This report, particularly Item 1. Business, Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the documents we incorporate into this report contain certain statements that are, or may be deemed to be, forward-looking statements 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 (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to, projections of financial or operational performance, our beliefs regarding potential government actions or changes in laws and regulations, anticipated costs and benefits of proposed acquisitions, divestitures and investments, effects of interest rate variations, financing needs or plans, funding of employee benefit plans, estimates concerning the effects of litigation or other disputes, the occurrence of unanticipated expenses, developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions, as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. Kforce undertakes no obligation to update any forward-looking statements.

Kforce Inc. and its subsidiaries (collectively, “Kforce”) provide professional staffing services and solutions to our clients on both a temporary (“Flex”) and permanent (“Direct Hire”) basis through our Technology (“Tech”) and Finance and Accounting (“FA”) segments. We operate throughWhile our workforce has been working remotely since March 2020 due to the COVID-19 pandemic, our physical worksites include our corporate headquarters in Tampa, Florida with 50and approximately 40 field offices located throughout the U.S. Kforce was incorporated in 1994 and completed its Initial Public Offering in August 1995, but its predecessor companies have been providing staffing services since 1962.

Kforce serves clients across many industries and geographies as well as organizations of all sizes, with a particular focus on serving Fortune 1000 and other large companies. We believe that our portfolio of service offerings is a key contributor to our long-term financial stability. Our 10 largest clients represented approximately 23%28% of revenue and no single client contributed more than 5% of total revenue for the year ended December 31, 2019.2020.

DuringOur efforts to strategically position Kforce as a professional and technical services company has resulted in several divestitures over the last 10 years. Most recently, during 2019, Kforce sold its Government Solutions ("GS") segment, which has been reported as discontinued operations in the consolidated financial statements. Except as specifically noted, our discussions in this report exclude any activity related to the GS segment. Refer to Note 2 - “Discontinued Operations” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for a more detailed discussion.

Our quarterly operating results can be affected by:

Our largest segment, Tech, provides both Flex and Direct Hire services to our clients, focusing primarily on areas of information technology such as systems/applications architecture and development, data management, business and artificial intelligence, machine learning and network architecture and security. Increasingly,One of our strategies over the last several years has been to invest in our managed teams and solutions capabilities in order to provide a higher-value, differentiated offering to our clients. Kforce has been successfully winning these more complex technology projects that require usdue to, manage teams of consultants and deliver solutions to our clients. This level of project ownership has been an intentional, strategic shift by Kforce overwe believe, the last few years asstrong long-standing partnerships we have built with our clients look to their third party providers, such as Kforce,and our reputation for these engagements.delivering quality services. Within our Tech segment, we provide serviceservices to clients in a variety of industries with a diversified footprint in, among others, financial and business services, communications and technology. Revenue for our Tech segment increased 6.8%decreased 0.8% to $1.1$1.0 billion in 20192020 on a year-over-year basis. The average bill rate for Tech Flex in 20192020 was approximately $76$79 per hour, which increased 3.1%4.3%, as compared to 2018.2019. Our average assignment duration for Tech Flex is nearly 10 months, which has steadily increased over the last several years. Tech Flex continues to benefit from improving bill rates and longer assignment durations, which we believe is related to the acute labor shortage, especiallyparticularly the shortage of labor for highly-skilled positions. In addition to our capability to source highly qualified U.S. domestic technology talent, we believe an important differentiator in a candidate-constrained environment is our capability to source highly qualified foreign-born talent working domestically in the U.S. in higher-end technology roles. We operate this capability on a centralized basis, which allows us to operate consistently with highly-skilled resources.a keen focus on ensuring compliance in this highly regulated space.

The September 20192020 report published by Staffing Industry Analysts (“SIA”) stated that temporary technology staffing is expected to experience growth of 3%7% in 2020.2021. Digital transformation, as a general trend, is driving organizations across all industries to increase their technology investments as competition and the speed of change intensifies. Nontraditional competitors are also entering new emerging technologies and markets. This development puts increased pressure on companies to invest in innovation and the evolution of their business models. We believe the secular drivers of technology spend generally remain intact with many companies becoming increasingly dependent on the efficiencies provided by technology and the need for innovation to support business strategies and sustain relevancy in today’s rapidly changing marketplace. At the macro level, demand is also being driven by an ever-changing and complex regulatory and employment law environment, which increases the overall cost of employment for many companies. We believe that these factors, among others, are continuing to drive companies to look to temporary staffing providers, such as Kforce, to meet their human capital needs.

