KFORCE INC

Previous wording

The following is an executive summary of what Kforce believes are highlights as of and for the nine months ended September 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.

Current wording

The following is an executive summary of what Kforce believes are highlights as of and for the three months ended March 31, 2025, 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 nine months ended September 30, 2024 decreased 9.1% to $1.06 billion from $1.17 billion in the comparable period in 2023. Revenue decreased 7.6% and 23.9% for Technology and FA, respectively, primarily driven by the ongoing macroeconomic uncertainty.

Current wording

•Revenue for the three months ended March 31, 2025 decreased 6.2% (4.7% on a billing day basis) to $330.0 million from $351.9 million in the comparable period in 2024. Revenue decreased 4.9% (3.4% on a billing day basis) and 20.3% (19.1% on a billing day basis) for Technology and FA, respectively, primarily driven by the ongoing macroeconomic uncertainty.

Previous wording

•Flex revenue for the nine months ended September 30, 2024 decreased 8.7% (9.2% on a billing day basis) to $1.04 billion from $1.14 billion in the comparable period in 2023. Flex revenue decreased 7.2% (7.7% on a billing day basis) for Technology and 23.9% (24.3% on a billing day basis) for FA. These decreases were driven by a decrease in the number of consultants on assignment, although our 2024 sequential trends in Technology Flex revenue have shown stabilization.

Current wording

•Flex revenue for the three months ended March 31, 2025 decreased 6.4% (4.9% on a billing day basis) to $322.6 million from $344.7 million in the comparable period in 2024. Flex revenue decreased 5.0% (3.5% on a billing day basis) for Technology and decreased 23.2% (22.0% on a billing day basis) for FA.

Previous wording

•Gross profit margin for the nine months ended September 30, 2024 decreased 40 basis points to 27.6% from 28.0% in the comparable period in 2023 as a result of a decline in the mix of Direct Hire revenue and Flex gross profit margins.

Current wording

•Gross profit margin for the three months ended March 31, 2025 decreased 40 basis points to 26.7% from 27.1% in the comparable period in 2024 as a result of a decline in Flex gross profit margins.

Previous wording

•Net income for the nine months ended September 30, 2024 decreased 13.2% to $39.4 million, or $2.08 per share, from $45.4 million, or $2.31 per share, for the nine months ended September 30, 2023.

Current wording

•Net income for the three months ended March 31, 2025 decreased 25.9% to $8.1 million, or $0.45 per share, from $11.0 million, or $0.58 per share, for the three months ended March 31, 2024.

Previous wording

•The Firm returned $41.6 million of capital to our shareholders in the form of open market repurchases totaling $20.3 million and quarterly dividends totaling $21.3 million during the nine months ended September 30, 2024.

Current wording

•The Firm returned $28.3 million of capital to our shareholders in the form of open market repurchases totaling $21.2 million and quarterly dividends totaling $7.1 million during the three months ended March 31, 2025.

Previous wording

Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading companies. As of September 30, 2024, Kforce employed over 1,700 associates and had approximately 7,900 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 March 31, 2025, Kforce employed approximately 1,700 associates and had approximately 7,500 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 leading companies.

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 to 4.1% in September 2024 as compared to 3.7% in December 2023. In the latest U.S. staffing industry forecast published by SIA in September 2024, the technology temporary staffing industry and finance and accounting temporary staffing industry are estimated to decline 7% and 9% in 2024, respectively.

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 slightly to 4.2% in March 2025 as compared to 4.1% in December 2024. In the latest U.S. staffing industry forecast published by SIA in March 2025, the technology temporary staffing industry is estimated to grow 2% in 2025, which is down from the earlier forecast of 5%.

Previous wording

Operating Results - Three and Nine Months Ended September 30, 2024 and 2023

Current wording

Operating Results - Three Months Ended March 31, 2025 and 2024

Previous wording

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

Current wording

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

Previous wording

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 and billable to our clients.

Current wording

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.

Previous wording

Our FA segment experienced a decrease in Flex revenue of 20.7% (21.9% on a billing day basis) and 23.9% during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, primarily driven by a decrease in the number of consultants on assignment. Our average bill rates improved by 2.7% and 3.4% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. In the fourth quarter, we expect FA Flex revenue to decline in the low single digits sequentially on a billing day basis and in the mid 20% range year over year on a billing day basis.

Current wording

Our FA business experienced a decrease in Flex revenue of 23.2% (22.0% on a billing day basis) during the three months ended March 31, 2025, as compared to the same period in 2024, primarily driven by a decrease in consultants on assignment because of the ongoing macroeconomic uncertainties. In the second quarter, we expect FA Flex revenue to decrease in the mid-single digits sequentially.

