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Kforce Reports Fourth Quarter 2022 Revenue of $419.7 Million, up 2.3% Year-Over-Year; Fourth Quarter Technology Revenues up 7.6% Year-Over-Year; Improved Nearly 18% for the Full Year in 2022, per Billing Day; Board of Directors Approves 20% Increase in Dividend and Increases Share Buyback Authorization to $100 Million

February 6, 2023

TAMPA, Fla., Feb. 06, 2023 (GLOBE NEWSWIRE) -- Kforce Inc. (Nasdaq: KFRC), a solutions firm that specializes in technology and other professional staffing services, today announced results for the fourth quarter and full year 2022. There are references to “as reported” and “as adjusted” figures within this press release, which pertain to GAAP and non-GAAP measures that are more fully described in the Adjusted Financial Performance Measures section of this press release.

Fourth Quarter 2022 Financial Highlights

  • Revenue for the quarter ended December 31, 2022 was $419.7 million compared to $410.4 million for the quarter ended December 31, 2021, an increase of 2.3% year-over-year. Overall revenue improved 0.6% on a sequential billing day basis.
  • Technology revenue increased 7.6% year-over-year and improved slightly on a sequential billing day basis.
  • FA revenue decreased 26.4% year-over-year as a result of the expected run-off in the COVID-19 project-related business and repositioning efforts, and improved 4.7% sequentially, per billing day.
  • Flex gross profit margins of 26.4% were stable overall sequentially, improving 10 basis points in our Technology business and declining 210 basis points in our FA business due to a short-term project in support of Hurricane Ian recovery efforts.
  • As reported, selling, general and administrative (“SG&A”) expenses as a percentage of revenue for the quarter ended December 31, 2022 was 22.5%. As adjusted, SG&A expenses as a percentage of revenue was 22.0%, which decreased 90 basis points year-over-year.
  • As reported, operating margins were 5.7% for the quarter ended December 31, 2022. As adjusted, operating margins were 6.2% for the quarter ended December 31, 2022, which increased 20 basis points year-over-year.
  • As reported, net income for the quarter ended December 31, 2022 was $7.1 million, or $0.35 per share. As adjusted, net income for the quarter ended December 31, 2022 was $18.7 million, or $0.93 per share.

Full Year 2022 Financial Highlights

  • Revenue for the year ended December 31, 2022 of approximately $1.71 billion increased 7.9% year-over-year, per billing day.
  • Technology revenue of $1.51 billion increased 17.9% year-over-year, per billing day.
  • As reported, operating margins were 6.8% for the year ended December 31, 2022. As adjusted, operating margins of 6.9% increased 20 basis points year-over-year.
  • As reported, earnings per share was $3.68 for the year ended December 31, 2022. As adjusted, earnings per share of $4.25 increased 20% year-over-year.
  • Returned $91.6 million of capital to our shareholders through $67.6 million of share repurchases and $24.0 million in dividends during the year ended December 31, 2022.

Management Commentary

Joseph J. Liberatore, President and Chief Executive Officer, commented, “We are pleased with our performance in 2022, which was an extremely successful year for Kforce. We met the financial objectives we outlined at the beginning of the year, despite the softening in demand we began to experience in the second half of 2022. We organically grew revenues in our Technology business by approximately 18% after growing more than 22% in 2021 and further improved profitability levels. Strategically, we advanced our integrated sales strategy to further integrate our managed teams and project solutions capability within our Technology business. Our team made significant progress advancing the multi-year effort to transform our back office and fully transitioned to our hybrid Office OccasionalSM work environment across all of our markets, including the opening of our new state-of-the-art headquarters in Tampa. As we look ahead to 2023, we expect to continue to make the necessary investments in our business to further advance our integrated sales strategy and the transformation of our back office to sustain our long-term growth ambitions, and to make additional progress towards double-digit operating margins. We have a solid, highly tenured leadership team in place with the expectation of continuing to capture additional market share and are prepared for the long-term, whatever the near-term macro-economic environment may bring.”

