~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________________________________________________

FORM 10-Q

________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-26058

Kforce Inc.

Exact name of registrant as specified in its charter

_______________________________________________________________


Florida						59-3264661
State or other jurisdiction of incorporation or organization						IRS Employer Identification No.


1150 Assembly Drive, Suite 500, Tampa, Florida						33607
Address of principal executive offices						Zip Code

Registrant’s telephone number, including area code: (813) 552-5000

_______________________________________________________

~~1001 East Palm Avenue, Tampa, Florida 33605~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 per share	KFRC	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.): Yes ☐ No x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

The number of shares outstanding of the registrant’s common stock as of ~~October 28, 2022~~May 5, 2023 was ~~20,753,646.~~20,341,265.

T a b l e o f C o n t e n t s

KFORCE INC.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

References in this document to the “Registrant,” “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context otherwise requires or indicates.

This report, particularly Part I, Item 2,2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II, Item ~~1A,~~1A. Risk Factors 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: expectations of financial or operational ~~performance; developments within~~performance, including our expectations regarding the ~~staffing sector including, but not limited~~future growth or decline in revenue of each segment of our business; the impact of the economic environment on our business; the Firm’s commitment to return significant capital to its shareholders regardless of the economic climate; the intent and ability to declare and pay quarterly dividends; growth ~~rate~~rates in temporary ~~staffing,~~staffing; a ~~reduction~~constraint in the supply of consultants and candidates or the Firm’s ability to attract such ~~individuals~~,individuals; changes in client demand for our services and our ability to adapt to such ~~changes,~~changes; the entry of new competitors in the ~~market,~~market; the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions; our beliefs regarding the expected future benefits of our flexible working environment, the impact of the COVID-19 pandemic, inflationary pressures, rising interest rates and/or supply constraints on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations;environment; our ability to maintain compliance with our credit facility's covenants; ~~our beliefs regarding~~ potential government actions or changes in laws and ~~regulations, including those related to the COVID-19 pandemic;~~regulations; anticipated costs and benefits of acquisitions, divestitures, joint ventures and other investments; effects of interest rate variations; financing needs or plans; ~~expected funding or payment of employee benefits;~~ estimates concerning the effects of litigation or other disputes; ~~the impact of our joint venture's inability to achieve its financial objectives or changes in valuation assumptions,~~ the occurrence of unanticipated expenses; 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.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Revenue	Revenue	$	437,620	$	402,725	$	1,291,103	$	1,169,564	Revenue	$	405,997	$	416,967
Direct costs	Direct costs	310,950		283,461		909,475		832,687		Direct costs	292,021		293,081
Gross profit	Gross profit	126,670		119,264		381,628		336,877		Gross profit	113,976		123,886
Selling, general and administrative expenses	Selling, general and administrative expenses	94,306		88,972		285,502		251,617		Selling, general and administrative expenses	89,339		95,049
Depreciation and amortization	Depreciation and amortization	1,045		1,026		3,214		3,420		Depreciation and amortization	1,234		1,093
Income from operations	Income from operations	31,319		29,266		92,912		81,840		Income from operations	23,403		27,744
Other expense (income), net		906		1,448		(333)		5,845
Other expense, net										Other expense, net	1,045		1,433
Income from operations, before income taxes	Income from operations, before income taxes	30,413		27,818		93,245		75,995		Income from operations, before income taxes	22,358		26,311
Income tax expense	Income tax expense	8,151		7,650		24,886		21,378		Income tax expense	6,148		7,130

Net income	Net income	22,262		20,168		68,359		54,617		Net income	16,210		19,181
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, net of tax:
Defined benefit pension plans		—		—		—		3,103
Change in fair value of interest rate swaps	Change in fair value of interest rate swaps	—		152		(615)		1,101		Change in fair value of interest rate swaps	—		2,302
Comprehensive income	Comprehensive income	$	22,262	$	20,320	$	67,744	$	58,821	Comprehensive income	$	16,210	$	21,483

Earnings per share – basic	Earnings per share – basic	$	1.11	$	0.99	$	3.38	$	2.64	Earnings per share – basic	$	0.83	$	0.94

Earnings per share – diluted	Earnings per share – diluted	$	1.09	$	0.96	$	3.31	$	2.57	Earnings per share – diluted	$	0.82	$	0.93

Weighted average shares outstanding – basic	Weighted average shares outstanding – basic	20,022		20,429		20,206		20,676		Weighted average shares outstanding – basic	19,455		20,319
Weighted average shares outstanding – diluted	Weighted average shares outstanding – diluted	20,450		21,098		20,634		21,260		Weighted average shares outstanding – diluted	19,667		20,730

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN ~~THOUSANDS)~~THOUSANDS EXCEPT PER SHARE AMOUNTS)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	5,089	$	96,989	Cash and cash equivalents	$	171	$	121
Trade receivables, net of allowances of $1,853 and $2,342, respectively		281,124		265,322
Income tax refund receivable		35		3,010
Trade receivables, net of allowances of $1,437 and $1,575, respectively						Trade receivables, net of allowances of $1,437 and $1,575, respectively	266,525		269,496
Prepaid expenses and other current assets	Prepaid expenses and other current assets	10,019		6,790		Prepaid expenses and other current assets	8,213		8,143
Total current assets	Total current assets	296,267		372,111		Total current assets	274,909		277,760
Fixed assets, net	Fixed assets, net	6,500		5,964		Fixed assets, net	10,036		8,647
Other assets, net	Other assets, net	81,758		92,629		Other assets, net	71,682		75,771
Deferred tax assets, net	Deferred tax assets, net	3,272		7,657		Deferred tax assets, net	3,485		4,786
Goodwill	Goodwill	25,040		25,040		Goodwill	25,040		25,040
Total assets	Total assets	$	412,837	$	503,401	Total assets	$	385,152	$	392,004
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	$	73,030	$	81,408	Accounts payable and other accrued liabilities	$	69,615	$	72,792
Accrued payroll costs	Accrued payroll costs	81,619		71,424		Accrued payroll costs	46,893		48,369
Current portion of operating lease liabilities	Current portion of operating lease liabilities	4,074		6,338		Current portion of operating lease liabilities	3,800		4,576
Income taxes payable	Income taxes payable	4,241		1,239		Income taxes payable	5,449		5,696
Other current liabilities		22		22

Total current liabilities	Total current liabilities	162,986		160,431		Total current liabilities	125,757		131,433
Long-term debt – credit facility	Long-term debt – credit facility	—		100,000		Long-term debt – credit facility	22,300		25,600

Other long-term liabilities	Other long-term liabilities	40,875		54,564		Other long-term liabilities	51,370		52,773
Total liabilities	Total liabilities	203,861		314,995		Total liabilities	199,427		209,806
Commitments and contingencies (Note L)	Commitments and contingencies (Note L)					Commitments and contingencies (Note L)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding		—		—
Common stock, $0.01 par; 250,000 shares authorized, 73,006 and 72,997 issued, respectively		730		730
Preferred stock, $0.01 par value; 15,000 shares authorized, none issued and outstanding						Preferred stock, $0.01 par value; 15,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par value; 250,000 shares authorized, 73,247 and 73,242 issued, respectively						Common stock, $0.01 par value; 250,000 shares authorized, 73,247 and 73,242 issued, respectively	732		732
Additional paid-in capital	Additional paid-in capital	502,909		488,036		Additional paid-in capital	512,572		507,734
Accumulated other comprehensive income	Accumulated other comprehensive income	6		621		Accumulated other comprehensive income	—		6
Retained earnings	Retained earnings	491,856		442,596		Retained earnings	501,630		492,764
Treasury stock, at cost; 52,172 and 51,493 shares, respectively		(786,525)		(743,577)
Treasury stock, at cost; 52,920 and 52,744 shares, respectively						Treasury stock, at cost; 52,920 and 52,744 shares, respectively	(829,209)		(819,038)
Total stockholders’ equity	Total stockholders’ equity	208,976		188,406		Total stockholders’ equity	185,725		182,198
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	412,837	$	503,401	Total liabilities and stockholders’ equity	$	385,152	$	392,004

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)


		Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Income								Treasury Stock							Total Stockholders’ Equity			Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Income						Treasury Stock					Total Stockholders’ Equity
		Shares	Amount								Retained Earnings				Shares			Amount					Shares					Amount						Retained Earnings				Shares			Amount
Balance, December 31, 2021		72,997	$	730			$	488,036			$	621			$	442,596		51,492			$	(743,577)					$	188,406
Balance, December 31, 2022																										Balance, December 31, 2022	73,242		$	732		$	507,734			$	6		$	492,764		52,744		$	(819,038)		$	182,198
Net income	Net income	—	—		—				—				19,181				—		—					19,181		Net income	—		—		—				—			16,210			—		—			16,210
Issuance for stock-based compensation and dividends, net of forfeitures	Issuance for stock-based compensation and dividends, net of forfeitures	(1)	—		319				—				(318)				—		—					1		Issuance for stock-based compensation and dividends, net of forfeitures	5		—		340				—			(341)			—		—			(1)
Stock-based compensation expense	Stock-based compensation expense	—	—		4,437				—				—				—		—					4,437		Stock-based compensation expense	—		—		4,326				—			—			—		—			4,326
Employee stock purchase plan	Employee stock purchase plan	—	—		193				—				—				(3)		49					242		Employee stock purchase plan	—		—		172				—			—			(5)		73			245
Dividends ($0.30 per share)		—	—		—				—				(6,094)				—		—					(6,094)

Change in fair value of interest rate swaps, net of tax benefit of $780		—	—		—				2,302				—				—		—					2,302
Dividends ($0.36 per share)																										Dividends ($0.36 per share)	—		—		—				—			(7,003)			—		—			(7,003)
Repurchases of common stock	Repurchases of common stock	—	—		—				—				—				147		(10,270)					(10,270)		Repurchases of common stock	—		—		—				—			—			181		(10,244)			(10,244)
Balance, March 31, 2022		72,996	$	730	$	492,985			$	2,923			$	455,365			51,636		$	(753,798)				$	198,205
Net income		—	—		—				—				26,916				—		—					26,916
Issuance for stock-based compensation and dividends, net of forfeitures		11			298				—				(298)				—		—					—
Stock-based compensation expense		—	—		4,410				—				—				—		—					4,410
Employee stock purchase plan		—	—		234				—				—				(4)		61					295
Dividends ($0.30 per share)		—	—		—				—				(6,093)				—		—					(6,093)

Change in fair value of interest rate swaps, net of tax expense of $989		—	—		—				(2,917)				—				—		—					(2,917)
Repurchases of common stock		—	—		—				—				—				162		(10,283)					(10,283)
Balance, June 30, 2022		73,007	730		497,927				6				475,890				51,794		(764,020)					210,533
Net income		—	—		—				—				22,262				—		—					22,262
Issuance for stock-based compensation and dividends, net of forfeitures		(1)	—		318				—				(319)				—		—					(1)
Stock-based compensation expense		—	—		4,445				—				—				—		—					4,445
Employee stock purchase plan		—	—		219				—				—				(5)		75					294
Dividends ($0.30 per share)		—	—		—				—				(5,977)				—		—					(5,977)

Repurchases of common stock		—	—		—				—				—				383		(22,580)					(22,580)
Balance, September 30, 2022		73,006	730		502,909				6				491,856				52,172		(786,525)					208,976
Other																										Other	—		—		—				(6)			—			—		—			(6)
Balance, March 31, 2023																										Balance, March 31, 2023	73,247		$	732	$	512,572			$	—		$	501,630		52,920		$	(829,209)		$	185,725

~~Table of Contents~~


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income				Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Retained Earnings		Shares	Amount
Balance, December 31, 2021	72,997	$	730	$	488,036	$	621	$	442,596	51,492	$	(743,577)	$	188,406
Net income	—	—		—		—		19,181		—	—		19,181
Issuance for stock-based compensation and dividends, net of forfeitures	(1)	—		319		—		(318)		—	—		1
Stock-based compensation expense	—	—		4,437		—		—		—	—		4,437
Employee stock purchase plan	—	—		193		—		—		(3)	49		242
Dividends ($0.30 per share)	—	—		—		—		(6,094)		—	—		(6,094)
Change in fair value of interest rate swap, net of tax benefit of $780	—	—		—		2,302		—		—	—		2,302
Repurchases of common stock	—	—		—		—		—		147	(10,270)		(10,270)
Balance, March 31, 2022	72,996	$	730	$	492,985	$	2,923	$	455,365	51,636	$	(753,798)	$	198,205

