | 5.0 | % | | |
| Net income | Net income | 5.2 | % | | 2.9 | % | | 4.5 | % | | 2.8 | % | Net income | 4.6 | % | | 3.7 | % | | |
Revenue. The following table presents revenue by type for each segment and the percentage change from the prior period (in thousands): | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 | | | | 2022 | | Increase (Decrease) | | 2021 |
Tech | | |
Technology | | Technology | | |
Flex revenue | Flex revenue | $ | 304,645 | | | 20.9 | % | | $ | 251,948 | | | $ | 579,429 | | | 12.6 | % | | $ | 514,517 | | Flex revenue | | | $ | 351,716 | | | 28.0 | % | | $ | 274,784 | |
Direct Hire revenue | Direct Hire revenue | 6,083 | | | 60.0 | % | | 3,802 | | | 10,859 | | | 35.4 | % | | 8,017 | | Direct Hire revenue | | | 8,189 | | | 71.5 | % | | 4,776 | |
Total Tech revenue | $ | 310,728 | | | 21.5 | % | | $ | 255,750 | | | $ | 590,288 | | | 13.0 | % | | $ | 522,534 | | |
Total Technology revenue | | Total Technology revenue | | | $ | 359,905 | | | 28.7 | % | | $ | 279,560 | |
FA | FA | | FA | | |
Flex revenue | Flex revenue | $ | 86,717 | | | 2.7 | % | | $ | 84,469 | | | $ | 165,780 | | | 12.0 | % | | $ | 148,009 | | Flex revenue | | | $ | 50,150 | | | (36.6) | % | | $ | 79,063 | |
Direct Hire revenue | Direct Hire revenue | 6,169 | | | 120.2 | % | | 2,801 | | | 10,771 | | | 40.2 | % | | 7,685 | | Direct Hire revenue | | | 6,912 | | | 50.2 | % | | 4,602 | |
Total FA revenue | Total FA revenue | $ | 92,886 | | | 6.4 | % | | $ | 87,270 | | | $ | 176,551 | | | 13.4 | % | | $ | 155,694 | | Total FA revenue | | | $ | 57,062 | | | (31.8) | % | | $ | 83,665 | |
| Total Flex revenue | Total Flex revenue | $ | 391,362 | | | 16.3 | % | | $ | 336,417 | | | $ | 745,209 | | | 12.5 | % | | $ | 662,526 | | Total Flex revenue | | | $ | 401,866 | | | 13.6 | % | | $ | 353,847 | |
Total Direct Hire revenue | Total Direct Hire revenue | 12,252 | | | 85.6 | % | | 6,603 | | | 21,630 | | | 37.8 | % | | 15,702 | | Total Direct Hire revenue | | | 15,101 | | | 61.0 | % | | 9,378 | |
Total Revenue | Total Revenue | $ | 403,614 | | | 17.7 | % | | $ | 343,020 | | | $ | 766,839 | | | 13.1 | % | | $ | 678,228 | | Total Revenue | | | $ | 416,967 | | | 14.8 | % | | $ | 363,225 | |
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) |
| | Q2 2021 | | Q1 2021 | | Q4 2020 | | Q3 2020 | | Q2 2020 | | Q1 2022 | | Q4 2021 | | Q3 2021 | | Q2 2021 | | Q1 2021 |
Billing Days | Billing Days | | 64 | | 63 | | 62 | | 64 | | 64 | Billing Days | | 64 | | 61 | | 64 | | 64 | | 63 |
Technology | Technology | | 20.9 | % | | 6.3 | % | | 0.8 | % | | (4.2) | % | | (3.0) | % | Technology | | 26.0 | % | | 31.0 | % | | 28.9 | % | | 20.9 | % | | 6.3 | % |
FA | FA | | 2.7 | % | | 26.4 | % | | 26.0 | % | | 51.6 | % | | 28.7 | % | FA | | (37.6) | % | | (28.9) | % | | (41.3) | % | | 2.7 | % | | 26.4 | % |
Total Flex | Total Flex | | 16.3 | % | | 10.2 | % | | 5.9 | % | | 6.9 | % | | 3.4 | % | Total Flex | | 11.8 | % | | 16.6 | % | | 9.1 | % | | 16.3 | % | | 10.2 | % |
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 TechTechnology increased 20.9% and 13.5%26.0% on a billing day basis, during the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same period in 2020. Flex revenue in our Tech business improved 9.1%, on2021, which was driven by a billing day basis sequentiallycombination of significant growth in the second quarternumber of 2021. The organic sequentialconsultants on assignment and higher average bill rates. Given the inflationary pressures on wages and the scarcity and criticality of technology consultants, we experienced a meaningful acceleration in average bill rates, which increased 3.8% sequentially and 6.3% year-over-year growthto approximately $85 per hour. Notable is that we experienced this acceleration in our Technology businessaverage bill rates while maintaining stable Flex gross margin spreads. We believe that the growth in the second quarter of 2021 was the highest we have on record and was driven by higher levels of consultants on assignment. We have made tremendous progress growing our technology consultants on assignment since June 2020. Givencontinues to be fueled by the acceleration we are experiencingstrong secular drivers of demand, the strength of our client portfolio (primarily Fortune 1000 companies), our concentration in our Technology business, we expect our year-over-year growth rate to accelerate in the third quarter of 2021 compared to second quarter levels.higher-end technology skills, and solid execution. We believe the secular drivers of demand in technology have only strengthened post-pandemic as companies continue to assessinvest significantly in technology to improve their digital transformation effortsconsumer and capabilities to conductemployee experiences, gain cost efficiencies and stay relevant in an increasingly competitive environment. Assuming a stable demand and macro environment, we expect revenue growth in our Technology business in the second quarter to be in the mid 20% range on a more virtual operating environment.year-over-year basis.
