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Kforce(KFRC) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides Kforce Inc.'s unaudited condensed consolidated financial statements and management's discussion for Q1 2023 Item 1. Financial Statements. Presents Kforce Inc.'s unaudited condensed consolidated financial statements for Q1 2023 and 2022, with accompanying notes Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income Presents Kforce Inc.'s unaudited condensed consolidated statements of operations and comprehensive income for Q1 2023 and 2022 | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :-------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Revenue | $406.0M | $417.0M | | Direct costs | $292.0M | $293.1M | | Gross profit | $114.0M | $123.9M | | Selling, general and administrative expenses | $89.3M | $95.0M | | Income from operations | $23.4M | $27.7M | | Net income | $16.2M | $19.2M | | Earnings per share – diluted | $0.82 | $0.93 | Unaudited Condensed Consolidated Balance Sheets Presents Kforce Inc.'s unaudited condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022 | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Total assets | $385.2M | $392.0M | | Total liabilities | $199.4M | $209.8M | | Total stockholders' equity | $185.7M | $182.2M | Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity Details changes in Kforce Inc.'s stockholders' equity for the three months ended March 31, 2023 | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Balance, December 31, 2022 | $182.2M | N/A | | Net income | $16.2M | N/A | | Stock-based compensation expense | $4.3M | N/A | | Dividends ($0.36 per share) | $(7.0M) | N/A | | Repurchases of common stock | $(10.2M) | N/A | | Balance, March 31, 2023 | $185.7M | N/A | - The company declared and paid quarterly dividends of $0.36 per share for the three months ended March 31, 2023, totaling $7.0 million18 - Common stock repurchases amounted to $10.2 million for the three months ended March 31, 202318 Unaudited Condensed Consolidated Statements of Cash Flows Presents Kforce Inc.'s unaudited condensed consolidated statements of cash flows for Q1 2023 and 2022 | Cash Flow Activity | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (YoY) | | :-------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :----------- | | Net cash provided by operating activities | $19.1M | $38.7M | (50.8)% | | Cash provided by (used in) investing activities | $2.4M | $(2.7M) | N/A | | Cash used in financing activities | $(21.4M) | $(16.4M) | 30.9% | | Change in cash and cash equivalents | $0.1M | $19.6M | (99.7)% | | Cash and cash equivalents, end of period | $0.2M | $116.6M | (99.8)% | - Cash provided by operating activities significantly decreased by 50.8% year-over-year, primarily due to lower profitability levels, the timing of payments, and a reduction in deferred tax liability given the sale of our joint venture90 Notes to Unaudited Condensed Consolidated Financial Statements Details significant accounting policies, segment information, and other financial disclosures for the interim period - The unaudited condensed consolidated financial statements have been prepared pursuant to SEC rules for interim financial reporting, condensing certain GAAP information23 - Quarterly operating results are affected by the number of billing days, seasonality of clients' businesses, and increased holiday/vacation days, with higher costs typically in the first quarter due to employment tax resets24 Note A - Summary of Significant Accounting Policies Summarizes Kforce Inc.'s significant accounting policies, covering health insurance claims, joint venture sale, and excise tax on stock repurchases - Kforce retains the risk of loss per participant for health insurance claims up to $600 thousand annually, and an aggregate annual loss of $280 thousand for claims exceeding $600 thousand27 - On February 23, 2023, Kforce sold its 50% noncontrolling interest in WorkLLama to an unaffiliated third party for $6.0 million (net proceeds $5.1 million), settling the outstanding Note Receivable31 - For the three months ended March 31, 2023, Kforce recorded $0.1 million in excise tax related to the U.S. Federal 1% nondeductible excise tax on stock repurchases under the Inflation Reduction Act of 202232 Note B - Reportable Segments Provides financial information for Kforce Inc.'s Technology and Finance and Accounting (FA) reportable