kfrc-20200630FALSE2020Q20000930420--12-31P1YP6MP3Y1003005030000009304202020-01-012020-06-30xbrli:shares00009304202020-08-05iso4217:USD00009304202020-04-012020-06-3000009304202019-04-012019-06-3000009304202019-01-012019-06-30iso4217:USDxbrli:shares00009304202020-06-3000009304202019-12-310000930420us-gaap:CommonStockMember2019-12-310000930420us-gaap:AdditionalPaidInCapitalMember2019-12-310000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000930420us-gaap:RetainedEarningsMember2019-12-310000930420us-gaap:TreasuryStockMember2019-12-310000930420us-gaap:RetainedEarningsMember2020-01-012020-03-3100009304202020-01-012020-03-310000930420srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2020-01-012020-03-310000930420srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-12-310000930420srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-12-310000930420us-gaap:CommonStockMember2020-01-012020-03-310000930420us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310000930420us-gaap:TreasuryStockMember2020-01-012020-03-310000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310000930420us-gaap:CommonStockMember2020-03-310000930420us-gaap:AdditionalPaidInCapitalMember2020-03-310000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310000930420us-gaap:RetainedEarningsMember2020-03-310000930420us-gaap:TreasuryStockMember2020-03-3100009304202020-03-310000930420us-gaap:RetainedEarningsMember2020-04-012020-06-300000930420us-gaap:CommonStockMember2020-04-012020-06-300000930420us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000930420us-gaap:TreasuryStockMember2020-04-012020-06-300000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300000930420us-gaap:CommonStockMember2020-06-300000930420us-gaap:AdditionalPaidInCapitalMember2020-06-300000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300000930420us-gaap:RetainedEarningsMember2020-06-300000930420us-gaap:TreasuryStockMember2020-06-300000930420us-gaap:CommonStockMember2018-12-310000930420us-gaap:AdditionalPaidInCapitalMember2018-12-310000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000930420us-gaap:RetainedEarningsMember2018-12-310000930420us-gaap:TreasuryStockMember2018-12-3100009304202018-12-310000930420us-gaap:RetainedEarningsMember2019-01-012019-03-3100009304202019-01-012019-03-310000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310000930420us-gaap:CommonStockMember2019-01-012019-03-310000930420us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310000930420us-gaap:TreasuryStockMember2019-01-012019-03-310000930420us-gaap:CommonStockMember2019-03-310000930420us-gaap:AdditionalPaidInCapitalMember2019-03-310000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310000930420us-gaap:RetainedEarningsMember2019-03-310000930420us-gaap:TreasuryStockMember2019-03-3100009304202019-03-310000930420us-gaap:RetainedEarningsMember2019-04-012019-06-300000930420us-gaap:CommonStockMember2019-04-012019-06-300000930420us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300000930420us-gaap:TreasuryStockMember2019-04-012019-06-300000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300000930420us-gaap:CommonStockMember2019-06-300000930420us-gaap:AdditionalPaidInCapitalMember2019-06-300000930420us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300000930420us-gaap:RetainedEarningsMember2019-06-300000930420us-gaap:TreasuryStockMember2019-06-3000009304202019-06-300000930420kfrc:GSSegmentDivestitureMemberus-gaap:DiscontinuedOperationsDisposedOfBySaleMember2019-04-012019-06-300000930420kfrc:GSSegmentDivestitureMemberus-gaap:DiscontinuedOperationsDisposedOfBySaleMember2019-01-012019-06-300000930420kfrc:KforceGovernmentSolutionsIncKGSMemberus-gaap:DiscontinuedOperationsDisposedOfBySaleMember2019-03-310000930420kfrc:KforceGovernmentSolutionsIncKGSMemberus-gaap:DiscontinuedOperationsDisposedOfBySaleMember2019-04-012019-06-300000930420us-gaap:DiscontinuedOperationsDisposedOfBySaleMember2020-01-012020-06-300000930420kfrc:TechnologySegmentMember2020-04-012020-06-300000930420kfrc:FinanceAndAccountingSegmentMember2020-04-012020-06-300000930420kfrc:TechnologySegmentMember2019-04-012019-06-300000930420kfrc:FinanceAndAccountingSegmentMember2019-04-012019-06-300000930420kfrc:TechnologySegmentMember2020-01-012020-06-300000930420kfrc:FinanceAndAccountingSegmentMember2020-01-012020-06-300000930420kfrc:TechnologySegmentMember2019-01-012019-06-300000930420kfrc:FinanceAndAccountingSegmentMember2019-01-012019-06-300000930420kfrc:TechnologySegmentMemberkfrc:FlexRevenueMember2020-04-012020-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