Our FA segment experienced an increasea decrease in Flex revenue of 12.0%37.6% on a billing day basis, during the sixthree months ended June 30, 2021March 31, 2022 as compared to the same period in 2020,2021, primarily driven by the anticipated fall off in our COVID-19 Business, which contributed approximately $58.8 million in revenue during the six months ended June 30, 2021and positively impactedrelated business. Excluding this decline, FA Flex revenue growth rates by 39.7%, forrevenues declined slightly more than 10% in the six months ended June 30, 2021. FA Flex experienced an increase to Flex revenuefirst quarter of 2.7% during the three months ended June 30, 2021 as2022 compared to the same period in 2020, as we experienced relative stability in2021, which was driven by the portionrepositioning of business unrelated to COVID-19. As we move into the third quarter of 2021, we expect overall revenues in the FA business to decline due primarily to projects within the COVID-19 Business ending late in the second quarter and early in the third quarter of 2021. We continue to migrate our FA business towards more highly-skilled roles that are less susceptiblehigh-skilled roles. We have seen indicators of success in this repositioning as our average bill rates improved approximately 8% sequentially and 31% year-over-year in our ongoing FA business. We expect our FA business to technological change, location and automation.decline in the mid-single digits sequentially in the second quarter.
The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands): | | | Three Months Ended | | Six Months Ended | | | | Three Months Ended |
| | June 30, 2021 vs. June 30, 2020 | | June 30, 2021 vs. June 30, 2020 | | | | March 31, 2022 vs. March 31, 2021 |
| | Tech | | FA | | Tech | | FA | | | | Technology | | FA |
Key Drivers - Increase (Decrease) | Key Drivers - Increase (Decrease) | | Key Drivers - Increase (Decrease) | | |
Volume - hours billed | Volume - hours billed | $ | 50,111 | | | $ | (64) | | | $ | 50,364 | | | $ | 25,609 | | Volume - hours billed | | | $ | 55,488 | | | $ | (40,789) | |
Bill rate | Bill rate | 2,033 | | | 2,365 | | | 14,829 | | | (7,647) | | Bill rate | | | 20,816 | | | 11,852 | |
Billable expenses | Billable expenses | 553 | | | (53) | | | (281) | | | (191) | | Billable expenses | | | 628 | | | 24 | |
Total change in Flex revenue | Total change in Flex revenue | $ | 52,697 | | | $ | 2,248 | | | $ | 64,912 | | | $ | 17,771 | | Total change in Flex revenue | | | $ | 76,932 | | | $ | (28,913) | |
The following table presents total Flex hours billed by segment and percentage change over the prior period (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 |
Tech | 3,766 | | | 19.9 | % | | 3,141 | | | 7,194 | | | 9.8 | % | | 6,551 | |
FA | 2,449 | | | — | % | | 2,450 | | | 4,825 | | | 17.3 | % | | 4,112 | |
Total Flex hours billed | 6,215 | | | 11.2 | % | | 5,591 | | | 12,019 | | | 12.7 | % | | 10,663 | |
For the three and six months ended June 30, 2021, FA Flex hours billed included 1,076 and 1,925 thousand hours, respectively, from the COVID-19 Business. | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | | 2022 | | Increase (Decrease) | | 2021 |
Technology | | | | | | | 4,122 | | | 20.2 | % | | 3,428 | |
FA | | | | | | | 1,150 | | | (51.6) | % | | 2,376 | |
Total Flex hours billed | | | | | | | 5,272 | | | (9.2) | % | | 5,804 | |
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 increased 85.6% and 37.8%61.0% during the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in 2020.2021. The increase during the secondfirst quarter iswas primarily driven by a significant increase in both the number of placements and fees, as the economic environment has improved. As we look to the third quarter, we expect Direct Hire revenues may decline in the third quarter from second quarter levels, which would be consistent with usual seasonal trends.improved and competition for talent has increased.
