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 ~~March 31,~~June 30, 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 ~~April~~July 29, 2022 was ~~21,384,450.~~21,176,046.

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, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II, Item 1A, Risk Factors and the documents we incorporate into this report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to: expectations of financial or operational performance; developments within 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, the impact of our joint venture's inability to achieve its financial objectives or changes in valuation assumptions, 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 beliefs regarding the expected future benefits of our flexible working environment; the impact of the COVID-19 pandemic, inflationary pressures, rising interest rates and/or supply constraints on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations; 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,” “in our view,” “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 March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenue	Revenue	$	416,967	$	363,225		Revenue	$	436,516	$	403,614	$	853,483	$	766,839
Direct costs	Direct costs	293,081		264,543			Direct costs	305,444		284,683		598,525		549,226
Gross profit	Gross profit	123,886		98,682			Gross profit	131,072		118,931		254,958		217,613
Selling, general and administrative expenses	Selling, general and administrative expenses	95,049		78,029			Selling, general and administrative expenses	96,147		84,616		191,196		162,645
Depreciation and amortization	Depreciation and amortization	1,093		1,202			Depreciation and amortization	1,076		1,192		2,169		2,394
Income from operations	Income from operations	27,744		19,451			Income from operations	33,849		33,123		61,593		52,574
Other expense, net		1,433		1,285
Other (income) expense, net							Other (income) expense, net	(2,672)		3,112		(1,239)		4,397
Income from operations, before income taxes	Income from operations, before income taxes	26,311		18,166			Income from operations, before income taxes	36,521		30,011		62,832		48,177
Income tax expense	Income tax expense	7,130		4,905			Income tax expense	9,605		8,823		16,735		13,728

Net income	Net income	19,181		13,261			Net income	26,916		21,188		46,097		34,449
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:						Other comprehensive income, net of tax:
Defined benefit pension plans	Defined benefit pension plans	—		47			Defined benefit pension plans	—		3,056		—		3,103
Change in fair value of interest rate swaps	Change in fair value of interest rate swaps	2,302		939			Change in fair value of interest rate swaps	(2,917)		10		(615)		949
Comprehensive income	Comprehensive income	$	21,483	$	14,247		Comprehensive income	$	23,999	$	24,254	$	45,482	$	38,501

Earnings per share – basic	Earnings per share – basic	$	0.94	$	0.63		Earnings per share – basic	$	1.33	$	1.02	$	2.27	$	1.66

Earnings per share – diluted	Earnings per share – diluted	$	0.93	$	0.62		Earnings per share – diluted	$	1.30	$	1.00	$	2.22	$	1.61

Weighted average shares outstanding – basic	Weighted average shares outstanding – basic	20,319		20,932			Weighted average shares outstanding – basic	20,283		20,673		20,300		20,802
Weighted average shares outstanding – diluted	Weighted average shares outstanding – diluted	20,730		21,361			Weighted average shares outstanding – diluted	20,718		21,282		20,725		21,331

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)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	116,627	$	96,989	Cash and cash equivalents	$	29,974	$	96,989
Trade receivables, net of allowances of $2,520 and $2,342, respectively		278,064		265,322
Trade receivables, net of allowances of $1,931 and $2,342, respectively						Trade receivables, net of allowances of $1,931 and $2,342, respectively	285,355		265,322
Income tax refund receivable	Income tax refund receivable	3,243		3,010		Income tax refund receivable	372		3,010
Prepaid expenses and other current assets	Prepaid expenses and other current assets	7,520		6,790		Prepaid expenses and other current assets	10,592		6,790
Total current assets	Total current assets	405,454		372,111		Total current assets	326,293		372,111
Fixed assets, net	Fixed assets, net	6,586		5,964		Fixed assets, net	6,566		5,964
Other assets, net	Other assets, net	92,414		92,629		Other assets, net	82,687		92,629
Deferred tax assets, net	Deferred tax assets, net	—		7,657		Deferred tax assets, net	1,466		7,657
Goodwill	Goodwill	25,040		25,040		Goodwill	25,040		25,040
Total assets	Total assets	$	529,494	$	503,401	Total assets	$	442,052	$	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	$	90,328	$	81,408	Accounts payable and other accrued liabilities	$	94,616	$	81,408
Accrued payroll costs	Accrued payroll costs	86,629		71,424		Accrued payroll costs	88,454		71,424
Current portion of operating lease liabilities	Current portion of operating lease liabilities	5,447		6,338		Current portion of operating lease liabilities	4,897		6,338
Income taxes payable	Income taxes payable	757		1,239		Income taxes payable	1,520		1,239
Other current liabilities	Other current liabilities	37		22		Other current liabilities	29		22

Total current liabilities	Total current liabilities	183,198		160,431		Total current liabilities	189,516		160,431
Long-term debt – credit facility	Long-term debt – credit facility	100,000		100,000		Long-term debt – credit facility	—		100,000
Deferred tax liability, net		665		—

Other long-term liabilities	Other long-term liabilities	47,426		54,564		Other long-term liabilities	42,003		54,564
Total liabilities	Total liabilities	331,289		314,995		Total liabilities	231,519		314,995
Commitments and contingencies (Note K)		0		0
Commitments and contingencies (Note L)						Commitments and contingencies (Note L)	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, 72,996 and 72,997 issued, respectively		730		730
Common stock, $0.01 par; 250,000 shares authorized, 73,007 and 72,997 issued, respectively						Common stock, $0.01 par; 250,000 shares authorized, 73,007 and 72,997 issued, respectively	730		730
Additional paid-in capital	Additional paid-in capital	492,985		488,036		Additional paid-in capital	497,927		488,036
Accumulated other comprehensive income	Accumulated other comprehensive income	2,923		621		Accumulated other comprehensive income	6		621
Retained earnings	Retained earnings	455,365		442,596		Retained earnings	475,890		442,596
Treasury stock, at cost; 51,636 and 51,493 shares, respectively		(753,798)		(743,577)
Treasury stock, at cost; 51,794 and 51,493 shares, respectively						Treasury stock, at cost; 51,794 and 51,493 shares, respectively	(764,020)		(743,577)
Total stockholders’ equity	Total stockholders’ equity	198,205		188,406		Total stockholders’ equity	210,533		188,406
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	529,494	$	503,401	Total liabilities and stockholders’ equity	$	442,052	$	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								Treasury Stock							Total Stockholders’ Equity			Common Stock							Additional Paid-In Capital			Accumulated Other Comprehensive Income				Treasury Stock				Total Stockholders’ Equity
		Shares	Amount								Retained Earnings				Shares			Amount					Shares					Amount								Retained Earnings			Shares		Amount
Balance, December 31, 2021	Balance, December 31, 2021	72,997	$	730			$	488,036			$	621			$	442,596		51,492			$	(743,577)					$	188,406	Balance, December 31, 2021	72,997			$		730		$	488,036	$	621	$	442,596	51,492		$	(743,577)	$	188,406
Net income	Net income	—	—		—				—				19,181				—		—					19,181		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	(1)	—		319				—				(318)				—		—					1		Issuance for stock-based compensation and dividends, net of forfeitures	(1)				—			319			—		(318)		—		—		1
Stock-based compensation expense	Stock-based compensation expense	—	—		4,437				—				—				—		—					4,437		Stock-based compensation expense	—				—			4,437			—		—		—		—		4,437
Employee stock purchase plan	Employee stock purchase plan	—	—		193				—				—				(3)		49					242		Employee stock purchase plan	—				—			193			—		—		(3)		49		242
Dividends ($0.30 per share)	Dividends ($0.30 per share)	—	—		—				—				(6,094)				—		—					(6,094)		Dividends ($0.30 per share)	—				—			—			—		(6,094)		—		—		(6,094)
Defined benefit pension plan, no tax benefit		—	—		—				0				—				—		—					—

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		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	—	—		—				—				—				147		(10,270)					(10,270)		Repurchases of common stock	—				—			—			—		—		147		(10,270)		(10,270)
Balance, March 31, 2022	Balance, March 31, 2022	72,996	$	730	$	492,985			$	2,923			$	455,365			51,636		$	(753,798)				$	198,205	Balance, March 31, 2022	72,996				$	730		$	492,985		$	2,923	$	455,365	51,636		$	(753,798)	$	198,205
Net income																										Net income	—				—			—			—		26,916		—		—		26,916
Issuance for stock-based compensation and dividends, net of forfeitures																										Issuance for stock-based compensation and dividends, net of forfeitures	11							298			—		(298)		—		—		—
Stock-based compensation expense																										Stock-based compensation expense	—				—			4,410			—		—		—		—		4,410
Employee stock purchase plan																										Employee stock purchase plan	—				—			234			—		—		(4)		61		295
Dividends ($0.30 per share)																										Dividends ($0.30 per share)	—				—			—			—		(6,093)		—		—		(6,093)

