kfrc-20240630

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, 2024


☐			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 001-42104

_________________________________________________________________

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, par value $0.01 per share	KFRC	New York Stock Exchange

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 ☒ 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 ☒ 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 ☒

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 (in thousands) of the registrant’s common stock as of July 24, 2024 was 19,379.

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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.	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	23
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings.	23
Item 1A.	Risk Factors.	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	24
Item 3.	Defaults Upon Senior Securities.	24
Item 4.	Mine Safety Disclosures.	24
Item 5.	Other Information.	24
Item 6.	Exhibits.	25
SIGNATURES		26

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

References in this document to the “Registrant,” “Kforce,” the “Company,” the “Firm,” “management,” “we,” “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 the possibility and potential effects of an economic recession on the Firm’s business; the impacts of SG&A deleveraging in connection with expected demand for the Firm’s services; our expectations regarding the effects of our strategic investments on operating margins; our expectations regarding the future changes in revenue of each segment of our business; the impact of the economic environment on our business; our ability to control discretionary spending and decrease operating costs; the Firm’s commitment and ability 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; 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 and inflation, including related changes in government policies; 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 MD&A and Risk Factors 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

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue	$	356,318	$	389,190	$	708,207	$	795,187
Direct costs	257,345		278,924		513,984		570,945
Gross profit	98,973		110,266		194,223		224,242
Selling, general and administrative expenses	77,718		82,993		155,908		172,332
Depreciation and amortization	1,555		1,340		2,888		2,574
Income from operations	19,700		25,933		35,427		49,336
Other expense, net	504		313		1,160		1,358
Income from operations, before income taxes	19,196		25,620		34,267		47,978
Income tax expense	5,039		7,046		9,123		13,194
Net income	$	14,157	$	18,574	$	25,144	$	34,784




Earnings per share – basic	$	0.76	$	0.96	$	1.34	$	1.79
Earnings per share – diluted	$	0.75	$	0.95	$	1.33	$	1.77

Weighted average shares outstanding – basic	18,696		19,341		18,711		19,398
Weighted average shares outstanding – diluted	18,886		19,611		18,903		19,638

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, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	110	$	119
Trade receivables, net of allowances of $1,646 and $1,643, respectively	230,714		233,428

Prepaid expenses and other current assets	8,310		10,912
Total current assets	239,134		244,459
Fixed assets, net	8,526		9,418
Other assets, net	85,386		75,924
Deferred tax assets, net	4,599		3,138
Goodwill	25,040		25,040
Total assets	$	362,685	$	357,979
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	58,359	$	64,795
Accrued payroll costs	39,589		33,968
Current portion of operating lease liabilities	3,384		3,589
Income taxes payable	1,499		623
Total current liabilities	102,831		102,975
Long-term debt – credit facility	36,700		41,600

Other long-term liabilities	56,534		54,324
Total liabilities	196,065		198,899
Commitments and contingencies (Note J)
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, 73,479 and 73,462 issued, respectively	735		734
Additional paid-in capital	535,161		527,288
Retained earnings	535,565		525,222
Treasury stock, at cost; 54,104 and 53,941 shares, respectively	(904,841)		(894,164)
Total stockholders’ equity	166,620		159,080
Total liabilities and stockholders’ equity	$	362,685	$	357,979

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 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, 2023	73,462	$	734	$	527,288	$	—	$	525,222	53,941	$	(894,164)	$	159,080
Net income	—	—		—		—		10,987		—	—		10,987
Issuance for stock-based compensation and dividends, net of forfeitures	(7)	1		285		—		(286)		—	—		—
Stock-based compensation expense	—	—		3,501		—		—		—	—		3,501
Employee stock purchase plan	—	—		152		—		—		(3)	52		204
Dividends ($0.38 per share)	—	—		—		—		(7,128)		—	—		(7,128)
Repurchases of common stock	—	—		—		—		—		30	(2,139)		(2,139)

