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Table of Con tents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________________________________________________
FORM 10-Q
________________________________________________________

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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.

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
_______________________________________________________
1001 East Palm Avenue, Tampa, Florida 33605
______________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
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 |  | 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 October 28, 2022 was 20,753,646.

KFORCE INC.
TABLE OF CONTENTS

PART I | FINANCIAL INFORMATION |
Item 1. | Financial Statements. | 2
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 18
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 28
Item 4. | Controls and Procedures. | 28
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings. | 29
Item 1A. | Risk Factors. | 29
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 29
Item 3. | Defaults Upon Senior Securities. | 29
Item 4. | Mine Safety Disclosures. | 29
Item 5. | Other Information. | 29
Item 6. | Exhibits. | 30
SIGNATURES | 31

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 growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions; our 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 impact of our joint venture's inability to achieve its financial objectives or changes in valuation assumptions, the occurrence of unanticipated expenses; as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. Kforce undertakes no obligation to update any forward-looking statements.

Table of Con tents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Revenue | $ | 437,620 |  |  | $ | 402,725 |  |  | $ | 1,291,103 |  |  | $ | 1,169,564 |
Direct costs | 310,950 |  |  | 283,461 |  |  | 909,475 |  |  | 832,687 |
Gross profit | 126,670 |  |  | 119,264 |  |  | 381,628 |  |  | 336,877 |
Selling, general and administrative expenses | 94,306 |  |  | 88,972 |  |  | 285,502 |  |  | 251,617 |
Depreciation and amortization | 1,045 |  |  | 1,026 |  |  | 3,214 |  |  | 3,420 |
Income from operations | 31,319 |  |  | 29,266 |  |  | 92,912 |  |  | 81,840 |
Other expense (income), net | 906 |  |  | 1,448 |  |  | (333) |  |  | 5,845 |
Income from operations, before income taxes | 30,413 |  |  | 27,818 |  |  | 93,245 |  |  | 75,995 |
Income tax expense | 8,151 |  |  | 7,650 |  |  | 24,886 |  |  | 21,378 |
Net income | 22,262 |  |  | 20,168 |  |  | 68,359 |  |  | 54,617 |
Other comprehensive income, net of tax: |  |  |  |  |  |  |
Defined benefit pension plans | — |  |  | — |  |  | — |  |  | 3,103 |
Change in fair value of interest rate swaps | — |  |  | 152 |  |  | (615) |  |  | 1,101 |
Comprehensive income | $ | 22,262 |  |  | $ | 20,320 |  |  | $ | 67,744 |  |  | $ | 58,821 |
Earnings per share – basic | $ | 1.11 |  |  | $ | 0.99 |  |  | $ | 3.38 |  |  | $ | 2.64 |
Earnings per share – diluted | $ | 1.09 |  |  | $ | 0.96 |  |  | $ | 3.31 |  |  | $ | 2.57 |
Weighted average shares outstanding – basic | 20,022 |  |  | 20,429 |  |  | 20,206 |  |  | 20,676 |
Weighted average shares outstanding – diluted | 20,450 |  |  | 21,098 |  |  | 20,634 |  |  | 21,260 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

Table of Con tents
KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

| September 30, 2022 |  | December 31, 2021
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 5,089 |  |  | $ | 96,989 |
Trade receivables, net of allowances of $1,853 and $2,342, respectively | 281,124 |  |  | 265,322 |
Income tax refund receivable | 35 |  |  | 3,010 |
Prepaid expenses and other current assets | 10,019 |  |  | 6,790 |
Total current assets | 296,267 |  |  | 372,111 |
Fixed assets, net | 6,500 |  |  | 5,964 |
Other assets, net | 81,758 |  |  | 92,629 |
Deferred tax assets, net | 3,272 |  |  | 7,657 |
Goodwill | 25,040 |  |  | 25,040 |
Total assets | $ | 412,837 |  |  | $ | 503,401 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable and other accrued liabilities | $ | 73,030 |  |  | $ | 81,408 |
Accrued payroll costs | 81,619 |  |  | 71,424 |
Current portion of operating lease liabilities | 4,074 |  |  | 6,338 |
Income taxes payable | 4,241 |  |  | 1,239 |
Other current liabilities | 22 |  |  | 22 |
Total current liabilities | 162,986 |  |  | 160,431 |
Long-term debt – credit facility | — |  |  | 100,000 |
Other long-term liabilities | 40,875 |  |  | 54,564 |
Total liabilities | 203,861 |  |  | 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, 73,006 and 72,997 issued, respectively | 730 |  |  | 730 |
Additional paid-in capital | 502,909 |  |  | 488,036 |
Accumulated other comprehensive income | 6 |  |  | 621 |
Retained earnings | 491,856 |  |  | 442,596 |
Treasury stock, at cost; 52,172 and 51,493 shares, respectively | (786,525) |  |  | (743,577) |
Total stockholders’ equity | 208,976 |  |  | 188,406 |
Total liabilities and stockholders’ equity | $ | 412,837 |  |  | $ | 503,401 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Con tents
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 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 22,262 |  |  | — |  |  | — |  |  | 22,262 |
Issuance for stock-based compensation and dividends, net of forfeitures | (1) |  |  | — |  |  | 318 |  |  | — |  |  | (319) |  |  | — |  |  | — |  |  | (1) |
Stock-based compensation expense | — |  |  | — |  |  | 4,445 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,445 |
Employee stock purchase plan | — |  |  | — |  |  | 219 |  |  | — |  |  | — |  |  | (5) |  |  | 75 |  |  | 294 |
Dividends ($0.30 per share) | — |  |  | — |  |  | — |  |  | — |  |  | (5,977) |  |  | — |  |  | — |  |  | (5,977) |
Repurchases of common stock | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 383 |  |  | (22,580) |  |  | (22,580) |
Balance, September 30, 2022 | 73,006 |  |  | 730 |  |  | 502,909 |  |  | 6 |  |  | 491,856 |  |  | 52,172 |  |  | (786,525) |  |  | 208,976 |

