Core Insights - The commentary on Kforce Inc. (NYSE: KFRC) reaffirms a bullish outlook on the professional staffing services company, indicating confidence in its performance and market position [1]. Company Overview - Kforce Inc. specializes in professional tech staffing solutions, positioning itself as a key player in the staffing industry [1]. Investment Strategy - The investment approach focuses on acquiring undervalued, profitable stocks with strong balance sheets and minimal debt, suggesting a disciplined investment philosophy [1]. - The strategy includes writing calls against positions to generate additional income, highlighting a proactive income generation method [1]. Risk Management - Risk management is emphasized through position sizing and the use of trailing stop losses, indicating a structured approach to mitigating potential losses [1].

[PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS.](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS.) This section presents Kforce Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2025, and 2024, including statements of operations, balance sheets, changes in stockholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies, segment information, revenue disaggregation, and other financial disclosures [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This section presents Kforce Inc.'s unaudited condensed consolidated statements of operations, detailing key financial performance metrics for the periods ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $334,316 | $356,318 | $664,344 | $708,207 | | Gross profit | $90,648 | $98,973 | $178,908 | $194,223 | | Income from operations | $14,888 | $19,700 | $26,519 | $35,427 | | Net income | $10,449 | $14,157 | $18,594 | $25,144 | | Diluted EPS | $0.59 | $0.75 | $1.03 | $1.33 | - For the six months ended June 30, 2025, revenue decreased by **6.2%** to **$664.3 million**, net income decreased by **26.0%** to **$18.6 million**, and diluted EPS decreased by **22.6%** to **$1.03**, compared to the same period in 2024[15](index=15&type=chunk)[50](index=50&type=chunk) [Unaudited Condensed Consolidated Balance Sheets](index=6&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This section presents Kforce Inc.'s unaudited condensed consolidated balance sheets, outlining assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total assets | $373,640 | $357,834 | | Total liabilities | $239,220 | $203,216 | | Total stockholders' equity | $134,420 | $154,618 | | Cash and cash equivalents | $2,472 | $349 | | Long-term debt – credit facility | $70,000 | $32,700 | - Total assets increased to **$373.6 million** at June 30, 2025, from **$357.8 million** at December 31, 2024, primarily driven by an increase in cash and cash equivalents and other assets, net. Total liabilities increased significantly due to higher long-term debt from the credit facility[17](index=17&type=chunk) [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) This section presents Kforce Inc.'s unaudited condensed consolidated statements of changes in stockholders' equity, detailing movements from December 31, 2024, to June 30, 2025 Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric (in thousands) | Balance, December 31, 2024 | Balance, June 30, 2025 | | :-------------------- | :------------------------- | :--------------------- | | Total Stockholders' Equity | $154,618 | $134,420 | | Net income | $18,594 (YTD) | $18,594 (YTD) | | Dividends paid | $(13,951) (YTD) | $(13,951) (YTD) | | Repurchases of common stock | $(32,243) (YTD) | $(32,243) (YTD) | - Total stockholders' equity decreased from **$154.6 million** at December 31, 2024, to **$134.4 million** at June 30, 2025, primarily due to significant common stock repurchases and dividend payments, partially offset by net income[17](index=17&type=chunk)[18](index=18&type=chunk)[82](index=82&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section presents Kforce Inc.'s unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $18,614 | $34,105 | | Net cash used in investing activities | $(7,593) | $(3,752) | | Net cash used in financing activities | $(8,898) | $(30,362) | | Change in cash and cash equivalents | $2,123 | $(9) | - Cash provided by operating activities decreased by **45.4%** to **$18.6 million** for the six months ended June 30, 2025, compared to **$34.1 million** in the prior year, mainly due to lower profitability, higher capitalized costs for Workday implementation, and deferred income tax payments[21](index=21&type=chunk)[80](index=80&type=chunk) - Cash used in investing activities increased to **$7.6 million** in 2025 from **$3.8 million** in 2024, primarily due to higher capital expenditures[21](index=21&type=chunk)[81](index=81&type=chunk) - Cash used in financing activities significantly decreased from **$30.4 million** in 2024 to **$8.9 million** in 2025, driven by net proceeds from the credit facility, partially offset by increased common stock repurchases[21](index=21&type=chunk)[82](index=82&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=NOTES%20TO%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed notes accompanying the unaudited condensed consolidated financial statements, covering significant accounting policies, segment information, revenue disaggregation, and other financial disclosures [Note A - Summary of Significant Accounting Policies](index=11&type=section&id=Note%20A%20-%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the significant accounting policies used in preparing the unaudited condensed consolidated financial statements, including SEC reporting rules and recent accounting pronouncements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC interim financial reporting rules, condensing or omitting certain GAAP information. They should be read with the 2024 Annual Report on Form 10-K[26](index=26&type=chunk) - Quarterly operating results are affected by client business seasonality and holiday/vacation days, with higher costs typically in Q1 due to employment tax resets[27](index=27&type=chunk) - The recently enacted One Big Beautiful Bill Act (OBBBA) on July 4, 2025, includes significant tax provisions with multiple effective dates, but Kforce does not expect a material effect on its consolidated financial statements[30](index=30&type=chunk) - New FASB guidance for income tax disclosure improvements, effective for Kforce's 2025 annual disclosures, will modify disclosures but is not expected to materially affect consolidated financial statements[33](index=33&type=chunk) [Note B - Reportable Segments](index=12&type=section&id=Note%20B%20-%20Reportable%20Segments) This note describes Kforce's two reportable segments, Technology and Finance and Accounting (FA), and how the Chief Operating Decision-Maker evaluates their performance - Kforce operates in two reportable segments: Technology and Finance and Accounting (FA), providing highly skilled professionals on Flex and Direct Hire bases, and increasingly solutions engagements within Technology[34](index=34&type=chunk) Segment Revenue (in thousands) | Segment (in thousands) | Three Months Ended June 30, 2025 Revenue | Three Months Ended June 30, 2024 Revenue | Six Months Ended June 30, 2025 Revenue | Six Months Ended June 30, 2024 Revenue | | :--------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Technology | $310,527 | $327,874 | $616,811 | $649,958 | | FA | $23,789 | $28,444 | $47,533 | $58,249 | - The Chief Operating Decision-Maker (CODM) evaluates segment performance based on revenue trends, segment gross profit, and key leading indicators like client visits and job order trends[34](index=34&type=chunk) [Note C - Disaggregation of Revenue](index=13&type=section&id=Note%20C%20-%20Disaggregation%20of%20Revenue) This note disaggregates Kforce's total revenue by service type, Flex and Direct Hire, for the three and six months ended June 30, 2025 and 2024 Revenue by Type (in thousands) | Revenue Type (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Flex revenue | $328,411 | $348,784 | $650,981 | $693,508 | | Direct Hire revenue | $5,905 | $7,534 | $13,363 | $14,699 | | Total Revenue | $334,316 | $356,318 | $664,344 | $708,207 | - Flex revenue decreased by **5.8%** for the three months and **6.1%** for the six months ended June 30, 2025, compared to the prior year, while Direct Hire revenue decreased by **21.6%** and **9.1%** respectively[37](index=37&type=chunk)[38](index=38&type=chunk) [Note D - Allowance for Credit Losses](index=14&type=section&id=Note%20D%20-%20Allowance%20for%20Credit%20Losses) This note details the changes in the allowance for credit losses on trade receivables from December 31, 2024, to June 30, 2025 Allowance for Credit Losses (in thousands) | Metric (in thousands) | Amount | | :-------------------- | :----- | | Allowance for credit losses, December 31, 2024 | $916 | | Current period provision | $62 | | Write-offs, net of recoveries | $(76) | | Allowance for credit losses, June 30, 2025 | $902 | - The allowance for credit losses on trade receivables decreased slightly from **$916 thousand** at December 31, 2024, to **$902 thousand** at June 30, 2025, with a current period provision of **$62 thousand** and net write-offs of **$76 thousand**[39](index=39&type=chunk) [Note E - Other Assets, Net](index=14&type=section&id=Note%20E%20-%20Other%20Assets,%20Net) This note provides a breakdown of other assets, net, including assets held in Rabbi Trust, capitalized software, and ROU assets for operating leases Other Assets, Net (in thousands) | Other Assets, Net (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Assets held in Rabbi Trust | $52,939 | $49,356 | | Capitalized software, net | $40,108 | $29,090 | | ROU assets for operating leases, net | $15,320 | $13,764 | | Total Other assets, net | $112,416 | $94,656 | - Other assets, net increased to **$112.4 million** at June 30, 2025, from **$94.7 million** at December 31, 2024, primarily due to an increase in capitalized software, net, which includes **$11.6 million** related to cloud computing arrangements[40](index=40&type=chunk) [Note F - Current Liabilities](index=15&type=section&id=Note%20F%20-%20Current%20Liabilities) This note details Kforce's current liabilities, including accounts payable, deferred compensation, customer rebates, and accrued payroll costs Current Liabilities (in thousands) | Current Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Accounts payable | $45,625 | $38,315 | | Deferred compensation payable | $8,526 | $8,602 | | Customer rebates payable | $4,918 | $6,556 | | Accrued payroll costs | $39,668 | $38,823 | | Total Accounts payable and other accrued liabilities | $63,293 | $61,753 | - Accounts payable increased to **$45.6 million** at June 30, 2025, from **$38.3 million** at December 31, 2024, while customer rebates payable decreased[41](index=41&type=chunk) [Note G - Credit Facility](index=15&type=section&id=Note%20G%20-%20Credit%20Facility) This note outlines Kforce's Amended and Restated Credit Facility, including its maximum borrowing capacity, maturity date, and outstanding borrowings - Kforce has an Amended and Restated Credit Facility with a maximum borrowing capacity of **$200.0 million**, maturing on October 20, 2026[42](index=42&type=chunk) - Outstanding borrowings under the credit facility increased to **$70.0 million** at June 30, 2025, from **$32.7 million** at December 31, 2024. The company was in compliance with all covenants at June 30, 2025[43](index=43&type=chunk) [Note H - Other Long-Term Liabilities](index=15&type=section&id=Note%20H%20-%20Other%20Long-Term%20Liabilities) This note details Kforce's other long-term liabilities, including deferred compensation payable and operating lease liabilities Other Long-Term Liabilities (in thousands) | Other Long-Term Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Deferred compensation payable - long term | $46,466 | $46,183 | | Operating lease liabilities | $13,410 | $11,858 | | Total Other long-term liabilities | $59,888 | $58,059 | - Total other long-term liabilities increased to **$59.9 million** at June 30, 2025, from **$58.1 million** at December 31, 2024, primarily due to an increase in operating lease liabilities[44](index=44&type=chunk) [Note I - Stock-Based Compensation](index=15&type=section&id=Note%20I%20-%20Stock-Based%20Compensation) This note discusses Kforce's stock-based compensation plans, including the 2025 Stock Incentive Plan and unrecognized compensation expense - Shareholders approved the 2025 Stock Incentive Plan on April 23, 2025, reserving approximately **2.7 million** shares for various stock-based awards[45](index=45&type=chunk) Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $7,274 | $6,999 | - Total unrecognized stock-based compensation expense related to restricted stock was **$37.7 million** at June 30, 2025, expected to be recognized over a weighted-average remaining period of **4.3 years**[46](index=46&type=chunk) [Note J - Commitments and Contingencies](index=16&type=section&id=Note%20J%20-%20Commitments%20and%20Contingencies) This note outlines Kforce's commitments and contingencies, including executive employment agreements and ordinary course legal proceedings - Kforce has employment agreements with executives that could result in liabilities of approximately **$28.2 million** if terminated without cause following a change in control, or **$9.1 million** without a change in control[48](index=48&type=chunk) - The company is involved in ordinary course legal proceedings and claims, with accruals made where appropriate, and does not expect a material effect on financial statements, though outcomes are inherently uncertain[49](index=49&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.](index=17&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) This section provides an overview of Kforce's financial performance and condition for the six months ended June 30, 2025, highlighting revenue declines across segments, decreased profitability, and strategic investments amidst macroeconomic uncertainties. It also discusses liquidity, capital resources, and non-GAAP financial measures [Executive Summary](index=17&type=section&id=EXECUTIVE%20SUMMARY) This executive summary provides a high-level overview of Kforce's financial performance for the six months ended June 30, 2025, highlighting key financial metrics and capital returns Executive Summary - Six Months Ended June 30, 2025 and 2024 | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Revenue | $664.3 million | $708.2 million | -6.2% | | Flex revenue | $651.0 million | $693.5 million | -6.1% | | Direct Hire revenue | $13.4 million | $14.7 million | -9.1% | | Gross profit margin | 26.9% | 27.4% | -50 bps | | Net income | $18.6 million | $25.1 million | -26.0% | | Diluted EPS | $1.03 | $1.33 | -22.6% | | Cash provided by operating activities | $18.6 million | $34.1 million | -45.4% | - Kforce returned **$45.7 million** of capital to shareholders through **$31.7 million** in open market repurchases and **$14.0 million** in quarterly dividends during the six months ended June 30, 2025[50](index=50&type=chunk) [Results of Operations](index=18&type=section&id=RESULTS%20OF%20OPERATIONS) This section details Kforce's operating results, including revenue, gross profit, SG&A expenses, depreciation, amortization, other expenses, and income tax expense for the periods presented [Business Overview](index=18&type=section&id=Business%20Overview) This overview describes Kforce's business as a provider of technology and finance and accounting talent solutions, noting market conditions and industry trends - Kforce is a leading domestic provider of technology and finance and accounting talent solutions, employing over **1,600 associates** and approximately **7,500 consultants** on assignment as of June 30, 2025[51](index=51&type=chunk) - Momentum softened in the first half of 2025 due to macroeconomic uncertainties, despite initial optimism. The company observed sequential Flex revenue growth in Q2 2025 for both Technology and FA segments[52](index=52&type=chunk) - The U.S. unemployment rate remained flat at **4.1%** in June 2025. The technology temporary staffing industry is estimated to grow **2%** in 2025, a downward revision from an earlier **5%** forecast[53](index=53&type=chunk) [Operating Results - Three and Six Months Ended June 30, 2025 and 2024](index=18&type=section&id=Operating%20Results%20-%20Three%20and%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) This