:FlexRevenueMember2020-04-012020-06-300000930420kfrc:FlexRevenueMember2020-04-012020-06-300000930420kfrc:DirectHireRevenueMemberkfrc:TechnologySegmentMember2020-04-012020-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:DirectHireRevenueMember2020-04-012020-06-300000930420kfrc:DirectHireRevenueMember2020-04-012020-06-300000930420kfrc:TechnologySegmentMemberkfrc:FlexRevenueMember2019-04-012019-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:FlexRevenueMember2019-04-012019-06-300000930420kfrc:FlexRevenueMember2019-04-012019-06-300000930420kfrc:DirectHireRevenueMemberkfrc:TechnologySegmentMember2019-04-012019-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:DirectHireRevenueMember2019-04-012019-06-300000930420kfrc:DirectHireRevenueMember2019-04-012019-06-300000930420kfrc:TechnologySegmentMemberkfrc:FlexRevenueMember2020-01-012020-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:FlexRevenueMember2020-01-012020-06-300000930420kfrc:FlexRevenueMember2020-01-012020-06-300000930420kfrc:DirectHireRevenueMemberkfrc:TechnologySegmentMember2020-01-012020-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:DirectHireRevenueMember2020-01-012020-06-300000930420kfrc:DirectHireRevenueMember2020-01-012020-06-300000930420kfrc:TechnologySegmentMemberkfrc:FlexRevenueMember2019-01-012019-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:FlexRevenueMember2019-01-012019-06-300000930420kfrc:FlexRevenueMember2019-01-012019-06-300000930420kfrc:DirectHireRevenueMemberkfrc:TechnologySegmentMember2019-01-012019-06-300000930420kfrc:FinanceAndAccountingSegmentMemberkfrc:DirectHireRevenueMember2019-01-012019-06-300000930420kfrc:DirectHireRevenueMember2019-01-012019-06-300000930420us-gaap:AccountingStandardsUpdate201613Membersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2020-01-012020-01-01xbrli:pure0000930420kfrc:WorkLLamaLLCMember2019-06-300000930420kfrc:WorkLLamaLLCMember2020-04-012020-06-300000930420kfrc:WorkLLamaLLCMember2020-01-012020-06-300000930420kfrc:TwoThousandTwentyStockIncentivePlanMember2020-04-280000930420us-gaap:RestrictedStockMembersrt:MinimumMember2020-01-012020-06-300000930420us-gaap:RestrictedStockMembersrt:MaximumMember2020-01-012020-06-300000930420us-gaap:RestrictedStockMember2019-12-310000930420us-gaap:RestrictedStockMember2020-01-012020-06-300000930420us-gaap:RestrictedStockMember2020-06-300000930420kfrc:InterestRateSwapAMemberus-gaap:DesignatedAsHedgingInstrumentMember2017-05-310000930420kfrc:InterestRateSwapAMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-05-310000930420kfrc:InterestRateSwapBMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-03-170000930420kfrc:InterestRateSwapBMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-05-310000930420srt:ScenarioForecastMemberkfrc:InterestRateSwapBMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-05-310000930420srt:ScenarioForecastMemberkfrc:InterestRateSwapBMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-05-310000930420srt:ScenarioForecastMemberkfrc:InterestRateSwapBMemberus-gaap:DesignatedAsHedgingInstrumentMember2024-05-310000930420us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2019-12-310000930420us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2018-12-310000930420us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-01-012020-06-300000930420us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2019-01-012019-06-300000930420us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-06-300000930420us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2019-06-300000930420us-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2020-06-300000930420us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2020-06-300000930420us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2020-06-300000930420us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:InterestRateSwapMember2020-06-300000930420us-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2019-12-310000930420us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2019-12-310000930420us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:InterestRateSwapMember2019-12-310000930420us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:InterestRateSwapMember2019-12-310000930420srt:MinimumMember2020-01-012020-06-300000930420srt:MaximumMember2020-01-012020-06-300000930420kfrc:WorkLLamaLLCMember2019-01-012019-12-31
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, 2020
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 | | ☒ | | 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 August 5, 2020 was 21,947,455.
