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, 2021~~March 31, 2022


☐			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.


1001 East Palm Avenue, Tampa, Florida						33605
Address of principal executive offices						Zip Code

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

_______________________________________________________

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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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

The number of shares outstanding of the registrant’s common stock as of ~~October~~April 29, ~~2021~~2022 was ~~21,424,139.~~21,384,450.

Table of Contents

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.I, Item 2.2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part ~~II.~~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, projections~~to: expectations of financial or operational performance, our beliefs regarding potential government actions or changes in laws and regulations, anticipated costs and benefits of proposed investments, effects of interest rate variations, financing needs or plans, funding of employee benefit plans, estimates concerning the effects of litigation or other disputes, the occurrence of unanticipated expenses,performance; developments within the staffing sector including, but not limited to, the penetration rate (the percentage of temporary staffing to total employment) and growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive ~~conditions, our ability to maintain compliance with our credit facility's covenants,~~conditions; our beliefs regarding the expected future ~~flexibility~~benefits of ~~the~~our flexible working ~~environment for Kforce,~~environment; the impact of the COVID-19 pandemic, inflationary pressures and/or supply constraints on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of ~~operations,~~operations; 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; 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 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.

Table of Contents

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,
		2021		2020		2021		2020			2022		2021
Revenue	Revenue	$	402,725	$	365,424	$	1,169,564	$	1,043,652	Revenue	$	416,967	$	363,225
Direct costs	Direct costs	283,461		261,546		832,687		747,889		Direct costs	293,081		264,543
Gross profit	Gross profit	119,264		103,878		336,877		295,763		Gross profit	123,886		98,682
Selling, general and administrative expenses	Selling, general and administrative expenses	88,972		75,852		251,617		235,614		Selling, general and administrative expenses	95,049		78,029
Depreciation and amortization	Depreciation and amortization	1,026		1,308		3,420		4,081		Depreciation and amortization	1,093		1,202
Income from operations	Income from operations	29,266		26,718		81,840		56,068		Income from operations	27,744		19,451
Other expense, net	Other expense, net	1,448		938		5,845		3,746		Other expense, net	1,433		1,285
Income from operations, before income taxes	Income from operations, before income taxes	27,818		25,780		75,995		52,322		Income from operations, before income taxes	26,311		18,166
Income tax expense	Income tax expense	7,650		7,017		21,378		14,568		Income tax expense	7,130		4,905

Net income	Net income	20,168		18,763		54,617		37,754		Net income	19,181		13,261
Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:										Other comprehensive income, net of tax:
Defined benefit pension plans	Defined benefit pension plans	—		—		3,103		—		Defined benefit pension plans	—		47
Change in fair value of interest rate swaps	Change in fair value of interest rate swaps	152		118		1,101		(1,473)		Change in fair value of interest rate swaps	2,302		939
Comprehensive income	Comprehensive income	$	20,320	$	18,881	$	58,821	$	36,281	Comprehensive income	$	21,483	$	14,247

Earnings per share – basic	Earnings per share – basic	$	0.99	$	0.90	$	2.64	$	1.79	Earnings per share – basic	$	0.94	$	0.63

Earnings per share – diluted	Earnings per share – diluted	$	0.96	$	0.89	$	2.57	$	1.77	Earnings per share – diluted	$	0.93	$	0.62

Weighted average shares outstanding – basic	Weighted average shares outstanding – basic	20,429		20,782		20,676		21,041		Weighted average shares outstanding – basic	20,319		20,932
Weighted average shares outstanding – diluted	Weighted average shares outstanding – diluted	21,098		21,180		21,260		21,369		Weighted average shares outstanding – diluted	20,730		21,361

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

Table of Contents

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	115,631	$	103,486	Cash and cash equivalents	$	116,627	$	96,989
Trade receivables, net of allowances of $2,264 and $3,204, respectively		269,910		228,373
Trade receivables, net of allowances of $2,520 and $2,342, respectively						Trade receivables, net of allowances of $2,520 and $2,342, respectively	278,064		265,322
Income tax refund receivable						Income tax refund receivable	3,243		3,010
Prepaid expenses and other current assets	Prepaid expenses and other current assets	8,044		7,033		Prepaid expenses and other current assets	7,520		6,790
Total current assets	Total current assets	393,585		338,892		Total current assets	405,454		372,111
Fixed assets, net	Fixed assets, net	5,821		26,804		Fixed assets, net	6,586		5,964
Other assets, net	Other assets, net	88,065		77,575		Other assets, net	92,414		92,629
Deferred tax assets, net	Deferred tax assets, net	10,115		10,738		Deferred tax assets, net	—		7,657
Goodwill	Goodwill	25,040		25,040		Goodwill	25,040		25,040
Total assets	Total assets	$	522,626	$	479,049	Total assets	$	529,494	$	503,401
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	$	77,983	$	35,533	Accounts payable and other accrued liabilities	$	90,328	$	81,408
Accrued payroll costs	Accrued payroll costs	73,006		65,849		Accrued payroll costs	86,629		71,424
Current portion of operating lease liabilities	Current portion of operating lease liabilities	6,407		5,520		Current portion of operating lease liabilities	5,447		6,338
Income taxes payable	Income taxes payable	4,127		964		Income taxes payable	757		1,239
Other current liabilities	Other current liabilities	56		300		Other current liabilities	37		22

Total current liabilities	Total current liabilities	161,579		108,166		Total current liabilities	183,198		160,431
Long-term debt – credit facility	Long-term debt – credit facility	100,000		100,000		Long-term debt – credit facility	100,000		100,000
Deferred tax liability, net						Deferred tax liability, net	665		—
Other long-term liabilities	Other long-term liabilities	71,078		90,948		Other long-term liabilities	47,426		54,564
Total liabilities	Total liabilities	332,657		299,114		Total liabilities	331,289		314,995
Commitments and contingencies (Note M)		0		0
Commitments and contingencies (Note K)						Commitments and contingencies (Note K)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	—		—		Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par; 250,000 shares authorized, 72,640 and 72,600 issued, respectively		726		726
Common stock, $0.01 par; 250,000 shares authorized, 72,996 and 72,997 issued, respectively						Common stock, $0.01 par; 250,000 shares authorized, 72,996 and 72,997 issued, respectively	730		730
Additional paid-in capital	Additional paid-in capital	484,034		472,378		Additional paid-in capital	492,985		488,036
Accumulated other comprehensive loss		(219)		(4,423)
Accumulated other comprehensive income						Accumulated other comprehensive income	2,923		621
Retained earnings	Retained earnings	427,622		388,645		Retained earnings	455,365		442,596
Treasury stock, at cost; 51,207 and 50,427 shares, respectively		(722,194)		(677,391)
Treasury stock, at cost; 51,636 and 51,493 shares, respectively						Treasury stock, at cost; 51,636 and 51,493 shares, respectively	(753,798)		(743,577)
Total stockholders’ equity	Total stockholders’ equity	189,969		179,935		Total stockholders’ equity	198,205		188,406
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	522,626	$	479,049	Total liabilities and stockholders’ equity	$	529,494	$	503,401

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

Table of Contents

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 (Loss)								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, 2020		72,600	$	726			$	472,378			$	(4,423)			$	388,645		50,427			$	(677,391)					$	179,935
Balance, December 31, 2021																										Balance, December 31, 2021	72,997		$	730		$	488,036			$	621		$	442,596		51,492		$	(743,577)		$	188,406
Net income	Net income	—	—		—				—				13,261				—		—					13,261		Net income	—		—		—				—			19,181			—		—			19,181
Issuance for stock-based compensation and dividends, net of forfeitures	Issuance for stock-based compensation and dividends, net of forfeitures	15	—		271				—				(271)				—		—					—		Issuance for stock-based compensation and dividends, net of forfeitures	(1)		—		319				—			(318)			—		—			1
Stock-based compensation expense	Stock-based compensation expense	—	—		3,403				—				—				—		—					3,403		Stock-based compensation expense	—		—		4,437				—			—			—		—			4,437
Employee stock purchase plan	Employee stock purchase plan	—	—		113				—				—				(4)		57					170		Employee stock purchase plan	—		—		193				—			—			(3)		49			242
Dividends ($0.23 per share)		—	—		—				—				(4,786)				—		—					(4,786)
Dividends ($0.30 per share)																										Dividends ($0.30 per share)	—		—		—				—			(6,094)			—		—			(6,094)
Defined benefit pension plan, no tax benefit	Defined benefit pension plan, no tax benefit	—	—		—				47				—				—		—					47		Defined benefit pension plan, no tax benefit	—		—		—				0			—			—		—			—
Change in fair value of interest rate swaps, net of tax benefit of $319		—	—		—				939				—				—		—					939
Change in fair value of interest rate swaps, net of tax benefit of $780																										Change in fair value of interest rate swaps, net of tax benefit of $780	—		—		—				2,302			—			—		—			2,302
Repurchases of common stock	Repurchases of common stock	—	—		—				—				—				317		(16,313)					(16,313)		Repurchases of common stock	—		—		—				—			—			147		(10,270)			(10,270)
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 swaps, 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 swaps, 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
Balance, March 31, 2022																										Balance, March 31, 2022	72,996		$	730	$	492,985			$	2,923		$	455,365		51,636		$	(753,798)		$	198,205