Common Stock Additional Paid-In Capital Accumulated Other
Comprehensive (Loss) Income Treasury Stock Total Stockholders’ Equity
Shares Amount Retained Earnings Shares Amount
Balance, December 31, 2020 72,600 $ 726 $ 472,378 $ (4,423) $ 388,645 50,427 $ (677,391) $ 179,935
Net income — — — — 13,261 — — 13,261
Issuance for stock-based compensation and dividends, net of forfeitures 15 — 271 — (271) — — —
Stock-based compensation expense — — 3,403 — — — — 3,403
Employee stock purchase plan — — 113 — — (4) 57 170
Dividends ($0.23 per share) — — — — (4,786) — — (4,786)
Defined benefit pension plan, no tax benefit — — — 47 — — — 47
Change in fair value of interest rate swap, net of tax benefit of $319 — — — 939 — — — 939
Repurchases of common stock — — — — — 317 (16,313) (16,313)
Balance, March 31, 2021 72,615 $ 726 $ 476,165 $ (3,437) $ 396,849 50,740 $ (693,647) $ 176,656
Net income — — — — 21,188 — — 21,188
Issuance for stock-based compensation and dividends, net of forfeitures 40 1 274 — (273) — — 2
Stock-based compensation expense — — 3,532 — — — — 3,532
Employee stock purchase plan — — 143 — — (4) 52 195
Dividends ($0.23 per share) — — — — (4,746) — — (4,746)
Defined benefit pension plan, net of tax provision of $283 — — — 3,056 — — — 3,056
Change in fair value of interest rate swap, net of tax benefit of $3 — — — 10 — — — 10
Repurchases of common stock — — — — — 225 (13,614) (13,614)
Balance, June 30, 2021 72,655 727 480,114 (371) 413,018 50,961 (707,209) 186,279
Net income — — — — 20,168 — — 20,168
Issuance for stock-based compensation and dividends, net of forfeitures (15) (1) 260 — (260) — — (1)
Stock-based compensation expense — — 3,512 — — — — 3,512
Employee stock purchase plan — — 148 — — (3) 45 193
Dividends ($0.26 per share) — — — — (5,304) — — (5,304)
Change in fair value of interest rate swap, net of tax benefit of $55 — — — 152 — — — 152
Repurchases of common stock — — — — — 249 (15,030) (15,030)
Balance, September 30, 2021 72,640 726 484,034 (219) 427,622 51,207 (722,194) 189,969

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	68,359	$	54,617	Net income	$	16,210	$	19,181
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	Deferred income tax provision, net	4,386		302		Deferred income tax provision, net	1,301		8,321
Provision for credit losses	Provision for credit losses	(231)		(139)		Provision for credit losses	371		172
Depreciation and amortization	Depreciation and amortization	3,214		3,420		Depreciation and amortization	1,234		1,093
Stock-based compensation expense	Stock-based compensation expense	13,293		10,448		Stock-based compensation expense	4,326		4,437
Defined benefit pension plan expense		—		2,157

Loss (gain) on disposal or impairment of assets		155		(1,979)
Noncash lease expense	Noncash lease expense	4,313		3,992		Noncash lease expense	1,130		1,502

Loss on equity method investment	Loss on equity method investment	2,737		1,709		Loss on equity method investment	750		825
Other	Other	(322)		681		Other	50		358
Increase in operating assets
(Increase) decrease in operating assets						(Increase) decrease in operating assets
Trade receivables, net	Trade receivables, net	(15,571)		(41,397)		Trade receivables, net	2,601		(12,914)
Other assets	Other assets	(1,989)		(6,384)		Other assets	243		(2,577)
Increase (decrease) in operating liabilities	Increase (decrease) in operating liabilities					Increase (decrease) in operating liabilities
Accrued payroll costs	Accrued payroll costs	11,025		7,715		Accrued payroll costs	(1,230)		15,447
Payment of benefit under terminated pension plan		(19,965)		—

Other liabilities	Other liabilities	8,659		24,801		Other liabilities	(7,930)		2,897
Cash provided by operating activities	Cash provided by operating activities	78,063		59,943		Cash provided by operating activities	19,056		38,742
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(4,656)		(5,026)		Capital expenditures	(1,872)		(2,221)
Contributions to WorkLLama joint venture		(500)		(7,000)
Proceeds from the sale of our joint venture interest						Proceeds from the sale of our joint venture interest	5,059		—
Note receivable issued to our joint venture						Note receivable issued to our joint venture	(750)		—
Equity method investment						Equity method investment	—		(500)

Note receivable issued to WorkLLama joint venture		(4,500)		—
Net proceeds from the sale of assets		—		23,742
Cash (used in) provided by investing activities		(9,656)		11,716
Cash provided by (used) in investing activities						Cash provided by (used) in investing activities	2,437		(2,721)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from credit facility						Proceeds from credit facility	174,200		—
Payments on credit facility	Payments on credit facility	(100,000)		—		Payments on credit facility	(177,500)		—

Repurchases of common stock	Repurchases of common stock	(42,103)		(44,407)		Repurchases of common stock	(11,126)		(10,270)
Cash dividends	Cash dividends	(18,164)		(14,836)		Cash dividends	(7,003)		(6,094)
Payments on other financing arrangements	Payments on other financing arrangements	(40)		(271)		Payments on other financing arrangements	(14)		(19)

Cash used in financing activities	Cash used in financing activities	(160,307)		(59,514)		Cash used in financing activities	(21,443)		(16,383)
Change in cash and cash equivalents	Change in cash and cash equivalents	(91,900)		12,145		Change in cash and cash equivalents	50		19,638
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	96,989		103,486		Cash and cash equivalents, beginning of period	121		96,989
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	5,089	$	115,631	Cash and cash equivalents, end of period	$	171	$	116,627

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s


		Nine Months Ended September 30,					Three Months Ended March 31,
Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information	2022		2021		Supplemental Disclosure of Cash Flow Information	2023		2022
Cash Paid During the Period For:	Cash Paid During the Period For:					Cash Paid During the Period For:
Income taxes	Income taxes	$	14,348	$	17,845	Income taxes	$	5,108	$	314
Operating lease liabilities	Operating lease liabilities	5,413		5,591		Operating lease liabilities	1,303		1,812
Interest, net	Interest, net	918		1,934		Interest, net	248		547
Non-Cash Investing and Financing Transactions:	Non-Cash Investing and Financing Transactions:					Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases	ROU assets obtained from operating leases	$	274	$	4,053	ROU assets obtained from operating leases	$	566	$	446
Employee stock purchase plan	Employee stock purchase plan	831		558		Employee stock purchase plan	245		242

Unsettled repurchases of common stock		1,030		—

Equipment and software additions included in accounts payable and other accrued liabilities						Equipment and software additions included in accounts payable and other accrued liabilities	957		—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s

KFORCE INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies

Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 1 - “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of the ~~2021~~2022 Annual Report on Form 10-K.

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnotes normally required by GAAP for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our ~~2021~~2022 Annual Report on Form 10-K. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation. The Unaudited Condensed Consolidated Balance Sheet as of December 31, ~~2021,~~2022, was derived from our audited Consolidated Balance Sheet as of December 31, ~~2021,~~2022, as presented in our ~~2021~~2022 Annual Report on Form 10-K.

Our quarterly operating results are affected by the number of billing days in a particular quarter, the seasonality of our clients’ businesses and increased holiday and vacation days taken. In addition, we typically experience higher costs in the first quarter of each fiscal year as a result of certain U.S. state and federal employment tax resets, which adversely affects our gross profit and overall profitability relative to the remainder of the fiscal year. As such, the results of operations for any interim period may be impacted by these factors, among others, and are not necessarily indicative of, nor comparable to, the results of operations for a full year.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most critical of these estimates and assumptions relate to the following: allowance for credit losses; income taxes; self-insured liabilities for health insurance; and the impairment of goodwill and other long-lived ~~assets and the equity method investment.~~assets. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. In addition, the potential economic consequences of the COVID-19 pandemic, inflationary pressures, and supply constraints, among others, have been and may continue to be uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future periods.

Health Insurance

Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss per participant for each health insurance claim up to $600 thousand in claims annually. Additionally, for all claim amounts exceeding $600 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of ~~$200~~$280 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and incurred but not reported claims, which are primarily based upon an evaluation of historical claims experience, completion factors determined by an actuary and a qualitative review of our health insurance exposure including the extent of outstanding claims and expected changes in health insurance costs.

Earnings per Share

Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per share is computed by dividing net income by diluted WASO. Diluted WASO includes the dilutive effect of potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.

~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~428~~212 thousand and ~~428~~411 thousand common stock equivalents were included in ~~the~~ diluted WASO, respectively. For the three ~~and nine~~ months ended ~~September 30, 2021, 669 thousand~~March 31, 2023 and ~~584 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30,~~ 2022, there were ~~304~~264 thousand and ~~301~~305 thousand anti-dilutive common stock equivalents, respectively.

Equity Method Investment and Note Receivable

In June 2019, we entered into a joint venture whereby Kforce obtained a 50% noncontrolling interest in WorkLLama, which was accounted for as an equity method investment. As of December 31, 2022, the equity method investment was fully impaired. We recorded a loss related to our equity method investment of $0.8 million for each of the three months ended March 31, 2023 and 2022. During the year ended December 31, 2022, Kforce executed a series of promissory notes (the “Note Receivable”) to our joint venture for a total of $6.8 million and recorded a credit loss of $1.9 million, resulting in a balance of $4.8 million at December 31, 2022. There were no payments received on the Note Receivable during the year ended December 31, 2022.

On February 23, 2023, Kforce received $6.0 million in exchange for the sale of our 50% noncontrolling interest in WorkLLama to an unaffiliated third party and in full settlement of the outstanding balance of the Note Receivable. These proceeds, net of customary transaction costs, amounted to $5.1 million and is presented in the investing section of the Unaudited Condensed Consolidated Statements of Cash Flows.

Excise Tax

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into Federal law. The IRA provides for, among other things, a new U.S. Federal 1% nondeductible excise tax on certain repurchases of stock by publicly-traded U.S. domestic corporations occurring after December 31, 2022. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain stock issuances against the fair market value of stock repurchases during the same taxable year, with certain exceptions. For the three ~~and nine~~ months ended ~~September 30, 2021, there~~March 31, 2023, we recorded $0.1 million in excise tax related to the IRA, which was ~~an insignificant amount of anti-dilutive common~~included in Treasury stock ~~equivalents.~~in the unaudited condensed consolidated financial statements.

New Accounting Standards

Recently Adopted Accounting Standards

~~There were no new~~In March 2020, the FASB issued guidance for reference rate reform, which provided temporary optional guidance to ease the potential burden in accounting ~~standards~~for reference rate reform in contracts and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The FASB has since issued subsequent updates to the initial guidance in December 2022, which extends the final sunset date for reference rate reform from December 31, 2022 to December 31, 2024. We adopted ~~during the nine months ended September 30, 2022 that had~~this standard as of January 1, 2023 and do not expect it to have a ~~significant~~material impact on our ~~financial statements.~~

~~Recently Issued Accounting Standards Not Yet Adopted~~

~~There are no accounting standards that have not yet been adopted that are expected to have a significant impact on our~~consolidated financial statements ~~and related disclosures.~~

~~Table of Contents~~.

Note B - Reportable Segments

Kforce provides services through our Technology and Finance and Accounting (“FA”) segments. Historically, and for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we have reported sales and gross profit information on a segment basis. Total assets, liabilities and operating expenses are not reported separately by segment as our operations are largely combined.