Change in fair value of interest rate swaps, net of tax expense of $989																										Change in fair value of interest rate swaps, net of tax expense of $989	—				—			—			(2,917)		—		—		—		(2,917)
Repurchases of common stock																										Repurchases of common stock	—				—			—			—		—		162		(10,283)		(10,283)
Balance, June 30, 2022																										Balance, June 30, 2022	73,007				730			497,927			6		475,890		51,794		(764,020)		210,533

Common Stock Additional Paid-In Capital Accumulated Other
Comprehensive (Loss) Income Treasury Stock Total Stockholders’ Equity
Shares Amount Retained Earnings Shares Amount
Balance, December 31, 2020 72,600 $ 726 $ 472,378 $ (4,423) $ 388,645 50,427 $ (677,391) $ 179,935
Net income — — — — 13,261 — — 13,261
Issuance for stock-based compensation and dividends, net of forfeitures 15 — 271 — (271) — — —
Stock-based compensation expense — — 3,403 — — — — 3,403
Employee stock purchase plan — — 113 — — (4) 57 170
Dividends ($0.23 per share) — — — — (4,786) — — (4,786)
Defined benefit pension plan, no tax benefit 47 47
Change in fair value of interest rate swap, net of tax benefit of 319 — — — 939 — — — 939
Repurchases of common stock — — — — — 317 (16,313) (16,313)
Balance, March 31, 2021 72,615 $ 726 $ 476,165 $ (3,437) $ 396,849 50,740 $ (693,647) $ 176,656

Table of Contents


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

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)


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	19,181	$	13,261	Net income	$	46,097	$	34,449
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	8,321		931		Deferred income tax provision, net	6,191		899
Provision for credit losses	Provision for credit losses	172		(852)		Provision for credit losses	(172)		(181)
Depreciation and amortization	Depreciation and amortization	1,093		1,202		Depreciation and amortization	2,169		2,394
Stock-based compensation expense	Stock-based compensation expense	4,437		3,403		Stock-based compensation expense	8,848		6,936
Defined benefit pension plan expense	Defined benefit pension plan expense	—		252		Defined benefit pension plan expense	—		2,157

Loss on disposal or impairment of assets		168		—
Loss (Gain) on disposal or impairment of assets						Loss (Gain) on disposal or impairment of assets	170		(1,987)
Noncash lease expense	Noncash lease expense	1,502		1,114		Noncash lease expense	2,950		2,443

Loss on equity method investment	Loss on equity method investment	825		491		Loss on equity method investment	1,840		1,022
Other	Other	190		242		Other	361		445
Increase in operating assets	Increase in operating assets					Increase in operating assets
Trade receivables, net	Trade receivables, net	(12,914)		(15,001)		Trade receivables, net	(19,862)		(38,365)
Other assets	Other assets	(2,577)		(324)		Other assets	(3,637)		(4,890)
Increase in operating liabilities	Increase in operating liabilities					Increase in operating liabilities
Accrued payroll costs	Accrued payroll costs	15,447		12,203		Accrued payroll costs	17,566		17,002
Other liabilities	Other liabilities	2,897		5,504		Other liabilities	8,239		14,250
Cash provided by operating activities	Cash provided by operating activities	38,742		22,426		Cash provided by operating activities	70,760		36,574
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(2,221)		(1,350)		Capital expenditures	(3,458)		(2,919)
Contributions to equity method investment		(500)		(2,000)
Contributions to WorkLLama, joint venture						Contributions to WorkLLama, joint venture	(500)		(4,500)

Cash used in investing activities		(2,721)		(3,350)
Note receivable issued to WorkLLama, joint venture						Note receivable issued to WorkLLama, joint venture	(2,000)		—
Net proceeds from the sale of assets						Net proceeds from the sale of assets	—		23,742
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(5,958)		16,323
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payments on credit facility						Payments on credit facility	(100,000)		—

Repurchases of common stock	Repurchases of common stock	(10,270)		(16,313)		Repurchases of common stock	(19,600)		(29,371)
Cash dividends	Cash dividends	(6,094)		(4,786)		Cash dividends	(12,187)		(9,532)
Payments on other financing arrangements	Payments on other financing arrangements	(19)		(122)		Payments on other financing arrangements	(30)		(201)

Cash used in financing activities	Cash used in financing activities	(16,383)		(21,221)		Cash used in financing activities	(131,817)		(39,104)
Change in cash and cash equivalents	Change in cash and cash equivalents	19,638		(2,145)		Change in cash and cash equivalents	(67,015)		13,793
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	96,989		103,486		Cash and cash equivalents, beginning of period	96,989		103,486
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	116,627	$	101,341	Cash and cash equivalents, end of period	$	29,974	$	117,279

Table of Contents


		Three Months Ended March 31,					Six Months Ended June 30,
Supplemental Disclosure of Cash Flow Information	Supplemental Disclosure of Cash Flow Information	2022		2021		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	$	314	$	332	Income taxes	$	7,437	$	10,500
Operating lease liabilities	Operating lease liabilities	1,812		1,690		Operating lease liabilities	3,622		3,564
Interest, net	Interest, net	547		634		Interest, net	892		1,280
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	$	446	$	243	ROU assets obtained from operating leases	$	406	$	3,852
Employee stock purchase plan	Employee stock purchase plan	242		170		Employee stock purchase plan	537		365

Unsettled repurchases of common stock						Unsettled repurchases of common stock	952		—

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 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 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, 2021, was derived from our audited Consolidated Balance Sheet as of December 31, 2021, as presented in our 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 relative to the remainder of the fiscal year. As such, the results of operations for any interim period may be impacted by these factors, among others, and are not necessarily indicative of, nor comparable to, the results of operations for a full year.

Principles of Consolidation

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

Use of Estimates

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

Health Insurance

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

Earnings per Share

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

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For the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021, 411~~435 thousand and ~~429~~425 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended ~~March 31,~~June 30, 2021, 609 thousand and 529 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended June 30, 2022, ~~and 2021,~~ there were ~~305~~168 thousand and ~~nil~~304 thousand anti-dilutive common stock equivalents, respectively. For the three and six months ended June 30, 2021, there was an insignificant amount of anti-dilutive common stock equivalents.

~~New Accounting Standards~~Recently adopted accounting standards

There were no new accounting standards adopted during the twenty-six weeks ended June 26, 2022 that had an impact on our financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In March 2022, the Financial Accounting Standards Board (FASB) issued 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 and, instead, requireThere are no accounting standards which have not yet been adopted that ~~an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents~~are expected to have a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-01 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 thesignificant impact ~~of ASU 2022-01~~ on our ~~consolidated~~ financial statements ~~however, we do not anticipate this having a material impact 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.~~disclosures.

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Note B - Reportable Segments

Kforce provides services through our Technology and Finance and Accounting (“FA”) segments. Historically, and for the three and six months ended ~~March 31,~~June 30, 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):


		Technology		FA		Total			Technology		FA		Total
Three Months Ended March 31,
Three Months Ended June 30,								Three Months Ended June 30,
2022	2022							2022
Revenue	Revenue	$	359,905	$	57,062	$	416,967	Revenue	$	384,595	$	51,921	$	436,516
Gross profit	Gross profit	$	102,450	$	21,436	$	123,886	Gross profit	$	109,917	$	21,155	$	131,072
Operating and other expenses	Operating and other expenses					$	97,575	Operating and other expenses					$	94,551
Income from operations, before income taxes	Income from operations, before income taxes					$	26,311	Income from operations, before income taxes					$	36,521
2021	2021							2021
Revenue	Revenue	$	279,560	$	83,665	$	363,225	Revenue	$	310,728	$	92,886	$	403,614
Gross profit	Gross profit	$	74,280	$	24,402	$	98,682	Gross profit	$	88,235	$	30,696	$	118,931
Operating and other expenses	Operating and other expenses					$	80,516	Operating and other expenses					$	88,920
Income from operations, before income taxes	Income from operations, before income taxes					$	18,166	Income from operations, before income taxes					$	30,011

Six Months Ended June 30,								Six Months Ended June 30,
2022								2022
Revenue								Revenue	$	744,500	$	108,983	$	853,483
Gross profit								Gross profit	$	212,367	$	42,591	$	254,958
Operating and other expenses								Operating and other expenses					$	192,126
Income from operations, before income taxes								Income from operations, before income taxes					$	62,832
2021								2021
Revenue								Revenue	$	590,288	$	176,551	$	766,839
Gross profit								Gross profit	$	162,515	$	55,098	$	217,613
Operating and other expenses								Operating and other expenses					$	169,436
Income from operations, before income taxes								Income from operations, before income taxes					$	48,177

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Note C - Disaggregation of Revenue