section presents a summary of Kforce's operating results, including revenue mix, gross profit, SG&A expenses, and net income as a percentage of revenue Operating Results (% of Revenue) | Metric (% of Revenue) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Technology Revenue | 92.9% | 92.0% | 92.8% | 91.8% | | FA Revenue | 7.1% | 8.0% | 7.2% | 8.2% | | Flex Revenue | 98.2% | 97.9% | 98.0% | 97.9% | | Direct Hire Revenue | 1.8% | 2.1% | 2.0% | 2.1% | | Gross profit | 27.1% | 27.8% | 26.9% | 27.4% | | SG&A expenses | 22.2% | 21.8% | 22.5% | 22.0% | | Net income | 3.1% | 4.0% | 2.8% | 3.6% | [Revenue](index=19&type=section&id=Revenue) This section analyzes Kforce's revenue performance by segment and service type, including Flex and Direct Hire, for the three and six months ended June 30, 2025 and 2024 Revenue by Segment/Type (in thousands) | Segment/Type (in thousands) | 3 Months Ended June 30, 2025 | % Change (YoY) | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | % Change (YoY) | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | | Technology Flex revenue | $307,844 | (5.0)% | $324,064 | $610,279 | (5.0)% | $642,578 | | Technology Direct Hire revenue | $2,683 | (29.6)% | $3,810 | $6,532 | (11.5)% | $7,380 | | FA Flex revenue | $20,567 | (16.8)% | $24,720 | $40,702 | (20.1)% | $50,930 | | FA Direct Hire revenue | $3,222 | (13.5)% | $3,724 | $6,831 | (6.7)% | $7,319 | | Total Revenue | $334,316 | (6.2)% | $356,318 | $664,344 | (6.2)% | $708,207 | - Technology Flex revenue decreased **5.0%** for both the three and six months ended June 30, 2025, primarily due to a decrease in consultants on assignment, but improved **1.8%** sequentially in Q2 2025[56](index=56&type=chunk) - FA Flex revenue decreased **16.8%** and **20.1%** for the three and six months ended June 30, 2025, respectively, but showed a **2.1%** sequential improvement in Q2 2025, the first since Q2 2022[57](index=57&type=chunk) - Direct Hire revenue declined **21.6%** and **9.1%** for the three and six months ended June 30, 2025, respectively, driven by fewer placements, partially offset by increased placement fees[60](index=60&type=chunk) [Gross Profit](index=20&type=section&id=Gross%20Profit) This section analyzes Kforce's gross profit performance by segment and overall, including Flex gross profit margins, for the three and six months ended June 30, 2025 and 2024 Gross Profit Percentage | Gross Profit Percentage | 3 Months Ended June 30, 2025 | % Change (YoY) | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | % Change (YoY) | 6 Months Ended June 30, 2024 | | :---------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | | Technology | 26.3% | (1.9)% | 26.8% | 26.1% | (1.5)% | 26.5% | | FA | 38.1% | (2.1)% | 38.9% | 38.2% | (0.3)% | 38.3% | | Total gross profit percentage | 27.1% | (2.5)% | 27.8% | 26.9% | (1.8)% | 27.4% | | Total Flex gross profit percentage | 25.8% | (1.5)% | 26.2% | 25.4% | (1.9)% | 25.9% | - Total gross profit percentage decreased by **70 basis points** for the three months and **50 basis points** for the six months ended June 30, 2025, primarily due to declines in Direct Hire revenue mix and Flex gross profit margins[62](index=62&type=chunk) - Technology Flex gross profit margins decreased by **30 basis points** for both periods, mainly due to higher healthcare costs, partially offset by improved bill and pay spreads[66](index=66&type=chunk) - FA Flex gross profit margins decreased by **120** and **160 basis points** for the three and six months, respectively, driven by a tighter pricing environment and higher healthcare costs[66](index=66&type=chunk) [SG&A Expenses](index=22&type=section&id=SG%26A%20Expenses) This section analyzes Kforce's Selling, General, and Administrative (SG&A) expenses as a percentage of revenue, detailing compensation and other costs SG&A Component (% of Revenue) | SG&A Component (% of Revenue) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Compensation, commissions, payroll taxes and benefits costs | 18.8% | 18.4% | 19.0% | 18.5% | | Other | 3.4% | 3.4% | 3.5% | 3.5% | | Total SG&A | 22.2% | 21.8% | 22.5% | 22.0% | - SG&A as a percentage of revenue increased by **40** and **50 basis points** for the three and six months ended June 30, 2025, respectively, primarily due to revenue declines and continued investments in strategic priorities[68](index=68&type=chunk)[69](index=69&type=chunk) - Kforce continues to prioritize investments in strategic initiatives, including Workday implementation, integrated strategy efforts, evolution of delivery capabilities, and leveraging artificial intelligence (AI)[70](index=70&type=chunk) [Depreciation and Amortization](index=22&type=section&id=Depreciation%20and%20Amortization) This section details Kforce's depreciation and amortization expenses, including fixed asset depreciation and capitalized software amortization Depreciation and Amortization Expense (in thousands) | Expense (in thousands) | 3 Months Ended June 30, 2025 | % Change (YoY) | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | % Change (YoY) | 6 Months Ended June 30, 2024 | | :--------------------- | :--------------------------- | :------------- | :--------------------------- | :--------------------------- | :------------- | :--------------------------- | | Fixed asset depreciation | $660 | (19.4)% | $819 | $1,373 | (15.2)% | $1,619 | | Capitalized software amortization | $730 | (0.8)% | $736 | $1,481 | 16.7% | $1,269 | | Total | $1,390 | (10.6)% | $1,555 | $2,854 | (1.2)% | $2,888 | - Capitalized software amortization increased by **16.7%** for the six months ended June 30, 2025, while fixed asset depreciation decreased by **15.2%** for the same period[71](index=71&type=chunk) [Other Expense, Net](index=22&type=section&id=Other%20Expense,%20Net) This section reports Kforce's other expense, net, primarily consisting of interest expense, for the three and six months ended June 30, 2025 and 2024 Other Expense, Net (in thousands) | Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Other expense, net | $1,029 | $504 | $1,594 | $1,160 | - Other expense, net, primarily interest expense, increased to **$1.6 million** for the six months ended June 30, 2025, from **$1.2 million** in the prior year[71](index=71&type=chunk) [Income Tax Expense](index=22&type=section&id=Income%20Tax%20Expense) This section details Kforce's effective income tax rate for the six months ended June 30, 2025 and 2024, and the factors influencing it Effective Tax Rate | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----- | :--------------------------- | :--------------------------- | | Effective tax rate | 25.4% | 26.6% | - The effective tax rate decreased to **25.4%** for the six months ended June 30, 2025, from **26.6%** in the prior year, mainly due to increased research and development tax credits[72](index=72&type=chunk) [Non-GAAP Financial Measures](index=23&type=section&id=Non-GAAP%20Financial%20Measures) This section presents Kforce's non-GAAP financial measures, including revenue growth rates, free cash flow, and Adjusted EBITDA, providing additional insights into performance [Revenue Growth Rates](index=23&type=section&id=Revenue%20Growth%20Rates) This section presents Kforce's non-GAAP revenue growth rates, adjusted for billing days, to provide a clearer evaluation of revenue trends by segment - Non-GAAP revenue growth rates adjust for changes in billing days to provide a clearer evaluation of revenue trends[73](index=73&type=chunk) Non-GAAP Revenue Growth Rates | Metric | Q2 2025 (Non-GAAP) | Q1 2025 (Non-GAAP) | YTD 2025 (Non-GAAP) | | :---------------- | :----------------- | :----------------- | :------------------ | | Technology Flex | 0.2% | (5.2)% | (4.3)% | | FA Flex | 0.5% | (14.2)% | (19.5)% | | Total Flex revenue | 0.2% | (5.8)% | (5.4)% | [Free Cash Flow](index=23&type=section&id=Free%20Cash%20Flow) This section defines and presents Kforce's non-GAAP Free Cash Flow, used to assess liquidity and cash generation for strategic opportunities - Free Cash Flow, a non-GAAP measure, is defined as net cash provided by operating activities less capital expenditures, used to assess liquidity and cash generation for