Kforce Reports Fourth Quarter 2018 Revenue of $358.0 Million, EPS of $0.65 per Share; Tech Flex Growth of 9.0% Year-Over-Year


TAMPA, Fla., Feb. 06, 2019 (GLOBE NEWSWIRE) -- Kforce Inc. (Nasdaq: KFRC), a provider of professional staffing services and solutions, today announced results for its fourth quarter and full year 2018.

Fourth Quarter 2018 Financial Highlights

  • Revenue for the quarter ended December 31, 2018 was $358.0 million compared to $342.6 million for the quarter ended December 31, 2017, an increase of 2.8% on a billing day basis.
  • Flex revenue of $341.6 million in the quarter ended December 31, 2018 increased 2.3%, on a billing day basis, from $328.5 million in the quarter ended December 31, 2017.
  • Year-over-year growth in Flex revenue for Tech was 9.0% on a billing day basis, while FA and GS experienced a decrease of 11.7% and 13.3% on a billing day basis, respectively.
  • Gross profit margin decreased 20 basis points in the quarter ended December 31, 2018 as compared to 2017.
  • Selling, general and administrative expense as a percentage of revenue in the quarter ended December 31, 2018 was 23.0%, which decreased 100 basis points from the quarter ended December 31, 2017.
  • Net income for the quarter ended December 31, 2018 was $16.4 million, or $0.65 per share, as compared to $6.1 million, or $0.24 per share, for the quarter ended December 31, 2017. Adjusted earnings per share for the quarter ended December 31, 2017 was $0.45 per share1.
  • Operating cash flows in the quarter ended December 31, 2018 were $23.0 million compared to $23.7 million in the quarter ended December 31, 2017.
  • We repurchased approximately 236 thousand shares of common stock on the open market at a total cost of approximately $7.1 million during the quarter ended December 31, 2018.

Year End 2018 Financial Highlights

  • Revenue for the year ended December 31, 2018 of $1.42 billion increased 4.0% on a billing day basis from $1.36 billion for the year ended December 31, 2017.
  • Net income for the year ended December 31, 2018 was $58.0 million, or $2.30 per share, which represent increases of 74.2% and 76.9%, respectively, compared to 2017 and increases of 44.8% and 46.5%, respectively, as adjusted1, for 2017.
  • Operating cash flows for the year ended December 31, 2018 were $87.7 million, which was an increase from $29.3 million for the year ended December 31, 2017.

End Note:
1 A non-GAAP financial measure, refer to reconciliation in the Adjusted Financial Performance Measures section.

Management Commentary

David L. Dunkel, Chairman and Chief Executive Officer commented, “We are very pleased with our fourth quarter performance as our largest business, Tech Flex, grew 9.0% year-over-year on a billing day basis. Tech Flex revenue accelerated meaningfully towards the end of the quarter due to fewer assignment ends and stronger new assignment starts than anticipated. We believe this is related to the acute labor shortage, especially with highly-skilled resources. The pace of digital transformation continues at a rapid pace, forcing organizations across all industries to increase their technology investments. We believe the secular drivers of technology will transcend traditional cyclical patterns as business models are transformed."

Joseph J. Liberatore, President, said, “We believe that the broad-based growth we are experiencing in Tech Flex is a result of the actions taken and investments made over the last several years to better segment our client portfolio and optimize the alignment of our associates within the portfolio. We are encouraged with the strong finish to 2018 within our Tech Flex business and are pleased with the progress in improving associate productivity.”

David M. Kelly, Chief Financial Officer, said, “We continue to make solid progress improving our profitability as operating margin in the fourth quarter of 6.2% increased 80 basis points year-over-year. In addition, we are converting our revenue growth and improved profitability into higher levels of operating cash flow, which was $23.0 million in the fourth quarter and $87.7 million for the full year. This allowed us to not only decrease outstanding borrowings under our Credit Facility by nearly $45 million, but also return more than $30 million of our free cash flow to our shareholders. We are also pleased to announce that our Board of Directors approved a first quarter cash dividend of $0.18 per share, which will be payable on March 22, 2019 to shareholders of record as of the close of business on March 8, 2019."

