KFORCE INC. EXECUTIVE SUMMARY The following is an executive summary of what Kforce believes are highlights as of and for the three months endedMarch 31, 2020 , 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 three months endedMarch 31, 2020 increased 2.6% (1.0% on a billing day basis) to$335.2 million from$326.7 million in the comparable period in 2019. We began to experience negative impacts to our operating trends as a result of the COVID-19 economic and health crisis inMarch 2020 , most notably within FA Flex and Direct Hire. •Flex revenue for the three months endedMarch 31, 2020 increased 3.5% (1.9% on a billing day basis) to$326.1 million from$315.0 million in the comparable period in 2019. Flex revenue increased 4.9% (3.3% on a billing day basis) for Tech and decreased 1.9% (3.4% on a billing day basis) for FA. •Direct Hire revenue for the three months endedMarch 31, 2020 decreased 22.6% to$9.1 million from$11.8 million in the comparable period in 2019. •Flex gross profit margin for the three months endedMarch 31, 2020 increased 40 basis points to 26.2% from 25.8% in the comparable period in 2019 as a result of a more favorable payroll tax environment in the first quarter of 2020. For the three months endedMarch 31, 2020 , Flex gross profit increased 70 basis points for Tech and decreased 80 basis points for FA. •SG&A as a percentage of revenue for the three months endedMarch 31, 2020 decreased to 23.6% from 24.4% in the comparable period in 2019 as a result of improved associate productivity, reduced annual performance-based compensation expectations given the COVID-19 economic and health crisis and reduced discretionary spend such as travel and other office-related expenses. •Income from continuing operations for the three months endedMarch 31, 2020 increased 14.2% to$9.1 million , or$0.42 per share, from$8.0 million , or$0.32 per share, in the comparable period in 2019. The increase in diluted EPS was partially driven by significant open market common stock repurchases in 2019. •InMarch 2020 , Kforce entered into a forward-starting interest rate swap agreement with a fixed interest rate of 0.61% (which is added to the applicable margin under our credit facility), resulting in an increase in the notional amount of our interest rate swaps of$35.0 million , for a total of$100.0 million . We executed this swap in order take advantage of historically low interest rates and reduce liquidity risk as we navigate the COVID-19 economic and health crisis. •The Firm returned$24.6 million of capital to our shareholders with a quarterly dividend of$4.3 million ($0.20 per share) and open market common stock repurchases of$20.3 million during the three months endedMarch 31, 2020 . InMarch 2020 , the Board approved an increase in our stock repurchase authorization to an aggregate of$100.0 million . •Cash provided by operating activities was$3.0 million during the three months endedMarch 31, 2020 compared to$11.8 million for the three months endedMarch 31, 2019 . Our operating cash flows were negatively impacted over the last few weeks ofMarch 2020 as a result of certain clients delaying payment of outstanding receivable balances to preserve cash flow at the beginning of the COVID-19 economic and health crisis. 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. We operate through our corporate headquarters inTampa, Florida with 50 field offices located throughoutthe United States . As ofMarch 31, 2020 , Kforce employed over 2,200 associates and we had over 10,000 consultants on assignment. 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 portfolio of service offerings is a key contributor to our long-term financial stability. During 2020, theU.S. and global macro-economic environments have been severely impacted by the COVID-19 economic and health crisis. Certain data we follow that is published by theBureau of Labor Statistics and Staffing Industry Analysts ("SIA") such as the penetration rate (the percentage of temporary staffing to total employment) and unemployment rate, which were 1.9% and 4.4%, respectively, inMarch 2020 , is expected to change materially in the near-term as this crisis unfolds. Through the week endingApril 25, 2020 , theU.S. Department of Labor reported 3.8 million additional claims for unemployment bringing the total over a six-week period to more than 30 million. Certain sectors of theU.S. economy have been more acutely impacted by the COVID-19 economic and health crisis, such as the hospitality, transportation, retail, entertainment, health services and manufacturing sectors, though very few sectors appear to be immune. Kforce generates revenue within each of these sectors of theU.S. economy although the composition of our revenue by sector is, by intent, diversified. Our top three industries served include financial services, business services and telecommunications. 