T a b l e o f C o n t e n t s

The following table provides information on the operations of our segments (in thousands):


		Technology		FA		Total			Technology		FA		Total
Three Months Ended September 30,
Three Months Ended March 31,								Three Months Ended March 31,
2023								2023
Revenue								Revenue	$	364,844	$	41,153	$	405,997
Gross profit								Gross profit	$	98,411	$	15,565	$	113,976
Operating and other expenses								Operating and other expenses					$	91,618
Income from operations, before income taxes								Income from operations, before income taxes					$	22,358
2022	2022							2022
Revenue	Revenue	$	390,496	$	47,124	$	437,620	Revenue	$	359,905	$	57,062	$	416,967
Gross profit	Gross profit	$	107,793	$	18,877	$	126,670	Gross profit	$	102,450	$	21,436	$	123,886
Operating and other expenses	Operating and other expenses					$	96,257	Operating and other expenses					$	97,575
Income from operations, before income taxes	Income from operations, before income taxes					$	30,413	Income from operations, before income taxes					$	26,311
2021
Revenue		$	337,230	$	65,495	$	402,725
Gross profit		$	95,934	$	23,330	$	119,264
Operating and other expenses						$	91,446
Income from operations, before income taxes						$	27,818

Nine Months Ended September 30,
2022
Revenue		$	1,134,996	$	156,107	$	1,291,103
Gross profit		$	320,160	$	61,468	$	381,628
Operating and other expenses						$	288,383
Income from operations, before income taxes						$	93,245
2021
Revenue		$	927,518	$	242,046	$	1,169,564
Gross profit		$	258,449	$	78,428	$	336,877
Operating and other expenses						$	260,882
Income from operations, before income taxes						$	75,995

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Note C - Disaggregation of Revenue

The following table provides the disaggregation of revenue by segment and type (in thousands):


		Technology		FA		Total			Technology		FA		Total
Three Months Ended September 30,
Three Months Ended March 31,								Three Months Ended March 31,
2023								2023
Revenue by type:								Revenue by type:
Flex revenue								Flex revenue	$	359,524	$	36,008	$	395,532
Direct Hire revenue								Direct Hire revenue	5,320		5,145		10,465
Total Revenue								Total Revenue	$	364,844	$	41,153	$	405,997
2022	2022							2022
Revenue by type:	Revenue by type:							Revenue by type:
Flex revenue	Flex revenue	$	382,072	$	40,896	$	422,968	Flex revenue	$	351,716	$	50,150	$	401,866
Direct Hire revenue	Direct Hire revenue	8,424		6,228		14,652		Direct Hire revenue	8,189		6,912		15,101
Total Revenue	Total Revenue	$	390,496	$	47,124	$	437,620	Total Revenue	$	359,905	$	57,062	$	416,967
2021
Revenue by type:
Flex revenue		$	330,170	$	59,003	$	389,173
Direct Hire revenue		7,060		6,492		13,552
Total Revenue		$	337,230	$	65,495	$	402,725
Nine Months Ended September 30,
2022
Revenue by type:
Flex revenue		$	1,109,294	$	135,239	$	1,244,533
Direct Hire revenue		25,702		20,868		46,570
Total Revenue		$	1,134,996	$	156,107	$	1,291,103
2021
Revenue by type:
Flex revenue		$	909,599	$	224,783	$	1,134,382
Direct Hire revenue		17,919		17,263		35,182
Total Revenue		$	927,518	$	242,046	$	1,169,564

Note D - Allowance for Credit Losses

The allowance for credit losses on trade receivables is determined ~~based on a number~~by estimating and recognizing lifetime expected losses, rather than incurred losses, which results in the earlier recognition of ~~factors such as recent and historical write-off and delinquency trends, a specific analysis~~credit losses even if the expected risk of ~~significant receivable balances that are past due, the concentration of trade receivables among clients and the current state of the U.S. economy.~~credit loss is remote. 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 and are immaterial for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023.

The following table presents the activity within the allowance for credit losses on trade receivables for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 (in thousands):




Allowance for credit losses, January 1, ~~2022~~2023	$	~~1,729~~1,006
Current period provision ~~(credit)~~	~~(231)~~371
Write-offs charged against the allowance, net of recoveries of amounts previously written off	~~(240)~~(442)

Allowance for credit losses, ~~September 30, 2022~~March 31, 2023	$	~~1,258~~935

T a b l e o f C o n t e n t s

The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include ~~$0.6~~$0.5 million and $0.6 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, for reserves unrelated to credit losses.

~~Table of Contents~~

Note E - Other Assets, NetNet

Other assets, net consisted of the following (in thousands):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets held in Rabbi Trust	Assets held in Rabbi Trust	$	30,199	$	41,607	Assets held in Rabbi Trust	$	34,323	$	31,976
Right-of-use assets for operating leases, net	Right-of-use assets for operating leases, net	10,331		15,395		Right-of-use assets for operating leases, net	16,538		17,102
Capitalized software, net (1)	Capitalized software, net (1)	16,404		14,666		Capitalized software, net (1)	14,845		16,149
Equity method investment (2)		14,772		17,008
Deferred loan costs, net	Deferred loan costs, net	939		1,115		Deferred loan costs, net	822		881

Notes receivable (3)		4,500		—
Notes receivable, net (2)						Notes receivable, net (2)	—		4,825
Other non-current assets	Other non-current assets	4,613		2,838		Other non-current assets	5,154		4,838
Total Other assets, net	Total Other assets, net	$	81,758	$	92,629	Total Other assets, net	$	71,682	$	75,771

(1) Accumulated amortization of capitalized software was ~~$36.3~~$37.0 million and ~~$35.5~~$36.6 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

(2) In June 2019, Kforce entered into a joint venture resulting in a 50% noncontrolling interest in WorkLLama, LLC (“WorkLLama”), which is accounted for as an equity method investment. The loss on this WorkLLama investment was $0.9 million and $2.7 million for the three months and nine months ended September 30, 2022, respectively. In addition, Kforce contributed $0.5 million and $9.0 million of capital during the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively. Refer to Note LA - ~~“Commitments and Contingencies”~~“Summary of Significant Accounting Policies” for more ~~information~~details on ~~contingencies related to WorkLLama.~~

~~(3) In~~ the ~~three months ended June 30, 2022, Kforce loaned WorkLLama LLC $2.0 million, pursuant to a secured promissory note. In~~sale of our joint venture and the three months ended September 30, 2022, Kforce amended the secured promissory note and increased the total amount available to loan to WorkLLama by an additional $4.0 million, of which an additional $2.5 million was extended, resulting in an outstanding balance of $4.5 million at September 30, 2022. Allsettlement of the ~~notes have the same terms, bearing interest at 7% annually with principal and accrued interest payable in a single payment in June 2025.~~Note Receivable.

Note F - Current Liabilities

The following table provides information on certain current liabilities (in thousands):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Accounts payable and other accrued liabilities:	Accounts payable and other accrued liabilities:					Accounts payable and other accrued liabilities:
Accounts payable	Accounts payable	$	52,032	$	40,241	Accounts payable	$	47,967	$	49,600
Accrued liabilities	Accrued liabilities	20,998		41,167		Accrued liabilities	21,648		23,192
Total Accounts payable and other accrued liabilities	Total Accounts payable and other accrued liabilities	$	73,030	$	81,408	Total Accounts payable and other accrued liabilities	$	69,615	$	72,792
Accrued payroll costs:	Accrued payroll costs:					Accrued payroll costs:
Payroll and benefits	Payroll and benefits	$	54,470	$	43,738	Payroll and benefits	$	37,178	$	41,506
Payroll taxes	Payroll taxes	22,432		22,466		Payroll taxes	5,138		2,633
Health insurance liabilities	Health insurance liabilities	3,895		4,474		Health insurance liabilities	3,805		3,481
Workers’ compensation liabilities	Workers’ compensation liabilities	822		746		Workers’ compensation liabilities	772		749
Total Accrued payroll costs	Total Accrued payroll costs	$	81,619	$	71,424	Total Accrued payroll costs	$	46,893	$	48,369

Our accounts payable balance includes vendor and third party payables. Our accrued liabilities balance includes the current portion of our deferred compensation plans liability, contract liabilities from contracts with customers (such as customer rebates), and other accrued liabilities and amounts owed under the Supplemental Executive Retirement Plan (‘SERP ”). Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed to the two participants under the SERP, as of June 30, 2022 and December 31, 2021, was $20.0 million in the aggregate. In July 2022, the amount owed was fully paid thereby reducing accrued liabilities and relieving us of any future obligation related to the SERP.

Our payroll taxes as of September 30, 2022 and December 31, 2021 include approximately $19.3 million in payroll tax payments as a result of the application of the CARES Act 2020, which is anticipated to be repaid no later than December 31, 2022.

~~Table of Contents~~

liabilities.

Note G - Credit Facility

In May 2022, the Firm repaid the outstanding balance of $100.0 million in connection with the termination of its Swap B (as defined in Note J - “Derivative Instruments and Hedging Activity” to these financial statements) with a notional amount of $100.0 million. As of ~~September 30, 2022~~March 31, 2023, we are in compliance with all of our financial covenants contained in the Amended and Restated Credit Facility.

As of March 31, 2023 and December 31, ~~2021, $0~~2022, $22.3 million and ~~$100.0~~$25.6 million was outstanding under the Amended and Restated Credit ~~Facility.~~Facility, respectively.

T a b l e o f C o n t e n t s

Note H - Other Long-Term Liabilities

Other long-term liabilities consisted of the following (in thousands):


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Deferred compensation plan	Deferred compensation plan	$	32,990	$	42,623	Deferred compensation plan	$	36,839	$	36,390
Operating lease liabilities	Operating lease liabilities	7,877		11,919		Operating lease liabilities	14,498		16,380
Other long-term liabilities	Other long-term liabilities	8		22		Other long-term liabilities	33		3
Total Other long-term liabilities	Total Other long-term liabilities	$	40,875	$	54,564	Total Other long-term liabilities	$	51,370	$	52,773

Note I - ~~Stock Incentive Plans~~Stock-based Compensation

On April ~~22, 2021,~~20, 2023, Kforce’s shareholders approved the ~~2021~~2023 Stock Incentive Plan (the ~~“2021~~“2023 Plan”). The ~~2021~~2023 Plan allows for the issuance of stock options, stock appreciation rights (“SAR”), stock awards (including restricted stock awards (“RSAs”) and restricted stock units (“RSUs”)) and other stock-based awards. The aggregate number of shares reserved under the ~~2021~~2023 Plan is approximately ~~3.9~~3.2 million. Grants of an option or SAR reduce the reserve by one share, while a restricted stock award reduces the reserve by 2.72 shares. The ~~2021~~2023 Plan terminates on April ~~22, 2031.~~20, 2033.

Restricted stock (including RSAs and RSUs) is granted to directors, executives and management either for awards related to Kforce’s annual long-term incentive program or as part of a compensation package for attraction and retention purposes. ~~Restricted stock granted during the nine months ended September 30, 2022 will vest over a period of~~ ~~one~~ ~~to ten years, with vesting occurring in equal annual installments.~~

During the three and nine months ended September 30, 2022, stock-based compensation expense was $4.5 million and $13.3 million, respectively. During the three and nine months ended September 30, 2021, stock-based compensation expense was $3.5 million and $10.5 million, respectively, and is included in Selling, general and administrative expenses.

The following table presents the restricted stock activity for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 (in thousands, except per share amounts):


		Number of Restricted Stock	Weighted-Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested			Number of Restricted Stock	Weighted-Average Grant Date Fair Value		Total Intrinsic Value of Restricted Stock Vested
Outstanding at December 31, 2021		1,083	$	48.86
Outstanding at December 31, 2022							Outstanding at December 31, 2022	911	$	54.42
Granted	Granted	42	$	61.38			Granted	6	$	54.92
Forfeited	Forfeited	(33)	$	51.24			Forfeited	(1)	$	75.22
Vested	Vested	(43)	$	45.69	$	2,831	Vested	(8)	$	25.71	$	467
Outstanding at September 30, 2022		1,049	$	49.65
Outstanding at March 31, 2023							Outstanding at March 31, 2023	908	$	54.64

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized stock-based compensation expense related to restricted stock was ~~$37.2~~$41.2 million, which will be recognized over a weighted-average remaining period of ~~4.3~~4.1 years.

During the three months ended March 31, 2023 and 2022, stock-based compensation expense was $4.3 million and $4.4 million, respectively, and is included in Selling, general and administrative expenses (“SG&A”) in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

~~Table of Contents~~

Note J - Derivative ~~Instruments~~Instrument and Hedging Activity

~~As of September 30, 2022, the~~The Firm ~~did not have any outstanding derivative instruments. On April 21, 2017, Kforce entered into a forward-starting interest rate~~maintained two swap ~~agreement with Wells Fargo Bank, N.A (“Swap A”).~~instruments, Swap A ~~was effective on May 31, 2017~~ and ~~matured on April 29, 2022. Other information related to Swap A is as follows: Notional amount - $25.0 million; and Fixed interest rate - 1.81%.~~

~~On March 12, 2020, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A (“Swap B”, together with Swap A, the "Swaps").~~ Swap B, ~~was effective on March 17, 2020. Other information related to Swap B is~~which were designated as ~~follows: Scheduled maturity date - May 30, 2025; Fixed interest rate - 0.61%;~~cash flow hedges and ~~Notional amount - $100.0 million.~~

~~The Firm~~were used ~~the Swaps~~ as an interest rate risk management ~~tool~~tools to mitigate the potential impact of rising interest rates on variable rate debt. The fixed interest rate for each Swap plus the applicable interest margin under our credit facility, was ~~included in interest expense and~~ recorded in Other ~~(income)~~ expense, net in the accompanying Unaudited Condensed Consolidated ~~Financial~~ Statements of Operations and Comprehensive Income.

In Swap A matured on April 29, 2022 and Swap B was terminated in May ~~2022,~~2022. As of March 31, 2023, the Firm ~~terminated Swap B in anticipation of paying the~~did not have any outstanding amount on its credit facility, which was $100.0 million. At the termination of Swap B, the amount recorded in Accumulated other comprehensive income was recognized. The Firm received $4.1 million in income, which represented the gain and fair value of Swap B at the time of termination, and is included in other income in the accompanying Consolidated Financial Statements of Operations and Comprehensive Income.