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


		Technology		FA		Total			Technology		FA		Total
Three Months Ended March 31,
Three Months Ended June 30,								Three Months Ended June 30,
2022	2022							2022
Revenue by type:	Revenue by type:							Revenue by type:
Flex revenue	Flex revenue	$	351,716	$	50,150	$	401,866	Flex revenue	$	375,507	$	44,193	$	419,700
Direct Hire revenue	Direct Hire revenue	8,189		6,912		15,101		Direct Hire revenue	9,088		7,728		16,816
Total Revenue	Total Revenue	$	359,905	$	57,062	$	416,967	Total Revenue	$	384,595	$	51,921	$	436,516
2021	2021							2021
Revenue by type:	Revenue by type:							Revenue by type:
Flex revenue	Flex revenue	$	274,784	$	79,063	$	353,847	Flex revenue	$	304,645	$	86,717	$	391,362
Direct Hire revenue	Direct Hire revenue	4,776		4,602		9,378		Direct Hire revenue	6,083		6,169		12,252
Total Revenue	Total Revenue	$	279,560	$	83,665	$	363,225	Total Revenue	$	310,728	$	92,886	$	403,614

Six Months Ended June 30,								Six Months Ended June 30,
2022								2022
Revenue by type:								Revenue by type:
Flex revenue								Flex revenue	$	727,223	$	94,343	$	821,566
Direct Hire revenue								Direct Hire revenue	17,277		14,640		31,917
Total Revenue								Total Revenue	$	744,500	$	108,983	$	853,483
2021								2021
Revenue by type:								Revenue by type:
Flex revenue								Flex revenue	$	579,429	$	165,780	$	745,209
Direct Hire revenue								Direct Hire revenue	10,859		10,771		21,630
Total Revenue								Total Revenue	$	590,288	$	176,551	$	766,839

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 six months ended ~~March 31,~~June 30, 2022.

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




Allowance for credit losses, January 1, 2022	$	1,729
Current period provision (credit)	~~172~~ (172)
Write-offs charged against the allowance, net of recoveries of amounts previously written off	~~(78)~~(201)

Allowance for credit losses, ~~March 31,~~June 30, 2022	$	~~1,823~~1,356

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

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Note E - Other Assets, Net

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


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Assets held in Rabbi Trust	Assets held in Rabbi Trust	$	38,213	$	41,607	Assets held in Rabbi Trust	$	31,874	$	41,607
Right-of-use assets for operating leases, net	Right-of-use assets for operating leases, net	13,376		15,395		Right-of-use assets for operating leases, net	11,889		15,395
Capitalized software, net (1)	Capitalized software, net (1)	14,796		14,666		Capitalized software, net (1)	15,572		14,666
Equity method investment (2)	Equity method investment (2)	16,683		17,008		Equity method investment (2)	15,668		17,008
Deferred loan costs, net	Deferred loan costs, net	1,057		1,115		Deferred loan costs, net	998		1,115
Interest rate swap derivative instruments	Interest rate swap derivative instruments	3,905		823		Interest rate swap derivative instruments	—		823
Other non-current assets(3)	Other non-current assets(3)	4,384		2,015		Other non-current assets(3)	6,686		2,015
Total Other assets, net	Total Other assets, net	$	92,414	$	92,629	Total Other assets, net	$	82,687	$	92,629

(1) Accumulated amortization of capitalized software was ~~$35.4~~$35.9 million and $35.5 million as of ~~March 31,~~June 30, 2022 and December 31, 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 ~~$0.8~~$1.0 million and ~~$0.5~~$1.8 million for the three months and six months ended ~~March 31,~~June 30, 2022, ~~and March 31, 2021,~~ respectively. In addition, Kforce contributed $0.5 million and $9.0 million of capital during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and the year ended December 31, 2021, respectively. Refer to Note KL - “Commitments and Contingencies” for more information on contingencies related to WorkLLama.

(3)I Balance at June 30, 2022 Includes a promissory note receivable issued to WorkLLama for $2.0 million.

Note F - Current Liabilities

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


		March 31, 2022		December 31, 2021			June 30, 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	$	48,855	$	40,241	Accounts payable	$	56,537	$	40,241
Accrued liabilities	Accrued liabilities	41,473		41,167		Accrued liabilities	38,079		41,167
Total Accounts payable and other accrued liabilities	Total Accounts payable and other accrued liabilities	$	90,328	$	81,408	Total Accounts payable and other accrued liabilities	$	94,616	$	81,408
Accrued payroll costs:	Accrued payroll costs:					Accrued payroll costs:
Payroll and benefits	Payroll and benefits	$	51,724	$	43,738	Payroll and benefits	$	56,226	$	43,738
Payroll taxes	Payroll taxes	29,791		22,466		Payroll taxes	27,126		22,466
Health insurance liabilities	Health insurance liabilities	4,342		4,474		Health insurance liabilities	4,309		4,474
Workers’ compensation liabilities	Workers’ compensation liabilities	772		746		Workers’ compensation liabilities	793		746
Total Accrued payroll costs	Total Accrued payroll costs	$	86,629	$	71,424	Total Accrued payroll costs	$	88,454	$	71,424

Our accounts payable balance includes vendor and third party payables. Our accrued liabilities balance includes the current portion of our deferred compensation plans liability, contract liabilities from contracts with customers (such as customer rebates), other accrued liabilities and amounts owed under the Supplemental Executive Retirement Plan (‘SERP ”). Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed to the 2 participants under the SERP, as of ~~March~~June 30, 2022 and December 31, ~~2022, amount to~~ ~~$20.0~~2021, was $20.0 million in the ~~aggregate.~~

~~Table~~aggregate, and were fully paid in July 2022, relieving us of ~~Contents~~

any future obligation related to the SERP.

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

Note G - Credit Facility

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lenders, be increased up to an aggregate additional amount of $150.0 million. The maturity date of the Amended and Restated Credit Facility is October 20, 2026.

In May 2022, the Firm repaid the outstanding balance of $100.0 million in connection with the termination of its Swap B (as defined in Note J - “Derivative Instruments and Hedging Activity” to these financial statements) with a notional amount of $100.0 million. As of June 30, 2022 and December 31, 2021, $0 and $100.0 million was outstanding under the Amended and Restated Credit Facility.

Note H - Other Long-Term Liabilities

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


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Deferred compensation plan	Deferred compensation plan	$	37,273	$	42,623	Deferred compensation plan	$	33,030	$	42,623
Operating lease liabilities	Operating lease liabilities	10,136		11,919		Operating lease liabilities	8,959		11,919
Other long-term liabilities	Other long-term liabilities	17		22		Other long-term liabilities	14		22
Total Other long-term liabilities	Total Other long-term liabilities	$	47,426	$	54,564	Total Other long-term liabilities	$	42,003	$	54,564

Note HI - 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~~is granted to directors, executives and management either for awards related to Kforce’s annual long-term incentive program or as part of a compensation package for attraction and retention purposes. Restricted stock granted during the ~~three~~six months ended ~~March 31,~~June 30, 2022 will vest over a period ofone to ten years, with vesting occurring in equal annual installments.

During the three and six months ended ~~March 31,~~June 30, 2022, ~~and March 31, 2021,~~ stock-based compensation expense was $4.4 million and ~~$3.4~~$8.8 million, respectively. During the three and six months ended June 30, 2021, stock-based compensation expense was $3.5 million and $6.9 million, respectively.

The following table presents the restricted stock activity for the ~~three~~six months ended ~~March 31,~~June 30, 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, 2021	Outstanding at December 31, 2021	1,083	$	48.86			Outstanding at December 31, 2021	1,083	$	48.86
Granted	Granted	6	$	55.40			Granted	31	$	63.93
Forfeited	Forfeited	(8)	$	43.97			Forfeited	(21)	$	44.46
Vested	Vested	(8)	$	25.74	$	589	Vested	(40)	$	47.15	$	2,628
Outstanding at March 31, 2022		1,073	$	49.12
Outstanding at June 30, 2022							Outstanding at June 30, 2022	1,053	$	49.70

As of ~~March 31,~~June 30, 2022, total unrecognized stock-based compensation expense related to restricted stock was ~~$45.7~~$42.0 million, which will be recognized over a weighted-average remaining period of ~~4.4~~4.3 years.

Note IJ - Derivative Instruments and Hedging Activity

As of June 30, 2022, the Firm did not have any outstanding derivative instruments. 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 matured on April 29, 2022. Other information related to Swap A ~~has a fixed~~is as follows: Notional amount - $25.0 million; and 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~~2020. Other information related to Swap B is as follows: Scheduled maturity date - May 30, ~~2025. Swap B has a fixed~~2025; Fixed interest rate - 0.61%; and Notional amount - $100.0 million.

Table 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.Contents

The Firm ~~uses~~used 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 plus the applicable interest margin under our

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credit facility, iswas included in interest expense and recorded in Other (income) expense, net in the accompanying Consolidated Financial Statements of Operations and Comprehensive Income.