strategic opportunities[74](index=74&type=chunk) Free Cash Flow (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $18,614 | $34,105 | | Capital expenditures | $(8,290) | $(4,979) | | Free cash flow | $10,324 | $29,126 | - Free cash flow decreased significantly to **$10.3 million** for the six months ended June 30, 2025, from **$29.1 million** in the prior year, primarily due to lower operating cash flows and higher capital expenditures[75](index=75&type=chunk) [Adjusted EBITDA](index=24&type=section&id=Adjusted%20EBITDA) This section defines and presents Kforce's non-GAAP Adjusted EBITDA, a key metric used by management to assess core profitability and debt repayment ability - Adjusted EBITDA, a non-GAAP measure, is used by management to assess operations, cash flow generation, and debt repayment ability, providing a metric of core profitability[75](index=75&type=chunk) Adjusted EBITDA (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $10,449 | $14,157 | $18,594 | $25,144 | | Adjusted EBITDA | $19,885 | $24,753 | $36,635 | $45,313 | - Adjusted EBITDA decreased to **$36.6 million** for the six months ended June 30, 2025, from **$45.3 million** in the prior year, reflecting lower net income[77](index=77&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses Kforce's liquidity and capital resources, including cash flows, credit facility utilization, working capital, and stock repurchase activities - Kforce relies on operating cash flows and its credit facility to meet capital and liquidity requirements. At June 30, 2025, **$70.0 million** was outstanding under the credit facility, with **$129.0 million** available[78](index=78&type=chunk)[84](index=84&type=chunk) - Working capital increased slightly to **$113.5 million** at June 30, 2025, from **$112.9 million** at December 31, 2024[78](index=78&type=chunk) - The company believes existing cash, operating cash flows, and available credit will be adequate for at least the next 12 months and the foreseeable future, allowing for continued capital returns to shareholders[83](index=83&type=chunk) [Cash Flows](index=25&type=section&id=Cash%20Flows) This section analyzes Kforce's cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 - Cash provided by operating activities decreased to **$18.6 million** for the six months ended June 30, 2025, from **$34.1 million** in the prior year, primarily due to lower profitability and higher capitalized costs for Workday implementation[80](index=80&type=chunk) - Cash used in investing activities increased to **$7.6 million** in 2025, mainly due to **$8.3 million** in capital expenditures[81](index=81&type=chunk) - Cash provided by financing activities was **$8.9 million** in 2025, a significant change from **$30.4 million** used in 2024, driven by net proceeds from the credit facility, partially offset by increased stock repurchases[82](index=82&type=chunk) [Stock Repurchases](index=26&type=section&id=Stock%20Repurchases) This section details Kforce's common stock repurchase activities and the remaining authorization under its repurchase program - During the six months ended June 30, 2025, Kforce repurchased approximately **655 thousand** shares of common stock for **$31.7 million**[85](index=85&type=chunk) - As of June 30, 2025, **$31.8 million** remained available for further repurchases under the Board-authorized common stock repurchase program[85](index=85&type=chunk) [Critical Accounting Estimates](index=26&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section highlights Kforce's critical accounting estimates, particularly for income taxes and goodwill impairment, which involve significant management judgment and assumptions - The preparation of financial statements requires management to make assumptions and estimates, particularly for income taxes and goodwill impairment, which are based on historical experience and current trends[29](index=29&type=chunk)[87](index=87&type=chunk) - Actual results could materially differ from these estimates due to the inherent uncertainty of future events[87](index=87&type=chunk) [New Accounting Standards](index=26&type=section&id=NEW%20ACCOUNTING%20STANDARDS) This section refers to Note A for a discussion of recently adopted accounting standards and their expected impact on Kforce's financial statements - Refer to Note A - Summary of Significant Accounting Policies for a discussion of recently adopted accounting standards, including new FASB guidance for income tax disclosures, which is not expected to have a material effect on consolidated financial statements[33](index=33&type=chunk)[88](index=88&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.](index=26&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) There have been no material changes to the quantitative and qualitative disclosures about market risk previously reported in the company's 2024 Annual Report on Form 10-K - No material changes to market risk disclosures since the 2024 Annual Report on Form 10-K[89](index=89&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES.](index=26&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES.) This section details the evaluation of Kforce's disclosure controls and procedures, confirming their effectiveness as of June 30, 2025, and states that no material changes occurred in internal control over financial reporting during the last fiscal quarter [Evaluation of Disclosure Controls and Procedures](index=26&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of Kforce's disclosure controls and procedures as of June 30, 2025, based on evaluations by the CEO and CFO - As of June 30, 2025, the CEO and CFO concluded that Kforce's disclosure controls and procedures were effective in ensuring timely and accurate reporting of information[90](index=90&type=chunk) [Changes in Internal Control over Financial Reporting](index=26&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section states that no material changes in Kforce's internal control over financial reporting occurred during the last fiscal quarter - Management, with CEO and CFO participation, concluded that no material changes in internal control over financial reporting occurred during the last fiscal quarter[91](index=91&type=chunk) [Inherent Limitations of Internal Control Over Financial Reporting](index=27&type=section&id=Inherent%20Limitations%20of%20Internal%20Control%20Over%20Financial%20Reporting) This section acknowledges the inherent limitations of internal controls, including the risk of collusion or management override, which may affect the detection of misstatements - Internal controls have inherent limitations, including the possibility of collusion or management override, which may prevent timely detection of material misstatements[92](index=92&type=chunk) [CEO and CFO Certifications](index=27&type=section&id=CEO%20and%20CFO%20Certifications) This section notes the inclusion of CEO and CFO certifications as Exhibits 31.1 and 31.2, as mandated by the Sarbanes-Oxley Act of 2002 - Certifications by the CEO and CFO are included as Exhibits 31.1 and 31.2, as required by Section 302 of the Sarbanes-Oxley Act of 2002[93](index=93&type=chunk) [PART II - OTHER INFORMATION](index=27&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS.](index=27&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS.) Kforce is involved in routine legal proceedings and claims, for which accruals have been made where appropriate. The company does not anticipate these matters, individually or in aggregate, will materially affect its financial statements, though outcomes are uncertain - Kforce is involved in ordinary course legal proceedings and claims, with accruals made where appropriate, and does not expect a material effect on financial statements, though outcomes are inherently uncertain[95](index=95&type=chunk) [ITEM 1A. RISK FACTORS.](index=27&type=section&id=ITEM%201A.