KFORCE INC

Previous wording

The following is an executive summary of what Kforce believes are highlights as of and for the three months ended March 31, 2024, which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

Current wording

The following is an executive summary of what Kforce believes are highlights as of and for the six months ended June 30, 2024, which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

Previous wording

•Revenue for the three months ended March 31, 2024 decreased 13.3% to $351.9 million from $406.0 million in the comparable period in 2023. Revenue decreased 11.7% and 27.6% for Technology and FA, respectively, primarily driven by the ongoing macroeconomic uncertainty.

Current wording

•Revenue for the six months ended June 30, 2024 decreased 10.9% to $708.2 million from $795.2 million in the comparable period in 2023. Revenue decreased 9.3% and 25.6% for Technology and FA, respectively, primarily driven by the ongoing macroeconomic uncertainty.

Previous wording

•Flex revenue for the three months ended March 31, 2024 decreased 12.8% to $344.7 million from $395.5 million in the comparable period in 2023. Flex revenue decreased 11.4% for Technology and 27.2% for FA.

Current wording

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

Previous wording

•Gross profit margin for the three months ended March 31, 2024 decreased 100 basis points to 27.1% from 28.1% in the comparable period in 2023, primarily due to a decline in the mix of Direct Hire revenue and Technology Flex gross profit margins.

Current wording

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

Previous wording

•Flex gross profit margin for the three months ended March 31, 2024 decreased 60 basis points to 25.6% from 26.2% in the comparable period in 2023, primarily due to a tighter pricing environment.

Current wording

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

Previous wording

•SG&A expenses as a percentage of revenue for the three months ended March 31, 2024, increased to 22.2% from 22.0% in the comparable period in 2023.

Current wording

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

Previous wording

•Net income for the three months ended March 31, 2024 decreased 32.2% to $11.0 million, or $0.58 per share, from $16.2 million, or $0.82 per share, for the three months ended March 31, 2023.

Current wording

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

Previous wording

•The Firm returned $9.1 million of capital to our shareholders in the form of open market repurchases totaling $2.0 million and quarterly dividends totaling $7.1 million during the three months ended March 31, 2024.

Current wording

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

Previous wording

•Cash provided by operating activities was $13.2 million during the three months ended March 31, 2024, as compared to $19.1 million for the three months ended March 31, 2023.

Current wording

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

Previous wording

Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading companies. As of March 31, 2024, Kforce employed approximately 1,800 associates and had approximately 8,100 consultants on assignment. Kforce serves clients across a diverse set of industries and organizations of all sizes, but we place a particular focus on serving Fortune 500 and other large companies.

Current wording

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

Previous wording

Our results continue to be negatively impacted by the ongoing macroeconomic uncertainty, including inflation and interest rate levels. There are also significant geopolitical concerns including, but not limited to, U.S. political uncertainties (including the upcoming presidential election), ongoing supply chain issues, and the conflicts between Ukraine-Russia and Israel-Hamas (and more recently Israel-Iran), and any escalations thereof. While it has largely been anticipated that the U.S. economy would fall into a recession given the aggressive rate increases by the Federal Reserve (beginning in March 2022) to combat significant inflation, among other indicators, U.S. real gross domestic product (“GDP”) growth continues to be positive.

Current wording

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

Previous wording

Based on data published by the U.S. Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”), temporary employment figures and trends are important indicators of staffing demand from an economic standpoint. The national U.S. unemployment rate increased slightly to 3.8% in March 2024 compared to 3.7% in December 2023. In the latest U.S. staffing industry forecast published by SIA in April 2024, the technology temporary staffing industry and finance and accounting temporary staffing industry are both estimated to decline 3% in 2024. For 2025, technology temporary staffing is estimated to grow 5% and finance and accounting temporary staffing is expected to remain flat year over year.

Current wording

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

Previous wording

Operating Results - Three Months Ended March 31, 2024 and 2023

Current wording

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

Previous wording

Technology Flex revenue decreased during the three months ended March 31, 2024 by 11.4%, as compared to the same period in 2023, primarily driven by a decrease in consultants on assignment. Following a slower than expected start to the first quarter of 2024, our leading indicators began to improve in late January 2024, which led to consistent growth in the number of consultants on assignment throughout March 2024. As a result, we expect revenue in our Technology Flex business to increase in the low single digits sequentially and decrease in the mid single digits year-over-year.