Balance, March 31, 2024	73,455	735		531,226		—		528,795		53,968	(896,251)		164,505
Net income	—	—		—		—		14,157		—	—		14,157
Issuance for stock-based compensation and dividends, net of forfeitures	24	—		286		—		(286)		—	—		—
Stock-based compensation expense	—	—		3,498		—		—		—	—		3,498
Employee stock purchase plan	—	—		151		—		—		(3)	51		202
Dividends ($0.38 per share)	—	—		—		—		(7,101)		—	—		(7,101)
Repurchases of common stock	—	—		—		—		—		139	(8,641)		(8,641)







Balance, June 30, 2024	73,479	$	735	$	535,161	$	—	$	535,565	54,104	$	(904,841)	$	166,620

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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, 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

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,
	2024		2023
Cash flows from operating activities:
Net income	$	25,144	$	34,784
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net	(1,461)		2,006
Provision for credit losses	(17)		454
Depreciation and amortization	2,888		2,574
Stock-based compensation expense	6,999		8,635
Noncash lease expense	1,848		1,803

Loss on equity method investment	—		750
Other	(993)		368
(Increase) decrease in operating assets
Trade receivables, net	2,730		19,148
Other assets	(395)		2,461
Increase (decrease) in operating liabilities
Accrued payroll costs	6,027		(8,414)

Other liabilities	(8,665)		(24,138)
Cash provided by operating activities	34,105		40,431
Cash flows from investing activities:
Capital expenditures	(4,979)		(4,950)
Proceeds from company-owned life insurance	2,377		—
Premiums paid for company-owned life insurance	(1,150)		(193)
Proceeds from the sale of our joint venture interest	—		5,059
Note receivable issued to our joint venture	—		(750)

Cash used in investing activities	(3,752)		(834)
Cash flows from financing activities:
Proceeds from credit facility	141,600		342,500
Payments on credit facility	(146,500)		(343,500)
Repurchases of common stock	(11,229)		(24,614)
Cash dividends	(14,229)		(13,947)
Other	(4)		(10)
Cash used in financing activities	(30,362)		(39,571)
Change in cash and cash equivalents	(9)		26
Cash and cash equivalents, beginning of period	119		121
Cash and cash equivalents, end of period	$	110	$	147

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	2024		2023
Cash Paid During the Period For:
Income taxes	$	8,593	$	16,547
Operating lease liabilities	2,485		2,541
Interest, net	1,097		233
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases	$	1,825	$	773
Employee stock purchase plan	406		541
Unsettled repurchases of common stock	400		726

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 our 2023 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 2023 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, 2023, was derived from our audited Consolidated Balance Sheet as of December 31, 2023, as presented in our 2023 Annual Report on Form 10-K.

Our quarterly operating results are affected by the seasonality of our clients’ businesses and changes in 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,” the “Firm,” “management,” “we,” “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. 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 may change materially in future periods.

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 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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The following table provides information on potentially dilutive securities (in thousands):


	2024	2023
Three Months Ended June 30,
Common stock equivalents	190	270
Anti-dilutive common stock equivalents	7	201
Six Months Ended June 30,
Common stock equivalents	192	240
Anti-dilutive common stock equivalents	4	235

Note B - Reportable Segments

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


	Technology		FA		Total
Three Months Ended June 30,
2024
Revenue	$	327,874	$	28,444	$	356,318
Gross profit	$	87,897	$	11,076	$	98,973
Operating and other expenses					$	79,777
Income from operations, before income taxes					$	19,196
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

Six Months Ended June 30,
2024
Revenue	$	649,958	$	58,249	$	708,207
Gross profit	$	171,934	$	22,289	$	194,223
Operating and other expenses					$	159,956
Income from operations, before income taxes					$	34,267
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

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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,
2024
Flex revenue	$	324,064	$	24,720	$	348,784
Direct Hire revenue	3,810		3,724		7,534
Total Revenue	$	327,874	$	28,444	$	356,318
2023
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