Previous wording

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

Current wording

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

Previous wording

Direct Hire revenue decreased 16.4% and 26.4% during the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, which was primarily driven by a decrease in placements, partially offset by an increase in placement fee.

Current wording

Direct Hire revenue increased 4.1% during the three months ended March 31, 2025, as compared to the same period in 2024, which was primarily driven by an increase in placement fees. In the second quarter, we expect Direct Hire Revenue to decrease slightly year over year.

Previous wording

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.

Current wording

Gross Profit. Gross profit is determined by deducting direct costs (primarily consultant compensation, payroll taxes and certain fringe benefits, as well as independent contractor costs) from total revenue. In addition, there are no consultant payroll costs associated with Direct Hire placements; thus, all Direct Hire revenue increases gross profit by the full amount of the placement fee.

Previous wording

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:

Current wording

The following table presents gross profit (gross profit as a percentage of total revenue) by segment and percentage change over the prior period:

Previous wording

•Technology Flex gross profit margins increased 60 basis points and remained flat for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. For the three months ended September 30, 2024, the increase was primarily driven by improvement in the spread between bill and pay rates and lower healthcare costs. For the nine months ended September 30, 2024, the impact from a tighter pricing environment was offset by lower healthcare costs. In the fourth quarter, we expect Technology Flex gross profit margins to decline sequentially due to the typical season impact of increases in vacation days taken by our consultants.

Current wording

•Technology Flex gross profit margins decreased 40 basis points for the three months ended March 31, 2025, as compared to the same period in 2024, primarily driven by higher healthcare costs. The impact of higher healthcare costs was partially offset by an improvement in the spread between bill and pay rates. In the second quarter, we expect Technology Flex gross profit margins to increase sequentially due to lower seasonal payroll taxes.

Previous wording

•FA Flex gross profit margins decreased 110 and 50 basis points for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023, primarily driven by a tighter pricing environment and a greater mix of lower margin projects, which was partially offset by lower healthcare costs. In the fourth quarter, we expect FA Flex gross profit margins to decline slightly due to seasonality.

Current wording

•FA Flex gross profit margins decreased 190 basis points for the three months ended March 31, 2025, as compared to the same period in 2024, primarily driven by a tighter pricing environment, higher healthcare costs and slightly higher payroll taxes. In the second quarter, we expect FA Flex gross profit margins to increase sequentially due to lower seasonal payroll taxes.

Previous wording

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A expenses represented 84.5% and 84.2% for the three and nine months ended September 30, 2024, respectively, as compared to 83.8% and 84.6% 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, SG&A 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 represented 84.4% for the three months ended March 31, 2025, as compared to 83.9% for the comparable period in 2024. Commissions and other 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 (in thousands):

Current wording

The following table presents certain components of SG&A as a percentage of total revenue:

Previous 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 also continuing to exercise tight discretionary spend control and take appropriate actions to mitigate the impact of lower revenue and gross profit levels on our profitability.

Current wording

We continue to prioritize investments in our strategic initiatives, including the implementation of Workday as part of our back-office transformation program, which is expected to go live in early 2026; integrated strategy efforts; and the evolution of our nearshore and offshore delivery capabilities.

Previous wording

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category (in thousands):

Current wording

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category:

Previous wording

Other Expense, Net. Other expense, net for the three months ended September 30, 2024 and 2023 was $0.4 million and $0.2 million, respectively. Other expense, net for the nine months ended September 30, 2024 and 2023 was $1.6 million and $1.5 million, respectively. Other expense, net primarily includes interest expense related to outstanding borrowings under our Amended and Restated Credit Facility.

Current wording

Other Expense, Net. Other expense, net was $0.6 million and $0.7 million for the three months ended March 31, 2025 and 2024, respectively. Other expense, net primarily includes interest expense related to outstanding borrowings under our credit facility.

Previous wording

Income Tax Expense. Income tax expense as a percentage of income from operations, before income taxes (our “effective tax rate”) for the nine months ended September 30, 2024 and 2023 was 25.1% and 28.9%, respectively. The primary driver for the decrease relates to a reduction in nondeductible executive compensation, the receipt of non-taxable proceeds from company-owned life insurance, and the recognition of research and development tax credits.

Current wording

Income Tax Expense. Income tax expense as a percentage of income before income taxes (our “effective tax rate”) was 26.4% and 27.1% for the three months ended March 31, 2025 and 2024, respectively. The primary driver for the decrease relates to the recognition of research and development tax credits associated with the implementation of Workday.

Previous wording

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, repurchasing common stock, paying dividends or making acquisitions. 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):

Current wording

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, repurchasing common stock, paying dividends or making acquisitions. Free Cash Flow has limitations due to the fact that 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.