Guidance and Outlook

Looking forward to the first quarter of 2019, there will be 63 billing days, as compared to 62 billing days in the fourth quarter of 2018, and 64 billing days in the first quarter of 2018. Current estimates for the first quarter of 2019 are:

  • Revenue of $351 million to $356 million
  • Earnings per share of $0.40 to $0.42
  • Gross profit margin of 28.2% to 28.4%
  • Flex gross profit margin of 25.7% to 25.9%
  • SG&A expense as a percent of revenue of 23.4% to 23.6%
  • Operating margin of 4.1% to 4.3%
  • Effective tax rate of 25.5%

Conference Call and Annual Meeting

On Wednesday, February 6, 2019, Kforce will host a conference call at 8:30 a.m. E.T. to discuss these results. The dial-in number is (877) 344-3890 and the conference passcode is Kforce. The prepared remarks for this call and webcast are available on the Investor Relations page of the Kforce Inc. website (http://investor.kforce.com/) in the Events & Presentations section.

The replay of the call will be available from 11:30 a.m. E.T., Wednesday, February 6, 2019 until February 13, 2019 by dialing (855) 859-2056, passcode 5779898.

Our 2019 Annual Meeting of Kforce Inc. Shareholders will be held on Tuesday, April 23, 2019 at 1001 East Palm Avenue, Tampa, Florida 33605, commencing at 8:00 a.m. EST.

About Kforce

Kforce Inc. is a professional staffing services and solutions firm that specializes in the areas of Technology and Finance and Accounting. Each year, our network of over 50 offices and two national recruiting centers provides opportunities for 36,000 highly skilled professionals who work with over 4,000 clients, including 70% of the Fortune 100. At Kforce, our promise is to deliver great results through strategic partnership and knowledge sharing. For more information, please visit our Web site at http://www.kforce.com.

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

Cautionary Note Regarding Forward-Looking Statements

Certain of the above statements contained in this press release, including earnings projections, are forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could cause actual results to differ materially include the following: business conditions, growth in temporary staffing and the general economy; competitive factors, risks due to shifts in the market demand; a reduction in the supply of candidates or the Firm's ability to attract such candidates; the success of the Firm in attracting and retaining revenue-generating talent; changes in the service mix; ability of the Firm to repurchase shares; the occurrence of unanticipated expenses; the effect of adverse weather conditions; changes in our effective tax rate; changes in government regulations, laws and policies that are adverse to our businesses; risk of contract performance, delays or termination or the failure to obtain awards, task orders or funding under contracts; changes in client demand and our ability to adapt to such changes; continued performance of and improvements to our enterprise information systems, and the risk factors listed from time to time in the Firm’s reports filed with the Securities and Exchange Commission, including the Firm’s Form 10-K for the fiscal year ending December 31, 2017, as well as assumptions regarding the foregoing. In particular, the Firm makes no assurances that the estimates of continuing operations will be achieved or that we will continue to increase our market share, successfully manage risks to our revenue stream, successfully put into place the people and processes that will create future success or further accelerate our revenue. The terms “should,” “believe,” “estimate,” “expect,” “intend,” “anticipate,” “foresee,” “plan” and similar expressions and variations thereof contained in this press release identify certain of such forward-looking statements, which speak only as of the date of this press release. As a result, such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Future events and actual results may differ materially from those indicated in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and the Firm undertakes no obligation to update any forward-looking statements.