Six Months Ended June 30,
2024
Flex revenue	$	642,578	$	50,930	$	693,508
Direct Hire revenue	7,380		7,319		14,699
Total Revenue	$	649,958	$	58,249	$	708,207
2023
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

Note D - Allowance for Credit Losses

The following table presents the activity within the allowance for credit losses on trade receivables for the six months ended June 30, 2024 (in thousands):




Allowance for credit losses, January 1, 2024	$	1,106
Current period provision	(17)
Write-offs charged against the allowance, net of recoveries of amounts previously written off	(105)

Allowance for credit losses, June 30, 2024	$	984

The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.7 million and $0.5 million at June 30, 2024 and December 31, 2023, 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, 2024		December 31, 2023
Assets held in Rabbi Trust	$	45,803	$	40,389
Capitalized software, net (1)	22,468		16,434
ROU assets for operating leases, net	14,323		14,368
Deferred loan costs, net	539		658

Other non-current assets	2,253		4,075
Total Other assets, net	$	85,386	$	75,924

(1) Accumulated amortization of capitalized software was $40.3 million and $37.6 million as of June 30, 2024 and December 31, 2023, respectively.

Note F - Current Liabilities

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


	June 30, 2024		December 31, 2023
Accounts payable	$	42,392	$	42,842
Deferred compensation payable	6,962		5,927
Accrued liabilities	5,047		8,699
Customer rebates payable	3,958		7,327
Total Accounts payable and other accrued liabilities	$	58,359	$	64,795

Payroll and benefits	$	33,276	$	28,110
Health insurance liabilities	3,576		3,727
Payroll taxes	2,134		1,705
Workers’ compensation liabilities	603		426
Total Accrued payroll costs	$	39,589	$	33,968

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 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 of June 30, 2024 and December 31, 2023, $36.7 million and $41.6 million was outstanding under the Amended and Restated Credit Facility, respectively. As of June 30, 2024, we were in compliance with all of our financial covenants contained in the Amended and Restated Credit Facility.

Note H - Other Long-Term Liabilities

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


	June 30, 2024		December 31, 2023
Deferred compensation payable - long term	$	44,325	$	42,025
Operating lease liabilities	12,190		12,275
Other long-term liabilities	19		24
Total Other long-term liabilities	$	56,534	$	54,324

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Note I - Stock-Based Compensation

The following table presents the restricted stock activity for the six months ended June 30, 2024 (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, 2023	798	$	60.80
Granted	32	$	63.06
Forfeited	(16)	$	52.94
Vested	(39)	$	43.76	$	2,559
Outstanding at June 30, 2024	775	$	61.92

As of June 30, 2024, total unrecognized stock-based compensation expense related to restricted stock was $35.8 million, which is expected to be recognized over a weighted-average remaining period of 4.0 years.

During the three and six months ended June 30, 2024, stock-based compensation expense was $3.5 million and $7.0 million, respectively. During the three and six months ended June 30, 2023, stock-based compensation expense was $4.3 million and $8.6 million, respectively. Stock-based compensation is included in Selling, general and administrative expenses (“SG&A”) in the Unaudited Condensed Consolidated Statements of Operations.

Note J - 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, 2024, our liability would be approximately $30.4 million if, following a change in control, all of the executives under contract were terminated without cause by the employer or if the executives resigned for good reason, and $11.5 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

We are involved in legal proceedings, claims and administrative matters that arise in the ordinary course of business, and we have made accruals with respect to certain of these matters, where appropriate, that are reflected in our unaudited condensed 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. The outcome of any litigation is inherently uncertain, but we do not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on our unaudited condensed consolidated financial statements; however, if decided adversely to us, or if we determine that settlement of particular litigation is appropriate, we may be subject to additional liabilities that could have a material adverse effect on our financial position, results of operations or cash flows. Kforce maintains liability insurance that insures us against workers’ compensation, personal and 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.

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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, 2024, 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, 2024 decreased 10.9% to $708.2 million from $795.2 million in the comparable period in 2023. Revenue decreased 9.3% and 25.6% for Technology and FA, respectively, primarily driven by the ongoing macroeconomic uncertainty.