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, organizational realignment activities, legal settlement 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.

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; and income tax expense. 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

The following table presents a reconciliation of net income to Adjusted EBITDA (in thousands):

Current wording

The following table presents a reconciliation of net income to Adjusted EBITDA:

Previous wording

To meet our capital and liquidity requirements, we primarily rely on our operating cash flows and borrowings under our credit facility. At September 30, 2024 and December 31, 2023, we had $26.9 million and $41.6 million outstanding under our Amended and Restated Credit Facility, respectively, and the borrowing availability was $172.1 million and $157.2 million, respectively, subject to certain covenants. At September 30, 2024, Kforce had $123.4 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, as well as borrowings under our credit facility. At March 31, 2025 and December 31, 2024, we had $65.5 million and $32.7 million outstanding under our Amended and Restated Credit Facility, respectively, and the borrowing availability was $133.4 million and $166.3 million, respectively, subject to certain covenants. At March 31, 2025, Kforce had $118.5 million in working capital compared to $112.9 million at December 31, 2024.

Previous wording

Cash provided by operating activities was $65.1 million during the nine months ended September 30, 2024, as compared to $69.1 million during the nine months ended September 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 by lower profitability levels and collections on trade receivables, partially offset by the timing of payments.

Current wording

Cash provided by operating activities was $0.2 million during the three months ended March 31, 2025, as compared to $13.2 million during the three months ended March 31, 2024. 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 the payment of 2024 federal income taxes that were deferred pursuant to IRS guidance, higher distributions from our non-qualified deferred compensation plan, lower profitability levels and the timing of collections on trade receivables.

Previous wording

Cash used in investing activities during the nine months ended September 30, 2024 was $7.9 million and primarily consisted of cash used for capital expenditures of $8.5 million and premiums paid on company-owned life insurance of $1.8 million, partially offset by proceeds from company-owned life insurance of $2.4 million.

Current wording

Cash used in investing activitieswas $4.8 million during the three months ended March 31, 2025, and primarily consisted of cash used for capital expenditures of $4.1 million. 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.

Previous wording

Cash used in financing activities was $57.2 million during the nine months ended September 30, 2024, compared to $66.5 million during the nine months ended September 30, 2023. The decrease in cash used in financing activities was primarily driven by a decrease in repurchases of common stock, partially offset by net payments on our Credit Facility.

Current wording

Cash provided by financing activities was $4.7 million during the three months ended March 31, 2025, as compared to $10.8 million of cash used in financing activities during the three months ended March 31, 2024. This change was primarily driven by the net proceeds on our Amended and Restated Credit Facility, partially offset by an increase in repurchases of common stock.

Previous wording

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

Current wording

The following table presents the cash flow impact of the common stock repurchase activity:

Previous wording

During the nine months ended September 30, 2024 and 2023, Kforce declared and paid quarterly dividends of $21.3 million ($1.14 per share) and $20.9 million ($1.08 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 three months ended March 31, 2025 and 2024, Kforce declared and paid quarterly dividends of $7.1 million ($0.39 per share) and $7.1 million ($0.38 per share), respectively, which represents a 3% 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

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 September 30, 2024, $26.9 million was outstanding and $172.1 million was available on our Amended and Restated Credit Facility, and as of December 31, 2023, $41.6 million was outstanding. As of September 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.

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 March 31, 2025, $65.5 million was outstanding and $133.4 million was available on our Amended and Restated Credit Facility, and as of December 31, 2024, $32.7 million was outstanding. As of March 31, 2025, we were in compliance with all of the covenants contained in the Amended and Restated Credit Facility as described in our 2024 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 nine months ended September 30, 2024, Kforce repurchased approximately 324 thousand shares of common stock on the open market at a total cost of approximately $20.3 million, and $79.7 million remained available for further repurchases under the Board-authorized common stock repurchase program at September 30, 2024.

Current wording

During the three months ended March 31, 2025, Kforce repurchased approximately 418 thousand shares of common stock on the open market at a total cost of approximately $21.2 million. In addition, $42.3 million remained available for further repurchases under the Board-authorized common stock repurchase program at March 31, 2025.

Previous wording

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.

Current wording

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. Our assumptions, estimates and judgments are based 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. Management regularly 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.

Previous wording

Refer to Note 1 - “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data in our 2023 Annual Report on Form 10-K, for a discussion of new accounting standards.

Current wording

Refer to Note A - “Summary of Significant Accounting Policies” in the Notes to the Unaudited Condensed Consolidated Financial Statements, included in Item 1. Financial Statements of this report for a discussion of new accounting standards.