Kye Mitchell, Chief Operations Officer, said, “Our Technology business continues to be the primary driver to our success, with year-over-year growth of 7.6% and nearly 18% growth for the full year of 2022. Another strong signal is that we experienced continued acceleration in our average bill rates, which improved 1.7% sequentially to approximately $90 per hour. We believe the continued increase in bill rates reflects the continued demand environment for highly skilled talent and the criticality of these resources to our clients' strategic priorities. We believe this is strong evidence that the secular demand drivers in the technology talent solutions space are more tightly correlated to our long-term success than fluctuations in the macro-economic environment.”

David M. Kelly, Chief Financial Officer, said, “We are pleased with our financial performance in 2022 and excited about our future prospects. We continued to be active in returning capital to our shareholders as we repurchased $25 million of stock in the fourth quarter and nearly $68 million of stock in the open market for the full year. We returned approximately 100% of operating cash flows through dividends and share repurchases to our shareholders in 2022. As an additional signal of our belief in the strength of our operating trends and financial strength going into 2023, our Board of Directors approved an increase of approximately 20% in our annual dividend from $1.20 per share to $1.44 per share. Our first quarter dividend of $0.36 per share will be payable on March 24, 2023, to shareholders of record as of the close of business on March 10, 2023.

Since 2007, we have returned in excess of $830 million in capital to our shareholders, which has represented approximately 75% of the cash our business has generated. We believe our financial performance has put us in an excellent position to continue to make incremental investments in our business even in an uncertain environment, which we believe will benefit our shareholders in the long term and are important drivers to our attainment of double-digit operating margins. Overall, we believe our strategy has put us in an exceptional place and are fully prepared for the various economic possibilities that may lie ahead.”

First Quarter 2023 - Guidance

Looking forward to the first quarter of 2023, there will be 64 billing days compared to 61 billing days in the fourth quarter of 2022 and 64 billing days in the first quarter of 2022.

Current estimates for the first quarter of 2023 are:

  • Revenue of $406 million to $414 million
  • Earnings per share of $0.78 to $0.86
  • Gross profit margin of 28.1% to 28.3%
  • Flex gross profit margin of 26.4% to 26.6%
  • SG&A expense as a percent of revenue of 22.2% to 22.4%
  • Operating margin of 5.4% to 5.8%
  • Weighted-average shares outstanding (“WASO”) of 19.7 million
  • Effective tax rate of 27.3%

Conference Call and Annual Meeting

On Monday, February 6, 2023, Kforce will host a conference call at 5:00 p.m. E.T. to discuss these results. The dial-in number is (888) 550-5417 and the conference passcode is "Kforce". The prepared remarks for this call and webcast are available on the Investor Relations page of the Kforce Inc. website in the Events & Presentations section.

The replay of the call can be accessed at http://investor.kforce.com from 8:00 p.m. on Monday, February 6, 2023 until February 6, 2024.

Our 2023 Annual Meeting of Kforce Inc. Shareholders will be held on Thursday, April 20, 2023 at 1150 Assembly Drive, Suite 500, Tampa, Florida 33607, commencing at 8:00 a.m. E.T.

About Kforce

Kforce Inc. is a solutions firm that specializes in technology and other professional staffing services. Each year, we provide meaningful opportunities for approximately 30,000 highly skilled professionals who work with approximately 3,000 clients, including a significant majority of the Fortune 500. At Kforce, our promise is to deliver Great Results Through Strategic Partnership and Knowledge Sharing®. For more information, please visit our website at http://www.kforce.com.