15 -------------------------------------------------------------------------------- Table of Contents Towards the end of the first quarter and into the second quarter, theU.S. economy increasingly began to feel the negative impacts of the COVID-19 economic and health crisis. Accordingly, we have been working with our clients to assist them in navigating these turbulent waters. These discussions for certain clients resulted in the reduction or elimination of consultants on previous projects and assignments, reducing bill rates, granting extended payment terms, and/or temporary furloughs for consultants, among other impacts. We have also experienced a decrease in our leading indicators, such as job orders, new assignment demand and direct hire placements. This crisis continues to be extremely fluid and there is significant uncertainty as to the extent of the potential negative impact on our business, clients, consultants and candidates. Thus, it is increasingly difficult to predict our near-term operating results. Although we have seen some impact to our business from this abrupt and unprecedented economic disruption, we believe our strategic decisions to focus our offerings in the domestic technology and professional staffing and solutions market, limit the concentration of Direct Hire revenue (now less than 3% of total revenue) and maintain a strong balance sheet provides us great confidence moving forward. In addition, we have made investments in recent years to implement new and upgrade existing technologies that we believe have increased our operating efficiencies and enabled us to be more responsive to our consultants and clients. Most of these technologies can be securely accessed remotely, which put us in a good position to seamlessly transition to a full work remote posture inMarch 2020 . Our client relationships and capability to source and deliver resources at scale significantly contributed to us securing several large opportunities to assist theU.S. economy during this crisis in areas such as customer service, loan processing and administration. While this work is anticipated to be temporary in nature, we expect it will partially offset some of the negative impacts over the near-term in our business. Operating Results - Three EndedMarch 31, 2020 and 2019 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 March 31, 2020 2019 Revenue by segment: Tech 79.6 % 78.2 % FA 20.4 21.8 Total Revenue 100.0 % 100.0 % Revenue by type: Flex 97.3 % 96.4 % Direct Hire 2.7 3.6 Total Revenue 100.0 % 100.0 % Gross profit 28.2 % 28.5 % Selling, general and administrative expenses 23.6 % 24.4 % Depreciation and amortization 0.4 % 0.5 % Income from operations 4.2 % 3.6 % Income from continuing operations, before income taxes 3.7 % 3.3 % Income from continuing operations 2.7 % 2.4 % Income from discontinued operations, net of tax - % 5.8 % Net income 2.7 % 8.2 % 16
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Revenue. The following table presents revenue by type for each segment and the percentage change from the prior period (in thousands):
Three Months Ended March 31,
Increase
2020 (Decrease) 2019
Tech
Flex revenue $ 262,569 4.9 % $ 250,216
Direct Hire revenue 4,215 (22.3) % 5,427
Total Tech revenue $ 266,784 4.4 % $ 255,643
FA
Flex revenue $ 63,540 (1.9) % $ 64,765
Direct Hire revenue 4,884 (22.8) % 6,330
Total FA revenue $ 68,424 (3.8) % $ 71,095
Total Flex revenue $ 326,109 3.5 % $ 314,981
Total Direct Hire revenue 9,099 (22.6) % 11,757
Total Revenue $ 335,208 2.6 % $ 326,738
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)
Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
Billing Days 64 62 64 64 63
Tech Flex 3.3 % 4.8 % 6.5 % 6.2 % 9.8 %
FA Flex (3.4) % (7.6) % (5.3) % (9.4) % (11.7) %
Total Flex 1.9 % 2.1 % 3.9 % 2.6 % 4.6 %
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 during the three months ended March 31, 2020 by
4.9% (3.3% on a billing day basis) as compared to the same period in 2019,
primarily due to an increase in billable hours and higher average bill rates.
