kfrc-20230630

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, 2023


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

For the transition period from to

Commission File Number 000-26058

_________________________________________________________________

Kforce Inc.

Exact name of registrant as specified in its charter

_______________________________________________________________


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


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

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

_______________________________________________________

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


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

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

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

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

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

The number of shares outstanding of the registrant’s common stock as of July 28, 2023 was 20,120,748.

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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.	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	25
Item 4.	Controls and Procedures.	25
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	26
Item 1A.	Risk Factors.	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26
Item 3.	Defaults Upon Senior Securities.	26
Item 4.	Mine Safety Disclosures.	26
Item 5.	Other Information.	26
Item 6.	Exhibits.	27
SIGNATURES		28

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, including our expectations regarding the future changes in revenue of each segment of our business; the impact of the economic environment on our business; our tighter discretionary spend control; the Firm’s commitment to return significant capital to its shareholders; our ability to meet capital expenditure and working capital requirements of our operations; the intent and ability to declare and pay quarterly dividends; growth rates in temporary staffing; a constraint in the supply of consultants and candidates or the Firm’s ability to attract such individuals; changes in client demand for our services and our ability to adapt to such changes; the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions; expected incurrence of stock-based compensation; the impact of the Inflation Reduction Act of 2022 on our stock repurchases and financial condition; our beliefs regarding the expected future benefits of our flexible working environment; our ability to maintain compliance with our credit facility's covenants; potential government actions or changes in laws and regulations; anticipated costs and benefits of acquisitions, divestitures, joint ventures and other investments; effects of interest rate variations; financing needs or plans; estimates concerning the effects of litigation or other disputes; the occurrence of unanticipated expenses; as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.

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

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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,
	2023		2022		2023		2022
Revenue	$	389,190	$	436,516	$	795,187	$	853,483
Direct costs	278,924		305,444		570,945		598,525
Gross profit	110,266		131,072		224,242		254,958
Selling, general and administrative expenses	82,993		96,147		172,332		191,196
Depreciation and amortization	1,340		1,076		2,574		2,169
Income from operations	25,933		33,849		49,336		61,593
Other expense (income), net	313		(2,672)		1,358		(1,239)
Income from operations, before income taxes	25,620		36,521		47,978		62,832
Income tax expense	7,046		9,605		13,194		16,735
Net income	18,574		26,916		34,784		46,097
Other comprehensive income, net of tax:
Change in fair value of interest rate swaps	—		(2,917)		—		(615)
Comprehensive income	$	18,574	$	23,999	$	34,784	$	45,482

Earnings per share – basic	$	0.96	$	1.33	$	1.79	$	2.27
Earnings per share – diluted	$	0.95	$	1.30	$	1.77	$	2.22

Weighted average shares outstanding – basic	19,341		20,283		19,398		20,300
Weighted average shares outstanding – diluted	19,611		20,718		19,638		20,725

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 EXCEPT PER SHARE AMOUNTS)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	147	$	121
Trade receivables, net of allowances of $1,579 and $1,575, respectively	249,895		269,496
Income tax refund receivable	669		35
Prepaid expenses and other current assets	8,743		8,108
Total current assets	259,454		277,760
Fixed assets, net	10,160		8,647
Other assets, net	70,636		75,771
Deferred tax assets, net	2,780		4,786
Goodwill	25,040		25,040
Total assets	$	368,070	$	392,004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	60,247	$	72,792
Accrued payroll costs	39,414		48,369
Current portion of operating lease liabilities	3,581		4,576
Income taxes payable	999		5,696
Total current liabilities	104,241		131,433
Long-term debt – credit facility	24,600		25,600

Other long-term liabilities	51,611		52,773
Total liabilities	180,452		209,806
Commitments and contingencies (Note L)
Stockholders’ equity:
Preferred stock, $0.01 par value; 15,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.01 par value; 250,000 shares authorized, 73,279 and 73,242 issued, respectively	732		732
Additional paid-in capital	517,422		507,734
Accumulated other comprehensive income	—		6
Retained earnings	512,937		492,764
Treasury stock, at cost; 53,163 and 52,744 shares, respectively	(843,473)		(819,038)
Total stockholders’ equity	187,618		182,198
Total liabilities and stockholders’ equity	$	368,070	$	392,004

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

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KFORCE INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income				Treasury Stock			Total Stockholders’ Equity
	Shares	Amount						Retained Earnings		Shares	Amount
Balance, December 31, 2022	73,242	$	732	$	507,734	$	6	$	492,764	52,744	$	(819,038)	$	182,198
Net income	—	—		—		—		16,210		—	—		16,210
Issuance for stock-based compensation and dividends, net of forfeitures	5	—		340		—		(341)		—	—		(1)
Stock-based compensation expense	—	—		4,326		—		—		—	—		4,326
Employee stock purchase plan	—	—		172		—		—		(5)	73		245
Dividends ($0.36 per share)	—	—		—		—		(7,003)		—	—		(7,003)
Repurchases of common stock	—	—		—		—		—		181	(10,244)		(10,244)
Other	—	—		—		(6)		—		—	—		(6)
Balance, March 31, 2023	73,247	732		512,572		$	—	501,630		52,920	(829,209)		185,725
Net income	—	—		—		—		18,574		—	—		18,574
Issuance for stock-based compensation and dividends, net of forfeitures	32	—		322		—		(322)		—	—		—
Stock-based compensation expense	—	—		4,309		—		—		—	—		4,309
Employee stock purchase plan	—	—		219		—		—		(5)	77		296
Dividends ($0.36 per share)	—	—		—		—		(6,945)		—	—		(6,945)
Repurchases of common stock	—	—		—		—		—		248	(14,341)		(14,341)
Balance, June 30, 2023	73,279	$	732	$	517,422	$	—	$	512,937	53,163	$	(843,473)	$	187,618