KFORCE INC.
TABLE OF CONTENTS
| | | | | | | | |
| | |
Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
References in this document to the “Registrant,” “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context otherwise requires or indicates.
This report, particularly Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II. Item 1A. Risk Factors, and the documents we incorporate into this report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to, projections of financial or operational performance, our beliefs regarding potential government actions or changes in laws and regulations, anticipated costs and benefits of proposed investments, effects of interest rate variations, financing needs or plans, funding of employee benefit plans, estimates concerning the effects of litigation or other disputes, the occurrence of unanticipated expenses, developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions, the impact of the COVID-19 pandemic on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations, as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. Kforce undertakes no obligation to update any forward-looking statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenue | $ | 343,020 | | | $ | 338,861 | | | $ | 678,228 | | | $ | 665,599 | |
Direct costs | 245,659 | | | 237,835 | | | 486,343 | | | 471,397 | |
Gross profit | 97,361 | | | 101,026 | | | 191,885 | | | 194,202 | |
Selling, general and administrative expenses | 80,546 | | | 78,017 | | | 159,762 | | | 157,830 | |
Depreciation and amortization | 1,380 | | | 1,542 | | | 2,773 | | | 3,192 | |
Income from operations | 15,435 | | | 21,467 | | | 29,350 | | | 33,180 | |
Other expense, net | 1,427 | | | 403 | | | 2,808 | | | 1,326 | |
Income from continuing operations, before income taxes | 14,008 | | | 21,064 | | | 26,542 | | | 31,854 | |
Income tax expense | 4,123 | | | 4,988 | | | 7,551 | | | 7,804 | |
Income from continuing operations | 9,885 | | | 16,076 | | | 18,991 | | | 24,050 | |
Income from discontinued operations, net of tax | — | | | 58,783 | | | — | | | 77,664 | |
Net income | 9,885 | | | 74,859 | | | 18,991 | | | 101,714 | |
Other comprehensive loss: | | | | | | | |
Change in fair value of interest rate swaps, net of tax | (470) | | | (478) | | | (1,591) | | | (758) | |
Comprehensive income | $ | 9,415 | | | $ | 74,381 | | | $ | 17,400 | | | $ | 100,956 | |
| | | | | | | |
Earnings per share – basic: | | | | | | | |
Continuing operations | $ | 0.48 | | | $ | 0.67 | | | $ | 0.90 | | | $ | 0.99 | |
Discontinued operations | — | | | 2.46 | | | — | | | 3.21 | |
Earnings per share – basic | $ | 0.48 | | | $ | 3.13 | | | $ | 0.90 | | | $ | 4.20 | |
Earnings per share – diluted: | | | | | | | |
Continuing operations | $ | 0.47 | | | $ | 0.66 | | | $ | 0.89 | | | $ | 0.97 | |
Discontinued operations | — | | | 2.40 | | | — | | | 3.14 | |
Earnings per share – diluted | $ | 0.47 | | | $ | 3.06 | | | $ | 0.89 | | | $ | 4.11 | |
| | | | | | | |
Weighted average shares outstanding – basic | 20,790 | | | 23,901 | | | 21,171 | | | 24,207 | |
Weighted average shares outstanding – diluted | 21,078 | | | 24,458 | | | 21,469 | | | 24,745 | |
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, 2020 | | December 31, 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 52,371 | | | $ | 19,831 | |
Trade receivables, net of allowances of $4,572 and $2,078, respectively | 242,391 | | | 217,929 | |
Prepaid expenses and other current assets | 7,563 | | | 7,475 | |
Total current assets | 302,325 | | | 245,235 | |
Fixed assets, net | 28,425 | | | 29,975 | |
Other assets, net | 70,721 | | | 72,838 | |
Deferred tax assets, net | 12,322 | | | 8,037 | |
Goodwill | 25,040 | | | 25,040 | |
Total assets | $ | 438,833 | | | $ | 381,125 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and other accrued liabilities | $ | 38,371 | | | $ | 33,232 | |