Our trends to start the second quarter indicate that Flex revenues in technology
are down approximately 1% on a year-over-year basis in April. In September 2019
SIA projected that temporary technology staffing would experience growth of 3%
in 2020, which was updated in April 2020 with a projected decline of 14% for
2020 and a resumption of 17% growth in 2021. We believe that the current crisis
has only strengthened the secular drivers of demand in technology as companies
assess their digital transformation efforts and capabilities to conduct business
in what may be a more virtually-biased operating environment.
Our FA segment experienced a decrease in Flex revenue of 1.9% (3.4% on a billing
day basis) during the three months ended March 31, 2020 as compared to the same
period in 2019, which was driven by a decrease in billable hours and was
partially offset by a year-over-year increase in average bill rates of 4.7%. Our
trends to start the second quarter indicate that Flex revenues in FA are down
approximately 20% on a year-over-year basis in April, which excludes the
contribution to our FA Flex revenues of large-scale business we secured to
support government-sponsored COVID-19 related initiatives. This recent business
is expected to benefit second quarter revenues in a range between $20 million to
$30 million . In September 2019 , SIA projected that finance and accounting
temporary staffing would experience growth of 4% in 2020; however, this was
updated in April 2020 with a projected decline of 15% for 2020.
Future forecasts and predictions about the demand for temporary staffing and
solutions are inherently uncertain due to the unknown impacts of the
macro-economic environment in which we are currently operating as a result of
the COVID-19 economic and health crisis, and any forward-looking information
could fluctuate materially.
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The following table presents the key drivers for the change in Flex revenue by
segment over the prior period (in thousands):
Three Months Ended
March 31, 2020 vs. March 31, 2019
Tech FA
Key Drivers - Increase (Decrease)
Volume - hours billed $ 5,645 $ (4,036)
Bill rate 6,813 2,859
Billable expenses (105) (48)
Total change in Flex revenue $ 12,353 $ (1,225) The following table presents total Flex hours billed by segment and percentage change over the prior period (in thousands):
Three Months Ended March 31,
Increase
2020 (Decrease) 2019
Tech 3,410 2.2 % 3,335
FA 1,662 (6.2) % 1,772
Total Flex hours billed 5,072 (0.7) % 5,107
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 decreased 22.6% during the three months ended March 31,
2020 , as compared to the same period in 2019, primarily driven by a decrease in
the number of placements made and a lower average placement fee. We experienced
a significant decline in volume of Direct Hire placements towards the end of the
first quarter and expect a significant decline in revenue on a year-over-year
basis in the second quarter of 2020 primarily due to the expected drop in demand
for placements. Our trends to start the second quarter indicate that Direct Hire
revenues are down approximately 55% on a year-over-year basis in April.
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
March 31, 2020 vs. March 31, 2019
Tech FA
Key Drivers - Increase (Decrease)
Volume - number of placements $ (1,028) $ (1,390)
Placement fee (184) (56)
Total change in Direct Hire revenue $ (1,212) $ (1,446) The following table presents the total number of placements by segment and percentage change over the prior period:
Three Months Ended March 31,
Increase
2020 (Decrease) 2019
Tech 243 (19.0) % 300
FA 367 (21.9) % 470
Total number of placements 610 (20.8) % 770
The following table presents the average placement fee by segment and percentage
change over the prior period:
Three Months Ended March 31,
Increase
2020 (Decrease) 2019
Tech $ 17,347 (4.2) % $ 18,106
FA $ 13,294 (1.1) % $ 13,447
Total average placement fee $ 14,908 (2.3) % $ 15,260
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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 March 31,
Increase
2020 (Decrease) 2019
Tech 27.2 % 1.1 % 26.9 %
FA 32.3 % (5.8) % 34.3 %
Total gross profit percentage 28.2 % (1.1) % 28.5 %
The change in total gross profit percentage for the three months endedMarch 31, 2020 , as compared to the same period in 2019, is primarily driven by the decrease in the mix of Direct Hire revenue, partially offset by an improved Flex gross profit percentage. 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, 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 March 31, Increase 2020 (Decrease) 2019 Tech 26.0 % 2.8 % 25.3 % FA 27.0 % (2.9) % 27.8 % Total Flex gross profit percentage
26.2 % 1.6 % 25.8 %
