Executive Travel
Related Articles
EXECUTIVE SUMMARY The following is an executive summary of what Kforce believes are highlights as of and for the nine months endedSeptember 30, 2021 , which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto. •Revenue for the nine months endedSeptember 30, 2021 , increased 12.1%, to$1,169.6 million from$1,043.7 million in the comparable period in 2020. Revenue increased 18.5% for Tech and decreased 7.2% for FA. •Flex revenue for the nine months endedSeptember 30, 2021 , increased 11.9% on a billing day basis, to$1,134.4 million from$1,019.2 million in the comparable period in 2020. Flex revenue increased 18.7% and decreased 9.1%, on a billing day basis for Tech and FA, respectively, on a year-over-year basis. •Flex revenue in our Technology business increased 28.9% on a year-over-year basis in the three months endedSeptember 30, 2021 . •Revenue from contracts we secured to support government-sponsored COVID-19 related initiatives (the "COVID-19 Business") was$7.5 million and$51.1 million for the three months endedSeptember 30, 2021 and 2020, respectively. •Direct Hire revenue for the nine months endedSeptember 30, 2021 , increased 44.0% to$35.2 million from$24.4 million in the comparable period in 2020. •Gross profit margin for the nine months endedSeptember 30, 2021 , increased 50 basis points to 28.8%. Flex gross profit margin for the nine months endedSeptember 30, 2021 and 2020, was flat at 26.6%. Tech Flex margins decreased 10 basis points due primarily to spread compression as a result of business mix. FA Flex gross profit margin increased 130 and 30 basis points for the three and nine months endedSeptember 30, 2021 , respectively, as compared to the same periods in 2020, due to a decrease in the amount of lower margin COVID-19 related business in 2021. •SG&A as a percentage of revenue for the nine months endedSeptember 30, 2021 , decreased to 21.5% from 22.6% in the comparable period in 2020 primarily due to leverage gained from our revenue growth, associate productivity improvements, lower spending in areas such as travel and lease expenses, a decline in our credit expense and a gain on the sale of our corporate headquarters. •Other income and expense, net, for the nine months endedSeptember 30, 2021 , increased 56.0% to$5.8 million from$3.7 million in the comparable period in 2020, primarily due to the recognition of unamortized losses related to the termination of the SERP onApril 30, 2021 . •Income from continuing operations for the nine months endedSeptember 30, 2021 , increased 44.7% to$54.6 million , or$2.57 per share, from$37.8 million , or$1.77 per share, in the comparable period in 2020. •The Firm returned$59.3 million of capital to our shareholders in the form of open market repurchases totaling$44.5 million and quarterly dividends totaling$14.8 million during the nine months endingSeptember 30, 2021 . •Cash provided by operating activities was$59.9 million during the nine months endedSeptember 30, 2021 , as compared to$93.9 million for the nine months endedSeptember 30, 2020 . •Cash and cash equivalents, net of outstanding borrowings under our credit facility, was$15.6 million as ofSeptember 30, 2021 . 20
————————————————– ——————————
Contents
RESULTS OF OPERATIONS
Business Overview
Kforce provides professional staffing services and solutions to our clients on
both a temporary ("Flex") and permanent ("Direct Hire") basis through our Tech
and FA segments. Our corporate headquarters is in Tampa, Florida and we have
field offices located throughout the United States (U.S. ). As of September 30,
2021 , Kforce employed approximately 2,000 associates, including approximately
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 providing flexible staffing
services and solutions to our clients, the vast majority of which are also
employees of Kforce.. Kforce serves clients across many industries and
geographies as well as organizations of all sizes, with a particular focus on
Fortune 1000 and other large companies. We believe that our 100% domestic focus,
concentration on technology staffing and solutions (representing nearly 85% of
overall revenues) and client portfolio comprised of world-class companies have
been key contributors to our strong performance in 2020 and 2021 and will be key
drivers to our future success.