In May 2022, the Firm terminated Swap B in anticipation of paying the outstanding amount on its credit facility, which was $100.0 million. At the termination of Swap B, the amount recorded in Accumulated other comprehensive income was recognized. The Firm received $4.1 million, which represented the gain and fair value of Swap B at the time of termination, and is included in other income in the accompanying Consolidated Financial Statements of Operations and Comprehensive Income.

Both Swap A and B ~~have been~~were designated as cash flow ~~hedges and were effective as of March 31, 2022.~~hedges. The change in the fair value of the Swaps iswas previously recorded as a component of Accumulated other comprehensive income (loss) in the unaudited consolidated financial statements.

The following table sets forth the activity in the accumulated derivative instrument activity (in thousands):


		Three Months Ended March 31,				Six Months Ended June 30,
		2022		2021				2022		2021
Accumulated derivative instrument gain (loss), beginning of period	Accumulated derivative instrument gain (loss), beginning of period	$	823	$	(1,774)		Accumulated derivative instrument gain (loss), beginning of period	$	823	$	(1,774)
Net change associated with current period hedging transactions(1)	Net change associated with current period hedging transactions(1)	3,082		1,258			Net change associated with current period hedging transactions(1)	(823)		1,271

Accumulated derivative instrument gain (loss), end of period	Accumulated derivative instrument gain (loss), end of period	$	3,905	$	(516)		Accumulated derivative instrument gain (loss), end of period	$	—	$	(503)

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

Note JK - Fair Value Measurements

Our interest rate swaps ~~are~~were previously measured at fair value using readily observable inputs, which are considered to be Level 2 inputs and ~~are~~were recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. In April 2022, Swap A matured and in May 2022, we terminated Swap B. Refer to Note IJ - “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 ~~three~~six months ended ~~March 31,~~June 30, 2022. The ~~following table sets forth by level, within the~~ fair value ~~hierarchy, estimated fair values on~~of the interest rate swap derivative instrument asset at December 31, 2021 was $823 thousand and was classified as a ~~recurring basis (in thousands):~~
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 March 31, 2022
Interest rate swap derivative instruments $ 3,905 $ — $ 3,905 $ —
At December 31, 2021
Interest rate swap derivative instrument $ 823 $ — $ 823 $ —
Level 2 instrument.

Note KL - Commitments and Contingencies

Employment Agreements

Kforce has employment agreements with certain executives that provide for certain ~~post employment~~post-employment benefits under certain circumstances. At ~~March 31,~~June 30, 2022, our liability would be approximately $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 $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

~~There~~Except as stated below, there have been no material developments with regard to the legal proceedings previously disclosed in our 2021 Annual Report on Form ~~10-K.~~10-K or in our Form 10-Q for the quarter ending March 31, 2022.

On December 17, 2019, Kforce Inc., et al. was served with a complaint brought in Superior Court of the State of California, Alameda County. Kathleen Wahrer, et al. v. Kforce Inc., et al., Case Number: RG19047269. The former employee purports to bring a representative action on her own behalf and on behalf of other allegedly aggrieved employees pursuant to California Private Attorneys General Act of 2004, California Labor Code Section 2968, et ~~seq~~.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. We intend to continue to vigorously defend the claims.

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On November 18, 2020, Kforce Inc., et al. was served with a complaint brought in the Superior Court of the State of California, San Diego County, which was subsequently amended on January 21, 2021, to add Kforce Flexible Solutions as a party. Bernardo Buchsbaum, et al. v. Kforce Inc., et al., Case Number: 37-2020-00030994-CU-OE-CTL. The former employee purports to bring a representative action on his own behalf and on behalf of other allegedly aggrieved employees pursuant to PAGA alleging violations of the Labor Code. The plaintiff seeks civil penalties, interest, attorney’s fees, and costs under the Labor Code for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide and pay for work performed during meal and rest periods; reimburse business expenses; provide compliant wage statements; and provide unused vacation wages upon termination. The parties reached a preliminary settlement agreement to resolve this matter along with Elliott-Brand, et al. v. Kforce Inc., et al. and 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, which was subsequently amended on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC, et al., Case Number: 20STCV47529. Former consultant Ramona Webb has sued both Kforce and Verity alleging certain individual claims in addition to a PAGA claim based on alleged violations of various provisions of the Labor Code. With respect to the PAGA claim, Plaintiff seeks to recover on her behalf, on behalf of the State of California, and on behalf of all allegedly aggrieved employees, the civil penalties provided by PAGA, attorney’s fees and costs. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to continue to vigorously defend the claims.

On December 24, 2020, a complaint was filed against Kforce Inc., et al. in Superior Court of the State of California, Los Angeles County. Sydney Elliott-Brand, et al. v. Kforce Inc., et al., Case Number: 20STCV49193. On January 7, 2022, the lawsuit was amended to add Bernardo Buchsbaum and Josie Meister as plaintiffs and to add claims under PAGA and the Fair Labor Standards Act, 29 U.S.C. §§ 201, et ~~seq~~.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~~the matter. On June 15, 2022, the Court entered an Order granting the parties’ joint motion to dismiss Plaintiff’s individual claims with prejudice and his putative collective claims without prejudice. 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~~did not result in 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 of these matters, where appropriate, ~~which~~that are reflected in our ~~unaudited condensed~~ consolidated financial ~~statements.~~statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, we have not yet determined that a loss is probable, or the amount of loss cannot be reasonably estimated. While the ultimate ~~outcomes and any amounts accrued are inherently uncertain,~~outcome of the matters cannot be determined, we currently do not expect that these ~~matters,~~proceedings and claims, individually or in the aggregate, will have a material effect on our financial ~~position.~~position, results of operations or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to us, or if we determine that settlement of particular litigation is appropriate, we may be subject to liability that could have a material adverse effect on our financial position, results of operations or cash flows. Kforce maintains liability insurance in amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that Kforce insures against are workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, errors and omissions, cyber liability, employment practices liability and fidelity losses. There can be no assurance that Kforce’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities.

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~~variable interest entity and not subject to consolidation, as we are not the primary beneficiary of WorkLLama because we do not have the power to direct the activities that most significantly impact WorkLLama’s economic performance. As a result, WorkLLama is accounted for as an equity method investment.

Under the joint venture operating agreement for WorkLLama, Kforce was originally obligated to make additional cash contributions subsequent to the initial contribution, contingent on WorkLLama's achievement of certain operational and financial milestones. Under the operating agreement, our maximum potential capital contributions were $22.5 million. Although the operational and financial milestones were not achieved, we contributed the full $22.5 million as of ~~March 31,~~June 30, 2022. We contributed $0.5 million and $9.0 million of capital during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and the year ended December 31, 2021, respectively.

\We review the equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recognized in the event that an other-than-temporary decline in the fair value of the investment occurs. Management’s estimate of the fair value of an investment is based on the income approach and market approach. Like most developing business enterprises, WorkLLama was impacted by the COVID-19 pandemic over the last two years. Additionally, in 2021, WorkLLama also strategically repositioned its business to focus its platform on providing its clients with an ability to directly source and engage talent. While WorkLLama is seeing demand for its platform, it has taken longer than expected to achieve its financial expectations. Given this, Kforce management determined that a triggering event had occurred. Thus, we ~~are not obligated~~performed an impairment test as of June 30, 2022, utilizing the market and income approaches. For the income approach, we utilized estimated discounted future cash flows expected to be generated by WorkLLama. For the market approach, we utilized market multiples of revenue and earnings derived from comparable publicly-traded companies. These types of analyses contain uncertainties because they require management to make ~~additional~~significant assumptions and judgments, including: (1) an appropriate rate to discount the expected future ~~capital contributions,~~cash flows; (2) the inherent risk in achieving forecasted operating results; (3) long-term growth

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rates; (4) expectations for future economic cycles; (5) market comparable companies and appropriate adjustments thereto; and (6) market multiples. The fair value determined in our impairment test is highly sensitive to changes in key assumptions, including but not limited to the discount rate that is applied to the financial projections. As a result of the impairment test, we concluded that the carrying value of the equity method investment was not impaired. However, if the joint venture is unable to achieve its financial projections or if there is a change in the assumptions used to value our interest in the joint venture, then it is reasonably possible that the carrying value of the equity investment may ~~make additional contributions~~need to ~~WorkLLama~~be written down to the fair value resulting in ~~support~~an impairment charge in a future quarter. As of ~~their strategic objectives.~~June 30, 2022, the fair value of the equity investment, determined in our impairment test, exceeded the carrying value by less than ten percent.