Our FA segment provides both Flex and Direct Hire services to our clients in areas such as general accounting, transactional finance (e.g. payables, receivables, business and cost analysis,analysis), financial analysis and reporting, taxation, budgeting, loan servicing, professional administration, audit services and systems and controls analysis and documentation. Within our FA segment, we

provide services to clients in a variety of industries with a diversified footprint in the financial services, healthcare and manufacturing sectors. Revenue for our FA segment decreased 7.7%increased 20.2% to $289.5$348.1 million in 20192020 on a year-over-year basis primarily as a result of certain contracts we secured in the second quarter to support government-sponsored COVID-19 related initiatives (the “COVID-19 Business”). These contracts contributed $114.7 million in revenue in 2020. Excluding the contribution of revenue from our COVID-19 Business, our FA segment would have decreased 19.4% on a year-over-year basis. The average bill rate for FA Flex in 20192020 was approximately $37$34 per hour, which increased 5.7%decreased 6.3% as compared to 2018.2019. This increase reflectsdecrease is primarily a result of lower pay rates on the COVID-19 Business.

Strategically, in late 2020, we began intensifying our efforts to repositionmigrate our FA segment into more high-skilled positionsFlex business toward higher-end skill sets that are less susceptible to being disrupted by technological advancements. change, location and automation such as analytics and decision-support roles. This strategic effort will continue into 2021 and we expect will result in natural assignment ends of lower skilled roles where strategic client relationships do not exist.

The September 20192020 report published by SIA stated that finance and accounting temporary staffing is expected to experience growth of 4%12% in 2019 and 2020.

Flex revenue represents approximately 96%97% of total revenue over the last three fiscal years. We provide our clients with qualified individuals (“consultants”), or teams of consultants in the case of a project-based solution, on a temporary basis when the consultant's set of skills and experience is the right match for our clients. We utilize a diversified set of recruitment platforms and databasestools to identify consultants who are actively seeking employment.and engage with candidates. The vast majority of our consultants are directly employed by Kforce, (bothincluding domestic and foreign workers sponsored by Kforce)Kforce, with a smaller composition representing qualified independent contractors. Our success is dependent upon our internal employees’ (“associates”) ability to: (1) acknowledge, understand and participate in creating solutions for our clients’ needs; (2) determine and understand the experience and capabilities of the consultants being recruited;recruited or teams of consultants being formed; (3) ensure excellence in delivering and managing the client-consultant relationship; and (4) have access to a sufficient pool of qualified consultants. We believe proper execution by our associates and consultants directly impacts the longevity of the assignments, increases the likelihood of generating repeat business with our clients and fosters a better experience for our consultants, which has a direct correlation to consultant redeployment.

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. Our Flex gross profit is determined by deducting related costs of employment for consultants, including compensation, payroll taxes, certain fringe benefits and independent contractor costs from Flex revenue. Associate and management commissions, compensation, payroll taxes and other fringe benefits are included in selling, general and administrative expenses (“SG&A”), along with other customary costs such as administrative and corporate costs. Our Flex business model involves maximizing the number of billable hours and bill rates, while managing consultant pay rates and benefit costs, as well as compensation and benefits for our associates.

The professional staffing industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to a relatively small local client base. A report published by SIA in 20192020 indicated that, in the U.S., Kforce is one of the 1015 largest publicly-traded specialty staffing firms, in the U.S. Per this SIA report, Kforce is the fifth largest technology temporary staffing firm and fourththe fifth largest finance and accounting temporary staffing firm.