In December 2020 and early 2021, the U.S. Food and Drug Administration
authorized the distribution and administration of certain COVID-19 vaccines in
the U.S. While the level of vaccinations and potential variants of COVID-19
along with the potential impact of regulations surrounding the COVID-19 vaccines
are difficult to predict and could negatively impact our business, growth in our
business has meaningfully accelerated since the low point in June 2020 . From an
economic standpoint, total and temporary employment figures and trends have
historically been important indicators of staffing demand. Based on information
published by the Bureau of Labor Statistics and Staffing Industry Analysts
("SIA"), these figures and trends have been trending positively since the end of
the third quarter of 2020. In addition,, the penetration rate (the percentage of
temporary staffing to total employment) remained stable at 1.8% and the
unemployment rate decreased again to 4.8% in September 2021 , down from 5.9% in
June 2021 . As another indicator that the market is strengthening, in the latest
U.S. staffing industry forecast published by SIA in September 2021 , the domestic
technology temporary staffing industry is estimated to grow 11% in 2021 (up from
the previous expectation of 9%), and 6% (consistent with the previous
expectation) in 2022.
We have delivered strong results, especially in our Technology business, with
year-over-year growth of 29.6% significantly exceeding the market expectation
per SIA. Sequentially, we were successful in effectively replacing the expected
lower revenues from our COVID-19 Business (down $27.2 million sequentially) with
higher-quality Technology revenue (up $26.5 million sequentially). While the
business climate related to this economic and health crisis, along with related
governmental legislation (including that which is aimed at stimulating the
economy) is still extremely fluid, we believe that we are very well positioned
to continue capturing additional market share in our Technology business and
delivering strong operating results to our shareholders.
The results of multiple employee surveys conducted over the last eighteen 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 great progress in our "Kforce Reimagined" initiative that was
initiated shortly after the onset of the pandemic, which is an effort to
position Kforce to provide a more flexible hybrid work environment for our
associates. We are referring to this new era of Kforce's work environment as
"Office Occasional" whereby our people will have maximum flexibility and choice
in designing their workdays that is rooted in trust and supported by integrated
technology aligned with our evolved operating model. We will have a remote first
approach but encourage our people to leverage physical office spaces, when
desirable, for activities best done through in-person, active collaboration such
as training, team building, client and candidate interactions. We announced in
September that we signed a lease for our future corporate headquarters, which we
anticipate occupying in the fourth quarter of 2022. This new space will be
modern, open and technology enabled to provide a flexible environment for our
people to work effectively, very similarly to how we approaching the design of
our field offices.
During 2021, we engaged an independent third-party consulting firm to assist us
in our assessment of our middle and back office capabilities. We believe that
the culmination of these and other efforts, on which we have made significant
progress, will provide a differentiated employee experience, in the case of our
Kforce Reimagined effort, and significant contributions to improving
productivity and profitability in both cases.
21
————————————————– ——————————
Contents
Operating Results - Three and Nine Months EndedSeptember 30, 2021 and 2020 The following table presents certain items in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenue by segment: Tech 83.7 % 71.2 % 79.3 % 75.0 % FA 16.3 28.8 20.7 25.0 Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % Revenue by type: Flex 96.6 % 97.6 % 97.0 % 97.7 % Direct Hire 3.4 2.4 3.0 2.3 Total Revenue 100.0 % 100.0 % 100.0 % 100.0 % Gross profit 29.6 % 28.4 % 28.8 % 28.3 % Selling, general and administrative expenses 22.1 % 20.8 % 21.5 % 22.6 % Depreciation and amortization 0.3 % 0.4 % 0.3 % 0.4 % Income from operations 7.3 % 7.3 % 7.0 % 5.4 % Income from operations, before income taxes 6.9 % 7.1 % 6.5 % 5.0 % Net income 5.0 % 5.1 % 4.7 % 3.6 % 22