Michael R. Blackman, Chief Corporate Development Officer
(813) 552-2927

Cautionary Note Regarding Forward-Looking Statements

All statements in this press release, other than those of a historical nature, are forward-looking statements including, but not limited to, statements regarding the Firm's investments in its business, its long-term growth ambitions, its expected progress towards double-digit operating margins, the Firm's expectation to capture additional market share and its preparation for the long-term regardless of the near-term macro-economic environment, the demand environment for highly skilled talent, the correlation of the secular demand drivers in the technology talent solutions space to our long-term success, the intent and ability to declare and pay quarterly dividends, and the Firm's guidance for the first quarter of 2023. Such forward-looking statements are 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. Factors that could cause actual results to differ materially include the following: business conditions; growth rate in temporary staffing and the general economy; competitive factors; risks due to shifts in the market demand; a reduction in the supply of consultants and candidates or the Firm’s ability to attract and retain such individuals; the success of the Firm in attracting and retaining its management team and key operating employees; changes in the service mix; ability of the Firm to repurchase shares; the occurrence of unanticipated expenses, income, gains or losses; the effect of adverse weather conditions; changes in our effective tax rate; our ability to comply with government regulations, laws, orders, guidelines and policies that impact our business; risk of contract performance, delays or termination or the failure to obtain new assignments or contracts, or funding under contracts; ability to comply with our obligations in a remote work environment; changes in client demand and our ability to adapt to such changes; continued performance of and improvements to our enterprise information systems; impacts of actual or potential litigation or other legal or regulatory matters or liabilities, including the risk factors and matters listed from time to time in the Firm’s reports filed with the Securities and Exchange Commission, including, but not limited to, the Firm’s Form 10-K for the fiscal year ending December 31, 2021, as well as assumptions regarding the foregoing. The terms “should,” “believe,” “estimate,” “expect,” “intend,” “anticipate,” “foresee,” “plan,” "in our view" and similar expressions and variations thereof contained in this press release identify certain of such forward-looking statements, which speak only as of the date of this press release. As a result, such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Future events and actual results may differ materially from those indicated in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and the Firm undertakes no obligation to update any forward-looking statements.


Kforce Inc.
Summary of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

    Three Months Ended
    December 31,
2022
  September 30,
2022
  December 31,
2021
Revenue   $ 419,662   $ 437,620   $ 410,358
Direct costs     300,183     310,950     290,371
Gross profit     119,479     126,670     119,987
Selling, general and administrative expenses     94,313     94,306     94,104
Depreciation and amortization     1,213     1,045     1,080
Income from operations     23,953     31,319     24,803
Other expense, net     14,756     906     1,532
Income from operations, before income taxes     9,197     30,413     23,271
Income tax expense     2,125     8,151     2,711
Net income   $ 7,072   $ 22,262   $ 20,560
             
Earnings per share - diluted   $ 0.35   $ 1.09   $ 0.98
             
Weighted average shares outstanding – diluted     20,077     20,450     21,036
Adjusted EBITDA   $ 31,454   $ 36,808   $ 31,783
             
Billing days     61     64     61


Kforce Inc.
Summary of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

    Year Ended December 31,
    2022
2021
Revenue   $ 1,710,765   $ 1,579,922
Direct costs     1,209,658     1,123,058
Gross profit     501,107     456,864
Selling, general and administrative expenses     379,815     345,721
Depreciation and amortization     4,427     4,500
Income from operations     116,865     106,643
Other expense, net     14,423     7,376
Income from operations, before income taxes     102,442     99,267
Income tax expense     27,011     24,090
Net income   $ 75,431   $ 75,177
         
Earnings per share - diluted   $ 3.68   $ 3.54
         
Weighted average shares outstanding – diluted     20,503     21,212
Adjusted EBITDA   $ 140,871   $ 126,439
         
Billing days     253     252


Kforce Inc.
Consolidated Balance Sheets
(In Thousands)
(Unaudited)

    December 31,
    2022
  2021
ASSETS        
Current assets:        
Cash and cash equivalents   $ 121     $ 96,989  
Trade receivables, net of allowances     269,496       265,322  
Income tax refund receivable     35       3,010  
Prepaid expenses and other current assets     8,108       6,790  
Total current assets     277,760       372,111  
Fixed assets, net     8,647       5,964  
Other assets, net     75,771       92,629  
Deferred tax assets, net     4,786       7,657  
Goodwill     25,040       25,040  
Total assets   $ 392,004     $ 503,401  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable and other accrued liabilities   $ 72,792     $ 81,408  
Accrued payroll costs     48,369       71,424  
Current portion of operating lease liabilities     4,576       6,338  
Income taxes payable     5,696       1,261  
Total current liabilities     131,433       160,431  
Long-term debt – credit facility     25,600       100,000  
Other long-term liabilities     52,773       54,564  
Total liabilities     209,806       314,995  
Commitments and contingencies        
Stockholders’ equity:        
Preferred stock            
Common stock     732       730  
Additional paid-in capital     507,734       488,036  
Accumulated other comprehensive income     6       621  
Retained earnings     492,764       442,596  
Treasury stock, at cost     (819,038 )     (743,577 )
Total stockholders’ equity     182,198       188,406  
Total liabilities and stockholders’ equity   $ 392,004     $ 503,401  