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

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,
	2023		2022
Cash flows from operating activities:
Net income	$	34,784	$	46,097
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	2,006		6,191
Provision for credit losses	454		(172)
Depreciation and amortization	2,574		2,169
Stock-based compensation expense	8,635		8,848
Noncash lease expense	1,803		2,950

Loss on equity method investment	750		1,840
Other	368		531
(Increase) decrease in operating assets
Trade receivables, net	19,148		(19,862)
Other assets	2,461		(3,637)
Increase (decrease) in operating liabilities
Accrued payroll costs	(8,414)		17,566

Other liabilities	(24,138)		8,239
Cash provided by operating activities	40,431		70,760
Cash flows from investing activities:
Capital expenditures	(4,950)		(3,458)
Proceeds from the sale of our joint venture interest	5,059		—
Equity method investment	—		(500)
Note receivable issued to our joint venture	(750)		(2,000)
Other	(193)		—
Cash used in investing activities	(834)		(5,958)
Cash flows from financing activities:
Proceeds from credit facility	342,500		—
Payments on credit facility	(343,500)		(100,000)

Repurchases of common stock	(24,614)		(19,600)
Cash dividends	(13,947)		(12,187)
Other	(10)		(30)

Cash used in financing activities	(39,571)		(131,817)
Change in cash and cash equivalents	26		(67,015)
Cash and cash equivalents, beginning of period	121		96,989
Cash and cash equivalents, end of period	$	147	$	29,974

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

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	Six Months Ended June 30,
Supplemental Disclosure of Cash Flow Information	2023		2022
Cash Paid During the Period For:
Income taxes	$	16,547	$	7,437
Operating lease liabilities	2,541		3,622
Interest, net	233		892
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases	$	773	$	406
Employee stock purchase plan	541		537
Unsettled repurchases of common stock	726		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 2022 Annual Report on Form 10-K.

Basis of Presentation

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

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

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most critical of these estimates and assumptions relate to the following: allowance for credit losses; income taxes; self-insured liabilities for health insurance; and the impairment of goodwill and other long-lived assets. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. 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 $280 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims, and incurred but not reported claims, which are primarily based upon an evaluation of historical claims experience, completion factors determined by an actuary and a qualitative review of our health insurance exposure, including the extent of outstanding claims and expected changes in health insurance costs.

Earnings per Share

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

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For the three and six months ended June 30, 2023, 270 thousand and 240 thousand common stock equivalents were included in the diluted WASO, respectively. 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, 2023, there were 201 thousand and 235 thousand anti-dilutive common stock equivalents, respectively. For the three and six months ended June 30, 2022, there were 168 thousand and 304 thousand anti-dilutive common stock equivalents, respectively.

Equity Method Investment and Note Receivable

In June 2019, we entered into a joint venture whereby Kforce obtained a 50% noncontrolling interest in WorkLLama, which was accounted for as an equity method investment. As of December 31, 2022, the equity method investment was fully impaired. During the three months ended June 30, 2023 and 2022, we recorded a loss related to our equity method investment of nil and $1.0 million, respectively. We recorded a loss related to our equity method investment of $0.8 million and $1.8 million during the six months ended June 30, 2023 and 2022, respectively.

During the year ended December 31, 2022, Kforce executed a series of promissory notes (the “Note Receivable”) to our joint venture for a total of $6.8 million and recorded a credit loss of $1.9 million, resulting in a balance of $4.8 million at December 31, 2022. There were no payments received on the Note Receivable during the year ended December 31, 2022.

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

Excise Tax

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into Federal law. The IRA provides for, among other things, a new U.S. Federal 1% nondeductible excise tax on certain repurchases of stock by publicly-traded U.S. domestic corporations occurring after December 31, 2022. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased. For purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain stock issuances against the fair market value of stock repurchases during the same taxable year, with certain exceptions. For the three and six months ended June 30, 2023, we recorded $0.1 million and $0.2 million in excise tax related to the IRA, which was included in Treasury stock in the unaudited condensed consolidated financial statements.

New Accounting Standards

Recently Adopted Accounting Standards

In March 2020, the FASB issued guidance for reference rate reform, which provided temporary optional guidance to ease the potential burden in accounting for reference rate reform in contracts and other transactions that reference LIBOR, or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The FASB has since issued subsequent updates to the initial guidance in December 2022, which extends the final sunset date for reference rate reform from December 31, 2022 to December 31, 2024. We adopted this standard as of January 1, 2023, and it did not have a material impact on our consolidated financial statements.

