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Table of Contents


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 September 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
_________________________________________________________________
 https://cdn.kscope.io/076d5a9128091351545018722c236fc6-kfrc-20200930_g1.jpg
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: (813552-5000
 _______________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 per shareKFRCNASDAQ
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 filerAccelerated filer
Non-accelerated filerSmaller 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 October 29, 2020 was 21,956,078.



Table of Contents

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.
2

Table of Contents

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 September 30,Nine Months Ended September 30,
2020201920202019
Revenue$365,424 $345,558 $1,043,652 $1,011,157 
Direct costs261,546 242,747 747,889 714,144 
Gross profit103,878 102,811 295,763 297,013 
Selling, general and administrative expenses75,852 79,223 235,614 237,053 
Depreciation and amortization1,308 1,427 4,081 4,619 
Income from operations26,718 22,161 56,068 55,341 
Other expense, net938 880 3,746 2,206 
Income from continuing operations, before income taxes25,780 21,281 52,322 53,135 
Income tax expense7,017 5,374 14,568 13,178 
Income from continuing operations18,763 15,907 37,754 39,957 
Income from discontinued operations, net of tax (967) 76,697 
Net income18,763 14,940 37,754 116,654 
Other comprehensive loss:
Change in fair value of interest rate swaps, net of tax118 (113)(1,473)(871)
Comprehensive income$18,881 $14,827 $36,281 $115,783 
Earnings per share – basic:
Continuing operations$0.90 $0.70 $1.79 $1.68 
Discontinued operations (0.04) 3.24 
Earnings per share – basic$0.90 $0.66 $1.79 $4.92 
Earnings per share – diluted:
Continuing operations$0.89 $0.68 $1.77 $1.65 
Discontinued operations (0.04) 3.16 
Earnings per share – diluted$0.89 $0.64 $1.77 $4.81 
Weighted average shares outstanding – basic20,782 22,770 21,041 23,723 
Weighted average shares outstanding – diluted21,180 23,342 21,369 24,278 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Contents

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$101,273 $19,831 
Trade receivables, net of allowances of $4,101 and $2,078, respectively
230,002 217,929 
Prepaid expenses and other current assets7,413 7,475 
Total current assets338,688 245,235 
Fixed assets, net27,671 29,975 
Other assets, net73,871 72,838 
Deferred tax assets, net12,956 8,037 
Goodwill25,040 25,040 
Total assets$478,226 $381,125 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities$40,821 $33,232 
Accrued payroll costs75,086 44,001 
Current portion of operating lease liabilities5,190 5,685 
Income taxes payable6,181 878 
Other current liabilities 500 1,168 
Total current liabilities127,778 84,964 
Long-term debt – credit facility100,000 65,000 
Other long-term liabilities80,242 63,898 
Total liabilities308,020 213,862 
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, 72,247 and 72,202 issued, respectively
722 722 
Additional paid-in capital469,177 459,545 
Accumulated other comprehensive loss(2,999)(1,526)
Retained earnings374,767 350,545 
Treasury stock, at cost; 50,291 and 49,277 shares, respectively
(671,461)(642,023)
Total stockholders’ equity170,206 167,263 
Total liabilities and stockholders’ equity$478,226 $381,125 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Table of Contents

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
 
Common StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Loss
Treasury StockTotal Stockholders’ Equity
SharesAmountRetained EarningsSharesAmount
Balance, December 31, 201972,202 $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, 202072,198 722 462,752 (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 forfeitures39 — 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, 202072,237 722 465,957 (3,117)360,409 50,295 (671,495)152,476 
Net income— — — — 18,763 — — 18,763 
Issuance for stock-based compensation and dividends, net of forfeitures10 — 241 — (241)— —  
Stock-based compensation expense— — 2,908 — — — — 2,908 
Employee stock purchase plan— — 71 — — (5)64 135 
Dividends ($0.20 per share)
— — — — (4,164)— — (4,164)
Change in fair value of interest rate swaps, net of tax expense of $40
— — — 118 — — — 118 
Repurchases of common stock— — — — — 1 (30)(30)
Balance, September 30, 202072,247 $722 $469,177 $(2,999)$374,767 50,291 $(671,461)$170,206 

