Annual Report 2021
We love what we do.
We love who we serve.®
Kforce is a professional staffing
services and solutions firm
that specializes in the areas of
Technology and Finance and
Accounting. Each year, through
our network of field offices
located throughout the U.S. and
two national delivery centers, we
provide opportunities for over
30,000 highly skilled professionals
who work with over 3,000 clients,
including a significant majority
of the Fortune 500. Founded
in 1962, our name stands for
KnowledgeForce® which describes
the customer-centric Kforce
Knowledge Process that delivers
high-touch, relationship-driven
results backed by progressive
technologies. At Kforce, our
promise is to deliver great results
through strategic partnership and
knowledge sharing.
TO OUR FELLOW
SHAREHOLDERS,
CLIENTS, CONSULTANTS
AND EMPLOYEES:
Throughout the pandemic there have been countless challenges, however,
opportunities have emerged, and Kforce has remained steadfast in following our
vision… ”To have a meaningful impact on all the lives we serve®.” To that end, I would
like to thank the many Kforcers for their fortitude, creativity, innovation, and resilience during
these unprecedented times. Together, we delivered the best performance in our nearly 60-year
operating history and advanced our strategic objectives while balancing the need to evolve with
the changes in the external environment.
The last two years will no doubt be prominently featured in the
historical records for many years to come. Collectively, we have
dealt with the sudden impacts from the COVID-19 pandemic and its
dramatic effect on businesses, communities, and families across the
world. While navigating the devastating impacts of the economic
and health crisis, our nation experienced civil unrest and other social
issues, political turmoil and discord and a change in administration.
More recently, we have battled the continued impacts of several
variants of COVID-19, inflationary pressures in the U.S., supply-chain
disruption, volatility in the equity markets, tightness in the labor
markets and the great resignation among many other dynamics.
Over the past decade, we have sharpened our focus and now have
roughly 85% of our business focused on providing technology talent
solutions. We are eager to build upon our tremendous success over
the last several years in 2022 and beyond. We will continue to refine
and elevate our offerings, so we can remain a valued strategic partner
to our world-class and innovative clients and tremendous consultants.
In December 2021, we announced Dave Dunkel’s transition to Chairman
after also serving as Chief Executive Officer (CEO) for more than 40
years. We are fortunate to have Dave’s continued involvement in the
strategic aspects of our business. I have been blessed to work side-
by-side with Dave for the past 34 years. I am humbled and honored
with the opportunity to uphold the standard of excellence that Dave
established. Our entire team’s heartfelt thanks and appreciation goes
out to Dave for his leadership, mentorship, and support. Due in large
respect to his leadership, our values, which are foundational to Kforce’s
strategy, are extremely well entrenched. Our executive leadership team
has extraordinary depth and tenure to lead our team forward, and our
prospects have never been brighter in our 60 plus year history. Our
path forward is clear, and we will uphold the principles under which we
have been operating so successfully for many years.
In the sections below, I will give you some additional insights.
OUR KEY STRATEGIC, OPERATIONAL AND FINANCIAL
ACCOMPLISHMENTS
Despite the challenges in the U.S. macro-economic environment, 2021
was a year of exceptional performance for Kforce and marked the
most successful year in our storied history. We generated significant
value for our shareholders in 2021 and over the past five years as
reflected by our rolling three-year total shareholder return peer
group ranking of #1 in 2019 and 2020 followed by a #2 ranking in 2021.
Over this same time period we have made significant advancements
to further solidify Kforce to continue providing significant shareholder
value over the long term.
2021 was a year of exceptional
performance for Kforce and
marked the most successful year
in our storied history.
Key Financial Accomplishments
• Revenue for the year ended December 31, 2021 was approximately
$1.6 billion, an increase of nearly 14% year-over-year, per billing
day. Excluding the negative impact from planned declines in our
COVID-19 business, revenues grew 18.5% organically in 2021, a
Kforce record.
• Best-in-class growth in our Technology business. Revenues
increased approximately 22% year-over-year, per billing day, and
exceeded 30% growth on a year-over-year basis in the second half
of 2021. Both metrics represented Kforce records.
• We were successful at continuing to capture additional market
share in our Technology business as revenues exceeded the market
benchmark established by Staffing Industry Analysts (SIA) of 11% for
2021 growth by a factor of 2x for the full year and nearly 3x in the
second half of 2021.
• Growth in our managed teams and project solutions offering within
our Technology business significantly outplaced overall Technology
growth in 2021.
• Made significant progress repositioning our FA business towards more
highly skilled assignments that are less susceptible to automation and
better align with the technology skill sets we support, as is evidenced
by bill rates increasing nearly 10% year-over-year.
• Earnings per share of $3.54, a Kforce record, increased approximately
35% year-over-year, as we benefited from improved gross margins
(up 60 basis points year-over-year) and SG&A leverage from our
revenue growth.
• We continued returning significant capital to our shareholders.
In 2021, we returned $74.5 million of capital in the form of open
market repurchases totaling $54.4 million and dividends totaling
$20.1 million.
KFORCE INC. AND SUBSIDIARIES 1
• Our total shareholder return for 2021 was slightly more than 80%,
which ranked 2nd within our peer group of 15 companies and
significantly exceeded the returns for the S&P 500, Dow Jones
Industrial and Nasdaq indexes.
Other Key Accomplishments
• Meaningfully progressed our Kforce Reimagined initiative, which is
discussed in some detail below.
• Advanced our Board of Directors (Board) refreshment activities by
welcoming Mr. Derrick Brooks to our Board in 2021.
• Made substantive advancements in our Environment, Social and
Governance (ESG) activities, which are discussed in more detail in
the section below.
• Went live with the final phase of the initial functionality of our
Talent Relationship Management (TRM) system and continued
investments to further advance its capabilities, along with many
other technology platforms.
• We initiated our Back Office Transformation (BOT) initiative, which
is a multi-year program aimed at dramatically improving our
capability to further enhance the efficiency by which we support the
Firm in meeting our client, candidate, and consultant requirements.
• Successfully held our first Firm-wide virtual conference on
December 13, 2021, where we rolled out our strategic priorities,
refreshed core values, new logo, and several Firm-wide initiatives.
• Advanced our Destination Employer initiative, which is aimed at
retaining and attracting top talent.
• We continue to have the highest Glassdoor rating among our peers
as well as maintaining a world class net promoter score from our
clients and consultants.
• Kforce was named the most recognized firm by technology
consultants per SIA.
SHAPING THE FUTURE OF KFORCE WORK
Shortly after the onset of the COVID-19 pandemic, in May 2020,
we launched an initiative that we refer to as Kforce Reimagined. A
key objective of this initiative was to define Kforce’s future work
environment because it was abundantly clear to us in the early stages
of the pandemic that a permanent shift in the workplace — largely
driven by employee preferences reshaping where and how work is
performed — had begun to evolve.
Consistent with our management philosophy at Kforce, Kforce
Reimagined has been anything but a top-down initiative. Rather,
this was driven by our associates and has proven to be successful
because we empowered our team with a strong voice by conducting
continuous pulse checks, surveys, townhall sessions and other
collaborative voices of the associate avenues.
Our future work environment, which we refer to as Office Occasional,
will provide our associates with maximum flexibility and choice in
designing their workdays that is grounded in our trust in them
and supported by technology. Office Occasional is a remote-first
approach to support the life/work balance our team has become
accustomed to as we moved through the pandemic. Our people
will also have the flexibility to leverage physical office spaces,
when desirable, for activities best done through in-person, active
collaboration such as onboarding, training, team building, and client
and candidate interactions.
2 KFORCE INC. AND SUBSIDIARIES
The Shift in our Real Estate Portfolio
To support our Office Occasional work environment, we have made
significant progress enhancing our processes and accelerating the
digitalization of our technology platforms as well as optimizing our
real estate portfolio and redesigning our future office space, including:
• In May 2021, we completed the sale of our Tampa, Florida Corporate
HQ campus — consisting of roughly 130,000 square feet of space
— for approximately $24 million.
• In September 2021, we signed a long-term lease for approximately
23,000 square feet of space for our new Corporate HQ (also in
Tampa, Florida) in a vibrant area called Midtown Tampa. Midtown
Tampa is a $500 million, 20-acre, mixed-use development featuring
1.8 million square feet of retail, restaurants, office buildings, hotels
and luxury apartments surrounding a 4-acre park.
• Our Midtown Tampa HQ will be state-of-the-art with different
types of work zones/areas to support different types of work.
• We have rationalized our real estate portfolio from 51 properties
(50 leased) pre-pandemic to 36 leased properties and implemented
cutting-edge technologies in each office to ensure remote and
in-office work is seamlessly connected and executed.
We believe how we have shaped the future of Kforce work whereby
we will provide our associates flexibility and choice — that is rooted
in trust and supported by state-of-the-art technology — will play a
meaningful role in our ability to further capture market share while
also positioning Kforce as a destination for top talent.
OUR ENVIRONMENT, SOCIAL AND GOVERNANCE
(ESG) FOCUS
In addition to delivering solid returns to our shareholders, Kforce fully
recognizes that the expectations of our stakeholders have evolved
greatly over the last several years to include ESG matters. To that
degree, we have a critical role to play in reducing our overall impact on
the environment, driving effective positive social change through our
corporate social responsibility efforts, and exercising sound corporate
governance. I am proud of our teams’ efforts to meaningfully progress
our focus as it relates to ESG matters, as follows:
• To protect our employee’s well-being during the pandemic, we
have been working 100% remotely since March 2020 and limited
all non-essential travel. This has dramatically reduced our
environmental impact.
• Certain strategic decisions for Kforce have significantly reduced
our overall carbon footprint, including: (i) the definition of our
Office Occasional work environment has dramatically reduced the
number of associates driving into a Kforce office each day and (ii) to
accommodate our future work environment, we expect our overall
physical real estate square footage to be at least 60% to 70% lower
once fully transitioned.
• Our Board is now currently comprised of 40% diverse members in
terms of gender and race, a significant improvement over the last
few years.
• Conducted an educational session with our Board in April 2021
facilitated by several leading experts in ESG and related matters.
• Initiated our Diversity, Equity & Inclusion (DE&I) learning journey,
which included Firm-wide emotional intelligence, unconscious bias
sessions and listening sessions facilitated by outside specialists.
Our future work
environment, which
we refer to as Office
Occasional, will
provide our associates
with maximum
flexibility and choice
in designing their
workdays that is
grounded in our trust
in them and supported
by technology.
• Formed our inaugural DE&I Council, which is comprised of a group of
associates and leaders within Kforce who will collaborate to influence
strategy, culture and sustain a holistic inclusive environment.
• Positively impacted the communities in which we serve in many
different ways. A small sample that are attached to our mission
are: (i) we hosted our annual Kforce Kids’ STEM Fair, (ii) sponsored
Coding for a Change, a five-week program for high school
students, and iii) introduced our Season of Impact, a two-month
initiative encouraging employees to make a difference in causes of
their choice, along with countless stewardship time invested by our
people in support of organizations like Junior Achievement, Feeding
America, Best Buddies, Special Operations Warrior Foundation and
American Heart Association.
OUR EXPECTATIONS FOR 2022
Overall, we believe we are in an exceptional place and couldn’t be
more excited about our future growth prospects. It is clear to us
that the strategic decision to focus our business on the domestic
technology talent solutions market is paying dividends. There is
simply no other market we would want to be focused on as it has, in
our view, long-term secular drivers creating the greatest prospects
for sustained profitable revenue growth. It’s our belief that the
pandemic has exponentially elevated and accelerated the imperative
for companies to rapidly digitize their businesses, transform business
models and drive productivity gains through technology investment.
Digitalization is table stakes in the “New Normal.” No company can
afford to opt out, or even be slow to adopt, digital transformation.
Our shareholders continue to benefit from our strong above-market
performance and efficient capital allocation. We are excited about our
prospects for growth in 2022 given the significant momentum we have
created throughout the pandemic, which meaningfully accelerated
in 2021. We expect this growth to result in continued expansion of
our operating margins and significant increases in earnings per share
while allowing continued investments in our people and technology,
both of which we believe benefit our shareholders in the long term.
To assist our shareholders and analysts in better understanding our
expectations of growth and profitability, we provided additional
information in connection with the release of our fourth quarter 2021
financial results. Our expectations for 2022 are:
• Revenue of at least $1.7 billion
• Earnings per share of at least $4.20
• Operating margins of at least 7.0%
The above expectations contemplate: (a) solid continued growth in our
Technology business of at least 15% year-over-year; (b) an overall decline
in our FA business due to the year-over-year impact of the repositioning
of our business to focus on higher skilled positions and the elimination
of COVID-19 revenue streams with a partial offset of market growth
in our ongoing FA business; and (c) enhanced profitability levels. This
growth would suggest that our Technology business would represent
more than 85% of overall revenues heading into 2023.
Given that we are in the early stage of a massive digital transformation
of the U.S. economy, we believe the future of Kforce has never been
brighter. The results that we are experiencing are the result of a
well-thought-out, long-term strategy, a lot of hard work, and tough
decisions, by our team and I am grateful for their tenacity. While we
have much more to do, we would like to say thank you to each and
every member of our field and corporate teams, and to our clients
and consultants, for allowing us the privilege of serving you.
Joseph J. Liberatore
President and Chief Executive Officer
Director
KFORCE INC. AND SUBSIDIARIES 3
Our total shareholder return
(TSR) since going public in August
1995 has been approximately
2,420%, roughly 3.7 times greater
than the Russell 2000 over the
same period.
KFRC
2,800%
2,400%
2,000%
1,600%
1,200%
800%
400%
0
RUSSELL
2000
Kforce TSR vs. Russell 2000 Index stock
performance from 8/15/95 (IPO) to 12/31/21
Technology
As the 6th largest technology staffing and solutions firm in
the U.S., we engage more than 18,000 consultants annually
in technology roles on a temporary, consulting and direct-hire
basis. Our Technology professionals range from project
managers and managed solution providers to developers,
security engineers, data and network architects and technicians:
APPLICATION DEVELOPMENT supports applications and
systems software creation and maintenance, including web,
mobile and client service.
ENTERPRISE DATA MANAGEMENT supports any operating
environment from unstructured to mature Big Data.
BUSINESS AND ARTIFICIAL INTELLIGENCE supports
technology that automates repetitive learning and adds
intelligence to existing products through progressive
learning techniques.
PROJECT MANAGEMENT AND SOLUTIONS offers a full
suite of functional professionals to support the full scope
of your initiative.
INFRASTRUCTURE specializes in providing reliable
infrastructure support to build and maintain the backbone
of your organization.
SECURITY for today’s complex network infrastructure and
evolving threats.
4 KFORCE INC. AND SUBSIDIARIES
Finance and
Accounting
As the 3rd largest finance and accounting
staffing firm in the U.S., we engage more
than 10,000 highly skilled professionals
annually in finance and accounting roles on
a temporary, consulting and direct-hire basis,
in addition to select large scale opportunities
in professional administration. Our Finance
and Accounting professionals are a blend
of these roles with a shifting focus toward
higher skilled analytics and decision support:
STRATEGIC resources supporting senior
level decision making, from financial,
risk and M&A to business intelligence and
data science.
OPERATIONAL AND TECHNICAL
professionals perform day-to-day accounting
and staff-level analysis, which includes
directing, controlling and planning.
TRANSACTIONAL functions include
accounts receivable, accounts payable
and payroll.
2021
Financial
Statements
SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with Kforce’s
Consolidated Financial Statements and the related notes thereto (”Consolidated Financial Statements”) incorporated into this Annual Report.
Years Ended December 31,
(In thousands, except per share amounts)
Revenue
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Income from continuing operations,
before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations,
net of tax
Net income
Earnings per share—basic, continuing operations
Earnings per share—diluted, continuing operations
Weighted average shares outstanding—basic
Weighted average shares outstanding—diluted
Dividends declared per share
As of December 31,
(In thousands)
Cash and cash equivalents
Working capital
Total assets
Total outstanding borrowings on credit facility
Total long-term liabilities
Stockholders’ equity
2021
2020
2019(1)
2018
2017(2)
$1,579,922
456,864
345,721
4,500
7,376
$
99,267
24,090
75,177
—
75,177
$3.65
$3.54
20,579
21,212
$0.98
$1,397,700
396,224
310,713
5,255
5,044
75,212
19,173
56,039
$1,347,387
395,038
314,167
6,050
3,425
71,396
16,830
54,566
$1,303,937
386,487
307,250
6,836
4,521
67,880
17,004
50,876
$1,253,646
375,597
308,313
7,266
5,100
54,918
25,324
29,594
—
$ 56,039
76,296
$ 130,862
7,104
$ 57,980
3,691
$ 33,285
$2.67
$2.62
20,983
21,395
$0.80
$2.35
$2.29
23,186
23,772
$0.72
$2.05
$2.02
24,738
25,251
$0.60
$1.17
$1.16
25,222
25,586
$0.48
2021
2020
2019
2018
2017
$
96,989
$ 211,680
$ 503,401
$ 100,000
$ 154,564
$ 188,406
$ 103,486
$ 230,726
$ 479,049
$ 100,000
$ 190,948
$ 179,935
$ 19,831
$ 160,271
$ 381,125
$ 65,000
$ 128,898
$ 167,263
$ 112
$ 158,104
$ 379,908
$ 71,800
$ 121,219
$ 168,331
$ 379
$ 161,726
$ 384,304
$ 116,523
$ 166,308
$ 134,277
(1) SG&A expenses for the year ended December 31, 2019 include $2.0 million of severance and other costs due to actions taken as a result of the GS segment divestiture, which
negatively impacted SG&A.
(2) The Tax Cuts and Jobs Act (“TCJA”) was enacted in December 2017, which reduced the U.S. federal corporate tax rate from 35.0% to 21.0% in 2018. As a result,
we revalued our net deferred income tax assets and recorded $3.6 million of additional income tax expense from continuing operations during the year ended
December 31, 2017.
During the year ended December 31, 2019, Kforce completed the sale of the GS segment and the results of operations for the GS segment have
been presented as discontinued operations for all of the years presented above. Refer to Note 2 — “Discontinued Operations” in the Notes to
Consolidated Financial Statements, included in this Annual Report, for a more detailed discussion.
6 KFORCE INC. AND SUBSIDIARIES
The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with Kforce’s
Consolidated Financial Statements and the related notes thereto (”Consolidated Financial Statements”) incorporated into this Annual Report.
Years Ended December 31,
(In thousands, except per share amounts)
Revenue
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Income from continuing operations,
before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations,
net of tax
Net income
Earnings per share—basic, continuing operations
Earnings per share—diluted, continuing operations
Weighted average shares outstanding—basic
Weighted average shares outstanding—diluted
Dividends declared per share
Total outstanding borrowings on credit facility
As of December 31,
(In thousands)
Cash and cash equivalents
Working capital
Total assets
Total long-term liabilities
Stockholders’ equity
negatively impacted SG&A.
December 31, 2017.
2021
2020
2019(1)
2018
2017(2)
$1,579,922
$1,397,700
$1,347,387
$1,303,937
$1,253,646
456,864
345,721
4,500
7,376
99,267
24,090
75,177
—
$3.65
$3.54
20,579
21,212
$0.98
396,224
310,713
5,255
5,044
75,212
19,173
56,039
—
$2.67
$2.62
20,983
21,395
$0.80
395,038
314,167
6,050
3,425
71,396
16,830
54,566
76,296
$ 130,862
$2.35
$2.29
23,186
23,772
$0.72
386,487
307,250
6,836
4,521
67,880
17,004
50,876
7,104
$2.05
$2.02
24,738
25,251
$0.60
375,597
308,313
7,266
5,100
54,918
25,324
29,594
3,691
$1.17
$1.16
25,222
25,586
$0.48
$
75,177
$ 56,039
$ 57,980
$ 33,285
2021
2020
2019
2018
2017
$
96,989
$ 211,680
$ 503,401
$ 100,000
$ 154,564
$ 188,406
$ 103,486
$ 19,831
$ 230,726
$ 479,049
$ 100,000
$ 190,948
$ 179,935
$ 160,271
$ 381,125
$ 65,000
$ 128,898
$ 167,263
$ 112
$ 158,104
$ 379,908
$ 71,800
$ 121,219
$ 168,331
$ 379
$ 161,726
$ 384,304
$ 116,523
$ 166,308
$ 134,277
(1) SG&A expenses for the year ended December 31, 2019 include $2.0 million of severance and other costs due to actions taken as a result of the GS segment divestiture, which
(2) The Tax Cuts and Jobs Act (“TCJA”) was enacted in December 2017, which reduced the U.S. federal corporate tax rate from 35.0% to 21.0% in 2018. As a result,
we revalued our net deferred income tax assets and recorded $3.6 million of additional income tax expense from continuing operations during the year ended
During the year ended December 31, 2019, Kforce completed the sale of the GS segment and the results of operations for the GS segment have
been presented as discontinued operations for all of the years presented above. Refer to Note 2 — “Discontinued Operations” in the Notes to
Consolidated Financial Statements, included in this Annual Report, for a more detailed discussion.