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 | | Six Months Ended |
| June 30, 2021 vs. June 30, 2020 | | June 30, 2021 vs. June 30, 2020 |
| Tech | | FA | | Tech | | FA |
Key Drivers - Increase (Decrease) | | | | | | | |
Volume - number of placements | $ | 2,242 | | | $ | 3,148 | | | $ | 2,076 | | | $ | 1,907 | |
Placement fee | 39 | | | 220 | | | 766 | | | 1,179 | |
Total change in Direct Hire revenue | $ | 2,281 | | | $ | 3,368 | | | $ | 2,842 | | | $ | 3,086 | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, 2022 vs. March 31, 2021 |
| | | | | Technology | | FA |
Key Drivers - Increase (Decrease) | | | | | | | |
Volume - number of placements | | | | | $ | 2,818 | | | $ | 2,107 | |
Placement fee | | | | | 595 | | | 203 | |
Total change in Direct Hire revenue | | | | | $ | 3,413 | | | $ | 2,310 | |
The following table presents the total number of placements by segment and percentage change over the prior period: | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 | | | | 2022 | | Increase (Decrease) | | 2021 |
Tech | 297 | | | 58.8 | % | | 187 | | | 541 | | | 25.8 | % | | 430 | | |
Technology | | Technology | | | 388 | | | 59.0 | % | | 244 | |
FA | FA | 398 | | | 111.7 | % | | 188 | | | 693 | | | 24.9 | % | | 555 | | FA | | | 429 | | | 45.9 | % | | 294 | |
Total number of placements | Total number of placements | 695 | | | 85.3 | % | | 375 | | | 1,234 | | | 25.3 | % | | 985 | | Total number of placements | | | 817 | | | 51.9 | % | | 538 | |
The following table presents the average placement fee by segment and percentage change over the prior period: | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 | | | | 2022 | | Increase (Decrease) | | 2021 |
Tech | $ | 20,517 | | | 0.6 | % | | $ | 20,387 | | | $ | 20,084 | | | 7.6 | % | | $ | 18,667 | | |
Technology | | Technology | | | $ | 21,090 | | | 7.8 | % | | $ | 19,559 | |
FA | FA | 15,478 | | | 3.7 | % | | 14,927 | | | $ | 15,548 | | | 12.3 | % | | $ | 13,846 | | FA | | | $ | 16,116 | | | 3.0 | % | | $ | 15,643 | |
Total average placement fee | Total average placement fee | $ | 17,628 | | | (0.1) | % | | $ | 17,648 | | | $ | 17,537 | | | 10.0 | % | | $ | 15,949 | | Total average placement fee | | | $ | 18,479 | | | 6.1 | % | | $ | 17,419 | |
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 contractorthird party compliance costs) from total revenue. There are no consultant payroll costs associated with Direct Hire placements, thusaccordingly 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 June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 | | | | 2022 | | Increase (Decrease) | | 2021 |
Tech | 28.4 | % | | 0.7 | % | | 28.2 | % | | 27.5 | % | | (0.7) | % | | 27.7 | % | |
Technology | | Technology | | | 28.5 | % | | 7.1 | % | | 26.6 | % |
FA | FA | 33.0 | % | | 14.6 | % | | 28.8 | % | | 31.2 | % | | 3.0 | % | | 30.3 | % | FA | | | 37.6 | % | | 28.8 | % | | 29.2 | % |
Total gross profit percentage | Total gross profit percentage | 29.5 | % | | 3.9 | % | | 28.4 | % | | 28.4 | % | | 0.4 | % | | 28.3 | % | Total gross profit percentage | | | 29.7 | % | | 9.2 | % | | 27.2 | % |
The total gross profit percentage for the three months ended June 30, 2021,March 31, 2022, increased 110250 basis points as compared to the same period in 20202021, primarily as a result of an increased mix of Direct Hire revenues and FA Flex margin increases primarily related to COVID-19 Business mix. The total gross profit percentage for the six months ended June 30, 2021, as compared to the same period in 2020, increased by 10 basis points due to a better COVID-19 Business mix, which was partially offset by a decline in Tech gross profit margin. This decline is primarily driven by spread compression as a result of changes in business mix, higher healthcare costs and higher payroll taxes.increases.
Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insightinsights 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 June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 | | | | 2022 | | Increase (Decrease) | | 2021 |
Tech | 27.0 | % | | (0.4) | % | | 27.1 | % | | 26.2 | % | | (1.5) | % | | 26.6 | % | |
Technology | | Technology | | | 26.8 | % | | 5.9 | % | | 25.3 | % |
FA | FA | 28.3 | % | | 6.8 | % | | 26.5 | % | | 26.7 | % | | — | % | | 26.7 | % | FA | | | 29.0 | % | | 16.0 | % | | 25.0 | % |
Total Flex gross profit percentage | Total Flex gross profit percentage | 27.3 | % | | 1.1 | % | | 27.0 | % | | 26.3 | % | | (1.1) | % | | 26.6 | % | Total Flex gross profit percentage | | | 27.1 | % | | 7.5 | % | | 25.2 | % |
Overall, our Flex gross profit percentage experienced a 30increased 190 basis point increasepoints for the three months ended June 30, 2021 and a 30 basis point decrease for the six months ended June 30, 2021,March 31, 2022, as compared to the same periodsperiod in 2020.2021. The notable fluctuationschanges within our segments were as follows:.
•Tech Flex gross profit margin decreased 10 and 40margins in our Technology business increased 150 basis points for the three and six months ended June 30, 2021, respectively,March 31, 2022 as compared to the same periodsperiod in 2020.2021. The decreases for each period areincrease was primarily due to spread compression as a result of changes in business mix, higherlower payroll taxes and healthcare costs and higher payroll taxes.while our bill pay spreads were stable year-over-year.
•FA Flex gross profit margin increased 180 and was flat400 basis points for the three and six months ended June 30, 2021, respectively,March 31, 2022, as compared to the same periodsperiod in 2020.2021. The increase for the three months ended June 30, 2021period was primarily due to a reduction in unemploymentlower mix of lower margin COVID-19 related business, spread improvements due to the strategic repositioning of this business into higher skilled areas, lower payroll taxes and billable expenses.lower healthcare costs.
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 | | Six Months Ended | | | | Three Months Ended |
| | June 30, 2021 vs. June 30, 2020 | | June 30, 2021 vs. June 30, 2020 | | | | March 31, 2022 vs. March 31, 2021 |
| | Tech | | FA | | Tech | | FA | | | | Technology | | FA |
Key Drivers - Increase (Decrease) | Key Drivers - Increase (Decrease) | | Key Drivers - Increase (Decrease) | | |
Revenue impact | Revenue impact | $ | 14,304 | | | $ | 596 | | | $ | 17,479 | | | $ | 4,794 | | Revenue impact | | | $ | 19,459 | | | $ | (7,241) | |
Profitability impact | Profitability impact | (543) | | | 1,563 | | | (2,452) | | | (21) | | Profitability impact | | | 5,298 | | | 1,965 | |
Total change in Flex gross profit | Total change in Flex gross profit | $ | 13,761 | | | $ | 2,159 | | | $ | 15,027 | | | $ | 4,773 | | Total change in Flex gross profit | | | $ | 24,757 | | | $ | (5,276) | |
SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 87.4% and 86.6%84.4% for the three and six months ended June 30, 2021, respectively, asMarch 31, 2022, compared to 81.9% and 81.6%85.7% for the comparable periodsperiod in 2020.2021. Commissions and bonus incentives are variable costs driven primarily by revenue and gross profit levels. Therefore, as those levels change, these expenses would also generally be anticipated to change.