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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 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 20,168 |  |  | — |  |  | — |  |  | 20,168 |
Issuance for stock-based compensation and dividends, net of forfeitures | (15) |  |  | (1) |  |  | 260 |  |  | — |  |  | (260) |  |  | — |  |  | — |  |  | (1) |
Stock-based compensation expense | — |  |  | — |  |  | 3,512 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,512 |
Employee stock purchase plan | — |  |  | — |  |  | 148 |  |  | — |  |  | — |  |  | (3) |  |  | 45 |  |  | 193 |
Dividends ($0.26 per share) | — |  |  | — |  |  | — |  |  | — |  |  | (5,304) |  |  | — |  |  | — |  |  | (5,304) |
Change in fair value of interest rate swap, net of tax benefit of $55 | — |  |  | — |  |  | — |  |  | 152 |  |  | — |  |  | — |  |  | — |  |  | 152 |
Repurchases of common stock | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 249 |  |  | (15,030) |  |  | (15,030) |
Balance, September 30, 2021 | 72,640 |  |  | 726 |  |  | 484,034 |  |  | (219) |  |  | 427,622 |  |  | 51,207 |  |  | (722,194) |  |  | 189,969 |

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)

| Nine Months Ended September 30,
| 2022 |  | 2021
Cash flows from operating activities: |  |  |
Net income | $ | 68,359 |  |  | $ | 54,617 |
Adjustments to reconcile net income to cash provided by operating activities: |  |  |
Deferred income tax provision, net | 4,386 |  |  | 302 |
Provision for credit losses | (231) |  |  | (139) |
Depreciation and amortization | 3,214 |  |  | 3,420 |
Stock-based compensation expense | 13,293 |  |  | 10,448 |
Defined benefit pension plan expense | — |  |  | 2,157 |
Loss (gain) on disposal or impairment of assets | 155 |  |  | (1,979) |
Noncash lease expense | 4,313 |  |  | 3,992 |
Loss on equity method investment | 2,737 |  |  | 1,709 |
Other | (322) |  |  | 681 |
Increase in operating assets |  |  |
Trade receivables, net | (15,571) |  |  | (41,397) |
Other assets | (1,989) |  |  | (6,384) |
Increase (decrease) in operating liabilities |  |  |
Accrued payroll costs | 11,025 |  |  | 7,715 |
Payment of benefit under terminated pension plan | (19,965) |  |  | — |
Other liabilities | 8,659 |  |  | 24,801 |
Cash provided by operating activities | 78,063 |  |  | 59,943 |
Cash flows from investing activities: |  |  |
Capital expenditures | (4,656) |  |  | (5,026) |
Contributions to WorkLLama joint venture | (500) |  |  | (7,000) |
Note receivable issued to WorkLLama joint venture | (4,500) |  |  | — |
Net proceeds from the sale of assets | — |  |  | 23,742 |
Cash (used in) provided by investing activities | (9,656) |  |  | 11,716 |
Cash flows from financing activities: |  |  |
Payments on credit facility | (100,000) |  |  | — |
Repurchases of common stock | (42,103) |  |  | (44,407) |
Cash dividends | (18,164) |  |  | (14,836) |
Payments on other financing arrangements | (40) |  |  | (271) |
Cash used in financing activities | (160,307) |  |  | (59,514) |
Change in cash and cash equivalents | (91,900) |  |  | 12,145 |
Cash and cash equivalents, beginning of period | 96,989 |  |  | 103,486 |
Cash and cash equivalents, end of period | $ | 5,089 |  |  | $ | 115,631 |

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| Nine Months Ended September 30,
Supplemental Disclosure of Cash Flow Information | 2022 |  | 2021
Cash Paid During the Period For: |  |  |
Income taxes | $ | 14,348 |  |  | $ | 17,845 |
Operating lease liabilities | 5,413 |  |  | 5,591 |
Interest, net | 918 |  |  | 1,934 |
Non-Cash Investing and Financing Transactions: |  |  |
ROU assets obtained from operating leases | $ | 274 |  |  | $ | 4,053 |
Employee stock purchase plan | 831 |  |  | 558 |
Unsettled repurchases of common stock | 1,030 |  |  | — |

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 nine months ended September 30, 2022, 428 thousand and 428 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30, 2021, 669 thousand and 584 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30, 2022, there were 304 thousand and 301 thousand anti-dilutive common stock equivalents, respectively. For the three and nine months ended September 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 nine months ended September 30, 2022 that had a significant impact on our financial statements.
Recently Issued Accounting Standards Not Yet Adopted
There are no accounting standards that 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 nine months ended September 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 September 30, |  |  |  |  |
2022 |  |  |  |  |
Revenue | $ | 390,496 |  |  | $ | 47,124 |  |  | $ | 437,620 |
Gross profit | $ | 107,793 |  |  | $ | 18,877 |  |  | $ | 126,670 |
Operating and other expenses |  |  |  |  | $ | 96,257 |
Income from operations, before income taxes |  |  |  |  | $ | 30,413 |
2021 |  |  |  |  |
Revenue | $ | 337,230 |  |  | $ | 65,495 |  |  | $ | 402,725 |
Gross profit | $ | 95,934 |  |  | $ | 23,330 |  |  | $ | 119,264 |
Operating and other expenses |  |  |  |  | $ | 91,446 |
Income from operations, before income taxes |  |  |  |  | $ | 27,818 |
Nine Months Ended September 30, |  |  |  |  |
2022 |  |  |  |  |
Revenue | $ | 1,134,996 |  |  | $ | 156,107 |  |  | $ | 1,291,103 |
Gross profit | $ | 320,160 |  |  | $ | 61,468 |  |  | $ | 381,628 |
Operating and other expenses |  |  |  |  | $ | 288,383 |
Income from operations, before income taxes |  |  |  |  | $ | 93,245 |
2021 |  |  |  |  |
Revenue | $ | 927,518 |  |  | $ | 242,046 |  |  | $ | 1,169,564 |
Gross profit | $ | 258,449 |  |  | $ | 78,428 |  |  | $ | 336,877 |
Operating and other expenses |  |  |  |  | $ | 260,882 |
Income from operations, before income taxes |  |  |  |  | $ | 75,995 |