From an economic standpoint, temporary employment figures and trends are important indicators of staffing demand, which continued to be generally positive during 2019, based on data published by the Bureau of Labor Statistics and SIA. The penetration rate (the percentage of temporary staffing to total employment) and unemployment rate were 1.9% and 6.7%, respectively, in December 2020, down from 2.0% (penetration) and up from 3.5% (unemployment), respectively, in December 2019. Although temporaryTemporary help employment was down 0.5% year over year7.6% year-over-year as of December 2019,2020, and total non-farm employment was up 1.4% year over year.down 6.2% year-over-year. In addition, the college-level unemployment rate, which we believe serves as a proxy for professional employment and therefore aligns well with the consultant and candidate population that Kforce most typically serves, was 1.9%3.8% in December 2019,2020, which represented a decreasean

increase from December 2018.2019. Further, we believe that the unemployment rate in the specialties we serve, especially in certain technology skill sets, is significantly lower than the published averages. We believe this speaks to the highoverall secular drivers of demand environment in which we are currently operatingtechnology, the critical nature of the technology initiatives being driven by our clients, as well as the challenges of finding an adequate supply of qualified talent.

Our primary objectives are driving long-term shareholder value by achieving above-market revenue growth, making prudent investments to enhance our efficiency and effectiveness within our operating model and significantly improving levels of operating profitability. We believe the following strategies will help us achieve our objectives.

We measure our success in building long-lasting relationships with our clients using staffing industry benchmarks and Net Promoter Score (“NPS”) surveys conducted by a specialized, independent third-party provider. Our client NPS ratings compare favorably against staffingare amongst the highest in the industry averages and provide helpful insights from our clients on how to continue improving our relationships. We believe long-lasting relationships with our clients is a critical element in revenue growth.

We measure the quality of our service to and support of our consultants using staffing industry benchmarks and NPS surveys conducted by a specialized, independent third-party provider. Our consultant NPS ratings, similar to our client ratings, are well above staffing industry averages. We continually seek direct feedback from our consultants, which giveshelps us valuable insight into where we haveidentify opportunities to refine our services.

We operate in a highly competitive and fragmented staffing industry comprised of large national and local staffing firms. The local firms are typically operator-owned, and each market generally has one or more significant competitors. WeWithin our managed teams and solutions business, we also face competition from national and regional accounting, consulting and advisory firms that offer both solutions and staffing services. However, wenational and regional strategic consulting and systems implementation firms. We believe that our boundaryless reach within the U.S. geographic, physical presence in larger markets, concentration of service offerings in areas of greatest demand (especially technology), national delivery teams, centralized delivery channels for foreign consultants, including those obtained via the H-1B visa program which optimizes distribution and strengthens compliance, longevity of our brand and reputation in the market, along with our dedicated compliance and regulatory infrastructure, all provide a competitive advantage.

Many clients utilize Managed Service Providers (“MSP”) or Vendor Management Organizations (“VMO”) for the management and procurement of staffing services. Generally, MSPs and VMOs standardize processes through the use of Vendor Management Systems (“VMS”), which are tools used to aggregate spend and measure supplier performance. VMSs are also offered through independent providers. Typically, MSPs, VMOs and/or VMS providers charge staffing firms administrative fees ranging from 1% to 4% of revenue. In addition, the aggregation of services by MSPs for their clients into a single program can result in significant buying power and, thus, pricing power. Therefore, the use of MSPs by our clients has, in certain instances, resulted in margin compression.compression, but has also led to incremental client share through our client’s vendor consolidation efforts. Kforce does not currently provide MSP or VMO services directly to our clients; rather, our strategy has been to work with MSPs, VMOs and VMS providers that enable us to bestbetter extend our services to current and prospective clients.

We believe that the principal elements of competition in our industry are differentiated offerings, reputation, the availability and quality of associates, consultants and candidates, level of service, effective monitoring of job performance, scope of geographic service, and types of service offerings and compliance orientation. To attract consultants and candidates, we emphasize our ability to provide competitive compensation and benefits, quality and varied assignments, scheduling flexibility and permanent placement opportunities, all of which are important to Kforce being the employer of choice. Because individuals pursue other employment opportunities on a regular basis, it is important that we respond to market conditions affecting these individuals and focus on our consultant relationship objectives. Additionally, in certain markets, from time to time we have experienced significant pricing pressure as a result of our competitors’ pricing strategies, which may result in us not being able to effectively compete or choosing to not participate in certain business that does not meet our profitability standard.