————————————————– ——————————
Contents
Returned. The following table shows the revenue by type for each segment and the percentage change from the previous period (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Tech
Flex revenue $ 330,170 28.9 % $ 256,118 $ 909,599 18.0 % $ 770,635
Direct Hire revenue 7,060 70.8 % 4,133 17,919 47.5 % 12,150
Total Tech revenue $ 337,230 29.6 % $ 260,251 $ 927,518 18.5 % $ 782,785
FA
Flex revenue $ 59,003 (41.3) % $ 100,569 $ 224,783 (9.6) % $ 248,578
Direct Hire revenue 6,492 41.0 % 4,604 17,263 40.5 % 12,289
Total FA revenue $ 65,495 (37.7) % $ 105,173 $ 242,046 (7.2) % $ 260,867
Total Flex revenue $ 389,173 9.1 % $ 356,687 $ 1,134,382 11.3 % $ 1,019,213
Total Direct Hire revenue 13,552 55.1 % 8,737 35,182 44.0 % 24,439
Total Revenue $ 402,725 10.2 % $ 365,424 $ 1,169,564 12.1 % $ 1,043,652
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,
on a billing day basis, for the last five quarters:
Year-Over-Year Revenue Growth Rates
(Per Billing Day)
Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020
Billing Days 64 64 63 62 64
Technology 28.9 % 20.9 % 6.3 % 0.8 % (4.2) %
FA (41.3) % 2.7 % 26.4 % 26.0 % 51.6 %
Total Flex 9.1 % 16.3 % 10.2 % 5.9 % 6.9 %
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 Tech increased 28.9% and 18.7% on a billing day basis, during
the three and nine months ended September 30, 2021 , respectively, as compared to
the same period in 2020. Flex revenue in our Tech business improved 8.4%
sequentially in the third quarter of 2021. The sequential and year-over-year
growth that we experienced in our Technology business in the third quarter of
2021 was driven principally by a higher number of consultants on assignment,
which have improved consistently since June 2020 (the low point in the
pandemic). Given the acceleration we are continuing to experience in our
Technology business, we expect our year-over-year growth rate in the fourth
quarter to be stable with third quarter levels off a more difficult
year-over-year comparison. We believe the secular drivers of demand in
technology have only strengthened 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.
Our FA segment experienced a decrease in Flex revenue of 9.6% during the nine
months ended September 30, 2021 as compared to the same period in 2020,
primarily driven by a decrease in the COVID-19 Business. FA Flex experienced a
decrease to Flex revenue of 41.3% during the three months ended September 30,
2021 as compared to the same period in 2020, as we experienced a sharp decline
in the portion of business related to COVID-19, which was anticipated. As we
move into the fourth quarter of 2021, we expect overall revenues in the FA
business to decline on a year-over-year basis due primarily to the COVID-19
Business, which largely ended early in the third quarter of 2021. We continue to
migrate our FA business towards more highly-skilled roles that are less
susceptible to technological change and automation; we have seen good progress
in this transition.
23
————————————————– ——————————
Contents
The following table shows the main drivers of the evolution of Flex sales by segment over the previous period (in thousands):
Three Months Ended Nine Months Ended
September 30, 2021 vs. September 30, September 30, 2021 vs. September 30,
2020 2020
Tech FA Tech FA
Key Drivers - Increase (Decrease)
Volume - hours billed $ 65,590 $ (51,695) $ 115,482 $ (30,581)
Bill rate 7,665 10,134 22,967 6,981
Billable expenses 797 (5) 515 (195)
Total change in Flex revenue
The following table shows the total number of Flex hours billed by segment and the percentage change from the previous period (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Tech 4,031 25.7 % 3,207 11,226 15.0 % 9,759
FA 1,515 (51.4) % 3,118 6,339 (12.3) % 7,229
Total Flex hours billed 5,546 (12.3) % 6,325 17,565 3.4 % 16,988
For the three and nine months ended September 30, 2021 , FA Flex hours billed
included 209 and 2,134 thousand hours, respectively, from the COVID-19 Business.
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 55.1% and 44.0% during the three and nine months
ended September 30, 2021 , respectively, as compared to the same periods in 2020.
The increase during the third quarter was primarily driven by a significant
increase in both the number of placements and fees, as the economic environment
has improved and competition for talent has increased. As we look to the fourth
quarter, we expect Direct Hire revenues may seasonally decline sequentially.