Our Flex gross profit percentage increased 40 basis points for the three months endedMarch 31, 2020 , as compared to the same period in 2019. Tech Flex gross profit margin increased 70 basis points for the three months endedMarch 31, 2020 , as compared to the same period in 2019 due to a more favorable payroll tax environment, improvement in the spread between bill and pay rates, and a reduction in the amount of billable expenses. FA Flex gross profit margins decreased 80 basis points for the three months endedMarch 31, 2020 , as compared to the same period in 2019, primarily due to compression in bill and pay spreads and partially offset by lower payroll taxes. Due to the current COVID-19 economic and health crisis, there is uncertainty regarding how the economic climate and financial market conditions will impact our Flex gross profit percentage, however we experienced negative impacts in our spreads during prior economic downturns. As we navigate this unprecedented environment, we expect to continue working with select, strategic clients, to lower bill rates in providing some relief as they navigate these turbulent waters. While our expectation is that the spread between bill and pay rates may decline in the near-term, we have not yet experienced these declines in Tech as we look at April trends. FA Flex gross profit margins are expected to be negatively impacted by the business we secured, described above. 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 March 31, 2020 vs. March 31, 2019 Tech FA Key Drivers - Increase (Decrease) Revenue impact $ 3,130$ (341) Profitability impact 1,714 (497) Total change in Flex gross profit $ 4,844$ (838) SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 81.3% for the three months endedMarch 31, 2020 , as compared to 83.5% for the same period in 2019. Commissions and other bonus incentives for our revenue-generating talent are variable costs driven primarily by revenue and gross profit levels, and associate performance. Therefore, as gross profit levels change, these expenses would also generally be anticipated to change, but remain relatively consistent as a percentage of revenue. 19 -------------------------------------------------------------------------------- Table of Contents The following table presents components of SG&A as a percentage of revenue (in thousands): 2020 % of Revenue 2019 % of Revenue Three Months EndedMarch 31 , Compensation, commissions, payroll taxes and benefits costs$ 64,367 19.2 %$ 66,635 20.4 % Other (1) 14,849 4.4 % 13,178 4.0 % Total SG&A$ 79,216 23.6 %$ 79,813 24.4 % (1) Includes bad debt expense, lease expense, professional fees, travel, telephone, computer and certain other expenses. SG&A as a percentage of revenue decreased 80 basis points for the three months endedMarch 31, 2020 , as compared to the same period in 2019. The decrease was primarily due to the expense recorded in the three months endedMarch 31, 2019 of approximately$2.0 million due to actions taken as a result of the GS divestiture. Additionally, SG&A expenses benefited from further improvements in associate productivity, reduced annual performance-based compensation expectations given the current crisis and reduced discretionary spend such as travel and other office-related expenses. These benefits were partially offset by an increase in credit loss expense due to the expected increase in the risk of default in our accounts receivable portfolio due to the current crisis. At the end of the first quarter of 2020, we began taking prudent cost containment measures, including temporarily suspending new hires, eliminating discretionary spend and selectively reducing spend in other areas. The Firm continues to focus on improving the productivity of our associates and will continue to exercise solid expense discipline, especially in light of the potential adverse impacts that could occur as a result of the macro-economic uncertainties related to the current crisis. Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands): Three Months Ended March 31, Increase 2020 (Decrease) 2019 Fixed asset depreciation (includes finance leases)$ 1,176 (11.1) %$ 1,323 Capitalized software amortization 217 (33.6) % 327 Total Depreciation and amortization$ 1,393 (15.6) %$ 1,650 Other Expense, Net. Other expense, net for the three months endedMarch 31, 2020 and 2019 was$1.4 million and$0.9 million , respectively. Other expense, net includes interest expense related to outstanding borrowings under our credit facility, net of interest income on cash held in government money market funds. During the three months endedMarch 31, 2020 , Other expense, net also includes our proportionate share of the loss from WorkLLama, our equity method investment, of$0.6 million . Although the impact of the COVID-19 economic and health crisis remains highly uncertain, it could have a material adverse impact 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. 