Current wording

Technology Flex revenue decreased during the three and six months ended June 30, 2024 by 6.4% and 9.0%, respectively, as compared to the same periods in 2023, primarily driven by a decrease in the number of consultants on assignment. Sequentially, Technology Flex revenue improved 1.7% in the second quarter primarily as a result of the assignment growth experienced in the month of March 2024. After experiencing a degree of natural assignment ends in early April 2024, the number of consultants on assignment in our Technology business for the remainder of the second quarter was fairly stable. In the third quarter, we expect revenue in our Technology Flex business to decline slightly on a sequential basis and decrease in the mid single digits year-over-year.

Previous wording

Our FA segment experienced a decrease in Flex revenue of 27.2% during the three months ended March 31, 2024, as compared to the same period in 2023, primarily driven by a decrease in consultants on assignment. Our average bill rates improved by 6.2% for the three months ended March 31, 2024, as compared to the same period in 2023. In the second quarter, we expect FA Flex revenues to decrease in the high single digits sequentially and in the mid 20% range year-over-year.

Current wording

Our FA segment experienced a decrease in Flex revenue of 23.1% and 25.3% during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023, primarily driven by a decrease in the number of consultants on assignment as a result of our repositioning efforts and the uncertainty in the macro environment. Our average bill rates improved by 1.0% and 3.7% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. In the third quarter, we expect FA Flex revenue to decrease in the mid single digits sequentially and in the mid 20% range year-over-year.

Previous wording

Direct Hire revenue decreased 31.5% during the three months ended March 31, 2024, as compared to the same period in 2023, which was primarily driven by a decrease in placements.

Current wording

Direct Hire revenue decreased 29.7% and 30.6% during the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023, which was primarily driven by a decrease in placements.

Previous wording

The total gross profit percentage for the three months ended March 31, 2024 decreased 100 basis points, as compared to the same period in 2023, primarily due to a decline in the mix of Direct Hire revenue and Technology Flex gross profit margins.

Current wording

The total gross profit percentage for the three and six months ended June 30, 2024 decreased 50 and 80 basis points, respectively, as compared to the same periods in 2023. The decrease for the three months ended June 30, 2024 was primarily driven by a decline in the mix of Direct Hire revenue and FA Flex gross profit margins. The decrease for the six months ended June 30, 2024 was primarily due to a decline in the mix of Direct Hire revenue and Technology Flex gross profit margins.

Previous wording

Our Flex gross profit percentage decreased 60 basis points for the three months ended March 31, 2024, as compared to the same period in 2023.

Current wording

Our Flex gross profit percentage decreased 10 and 30 basis points for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

Previous wording

•Technology Flex gross profit margins decreased 60 basis points for the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to a tighter pricing environment. On a sequential basis, Technology Flex gross profit margins declined 10 basis points as a result of seasonal payroll tax increases, which was partially offset by lower healthcare costs. We expect Technology Flex gross profit margins for the second quarter of 2024 to increase sequentially due to lower seasonal payroll taxes.

Current wording

•Technology Flex gross profit margins remained flat and decreased 30 basis points for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. For the three months ended June 30, 2024, the impact from a tighter pricing environment was offset by lower healthcare costs. The decrease for the six months ended was primarily due to a tighter pricing environment, partially offset by lower healthcare costs. We expect Technology Flex gross profit margins for the third quarter of 2024 to remain fairly stable sequentially.

Previous wording

•FA Flex gross profit margins increased 20 basis points for the three months ended March 31, 2024, as compared to the same period in 2023. The increase for the three months ended March 31, 2024 is primarily due to lower healthcare costs, which were partially offset by a tighter pricing environment. We expect FA Flex gross profit margins for the second quarter of 2024 to remain stable sequentially.

Current wording

•FA Flex gross profit margins decreased 70 and 20 basis points for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023, primarily driven by changes in our client portfolio mix, partially offset by lower healthcare costs. We expect FA Flex gross profit margins for the third quarter of 2024 to remain stable sequentially.

Previous wording

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A expenses represented 83.9% for the three months ended March 31, 2024, as compared to 84.6% for the comparable period in 2023. 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.

Current wording

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A expenses represented 84.2% and 84.0% for the three and six months ended June 30, 2024, respectively, as compared to 85.6% and 85.1% for the comparable periods in 2023, respectively. 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.

