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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 June 30, 2022

OR

☐			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

x

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 July 29, 2022 was 21,176,046.

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KFORCE INC.

TABLE OF CONTENTS

PART I			FINANCIAL INFORMATION
Item 1.			Financial Statements.			3
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations.			19
Item 3.			Quantitative and Qualitative Disclosures About Market Risk.			29
Item 4.			Controls and Procedures.			29
PART II			OTHER INFORMATION
Item 1.			Legal Proceedings.			30
Item 1A.			Risk Factors.			30
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds.			30
Item 3.			Defaults Upon Senior Securities.			30
Item 4.			Mine Safety Disclosures.			30
Item 5.			Other Information.			30
Item 6.			Exhibits.			31
SIGNATURES						32

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.

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PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenue			$	436,516					$	403,614					$	853,483					$	766,839
Direct costs			305,444						284,683						598,525						549,226
Gross profit			131,072						118,931						254,958						217,613
Selling, general and administrative expenses			96,147						84,616						191,196						162,645
Depreciation and amortization			1,076						1,192						2,169						2,394
Income from operations			33,849						33,123						61,593						52,574
Other (income) expense, net			(2,672)						3,112						(1,239)						4,397
Income from operations, before income taxes			36,521						30,011						62,832						48,177
Income tax expense			9,605						8,823						16,735						13,728
Net income			26,916						21,188						46,097						34,449
Other comprehensive income, net of tax:
Defined benefit pension plans			—						3,056						—						3,103
Change in fair value of interest rate swaps			(2,917)						10						(615)						949
Comprehensive income			$	23,999					$	24,254					$	45,482					$	38,501
Earnings per share – basic			$	1.33					$	1.02					$	2.27					$	1.66
Earnings per share – diluted			$	1.30					$	1.00					$	2.22					$	1.61
Weighted average shares outstanding – basic			20,283						20,673						20,300						20,802
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.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

			June 30, 2022						December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents			$	29,974					$	96,989
Trade receivables, net of allowances of $1,931 and $2,342, respectively			285,355						265,322
Income tax refund receivable			372						3,010
Prepaid expenses and other current assets			10,592						6,790
Total current assets			326,293						372,111
Fixed assets, net			6,566						5,964
Other assets, net			82,687						92,629
Deferred tax assets, net			1,466						7,657
Goodwill			25,040						25,040
Total assets			$	442,052					$	503,401
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities			$	94,616					$	81,408
Accrued payroll costs			88,454						71,424
Current portion of operating lease liabilities			4,897						6,338
Income taxes payable			1,520						1,239
Other current liabilities			29						22
Total current liabilities			189,516						160,431
Long-term debt – credit facility			—						100,000
Other long-term liabilities			42,003						54,564
Total liabilities			231,519						314,995
Commitments and contingencies (Note L)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding			—						—
Common stock, $0.01 par; 250,000 shares authorized, 73,007 and 72,997 issued, respectively			730						730
Additional paid-in capital			497,927						488,036
Accumulated other comprehensive income			6						621
Retained earnings			475,890						442,596
Treasury stock, at cost; 51,794 and 51,493 shares, respectively			(764,020)						(743,577)
Total stockholders’ equity			210,533						188,406
Total liabilities and stockholders’ equity			$	442,052					$	503,401

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

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)

 

			Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income												Treasury Stock												Total Stockholders’ Equity
			Shares						Amount																		Retained Earnings						Shares						Amount
Balance, December 31, 2021			72,997						$	730					$	488,036					$	621					$	442,596					51,492						$	(743,577)					$	188,406
Net income			—						—						—						—						19,181						—						—						19,181
Issuance for stock-based compensation and dividends, net of forfeitures			(1)						—						319						—						(318)						—						—						1
Stock-based compensation expense			—						—						4,437						—						—						—						—						4,437
Employee stock purchase plan			—						—						193						—						—						(3)						49						242
Dividends ($0.30 per share)			—						—						—						—						(6,094)						—						—						(6,094)
Change in fair value of interest rate swaps, net of tax benefit of $780			—						—						—						2,302						—						—						—						2,302
Repurchases of common stock			—						—						—						—						—						147						(10,270)						(10,270)
Balance, March 31, 2022			72,996						$	730					$	492,985					$	2,923					$	455,365					51,636						$	(753,798)					$	198,205
Net income			—						—						—						—						26,916						—						—						26,916
Issuance for stock-based compensation and dividends, net of forfeitures			11												298						—						(298)						—						—						—
Stock-based compensation expense			—						—						4,410						—						—						—						—						4,410
Employee stock purchase plan			—						—						234						—						—						(4)						61						295
Dividends ($0.30 per share)			—						—						—						—						(6,093)						—						—						(6,093)
Change in fair value of interest rate swaps, net of tax expense of $989			—						—						—						(2,917)						—						—						—						(2,917)
Repurchases of common stock			—						—						—						—						—						162						(10,283)						(10,283)
Balance, June 30, 2022			73,007						730						497,927						6						475,890						51,794						(764,020)						210,533

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			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.