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 three months endedMarch 31, 2020 and 2019 was 27.3% and 26.1%, respectively. Discontinued Operations, Net of Tax. During 2019, we sold the GS segment and reported it as discontinued operations in the consolidated statements of operations for all periods presented. Refer to Note B - "Discontinued Operations" to the Notes to the Unaudited Condensed Consolidated Financial Statements for a more detailed discussion. 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. For the three months endedMarch 31, 2019 , Free Cash Flows includes results from discontinued operations. 20 -------------------------------------------------------------------------------- Table of Contents The following table presents Free Cash Flow (in thousands): Three Months Ended March 31, 2020 2019 Net cash provided by operating activities$ 3,005 $ 11,789 Capital expenditures (1,971) (1,496) Free cash flow 1,034 10,293 Change in debt 35,000 10,700 Repurchases of common stock (19,470) (14,875) Cash dividend (4,293) (4,406) Other (328) (1,565) Change in cash and cash equivalents$ 11,943
Adjusted EBITDA. "Adjusted EBITDA", a non-GAAP financial measure, is defined by
Kforce as net income before income from discontinued operations, net of tax,
depreciation and amortization, stock-based compensation expense, interest
expense, net, income tax expense and loss from equity method investment.
Adjusted EBITDA should not be considered a measure of financial performance
under GAAP. Items excluded from Adjusted EBITDA are significant components in
understanding and assessing our past and future financial performance, and this
presentation should not be construed as an inference by us that our future
results will be unaffected by those items excluded from Adjusted EBITDA.
Adjusted EBITDA is a key measure used by management to assess our operations
including our ability to generate cash flows and our ability to repay our debt
obligations and management believes it provides a good metric of our core
profitability in comparing our performance to our competitors, as well as our
performance over different time periods. Consequently, management believes it is
useful information to investors. The measure should not be considered in
isolation or as an alternative to net income, cash flows or other financial
statement information presented in the consolidated financial statements as
indicators of financial performance or liquidity. The measure is not determined
in accordance with GAAP and is thus susceptible to varying calculations. Also,
Adjusted EBITDA, as presented, may not be comparable to similarly titled
measures of other companies.
In addition, although we excluded amortization of stock-based compensation
expense because it is a non-cash expense, we expect to continue to incur
stock-based compensation in the future and the associated stock issued may
result in an increase in our outstanding shares of stock, which may result in
the dilution of our shareholder ownership interest. We suggest that you evaluate
these items and the potential risks of excluding such items when analyzing our
financial position.
The following table presents a reconciliation of Adjusted EBITDA to net income
(in thousands):
2020 2019
Three Months Ended March 31 ,
Net income $ 9,106 $ 26,855
Income from discontinued operations, net of tax - 18,881
Income from continuing operations 9,106 7,974
Depreciation and amortization 1,393 1,650
Stock-based compensation expense 2,896 2,534
Interest expense, net 791 923
Income tax expense 3,428 2,816
Loss from equity method investment 595 -
Adjusted EBITDA $ 18,209 $ 15,897 Adjusted EBITDA for the three months ended
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LIQUIDITY AND CAPITAL RESOURCES To meet our capital and liquidity requirements, we primarily rely on our operating cash flow as well as borrowings under our credit facility. AtMarch 31, 2020 andDecember 31, 2019 , we had$31.8 million and$19.8 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds, and$100.0 million and$65.0 million outstanding under our credit facility, respectively. The amounts outstanding under our credit facility were hedged by interest rate swaps, as discussed below. Heading into the COVID-19 induced economic and health crisis, we believe we were in a position of financial strength with a strong balance sheet, healthy operating cash flows, low capital requirements and our$300.0 million credit facility. Nonetheless, we took a proactive measure inMarch 2020 to draw down$35.0 million under our credit facility (bringing the total outstanding balance to$100 million ) and simultaneously fixed the incremental$35.0 million in debt under a new interest rate swap. We took this proactive action to take advantage of historically low interest rates and reduce potential risks of not being able to access the availability under our credit facility. We expect that we will see declines in our revenue and, accordingly, our profitability over the near term as a result of the COVID-19 economic and health crisis. Our working capital, excluding cash, was roughly$150.0 million as ofMarch 31, 2020 and, we believe, provides a reliable source of liquidity