Accrued payroll costs | 54,314 | | | 44,001 | |
Current portion of operating lease liabilities | 4,942 | | | 5,685 | |
Income taxes payable | 11,353 | | | 878 | |
Other current liabilities | 736 | | | 1,168 | |
Total current liabilities | 109,716 | | | 84,964 | |
Long-term debt – credit facility | 100,000 | | | 65,000 | |
Other long-term liabilities | 76,641 | | | 63,898 | |
Total liabilities | 286,357 | | | 213,862 | |
Commitments and contingencies (Note M) | | | |
Stockholders’ equity: | | | |
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding | — | | | — | |
Common stock, $0.01 par; 250,000 shares authorized, 72,237 and 72,202 issued, respectively | 722 | | | 722 | |
Additional paid-in capital | 465,957 | | | 459,545 | |
Accumulated other comprehensive loss | (3,117) | | | (1,526) | |
Retained earnings | 360,409 | | | 350,545 | |
Treasury stock, at cost; 50,295 and 49,277 shares, respectively | (671,495) | | | (642,023) | |
Total stockholders’ equity | 152,476 | | | 167,263 | |
Total liabilities and stockholders’ equity | $ | 438,833 | | | $ | 381,125 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | | | Treasury Stock | | | | Total Stockholders’ Equity |
| 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 (Note E), net of tax of $75 | — | | | — | | | — | | | — | | | (214) | | | — | | | — | | | (214) | |
Issuance for stock-based compensation and dividends, net of forfeitures | (4) | | | — | | | 218 | | | — | | | (218) | | | — | | | — | | | — | |
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 swaps, 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 | |
Net income | — | | | — | | | — | | | — | | | 9,885 | | | — | | | — | | | 9,885 | |
Issuance for stock-based compensation and dividends, net of forfeitures | 39 | | | — | | | 240 | | | — | | | (240) | | | — | | | — | | | — | |
Stock-based compensation expense | — | | | — | | | 2,903 | | | — | | | — | | | — | | | — | | | 2,903 | |
Employee stock purchase plan | — | | | — | | | 62 | | | — | | | — | | | (5) | | | 72 | | | 134 | |
Dividends ($0.20 per share) | — | | | — | | | — | | | — | | | (4,162) | | | — | | | — | | | (4,162) | |
Change in fair value of interest rate swaps, net of tax benefit of $160 | — | | | — | | | — | | | (470) | | | — | | | — | | | — | | | (470) | |
Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 342 | | | (9,213) | | | (9,213) | |
Balance, June 30, 2020 | 72,237 | | | $ | 722 | | | $ | 465,957 | | | $ | (3,117) | | | $ | 360,409 | | | 50,295 | | | $ | (671,495) | | | $ | 152,476 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | | | Treasury Stock | | | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | Retained Earnings | | Shares | | Amount | | |
Balance, December 31, 2018 | 71,856 | | | $ | 719 | | | $ | 447,337 | | | $ | 1,296 | | | $ | 237,308 | | | 45,822 | | | $ | (518,329) | | | $ | 168,331 | |
Net income | — | | | — | | | — | | | — | | | 26,855 | | | — | | | — | | | 26,855 | |
Reclassification of stranded tax effects | — | | | — | | | — | | | 168 | | | (168) | | | — | | | — | | | — | |
Issuance for stock-based compensation and dividends, net of forfeitures | 4 | | | — | | | 233 | | | — | | | (233) | | | — | | | — | | | — | |
Stock-based compensation expense | — | | | — | | | 2,620 | | | — | | | — | | | — | | | — | | | 2,620 | |
Employee stock purchase plan | — | | | — | | | 86 | | | — | | | — | | | (5) | | | 54 | | | 140 | |
Dividends ($0.18 per share) | — | | | — | | | — | | | — | | | (4,406) | | | — | | | — | | | (4,406) | |
Change in fair value of interest rate swap, net of tax benefit of $95 | — | | | — | | | — | | | (280) | | | — | | | — | | | — | | | (280) | |
Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 432 | | | (14,688) | | | (14,688) | |
Balance, March 31, 2019 | 71,860 | | | 719 | | | 450,276 | | | 1,184 | | | 259,356 | | | 46,249 | | | (532,963) | | | 178,572 | |