~~Table of Contents~~


		Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Loss								Treasury Stock							Total Stockholders’ Equity			Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive (Loss) Income						Treasury Stock					Total Stockholders’ Equity
		Shares	Amount								Retained Earnings				Shares			Amount					Shares					Amount						Retained Earnings				Shares			Amount
Balance, December 31, 2019		72,202	$	722			$	459,545			$	(1,526)			$	350,545		49,277			$	(642,023)					$	167,263
Net income		—	—		—				—				9,106				—		—					9,106
Adoption of new accounting standard, net of tax of $75		—	—		—				—				(214)				—		—					(214)
Issuance for stock-based compensation and dividends, net of forfeitures		(4)	—		218				—				(218)				—		—					—
Stock-based compensation expense		—	—		2,896				—				—				—		—					2,896
Employee stock purchase plan		—	—		93				—				—				(4)		49					142
Dividends ($0.20 per share)		—	—		—				—				(4,293)				—		—					(4,293)
Change in fair value of interest rate swap, net of tax benefit of $384		—	—		—				(1,121)				—				—		—					(1,121)
Repurchases of common stock		—	—		—				—				—				685		(20,380)					(20,380)
Balance, March 31, 2020		72,198	$	722	$	462,752			$	(2,647)			$	354,926			49,958		$	(662,354)				$	153,399
Balance, December 31, 2020																										Balance, December 31, 2020	72,600		$	726		$	472,378			$	(4,423)		$	388,645		50,427		$	(677,391)		$	179,935
Net income	Net income	—	—		—				—				9,885				—		—					9,885		Net income	—		—		—				—			13,261			—		—			13,261
Issuance for stock-based compensation and dividends, net of forfeitures	Issuance for stock-based compensation and dividends, net of forfeitures	39	—		240				—				(240)				—		—					—		Issuance for stock-based compensation and dividends, net of forfeitures	15		—		271				—			(271)			—		—			—
Stock-based compensation expense	Stock-based compensation expense	—	—		2,903				—				—				—		—					2,903		Stock-based compensation expense	—		—		3,403				—			—			—		—			3,403
Employee stock purchase plan	Employee stock purchase plan	—	—		62				—				—				(5)		72					134		Employee stock purchase plan	—		—		113				—			—			(4)		57			170
Dividends ($0.20 per share)		—	—		—				—				(4,162)				—		—					(4,162)
Change in fair value of interest rate swap, net of tax benefit of $160		—	—		—				(470)				—				—		—					(470)
Dividends ($0.23 per share)																										Dividends ($0.23 per share)	—		—		—				—			(4,786)			—		—			(4,786)
Defined benefit pension plan, no tax benefit																										Defined benefit pension plan, no tax benefit									47											47
Change in fair value of interest rate swap, net of tax benefit of 319																										Change in fair value of interest rate swap, net of tax benefit of 319	—		—		—				939			—			—		—			939
Repurchases of common stock	Repurchases of common stock	—	—		—				—				—				342		(9,213)					(9,213)		Repurchases of common stock	—		—		—				—			—			317		(16,313)			(16,313)
Balance, June 30, 2020		72,237	$	722	$	465,957			$	(3,117)			$	360,409			50,295		$	(671,495)				$	152,476
Net income		—	—		—				—				18,763				—		—					18,763
Issuance for stock-based compensation and dividends, net of forfeitures		10	—		241				—				(241)				—		—					—
Stock-based compensation expense		—	—		2,908				—				—				—		—					2,908
Employee stock purchase plan		—	—		71				—				—				(5)		64					135
Dividends ($0.20 per share)		—	—		—				—				(4,164)				—		—					(4,164)
Change in fair value of interest rate swap, net of tax benefit of $40		—	—		—				118				—				—		—					118
Repurchases of common stock		—	—		—				—				—				1		(30)					(30)
Balance, September 30, 2020		72,247	$	722	$	469,177			$	(2,999)			$	374,767			50,291		$	(671,461)				$	170,206
Balance, March 31, 2021																										Balance, March 31, 2021	72,615		$	726	$	476,165			$	(3,437)		$	396,849		50,740		$	(693,647)		$	176,656

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

Table of Contents

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	54,617	$	37,754	Net income	$	19,181	$	13,261
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	302		(4,414)		Deferred income tax provision, net	8,321		931
Provision for credit losses	Provision for credit losses	(139)		2,723		Provision for credit losses	172		(852)
Depreciation and amortization	Depreciation and amortization	3,420		4,081		Depreciation and amortization	1,093		1,202
Stock-based compensation expense	Stock-based compensation expense	10,448		8,707		Stock-based compensation expense	4,437		3,403
Defined benefit pension plan expense	Defined benefit pension plan expense	2,157		632		Defined benefit pension plan expense	—		252

(Gain) loss on disposal or impairment of assets		(1,979)		1,795
Loss on disposal or impairment of assets						Loss on disposal or impairment of assets	168		—
Noncash lease expense	Noncash lease expense	3,992		4,392		Noncash lease expense	1,502		1,114
Loss on equity method investment	Loss on equity method investment	1,709		1,237		Loss on equity method investment	825		491
Other	Other	681		820		Other	190		242
Increase in operating assets	Increase in operating assets					Increase in operating assets
Trade receivables, net	Trade receivables, net	(41,397)		(15,085)		Trade receivables, net	(12,914)		(15,001)
Other assets	Other assets	(6,384)		(5,034)		Other assets	(2,577)		(324)
Increase in operating liabilities	Increase in operating liabilities					Increase in operating liabilities
Accrued payroll costs	Accrued payroll costs	7,715		31,496		Accrued payroll costs	15,447		12,203
Other liabilities	Other liabilities	24,801		24,767		Other liabilities	2,897		5,504
Cash provided by operating activities	Cash provided by operating activities	59,943		93,871		Cash provided by operating activities	38,742		22,426
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(5,026)		(5,296)		Capital expenditures	(2,221)		(1,350)
Equity method investment		(7,000)		(2,500)
Proceeds from the sale of assets held within the Rabbi Trust		—		3,548
Net proceeds from the sale of assets		23,742		—
Cash provided by (used in) investing activities		11,716		(4,248)
Contributions to equity method investment						Contributions to equity method investment	(500)		(2,000)

Cash used in investing activities						Cash used in investing activities	(2,721)		(3,350)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from credit facility		—		35,000

Repurchases of common stock	Repurchases of common stock	(44,407)		(29,623)		Repurchases of common stock	(10,270)		(16,313)
Cash dividends	Cash dividends	(14,836)		(12,619)		Cash dividends	(6,094)		(4,786)
Payments on other financing arrangements	Payments on other financing arrangements	(271)		(939)		Payments on other financing arrangements	(19)		(122)

Cash used in financing activities	Cash used in financing activities	(59,514)		(8,181)		Cash used in financing activities	(16,383)		(21,221)
Change in cash and cash equivalents	Change in cash and cash equivalents	12,145		81,442		Change in cash and cash equivalents	19,638		(2,145)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	103,486		19,831		Cash and cash equivalents, beginning of period	96,989		103,486
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	115,631	$	101,273	Cash and cash equivalents, end of period	$	116,627	$	101,341

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		Nine Months Ended September 30,					Three Months Ended March 31,
Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information	2021		2020		Supplemental Disclosure of Cash Flow Information	2022		2021
Cash Paid During the Period For:	Cash Paid During the Period For:					Cash Paid During the Period For:
Income taxes	Income taxes	$	17,845	$	13,493	Income taxes	$	314	$	332
Operating lease liabilities	Operating lease liabilities	5,591		5,641		Operating lease liabilities	1,812		1,690
Interest, net	Interest, net	1,934		1,924		Interest, net	547		634
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	$	4,053	$	5,722	ROU assets obtained from operating leases	$	446	$	243
Employee stock purchase plan	Employee stock purchase plan	558		411		Employee stock purchase plan	242		170

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

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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 ~~2020~~2021 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 ~~2020~~2021 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, ~~2020~~2021, was derived from our audited Consolidated Balance Sheet as of December 31, ~~2020,~~2021, as presented in our ~~2020~~2021 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. The impact~~profitability relative to the remainder of the COVID-19 pandemic on our business was somewhat unpredictable in 2020, but based on our current assessment, we do not expect any material impact on our long-term strategic plans, operations and liquidity due to COVID-19. However, we continue to assess the effect on our operations by monitoring the spread of COVID-19 (and associated variants) and the actions implemented to combat the virus as reported in the official agency reports.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, other long-lived assets and the equity method investment. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. ~~The severity, magnitude and duration, as well as~~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 in response to the COVID-19 pandemic.~~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 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.

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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.

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For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~669~~411 thousand and ~~584~~429 thousand common stock equivalents were included in the diluted WASO, respectively. For the three ~~and nine~~ months ended ~~September 30, 2020, 398 thousand~~March 31, 2022 and ~~328 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30,~~ 2021, there were ~~insignificant anti-dilutive common stock equivalents. For the three and nine months ended September 30, 2020, there were 266~~305 thousand and ~~348 thousand~~nil anti-dilutive common stock equivalents, respectively.

New Accounting Standards

Recently ~~Adopted~~Issued Accounting Standards Not Yet Adopted

In ~~August 2018,~~March 2022, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~authoritative~~Accounting Standards Update (ASU) No. 2022-02, Financial Instruments - Credit Losses (Topic 326) - Trouble Debt Restructurings and Vintage Disclosures. These amendments eliminate the trouble debt restructuring (TDR) recognition and measurement guidance ~~regarding changes to~~and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure ~~requirement for defined benefit plans including additions~~requirements and ~~deletions~~introduce new requirements related to certain ~~disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The guidance was~~modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-01 is effective for ~~fiscal~~annual periods, including interim periods within those annual periods, beginning after December 15, ~~2020, with the retrospective method required for all periods presented. The Company adopted the provisions~~2022. Early adoption of this ~~new accounting standard at~~ASU is permitted. We are currently evaluating the ~~beginning~~impact of ~~fiscal year 2021. This guidance did~~ASU 2022-01 on our consolidated financial statements, however, we do not ~~have~~anticipate this having a ~~financial~~material impact ~~on the Company’s~~to our financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to: (1) recognition of an acquired contract liability; and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022. Early adoption of this ASU is permitted. We are currently evaluating the impact of ASU 2021-08 on our consolidated financial statements.

Other recently issued statements have been evaluated but are not listed here as it has been determined that they are not applicable to our Firm.

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Note B - Reportable Segments

Kforce provides services through our Technology ~~(“Tech”)~~ and Finance and Accounting (“FA”) segments. Historically, and for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, 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.

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


		Tech		FA		Total			Technology		FA		Total
Three Months Ended September 30,
Three Months Ended March 31,								Three Months Ended March 31,
2022								2022
Revenue								Revenue	$	359,905	$	57,062	$	416,967
Gross profit								Gross profit	$	102,450	$	21,436	$	123,886
Operating and other expenses								Operating and other expenses					$	97,575
Income from operations, before income taxes								Income from operations, before income taxes					$	26,311
2021	2021							2021
Revenue	Revenue	$	337,230	$	65,495	$	402,725	Revenue	$	279,560	$	83,665	$	363,225
Gross profit	Gross profit	$	95,934	$	23,330	$	119,264	Gross profit	$	74,280	$	24,402	$	98,682
Operating and other expenses	Operating and other expenses					$	91,446	Operating and other expenses					$	80,516
Income from operations, before income taxes	Income from operations, before income taxes					$	27,818	Income from operations, before income taxes					$	18,166
2020
Revenue		$	260,251	$	105,173	$	365,424
Gross profit		$	71,960	$	31,918	$	103,878
Operating and other expenses						$	78,098
Income from operations, before income taxes						$	25,780

Nine Months Ended September 30,
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
2020
Revenue		$	782,785	$	260,867	$	1,043,652
Gross profit		$	216,606	$	79,157	$	295,763
Operating and other expenses						$	243,441
Income from operations, before income taxes						$	52,322

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Note C - Disaggregation of Revenue

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


		Tech		FA		Total			Technology		FA		Total
Three Months Ended September 30,
Three Months Ended March 31,								Three Months Ended March 31,
2022								2022
Revenue by type:								Revenue by type:
Flex revenue								Flex revenue	$	351,716	$	50,150	$	401,866
Direct Hire revenue								Direct Hire revenue	8,189		6,912		15,101
Total Revenue								Total Revenue	$	359,905	$	57,062	$	416,967
2021	2021							2021
Revenue by type:	Revenue by type:							Revenue by type:
Flex revenue	Flex revenue	$	330,170	$	59,003	$	389,173	Flex revenue	$	274,784	$	79,063	$	353,847
Direct Hire revenue	Direct Hire revenue	7,060		6,492		13,552		Direct Hire revenue	4,776		4,602		9,378
Total Revenue	Total Revenue	$	337,230	$	65,495	$	402,725	Total Revenue	$	279,560	$	83,665	$	363,225
2020
Revenue by type:
Flex revenue		$	256,118	$	100,569	$	356,687
Direct Hire revenue		4,133		4,604		8,737
Total Revenue		$	260,251	$	105,173	$	365,424
Nine Months Ended September 30,
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
2020
Revenue by type:
Flex revenue		$	770,635	$	248,578	$	1,019,213
Direct Hire revenue		12,150		12,289		24,439
Total Revenue		$	782,785	$	260,867	$	1,043,652

Note D - Allowance for Credit Losses

The allowance for credit losses on trade receivables is determined based on a number of factors such as recent and historical write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of trade receivables among clients and the current state of the U.S. economy. As part of our analysis, we apply credit loss rates to outstanding receivables by aging category. For certain clients, we perform a quarterly credit review, which considers the client’s credit rating and financial position as well as our total credit loss exposure. Trade receivables are written off after all reasonable collection efforts have been exhausted. Recoveries of trade receivables previously written off are recorded when received and are immaterial for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022.