STOCK PRICE PERFORMANCE
The following graph compares the cumulative five-year total return on our common stock, the NASDAQ Stock Market (U.S.) Index and our Peer
Group using the value of an investment of $100 on December 31, 2016 with dividends fully reinvested. All returns are weighted based on market
capitalization at the end of each discrete measurement period. Historical stock prices of our common stock are not necessarily indicative of future
stock price performance.
Index
Kforce Inc.
NASDAQ Stock Market (Composite)
Peer Group (1)
(1) Peer Group:
2016
$100.0
100.0
100.0
2017
$111.8
128.2
124.6
2018
$139.5
123.3
106.5
2019
$182.7
166.7
130.1
2020
$198.2
239.4
130.6
2021
$354.3
290.6
197.6
AMN Healthcare Services, Inc.
ASGN Incorporated
Cross Country Healthcare, Inc.
Computer Task Group, Incorporated
The Hackett Group, Inc.
Heidrick & Struggles International, Inc.
Huron Consulting Group, Inc.
Kelly Services, Inc.
Korn Ferry International
Manpower Group Inc.
Resources Connection, Inc.
Robert Half International, Inc.
True Blue, Inc.
Volt Information Sciences, Inc.
The Committee uses a peer group of companies as a source for executive compensation benchmarking data and comparisons to Kforce’s
executive compensation levels; insight into external compensation practices; and determining specific financial objectives for our performance-based
compensation. Additionally, our peer group is used to determine annual equity LTI compensation levels based on our relative TSR performance.
The Committee focuses on selecting peers that are publicly traded professional staffing and solutions companies active in recruiting and placing
reasonably similar skill sets at similar types of clients, including companies we consider to be our direct business competitors. The specialty staffing
and solutions industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to a relatively
small local client base. According to a report published by SIA in 2021, Kforce is one of the 10 largest publicly traded specialty staffing firms in
the United States, so the size of our peer companies varies considerably. Therefore, the Committee selects other peers that are similar in terms
of size (as measured by revenue and market capitalization), but may not be in the staffing industry. We attempt to match the median size of the
peer group to Kforce by balancing a selection of both larger and smaller companies. The primary criteria for selection include customers, revenue
footprint, geographical/domestic presence, talent, complexity of operating model and companies with which we compete for executive level talent.
KFORCE INC. AND SUBSIDIARIES 7
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Holders of Common Stock
Our common stock trades on the NASDAQ using the ticker symbol “KFRC”. As of February 23, 2022, there were 149 holders of record.
Purchases of Equity Securities by the Issuer
In March 2020, the Board approved an increase in our stock repurchase authorization bringing the then-available authorization to $100.0
million. In February 2022, the Board approved another increase in our stock repurchase authorization bringing the available authorization from
$30.1 million to $100.0 million. Purchases of common stock under the Plan are subject to certain price, market, volume and timing constraints,
which are specified in the plan. The following table presents information with respect to our repurchases of Kforce common stock during the three
months ended December 31, 2021:
Period
October 1, 2021 to October 31, 2021
November 1, 2021 to November 30, 2021
December 1, 2021 to December 31, 2021
Total
Total Number of
Shares Purchased
(1)(2)(3)
Average Price
Paid Per Share
29,817
1,741
257,842
289,400
$63.11
$78.24
$75.34
$74.10
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs
24,903
—
114,368
139,271
$38,467,169
$38,467,169
$30,094,476
$30,094,476
(1) Includes 4,914 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period October 1, 2021 to October 31, 2021.
(2) Includes 1,741 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period November 1, 2021 to November 30, 2021.
(3) Includes 143,474 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period December 1, 2021 to December 31, 2021.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In addition to the inherent operational risks, Kforce is exposed to certain market risks, primarily related to changes in interest rates.
As of December 31, 2021, we had $100.0 million outstanding under our credit facility. Refer to Note 14 — “Credit Facility” in the Notes to
Consolidated Financial Statements, included in this Annual Report, for further details on our Credit Facility. A hypothetical 10% increase in interest
rates on variable debt in effect at December 31, 2021 would have had no effect on our annual interest expense because we had no variable debt
at December 31, 2021.
On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A. (“Swap A”) to mitigate the
risk of rising interest rates on the Firm’s financial statements. Swap A was effective on May 31, 2017 and matures on April 29, 2022. Swap A has a
fixed interest rate of 1.81%, which we add to our interest rate margin to determine the fixed rate that the Firm will pay to the counterparty during
the term of Swap A based on the notional amount of Swap A. The notional amount of Swap A through maturity is $25.0 million.
On March 12, 2020, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank N.A. (“Swap B”). Swap B was
effective on March 17, 2020 and matures on May 30, 2025. Swap B has a fixed interest rate of 0.61% and a notional amount of $75.0 million and
increases to $100.0 million in May 2022, and subsequently decreases to $75.0 million and $40.0 million in May 2023 and May 2024, respectively.
The increases in the notional amount of Swap B correspond to the decreases in the notional amount of Swap A.
The Firm uses the Swaps as an interest rate risk management tool to mitigate the potential impact of rising interest rates on variable rate debt.
The fixed interest rate for each Swap (which will remain throughout the remainder of the hedging arrangement), plus the applicable interest
margin under our credit facility, is included in interest expense and recorded in Other expense, net in the accompanying Consolidated Financial
Statements of Operations and Comprehensive Income. Both Swap A and Swap B have been designated as cash flow hedges and were effective
as of December 31, 2021. The change in the fair value of the Swaps are recorded as a component of Accumulated other comprehensive income
(loss) in the unaudited consolidated financial statements.
8 KFORCE INC. AND SUBSIDIARIES
BUSINESS OVERVIEW
COMPANY OVERVIEW
Our Technology and FA businesses represent our two operating
Kforce Inc. and its subsidiaries (collectively, “Kforce”) is a leading
domestic provider of technology and finance and accounting talent
solutions to innovative and industry-leading companies. While Kforce
was incorporated in 1994 and completed its initial public offering (IPO)
in August 1995, we have been providing domestic staffing services
through our predecessor companies since 1962.
We have driven significant, strategic change at Kforce over the
last decade including, but not limited to, streamlining the focus of
our business on providing technology talent solutions. This strategic
shift was bold and transformative but well-founded in our belief as
we exited the 2008/2009 financial crisis that technology was going to
be the epicenter of business strategies. Since the financial crisis, we
successfully divested a number of businesses that we didn’t believe
aligned with our vision to become a technology-focused organization.
Those divestitures included our clinical research business (sold in
March 2012), our healthcare staffing business (sold in August 2014),
the assets of a business based in Manila, Philippines (sold in September
2017), our federal government solutions business (sold in April 2019),
and our federal government product business (sold in June 2019). Our
Technology business now comprises nearly 85% of overall revenues
with the remainder being our finance and accounting (“FA”) business.
As a result of the COVID-19 pandemic, our workforce has been
working remotely since March 2020. We recognized early on in the
COVID-19 pandemic that there was very likely to be a permanent shift
in the workplace and, thus, initiated what we refer to as our Kforce
Reimagined initiative in May 2020. While we elaborate more on this
initiative in the “Business Strategies” section below, we began looking
critically at our physical office footprint, which was approximately 51
offices (50 leased, 1 owned) geographically dispersed across the U.S.
and roughly 0.4 million square feet of space. Our future flexible work
environment has allowed us to reduce our current footprint to 36
leased offices. In May 2021, we sold our 128,000 square foot corporate
headquarters and signed a lease for our new corporate headquarters,
comprising roughly 22,000 square feet, in September 2021. Once
we have transitioned our remaining offices to align with our “Office
Occasional” strategy, this is expected to reduce our overall square
footage to be at least 60% to 70% lower than our pre-pandemic
footprint. Our corporate headquarters is in Tampa, Florida.
Kforce serves clients across many industries and organizations of all
sizes, but with a particular focus on serving Fortune 1000 and other
large companies. Our 10 largest clients represented approximately 25%
of revenue for the year ended December 31, 2021.
Except as specifically noted, our discussions in this report exclude
any activity related to the federal government divestitures noted above
(which comprised our GS segment). Refer to Note 2—“Discontinued
Operations” in the Notes to Consolidated Financial Statements,
included in this Annual Report, for a more detailed discussion.
Our quarterly operating results can be affected by:
• the number of billing days in a particular quarter;
• the seasonality of our clients’ businesses;
• increased holidays and vacation days taken, which is usually
highest in the fourth quarter of each calendar year; and
• increased costs as a result of certain annual U.S. state and federal
employment tax resets that occur at the beginning of each
calendar year, which negatively impacts our gross profit and overall
profitability in the first fiscal quarter of each calendar year.
segments.
Our Technology Business
We provide talent solutions by comprehensively understanding our
clients’ requirements and matching their requirements with qualified
candidates in highly skilled areas including, but not limited to, systems/
applications architecture and development (mobility and/or web),
data management and analytics, business and artificial intelligence,
machine learning, project and program management, and network
architecture and security.
One of our strategies over the last several years has been to invest
in our managed teams and project solutions capabilities in order
to provide a higher-value, differentiated offering to our clients. We
believe Kforce has been successfully winning these more complex
engagements due to the strong, long-standing partnerships we have
built with our clients, our reputation for delivering quality services and
our capability in identifying quality technology talent.
We provide our clients with qualified individuals (“consultants”), or
teams of consultants on a temporary basis when the consultant’s set
of skills and experience is the right match for our clients. We refer
to this as our Flex offering, which comprised roughly 98% of overall
Technology revenues in 2021. We also identify qualified individuals
(“candidates”) for permanent placement with our clients. We refer to
this as our Direct Hire offering, which comprised approximately 2% of
overall revenue in 2021.
We provide services to clients in a variety of industries with a
diversified footprint in, among others, financial and business services,
communications, insurance, retail and technology. No single industry
represents more than approximately 16% of overall Technology
revenues. In addition, no single client comprised more than 5% of
overall Firm revenues.
The September 2021 report published by Staffing Industry Analysts
(“SIA”) stated that temporary technology staffing is expected to
experience growth of 11% and 6%, respectively, in 2021 and 2022. Digital
transformation, as a general trend, is driving organizations across all
industries to increase their technology investments as competition and
the speed of change intensifies. Nontraditional competitors are also
entering new emerging technologies and markets. This development
puts increased pressure on companies to invest in innovation and the
evolution of their business models. We believe the secular drivers of
technology spend is driving many companies to become increasingly
dependent on the efficiencies provided by technology and the need
for innovation to support business strategies and sustain relevancy
in today’s rapidly changing marketplace. At the macro level, demand
is also being driven by an ever-changing and complex regulatory
and employment law environment, which increases the overall cost
of employment for many companies. We believe that these factors,
among others, are continuing to drive companies to look to temporary
staffing and solutions providers, such as Kforce, to meet their human
capital needs.
KFORCE INC. AND SUBSIDIARIES 9
We believe the performance of our Technology business in 2021
was exceptional and was organically record-setting for us as revenues
improved 22.3% on a year-over-year basis to $1.27 billion and in
the third and fourth quarters of 2021 exceeded 30% growth on a
year-over-year basis. This strong performance follows 2020 where
our Technology business was only down 1.2% year-over-year in an
extraordinarily challenging macro-environment given the negative
impacts of the COVID-19 pandemic. The average bill rate in 2021 was
approximately $81 per hour, which increased 2.9%, as compared to
2020. In the fourth quarter of 2021, our average bill rate improved 3.8%
year-over-year. Our average assignment duration is approximately
10 months, which has steadily increased over the last several years.
We continue to benefit from an improving bill rate environment and
longer assignment durations, which we believe is related to the acute
labor shortage, particularly the shortage of labor for highly-skilled
positions. In addition to our capability to source highly qualified U.S.
domestic technology talent, we believe an important differentiator in
a candidate-constrained environment is our capability to source highly
qualified foreign-born talent working domestically in the U.S. in higher-
end technology roles. We maintain this capability on a centralized
basis, which we believe allows us to operate consistently with a keen
focus on ensuring compliance in this highly regulated space.
Our Flex and Direct Hire offerings improved 21.7% and 59.0%,
respectively, on a year-over-year basis.
We are very pleased with our performance in our Technology
business in 2021, which exceeded the SIA benchmark of growth by
two times for 2021 and nearly three times in the second half of 2021.
We believe our strategic position and momentum going into 2022 has
positioned us well to continue delivering significantly above-market
growth in 2022, in what we believe will be a continued strong demand
environment for our services.
Our FA Business
The talent solutions we offer our clients in our FA business include
consultants in traditional finance and accounting roles such as: financial,
planning and analysis; business intelligence analysis; accounting;
transactional accounting (e.g. payables, billing, cash applications,
receivables); business and cost analysis; and taxation and treasury. We
have also provided our clients with consultants in lower skilled areas
such as: loan servicing and support; customer and call center support;
data entry; and other administrative roles.
Over the last few years, we have been repositioning our FA business
to focus on more highly skilled assignments that are less susceptible to
technological change and automation and more closely aligned with
our Technology business. We will continue to support certain clients
by providing consultants in lower skilled roles where we have long-
standing relationships and that are strategically important to our overall
success. We believe we have made good progress in this transition
as is evidenced by our overall average bill rate in FA, excluding the
COVID-19 business (defined below), increasing approximately 10% in
the fourth quarter of 2021 on a year-over-year basis.
We provide services to clients in a variety of industries with a
diversified footprint in, among others, the financial services, business
services, healthcare and manufacturing sectors. No single industry
represents more than approximately 21% of overall FA revenues. In
addition, no single client comprised more than 5% of overall Firm
revenues. Revenue for our FA business decreased 11.4% to $306.0
million in 2021 on a year-over-year basis primarily due to a decrease in
10 KFORCE INC. AND SUBSIDIARIES
revenues from certain contracts we secured in the second quarter of
2020 to support government-sponsored COVID-19 related initiatives
(the “COVID-19 Business”). These contracts contributed $71.0 million
and $114.7 million in revenue in 2021 and 2020, respectively. Excluding
the contribution of revenue from our COVID-19 Business, our FA
business would have increased approximately 1% on a year-over-year
basis. The average bill rate in FA in 2021, excluding the COVID-19
Business, was approximately $38 per hour, which increased 1.0% as
compared to 2020. This increase is primarily a result of the mix of
business towards more highly skilled assignments as a result of our
repositioning efforts.
The September 2021 report published by SIA stated that finance
and accounting temporary staffing is expected to experience growth
of 16% and 7%, respectively, in 2021 and 2022.
Our Consultants
The vast majority of our consultants are directly employed by Kforce,
including domestic and foreign workers sponsored by Kforce, with
a smaller number being qualified independent contractors. As the
employer of the vast majority of our consultants, Kforce is responsible
for the employer’s share of applicable social security taxes (“FICA”),
federal and state unemployment taxes, workers’ compensation
insurance and other direct labor costs. The more pertinent health,
welfare and retirement benefits include comprehensive health
insurance, workers’ compensation benefits, and retirement plan
options. A key ingredient to our overall success is to foster a positive
experience for our consultants, which has a direct correlation to
consultant retention and redeployment.
We measure the quality of our service to and support of our
consultants using staffing industry benchmarks and net promoter
score (“NPS”) surveys conducted by a specialized, independent
third-party provider. Our consultant and client NPS ratings are well
above staffing industry averages and have reached World-Class level
as defined by the independent third-party provider. Additionally, we
continually seek direct feedback from our consultants, which helps us
identify opportunities to refine our services.
In a recent study conducted by SIA, Kforce was ranked as the #1
most recognized brand by information technology consultants.
INDUSTRY OVERVIEW
We operate in a highly competitive environment. Within the
professional staffing industry, it is made up of thousands of companies,
most of which are small local firms providing limited service offerings
to a relatively small local client base. A report published by SIA in 2021
indicated that, in the United States, Kforce is one of the largest publicly-
traded specialty staffing firms, the sixth largest technology temporary
staffing firm and the third largest finance and accounting temporary
staffing firm.
From an economic standpoint, temporary employment figures and
trends are important indicators of staffing demand, based on data
published by the Bureau of Labor Statistics and SIA. In December
2021, the penetration rate (the percentage of temporary staffing to
total employment) remained flat at 1.9% compared to 2020, while the
unemployment rate, at 3.9%, was down from 6.7% in December 2020.
In addition, the college-level unemployment rate, which we believe
serves as a better proxy for professional employment and therefore
aligns well with the consultant and candidate population that Kforce
most typically serves, was 2.1% in December 2021, which represented
a substantial decrease from December 2020. Further, we believe that
the unemployment rate in the specialties we serve, especially in certain
technology skill sets, is significantly lower than the published averages.
We believe this speaks to the overall secular drivers of demand in
technology, the critical nature of the technology initiatives being driven
by our clients, as well as the challenges of finding an adequate supply
of qualified talent.
According to the September 2021 SIA report, the technology
temporary staffing industry and finance and accounting temporary
staffing industry are expected to generate projected revenues of $35.9
billion and $9.0 billion, respectively, in 2022. Based on these projected
revenues, our current market share is approximately 3%. Our business
strategies are focused on expanding our share of the U.S. temporary
staffing industry and investing in our capability to provide higher level IT
services and solutions. We believe that the organic investments that we
have made in our managed teams and project solutions capabilities over
the last several years have expanded Kforce’s total addressable market.
Published reports indicate that the addressable market in the technology
solutions space is well in excess of $100 billion.
Business Strategies
Our primary objectives are driving long-term shareholder value by
achieving above-market revenue growth, making prudent investments
to enhance our efficiency and effectiveness within our operating model
and significantly improving levels of operating profitability. We believe
the following strategies will help us achieve our objectives.
Evolving our Managed Teams and Project Solutions Offerings. Our
clients have increasingly been looking for firms such as Kforce to
assume a greater level of responsibility in assisting them with their
digital transformation efforts. We believe that the total addressable
market in the higher-end IT services and solutions market is significantly
larger than the traditional technology staff augmentation market. We
believe that the use of firms such as Kforce, which can provide cost
effective access to highly skilled talent to manage a team of consultants
or oversee technology projects, is a significant driver for this increased
demand. We are leveraging the longevity of our relationships, primarily
with Fortune 1000 companies, and our understanding of existing
client needs to provide talent beyond traditional staff augmentation
into areas including resource and capacity management as well as
managed services and solutions. As an example, for a large national
property and casualty insurance provider, we built a unified customer
experience, for both policy holders and agents, across all digital
distribution and service channels. The outcome was to simultaneously
increase customer acquisition and share of wallet, while driving renewal
and retention rates in the current book of business. Our efforts resulted
in both the desired outcome and the Company winning the J.D.
Powers award. Another example involves one of the nation’s largest
retail-grocers with over 2,000 stores and 325,000 employees. We are
providing strategic, digital and technology transformation services
to support the streamlining of their full supply chain model with
initial focus on supply chain analysis, data governance and mobile
application development.
Further Improve the Quality of our Revenue Stream. In addition
to the significant progress we have made in evolving our managed
teams and project solutions offerings, we are also focused on further
improving the quality of our revenue stream through the migration of
our FA business towards more highly skilled assignments that are less
susceptible to technological disruption. Historically, we have supported
professional administrative roles such as customer service, data entry,
and call center. We do not intend on focusing our efforts on these,
among other types of roles, in 2022 and beyond unless there is a
strategic client relationship or other strategic rationale.
Reimagining a More Flexible Work Environment. The results of
multiple employee surveys conducted over the last 18 to almost 24
months indicate that our associates have embraced the ingenuity
required to work remotely and have been successful in settling into
new, productive routines. We continue to make substantial progress in
our “Kforce Reimagined” initiative, which is an effort to position Kforce
to provide a more flexible hybrid work environment for our associates
that was initiated shortly after the onset of the COVID-19 pandemic.
We are referring to this new era of Kforce’s work environment as
“Office Occasional.” In this new era, our employees will have maximum
flexibility and choice in designing their workdays. This approach is
rooted in trust and is supported by integrated technology aligned with
our evolved operating model. We will have a remote-first approach
but encourage our employees to leverage physical office space,
when desirable, for activities that are most efficiently done through
in-person, active collaboration.
In support of this strategic shift, following the sale of our corporate
headquarters campus in May 2021, we signed a long-term lease for
our future corporate headquarters in September 2021, which we
anticipate occupying in the fourth quarter of 2022. The design of our
new space will be modern, open and technology-enabled and will
provide a flexible environment for our employees to work effectively,
very similar to how we are approaching the design of our field offices.
We expect that the culmination of these efforts will position Kforce
as a destination for top talent during a time where there is great
disruption in the labor markets.