Both Swap A and B were designated as cash flow hedges. The change in the fair value of the Swaps was previously recorded as a component of Accumulated other comprehensive income (loss) in the unaudited consolidated financial statements.derivative instruments.

The following table sets forth the activity in the accumulated derivative instrument activity (in thousands):
Nine Months Ended September 30,
2022 2021
Accumulated derivative instrument gain (loss), beginning of period $ 823 $ (1,774)
Net change associated with current period hedging transactions (1) (823) 1,478
Accumulated derivative instrument gain (loss), end of period $ — $ (296)


	Three Months Ended March 31,
	2023		2022
Accumulated derivative instrument gain, beginning of period	$	—	$	823
Net change associated with current period hedging transactions	—		3,082

Accumulated derivative instrument gain, end of period	$	—	$	3,905

T a b l e o f C o n t e n t s

(1) The accumulated derivative instrument activity as of the end the nine month period ending September 30, 2022, includes the beginning balance of $823 thousand, a change in fair value of $3.1 million and a reversal due to termination of $3.9 million resulting in an ending balance of zero.

Note K - Fair Value Measurements

Our interest rate swaps were previously measured at fair value using readily observable inputs, which are considered to be Level 2 ~~inputs and were recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets.~~inputs. In April 2022, Swap A matured and in May 2022, we terminated Swap B. ~~At September 30, 2022, Kforce had no interest rate swaps.~~ Refer to Note J - “Derivative ~~Instruments~~Instrument and Hedging Activity” for a complete discussion of ~~our~~the interest rate ~~swaps.~~swap derivative instruments.

There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the ~~nine~~three months ended ~~September 30, 2022. The fair value of the interest rate swap derivative instrument asset at December~~March 31, ~~2021 was $823 thousand and was classified as a Level 2 instrument.~~2023.

Note L - Commitments and Contingencies

Employment Agreements

Kforce has employment agreements with certain executives that provide for certain post-employment benefits under certain circumstances. At ~~September 30, 2022,~~March 31, 2023, our liability would be approximately ~~$38.2~~$40.4 million if, following a change in control, all of the executives under contract were terminated without cause by the employer or if the executives resigned for good reason and ~~$13.7~~$17.4 million if, in the absence of a change in control, all of the executives under contract were terminated by Kforce without cause or if the executives resigned for good reason.

Litigation ~~and Loss Contingencies~~

Except as stated below, there have been no material developments with regard to the legal proceedings previously disclosed in our 2021 Annual Report on Form 10-K or in our Form 10-Q for the quarter ending June 30, 2022.

~~Table of Contents~~

On December 17, 2019, Kforce Inc., et al. was served with a complaint brought in Superior Court of the State of California, Alameda County. Kathleen Wahrer, et al. v. Kforce Inc., et al., Case Number: RG19047269. The former employee purports to bring a representative action on her own behalf and on behalf of other allegedly aggrieved employees pursuant to California Private Attorneys General Act of 2004, California Labor Code Section 2968, et seq. (“PAGA”) alleging violations of the California Labor Code, §201, et seq. (“Labor Code”). The plaintiff seeks civil penalties, interest, attorneys’ fees, and costs under the Labor Code for alleged failure to: provide and pay for work performed during meal and rest periods; properly calculate and pay all earned minimum and overtime wages; provide compliant wage statements; timely pay wages during employment and upon termination; and reimburse business expenses. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to continue to vigorously defend the claims.

On November 18, 2020, Kforce Inc., et al. was served with a complaint brought in the Superior Court of the State of California, San Diego County, which was subsequently amended on January 21, 2021, to add Kforce Flexible Solutions as a party. Bernardo Buchsbaum, et al. v. Kforce Inc., et al., Case Number: 37-2020-00030994-CU-OE-CTL. The former employee purports to bring a representative action on his own behalf and on behalf of other allegedly aggrieved employees pursuant to PAGA alleging violations of the Labor Code. The plaintiff seeks civil penalties, interest, attorney’s fees, and costs under the Labor Code for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide and pay for work performed during meal and rest periods; reimburse business expenses; provide compliant wage statements; and provide unused vacation wages upon termination. The parties reached a preliminary settlement agreement to resolve this matter along with Elliott-Brand, et al. v. Kforce Inc., et al., and the Court granted preliminary approval on September 21, 2022. The settlement agreement is subject to final approval by the Court. Plaintiff Buchsbaum has been added as a plaintiff to the Elliott-Brand lawsuit, and this lawsuit will be dismissed after the Court’s final approval of the settlement. We believe that this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

On December 11, 2020, a complaint was filed against Kforce and its client, Verity Health System of California (Verity) in the Superior Court of California, County of Los Angeles, which was subsequently amended on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC, et al., Case Number: 20STCV47529. Former consultant Ramona Webb has sued both Kforce and Verity alleging certain individual claims in addition to a PAGA claim based on alleged violations of various provisions of the Labor Code. With respect to the PAGA claim, Plaintiff seeks to recover on her behalf, on behalf of the State of California, and on behalf of all allegedly aggrieved employees, the civil penalties provided by PAGA, attorney’s fees and costs. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to continue to vigorously defend the claims.

On December 24, 2020, a complaint was filed against Kforce Inc., et al. in Superior Court of the State of California, Los Angeles County. Sydney Elliott-Brand, et al. v. Kforce Inc., et al., Case Number: 20STCV49193. On January 7, 2022, the lawsuit was amended to add Bernardo Buchsbaum and Josie Meister as plaintiffs and to add claims under PAGA and the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. On behalf of themselves and a putative class and collective of talent recruiters and allegedly aggrieved employees in California and nationwide, the plaintiffs purport to bring a class action for alleged violations of the Labor Code, Industrial Welfare Commission Wage Orders, and the California Business and Professions Code, §17200, et seq., a collective action for alleged violations of FLSA, and a PAGA action for alleged violations of the Labor Code. The plaintiffs seek payment to recover unpaid wages and benefits, interest, attorneys’ fees, costs and expenses, penalties, and liquidated damages for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide meal and rest periods or provide compensation in lieu thereof; provide accurate itemized wage statements; reimburse for all business expenses; pay wages due upon separation; and pay for all hours worked over forty hours in one or more workweeks. Plaintiffs also seek an order requiring defendants to restore and disgorge all funds acquired by means of unfair competition under the California Business and Professions Code. The parties reached an agreement to resolve this matter along with Lewis, et al. v. Kforce Inc. and Buchsbaum, et al. v. Kforce Inc., et al., which was preliminarily approved by the Court on September 21, 2022, and we have set reserves accordingly. The settlement agreement is subject to final approval by the Court. We believe that this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

On January 6, 2022, a complaint was filed against Kforce Inc. in the Superior Court of the State of California for the County of Los Angeles and was served on January 21, 2022. Jessica Cook and Brianna Pratt, et al. v. Kforce Inc., Case Number: 22STCV00602. On behalf of themselves and others similarly situated, plaintiffs purport to bring a class action alleging violations of Labor Code and the California Business and Professional Code and challenging the exempt classification of a select class of recruiters. Plaintiffs and class members seek damages for all earned wages, statutory penalties, injunctive relief, attorney’s fees, and interest for alleged failure to: properly classify certain recruiters as nonexempt from overtime; timely pay all wages earned, including overtime premium pay; provide

~~Table of Contents~~

accurate wage statements; provide meal and rest periods; and comply with California's Unfair Competition Law. Kforce anticipated this action would be filed as a result of failed early resolution attempts in the previously disclosed Jessica Cook v. Kforce, et al. lawsuit. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to vigorously defend the claims.

On January 6, 2022, a complaint was filed against Kforce Inc. in the United States District Court for the Middle District of Florida and was served on February 4, 2022. Sam Whiteman, et al. v. Kforce Inc., Case Number: 8:22-cv-00056. On behalf of himself and all others similarly situated, the plaintiff brings a one-count collective action complaint for alleged violations of the FLSA by failing to pay overtime wages. Plaintiff, on behalf of himself and the putative collective, seeks to recover unpaid wages, liquidated damages, attorneys’ fees and costs, and prejudgment interest for alleged failure to properly classify specified recruiters as nonexempt from overtime and properly compensate for all hours worked over 40 hours in one or more workweeks. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to vigorously defend the claims.

We are involved in legal proceedings, claims, and administrative matters ~~from time to time, and may also be exposed to loss contingencies,~~ that arise in the ordinary course of business. We have made accruals with respect to certain of these matters, where appropriate, that are reflected in our consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, we have not yet determined that a loss is probable, or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, we currently do not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on our financial position, results of operations or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to us, or if we determine that settlement of particular litigation is appropriate, we may be subject to liability that could have a material adverse effect on our financial position, results of operations or cash flows. Kforce maintains liability insurance in amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that Kforce insures against are workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, errors and omissions, cyber liability, employment practices liability and fidelity losses. There can be no assurance that Kforce’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities.

Except as stated below, there have been no material developments with regard to the legal proceedings previously disclosed in our 2022 Annual Report on Form 10-K.

~~Equity Method Investment~~On November 18, 2020, Kforce Inc., et al. was served with a complaint brought in the Superior Court of the State of California, San Diego County, which was subsequently amended on January 21, 2021, to add Kforce Flexible Solutions as a party. Bernardo Buchsbaum, et al. v. Kforce Inc., et al., Case Number: 37-2020-00030994-CU-OE-CTL. The former employee purportedly brought a representative action on his own behalf and on behalf of other allegedly aggrieved employees pursuant to PAGA alleging violations of the Labor Code. The plaintiff sought civil penalties, interest, attorney’s fees, and costs under the Labor Code for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide and pay for work performed during meal and rest periods; reimburse business expenses; provide compliant wage statements; and provide unused vacation wages upon termination. The Court entered a written order granting final approval of the parties’ settlement agreement in March 2023, and the case has been dismissed. This matter did not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

~~In June 2019, we entered into~~On December 11, 2020, a ~~joint venture whereby~~complaint was filed against Kforce ~~obtained~~and its client, Verity Health System of California (Verity) in the Superior Court of California, County of Los Angeles, which was subsequently amended on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC, et al., Case Number: 20STCV47529. Former consultant Ramona Webb sued both Kforce and Verity alleging certain individual claims in addition to a ~~50% noncontrolling interest in WorkLLama. We determined,~~PAGA claim based on alleged violations of various provisions of the corporate structure and governance, that WorkLLama is a variable interest entity and not subject to consolidation, as we are not the primary beneficiary of WorkLLama because we do not have the power to direct the activities that most significantly impact WorkLLama’s economic performance. As a result, WorkLLama is accounted for as an equity method investment.

~~Under the joint venture operating agreement for WorkLLama, Kforce was originally obligated to make additional cash contributions subsequent~~Labor Code. With respect to the ~~initial contribution, contingent~~PAGA claim, Plaintiff sought to recover on ~~WorkLLama's achievement~~her behalf, on behalf of ~~certain operational~~the State of California, and ~~financial milestones. Under~~on behalf of all allegedly aggrieved employees, the ~~operating agreement, our maximum potential capital contributions were $22.5 million. Although the operational~~civil penalties provided by PAGA, attorney’s fees and financial milestones were not achieved, we contributed the full $22.5 million as of September 30, 2022. We contributed $0.5 million and $9.0 million of capital during the nine months ended September 30, 2022costs. The parties resolved Webb’s individual claims and the ~~year ended December 31, 2021, respectively.~~

~~We review the equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount~~representative PAGA claim will be dismissed without prejudice following completion of the ~~investment may~~settlement. This matter is not be recoverable. An impairment loss is recognized in the event that an other-than-temporary decline in the fair value of the investment occurs. Management’s estimate of the fair value of an investment is based on the income approach and market approach. Like most developing business enterprises, WorkLLama was impacted by the COVID-19 pandemic over the last two years. Additionally, in 2021, WorkLLama also strategically repositioned its business to focus its platform on providing its clients with an ability to directly source and engage talent. While WorkLLama is seeing demand for its platform, it was taking longer than expected to ~~achieve its original~~have a material adverse effect on our business, consolidated financial ~~expectations. Given this, Kforce management determined that an indicator~~position, results of impairment had occurred in the second quarter of 2022. Thus, we performed an impairment test as of June 30, 2022, utilizing the market and income approaches. For the income approach, we utilized estimated discounted futureoperations, or cash flows expected to be generated by WorkLLama. For the market approach, we utilized market multiples of revenue and earnings derived from comparable publicly-traded companies. These types of analyses contain uncertainties because they require management to make significant assumptions and judgments, including: (1) an appropriate rate to discount the expected future cash flows; (2) the inherent risk in achieving forecasted operating results; (3) long-term growth rates; (4) expectations for future economic cycles; (5) market comparable companiesflows.