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, 2023, we have reported sales and gross profit information on a segment basis. Total assets, liabilities and operating expenses are not reported separately by segment as our operations are largely combined.

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


	Technology		FA		Total
Three Months Ended June 30,
2023
Revenue	$	352,025	$	37,165	$	389,190
Gross profit	$	95,485	$	14,781	$	110,266
Operating and other expenses					$	84,646
Income from operations, before income taxes					$	25,620
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

Six Months Ended June 30,
2023
Revenue	$	716,869	$	78,318	$	795,187
Gross profit	$	193,896	$	30,346	$	224,242
Operating and other expenses					$	176,264
Income from operations, before income taxes					$	47,978
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

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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,
2023
Revenue by type:
Flex revenue	$	346,326	$	32,144	$	378,470
Direct Hire revenue	5,699		5,021		10,720
Total Revenue	$	352,025	$	37,165	$	389,190
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
Six Months Ended June 30,
2023
Revenue by type:
Flex revenue	$	705,850	$	68,152	$	774,002
Direct Hire revenue	11,019		10,166		21,185
Total Revenue	$	716,869	$	78,318	$	795,187
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

Note D - Allowance for Credit Losses

The allowance for credit losses on trade receivables is determined by estimating and recognizing lifetime expected losses, rather than incurred losses, which results in the earlier recognition of credit losses even if the expected risk of credit loss is remote. As part of our analysis, we apply credit loss rates to outstanding receivables by aging category. For certain clients, we perform a quarterly credit review, which considers the client’s credit rating and financial position as well as our total credit loss exposure. Trade receivables are written off after all reasonable collection efforts have been exhausted. Recoveries of trade receivables previously written off are recorded when received and are immaterial for the three and six months ended June 30, 2023.

The following table presents the activity within the allowance for credit losses on trade receivables for the six months ended June 30, 2023 (in thousands):




Allowance for credit losses, January 1, 2023	$	1,006
Current period provision	454
Write-offs charged against the allowance, net of recoveries of amounts previously written off	(402)

Allowance for credit losses, June 30, 2023	$	1,058

The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.5 million and $0.6 million at June 30, 2023 and December 31, 2022, 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, 2023		December 31, 2022
Assets held in Rabbi Trust	$	36,664	$	31,976
Right-of-use assets for operating leases, net	12,998		17,102
Capitalized software, net (1)	15,415		16,149
Deferred loan costs, net	769		881
Notes receivable, net (2)	—		4,825
Other non-current assets	4,790		4,838
Total Other assets, net	$	70,636	$	75,771

(1) Accumulated amortization of capitalized software was $37.4 million and $36.6 million as of June 30, 2023 and December 31, 2022, respectively.

(2) Refer to Note A - “Summary of Significant Accounting Policies” for more details on the sale of our joint venture and the settlement of the Note Receivable.

Note F - Current Liabilities

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


	June 30, 2023		December 31, 2022
Accounts payable and other accrued liabilities:
Accounts payable	$	46,296	$	49,600
Accrued liabilities	13,951		23,192
Total Accounts payable and other accrued liabilities	$	60,247	$	72,792
Accrued payroll costs:
Payroll and benefits	$	32,940	$	41,506
Payroll taxes	2,175		2,633
Health insurance liabilities	3,835		3,481
Workers’ compensation liabilities	464		749
Total Accrued payroll costs	$	39,414	$	48,369

Our accounts payable balance includes vendor and third-party payables. Our accrued liabilities balance includes the current portion of our deferred compensation plans liability, contract liabilities from contracts with customers (such as customer rebates) and other accrued liabilities.

Note G - Credit Facility

On October 20, 2021, the Firm entered into an amended and restated credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), 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.

In June 2023, Kforce entered into the First Amendment to the Amended and Restated Credit Facility (the “First Amendment”), by and among Wells Fargo, as administrative agent, and the lenders and financial institutions from time to time party thereto, to replace the LIBOR-based benchmark interest rates with Secured Overnight Financing Rate benchmark interest rates (“SOFR Rate”).

As of June 30, 2023 and December 31, 2022, $24.6 million and $25.6 million was outstanding under the Amended and Restated Credit Facility, respectively. As of June 30, 2023, we were in compliance with all of our financial covenants contained in the Amended and Restated Credit Facility.

Table of Contents

Note H - Other Long-Term Liabilities

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


	June 30, 2023		December 31, 2022
Deferred compensation plan	$	40,493	$	36,390
Operating lease liabilities	11,089		16,380
Other long-term liabilities	29		3
Total Other long-term liabilities	$	51,611	$	52,773

Note I - Stock-based Compensation

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

Restricted stock (including RSAs and RSUs) is granted to directors, executives and management either for awards related to Kforce’s annual long-term incentive program or as part of a compensation package for attraction and retention purposes.

The following table presents the restricted stock activity for the six months ended June 30, 2023 (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, 2022	911	$	54.42

SEC Form 10-Q filed by Kforce Inc.