Staffing firms are generally subject to one or more of the following types of government regulations: (1) regulation of the employer/employee relationship, such as wage and hour regulations, tax withholding and reporting, immigrationimmigration/H-1B visa regulations, social security and other retirement, anti-discrimination, employee benefits and workers’ compensation regulations; (2) registration, licensing, recordkeeping and reporting requirements; and (3) worker classification regulations.

Because we operate in a complex regulatory environment, one of our top priorities is compliance. For more discussion of the potential impact that the regulatory environment could have on Kforce’s financial results, refer to Item 1A. Risk Factors.

Kforce maintains a number of insurance policies including general liability, automobile liability, workers’ compensation and employers’ liability, liability for certain foreign exposure, umbrella and excess liability, property, crime, fiduciary, directors and

officers, employment practices liability, cybersecurity, professional liability and excess health insurance coverage. These policies provide coverage subject to their terms, conditions, limits of liability and deductibles, for certain liabilities that may arise from Kforce’s operations. There can be no assurance that any of the above policies will be adequate for our needs or that we will maintain all such policies in the future.

With the assistance of independent third party specialists, Kforce is conducting a comprehensive review of our DE&I program including, but not limited to, building an increasingly robust pipeline of diverse candidates in our talent acquisition efforts (for both associates and consultants), supplier diversity practices, training and mentorship programs as well as the SEC, are publicly available, freefocus of charge, on our website at www.kforce.comstewardship activities to meet the mission and objectives of our DE&I program. This review is intended as soon as reasonably practicable after such reports are filed with, or furnisheda means to the SEC. The information contained on our website, or on other websites linked to our website, is not part of this document.strengthen and refine already significant activities in these areas.

The U.S. professional staffing industry in which we operate is significantlyOur business, financial condition, results of operations and cash flows are subject to, and could be materially adversely affected by, fluctuationsvarious risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or our anticipated future results. We present these risk factors grouped by category, and the risks factors contained in generaleach respective category are presented in order of their relative priority to us.

The COVID-19 economic and health crisis has impacted and may continue to impact many of our clients’ business operations due to reduced demand in their businesses, which in some cases was caused by government-mandated or voluntary closures, or due to initiatives to reduce costs or preserve cash, thereby decreasing demand for our staffing services and/or adversely affecting our profitability or our ability to timely collect our accounts receivable. More specifically, we have experienced and may continue to experience, among other impacts, a reduction or elimination of consultants on previous projects and assignments, selective reduction in bill rates, extended payment terms and temporary furloughs for consultants. We have also experienced and may continue to experience a decrease in our leading indicators, such as job orders for assignments and direct hire placements due to hiring freezes. Additionally, our employees, consultants and independent contractors may be, and have been, impacted by the occurrence of these types of events, or we may face difficulties complying with regulations temporarily modified to account for virtual or remote work by these individuals, or difficulties in sourcing or onboarding these individuals, including slowdowns in critical processes such as interviewing, I-9 verification, background checks, or other compliance processes, which could impair our ability to serve our clients or respond timely to their needs, or could expose us to compliance risk and/or penalties. The occurrence of these types of events has resulted in, and may result in further, worker absences, lower billable hours, travel restrictions on our employees or other disruptions to our business. The potential adverse effects on our operations could result in an event of default under our credit facility covenants, which might require us to seek alternative sources of financing, which may not be available on as favorable of terms or at all. The COVID-19 economic and health crisis continues to be fluid and uncertain, making it difficult to forecast the entirety of the impact it could have on our business, customers, financial condition and operating results.

Kforce depends upon the abilities of its staff to attract and retain consultants and candidates, particularly technical and professional individuals, who possess the skills and experience necessary to meet the staffing requirements of our clients. We must continually evaluate and upgrade our methods of attracting qualified consultants and candidates to keep pace with changing client needs and emerging technologies. We expect significant competition for individuals with proven technical or professional skills to continue or increase for the foreseeable future. The supply of available consultants and candidates has

been constrained during this economic recovery, especially in our Tech segment. If qualified individuals are not available to us in sufficient numbers and upon economic terms acceptable to us, it could have a material adverse effect on our business.