The following table presents components of SG&A as a percentage of revenue (in thousands): | | | 2021 | | % of Revenue | | 2020 | | % of Revenue | | 2022 | | % of Revenue | | 2021 | | % of Revenue |
Three Months Ended June 30, | | |
Three Months Ended March 31, | | Three Months Ended March 31, | |
Compensation, commissions, payroll taxes and benefits costs | Compensation, commissions, payroll taxes and benefits costs | $ | 73,914 | | | 18.3 | % | | $ | 66,005 | | | 19.3 | % | Compensation, commissions, payroll taxes and benefits costs | $ | 80,224 | | | 19.2 | % | | $ | 66,874 | | | 18.4 | % |
Other (1) | Other (1) | 10,702 | | | 2.7 | % | | 14,541 | | | 4.2 | % | Other (1) | 14,825 | | | 3.6 | % | | 11,155 | | | 3.1 | % |
Total SG&A | Total SG&A | $ | 84,616 | | | 21.0 | % | | $ | 80,546 | | | 23.5 | % | Total SG&A | $ | 95,049 | | | 22.8 | % | | $ | 78,029 | | | 21.5 | % |
Six Months Ended June 30, | | |
Compensation, commissions, payroll taxes and benefits costs | $ | 140,788 | | | 18.4 | % | | $ | 130,372 | | | 19.2 | % | |
Other (1) | 21,857 | | | 2.9 | % | | 29,390 | | | 4.4 | % | |
Total SG&A | $ | 162,645 | | | 21.2 | % | | $ | 159,762 | | | 23.6 | % | |
|
(1) Includes credit loss expense, lease expense, professional fees, travel, telephone, computer, and certain other expenses, which includes a gain on the sale of the corporate headquarters facility during the three and six months ended June 30, 2021.expenses.
SG&A as a percentage of revenue decreased 250 and 240increased 130 basis points for the three and six months ended June 30, 2021, respectively, asMarch 31, 2022, compared to the same periodsperiod in 2020.2021. The decreaseincrease for the three monthsmonth period ended June 30, 2021 isMarch 31, 2022, was primarily related to leverage from our revenue growth, continued improvements in associate productivity, reductions in certain areas such as leases and professional fees and the recognition of a $2.0 million gain from the sale of our corporate headquarters. These decreases were partially offset by higher performance-based bonusescompensation given the strength in our revenue growth. The decrease for the six months ended June 30, 2021 includes the aforementioned items,growth and profitability improvements and an increase in addition to reductions in certain areas such as travel and office related expenses and declines inour credit expense due to largerdriven by a reduction in our accounts receivable reserves taken in the first quarter of 2020 at the onset of the pandemic given inherent risk.prior year.
The Firm continues to focus on generating increased operating leverage through thesolid revenue growth, improved productivity of our associates, structural reductions in operating costs and continuing to exercise solid expense 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 June 30, | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
| | 2021 | | Increase (Decrease) | | 2020 | | 2021 | | Increase (Decrease) | | 2020 | | | | 2022 | | Increase (Decrease) | | 2021 |
Fixed asset depreciation (includes finance leases) | Fixed asset depreciation (includes finance leases) | $ | 745 | | | (34.2) | % | | $ | 1,132 | | | $ | 1,554 | | | (32.7) | % | | $ | 2,308 | | Fixed asset depreciation (includes finance leases) | | | $ | 677 | | | (16.4) | % | | $ | 810 | |
Capitalized software amortization | Capitalized software amortization | 447 | | | 80.2 | % | | 248 | | | 840 | | | 80.6 | % | | 465 | | Capitalized software amortization | | | 416 | | | 6.1 | % | | 392 | |
Total Depreciation and amortization | Total Depreciation and amortization | $ | 1,192 | | | (13.6) | % | | $ | 1,380 | | | $ | 2,394 | | | (13.7) | % | | $ | 2,773 | | Total Depreciation and amortization | | | $ | 1,093 | | | (9.1) | % | | $ | 1,202 | |
Other Expense, Net. Other expense, net for the three and six months ended June 30,March 31, 2022 and 2021, was $3.1 million and $4.4 million, respectively. Other expense, net for the three and six months ended June 30, 2020 was $1.4 million and $2.8$1.3 million, respectively. Other expense, net includes interest expense related to outstanding borrowings under our credit facility, which is partially offset by the interest income on cash held in government money market funds.