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The following table presents the activity within the allowance for credit losses on trade receivables for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 (in thousands):




Allowance for credit losses, January 1, ~~2021~~2022	$	~~2,757~~1,729
Current period provision ~~(credit)~~	~~(139)~~172
Write-offs charged against the allowance, net of recoveries of amounts previously written off	~~(987)~~(78)

Allowance for credit losses, ~~September 30, 2021~~March 31, 2022	$	~~1,631~~1,823

The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.7 million and $0.6 million ~~and $0.4 million~~ at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, for reserves unrelated to credit losses.

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Note E - ~~Sale of Corporate Headquarters~~

On May 19, 2021, Kforce completed the sale of its corporate headquarters, which had a net book value of $21.7 million, to an independent third party. Kforce received net proceeds of $23.7 million and recognized a gain on the sale in the amount of $2.0 million, which is recorded in SG&A expenses.

~~Note F -~~ Other Assets, ~~Net~~Net

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


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets held in Rabbi Trust	Assets held in Rabbi Trust	$	39,418	$	36,164	Assets held in Rabbi Trust	$	38,213	$	41,607
Right-of-use assets for operating leases, net	Right-of-use assets for operating leases, net	16,351		16,835		Right-of-use assets for operating leases, net	13,376		15,395
Capitalized software, net (1)	Capitalized software, net (1)	15,243		12,802		Capitalized software, net (1)	14,796		14,666
Equity method investment (2)	Equity method investment (2)	15,779		10,488		Equity method investment (2)	16,683		17,008
Deferred loan costs, net	Deferred loan costs, net	236		501		Deferred loan costs, net	1,057		1,115

Interest rate swap derivative instruments						Interest rate swap derivative instruments	3,905		823
Other non-current assets	Other non-current assets	1,038		785		Other non-current assets	4,384		2,015
Total Other assets, net	Total Other assets, net	$	88,065	$	77,575	Total Other assets, net	$	92,414	$	92,629

(1) Accumulated amortization of capitalized software was ~~$35.2~~$35.4 million and ~~$34.0~~$35.5 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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 ~~$0.7~~$0.8 million and ~~$1.7~~$0.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and March 31, 2021, respectively. In addition, Kforce contributed ~~$7.0~~$0.5 million and ~~$4.0~~$9.0 million of capital during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020,~~2021, respectively. Refer to Note MK - “Commitments and Contingencies” for more information on contingencies related to WorkLLama.

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Note GF - Current Liabilities

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


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Accounts payable and other accrued liabilities:	Accounts payable and other accrued liabilities:					Accounts payable and other accrued liabilities:
Accounts payable	Accounts payable	$	41,836	$	20,177	Accounts payable	$	48,855	$	40,241
Accrued liabilities	Accrued liabilities	36,147		15,356		Accrued liabilities	41,473		41,167
Total Accounts payable and other accrued liabilities	Total Accounts payable and other accrued liabilities	$	77,983	$	35,533	Total Accounts payable and other accrued liabilities	$	90,328	$	81,408
Accrued payroll costs:	Accrued payroll costs:					Accrued payroll costs:
Payroll and benefits	Payroll and benefits	$	60,402	$	38,257	Payroll and benefits	$	51,724	$	43,738
Payroll taxes	Payroll taxes	7,623		21,842		Payroll taxes	29,791		22,466
Health insurance liabilities	Health insurance liabilities	4,184		4,641		Health insurance liabilities	4,342		4,474
Workers’ compensation liabilities	Workers’ compensation liabilities	797		1,109		Workers’ compensation liabilities	772		746
Total Accrued payroll costs	Total Accrued payroll costs	$	73,006	$	65,849	Total Accrued payroll costs	$	86,629	$	71,424

Our accounts payable balance includes vendor and ~~independent contractor~~third party payables. Our accrued liabilities balance includes the current portion of ~~the~~our deferred compensation plans liability, ~~obligations related to the supplemental executive retirement plan,~~contract liabilities from contracts with customers (such as customer rebates) ~~and~~, other accrued liabilities .

~~Note H - Other Long-Term Liabilities~~

~~Other long-term liabilities consisted of~~and amounts owed under the ~~following (in thousands):~~
September 30, 2021 December 31, 2020
Deferred compensation plan $ 38,749 $ 34,501
Supplemental executive retirement plan (1) — 20,628
Operating lease liabilities 12,712 14,692
Interest rate swap derivative instruments 296 1,774
Other long-term liabilities (2) 19,321 19,353
Total Other long-term liabilities $ 71,078 $ 90,948

~~(1)~~ The Company terminated its supplemental executive retirement plan on April 30, 2021 and expects to pay out the obligation in July 2022. The obligation, as of September 30, 2021, is included as part of Accrued liabilities under Current Liabilities in Note G - Current Liabilities, above.

~~(2)~~ ~~As a result of the application of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), we have approximately~~ ~~$19.3 million in payroll tax deferrals recorded within Other long-term liabilities as of September 30, 2021 and December 31, 2020 (expected to be paid by December 31, 2022)~~.

~~Note I - Employee Benefit Plans~~

~~Supplemental Executive Retirement Plan~~

~~Prior to April 30, 2021, Kforce maintained a~~ Supplemental Executive Retirement Plan ~~(“SERP”), which benefited 2 executives. The~~ (‘SERP was a non-qualified benefit plan and did not include elective deferrals of covered executive officers’ compensation. The related net periodic benefit costs were comprised of service cost and interest cost. The service cost amounted to $199 thousand in the nine months ending September 30, 2021, and $87 thousand and $259 thousand in the three and nine months ended September 30, 2020, respectively, and were recorded in SG&A. The interest cost amounted to $138 thousand in the nine months ending September 30, 2021, and $124 thousand and $373 thousand in the three and nine months ended September 30, 2020, respectively, and were recorded in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.

”). Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed to the 2 participants under the SERP as of ~~September 30, 2021~~March 31, 2022, amount to ~~$20.0~~$20.0 million in the ~~aggregate, which is recorded in Other accrued liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. Kforce must~~aggregate.

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~~make the benefit~~Our payroll taxes as of March 31, 2022 and December 31, 2021 include approximately $19.3 million in payroll tax payments to the participants within 24 months of the termination date but no sooner than 12 months after the termination date. We anticipate making the benefit payments during the third quarter ending September 30, 2022. No contributions were made to the SERP during the four months ended April 30, 2021.

Asas a result of the ~~termination~~application of the ~~SERP, Kforce recognized a net loss of $1.8 million in the nine months ending September 30, 2021. The loss~~CARES Act 2020, which is ~~reflected in Other expense, net in the accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.~~anticipated to be repaid no later than December 31, 2022.

Note JG - Other Long-Term Liabilities

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


	March 31, 2022		December 31, 2021
Deferred compensation plan	$	37,273	$	42,623
Operating lease liabilities	10,136		11,919
Other long-term liabilities	17		22
Total Other long-term liabilities	$	47,426	$	54,564

Note H - Stock Incentive Plans

On April 22, 2021, Kforce’s shareholders approved the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 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 Plan is approximately 3.9 million. Grants of an option or SAR reduce the reserve by 1 share, while a stock award reduces the reserve by 2.72 shares. The 2021 Plan terminates on April 22, 2031.

Restricted stock (including RSAs and RSUs) are 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~~three months ended ~~September 30, 2021,~~March 31, 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,~~March 31, 2022 and March 31, 2021, stock-based compensation expense was ~~$3.5~~$4.4 million and ~~$10.5 million, respectively. During the three and nine months ended September 30, 2020, stock-based compensation expense was $2.9 million and $8.7~~$3.4 million, respectively.

The following table presents the restricted stock activity for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 (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, 2020		1,137	$	33.63
Outstanding at December 31, 2021							Outstanding at December 31, 2021	1,083	$	48.86
Granted	Granted	60	$	50.74			Granted	6	$	55.40
Forfeited	Forfeited	(20)	$	26.93			Forfeited	(8)	$	43.97
Vested	Vested	(47)	$	25.43	$	2,607	Vested	(8)	$	25.74	$	589
Outstanding at September 30, 2021		1,130	$	34.98
Outstanding at March 31, 2022							Outstanding at March 31, 2022	1,073	$	49.12

As of ~~September 30, 2021,~~March 31, 2022, total unrecognized stock-based compensation expense related to restricted stock was ~~$27.3~~$45.7 million, which will be recognized over a weighted-average remaining period of ~~3.1~~4.4 years.

Note KI - Derivative Instruments and Hedging Activity

On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A (“Swap A”). Swap A was effective on May 31, 2017 and ~~matures~~matured on April 29, 2022. Swap A has a fixed interest rate of 1.81%, which we add to our interest rate margin to determine the fixed rate that the Firm will pay to the counterparty during the term of Swap A based on the notional amount of Swap A. The notional amount of Swap A through maturity is $25.0 million.

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 and matures on May 30, 2025. Swap B has a fixed interest rate of 0.61% and a notional amount of $75.0 million and increases to $100.0 million in May 2022, and subsequently decreases to $75.0 million and $40.0 million in May 2023 and May 2024, respectively. The increase in the notional amount of Swap B in May 2022 corresponds to the decrease in the notional amount for Swap A.

The Firm uses the Swaps as an interest rate risk management tool to mitigate the potential impact of rising interest rates on variable rate debt. The fixed interest rate for each Swap ~~(which will remain throughout the remainder of the hedging arrangement),~~ plus the applicable interest margin under our

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credit facility, is included in interest expense and recorded in Other expense, net in the accompanying Consolidated Financial Statements of Operations and Comprehensive Income. Both Swap A and B have been designated as cash flow hedges and were effective as of ~~September 30, 2021.~~March 31, 2022. The change in the fair value of the Swaps ~~are~~is recorded as a component of Accumulated other comprehensive income (loss) in the unaudited consolidated financial statements.