Kforce employs people primarily in the workplaces of our clients. Inherent risks in our business include possible claims of or relating to: discrimination and harassment; wrongful termination; violations of employment rights related to employment screening or privacy issues; misclassification of workers as employees or independent contractors; violations of wage and hour requirements and other labor laws; employment of illegal aliens; criminal activity; torts; breach of contract; failure to protect confidential personal information; intentional criminal misconduct; misuse or misappropriation of client intellectual property; employee benefits; or other claims. In some cases, we are contractually obligated to indemnify our clients against such risks. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by Kforce of defense costs, monetary damages or fines that may be significant, discontinuation of client relationships or other material adverse effects on our business. To reduce our exposure, we maintain policies, procedures and guidelines to promote compliance with laws, rules, regulations and best practices applicable to our business. Even claims without merit could cause us to incur significant expense or reputational harm. We also maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability and general liability in amounts and with deductibles that we believe are appropriate for our operations. However, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost. In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. U.S. courts in recent years have been receiving large numbers of wage and hour class action claims alleging misclassification of overtime-eligible workers and/or failure to pay overtime-eligible workers for all hours worked.

In the ordinary course of our business, we collect and retain personal information of our associates and consultants and their dependents.dependents, and our customers. We are also regularly subjected to cyberattacks and the number and sophistication of such cyberattacks continue to increase. Cyberattacks or other breaches of network or information technology used by our associates and consultants, as well as risks associated with compliance on data privacy, could adversely impact our systems, services, operations, financial results and financial results.reputation with clients and potential clients. These attacks include, but are not limited to, attempts to gain unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. While we have policies, procedures and systems in place to detect, prevent and deter cyberattacks or other breaches of our networks, techniques used to obtain unauthorized access or cause system interruption change frequently and may not immediately produce signs of intrusion. As a result, we may be unable to anticipate these incidents or techniques, timely discover them, or implement adequate preventative measures.

The possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens.burdens and compliance risk. We may be required to incur significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems or information. Our information technology may not provide sufficient protection, and as a result we may lose significant information about us, our employees or clients. Other results of these incidents could include, but are not limited to, increased cybersecurity protection costs, litigation, regulatory penalties, monetary damages and reputational damage adversely affecting client or investor confidence.

Part of our business strategy includes enhancing our service offerings and relationships with largelarger consumers of temporary staffing and other solutions, which is intended to enable us to profitably grow our revenues with these clients. However, it also creates the potential for concentrating a significant portion of our revenues among our largest clients and exposes us to increased risks arising from decreases in the volume of business from, the pricing of business with, or the possible loss of business with these clients. Organizational changes occurring within those clients, or a deterioration of their financial condition or business prospects, could reduce their need for our services and result in a significant decrease in the revenues we derive from those clients, which could have a material adverse effect on our financial results.

In addition, any such misconduct may give rise to litigation, which could be time-consuming and placing such individualsexpensive. To reduce our exposure, we maintain policies, procedures and insurance coverage for types and amounts we believe are appropriate in clients’ workplaces. Increased government regulationlight of the workplaceaforementioned potential exposures. There can be no assurance that the corporate policies and practices we have in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. In addition, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost.

Kforce is highly dependent on its management team and expects that continued success will depend largely upon their efforts, expertise and abilities. The loss of the employer/employee relationshipservices of any key executive for any reason could have a material adverse effect on Kforce. For example, changesTo attract and retain executives and other key employees (particularly management, client servicing, and consultant and candidate recruiting employees) in a competitive marketplace, we must provide a competitive compensation package, including cash-based and equity-based compensation. Kforce expends significant resources in the recruiting and training of its employees, as the pool of available applicants for these positions is limited. The loss or any sustained attrition of our key operating employees could have a material adverse effect on our business, including our ability to government regulations,establish and maintain client, consultant and candidate, professional and technical relationships.