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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 September 30, |  |  |  |  |
2022 |  |  |  |  |
Revenue by type: |  |  |  |  |
Flex revenue | $ | 382,072 |  |  | $ | 40,896 |  |  | $ | 422,968 |
Direct Hire revenue | 8,424 |  |  | 6,228 |  |  | 14,652 |
Total Revenue | $ | 390,496 |  |  | $ | 47,124 |  |  | $ | 437,620 |
2021 |  |  |  |  |
Revenue by type: |  |  |  |  |
Flex revenue | $ | 330,170 |  |  | $ | 59,003 |  |  | $ | 389,173 |
Direct Hire revenue | 7,060 |  |  | 6,492 |  |  | 13,552 |
Total Revenue | $ | 337,230 |  |  | $ | 65,495 |  |  | $ | 402,725 |
Nine Months Ended September 30, |  |  |  |  |
2022 |  |  |  |  |
Revenue by type: |  |  |  |  |
Flex revenue | $ | 1,109,294 |  |  | $ | 135,239 |  |  | $ | 1,244,533 |
Direct Hire revenue | 25,702 |  |  | 20,868 |  |  | 46,570 |
Total Revenue | $ | 1,134,996 |  |  | $ | 156,107 |  |  | $ | 1,291,103 |
2021 |  |  |  |  |
Revenue by type: |  |  |  |  |
Flex revenue | $ | 909,599 |  |  | $ | 224,783 |  |  | $ | 1,134,382 |
Direct Hire revenue | 17,919 |  |  | 17,263 |  |  | 35,182 |
Total Revenue | $ | 927,518 |  |  | $ | 242,046 |  |  | $ | 1,169,564 |

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

Allowance for credit losses, January 1, 2022 | $ | 1,729 |
Current period provision (credit) | (231) |
Write-offs charged against the allowance, net of recoveries of amounts previously written off | (240) |
Allowance for credit losses, September 30, 2022 | $ | 1,258 |

The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.6 million and $0.6 million at September 30, 2022 and December 31, 2021, respectively, for reserves unrelated to credit losses.
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Note E - Other Assets, Ne t
Other assets, net consisted of the following (in thousands):

| September 30, 2022 |  | December 31, 2021
Assets held in Rabbi Trust | $ | 30,199 |  |  | $ | 41,607 |
Right-of-use assets for operating leases, net | 10,331 |  |  | 15,395 |
Capitalized software, net (1) | 16,404 |  |  | 14,666 |
Equity method investment (2) | 14,772 |  |  | 17,008 |
Deferred loan costs, net | 939 |  |  | 1,115 |
Notes receivable (3) | 4,500 |  |  | — |
Other non-current assets | 4,613 |  |  | 2,838 |
Total Other assets, net | $ | 81,758 |  |  | $ | 92,629 |

(1) Accumulated amortization of capitalized software was $36.3 million and $35.5 million as of September 30, 2022 and December 31, 2021, respectively.
(2) In June 2019, Kforce entered into a joint venture resulting in a 50% noncontrolling interest in WorkLLama, LLC (“WorkLLama”), which is accounted for as an equity method investment. The loss on this WorkLLama investment was $0.9 million and $2.7 million for the three months and nine months ended September 30, 2022, respectively. In addition, Kforce contributed $0.5 million and $9.0 million of capital during the nine months ended September 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) In the three months ended June 30, 2022, Kforce loaned WorkLLama LLC $2.0 million, pursuant to a secured promissory note. In the three months ended September 30, 2022, Kforce amended the secured promissory note and increased the total amount available to loan to WorkLLama by an additional $4.0 million, of which an additional $2.5 million was extended, resulting in an outstanding balance of $4.5 million at September 30, 2022. All of the notes have the same terms, bearing interest at 7% annually with principal and accrued interest payable in a single payment in June 2025.
Note F - Current Liabilities
The following table provides information on certain current liabilities (in thousands):

| September 30, 2022 |  | December 31, 2021
Accounts payable and other accrued liabilities: |  |  |
Accounts payable | $ | 52,032 |  |  | $ | 40,241 |
Accrued liabilities | 20,998 |  |  | 41,167 |
Total Accounts payable and other accrued liabilities | $ | 73,030 |  |  | $ | 81,408 |
Accrued payroll costs: |  |  |
Payroll and benefits | $ | 54,470 |  |  | $ | 43,738 |
Payroll taxes | 22,432 |  |  | 22,466 |
Health insurance liabilities | 3,895 |  |  | 4,474 |
Workers’ compensation liabilities | 822 |  |  | 746 |
Total Accrued payroll costs | $ | 81,619 |  |  | $ | 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. In July 2022, the amount owed was fully paid thereby reducing accrued liabilities and relieving us of any future obligation related to the SERP.
Our payroll taxes as of September 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.
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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.
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 September 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):