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~~and appropriate adjustments thereto; and (6) market multiples. The fair value determined~~On December 24, 2020, a complaint was filed against Kforce Inc., et al. in ~~our impairment test is highly sensitive to changes in key assumptions, including but not limited to the discount rate that is applied to the financial projections. As a result~~Superior Court of the ~~impairment test, we concluded that~~State of California, Los Angeles County. Sydney Elliott-Brand, et al. v. Kforce Inc., et al., Case Number: 20STCV49193. On January 7, 2022, the ~~carrying value~~lawsuit was amended to add Bernardo Buchsbaum and Josie Meister as plaintiffs and to add claims under PAGA and the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. On behalf of themselves and a putative class and collective of talent recruiters and allegedly aggrieved employees in California and nationwide, the plaintiffs purportedly brought a class action for alleged violations of the ~~equity method investment was not impaired. At June 30, 2022,~~Labor Code, Industrial Welfare Commission Wage Orders, and the ~~fair value~~California Business and Professions Code, §17200, et seq., a collective action for alleged violations of FLSA, and a PAGA action for alleged violations of the ~~equity investment, determined~~Labor Code. The plaintiffs sought payment to recover unpaid wages and benefits, interest, attorneys’ fees, costs and expenses, penalties, and liquidated damages for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide meal and rest periods or provide compensation in lieu thereof; provide accurate itemized wage statements; reimburse for all business expenses; pay wages due upon separation; and pay for all hours worked over forty in one or more workweeks. Plaintiffs also sought an order requiring defendants to restore and disgorge all funds acquired by means of unfair competition under the California Business and Professions Code. The Court entered a written order granting final approval of the parties’ settlement agreement in March 2023, and the case has been dismissed. This matter did not have a material adverse effect on our ~~impairment test, exceeded the carrying value by less than ten percent.~~business, consolidated financial position, results of operations, or cash flows.

~~We have not identified any indicators that an other than temporary impairment has occurred~~On January 6, 2022, a complaint was filed against Kforce Inc. in the ~~three months ended September 30, 2022 that would require further analysis. We will continue to monitor potential indicators~~Superior Court of the State of California for the County of Los Angeles and was served on January 21, 2022. Jessica Cook and Brianna Pratt, et al. v. Kforce Inc., Case Number: 22STCV00602. On behalf of themselves and others similarly situated, plaintiffs purportedly brought a class action alleging violations of Labor Code and the California Business and Professional Code and challenging the exempt classification of a select class of recruiters. Plaintiffs and class members sought damages for all earned wages, statutory penalties, injunctive relief, attorney’s fees, and interest for alleged failure to: properly classify certain recruiters as nonexempt from overtime; timely pay all wages earned, including overtime premium pay; provide accurate wage statements; provide meal and rest periods; and comply with California's Unfair Competition Law. The Court entered a written order granting final approval of the parties’ settlement agreement in ~~future quarters that may~~March 2023, and the case has been dismissed. This matter did not have a ~~bearing~~material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

On January 6, 2022, a complaint was filed against Kforce Inc. in the ~~recoverability~~United States District Court for the Middle District of Florida and was served on February 4, 2022. Sam Whiteman, et al. v. Kforce Inc., Case Number: 8:22-cv-00056. On behalf of himself and all others similarly situated, the plaintiff brought a one-count collective action complaint for alleged violations of the ~~carrying value~~FLSA by failing to pay overtime wages. Plaintiff, on behalf of ~~our investment.~~

~~Lease commitments~~

~~We lease office space~~himself and ~~certain equipment under operating leases that expire between 2022~~the putative collective, sought to recover unpaid wages, liquidated damages, attorneys’ fees and ~~2033.~~costs, and prejudgment interest for alleged failure to properly classify specified recruiters as nonexempt from overtime and properly compensate for all hours worked over 40 hours in one or more workweeks. The ~~terms~~Court granted final approval of the ~~leases provide for rental payments~~parties’ settlement agreement and the case was dismissed in February 2023. This matter did not have a material adverse effect on ~~a graduated scale, options to renew the leases (one~~ ~~to five years), landlord incentives~~our business, consolidated financial position, results of operations, or ~~allowances, and periods of free rent.~~

During the year ended December 31, 2021, we entered into a lease agreement for office space in Tampa, Florida, that will become our new corporate headquarters. This new lease for office space is intended to replace our current headquarters, also in Tampa, Florida, the lease for which expires November 2022. Lease payments will be required beginning July 1, 2023. During October 2022, we began occupying the facility, which also signified the start of the accounting lease commencement date for financial reporting purposes. The new lease requires aggregate future lease payments of approximately $10.9 million over the entire lease term, which includes annual upward adjustments, and has a non-cancellable lease term of 129 months, excluding renewal options.cash flows.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are highlights as of and for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

•Revenue for the ~~nine~~three months ended ~~September 30, 2022, increased 9.8%~~March 31, 2023, decreased 2.6%, ~~on a billing day basis,~~ to ~~$1,291.1~~$406.0 million from ~~$1,169.6~~$417.0 million in the comparable period in ~~2021.~~2022. Revenue increased ~~21.7%~~1.4% for Technology and decreased ~~35.8%~~27.9% for FA, onprimarily driven by a ~~billing day basis. The decrease~~softening in ~~FA is primarily a~~the demand environment and the result of ~~the planned decrease in COVID-19 related business and~~our repositioning efforts. ~~There was a minimal amount of COVID-19 related business in the first nine months of 2022 compared to $66.3 million in the first nine months of 2021.~~

•Flex revenue for the ~~nine~~three months ended ~~September 30, 2022 increased 9.1%~~March 31, 2023 decreased 1.6%, ~~on a billing day basis,~~ to ~~$1,244.5~~$395.5 million from ~~$1,134.4~~$401.9 million in the comparable period in ~~2021.~~2022. Flex revenue increased ~~21.3%~~2.2% and decreased ~~40.1%~~28.2% for Technology and FA, ~~respectively, on a billing day basis..~~respectively.

•Direct Hire revenue for the ~~nine~~three months ended ~~September 30, 2022 increased 32.4%~~March 31, 2023 decreased 30.7% to ~~$46.6~~$10.5 million from ~~$35.2~~$15.1 million in the comparable period in ~~2021.~~2022.

•Gross profit margin for the ~~nine~~three months ended ~~September 30, 2022, increased 80~~March 31, 2023, decreased 160 basis points to ~~29.6%~~28.1%, compared to ~~the same period in 2021 primarily~~March 31, 2022, as a result of a ~~higher mix of~~decline in the Direct Hire ~~business~~revenue mix and ~~improved~~a decline in our Flex gross profit ~~margins.~~margin.

•Flex gross profit margin for the ~~nine~~three months ended ~~September 30, 2022, increased 30~~March 31, 2023, decreased 90 basis points to ~~26.9%~~26.2%, compared to ~~September 30, 2021. Technology Flex gross profit margin increased 10 basis points for the nine months ended September 30,~~March 31, 2022, ~~as compared to the same period in 2021. FA Flex gross profit margin increased280 basis points for the nine months ended September 30, 2022, respectively, as compared to the same period in 2021. The increase for the nine months ended September 30, 2022 was~~ primarily ~~attributable~~due to a ~~decrease in COVID-19 related~~tighter pricing environment and business ~~and the repositioning of the business.~~mix changes within our portfolio.

•SG&A expenses as a percentage of revenue for the ~~nine~~three months ended ~~September 30, 2022, increased~~March 31, 2023, decreased to ~~22.1%~~22.0% from ~~21.5%~~22.8% in the comparable period in ~~2021~~2022 primarily as a result of decreases in performance-based compensation given lower growth rates, lease expense due to the ~~sale~~streamlining of our ~~corporate headquarters that occurred in the second quarter of 2021, which offset SG&A expenses~~real estate portfolio and ~~resulted in the recognition of a gain, higher performance-based compensation given the strength in our performance, and other investments in our business.~~professional fees.

•~~Income from operations~~Net income for the ~~nine~~three months ended ~~September 30, 2022, increased 25.2%~~March 31, 2023, decreased 15.5% to ~~$68.4~~$16.2 million, or ~~$3.31~~$0.82 per share, from ~~$54.6~~$19.2 million, or ~~$2.57~~$0.93 per share, in ~~the comparable period in 2021.~~March 31, 2022.

•The Firm returned ~~$60.8~~$17.0 million of capital to our shareholders in the form of open market repurchases totaling ~~$42.6~~$10.0 million and quarterly dividends totaling ~~$18.2~~$7.0 million during the ~~nine~~three months ~~ending September 30, 2022.~~ended March 31, 2023.

•Cash provided by operating activities was ~~$78.1~~$19.1 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$59.9~~$38.7 million for the ~~nine~~three months ended ~~September 30, 2021.~~

•~~Cash and cash equivalents was $5.1 million as of September 30,~~March 31, 2022.

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RESULTS OF OPERATIONS

Business Overview

Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading ~~clients. Our Technology and FA businesses represent our two operating segments.~~companies. Our corporate headquarters is in Tampa, Florida. As of ~~September 30, 2022,~~March 31, 2023, Kforce employed approximately ~~2,100~~2,000 associates ~~including approximately 1,400 supporting the revenue-generating aspects of our business~~ and ~~approximately 700 supporting the revenue-enabling aspects. We also had approximately 10,100~~9,500 consultants on assignment providing flexible staffing services and solutions to our clients. Kforce serves clients across ~~many~~a diverse set of industries and ~~geographies as well as~~ organizations of all sizes, ~~with~~but we place a particular focus on serving Fortune ~~1000~~500 and other large ~~companies. We believe that~~consumers of our 100% domestic U.S. focus, concentration on technology talent solutions (representing nearly 90% of overall revenues) and client portfolio comprised of world-class companies have been key contributors to our continued strong performance and will be key drivers to our future success.services.

From an economic standpoint, total and temporary employment figures and trends have historically been important indicators of staffing demand. Based on information published by the Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”), these figures and trends have been trending positively since the end of the third quarter of 2020. The national unemployment rate ~~fell to~~remained flat at 3.5% at the end of ~~September~~March 2023, as compared to December 2022. In the latest U.S. staffing industry forecast published by ~~SIA~~Staffing Industry Analysts (“SIA”) in ~~September 2022,~~April 2023, the technology temporary staffing industry and finance and accounting temporary staffing industry are estimated to grow ~~16%~~5% and ~~12%,~~6% in 2023, respectively, ~~in 2022, and 8%~~ and 7%~~, respectively,~~ and 5% in ~~2023.~~

The macro environment certainly became cloudier in the third quarter ended September 30, 2022, with persistently elevated levels of inflation, rapidly rising interest rates, which, among other reasons, is impacting prospects for global and domestic economic growth. While trends in the third quarter were below levels experienced in 2021 and the first half of 2022, they remain above pre-pandemic levels.2024, respectively.

Operating Results - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following table presents certain items in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2022		2021		2022		2021			2023		2022
Revenue by segment:	Revenue by segment:									Revenue by segment:
Technology	Technology	89.2	%	83.7	%	87.9	%	79.3	%	Technology	89.9	%	86.3	%
FA	FA	10.8		16.3		12.1		20.7		FA	10.1		13.7
Total Revenue	Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%	Total Revenue	100.0	%	100.0	%
Revenue by type:	Revenue by type:									Revenue by type:
Flex	Flex	96.7	%	96.6	%	96.4	%	97.0	%	Flex	97.4	%	96.4	%
Direct Hire	Direct Hire	3.3		3.4		3.6		3.0		Direct Hire	2.6		3.6
Total Revenue	Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%	Total Revenue	100.0	%	100.0	%
Gross profit	Gross profit	29.0	%	29.6	%	29.6	%	28.8	%	Gross profit	28.1	%	29.7	%
Selling, general and administrative expenses	Selling, general and administrative expenses	21.6	%	22.1	%	22.1	%	21.5	%	Selling, general and administrative expenses	22.0	%	22.8	%
Depreciation and amortization	Depreciation and amortization	0.2	%	0.3	%	0.2	%	0.3	%	Depreciation and amortization	0.3	%	0.3	%
Income from operations	Income from operations	7.2	%	7.3	%	7.2	%	7.0	%	Income from operations	5.8	%	6.7	%
Income from operations, before income taxes	Income from operations, before income taxes	6.9	%	6.9	%	7.2	%	6.5	%	Income from operations, before income taxes	5.5	%	6.3	%