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

			Six Months Ended June 30,
			2022						2021
Cash flows from operating activities:
Net income			$	46,097					$	34,449
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net			6,191						899
Provision for credit losses			(172)						(181)
Depreciation and amortization			2,169						2,394
Stock-based compensation expense			8,848						6,936
Defined benefit pension plan expense			—						2,157
Loss (Gain) on disposal or impairment of assets			170						(1,987)
Noncash lease expense			2,950						2,443
Loss on equity method investment			1,840						1,022
Other			361						445
Increase in operating assets
Trade receivables, net			(19,862)						(38,365)
Other assets			(3,637)						(4,890)
Increase in operating liabilities
Accrued payroll costs			17,566						17,002
Other liabilities			8,239						14,250
Cash provided by operating activities			70,760						36,574
Cash flows from investing activities:
Capital expenditures			(3,458)						(2,919)
Contributions to WorkLLama, joint venture			(500)						(4,500)
Note receivable issued to WorkLLama, joint venture			(2,000)						—
Net proceeds from the sale of assets			—						23,742
Cash (used in) provided by investing activities			(5,958)						16,323
Cash flows from financing activities:
Payments on credit facility			(100,000)						—
Repurchases of common stock			(19,600)						(29,371)
Cash dividends			(12,187)						(9,532)
Payments on other financing arrangements			(30)						(201)
Cash used in financing activities			(131,817)						(39,104)
Change in cash and cash equivalents			(67,015)						13,793
Cash and cash equivalents, beginning of period			96,989						103,486
Cash and cash equivalents, end of period			$	29,974					$	117,279

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			Six Months Ended June 30,
Supplemental Disclosure of Cash Flow Information			2022						2021
Cash Paid During the Period For:
Income taxes			$	7,437					$	10,500
Operating lease liabilities			3,622						3,564
Interest, net			892						1,280
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases			$	406					$	3,852
Employee stock purchase plan			537						365
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 June 30, 2022, 435 thousand and 425 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and six months ended 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, there were 168 thousand and 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.

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

There are no accounting standards which have not yet been adopted that are expected to have a significant impact on our financial statements and related 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 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
Three Months Ended June 30,
2022
Revenue			$	384,595					$	51,921					$	436,516
Gross profit			$	109,917					$	21,155					$	131,072
Operating and other expenses															$	94,551
Income from operations, before income taxes															$	36,521
2021
Revenue			$	310,728					$	92,886					$	403,614
Gross profit			$	88,235					$	30,696					$	118,931
Operating and other expenses															$	88,920
Income from operations, before income taxes															$	30,011
Six Months Ended June 30,
2022
Revenue			$	744,500					$	108,983					$	853,483
Gross profit			$	212,367					$	42,591					$	254,958
Operating and other expenses															$	192,126
Income from operations, before income taxes															$	62,832
2021
Revenue			$	590,288					$	176,551					$	766,839
Gross profit			$	162,515					$	55,098					$	217,613
Operating and other expenses															$	169,436
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
Three Months Ended June 30,
2022
Revenue by type:
Flex revenue			$	375,507					$	44,193					$	419,700
Direct Hire revenue			9,088						7,728						16,816
Total Revenue			$	384,595					$	51,921					$	436,516
2021
Revenue by type:
Flex revenue			$	304,645					$	86,717					$	391,362
Direct Hire revenue			6,083						6,169						12,252
Total Revenue			$	310,728					$	92,886					$	403,614
Six Months Ended June 30,
2022
Revenue by type:
Flex revenue			$	727,223					$	94,343					$	821,566
Direct Hire revenue			17,277						14,640						31,917
Total Revenue			$	744,500					$	108,983					$	853,483
2021
Revenue by type:
Flex revenue			$	579,429					$	165,780					$	745,209
Direct Hire revenue			10,859						10,771						21,630
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 June 30, 2022.