Lease commitments

We lease office space and certain equipment under operating leases that expire between 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 year ended December 31, 2021, we entered into a lease agreement for office space in Tampa, Florida, that will become our new corporate headquarters. This new lease for office space is intended to replace our current headquarters, also in Tampa, Florida, the lease for which expires November 2022. Lease payments will be required beginning July 1, 2023, 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 L - Subsequent Events~~

On April 29, 2022, Kforce’s forward-starting interest rate swap agreement, Swap A, which had a notional amount of $25.0 million matured. On May 1, 2022, Kforce’s Swap B, which had a notional amount of $75.0 million, increased by $25.0 million to $100.0 million. Refer to Note I - “Derivative Instruments and Hedging Activity” for a complete discussion of 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 ~~three~~six months ended ~~March 31,~~June 30, 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 ~~three~~six months ended ~~March 31,~~June 30, 2022, increased ~~13.0%, on a billing day basis,~~10.4% to ~~$417.0~~$853.5 million from ~~$363.2~~$766.8 million in the comparable period in 2021. Revenue increased ~~26.7%~~25.1% for Technology and decreased ~~32.9%~~38.8% for FA ~~on a billing day basis primarily~~ as a result of the planned decrease in ~~the~~ COVID-19 related ~~business.~~business and repositioning efforts. There was a ~~nominal~~minimal amount of COVID-19 related business in the first ~~quarter~~six months of 2022 and there was ~~$24m~~$58.8 million in the first ~~quarter~~six months of 2021.

•Flex revenue ~~year-over-year,~~ for the ~~three~~six months ended ~~March 31,~~June 30, 2022 increased ~~11.8% on a billing day basis,~~9.4% to ~~$401.9~~$821.6 million from ~~$353.8~~$745.2 million in the comparable period in 2021. Flex revenue increased ~~26.0%~~24.5% and decreased ~~37.6%, on a billing day basis~~43.5% for Technology and FA, respectively.

•Direct Hire revenue for the ~~three~~six months ended ~~March 31,~~June 30, 2022 increased ~~61.0%~~47.6% to ~~$15.1~~$31.9 million from ~~$9.4~~$21.6 million in the comparable period in 2021.

•Gross profit margin for the ~~three~~six months ended ~~March 31,~~June 30, 2022, increased ~~250~~150 basis points to ~~29.7%~~29.9%, 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 ~~three~~six months ended ~~March 31,~~June 30, 2022, increased ~~190~~80 basis points to 27.1%, compared to ~~March 31,~~June 30, 2021. Technology Flex ~~margins~~gross profit margin increased ~~150~~60 basis points due primarily to lower payroll taxes and lower healthcare ~~costs.~~costs, partially offset by slightly lower spreads. FA Flex gross profit margin increased ~~400~~290 basis points for the ~~three~~six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the same period in ~~2021, primarily due~~2021. The increase for the six months ended June 30, 2022 was mostly attributable to a decrease in ~~the amount of lower margin~~ COVID-19 related business and the repositioning of the ~~business towards higher skilled areas (that also have higher average spreads), lower payroll taxes and lower healthcare costs.~~business.

•SG&A expenses as a percentage of revenue for the ~~three~~six months ended ~~March 31,~~June 30, 2022, increased to ~~22.8%~~22.4% from ~~21.5%~~21.2% in the comparable period in 2021 ~~primarily~~ due to the sale of our corporate headquarters that occurred in the second quarter of 2021, which resulted in the recognition of a gain, higher performance-based compensation given the strength in our ~~revenue growth~~performance, and ~~profitability improvements and an increase~~other investments in our ~~credit expense resulting from a reduction in our reserves in the first quarter of 2021.~~business.

•Income from operations for the ~~three~~six months ended ~~March 31,~~June 30, 2022, increased ~~44.6%~~33.8% to ~~$19.2~~$46.1 million, or ~~$0.93~~$2.22 per share, from ~~$13.3~~$34.4 million, or ~~$0.62~~$1.61 per share, in the comparable period in 2021.

•The Firm returned ~~$16.2~~$32.3 million of capital to our shareholders in the form of open market repurchases totaling ~~$10.1~~$20.1 million and quarterly dividends totaling ~~$6.1~~$12.2 million during the ~~three~~six months ending ~~March 31,~~June 30, 2022.

•Cash provided by operating activities was ~~$38.7~~$70.8 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, as compared to ~~$22.4~~$36.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021.

•Cash and cash equivalents ~~net of outstanding borrowings under our credit facility,~~ was ~~$16.6~~$30.0 million as of ~~March 31,~~June 30, 2022.

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RESULTS OF OPERATIONS

Business Overview

Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading clients. Our Technology and FA businesses represent our two operating segments. Our corporate headquarters is in Tampa, ~~Florida and we have field offices located throughout the United States (U.S.).~~Florida. As of ~~March 31,~~June 30, 2022, Kforce employed approximately ~~2,000~~2,100 associates, including approximately ~~1,300~~1,400 supporting the revenue-generating aspects of our business and approximately 700 supporting the revenue-enabling aspects. We also had approximately ~~10,500~~10,300 consultants on assignment providing flexible staffing services and solutions to our ~~clients, the vast majority of which are also employees of Kforce.~~clients. 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 talent solutions (representing nearly ~~86%~~88% of overall revenues) and client portfolio comprised of world-class companies have been key contributors to our continued strong performance and will be key drivers to our future success.

From an economic standpoint, total and temporary employment figures and trends have historically been important indicators of staffing demand. Based on information published by the Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”), these figures and trends have been trending positively since the end of the third quarter of 2020. The national unemployment rate was 3.6%, for the fourth month in a row. In ~~addition,~~ the ~~penetration rate (the percentage of~~latest U.S. staffing industry forecast published by SIA in May 2022, the technology temporary staffing industry and finance and accounting temporary staffing industry are estimated to ~~total employment) remained stable at 2.09%~~grow 12% and 8%, ~~the new all-time high~~respectively, in 2022, and ~~the unemployment rate reached 3.6%~~6% and 5%, respectively, in March 2022, down from 3.9% in December 2021. Further, we believe that the unemployment rate in the specialties we serve, especially in certain technology skill sets, is significantly lower than the published averages. We believe this speaks to the overall secular drivers of demand in technology, the critical nature of the technology initiatives being driven by our clients, and the challenges of finding an adequate supply of qualified talent.

~~Table of Contents~~

2023.

Operating Results - Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021

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


		Three Months Ended				Three Months Ended				Six Months Ended
		March 31,				June 30,				June 30,
		2022		2021				2022		2021		2022		2021
Revenue by segment:	Revenue by segment:						Revenue by segment:
Technology	Technology	86.3	%	77.0	%		Technology	88.1	%	77.0	%	87.2	%	77.0	%
FA	FA	13.7		23.0			FA	11.9		23.0		12.8		23.0
Total Revenue	Total Revenue	100.0	%	100.0	%		Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Revenue by type:	Revenue by type:						Revenue by type:
Flex	Flex	96.4	%	97.4	%		Flex	96.1	%	97.0	%	96.3	%	97.2	%
Direct Hire	Direct Hire	3.6		2.6			Direct Hire	3.9		3.0		3.7		2.8
Total Revenue	Total Revenue	100.0	%	100.0	%		Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	Gross profit	29.7	%	27.2	%		Gross profit	30.0	%	29.5	%	29.9	%	28.4	%
Selling, general and administrative expenses	Selling, general and administrative expenses	22.8	%	21.5	%		Selling, general and administrative expenses	22.0	%	21.0	%	22.4	%	21.2	%
Depreciation and amortization	Depreciation and amortization	0.3	%	0.3	%		Depreciation and amortization	0.2	%	0.3	%	0.3	%	0.3	%
Income from operations	Income from operations	6.7	%	5.4	%		Income from operations	7.8	%	8.2	%	7.2	%	6.9	%
Income from operations, before income taxes	Income from operations, before income taxes	6.3	%	5.0	%		Income from operations, before income taxes	8.4	%	7.4	%	7.4	%	6.3	%

Net income	Net income	4.6	%	3.7	%		Net income	6.2	%	5.2	%	5.4	%	4.5	%

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Revenue. The following table presents revenue by type for each segment and the percentage change from the prior period (in thousands):


		Three Months Ended March 31,			Three Months Ended June 30,								Six Months Ended June 30,
			2022			Increase (Decrease)		2021			2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021
Technology	Technology									Technology
Flex revenue	Flex revenue		$	351,716		28.0	%	$	274,784	Flex revenue	$	375,507	23.3	%	$	304,645	$	727,223	25.5	%	$	579,429
Direct Hire revenue	Direct Hire revenue		8,189			71.5	%	4,776		Direct Hire revenue	9,088		49.4	%	6,083		17,277		59.1	%	10,859
Total Technology revenue	Total Technology revenue		$	359,905		28.7	%	$	279,560	Total Technology revenue	$	384,595	23.8	%	$	310,728	$	744,500	26.1	%	$	590,288
FA	FA									FA
Flex revenue	Flex revenue		$	50,150		(36.6)	%	$	79,063	Flex revenue	$	44,193	(49.0)	%	$	86,717	$	94,343	(43.1)	%	$	165,780
Direct Hire revenue	Direct Hire revenue		6,912			50.2	%	4,602		Direct Hire revenue	7,728		25.3	%	6,169		14,640		35.9	%	10,771
Total FA revenue	Total FA revenue		$	57,062		(31.8)	%	$	83,665	Total FA revenue	$	51,921	(44.1)	%	$	92,886	$	108,983	(38.3)	%	$	176,551