Net income	Net income	5.1	%	5.0	%	5.3	%	4.7	%	Net income	4.0	%	4.6	%

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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 September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021			2023		Increase (Decrease)		2022
Technology	Technology													Technology
Flex revenue	Flex revenue	$	382,072	15.7	%	$	330,170	$	1,109,294	22.0	%	$	909,599	Flex revenue	$	359,524	2.2	%	$	351,716
Direct Hire revenue	Direct Hire revenue	8,424		19.3	%	7,060		25,702		43.4	%	17,919		Direct Hire revenue	5,320		(35.0)	%	8,189
Total Technology revenue	Total Technology revenue	$	390,496	15.8	%	$	337,230	$	1,134,996	22.4	%	$	927,518	Total Technology revenue	$	364,844	1.4	%	$	359,905
FA	FA													FA
Flex revenue	Flex revenue	$	40,896	(30.7)	%	$	59,003	$	135,239	(39.8)	%	$	224,783	Flex revenue	$	36,008	(28.2)	%	$	50,150
Direct Hire revenue	Direct Hire revenue	6,228		(4.1)	%	6,492		20,868		20.9	%	17,263		Direct Hire revenue	5,145		(25.6)	%	6,912
Total FA revenue	Total FA revenue	$	47,124	(28.0)	%	$	65,495	$	156,107	(35.5)	%	$	242,046	Total FA revenue	$	41,153	(27.9)	%	$	57,062

Total Flex revenue	Total Flex revenue	$	422,968	8.7	%	$	389,173	$	1,244,533	9.7	%	$	1,134,382	Total Flex revenue	$	395,532	(1.6)	%	$	401,866
Total Direct Hire revenue	Total Direct Hire revenue	14,652		8.1	%	13,552		46,570		32.4	%	35,182		Total Direct Hire revenue	10,465		(30.7)	%	15,101
Total Revenue	Total Revenue	$	437,620	8.7	%	$	402,725	$	1,291,103	10.4	%	$	1,169,564	Total Revenue	$	405,997	(2.6)	%	$	416,967

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 Flex Revenue Growth Rates											Year-Over-Year Flex Revenue Growth Rates
		(Per Billing Day)											(Per Billing Day)
		Q3 2022		Q2 2022		Q1 2022		Q4 2021		Q3 2021			Q1 2023		Q4 2022		Q3 2022		Q2 2022		Q1 2022
Billing Days	Billing Days	64		64		64		61		64		Billing Days	64		61		64		64		64
Technology	Technology	15.7	%	23.3	%	26.0	%	31.0	%	28.9	%	Technology	2.2	%	8.5	%	15.7	%	23.3	%	26.0	%
FA	FA	(30.7)	%	(49.0)	%	(37.6)	%	(28.9)	%	(41.3)	%	FA	(28.2)	%	(28.8)	%	(30.7)	%	(49.0)	%	(37.6)	%
Total Flex	Total Flex	8.7	%	7.2	%	11.8	%	16.6	%	9.1	%	Total Flex	(1.6)	%	3.1	%	8.7	%	7.2	%	11.8	%

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.~~Kforce and billable to our clients.

Flex revenue for Technology increased ~~15.7% and 21.3%, on a billing day basis,~~2.2% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, as compared to the same ~~periods~~period in ~~2021,~~2022, which was driven by ~~a combination of significant growth in the number of consultants on assignment and~~ higher ~~average bill rates. Given the inflationary pressures on wages and scarcity of highly skilled technology consultants, we have continued to experience a meaningful acceleration in~~ average bill rates, which increased ~~1.4% sequentially and 8.3%~~4.7% year-over-year, ~~during the third quarter of 2022. We believe that the growth~~partially offset by a decrease in consultants on ~~assignment was fueled by strong secular drivers~~assignment. Beginning in the second half of 2022, we experienced a softening in the demand environment and our clients began exercising restraint and selectively pruning resources against the ~~strength~~backdrop of increasing economic uncertainties. As expected, our ~~client portfolio,~~growth rates in our ~~concentration in highly-skilled technology talent, and solid execution.~~Technology business have slowed. We expect revenue ~~growth~~ in our Technology business in the ~~fourth~~second quarter to bedecline in the ~~high single~~mid-single digits on a year-over-year basis and to ~~grow~~decline in the low single digits on a sequential basis.

~~Our~~Flex revenue for our FA segment ~~experienced a decrease in Flex revenue of 30.7% and 40.1%, on a billing day basis,~~decreased 28.2% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, as compared to the same ~~periods~~period in ~~2021,~~2022, primarily driven by the ~~intended fall off in our COVID-19 related business and~~ repositioning efforts. Excluding the decline in COVID-19 related business, FA Flex revenues declined approximately 20.6% and 14.7% in the quarter and year to date periods ending September 30, 2022, respectively, compared to the same periods in 2021, which was driven by the repositioningefforts of our FA business towards more high-skilled ~~roles.~~roles and the current uncertainty in the macroeconomic environment. We have seen indicators of success in this repositioning as our average bill rates improved approximately ~~6.2%~~3.6% sequentially and ~~28.5%~~10.4% year-over-year in the ~~third~~first quarter of ~~2022~~2023 compared to the same period in ~~2021.~~2022. We expect the year-over-year decline in Flex revenue in our FA business ~~to increase~~ in the ~~low single digits sequentially in the fourth~~second quarter ~~primarily due~~ to ~~a project supporting Hurricane Ian recovery efforts.~~

~~Table of Contents~~

be comparable to first quarter levels.

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30, 2022 vs. September 30, 2021				September 30, 2022 vs. September 30, 2021					March 31, 2023 vs. March 31, 2022
		Technology		FA		Technology		FA				Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)									Key Drivers - Increase (Decrease)
Volume - hours billed	Volume - hours billed	$	22,544	$	(27,183)	$	120,752	$	(121,766)	Volume - hours billed		$	(7,653)	$	(17,530)
Bill rate	Bill rate	29,270		9,064		77,569		32,198		Bill rate		15,954		3,397
Billable expenses	Billable expenses	88		12		1,374		24		Billable expenses		(493)		(9)
Total change in Flex revenue	Total change in Flex revenue	$	51,902	$	(18,107)	$	199,695	$	(89,544)	Total change in Flex revenue		$	7,808	$	(14,142)

T a b l e o f C o n t e n t s

The following table presents total Flex hours billed by segment and percentage change over the prior period (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022	Increase (Decrease)		2021	2022	Increase (Decrease)		2021			2023	Increase (Decrease)		2022
Technology	Technology	4,308	6.9	%	4,031	12,722	13.3	%	11,226	Technology		4,032	(2.2)	%	4,122
FA	FA	816	(46.1)	%	1,515	2,904	(54.2)	%	6,339	FA		748	(35.0)	%	1,150
Total Flex hours billed	Total Flex hours billed	5,124	(7.6)	%	5,546	15,626	(11.0)	%	17,565	Total Flex hours billed		4,780	(9.3)	%	5,272

Direct Hire Revenue. The key drivers of Direct Hire revenue are the number of placements and the associated placement fee. Direct Hire revenue also includes conversion revenue, which may occur when a consultant initially assigned to a client on a temporary basis is later converted to a permanent placement for a fee.

Direct Hire revenue ~~increased 8.1% and 32.4%~~decreased 30.7% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, as compared to the same period in ~~2021. The increase during the three month period was primarily driven by higher placement fees. The increase during the nine month period~~2022, which was primarily driven by a ~~significant increase~~decrease in both the number of placements and placement fees, though there has been a moderation in the performance of this more cyclically sensitive business in the second half of 2022 given macro-economic concerns.

~~The following table presents the key drivers for the change in Direct Hire revenue by segment over the prior period (in thousands):~~
Three Months Ended Nine Months Ended
September 30, 2022 vs. September 30, 2021 September 30, 2022 vs. September 30, 2021
Technology FA Technology FA
Key Drivers - Increase (Decrease)
Volume - number of placements $ 1,254 $ (976) $ 5,777 $ 1,680
Placement fee 110 712 2,006 1,925
Total change in Direct Hire revenue $ 1,364 $ (264) $ 7,783 $ 3,605

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~~The following table presents the total number of placements by segment and percentage change over the prior period:~~
Three Months Ended September 30, Nine Months Ended September 30,
2022 Increase
(Decrease) 2021 2022 Increase
(Decrease) 2021
Technology 341 17.6 % 290 1,098 32.1 % 831
FA 341 (15.0) % 401 1,201 9.8 % 1,094
Total number of placements 682 (1.3) % 691 2,299 19.4 % 1,925

~~The following table presents the average placement fee by segment and percentage change over the prior period:~~
Three Months Ended September 30, Nine Months Ended September 30,
2022 Increase
(Decrease) 2021 2022 Increase
(Decrease) 2021
Technology $ 24,683 1.3 % $ 24,360 $ 23,403 8.5 % $ 21,576
FA 18,269 12.9 % 16,181 17,384 10.2 % 15,780
Total average placement fee $ 21,478 9.5 % $ 19,611 $ 20,260 10.8 % $ 18,282
placements.

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 third party compliance costs) from total revenue. There are no consultant payroll costs associated with Direct Hire placements, accordingly all Direct Hire revenue increases gross profit by the full amount of the placement fee.

The following table presents the gross profit percentage (gross profit as a percentage of total revenue) by segment and percentage change over the prior period:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021				2023		Increase (Decrease)		2022
Technology	Technology	27.6	%	(2.8)	%	28.4	%	28.2	%	1.1	%	27.9	%	Technology		27.0	%	(5.3)	%	28.5	%
FA	FA	40.1	%	12.6	%	35.6	%	39.4	%	21.6	%	32.4	%	FA		37.8	%	0.5	%	37.6	%
Total gross profit percentage	Total gross profit percentage	29.0	%	(2.2)	%	29.6	%	29.6	%	2.8	%	28.8	%	Total gross profit percentage		28.1	%	(5.4)	%	29.7��	%

The total gross profit percentage for the three months ended ~~September 30, 2022,~~March 31, 2023, decreased 60160 basis points as compared to the same period in ~~2021,~~2022, primarily due to ~~higher utilization of paid time off by our consultants~~a decline in Direct Hire mix and ~~slight spread compression~~a decline in our ~~Technology~~ Flex ~~business. Total~~ gross profit percentage for the nine months ended September 30, 2022 increased 80 basis points as compared to the same period in 2021, primarily as a result of an increased mix of Direct Hire revenue and the run off of the COVID-19 related business.margin.

Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insights into the other drivers of total gross profit percentage driven by our Flex business, such as changes in the spread between the consultants’ bill rate and pay rate, changes in payroll tax rates or benefits costs, as well as the impact of billable expenses, which provide no profit margin.

The following table presents the Flex gross profit percentage by segment and percentage change over the prior period:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021				2023		Increase (Decrease)		2022
Technology	Technology	26.0	%	(3.3)	%	26.9	%	26.5	%	0.4	%	26.4	%	Technology		25.9	%	(3.4)	%	26.8	%
FA	FA	30.9	%	8.4	%	28.5	%	30.0	%	10.3	%	27.2	%	FA		28.9	%	(0.3)	%	29.0	%
Total Flex gross profit percentage	Total Flex gross profit percentage	26.5	%	(2.6)	%	27.2	%	26.9	%	1.1	%	26.6	%	Total Flex gross profit percentage		26.2	%	(3.3)	%	27.1	%

Overall, our Flex gross profit percentage decreased 70 basis points for the three months ended September 30, 2022, and increased 30 basis points for the nine months ended September 30, 2022, as compared to the same periods in 2021. The notable changes within our segments were as follows:

•~~Flex margins in our Technology business~~ decreased 90 basis points for the three months ended ~~September 30, 2022 and increased 10 basis points for the nine months ended September 30, 2022,~~March 31, 2023, as compared to the same ~~periods~~period in ~~2021. The decrease for the three months ended September 30,~~ 2022, ~~was~~ primarily due to ~~expected higher utilization of paid time off by~~a tighter pricing environment and business mix changes within our ~~consultants and slight compression~~client portfolio in ~~spreads, which was slightly offset by lower payroll taxes.~~

•~~FA Flex gross profit margins increased240 basis points for the three months ended September 30, 2022 and increased 280 basis points for the nine months ended September 30, 2022, as compared to the same periods in 2021. The~~

~~Table of Contents~~

~~increase in both periods was primarily due to the intended falloff of lower margin COVID-19 related business and~~ our ~~repositioning efforts as well as lower healthcare and payroll costs.~~Technology business.

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30, 2022 vs. September 30, 2021				September 30, 2022 vs. September 30, 2021					March 31, 2023 vs. March 31, 2022
		Technology		FA		Technology		FA				Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)									Key Drivers - Increase (Decrease)
Revenue impact	Revenue impact	$	13,971	$	(5,168)	$	52,806	$	(24,366)	Revenue impact		$	2,092	$	(4,096)
Profitability impact	Profitability impact	(3,476)		979		1,122		3,801		Profitability impact		(3,262)		(8)
Total change in Flex gross profit	Total change in Flex gross profit	$	10,495	$	(4,189)	$	53,928	$	(20,565)	Total change in Flex gross profit		$	(1,170)	$	(4,104)

T a b l e o f C o n t e n t s

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented ~~85.3% and 85.1%~~84.6% for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~84.9% and 86.0%~~84.4% for the ~~comparable periods~~same period in ~~2021.~~2022. Commissions and bonus incentives are variable costs driven primarily by revenue and gross profit levels. Therefore, as those levels change, these expenses would also generally be anticipated to change.