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

Allowance for credit losses, January 1, 2022			$	1,729
Current period provision (credit)			(172)
Write-offs charged against the allowance, net of recoveries of amounts previously written off			(201)
Allowance for credit losses, June 30, 2022			$	1,356

The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.6 million and $0.6 million at 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):

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

(1) Accumulated amortization of capitalized software was $35.9 million and $35.5 million as of 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 $1.0 million and $1.8 million for the three months and six months ended June 30, 2022, respectively. In addition, Kforce contributed $0.5 million and $9.0 million of capital during the six months ended June 30, 2022 and the year ended December 31, 2021, respectively. Refer to Note L - “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):

			June 30, 2022						December 31, 2021
Accounts payable and other accrued liabilities:
Accounts payable			$	56,537					$	40,241
Accrued liabilities			38,079						41,167
Total Accounts payable and other accrued liabilities			$	94,616					$	81,408
Accrued payroll costs:
Payroll and benefits			$	56,226					$	43,738
Payroll taxes			27,126						22,466
Health insurance liabilities			4,309						4,474
Workers’ compensation liabilities			793						746
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 two participants under the SERP, as of June 30, 2022 and December 31, 2021, was $20.0 million in the aggregate, and were fully paid in July 2022, relieving us of any future obligation related to the SERP.

Our payroll taxes as of 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

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

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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):

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

Note I - 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 one 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) 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 six months ended June 30, 2022 will vest over a period of one to ten years, with vesting occurring in equal annual installments.

During the three and six months ended June 30, 2022, stock-based compensation expense was $4.4 million and $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 six months ended 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
Outstanding at December 31, 2021			1,083						$	48.86
Granted			31						$	63.93
Forfeited			(21)						$	44.46
Vested			(40)						$	47.15					$	2,628
Outstanding at June 30, 2022			1,053						$	49.70

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

Note J - 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 is as follows: Notional amount - $25.0 million; and Fixed interest rate - 1.81%.

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

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The Firm 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 credit facility, was 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 were designated as cash flow hedges. The change in the fair value of the Swaps was previously recorded as a component of Accumulated other comprehensive income (loss) in the unaudited consolidated financial statements.

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

			Six Months Ended June 30,
			2022						2021
Accumulated derivative instrument gain (loss), beginning of period			$	823					$	(1,774)
Net change associated with current period hedging transactions (1)			(823)						1,271
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 K - Fair Value Measurements

Our interest rate swaps were previously measured at fair value using readily observable inputs, which are considered to be Level 2 inputs and were recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. In April 2022, Swap A matured and in May 2022, we terminated Swap B. Refer to Note J - “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 six months ended June 30, 2022. The fair value of the interest rate swap derivative instrument asset at December 31, 2021 was $823 thousand and was classified as a Level 2 instrument.

Note L - Commitments and Contingencies

Employment Agreements

Kforce has employment agreements with certain executives that provide for certain post-employment benefits under certain circumstances. At 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

Except as stated below, there have been no material developments with regard to the legal proceedings previously disclosed in our 2021 Annual Report on Form 10-K or in our Form 10-Q for the quarter ending 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. (“PAGA”) alleging violations of the California Labor Code, §201, et seq. (“Labor Code”). The plaintiff seeks civil penalties, interest, attorneys’ fees, and costs under the Labor Code for alleged failure to: provide and pay for work performed during meal and rest periods; properly calculate and pay all earned minimum and overtime wages; provide compliant wage statements; timely pay wages during employment and upon termination; and reimburse business expenses. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to continue to vigorously defend the claims.

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

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 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 June 30, 2022. We contributed $0.5 million and $9.0 million of capital during the six months ended 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 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

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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 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.

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.

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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 six months ended 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 six months ended June 30, 2022, increased 10.4% to $853.5 million from $766.8 million in the comparable period in 2021. Revenue increased 25.1% for Technology and decreased 38.8% for FA as a result of the planned decrease in COVID-19 related business and repositioning efforts. There was a minimal amount of COVID-19 related business in the first six months of 2022 and there was $58.8 million in the first six months of 2021.

•Flex revenue for the six months ended June 30, 2022 increased 9.4% to $821.6 million from $745.2 million in the comparable period in 2021. Flex revenue increased 24.5% and decreased 43.5% for Technology and FA, respectively.