Total Flex revenue	Total Flex revenue		$	401,866		13.6	%	$	353,847	Total Flex revenue	$	419,700	7.2	%	$	391,362	$	821,566	10.2	%	$	745,209
Total Direct Hire revenue	Total Direct Hire revenue		15,101			61.0	%	9,378		Total Direct Hire revenue	16,816		37.3	%	12,252		31,917		47.6	%	21,630
Total Revenue	Total Revenue		$	416,967		14.8	%	$	363,225	Total Revenue	$	436,516	8.2	%	$	403,614	$	853,483	11.3	%	$	766,839

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)
		Q1 2022		Q4 2021		Q3 2021		Q2 2021		Q1 2021			Q2 2022		Q1 2022		Q4 2021		Q3 2021		Q2 2021
Billing Days	Billing Days	64		61		64		64		63		Billing Days	64		64		61		64		64
Technology	Technology	26.0	%	31.0	%	28.9	%	20.9	%	6.3	%	Technology	23.3	%	26.0	%	31.0	%	28.9	%	20.9	%
FA	FA	(37.6)	%	(28.9)	%	(41.3)	%	2.7	%	26.4	%	FA	(49.0)	%	(37.6)	%	(28.9)	%	(41.3)	%	2.7	%
Total Flex	Total Flex	11.8	%	16.6	%	9.1	%	16.3	%	10.2	%	Total Flex	7.2	%	11.8	%	16.6	%	9.1	%	16.3	%

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 Technology increased ~~26.0% on a billing day basis,~~23.3% and 24.5% during the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the same ~~period~~periods in 2021, which was driven by a combination of significant growth in the number of consultants on assignment and higher average bill rates. Given the inflationary pressures on wages and ~~the~~ scarcity ~~and criticality~~ of highly skilled technology consultants, we experienced a meaningful acceleration in average bill rates, which increased ~~3.8%~~2.4% sequentially and ~~6.3%~~8.1% year-over-year ~~to approximately $85 per hour.~~during the second quarter of 2022. Notable is that we experienced this acceleration in average bill rates while maintaining stable Flex gross ~~margin spreads.~~margins. We believe that the growth in consultants on assignment ~~continues to be~~was 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~~Despite some moderate slowing in our activity levels in the ~~secular drivers of~~second quarter compared to the historically high demand we were experiencing in ~~technology have only strengthened post-pandemic as companies~~2021 and early 2022, activity levels continue to invest significantly in technology to improve their consumer and employee experiences, gain cost efficiencies and stay relevant in an increasingly competitive environment. Assuming a stable demand and macro environment, weoutpace pre-pandemic levels. We expect revenue growth in our Technology business in the ~~second~~third quarter to be in the ~~mid 20%~~mid-teen range on a ~~year-over-year~~year-over-year basis.

Our FA segment experienced a decrease in Flex revenue of ~~37.6% on a billing day basis,~~49.0% and 43.5% during the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the same ~~period~~periods in 2021, primarily driven by the anticipated fall off in our COVID-19 related business and the repositioning of the business. Excluding ~~this~~the decline in COVID-19 related business, FA Flex revenues declined ~~slightly more than 10%~~nearly 15% and 13% in the ~~first~~ quarter ofand year to date periods ending June 30, 2022, respectively, compared to the same ~~period~~periods in 2021, which was driven by the repositioning of our FA business towards more high-skilled roles. We have seen indicators of success in this repositioning as our average bill rates improved approximately 8%8.1% sequentially and ~~31%~~33.1% year-over-year in ~~our ongoing FA business.~~the second quarter of 2022 compared to the same period in 2021. We expect the Flex revenue in our FA business to decline in the ~~mid-single digits~~low double-digits sequentially in the ~~second~~third 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			Three Months Ended						Six Months Ended
		March 31, 2022 vs. March 31, 2021			June 30, 2022 vs. June 30, 2021						June 30, 2022 vs. June 30, 2021
			Technology			FA			Technology		FA		Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)							Key Drivers - Increase (Decrease)
Volume - hours billed	Volume - hours billed		$	55,488		$	(40,789)	Volume - hours billed	$	42,330	$	(53,490)	$	97,888	$	(94,021)
Bill rate	Bill rate		20,816			11,852		Bill rate	27,874		10,978		48,620		22,572
Billable expenses	Billable expenses		628			24		Billable expenses	658		(12)		1,286		12
Total change in Flex revenue	Total change in Flex revenue		$	76,932		$	(28,913)	Total change in Flex revenue	$	70,862	$	(42,524)	$	147,794	$	(71,437)

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


		Three Months Ended March 31,		Three Months Ended June 30,						Six Months Ended June 30,
			2022		Increase (Decrease)		2021		2022	Increase (Decrease)		2021	2022	Increase (Decrease)		2021
Technology	Technology		4,122		20.2	%	3,428	Technology	4,292	14.0	%	3,766	8,414	17.0	%	7,194
FA	FA		1,150		(51.6)	%	2,376	FA	938	(61.7)	%	2,449	2,088	(56.7)	%	4,825
Total Flex hours billed	Total Flex hours billed		5,272		(9.2)	%	5,804	Total Flex hours billed	5,230	(15.8)	%	6,215	10,502	(12.6)	%	12,019

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 ~~61.0%~~37.3% and 47.6% during the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the same period in 2021. The increase during ~~the first quarter~~these periods 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.

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			Three Months Ended						Six Months Ended
		March 31, 2022 vs. March 31, 2021			June 30, 2022 vs. June 30, 2021						June 30, 2022 vs. June 30, 2021
			Technology			FA			Technology		FA		Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)							Key Drivers - Increase (Decrease)
Volume - number of placements	Volume - number of placements		$	2,818		$	2,107	Volume - number of placements	$	1,480	$	496	$	4,343	$	2,593
Placement fee	Placement fee		595			203		Placement fee	1,525		1,063		2,075		1,276
Total change in Direct Hire revenue	Total change in Direct Hire revenue		$	3,413		$	2,310	Total change in Direct Hire revenue	$	3,005	$	1,559	$	6,418	$	3,869

The following table presents the total number of placements by segment and percentage change over the prior period:


		Three Months Ended March 31,		Three Months Ended June 30,						Six Months Ended June 30,
			2022		Increase (Decrease)		2021		2022	Increase (Decrease)		2021	2022	Increase (Decrease)		2021
Technology	Technology		388		59.0	%	244	Technology	369	24.2	%	297	757	39.9	%	541
FA	FA		429		45.9	%	294	FA	431	8.3	%	398	860	24.1	%	693
Total number of placements	Total number of placements		817		51.9	%	538	Total number of placements	800	15.1	%	695	1,617	31.0	%	1,234

The following table presents the average placement fee by segment and percentage change over the prior period:


		Three Months Ended March 31,			Three Months Ended June 30,								Six Months Ended June 30,
			2022			Increase (Decrease)		2021			2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021
Technology	Technology		$	21,090		7.8	%	$	19,559	Technology	$	24,654	20.2	%	$	20,517	$	22,826	13.7	%	$	20,084
FA	FA		$	16,116		3.0	%	$	15,643	FA	17,946		15.9	%	15,478		$	17,033	9.6	%	$	15,548
Total average placement fee	Total average placement fee		$	18,479		6.1	%	$	17,419	Total average placement fee	$	21,040	19.4	%	$	17,628	$	19,746	12.6	%	$	17,537

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

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


		Three Months Ended March 31,			Three Months Ended June 30,								Six Months Ended June 30,
			2022			Increase (Decrease)		2021			2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021
Technology	Technology		28.5	%		7.1	%	26.6	%	Technology	28.6	%	0.7	%	28.4	%	28.5	%	3.6	%	27.5	%
FA	FA		37.6	%		28.8	%	29.2	%	FA	40.7	%	23.3	%	33.0	%	39.1	%	25.3	%	31.2	%
Total gross profit percentage	Total gross profit percentage		29.7	%		9.2	%	27.2	%	Total gross profit percentage	30.0	%	1.7	%	29.5	%	29.9	%	5.3	%	28.4	%

The total gross profit percentage for the three and six months ended ~~March 31,~~June 30, 2022, increased ~~250~~50 and 150 basis points, respectively, as compared to the same period in 2021, primarily as a result of an increased mix of Direct Hire ~~revenues and Flex margin increases.~~revenue.