Net income | — | | | — | | | — | | | — | | | 74,859 | | | — | | | — | | | 74,859 | |
Issuance for stock-based compensation and dividends, net of forfeitures | 5 | | | — | | | 177 | | | — | | | (177) | | | — | | | — | | | — | |
Stock-based compensation expense | — | | | — | | | 3,524 | | | — | | | — | | | — | | | — | | | 3,524 | |
Employee stock purchase plan | — | | | — | | | 94 | | | — | | | — | | | (4) | | | 49 | | | 143 | |
Dividends ($0.18 per share) | — | | | — | | | — | | | — | | | (4,278) | | | — | | | — | | | (4,278) | |
Change in fair value of interest rate swap, net of tax benefit of $162 | — | | | — | | | — | | | (478) | | | — | | | — | | | — | | | (478) | |
Repurchases of common stock | — | | | — | | | — | | | — | | | — | | | 1,048 | | | (37,486) | | | (37,486) | |
Balance, June 30, 2019 | 71,865 | | | $ | 719 | | | $ | 454,071 | | | $ | 706 | | | $ | 329,760 | | | 47,293 | | | $ | (570,400) | | | $ | 214,856 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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, | | |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income | $ | 18,991 | | | $ | 101,714 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | |
Deferred income tax provision, net | (3,741) | | | 1,735 | |
Provision for credit losses | 2,835 | | | 797 | |
Depreciation and amortization | 2,773 | | | 3,623 | |
Stock-based compensation expense | 5,799 | | | 5,050 | |
Defined benefit pension plan expense | 422 | | | 431 | |
Loss (gain) on deferred compensation plan investments, net | 424 | | | (10) | |
Loss on disposal or impairment of assets | 1,092 | | | 970 | |
Noncash lease expense | 3,086 | | | 3,187 | |
Loss on equity method investment | 1,134 | | | — | |
Gain on sale of discontinued operations | — | | | (80,004) | |
Other | 176 | | | 636 | |
(Increase) decrease in operating assets | | | |
Trade receivables, net | (27,585) | | | (12,829) | |
Other assets | (2,510) | | | (3,269) | |
Increase (decrease) in operating liabilities | | | |
Accrued payroll costs | 10,588 | | | 1,298 | |
Other liabilities | 25,482 | | | (999) | |
Cash provided by operating activities | 38,966 | | | 22,330 | |
Cash flows from investing activities: | | | |
Capital expenditures | (3,793) | | | (4,184) | |
Equity method investment | (2,500) | | | (7,500) | |
Proceeds from the sale of assets held within the Rabbi Trust | 3,548 | | | — | |
Net proceeds from the sale of assets held for sale | — | | | 122,696 | |
Cash (used in) provided by investing activities | (2,745) | | | 111,012 | |
Cash flows from financing activities: | | | |
Proceeds from credit facility | 35,000 | | | 80,100 | |
Payments on credit facility | — | | | (86,900) | |
Repurchases of common stock | (29,593) | | | (51,546) | |
Cash dividends | (8,455) | | | (8,684) | |
Payments on other financing arrangements | (633) | | | (875) | |
| | | |
Other | — | | | (502) | |
Cash used in financing activities | (3,681) | | | (68,407) | |
Change in cash and cash equivalents | 32,540 | | | 64,935 | |
Cash and cash equivalents, beginning of period | 19,831 | | | 112 | |
Cash and cash equivalents, end of period | $ | 52,371 | | | $ | 65,047 | |
| | | |
| | | |
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
Supplemental Disclosure of Cash Flow Information | 2020 | | 2019 |
Cash Paid During the Period For: | | | |
Income taxes | $ | 1,043 | | | $ | 8,447 | |
Operating lease liabilities | 3,949 | | | 4,025 | |
Interest, net | 1,281 | | | 788 | |
Non-Cash Investing and Financing Transactions: | | | |
ROU assets obtained from operating leases | $ | 2,971 | | | $ | 1,355 | |
Employee stock purchase plan | 276 | | | 283 | |
Contingent contribution for equity method investment | — | | | 1,500 | |
Unsettled repurchases of common stock | — | | | 1,183 | |
