Kforce(KFRC) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis Financial Statements This section presents Kforce Inc.'s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income Kforce reported Q3 2023 revenue of $373.1 million and net income of $10.6 million, with similar declines for the nine-month period compared to 2022 Q3 and Nine Months Financial Performance (in thousands, except EPS) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $373,122 | $437,620 | $1,168,309 | $1,291,103 | | Gross Profit | $103,461 | $126,670 | $327,703 | $381,628 | | Income from Operations | $16,033 | $31,319 | $65,369 | $92,912 | | Net Income | $10,575 | $22,262 | $45,359 | $68,359 | | Diluted EPS | $0.54 | $1.09 | $2.31 | $3.31 | Unaudited Condensed Consolidated Balance Sheets As of September 30, 2023, Kforce's total assets decreased to $369.8 million from $392.0 million at year-end 2022, with corresponding reductions in liabilities and equity Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $257,911 | $277,760 | | Total Assets | $369,762 | $392,004 | | Total Current Liabilities | $119,272 | $131,433 | | Total Liabilities | $190,810 | $209,806 | | Total Stockholders' Equity | $178,952 | $182,198 | Unaudited Condensed Consolidated Statements of Cash Flows Cash provided by operating activities for the nine months ended September 30, 2023, was $69.1 million, with significant cash used in financing activities due to stock repurchases and dividends Nine-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $69,056 | $78,063 | | Cash used in investing activities | ($2,532) | ($9,656) | | Cash used in financing activities | ($66,523) | ($160,307) | | Change in cash and cash equivalents | $1 | ($91,900) | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail significant accounting policies, segment reporting, and key financial events, including the sale of WorkLLama interest and the impact of the stock repurchase excise tax - On February 23, 2023, Kforce sold its 50% noncontrolling interest in WorkLLama and settled an outstanding Note Receivable for total proceeds of $6.0 million[37] - The Inflation Reduction Act of 2022 imposed a new 1% excise tax on stock repurchases, resulting in a charge of $0.4 million for the nine months ended September 30, 2023[38] - On April 20, 2023, shareholders approved the 2023 Stock Incentive Plan, reserving approximately 3.2 million shares for issuance. As of September 30, 2023, total unrecognized stock-based compensation expense was $29.5 million[53][54] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results for Q3 and the first nine months of 2023, highlighting revenue decreases, segment performance, and capital allocation strategies Executive Summary For the nine months ended September 30, 2023, revenue decreased 9.5% to $1.17 billion, and net income fell 33.6% to $45.4 million, primarily due to macroeconomic conditions Nine-Month Performance Highlights (YTD Sep 30, 2023 vs 2022) | Metric | YTD 2023 | Change vs YTD 2022 | | :--- | :--- | :--- | | Revenue | $1.17 billion | -9.5% | | Net Income | $45.4 million | -33.6% | | Diluted EPS | $2.31 | -30.2% | | Gross Profit Margin | 28.0% | -160 bps | | Flex Revenue | $1.14 billion | -8.5% | | Direct Hire Revenue | $30.1 million | -35.3% | - The company returned $62.9 million to shareholders during the first nine months of 2023, consisting of $42.0 million in stock repurchases and $20.9 million in dividends[65] Results of Operations Total revenue for Q3 2023 decreased 14.7% year-over-year, driven by declines in both Technology and FA segments, impacting gross profit margins and increasing SG&A expenses Revenue Change by Segment (Q3 2023 vs Q3 2022) | Segment | Q3 2023 Revenue (in thousands) | % Change YoY | | :--- | :--- | :--- | | Technology | $338,289 | -13.4% | | FA | $34,833 | -26.1% | | Total | $373,122 | -14.7% | - The company took actions in Q3 2023 to realign its organization and reduce costs, which are expected to lower annual operating costs by at least $14.0 million[69] - SG&A expenses for Q3 2023 included $8.4 million in costs related to organizational realignment activities and legal settlements, which increased SG&A as a percentage of revenue by 150 basis points compared to Q3 2022[82] Non-GAAP Financial Measures The company reports Free Cash Flow of $63.0 million and Adjusted EBITDA of $89.6 million for the nine months ended September 30, 2023, both lower than the prior year Non-GAAP Financial Measures (in thousands) | Measure | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Free Cash Flow | $62,980 | $73,407 | | Adjusted EBITDA | $89,584 | $117,536 | Liquidity and Capital Resources Kforce maintains liquidity through operating cash flows and its credit facility, having returned $62.9 million to shareholders through repurchases and dividends in the first nine months of 2023 - As of September 30, 2023, Kforce had $21.4 million outstanding under its credit facility and borrowing availability of $177.4 million[92][98] - In the first nine months of 2023, Kforce repurchased 722 thousand shares for approximately $42.0 million. As of September 30, 2023, $66.8 million remained available under the stock repurchase program[101] - Quarterly dividends paid during the first nine months of 2023 totaled $20.9 million ($1.08 per share), a 20% increase on a per-share basis from the prior year[96] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the market risk disclosures previously reported in the company's 2022 Annual Report on Form 10-K - There have been no material changes to the disclosures about market risk from those included in the 2022 Annual Report on Form 10-K[107] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting - Based on an evaluation as of September 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[108] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[109] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other general information not included in the financial statements Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, which are not expected to have a material effect on its financial position - The company is involved in legal proceedings from the ordinary course of business but does not currently expect them to have a material financial impact[113] Risk Factors There have been no material changes to the risk factors from those previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K[114] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, Kforce repurchased 306,001 shares for $60.20 per share, with $66.8 million remaining available under the repurchase program Q3 2023 Stock Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share ($) | Value Remaining in Plan ($) | | :--- | :--- | :--- | :--- | | July 2023 | 4,806 | $63.45 | $84,852,288 | | August 2023 | 82,250 | $61.86 | $79,851,735 | | September 2023 | 218,945 | $59.51 | $66,822,516 | | Total Q3 | 306,001 | $60.20 | $66,822,516 | - In February 2023, the Board of Directors increased the stock repurchase authorization to $100.0 million[116] Other Information No officers or directors adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during Q3 2023 - No officers or directors adopted or terminated any Rule 10b5-1 trading plans during the three months ended September 30, 2023[119] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[120]