%20RISK%20FACTORS.) There have been no material changes to the risk factors previously disclosed in Kforce's 2024 Annual Report on Form 10-K - No material changes in risk factors since the 2024 Annual Report on Form 10-K[96](index=96&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.](index=27&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS.) This section details Kforce's common stock repurchase activity for the three months ended June 30, 2025, under its Board-authorized repurchase plan Common Stock Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | | April 1, 2025 to April 30, 2025 | 236,878 | $44.33 | $31,773,797 | | May 1, 2025 to May 31, 2025 | 4,150 | $42.20 | $31,773,797 | | June 1, 2025 to June 30, 2025 | — | — | $31,773,797 | | Total | 241,028 | $44.30 | $31,773,797 | - During the three months ended June 30, 2025, Kforce repurchased **241,028 shares** of common stock at an average price of **$44.30** per share, with **$31.8 million** remaining available under the repurchase program[97](index=97&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES.](index=27&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES.) Kforce Inc. reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[98](index=98&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES.](index=27&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES.) Kforce Inc. reported no mine safety disclosures for the period - No mine safety disclosures were reported[99](index=99&type=chunk) [ITEM 5. OTHER INFORMATION.](index=28&type=section&id=ITEM%205.%20OTHER%20INFORMATION.) This section confirms that no officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[100](index=100&type=chunk) [ITEM 6. EXHIBITS.](index=29&type=section&id=ITEM%206.%20EXHIBITS.) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications by the CEO and CFO, and XBRL formatted financial data - Exhibits include Amended and Restated Articles of Incorporation, Amended & Restated Bylaws, CEO and CFO Certifications (31.1, 31.2, 32.1, 32.2), and XBRL formatted financial statements[101](index=101&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section contains the official signatures, certifying the accuracy and completeness of the report on behalf of Kforce Inc - The report was signed on behalf of Kforce Inc. by Jeffrey B. Hackman, Chief Financial Officer, on July 30, 2025[107](index=107&type=chunk)

Core Insights - Kforce reported Q2 2025 GAAP earnings per share of $0.59, slightly below estimates, with GAAP revenue of $334.3 million, marginally exceeding estimates by $0.15 million [1][2] - Year-over-year comparisons show a decline in both revenue (down 6.2%) and earnings (down 21.3%), although operating margins and expenses improved compared to the previous quarter [1][2][7] - Management described the results as consistent with expectations, indicating steady operational execution in a challenging environment [1] Financial Performance - Q2 2025 GAAP EPS was $0.59, matching estimates but down from $0.75 in Q2 2024, reflecting a 21.3% decline [2] - GAAP revenue for Q2 2025 was $334.3 million, slightly above the estimated $334.15 million but down from $356.3 million in Q2 2024, a decrease of 6.2% [2] - Operating margin improved to 4.5% from the previous quarter, while gross profit margin was 27.1%, down from 27.8% year-over-year [2][7] Business Overview - Kforce specializes in technology staffing and professional services, with approximately 92% of revenue derived from technology staffing as of fiscal year 2024 [3] - The company has focused on operational transformation, investing in cloud technologies and expanding its market share in U.S. technology staffing [4] Segment Performance - Technology Flex revenue was $307.8 million, up 1.8% from the prior quarter but down 5.0% year-over-year [5] - Finance and Accounting Flex revenue was $20.6 million, rising 2.1% from the previous quarter but falling 16.8% year-over-year [6] - Direct Hire segment revenue was $5.9 million, with placement volumes down over 25% from the prior quarter [6] Strategic Initiatives - Kforce is progressing on key investment programs, including the implementation of Workday, a cloud-based ERP system, expected to be completed in Q1 2026 [8] - The development center in India, operational since January 2025, has secured early project contracts [8] Shareholder Returns - The quarterly dividend was maintained at $0.39 per share, with $17.4 million returned to shareholders through dividends and share repurchases during Q2 2025 [9] - The company ended the quarter with $2.47 million in cash and $70.0 million in long-term debt [9] Future Guidance - For Q3 2025, management projected GAAP revenue between $324 million and $332 million and GAAP EPS of $0.53 to $0.61, both below the recently reported results [10] - Management remains cautious, indicating that short-term softness is due to specific client decisions rather than a decline in demand [10][11]

Company Performance - Kforce reported quarterly earnings of $0.59 per share, missing the Zacks Consensus Estimate of $0.60 per share, and down from $0.75 per share a year ago, representing an earnings surprise of -1.67% [1] - The company posted revenues of $334.32 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.16%, but down from $356.32 million year-over-year [2] - Over the last four quarters, Kforce has surpassed consensus EPS estimates just once, while topping consensus revenue estimates three times [2] Stock Performance - Kforce shares have declined approximately 18.1% since the beginning of the year, contrasting with the S&P 500's gain of 8.6% [3] - The current Zacks Rank for Kforce is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.61 on revenues of $331.76 million, and for the current fiscal year, it is $2.19 on revenues of $1.32 billion [7] - The outlook for the staffing industry, where Kforce operates, is currently in the top 39% of Zacks industries, suggesting potential for better performance compared to lower-ranked industries [8]

Financial Data and Key Metrics Changes - Total revenues for the second quarter were $334.3 million, a decline of 6.2% year over year, consistent with expectations [12] - Earnings per share for the quarter were $0.59, aligning with expectations [21] - Overall gross margins increased by 40 basis points sequentially to 27.1%, driven by an increase in Flex margins [21] - Operating margin for the second quarter was 4.5%, with an effective tax rate of 24.6%, slightly lower than expected due to favorable adjustments [23][24] Business Line Data and Key Metrics Changes - Flex revenues in technology and finance and accounting businesses improved slightly sequentially in Q2, while Direct Hire revenues faced challenges [12] - Flex revenues in the finance and accounting business, which represent about 6% of total revenues, declined 16.8% year over year but saw sequential growth for the first time in years [18] - Average bill rate in the technology business remained stable at approximately $90, while the finance and accounting average bill rate improved to about $54 [14][18] Market Data and Key Metrics Changes - The company operates in a demand-constrained environment, with clients maintaining significant backlogs of technology investments [4][5] - Job gains have been concentrated in sectors like healthcare, leisure, hospitality, and construction, while job creation outside these sectors has been minimal [5] - The demand for consulting-led offerings remains strong, contributing to overall technology top-line outperformance [13] Company Strategy and Development Direction - The company is focused on organic growth strategies and investing in consulting-oriented solutions to meet client needs [10][12] - There is a strategic shift towards providing flexible talent solutions as companies assess macroeconomic conditions [6][9] - The company aims to leverage AI and other innovative technologies to enhance business operations and client offerings [6][9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the stability of the technology business and the potential for growth in AI-related services [9][20] - The company anticipates a modest sequential decline in technology business revenues in Q3 due to unexpected project ends [17] - Management highlighted the importance of retaining productive associates and making targeted investments to capitalize on future market demand [19][20] Other Important Information - The company has returned approximately $1 billion in capital to shareholders since 2007, representing about 75% of cash generated [26] - The