•Flex revenue for the six months ended June 30, 2024 decreased 10.4% to $693.5 million from $774.0 million in the comparable period in 2023. Flex revenue decreased 9.0% for Technology and 25.3% for FA. These decreases were driven by a decrease in the number of consultants on assignment.

•Direct Hire revenue for the six months ended June 30, 2024 decreased 30.6% to $14.7 million from $21.2 million in the comparable period in 2023.

•Gross profit margin for the six months ended June 30, 2024 decreased 80 basis points to 27.4% from 28.2% in the comparable period in 2023 as a result of a decline in Direct Hire mix and a decline in Flex gross profit margin.

•Flex gross profit margin for the six months ended June 30, 2024 decreased 30 basis points to 25.9% from 26.2% in the comparable period in 2023.

•SG&A expenses as a percentage of revenue for the six months ended June 30, 2024 increased to 22.0% from 21.7% in the comparable period in 2023.

•Net income for the six months ended June 30, 2024 decreased 27.7% to $25.1 million, or $1.33 per share, from $34.8 million, or $1.77 per share, for the six months ended June 30, 2023.

•The Firm returned $24.5 million of capital to our shareholders in the form of open market repurchases totaling $10.3 million and quarterly dividends totaling $14.2 million during the six months ended June 30, 2024.

•Cash provided by operating activities was $34.1 million during the six months ended June 30, 2024, as compared to $40.4 million for the six months ended June 30, 2023.

Table of Contents

RESULTS OF OPERATIONS

Business Overview

Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading companies. As of June 30, 2024, Kforce employed over 1,700 associates and had approximately 8,100 consultants on assignment. Kforce serves clients across a diverse set of industries and organizations of all sizes, but we place a particular focus on serving Fortune 500 and other large companies.

Our results continue to be negatively impacted by the ongoing macroeconomic uncertainty though we have recently experienced stability (albeit at lower levels) in our Technology business. There are also significant geopolitical concerns including, but not limited to, U.S. political uncertainties (including the upcoming presidential election), ongoing global supply chain issues, and the conflicts between Ukraine-Russia and Israel-Hamas (and more recently Israel-Iran), and any escalations thereof. While it has largely been anticipated that the U.S. economy would fall into a recession given the aggressive interest rate increases since March 2022 by the Federal Reserve to combat significant inflation, among other indicators, U.S. real gross domestic product (“GDP”) growth continues to be positive. Recent economic data regarding jobless claims and the unemployment rate have pointed, however, to a softening U.S. economy in 2024 as compared to 2023.

Based on data published by the U.S. Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”), temporary employment figures and trends are important indicators of staffing demand from an economic standpoint. The national U.S. unemployment rate increased to 4.1% in June 2024 compared to 3.7% in December 2023. In the latest U.S. staffing industry forecast published by SIA in April 2024, the technology temporary staffing industry and finance and accounting temporary staffing industry are both estimated to decline 3% in 2024. For 2025, technology temporary staffing is estimated to grow 5%, and finance and accounting temporary staffing is expected to remain flat year over year.

Operating Results - Three and Six Months Ended June 30, 2024 and 2023

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue by segment:
Technology	92.0	%	90.5	%	91.8	%	90.2	%
FA	8.0		9.5		8.2		9.8
Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Revenue by type:
Flex	97.9	%	97.2	%	97.9	%	97.3	%
Direct Hire	2.1		2.8		2.1		2.7
Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	27.8	%	28.3	%	27.4	%	28.2	%
Selling, general and administrative expenses	21.8	%	21.3	%	22.0	%	21.7	%
Depreciation and amortization	0.4	%	0.3	%	0.4	%	0.3	%
Income from operations	5.5	%	6.7	%	5.0	%	6.2	%
Income from operations, before income taxes	5.4	%	6.6	%	4.8	%

SEC Form 10-Q filed by Kforce Inc.