Improving the Productivity of our Talent. We believe that it is critical
to provide our associates with high quality tools to effectively and
efficiently perform their roles, better evaluate business opportunities
and advance the value we bring to our clients and consultants. We
continue to enhance our sales and delivery methodologies and
processes in ways we believe will allow us to better evaluate and shape
business opportunities with our clients as well as train our sales and
delivery associates to follow our consistent and uniform methodology.
During 2021, we completed the rollout of the initial capabilities
within our new talent relationship management (TRM) system, which
we expect will better facilitate our delivery strategies and processes
and significantly improve our capabilities. Going forward, we expect
to continue to make enhancements to our business and data
intelligence capabilities. These investments are part of a multi-year
effort to significantly upgrade our technology tools, using cloud-
based platforms, to equip our associates with improved capabilities to
deliver exceptional service to our clients, consultants and candidates
and improve the productivity of our associates and the scalability of
our organization.
KFORCE INC. AND SUBSIDIARIES 11
Critical to improving the performance of our associates is the
development of a strong management team. A key pillar of our talent
development strategy is to provide our leaders with access to the
appropriate training and tools to lead their teams effectively. During
2021, we continued investing in an intensive leadership development
curriculum. These activities will be ongoing and, we believe, will lead
to enhanced leadership capabilities and, thus, higher retention levels
of our associates.
During 2021, we engaged an independent third-party consulting
firm to assist us in our assessment of our middle and back office
capabilities. The results of the assessment work confirmed our belief
that we have a tremendous opportunity to fundamentally transform
how our back office supports the Firm. We will continue to make
investments in this multi-year transformation effort in 2022.
Enhancing our Client Relationships. We strive to differentiate
ourselves by working collaboratively with our clients to better
understand their business challenges and help them attain their
organizational objectives. This collaboration focuses on building a
consultative partnership rather than a transactional client relationship,
which increases the intimacy we have with our clients and improves
our ability to offer higher value and a broader array of services and
support to our clients. To accomplish this, we align our revenue-
generating talent with clients based on their experience with markets,
products, industries and in the case of a managed teams and solutions
offering, expertise in the related technology or project.
We measure our success in building long-lasting relationships with
our clients using staffing industry benchmarks and Net Promoter Score
(“NPS”) surveys conducted by a specialized, independent third-party
provider. Our client NPS ratings are among the highest in the industry
and provide helpful insights from our clients on how to continue
improving our relationships. We believe long-lasting relationships with
our clients is a critical element in revenue growth.
Improving the Job Seeker Experience. Our consultants are a critical
component of our business and essential in sustaining our client
relationships. In 2021, we were able to utilize our talent community
platform through WorkLLama, specifically its referral management
capability, to provide us leverage in the timely sourcing of qualified
candidates. We believe this seamlessly connects the candidate with
the recruiter, which improves the job seeker’s experience and provides
a better quality candidate. We are focused on effective and efficient
processes and tools to find and attract prospective consultants,
matching them to a client assignment and supporting them during
their tenure with Kforce. Our success in this regard would be expected
to positively influence the tenure and loyalty of our consultants and be
their employer of choice, thus enabling us to deliver the highest quality
talent to our clients.
We measure the quality of our service to and support of our
consultants using staffing industry benchmarks and NPS surveys
conducted by a specialized, independent third-party provider. Our
consultant NPS ratings, similar to our client ratings, are among the
highest in the industry. We continually seek direct feedback from our
consultants, which helps us identify opportunities to refine our services.
12 KFORCE INC. AND SUBSIDIARIES
COMPETITION
We operate in a highly competitive and fragmented staffing industry
comprised of large national and local staffing and solutions firms. The
local firms are typically operator-owned, and each market generally
has one or more significant competitors. Within our managed teams
and project solutions offerings, we also face competition from global,
national and regional accounting, consulting and advisory firms and
national and regional strategic consulting and systems implementation
firms. We believe that our boundaryless reach within the U.S., physical
presence in larger markets, concentration of service offerings in areas
of greatest demand (especially technology), national delivery teams,
centralized delivery channels for foreign consultants, including those
obtained via the H-1B visa program that optimizes distribution and
strengthens compliance, longevity of our brand and reputation in
the market, along with our dedicated compliance and regulatory
infrastructure, all provide a competitive advantage.
Many clients utilize Managed Service Providers (“MSP”) or Vendor
Management Organizations (“VMO”) for the management and
procurement of our services. Generally, MSPs and VMOs standardize
processes through the use of Vendor Management Systems (“VMS”),
which are tools used to aggregate spend and measure supplier
performance. VMSs are also offered through independent providers.
Typically, MSPs, VMOs and/or VMS providers charge staffing firms
administrative fees ranging from 1% to 4% of revenue. In addition, the
aggregation of services by MSPs for their clients into a single program
can result in significant buying power and, thus, pricing power. Therefore,
the use of MSPs by our clients has, in certain instances, resulted in margin
compression, but has also led to incremental client share through our
client’s vendor consolidation efforts. Kforce does not currently provide
MSP or VMO services directly to our clients; rather, our strategy has
been to work with MSPs, VMOs and VMS providers that enable us to
better extend our services to current and prospective clients.
We believe that the principal elements of competition in our
industry are differentiated offerings, reputation, ability of consultants
to work on assignments with innovative and leading companies, the
availability and quality of associates, consultants and candidates,
level of service, effective monitoring of job performance, scope
of geographic service, types of service offerings and compliance
orientation. To attract consultants and candidates, we emphasize our
ability to provide competitive compensation and benefits, quality and
varied assignments, scheduling flexibility and permanent placement
opportunities, all of which are important to Kforce being the employer
of choice. Because individuals pursue other employment opportunities
on a regular basis, it is important that we respond to market conditions
affecting these individuals and focus on our consultant relationship
objectives. Additionally, in certain markets, from time to time we have
experienced significant pricing pressure as a result of our competitors’
pricing strategies, which may result in us not being able to effectively
compete or choosing to not participate in certain business that does
not meet our profitability standard.
REGULATORY ENVIRONMENT
Staffing and solutions firms are generally subject to one or more of
the following types of government regulations: (1) regulation of the
employer/employee relationship, such as wage and hour regulations,
tax withholding and reporting, immigration/H-1B visa regulations,
social security and other retirement, anti-discrimination, employee
benefits and workers’ compensation regulations; (2) registration,
licensing, recordkeeping and reporting requirements; and (3) worker
classification regulations.
Because we operate in a complex regulatory environment, one of
our top priorities is compliance. For more discussion of the potential
impact that the regulatory environment could have on Kforce’s financial
results, refer to Item 1A. Risk Factors of the Kforce 10-K.
INSURANCE
Kforce maintains a number of insurance policies including general
liability, automobile liability, workers’ compensation and employers’
liability, liability for certain foreign exposure, umbrella and excess
liability, property, crime, fiduciary, directors and officers, employment
practices liability, cybersecurity, professional liability and excess health
insurance coverage. These policies provide coverage subject to their
terms, conditions, limits of liability and deductibles, for certain liabilities
that may arise from Kforce’s operations. There can be no assurance
that any of the above policies will be adequate for our needs or that
we will maintain all such policies in the future.
HUMAN CAPITAL MANAGEMENT AND ENVIRONMENTAL,
SOCIAL AND GOVERNANCE MATTERS
Core Values
At the heart of Kforce, as an organization, is a deep understanding
of and unwavering commitment to our core values. As we drive
toward one shared vision, we refreshed our core values during 2021,
to embody our unique perspectives, our dedication to doing what’s
right and creating positive social change. Our Core Values are:
• INTEGRITY: Act with intention. Keep promises. Take responsibility.
• EXCELLENCE: Embrace competition. Succeed together. Go for
the win.
• COMPASSION: Respect others. Nurture relationships. Spread
kindness.
• UNITY: Encourage collaboration. Support each other. Pursue a
shared vision.
• ADAPTABILITY: Champion innovation. Stay curious. Consider
the uncommon.
• COURAGE: Dare to fail. Speak openly. Dream big.
• FUN: Be yourself. Laugh often. Enjoy the journey.
Commitment to Values and Ethics through Governance
Along with our core values, we act in accordance with our Code
of Business Conduct and Ethics (“Code of Conduct”), which sets
forth expectations and guidance for associates to make appropriate
decisions. Our Code of Conduct covers topics such as anti-corruption,
discrimination, harassment, privacy, appropriate use of company
assets, protecting confidential information and reporting violations.
Our associates receive training on our Code of Conduct and must
acknowledge their understanding and certify compliance annually.
The Code of Conduct reflects our commitment to operating in a fair,
honest, responsible and ethical manner and also provides direction for
reporting complaints in the event of alleged violations of our policies
(including through an anonymous hotline). Our executive officers and
leaders maintain “open door ” policies and any form of retaliation
is strictly prohibited. We take all reports of suspected violations
and unethical behavior seriously and take appropriate actions to
immediately address such situations.
Employees and Personnel
As of December 31, 2021, Kforce employed approximately 2,000
associates, including roughly 1,300 supporting the revenue-generating
aspects of our business and approximately 700 supporting the revenue-
enabling aspects. We also had approximately 11,000 consultants on
assignment with our clients with more than 80% of these consultants
employed directly by Kforce. As the employer, Kforce is responsible for
the employer’s share of applicable social security taxes (“FICA”), federal
and state unemployment taxes, workers’ compensation insurance and
other direct labor costs relating to our employees. The more pertinent
health, welfare and retirement benefits provided to employees and
consultants employed directly by us include: comprehensive health
insurance, workers’ compensation benefits and retirement plan
options. Additionally for our associates and certain consultants, we
provide paid leave. We have no collective bargaining agreements
covering any of our employees, have never experienced any material
labor disruption, and are unaware of any current efforts or plans of our
employees to organize.
Health and Well-Being
The success of our business is fundamentally connected to the
well-being of our employees and consultants. Accordingly, we are
committed to their health, safety and wellness. We provide our
employees and consultants and their families with access to a variety of
flexible and convenient health and wellness programs. Some of these
programs are part of our thoughtful and comprehensive response to
the COVID-19 pandemic as well as those that support the physical
and mental health of our employees by providing tools and resources
that each employee can use to improve or maintain their health. The
measures that we have undertaken include: requiring our associates to
work remotely since March 2020; maintaining regular communications
from our executives regarding impacts of the COVID-19 pandemic;
enhancing our health and wellness offerings to include a digital self-
care platform to help our associates with any mental health concerns;
investing in technologies and tools to improve the effectiveness of
our associates while working remotely; and improving our associate
outreach efforts to detect and try to address any challenges or needs
of our associates.
We believe that our future “Office Occasional” work environment has
provided our associates maximum flexibility and choice in designing
their workdays; thus, additionally contributing to their health and well-
being. Consistent with our management philosophy at Kforce, this
was anything but a top-down initiative. Rather, this was driven by our
associates and has proven to be successful because we empowered
our team with a strong voice by conducting continuous pulse checks,
surveys, town hall sessions and other collaborative voice of the associate
avenues. Our future work environment is rooted in trust and is supported
by integrated technology aligned with our evolved operating model.
Talent Management and Leadership Development
Wherever possible, we strive to identify, train and develop talent
from within to help ensure that we maintain a consistent operating
model, proactive planning, and employee engagement. A core
objective is to sustain our current leadership development activities
through further advanced training and comprehensive certification for
new leaders. Given our goal is to be a destination employer for top
talent, we are also focused on efficiently onboarding new associates
into our Firm. We are leaning heavily into remote leadership tools and
techniques as well as concepts centered on making lasting connections
KFORCE INC. AND SUBSIDIARIES 13
based on trust, compassion and empathy. This approach has yielded
an understanding that the Kforce culture and leaders will put safety,
wellness and family first.
Among our key initiatives has been our:
• Leadership Development Program, led by an independent third-
party specialist, which is aimed at building the skills necessary to
nurture strong relationships, maintain accountability and enhance
productivity among all leadership categories in the Firm;
• Engagement with an independent organizational psychologist to
facilitate 360 degree assessments for our executive leadership team;
• Several multi-day leadership conferences supported by Kforce leaders
and supplemented by online tools and resource libraries; and
• Inclusive leadership training.
Our talent management activities also include, but are not limited
to, conducting the following activities:
• Periodic performance appraisals to promote engaging and
productive communications between leaders and their
team members about performance, career progression and
advancement opportunities;
• Calibration sessions during the performance appraisal process to
help ensure consistency in assigning appraisal ratings;
• Comprehensive internal talent pipeline (performance/potential)
to assess opportunities for our talent across the Firm and for
succession planning purposes; and
• Goal setting and development discussions using a consistent
template to ensure our leaders and associates are aligned on
career and development goals, as well as opportunities for growth
and improvement.
Kforce has continued to conduct check-in surveys during the
pandemic to monitor wellness and enablement of our associate
population. To take that even further, we will be investing more
comprehensively into the full employee experience as our office
occasional work environment continues to take shape. We have
purchased software to run employee lifecycle surveying throughout the
Kforce employee experience. A key objective will be to use employee
data and sentiment to proactively address engagement indicators.
Upcoming activities include, but are not limited to:
• Full-scale employee engagement dashboard;
• Automated exit surveys;
• Lifecycle (stay) interviews;
• Employee engagement surveys; and
• Pulse surveying, as needed.
Information gathered from these upcoming activities will be useful
to Kforce management, and to the extent relevant to our Board of
Directors’ oversight responsibilities, in developing future goals and
objectives pertaining to our talent management strategies.
Diversity, Equity and Inclusion Program
Kforce’s diversity, equity and inclusion (“DE&I”) program has the
mission of leveraging our core values and culture in further promoting
an authentic culture of diversity, equity and inclusion at Kforce.
14 KFORCE INC. AND SUBSIDIARIES
In 2021, Kforce advanced its objectives around building an increasingly
robust pipeline of diverse candidates, enhancing our supplier diversity
practices, and instituting training programs to meet the mission and
objectives of our DE&I program. An objective in 2022 is to launch
internal “listening sessions,” which will be completed by an external
expert to collect and analyze details on associates’ sentiment regarding
inclusion and belonging. Information gathered during this process will
greatly influence our programming decisions moving forward.
Our other DE&I activities also include, but are not limited to,
the following:
• Reviewing third-party analysis of internal demographics,
progression and pay-equity practices and studies;
• The creation of an internal DE&I Council;
• Initiating a program to improve pipeline by leveraging geo-base
tracking, digital canvasing, job board aggregators and niche
partnerships with diverse organizations;
• Publishing an internal DE&I Resource Center (Website);
• Consistently conducting ongoing cultural celebrations; and
• Execution of an ongoing DE&I learning journey for our associates
that includes programs such as emotional intelligence and
unconscious bias modules.
Our commitment to DE&I goes beyond our partnerships and our
Firm. From speaking engagements to career fairs to the charities we
support, we actively participate in communities nationwide with a goal
of doing our part in building a better tomorrow for the workforce today.
Environmental
As a domestic talent solutions provider, Kforce does not produce or
manufacture any products or materials and therefore our direct impact
on the environment is relatively small. In addition, we are in the early
stages of considering what risks and opportunities climate change may
present to our business more broadly.
Notwithstanding our relatively nominal direct environmental impact,
we are dedicated to promoting internal operational sustainability
initiatives and keeping our ecological footprint to a minimum. As such,
we were able to take advantage of more impactful opportunities using
actions implemented during the COVID-19 pandemic. Since March
2020, all of our employees have been working remotely. In addition, the
“office occasional” work environment that we have defined for Kforce
requires significantly less square footage and less commuting than
our pre-pandemic work environment, resulting in a reduced carbon
footprint. As noted previously, we have already reduced the number
of physical offices from 51 (leased and owned) pre-pandemic to 36
leased offices currently. The reduction in the number of our offices
and migration of our offices to our office occasional environment is
expected to reduce our overall square footage to be at least 60% to
70% lower than pre-pandemic levels. These actions, which we expect
to continue even after the pandemic has subsided, have dramatically
reduced the environmental impact of employees’ commutes and the
consumption of energy; thereby, decreasing our carbon footprint.
We have also been able to reduce certain business travel by using
virtual and collaborative tools whenever possible, further limiting our
ecological impact. Kforce is committed to enhancing its environmental
protection measures and continuing to promote an eco-friendly
culture both internally and in the communities it serves.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This MD&A should be read in conjunction with our Consolidated
Financial Statements and the accompanying notes thereto and the
Business Overview included in this Annual Report, for an overview of
our operations and business environment.
• The Firm returned $74.5 million of capital to our shareholders in
the form of open market repurchases totaling $54.4 million, or
0.9 million shares, and quarterly dividends totaling $20.1 million
during the year ended December 31, 2021.
EXECUTIVE SUMMARY
The following is an executive summary of what Kforce believes are
highlights for 2021, which should be considered in the context of the
additional discussions herein and in conjunction with the consolidated
financial statements and notes thereto.
• Revenue for the year ended December 31, 2021, increased 13.9%,
per billing day, to $1.58 billion in 2021 from $1.40 billion in 2020.
Revenue per billing day increased 22.3% in our Technology
business and decreased 11.4% in our FA business.
• Flex revenue increased 13.1%, per billing day, to $1.53 billion in
2021 from $1.36 billion in 2020. Flex revenue increased 21.7%, per
billing day, for Technology and decreased 14.0%, per billing day,
for FA. During 2020, we secured contracts to support government-
sponsored COVID-19 related initiatives that benefited our FA
business with $71.0 million and $114.7 million in revenues for the
years ended December 31, 2021 and 2020, respectively. Excluding
revenues from the COVID-19 Business for both periods, our FA Flex
business would have declined 1.5% in 2021 on a year-over-year,
billing day basis.
• The momentum in our Technology business built as 2021
progressed with solid sequential growth each quarter in 2021,
resulting in 32.0% growth in the fourth quarter of 2021 on a year-
over-year billing day basis.
• Direct Hire revenue, per billing day, increased 49.3% to $49.8
million in 2021 from $33.6 million in 2020.
• Gross profit margin increased 60 basis points to 28.9% in 2021 due
primarily to an increased mix of Direct Hire revenue. Flex gross
profit margin was flat at 26.6% for both 2021 and 2020. Flex gross
profit margin was flat for Technology and increased 30 basis points
for FA.
• SG&A expenses as a percentage of revenue for the year ended
December 31, 2021, decreased to 21.9% from 22.2% in 2020. The
decrease is primarily related to leverage gained from our revenue
growth, associate productivity improvements, lower real estate
spend due to our reduced office footprint, a decline in our credit
expense and a gain on the sale of our corporate headquarters.
• Net income for the year ended December 31, 2021, increased
34.2% to $75.2 million, or $3.54 per share, from $56.0 million, or
$2.62 per share, in 2020.
• We ended the year with $3.0 million of net debt as of December 31,
2021, compared to net cash of approximately $3.5 million as of
December 31, 2020, given that we returned approximately 100%
of our operating cash flows to our shareholders.
• Cash provided by operating activities was $72.9 million during
the year ended December 31, 2021, compared to $109.2 million
for 2020. This decrease is primarily due to the deferral of $38.6
million in payroll taxes as a result of the Coronavirus, Aid, Relief
and Economic Security Act (the “CARES Act”) in 2020, of which
$19.3 million was paid in 2021.
RESULTS OF OPERATIONS
Certain discussions of the changes in our results of operations from
the year ended December 31, 2020, as compared to the year ended
December 31, 2019, have been omitted from this Annual Report,
but may be found in “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations” of our Form 10-K
for the fiscal year ended December 31, 2020, filed with the SEC on
February 26, 2021.
In 2020, the U.S. and global macro-economic environments were
severely impacted by the COVID-19 economic and health crisis. Certain
sectors of the U.S. economy were more acutely impacted by this crisis,
such as the hospitality, transportation, retail, entertainment, health
services and manufacturing sectors. We generate revenue within each
of these sectors of the U.S. economy although our top three industries
are financial services, business services and telecommunications,
which were not as acutely impacted by this crisis.
Despite certain adverse effects to our business due to the abrupt
economic disruption from the COVID-19 economic and health crisis
and related governmental rules and regulations, we delivered strong
results in 2020 and again in 2021, especially in our Technology business,
with a year-over-year decline of only approximately 1% in 2020 and
solid growth of approximately 22% in 2021, both of which significantly
exceeded the market expectation per SIA. As we expected, we were
successful in significantly outpacing the decline in revenues from
our COVID-19 Business (declined $43.7 million) with a higher-quality
Technology revenue stream (up $224.3 million). While the business
climate related to the COVID-19 economic and health crisis, along
with related governmental legislation (including that which is aimed at
stimulating the economy), is still extremely fluid, we are well-positioned
to and expect to continue capturing additional market share in our
Technology business and delivering strong operating results to our
shareholders in 2022.