Kforce is dependent on the proper functioning of information systems in operating our business. Critical information systems are used in every aspect of Kforce’s daily operations, perhaps most significantly, in the identification and matching of staffing resources to client assignments and in the client billing and consultant or vendor payment functions. Kforce’s information systems may not perform as expected and are vulnerable to damage or interruption including changesnatural disasters, fire or casualty theft, technical failures, terrorist acts, cybersecurity breaches, power outages, telecommunications failures, physical or software intrusions, computer viruses, employee errors or other events. Our corporate headquarters and data center are located in a hurricane-prone area. Although we have disaster recovery systems for most key information systems, this makes us reliant on third party providers for the restoration of these systems. Failure or interruption of our critical information systems may require significant additional capital and management resources to statutory hourly wageresolve, which could have a material adverse effect on our business. Additionally, many of our information technology systems and overtime regulations,networks are cloud-based or managed by third parties, whose future performance and reliability we cannot control. The risk of a cyberattack or security breach on a third party carries the same risks to Kforce as those associated with our internal systems. We seek to reduce these risks by performing vendor due diligence procedures prior to engaging with any third party vendor who will have access to sensitive data. Additionally, we require audits of the relevant third parties’ information technology processes on an annual basis. However, there can be no assurance that such parties will not experience cybersecurity breaches that could adversely affect the Firm’s resultsour employees, customers and businesses or that our audit or diligence processes will successfully deter or prevent such breach.

Due to limited barriers to entry for new competitors, the substantial number of statecompetition among staffing services firms is intense and we face significant competition in the markets we serve. Kforce competes for potential clients with large national and local jurisdictions in whichstaffing firms and national and regional advisory firms that offer both solutions and staffing services. Some of our clients increasingly rely upon internal recruiting functions. Some of our competitors possess substantially greater resources than we operatedo and others may develop new and unique technologies. From time to time, we experience significant pressure from our clients to reduce price levels due to competition. During these periods, we may face increased competitive pricing pressures and may not be able to recruit the widening disparity among state and local laws (a trend which appearspersonnel necessary to be accelerating), therefulfill our clients’ needs. We also is aface the risk that wecertain of our current and prospective clients will decide to provide similar services internally, particularly if regulatory burdens are reduced. Additionally, many clients are retaining third parties to provide vendor management services, which may be unaware of,subject us to greater risks or unablelower margins.

Our Tech segment utilizes a significant number of foreign nationals employed by us on work visas, primarily under the H-1B visa classification. The H-1B visa classification that enables U.S. employers to hire qualified foreign nationals is subject to

legislative and administrative changes, as well as changes in the application of standards and enforcement. Immigration laws and regulations can be significantly affected by the recent change in administration, other political developments and levels of economic activity. Current and future restrictions on the availability of such visas could restrain our ability to employ the skilled professionals we need to meet our clients’ needs, which could have a material adverse effect on our business. The U.S. Citizenship and Immigration Service (“USCIS”) continues to closely scrutinize companies seeking to sponsor, renew or transfer H-1B status, including Kforce and Kforce’s subcontractors and has issued internal guidance to its field offices that appears to narrow the eligibility criteria for H-1B status in the context of staffing services. In addition to USCIS restrictions, certain aspects of the H-1B program are also subject to regulation and review by the U.S. Department of Labor and U.S. Department of State, which have recently increased enforcement activities in the program. Vigorous enforcement and/or legislative or executive action relating to immigration could adversely affect our ability to recruit or retain foreign national consultants, and consequently, reduce our supply of skilled consultants and candidates and subject us to fines, penalties and sanctions, or result in increased labor and compliance costs.

We utilize individuals to provide services in connection with our business as qualified third-party independent contractors rather than our direct employees. Heightened state and federal scrutiny of independent contractor relationships could adversely affect us given that we utilize independent contractors to perform our services. An adverse determination related to the independent contractor status of these subcontracted personnel could result in substantial taxes or other liabilities to us.

Kforce is required to pay a number of federal, state and local payroll and related costs or provide certain benefits such as paid time off, sick leave, unemployment taxes, workers’ compensation and insurance premiums and claims, FICA and Medicare, among others, related to our employees. Costs could also increase as a result of health care reforms or the possible imposition of additional requirements and restrictions related to the placement of personnel. We may not be able to increase the fees charged to our clients in a timely manner or in a sufficient amount to cover these potential cost increases.

We have a credit facility consisting of a revolving line of credit of up to $300.0 million, subject to certain limitations. 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.