as we experience revenue declines. We assess future liquidity based on a multi-year forecast (using assumptions that we believe are sufficiently conservative) to validate that we can generate positive cash flows while continuing to invest in our business and seeking to maintain our quarterly cash dividend. Based on these forecasts and assumptions, we continue to believe we are in a position of financial strength. As we navigate this crisis, we will continue to take actions to improve our liquidity and further fortify our cash position. OnMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law. The CARES Act includes, among other things, deferment of employer social security payments, employee retention credits and technical amendments related to depreciation, which allows for retroactive 100% bonus depreciation on qualified improvement property. We are still assessing all of the financial impacts of the CARES Act on our business, but expect that our cash flows will benefit significantly from several of the provisions. Cash Flows We are principally focused on achieving an appropriate balance of cash flow across several areas of opportunity such as: generating positive cash flow from operating activities; returning capital to our shareholders through our quarterly dividends and common stock repurchase program; maintaining appropriate leverage under our credit facility; investing in our infrastructure to allow sustainable growth via capital expenditures; and maintaining sufficient liquidity for operations. In 2019, we sold the GS segment, which has been reflected as discontinued operations. Our Unaudited Condensed Consolidated Statements of Cash Flows are presented on a combined basis (continuing operations and discontinued operations). For the three months endedMarch 31, 2019 , cash provided by operating activities and cash used in investing activities for discontinued operations were$5.7 million and$0.1 million , respectively. Cash provided by operating activities was$3.0 million during the three months endedMarch 31, 2020 , as compared to$11.8 million during the three months endedMarch 31, 2019 . Our largest source of operating cash flows is the collection of trade receivables and use of operating cash flows is the payment of our associate and consultant compensation. The decrease is primarily due to delays in the timing of payments from our clients, which we believe is partially the start of the impacts from the COVID-19 economic and health crisis, as well as a decrease in cash provided by the GS segment due to the divestiture. Cash used in investing activities was$2.0 million during the three months endedMarch 31, 2020 , as compared to$2.5 million during the three months endedMarch 31, 2019 , which includes capital expenditures. We expect to continue selectively investing in our infrastructure, primarily focusing on implementing new and upgrading existing technologies that will provide the most benefit. Cash provided by financing activities was$10.9 million during the three months endedMarch 31, 2020 , as compared to$9.1 million of cash used in financing activities during the three months endedMarch 31, 2019 . This was primarily driven by the aforementioned$35.0 million draw down from our credit facility during the three months endedMarch 31, 2020 , partially offset by an increase in cash used for repurchases of common stock. The following table presents the cash flow impact of the common stock repurchase activity (in thousands): Three Months Ended March 31, 2020 2019 Open market repurchases$ 19,382 $ 14,775
Repurchase of shares related to tax withholding requirements for vesting of restricted stock
88 100
Total cash flow impact of common stock repurchases $ 19,470 $ 14,875
Cash paid in current period for settlement of prior year
repurchases $ - $ 556
22-------------------------------------------------------------------------------- Table of Contents OnJanuary 31, 2020 , Kforce's Board approved an 11% increase to the Company's quarterly dividend from$0.18 per share to$0.20 per share. During the three months endedMarch 31, 2020 and 2019, Kforce declared and paid quarterly dividends of$4.3 million ($0.20 per share) and$4.4 million ($0.18 per share), respectively. The declaration, payment and amount of future dividends are discretionary and will be subject to determination by our 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 these indicated as a result of a number of factors, including the use of currently available resources for capital expenditures, investments, additional common stock repurchases or dividends. Credit Facility OnMay 25, 2017 , the Firm entered into a credit agreement withWells Fargo Bank, National Association , as administrative agent,Wells Fargo Securities, LLC , as lead arranger and bookrunner,Bank of America, N.A ., as syndication agent,Regions Bank andBMO Harris Bank, N.A ., as co-documentation agents, and the lenders referred to therein (the "Credit