The following table presents components of SG&A expenses, and expressed as a percentage of revenue (in thousands):


		2022		% of Revenue		2021		% of Revenue			2023		% of Revenue		2022		% of Revenue
Three Months Ended September 30,
Three Months Ended March 31,										Three Months Ended March 31,
Compensation, commissions, payroll taxes and benefits costs	Compensation, commissions, payroll taxes and benefits costs	$	80,425	18.4	%	$	75,537	18.8	%	Compensation, commissions, payroll taxes and benefits costs	$	75,615	18.6	%	$	80,224	19.2	%
Other (1)	Other (1)	13,881		3.2	%	13,435		3.3	%	Other (1)	13,724		3.4	%	14,825		3.6	%
Total SG&A	Total SG&A	$	94,306	21.6	%	$	88,972	22.1	%	Total SG&A	$	89,339	22.0	%	$	95,049	22.8	%
Nine Months Ended September 30,
Compensation, commissions, payroll taxes and benefits costs		$	243,017	18.8	%	$	216,324	18.5	%
Other (1)		42,485		3.3	%	35,293		3.0	%
Total SG&A		$	285,502	22.1	%	$	251,617	21.5	%

(1) Includes credit loss expense, lease expense, professional fees, travel, telephone, computer, and certain other expenses.

SG&A as a percentage of revenue decreased 6080 basis points for the three months ended ~~September 30, 2022, and increased 60 basis points for the nine months ended September 30, 2022,~~March 31, 2023, compared to the same ~~periods~~period in ~~2021, respectively.~~2022. The decrease ~~in the three month period~~ was mostly driven by lower ~~performance based~~performance-based compensation ~~costs as a result~~given lower overall revenue growth rates, cost efficiencies gained by reducing the overall square footage of ~~the lower Flex gross margins~~leased space in ~~the third quarter~~our Office OccasionalSM work environment, and lower professional fees. ~~The increase~~

Due to the softening in the nine month period was primarily driven by (a) higher performance based compensation costs, (b) a gain on the sale of our corporate headquarters that occurred in the second quarter of 2021; and (c) otherdemand environment, we are prioritizing continued investments in our ~~business.~~

~~The Firm continues~~strategic initiatives, including our integrated strategy and multi-year efforts to ~~focus on~~transform our back office, and are exercising tighter discretionary spend control and generating increased operating leverage through solid revenue growth, improved productivity of our associates, structural reductions in operating costs and continuing to exercise solid expense discipline. We are also continuing to make investments in our business, even with some moderation in our revenue growth in the second half of 2022, with a particular focus on improving our back-office productivity.other cost efficiencies, where appropriate.

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021				2023		Increase (Decrease)		2022
Fixed asset depreciation (includes finance leases)	Fixed asset depreciation (includes finance leases)	$	597	(2.0)	%	$	609	$	1,902	(12.1)	%	$	2,164	Fixed asset depreciation (includes finance leases)		$	634	(6.4)	%	$	677
Capitalized software amortization	Capitalized software amortization	448		7.4	%	417		1,312		4.5	%	1,256		Capitalized software amortization		600		44.2	%	416
Total Depreciation and amortization	Total Depreciation and amortization	$	1,045	1.9	%	$	1,026	$	3,214	(6.0)	%	$	3,420	Total Depreciation and amortization		$	1,234	12.9	%	$	1,093

Other Expense, ~~(Income),~~ Net. Other ~~expense (income), net for the three and nine months ended September 30, 2022, was expense of $0.9 million and income of $0.3 million, respectively. Other (income)~~ expense, net for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2023 and 2022, was ~~expense of $1.4~~$1.0 million and ~~$5.8~~$1.4 million, respectively. This line item primarily includes interest expense related to outstanding borrowings under our credit facility ~~which is partially offset by the interest income on cash held in government money market funds,~~ and our proportionate share of ~~the loss from WorkLLama.~~

~~During the nine months ended September 30, 2022, Other expense (income), net also includes $4.1 million~~losses related to ~~a gain recognized as a result of the termination of Swap B.~~

~~Table of Contents~~our equity method investment.

~~During the three and nine months ended September 30, 2022, our~~Our proportionate share of ~~the loss from WorkLLama,~~losses related to our equity method investment was ~~$0.9~~$0.8 million ~~and $2.7 million, respectively, and during~~for each of the three ~~and nine~~ months ended ~~September 30, 2021, $0.7 million~~March 31, 2023 and ~~$1.7 million, respectively. In addition, during~~2022. On February 23, 2023, Kforce sold its 50% noncontrolling interest in WorkLLama to an unaffiliated third party. Refer to Note A - “Summary of Significant Accounting Policies” in the ~~nine month ended September 30, 2021, Other (income) expense, net also~~Notes to Unaudited Condensed Consolidated Financial Statements, included ~~an expense~~in Item 1 of ~~$1.8 million related to the termination of our SERP.~~this report, for more details.

Income Tax Expense. Income tax expense as a percentage of income from ~~continuing~~ operations, before income taxes (our “effective tax rate” ~~from continuing operations)~~) for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 was 27.5% and ~~2021 was 26.7% and 28.1%~~27.1%, respectively.

Non-GAAP Financial Measures

Free Cash Flow. “Free Cash Flow,” a non-GAAP financial measure, is defined by Kforce as net cash provided by operating activities determined in accordance with GAAP, less capital expenditures. Management believes this provides an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and is useful information to investors as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities including investing in our business, making acquisitions, repurchasing common stock or paying dividends. Free Cash Flow is limited, however, because it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view Free Cash Flow as a complement to (but not a replacement of) our Unaudited Condensed Consolidated Statements of Cash Flows.

T a b l e o f C o n t e n t s

The following table presents Free Cash Flow (in thousands):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	78,063	$	59,943	Net cash provided by operating activities	$	19,056	$	38,742
Capital expenditures	Capital expenditures	(4,656)		(5,026)		Capital expenditures	(1,872)		(2,221)
Free cash flow	Free cash flow	73,407		54,917		Free cash flow	17,184		36,521
Payments on credit facility		(100,000)		—
Proceeds from the sale of our joint venture interest						Proceeds from the sale of our joint venture interest	5,059		—
Note receivable issued to our joint venture						Note receivable issued to our joint venture	(750)		—
Equity method investment						Equity method investment	—		(500)
Change in debt						Change in debt	(3,300)		—
Repurchases of common stock	Repurchases of common stock	(42,103)		(44,407)		Repurchases of common stock	(11,126)		(10,270)
Cash dividends	Cash dividends	(18,164)		(14,836)		Cash dividends	(7,003)		(6,094)
Contributions to WorkLLama joint venture		(500)		(7,000)
Net proceeds from the sale of assets		—		23,742

Note receivable issued to WorkLLama joint venture		(4,500)		—

Other	Other	(40)		(271)		Other	(14)		(19)
Change in cash and cash equivalents	Change in cash and cash equivalents	$	(91,900)	$	12,145	Change in cash and cash equivalents	$	50	$	19,638

Adjusted EBITDA. “Adjusted ~~EBITDA”,~~EBITDA,” a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income ~~from termination of Swap B, gain on the sale of the corporate headquarters, SERP termination expense, income~~ tax expense, ~~and~~ loss from equity method ~~investment.~~investment and certain other items as specified in the table below. 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.

~~Table of Contents~~

The following table presents a reconciliation of net income to Adjusted EBITDA ~~to net income~~ (in thousands):


		2022		2021			2023		2022
Three Months Ended September 30,
Three Months Ended March 31,						Three Months Ended March 31,
Net income	Net income	$	22,262	$	20,168	Net income	$	16,210	$	19,181
Depreciation and amortization	Depreciation and amortization	1,045		1,026		Depreciation and amortization	1,234		1,093

Stock-based compensation expense	Stock-based compensation expense	4,445		3,512		Stock-based compensation expense	4,326		4,437
Interest expense, net	Interest expense, net	9		750		Interest expense, net	296		608

Income tax expense	Income tax expense	8,151		7,650		Income tax expense	6,148		7,130
Loss from equity method investment						Loss from equity method investment	750		825
Other						Other	(235)		—
Adjusted EBITDA						Adjusted EBITDA	$	28,729	$	33,274

Loss from equity method investment		896		687
Adjusted EBITDA		$	36,808	$	33,793
Nine Months Ended September 30,
Net income		$	68,359	$	54,617
Depreciation and amortization		3,214		3,420
Gain on sale of corporate headquarters		—		(2,051)
Stock-based compensation expense		13,293		10,447
Interest expense, net		988		2,312
Gain from swap termination		4,059		—
Income tax expense		24,886		21,378
SERP termination expense		—		1,821
Loss from equity method investment		2,737		1,709
Adjusted EBITDA		$	117,536	$	93,653

2520

~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s

LIQUIDITY AND CAPITAL RESOURCES

To meet our capital and liquidity requirements, we primarily rely on our operating cash flows and ~~if necessary,~~ borrowings under our credit facility. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had ~~$5.1~~$22.3 million and ~~$97.0 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds. At September 30, 2022 and December 31, 2021, we had $0 and $100.0~~$25.6 million outstanding under our credit ~~facility. At September 30, 2022,~~facility, respectively, and we had ~~$198.7~~$176.5 million and $173.1 million of borrowing availability under our credit ~~facility.~~

~~In May 2022, we terminated Swap B in connection with the payment of all outstanding borrowings under our credit~~ facility, ~~which was $100.0 million at the time of repayment.~~

~~Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed~~respectively, subject to the two participants under the SERP at the end of the second quarter of 2022 was $20.0 million in the aggregate, which represented the fair value at the date of termination. These benefits were fully paid in July 2022.certain covenants.

Cash Flows

We are principally focused on generating positive cash flow from operating activities, investing in our business to sustain our long-term growth and ~~meet our~~ profitability objectives and returning capital to our shareholders through our quarterly dividends and common stock repurchase ~~program, and selectively pursuing acquisition opportunities.~~program.

Cash provided by operating activities was ~~$78.1~~$19.1 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$59.9~~$38.7 million ~~provided~~ during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. Cash used in operating activities during the nine month period ended September 30, 2022 includes the payment of $20.0 million for amounts owed to two participants under the terminated SERP noted above. The year-over-year ~~increase~~decrease in cash provided by operating activities was primarily driven by ~~profitable revenue growth,~~lower profitability levels, the timing of payments, and a reduction in our deferred tax liability given the sale of our joint venture.

Cash provided by investing activities during the three months ended March 31, 2023 was $2.4 million and primarily consisted of the proceeds from the ~~termination~~sale of ~~Swap B, and continued management~~our joint venture interest of ~~working capital.~~

$5.1 million, partially offset by cash used for capital expenditures of $1.9 million. Cash used in investing activities during the ~~nine~~three months ended ~~September 30,~~March 31, 2022, was ~~$9.7~~$2.7 million and primarily consisted of cash used for capital expenditures of $4.7 million and the issuance of notes receivable from WorkLLama for $4.5 million. Cash provided by investing activities during the nine months ended September 30, 2021, was $11.7 million and included $23.7 million in net proceeds from the sale of our corporate headquarters, offset in part by cash used for capital expenditures and cash contributed to WorkLLama.expenditures.

Cash used in financing activities was ~~$160.3~~$21.4 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$59.5~~$16.4 million during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The change was primarily driven by ~~the repayment~~$3.3 million of ~~$100.0 million outstanding~~net payments on our ~~credit facility and~~Credit Facility, as well as an overall increase in ~~dividend payments, offset in part by a decrease in the~~ repurchases of common ~~stock.~~stock and dividend payments.

The following table presents the cash flow impact of the common stock repurchase activity (in thousands):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Open market repurchases	Open market repurchases	$	41,572	$	43,973	Open market repurchases	$	10,985	$	10,088
Repurchase of shares related to tax withholding requirements for vesting of restricted stock	Repurchase of shares related to tax withholding requirements for vesting of restricted stock	531		434		Repurchase of shares related to tax withholding requirements for vesting of restricted stock	141		182
Total cash flow impact of common stock repurchases	Total cash flow impact of common stock repurchases	$	42,103	$	44,407	Total cash flow impact of common stock repurchases	$	11,126	$	10,270
Cash paid in current year for settlement of prior year repurchases						Cash paid in current year for settlement of prior year repurchases	$	974	$	181

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ Kforce declared and paid quarterly dividends of ~~$18.2~~$7.0 million ($~~0.90~~0.36 per share) and ~~$14.8~~$6.1 million ($~~0.72~~0.30 per share), respectively, which represents a ~~25% increase.on~~20% increase on a per share basis. While the Board has declared and paid a quarterly ~~dividend~~dividends since ~~initiation in~~ the fourth quarter of 2013, and intends to in the foreseeable future, dividends 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, operating cash ~~flow from operations~~flows and available borrowings under our ~~credit facility~~Credit Facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 ~~months.~~months and give us the flexibility to continue returning significant capital to our shareholders. However, a material deterioration in the economic environment or market conditions, among other things, could adversely affect 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.