Previous wording

The following table presents certain components of SG&A expenses as a percentage of total revenue for the three months ended March 31 (in thousands):

Current wording

The following table presents certain components of SG&A expenses as a percentage of total revenue (in thousands):

Previous wording

We continue to prioritize investments in our strategic initiatives, including our integrated strategy, nearshore and offshore delivery capabilities and our back-office transformation program. We are continuing to exercise tight discretionary spend control and take appropriate actions to generate cost efficiencies.

Current wording

We continue to prioritize investments in our strategic initiatives, including our integrated strategy, nearshore and offshore delivery capabilities and the implementation of Workday as part of our back-office transformation program. We are continuing to exercise tight discretionary spend control and take appropriate actions to generate cost efficiencies.

Previous wording

Other Expense, Net. Other expense, net for the three months ended March 31, 2024 and 2023 was $0.7 million and $1.0 million, respectively. Other expense, net primarily includes interest expense related to outstanding borrowings under our Amended and Restated Credit Facility. During the three months ended March 31, 2023, this balance also includes our proportionate share of losses related to our equity method investment of $0.8 million. On February 23, 2023, Kforce sold its 50% noncontrolling interest in our joint venture to an unaffiliated third party.

Current wording

During the three and six months ended June 30, 2023, this balance also included our proportionate share of losses related to our equity method investment of nil and $0.8 million, respectively. In February 2023, Kforce sold its 50% noncontrolling interest in our joint venture to an unaffiliated third party.

Previous wording

Income Tax Expense. Income tax expense as a percentage of income from operations, before income taxes (our “effective tax rate”) for the three months ended March 31, 2024 and 2023 was 27.1% and 27.5%, respectively. The primary differences between the U.S. statutory rate and our effective tax rate are related to nondeductible items such as Internal Revenue Code Section 162(m).

Current wording

Income Tax Expense. Income tax expense as a percentage of income from operations, before income taxes (our “effective tax rate”) for the six months ended June 30, 2024 and 2023 was 26.6% and 27.5%, respectively. The primary driver for the decrease relates to the proceeds from company-owned life insurance received during the three months ended June 30, 2024.

Previous wording

Revenue Growth Rates.“Revenue growth rates,” a non-GAAP financial measure, is defined by Kforce as year-over-year revenue growth after removing the impacts on reported revenues from the changes in the number of billing days. Management believes this data is particularly useful because it aids in evaluating revenue trends over time. Billing days impact is calculated by dividing each comparative period’s reported revenues by the number of billing days for that period to arrive at a per billing day amount. Same billing day growth rates are then calculated based on the per billing day amounts. Management calculates the number of billing days for each reporting period based on the number of holidays and business days in the quarter.

Current wording

Revenue Growth Rates.“Revenue growth rates,” a non-GAAP financial measure, is defined by Kforce as revenue growth after removing the impacts on reported revenues from the changes in the number of billing days. Management believes this data is particularly useful because it aids in evaluating revenue trends over time. The impact of billing days is calculated by dividing each comparative period’s reported revenues by the number of billing days for the respective period to arrive at a per billing day amount for each quarter. Growth rates are then calculated using the per billing day amounts as a percentage change compared to the respective period. Management calculates the number of billing days for each reporting period based on the number of holidays and business days in the quarter.

Previous wording

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 tax expense, loss from equity method investment and certain other items. 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.

Current wording

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 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 unaudited condensed 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.

Previous wording

To meet our capital and liquidity requirements, we primarily rely on our operating cash flows and borrowings under our credit facility. At March 31, 2024 and December 31, 2023, we had $40.8 million and $41.6 million outstanding under our Amended and Restated Credit Facility, respectively, and the borrowing availability was $158.2 million and $157.2 million, respectively, subject to certain covenants. At March 31, 2024, Kforce had $140.1 million in working capital compared to $141.5 million at December 31, 2023.

Current wording

To meet our capital and liquidity requirements, we primarily rely on our operating cash flows and borrowings under our credit facility. At June 30, 2024 and December 31, 2023, we had $36.7 million and $41.6 million outstanding under our Amended and Restated Credit Facility, respectively, and the borrowing availability was $162.3 million and $157.2 million, respectively, subject to certain covenants. At June 30, 2024, Kforce had $136.3 million in working capital compared to $141.5 million at December 31, 2023.

Previous wording

Cash provided by operating activities was $13.2 million during the three months ended March 31, 2024, as compared to $19.1 million during the three months ended March 31, 2023. Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. The year-over-year decrease in cash provided by operating activities was primarily driven by lower profitability levels and collections on trade receivables, partially offset by the timing of payments.