company expects Q3 revenues to be in the range of $324 million to $332 million, with earnings per share between $0.53 and $0.61 [26] Q&A Session Summary Question: Can you discuss the levels of discussion regarding AI and when the company expects to assist clients more significantly? - Management noted that most organizations are still in the preparation phase for AI, focusing on foundational readiness aspects [30][31] Question: What is the nature of the unexpected project ends mentioned? - Management clarified that these project ends were due to clients reallocating technology investments rather than budget cuts [36][37] Question: How is the pipeline looking currently? - Management indicated that the pipeline remains strong, with pent-up demand for legacy projects and increased interest in data and AI preparation [38][39] Question: Is there a common thread among the project ends impacting trends? - Management stated that the project ends were largely due to strategic reallocations of technology investments by clients [77][80] Question: What impact does the nearshore/offshore dynamic have on margins? - Management confirmed that while the nearshore/offshore business is small, it has been slightly accretive to margins [81]

Financial Data and Key Metrics Changes - Total revenues for Q2 2025 were $334.3 million, a decline of 6.2% year over year, consistent with expectations [11] - Earnings per share for the quarter were $0.59, aligning with expectations [21] - Overall gross margins increased by 40 basis points sequentially to 27.1%, driven by an increase in Flex margins [21][22] - Flex margins in the technology business increased by 70 basis points sequentially but declined by 30 basis points year over year due to higher healthcare costs [22] Business Line Data and Key Metrics Changes - Flex revenues in technology and finance and accounting improved slightly sequentially in Q2, while Direct Hire revenues faced challenges [11] - Flex revenues in the finance and accounting business, which represent about 6% of total revenues, declined 16.8% year over year but saw sequential growth for the first time in years [18] - The average bill rate in the technology business remained stable at $90, while the average bill rate in finance and accounting improved to approximately $54 per hour [13][18] Market Data and Key Metrics Changes - The company operates in a demand-constrained environment, with clients maintaining a significant backlog of technology investments [4][5] - Job gains have been concentrated in sectors like healthcare, leisure, hospitality, and construction, while job creation outside these sectors has been minimal [5] - The demand for consulting-led offerings remains strong, contributing to overall technology top-line outperformance [12] Company Strategy and Development Direction - The company is focused on organic growth strategies and expanding its consulting-oriented solutions to meet client needs [9][12] - There is a strategic emphasis on AI and innovative technologies, with the company positioned to assist clients in their AI journeys [6][8] - The company aims to maintain a strong balance sheet while returning capital to shareholders through dividends and share repurchases [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the stability of the technology business and the potential for growth in AI-related services [8][20] - The company anticipates a modest sequential decline in technology business revenues in Q3 due to unexpected project ends [17][19] - Management highlighted the importance of retaining productive associates and making targeted investments to capitalize on future market demand [19][20] Other Important Information - The company has returned approximately $1 billion in capital to shareholders since 2007, representing about 75% of cash generated [27] - The effective tax rate for Q2 was 24.6%, slightly lower than expected due to favorable adjustments in tax credits [24][25] - The company expects Q3 revenues to range between $324 million and $332 million, with earnings per share between $0.53 and $0.61 [27] Q&A Session Summary Question: Discussion on AI projects and client engagement - Management noted that most clients are in the foundational readiness phase for AI, with only about 10% fully equipped to leverage AI [32][33] - There is significant opportunity in data preparation and modernization activities as companies prepare for AI [34][46] Question: Insights on project ends and budget reallocations - Management clarified that recent project ends were due to clients reallocating technology investments rather than budget cuts [40][41] - The overall sentiment remains one of stability, with clients engaging at consistent rates [82] Question: Trends in finance and accounting business - The finance and accounting business has seen sequential growth due to a focus on higher skill sets and a strong client base [56][60] - Management expressed confidence in the stability and execution of the finance and accounting team moving forward [57] Question: Gross margin pressures and healthcare costs - The decline in gross margins was attributed to a lower mix of Direct Hire revenues and higher healthcare costs, though Flex margins remained stable [62][66] - Consulting-oriented solutions continue to positively impact financial performance and gross margins [66] Question: Offshore capabilities and pricing strategies - The company has developed its offshore capabilities to complement domestic skill sets, providing clients with cost-effective solutions [71] - The impact of offshore business on margins has been slightly positive, though it remains a small part of overall operations [87] Question: Overall project pipeline and legacy systems - The pipeline remains strong, with pent-up demand for legacy projects and investments in data and AI preparation [42][43] - Companies are modernizing legacy systems while still investing in technology despite economic uncertainties [48][49]

Executive Summary [Second Quarter 2025 Performance Highlights](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Highlights) Kforce's Q2 2025 revenue was **$334.3 million**, showing sequential Flex revenue growth, improved margins, and increased diluted EPS | Metric | Q2 2025 | Sequential Change | YoY Change | | :-------------------------------- | :---------- | :---------------- | :--------- | | Revenue | $334.3 million | +1.3% | -6.2% | | Technology Flex Revenue | | +1.8% | -5.0% | | FA Flex Revenue | | +2.1% | -16.8% | | Gross Profit Margins | 27.1% | +40 bps | -70 bps | | Flex Gross Profit Margins | 25.8% | +80 bps | -40 bps | | SG&A as % of Revenue | 22.2% | -60 bps | +40 bps | | Operating Margins | 4.5% | +100 bps | -100 bps | | Diluted EPS | $0.59 | +31.1% | -21.3% | - Kforce returned **$17.4 million** in capital to shareholders through share repurchases and quarterly dividends during Q2 2025[3](index=3&type=chunk) - The Board of Directors approved a Q3 cash dividend of **$0.39 per share**[3](index=3&type=chunk) [CEO Commentary and Business Outlook](index=1&type=section&id=CEO%20Commentary%20and%20Business%20Outlook) CEO noted sequential Flex revenue growth in Technology and FA, with business stability despite macroeconomic uncertainty - Sequential Flex revenue growth achieved in both **Technology** and **Finance and Accounting** businesses[2](index=2&type=chunk) - Operating in a demand-constrained environment due to macroeconomic uncertainty, global trade negotiations, and mixed economic data[2](index=2&type=chunk) - Encouraged by recent trends affirming stability in the **Technology** business, with clients holding a significant backlog of strategically imperative technology investments[2](index=2&type=chunk) Company Information [About Kforce Inc.](index=2&type=section&id=About%20Kforce%20Inc.) Kforce Inc. specializes in technology, finance, and accounting staffing, aiding digital transformation - Kforce Inc. specializes in **technology, finance and accounting**, and other professional staffing services[5](index=5&type=chunk) - The firm's KNOWLEDGEforce® empowers companies to achieve digital transformation goals through curated teams of technical experts[5](index=5&type=chunk) - With 60 years of experience, Kforce