| September 30, 2022 |  | December 31, 2021
Deferred compensation plan | $ | 32,990 |  |  | $ | 42,623 |
Operating lease liabilities | 7,877 |  |  | 11,919 |
Other long-term liabilities | 8 |  |  | 22 |
Total Other long-term liabilities | $ | 40,875 |  |  | $ | 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 nine months ended September 30, 2022 will vest over a period of one to ten years, with vesting occurring in equal annual installments.
During the three and nine months ended September 30, 2022, stock-based compensation expense was $4.5 million and $13.3 million, respectively. During the three and nine months ended September 30, 2021, stock-based compensation expense was $3.5 million and $10.5 million, respectively, and is included in Selling, general and administrative expenses.
The following table presents the restricted stock activity for the nine months ended September 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 | 42 |  |  | $ | 61.38 |  |  |
Forfeited | (33) |  |  | $ | 51.24 |  |  |
Vested | (43) |  |  | $ | 45.69 |  |  | $ | 2,831 |
Outstanding at September 30, 2022 | 1,049 |  |  | $ | 49.65 |  |  |

As of September 30, 2022, total unrecognized stock-based compensation expense related to restricted stock was $37.2 million, which will be recognized over a weighted-average remaining period of 4.3 years.
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Note J - Derivative Instruments and Hedging Activity
As of September 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.
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 in income, 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):

| Nine Months Ended September 30,
| 2022 |  | 2021 |  |
Accumulated derivative instrument gain (loss), beginning of period | $ | 823 |  |  | $ | (1,774) |  |  |
Net change associated with current period hedging transactions (1) | (823) |  |  | 1,478 |  |  |
Accumulated derivative instrument gain (loss), end of period | $ | — |  |  | $ | (296) |  |  |

(1) The accumulated derivative instrument activity as of the end the nine month period ending September 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. At September 30, 2022, Kforce had no interest rate swaps. 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 nine months ended September 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 September 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 June 30, 2022.
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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.
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 the Court granted preliminary approval on September 21, 2022. The settlement agreement is subject to final 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 final 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 hours 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 an agreement to resolve this matter along with Lewis, et al. v. Kforce Inc. and Buchsbaum, et al. v. Kforce Inc., et al., which was preliminarily approved by the Court on September 21, 2022, and we have set reserves accordingly. The settlement agreement is subject to final approval by the Court. We believe that this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.
On January 6, 2022, a complaint was filed against Kforce Inc. in the Superior Court of the State of California for the County of Los Angeles and was served on January 21, 2022. Jessica Cook and Brianna Pratt, et al. v. Kforce Inc., Case Number: 22STCV00602. On behalf of themselves and others similarly situated, plaintiffs purport to bring a class action alleging violations of Labor Code and the California Business and Professional Code and challenging the exempt classification of a select class of recruiters. Plaintiffs and class members seek damages for all earned wages, statutory penalties, injunctive relief, attorney’s fees, and interest for alleged failure to: properly classify certain recruiters as nonexempt from overtime; timely pay all wages earned, including overtime premium pay; provide
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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 September 30, 2022. We contributed $0.5 million and $9.0 million of capital during the nine months ended September 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 was taking longer than expected to achieve its original financial expectations. Given this, Kforce management determined that an indicator of impairment had occurred in the second quarter of 2022. 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
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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. At June 30, 2022, the fair value of the equity investment, determined in our impairment test, exceeded the carrying value by less than ten percent.
We have not identified any indicators that an other than temporary impairment has occurred in the three months ended September 30, 2022 that would require further analysis. We will continue to monitor potential indicators in future quarters that may have a bearing on the recoverability of the carrying value of our investment.
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. During October 2022, we began occupying the facility, which also signified the start of the accounting lease commencement date for financial reporting purposes. The new lease requires aggregate future lease payments of approximately $10.9 million over the entire lease term, which includes annual upward adjustments, and has a non-cancellable lease term of 129 months, excluding renewal options.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EXECUTIVE SUMMARY
The following is an executive summary of what Kforce believes are highlights as of and for the nine months ended September 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 nine months ended September 30, 2022, increased 9.8%, on a billing day basis, to $1,291.1 million from $1,169.6 million in the comparable period in 2021. Revenue increased 21.7% for Technology and decreased 35.8% for FA, on a billing day basis. The decrease in FA is primarily 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 nine months of 2022 compared to $66.3 million in the first nine months of 2021.
•Flex revenue for the nine months ended September 30, 2022 increased 9.1%, on a billing day basis, to $1,244.5 million from $1,134.4 million in the comparable period in 2021. Flex revenue increased 21.3% and decreased 40.1% for Technology and FA, respectively, on a billing day basis..
•Direct Hire revenue for the nine months ended September 30, 2022 increased 32.4% to $46.6 million from $35.2 million in the comparable period in 2021.
•Gross profit margin for the nine months ended September 30, 2022, increased 80 basis points to 29.6%, compared to the same period in 2021 primarily as a result of a higher mix of Direct Hire business and improved Flex gross profit margins.
•Flex gross profit margin for the nine months ended September 30, 2022, increased 30 basis points to 26.9%, compared to September 30, 2021. Technology Flex gross profit margin increased 10 basis points for the nine months ended September 30, 2022, as compared to the same period in 2021. FA Flex gross profit margin increased 280 basis points for the nine months ended September 30, 2022, respectively, as compared to the same period in 2021. The increase for the nine months ended September 30, 2022 was primarily 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 nine months ended September 30, 2022, increased to 22.1% from 21.5% in the comparable period in 2021 due to the sale of our corporate headquarters that occurred in the second quarter of 2021, which offset SG&A expenses and 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 nine months ended September 30, 2022, increased 25.2% to $68.4 million, or $3.31 per share, from $54.6 million, or $2.57 per share, in the comparable period in 2021.
•The Firm returned $60.8 million of capital to our shareholders in the form of open market repurchases totaling $42.6 million and quarterly dividends totaling $18.2 million during the nine months ending September 30, 2022.
•Cash provided by operating activities was $78.1 million during the nine months ended September 30, 2022, as compared to $59.9 million for the nine months ended September 30, 2021.
•Cash and cash equivalents was $5.1 million as of September 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 September 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 10,100 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 90% 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 fell to 3.5% at the end of September 2022. In the latest U.S. staffing industry forecast published by SIA in September 2022, the technology temporary staffing industry and finance and accounting temporary staffing industry are estimated to grow 16% and 12%, respectively, in 2022, and 8% and 7%, respectively, in 2023.
The macro environment certainly became cloudier in the third quarter ended September 30, 2022, with persistently elevated levels of inflation, rapidly rising interest rates, which, among other reasons, is impacting prospects for global and domestic economic growth. While trends in the third quarter were below levels experienced in 2021 and the first half of 2022, they remain above pre-pandemic levels.
Operating Results - Three and Nine Months Ended September 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 |  | Nine Months Ended
| September 30, |  | September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Revenue by segment: |  |  |  |  |  |  |
Technology | 89.2 | % |  | 83.7 | % |  | 87.9 | % |  | 79.3 | %
FA | 10.8 |  |  | 16.3 |  |  | 12.1 |  |  | 20.7 |
Total Revenue | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
Revenue by type: |  |  |  |  |  |  |
Flex | 96.7 | % |  | 96.6 | % |  | 96.4 | % |  | 97.0 | %
Direct Hire | 3.3 |  |  | 3.4 |  |  | 3.6 |  |  | 3.0 |
Total Revenue | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
Gross profit | 29.0 | % |  | 29.6 | % |  | 29.6 | % |  | 28.8 | %
Selling, general and administrative expenses | 21.6 | % |  | 22.1 | % |  | 22.1 | % |  | 21.5 | %
Depreciation and amortization | 0.2 | % |  | 0.3 | % |  | 0.2 | % |  | 0.3 | %
Income from operations | 7.2 | % |  | 7.3 | % |  | 7.2 | % |  | 7.0 | %
Income from operations, before income taxes | 6.9 | % |  | 6.9 | % |  | 7.2 | % |  | 6.5 | %
Net income | 5.1 | % |  | 5.0 | % |  | 5.3 | % |  | 4.7 | %