During the three and six months ended June 30, 2021, Other expense, net also includes an expense of $1.8 million related to the termination of our SERP. Refer to Note I - “Employee Benefit Plans” in the Unaudited Condensed Consolidated Financial Statements, included in this report on Form 10-Q, for a complete discussion of the termination of our SERP.
During the threeMarch 31, 2022 and six months ended June 30, 2021, Other expense, net also includes our proportionate share of the loss from WorkLLama, our equity method investment, of $0.8 million and $0.5 million, and $1.0 million.respectively.
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 sixthree months ended June 30,March 31, 2022 and 2021 was 27.1% and 2020 was 28.5% and 28.4%27.0%, respectively.
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.
The following table presents Free Cash Flow (in thousands): | | Six Months Ended June 30, | | |
| 2021 | | 2020 | | |
| | | | Three Months Ended March 31, | |
| | | 2022 | | 2021 | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 36,574 | | | $ | 38,966 | | | Net cash provided by operating activities | $ | 38,742 | | | $ | 22,426 | | |
Capital expenditures | Capital expenditures | (2,919) | | | (3,793) | | | Capital expenditures | (2,221) | | | (1,350) | | |
Free cash flow | Free cash flow | 33,655 | | | 35,173 | | | Free cash flow | 36,521 | | | 21,076 | | |
Change in debt | — | | | 35,000 | | | |
| Repurchases of common stock | Repurchases of common stock | (29,371) | | | (29,593) | | | Repurchases of common stock | (10,270) | | | (16,313) | | |
Cash dividends | Cash dividends | (9,532) | | | (8,455) | | | Cash dividends | (6,094) | | | (4,786) | | |
Equity method investment | (4,500) | | | (2,500) | | | |
Net proceeds from the sale of assets | 23,742 | | | — | | | |
Contributions to equity method investment | | Contributions to equity method investment | (500) | | | (2,000) | | |
| Other | Other | (201) | | | 2,915 | | | Other | (19) | | | (122) | | |
Change in cash and cash equivalents | Change in cash and cash equivalents | $ | 13,793 | | | $ | 32,540 | | | Change in cash and cash equivalents | $ | 19,638 | | | $ | (2,145) | | |
Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before 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): | | | 2021 | | 2020 | | 2022 | | 2021 |
Three Months Ended June 30, | | |
Three Months Ended March 31, | | Three Months Ended March 31, | |
Net income | Net income | $ | 21,188 | | | $ | 9,885 | | Net income | $ | 19,181 | | | $ | 13,261 | |
Depreciation and amortization | Depreciation and amortization | 1,192 | | | 1,380 | | Depreciation and amortization | 1,093 | | | 1,202 | |
Gain on sale of corporate headquarters | (2,051) | | | — | | |
| Stock-based compensation expense | Stock-based compensation expense | 3,532 | | | 2,903 | | Stock-based compensation expense | 4,437 | | | 3,403 | |
Interest expense, net | Interest expense, net | 765 | | | 893 | | Interest expense, net | 608 | | | 797 | |
Income tax expense | Income tax expense | 8,823 | | | 4,123 | | Income tax expense | 7,130 | | | 4,905 | |
SERP termination expense | 1,821 | | | — | | |
| Loss from equity method investment | Loss from equity method investment | 531 | | | 539 | | Loss from equity method investment | 825 | | | 491 | |
Adjusted EBITDA | Adjusted EBITDA | $ | 35,801 | | | $ | 19,723 | | Adjusted EBITDA | $ | 33,274 | | | $ | 24,059 | |
| Six Months Ended June 30, | | |
Net income | $ | 34,449 | | | $ | 18,991 | | |
Depreciation and amortization | 2,394 | | | 2,773 | | |
Gain on sale of corporate headquarters | (2,051) | | | — | | |
Stock-based compensation expense | 6,935 | | | 5,799 | | |
Interest expense, net | 1,562 | | | 1,684 | | |
Income tax expense | 13,728 | | | 7,551 | | |
SERP termination expense | 1,821 | | | — | | |
Loss from equity method investment | 1,022 | | | 1,134 | | |
Adjusted EBITDA | $ | 59,860 | | | $ | 37,932 | | |
|
LIQUIDITY AND CAPITAL RESOURCES
To meet our capital and liquidity requirements, we primarily rely on our operating cash flow as well asflows and, if necessary, borrowings under our credit facility. At June 30, 2021March 31, 2022 and December 31, 2020,2021, we had $117.3$116.6 million and $103.5$97.0 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds. At both June 30, 2021March 31, 2022 and December 31, 2020,2021, we had $100.0 million outstanding under our credit facility, and $198.5$98.6 million available under our credit facility. The amounts outstanding under our credit facility were hedged by interest rate swaps, as discussed below. In addition, on
Effective April 19,30, 2021, we completedKforce’s Board of Directors irrevocably terminated the saleSupplemental Executive Retirement Plan (the “SERP”). The benefits owed to the two participants under the SERP as of our corporate headquartersMarch 31, 2022, amount to an independent third party. We received net proceeds$20.0 million in the aggregate, which represented the fair value at the date of $23.7 milliontermination, and is recorded a gain on the salein Note F - Current Liabilities of $2.0 million, which isNotes to Unaudited Condensed Consolidated Financial Statements, included in SG&A expenses. In conjunction with the sale, we entered into an agreement to lease back the building for a periodItem 1. Financial Statements of 18 months.this report.