KFORCE INC. AND SUBSIDIARIES 15
The following table presents certain items in our Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue
for the years ended:
December 31,
Revenue by segment:
Technology
FA
Total Revenue
Revenue by type:
Flex
Direct Hire
Total Revenue
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Income from continuing operations, before income taxes
Income from continuing operations
Income from discontinued operations, net of tax
Net income
2021
2020
2019
80.6%
19.4
100.0%
96.9%
3.1
100.0%
28.9%
21.9%
0.3%
6.7%
6.3%
4.8%
— %
4.8%
75.1%
24.9
100.0%
97.6%
2.4
100.0%
28.3%
22.2%
0.4%
5.7%
5.4%
4.0%
—%
4.0%
78.5%
21.5
100.0%
96.5%
3.5
100.0%
29.3%
23.3%
0.4%
5.6%
5.3%
4.0%
5.7%
9.7%
Revenue. The following table presents revenue by type for each segment and percentage change from the prior period for the years ended
December 31 (in thousands):
Technology
Flex revenue
Direct Hire revenue
Total Technology revenue
FA
Flex revenue
Direct Hire revenue
Total FA revenue
Total Flex revenue
Total Direct Hire revenue
Total Revenue
Increase
(Decrease)
2021
2020
Increase
(Decrease)
$1,247,560
26,381
$1,273,941
$ 282,597
23,384
$ 305,981
$1,530,157
49,765
$1,579,922
20.8%
57.7%
21.4%
(14.7)%
38.6%
(12.1)%
12.2%
48.1%
13.0%
$1,032,901
16,727
$1,049,628
$ 331,196
16,876
$ 348,072
$1,364,097
33,603
$1,397,700
(0.4)%
(18.3)%
(0.8)%
26.3%
(38.0)%
20.2%
5.0%
(29.6)%
3.7%
2019
$1,037,380
20,479
$1,057,859
$ 262,307
27,221
$ 289,528
$1,299,687
47,700
$1,347,387
Our quarterly operating results are affected by the number of billing days in a quarter. The following table presents the year-over-year revenue
growth rates, per billing day, for the last five quarters:
Year-Over-Year Revenue Growth Rates
(Per Billing Day)
Q4 2021
Q3 2021
Q2 2021
Q1 2021
Q4 2020
Billing days
Technology Flex
FA Flex
Total Flex
61
31.0%
(28.9)%
16.6%
64
28.9%
(41.3)%
9.1%
64
20.9%
2.7%
16.3%
63
6.3%
26.4%
10.2%
62
0.8%
26.0%
5.9%
16 KFORCE INC. AND SUBSIDIARIES
Flex Revenue. The key drivers of Flex revenue are the number of
consultants on assignment, billable hours, the bill rate per hour and,
to a limited extent, the amount of billable expenses incurred by Kforce.
Flex revenue for our Technology business increased approximately
22%, per billing day, during the year ended December 31, 2021,
as compared to the same period in 2020. The increase was driven
principally by a higher number of consultants on assignment, which
have improved consistently since June 2020 (our lowest point during
the COVID-19 pandemic). This growth in consultants on assignment
was primarily due to the strong secular drivers of demand, the strength
of our client portfolio (that being comprised of primarily Fortune
1000 companies), our concentration in higher-end technology skills,
and solid execution. We believe the secular drivers of demand in
technology have only strengthened post-pandemic as companies
continue to invest significantly in technology to improve their
consumer’s experience, gain cost efficiencies and stay relevant in an
increasingly competitive environment. Assuming a stable demand
and macro environment, we expect growth in our Technology
business in 2022 of at least 15%.
Our FA business experienced a decrease in Flex revenue, per
billing day of 14.0% during the year ended December 31, 2021, as
compared to the same period in 2020, primarily driven by a $43.7
million decrease in the COVID-19 Business. Excluding this decline,
FA Flex revenues declined 1.5% in 2021, per billing day, as a result of
a strategic decision to focus our FA business towards more highly-
skilled roles. Excluding the negative impact of the elimination of
COVID-19 Business and runoff of FA business in lower skilled areas,
we expect Flex revenue in our FA business to grow in the low to mid-
single digit range in 2022.
The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands):
Year Ended December 31,
Key Drivers—Increase (Decrease)
Volume—hours billed
Bill rate
Billable expenses
Total change in Flex revenue
2021 vs. 2020
2020 vs. 2019
Technology
FA
Technology
FA
$177,865
35,242
1,552
$214,659
$(63,558)
15,167
(208)
$(48,599)
$(41,950)
42,088
(4,617)
$ (4,479)
$ 91,662
(22,396)
(377)
$ 68,889
The following table presents total Flex hours billed by segment and the percentage change over the prior period for the years ended
December 31 (in thousands):
Technology
FA
Total Flex hours billed
2021
15,329
7,768
23,097
Increase
(Decrease)
17.3%
(19.2)%
1.8%
2020
13,070
9,615
22,685
Increase
(Decrease)
(4.1)%
35.0%
9.4%
2019
13,625
7,1 20
20,745
Direct Hire Revenue. The key drivers of Direct Hire revenue are the number of placements and the associated placement fee. Direct Hire revenue
also includes conversion revenue, which may occur when a consultant initially assigned to a client on a temporary basis is later converted to a
permanent placement for a fee.
Direct Hire revenue increased 49.3%, per billing day, during the year ended December 31, 2021, as compared to the same period in 2020, primarily
driven by a significant increase in both the number of placements and fees, as the economic environment has strengthened and competition for
talent has increased. We expect Direct Hire revenues to grow in 2022 in the mid to high single-digit range in 2022.
The following table presents the key drivers for the change in Direct Hire revenue over the prior period (in thousands):
Year Ended December 31,
Key Drivers—Increase (Decrease)
Volume—number of placements
Placement fee
Total change in Direct Hire revenue
2021 vs. 2020
2020 vs. 2019
Technology
FA
Technology
FA
$6,764
2,890
$9,654
$4,537
1,971
$6,508
$(4,331)
597
$(3,752)
$(10,636)
291
$(10,345)
KFORCE INC. AND SUBSIDIARIES 17
The following table presents the total number of placements by segment and percentage change over the prior period for the years ended
December 31:
Technology
FA
Total number of placements
2021
1,219
1,492
2,711
Increase
(Decrease)
40.4%
26.9%
32.6%
2020
868
1,176
2,044
Increase
(Decrease)
(21.2)%
(39.1)%
(32.6)%
2019
1,101
1,930
3,031
The following table presents the average fee per placement by segment and percentage change over the prior period for the years ended
December 31:
Technology
FA
Total average placement fee
2021
$21,642
$15,671
$18,356
Increase
Decrease)
12.3%
9.2%
11.7%
2020
$19,271
$14,351
$16,440
Increase
(Decrease)
3.6%
1.8%
4.5%
2019
$18,604
$14,103
$15,738
Gross Profit. Gross profit is determined by deducting direct costs (primarily consultant compensation, payroll taxes, payroll-related insurance
and certain fringe benefits, as well as independent contractor costs) from total revenue. In addition, there are no consultant payroll costs
associated with Direct Hire placements; thus, all Direct Hire revenue increases gross profit by the full amount of the placement fee.
The following table presents the gross profit percentage (gross profit as a percentage of total revenue) for each segment and percentage
change over the prior period for the years ended December 31:
Technology
FA
Total gross profit percentage
2021
27.9%
33.0%
28.9%
Increase
(Decrease)
1.1%
7.8%
2.1%
2020
27.6%
30.6%
28.3%
Increase
(Decrease)
(0.4)%
(13.1)%
(3.4)%
2019
27.7%
35.2%
29.3%
Total gross profit percentage increased 60 basis points for the year ended December 31, 2021, as compared to the same period in 2020,
primarily driven by an increased mix of Direct Hire revenue.
Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insight into the other drivers
of total gross profit percentage driven by our Flex business such as changes in the spread between the consultants’ bill rate and pay rate.
The following table presents the Flex gross profit percentage for each segment and percentage change over the prior period for the years
ended December 31:
Technology
FA
Total Flex gross profit percentage
2021
26.4%
27.4%
26.6%
Increase
(Decrease)
—%
1.1%
—%
2020
26.4%
27.1%
26.6%
Increase
(Decrease)
0.4%
(4.9)%
(0.4)%
2019
26.3%
28.5%
26.7%
Overall, our Flex gross profit percentage for the year ended December 31, 2021, as compared to the same period in 2020, was flat. We
have seen good stability in our Technology Flex gross margins over the last several years as the benefit from higher growth in our managed
teams and project solutions business, which carries a higher margin profile, has offset any spread compression in the remainder of our
Technology business.
FA Flex gross profit margins increased 30 basis points for the year ended December 31, 2021, as compared to the same period in 2020,
primarily due to a lower mix of lower margin COVID-19 Business and spread improvements due to the repositioning of this business in higher
skilled areas. These benefits more than offset higher healthcare costs.
We expect spreads to be relatively stable in our Technology business and for spreads in our FA business to benefit further from the
elimination of revenues from the COVID-19 Business and the repositioning efforts in 2022.
18 KFORCE INC. AND SUBSIDIARIES
The following table presents the key drivers for the change in Flex gross profit by segment over the prior period (in thousands):
Year Ended December 31,
Key Drivers—Increase (Decrease)
Revenue impact
Profitability impact
Total change in Flex gross profit
2021 vs. 2020
2020 vs. 2019
Technology
FA
Technology
FA
$56,734
(137)
$56,597
$(13,152)
1,033
$(12,119)
$(1,177)
1,669
$ 492
$19,655
(4,864)
$14,791
Kforce continues to focus on effective pricing and optimizing the spread between bill rates and pay rates. We believe this will serve over time
to obtain the optimal volume, rate, effort and duration of assignment, while ultimately maximizing the benefit for our clients, our consultants
and Kforce.
SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 85.4%, 83.0% and
83.1% of SG&A for the years ended December 31, 2021, 2020 and 2019, respectively. Commissions and other bonus incentives for our revenue-
generating talent are variable costs driven primarily by revenue and gross profit levels, and associate performance.
The following table presents certain components of SG&A as a percentage of total revenue for the years ended December 31 (in thousands):
2021 % of Revenue
2020 % of Revenue
2019 % of Revenue
Compensation, commissions,
payroll taxes and benefits costs
Other(1)
Total SG&A
$295,187
50,534
$345,721
18.7%
3.2%
21.9%
$257,802
52,911
$310,713
18.4%
3.8%
22.2%
$261,185
52,982
$314,167
19.4%
3.9%
23.3%
(1) Includes items such as bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses.
SG&A as a percentage of revenue decreased 30 basis points in 2021, as compared to 2020 due to (a) leverage gained from our revenue
growth, (b) the recognition of a $2.0 million gain from the sale of our corporate headquarters in 2021, (c) declines in credit expense in 2021 due
to a lower estimated risk of default resulting from the strength in the quality of our accounts receivable portfolio, and (d) reductions in lease
and office expenses. These benefits were partially offset by higher performance-based compensation given the strength in our 2021 financial
performance and the accrual of a tentative legal settlement of $3.3 million.
The Firm continues to focus on improving the productivity of our associates and generating increased operating leverage as revenues grow.
Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior
period by major category for the years ended December 31 (in thousands):
Fixed asset depreciation (includes finance leases)
Capitalized software amortization
Total Depreciation and amortization
2021
$2,822
1,678
$4,500
Increase
(Decrease)
(30.7)%
42.0%
(14.4)%
2020
$4,073
1,182
$5,255
Increase
(Decrease)
(17.4)%
5.4%
(13.1)%
2019
$4,929
1,121
$6,050
The decrease in depreciation primarily results from the completion of the sale of our corporate headquarters in May 2021.
Other Expense, Net. Other expense, net was $7.4 million in 2021, $5.0 million in 2020 and $3.4 million in 2019. Other expense, net consists primarily
of (a) our proportionate share of the loss from WorkLLama, LLC (WorkLLama), (b) an expense related to the termination of our SERP in 2021 and
(c) interest expense related to outstanding borrowings under our credit facility.
During the years ended December 31, 2021 and 2020, we recognized $2.5 million and $1.7 million, respectively, related to our share of losses from
WorkLLama and an expense of $1.8 million in 2021 related to the termination of our SERP. Refer to Note 13 — “Employee Benefit Plans” in the Notes
to Consolidated Financial Statements, included in this Annual Report, for a complete discussion of the termination of our SERP.
Although the impact of the COVID-19 economic and health crisis remains highly uncertain, it could have a material adverse effect on the fair value
of our equity method investment in WorkLLama. If the fair value falls below the book value of the equity method investment, we would be required
to evaluate whether an other-than-temporary impairment has occurred. Refer to Note 1 — “Summary of Significant Accounting Policies” in the Notes
to Consolidated Financial Statements, included in this Annual Report, for a more detailed discussion on our equity method investment.
KFORCE INC. AND SUBSIDIARIES 19
Income Tax Expense. Income tax expense as a percentage of income
from continuing operations, before income taxes (our “effective tax rate”
for continuing operations) for the years ended December 31, 2021, 2020
and 2019 were 24.3%, 25.5% and 23.6%, respectively.
Income from Discontinued Operations, Net of Tax. During 2019,
we completed the sale of the GS segment, which consisted of KGS and
TraumaFX® Solutions, Inc. (“TFX”), our federal government product
business. Kforce does not have significant continuing involvement
in the operations of KGS or TFX after the sale and reported the GS
segment as discontinued operations in the consolidated statements of
operations for all years presented. Refer to Note 2 — “Discontinued
Operations” in the Notes to Consolidated Financial Statements,
included in this Annual Report, for a more detailed discussion.
On April 1, 2019, Kforce completed the sale of all of the issued and
outstanding stock of Kforce Government Holdings, Inc., including its
wholly-owned subsidiary, KGS, to ManTech International Corporation
for a cash purchase price of $115.0 million. Our gain on the sale of KGS,
net of transaction costs, was $72.3 million. Total transaction costs were
$9.6 million, which primarily includes legal and broker fees, transaction
bonuses and accelerated stock-based compensation expense for KGS
management triggered by a change in control of KGS.
On June 7, 2019, Kforce completed the sale of all of the issued
and outstanding stock of TFX to an unaffiliated third party for a
cash purchase price of $18.4 million less a post-closing working
capital adjustment of $0.7 million. Our gain on the sale of TFX, net
of transaction costs, was $7.0 million. Total transaction costs were
$2.2 million, which primarily includes legal and broker fees and
transaction bonuses. Due to the sale of TFX, we finalized the
The following table presents Free Cash Flow (in thousands):
settlement of a contingent consideration liability related to the
acquisition of TFX in 2014 and paid $0.6 million during the year
ended December 31, 2020.
The effective tax rates for discontinued operations, including the gain
on sale of discontinued operations, for the year ended December 31,
2019, was 4.4%. There was no activity relating to discontinued
operations in 2021 or 2020. The GS effective tax rate for 2019 was
low because of the minimal income tax obligation for the sale of KGS
due to the efficient tax structure of the transaction..
NON-GAAP FINANCIAL MEASURES
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, repurchasing
common stock, paying dividends or making acquisitions. Free cash flow
has limitations due to the fact that 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 as a
replacement for, our Consolidated Statements of Cash Flows. Free cash
flows include results from discontinued operations for the year ended
December 31, 2019.
2021
$ 75,177
30,188
(32,467)
72,898
(6,441)
66,457
(9,000)
—
(66,210)
(20,120)
23,742
(1,366)
2020
$ 56,039
27,582
25,538
109,159
(6,475)
102,684
(4,000)
35,000
(35,613)
(16,787)
3,548
(1,177)
2019
$ 130,862
(51,650)
(12,595)
66,617
(10,359)
56,258
(9,000)
(6,800)
(124,453)
(16,608)
122,544
(2,222)
$ (6,497)
$ 83,655
$ 19,719
Years Ended December 31,
Net income
Non-cash provisions and other
Changes in operating assets/liabilities
Net cash provided by operating activities
Capital expenditures
Free cash flow
Equity method investment
Change in debt
Repurchases of common stock
Cash dividends
Net proceeds from the sale of assets held for sale
Other
Change in cash and cash equivalents
20 KFORCE INC. AND SUBSIDIARIES
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, gain
on sale of corporate headquarters, stock-based compensation expense,
interest expense, net, income tax expense, legal settlement expense,
SERP termination 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. Management believes it is useful information to investors
as 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. 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 susceptible
to varying calculations, and 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.
The following table presents Adjusted EBITDA and includes a reconciliation of Adjusted EBITDA to net income (in thousands):
Years Ended December 31,
Net income
Income from discontinued operations, net of tax
Income from continuing operations
Depreciation and amortization
Gain on sale of corporate headquarters
Stock-based compensation expense
Interest expense, net
Income tax expense
Legal settlement expense
SERP termination expense
Loss from equity method investment
Adjusted EBITDA
Adjusted EBITDA, for the year ended December 31, 2019, was
negatively impacted by $2.0 million of severance and other costs
due to actions taken as a result of the KGS divestiture.
LIQUIDITY AND CAPITAL RESOURCES
To meet our capital and liquidity requirements, we primarily rely on
operating cash flow, as well as borrowings under our credit facility.
At December 31, 2021 and 2020, we had $97.0 million and $103.5 million,
respectively, in cash and cash equivalents, which consisted primarily
of government money market funds. At December 31, 2021, Kforce
had $211.7 million in working capital compared to $230.7 million at
December 31, 2020.
Cash Flows
Our business has historically generated a significant amount of
operating cash flows, which allows us to balance deploying available
capital towards: (i) investing in our infrastructure to allow sustainable
growth via capital expenditures; (ii) our dividend and share repurchase
programs; and (iii) maintaining sufficient liquidity to complete
acquisitions or other strategic investments.
2021
$ 75,177
—
75,177
4,500
(2,051)
13,999
3,073
24,090
3,350
1,821
2,480
2020
$56,039
—
56,039
5,255
—
11,595
3,396
19,173
—
—
1,681
2019
$130,862
76,296
54,566
6,050
—
9,825
2,586
16,830
—
—
831
$126,439
$ 97,139
$ 90,688
The following table presents a summary of our net cash flows from
operating, investing and financing activities (in thousands):
Years Ended December 31,
2021
2020
2019
Cash Provided by (Used in)
Operating activities
Investing activities
Financing activities
Change in cash and
cash equivalents
$ 72,898
8,301
(87,696)
$109,159 $ 66,617
103,185
(150,083)
(6,927)
(18,577)
$ (6,497)
$ 83,655
$ 19,719
Our Consolidated Statements of Cash Flows are presented on a
combined basis (continuing operations and discontinued operations).
As previously discussed, the GS segment was sold and has been
reflected as a discontinued operation for 2019.
The following table provides information for the total operating and
investing cash flows for the GS segment (in thousands):
Years Ended December 31,
2021
2020
2019
Cash Provided by
GS Operating Activities
GS Investing Activities
$ —
$ —
$ —
$ —
$ 4,547
$117,798
KFORCE INC. AND SUBSIDIARIES 21
Operating Activities
Cash provided by operating activities was $72.9 million during
the year ended December 31, 2021, as compared to $109.2 million
during the year ended December 31, 2020. Our largest source of
operating cash flows is the collection of trade receivables, and our
largest use of operating cash flows is the payment of our associate
and consultant compensation. The decrease was primarily driven by
growth in our accounts receivable portfolio and the $19.0 million
payment of payroll taxes in 2021 out of the $39 million that was
deferred in 2020 related to the CARES ACT. This decline was partially
offset by profitable revenue growth.
Investing Activities
Cash provided by investing activities was $8.3 million during the
year ended December 31, 2021, as compared to cash used in investing
activities of $6.9 million during the year ended December 31, 2020.
The aggregate year-over-year change of $15.2 million is due to
$23.7 million in net proceeds from the sale of our corporate
headquarters, which was partially offset by the receipt of proceeds
from the sale of assets held within the Rabbi Trust of $3.5 million in
2020 and a $5 million increase in capital contributed to WorkLLama.
We expect to continue selectively investing in our infrastructure,
primarily focusing on implementing new and upgrading existing
technologies that will provide the most benefit.
Financing Activities
Cash used in financing activities was $87.7 million during the year
ended December 31, 2021, as compared to $18.6 million during the
year ended December 31, 2020. The change was primarily driven by
the $35.0 million draw down on our credit facility during the year ended
December 31, 2020, and an increase in the repurchases of common
stock and quarterly dividends during the year ended December 31,
2021 compared to 2020.
The following table presents the cash flow impact of the common
stock repurchase activity for the years ended December 31
(in thousands):
Open market repurchases
Repurchase of shares related
to tax withholding
requirements for vesting of
restricted stock
Total cash flow impact
of common stock
repurchases
Cash paid in current year for
settlement of prior year
2021
2020
2019
$54,265
$ 29,386
$ 118,324
11,945
6,227
6,129
$66,210
$35,613
$124,453
repurchases
$ —
$ —
$ 556
During the years ended December 31, 2021, 2020 and 2019, Kforce
declared and paid dividends of $20.1 million ($0.98 per share), $16.8
million ($0.80 per share) and $16.6 million ($0.72 per share), respectively.