Kforce Inc.
Key Statistics
(Unaudited)

    Q4 2022   Q3 2022   Q4 2021
Total Firm            
Total Revenue (000's)   $ 419,662     $ 437,620     $ 410,358  
GP %     28.5 %     29.0 %     29.2 %
Flex revenue (000’s)   $ 407,916     $ 422,968     $ 395,776  
Hours (000’s)     4,958       5,124       5,531  
Flex GP %     26.4 %     26.5 %     26.6 %
Direct Hire revenue (000’s)   $ 11,746     $ 14,652     $ 14,582  
Placements     532       682       787  
Average fee   $ 22,070     $ 21,478     $ 18,538  
Billing days     61       64       61  
Technology            
Total Revenue (000's)   $ 372,631     $ 390,496     $ 346,424  
GP %     27.3 %     27.6 %     28.2 %
Flex revenue (000’s)   $ 366,760     $ 382,072     $ 337,962  
Hours (000’s)     4,072       4,308       4,103  
Flex GP %     26.1 %     26.0 %     26.4 %
Direct Hire revenue (000’s)   $ 5,871     $ 8,424     $ 8,462  
Placements     235       341       389  
Average fee   $ 25,004     $ 24,683     $ 21,781  
Finance and Accounting            
Total Revenue (000's)   $ 47,031     $ 47,124     $ 63,934  
GP %     37.7 %     40.1 %     35.1 %
Flex revenue (000’s)   $ 41,156     $ 40,896     $ 57,814  
Hours (000’s)     886       816       1,428  
Flex GP %     28.8 %     30.9 %     28.3 %
Direct Hire revenue (000’s)   $ 5,875     $ 6,228     $ 6,120  
Placements     297       341       398  
Average fee   $ 19,754     $ 18,269     $ 15,373  


Kforce Inc.
Revenue Growth Rates
(Unaudited)

    Year-Over-Year
    (Per Billing Day)
    Q4 2022   Q3 2022   Q2 2022   Q1 2022   Q4 2021
Billing days   61     64     64     64     61  
Technology Flex   8.5 %   15.7 %   23.3 %   26.0 %   31.0 %
FA Flex   (28.8) %   (30.7) %   (49.0) %   (37.6) %   (28.9) %
Total Flex   3.1 %   8.7 %   7.2 %   11.8 %   16.6 %


Kforce Inc.
Non-GAAP Financial Measures
(In Thousands, Except Per Share Amounts)
(Unaudited)

In addition to our financial results presented in accordance GAAP, Kforce uses certain non-GAAP financial measures, which we believe provide useful information to investors in evaluating our core operating performance. The following non-GAAP financial measures presented may not provide information that is directly comparable to that provided by other companies, as other companies may calculate such financial results differently. The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP. The Company views these non-GAAP financial measures as supplemental and they are not intended to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

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 Consolidated Statements of Cash Flows.

(In Thousands)   Year Ended December 31,
    2022
  2021
Net income   $ 75,431     $ 75,177  
Non-cash provisions and other     50,294       30,188  
Changes in operating assets/liabilities     (34,920 )     (32,467 )
Net cash provided by operating activities     90,805       72,898  
Capital expenditures     (8,109 )     (6,441 )
Free cash flow     82,696       66,457  
Note receivable issued to our joint venture     (6,750 )      
Cash proceeds received from Company-owned life insurance     1,077        
Equity method investment     (500 )     (9,000 )
Change in debt     (74,400 )      
Repurchases of common stock     (74,913 )     (66,210 )
Cash dividends     (24,027 )     (20,120 )
Net proceeds from the sale of assets held for sale           23,742  
Other     (51 )     (1,366 )
Change in cash and cash equivalents   $ (96,868 )   $ (6,497 )

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, legal settlement expense, SERP termination expense, gain from termination of interest rate swap, impairment of equity method investment, reserve associated with note receivable issued to our joint venture, loss from equity method investment and gain on sale of corporate headquarters. 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 stockholder ownership interest. We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position.