Kforce Inc.
Summary of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
  Three Months Ended
  Dec. 31, 2018 Sept. 30, 2018 Dec. 31, 2017
Revenue by segment:      
Technology $252,750  $251,079  $227,816 
Finance and accounting 77,627  75,505  85,349 
Government solutions 27,607  28,868  29,421 
Total Revenue 357,984  355,452  342,586 
Direct costs 251,428  251,071  239,959 
Gross profit 106,556  104,381  102,627 
GP % 29.8% 29.4% 30.0%
Flex GP % (1) 27.0% 26.7% 27.3%
Selling, general and administrative expenses 82,315  79,771  82,067 
Depreciation and amortization 1,939  1,947  2,042 
Income from operations 22,302  22,663  18,518 
Other expense, net 859  1,044  629 
Income before income taxes 21,443  21,619  17,889 
Income tax expense 5,087  5,442  11,749 
Net income $16,356  $16,177  $6,140 
       
Earnings per share - diluted $0.65  $0.64  $0.24 
       
Weighted average shares outstanding - diluted 25,257  25,366  25,462 
Adjusted EBITDA $26,588  $26,733  $23,183 
       
Billing days 62  63  61 
          

(1) Beginning in Q1 2018, Flex GP% excludes GS Product; prior quarters have been adjusted to align with this presentation.


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

  Year Ended
  Dec. 31, 2018 Dec. 31, 2017
Revenue by segment:    
Technology $990,089  $907,511 
Finance and accounting 313,848  346,135 
Government solutions 114,416  104,294 
Total Revenue 1,418,353  1,357,940 
Direct costs 999,745  949,884 
Gross profit 418,608  408,056 
GP % 29.5% 30.0%
Flex GP % (1) 26.8% 27.2%
Selling, general and administrative expenses 329,126  331,172 
Depreciation and amortization 7,831  8,255 
Income from operations 81,651  68,629 
Other expense, net 4,498  4,535 
Income before income taxes 77,153  64,094 
Income tax expense 19,173  30,809 
Net income $57,980  $33,285 
     
Earnings per share - diluted $2.30  $1.30 
     
Weighted average shares outstanding - diluted 25,251  25,586 
Adjusted EBITDA $98,670  $85,241 
     
Billing days 253  252 

(1) Beginning in Q1 2018, Flex GP% excludes GS Product; prior quarters have been adjusted to align with this presentation.

 

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

  December 31,
  2018 2017
ASSETS    
Current assets:    
Cash and cash equivalents $112  $379 
Trade receivables, net of allowances 234,895  225,865 
Income tax refund receivable 319  7,116 
Prepaid expenses and other current assets 13,136  12,085 
Total current assets 248,462  245,445 
Fixed assets, net 35,818  39,680 
Other assets, net 36,957  38,598 
Deferred tax asset, net 9,751  11,316 
Intangible assets, net 2,952  3,297 
Goodwill 45,968  45,968 
Total assets $379,908  $384,304 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable and other accrued liabilities $38,606  $34,873 
Accrued payroll costs 45,262  46,886 
Other current liabilities 1,632  1,960 
Income taxes payable 4,858   
Total current liabilities 90,358  83,719 
Long-term debt - credit facility 71,800  116,523 
Long-term debt - other 1,359  2,597 
Other long-term liabilities 48,060  47,188 
Total liabilities 211,577  250,027 
Commitments and contingencies    
Stockholders’ equity:    
Preferred stock    
Common stock 719  715 
Additional paid-in capital 447,337  437,394 
Accumulated other comprehensive income 1,296  100 
Retained earnings 237,308  195,143 
Treasury stock, at cost (518,329) (499,075)
Total stockholders’ equity 168,331  134,277 
Total liabilities and stockholders’ equity $379,908  $384,304 
         


Kforce Inc.
Key Statistics
(Unaudited)