~~Table of Contents~~

Credit Facility

On October 20, 2021, the Firm entered into an amended and restated credit agreement with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank of America, N.A., as syndication agent, BMO Harris Bank, N.A., as documentation agent, and the lenders referred to therein (the “Amended and Restated Credit Facility”). Under the Amended and Restated Credit Facility, the Firm has a maximum borrowing capacity of $200.0 million, which may, subject to certain conditions and the participation of the lenders, be increased up to an aggregate additional amount of $150.0 million. The maturity date of the Amended and Restated Credit Facility is October 20, 2026. As ~~noted above, the Firm paid the~~of March 31, 2023, $22.3 million was outstanding and $176.5 million, was available on our credit ~~facility’s outstanding balance of $100.0 million resulting in an outstanding balance of $0 as of September 30, 2022, thereby resulting in $198.7 million,~~facility, subject to certain covenants, and as of ~~availability under the credit facility.~~December 31, 2022, $25.6 million was outstanding. As of ~~September 30, 2022,~~March 31, 2023, we are in compliance with our credit facility covenants as described in the ~~2021~~2022 Annual Report on Form 10-K and currently expect that we will be able to maintain compliance with these covenants.

~~Prior to June 30, 2022,~~In April 2017 and March 2020, Kforce ~~maintained~~entered into two forward-starting interest rate swap agreements ~~which were designated as cash flow hedges,~~ to mitigate the risk of rising interest rates. ~~In May 2022, Kforce terminated Swap B.~~As of March 31, 2023, the Firm did not have any outstanding interest rate swap derivative instruments. Refer to Note J - “Derivative ~~Instruments~~Instrument and Hedging Activity” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report, ~~on Form 10-Q,~~ for a complete discussion of our interest rate swaps.

T a b l e o f C o n t e n t s

Stock Repurchases

In February ~~2022,~~2023, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million. During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, Kforce repurchased approximately ~~684,000~~178 thousand shares of common stock on the open market at a total cost of approximately ~~$42.6~~$10.0 million and ~~$66.3~~$98.8 million remained available for further repurchases under the Board-authorized common stock repurchase program at ~~September 30, 2022.~~March 31, 2023.

As a result of the newly enacted IRA, the Company recorded a 1% nondeductible excise tax on certain repurchases of stock, net of issuances. The IRA is not expected to have a material impact on our cash flows, results of operations or financial position. Refer to Note A - “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1 of this report, for a complete discussion of the new excise tax related to the IRA.

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 7,7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2021~~2022 Annual Report on Form ~~10-K~~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. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

~~Equity Method Investment~~

In June 2019, we entered into a joint venture whereby Kforce has a 50% noncontrolling interest in WorkLLama. Our noncontrolling interest in WorkLLama, a variable interest entity, is accounted for as an equity method investment. Under the equity method, our carrying value is at cost and adjusted for our proportionate share of earnings or losses. There are no basis differences between our carrying value and the underlying equity in net assets that would result in adjustments to our proportionate share of earnings or losses.

We review the equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recognized in the event that an other-than-temporary decline in the fair value of the investment occurs. Management’s estimate of the fair value of an investment is based on the income approach and market approach. Like many developing business enterprises, WorkLLama was impacted by the COVID-19 pandemic over the last two years. Additionally, in 2021, WorkLLama also strategically repositioned its business to focus its platform on providing its clients with an ability to directly source and engage talent. While WorkLLama is seeing demand for its platform, it has taken longer than expected to achieve its financial expectations. Given this, Kforce management determined that an indicator of impairment had occurred in the second quarter of 2022. Thus, we performed an impairment test as of June 30, 2022, utilizing the market and income approaches. For the income approach, we utilized estimated discounted future cash flows expected to be generated by WorkLLama. For the market approach, we utilized market multiples of revenue and earnings derived from comparable publicly-traded companies. These types of analyses contain uncertainties because they require management to make significant assumptions and judgments, including: (1) an appropriate rate to discount the expected future cash flows; (2) the inherent risk in achieving forecasted operating results; (3) long-term growth rates; (4) expectations for future economic cycles; (5) market comparable companies and appropriate adjustments thereto; and (6) market multiples. The fair value determined in our impairment test is highly sensitive to changes in key assumptions, including but not limited to the discount rate that is applied to the financial projections. As a result of the impairment test, we concluded that the carrying value of the equity method investment was not impaired. However, if the joint venture is unable to achieve its financial projections or if there is a change in the assumptions used to value our interest in the joint venture, then it

~~Table of Contents~~

is reasonably possible that the carrying value of the equity investment may need to be written down to the fair value resulting in an impairment charge in a future quarter. As of June 30, 2022, the fair value of the equity investment, determined in our impairment test, exceeded the carrying value by less than ten percent.

We have not identified any indicators that an other than temporary impairment has occurred in the three months ended September 30, 2022 that would require further analysis. We will continue to monitor potential indicators in future quarters that may have a bearing on the recoverability of the carrying value of our investment.

For a more detailed discussion of our accounting policies and critical accounting estimates, refer to Note A – “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 2021 Annual Report on Form 10-K.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

With respect to our quantitative and qualitative disclosures about market risk, there have been no material changes to the information included in Part II, Item ~~7A,~~7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2022,~~March 31, 2023, we carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”) under the supervision and with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”). Based on the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

Management has evaluated, with the participation of our CEO and CFO, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.

Inherent Limitations of Internal Control Over Financial Reporting

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~Table of Con~~T ~~tents~~a b l e o f C o n t e n t s

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This ~~Item of this report, which you are currently reading, is~~section contains the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are involved in legal proceedings, claims and administrative matters that arise in the ordinary course of business. For further information regarding legal proceedings, refer to Note L - "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements in the section entitled "Litigation, ~~and Loss Contingencies,~~" included in Item 1. Financial Statements of this report. While the ultimate outcome of these legal proceedings cannot be determined, we currently do not expect that these matters, individually or in the aggregate, will have a material effect on our financial position.

ITEM 1A. RISK FACTORS.

There have been no material changes in the risk factors previously disclosed in our ~~2021~~2022 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Purchases of Equity Securities by the Issuer

~~In February 2022, the Board approved an increase in our stock repurchase authorization increasing the available authorization from $23.6 million to $100.0 million.~~ Purchases of common stock under the Plan are subject to certain price, market, volume and timing constraints, which are specified in the plan. The following table presents information with respect to our repurchases of Kforce common stock during the three months ended ~~September 30, 2022:~~March 31, 2023:
Period Total Number of
Shares Purchased
(1) Average Price Paid
per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the
Plans or Programs
July 1, 2022 to July 31, 2022 69,574 $ 62.49 69,574 $ 84,438,951
August 1, 2022 to August 31, 2022 128,530 $ 57.70 127,368 $ 77,089,873
September 1, 2022 to September 30, 2022 184,162 $ 58.73 184,162 $ 66,273,639
Total 382,266 $ 59.07 381,104 $ 66,273,639


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)(3)
January 1, 2023 to January 31, 2023	138,318	$	55.67	138,318	$	33,575,414
February 1, 2023 to February 28, 2023	42,248	$	58.02	39,943	$	98,844,888
March 1, 2023 to March 31, 2023	—	$	—	—	$	98,844,888
Total	180,566	$	56.22	178,261	$	98,844,888

(1) Includes ~~1,162~~2,305 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period ~~August~~February 1, ~~2022~~2023 to ~~August~~February 28, 2023.

(2) The IRA imposed a 1% nondeductible excise tax on the net value of certain open market stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise tax, as applicable. Refer to Note A - “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in this report, for a complete discussion of the new excise tax related to the IRA.

(3) In February 2023, the Board approved an increase in our stock repurchase authorization increasing the available authorization to $100.0 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.


Exhibit Number			Description

3.1			Amended and Restated Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 33-91738) filed with the SEC on April 28, 1995.
3.1a			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1b			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1c			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1d			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 17, 2000.
3.1e			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 29, 2002.
3.2			Amended & Restated Bylaws, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on April 29, 2013.
10.1			Kforce Inc. 2023 Stock Incentive Plan, incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-271697) filed with the SEC on May 5, 2023.
10.2			Form of Restricted Stock Award Agreement under the 2023 Stock Incentive Plan.
31.1			Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification by the Chief Executive Officer of Kforce Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification by the Chief Financial Officer of Kforce Inc. pursuant to 18 U.S.C. Section 2350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1			The following material from this Quarterly Report on Form 10-Q of Kforce Inc. for the period ended ~~September 30, 2022,~~March 31, 2023, formatted in XBRL Part I, Item 1 of this Form 10-Q formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income; (ii) Unaudited Condensed Consolidated Balance Sheets; (iii) Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity; (iv) Unaudited Condensed Consolidated Statements of Cash Flows; and (v) related notes to these financial statements.
104			Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KFORCE INC.

Date:

~~November 2, 2022~~May 9, 2023

By:

/s/ DAVID M. KELLY

David M. Kelly

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

Date:

~~November 2, 2022~~May 9, 2023

By:

/s/ JEFFREY B. HACKMAN

Jeffrey B. Hackman

Senior Vice President, Finance and Accounting

(Principal Accounting Officer)

3125


PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1815
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2822
Item 4.	Controls and Procedures.	2822
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	2923
Item 1A.	Risk Factors.	2923
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2923
Item 3.	Defaults Upon Senior Securities.	2923
Item 4.	Mine Safety Disclosures.	2923
Item 5.	Other Information.	2923
Item 6.	Exhibits.	3024
SIGNATURES		3125


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income				Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Retained Earnings		Shares	Amount
Balance, December 31, 2020	72,600	$	726	$	472,378	$	(4,423)	$	388,645	50,427	$	(677,391)	$	179,935
Net income	—	—		—		—		13,261		—	—		13,261
Issuance for stock-based compensation and dividends, net of forfeitures	15	—		271		—		(271)		—	—		—
Stock-based compensation expense	—	—		3,403		—		—		—	—		3,403
Employee stock purchase plan	—	—		113		—		—		(4)	57		170
Dividends ($0.23 per share)	—	—		—		—		(4,786)		—	—		(4,786)
Defined benefit pension plan, no tax benefit	—	—		—		47		—		—	—		47
Change in fair value of interest rate swap, net of tax benefit of $319	—	—		—		939		—		—	—		939
Repurchases of common stock	—	—		—		—		—		317	(16,313)		(16,313)
Balance, March 31, 2021	72,615	$	726	$	476,165	$	(3,437)	$	396,849	50,740	$	(693,647)	$	176,656
Net income	—	—		—		—		21,188		—	—		21,188
Issuance for stock-based compensation and dividends, net of forfeitures	40	1		274		—		(273)		—	—		2
Stock-based compensation expense	—	—		3,532		—		—		—	—		3,532
Employee stock purchase plan	—	—		143		—		—		(4)	52		195
Dividends ($0.23 per share)	—	—		—		—		(4,746)		—	—		(4,746)
Defined benefit pension plan, net of tax provision of $283	—	—		—		3,056		—		—	—		3,056
Change in fair value of interest rate swap, net of tax benefit of $3	—	—		—		10		—		—	—		10
Repurchases of common stock	—	—		—		—		—		225	(13,614)		(13,614)
Balance, June 30, 2021	72,655	727		480,114		(371)		413,018		50,961	(707,209)		186,279
Net income	—	—		—		—		20,168		—	—		20,168
Issuance for stock-based compensation and dividends, net of forfeitures	(15)	(1)		260		—		(260)		—	—		(1)
Stock-based compensation expense	—	—		3,512		—		—		—	—		3,512
Employee stock purchase plan	—	—		148		—		—		(3)	45		193
Dividends ($0.26 per share)	—	—		—		—		(5,304)		—	—		(5,304)
Change in fair value of interest rate swap, net of tax benefit of $55	—	—		—		152		—		—	—		152
Repurchases of common stock	—	—		—		—		—		249	(15,030)		(15,030)
Balance, September 30, 2021	72,640	726		484,034		(219)		427,622		51,207	(722,194)		189,969


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2022 to July 31, 2022	69,574	$	62.49	69,574	$	84,438,951
August 1, 2022 to August 31, 2022	128,530	$	57.70	127,368	$	77,089,873
September 1, 2022 to September 30, 2022	184,162	$	58.73	184,162	$	66,273,639
Total	382,266	$	59.07	381,104	$	66,273,639