GlobeNewswire Inc | Aug 10, 2020 04:01PM EDT

August 10, 2020

TAMPA, Fla., Aug. 10, 2020 (GLOBE NEWSWIRE) -- Kforce Inc. (Nasdaq: KFRC), a professional staffing services and solutions firm, today announced results for the second quarter of 2020.

Quarterly Financial Highlights

-- Revenue for the quarter ended June30, 2020 was $343.0 million compared to $338.9 million for the quarter ended June30, 2019, an increase of 1.2%. -- Flex revenue of $336.4 million in the quarter ended June30, 2020 increased 3.4% from $325.4 million in the quarter ended June30, 2019. Tech Flex revenue of $251.9 million declined 3.0% year over year. FA Flex revenue of $84.5 million, including $35.1 million related to the COVID-19 business, increased 28.7% year over year. -- Direct Hire revenue of $6.6 million in the quarter ended June30, 2020 decreased 51.1% from $13.5 million for the quarter ended June30, 2019. -- Operating margin for the quarter ended June30, 2020 was 4.5%, a decrease of 180 basis points from the comparable period in 2019. -- Income from continuing operations for the quarter ended June30, 2020 was $9.9 million, or $0.47 per share, versus $16.1 million, or $0.66 per share, in the comparable period in 2019. -- Net debt as of June30, 2020 was $47.6 million, or roughly 0.5 times trailing twelve months Adjusted EBITDA, with $100.0 million of outstanding borrowings under our credit facility and $52.4 million of cash on hand.

Management Commentary

David L. Dunkel, Chairman and Chief Executive Officer, commented, We believe the strength in our second quarter results speaks to the resiliency of our business to perform during an adverse economic environment, particularly in our technology business, which was down 3% on a year-over-year basis. Our strategic decision to focus in technology, which is now roughly 80% of revenue, was due to our expectations regarding the longer-term secular drivers of demand in this space. Our belief for years has been that technology-focused businesses, when combined with a client portfolio comprised of world-class companies, should perform relatively well in all economic climates. We believe our second quarter results and early third quarter trends are highly supportive of this secular theory. Further, in our opinion, this pandemic has only further strengthened the secular drivers of demand as companies now understand more fully the business imperative to accelerate their digitalization and technology transformation efforts. We may well be looking at digitalization as the next industrial revolution.

Joseph J. Liberatore, President, said, I could not be prouder of how our people have adapted and executed over the last four months, while working almost 100% remotely. The strength and resiliency of our revenue stream has been encouraging and the business we secured to support several critical government-sponsored initiatives has provided an important level of support to our business as we navigate this pandemic. We have held on to our most tenured and productive associates and are looking at areas of technology investment that we believe will bring greater effectiveness to what could be a more flexible future work environment.

David M. Kelly, Chief Financial Officer, said, During the second quarter, we generated $36.0 million of operating cash flows while also growing our business and ended the quarter with net debt of approximately $48 million, or roughly 0.5 trailing twelve months Adjusted EBITDA. We are performing well and are in an excellent financial position, which we believe gives us the financial flexibility to continue investing in our business and deploying our capital in other areas.

We are also pleased to announce that our Board of Directors approved a third quarter cash dividend of $0.20 per share, which will be payable on September 25, 2020 to shareholders of record as of the close of business on September 11, 2020.

Guidance

Looking forward to the third quarter of 2020, there will be 64 billing days, which is the same as the second quarter of 2020 and third quarter of 2019. Revenue per billing day in the second quarter of 2020 was $5.4 million. Current estimates for the third quarter of 2020 are:

-- Revenue of $352 million to $362 million -- Earnings per share of $0.72 to $0.80 -- Gross profit margin of 28.2% to 28.4% -- Flex gross profit margin of 26.9% to 27.1% -- SG&A expense as a percent of revenue of 21.3% to 21.5% -- Operating margin of 6.3% to 6.7% -- Effective tax rate of 26.8%

Conference Call

On Monday, August10, 2020, Kforce will host a conference call at 5:00 p.m. E.T. to discuss these results. The dial-in number is (877)344-3890 and the conference passcode is Kforce. The prepared remarks for this call and webcast are available on the Investor Relations page of the Kforce Inc. website ( http://investor.kforce.com/) in the Events & Presentations section.

The replay of the call will be available from 8:00 p.m. E.T., Monday, August10, 2020 through August17, 2020 by dialing (855) 859-2056, passcode 9977937.

About Kforce, Inc.