On February 4, 2022, Kforce’s Board approved a 15% increase to
the Company’s quarterly dividend from $0.26 per share to $0.30 per
share. The declaration, payment and amount of future dividends are
discretionary and will be subject to determination by Kforce’s Board
each quarter following its review of, among other things, the Firm’s
current and expected financial performance as well as the ability to
pay dividends under applicable law.
We believe that existing cash and cash equivalents, cash flow from
operations and available borrowings under our credit facility will
be adequate to meet the capital expenditure and working capital
requirements of our operations for at least the next 12 months.
However, a material deterioration in the economic environment or
market conditions, among other things, could negatively impact
operating results and liquidity, as well as the ability of our lenders
to fund borrowings. Actual results could also differ materially from
those indicated as a result of a number of factors, including the use of
currently available resources for potential acquisitions and additional
stock repurchases.
Credit Facility
On October 20, 2021, the Firm entered into an amended and restated
credit agreement with Wells Fargo Bank, National Association, as
administrative agent, Wells Fargo Securities, LLC, as lead arranger and
bookrunner, Bank of America, N.A., as syndication agent, BMO Harris
Bank, N.A., as documentation agent, and the lenders referred to therein
(the “Amended and Restated Credit Facility”). Under the Amended and
Restated Credit Facility, the Firm has a maximum borrowing capacity
of $200.0 million, which may, subject to certain conditions and the
participation of the lenders, be increased up to an aggregate additional
amount of $150.0 million. The maturity date of the Amended and
Restated Credit Facility is October 20, 2026. Refer to Note 14 — “Credit
Facility” in the Notes to Consolidated Financial Statements, included in
this Annual Report, for a complete discussion of our Credit Facility. As
of December 31, 2021, $100.0 million was outstanding and $98.7 million,
subject to certain covenants, was available.
In April 2017 and March 2020, Kforce entered into two forward-
starting interest rate swap agreements (the “Swaps”) to mitigate the
risk of rising interest rates and the Swaps have been designated
as a cash flow hedges. Refer to Note 15 — “Derivative Instrument
and Hedging Activity” in the Notes to Consolidated Financial
Statements, included in this Annual Report, for a complete discussion
of the Swaps. As of December 31, 2021 and 2020, the fair value
of the Swaps was an asset of $0.8 million and liability of $1.8
million, respectively.
Stock Repurchases
The following table presents the open market repurchase activity
under the Board-authorized common stock repurchase program for
the years ended December 31 (in thousands):
2021
2020
Shares $ Shares $
Open market
repurchases
922
$54,446
1,020
$29,386
22 KFORCE INC. AND SUBSIDIARIES
As of December 31, 2021, $30.1 million remained available for further
repurchases under the Board-authorized common stock repurchase
program. On February 4, 2022, the Board approved an increase in
our stock repurchase authorization, bringing the total authorization to
$100.0 million.
Contractual Obligations
In addition to our discussion and analysis surrounding our liquidity
and capital resources, consideration should also be given to significant
contractual obligations:
• Our credit facility matures October 20, 2026 and, as of December 31,
2021, our outstanding debt balance was $100.0 million. Our
interest rate as of December 31, 2021 was used to forecast the
expected future interest rate payments. These payments, which
are estimated to be $4.9 million, are inherently uncertain due to
fluctuations in interest rates and outstanding borrowings that will
occur over the remaining term of the credit facility. See Note 14,
“Credit Facility” within our consolidated financial statements for
further detail of our debt.
• We maintain various non-qualified deferred compensation plans
pursuant to which eligible management and highly-compensated
key employees may elect to defer all or part of their compensation
to later years. As of December 31, 2021, the value of our obligation
under these plans was $42.6 million. These amounts are included
in the accompanying Consolidated Balance Sheets and classified
as Accounts payable and other accrued liabilities and Other long-
term liabilities, as appropriate, and are payable based upon the
elections of the plan participants (e.g., retirement, termination
of employment, change-in-control). Amounts payable upon the
retirement or termination of employment may become payable
during the next five years if covered employees schedule a
distribution, retire or terminate during that time.
• Our purchase obligations consist of agreements to purchase goods
and services entered into in the ordinary course of business. As of
December 31, 2021, the value of our non-cancellable unconditional
purchase obligations was $19.0 million.
• We have employment agreements with certain executives that
provide for minimum compensation, salary and continuation of
certain benefits for a six-month to a three-year period after their
employment ends under certain circumstances. At December 31,
2021, our liability would be approximately $36.9 million for
terminations related to a change in control and $13.0 million
related to terminations in the absence of good cause. See Note 18
‘” Commitments and Contingencies” of our Notes to Consolidated
Financial Statements for additional information regarding our
commitments related to employment agreements.
• We lease certain facilities and other properties under non-
cancellable operating lease arrangements that expire at various
dates through 2033. As of December 31, 2021, the value of our
obligations under operating leases was $19.4 million. See Note 12,
“Leases,” within our consolidated financial statements for further
detail of our obligations and the timing of expected future
payments, including a five-year maturity schedule.
• In September 2021, we entered into a lease agreement for office
space in Tampa, Florida, which will become our new corporate
headquarters. The new lease has not yet commenced, but will
require aggregate future lease payments of approximately
$10.9 million over the entire lease term, which includes annual
upward adjustments, and has a non-cancellable lease term of 129
months, excluding renewal options. The new lease also provides
for a tenant-improvement allowance from the landlord, of $1.6
million to be used towards costs to design, engineer, install, supply
and to construct improvements. See Note 12, “Leases,” within
our consolidated financial statements for further detail of our
obligations and the timing of expected future payments.
Off-Balance Sheet Arrangements
Kforce provides letters of credit to certain vendors in lieu of
cash deposits. At December 31, 2021, Kforce had letters of credit
outstanding for operating lease and insurance coverage deposits
totaling $1.3 million.
In June 2019, we entered into a joint venture whereby Kforce
has a 50% noncontrolling interest in WorkLLama, a newly formed
LLC that is accounted for as an equity method investment. Refer
to Note 1 — “Summary of Significant Accounting Policies” in the
Notes to Consolidated Financial Statements, included in this Annual
Report, which discusses a contingent obligation related to this equity
method investment.
These off-balance sheet arrangements do not have a material
impact on our liquidity or capital resources. These off-balance
sheet arrangements do not provide financing, liquidity, market or
credit risk support.
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are discussed in Note 1 – “Summary
of Significant Accounting Policies” in the Notes to Consolidated Financial
Statements, included in this Annual Report. Our consolidated financial
statements are prepared in accordance with GAAP. In connection with
the preparation of our consolidated financial statements, we are required
to make assumptions and estimates about future events, and apply
judgments that affect the reported amount of assets, liabilities, revenues,
expenses and the related disclosures. We base our assumptions, estimates
and judgments on historical experience, current trends and other factors
that management believes to be relevant at the time our consolidated
financial statements are prepared. On a regular basis, management
reviews the accounting policies, estimates, assumptions and judgments
to ensure that our consolidated financial statements are presented fairly
and in accordance with GAAP. However, because future events and their
effects cannot be determined with certainty, actual results could differ
from our assumptions and estimates, and such differences could be
material. Management believes that the following accounting estimates
are the most critical to aid in fully understanding and evaluating our
reported financial results, and they require management’s most difficult,
subjective or complex judgments, resulting from the need to make
estimates about the effect of matters that are inherently uncertain. We
have not made any material changes in our accounting methodologies
used in prior years.
KFORCE INC. AND SUBSIDIARIES 23
Equity Method Investment
Goodwill Impairment
Goodwill is tested at the reporting unit level which is generally an
operating segment, or one level below the operating segment level,
where a business operates and for which discrete financial information
is available and reviewed by segment management. We evaluate
goodwill for impairment annually or more frequently whenever events
or circumstances indicate that the fair value of a reporting unit is below
its carrying value. We monitor the existence of potential impairment
indicators throughout the year. It is our policy to conduct impairment
testing based on our current business strategy in light of present
industry and economic conditions, as well as future expectations.
When performing a quantitative assessment, we determine the
fair value of our reporting units using widely accepted valuation
techniques, including the discounted cash flow, guideline transaction
and guideline company methods. These types of analyses contain
uncertainties because they require management to make significant
assumptions and judgments including: (1) an appropriate rate
to discount the expected future cash flows; (2) the inherent risk in
achieving forecasted operating results; (3) long-term growth rates;
(4) expectations for future economic cycles; (5) market comparable
companies and appropriate adjustments thereto; and (6) market
multiples. When performing a qualitative assessment, we assess
qualitative factors to determine whether the existence of events or
circumstances indicated that it was more likely than not that the fair
value of the reporting unit was less than its carrying amount.
Refer to Note 9 — “Goodwill” in the Notes to Consolidated Financial
Statements, included in this Annual Report, for a complete discussion
of the valuation methodologies employed.
Self-Insured Liabilities
We are self-insured for certain losses related to health insurance
claims that are below insurable limits. However, we obtain third-
party insurance coverage to limit our exposure to claims in excess
of insurable limits. When estimating our self-insured liabilities, we
consider a number of factors, including historical claims experience,
plan structure, internal claims management activities, demographic
factors and severity factors. Periodically, management reviews its
assumptions to determine the adequacy of our self-insured liabilities.
Our self-insured liabilities contain uncertainties because
management is required to make assumptions and to apply judgment
to estimate the ultimate total cost to settle reported claims and claims
incurred but not reported (“IBNR”) as of the balance sheet date. A
10% change in our self-insured liabilities related to health insurance,
as of December 31, 2021, would have impacted our net income by
approximately $0.5 million in 2021.
NEW ACCOUNTING STANDARDS
Refer to Note 1 — “Summary of Significant Accounting Policies”
in the Notes to Consolidated Financial Statements, included in this
Annual Report, for a discussion of new accounting standards.
Initial Investment
In June 2019, we entered into a joint venture whereby Kforce has a
50% noncontrolling interest in WorkLLama, which is accounted for as
an equity method investment.
Impairment Assessment
We review the equity method investment for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the investment may not be recoverable. An impairment loss is
recognized in the event that an other-than-temporary decline in the
fair value of the investment occurs. Management’s estimate of fair
value of an investment is based on the income approach and/or market
approach. For the income approach, we utilize estimated discounted
future cash flows expected to be generated by WorkLLama. For the
market approach, we utilize market multiples of revenue and earnings
derived from comparable publicly-traded companies. These types
of analyses contain uncertainties because they require management
to make significant assumptions and judgments including: (1) an
appropriate rate to discount the expected future cash flows; (2) the
inherent risk in achieving forecasted operating results; (3) long-term
growth rates; (4) expectations for future economic cycles; (5) market
comparable companies and appropriate adjustments thereto; and
(6) market multiples. Changes in key assumptions about the financial
condition of an investee or actual conditions that differ from estimates
could result in an impairment charge.
Refer to Note 1 — “Summary of Significant Accounting Policies” in
the Notes to Consolidated Financial Statements, included in this Annual
Report, for a complete discussion of our equity method investment.
Allowance for Credit Losses
Management performs an ongoing analysis of factors in establishing
its allowance for doubtful accounts including recent write-off and
delinquency trends, a specific analysis of significant receivable balances
that are past due, the concentration of accounts receivable among
clients and higher-risk sectors, and the current state of the U.S. economy.
A 10% change in accounts reserved, at December 31, 2021, would have
impacted our net income by approximately $0.2 million in 2021.
Accounting for Income Taxes
Our effective income tax rate is influenced by tax planning
opportunities available to us in the various jurisdictions in which we
conduct business. Significant judgment is required in determining our
effective tax rate and in evaluating our tax positions, including those
that may be uncertain.
We are also required to exercise judgment with respect to the
realization of our net deferred tax assets. Management evaluates
positive and negative evidence and exercises judgment regarding
past and future events to determine if it is more likely than not that
all or some portion of the deferred tax assets may not be realized. If
appropriate, a valuation allowance is recorded against deferred tax
assets to offset future tax benefits that may not be realized. A 0.5%
change in our effective tax rate would have impacted our net income
by approximately $0.5 million in 2021.
Refer to Note 7 — “Income Taxes” in the Notes to Consolidated
Financial Statements, included in this Annual Report, for a complete
discussion of the components of our income tax expense, as well as
the temporary differences that exist as of December 31, 2021.
24 KFORCE INC. AND SUBSIDIARIES
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Kforce is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) of the Exchange Act. Kforce’s internal control system was designed to provide reasonable assurance to Kforce’s management and
the Board regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of the CEO and the CFO, Kforce’s management assessed the effectiveness of Kforce’s internal
control over financial reporting as of December 31, 2021. In making this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment we believe that,
as of December 31, 2021, Kforce’s internal control over financial reporting is effective based on those criteria.
Kforce’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on our internal control over financial
reporting, which is included herein.
KFORCE INC. AND SUBSIDIARIES 25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Kforce Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Kforce, Inc. and subsidiaries (“Kforce”) as of December 31, 2021 and 2020,
the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows, for each of the
three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to
as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control
— Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any
way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
26 KFORCE INC. AND SUBSIDIARIES
Equity Method Investment — Refer to Note 1 to the Consolidated Financial Statements
Critical Audit Matter Description
In June 2019, Kforce entered into a joint venture whereby Kforce has a 50% noncontrolling ownership in WorkLLama, LLC (“WorkLLama”). The
noncontrolling interest in WorkLLama, a variable interest entity, is accounted for as an equity method investment. Under the equity method, the
investment carrying value is recorded at cost and adjusted for the proportionate share of earnings or losses. Management reviews the equity
method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not
be recoverable. An impairment loss would be recognized in the event that an other-than-temporary decline in fair value of an investment occurs.
Management’s estimate of fair value of an investment is based on the income approach and/or market approach, which requires management
to make significant estimates and assumptions related to the discount rate and forecasted operating results for WorkLLama. Changes in these
assumptions could have a significant impact on either the fair value, the amount of any impairment charge, or both. The balance of the investment
in WorkLLama of $17.0 million was included in Other assets, net in the Consolidated Balance Sheet at December 31, 2021.
We identified management’s quantitative impairment analysis for the equity method investment in WorkLLama as a critical audit matter because
of the significant amount of judgment required to estimate the fair value of WorkLLama. This required a high degree of auditor judgment and
an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions
regarding cash flow projections, including the need to involve fair value specialists, when performing audit procedures to evaluate assumptions
related to the selection of the weighted-average cost of capital.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rate and forecasted operating results used by management to estimate the fair value of WorkLLama
included the following, among others:
• We tested the effectiveness of controls over management’s impairment evaluation, including those over management’s review of forecasts of
future revenue and management’s review of their specialist’s fair value analysis.
• Due to the lack of operating history available for the equity method investment, we evaluated the reasonableness of management’s forecasts
as follows:
◦ Obtained an understanding of and performed audit procedures over management’s forecasting process, including the sources of
information used, the underlying significant assumptions, and sensitivity to changes in these significant assumptions.
◦ Compared the forecast to (1) internal communications to management and Board of Directors, (2) current year operating results, and (3)
peer companies as well as information included in analyst and industry reports for the Company.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and assumptions used to
determine the fair value of WorkLLama, such as the weighted-average cost of capital, by:
◦ Testing the underlying source information and mathematical accuracy of the calculations.
◦ Developing a range of independent estimates and comparing those to the assumptions used by management.
◦ For the weighted-average cost of capital, we compared the amount used by management to the amounts associated with other
companies with a similar risk profile, and
◦ Evaluating the interaction between the weighted-average cost of capital and the forecasts to understand and sensitize management’s
assumptions regarding risk inherent in the forecast.
Tampa, Florida
February 25, 2022
We have served as the Company’s auditor since 2000.
KFORCE INC. AND SUBSIDIARIES 27
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Years Ended December 31,
Revenue
Direct costs
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Income from operations
Other expense, net
Income from continuing operations, before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Other comprehensive (loss) income:
Defined benefit pension plans, net of tax
Change in fair value of interest rate swap, net of tax
Comprehensive income
Earnings per share — basic:
Continuing operations
Discontinued operations
Earnings per share — basic
Earnings per share — diluted:
Continuing operations
Discontinued operations
Earnings per share — diluted
Weighted average shares outstanding — basic
Weighted average shares outstanding — diluted
The accompanying notes are an integral part of these consolidated financial statements.
2021
$1,579,922
1,123,058
456,864
345,721
4,500
106,643
7,376
99,267
24,090
75,177
—
75,177
3,103
1,941
2020
$1,397,700
1,001,476
396,224
310,713
5,255
80,256
5,044
75,212
19,173
56,039
—
56,039
(1,706)
(1,191)
2019
$1,347,387
952,349
395,038
314,167
6,050
74,821
3,425
71,396
16,830
54,566
76,296
130,862
(2,183)
(807)
$ 80,221
$ 53,142
$ 127,872
$3.65
—
$3.65
$3.54
—
$3.54
20,579
21,212
$2.67
—
$2.67
$2.62
—
$2.62
20,983
21,395
$2.35
3.29
$5.64
$2.29
3.21
$5.50
23,186
23,772
28 KFORCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
ASSETS
Current assets:
Cash and cash equivalents
Trade receivables, net of allowances of $2,342 and $3,204, respectively
Income tax refund receivable
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Other assets, net
Deferred tax assets, net
Goodwill
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
Accrued payroll costs
Current portion of operating lease liabilities
Other current liabilities
Income taxes payable
Total current liabilities
Long-term debt — credit facility
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 18)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding
Common stock, $0.01 par; 250,000 shares authorized, 72,997 and 72,600 issued and
outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasur y stock, at cost; 51,493 and 50,427 shares, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
2021
2020
$ 96,989
265,322
3,010
6,790
372,111
5,964
92,629
7,657
25,040
$ 103,486
228,373
44
6,989
338,892
26,804
77,575
10,738
25,040
$ 503,401
$ 479,049
$ 81,408
71,424
6,338
22
1,239
160,431
100,000
54,564
314,995
$ 35,533
65,849
5,520
300
964
108,166
100,000
90,948
2 9 9 , 1 1 4
—
—
730
488,036
621
442,596
(743,577)
188,406
726
472,378
(4,423)
388,645
(677,391)
179,935
$ 503,401
$ 479,049
KFORCE INC. AND SUBSIDIARIES 29
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
Balance, December 31, 2018
Net income
Reclassification of stranded tax effects (Note 1)
Issuance for stock-based compensation and dividend equivalents, net of forfeitures
Stock-based compensation expense
Employee stock purchase plan
Dividends ($0.72 per share)
Defined benefit pension plan, no tax benefit
Change in fair value of interest rate swap, net of tax of $272
Repurchases of common stock
Balance, December 31, 2019
Net income
Adoption of new accounting standard (Note 5), net of tax of $75
Issuance for stock-based compensation and dividend equivalents, net of forfeitures
Stock-based compensation expense
Employee stock purchase plan
Dividends ($0.80 per share)
Defined benefit pension plan, no tax benefit
Change in fair value of interest rate swap, net of tax of $404
Repurchases of common stock
Balance, December 31, 2020
Net income
Issuance for stock-based compensation and dividend equivalents, net of forfeitures
Stock-based compensation expense
Employee stock purchase plan
Dividends ($0.98 per share)
Defined benefit pension plan, no tax benefit
Change in fair value of interest rate swap, net of tax provision of $657
Repurchases of common stock
Common Stock
Shares Amount
71,856
—
—
346
—
—
—
—
—
—
72,202
—
—
398
—
—
—
—
—
—
72,600
—
397
—
—
—
—
—
—
$719
—
—
3
—
—
—
—
—
—
722
—
—
4
—
—
—
—
—
—
726
—
4
—
—
—
—
—
—
Balance, December 31, 2021
72,997
$730
The accompanying notes are an integral part of these consolidated financial statements.