    Three Months Ended
(In Thousands)   December 31, 2022   September 30, 2022   December 31, 2021
Net income   $ 7,072     $ 22,262   $ 20,560
Depreciation and amortization     1,213       1,045     1,080
Stock-based compensation expense     4,362       4,445     3,551
Interest (income) expense, net     (15 )     9     761
Income tax expense     2,125       8,151     2,711
Loss from equity method investment     1,088       896     770
Reserve associated with note receivable issued to our joint venture     1,925          
Impairment of equity method investment     13,684          
Legal settlement expense               2,350
Adjusted EBITDA   $ 31,454     $ 36,808   $ 31,783


  Year Ended December 31,
(In Thousands) 2022
  2021
Net income $ 75,431     $ 75,177  
Reserve associated with note receivable issued to our joint venture   1,925        
Impairment of equity method investment   13,684        
Depreciation and amortization   4,427       4,500  
Stock-based compensation expense   17,655       13,999  
Interest expense, net   973       3,073  
Income tax expense   27,011       24,090  
Gain from termination of interest rate swap   (4,059 )      
Loss from equity method investment   3,824       2,480  
Legal settlement expense         3,350  
SERP termination expense         1,821  
Gain on sale of corporate headquarters         (2,051 )
Adjusted EBITDA $ 140,871     $ 126,439  


Adjusted Financial Performance Measures

The "Adjusted Financial Performance Measures" present non-GAAP financial information and should not be considered a measure of financial performance under generally accepted accounting principles. These measures are presented as an alternative method for assessing the Company’s operating results in a manner that is focused on the performance of our underlying operations. Each of these measures are intended to provide greater consistency, comparability and clarity of our results. Management uses this non-GAAP financial information to assess the Company's core operating results and consequently, management believes it is similarly useful information to investors.

    Three Months Ended December 31, 2022
(In Thousands, Except Per Share Amounts)   Reported
(GAAP)
  Adjustments (1)   Adjusted
(Non-GAAP)
Reconciliation of SG&A and Operating Margin:            
Selling, general and administrative expenses   $ 94,313     $ (1,925 )   $ 92,388  
SG&A as a percentage of revenue     22.5 %   (0.5 )%     22.0 %
Income from operations   $ 23,953     $ 1,925     $ 25,878  
Operating margin     5.7 %     0.5 %     6.2 %
Other expense, net   $ 14,756     $ (13,684 )   $ 1,072  
Reconciliation of Tax Impact and Profitability:            
Income from operations, before income taxes   $ 9,197     $ 15,609     $ 24,806  
Income tax expense   $ 2,125     $ 4,002     $ 6,127  
Effective tax rate     23.1 %     25.6 %     24.7 %
Net income   $ 7,072     $ 11,607     $ 18,679  
Earnings per share - diluted   $ 0.35     $ 0.58     $ 0.93  


    Year Ended December 31, 2022
(In Thousands, Except Per Share Amounts)   Reported
(GAAP)
  Adjustments (1)   Adjusted
(Non-GAAP)
Reconciliation of SG&A and Operating Margin:            
Selling, general and administrative expenses   $ 379,815     $ (1,925 )   $ 377,890  
SG&A as a percentage of revenue     22.2 %   (0.1 )%     22.1 %
Income from operations   $ 116,865     $ 1,925     $ 118,790  
Operating margin     6.8 %     0.1 %     6.9 %
Other expense, net   $ 14,423     $ (13,684 )   $ 739  
Reconciliation of Tax Impact and Profitability:            
Income from operations, before income taxes   $ 102,442     $ 15,609     $ 118,051  
Income tax expense   $ 27,011     $ 4,002     $ 31,013  
Effective tax rate     26.4 %     25.6 %     26.3 %
Net income   $ 75,431     $ 11,607     $ 87,038  
Earnings per share - diluted   $ 3.68     $ 0.57     $ 4.25  

(1) Includes a $13.7 million impairment of our equity method investment and a $1.9 million reserve related to a promissory note issued to our joint venture and associated income tax effects ($11.6 million after-tax) for the three months and year ended December 31, 2022.


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Source: Kforce, Inc.