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Kforce(KFRC) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Kforce Inc Item 1. Financial Statements This section presents Kforce Inc.'s unaudited condensed consolidated financial statements, including statements of operations, balance sheets, and cash flows, with accompanying notes Statements of Operations and Comprehensive Income Kforce reported Q3 2021 revenue of $402.7 million and net income of $20.2 million, with nine-month revenue at $1.17 billion Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $402,725 | $365,424 | $1,169,564 | $1,043,652 | | Gross Profit | $119,264 | $103,878 | $336,877 | $295,763 | | Income from Operations | $29,266 | $26,718 | $81,840 | $56,068 | | Net Income | $20,168 | $18,763 | $54,617 | $37,754 | | Earnings per Share – diluted | $0.96 | $0.89 | $2.57 | $1.77 | Balance Sheets Total assets increased to $522.6 million as of September 30, 2021, driven by cash and receivables, with total liabilities at $332.7 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $393,585 | $338,892 | | Total Assets | $522,626 | $479,049 | | Total Current Liabilities | $161,579 | $108,166 | | Long-term Debt | $100,000 | $100,000 | | Total Liabilities | $332,657 | $299,114 | | Total Stockholders' Equity | $189,969 | $179,935 | Statements of Cash Flows Operating cash flow was $59.9 million for the nine months ended September 30, 2021, with $59.5 million used in financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | $59,943 | $93,871 | | Cash provided by (used in) investing activities | $11,716 | $(4,248) | | Cash used in financing activities | $(59,514) | $(8,181) | | Change in cash and cash equivalents | $12,145 | $81,442 | Notes to Financial Statements Detailed notes cover accounting policies, segment reporting, asset sales, employee benefits, and commitments, including subsequent events - The company operates through two reportable segments: Technology ("Tech") and Finance and Accounting ("FA") For the nine months ended Sep 30, 2021, Tech revenue was $927.5 million and FA revenue was $242.0 million35 - On May 19, 2021, Kforce sold its corporate headquarters for net proceeds of $23.7 million, recognizing a gain of $2.0 million39 - Effective April 30, 2021, the company terminated its Supplemental Executive Retirement Plan (SERP), resulting in a net loss of $1.8 million and an aggregate obligation of $20.0 million to be paid out in 20224547 - Subsequent to the quarter end, on October 20, 2021, the company entered into an amended and restated credit agreement, providing a maximum borrowing capacity of $200.0 million with a maturity date of October 20, 202669 Management's Discussion and Analysis (MD&A) Management's discussion analyzes financial condition and operating results by segment, liquidity, capital resources, and non-GAAP measures Executive Summary Total revenue increased 12.1% to $1.17 billion for the nine months, driven by 18.5% Tech segment growth, with $59.3 million returned to shareholders - Revenue for the nine months ended Sep 30, 2021, increased 12.1% to $1,169.6 million, with Tech revenue up 18.5% and FA revenue down 7.2%74 - Direct Hire revenue for the nine months increased 44.0% to $35.2 million74 - The company returned $59.3 million to shareholders during the first nine months of 2021, consisting of $44.5 million in share repurchases and $14.8 million in dividends74 Results of Operations Tech segment revenue grew 29.6% in Q3 2021, while FA declined 37.7% due to COVID-19 business wind-down, improving gross profit margin Revenue Growth by Segment (Y-o-Y) | Segment | Q3 2021 vs Q3 2020 | Nine Months 2021 vs 2020 | | :--- | :--- | :--- | | Tech | +29.6% | +18.5% | | FA | -37.7% | -7.2% | | Total Revenue | +10.2% | +12.1% | - The decline in FA segment revenue was primarily driven by a decrease in government-sponsored COVID-19 related business, which was $7.5 million in Q3 2021 compared to $51.1 million in Q3 20207484 - The company is implementing a "Kforce Reimagined" initiative to create a more flexible, hybrid "Office Occasional" work environment for its associates, with a remote-first approach78 - SG&A as a percentage of revenue decreased to 21.5% for the nine-month period from 22.6% in the prior year, attributed to revenue leverage, productivity improvements, and a gain on the sale of the corporate headquarters95 Non-GAAP Financial Measures Definitions and reconciliations for non-GAAP measures show Free Cash Flow of $54.9 million and Adjusted EBITDA of $93.7 million Non-GAAP Financial Measures (in thousands) | Measure | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Free Cash Flow | $54,917 | $88,575 | | Adjusted EBITDA | $93,653 | $68,880 | Liquidity and Capital Resources Kforce held $115.6 million in cash and $100.0 million in credit facility debt, with $44.5 million in stock repurchases - As of September 30, 2021, the company had $115.6 million in cash and cash equivalents and $100.0 million outstanding under its credit facility105 - During the nine months ended September 30, 2021, Kforce repurchased 0.8 million shares of common stock for a total cost of $44.5 million117 - The company declared and paid quarterly dividends totaling $14.8 million ($0.72 per share) during the first nine months of 2021, a 20% increase in the per share payment from the prior year111 Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported from the 2020 Annual Report on Form 10-K - There have been no material changes to the information regarding quantitative and qualitative disclosures about market risk from the company's 2020 Annual Report on Form 10-K122 Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - Based on an evaluation as of September 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective123124 - Management concluded that no changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls125 PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and exhibits Legal Proceedings The company is involved in ordinary course legal proceedings, not expected to materially affect its financial position - The company is involved in several legal proceedings and claims, including class action complaints related to alleged violations of the Fair Labor Standards Act (FLSA) and California labor laws concerning overtime pay and employee classification585960 - Management believes that the outstanding legal matters are unlikely to have a material adverse effect on the company's business, financial position, results of operations, or cash flows586061 Risk Factors No material changes to risk factors were reported from the 2020 Annual Report on Form 10-K - There have been no material changes in the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K130 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 248,818 shares at an average of $60.29 in Q3 2021, with $40.0 million remaining for repurchases Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Plan | | :--- | :--- | :--- | :--- | | July 2021 | 94,958 | $61.43 | $49,115,641 | | August 2021 | 57,656 | $58.65 | $45,803,109 | | September 2021 | 96,204 | $60.14 | $40,017,182 | | Total | 248,818 | $60.29 | $40,017,182 | Exhibits Exhibits include CEO and CFO certifications under Sarbanes-Oxley Act and XBRL data files - The exhibits filed with this report include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act135