30 KFORCE INC. AND SUBSIDIARIES
Additional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
$447,337
—
—
846
11,007
355
—
—
—
—
459,545
—
—
934
11,595
304
—
—
—
—
472,378
—
1,102
13,999
557
—
—
—
—
$ 1,296
—
168
—
—
—
—
(2,183)
(807)
—
(1,526)
—
—
—
—
—
—
(1,706)
(1,191)
—
(4,423)
—
—
—
—
—
3,103
1,941
—
Retained
Earnings
$ 237,308
130,862
(168)
(849)
—
—
(16,608)
—
—
—
350,545
56,039
(214)
(938)
—
—
(16,787)
—
—
—
388,645
75,177
(1,106)
—
—
(20,120)
—
—
—
Treasury Stock
Shares Amount
Total
Stockholders’
Equity
45,822
—
—
—
—
(17)
—
—
—
3,472
49,277
—
—
—
—
(19)
—
—
—
1,169
50,427
—
—
—
(15)
—
—
—
1,080
$ (518,329)
—
—
—
—
203
—
—
—
(123,897)
(642,023)
—
—
—
—
245
—
—
—
(35,613)
(677,391)
—
—
—
205
—
—
—
(66,391)
$ 168,331
130,862
—
—
11,007
558
(16,608)
(2,183)
(807)
(123,897)
167,263
56,039
(214)
—
11,595
549
(16,787)
(1,706)
(1,191)
(35,613)
179,935
75,177
—
13,999
762
(20,120)
3,103
1,941
(66,391)
$488,036
$ 621
$442,596
51,492
$(743,577)
$ 188,406
KFORCE INC. AND SUBSIDIARIES 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
2021
2020
2019
$ 75,177
$ 56,039
$ 130,862
Gain on sale of assets held for sale
Deferred income tax provision, net
Provision for credit losses
Depreciation and amortization
Stock-based compensation expense
Defined benefit pension plans expense
Loss on disposal or impairment of assets
Noncash lease expense
Loss on equity method investment
Other
(Increase) decrease in operating assets
Trade receivables, net
Other assets
Increase (decrease) in operating liabilities
Accrued payroll costs
Other liabilities
Cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Equity method investment
Net proceeds from the sale of assets held for sale
Cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from credit facility
Payments on credit facility
Payments on other financing arrangements, payment of
contingent consideration liability and other
Payments of loan financing fees
Repurchases of common stock
Cash dividends
Cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Income taxes
Operating lease liabilities
Interest, net
Non-Cash Financing and Investing Transactions:
ROU assets obtained from operating leases
Employee stock purchase plan
The accompanying notes are an integral part of these consolidated financial statements.
32 KFORCE INC. AND SUBSIDIARIES
—
2,425
11
4,500
13,999
2,157
(1,929)
5,509
2,480
1,036
(36,960)
(9,779)
6,337
7,935
72,898
(6,441)
(9,000)
23,742
8,301
—
—
(308)
(1,058)
(66,210)
(20,120)
(87,696)
(6,497)
103,486
—
(2,298)
2,130
5,255
11,595
842
1,822
5,499
1,681
1,056
(12,863)
(4,485)
22,397
20,489
109,159
(6,475)
(4,000)
3,548
(6,927)
35,000
—
(1,177)
—
(35,613)
(16,787)
(18,577)
83,655
19,831
(79,318)
(49)
1,209
6,481
9,912
862
1,084
6,282
831
1,056
(5,360)
(9,639)
4,567
(2,163)
66,617
(10,359)
(9,000)
122,544
103,185
80,100
(86,900)
(2,222)
—
(124,453)
(16,608)
(150,083)
19,719
112
$ 96,989
$103,486
$ 19,831
$ 24,277
7,468
2,453
$ 5,098
762
$ 21,737
7,330
2,574
$ 24,935
8,186
1,480
$ 5,695
549
$ 9,205
558
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Flex Revenue
Substantially all of our Flex revenue is recognized over time as
temporary staffing services and managed solutions are provided by our
consultants at the contractually established bill rates, net of applicable
variable consideration, such as customer rebates and discounts.
Reimbursements of travel and out-of-pocket expenses (“billable
expenses”) are also recorded within Flex revenue when incurred and
the equivalent amount of expense is recorded in Direct costs in the
Consolidated Statements of Operations and Comprehensive Income.
We recognize revenue in the amount of consideration to which we
have the right to invoice when it corresponds directly to the services
transferred to the customer satisfied over time. A relatively insignificant
portion of our Flex revenue is outcome-based, as specified in our
contractual arrangements with our clients. These arrangements are
managed principally on a time and materials basis but do involve an
element of financial risk and is monitored by the Company.
Direct Hire Revenue
Direct Hire revenue is recognized at the agreed upon rate at the
point in time when the performance obligation is considered complete.
Our policy requires the following criteria to be met in order for the
performance obligation to be considered complete: (i) the candidate
accepted the position; (ii) the candidate resigned from their current
employer; and (iii) the agreed upon start date falls within the following
month. Since the client has accepted the candidate and can direct the
use of and obtains the significant risk and rewards of the placement,
we consider this point as the transfer of control to our client.
Variable Consideration
Transaction prices for Flex revenue include variable consideration.
Management evaluates the facts and circumstances of each contract
to estimate the variable consideration using the most likely amount
method which utilizes management’s expectation of the volume of
services to be provided over the applicable period.
Direct Hire revenue is recorded net of a fallout reserve. Direct Hire
fallouts occur when a candidate does not remain employed with the client
through the respective contingency period (typically 90 days or less).
Management uses the expected value method to estimate the fallout
reserve based on a combination of past experience and current trends.
Basis of Presentation
The consolidated financial statements have been prepared in
conformity with Generally Accepted Accounting Principles (“GAAP”)
and the rules of the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation
The 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 workers’ compensation and health insurance;
obligations for the pension plan; and the impairment of goodwill,
other long-lived assets and the equity method investment. Although
these and other estimates and assumptions are based on the best
available information, actual results could be materially different from
these estimates.
Revenue Recognition
All of our revenue and trade receivables are generated from
contracts with customers and our revenues are derived from U.S.
domestic operations.
Revenue is recognized when control of the promised services
is transferred to our customers at an amount that reflects the
consideration to which we expect to be entitled to in exchange for
those services. Revenue is recorded net of sales or other transaction
taxes collected from clients and remitted to taxing authorities.
For substantially all of our revenue transactions, we have determined
that the gross reporting of revenues as a principal, versus net as an
agent, is the appropriate accounting treatment because Kforce: (i) is
primarily responsible for fulfilling the promise to provide the specified
service to the customer; (ii) has discretion in selecting and assigning
the temporary workers to particular jobs and establishing the bill rate;
and (iii) bears the risk and rewards of the transaction, including credit
risk if the customer fails to pay for services performed.
KFORCE INC. AND SUBSIDIARIES 33
Payment Terms
Our payment terms and conditions vary by arrangement. The vast
majority of our terms are typically less than 90 days, however, we
have extended our payment terms beyond 90 days for certain of
our customers. Generally, the timing between the satisfaction of the
performance obligation and the payment is not significant and we do
not currently have any significant financing components.
Unsatisfied Performance Obligations
We do not disclose the value of unsatisfied performance obligations
for contracts if either the original expected length is one year or less
or if revenue is recognized at the amount to which we have the right
to invoice for services performed.
Contract Balances
We record accounts receivable when our right to consideration
becomes unconditional and services have been performed. Other than
our trade receivable balance, we do not have any material contract
assets as of December 31, 2021 and 2020.
We record a contract liability when we receive consideration from a
customer prior to transferring services to the customer. We recognize
the contract liability as revenue after we have transferred control of
the goods or services to the customer. Contract liabilities are recorded
within Accounts payable and other accrued liabilities if expected to be
recognized in less than one year and Other long-term liabilities, if over
one year, in the Consolidated Balance Sheets. We do not have any
material contract liabilities as of December 31, 2021 and 2020.
Cost of Services
Direct costs are composed of all related costs of employment for
consultants, including compensation, payroll taxes, certain fringe
benefits and subcontractor costs. Direct costs exclude depreciation
and amortization expense, which is presented on a separate line
in the accompanying Consolidated Statements of Operations and
Comprehensive Income.
Associate and field management compensation, payroll taxes and
fringe benefits are included in SG&A along with other customary costs
such as administrative and corporate costs.
Commissions
Our associates make placements and earn commissions as a
percentage of revenue or gross profit pursuant to a commission
plan. The amount of associate commissions paid increases as volume
increases. Commissions are accrued at an amount equal to the percent
of total expected commissions payable to total revenue or gross profit
for the commission-plan period, as applicable. We generally expense
sales commissions and any other incremental costs of obtaining a
contract as incurred because the amortization period is typically less
than one year.
Stock-Based Compensation
Stock-based compensation is measured using the grant-date fair
value of the award of equity instruments. The expense is recognized
over the requisite service period and forfeitures are recognized as
incurred. Excess tax benefits or deficiencies of deductions attributable
to employees’ vesting of restricted stock are reflected in Income tax
expense in the accompanying Consolidated Statements of Operations
and Comprehensive Income.
Income Taxes
Income taxes are recorded using the asset and liability approach
for deferred tax assets and liabilities and the expected future tax
consequences of differences between carrying amounts and the tax
basis of assets and liabilities. A valuation allowance is recorded unless
it is more likely than not that the deferred tax asset can be utilized to
offset future taxes.
Management evaluates tax positions taken or expected to be
taken in our tax returns and records a liability (including interest
and penalties) for uncertain tax positions. We recognize tax benefits
from uncertain tax positions when it is more likely than not that the
position will be sustained upon examination, including resolutions of
any related appeals or litigation processes. The Company recognizes
interest and penalties related to uncertain tax positions in Income tax
expense in the accompanying Consolidated Statements of Operations
and Comprehensive Income.
Cash and Cash Equivalents
All highly liquid investments with original maturity dates of three
months or less at the time of purchase are classified as cash equivalents.
Cash and cash equivalents are stated at cost, which approximates fair
value because of the short-term nature of these instruments. Our cash
equivalents are held in government money market funds and at times
may exceed federally insured limits.
Trade Receivables and Related Reserves
Trade receivables are recorded net of allowance for credit losses.
The allowance for credit losses is determined under the newly adopted
guidance, which 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. Trade
receivables are written off after all reasonable collection efforts have
been exhausted. Trade accounts receivable reserves as a percentage
of gross trade receivables was approximately 1% at both December 31,
2021 and 2020.
34 KFORCE INC. AND SUBSIDIARIES
Fixed Assets
Fixed assets are carried at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The cost of leasehold improvements
is amortized using the straight-line method over the lesser of the
estimated useful lives of the assets or the expected terms of the
related leases. Upon sale or disposition of our fixed assets, the cost
and accumulated depreciation are removed and any resulting gain
or loss, net of proceeds, is reflected within SG&A in the Consolidated
Statements of Operations and Comprehensive Income.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Recoverability of long-lived assets is
measured by a comparison of the carrying amount of the asset group
to the future undiscounted net cash flows expected to be generated by
those assets. If an analysis indicates the carrying amount of these long-
lived assets exceeds the fair value, an impairment loss is recognized
to reduce the carrying amount to its fair market value, as determined
based on the present value of projected future cash flows.
Goodwill
Management has determined that the reporting units for the
goodwill analysis is consistent with our reporting segments. We
evaluate goodwill for impairment either through a qualitative or
quantitative approach annually, or more frequently if an event occurs
or circumstances change that indicate the carrying value of a reporting
unit may not be recoverable. If we perform a quantitative assessment
that indicates the carrying amount of a reporting unit exceeds its
fair market value, an impairment loss is recognized to reduce the
carrying amount to its fair market value. Kforce determines the fair
market value of each reporting unit based on a weighting of the
present value of projected future cash flows (the “income approach”)
and the use of comparative market approaches (“market approach”).
Factors requiring significant judgment include, among others, the
assumptions related to discount rates, forecasted operating results,
long-term growth rates, the determination of comparable companies
and market multiples. Changes in economic and operating conditions
or changes in Kforce’s business strategies that occur after the annual
impairment analysis may impact these assumptions and result in a
future goodwill impairment charge, which could be material to our
consolidated financial statements.
Equity Method Investment
In June 2019, we entered into a joint venture whereby Kforce
has a 50% noncontrolling interest in WorkLLama. WorkLLama
has developed technology for a SaaS platform focused on talent
communities in areas that include consultant engagement, automated
BOT, on-demand staffing and referral technologies, which we believe
has enhanced our capability to more efficiently and effectively identify
and place consultants on assignment. Our noncontrolling interest in
WorkLLama, a variable interest entity, is accounted for as an equity
method investment. Under the equity method, our carrying value is at
cost and adjusted for our proportionate share of earnings or losses.
There are no basis differences between our carrying value and the
underlying equity in net assets that would result in adjustments to our
proportionate share of earnings or losses. We recorded a loss related
to our equity method investment of $2.5 million and $1.7 million
during the years ended December 31, 2021 and 2020, respectively.
The balance of the investment in WorkLLama of $17.0 million and $10.5
million was included in Other assets, net in the Consolidated Balance
Sheets at December 31, 2021 and 2020, respectively.
Under the joint venture operating agreement for WorkLLama,
Kforce was originally obligated to make additional cash contributions
subsequent to the initial contribution, contingent on WorkLLama’s
achievement of certain operational and financial milestones, which are
centered around the market acceptance of its technologies and success
with internal operating and strategic objectives. Under the operating
agreement, our maximum potential capital contributions are $22.5
million. The original operating and financial milestones established in
the joint venture operating agreement were not achieved, in part, due
to the impacts of the COVID-19 pandemic on WorkLLama’s business.
We continued to provide capital contributions to the joint venture due
to our belief in the long-term value of the joint venture. During the
years ended December 31, 2021 and 2020, we contributed $9.0 million
and $4.0 million of capital contributions, respectively.
We review the equity method investment for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the investment may not be recoverable. An impairment loss is
recognized in the event that an other-than-temporary decline in the
fair value of the investment occurs. Management’s estimate of the fair
value of an investment is based on the income approach and market
approach. Like most business enterprises, WorkLLama was impacted
by the COVID-19 pandemic and made adjustments in 2021 to its
primary addressable market, go to market strategy and other strategic
objectives. Given this, management determined that a triggering event
had occurred. Thus, we performed an impairment test as of December 31,
2021, utilizing the market and income approaches. For the income
approach, we utilized estimated discounted future cash flows
expected to be generated by WorkLLama. For the market approach,
we utilized market multiples of revenue and earnings derived from
comparable publicly-traded companies. These types of analyses
contain uncertainties because they require management to make
significant assumptions and judgments including: (1) an appropriate
rate to discount the expected future cash flows; (2) the inherent risk
in achieving forecasted operating results; (3) long-term growth rates;
(4) expectations for future economic cycles; (5) market comparable
companies and appropriate adjustments thereto; and (6) market
multiples. Changes in key assumptions about the financial condition
of an investee or actual conditions that differ from estimates could
result in an impairment charge. As a result of the impairment test, we
concluded that the carrying value of the equity method investment
was not impaired.
KFORCE INC. AND SUBSIDIARIES 35
Operating Leases
Capitalized Software
Kforce leases property for our field offices and corporate headquarters
as well as certain office equipment, which limits our exposure to risks
related to ownership. We determine if a contract or arrangement meets
the definition of a lease at inception. We elected not to separate lease
and non-lease components when determining the consideration in the
contract. Right-of-use (“ROU”) assets and lease liabilities are recognized
based on the present value of the lease payments over the lease term at
the commencement date. If there is no rate implicit in the lease, we use
our incremental borrowing rate in the present value calculation, which
is based on our collateralized borrowing rate and determined based on
the terms of our leases and the economic environment in which they
exist. Our lease agreements do not contain any material residual value
guarantees or restrictive covenants.
ROU assets for operating leases, net of amortization, are recorded
within Other assets, net and operating lease liabilities are recorded
within current liabilities if expected to be recognized in less than
one year and in Other long-term liabilities, if over one year, in the
Consolidated Balance Sheets. Operating lease additions are non-cash
transactions and the amortization of the ROU assets is reflected as
Noncash lease expense within operating activities in the Consolidated
Statement of Cash Flows.
Our lease terms typically range from three to five years with some
containing options to renew or terminate. However, in September
2021, we entered into a lease agreement for office space in Tampa,
Florida, which will become our new corporate headquarters. The new
lease has not yet commenced, but will require aggregate future lease
payments of approximately $10.9 million over the entire lease term,
which includes annual upward adjustments, and has a non-cancellable
lease term of 129 months, excluding renewal options. The new lease
also provides for the Company to receive an allowance from the
landlord, of $1.6 million to be used towards costs to design, engineer,
install, supply and to construct improvements. The exercise of renewal
options is at our sole discretion and is included in the lease term if we
are reasonably certain that the renewal option will be exercised.
We elected the short-term practical expedient for leases with an
initial term of 12 months or less and do not recognize ROU assets or
lease liabilities for these short-term leases.
In addition to base rent, certain of our operating leases require
variable payments of property taxes, insurance and common area
maintenance. These variable lease costs, other than those dependent
upon an index or rate, are expensed when the obligation for those
payments is incurred.
Kforce purchases, develops and implements software to enhance
the performance of our technology infrastructure. Direct internal
costs, such as payroll and payroll-related costs, and external costs
incurred during the development stage are capitalized and classified
as capitalized software. Capitalized software development costs and
the associated accumulated amortization are included in Other assets,
net in the accompanying Consolidated Balance Sheets. Amortization
expense is computed using the straight-line method over the
estimated useful lives of the software, which range from one to ten
years. Amortization expense of capitalized software during the years
ended December 31, 2021, 2020 and 2019 was $1.7 million, $1.1 million,
$1.1 million, respectively.
Health Insurance
Except for certain fully insured health insurance lines of coverage,
Kforce retains the risk of loss for each health insurance plan participant
up to $600 thousand in claims annually. Additionally, for all claim
amounts exceeding $600 thousand, Kforce retains the risk of loss up
to an annual aggregate 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.
Legal Costs
Legal costs incurred in connection with loss contingencies are
expensed as incurred.
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 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 years ended December 31, 2021, 2020 and 2019, there
were 633 thousand, 412 thousand and 586 thousand common stock
equivalents, respectively, included in the diluted WASO. For the years
ended December 31, 2021, 2020 and 2019, there were 9 thousand,
249 thousand and one thousand, respectively, of anti-dilutive common
stock equivalents.
36 KFORCE INC. AND SUBSIDIARIES
Treasury Stock
The Board may authorize share repurchases of our common stock.
Shares repurchased under Board authorizations are held in treasury
for general corporate purposes. Treasury shares are accounted for
under the cost method and reported as a reduction of stockholders’
equity in the accompanying consolidated financial statements.
Derivative Instrument
Our interest rate swap derivative instruments have been designated
as cash flow hedges and are recorded at fair value on the Consolidated
Balance Sheets. The effective portion of the gain or loss on the
derivative instruments are recorded as a component of Accumulated
other comprehensive loss, net of tax, and reclassified into earnings
when the hedged items affect earnings and into the line item of the
hedged item. Any ineffective portion of the gain or loss is recognized
immediately into Other expense, net on the Consolidated Statements
of Operations and Comprehensive Income. Cash flows from the
derivative instrument are classified in the Consolidated Statements of
Cash Flows in the same category as the hedged item.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date.
The fair value hierarchy uses a framework which requires categorizing
assets and liabilities into one of three levels based on the inputs used
in valuing the asset or liability.
• Level 1 inputs are unadjusted, quoted market prices in active
markets for identical assets or liabilities.
• Level 2 inputs are observable inputs other than quoted prices
included in Level 1, such as quoted prices for similar assets or
liabilities in active markets or quoted prices for identical assets or
liabilities in inactive markets.
• Level 3 inputs include unobservable inputs that are supported by
little, infrequent or no market activity and reflect management’s
own assumptions about inputs used in pricing the asset or liability.
Level 1 provides the most reliable measure of fair value, while Level 3
generally requires significant management judgment. Assets and
liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.
Fair value measurements include, but are not limited to: the
impairment of goodwill, other long-lived assets and the equity method
investment; stock-based compensation and the interest rate swap.
The carrying values of cash and cash equivalents, trade receivables,
other current assets and accounts payable and other accrued liabilities
approximate fair value because of the short-term nature of these
instruments. Using available market information and appropriate
valuation methodologies, management has determined the estimated
fair value measurements; however, considerable judgment is required
in interpreting data to develop the estimates of fair value.
New Accounting Standards
Recently Adopted Accounting Standards
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 was effective for fiscal periods beginning
after December 15, 2020, with the retrospective method required for all
periods presented. The Company adopted the provisions of this new
accounting standard at the beginning of fiscal year 2021. This guidance
did not have a financial impact on the Company’s financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In October 2021, the FASB issued ASU No. 2021-08, Business
Combinations (Topic 805) — Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. This ASU is
intended to improve the accounting for acquired revenue contracts
with customers in a business combination by addressing diversity in
practice and inconsistency related to: (1) recognition of an acquired
contract liability, and 2) payment terms and their effect on subsequent
revenue recognized by the acquirer. ASU 2021-08 is effective for
annual periods, including interim periods within those annual periods,
beginning after December 15, 2022. Early adoption of this ASU is
permitted. We are currently evaluating the impact of ASU 2021-08 on
our consolidated financial statements. Other recently issued statements
have been evaluated, but are not listed here as it has been determined
that they are not applicable to our Firm.
2. DISCONTINUED OPERATIONS
During 2019, management divested the Government Solutions
(“GS”) segment as a result of the Firm’s decision to focus its efforts
on its Technology and FA businesses. The GS segment consisted of
Kforce Government Solution (“KGS”), our former federal government
solutions business, and TFX, our federal government product business.
On April 1, 2019, Kforce completed the sale of all of the issued and
outstanding stock of Kforce Government Holdings, Inc., including its
wholly-owned subsidiary KGS, to ManTech International Corporation
for a cash purchase price of $115.0 million. Our gain on the sale of KGS,
net of transaction costs, was $72.3 million. Total transaction costs were
$9.6 million, which primarily includes legal and broker fees, transaction
bonuses and accelerated stock-based compensation expense for KGS
management triggered by a change in control of KGS.