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The following table sets forth the activity in the accumulated derivative instrument activity (in thousands):
Nine Months Ended September 30,
2021 2020
Accumulated derivative instrument loss, beginning of period $ (1,774) $ (179)
Net change associated with current period hedging transactions 1,478 (1,978)
Accumulated derivative instrument loss, end of period $ (296) $ (2,157)


	Three Months Ended March 31,
	2022		2021
Accumulated derivative instrument gain (loss), beginning of period	$	823	$	(1,774)
Net change associated with current period hedging transactions	3,082		1,258

Accumulated derivative instrument gain (loss), end of period	$	3,905	$	(516)

Note LJ - Fair Value Measurements

Our interest rate swaps are measured at fair value using readily observable inputs, which are considered to be Level 2 inputs and are recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. Refer to Note JI - “Derivative Instruments and Hedging Activity” for a complete discussion of our interest rate swaps.

There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The following table sets forth by level, within the fair value hierarchy, estimated fair values on a recurring basis (in thousands):


Asset/(Liability) Measured at Fair Value:	Asset/(Liability) Measured at Fair Value:	Asset/(Liability)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Asset/(Liability) Measured at Fair Value:	Asset/(Liability)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At September 30, 2021
At March 31, 2022										At March 31, 2022

Interest rate swap derivative instruments	Interest rate swap derivative instruments	$	(296)	$	—	$	(296)	$	—	Interest rate swap derivative instruments	$	3,905	$	—	$	3,905	$	—
At December 31, 2020
At December 31, 2021										At December 31, 2021

Interest rate swap derivative instrument	Interest rate swap derivative instrument	$	(1,774)	$	—	$	(1,774)	$	—	Interest rate swap derivative instrument	$	823	$	—	$	823	$	—

Note MK - Commitments and Contingencies

Employment Agreements

Kforce has employment agreements with certain executives that provide for ~~minimum compensation, salary and continuation of~~ certain ~~benefits for a six-month to a three-year period after their~~post employment ~~ends~~benefits under certain circumstances. Certain of the agreements also provide for a severance payment ranging from one to three times annual salary and one-half to three times average annual bonus if such an agreement is terminated without good cause by Kforce or for good reason by the executive subject to certain post-employment restrictive covenants. At ~~September 30, 2021,~~March 31, 2022, our liability would be approximately ~~$45.0~~$38.2 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 ~~$17.3~~$13.7 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

On August 30, 2021, Kforce Inc. was served with a complaint brought in the U.S. District Court, Southern District of California. Darryn Lewis, et. al. v. Kforce Inc., Case No.: 3:21-cv-01375-AJB-JLB. On behalf of himself and all others similarly situated, the Plaintiff brings a one-count class action complaint for alleged violations of the Fair Labor Standards Act (“FLSA”), and specifically, failure to pay overtime wages. The FLSA class is purported to include commissioned employees who work or have worked for Kforce, nationwide, in the past three (3) years. Plaintiff alleges that Kforce failed to maintain a policy that compensates its employees for all hours worked, and specifically alleges that Kforce misclassified employees as exempt from overtime, failed to pay hourly aggrieved employees for all overtime hours worked, including off-the-clock work performed during meal periods, failed to pay all overtime and double-time wages earned at the correct regular rate because Kforce allegedly failed to include commission and other non-discretionary performance-based pay in the regular rate of pay. Plaintiff and class members seek the amounts of unpaid wages allegedly owed to them, liquidated damages, attorneys’ fees and costs, prejudgment interest, and other legal and equitable relief. The parties have engaged in attempts to resolve the matter. 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.

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On March 19, 2021, a complaint was filed against Kforce Inc. in United States District Court, Central District of California, and served on March 25, 2021. Jessica Cook, et. al. v. Kforce Inc., case no. 2:21-cv-02453. On behalf of herself and all others similarly situated, the plaintiff purports to bring a collective action challenging the exempt classification of a select class of recruiters. Plaintiff alleges that due to the misclassification of the recruiter class Kforce violated the Fair Labor Standards Act by failing to pay overtime and failing to make, keep, and preserve records with respect to each employee sufficient to determine their wages. The class action is brought pursuant to California state law, on behalf of the same class of California recruiters, and alleges: (i) classification and overtime violations under California law; (ii) untimely payment of wages; (iii) legally deficient wage statements; (iv) violations of meal and rest period requirements; and (v) violation of California's Unfair Competition Law. Plaintiff, on behalf of herself and the class and/or collective, seeks damages in the amount of unpaid overtime compensation, double time pay as applicable (for the California class), liquidated damages, attorney’s fees, interest, and other relief. The parties agreed to dismiss the action without prejudice through a joint stipulation and have engaged in discussions to resolve. If the parties are unable to resolve, it is expected that Plaintiff will re-file her class and collective action claims. 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.

On December 24, 2020, a complaint was filed and on January 5, 2021, the complaint was served 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 No.: 20STCV49193. On behalf of herself and a putative class of current and former commissioned employees employed by Defendants, the plaintiff purports to bring a collective action for alleged violations of the California Labor Code, §201, et seq., Industrial Welfare Commission (“IWC”) Wage Orders, and the California Business and Professions Code, §17200, et. seq, based upon the defendants’ alleged failure to: (i) pay minimum and overtime wages; (ii) timely pay all earned wages; (iii) provide meal periods and rest breaks; (iv) reimburse business expenses; (v) provide accurate itemized wage statements; and (vi) timely pay wages and vacation pay upon separation of employment; as well as associated unfair competition. The plaintiff seeks payment to recover minimum, regular, and/or overtime wages for all hours worked as required by law, meal period premiums, rest period premiums, unpaid business expenses, reasonable attorneys’ fees, cost of suit and interest, statutory penalties and liquidated damages, and also seeks 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 have engaged in attempts to resolve the matter. 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 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. Bernardo Buchsbaum, et al. v. Kforce Inc., et al., Case No.: 37-2020-00030994-CU-OE-CTL. The former employee purports to bring a representative action on his own behalf and on behalf of other current and former California aggrieved employees pursuant to the Private Attorneys General Act (“PAGA”) alleging violations of the California Labor Code (“Labor Code”). The purported Labor Code violations include the failure to: (i) pay all earned wages, including minimum wages and overtime wages; (ii) provide and pay proper wages for meal and rest periods; (iii) reimburse all reasonable and necessary business expenses; (iv) provide accurate itemized wage statements; and (v) provide unused vacation wages upon termination. The plaintiff seeks civil penalties, interest, attorney’s fees and costs under the Labor Code. On January 21, 2021, the Plaintiff served an amended complaint to add Kforce Flexible Solutions as a party and narrow the scope of alleged aggrieved employees to “internal” commissioned employees. The parties have engaged in attempts to resolve the matter. 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 October 13, 2020, Kforce Inc. was served with a complaint brought in the U.S. District Court, Eastern District of Pennsylvania. Hope Gofton and Adam Kimbrel, et al. v. Kforce Inc., Case No.: 2:20-cv-04886 on behalf of themselves and other similarly situated current and former employees. The plaintiffs purport to bring a collective action for alleged violations of the Fair Labor Standards Act, 29 U.S.C. § 201, et seq., and a class action for alleged violations of the Pennsylvania Minimum Wage Act, 43 P.S. §§ 333.101, et seq., based upon the defendant’s purported failure to pay federal and state overtime wages. The plaintiffs allege that the defendant improperly classified as exempt the plaintiffs and other putative collective and class members, and allegedly failed to pay overtime wages. The plaintiffs seek payment of unpaid overtime wages, liquidated damages, interest, attorney’s fees, costs and other relief deemed equitable by the Court. The Court entered a Final Approval Order on September 30, 2021 approving the settlement and dismissing the action without prejudice. Case will convert to dismissal with prejudice sixty days after the deadline to fully fund the settlement account. This matter did not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

There have been no material developments with regard to the ~~following~~ legal proceedings previously disclosed in our ~~2020~~2021 Annual Report on Form ~~10-K or in our most recent 10-Q filing:~~

10-K.~~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 ~~No.:~~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. The parties halted early resolution attempts, and we intend to continue to vigorously defend the claims. 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.

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•

On ~~February 19,~~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 ~~first amended~~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 Lewis, et al. v. Kforce Inc., which is subject to 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 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.~~Angeles, which was subsequently amended on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC, ~~et.~~et al. ~~case no.~~, 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 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 a preliminary agreement to resolve this matter along with Lewis, et al. v. Kforce Inc. and Buchsbaum, et al. v. Kforce Inc., et al., which is subject to approval by the Court, and we have set reserves accordingly. 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 August 30, 2021, Kforce Inc. was served with a complaint brought in the U.S. District Court, Southern District of California. Darryn Lewis, et al. v. Kforce Inc., Case Number: 3:21-cv-01375-AJB-JLB. On behalf of himself and others similarly situated, the plaintiff brings a one-count class action complaint for alleged violations of the FLSA, and specifically, failure to pay overtime wages to a putative class of commissioned employees who work or have worked for Kforce, nationwide, in the past three (3) years. Plaintiff and class members seek the amounts of unpaid wages and benefits allegedly owed to them, liquidated damages, compensatory damages, economic and/or special damages, attorneys’ fees and costs, interest, and other legal and equitable relief for alleged failure to: maintain a policy that compensates its employees for all hours worked; properly classify employees as nonexempt from overtime; and pay overtime pay for all hours worked over forty in one or more workweeks. The parties reached a preliminary settlement agreement to resolve this matter along with Elliott-Brand, et al. v. Kforce Inc., et al. and Buchsbaum, et al. v. Kforce Inc., et al., which is subject to approval by the Court. This lawsuit will be dismissed as part of the settlement, once approved 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

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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. 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 also involved in other 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 matters, where appropriate, which are reflected in our unaudited condensed consolidated financial statements. While the ultimate outcomes and any amounts accrued are inherently uncertain, we currently do not expect that these matters, individually or in the aggregate, will have a material effect on our financial position.

Equity Method Investment

In June 2019, we entered into a joint venture whereby Kforce obtained a 50% noncontrolling interest in WorkLLama. We determined, based on the corporate structure and governance, that WorkLLama is a VIE 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 iswas originally obligated to make additional cash contributions ~~which are~~subsequent to the initial contribution, contingent on WorkLLama's achievement of certain operational and financial milestones. ~~Our~~Under the operating agreement, our maximum potential capital contributions ~~are~~were $22.5 million. ~~The original operating~~Although the operational and financial milestones ~~established in the joint venture operating agreement~~ were not achieved, ~~in part, due to~~we contributed the ~~impacts~~full $22.5 million as of ~~the COVID-19 pandemic on WorkLLama’s business. We have continued to provide capital contributions to the joint venture due to our belief in the long-term value of the joint venture.~~March 31, 2022. We contributed ~~$7.0~~$0.5 million and ~~$4.0~~$9.0 million of capital during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020,~~2021, respectively. ~~Refer~~While we are not obligated to ~~Note F - “Other Assets, Net” for more details on WorkLLama.~~make additional future capital contributions, we may make additional contributions to WorkLLama in support of their strategic objectives.