5

Table of Contents


Common StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income (Loss)
Treasury StockTotal Stockholders’ Equity
SharesAmountRetained EarningsSharesAmount
Balance, December 31, 201871,856 $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 forfeitures4 — 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, 201971,860 719 450,276 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 forfeitures5 — 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, 201971,865 719454,071 706329,760 47,293 (570,400)214,856 
Net income— — — — 14,940 — — 14,940 
Issuance for stock-based compensation and dividends, net of forfeitures9 — 221 — (221)— —  
Stock-based compensation expense— — 2,419 — — — — 2,419 
Employee stock purchase plan— — 91 — — (4)53 144 
Dividends ($0.18 per share)
— — — — (4,043)— — (4,043)
Change in fair value of interest rate swap, net of tax benefit of $37
— — — (113)— — — (113)
Repurchases of common stock— — — — — 1,169 (40,278)(40,278)
Balance, September 30, 201971,874 $719 $456,802 $593 $340,436 48,458 $(610,625)$187,925 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net income$37,754 $116,654 
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net(4,414)1,022 
Provision for credit losses2,723 936 
Depreciation and amortization4,081 5,051 
Stock-based compensation expense8,707 7,469 
Defined benefit pension plan expense632 647 
Loss on deferred compensation plan investments, net555 80 
Loss on disposal or impairment of assets1,795 1,077 
Noncash lease expense 4,392 4,830 
Loss on equity method investment1,237 359 
Gain on sale of discontinued operations (79,602)
Other265 722 
(Increase) decrease in operating assets
Trade receivables, net(15,085)(14,987)
Other assets(5,034)(8,344)
Increase (decrease) in operating liabilities
Accrued payroll costs31,496 9,583 
Other liabilities24,767 1,013 
Cash provided by operating activities93,871 46,510 
Cash flows from investing activities:
Capital expenditures(5,296)(7,728)
Equity method investment(2,500)(7,500)
Proceeds from the sale of assets held within the Rabbi Trust3,548  
Net proceeds from the sale of assets held for sale 123,254 
Cash (used in) provided by investing activities(4,248)108,026 
Cash flows from financing activities:
Proceeds from credit facility35,000 80,100 
Payments on credit facility (86,900)
Repurchases of common stock(29,623)(91,947)
Cash dividends(12,619)(12,726)
Payments on other financing arrangements(939)(1,353)
Other (502)
Cash used in financing activities(8,181)(113,328)
Change in cash and cash equivalents81,442 41,208 
Cash and cash equivalents, beginning of period19,831 112 
Cash and cash equivalents, end of period$101,273 $41,320 