  Q4 2018 Q3 2018 Q4 2017
Total Firm      
Total Revenue $357,984  $355,452  $342,586 
GP % 29.8% 29.4% 30.0%
Flex revenue (000’s) (1) $341,604  $339,937  $328,526 
Flex GP % (1) 27.0% 26.7% 27.3%
Direct Hire revenue (000’s) $11,275  $10,482  $10,170 
Placements 695  721  816 
Average fee $16,227  $14,525  $12,469 
Product revenue $5,105  $5,033  $3,890 
Billing days 62  63  61 
Technology            
Total Revenue (000's) $252,750  $251,079  $227,816 
GP % 28.0% 27.7% 28.5%
Flex revenue (000’s) $248,151  $247,154  $223,897 
Hours (000’s) 3,354  3,319  3,101 
Flex GP % 26.6% 26.5% 27.2%
Direct Hire revenue (000’s) $4,599  $3,925  $3,919 
Placements 245  234  225 
Average fee $18,744  $16,742  $17,423 
Finance and Accounting            
Total Revenue (000's) $77,627  $75,505  $85,349 
GP % 34.8% 35.1% 33.8%
Flex revenue (000’s) $70,951  $68,948  $79,098 
Hours (000’s) 2,026  1,942  2,382 
Flex GP % 28.7% 29.0% 28.5%
Direct Hire revenue (000’s) $6,676  $6,557  $6,251 
Placements 450  487  591 
Average fee $14,854  $13,458  $10,583 
Government Solutions      
Total Revenue (000's) $27,607  $28,868  $29,421 
GP% 32.0% 28.9% 30.3%
Flex revenue (000’s) (1) $22,502  $23,835  $25,531 
Flex GP % (1) 25.2% 21.6% 24.7%
Product revenue $5,105  $5,033  $3,890 
Product GP% 62.2% 63.5% 67.2%

(1) Beginning in Q1 2018, Flex Revenue and GP% excludes GS Product; prior quarters have been adjusted to align with this presentation.


Kforce Inc.
Revenue Growth Rates
(Unaudited)

  Year-Over-Year Revenue Growth Rates
  (Per Billing Day)
  Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017
Billing days 62  63  64  64  61 
Tech Flex 9.0% 10.3% 9.8% 6.7% 5.4%
FA Flex (11.7)% (11.8)% (9.4)% (7.9)% 0.3%
Total Tech and FA Flex 3.6% 4.5% 4.7% 2.8% 4.0%
GS Flex (1) (13.3)% (0.6)% 18.2% 24.5% 27.9%
Total Flex  (1) 2.3% 4.2% 5.6% 4.2% 5.5%
Total Firm 2.8% 4.2% 5.4% 3.7% 5.1%

(1) Beginning in Q1 2018, Flex revenue excludes GS Product; prior quarters have been adjusted to align with this presentation.


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

The following non-GAAP financial measures presented may not provide information that is directly comparable to that provided by other companies, as other companies may calculate such financial results differently. The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP. The Company views these non-GAAP financial measures as supplemental and they are not intended to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Free Cash Flow

“Free Cash Flow”, a non-GAAP financial measure, is defined by Kforce as net cash provided by operating activities determined in accordance with GAAP, less capital expenditures. Management believes this provides an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and is useful information to investors as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities including investing in our business, making acquisitions, repurchasing common stock or paying dividends. Free Cash Flow 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 our financial statements.

(In Thousands) Year Ended
  Dec. 31, 2018 Dec. 31, 2017
Net income $57,980  $33,285 
Non-cash provisions and other 22,643  29,134 
Changes in operating assets/liabilities 7,100  (33,080)
Net cash provided by operating activities 87,723  29,339 
Capital expenditures (5,170) (5,846)
Free cash flow 82,553  23,493 
Proceeds from sale of Global's assets 1,000  1,000 
Change in debt (44,723) 4,976 
Repurchases of common stock (22,187) (14,622)
Cash dividends (14,871) (12,144)
Other (2,039) (3,806)
Change in cash and cash equivalents $(267) $(1,103)

Adjusted EBITDA

“Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net and income tax expense. 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 Thousands) Three Months Ended
  Dec. 31, 2018 Sept. 30, 2018 Dec. 31, 2017
Net income $16,356  $16,177  $6,140 
Depreciation and amortization 2,019  2,074  2,135 
Stock-based compensation expense 2,239  2,006  1,933 
Interest expense, net 887  1,034  1,226 
Income tax expense 5,087  5,442  11,749 
Adjusted EBITDA $26,588  $26,733  $23,183 
             


(In Thousands) Year Ended
  Dec. 31, 2018 Dec. 31, 2017
Net income $57,980  $33,285 
Depreciation and amortization 8,265  8,508 
Stock-based compensation expense 8,797  7,600 
Interest expense, net 4,455  5,039 
Income tax expense 19,173  30,809 
Adjusted EBITDA $98,670  $85,241 
         