segments - Kforce provides services through its Technology and Finance and Accounting ("FA") segments34 | Segment | Revenue (Q1 2023, in millions) | Revenue (Q1 2022, in millions) | Gross Profit (Q1 2023, in millions) | Gross Profit (Q1 2022, in millions) | | :-------- | :-------------------------------- | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Technology | $364.8M | $359.9M | $98.4M | $102.5M | | FA | $41.2M | $57.1M | $15.6M | $21.4M | | Total | $406.0M | $417.0M | $114.0M | $123.9M | Note C - Disaggregation of Revenue Details Kforce Inc.'s revenue disaggregation by service type (Flex and Direct Hire) across Technology and FA segments | Revenue Type | Technology (Q1 2023, in millions) | Technology (Q1 2022, in millions) | FA (Q1 2023, in millions) | FA (Q1 2022, in millions) | Total (Q1 2023, in millions) | Total (Q1 2022, in millions) | | :------------- | :----------------------------------- | :----------------------------------- | :------------------------- | :------------------------- | :---------------------------- | :---------------------------- | | Flex revenue | $359.5M | $351.7M | $36.0M | $50.2M | $395.5M | $401.9M | | Direct Hire revenue | $5.3M | $8.2M | $5.1M | $6.9M | $10.5M | $15.1M | | Total Revenue | $364.8M | $359.9M | $41.2M | $57.1M | $406.0M | $417.0M | Note D - Allowance for Credit Losses Explains the methodology and changes in Kforce Inc.'s allowance for credit losses on trade receivables - The allowance for credit losses on trade receivables is determined by estimating and recognizing lifetime expected losses37 | Metric | Amount (in millions) | | :---------------------------------------------------------------- | :-------------------- | | Allowance for credit losses, January 1, 2023 | $1.0M | | Current period provision | $0.4M | | Write-offs charged against the allowance, net of recoveries of amounts previously written off | $(0.4M) | | Allowance for credit losses, March 31, 2023 | $0.9M | Note E - Other Assets, Net Details the composition of Kforce Inc.'s other assets, net, including Rabbi Trust, right-of-use assets, and capitalized software | Asset Category | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Assets held in Rabbi Trust | $34.3M | $32.0M | | Right-of-use assets for operating leases, net | $16.5M | $17.1M | | Capitalized software, net | $14.8M | $16.1M | | Notes receivable, net | $0 | $4.8M | | Other non-current assets | $5.2M | $4.8M | | Total Other assets, net | $71.7M | $75.8M | - Notes receivable, net decreased from $4.8 million at December 31, 2022, to $0 at March 31, 2023, due to the settlement of the Note Receivable from the sale of the joint venture4041 Note F - Current Liabilities Presents Kforce Inc.'s current liabilities, including accounts payable, accrued payroll, and operating lease liabilities | Liability Category | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Accounts payable and other accrued liabilities | $69.6M | $72.8M | | Accrued payroll costs | $46.9M | $48.4M | | Current portion of operating lease liabilities | $3.8M | $4.6M | | Income taxes payable | $5.4M | $5.7M | | Total current liabilities | $125.8M | $131.4M | Note G - Credit Facility Details Kforce Inc.'s credit facility, including borrowing capacity, outstanding amounts, and compliance with covenants - Kforce has a maximum borrowing capacity of $200.0 million under its Amended and Restated Credit Facility, which matures on October 20, 202643 | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Outstanding under credit facility | $22.3M | $25.6M | - As of March 31, 2023, the company was in compliance with all financial covenants contained in the Amended and Restated Credit Facility43 Note H - Other Long-Term Liabilities Outlines Kforce Inc.'s other long-term liabilities, including deferred compensation and operating lease liabilities | Liability Category | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Deferred compensation plan | $36.8M | $36.4M | | Operating lease liabilities | $14.5M | $16.4M | | Other long-term liabilities | $33 thousand | $3 thousand | | Total Other long-term liabilities | $51.4M | $52.8M | Note I - Stock-based Compensation Describes Kforce Inc.'s stock-based compensation plans, including the 2023 Stock Incentive Plan and restricted stock activity - Kforce's shareholders approved the 2023 Stock Incentive Plan, reserving approximately 3.2 million shares for various stock-based