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;activities, investing in our infrastructurebusiness to allow sustainablesustain our growth via capital expenditures;and meet our profitability objectives, returning capital to our shareholders through our quarterly dividends and common stock repurchase program; maintaining appropriate leverage under our credit facility;program, and selectively pursuing acquisition opportunities; and maintaining sufficient liquidity for operations.opportunities.
Cash provided by operating activities was $36.6$38.7 million during the sixthree months ended June 30, 2021,March 31, 2022, as compared to $39.0$22.4 million provided during the sixthree months ended June 30, 2020.March 31, 2021. 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 decreaseyear-over-year increase was primarily driven by growth in our accounts receivable portfolio, a reduction in our operating liabilities, offset in part by profitable revenue growth.growth and better management of working capital.
Cash provided by investing activities during the six months ended June 30, 2021 was $16.3 million and cash used in investing activities during the sixthree months ended June 30, 2020March 31, 2022 and March 31, 2021 was $2.7 million. Cash provided by investing activities during the six months ended June 30, 2021 includes $23.7 million in net proceeds from the saleand $3.4 million, respectively, and primarily consisted of our corporate headquarters as discussed above, offset by cash used for capital expenditures and payments for capital invested incontributions to 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.
Cash used in financing activities was $39.1$16.4 million during the sixthree months ended June 30, 2021, asMarch 31, 2022, compared to $3.7$21.2 million used during the sixthree months ended June 30, 2020.March 31, 2021. The change was primarily driven by a decrease in the $35.0 million draw down on our credit facilityrepurchases of common stock during the six months ended June 30, 2020.three month period of 2022 compared to 2021, offset in part by an increase in dividend payments.
The following table presents the cash flow impact of the common stock repurchase activity (in thousands): | | | Six Months Ended June 30, | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Open market repurchases | Open market repurchases | | $ | 29,591 | | | $ | 29,386 | | Open market repurchases | | $ | 10,088 | | | $ | 16,190 | |
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 | | 336 | | | 207 | | Repurchase of shares related to tax withholding requirements for vesting of restricted stock | | 182 | | | 123 | |
Total cash flow impact of common stock repurchases | Total cash flow impact of common stock repurchases | | $ | 29,927 | | | $ | 29,593 | | Total cash flow impact of common stock repurchases | | $ | 10,270 | | | $ | 16,313 | |
| |
During the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, Kforce declared and paid quarterly dividends of $9.5$6.1 million ($0.460.30 per share) and $8.5$4.8 million ($0.400.23 per share), respectively, which represents a 15%30% increase in the per share payment. The declaration, paymentWhile the Board has declared and amountpaid a quarterly dividend since initiation in the fourth quarter of 2013, and intends to in the foreseeable 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 adversely 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,October 20, 2021, the Firm entered into aan amended and restated 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,documentation agent, and the lenders referred to therein (the “Credit“Amended and Restated Credit Facility”). Under the Amended and Restated Credit Facility, the Firm has a maximum borrowing capacity of $200.0 million, which may, subject to certain conditions and the participation of the lenders, be increased up to an aggregate additional amount of $150.0 million. The maturity date of the Amended and Restated 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.October 20, 2026. As of June 30, 2021,March 31, 2022, $100.0 million was outstanding and is classified as a current liability within our balance sheet. In addition, as of June 30, 2021, $198.5$98.6 million, was available on our Credit Facility, subject to certain covenants, and as of December 31, 2020, $100.0 million was outstanding.available. As of June 30, 2021,March 31, 2022, we are in compliance with our credit facility covenants as described in the 20202021 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 KIJ - “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 June 30, 2021March 31, 2022 and December 31, 2020,2021, the fair value of our interest rate swaps were a liabilityassets of $0.5$3.9 million and $1.8$0.8 million, respectively.