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Technology |  |  |  |  |  |  |  |  |  |  |
Flex revenue | $ | 382,072 |  |  | 15.7 | % |  | $ | 330,170 |  |  | $ | 1,109,294 |  |  | 22.0 | % |  | $ | 909,599 |
Direct Hire revenue | 8,424 |  |  | 19.3 | % |  | 7,060 |  |  | 25,702 |  |  | 43.4 | % |  | 17,919 |
Total Technology revenue | $ | 390,496 |  |  | 15.8 | % |  | $ | 337,230 |  |  | $ | 1,134,996 |  |  | 22.4 | % |  | $ | 927,518 |
FA |  |  |  |  |  |  |  |  |  |  |
Flex revenue | $ | 40,896 |  |  | (30.7) | % |  | $ | 59,003 |  |  | $ | 135,239 |  |  | (39.8) | % |  | $ | 224,783 |
Direct Hire revenue | 6,228 |  |  | (4.1) | % |  | 6,492 |  |  | 20,868 |  |  | 20.9 | % |  | 17,263 |
Total FA revenue | $ | 47,124 |  |  | (28.0) | % |  | $ | 65,495 |  |  | $ | 156,107 |  |  | (35.5) | % |  | $ | 242,046 |
Total Flex revenue | $ | 422,968 |  |  | 8.7 | % |  | $ | 389,173 |  |  | $ | 1,244,533 |  |  | 9.7 | % |  | $ | 1,134,382 |
Total Direct Hire revenue | 14,652 |  |  | 8.1 | % |  | 13,552 |  |  | 46,570 |  |  | 32.4 | % |  | 35,182 |
Total Revenue | $ | 437,620 |  |  | 8.7 | % |  | $ | 402,725 |  |  | $ | 1,291,103 |  |  | 10.4 | % |  | $ | 1,169,564 |

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 Flex Revenue Growth Rates
|  | (Per Billing Day)
|  | Q3 2022 |  | Q2 2022 |  | Q1 2022 |  | Q4 2021 |  | Q3 2021
Billing Days |  | 64 |  | 64 |  | 64 |  | 61 |  | 64
Technology |  | 15.7 | % |  | 23.3 | % |  | 26.0 | % |  | 31.0 | % |  | 28.9 | %
FA |  | (30.7) | % |  | (49.0) | % |  | (37.6) | % |  | (28.9) | % |  | (41.3) | %
Total Flex |  | 8.7 | % |  | 7.2 | % |  | 11.8 | % |  | 16.6 | % |  | 9.1 | %