The following table presents the key drivers for the change in Direct Hire
revenue by segment over the prior period (in thousands):
Three Months Ended Nine Months Ended
September 30, 2021 vs. September 30, September 30, 2021 vs. September 30,
2020 2020
Tech FA Tech FA
Key Drivers - Increase (Decrease)
Volume - number of placements $ 1,676 $ 1,236 $ 3,724 $ 3,141
Placement fee 1,251 652 2,045 1,833
Total change in Direct Hire revenue
24
————————————————– ——————————
Contents
The following table shows the total number of locations per segment and the percentage change over the previous period:
Three Months Ended September 30, Nine Months Ended September 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Tech 290 40.8 % 206 831 30.7 % 636
FA 401 26.9 % 316 1,094 25.6 % 871
Total number of placements 691 32.4 % 522 1,925 27.7 %
1,507
The following table shows the average investment costs by segment and the percentage change compared to the previous period:
Three Months Ended September 30, Nine Months Ended September 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Tech $ 24,360 21.5 % $ 20,045 $ 21,576 12.9 % $ 19,114
FA 16,181 11.2 % 14,557 $ 15,780 11.9 % $ 14,104
Total average placement fee $ 19,611 17.3 % $ 16,722 $ 18,282 12.7 % $ 16,217
Gross Profit. Gross profit is calculated 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.
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) by segment and percentage change over the prior
period:
Three Months Ended September 30, Nine Months Ended September 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Tech 28.4 % 2.5 % 27.7 % 27.9 % 0.7 % 27.7 %
FA 35.6 % 17.5 % 30.3 % 32.4 % 6.9 % 30.3 %
Total gross profit percentage 29.6 % 4.2 % 28.4 % 28.8 % 1.8 %
28.3%
The total gross profit percentage for the three months endedSeptember 30, 2021 , increased 120 basis points as compared to the same period in 2020 primarily as a result of an increased mix of Direct Hire revenues and Flex margin increases resulting from higher bill pay spreads. The total gross profit percentage for the nine months endedSeptember 30, 2021 , as compared to the same period in 2020, increased 50 basis points due primarily to an increased mix of Direct Hire revenues. 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, changes in payroll tax rates or benefits costs, as well as the impact of billable expenses, which provide no profit margin. The following table presents the Flex gross profit percentage by segment and percentage change over the prior period: Three Months Ended September 30, Nine Months Ended September 30, Increase Increase 2021 (Decrease) 2020 2021 (Decrease) 2020 Tech 26.9 % 1.5 % 26.5 % 26.4 % (0.4) % 26.5 % FA 28.5 % 4.8 % 27.2 % 27.2 % 1.1 % 26.9 % Total Flex gross profit percentage 27.2 % 1.9 % 26.7 % 26.6 % - %
26.6%
Overall, our Flex gross profit percentage increased 50 basis points for the three months endedSeptember 30, 2021 and was flat for the nine months endedSeptember 30, 2021 , as compared to the same periods in 2020. The notable fluctuations within our segments were as follows:. •Flex margins in our Tech business increased 40 basis points for the three months endedSeptember 30, 2021 and decreased 10 basis points for the nine months endedSeptember 30, 2021 , respectively, as compared to the same periods in 2020. The increase for the three month period was primarily due to spread improvement and lower healthcare costs. •FA Flex gross profit margin increased 130 and 30 basis points for the three and nine months endedSeptember 30, 2021 , respectively, as compared to the same periods in 2020. The increases for each period were primarily due to a 25
————————————————– ——————————
Contents
lower mix of lower margin COVID-19 Business and spread improvements due to the
repositioning of this business in higher skilled areas.