•Direct Hire revenue for the six months ended June 30, 2022 increased 47.6% to $31.9 million from $21.6 million in the comparable period in 2021.

•Gross profit margin for the six months ended June 30, 2022, increased 150 basis points to 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 six months ended June 30, 2022, increased 80 basis points to 27.1%, compared to June 30, 2021. Technology Flex gross profit margin increased 60 basis points due primarily to lower payroll taxes and lower healthcare costs, partially offset by slightly lower spreads. FA Flex gross profit margin increased 290 basis points for the six months ended June 30, 2022, respectively, as compared to the same period in 2021. The increase for the six months ended June 30, 2022 was mostly attributable to a decrease in COVID-19 related business and the repositioning of the business.

•SG&A expenses as a percentage of revenue for the six months ended June 30, 2022, increased to 22.4% from 21.2% in the comparable period in 2021 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 performance, and other investments in our business.

•Income from operations for the six months ended June 30, 2022, increased 33.8% to $46.1 million, or $2.22 per share, from $34.4 million, or $1.61 per share, in the comparable period in 2021.

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

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

•Cash and cash equivalents was $30.0 million as of 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. As of June 30, 2022, Kforce employed approximately 2,100 associates, including approximately 1,400 supporting the revenue-generating aspects of our business and approximately 700 supporting the revenue-enabling aspects. We also had approximately 10,300 consultants on assignment providing flexible staffing services and solutions to our 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 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 the 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 grow 12% and 8%, respectively, in 2022, and 6% and 5%, respectively, in 2023.

Operating Results - Three and Six Months Ended 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												Six Months Ended
			June 30,												June 30,
			2022						2021						2022						2021
Revenue by segment:
Technology			88.1		%				77.0		%				87.2		%				77.0		%
FA			11.9						23.0						12.8						23.0
Total Revenue			100.0		%				100.0		%				100.0		%				100.0		%
Revenue by type:
Flex			96.1		%				97.0		%				96.3		%				97.2		%
Direct Hire			3.9						3.0						3.7						2.8
Total Revenue			100.0		%				100.0		%				100.0		%				100.0		%
Gross profit			30.0		%				29.5		%				29.9		%				28.4		%
Selling, general and administrative expenses			22.0		%				21.0		%				22.4		%				21.2		%
Depreciation and amortization			0.2		%				0.3		%				0.3		%				0.3		%
Income from operations			7.8		%				8.2		%				7.2		%				6.9		%
Income from operations, before income taxes			8.4		%				7.4		%				7.4		%				6.3		%
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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Technology
Flex revenue			$	375,507					23.3		%				$	304,645					$	727,223					25.5		%				$	579,429
Direct Hire revenue			9,088						49.4		%				6,083						17,277						59.1		%				10,859
Total Technology revenue			$	384,595					23.8		%				$	310,728					$	744,500					26.1		%				$	590,288
FA
Flex revenue			$	44,193					(49.0)		%				$	86,717					$	94,343					(43.1)		%				$	165,780
Direct Hire revenue			7,728						25.3		%				6,169						14,640						35.9		%				10,771
Total FA revenue			$	51,921					(44.1)		%				$	92,886					$	108,983					(38.3)		%				$	176,551
Total Flex revenue			$	419,700					7.2		%				$	391,362					$	821,566					10.2		%				$	745,209
Total Direct Hire revenue			16,816						37.3		%				12,252						31,917						47.6		%				21,630
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
						(Per Billing Day)
						Q2 2022						Q1 2022						Q4 2021						Q3 2021						Q2 2021
Billing Days						64						64						61						64						64
Technology						23.3		%				26.0		%				31.0		%				28.9		%				20.9		%
FA						(49.0)		%				(37.6)		%				(28.9)		%				(41.3)		%				2.7		%
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 23.3% and 24.5% during the three and six months ended June 30, 2022, respectively, as compared to the same 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 scarcity of highly skilled technology consultants, we experienced a meaningful acceleration in average bill rates, which increased 2.4% sequentially and 8.1% year-over-year during the second quarter of 2022. Notable is that we experienced this acceleration in average bill rates while maintaining stable Flex gross margins. We believe that the growth in consultants on assignment was fueled by 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. Despite some moderate slowing in our activity levels in the second quarter compared to the historically high demand we were experiencing in 2021 and early 2022, activity levels continue to outpace pre-pandemic levels. We expect revenue growth in our Technology business in the third quarter to be in the mid-teen range on a year-over-year basis.

