Kforce Inc. 2021 Form 10-K Summary
Business Context and Reporting Period
Kforce provides U.S. technology and finance and accounting talent solutions through its Technology and FA segments. The report covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020. Technology represented approximately 85% of revenue, while FA represented approximately 15%.
Kforce continued its remote-first “Office Occasional” strategy, reducing its office footprint from 51 pre-pandemic locations to 36 leased offices. The Company sold its former headquarters in May 2021 and expects to occupy a new approximately 22,000-square-foot Tampa headquarters in the fourth quarter of 2022.
Financial Performance and Key Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1.580 billion | $1.398 billion | 13.0% reported; 13.9% per billing day |
| Gross profit | $456.9 million | $396.2 million | 15.3% |
| Gross margin | 28.9% | 28.3% | Up 60 basis points |
| Income from operations | $106.6 million | $80.3 million | 32.9% |
| Income from continuing operations | $75.2 million | $56.0 million | 34.2% |
| Diluted EPS | $3.54 | $2.62 | 35.1% |
| Adjusted EBITDA | $126.4 million | $97.1 million | 30.2% |
| Cash flow from operations | $72.9 million | $109.2 million | Down $36.3 million |
| Free cash flow | $66.5 million | $102.7 million | Down $36.2 million |
Technology revenue increased 21.4% to $1.274 billion, including 20.8% growth in Flex revenue and 57.7% growth in Direct Hire revenue. FA revenue declined 12.1% to $306.0 million, primarily because COVID-19-related government contracts declined to $71.0 million from $114.7 million. Excluding that business, FA revenue increased approximately 1%.
Technology gross margin was 27.9%, compared with 27.6% in 2020. FA gross margin increased to 33.0% from 30.6%. Flex gross margin remained 26.6% overall. SG&A was $345.7 million, or 21.9% of revenue, versus 22.2% in 2020.
At December 31, 2021, cash and cash equivalents were $97.0 million, working capital was $211.7 million, and debt under the credit facility was $100.0 million. Management reported net debt of approximately $3.0 million, compared with net cash of approximately $3.5 million at year-end 2020.
Material Changes Versus the Prior Comparable Period
- Technology became a larger share of revenue, increasing from 75.1% to 80.6%.
- Technology growth accelerated during the year, reaching 32.0% year-over-year growth in fourth-quarter revenue per billing day.
- Average Technology bill rates increased 2.9% for the year and 3.8% in the fourth quarter.
- Total Direct Hire revenue increased 48.1% to $49.8 million, supported by a 32.6% increase in placements and higher average placement fees.
- FA revenue declined as COVID-19-related contracts wound down; management is repositioning FA toward higher-skilled assignments.
- Operating cash flow declined because of increased accounts receivable and payment of approximately $19.0 million of payroll taxes deferred under the CARES Act in 2020.
- Kforce returned $74.5 million to shareholders through approximately $54.4 million of open-market repurchases and $20.1 million of dividends.
- The Company recognized a $2.0 million gain on the sale of its former headquarters and reduced depreciation and real estate costs.
Guidance, Outlook, Risks and Unusual Items
Assuming stable demand and macroeconomic conditions, management expects Technology revenue growth of at least 15% in 2022, low- to mid-single-digit FA Flex growth excluding the discontinued COVID-19 business and lower-skilled runoff, and mid- to high-single-digit Direct Hire growth.
Key risks include economic or employment-market deterioration, COVID-19 developments, constrained availability of qualified technology talent, wage and payroll-cost inflation, competitive pricing pressure, client concentration, immigration and H-1B restrictions, employment-law claims, cybersecurity incidents, technology execution, and compliance with credit-facility covenants.
The amended credit facility provides $200.0 million of borrowing capacity, subject to limitations, matures October 20, 2026, and had $98.7 million of availability at year-end after outstanding borrowings and other adjustments. It includes a minimum fixed-charge coverage ratio of 1.25 to 1.00 and a maximum total leverage ratio of 3.50 to 1.00.
Unusual or judgment-sensitive items include a $3.3 million tentative legal settlement accrual, $1.8 million of expense from terminating the supplemental executive retirement plan, $2.5 million of losses from the WorkLLama equity-method investment, and $9.0 million of additional WorkLLama capital contributions. Management concluded that the $17.0 million WorkLLama investment was not impaired at year-end.
The Company disclosed several wage-and-hour, PAGA and FLSA proceedings, including matters subject to preliminary settlements and other claims for which loss estimates were not reasonably determinable. Management does not currently expect the disclosed proceedings to have a material effect, but litigation outcomes remain uncertain.
Kforce’s Board increased the quarterly dividend from $0.26 to $0.30 per share in February 2022 and increased available share-repurchase authorization to $100.0 million. Future dividends and repurchases remain discretionary and subject to financial performance, applicable law and credit-agreement restrictions.
Investor Verification Checklist
- Verify whether Technology growth of at least 15% in 2022 is achieved and whether demand remains concentrated in higher-skilled technology roles.
- Track the pace and profitability of FA repositioning as COVID-19 contract revenue fully runs off.
- Reconcile operating cash flow with accounts-receivable growth and remaining CARES Act payroll-tax payments.
- Monitor $100.0 million of debt, covenant compliance, interest-rate swap maturities and available borrowing capacity.
- Assess the sustainability of dividends and share repurchases relative to free cash flow and liquidity.
- Review outcomes and reserves for wage-and-hour, PAGA and FLSA litigation.
- Evaluate additional funding needs and impairment risk related to the WorkLLama investment.
- Confirm completion, timing and financial impact of the new headquarters and broader office-footprint reductions.