Kforce Inc. is a domestic professional staffing services and solutions firm that specializes in the areas of Technology and Finance and Accounting. Each year, through our network of over 40 offices and two national delivery centers, we provide opportunities for over 30,000 highly skilled professionals who work with over 4,000 clients, including a significant majority of the Fortune 500. At Kforce, our promise is to deliver great results through strategic partnership and knowledge sharing. For more information, please visit our website at http://www.kforce.com.

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

Cautionary Note Regarding Forward-Looking Statements

All statements in this press release, other than those of a historical nature, are forward-looking statements including, but not limited to, statements regarding the performance of technology-focused businesses, the secular drivers of technology, the pace of digital transformation, the Firms opportunity to continue investing in its future growth, returning capital to its shareholders including the intent and ability to declare and pay quarterly dividends, and the Firm's guidance for the third quarter of 2020. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could cause actual results to differ materially include the following: business conditions, growth rate in temporary staffing and the general economy; competitive factors; risks due to shifts in the market demand; a reduction in the supply of consultants and candidates or the Firms ability to attract and retain such individuals; the success of the Firm in attracting and retaining its management team and key operating employees; the impacts (direct and indirect) of COVID-19 on our business, our consultants and employees, and the overall economy; changes in the service mix; ability of the Firm to repurchase shares; the occurrence of unanticipated expenses; the effect of adverse weather conditions; changes in our effective tax rate; changes in government regulations, laws and policies that impact our business and our ability to comply with the same; risk of contract performance, delays or termination or the failure to obtain new assignments or contracts, or funding under contracts; changes in client demand and our ability to adapt to such changes; our ability to continue to perform under the government-sponsored COVID-19 related initiatives; continued performance of and improvements to our enterprise information systems; impacts of outstanding litigation or other legal matters, including the risk factors and matters listed from time to time in the Firms reports filed with the Securities and Exchange Commission, including the Firms Form 10-K for the fiscal year ending December 31, 2019, as well as assumptions regarding the foregoing. The terms should, believe, estimate, expect, intend, anticipate, foresee, plan and similar expressions and variations thereof contained in this press release identify certain of such forward-looking statements, which speak only as of the date of this press release. As a result, such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Future events and actual results may differ materially from those indicated in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and the Firm undertakes no obligation to update any forward-looking statements.

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

Three Months Ended June 30, Mar. 31, June 30, 2020 2020 2019Revenue $ 343,020 $ 335,208 $ 338,861 Direct costs 245,659 240,684 237,835 Gross profit 97,361 94,524 101,026 Selling, general and administrative 80,546 79,216 78,017 expensesDepreciation and amortization 1,380 1,393 1,542 Income from operations 15,435 13,915 21,467 Other expense, net 1,427 1,381 403 Income from continuing operations, before 14,008 12,534 21,064 income taxesIncome tax expense 4,123 3,428 4,988 Income from continuing operations 9,885 9,106 16,076 Income from discontinued operations, net of ? ? 58,783 taxNet income $ 9,885 $ 9,106 $ 74,859 Earnings per share ? diluted: Continuing operations $ 0.47 $ 0.42 $ 0.66 Discontinued operations ? ? 2.40 Earnings per share ? diluted $ 0.47 $ 0.42 $ 3.06 Weighted average shares outstanding - 21,078 21,860 24,458 dilutedAdjusted EBITDA $ 19,723 $ 18,209 $ 25,445 Billing days 64 64 64

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

June 30, December 31, 2020 2019ASSETS Current assets: Cash and cash equivalents $ 52,371 $ 19,831 Trade receivables, net of allowances 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 Stockholders? equity: Preferred stock ? ? Common stock 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 (671,495 ) (642,023 )Total stockholders? equity 152,476 167,263 Total liabilities and stockholders? equity $ 438,833 $ 381,125

Kforce Inc.Key Statistics(Unaudited)

Q2 2020 Q1 2020 Q2 2019Total Firm Total Revenue (000?s) $ 343,020 $ 335,208 $ 338,861 GP % 28.4 % 28.2 % 29.8 %Flex revenue (000?s) $ 336,417 $ 326,109 $ 325,354 Hours (000's) 5,591 5,072 5,216 Flex GP % 27.0 % 26.2 % 26.9 %Direct Hire revenue (000?s) $ 6,603 $ 9,099 $ 13,507 Placements 375 610 874 Average fee $ 17,648 $ 14,908 $ 15,463 Billing days 64 64 64 Technology Total Revenue (000?s) $ 255,750 $ 266,784 $ 265,305 GP % 28.2 % 27.2 % 28.0 %Flex revenue (000?s) $ 251,948 $ 262,569 $ 259,707 Hours (000?s) 3,141 3,410 3,421 Flex GP % 27.1 % 26.0 % 26.4 %Direct Hire revenue (000?s) $ 3,802 $ 4,215 $ 5,598 Placements 187 243 308 Average fee $ 20,387 $ 17,347 $ 18,144 Financeand Accounting Total Revenue (000?s) $ 87,270 $ 68,424 $ 73,556 GP % 28.8 % 32.3 % 36.5 %Flex revenue (000?s) $ 84,469 $ 63,540 $ 65,647 Hours (000?s) 2,450 1,662 1,795 Flex GP % 26.5 % 27.0 % 28.9 %Direct Hire revenue (000?s) $ 2,801 $ 4,884 $ 7,909 Placements 188 367 566 Average fee $ 14,927 $ 13,294 $ 13,998