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 15.7% and 21.3%, on a billing day basis, during the three and nine months ended September 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 have continued to experience a meaningful acceleration in average bill rates, which increased 1.4% sequentially and 8.3% year-over-year during the third quarter of 2022. We believe that the growth in consultants on assignment was fueled by strong secular drivers of demand, the strength of our client portfolio, our concentration in highly-skilled technology talent, and solid execution. We expect revenue growth in our Technology business in the fourth quarter to be in the high single digits on a year-over-year basis and to grow on a sequential basis.
Our FA segment experienced a decrease in Flex revenue of 30.7% and 40.1%, on a billing day basis, during the three and nine months ended September 30, 2022, respectively, as compared to the same periods in 2021, primarily driven by the intended fall off in our COVID-19 related business and repositioning efforts. Excluding the decline in COVID-19 related business, FA Flex revenues declined approximately 20.6% and 14.7% in the quarter and year to date periods ending September 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 6.2% sequentially and 28.5% year-over-year in the third quarter of 2022 compared to the same period in 2021. We expect Flex revenue in our FA business to increase in the low single digits sequentially in the fourth quarter primarily due to a project supporting Hurricane Ian recovery efforts.
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The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, 2022 vs. September 30, 2021 |  | September 30, 2022 vs. September 30, 2021
| Technology |  | FA |  | Technology |  | FA
Key Drivers - Increase (Decrease) |  |  |  |  |  |  |
Volume - hours billed | $ | 22,544 |  |  | $ | (27,183) |  |  | $ | 120,752 |  |  | $ | (121,766) |
Bill rate | 29,270 |  |  | 9,064 |  |  | 77,569 |  |  | 32,198 |
Billable expenses | 88 |  |  | 12 |  |  | 1,374 |  |  | 24 |
Total change in Flex revenue | $ | 51,902 |  |  | $ | (18,107) |  |  | $ | 199,695 |  |  | $ | (89,544) |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Technology | 4,308 |  |  | 6.9 | % |  | 4,031 |  |  | 12,722 |  |  | 13.3 | % |  | 11,226 |
FA | 816 |  |  | (46.1) | % |  | 1,515 |  |  | 2,904 |  |  | (54.2) | % |  | 6,339 |
Total Flex hours billed | 5,124 |  |  | (7.6) | % |  | 5,546 |  |  | 15,626 |  |  | (11.0) | % |  | 17,565 |

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 8.1% and 32.4% during the three and nine months ended September 30, 2022, respectively, as compared to the same period in 2021. The increase during the three month period was primarily driven by higher placement fees. The increase during the nine month period was primarily driven by a significant increase in both the number of placements and placement fees, though there has been a moderation in the performance of this more cyclically sensitive business in the second half of 2022 given macro-economic concerns.
The following table presents the key drivers for the change in Direct Hire revenue by segment over the prior period (in thousands):

| Three Months Ended |  | Nine Months Ended
| September 30, 2022 vs. September 30, 2021 |  | September 30, 2022 vs. September 30, 2021
| Technology |  | FA |  | Technology |  | FA
Key Drivers - Increase (Decrease) |  |  |  |  |  |  |
Volume - number of placements | $ | 1,254 |  |  | $ | (976) |  |  | $ | 5,777 |  |  | $ | 1,680 |
Placement fee | 110 |  |  | 712 |  |  | 2,006 |  |  | 1,925 |
Total change in Direct Hire revenue | $ | 1,364 |  |  | $ | (264) |  |  | $ | 7,783 |  |  | $ | 3,605 |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Technology | 341 |  |  | 17.6 | % |  | 290 |  |  | 1,098 |  |  | 32.1 | % |  | 831 |
FA | 341 |  |  | (15.0) | % |  | 401 |  |  | 1,201 |  |  | 9.8 | % |  | 1,094 |
Total number of placements | 682 |  |  | (1.3) | % |  | 691 |  |  | 2,299 |  |  | 19.4 | % |  | 1,925 |

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

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Technology | $ | 24,683 |  |  | 1.3 | % |  | $ | 24,360 |  |  | $ | 23,403 |  |  | 8.5 | % |  | $ | 21,576 |
FA | 18,269 |  |  | 12.9 | % |  | 16,181 |  |  | 17,384 |  |  | 10.2 | % |  | 15,780 |
Total average placement fee | $ | 21,478 |  |  | 9.5 | % |  | $ | 19,611 |  |  | $ | 20,260 |  |  | 10.8 | % |  | $ | 18,282 |

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 September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Technology | 27.6 | % |  | (2.8) | % |  | 28.4 | % |  | 28.2 | % |  | 1.1 | % |  | 27.9 | %
FA | 40.1 | % |  | 12.6 | % |  | 35.6 | % |  | 39.4 | % |  | 21.6 | % |  | 32.4 | %
Total gross profit percentage | 29.0 | % |  | (2.2) | % |  | 29.6 | % |  | 29.6 | % |  | 2.8 | % |  | 28.8 | %

The total gross profit percentage for the three months ended September 30, 2022, decreased 60 basis points as compared to the same period in 2021, primarily due to higher utilization of paid time off by our consultants and slight spread compression in our Technology Flex business. Total gross profit percentage for the nine months ended September 30, 2022 increased 80 basis points as compared to the same period in 2021, primarily as a result of an increased mix of Direct Hire revenue and the run off of the COVID-19 related business.
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 September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Technology | 26.0 | % |  | (3.3) | % |  | 26.9 | % |  | 26.5 | % |  | 0.4 | % |  | 26.4 | %
FA | 30.9 | % |  | 8.4 | % |  | 28.5 | % |  | 30.0 | % |  | 10.3 | % |  | 27.2 | %
Total Flex gross profit percentage | 26.5 | % |  | (2.6) | % |  | 27.2 | % |  | 26.9 | % |  | 1.1 | % |  | 26.6 | %