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

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


		Three Months Ended March 31,			Three Months Ended June 30,								Six Months Ended June 30,
			2022			Increase (Decrease)		2021			2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021
Technology	Technology		26.8	%		5.9	%	25.3	%	Technology	26.9	%	(0.4)	%	27.0	%	26.8	%	2.3	%	26.2	%
FA	FA		29.0	%		16.0	%	25.0	%	FA	30.4	%	7.4	%	28.3	%	29.6	%	10.9	%	26.7	%
Total Flex gross profit percentage	Total Flex gross profit percentage		27.1	%		7.5	%	25.2	%	Total Flex gross profit percentage	27.2	%	(0.4)	%	27.3	%	27.1	%	3.0	%	26.3	%

Overall, our Flex gross profit percentage ~~increased 190~~decreased 10 basis points for the three months ended ~~March 31,~~June 30, 2022, and increased 80 basis points for the six months ended June 30, 2022, as compared to the same ~~period~~periods in 2021. The notable changes within our segments were as follows:

•Flex margins in our Technology business ~~increased 150~~decreased 10 basis points for the three months ended ~~March 31,~~June 30, 2022 and increased 60 basis points for the six months ended June 30, 2022, as compared to the same ~~period~~periods in 2021. The increase for the six months ended June 30, 2022 was primarily due to lower payroll taxes and ~~healthcare costs while our bill pay spreads were stable year-over-year.~~benefit costs.

•FA Flex gross profit ~~margin~~margins increased ~~400~~210 basis points for the three months ended ~~March 31,~~June 30, 2022 and increased 290 basis points for the six months ended June 30, 2022, as compared to the same ~~period~~periods in 2021. The increase ~~for the period~~in both periods was primarily due to ~~a lower mix~~the falloff of lower margin COVID-19 related business ~~spread improvements due to the strategic~~and results of our repositioning ~~of this business into higher skilled areas,~~efforts as well as lower ~~payroll taxes~~healthcare and ~~lower healthcare~~payroll 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			Three Months Ended						Six Months Ended
		March 31, 2022 vs. March 31, 2021			June 30, 2022 vs. June 30, 2021						June 30, 2022 vs. June 30, 2021
			Technology			FA			Technology		FA		Technology		FA
Key Drivers - Increase (Decrease)	Key Drivers - Increase (Decrease)							Key Drivers - Increase (Decrease)
Revenue impact	Revenue impact		$	19,459		$	(7,241)	Revenue impact	$	19,109	$	(12,028)	$	38,683	$	(19,101)
Profitability impact	Profitability impact		5,298			1,965		Profitability impact	(432)		928		4,751		2,725
Total change in Flex gross profit	Total change in Flex gross profit		$	24,757		$	(5,276)	Total change in Flex gross profit	$	18,677	$	(11,100)	$	43,434	$	(16,376)

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented ~~84.4%~~85.7% and 85.0% for the three and six months ended ~~March 31,~~June 30, 2022, compared to ~~85.7%~~87.4% and 86.6% for the comparable ~~period~~periods in 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 expenses, and expressed as a percentage of revenue (in thousands):


		2022		% of Revenue		2021		% of Revenue			2022		% of Revenue		2021		% of Revenue
Three Months Ended March 31,
Three Months Ended June 30,										Three Months Ended June 30,
Compensation, commissions, payroll taxes and benefits costs	Compensation, commissions, payroll taxes and benefits costs	$	80,224	19.2	%	$	66,874	18.4	%	Compensation, commissions, payroll taxes and benefits costs	$	82,368	18.9	%	$	73,914	18.3	%
Other (1)	Other (1)	14,825		3.6	%	11,155		3.1	%	Other (1)	13,779		3.2	%	10,702		2.7	%
Total SG&A	Total SG&A	$	95,049	22.8	%	$	78,029	21.5	%	Total SG&A	$	96,147	22.0	%	$	84,616	21.0	%

Six Months Ended June 30,										Six Months Ended June 30,
Compensation, commissions, payroll taxes and benefits costs										Compensation, commissions, payroll taxes and benefits costs	$	162,592	19.1	%	$	140,788	18.4	%
Other (1)										Other (1)	28,604		3.4	%	21,857		2.9	%
Total SG&A										Total SG&A	$	191,196	22.4	%	$	162,645	21.2	%

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

SG&A as a percentage of revenue increased ~~130~~100 and 120 basis points for the three and six months ended ~~March 31,~~June 30, 2022, respectively, compared to the same period in 2021. The increase ~~for~~in both periods was due to (a) a gain on the ~~three month period ended March 31, 2022, was primarily related to~~sale of our corporate headquarters that occurred in the second quarter of 2021, (b) higher performance-based compensation given the strength in our ~~revenue growth~~performance, and ~~profitability improvements and an increase~~(c) other investments in our ~~credit expense driven by a reduction in our accounts receivable reserves in the prior year.~~business.

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

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


		Three Months Ended March 31,			Three Months Ended June 30,								Six Months Ended June 30,
			2022			Increase (Decrease)		2021			2022		Increase (Decrease)		2021		2022		Increase (Decrease)		2021
Fixed asset depreciation (includes finance leases)	Fixed asset depreciation (includes finance leases)		$	677		(16.4)	%	$	810	Fixed asset depreciation (includes finance leases)	$	628	(15.7)	%	$	745	$	1,305	(16.0)	%	$	1,554
Capitalized software amortization	Capitalized software amortization		416			6.1	%	392		Capitalized software amortization	448		0.2	%	447		864		2.9	%	840
Total Depreciation and amortization	Total Depreciation and amortization		$	1,093		(9.1)	%	$	1,202	Total Depreciation and amortization	$	1,076	(9.7)	%	$	1,192	$	2,169	(9.4)	%	$	2,394

Other (Income) Expense, Net. Other (income) expense, net for the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021,~~ was ~~$1.4~~income of $2.7 million and ~~$1.3~~1.2 million, respectively. Other (income) expense, net for the three and six months ended June 30, 2021 was expense of $3.1 million and $4.4 million, respectively. This line item primarily includes interest expense related to outstanding borrowings under our credit facility, which is partially offset by the interest income on cash held in government money market ~~funds.~~funds, and our proportionate share of the loss from WorkLLama.

During the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021,~~ Other (income) expense, net also includes $4.1 million related to a gain recognized as a result of the termination of Swap B.

During the three and six months ended June 30, 2022, our proportionate share of the loss from WorkLLama, our equity method investment, ~~of $0.8~~was $1.0 million and $1.8 million, respectively, and during the three and six months ended June 30, 2021, $0.5 million and $1.0 million, respectively. In addition, during the three and six month ended June 30, 2021, Other expense (income), net also included an expense of $1.8 million related to the termination of our SERP.

Income Tax Expense. Income tax expense as a percentage of income from continuing operations, before income taxes (our “effective tax rate” from continuing operations) for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 was ~~27.1%~~26.6% and ~~27.0%~~28.5%, 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):


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	38,742	$	22,426	Net cash provided by operating activities	$	70,760	$	36,574
Capital expenditures	Capital expenditures	(2,221)		(1,350)		Capital expenditures	(3,458)		(2,919)
Free cash flow	Free cash flow	36,521		21,076		Free cash flow	67,302		33,655

Payments on credit facility						Payments on credit facility	(100,000)		—
Repurchases of common stock	Repurchases of common stock	(10,270)		(16,313)		Repurchases of common stock	(19,600)		(29,371)
Cash dividends	Cash dividends	(6,094)		(4,786)		Cash dividends	(12,187)		(9,532)
Contributions to equity method investment		(500)		(2,000)

Contributions to WorkLLama, joint venture						Contributions to WorkLLama, joint venture	(500)		(4,500)
Net proceeds from the sale of assets						Net proceeds from the sale of assets	—		23,742
Note receivable issued to WorkLLama, joint venture						Note receivable issued to WorkLLama, joint venture	(2,000)		—
Other	Other	(19)		(122)		Other	(30)		(201)
Change in cash and cash equivalents	Change in cash and cash equivalents	$	19,638	$	(2,145)	Change in cash and cash equivalents	$	(67,015)	$	13,793

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 from termination of Swap B, gain on the sale of the corporate headquarters, SERP termination expense, income tax expense and loss from equity method investment. 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):


		2022		2021			2022		2021
Three Months Ended March 31,
Three Months Ended June 30,						Three Months Ended June 30,
Net income	Net income	$	19,181	$	13,261	Net income	$	26,916	$	21,188
Depreciation and amortization	Depreciation and amortization	1,093		1,202		Depreciation and amortization	1,076		1,192

Gain on sale of corporate headquarters						Gain on sale of corporate headquarters	—		(2,051)
Stock-based compensation expense	Stock-based compensation expense	4,437		3,403		Stock-based compensation expense	4,410		3,532
Interest expense, net	Interest expense, net	608		797		Interest expense, net	371		765
Gain from swap termination						Gain from swap termination	(4,059)		—
Income tax expense	Income tax expense	7,130		4,905		Income tax expense	9,605		8,823