Current wording

Cash provided by operating activities was $34.1 million during the six months ended June 30, 2024, as compared to $40.4 million during the six months ended June 30, 2023. Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. The year-over-year decrease in cash provided by operating activities was primarily driven bylower profitability levels and collections on trade receivables.

Previous wording

Cash used in investing activities during the three months ended March 31, 2024 was $2.4 million and primarily consisted of cash used for capital expenditures of $1.9 million. Cash provided by investing activities was $2.4 million during the three months ended March 31, 2023, and primarily consisted of the proceeds from the sale of our joint venture interest of $5.1 million, partially offset by cash used for capital expenditures of $1.9 million.

Current wording

Cash provided by investing activities was $0.8 million during the six months ended June 30, 2023, and primarily consisted of the proceeds from the sale of our joint venture interest of $5.1 million, partially offset by cash used for capital expenditures of $5.0 million.

Previous wording

Cash used in financing activities was $10.8 million during the three months ended March 31, 2024, compared to $21.4 million during the three months ended March 31, 2023. The change was primarily driven by a decrease in repurchases of common stock.

Current wording

Cash used in financing activities was $30.4 million during the six months ended June 30, 2024, compared to $39.6 million during the six months ended June 30, 2023. The decrease in cash used in financing activities was primarily driven by a decrease in repurchases of common stock.

Previous wording

During the three months ended March 31, 2024 and 2023, Kforce declared and paid quarterly dividends of $7.1 million ($0.38 per share) and $7.0 million ($0.36 per share), respectively, which represents a 6% increase on a per share basis. While the Firm’s Board of Directors (the “Board”) has declared and paid quarterly dividends since the fourth quarter of 2014, 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.

Current wording

During the six months ended June 30, 2024 and 2023, Kforce declared and paid quarterly dividends of $14.2 million ($0.76 per share) and $13.9 million ($0.72 per share), respectively, which represents a 6% increase on a per share basis. While the Firm’s Board of Directors (the “Board”) has declared and paid quarterly dividends since the fourth quarter of 2014, 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.

Previous wording

We believe that existing cash and cash equivalents, operating cash flows and available borrowings under our Amended and Restated Credit Facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months, and the foreseeable future, and give us the flexibility to continue returning significant capital to our shareholders. 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.

Current wording

We believe that existing cash and cash equivalents, operating cash flows and available borrowings under our Amended and Restated Credit Facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months, and the foreseeable future, which we believe will provide us the flexibility to continue returning significant capital to our shareholders. However, a material deterioration in the macroeconomic 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.

Previous wording

On October 20, 2021, the Firm entered into the Amended and Restated Credit Facility, which has a maximum borrowing capacity of $200.0 million, and subject to certain conditions and the participation of the lenders, may be increased up to an aggregate additional amount of $150.0 million. As of March 31, 2024, $40.8 million was outstanding and $158.2 million was available on our Amended and Restated Credit Facility, and as of December 31, 2023, $41.6 million was outstanding. As of March 31, 2024, we were in compliance with all of our financial covenants contained in the Amended and Restated Credit Facility as described in our 2023 Annual Report on Form 10-K, and currently expect that we will be able to maintain compliance with these covenants.

Current wording

On October 20, 2021, the Firm entered into the Amended and Restated Credit Facility, which has a maximum borrowing capacity of $200.0 million, and subject to certain conditions and the participation of the lenders, may be increased up to an aggregate additional amount of $150.0 million. As of June 30, 2024, $36.7 million was outstanding and $162.3 million was available on our Amended and Restated Credit Facility, and as of December 31, 2023, $41.6 million was outstanding. As of June 30, 2024, we were in compliance with all of our financial covenants contained in the Amended and Restated Credit Facility as described in our 2023 Annual Report on Form 10-K, and we currently expect that we will be able to maintain compliance with these covenants.

Previous wording

In February 2024, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million. During the three months ended March 31, 2024, Kforce repurchased approximately 29 thousand shares of common stock on the open market at a total cost of approximately $2.0 million, and $98.0 million remained available for further repurchases under the Board-authorized common stock repurchase program at March 31, 2024.

Current wording

In February 2024, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million. During the six months ended June 30, 2024, Kforce repurchased approximately 163 thousand shares of common stock on the open market at a total cost of approximately $10.3 million, and $89.7 million remained available for further repurchases under the Board-authorized common stock repurchase program at June 30, 2024.