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 2019 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 2019 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, 2019 was derived from our audited Consolidated Balance Sheet as of December 31, 2019, as presented in our 2019 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 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 workers’ compensation; obligations for the pension plan; variable consideration for revenue recognition; and any asset impairments. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
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, actuarially-determined completion factors 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, 2020, 288 thousand and 298 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended June 30, 2019, 557 thousand and 538 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended June 30, 2020, there were 352 thousand and 346 thousand anti-dilutive common stock equivalents, respectively. For the three and six months ended June 30, 2019, there were insignificant anti-dilutive common stock equivalents.
New Accounting Standards
Recently Adopted Accounting Standards
In June 2016, the FASB issued authoritative guidance on accounting for credit losses on financial instruments, including trade receivables, and has since issued subsequent updates to the initial guidance. The amended guidance requires the application of a current expected credit loss model, a new impairment model, which measures expected credit losses based on relevant information, including historical experience, current conditions and reasonable and supportable forecasts. The guidance is effective for annual periods beginning after December 15, 2019. We adopted this standard using the modified retrospective approach as of January 1, 2020, as required. Refer to Note E - “Allowance for Credit Losses” additional accounting policy and transition disclosures related to our allowance for credit losses.
In March 2020, the FASB issued authoritative guidance, which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference LIBOR and are affected by reference rate reform if certain criteria are met. Entities may adopt the provisions of the new standard as of the beginning of the reporting period when the election is made between March 12, 2020 through December 31, 2022. We adopted this optional standard effective January 1, 2020 using the prospective method, and utilized the optional expedients for cash flow hedges to assume that a hedged forecasted transaction is probable of occurring and that the reference rate will not be replaced for the remainder of a hedging relationship.
Accounting Standards Not Yet Adopted
In August 2018, the FASB issued authoritative guidance regarding changes to the disclosure requirement for defined benefit plans including additions and deletions to certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The guidance is effective for fiscal periods beginning after December 15, 2020 with the retrospective method required for all periods presented. The adoption of this guidance will modify our disclosures, but we do not expect this standard to have a material effect on our consolidated financial statements.
Note B - Discontinued Operations
During 2019, management completed the sale of our Government Solutions (“GS”) segment as a result of the Firm’s decision to focus solely on the commercial technical and professional staffing services and solutions space. The GS segment consisted of Kforce Government Solutions, Inc. (“KGS”), our federal government solutions business, and TraumaFX® Solutions, Inc. (“TFX”), our federal government product business. The results of operations for both KGS and TFX have been reported as discontinued operations in our consolidated financial statements for all prior periods presented.