deploys approximately **18,000 talented experts annually** to Fortune 500 and other leading companies on a temporary and direct-hire basis[6](index=6&type=chunk) Financial Results - Second Quarter 2025 [Summary of Operations](index=4&type=section&id=Summary%20of%20Operations) Kforce's Q2 2025 net income was **$10.4 million** and diluted EPS **$0.59**, reflecting sequential improvements Summary of Operations (in thousands) | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | | :-------------------- | :------------ | :------------- | :------------ | | Revenue | $334,316 | $330,028 | $356,318 | | Gross profit | $90,648 | $88,260 | $98,973 | | Income from operations | $14,888 | $11,631 | $19,700 | | Net income | $10,449 | $8,145 | $14,157 | | Earnings per share – diluted | $0.59 | $0.45 | $0.75 | | Weighted average shares outstanding - diluted | 17,759 | 18,241 | 18,886 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to **$373.6 million**, driven by debt and cash, while equity decreased Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $2,472 | $349 | | Total current assets | $222,852 | $225,406 | | Total assets | $373,640 | $357,834 | | Total current liabilities | $109,332 | $112,457 | | Long-term debt – credit facility | $70,000 | $32,700 | | Total liabilities | $239,220 | $203,216 | | Total stockholders' equity | $134,420 | $154,618 | [Key Operational Statistics](index=6&type=section&id=Key%20Operational%20Statistics) Kforce's Q2 2025 total revenue was **$334.3 million**, primarily Flex revenue, with sequential growth in Technology and FA Key Operational Statistics (in thousands) | Metric | Q2 2025 (in thousands) | Q1 2025 (in thousands) | Q2 2024 (in thousands) | | :-------------------------- | :------ | :------ | :------ | | **Total Firm** | | | | | Total Revenue | $334,316 | $330,028 | $356,318 | | Flex revenue | $328,411 | $322,570 | $348,784 | | Direct Hire revenue | $5,905 | $7,458 | $7,534 | | **Technology Segment** | | | | | Total Revenue | $310,527 | $306,284 | $327,874 | | Flex revenue | $307,844 | $302,435 | $324,064 | | Direct Hire revenue | $2,683 | $3,849 | $3,810 | | **Finance and Accounting Segment** | | | | | Total Revenue | $23,789 | $23,744 | $28,444 | | Flex revenue | $20,567 | $20,135 | $24,720 | | Direct Hire revenue | $3,222 | $3,609 | $3,724 | Gross Profit Percentage by Segment | Segment | Q2 2025 (%) | Q1 2025 (%) | Q2 2024 (%) | | :-------- | :------ | :------ | :------ | | Total Firm GP % | 27.1% | 26.7% | 27.8% | | Technology GP % | 26.3% | 25.9% | 26.8% | | Finance and Accounting GP % | 38.1% | 38.2% | 38.9% | Non-GAAP Financial Measures [Revenue Growth Rates](index=7&type=section&id=Revenue%20Growth%20Rates) Non-GAAP revenue growth rates, adjusted for billing days, show **Technology Flex** grew **0.2%** and **FA Flex** grew **0.5%** sequentially - Non-GAAP revenue growth rates remove the impact of changes in billing days to better evaluate revenue trends[16](index=16&type=chunk) Flex Revenue Growth Rates (Non-GAAP) | Metric | Q2 2025 Sequential (%) | Q2 2025 Year-Over-Year (%) | | :---------------- | :----------------- | :--------------------- | | Technology Flex | +0.2% | -5.0% | | FA Flex | +0.5% | -16.8% | | Total Flex revenue | +0.2% | -5.8% | [Free Cash Flow](index=8&type=section&id=Free%20Cash%20Flow) Free Cash Flow, a non-GAAP measure, was **$10.3 million** for the six months ended June 30, 2025, a year-over-year decrease - Free Cash Flow is a non-GAAP measure representing net cash from operating activities minus capital expenditures, used to assess liquidity and cash available for strategic opportunities[18](index=18&type=chunk) Free Cash Flow (Six Months Ended June 30, in thousands) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------- | :--- | :--- | | Net cash provided by operating activities | $18,614 | $34,105 | | Capital expenditures | ($8,290) | ($4,979) | | Free cash flow | $10,324 | $29,126 | [Adjusted EBITDA](index=8&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, was **$19.9 million** for Q2 2025, showing sequential growth but a year-over-year decline - Adjusted EBITDA is a non-GAAP measure used by management to assess core profitability, cash flow generation, and debt repayment ability, excluding non-cash and non-operating items[20](index=20&type=chunk)[21](index=21&type=chunk) Adjusted EBITDA Reconciliation (Three Months Ended, in thousands) | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | | :-------------------------- | :------------ | :------------- | :------------ | | Net income | $10,449 | $8,145 | $14,157 | | Depreciation and amortization | $1,390 | $1,464 | $1,555 | | Stock-based compensation expense | $3,618 | $3,656 | $3,498 | | Interest expense, net | $1,018 | $565 | $504 | | Income tax expense | $3,410 | $2,921 | $5,039 | | Adjusted EBITDA | $19,885 | $16,751 | $24,753 | [Third Quarter 2025 Guidance](index=2&type=section&id=Third%20Quarter%202025%20Guidance) Kforce anticipates Q3 2025 revenue between **$324 million** and **$332 million**, with diluted EPS from **$0.53** to **$0.61** Third Quarter 2025 Guidance | Metric | Guidance Range | | :-------------------------------- | :------------- | | Revenue | $324 million to $332 million | | Earnings per share | $0.53 to $0.61 | | Gross profit margins | 27.0% to 27.2% | | Flex gross profit margins | 25.7% to 25.9% | | SG&A expenses as a percent of revenue | 22.4% to 22.6% | | Operating margin | 4.0% to 4.4% | | WASO | 17.7 million | | Effective tax rate | 21.0% | [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) Forward-looking statements are subject to risks like macroeconomic conditions, trade policies, and competitive factors - Forward-looking statements are subject to risks and uncertainties, including macroeconomic conditions, global trade policies, competitive pressures, and market demand shifts[7](index=7&type=chunk) - Factors such as the ability to attract and retain consultants and management, changes in business mix, and compliance with regulations could materially affect actual results[7](index=7&type=chunk) [Conference Call Details](index=2&type=section&id=Conference%20Call%20Details) Kforce held a conference call on July 28, 2025, at 5:00 p.m. E.T. to discuss Q2 2025 results - A conference call was held on July 28, 2025, at 5:00 p.m. E.T. to discuss Q2 2025 results[4](index=4&type=chunk) - Dial-in number: **(800) 715-9871**, Passcode: **"Kforce"**. Webcast replay available at **http://investor.kforce.com**[4](index=4&type=chunk)

Company Overview and Strategy - Kforce's market capitalization is $1.3 billion and trades on NASDAQ under the ticker "KFRC"[7] - The company generates 100% of its revenue domestically with approximately 1,800 associates across the U S[7] - Kforce is strategically focused on technology, with technology revenues representing 90% of the total, compared to 6% for government, and 22% for financial and healthcare in 2007[7] - The company returned over 100% of operating cash flows to shareholders in FY 2023[7] Financial Performance in 2023 - FY 2023 revenues declined by 10.1% to $1.5 billion[7] - Technology flex revenues decreased by 7.1% in FY 2023, but grew slightly less than 1% sequentially in Q4 2023[7, 20] - The company reduced structural annual operating costs by approximately $14 million in July 2023[21] - GAAP EPS in Q4 2023 was $0.82, and adjusted EPS in FY 2023 was $3.49[21] - TTM EBITDA is approximately $116 million with outstanding borrowings of approximately $42 million[22] Capital Allocation and Shareholder Returns - Kforce returned $94.7 million in capital to shareholders in 2023 through share repurchases and dividends[22] - The annual dividend was increased by 5.5% to $1.52 per share, and the share repurchase authorization was increased to $100 million[22] Technology Business and Market - Technology staffing addressable market is projected to be $41.2 billion in 2023 and $43.2 billion in 2024[27] - The technology bill rate is approximately $90, and the flex GP% is 25.4%[7, 29]