KFORCE INC. AND SUBSIDIARIES 37
The effective tax rate for discontinued operations, including the
gain on sale of discontinued operations, was 4.4% for the year ended
December 31, 2019. There are no reportable results for the years
ended December 31, 2021 and December 31, 2020.
The accompanying Consolidated Statements of Cash Flows are
presented on a combined basis (continuing operations and discontinued
operations). The following table provides information for the total
operating and investing cash flows for the GS segment (in thousands):
Year Ended December 31,
Cash Provided by
GS Operating Activities
GS Investing Activities
2019
$ 4,547
$117,798
On June 7, 2019, Kforce completed the sale of all of the issued
and outstanding stock of TFX to an unaffiliated third party for a
cash purchase price of $18.4 million less a post-closing working
capital adjustment of $0.7 million. Our gain on the sale of TFX, net of
transaction costs, was $7.0 million. Total transaction costs were $2.2
million, which primarily includes legal and broker fees and transaction
bonuses. Due to the sale of TFX, we finalized the settlement of a
contingent consideration liability related to the acquisition of TFX in
2014 and paid $0.6 million during the year ended December 31, 2019.
Since the divestitures, Kforce has had no significant continuing
involvement in the operations of KGS and TFX.
The results of operations for both KGS and TFX have been reported
as discontinued operations in our consolidated financial statements
prior to their disposition. The following table summarizes the
income from discontinued operations, net of tax for the GS segment
(in thousands):
Year Ended December 31,
Revenue
Direct costs
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Income from discontinued operations
Gain on sale of discontinued operations
Other (expense) income, net
2019
$27,737
19,494
8,243
6,988
307
948
79,318
(436)
Income from discontinued operations, before income taxes
Income tax expense
79,830
3,534
Income from discontinued operations, net of tax
$76,296
38 KFORCE INC. AND SUBSIDIARIES
3. REPORTABLE SEGMENTS
Kforce’s reportable segments are Technology and FA. Historically, and for the year ended December 31, 2021, Kforce has generated only sales
and gross profit information on a segment basis. We do not report total assets or income from continuing operations separately by segment as
our operations are largely combined.
The following table provides information concerning the operations of our segments for the years ended December 31 (in thousands):
2021
Revenue
Gross profit
Operating and other expenses
Income from continuing operations, before income taxes
2020
Revenue
Gross profit
Operating and other expenses
Income from continuing operations, before income taxes
2019
Revenue
Gross profit
Operating and other expenses
Income from continuing operations, before income taxes
Technology
FA
Total
$1,273,941
$ 355,971
$305,981
$100,893
$1,049,628
$ 289,720
$348,072
$106,504
$1,057,859
$ 292,980
$289,528
$102,058
$1,579,922
$ 456,864
357,597
$ 99,267
$1,397,700
$ 396,224
321,012
$ 75,212
$ 1,347,387
$ 395,038
323,642
$ 71,396
4. DISAGGREGATION OF REVENUE
The following table provides information about disaggregated revenue by segment and revenue type for the years ended December 31
(in thousands):
2021
Flex revenue
Direct Hire revenue
Total Revenue
2020
Flex revenue
Direct Hire revenue
Total Revenue
2019
Flex revenue
Direct Hire revenue
Total Revenue
Technology
FA
Total
$1,247,560
26,381
$1,273,941
$282,597
23,384
$1,530,157
49,765
$305,981
$1,579,922
$1,032,901
16,727
$331,196
16,876
$1,364,097
33,603
$1,049,628
$348,072
$1,397,700
$1,037,380
20,479
$1,057,859
$262,307
27,221
$1,299,687
47,700
$289,528
$1,347,387
KFORCE INC. AND SUBSIDIARIES 39
5. ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses on trade receivables is determined
based on the accounting standard that requires companies to estimate
and recognize lifetime expected losses, rather than incurred losses,
which results in the earlier recognition of credit losses even if the
expected risk of credit loss is remote. Upon adoption of the new
standard on January 1, 2020, we recognized a credit loss adjustment
related to adoption of this accounting standard as a cumulative
adjustment to the allowance for credit losses. 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 year ended December 31, 2021.
The following table presents the activity within the allowance for
credit losses on trade receivables for the years ended December 31,
2021 and December 31, 2020 (in thousands):
Allowance for credit losses, January 1, 2020(1)
Current period provision
Write-offs charged against the allowance, net of
recoveries of amounts previously written off
Allowance for credit losses, December 31, 2020
Current period provision
Write-offs charged against the allowance, net of
recoveries of amounts previously written off
Allowance for credit losses, December 31, 2021
$ 1,843
2,130
(1,216)
2,757
11
(1,039)
$ 1,729
(1) As a result of the adoption of the 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.
The allowances on trade receivables presented in the Consolidated
Balance Sheets include $0.6 million and $0.4 million at December 31,
2021 and December 31, 2020, respectively, for reserves unrelated to
credit losses.
6. FIXED ASSETS, NET
The following table presents major classifications of fixed assets and related useful lives (in thousands):
December 31,
Land(1)
Building and improvements(1)
Furniture and equipment
Computer equipment
Leasehold improvements
Total fixed assets
Less accumulated depreciation
Total Fixed assets, net
USEFUL LIFE
3-40 years
1-10 years
1-5 years
1-8 years
2021
$ —
—
5,630
5,358
6,989
17,977
(12,013)
$ 5,964
2020
$ 5,892
25,964
6,926
5,472
6,185
50,439
(23,635)
$ 26,804
(1) On May 19, 2021, we completed the sale of our corporate headquarters to an independent third party. The sale was comprised of land, a building and building improvements, which
collectively had a net book value of $21.7 million. We received net proceeds of $23.7 million and recognized a gain on the sale in the amount of $2.0 million, which is recorded in
SG&A expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
Depreciation expense was $2.8 million, $4.1 million and $4.9 million during the years ended December 31, 2021, 2020 and 2019, respectively.
40 KFORCE INC. AND SUBSIDIARIES
7. INCOME TAXES
The provision for income taxes from continuing operations consists of the following (in thousands):
Years Ended December 31,
Current tax expense:
Federal
State
Deferred tax expense
Total Income tax expense
The provision for income taxes from continuing operations shown
above varied from the statutory federal income tax rate for those
periods as follows:
Years Ended December 31,
2021
2020
2019
Federal income tax rate
State income taxes,
net of Federal tax effect
Non-deductible compensation
and meals and entertainment
Tax credits
Tax benefit from restricted
stock vesting
Other
21.0%
21.0%
21.0%
5.0
5.3
5.8
2.2
(2.2)
(2.6)
0.9
1.4
(1.5)
(1.5)
0.8
1.6
(2.1)
(1.6)
(1.1)
Effective tax rate
24.3%
25.5%
23.6%
The 2021 effective rate was favorably impacted by a higher Work
Opportunity Tax Credit (WOTC) and a greater tax benefit from the
vesting of restricted stock in 2021 versus 2020. These were offset by
greater non-deductible compensation to certain executive officers
pursuant to IRS Code Section 162(m). The 2020 effective tax rate was
unfavorably impacted by a lower WOTC in 2020 versus 2019. The 2019
effective tax rate was favorably impacted primarily by a favorable tax
adjustment related to our valuation allowance on the foreign tax credit.
2021
2020
2019
$15,617
5,765
2,708
$24,090
$17,278
4,119
(2,224)
$19,173
$12,074
5,057
(301)
$16,830
Deferred tax assets and liabilities are composed of the following
(in thousands):
December 31,
Deferred tax assets:
Accounts receivable reserves
Accrued liabilities
Deferred compensation obligation
Stock-based compensation
Operating lease liabilities
Pension and post-retirement benefit plans
Deferred payroll taxes
Other
Deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Fixed assets
Goodwill and intangible assets
ROU assets for operating leases
Partnership basis difference
Other
Deferred tax liabilities
Valuation allowance
Total Deferred tax assets, net
2021
2020
$ 604 $ 829
1,657
5,046
618
5,223
3,721
4,978
461
2,367
5,702
715
4,704
2,929
4,965
11
21,997
22,533
(604)
(4,185)
(2,413)
(3,965)
(2,966)
(207)
(489)
(2,811)
(2,370)
(4,347)
(1,469)
(309)
(14,340)
—
(11,795)
—
$ 7,657 $ 10,738
In evaluating the realizability of Kforce’s deferred tax assets,
management assesses whether it is more likely than not that some
portion, or all, of the deferred tax assets, will be realized. Management
considers, among other things, the ability to generate future taxable
income (including reversals of deferred tax liabilities) during the periods
in which the related temporary differences will become deductible.
Kforce is periodically subject to IRS audits, as well as state and other
local income tax audits for various tax years. Although Kforce has
not experienced any material liabilities in the past due to income tax
audits, Kforce can make no assurances concerning any future income
tax audits.
KFORCE INC. AND SUBSIDIARIES 41
Uncertain Income Tax Positions
The following table presents a reconciliation of the beginning and
ending balance of unrecognized tax benefits for the years ended
(in thousands):
December 31,
2021
2020
2019
Unrecognized tax benefits,
beginning
Lapse of statute of
limitations
Reductions for tax positions
of prior years
Settlements
Unrecognized tax benefits,
ending
$ 182
$ 383
$ 906
(159)
(188)
(497)
—
—
(13)
—
—
(26)
$ 23
$ 182
$ 383
Kforce and its subsidiaries file income tax returns in the U.S.
federal jurisdiction and various states. With a few exceptions, Kforce
is no longer subject to federal, state, local, or non-U.S. income tax
examinations by tax authorities for years before 2018.
8. OTHER ASSETS, NET
Other assets, net consisted of the following (in thousands):
December 31,
Assets held in Rabbi Trust
ROU assets for operating leases, net
Equity method investment
Capitalized software, net(1)
Deferred loan costs, net
Other non-current assets
Total Other assets, net
2021
2020
$41,607
15,395
17,008
14,666
1,115
2,838
$36,164
16,835
10,488
12,802
501
785
$92,629
$77,575
(1) Accumulated amortization of capitalized software was $35.5 million and $34.0 million
as of December 31, 2021 and 2020, respectively.
There was no impairment expense related to goodwill for each of
the years ended December 31, 2021, 2020 and 2019.
Management performed its annual impairment assessment of the
carrying value of goodwill as of December 31, 2021 and 2020. For each
of our reporting units, we assessed qualitative factors to determine
whether the existence of events or circumstances indicated that it
was more likely than not that the fair value of the reporting units was
less than its carrying amount. Based on the qualitative assessments,
management determined that it was not more likely than not that the
fair values of the reporting units were less than the carrying values at
December 31, 2021 and 2020. A deterioration in any of the assumptions
could result in an impairment charge in the future.
10. CURRENT LIABILITIES
The following table provides information on certain current liabilities
(in thousands):
December 31,
Accounts payable
Accrued liabilities
Total Accounts payable and
other accrued liabilities
Payroll and benefits
Payroll taxes
Health insurance liabilities
Workers’ compensation liabilities
Total Accrued payroll costs
2021
2020
$40,241
41,167
$20,177
15,356
$81,408
$35,533
$43,738
22,466
4,474
746
$38,257
21,842
4,641
1,109
$71,424
$65,849
Our accounts payable balance includes vendor and independent
contractor payables. Our accrued liabilities balance includes
approximately $19.3 million in payroll tax payments as a result of the
application of the CARES Act 2020, the current portion of our deferred
compensation plans liability, contract liabilities from contracts with
customers (such as customer rebates) and other accrued liabilities.
9. GOODWILL
The following table presents the gross amount and accumulated
impairment losses for each of our reporting units as of December 31,
2021, 2020 and 2019 (in thousands):
Goodwill, gross amount
Accumulated impairment
Technology
FA
Total
$ 156,391
$ 19,766
$ 176,157
losses
(139,357)
(11,760)
(151,117)
11. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following (in thousands):
December 31,
Deferred compensation plan
Supplemental executive retirement plan
Operating lease liabilities
Interest rate swap derivative instrument
Other long-term liabilities
2021
2020
$42,623
—
11,919
—
22
$34,501
20,628
14,692
1,774
19,353
Goodwill, carrying value
$ 17,034
$ 8,006 $ 25,040
Total Other long-term liabilities
$54,564
$90,948
42 KFORCE INC. AND SUBSIDIARIES
12. OPERATING LEASES
The following table presents weighted-average terms for our
operating leases:
13. EMPLOYEE BENEFIT PLANS
401(k) Savings Plans
December 31,
Weighted-average discount rate
Weighted-average remaining
lease term
2021
3.0%
2020
3.5%
3.9 years
4.8 years
The following table presents operating lease expense included in
SG&A (in thousands):
December 31,
Lease Cost
Operating lease expense
Variable lease costs
Short-term lease expense
Sublease income
Total operating lease expense
2021
2020
$6,363
1,078
1,199
(87)
$8,553
$7,669
1,387
855
(344)
$9,567
The following table presents the maturities of operating lease
liabilities as of December 31, 2021 (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total maturities of operating lease liabilities
Less: imputed interest
Total operating lease liabilities
$ 6,787
4,658
3,369
2,054
981
1,543
19,392
1,135
$18,257
As noted in Note 6 above, on May 19, 2021, we completed the
sale of our corporate headquarters to an independent third party. In
conjunction with the sale, we entered into an agreement to lease back
the building for a period of 18 months. The lease expense is included
in the operating lease expense amounts listed above.
On September 28, 2021, we finalized a lease agreement for office space
in Tampa, Florida, which will become our new corporate headquarters.
The new lease has not yet commenced but will require aggregate future
lease payments of approximately $10.9 million over the entire lease term,
which includes annual upward adjustments, and has a non-cancellable
lease term of 129 months, excluding renewal options. The new lease also
provides for the Company to receive an allowance from the landlord, of
$1.6 million to be used toward costs to design, engineer, install, supply
and to construct improvements, which will become part of the building,
all of which must be approved by the landlord and the Company. The
landlord will designate a general contractor and oversee all construction
improvements. The future lease payments and the allowance are not
yet recorded on our condensed consolidated balance sheets. Lease
payments will be required beginning July 1, 2023, however, we expect
the accounting lease commencement date for this initial portion of the
lease for financial reporting purposes to begin at the start of the fourth
quarter of 2022.
The Firm maintains various qualified defined contribution 401(k)
retirement savings plans for eligible employees. Assets of these
plans are held in trust for the sole benefit of employees and/or their
beneficiaries. Employer matching contributions are discretionary
and are funded annually as approved by the Board. Kforce accrued
matching 401(k) contributions for continuing operations of $1.9 million
and $1.7 million as of December 31, 2021 and 2020, respectively.
Employee Stock Purchase Plan
Kforce’s employee stock purchase plan allows all eligible employees
to enroll each quarter to purchase Kforce’s common stock at a 5%
discount from its market price on the last day of the quarter. Kforce
issued 15 thousand, 19 thousand, and 17 thousand shares of common
stock at an average purchase price of $51.10, $29.43 and $32.79 per
share during the years ended December 31, 2021, 2020 and 2019,
respectively. All shares purchased under the employee stock purchase
plan were settled using Kforce’s treasury stock.
Deferred Compensation Plans
The Firm maintains various non-qualified deferred compensation
plans, pursuant to which eligible management and highly compensated
key employees, as defined by IRS regulations, may elect to defer all or
part of their compensation to later years. These amounts are classified
in Accounts payable and other accrued liabilities if payable within the
next year or in Other long-term liabilities if payable after the next year,
upon retirement or termination of employment in the accompanying
Consolidated Balance Sheets. At December 31, 2021 and 2020, amounts
related to the deferred compensation plans included in Accounts
payable and other accrued liabilities were $4.1 million and $4.2 million,
respectively, and $42.6 million and $34.5 million was included in Other
long-term liabilities at December 31, 2021 and 2020, respectively, in the
Consolidated Balance Sheets. For the years ended December 31, 2021,
2020 and 2019, we recognized compensation expense for the plans of
$1.1 million, $1.0 million and $0.4 million, respectively.
Kforce maintains a Rabbi Trust and holds life insurance policies
on certain individuals to assist in the funding of the deferred
compensation liability. If necessary, employee distributions are funded
through proceeds from the sale of assets held within the Rabbi Trust.
The balance of the assets held within the Rabbi Trust, including the
cash surrender value of the Company-owned life insurance policies,
was $41.6 million and $36.2 million as of December 31, 2021 and 2020,
respectively, and is recorded in Other assets, net in the accompanying
Consolidated Balance Sheets. As of December 31, 2021, the life
insurance policies had a net death benefit of $170.3 million.
KFORCE INC. AND SUBSIDIARIES 43
Supplemental Executive Retirement Plan
Prior to April 30, 2021, Kforce maintained a Supplemental Executive
Retirement Plan (“SERP”), which benefited two executives. The SERP
was a non-qualified benefit plan and did not include elective deferrals
of covered executive officers’ compensation. The related net periodic
benefit costs were comprised of service cost and interest cost. The
service cost amounted to $199 thousand, $345 thousand and $261
thousand for the years ended December 31, 2021, 2020 and 2019,
respectively, and were recorded in SG&A. The interest cost amounted
to $138 thousand, $497 thousand and $601 thousand for the years
ended December 31, 2021, 2020 and 2019, respectively, and were
recorded in Other expense, net in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss).
Effective April 30, 2021, Kforce’s Board of Directors irrevocably
terminated the SERP. The benefits owed to the two participants
under the SERP as of December 31, 2021 amount to $20.0 million
in the aggregate, which represented the fair value at the date of
termination, and is recorded in Other accrued liabilities in Note 10
of the Consolidated Balance Sheets. Kforce must make the benefit
payments to the participants within 24 months of the termination
date but no sooner than 12 months after the termination date. We
anticipate making the benefit payments during the third quarter
ending September 30, 2022.
As a result of the termination of the SERP, Kforce recognized a net
loss of $1.8 million for the year ended December 31, 2021, which is
reflected in Other expense, net in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss).
14. CREDIT FACILITY
On October 20, 2021, the Firm entered into an amended and
restated credit agreement with Wells Fargo Bank, National Association,
as administrative agent, Wells Fargo Securities, LLC, as lead arranger
and bookrunner, Bank of America, N.A., as syndication agent, BMO
Harris Bank, N.A., as documentation agent, and the lenders referred
to therein (the “Amended and Restated Credit Facility”). Under the
Amended and Restated Credit Facility, the Firm has a maximum
borrowing capacity of $200.0 million, which may, subject to certain
conditions and the participation of the lenders, be increased up to an
aggregate additional amount of $150.0 million (the “Commitment”).
The maturity date of the Amended and Restated Credit Facility is
October 20, 2026.
Revolving credit loans under the Amended and Restated Credit
Facility bears interest at a rate equal to (a) the Base Rate (as described
below) plus the Applicable Margin (as described below) or (b) the
LIBOR Rate plus the Applicable Margin. Swingline loans under the
Amended and Restated Credit Facility bears interest at a rate equal to
the Base Rate plus the Applicable Margin. The Base Rate is the highest
of: (i) the Wells Fargo Bank, National Association prime rate, (ii) the
federal funds rate plus 0.50% or (iii) one-month LIBOR plus 1.00%, and
the LIBOR Rate is reserve-adjusted LIBOR for the applicable interest
period, but not less than zero. The Applicable Margin is based on
the Firm’s total leverage ratio. The Applicable Margin for Base Rate
loans ranges from 0.125% to 0.500% and the Applicable Margin for
LIBOR Rate loans ranges from 1.125% to 1.50%. The Amended and
Restated Credit Facility includes customary provisions relating to
the transition from LIBOR as the benchmark interest rate under the
Credit Agreement, including providing for a Benchmark Replacement
option (as defined in the Credit Agreement) to replace LIBOR. The
Firm will pay a quarterly non-refundable commitment fee equal to
the Applicable Margin on the average daily unused portion of the
Commitment (swingline loans do not constitute usage for this
purpose). The Applicable Margin for the commitment fee is based on
the Firm’s total leverage ratio and ranges between 0.20% and 0.30%.
The Firm is subject to certain affirmative and negative financial
covenants including (but not limited to), the maintenance of a fixed
charge coverage ratio of no less than 1.25 to 1.00 and the maintenance
of a total leverage ratio of no greater than 3.50 to 1.00. The numerator
in the fixed charge coverage ratio is defined pursuant to the
Amended and Restated Credit Facility as earnings before interest
expense, income taxes, depreciation and amortization, stock-based
compensation expense and other permitted items pursuant to our
Credit Facility (defined as “Consolidated EBITDA”), less cash paid for
capital expenditures, income taxes and dividends. The denominator is
defined as Kforce’s fixed charges such as interest expense and principal
payments paid or payable on outstanding debt other than borrowings
under the Amended and Restated Credit Facility. The total leverage
ratio is defined pursuant to the Amended and Restated Credit Facility
as total indebtedness divided by Consolidated EBITDA. Our ability
to make distributions or repurchases of equity securities could be
limited if an event of default has occurred. Furthermore, our ability to
repurchase equity securities in excess of $25.0 million over the last four
quarters could be limited if (a) the total leverage ratio is greater than
3.00 to 1.00 and (b) the Firm’s availability, inclusive of unrestricted cash,
is less than $25.0 million. As of December 31, 2021 and 2020, $100.0
million and $100.0 million was outstanding on the Credit Facility and
the Amended and Restated Credit Facility, respectively. Kforce had $1.3
million and $1.5 million of outstanding letters of credit at December 31,
2021 and 2020, respectively, which pursuant to the Amended and
Restated Credit Facility, reduces the availability.