Our FA segment experienced a decrease in Flex revenue of 49.0% and 43.5% during the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021, primarily driven by the anticipated fall off in our COVID-19 related business and the repositioning of the business. Excluding the decline in COVID-19 related business, FA Flex revenues declined nearly 15% and 13% in the quarter and year to date periods ending June 30, 2022, respectively, compared to the same 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 8.1% sequentially and 33.1% year-over-year in 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 low double-digits sequentially in the 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												Six Months Ended
			June 30, 2022 vs. June 30, 2021												June 30, 2022 vs. June 30, 2021
			Technology						FA						Technology						FA
Key Drivers - Increase (Decrease)
Volume - hours billed			$	42,330					$	(53,490)					$	97,888					$	(94,021)
Bill rate			27,874						10,978						48,620						22,572
Billable expenses			658						(12)						1,286						12
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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Technology			4,292						14.0		%				3,766						8,414						17.0		%				7,194
FA			938						(61.7)		%				2,449						2,088						(56.7)		%				4,825
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 37.3% and 47.6% during the three and six months ended June 30, 2022, respectively, as compared to the same period in 2021. The increase during 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												Six Months Ended
			June 30, 2022 vs. June 30, 2021												June 30, 2022 vs. June 30, 2021
			Technology						FA						Technology						FA
Key Drivers - Increase (Decrease)
Volume - number of placements			$	1,480					$	496					$	4,343					$	2,593
Placement fee			1,525						1,063						2,075						1,276
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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Technology			369						24.2		%				297						757						39.9		%				541
FA			431						8.3		%				398						860						24.1		%				693
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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Technology			$	24,654					20.2		%				$	20,517					$	22,826					13.7		%				$	20,084
FA			17,946						15.9		%				15,478						$	17,033					9.6		%				$	15,548
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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Technology			28.6		%				0.7		%				28.4		%				28.5		%				3.6		%				27.5		%
FA			40.7		%				23.3		%				33.0		%				39.1		%				25.3		%				31.2		%
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 June 30, 2022, increased 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 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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Technology			26.9		%				(0.4)		%				27.0		%				26.8		%				2.3		%				26.2		%
FA			30.4		%				7.4		%				28.3		%				29.6		%				10.9		%				26.7		%
Total Flex gross profit percentage			27.2		%				(0.4)		%				27.3		%				27.1		%				3.0		%				26.3		%

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

•Flex margins in our Technology business decreased 10 basis points for the three months ended June 30, 2022 and increased 60 basis points for the six months ended June 30, 2022, as compared to the same periods in 2021. The increase for the six months ended June 30, 2022 was primarily due to lower payroll taxes and benefit costs.

•FA Flex gross profit margins increased 210 basis points for the three months ended June 30, 2022 and increased 290 basis points for the six months ended June 30, 2022, as compared to the same periods in 2021. The increase in both periods was primarily due to the falloff of lower margin COVID-19 related business and results of our repositioning efforts as well as lower healthcare and 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												Six Months Ended
			June 30, 2022 vs. June 30, 2021												June 30, 2022 vs. June 30, 2021
			Technology						FA						Technology						FA
Key Drivers - Increase (Decrease)
Revenue impact			$	19,109					$	(12,028)					$	38,683					$	(19,101)
Profitability impact			(432)						928						4,751						2,725
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 85.7% and 85.0% for the three and six months ended June 30, 2022, compared to 87.4% and 86.6% for the comparable 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
Three Months Ended June 30,
Compensation, commissions, payroll taxes and benefits costs			$	82,368					18.9		%				$	73,914					18.3		%
Other (1)			13,779						3.2		%				10,702						2.7		%
Total SG&A			$	96,147					22.0		%				$	84,616					21.0		%
Six Months Ended June 30,
Compensation, commissions, payroll taxes and benefits costs			$	162,592					19.1		%				$	140,788					18.4		%
Other (1)			28,604						3.4		%				21,857						2.9		%
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 100 and 120 basis points for the three and six months ended June 30, 2022, respectively, compared to the same period in 2021. The increase in both periods was due to (a) a gain on the sale of our corporate headquarters that occurred in the second quarter of 2021, (b) higher performance-based compensation given the strength in our performance, and (c) other investments in our 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 June 30,																		Six Months Ended June 30,
			2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Fixed asset depreciation (includes finance leases)			$	628					(15.7)		%				$	745					$	1,305					(16.0)		%				$	1,554
Capitalized software amortization			448						0.2		%				447						864						2.9		%				840
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 June 30, 2022, was income of $2.7 million and 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, and our proportionate share of the loss from WorkLLama.