Financial Performance - Revenue for Q1 2025 was $330,028, a decrease of 6.2% compared to $351,889 in Q1 2024[16] - Gross profit for Q1 2025 was $88,260, down from $95,250 in Q1 2024, reflecting a decline of 7.3%[16] - Net income for Q1 2025 was $8,145, a decrease of 25.9% from $10,987 in Q1 2024[16] - Earnings per share (EPS) for Q1 2025 was $0.45, compared to $0.59 in Q1 2024, representing a decline of 23.7%[16] - Revenue for the three months ended March 31, 2025 decreased 6.2% to $330.0 million from $351.9 million in the comparable period in 2024[46] - Flex revenue for the three months ended March 31, 2025 decreased 6.4% to $322.6 million from $344.7 million in the comparable period in 2024[46] - Direct Hire revenue for the three months ended March 31, 2025 increased 4.1% to $7.5 million from $7.2 million in the comparable period in 2024[46] - 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[46] - 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[46] - Flex gross profit margin for the three months ended March 31, 2025 decreased 60 basis points to 25.0% from 25.6% in the comparable period in 2024[46] - Adjusted EBITDA for Q1 2025 was $16.8 million, down from $20.6 million in Q1 2024, reflecting a decrease of 18.5%[71] Cash Flow and Capital Management - Cash provided by operating activities was $249 in Q1 2025, a decrease from $13,169 in Q1 2024, indicating a decline of 98.1%[20] - Cash provided by operating activities was $0.2 million during the three months ended March 31, 2025, compared to $13.2 million for the three months ended March 31, 2024[46] - Free cash flow for Q1 2025 was $(3.9) million, a significant decline from $11.3 million in Q1 2024[69] - Capital expenditures in Q1 2025 were $4.1 million, an increase from $1.9 million in Q1 2024[75] - The company repurchased common stock worth $21,066 during Q1 2025, compared to $2,848 in Q1 2024, showing a significant increase in buyback activity[20] - Kforce repurchased approximately 418 thousand shares of common stock for about $21.2 million during Q1 2025[79] - The company declared and paid quarterly dividends of $7.1 million in Q1 2025, representing a 3% increase per share compared to Q1 2024[76] - The Firm returned $28.3 million of capital to 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[46] Debt and Assets - Total assets increased to $368,195 as of March 31, 2025, up from $357,834 at the end of 2024, reflecting a growth of 2.0%[18] - Long-term debt increased significantly to $65,500 in Q1 2025 from $32,700 at the end of 2024, indicating a rise of 100.0%[18] - As of March 31, 2025, Kforce had $65.5 million outstanding under its credit facility, with $133.4 million available for borrowing[72] - Working capital increased to $118.5 million as of March 31, 2025, up from $112.9 million at the end of 2024[72] Market and Economic Conditions - The national U.S. unemployment rate increased to 4.2% in March 2025, up from 4.1% in December 2024, indicating a slight rise in economic uncertainty[49] - The technology temporary staffing industry is projected to grow by 2% in 2025, down from an earlier forecast of 5%[49] - Kforce expects Technology Flex revenue to improve slightly on a billing day basis in Q2 2025, while FA Flex revenue is anticipated to decrease in the mid-single digits sequentially[52][53] Strategic Initiatives and Investments - Kforce continues to prioritize investments in strategic initiatives, including the implementation of Workday, expected to go live in early 2026[64] - Selling, general and administrative expenses (SG&A) increased to 22.8% of total revenue in Q1 2025, compared to 22.2% in Q1 2024, reflecting ongoing investments in strategic priorities[63] Legal and Compliance - The company is involved in legal proceedings but does not expect these to have a material effect on its financial statements[89] - There have been no material changes in the risk factors previously disclosed in the 2024 Annual Report[90] - Kforce maintains liability insurance covering various risks, but there is no assurance that it will cover all events or liabilities[89] - The company has made accruals for certain legal matters that are not considered material individually or in the aggregate[89] - The certifications of the CEO and CFO were provided in accordance with the Sarbanes-Oxley Act of 2002[87] - The company continues to evaluate its financial position and may be subject to additional liabilities from ongoing litigation[89] Shareholder Actions - Kforce's Board approved an increase in the stock repurchase authorization to $100 million in February 2024[91] - The company has approximately $42,275,612 remaining under its stock repurchase plan as of March 31, 2025[91] - Kforce repurchased a total of 420,122 shares of common stock during the three months ended March 31, 2025, at an average price of $50.71 per share[91] - No insider trading arrangements were adopted or terminated by the company's officers or directors during the three months ended March 31, 2025[94]

Financial Data and Key Metrics Changes - Total revenues for Q1 2025 were $330 million, a decline of 4.7% year-over-year on a billing day basis [12] - Earnings per share were $0.45, slightly above the low end of guidance [23] - Overall gross margins decreased by 30 basis points sequentially to 26.7% due to seasonal declines in Flex margins [23][24] - Operating margin was reported at 3.5% with an effective tax rate of 26.4% [25] Business Line Data and Key Metrics Changes - Revenues in the technology business declined 5.2% sequentially and 3.5% year-over-year per billing day [12] - Flex revenues in the FA business, which represent 6.1% of total revenues, declined 22% year-over-year [20] - Average bill rates in the technology business were stable at approximately $90, showing slight growth [16][24] Market Data and Key Metrics Changes - The retail and transportation industries outperformed sequentially in Q1, while financial services experienced downward pressure [19] - The company noted that its footprint is focused on supporting large clients, leading to mixed revenue performance within the same industry verticals [19] Company Strategy and Development Direction - The company remains focused on strategically imperative technology investments and is well-positioned to capture additional market share [6] - Significant investments are being made in the implementation of Workday as a future state enterprise cloud application, expected to go live in early 2026 [7][25] - The company is evolving its nearshore and offshore delivery capabilities, particularly through its India Development Center [8] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding demand despite macroeconomic uncertainties, noting an improvement in consultants on assignments [5][6] - The company anticipates modest sequential growth in its technology business for Q2 2025 [19] - Management emphasized the importance of maintaining focus on long-term strategic priorities while managing productivity and profitability [25] Other Important Information - The company has returned approximately $1 billion in capital to shareholders since 2007, representing about 75% of cash generated [27] - The company continues to carry a solid balance sheet with conservative debt levels [27] Q&A Session Summary Question: Client commitment to existing projects - Management indicated that clients are generally stable in their project commitments, with no significant cancellations observed [34][46] Question: Guidance for future trends - Guidance suggests stability in sequential trends for the remainder of the quarter, without anticipating a worsening environment [37][40] Question: Capacity and personnel adjustments - The company has made significant adjustments to its delivery headcount, down nearly 40%, but believes it has ample capacity to meet increased demand without adding significant resources [21][58] Question: Healthcare costs impact - Higher healthcare costs were attributed to claim severity rather than volume, with management indicating that they monitor and price these costs accordingly [73][97] Question: Candidate availability - Candidate availability has not changed materially, with stability in pay rates reflecting the ongoing demand for skilled talent [102][104] Question: Share repurchase activity - The company has been more aggressive in share repurchase activity, returning significant capital to shareholders while maintaining a strong balance sheet [106][107]