Adverse changes in credit markets, including increases in interest rates, could increase our cost of borrowing and/or make it more difficult to refinance our existing indebtedness, if necessary. We have reduced our exposure to rising interest rates by entering into an interest rate hedging arrangement, although this and other arrangements may result in us incurring higher interest expenses than we would have otherwise incurred. If interest rates increase in the absence of such arrangements though, we would need to dedicate more of our cash flow from operations to service our debt.

Kforce is subject to certain affirmative and negative covenants under our credit facility. Our failure to comply with such restrictive covenants could result in an event of default, which, if not cured or waived, could result in Kforce being required to repay the outstanding balance before the due date. If this occurs, we may not be able to repay our debt or we may be forced to refinance on terms not acceptable to us, which could have a material adverse effect on our operating results and financial condition.

Demand for staffing services, generally speaking, is significantly affected by the general level of economic activity and employment in the U.S. Even in a strong demand environment, without significant uncertainty and volatility, it is difficult for us to forecast future demand for our services due to the inherent limitations, theredifficulties in forecasting the strength of economic cycles, availability of consultants and candidates and the short-term nature of many of our agreements. As economic activity slows, companies may defer projects for which they utilize our services or reduce their use of temporary employees before laying off permanent employees. In addition, an economic downturn could result in a reduction in the temporary staffing penetration rate, an increase in the unemployment rate and a deceleration of growth in the segments in which we and our clients operate. We may also experience more competitive pricing pressures during periods of economic downturn. Any substantial economic

Our business is subject to regulation and licensing in many states. There can be no assurance that our system of disclosure and internal controls and procedureswe will be successful in preventingable to continue to obtain all errors and fraud,necessary licenses or in making all material information known in a timely manner to management.

A large part of our business entails employing individuals on a temporary basis and placing such individuals in clients’ workplaces. Increased government regulation of the control system are met. Becauseworkplace or of the inherent limitationsemployer/employee relationship could have a material adverse effect on Kforce. For example, changes to government regulations, including changes to statutory hourly wage and overtime regulations, could adversely affect the Firm’s results of operations by increasing its costs. Due to the substantial number of state and local jurisdictions in which we operate and the widening disparity among state and local laws (a trend which appears to be accelerating), there also is a risk that we may be unaware of, or unable to adequately monitor, actual or proposed changes in, or the interpretation of, the laws or governmental regulations of such states and localities. Any delay in our compliance with changes in such laws or governmental regulations could result in potential fines, penalties, or other sanctions for non-compliance.

Kforce’s articles of incorporation and bylaws and Florida law contain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination. In particular, our articles of incorporation provide for a staggered Board of Directors (“Board”) and permit the removal of directors only for cause. Additionally, the Board may issue up to 15 million shares of preferred stock, and fix the rights and preferences thereof, without a further vote of the shareholders. In addition, certain of our officers and managers have employment agreements containing certain provisions that call for substantial payments to be made to such employees in certain circumstances after a change in control. Some or all control systems, no evaluation of controls can provide absolute assurance that all control issuesthese provisions may discourage a future acquisition of Kforce, including an acquisition in which shareholders might otherwise receive a premium for their shares. As a result, shareholders who might desire to participate in such a transaction may not have the opportunity to do so. Moreover, the existence of these provisions could negatively impact the market price of our common stock.

New business initiatives and strategic changes in the composition of fraud, if any, within Kforce have been detected. These inherent limitations include the realities that judgments in decision-makingour business mix can be faulty,a diversion to our management’s attention from other business concerns and that breakdowns can occur becausecould be disruptive to our operations, which could cause our business and results of operations to suffer materially. Acquisitions and new business initiatives could involve significant unanticipated challenges and risks, including the possibility that: they may not advance our business strategy; we may not realize our anticipated return on our investment; we may lose key personnel; we may incur and/or retain unforeseen liabilities; we may experience difficulty in implementing initiatives or integrating acquired operations; or management's attention may be diverted from our other businesses. These events could have a simple errormaterial adverse effect on our business, operating results or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The market price of our stock has fluctuated substantially in the past and could fluctuate substantially in the future, based on a variety of factors, including our operating results, changes in general conditions in the economy, the financial markets, the staffing industry, a decrease in our outstanding shares or other developments affecting us, our clients, or our competitors; some of which may be unrelated to our performance.