Overall, our Flex gross profit percentage decreased 70 basis points for the three months ended September 30, 2022, and increased 30 basis points for the nine months ended September 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 90 basis points for the three months ended September 30, 2022 and increased 10 basis points for the nine months ended September 30, 2022, as compared to the same periods in 2021. The decrease for the three months ended September 30, 2022 was primarily due to expected higher utilization of paid time off by our consultants and slight compression in spreads, which was slightly offset by lower payroll taxes.
•FA Flex gross profit margins increased 240 basis points for the three months ended September 30, 2022 and increased 280 basis points for the nine months ended September 30, 2022, as compared to the same periods in 2021. The
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increase in both periods was primarily due to the intended falloff of lower margin COVID-19 related business and 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 |  | Nine Months Ended
| September 30, 2022 vs. September 30, 2021 |  | September 30, 2022 vs. September 30, 2021
| Technology |  | FA |  | Technology |  | FA
Key Drivers - Increase (Decrease) |  |  |  |  |  |  |
Revenue impact | $ | 13,971 |  |  | $ | (5,168) |  |  | $ | 52,806 |  |  | $ | (24,366) |
Profitability impact | (3,476) |  |  | 979 |  |  | 1,122 |  |  | 3,801 |
Total change in Flex gross profit | $ | 10,495 |  |  | $ | (4,189) |  |  | $ | 53,928 |  |  | $ | (20,565) |

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 85.3% and 85.1% for the three and nine months ended September 30, 2022, compared to 84.9% and 86.0% 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.
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 September 30, |  |  |  |  |  |  |
Compensation, commissions, payroll taxes and benefits costs | $ | 80,425 |  |  | 18.4 | % |  | $ | 75,537 |  |  | 18.8 | %
Other (1) | 13,881 |  |  | 3.2 | % |  | 13,435 |  |  | 3.3 | %
Total SG&A | $ | 94,306 |  |  | 21.6 | % |  | $ | 88,972 |  |  | 22.1 | %
Nine Months Ended September 30, |  |  |  |  |  |  |
Compensation, commissions, payroll taxes and benefits costs | $ | 243,017 |  |  | 18.8 | % |  | $ | 216,324 |  |  | 18.5 | %
Other (1) | 42,485 |  |  | 3.3 | % |  | 35,293 |  |  | 3.0 | %
Total SG&A | $ | 285,502 |  |  | 22.1 | % |  | $ | 251,617 |  |  | 21.5 | %

(1) Includes credit expense, lease expense, professional fees, travel, telephone, computer, and certain other expenses.
SG&A as a percentage of revenue decreased 60 basis points for the three months ended September 30, 2022, and increased 60 basis points for the nine months ended September 30, 2022, compared to the same periods in 2021, respectively. The decrease in the three month period was mostly driven by lower performance based compensation costs as a result of the lower Flex gross margins in the third quarter and lower professional fees. The increase in the nine month period was primarily driven by (a) higher performance based compensation costs, (b) a gain on the sale of our corporate headquarters that occurred in the second quarter of 2021; 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. We are also continuing to make investments in our business, even with some moderation in our revenue growth in the second half of 2022, with a particular focus on improving our back-office productivity.
Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | Increase (Decrease) |  | 2021 |  | 2022 |  | Increase (Decrease) |  | 2021
Fixed asset depreciation (includes finance leases) | $ | 597 |  |  | (2.0) | % |  | $ | 609 |  |  | $ | 1,902 |  |  | (12.1) | % |  | $ | 2,164 |
Capitalized software amortization | 448 |  |  | 7.4 | % |  | 417 |  |  | 1,312 |  |  | 4.5 | % |  | 1,256 |
Total Depreciation and amortization | $ | 1,045 |  |  | 1.9 | % |  | $ | 1,026 |  |  | $ | 3,214 |  |  | (6.0) | % |  | $ | 3,420 |

Other Expense (Income), Net. Other expense (income), net for the three and nine months ended September 30, 2022, was expense of $0.9 million and income of $0.3 million, respectively. Other (income) expense, net for the three and nine months ended September 30, 2021 was expense of $1.4 million and $5.8 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 nine months ended September 30, 2022, Other expense (income), net also includes $4.1 million related to a gain recognized as a result of the termination of Swap B.
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During the three and nine months ended September 30, 2022, our proportionate share of the loss from WorkLLama, our equity method investment, was $0.9 million and $2.7 million, respectively, and during the three and nine months ended September 30, 2021, $0.7 million and $1.7 million, respectively. In addition, during the nine month ended September 30, 2021, Other (income) expense, 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 nine months ended September 30, 2022 and 2021 was 26.7% and 28.1%, 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.
The following table presents Free Cash Flow (in thousands):

| Nine Months Ended September 30, |
| 2022 |  | 2021 |
Net cash provided by operating activities | $ | 78,063 |  |  | $ | 59,943 |  |
Capital expenditures | (4,656) |  |  | (5,026) |  |
Free cash flow | 73,407 |  |  | 54,917 |  |
Payments on credit facility | (100,000) |  |  | — |  |
Repurchases of common stock | (42,103) |  |  | (44,407) |  |
Cash dividends | (18,164) |  |  | (14,836) |  |
Contributions to WorkLLama joint venture | (500) |  |  | (7,000) |  |
Net proceeds from the sale of assets | — |  |  | 23,742 |  |
Note receivable issued to WorkLLama joint venture | (4,500) |  |  | — |  |
Other | (40) |  |  | (271) |  |
Change in cash and cash equivalents | $ | (91,900) |  |  | $ | 12,145 |  |

Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income 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 September 30, |  |  |
Net income | $ | 22,262 |  |  | $ | 20,168 |
Depreciation and amortization | 1,045 |  |  | 1,026 |
Stock-based compensation expense | 4,445 |  |  | 3,512 |
Interest expense, net | 9 |  |  | 750 |
Income tax expense | 8,151 |  |  | 7,650 |
Loss from equity method investment | 896 |  |  | 687 |
Adjusted EBITDA | $ | 36,808 |  |  | $ | 33,793 |
Nine Months Ended September 30, |  |  |
Net income | $ | 68,359 |  |  | $ | 54,617 |
Depreciation and amortization | 3,214 |  |  | 3,420 |
Gain on sale of corporate headquarters | — |  |  | (2,051) |
Stock-based compensation expense | 13,293 |  |  | 10,447 |
Interest expense, net | 988 |  |  | 2,312 |
Gain from swap termination | 4,059 |  |  | — |
Income tax expense | 24,886 |  |  | 21,378 |
SERP termination expense | — |  |  | 1,821 |
Loss from equity method investment | 2,737 |  |  | 1,709 |
Adjusted EBITDA | $ | 117,536 |  |  | $ | 93,653 |

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LIQUIDITY AND CAPITAL RESOURCES
To meet our capital and liquidity requirements, we primarily rely on our operating cash flows and, if necessary, borrowings under our credit facility. At September 30, 2022 and December 31, 2021, we had $5.1 million and $97.0 million in cash and cash equivalents, respectively, which consisted primarily of government money market funds. At September 30, 2022 and December 31, 2021, we had $0 and $100.0 million outstanding under our credit facility. At September 30, 2022, we had $198.7 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 at the end of the second quarter of 2022 was $20.0 million in the aggregate, which represented the fair value at the date of termination. 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 $78.1 million during the nine months ended September 30, 2022, as compared to $59.9 million provided during the nine months ended September 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. Cash used in operating activities during the nine month period ended September 30, 2022 includes the payment of $20.0 million for amounts owed to two participants under the terminated SERP noted above. The year-over-year increase in cash provided by operating activities 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 nine months ended September 30, 2022 was $9.7 million and primarily consisted of cash used for capital expenditures of $4.7 million and the issuance of notes receivable from WorkLLama for $4.5 million. Cash provided by investing activities during the nine months ended September 30, 2021, was $11.7 million and included $23.7 million in net proceeds from the sale of our corporate headquarters, offset in part by cash used for capital expenditures and cash contributed to WorkLLama.
Cash used in financing activities was $160.3 million during the nine months ended September 30, 2022, compared to $59.5 million during the nine months ended September 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 a decrease in the repurchases of common stock.
The following table presents the cash flow impact of the common stock repurchase activity (in thousands):

|  | Nine Months Ended September 30,
|  | 2022 |  | 2021
Open market repurchases |  | $ | 41,572 |  |  | $ | 43,973 |
Repurchase of shares related to tax withholding requirements for vesting of restricted stock |  | 531 |  |  | 434 |
Total cash flow impact of common stock repurchases |  | $ | 42,103 |  |  | $ | 44,407 |

During the nine months ended September 30, 2022 and 2021, Kforce declared and paid quarterly dividends of $18.2 million ($0.90 per share) and $14.8 million ($0.72 per share), respectively, which represents a 25% increase.on a per share basis. 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 September 30, 2022, thereby resulting in $198.7 million, subject to certain covenants, of availability under the credit facility. As of September 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 nine months ended September 30, 2022, Kforce repurchased approximately 684,000 shares of common stock on the open market at a total cost of approximately $42.6 million and $66.3 million remained available for further repurchases under the Board-authorized common stock repurchase program at September 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 many 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 an indicator of impairment had occurred in the second quarter of 2022. 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
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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.
We have not identified any indicators that an other than temporary impairment has occurred in the three months ended September 30, 2022 that would require further analysis. We will continue to monitor potential indicators in future quarters that may have a bearing on the recoverability of the carrying value of our investment.
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.
N E W 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 September 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 September 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
July 1, 2022 to July 31, 2022 | 69,574 |  |  | $ | 62.49 |  |  | 69,574 |  |  | $ | 84,438,951 |
August 1, 2022 to August 31, 2022 | 128,530 |  |  | $ | 57.70 |  |  | 127,368 |  |  | $ | 77,089,873 |
September 1, 2022 to September 30, 2022 | 184,162 |  |  | $ | 58.73 |  |  | 184,162 |  |  | $ | 66,273,639 |
Total | 382,266 |  |  | $ | 59.07 |  |  | 381,104 |  |  | $ | 66,273,639 |

(1) Includes 1,162 shares received upon vesting of restricted stock to satisfy tax withholding requirements for the period August 1, 2022 to August 31, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
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Table of Con tents
ITEM 6. EXHIBITS.

Exhibit Number | Description |
3.1 | Amended and Restated Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 33-91738) filed with the SEC on April 28, 1995. |
3.1a | Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. |
3.1b | Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. |
3.1c | Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (File No. 333-111566) filed with the SEC on February 9, 2004, as amended. |
3.1d | Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on May 17, 2000. |
3.1e | Articles of Amendment to Articles of Incorporation, incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26058) filed with the SEC on March 29, 2002. |
3.2 | Amended & Restated Bylaws, incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26058) filed with the SEC on April 29, 2013. |
31.1 | Certification by the Chief Executive Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification by the Chief Financial Officer of Kforce Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification by the Chief Executive Officer of Kforce Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification by the Chief Financial Officer of Kforce Inc. pursuant to 18 U.S.C. Section 2350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.1 | The following material from this Quarterly Report on Form 10-Q of Kforce Inc. for the period ended September 30, 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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Table of Con tents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  |  | KFORCE INC.
Date: | November 2, 2022 | By: |  | /s/ DAVID M. KELLY
|  |  |  | David M. Kelly
|  |  |  | Executive Vice President, Chief Financial Officer
|  |  |  | (Principal Financial Officer)
Date: | November 2, 2022 | By: |  | /s/ JEFFREY B. HACKMAN
|  |  |  | Jeffrey B. Hackman
|  |  |  | Senior Vice President, Finance and Accounting
|  |  |  | (Principal Accounting Officer)

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