Facility"). The maturity date of the Credit Facility isMay 25, 2022 . Borrowings under the Credit Facility are secured by substantially all of the tangible and intangible assets of the Firm, excluding the Firm's corporate headquarters and certain other designated collateral. As ofMarch 31, 2020 ,$100.0 million was outstanding and$197.9 million was available on our credit facility, subject to certain covenants, and as ofDecember 31, 2019 ,$65.0 million was outstanding. As ofMarch 31, 2020 , we are in compliance with our credit facility covenants as described in the 2019 Annual Report on Form 10-K and currently expect that we will be able to maintain compliance with these covenants. However, we cannot predict the impact from the COVID-19 pandemic, which could have a material adverse effect on our results of operations that could result in an event of default. Kforce has two forward-starting interest rate swap agreements, which have been designated as cash flow hedges, to mitigate the risk of rising interest rates. Refer to Note K - "Derivative Instruments and Hedging Activity" in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report, for a complete discussion of our interest rate swaps. AtMarch 31, 2020 andDecember 31, 2019 , the fair value of our interest rate swaps were a liability of$1.7 million and$0.2 million , respectively. Stock Repurchases InMarch 2020 , the Board approved an increase in our stock repurchase authorization to an aggregate total of$100.0 million . During the three months endedMarch 31, 2020 , Kforce repurchased approximately 0.7 million shares of common stock on the open market at a total cost of approximately$20.3 million and$93.6 million remained available for further repurchases under the Board-authorized common stock repurchase program atMarch 31, 2020 . Off-Balance Sheet Arrangements There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to our off-balance sheet arrangements previously disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2019 Annual Report on Form 10-K. Contractual Obligations and Commitments Other than the changes described elsewhere in this Quarterly Report, there have been no material changes during the period covered by this report on Form 10-Q to our contractual obligations previously disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2019 Annual Report on Form 10-K. CRITICAL ACCOUNTING ESTIMATES Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed 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 unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. Due to the COVID-19 economic and health crisis, there has been uncertainty and disruption in theU.S. and global macro-economic environments, which could impact the inputs and assumptions for our critical accounting estimates. We are not currently aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of any assets or liabilities. However, actual results could differ from our assumptions and estimates and such differences could be material. Refer to Note 1 - "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our 2019 Annual Report on Form 10-K for a more detailed discussion of our significant accounting policies and critical accounting estimates. 23
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Table of ContentsGoodwill and Equity Method Investment Impairment For our goodwill and equity method investment fair value estimates, the valuation methodologies employed are sensitive to critical estimates which could be impacted by the COVID-19 economic and health crisis, including forecasted operating results and long-term growth rates, expectations for future economic cycles and market multiples. At this time, the impact of the crisis on our forecasts is uncertain and increases the subjectivity that will be involved in evaluating our goodwill and equity method investment for potential impairment going forward. Allowance for Credit Losses The allowance for credit losses on trade receivables is determined based on a number of factors such as recent and historical write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of trade receivables among clients and the current state of theU.S. economy. 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. Due to the ongoing COVID-19 economic and health crisis, we analyzed receivables concentrated within specific industries most significantly impacted, reviewed specific clients with credit ratings that were in a higher risk category and applied higher credit loss rates in order to estimate our potential credit loss exposure. At this time, the impact of the crisis on these estimates is uncertain and increases the subjectivity of our allowance for credit losses. NEW ACCOUNTING STANDARDS Refer to Note A - "Summary of Significant Accounting Policies" in the Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1. Financial Statements of this report for a discussion of new accounting standards.
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