Lease commitments

We lease office space and certain equipment under operating leases that expire between ~~2021~~2022 and 2033. The terms of the leases provide for rental payments on a graduated scale, options to renew the leases (one to five years), landlord incentives or allowances, and periods of free rent.

During the ~~three months~~year ended ~~September 30,~~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. The new lease has not yet commenced, but will require aggregate future lease payments of approximately $10.9 million over the entire lease term, which includes annual upward adjustments, and has a non-cancelable lease term of 129 months, excluding renewal options. The new lease also provides for the Company to receive an allowance, from the Landlord, of $1.6 million to be used toward costs to design, engineer, install, supply and to construct improvements that will become part of the building, all of which must be approved by the landlord and the Company. The landlord will designate a general contractor and oversee all construction improvements. The future lease payments and the allowance are not yet recorded on our condensed consolidated balance sheets. Lease payments will be required beginning July 1, 2023, however, we expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin at the start of the fourth quarter of 2022.

Note NL - Subsequent Events

~~Credit Facility~~

Revolving credit loans under the Credit Facility will bear interest at a rate equal to (a) the Base Rate (as described below) plus the Applicable Margin (as described below) or (b) the LIBOR Rate plus the Applicable Margin. Swingline loans under the Credit Facility will bear interest at a rate equal to the Base Rate plus the Applicable Margin. The Base Rate is the highest of: (i) the Wells Fargo Bank, National Association prime rate, (ii) the federal funds rate plus 0.50% or (iii) one-month LIBOR plus 1.00%, and the LIBOR Rate is reserve-adjusted LIBOR for the applicable interest period, but not less than zero. The Applicable Margin is based on the Firm’s total leverage ratio. The Applicable Margin for Base Rate loans ranges from 0.125% to 0.500% and the Applicable Margin for LIBOR Rate loans ranges from 1.125% to 1.50%. The Amendment included customary provisions relating to the transition from LIBOR as the benchmarkApril 29, 2022, Kforce’s forward-starting interest rate ~~under the Credit Agreement, including providing for~~swap agreement, Swap A, which had a ~~Benchmark Replacement option (as defined in the Credit Agreement) to replace LIBOR. The Firm will pay a quarterly non-refundable commitment fee equal to the~~

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Applicable Margin on the average daily unused portion of the Commitment (swingline loans do not constitute usage for this purpose). The Applicable Margin for the commitment fee is based on the Firm’s total leverage ratio and ranges between 0.20% and 0.30%.

The Firm will continually be subject to certain affirmative and negative covenants including (but not limited to), the maintenance of a fixed charge coverage ratio of no less than 1.25 to 1.00 and the maintenance of a total leverage ratio of no greater than 3.50 to 1.00. The numerator in the fixed charge coverage ratio is defined pursuant to the Credit Facility as earnings before interest expense, income taxes, depreciation and amortization, stock-based compensation expense and other permitted items pursuant to our Credit Facility (disclosed as “Consolidated EBITDA”), less cash paid for capital expenditures, income taxes and dividends. The denominator is defined as Kforce’s fixed charges such as interest expense and principal payments paid or payable on outstanding debt other than borrowings under the Credit Facility. The total leverage ratio is defined pursuant to the Credit Facility as total indebtedness divided by Consolidated EBITDA. Our ability to make distributions or repurchases of equity securities could be limited if an event of default has occurred. Furthermore, our ability to repurchase equity securities in excessnotional amount of $25.0 million ~~over the last four quarters could be limited if (a) the total leverage ratio is greater than 3.00~~matured. On May 1, 2022, Kforce’s Swap B, which had a notional amount of $75.0 million, increased by $25.0 million to ~~1.00~~$100.0 million. Refer to Note I - “Derivative Instruments and ~~(b) the Firm’s availability, inclusive~~Hedging Activity” for a complete discussion of ~~unrestricted cash, is less than $25.0 million.~~our interest rate swaps.

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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, 2021,~~March 31, 2022, 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, 2021,~~March 31, 2022, increased ~~12.1%~~13.0%, on a billing day basis, to ~~$1,169.6~~$417.0 million from ~~$1,043.7~~$363.2 million in the comparable period in ~~2020.~~2021. Revenue increased ~~18.5%~~26.7% for ~~Tech~~Technology and decreased ~~7.2%~~32.9% for ~~FA.~~FA, on a billing day basis primarily as a result of the planned decrease in the COVID-19 related business. There was a nominal amount of COVID-19 related business in the first quarter of 2022 and was $24m in the first quarter of 2021.

•Flex revenue, year-over-year, for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, increased ~~11.9%~~11.8% on a billing day basis, to ~~$1,134.4~~$401.9 million from ~~$1,019.2~~$353.8 million in the comparable period in ~~2020.~~2021. Flex revenue increased ~~18.7%~~26.0% and decreased ~~9.1%~~37.6%, on a billing day basis for ~~Tech~~Technology and FA, ~~respectively, on a year-over-year basis.~~

•~~Flex revenue in our Technology business increased 28.9% on a year-over-year basis in the three months ended September 30, 2021.~~

•Revenue from contracts we secured to support government-sponsored COVID-19 related initiatives (the “COVID-19 Business”) was $7.5 million and $51.1 million for the three months ended September 30, 2021 and 2020, respectively.

•Direct Hire revenue for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, increased ~~44.0%~~61.0% to ~~$35.2~~$15.1 million from ~~$24.4~~$9.4 million in the comparable period in ~~2020.~~2021.

•Gross profit margin for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, increased 50250 basis points to ~~28.8%.~~ 29.7%, compared to the same period in 2021 primarily as a result of a higher mix of Direct Hire business and improved Flex gross profit margins.

•Flex gross profit margin for the ~~nine~~three months ended ~~September 30, 2021 and 2020, was flat at 26.6%. Tech~~March 31, 2022, increased 190 basis points to 27.1%, compared to March 31, 2021. Technology Flex margins ~~decreased 10~~increased 150 basis points due primarily to ~~spread compression as a result of business mix.~~lower payroll taxes and lower healthcare costs. FA Flex gross profit margin increased ~~130 and 30~~400 basis points for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020,~~2021, primarily due to a decrease in the amount of lower margin COVID-19 related business, ~~in 2021.~~the repositioning of the business towards higher skilled areas (that also have higher average spreads), lower payroll taxes and lower healthcare costs.

•SG&A as a percentage of revenue for the ~~nine~~three months ended ~~September 30, 2021, decreased~~March 31, 2022, increased to ~~21.5%~~22.8% from ~~22.6%~~21.5% in the comparable period in ~~2020~~2021, primarily due to ~~leverage gained from~~higher performance-based compensation given the strength in our revenue growth ~~associate productivity~~and profitability improvements ~~lower spending in areas such as travel~~ and ~~lease expenses, a decline~~an increase in our credit expense ~~and~~resulting from a ~~gain on the sale of~~reduction in our ~~corporate headquarters.~~

•~~Other income and expense, net, for the nine months ended September 30, 2021, increased 56.0% to $5.8 million from $3.7 million~~reserves in the ~~comparable period in 2020, primarily due to the recognition~~first quarter of ~~unamortized losses related to the termination of the SERP on April 30,~~ 2021.

•Income from ~~continuing~~ operations for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, increased ~~44.7%~~44.6% to ~~$54.6~~$19.2 million, or ~~$2.57~~$0.93 per share, from ~~$37.8~~$13.3 million, or ~~$1.77~~$0.62 per share, in the comparable period in ~~2020.~~2021.

•The Firm returned ~~$59.3~~$16.2 million of capital to our shareholders in the form of open market repurchases totaling ~~$44.5~~$10.1 million and quarterly dividends totaling ~~$14.8~~$6.1 million during the ~~nine~~three months ending ~~September 30, 2021.~~March 31, 2022.

•Cash provided by operating activities was ~~$59.9~~$38.7 million during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, as compared to ~~$93.9~~$22.4 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

•Cash and cash equivalents, net of outstanding borrowings under our credit facility, was ~~$15.6~~$16.6 million as of ~~September 30, 2021.~~March 31, 2022.

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RESULTS OF OPERATIONS

Business Overview

Kforce ~~provides professional staffing services~~is a leading domestic provider of technology and finance and accounting talent solutions to ~~our clients on both a temporary (“Flex”)~~innovative and ~~permanent (“Direct Hire”) basis through our Tech~~industry-leading clients. Our Technology and FA businesses represent our two operating segments. Our corporate headquarters is in Tampa, Florida and we have field offices located throughout the United States (U.S.). As of ~~September 30, 2021,~~March 31, 2022, Kforce employed approximately 2,000 associates, including approximately 1,300 supporting the revenue-generating aspects of our business and approximately 700 supporting the revenue-enabling aspects. We also had approximately ~~11,000~~10,500 consultants on assignment providing flexible staffing services and solutions to our clients, the vast majority of which are also employees of ~~Kforce..~~Kforce. Kforce serves clients across many industries and geographies as well as organizations of all sizes, with a particular focus on Fortune 1000 and other large companies. We believe that our 100% domestic U.S. focus, concentration on technology ~~staffing and~~talent solutions (representing nearly ~~85%~~86% of overall revenues) and client portfolio comprised of world-class companies have been key contributors to our continued strong performance ~~in 2020 and 2021~~ and will be key drivers to our future success.

In December 2020 and early 2021, the U.S. Food and Drug Administration authorized the distribution and administration of certain COVID-19 vaccines in the U.S. While the level of vaccinations and potential variants of COVID-19 along with the potential impact of regulations surrounding the COVID-19 vaccines are difficult to predict and could negatively impact our business, growth in our business has meaningfully accelerated since the low point in June 2020. 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. In addition,, the penetration rate (the percentage of temporary staffing to total employment) remained stable at ~~1.8%~~2.09%, the new all-time high and the unemployment rate ~~decreased again to 4.8%~~reached 3.6% in ~~September 2021,~~March 2022, down from ~~5.9%~~3.9% in ~~June~~December 2021. As another indicator that the market is strengthening, in the latest U.S. staffing industry forecast published by SIA in September 2021, the domestic technology temporary staffing industry is estimated to grow 11% in 2021 (up from the previous expectation of 9%), and 6% (consistent with the previous expectation) in 2022.