44 KFORCE INC. AND SUBSIDIARIES
15. DERIVATIVE INSTRUMENT AND HEDGING ACTIVITY
Kforce is exposed to interest rate risk as a result of our corporate
borrowing activities. The Firm uses an interest rate swap derivative as a
risk management tool to mitigate the potential impact of rising interest
rates on our variable rate debt.
On April 21, 2017, Kforce entered into Swap A. Swap A was effective
on May 31, 2017 and matures on April 29, 2022. Swap A has a rate of
1.81%, which is added to our interest rate margin to determine the fixed
rate that the Firm will pay to the counterparty during the term of Swap A
based on the notional amount of Swap A. The notional amount of
Swap A through maturity is $25.0 million.
On March 12, 2020, Kforce entered into a forward-starting interest
rate swap agreement with Wells Fargo Bank, N.A (“Swap B”, together
with Swap A, the “Swaps”). Swap B was effective on March 17, 2020
and matures on May 30, 2025. Swap B has a fixed interest rate of 0.61%
and a notional amount of $75.0 million and increases to $100.0 million
in May 2022, and subsequently decreases to $75.0 million and $40.0
million in May 2023 and May 2024, respectively. The increase in the
notional amount of Swap B in May 2022 corresponds to the decrease
in the notional amount for Swap A.
The Firm uses the Swaps as interest rate risk management tools
to mitigate the potential impact of rising interest rates on variable
rate debt. The fixed interest rate for each Swap (which will remain
throughout the remainder of the hedging arrangement), plus the
applicable interest margin under our credit facility, is included in interest
expense and recorded in Other expense, net in the accompanying
Consolidated Financial Statements of Operations and Comprehensive
Income. Both Swap A and B have been designated as cash flow hedges
and were effective as of December 31, 2021. The change in the fair
value of the Swaps is recorded as a component of Accumulated other
comprehensive income (loss) in the consolidated financial statements.
The following table sets forth the activity in the accumulated
derivative instrument gain (loss) for the years ended (in thousands):
December 31,
2021
2020
Accumulated derivative instrument
gain, beginning of year
Net change associated with current
period hedging transactions
Accumulated derivative instrument
gain (loss) end of year
$(1,774)
$ (179)
2,597
(1,595)
$ 823
$(1,774)
16. FAIR VALUE MEASUREMENTS
The Swaps are measured at fair value using readily observable inputs, such as the LIBOR interest rate, which are considered to be Level 2 inputs.
Refer to Note 15 — “Derivative Instrument and Hedging Activity” in the Notes to the Consolidated Financial Statements, included in this report for
a complete discussion of the Firm’s derivative instruments.
Certain assets, in specific circumstances, are measured at fair value on a non-recurring basis utilizing Level 3 inputs such as goodwill, other
long-lived assets and the equity method investment. For these assets, measurement at fair value in periods subsequent to their initial recognition
would be applicable if one or more of these assets were determined to be impaired.
The following table sets forth by level, within the fair value hierarchy, estimated fair values on a recurring basis at December 31, 2021 and 2020
were as follows (in thousands):
Assets/(Liabilities) Measured at Fair Value:
At December 31, 2021
Recurring basis:
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Asset/
(Liability)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Interest rate swap derivative instruments
$ 823
$ —
$ 823
$ —
At December 31, 2020
Recurring basis:
Interest rate swap derivative instrument
$(1,774)
$ —
$(1,774)
$ —
There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the years ended December 31, 2021 and 2020.
KFORCE INC. AND SUBSIDIARIES 45
17. STOCK INCENTIVE PLANS
Restricted Stock
On April 22, 2021, the Kforce shareholders approved the 2021 Stock
Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the issuance
of stock options, stock appreciation rights, stock awards (including
restricted stock awards (“RSAs”) and restricted stock units (“RSUs”))
and other stock-based awards. The aggregate number of shares
of common stock that are subject to awards under the 2021 Plan is
approximately 3.9 million shares. The 2021 Plan terminates on April 28,
2031. Prior to the effective date of the 2021 Plan, the Company granted
stock awards to eligible participants under our 2020 Stock Incentive
Plan, 2017 Stock Incentive Plan, 2016 Stock Incentive Plan and 2013
Stock Incentive Plan (collectively the “Prior Plans”). As of the effective
date of the 2021 Plan, no additional awards may be granted pursuant
to the Prior Plans; however, awards outstanding as of the effective date
will continue to vest in accordance with the terms of the Prior Plans.
During the years ended December 31, 2021, 2020 and 2019, stock-
based compensation expense was $14.0 million, $11.6 million and
$9.8 million, respectively. The related tax benefit for the years ended
December 31, 2021, 2020 and 2019 was $4.1 million, $3.4 million, and
$2.3 million, respectively.
Restricted stock (including RSAs and RSUs) are granted to executives
and management either: for awards related to Kforce’s annual long-term
incentive (“LTI”) compensation program, or as part of a compensation
package in order to retain directors, executives and management. The
LTI award amounts are based on Kforce’s total shareholder return versus
a pre-defined peer group. The LTI restricted stock granted during the
year ended December 31, 2021, will vest ratably over a period of three
to four years. Other restricted stock granted during the year ended
December 31, 2021, will vest ratably over a period of one to ten years
and some at non-ratable periods between one and seven years.
RSAs contain the same voting rights as other common stock as well
as the right to forfeitable dividends in the form of additional RSAs at
the same rate as the cash dividend on common stock and containing
the same vesting provisions as the underlying award. RSUs contain
no voting rights, but have the right to forfeitable dividend equivalents
in the form of additional RSUs at the same rate as the cash dividend
on common stock and containing the same vesting provisions as the
underlying award. The distribution of shares of common stock for each
RSU, pursuant to the terms of the Kforce Inc. Director’s Restricted Stock
Unit Deferral Plan, can be deferred to a date later than the vesting date
if an appropriate election was made. In the event of such deferral, vested
RSUs have the right to dividend equivalents.
The following table presents the restricted stock activity for the years ended December 31, 2021, (in thousands, except per share amounts):
Outstanding at December 31, 2020
Granted
Forfeited/Canceled
Vested
Outstanding at December 31, 2021
Weighted-Average
Number of
Restricted Stock
Total Instrinsic
Grant Date
Fair Value
Value of Restricted
Stock Vested
1,137
417
(20)
(451)
1,083
$ 33.63
$47.58
$26.93
$32.16
$35.00
$33,559
The weighted-average grant date fair value of restricted stock granted was $47.58, $40.11 and $38.37 during the years ended December 31,
2021, 2020 and 2019, respectively. The total intrinsic value of restricted stock vested was $33.6 million, $18.0 million and $18.8 million during the
years ended December 31, 2021, 2020 and 2019, respectively.
The fair market value of restricted stock is determined based on the closing stock price of Kforce’s common stock at the date of grant and
is amortized on a straight-line basis over the requisite service period. As of December 31, 2021, total unrecognized stock-based compensation
expense related to restricted stock was $50.3 million, which will be recognized over a weighted-average remaining period of 3.0 years.
46 KFORCE INC. AND SUBSIDIARIES
18. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
Kforce has various commitments to purchase goods and services
in the ordinary course of business. These commitments are primarily
related to software and online application licenses and hosting. As
of December 31, 2021, these purchase commitments amounted to
approximately $19.0 million and are expected to be paid as follows:
$8.2 million in 2022; $4.9 million in 2023, $4.8 million in 2024, $0.9
million in 2025 and $0.2 million in 2026.
Letters of Credit
Kforce provides letters of credit to certain vendors in lieu of cash
deposits. At December 31, 2021, Kforce had letters of credit outstanding
for operating lease and insurance coverage deposits totaling
$1.3 million.
Litigation
We are involved in legal proceedings, claims and administrative
matters that arise in the ordinary course of business. We have made
accruals with respect to certain of these matters, where appropriate,
that are reflected in our consolidated financial statements but are
not, individually or in the aggregate, considered material. For other
matters for which an accrual has not been made, we have not yet
determined that a loss is probable, or the amount of loss cannot be
reasonably estimated. While the ultimate outcome of the matters
cannot be determined, we currently do not expect that these
proceedings and claims, individually or in the aggregate, will have a
material effect on our financial position, results of operations or cash
flows. The outcome of any litigation is inherently uncertain, however,
and if decided adversely to us, or if we determine that settlement
of particular litigation is appropriate, we may be subject to liability
that could have a material adverse effect on our financial position,
results of operations or cash flows. Kforce maintains liability insurance
in amounts and with such coverage and deductibles as management
believes is reasonable. The principal liability risks that Kforce insures
against are workers’ compensation, personal injury, bodily injury,
property damage, directors’ and officers’ liability, errors and omissions,
cyber liability, employment practices liability and fidelity losses. There
can be no assurance that Kforce’s liability insurance will cover all events
or that the limits of coverage will be sufficient to fully cover all liabilities.
On December 17, 2019, Kforce Inc., et al. was served with a complaint
brought in Superior Court of the State of California, Alameda County.
Kathleen Wahrer, et al. v. Kforce Inc., et al., Case Number: RG19047269.
The former employee purports to bring a representative action on
her own behalf and on behalf of other allegedly aggrieved employees
pursuant to California Private Attorneys General Act of 2004, California
Labor Code Section 2968, et seq. (“PAGA”) alleging violations of the
California Labor Code, §201, et seq. (“Labor Code”). The plaintiff seeks
civil penalties, interest, attorneys’ fees, and costs under the Labor Code
for alleged failure to: provide and pay for work performed during meal
and rest periods; properly calculate and pay all earned minimum and
overtime wages; provide compliant wage statements; timely pay wages
during employment and upon termination; and reimburse business
expenses. The parties halted early resolution attempts, and we intend to
continue to vigorously defend the claims. At this stage in the litigation,
it is not feasible to predict the outcome of this matter or reasonably
estimate a range of loss, should a loss occur, from this proceeding.
On November 18, 2020, Kforce Inc., et al. was served with a complaint
brought in the Superior Court of the State of California, San Diego
County, which was subsequently amended on January 21, 2021, to
add Kforce Flexible Solutions as a party. Bernardo Buchsbaum, et al. v.
Kforce Inc., et al., Case Number: 37-2020-00030994-CU-OE-CTL. The
former employee purports to bring a representative action on his own
behalf and on behalf of other allegedly aggrieved employees pursuant
to PAGA alleging violations of the Labor Code. The plaintiff seeks civil
penalties, interest, attorney’s fees, and costs under the Labor Code for
alleged failure to: properly calculate and pay all earned minimum and
overtime wages; provide and pay for work performed during meal and
rest periods; reimburse business expenses; provide compliant wage
statements; and provide unused vacation wages upon termination.
The parties reached a preliminary settlement agreement to resolve
this matter along with Elliott-Brand, et al. v. Kforce Inc., et al. and Lewis,
et al. v. Kforce Inc., which is subject to approval by the Court. Plaintiff
Buchsbaum has been added as a plaintiff to the Elliott-Brand lawsuit,
and this lawsuit will be dismissed after the Court’s approval of the
settlement. We believe that this matter is unlikely to have a material
adverse effect on our business, consolidated financial position, results
of operations, or cash flows.
On December 11, 2020, a complaint was filed against Kforce and its
client, Verity Health System of California (Verity) in the Superior Court
of California, County of Los Angeles, which was subsequently amended
on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC,
et al., Case Number: 20STCV47529. Former consultant Ramona Webb
has sued both Kforce and Verity alleging certain individual claims
in addition to a PAGA claim based on alleged violations of various
provisions of the Labor Code. With respect to the PAGA claim, Plaintiff
seeks to recover on her behalf, on behalf of the State of California,
and on behalf of all allegedly aggrieved employees, the civil penalties
provided by PAGA, attorney’s fees and costs. At this stage in the
litigation, it is not feasible to predict the outcome of this matter or
reasonably estimate a range of loss, should a loss occur, from this
proceeding. We intend to continue to vigorously defend the claims.
KFORCE INC. AND SUBSIDIARIES 47
and others similarly situated, plaintiffs purport to bring a class action
alleging violations of Labor Code and the California Business and
Professional Code and challenging the exempt classification of a select
class of recruiters. Plaintiffs and class members seek damages for all
earned wages, statutory penalties, injunctive relief, attorney’s fees,
and interest for alleged failure to: properly classify certain recruiters
as nonexempt from overtime; timely pay all wages earned, including
overtime premium pay; provide accurate wage statements; provide
meal and rest periods; and comply with California’s Unfair Competition
Law. Kforce anticipated this action would be filed as a result of failed
early resolution attempts in the previously disclosed Jessica Cook v.
Kforce, et al. lawsuit. At this stage in the litigation, it is not feasible to
predict the outcome of this matter or reasonably estimate a range of
loss, should a loss occur, from this proceeding. We intend to vigorously
defend the claims.
On January 6, 2022, a complaint was filed against Kforce Inc. in the
United States District Court for the Middle District of Florida and was
served on February 4, 2022. Sam Whiteman, et al. v. Kforce Inc., Case
Number: 8:22-cv-00056. On behalf of himself and all others similarly
situated, the plaintiff brings a one-count collective action complaint for
alleged violations of the FLSA by failing to pay overtime wages. Plaintiff,
on behalf of himself and the putative collective, seeks to recover
unpaid wages, liquidated damages, attorneys’ fees and costs, and
prejudgment interest for alleged failure to properly classify specified
recruiters as nonexempt from overtime and properly compensate for
all hours worked over 40 hours in one or more workweeks. At this
stage in the litigation, it is not feasible to predict the outcome of this
matter or reasonably estimate a range of loss, should a loss occur,
from this proceeding. We intend to vigorously defend the claims.
Employment Agreements
Kforce has employment agreements with certain executives that
provide for minimum compensation, salary and continuation of certain
benefits for a six-month to a three-year period after their employment
ends under certain circumstances. Certain of the agreements also
provide for a severance payment ranging from one to three times
annual salary and one-half to three times average annual bonus if such
an agreement is terminated without good cause by Kforce or for good
reason by the executive subject to certain post-employment restrictive
covenants. At December 31, 2021, our liability would be approximately
$36.9 million if, following a change in control, all of the executives
under contract were terminated without good cause by the employer
or if the executives resigned for good reason and $13.0 million if, in
the absence of a change in control, all of the executives under contract
were terminated by Kforce without good cause or if the executives
resigned for good reason.
On December 24, 2020, a complaint was filed against Kforce
Inc., et al. in Superior Court of the State of California, Los Angeles
County. Sydney Elliott-Brand, et al. v. Kforce Inc., et al., Case Number:
20STCV49193. On January 7, 2022, the lawsuit was amended to add
Bernardo Buchsbaum and Josie Meister as plaintiffs and to add claims
under PAGA and the Fair Labor Standards Act, 29 U.S.C. §§ 201, et
seq. On behalf of themselves and a putative class and collective of
talent recruiters and allegedly aggrieved employees in California and
nationwide, the plaintiffs purport to bring a class action for alleged
violations of the Labor Code, Industrial Welfare Commission Wage
Orders, and the California Business and Professions Code, §17200, et
seq., a collective action for alleged violations of FLSA, and a PAGA
action for alleged violations of the Labor Code. The plaintiffs seek
payment to recover unpaid wages and benefits, interest, attorneys’
fees, costs and expenses, penalties, and liquidated damages for alleged
failure to: properly calculate and pay all earned minimum and overtime
wages; provide meal and rest periods or provide compensation in
lieu thereof; provide accurate itemized wage statements; reimburse
for all business expenses; pay wages due upon separation; and pay
for all hours worked over forty in one or more workweeks. Plaintiffs
also seek an order requiring defendants to restore and disgorge all
funds acquired by means of unfair competition under the California
Business and Professions Code. The parties reached a preliminary
agreement to resolve this matter along with Lewis, et al. v. Kforce Inc.
and Buchsbaum, et al. v. Kforce Inc., et al., which is subject to approval
by the Court, and we have set reserves accordingly. We believe that
this matter is unlikely to have a material adverse effect on our business,
consolidated financial position, results of operations, or cash flows.
On August 30, 2021, Kforce Inc. was served with a complaint
brought in the U.S. District Court, Southern District of California. Darryn
Lewis, et al. v. Kforce Inc., Case Number: 3:21-cv-01375-AJB-JLB. On
behalf of himself and others similarly situated, the plaintiff brings a
one-count class action complaint for alleged violations of the FLSA,
and specifically, failure to pay overtime wages to a putative class
of commissioned employees who work or have worked for Kforce,
nationwide, in the past three (3) years. Plaintiff and class members
seek the amounts of unpaid wages and benefits allegedly owed to
them, liquidated damages, compensatory damages, economic and/
or special damages, attorneys’ fees and costs, interest, and other
legal and equitable relief for alleged failure to: maintain a policy that
compensates its employees for all hours worked; properly classify
employees as nonexempt from overtime; and pay overtime pay for
all hours worked over forty in one or more workweeks. The parties
reached a preliminary settlement agreement to resolve this matter
along with Elliott-Brand, et al. v. Kforce Inc., et al. and Buchsbaum, et
al. v. Kforce Inc., et al., which is subject to approval by the Court. This
lawsuit will be dismissed as part of the settlement, once approved by
the Court. We believe that this matter is unlikely to have a material
adverse effect on our business, consolidated financial position, results
of operations, or cash flows.
On January 6, 2022, a complaint was filed against Kforce Inc. in the
Superior Court of the State of California for the County of Los Angeles
and was served on January 21, 2022. Jessica Cook and Brianna Pratt, et
al. v. Kforce Inc., Case Number: 22STCV00602. On behalf of themselves
48 KFORCE INC. AND SUBSIDIARIES
CORPORATE INFORMATION
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
David L. Dunkel
Chairman of the Board
Chairman of the Board
Derrick Brooks
Executive Vice President,
Corporate & Community
Business Development,
Vinik Sports Group
Catherine Cloudman
President and
Chief Executive Officer,
CHC Advisors, LLC
Ann E. Dunwoody
General (Retired),
U.S. Army
President,
First 2 Four, LLC
Mark F. Furlong
President and
Chief Executive Officer (Retired),
BMO Harris Bank N.A.
Joseph J. Liberatore
President and
Chief Executive Officer,
Kforce Inc.
Randall A. Mehl
President and
Chief Investment Officer,
Stewardship Capital Advisors, LLC
Elaine D. Rosen
Nonexecutive Chair of the Board,
Assurant, Inc.
Chair of the Board,
The Kresge Foundation
N. John Simmons
Chief Executive Officer,
Growth Advisors, LLC
Ralph E. Struzziero
Lead Independent Director
Joseph J. Liberatore
President and
Chief Executive Officer
David M. Kelly
Chief Financial Officer and
Secretary
Kye L. Mitchell
Chief Operations Officer
Andrew G. Thomas
Chief Marketing Officer
Jeffrey B. Hackman
Senior Vice President,
Finance and Accounting
CORPORATE COUNSEL
Holland & Knight LLP
Tampa, Florida
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Tampa, Florida
TRANSFER AGENT
Computershare Investor Services
P.O. Box 505000
Louisville, KY 40233-5000
www.computershare.com/investor
Shareholder services:
1 (877) 373-6374
FORM 10-K AVAILABLE
A copy of the Kforce Inc.’s Annual
Report on Form 10-K (excluding
exhibits thereto) is available to
any investor without charge upon
written request to:
Michael R. Blackman
Chief Corporate
Development Officer
Kforce Inc.
1001 East Palm Avenue
Tampa, Florida 33605
Or call Investor Relations:
1 (813) 552-2927
ANNUAL MEETING
The annual meeting of shareholders
will be held on April 18, 2022 at
8:00 a.m. ET at Kforce Inc.
headquarters in Tampa, Florida.
WEBSITE INFORMATION
For a comprehensive profile of
Kforce Inc., visit the Firm’s
website at: www.kforce.com.
This Annual Report contains forward-looking statements (within the meaning
of the federal securities laws). Please see the “Cautionary Note Regarding
Forward-Looking Statements” contained in the introductory portion of our
Annual Report on Form 10-K for the year ended December 31, 2021 for additional
information regarding forward-looking statements.
Corporate Headquarters:
1001 East Palm Avenue
Tampa, Florida 33605
(813) 552-5000
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