During the three and six months ended June 30, 2022, 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, 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 six months ended June 30, 2022 and 2021 was 26.6% and 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):

			Six Months Ended June 30,
			2022						2021
Net cash provided by operating activities			$	70,760					$	36,574
Capital expenditures			(3,458)						(2,919)
Free cash flow			67,302						33,655
Payments on credit facility			(100,000)						—
Repurchases of common stock			(19,600)						(29,371)
Cash dividends			(12,187)						(9,532)
Contributions to WorkLLama, joint venture			(500)						(4,500)
Net proceeds from the sale of assets			—						23,742
Note receivable issued to WorkLLama, joint venture			(2,000)						—
Other			(30)						(201)
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
Three Months Ended June 30,
Net income			$	26,916					$	21,188
Depreciation and amortization			1,076						1,192
Gain on sale of corporate headquarters			—						(2,051)
Stock-based compensation expense			4,410						3,532
Interest expense, net			371						765
Gain from swap termination			(4,059)						—
Income tax expense			9,605						8,823
SERP termination expense			—						1,821
Loss from equity method investment			1,015						531
Adjusted EBITDA			$	39,334					$	35,801
Six Months Ended June 30,
Net income			$	46,097					$	34,449
Depreciation and amortization			2,169						2,394
Gain on sale of corporate headquarters			—						(2,051)
Stock-based compensation expense			8,848						6,935
Interest expense, net			979						1,562
Gain from swap termination			(4,059)						—
Income tax expense			16,735						13,728
SERP termination expense			—						1,821
Loss from equity method investment			1,840						1,022
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 June 30, 2022 and December 31, 2021, we had $30.0 million and $97.0 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds. At June 30, 2022 and December 31, 2021, we had $0 and $100 million outstanding under our credit facility. At June 30, 2022, we had $198.6 million of borrowing availability under our credit facility.

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

Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed to the two participants under the SERP as of June 30, 2022, 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 $70.8 million during the six months ended June 30, 2022, as compared to $36.6 million provided during the six months ended 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 continued management of working capital.

Cash used in investing activities during the six months ended June 30, 2022 and June 30, 2021 was $6.0 million and $16.3 million, respectively, and primarily consisted of cash used for capital expenditures and contributions to WorkLLama. The year over year decrease is mostly attributable to the inclusion of $23.7 million in net proceeds from the sale of our corporate headquarters in the six months ended June 30, 2021.

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

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

						Six Months Ended June 30,
						2022						2021
Open market repurchases						$	19,136					$	29,591
Repurchase of shares related to tax withholding requirements for vesting of restricted stock						464						336
Total cash flow impact of common stock repurchases						$	19,600					$	29,927

During the six months ended June 30, 2022 and 2021, Kforce declared and paid quarterly dividends of $12.2 million ($0.60 per share) and $9.5 million ($0.46 per share), respectively, which represents a 30% 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 $100.0 million resulting in an outstanding balance of $0 as of June 30, 2022, thereby resulting in $198.6 million, subject to certain covenants, of availability under the credit facility. As of 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 maintained interest rate swap agreements, which were designated as cash flow hedges, to mitigate the risk of rising interest rates. In May 2022, Kforce terminated Swap B. Refer to Note J - “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 rate swaps.

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 six months ended June 30, 2022, Kforce repurchased approximately 303,000 shares of common stock on the open market at a total cost of approximately $20.1 million and $88.8 million remained available for further repurchases under the Board-authorized common stock repurchase program at 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

CRITICAL ACCOUNTING ESTIMATES

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

Equity Method Investment

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

We review the equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recognized in the event that an other-than-temporary decline in the fair value of the investment occurs. Management’s estimate of the fair value of an investment is based on the income approach and market approach. Like 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.

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

ITEM 1A. RISK FACTORS.

There have been no material changes in the risk factors previously disclosed in our 2021 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 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
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 4,009 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period May 1, 2022 to 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 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:

August 3, 2022

By:

/s/ DAVID M. KELLY

David M. Kelly

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

Date:

August 3, 2022

By:

/s/ JEFFREY B. HACKMAN

Jeffrey B. Hackman

Senior Vice President, Finance and Accounting

(Principal Accounting Officer)

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