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Nine Months Ended September 30,
Supplemental Disclosure of Cash Flow Information20202019
Cash Paid During the Period For:
Income taxes$13,493 $16,749 
Operating lease liabilities5,641 6,256 
Interest, net1,924 1,079 
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases$5,722 $7,224 
Employee stock purchase plan411 427 
Contingent contribution for equity method investment 1,500 
Unsettled repurchases of common stock 1,060 
Equipment acquired under finance leases 202 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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.
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For the three and nine months ended September 30, 2020, 398 thousand and 328 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30, 2019, 572 thousand and 555 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30, 2020, there were 266 thousand and 348 thousand anti-dilutive common stock equivalents, respectively. For the three and nine months ended September 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 September 30, 2019Nine Months Ended September 30, 2019
Revenue$ $27,737 
Direct costs 19,494 
Gross profit 8,243 
Selling, general and administrative expenses 6,842 
Depreciation and amortization 307 
Income from discontinued operations 1,094 
(Loss) gain on sale of discontinued operations(402)79,602 
Other expense, net (436)
(Loss) income from discontinued operations, before income taxes(402)80,260 
Income tax expense 565 3,563 
(Loss) income from discontinued operations, net of tax$(967)$76,697 
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During the three months ended September 30, 2019, we recorded $0.6 million of income tax expense related to a revision in an estimate of our tax obligation for the sale of KGS, which is included in the Loss on sale of discontinued operations, net of tax.
For the nine months ended September 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 $118.5 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 nine months ended September 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):
TechFATotal
Three Months Ended September 30,
2020
Revenue$260,251 $105,173 $365,424 
Gross profit$71,960 $31,918 $103,878 
Operating and other expenses$78,098 
Income from continuing operations, before income taxes$25,780 
2019
Revenue$271,999 $73,559 $345,558 
Gross profit$76,436 $26,375 $102,811 
Operating and other expenses$81,530 
Income from continuing operations, before income taxes$21,281 
Nine Months Ended September 30,
2020
Revenue$782,785 $260,867 $1,043,652 
Gross profit$216,606 $79,157 $295,763 
Operating and other expenses$243,441 
Income from continuing operations, before income taxes$52,322 
2019
Revenue$792,947 $218,210 $1,011,157 
Gross profit$219,431 $77,582 $297,013 
Operating and other expenses$243,878 
Income from continuing operations, before income taxes$53,135 

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Note D - Disaggregation of Revenue
The following table provides the disaggregation of revenue by segment and type (in thousands):
TechFATotal
Three Months Ended September 30,
2020
Revenue by type:
Flex revenue$256,118 $100,569 $356,687 
Direct Hire revenue4,133 4,604 8,737 
Total Revenue$260,251 $105,173 $365,424 
2019
Revenue by type:
Flex revenue$267,304 $66,348 $333,652 
Direct Hire revenue4,695 7,211 11,906 
Total Revenue$271,999 $73,559 $345,558 
Nine Months Ended September 30,
2020
Revenue by type:
Flex revenue$770,635 $248,578 $1,019,213 
Direct Hire revenue12,150 12,289 24,439 
Total Revenue$782,785 $260,867 $1,043,652 
2019
Revenue by type:
Flex revenue$777,227 $196,760 $973,987 
Direct Hire revenue15,720 21,450 37,170 
Total Revenue$792,947 $218,210 $1,011,157 

Note E - 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 nine months ended September 30, 2020.
The following table presents the activity within the allowance for credit losses on trade receivables for the nine months ended September 30, 2020 (in thousands):
Allowance for credit losses, January 1, 2020 (1)$1,843 
Current period provision2,723 
Write-offs charged against the allowance, net of recoveries of amounts previously written off(900)
Allowance for credit losses, September 30, 2020$3,666 
(1) As a result of the adoption of the new credit losses accounting standard, we recorded a cumulative effect adjustment to increase the allowance for credit losses of $0.3 million as of January 1, 2020.