Adjusted Financial Performance Measures

The "Adjusted Financial Performance Measures" present non-GAAP financial information and should not be considered a measure of financial performance under generally accepted accounting principles. These measures are presented as an alternative method for assessing the Company’s operating results by adjusting for the impact of certain non-recurring, infrequent or unusual items in a manner that is focused on the performance of our underlying operations. Each of these measures are intended to provide greater consistency, comparability and clarity of our results. Management uses this non-GAAP financial information to assess the Company's core operating results and consequently, management believes it is similarly useful information to investors. During the three months and year ended December 31, 2018, the Firm did not have any non-GAAP adjustments.

(In Thousands, Except Per Share Amounts)
 Three Months Ended December 31,
  2017 2018
  Reported
 (GAAP)
 Adjustments (1) Adjusted
(Non-GAAP)
 Reported
 (GAAP) (2)
Reconciliation of Tax Impact and Profitability:        
Income before income taxes $17,889  $  $17,889  $21,443 
Income tax expense $11,749  $(5,360) $6,389  $5,087 
Effective tax rate 65.7% (30.0)% 35.7% 23.7%
Net income $6,140  $5,360  $11,500  $16,356 
Earnings per share - diluted $0.24  $0.21  $0.45  $0.65 

(1) The $5.4 million income tax expense adjustment is related to the remeasurement of our net deferred tax assets as a result of the Tax Cuts and Jobs Act.
(2) For the three months ended December 31, 2018, there were no charges or similar items requiring an adjustment.

(In Thousands, Except Per Share Amounts)
 Year Ended December 31,
  2017 2018
  Reported
 (GAAP)
 Adjustments Adjusted
(Non-GAAP)
 Reported
 (GAAP) (7)
Reconciliation of Revenue and Gross Profit:        
Revenue (3) $1,357,940  $1,000  $1,358,940  $1,418,353 
Gross profit (3) $408,056  $713  $408,769  $418,608 
GP % 30.0% 0.1% 30.1% 29.5%
Flex GP % (4) 27.2% % 27.2% 26.8%
                 
Reconciliation of SG&A and Operating Margin:                
Selling, general & administrative expenses (5) $331,172  $1,156  $332,328  $329,126 
SG&A as a percentage of revenue 24.4% 0.1% 24.5% 23.2%
Income from operations $68,629  $(443) $68,186  $81,651 
Operating margin 5.1% (0.1)% 5.0% 5.8%
                 
Reconciliation of Tax Impact and Profitability:                
Income before income taxes $64,094  $(443) $63,651  $77,153 
Income tax expense (6) $30,809  $(7,200) $23,609  $19,173 
Effective tax rate 48.1% (11.0)% 37.1% 24.9%
Net income $33,285  $6,757  $40,042  $57,980 
Earnings per share - diluted $1.30  $0.27  $1.57  $2.30 

(3) For the year ended December 31, 2017, the $1.0 million revenue adjustment and the related $0.7 million gross profit adjustment was related to the impact from Hurricanes Harvey and Irma.
(4) Beginning in Q1 2018, Flex GP% excludes GS Product; prior quarters have been adjusted to align with this presentation.
(5) For the year ended December 31, 2017, the $1.2 million adjustment was related to a $1.0 million disaster relief contribution and $1.1 million in charges for role eliminations related to refining how we support and service our largest strategic clients, offset by a $3.3 million gain on sale of Global's assets.
(6) For the year ended December 31, 2017, adjustments to income tax expense include (i) tax expense of $5.4 million related to the remeasurement of our net deferred tax assets as a result of the Tax Cuts and Jobs Act, (ii) a $1.6 million valuation allowance placed on our foreign tax credit deferred tax asset that we expect may not be realizable as a result of the sale of Global's assets and (iii) a net income tax benefit of $0.2 million related to the income before income taxes adjustments described within this table, which was calculated using the Q3 2017 effective tax rate, of 38.0%.
(7) For the year ended December 31, 2018, there were no charges or similar items requiring an adjustment.


Mot-clé