In addition, the stock market in general, especially NASDAQ, along with market prices for staffing companies, has experienced historical volatility that has often been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating results.

Among other things, volatility in our stock price could mean that investors will not be able to sell their shares at or above the prices they pay. The volatility also could impair our ability in the future to offer common stock as a source of additional capital or as consideration in the acquisition of other businesses, or as compensation for our key employees.

During the year ended December 31, 2019, Kforce completed the sale of the GS segment and the results of operations for the GS segment have been presented as discontinued operations for all of the years presented above. Refer to Note 2 – “Discontinued Operations” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for a more detailed discussion.

Flex revenue for our largest segment, Tech, increased 6.8%decreased 0.4% (0.8% on a billing day basis) during the year ended December 31, 2019,2020, as compared to 2018. Our growth rate exceeded SIA’s projected domestic temporary technology staffing growth ratethe same period in 2019. The decline was primarily driven by assignment ends with clients in industries that were most significantly impacted by the COVID-19 economic and health crisis and lower overall demand for 2019our services as a result of 3% by more than two times. Our growththe crisis. The number of consultants on assignment in Tech Flex have grown 15% since early June 2020 and new assignment starts in 2019 has been disporportionately driventhe fourth quarter of 2020 increased 16% from the third quarter of 2020. Additionally, lower billable hours in our Tech business were partially offset by higher average bill rates, which increased 4.3% on a year-over-year basis in 2020. This increase was primarily due to our clients retaining our more highly skilled consultants given the largest consumersscarcity of our services, manytalent and the assignments that were ended at the onset of whom are also somethis pandemic were lower skilled areas that were less capable of our largest clients.working remotely. We believe that the secular drivers ofcrisis has exponentially elevated the imperative for companies to rapidly digitize their businesses, transform business models and drive productivity gains through technology spend generally remain intact with many companies becoming increasingly dependent on the efficiencies provided by technology and the need for innovation to support business strategies and sustain relevancyinvestment. We expect growth in today’s rapidly changing marketplace. Our belief in the strength in the demand environment within technology has not changed; thus, we expect continuedour Tech Flex growthbusiness in 2020.2021 as COVID-19 related restrictions ease and economic momentum builds.

Our FA segment experienced a decreasean increase in Flex revenue of 8.6%26.3% during the year ended December 31, 2019,2020, as compared to 2018. The year-over-year decreasethe same period in 2019, from 2018 was primarily due to a lower volume of new assignments, which was partially offsetdriven by an increasethe COVID-19 Business that contributed approximately $114.7 million in average bill rates of 5.7% forrevenue during the year ended December 31, 20192020. This positively impacted FA Flex revenue growth rates by 43.7% for 2020. Similar to our Tech Flex business, we have been successful at growing the number of consultants on assignment in our FA business (excluding the COVID-19 Business) by 33% since early June 2020. As we move into 2021, we expect overall revenues in FA Flex to decline as compared to 2018. We continue to focus ona result of expected declines in revenues from our COVID-19 Business as well as the strategic repositioningmigration of our FA Flex business intotowards more high-skilled positionshighly-skilled roles that are less susceptible to being disrupted by technological advancements. In 2020, we expect FA Flex revenue to be stable.change location and automation.

The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands):

Direct Hire revenue increased 4.4%decreased 29.6% during the year ended December 31, 20192020, as compared to 2018.

The following table presents the key drivers for the change in Direct Hire revenue over the prior period (in thousands):

The following table presents the gross profit percentage (gross profit as a percentage of total revenue) for each segment and percentage change over the prior period for the years ended December 31:

Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insight into the other drivers of total gross profit percentage driven by our Flex business such as changes in the spread between the consultants’ bill rate and pay rate.

The following table presents the Flex gross profit percentage for each segment and percentage change over the prior period for the years ended December 31:

Overall, our Flex gross profit percentage decreased slightly for the year ended December 31, 2020, as a result ofcompared to the mix of growth, particularlysame period in some of2019, although there were notable fluctuations within our larger clients, which have a slightly lower margin profile.segments.

The following table presents certain components of SG&A as a percentage of total revenue for the years ended December 31 (in thousands):