Stock Repurchases
In March 2020,February 2022, the Board approved an increase in our stock repurchase authorization, to an aggregatebringing the total ofauthorization to $100.0 million. During the sixthree months ended June 30, 2021,March 31, 2022, Kforce repurchased approximately 0.5 million144,000 shares of common stock on the open market at a total cost of approximately $29.6$10.1 million and $54.9$98.8 million remained available for further repurchases under the Board-authorized common stock repurchase program at June 30, 2021.March 31, 2022.
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 20202021 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. However, because future events and 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 A – “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 20202021 Annual Report on Form 10-K for a more detailed discussion of our significant accounting policies and critical accounting estimates.
NEWNEW 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.RISK.
With respect to our quantitative and qualitative disclosures about market risk, there have been no material changes to the information included in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of June 30, 2021,March 31, 2022, 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. For further information regarding legal proceedings, refer to Note LK - "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.
There have been no material changes in the risk factors previously disclosed in our 20202021 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Purchases of Equity Securities by the Issuer
In February 2022, the Board approved an increase in our stock repurchase authorization increasing the available authorization from $23.6 million to $100.0 million. Purchases of common stock under the Plan are subject to certain price, market, volume and timing constraints, which are specified in the plan. The following table presents information with respect to our repurchases of Kforce common stock during the three months ended June 30, 2021:March 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | |
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 |
April 1, 2021 to April 30, 2021 | — | | | $ | — | | | — | | | $ | 68,350,234 | |
May 1, 2021 to May 30, 2021 | 138,107 | | | $ | 59.74 | | | 134,585 | | | $ | 60,313,567 | |
June 1, 2021 to June 30, 2021 | 86,396 | | | $ | 62.09 | | | 86,396 | | | $ | 54,949,298 | |
Total | 224,503 | | | $ | 60.64 | | | 220,981 | | | $ | 54,949,298 | |
| | | | | | | | | | | | | | | | | | | | | | | |
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, 2022 to January 31, 2022 | 91,594 | | | $ | 70.45 | | | 91,594 | | | $ | 23,641,727 | |
February 1, 2022 to February 28, 2022 | 55,073 | | | $ | 69.32 | | | 52,571 | | | $ | 98,787,598 | |
March 1, 2022 to March 31, 2022 | — | | | $ | — | | | — | | | $ | 98,787,598 | |
Total | 146,667 | | | $ | 70.02 | | | 144,165 | | | $ | 98,787,598 | |
(1) Includes 3,5222,502 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period MayFebruary 1, 20212022 to May 31, 2021.February 28, 2022.
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. 2021 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-255480) filed with the SEC on April 23, 2021. | |
| Form of Restricted Stock Award Agreement under the 2021 Stock Incentive Plan, incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 000-26058) filed with the SEC on May 5, 2021. | |
| 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 June 30, 2021,March 31, 2022, 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. | | | | | | | | | | | | | | |
| | |
| | | KFORCE INC. |
| | | | |
Date: | AugustMay 4, 20212022 | By: | | /s/ DAVID M. KELLY |
| | | | David M. Kelly |
| | | | Executive Vice President, Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
Date: | AugustMay 4, 20212022 | By: | | /s/ JEFFREY B. HACKMAN |
| | | | Jeffrey B. Hackman |
| | | | Senior Vice President, Finance and Accounting |
| | | | (Principal Accounting Officer) |