We have delivered strong results, especially in our Technology business, with year-over-year growth of 29.6% significantly exceeding the market expectation per SIA. Sequentially, we were successful in effectively replacing the expected lower revenues from our COVID-19 Business (down $27.2 million sequentially) with higher-quality Technology revenue (up $26.5 million sequentially). While the business climate related to this economic and health crisis, along with related governmental legislation (including that which is aimed at stimulating the economy) is still extremely fluid,Further, we believe that the unemployment rate in the specialties we ~~are very well positioned~~serve, especially in certain technology skill sets, is significantly lower than the published averages. We believe this speaks to ~~continue capturing additional market share~~the overall secular drivers of demand in ~~our Technology business and delivering strong operating results to our shareholders.~~

~~The results of multiple employee surveys conducted over~~technology, the last eighteen months indicate that our associates have embraced the ingenuity required to work remotely and have been successful in settling into new, productive routines. We continue to make great progress in our “Kforce Reimagined” initiative that was initiated shortly after the onsetcritical nature of the ~~pandemic, which is~~technology initiatives being driven by our clients, and the challenges of finding an ~~effort to position Kforce to provide a more flexible hybrid work environment for our associates. We are referring to this new era~~adequate supply of Kforce’s work environment as “Office Occasional” whereby our people will have maximum flexibility and choice in designing their workdays that is rooted in trust and supported by integrated technology aligned with our evolved operating model. We will have a remote first approach but encourage our people to leverage physical office spaces, when desirable, for activities best done through in-person, active collaboration such as training, team building, client and candidate interactions. We announced in September that we signed a lease for our future corporate headquarters, which we anticipate occupying in the fourth quarter of 2022. This new space will be modern, open and technology enabled to provide a flexible environment for our people to work effectively, very similarly to how we approaching the design of our field offices.

During 2021, we engaged an independent third-party consulting firm to assist us in our assessment of our middle and back office capabilities. We believe that the culmination of these and other efforts, on which we have made significant progress, will provide a differentiated employee experience, in the case of our Kforce Reimagined effort, and significant contributions to improving productivity and profitability in both cases.qualified talent.

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Operating Results - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

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,
		2021		2020		2021		2020			2022		2021
Revenue by segment:	Revenue by segment:									Revenue by segment:
Tech		83.7	%	71.2	%	79.3	%	75.0	%
Technology										Technology	86.3	%	77.0	%
FA	FA	16.3		28.8		20.7		25.0		FA	13.7		23.0
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	96.6	%	97.6	%	97.0	%	97.7	%	Flex	96.4	%	97.4	%
Direct Hire	Direct Hire	3.4		2.4		3.0		2.3		Direct Hire	3.6		2.6
Total Revenue	Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%	Total Revenue	100.0	%	100.0	%
Gross profit	Gross profit	29.6	%	28.4	%	28.8	%	28.3	%	Gross profit	29.7	%	27.2	%
Selling, general and administrative expenses	Selling, general and administrative expenses	22.1	%	20.8	%	21.5	%	22.6	%	Selling, general and administrative expenses	22.8	%	21.5	%
Depreciation and amortization	Depreciation and amortization	0.3	%	0.4	%	0.3	%	0.4	%	Depreciation and amortization	0.3	%	0.3	%
Income from operations	Income from operations	7.3	%	7.3	%	7.0	%	5.4	%	Income from operations	6.7	%	5.4	%
Income from operations, before income taxes	Income from operations, before income taxes	6.9	%	7.1	%	6.5	%	5.0	%	Income from operations, before income taxes	6.3	%	5.0	%

Net income	Net income	5.0	%	5.1	%	4.7	%	3.6	%	Net income	4.6	%	3.7	%

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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,
		2021		Increase (Decrease)		2020		2021		Increase (Decrease)		2020				2022		Increase (Decrease)		2021
Tech
Technology														Technology
Flex revenue	Flex revenue	$	330,170	28.9	%	$	256,118	$	909,599	18.0	%	$	770,635	Flex revenue		$	351,716	28.0	%	$	274,784
Direct Hire revenue	Direct Hire revenue	7,060		70.8	%	4,133		17,919		47.5	%	12,150		Direct Hire revenue		8,189		71.5	%	4,776
Total Tech revenue		$	337,230	29.6	%	$	260,251	$	927,518	18.5	%	$	782,785
Total Technology revenue														Total Technology revenue		$	359,905	28.7	%	$	279,560
FA	FA													FA
Flex revenue	Flex revenue	$	59,003	(41.3)	%	$	100,569	$	224,783	(9.6)	%	$	248,578	Flex revenue		$	50,150	(36.6)	%	$	79,063
Direct Hire revenue	Direct Hire revenue	6,492		41.0	%	4,604		17,263		40.5	%	12,289		Direct Hire revenue		6,912		50.2	%	4,602
Total FA revenue	Total FA revenue	$	65,495	(37.7)	%	$	105,173	$	242,046	(7.2)	%	$	260,867	Total FA revenue		$	57,062	(31.8)	%	$	83,665

Total Flex revenue	Total Flex revenue	$	389,173	9.1	%	$	356,687	$	1,134,382	11.3	%	$	1,019,213	Total Flex revenue		$	401,866	13.6	%	$	353,847
Total Direct Hire revenue	Total Direct Hire revenue	13,552		55.1	%	8,737		35,182		44.0	%	24,439		Total Direct Hire revenue		15,101		61.0	%	9,378
Total Revenue	Total Revenue	$	402,725	10.2	%	$	365,424	$	1,169,564	12.1	%	$	1,043,652	Total Revenue		$	416,967	14.8	%	$	363,225

Our quarterly operating results are affected by the number of billing days in a quarter. The following table presents the year-over-year revenue growth rates, on a billing day basis, for the last five quarters:


		Year-Over-Year Revenue Growth Rates											Year-Over-Year Revenue Growth Rates
		(Per Billing Day)											(Per Billing Day)
		Q3 2021		Q2 2021		Q1 2021		Q4 2020		Q3 2020			Q1 2022		Q4 2021		Q3 2021		Q2 2021		Q1 2021
Billing Days	Billing Days	64		64		63		62		64		Billing Days	64		61		64		64		63
Technology	Technology	28.9	%	20.9	%	6.3	%	0.8	%	(4.2)	%	Technology	26.0	%	31.0	%	28.9	%	20.9	%	6.3	%
FA	FA	(41.3)	%	2.7	%	26.4	%	26.0	%	51.6	%	FA	(37.6)	%	(28.9)	%	(41.3)	%	2.7	%	26.4	%
Total Flex	Total Flex	9.1	%	16.3	%	10.2	%	5.9	%	6.9	%	Total Flex	11.8	%	16.6	%	9.1	%	16.3	%	10.2	%

Flex Revenue. The key drivers of Flex revenue are the number of consultants on assignment, billable hours, the bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce.

Flex revenue for ~~Tech~~Technology increased ~~28.9% and 18.7%~~26.0% on a billing day basis, during the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same period in 2020. Flex revenue in our Tech business improved 8.4% sequentially in the third quarter of 2021. The sequential and year-over-year growth that we experienced in our Technology business in the third quarter of 2021, which was driven ~~principally~~ by a ~~higher~~combination of significant growth in the number of consultants on assignment ~~which have improved consistently since June 2020 (the low point in the pandemic).~~and higher average bill rates. Given the inflationary pressures on wages and the scarcity and criticality of technology consultants, we experienced a meaningful acceleration in average bill rates, which increased 3.8% sequentially and 6.3% year-over-year to approximately $85 per hour. Notable is that we ~~are continuing to experience~~experienced this acceleration in ~~our Technology business, we expect our year-over-year~~average bill rates while maintaining stable Flex gross margin spreads. We believe that the growth ~~rate~~ in ~~the fourth quarter~~consultants on assignment continues to be ~~stable with third quarter levels off a more difficult year-over-year comparison.~~fueled by the strong secular drivers of demand, the strength of our client portfolio (primarily Fortune 1000 companies), our concentration in higher-end technology skills, and solid execution. We believe the secular drivers of demand in technology have only strengthened post-pandemic as companies continue to invest significantly in technology to improve their ~~consumer’s experience,~~consumer and employee experiences, gain cost efficiencies and stay relevant in an increasingly competitive environment. Assuming a stable demand and macro environment, we expect revenue growth in our Technology business in the second quarter to be in the mid 20% range on a year-over-year basis.

Our FA segment experienced a decrease in Flex revenue of ~~9.6%~~37.6% on a billing day basis, during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020,~~2021, primarily driven by ~~a decrease~~the anticipated fall off in our COVID-19 related business. Excluding this decline, FA Flex revenues declined slightly more than 10% in the ~~COVID-19 Business. FA Flex experienced a decrease to Flex revenue~~first quarter of ~~41.3% during the three months ended September 30, 2021 as~~2022 compared to the same period in ~~2020, as we experienced a sharp decline in the portion of business related to COVID-19,~~2021, which was ~~anticipated. As we move into~~driven by the ~~fourth quarter~~repositioning of 2021, we expect overall revenues in the FA business to decline on a year-over-year basis due primarily to the COVID-19 Business, which largely ended early in the third quarter of 2021. We continue to migrate our FA business towards more ~~highly-skilled roles that are less susceptible to technological change and automation; we~~high-skilled roles. We have seen ~~good progress~~indicators of success in this ~~transition.~~repositioning as our average bill rates improved approximately 8% sequentially and 31% year-over-year in our ongoing FA business. We expect our FA business to decline in the mid-single digits sequentially in the second quarter.

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30, 2021 vs. September 30, 2020				September 30, 2021 vs. September 30, 2020					March 31, 2022 vs. March 31, 2021
		Tech		FA		Tech		FA				Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)									Key Drivers - Increase (Decrease)
Volume - hours billed	Volume - hours billed	$	65,590	$	(51,695)	$	115,482	$	(30,581)	Volume - hours billed		$	55,488	$	(40,789)
Bill rate	Bill rate	7,665		10,134		22,967		6,981		Bill rate		20,816		11,852
Billable expenses	Billable expenses	797		(5)		515		(195)		Billable expenses		628		24
Total change in Flex revenue	Total change in Flex revenue	$	74,052	$	(41,566)	$	138,964	$	(23,795)	Total change in Flex revenue		$	76,932	$	(28,913)

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,
2021 Increase
(Decrease) 2020 2021 Increase
(Decrease) 2020
Tech 4,031 25.7 % 3,207 11,226 15.0 % 9,759
FA 1,515 (51.4) % 3,118 6,339 (12.3) % 7,229
Total Flex hours billed 5,546 (12.3) % 6,325 17,565 3.4 % 16,988

~~For the three and nine months ended September 30, 2021, FA Flex hours billed included 209 and 2,134 thousand hours, respectively, from the COVID-19 Business.~~


	Three Months Ended March 31,
		2022	Increase (Decrease)		2021
Technology		4,122	20.2	%	3,428
FA		1,150	(51.6)	%	2,376
Total Flex hours billed		5,272	(9.2)	%	5,804

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 ~~55.1% and 44.0%~~61.0% during the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020.~~2021. The increase during the ~~third~~first quarter was primarily driven by a significant increase in both the number of placements and fees, as the economic environment has improved and competition for talent has increased. ~~As we look to the fourth quarter, we expect Direct Hire revenues may seasonally decline sequentially.~~