SERP termination expense						SERP termination expense	—		1,821
Loss from equity method investment	Loss from equity method investment	825		491		Loss from equity method investment	1,015		531
Adjusted EBITDA	Adjusted EBITDA	$	33,274	$	24,059	Adjusted EBITDA	$	39,334	$	35,801

Six Months Ended June 30,						Six Months Ended June 30,
Net income						Net income	$	46,097	$	34,449
Depreciation and amortization						Depreciation and amortization	2,169		2,394
Gain on sale of corporate headquarters						Gain on sale of corporate headquarters	—		(2,051)
Stock-based compensation expense						Stock-based compensation expense	8,848		6,935
Interest expense, net						Interest expense, net	979		1,562
Gain from swap termination						Gain from swap termination	(4,059)		—
Income tax expense						Income tax expense	16,735		13,728
SERP termination expense						SERP termination expense	—		1,821
Loss from equity method investment						Loss from equity method investment	1,840		1,022
Adjusted EBITDA						Adjusted EBITDA	$	72,609	$	59,860

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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 ~~March 31,~~June 30, 2022 and December 31, 2021, we had ~~$116.6~~$30.0 million and $97.0 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds. At ~~both March 31,~~June 30, 2022 and December 31, 2021, we had ~~$100.0~~$0 and $100 million outstanding under our credit ~~facility, and $98.6~~facility. At June 30, 2022, we had $198.6 million ~~available~~of borrowing availability under our credit facility. ~~The amounts~~

In May 2022, we terminated Swap B in connection with the payment of all outstanding borrowings under our credit facility, ~~were hedged by interest rate swaps, as discussed below.~~which was $100.0 million at the time of repayment.

Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the ~~Supplemental Executive Retirement Plan (the “SERP”).~~SERP. The benefits owed to the two participants under the SERP as of ~~March 31,~~June 30, 2022, ~~amount to~~was $20.0 million in the aggregate, which represented the fair value at the date of termination, and is recorded in Note F - Current Liabilities of Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1. Financial Statements of this report. These benefits were fully paid in July 2022.

Cash Flows

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

Cash provided by operating activities was ~~$38.7~~$70.8 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, as compared to ~~$22.4~~$36.6 million provided during the ~~three~~six months ended ~~March 31,~~June 30, 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 year-over-year increase was primarily driven by profitable revenue growth, proceeds from the termination of Swap B, and ~~better~~continued management of working capital.

Cash used in investing activities during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021 was ~~$2.7~~$6.0 million and ~~$3.4~~$16.3 million, respectively, and primarily consisted of cash used for capital expenditures and contributions to WorkLLama. ~~We expect~~The year over year decrease is mostly attributable to ~~continue investing~~the inclusion of $23.7 million in net proceeds from the sale of our ~~infrastructure, primarily focusing on implementing new and upgrading existing technologies that will provide~~corporate headquarters in the ~~most benefit.~~six months ended June 30, 2021.

Cash used in financing activities was ~~$16.4~~$131.8 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$21.2~~$39.1 million used during the ~~three~~six months ended ~~March 31,~~June 30, 2021. The change was primarily driven by ~~a decrease~~the repayment of $100.0 million outstanding on our credit facility and an increase in ~~the repurchases of common stock during the three month period of 2022 compared to 2021,~~dividend payments, offset in part by an increase in ~~dividend payments.~~the repurchases of common stock.

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


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
Open market repurchases	Open market repurchases	$	10,088	$	16,190	Open market repurchases	$	19,136	$	29,591
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	182		123		Repurchase of shares related to tax withholding requirements for vesting of restricted stock	464		336
Total cash flow impact of common stock repurchases	Total cash flow impact of common stock repurchases	$	10,270	$	16,313	Total cash flow impact of common stock repurchases	$	19,600	$	29,927

During the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, Kforce declared and paid quarterly dividends of ~~$6.1~~$12.2 million ($~~0.30~~0.60 per share) and ~~$4.8~~$9.5 million ($~~0.23~~0.46 per share), respectively, which represents a 30% ~~increase in the per share payment.~~increase. While the Board has declared and paid a quarterly dividend since initiation in the fourth quarter of 2013, and intends to in the foreseeable future, dividends will be subject to determination by our Board each quarter following its review of, among other things, the Firm’s current and expected financial performance as well as the ability to pay dividends under applicable law.

We believe that existing cash and cash equivalents, 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.

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Credit Facility

On October 20, 2021, the Firm entered into an amended and restated credit agreement with Wells Fargo Bank, National Association, as administrative agent, Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank of America, N.A., as syndication agent, BMO Harris Bank, N.A., as documentation agent, and the lenders referred to therein (the “Amended and Restated Credit Facility”). Under the Amended and Restated Credit Facility, the Firm has a maximum borrowing capacity of $200.0 million, which may, subject to certain conditions and the participation of the lenders, be increased up to an aggregate additional amount of $150.0 million. The maturity date of the Amended and Restated Credit Facility is October 20, 2026. As noted above, the Firm paid the credit facility’s outstanding balance of ~~March 31, 2022,~~ $100.0 million ~~was~~resulting in an outstanding ~~and $98.6~~balance of $0 as of June 30, 2022, thereby resulting in $198.6 million, subject to certain covenants, ~~was available.~~of availability under the credit facility. As of ~~March 31,~~June 30, 2022, we are in compliance with our credit facility covenants as described in the 2021 Annual Report on Form 10-K and currently expect that we will be able to maintain compliance with these covenants.

Prior to June 30, 2022, Kforce ~~has two forward-starting~~maintained interest rate swap agreements, which ~~have been~~were designated as cash flow hedges, to mitigate the risk of rising interest rates. In May 2022, Kforce terminated Swap B. Refer to Note IJJ - “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 March 31, 2022 and December 31, 2021, the fair value of our interest rate swaps were assets of $3.9 million and $0.8 million, respectively.~~

Stock Repurchases

In February 2022, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, Kforce repurchased approximately ~~144,000~~303,000 shares of common stock on the open market at a total cost of approximately ~~$10.1~~$20.1 million and ~~$98.8~~$88.8 million remained available for further repurchases under the Board-authorized common stock repurchase program at ~~March 31,~~June 30, 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 2021 Annual Report on Form ~~10-K.~~10-K

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

~~Refer~~Equity Method Investment

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

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

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

For a more detailed discussion of our accounting policies and critical accounting estimates, refer to Note A – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in our 2021 Annual Report on Form ~~10-K for a more detailed discussion of our significant accounting policies and critical accounting estimates.~~10-K.

NEW ACCOUNTING STANDARDS

Refer to Note A - “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements, included in Item 1. Financial Statements of this report for a discussion of new accounting standards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of ~~March 31,~~June 30, 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 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 KL - "Commitments and Contingencies" in the Notes to Unaudited Condensed Consolidated Financial Statements in the section entitled "Litigation and Loss Contingencies," included in Item 1. Financial Statements of this report. While the ultimate outcome of these legal proceedings cannot be determined, we currently do not expect that these matters, individually or in the aggregate, will have a material effect on our financial position.

ITEM 1A. RISK FACTORS.

There have been no material changes in the risk factors previously disclosed in our 2021 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 ~~March 31,~~June 30, 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
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


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
April 1, 2022 to April 30,2022	—	$	—	—	$	98,787,598
May 1, 2022 to May 31, 2022	4,009	$	70.40	—	$	98,787,598
June 1, 2022 to June 30, 2022	158,783	$	62.98	158,783	$	88,786,772
Total	162,792	$	63.17	158,783	$	88,786,772

(1) Includes ~~2,502~~4,009 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period ~~February~~May 1, 2022 to ~~February 28,~~May 31, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS.


Exhibit Number			Description

3.1			Amended and Restated Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 33-91738) filed with the SEC on April 28, 1995.
3.1a			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1b			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1c			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended.
3.1d			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 17, 2000.
3.1e			Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 29, 2002.
3.2			Amended & Restated Bylaws, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on April 29, 2013.
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 ~~March 31,~~June 30, 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:

~~May 4,~~August 3, 2022

By:

/s/ DAVID M. KELLY

David M. Kelly

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

Date:

~~May 4,~~August 3, 2022

By:

/s/ JEFFREY B. HACKMAN

Jeffrey B. Hackman

Senior Vice President, Finance and Accounting

(Principal Accounting Officer)

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PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1619
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2529
Item 4.	Controls and Procedures.	2529
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	2630
Item 1A.	Risk Factors.	2630
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2630
Item 3.	Defaults Upon Senior Securities.	2630
Item 4.	Mine Safety Disclosures.	2630
Item 5.	Other Information.	2630
Item 6.	Exhibits.	2731
SIGNATURES		2832


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 March 31, 2022

Interest rate swap derivative instruments	$	3,905	$	—	$	3,905	$	—
At December 31, 2021

Interest rate swap derivative instrument	$	823	$	—	$	823	$	—