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The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.4 million and $0.5 million at September 30, 2020 and December 31, 2019, respectively, for reserves unrelated to credit losses.
Management considered the ongoing COVID-19 economic and health crisis and its impact on our clients’ ability to pay outstanding receivables. We analyzed receivables concentrated within specific industries considered to be most significantly impacted, reviewed specific clients with credit ratings that were in a higher risk category and applied higher credit loss rates in order to estimate our potential credit loss exposure, which resulted in an increase to our allowance for credit losses during the nine months ended September 30, 2020.
Note F - Other Assets, Net
Other assets, net consisted of the following (in thousands):
September 30, 2020December 31, 2019
Assets held in Rabbi Trust$33,001 $35,413 
Right-of-use assets for operating leases, net (1)17,933 18,344 
Capitalized software, net (2)11,955 8,759 
Equity method investment (3)9,432 8,169 
Deferred loan costs, net589 855 
Other non-current assets961 1,298 
Total Other assets, net$73,871 $72,838 
(1) During the three and nine months ended September 30, 2020, we recognized $0.6 million and $1.5 million, respectively, of expense related to impairment of certain ROU assets, which was recorded in SG&A in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income, due to the Firm’s decisions not to reoccupy certain of our leased offices.
(2) Accumulated amortization of capitalized software was $35.0 million and $34.2 million as of September 30, 2020 and December 31, 2019, respectively.
(3) In June 2019, Kforce entered into a joint venture resulting in a 50% noncontrolling interest in WorkLLama, LLC (“WorkLLama”), which is accounted for as an equity method investment. The loss on equity method investment was $0.1 million and $1.2 million for the three and nine months ended September 30, 2020, respectively and was $0.4 million for the three and nine months ended September 30, 2019, respectively. Refer to Note M - “Commitments and Contingencies” for more information on contingencies related to WorkLLama.
Note G - Current Liabilities
The following table provides information on certain current liabilities (in thousands):
September 30, 2020December 31, 2019
Accounts payable and other accrued liabilities:
Accounts payable$23,776 $20,267 
Accrued liabilities17,045 12,965 
Total Accounts payable and other accrued liabilities$40,821 $33,232 
Accrued payroll costs:
Payroll and benefits$53,491 $38,035 
Health insurance liabilities5,426 3,907 
Payroll taxes (1)15,117 992 
Workers’ compensation liabilities1,052 1,067 
Total Accrued payroll costs$75,086 $44,001 
(1) On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law, which includes provisions that allow for, among other things, the deferment of employer social security payments. As of September 30, 2020, we have approximately $12.7 million in deferred payroll tax payments recorded within Accrued payroll costs resulting from the application of the CARES Act.
Our accounts payable balance includes vendor and independent contractor payables. Our accrued liabilities balance includes the current portion of the deferred compensation plans liability, contract liabilities from contracts with customers (such as rebates) and other accrued liabilities.
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Note H - Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
September 30, 2020December 31, 2019
Deferred compensation plan $30,375 $30,361 
Supplemental executive retirement plan18,712 18,080 
Operating lease liabilities15,895 14,627 
Interest rate swap derivative instruments2,157 179 
Other long-term liabilities (1)13,103 651 
Total Other long-term liabilities$80,242 $63,898 
(1) As a result of the application of the CARES Act, we have approximately $12.7 million in payroll tax payments recorded within Other long-term liabilities as of September 30, 2020.
Note I - Employee Benefit Plans
Supplemental Executive Retirement Plan
Kforce maintains a Supplemental Executive Retirement Plan (“SERP”), which benefits two executives. The SERP is a non-qualified benefit plan and does not include elective deferrals of covered executive officers’ compensation.
The following table presents the components of net periodic benefit cost (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Service cost$87 $65 $259 $195 
Interest cost124 151 373 453 
Net periodic benefit cost$211 $216 $632 $648 
The service cost is recorded in SG&A and the interest cost is recorded in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.
The projected benefit obligation as of September 30, 2020 and December 31, 2019 was $18.7 million and $18.1 million, respectively, and is recorded in Other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. There is no requirement for Kforce to fund the SERP and, as a result, no contributions were made to the SERP during the nine months ended September 30, 2020. Kforce does not currently anticipate funding the SERP during the year ended December 31, 2020.
Note J - Stock Incentive Plans
On April 28, 2020, Kforce’s shareholders approved the 2020 Stock Incentive Plan (the “2020 Plan”). The 2020 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 2020 Plan is approximately 3.6 million. Grants of an option or SAR reduce the reserve by one share, while a stock award reduces the reserve by 2.72 shares. The 2020 Plan terminates on April 28, 2030.
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 in order to retain directors, executives and management. Restricted stock granted during the nine months ended September 30, 2020 will vest over a period of one to ten years, with vesting in equal annual installments.
During the three and nine months ended September 30, 2020, stock-based compensation expense from continuing operations was $2.9 million and $8.7 million, respectively. During the three and nine months ended September 30, 2019, stock-based compensation expense from continuing operations was $2.4 million and $7.4 million, respectively.
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