Kforce Inc.Revenue Growth Rates(Per Billing Day)(Unaudited)

Year-Over-Year Revenue Growth Rates (Per Billing Day) Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019Billing Days 64 64 62 64 64 Tech Flex (3.0 )% 3.3 % 4.8 % 6.5 % 6.2 %FA Flex 28.7 % (3.4 )% (7.6 )% (5.3 )% (9.4 )%Total Flex 3.4 % 1.9 % 2.1 % 3.9 % 2.6 %

Kforce Inc.Supplemental FA Flex Information(Unaudited)

Kforce secured large contracts to support government-sponsored COVID-19 related initiatives during the second quarter of 2020, which materially impacted our FA segment and specifically our FA Flex business. These initiatives are possibly shorter-term in nature and likely non-recurring in nature. Given the contribution of the COVID-19 business, we are providing this supplemental information to better understand the performance of our FA Flex business.

Three Months Ended June 30, 2020 Total FA COVID-19 Business Core FA Flex FlexSupplemental FA Flex Information Flex revenue (000?s) $ 84,469 $ 35,138 $ 49,331 Hours (000?s) 2,450 1,217 1,233 Flex GP % 26.5 % 24.7 % 27.7 %

FA Flex gross profit percentage includes estimates for payroll taxes, benefits and other costs calculated using a consistently applied allocation.

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

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

Free Cash Flow

Free Cash Flow, a non-GAAP financial measure, is defined by Kforce as net cash provided by operating activities determined in accordance with GAAP, less capital expenditures. Management believes this provides an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and is useful information to investors as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities including investing in our business, making acquisitions, repurchasing common stock or paying dividends. Free Cash Flow is limited, however, because it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view Free Cash Flow as a complement to (but not a replacement of) our Consolidated Statements of Cash Flows. For the six months ended June30, 2019, Free Cash Flows includes results from discontinued operations.

Six Months Ended June 30, 2020 2019Net cash provided by operating activities $ 38,966 $ 22,330 Capital expenditures (3,793 ) (4,184 )Free cash flow 35,173 18,146 Change in debt 35,000 (6,800 )Repurchases of common stock (29,593 ) (51,546 )Cash dividends (8,455 ) (8,684 )Equity method investment (2,500 ) (7,500 )Net proceeds from the sale of assets held for sale ? 122,696 Other 2,915 (1,377 )Change in cash and cash equivalents $ 32,540 $ 64,935

Adjusted EBITDA

Adjusted EBITDA, a non-GAAP financial measure, is defined by Kforce as net income before income from discontinued operations, net of tax, depreciation and amortization, stock-based compensation expense, interest expense, net, income tax expense and loss from equity method investment. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our past and future financial performance, and this presentation should not be construed as an inference by us that our future results will be unaffected by those items excluded from Adjusted EBITDA. Adjusted EBITDA is a key measure used by management to assess our operations including our ability to generate cash flows and our ability to repay our debt obligations and management believes it provides a good metric of our core profitability in comparing our performance to our competitors, as well as our performance over different time periods. Consequently, management believes it is useful information to investors. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is thus susceptible to varying calculations. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

In addition, although we excluded amortization of stock-based compensation expense because it is a non-cash expense, we expect to continue to incur stock-based compensation in the future and the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our shareholder ownership interest. We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position.

Three Months Ended June 30, Mar. 31, June 30, 2020 2020 2019Net income $ 9,885 $ 9,106 $ 74,859Income from discontinued operations, net ? ? 58,783of taxIncome from continuing operations 9,885 9,106 16,076Depreciation and amortization 1,380 1,393 1,542Stock-based compensation expense 2,903 2,896 2,429Interest expense, net 893 791 410Income tax expense 4,123 3,428 4,988Loss from equity method investment 539 595 ?Adjusted EBITDA $ 19,723 $ 18,209 $ 25,445