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, 2021 vs. September 30, 2020 September 30, 2021 vs. September 30, 2020
Tech FA Tech FA
Key Drivers - Increase (Decrease)
Volume - number of placements $ 1,676 $ 1,236 $ 3,724 $ 3,141
Placement fee 1,251 652 2,045 1,833
Total change in Direct Hire revenue $ 2,927 $ 1,888 $ 5,769 $ 4,974

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	Three Months Ended
	March 31, 2022 vs. March 31, 2021
		Technology		FA
Key Drivers - Increase (Decrease)
Volume - number of placements		$	2,818	$	2,107
Placement fee		595		203
Total change in Direct Hire revenue		$	3,413	$	2,310

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,					Three Months Ended March 31,
		2021	Increase (Decrease)		2020	2021	Increase (Decrease)		2020			2022	Increase (Decrease)		2021
Tech		290	40.8	%	206	831	30.7	%	636
Technology										Technology		388	59.0	%	244
FA	FA	401	26.9	%	316	1,094	25.6	%	871	FA		429	45.9	%	294
Total number of placements	Total number of placements	691	32.4	%	522	1,925	27.7	%	1,507	Total number of placements		817	51.9	%	538

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,							Three Months Ended March 31,
		2021		Increase (Decrease)		2020		2021		Increase (Decrease)		2020				2022		Increase (Decrease)		2021
Tech		$	24,360	21.5	%	$	20,045	$	21,576	12.9	%	$	19,114
Technology														Technology		$	21,090	7.8	%	$	19,559
FA	FA	16,181		11.2	%	14,557		$	15,780	11.9	%	$	14,104	FA		$	16,116	3.0	%	$	15,643
Total average placement fee	Total average placement fee	$	19,611	17.3	%	$	16,722	$	18,282	12.7	%	$	16,217	Total average placement fee		$	18,479	6.1	%	$	17,419

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Gross Profit. Gross profit is calculated by deducting direct costs (primarily consultant compensation, payroll taxes, payroll-related insurance and certain fringe benefits, as well as ~~independent contractor~~third party compliance costs) from total revenue. There are no consultant payroll costs associated with Direct Hire placements, ~~thus~~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,
		2021		Increase (Decrease)		2020		2021		Increase (Decrease)		2020				2022		Increase (Decrease)		2021
Tech		28.4	%	2.5	%	27.7	%	27.9	%	0.7	%	27.7	%
Technology														Technology		28.5	%	7.1	%	26.6	%
FA	FA	35.6	%	17.5	%	30.3	%	32.4	%	6.9	%	30.3	%	FA		37.6	%	28.8	%	29.2	%
Total gross profit percentage	Total gross profit percentage	29.6	%	4.2	%	28.4	%	28.8	%	1.8	%	28.3	%	Total gross profit percentage		29.7	%	9.2	%	27.2	%

The total gross profit percentage for the three months ended ~~September 30, 2021,~~March 31, 2022, increased ~~120~~250 basis points as compared to the same period in ~~2020~~2021, primarily as a result of an increased mix of Direct Hire revenues and Flex margin increases resulting from higher bill pay spreads. The total gross profit percentage for the nine months ended September 30, 2021, as compared to the same period in 2020, increased 50 basis points due primarily to an increased mix of Direct Hire revenues.increases.

Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful ~~insight~~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,
		2021		Increase (Decrease)		2020		2021		Increase (Decrease)		2020				2022		Increase (Decrease)		2021
Tech		26.9	%	1.5	%	26.5	%	26.4	%	(0.4)	%	26.5	%
Technology														Technology		26.8	%	5.9	%	25.3	%
FA	FA	28.5	%	4.8	%	27.2	%	27.2	%	1.1	%	26.9	%	FA		29.0	%	16.0	%	25.0	%
Total Flex gross profit percentage	Total Flex gross profit percentage	27.2	%	1.9	%	26.7	%	26.6	%	—	%	26.6	%	Total Flex gross profit percentage		27.1	%	7.5	%	25.2	%

Overall, our Flex gross profit percentage increased 50190 basis points for the three months ended ~~September 30, 2021 and was flat for the nine months ended September 30, 2021,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020.~~2021. The notable ~~fluctuations~~changes within our segments were as follows:.

•Flex margins in our ~~Tech~~Technology business increased 40150 basis points for the three months ended ~~September 30, 2021 and decreased 10 basis points for the nine months ended September 30, 2021, respectively,~~March 31, 2022 as compared to the same ~~periods~~period in ~~2020.~~2021. The increase ~~for the three month period~~ was primarily due to ~~spread improvement~~lower payroll taxes and ~~lower~~ healthcare ~~costs.~~costs while our bill pay spreads were stable year-over-year.

•FA Flex gross profit margin increased ~~130 and 30~~400 basis points for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020.~~2021. The ~~increases~~increase for ~~each~~the period ~~were~~was primarily due to a

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lower mix of lower margin COVID-19 ~~Business and~~related business, spread improvements due to the strategic repositioning of this business ininto higher skilled ~~areas.~~areas, lower payroll taxes and lower healthcare costs.

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, 2021 vs. September 30, 2020				September 30, 2021 vs. September 30, 2020					March 31, 2022 vs. March 31, 2021
		Tech		FA		Tech		FA				Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)									Key Drivers - Increase (Decrease)
Revenue impact	Revenue impact	$	19,612	$	(11,289)	$	36,869	$	(6,401)	Revenue impact		$	19,459	$	(7,241)
Profitability impact	Profitability impact	1,435		813		(795)		698		Profitability impact		5,298		1,965
Total change in Flex gross profit	Total change in Flex gross profit	$	21,047	$	(10,476)	$	36,074	$	(5,703)	Total change in Flex gross profit		$	24,757	$	(5,276)

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented ~~84.9% and 86.0%~~84.4% for the three ~~and nine~~ months ended ~~September 30, 2021, respectively, as~~March 31, 2022, compared to ~~83.3% and 82.1%~~85.7% for the comparable ~~periods~~period in ~~2020.~~2021. 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.

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


		2021		% of Revenue		2020		% of Revenue			2022		% of Revenue		2021		% 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	$	75,537	18.8	%	$	63,162	17.3	%	Compensation, commissions, payroll taxes and benefits costs	$	80,224	19.2	%	$	66,874	18.4	%
Other (1)	Other (1)	13,435		3.3	%	12,690		3.5	%	Other (1)	14,825		3.6	%	11,155		3.1	%
Total SG&A	Total SG&A	$	88,972	22.1	%	$	75,852	20.8	%	Total SG&A	$	95,049	22.8	%	$	78,029	21.5	%
Nine Months Ended September 30,
Compensation, commissions, payroll taxes and benefits costs		$	216,324	18.5	%	$	193,534	18.5	%
Other (1)		35,293		3.0	%	42,080		4.1	%
Total SG&A		$	251,617	21.5	%	$	235,614	22.6	%

(1) Includes credit expense, lease expense, professional fees, travel, telephone, computer, and certain other ~~expenses, which includes a gain on the sale of the corporate headquarters facility during the nine months ended September 30, 2021.~~expenses.

SG&A as a percentage of revenue increased 130 basis points for the three months ended ~~September 30, 2021 and decreased 110 basis points for the nine months ended September 30, 2021, respectively, as~~March 31, 2022, compared to the same ~~periods~~period in ~~2020.~~2021. The increase for the three month period ended ~~September 30, 2021,~~March 31, 2022, was primarily related to higher performance-based compensation given the strength in our revenue ~~growth. The decrease for the nine months ended September 30, 2021 is primarily related to the recognition of a $2.0 million gain from the sale of~~growth and profitability improvements and an increase in our ~~corporate headquarters, declines in~~ credit expense ~~due to larger~~driven by a reduction in our accounts receivable reserves in the ~~first quarter of 2020 at the onset of the pandemic given inherent risk, leverage from our revenue growth, and continued improvements in associate productivity.~~prior year.

The Firm continues to focus on generating increased operating leverage through ~~continued~~ solid revenue growth, improved productivity of our associates, structural reductions in operating costs and continuing to exercise solid expense discipline.

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,
		2021		Increase (Decrease)		2020		2021		Increase (Decrease)		2020				2022		Increase (Decrease)		2021
Fixed asset depreciation (includes finance leases)	Fixed asset depreciation (includes finance leases)	$	609	(36.4)	%	$	957	$	2,164	(33.7)	%	$	3,265	Fixed asset depreciation (includes finance leases)		$	677	(16.4)	%	$	810
Capitalized software amortization	Capitalized software amortization	417		18.8	%	351		1,256		53.9	%	816		Capitalized software amortization		416		6.1	%	392
Total Depreciation and amortization	Total Depreciation and amortization	$	1,026	(21.6)	%	$	1,308	$	3,420	(16.2)	%	$	4,081	Total Depreciation and amortization		$	1,093	(9.1)	%	$	1,202

Other Expense, Net. Other expense, net for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, was $1.4 million and ~~$5.8 million, respectively. Other expense, net for the three and nine months ended September 30, 2020 was $0.9 million and $3.7~~$1.3 million, respectively. Other expense, net 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.

During the ~~nine~~three months ended September 30, 2021, Other expense, net also includes an expense of $1.8 million related to the termination of our SERP. Refer to Note I - “Employee Benefit Plans” in the Unaudited Condensed Consolidated Financial Statements, included in this report on Form 10-Q, for a complete discussion of the termination of our SERP.

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~~During the three~~March 31, 2022 and ~~nine months ended September 30,~~ 2021, Other expense, net also includes our proportionate share of the loss from WorkLLama, our equity method investment, of ~~$0.7~~$0.8 million and ~~$1.7 million.~~$0.5 million, respectively.

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, 2022 and 2021 was 27.1% and ~~2020 was 28.1% and 27.8%~~27.0%, 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.

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


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	59,943	$	93,871	Net cash provided by operating activities	$	38,742	$	22,426
Capital expenditures	Capital expenditures	(5,026)		(5,296)		Capital expenditures	(2,221)		(1,350)
Free cash flow	Free cash flow	54,917		88,575		Free cash flow	36,521		21,076
Change in debt		—		35,000

Repurchases of common stock	Repurchases of common stock	(44,407)		(29,623)		Repurchases of common stock	(10,270)		(16,313)
Cash dividends	Cash dividends	(14,836)		(12,619)		Cash dividends	(6,094)		(4,786)
Equity method investment		(7,000)		(2,500)
Net proceeds from the sale of assets		23,742		—
Contributions to equity method investment						Contributions to equity method investment	(500)		(2,000)

Other	Other	(271)		2,609		Other	(19)		(122)
Change in cash and cash equivalents	Change in cash and cash equivalents	$	12,145	$	81,442	Change in cash and cash equivalents	$	19,638	$	(2,145)

Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income tax expense and loss from equity method investment. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our past and future financial performance, and this presentation should not be construed as an inference by us that our future results will be unaffected by those items excluded from Adjusted EBITDA. Adjusted EBITDA is a key measure used by management to assess our operations including our ability to generate cash flows and our ability to repay our debt obligations and management believes it provides a good metric of our core profitability in comparing our performance to our competitors, as well as our performance over different time periods. Consequently, management believes it is useful information to investors. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is thus susceptible to varying calculations. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

In addition, although we excluded amortization of stock-based compensation expense because it is a non-cash expense, we expect to continue to incur stock-based compensation in the future and the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our shareholder ownership interest. We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position.