The following table summarizes the line items of pretax profit of the GS segment (in thousands):
| | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | | | | | Six Months Ended June 30, 2019 |
Revenue | | | $ | 1,311 | | | | | $ | 27,737 | |
Direct costs | | | 479 | | | | | 19,494 | |
Gross profit | | | 832 | | | | | 8,243 | |
Selling, general and administrative expenses | | | 1,424 | | | | | 6,842 | |
Depreciation and amortization | | | 58 | | | | | 307 | |
(Loss) income from discontinued operations | | | (650) | | | | | 1,094 | |
Gain on sale of discontinued operations | | | 80,004 | | | | | 80,004 | |
Other income (expense), net | | | 428 | | | | | (436) | |
Income from discontinued operations, before income taxes | | | 79,782 | | | | | 80,662 | |
Income tax expense (1) | | | 20,999 | | | | | 2,998 | |
Income from discontinued operations, net of tax | | | $ | 58,783 | | | | | $ | 77,664 | |
(1) During the three months ended March 31, 2019, we entered into a definitive agreement to sell KGS and recorded $18.5 million to deferred tax assets and income tax benefit since it became apparent that the temporary difference for the excess of the outside tax basis in the equity of KGS over the amount of the inside basis in the assets of KGS would reverse in the foreseeable future. This deferred tax asset of $18.5 million was utilized and recorded as income tax expense during the three months ended June 30, 2019 when the divestiture was completed.
For the six months ended June 30, 2019, the accompanying Unaudited Condensed Consolidated Statements of Cash Flows are presented on a combined basis (continuing operations and discontinued operations) and cash provided by operating activities and cash provided by investing activities for discontinued operations were $5.1 million and $118.9 million, respectively.
Note C - 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, 2020 and 2019, we have reported sales and gross profit information on a segment basis. Total assets, liabilities and operating expenses are not reported separately by segment as our operations are largely combined.
The following table provides information on the operations of our segments (in thousands):
| | | | | | | | | | | | | | | | | |
| Tech | | FA | | Total |
Three Months Ended June 30, | | | | | |
2020 | | | | | |
Revenue | $ | 255,750 | | | $ | 87,270 | | | $ | 343,020 | |
Gross profit | $ | 72,192 | | | $ | 25,169 | | | $ | 97,361 | |
Operating and other expenses | | | | | $ | 83,353 | |
Income from continuing operations, before income taxes | | | | | $ | 14,008 | |
2019 | | | | | |
Revenue | $ | 265,305 | | | $ | 73,556 | | | $ | 338,861 | |
Gross profit | $ | 74,172 | | | $ | 26,854 | | | $ | 101,026 | |
Operating and other expenses | | | | | $ | 79,962 | |
Income from continuing operations, before income taxes | | | | | $ | 21,064 | |
Six Months Ended June 30, | | | | | |
2020 | | | | | |
Revenue | $ | 522,534 | | | $ | 155,694 | | | $ | 678,228 | |
Gross profit | $ | 144,646 | | | $ | 47,239 | | | $ | 191,885 | |
Operating and other expenses | | | | | $ | 165,343 | |
Income from continuing operations, before income taxes | | | | | $ | 26,542 | |
2019 | | | | | |
Revenue | $ | 520,948 | | | $ | 144,651 | | | $ | 665,599 | |
Gross profit | $ | 142,995 | | | $ | 51,207 | | | $ | 194,202 | |
Operating and other expenses | | | | | $ | 162,348 | |
Income from continuing operations, before income taxes | | | | | $ | 31,854 | |
Note D - Disaggregation of Revenue
The following table provides the disaggregation of revenue by segment and type (in thousands):
| | | | | | | | | | | | | | | | | |
| Tech | | FA | | Total |
Three Months Ended June 30, | | | | | |
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 | |
2019 | | | | | |
Revenue by type: | | | | | |
Flex revenue | $ | 259,707 | | | $ | 65,647 | | | $ | 325,354 | |
Direct Hire revenue | 5,598 | | | 7,909 | | | 13,507 | |
Total Revenue | $ | 265,305 | | | $ | 73,556 | | | $ | 338,861 | |
Six Months Ended June 30, | | | | | |
2020 | | | | | |
Revenue by type: | | | | | |
Flex revenue | $ | 514,517 | | | |