The following table presents the key drivers for the change in Flex gross profit
by segment over the prior period (in thousands):
Three Months Ended Nine Months Ended
September 30, 2021 vs. September 30, September 30, 2021 vs. September 30,
2020 2020
Tech FA Tech FA
Key Drivers - Increase (Decrease)
Revenue impact $ 19,612 $ (11,289) $ 36,869 $ (6,401)
Profitability impact 1,435 813 (795) 698
Total change in gross margin Flex
SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 84.9% and 86.0% for the three and nine months endedSeptember 30, 2021 , respectively, as compared to 83.3% and 82.1% for the comparable periods in 2020. Commissions and bonus incentives are variable costs driven primarily by revenue and gross profit levels. Therefore, as those levels change, these expenses would also generally be anticipated to change. The following table presents components of SG&A as a percentage of revenue (in thousands): 2021 % of Revenue 2020 % of Revenue Three Months EndedSeptember 30 , Compensation, commissions, payroll taxes and benefits costs$ 75,537 18.8 %$ 63,162 17.3 % Other (1) 13,435 3.3 % 12,690 3.5 % Total SG&A$ 88,972 22.1 %$ 75,852 20.8 % Nine Months EndedSeptember 30 , Compensation, commissions, payroll taxes and benefits costs$ 216,324 18.5 %$ 193,534 18.5 % Other (1) 35,293 3.0 % 42,080 4.1 % Total SG&A$ 251,617 21.5 %$ 235,614 22.6 % (1) Includes credit expense, lease expense, professional fees, travel, telephone, computer, and certain other expenses, which includes a gain on the sale of the corporate headquarters facility during the nine months endedSeptember 30, 2021 . SG&A as a percentage of revenue increased 130 basis points for the three months endedSeptember 30, 2021 and decreased 110 basis points for the nine months endedSeptember 30, 2021 , respectively, as compared to the same periods in 2020. The increase for the three month period endedSeptember 30, 2021 , was primarily related to higher performance-based compensation, given the strength in our revenue growth. The decrease for the nine months endedSeptember 30, 2021 is primarily related to the recognition of a$2.0 million gain from the sale of our corporate headquarters, declines in credit expense due to larger reserves in the first quarter of 2020 at the onset of the pandemic given inherent risk, leverage from our revenue growth, and continued improvements in associate productivity. The Firm continues to focus on generating increased operating leverage through continued solid revenue growth, improved productivity of our associates, structural reductions in operating costs and continuing to exercise solid expense discipline. Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Increase Increase 2021 (Decrease) 2020 2021 (Decrease) 2020 Fixed asset depreciation (includes finance leases)$ 609 (36.4) %$ 957 $ 2,164 (33.7) %$ 3,265 Capitalized software amortization 417 18.8 % 351 1,256 53.9 % 816 Total Depreciation and amortization$ 1,026 (21.6) %$ 1,308 $ 3,420 (16.2) %$ 4,081 Other Expense, Net. Other expense, net for the three and nine months endedSeptember 30, 2021 was$1.4 million and$5.8 million , respectively. Other expense, net for the three and nine months endedSeptember 30, 2020 was$0.9 million and$3.7 million , respectively. Other expense, net includes interest expense related to outstanding borrowings under our credit facility, which is partially offset by the interest income on cash held in government money market funds. During the nine months endedSeptember 30, 2021 , Other expense, net also includes an expense of$1.8 million related to the termination of our SERP. Refer to Note I - "Employee Benefit Plans" in the Unaudited Condensed Consolidated Financial Statements, included in this report on Form 10-Q, for a complete discussion of the termination of our SERP. 26
————————————————– ——————————
Contents
During the three and nine months endedSeptember 30, 2021 , Other expense, net also includes our proportionate share of the loss from WorkLLama, our equity method investment, of$0.7 million and$1.7 million . Income Tax Expense. Income tax expense as a percentage of income from continuing operations, before income taxes (our "effective tax rate" from continuing operations) for the nine months endedSeptember 30, 2021 and 2020 was 28.1% and 27.8%, respectively. 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, making acquisitions, repurchasing common stock or paying dividends. Free Cash Flow is limited, however, because it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view Free Cash Flow as a complement to (but not a replacement of) our Unaudited Condensed Consolidated Statements of Cash Flows. The following table presents Free Cash Flow (in thousands):
© Edgar online, source