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


		2021		2020			2022		2021
Three Months Ended September 30,
Three Months Ended March 31,						Three Months Ended March 31,
Net income	Net income	$	20,168	$	18,763	Net income	$	19,181	$	13,261
Depreciation and amortization	Depreciation and amortization	1,026		1,308		Depreciation and amortization	1,093		1,202

Stock-based compensation expense	Stock-based compensation expense	3,512		2,908		Stock-based compensation expense	4,437		3,403
Interest expense, net	Interest expense, net	750		849		Interest expense, net	608		797
Income tax expense	Income tax expense	7,650		7,017		Income tax expense	7,130		4,905

Loss from equity method investment	Loss from equity method investment	687		103		Loss from equity method investment	825		491
Adjusted EBITDA	Adjusted EBITDA	$	33,793	$	30,948	Adjusted EBITDA	$	33,274	$	24,059

Nine Months Ended September 30,
Net income		$	54,617	$	37,754
Depreciation and amortization		3,420		4,081
Gain on sale of corporate headquarters		(2,051)		—
Stock-based compensation expense		10,447		8,707
Interest expense, net		2,312		2,533
Income tax expense		21,378		14,568
SERP termination expense		1,821		—
Loss from equity method investment		1,709		1,237
Adjusted EBITDA		$	93,653	$	68,880

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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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had ~~$115.6~~$116.6 million and ~~$103.5~~$97.0 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds. At both ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had $100.0 million outstanding under our credit facility, and ~~$198.7~~$98.6 million available under our credit facility. The amounts outstanding under our credit facility were hedged by interest rate swaps, as discussed below. ~~In addition, on~~

Effective April ~~19,~~30, 2021, ~~we completed~~Kforce’s Board of Directors irrevocably terminated the ~~sale~~Supplemental Executive Retirement Plan (the “SERP”). The benefits owed to the two participants under the SERP as of ~~our corporate headquarters~~March 31, 2022, amount to ~~an independent third party. We received net proceeds~~$20.0 million in the aggregate, which represented the fair value at the date of ~~$23.7 million~~termination, and is recorded ~~a gain on the sale~~in Note F - Current Liabilities of ~~$2.0 million, which is~~Notes to Unaudited Condensed Consolidated Financial Statements, included in ~~SG&A expenses. In conjunction with the sale, we entered into an agreement to lease back the building for a period~~Item 1. Financial Statements of ~~18 months.~~

In September 2021, Kforce entered into a lease agreement (the “Lease Agreement”) for our new corporate headquarters in Tampa, Florida. The lease term is 129 months, the lease commencement date is October 1, 2022 and the rent commencement date is nine (9) months following the lease commencement date. The minimum base rent over the lease term is $10.9 million, which includes annual escalations. The Lease Agreement also provides for the Company to receive an allowance, from the Landlord, of approximately $1.6 million to be used towards costs to design, engineer, install, supply and to construct improvements that will become part of the building. The future lease payments and the allowance are not yet recorded on our condensed consolidated balance sheets.this report.

Cash Flows

We are principally focused on ~~achieving an appropriate balance of cash flow across several areas of opportunity such as:~~ generating positive cash flow from operating ~~activities;~~activities, investing in our ~~infrastructure~~business to ~~allow sustainable~~sustain our growth ~~via capital expenditures;~~and meet our profitability objectives, returning capital to our shareholders through our quarterly dividends and common stock repurchase ~~program; maintaining appropriate leverage under our credit facility;~~program, and selectively pursuing acquisition ~~opportunities; and maintaining sufficient liquidity for operations.~~opportunities.

Cash provided by operating activities was ~~$59.9~~$38.7 million during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, as compared to ~~$93.9~~$22.4 million provided during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. 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. The ~~decrease~~year-over-year increase was primarily driven by ~~growth in our accounts receivable portfolio and the payment of payroll taxes deferred in 2020 related to the CARES ACT, offset in part by~~ profitable revenue ~~growth.~~growth and better management of working capital.

Cash ~~provided by investing activities during the nine months ended September 30, 2021 was $11.7 million and cash~~ used in investing activities during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2022 and March 31, 2021 was ~~$4.2 million. Cash provided by investing activities during the nine months ended September 30, 2021 includes $23.7~~$2.7 million ~~in net proceeds from the sale~~and $3.4 million, respectively, and primarily consisted of ~~our corporate headquarters, offset by~~ cash used for capital expenditures and ~~payments for capital invested in~~contributions to WorkLLama. We expect to continue ~~selectively~~ investing in our infrastructure, primarily focusing on implementing new and upgrading existing technologies that will provide the most benefit.

Cash used in financing activities was ~~$59.5~~$16.4 million during the ~~nine~~three months ended ~~September 30, 2021, as~~March 31, 2022, compared to ~~$8.2~~$21.2 million used during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The change was primarily driven by ~~the $35.0 million draw down on our credit facility during the nine months ended September 30, 2020 and an increase~~a decrease in the repurchases of common stock during the ~~nine~~three month period of ~~2021~~2022 compared to ~~2020.~~2021, offset in part by an increase in 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,
		2021		2020			2022		2021
Open market repurchases	Open market repurchases	$	43,973	$	29,386	Open market repurchases	$	10,088	$	16,190
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	434		237		Repurchase of shares related to tax withholding requirements for vesting of restricted stock	182		123
Total cash flow impact of common stock repurchases	Total cash flow impact of common stock repurchases	$	44,407	$	29,623	Total cash flow impact of common stock repurchases	$	10,270	$	16,313

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ Kforce declared and paid quarterly dividends of ~~$14.8~~$6.1 million ($~~0.72~~0.30 per share) and ~~$12.6~~$4.8 million ($~~0.60~~0.23 per share), respectively, which represents a ~~20%~~30% increase in the per share payment. ~~The declaration, payment~~While the Board has declared and ~~amount~~paid a quarterly dividend since initiation in the fourth quarter of 2013, and intends to in the foreseeable future, dividends ~~are discretionary and~~ will be subject to determination by our Board each quarter following its review of, among other things, the Firm’s current and expected financial performance as well as the ability to pay dividends under applicable law.

We believe that existing cash and cash equivalents, cash flow from operations and available borrowings under our credit facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months. However, a material deterioration in the economic environment or market conditions, among other things, could 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.

Credit Facility

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On May 25, 2017, the Firm entered into a 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, Regions Bank and BMO Harris Bank, N.A., as co-documentation agents, and the lenders referred to therein (the “Credit Facility”). The maturity date of the Credit Facility is May 25, 2022. ~~Borrowings under the Credit Facility are secured by substantially all of the tangible and intangible assets of the Firm,~~ excluding the Firm’s corporate headquarters (which was sold in the second quarter of 2021) and certain other designated collateral. Accordingly, as of September 30, 2021, $100.0 million was outstanding and is classified as a long-term liability within our balance sheet. In addition, as of September 30, 2021, $198.7 million was available on our Credit Facility, subject to certain covenants, and as of December 31, 2020, $100.0 million was outstanding. As of September 30, 2021, we are in compliance with our credit facility covenants as described in the 2020 Annual Report on Form 10-K and currently expect that we will be able to maintain compliance with these covenants.

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 ~~“the Amended~~“Amended and Restated Credit Facility”). Under the Amended and Restated Credit Facility, the Firm ~~will have~~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, ~~2025. Refer~~2026. As of March 31, 2022, $100.0 million was outstanding and $98.6 million, subject to ~~Note N - “ Subsequent Events”~~certain covenants, was available. As of March 31, 2022, we are in compliance with our credit facility covenants as described in the ~~Unaudited Condensed Consolidated Financial Statements, included in this report~~2021 Annual Report on Form ~~10-Q, for a more complete discussion of the new credit agreement.~~10-K and currently expect that we will be able to maintain compliance with these covenants.

Kforce has two forward-starting interest rate swap agreements, which have been designated as cash flow hedges, to mitigate the risk of rising interest rates. Refer to Note KIJ - “Derivative Instruments 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

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rate swaps. At ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair value of our interest rate swaps were ~~a liability~~assets of ~~$0.3~~$3.9 million and ~~$1.8~~$0.8 million, respectively.

Stock Repurchases

In ~~March 2020,~~February 2022, the Board approved an increase in our stock repurchase authorization, ~~to an aggregate~~bringing the total ofauthorization to $100.0 million. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, Kforce repurchased approximately ~~0.8 million~~144,000 shares of common stock on the open market at a total cost of approximately ~~$44.5~~$10.1 million and ~~$40.0~~$98.8 million remained available for further repurchases under the Board-authorized common stock repurchase program at ~~September 30, 2021.~~March 31, 2022.

Contractual Obligations and Commitments

Other than the changes described elsewhere in this Quarterly Report, there have been no material changes during the period covered by this report on Form 10-Q to our contractual obligations previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our ~~2020~~2021 Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. 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.

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 ~~2020~~2021 Annual Report on Form 10-K for a more detailed discussion of our significant accounting policies and critical accounting estimates.

~~NEW~~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.~~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, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2021,~~March 31, 2022, 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

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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.

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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 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 MK - "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 ~~2020~~2021 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, 2021:~~March 31, 2022:
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, 2021 to July 31, 2021 94,958 $ 61.43 94,958 $ 49,115,641
August 1, 2021 to August 31, 2021 57,656 $ 58.65 56,514 $ 45,803,109
September 1, 2021 to September 30, 2021 96,204 $ 60.14 96,204 $ 40,017,182
Total 248,818 $ 60.29 247,676 $ 40,017,182


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
January 1, 2022 to January 31, 2022	91,594	$	70.45	91,594	$	23,641,727
February 1, 2022 to February 28, 2022	55,073	$	69.32	52,571	$	98,787,598
March 1, 2022 to March 31, 2022	—	$	—	—	$	98,787,598
Total	146,667	$	70.02	144,165	$	98,787,598

(1) Includes ~~1,142~~2,502 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period ~~August~~February 1, ~~2021~~2022 to ~~August 31, 2021.~~February 28, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

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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.
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, 2021,~~March 31, 2022, 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 3, 2021~~May 4, 2022

By:

/s/ DAVID M. KELLY

David M. Kelly

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

Date:

~~November 3, 2021~~May 4, 2022

By:

/s/ JEFFREY B. HACKMAN

Jeffrey B. Hackman

Senior Vice President, Finance and Accounting

(Principal Accounting Officer)

3328


PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2016
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	3025
Item 4.	Controls and Procedures.	3025
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	3126
Item 1A.	Risk Factors.	3126
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	3126
Item 3.	Defaults Upon Senior Securities.	3126
Item 4.	Mine Safety Disclosures.	3126
Item 5.	Other Information.	3226
Item 6.	Exhibits.	3227
SIGNATURES		3328