awards46 | Restricted Stock Activity (Q1 2023, in thousands) | Number of Restricted Stock | Weighted-Average Grant Date Fair Value | | :------------------------------------------------ | :------------------------- | :------------------------------------- | | Outstanding at December 31, 2022 | 911 | $54.42 | | Granted | 6 | $54.92 | | Forfeited | (1) | $75.22 | | Vested | (8) | $25.71 | | Outstanding at March 31, 2023 | 908 | $54.64 | - Total unrecognized stock-based compensation expense related to restricted stock was $41.2 million as of March 31, 2023, to be recognized over a weighted-average remaining period of 4.1 years47 Note J - Derivative Instrument and Hedging Activity Discusses Kforce Inc.'s past interest rate swap instruments used for hedging and their current status - Kforce previously maintained two interest rate swap instruments (Swap A and Swap B) designated as cash flow hedges to mitigate interest rate risk49 - Swap A matured in April 2022 and Swap B was terminated in May 2022; as of March 31, 2023, the Firm did not have any outstanding derivative instruments49 Note K - Fair Value Measurements Explains Kforce Inc.'s fair value measurements, including the inputs used for financial instruments - Interest rate swaps were previously measured at fair value using Level 2 inputs51 - There were no transfers into or out of Level 1, 2, or 3 assets or liabilities during the three months ended March 31, 202352 Note L - Commitments and Contingencies Outlines Kforce Inc.'s potential liabilities from executive employment agreements and the status of legal proceedings - Potential liability from executive employment agreements could be approximately $40.4 million following a change in control and termination without cause, or $17.4 million without a change in control53 - Several legal proceedings, including PAGA and FLSA class actions, were settled and dismissed in March 2023 or February 2023, with no material adverse effect on the company's financial position or operations56585960 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's discussion and analysis of Kforce's financial condition and results of operations for Q1 2023 Executive Summary Provides a high-level overview of Kforce Inc.'s key financial performance metrics and operational highlights for Q1 2023 | Metric | Q1 2023 | Q1 2022 | Change (YoY) | | :-------------------------------- | :-------- | :-------- | :----------- | | Total Revenue | $406.0M | $417.0M | (2.6)% | | Technology Revenue | +1.4% | N/A | +1.4% | | FA Revenue | (27.9)% | N/A | (27.9)% | | Flex Revenue | $395.5M | $401.9M | (1.6)% | | Direct Hire Revenue | $10.5M | $15.1M | (30.7)% | | Gross Profit Margin | 28.1% | 29.7% | (160 bps) | | Net Income | $16.2M | $19.2M | (15.5)% | | Diluted EPS | $0.82 | $0.93 | (11.8)% | | Capital Returned to Shareholders | $17.0M | N/A | N/A | | Cash Provided by Operating Activities | $19.1M | $38.7M | (50.8)% | - The decline in gross profit margin was attributed to a decrease in Direct Hire revenue mix and a decline in our Flex gross profit margin63 - SG&A expenses as a percentage of revenue decreased due to lower performance-based compensation, reduced lease expense from real estate portfolio streamlining, and lower professional fees63 Results of Operations Analyzes Kforce Inc.'s operating results, including revenue, gross profit, and expenses, for Q1 2023 and 2022 - Kforce is a leading domestic provider of technology and finance and accounting talent solutions, focusing on Fortune 500 and other large consumers of its services64 - The national unemployment rate remained flat at 3.5% at the end of March 202365 - Staffing Industry Analysts (SIA) estimates technology temporary staffing to grow 5% in 2023 and 7% in 2024, and finance and accounting temporary staffing to grow 6% in 2023 and 5% in 202465 Business Overview Provides an overview of Kforce Inc.'s workforce, including the number of associates and consultants on assignment - As of March 31, 2023, Kforce employed approximately 2,000 associates and 9,500 consultants on assignment64 Operating Results - Three Months Ended March 31, 2023 and 2022 Presents a comparative analysis of Kforce Inc.'s operating results as a percentage of revenue for Q1 2023 and 2022 | Metric (% of Revenue) | Q1 2023 | Q1 2022 | | :-------------------------------- | :------ | :------ | | Technology Revenue | 89.9% | 86.3% | | FA Revenue | 10.1% | 13.7% | | Flex Revenue | 97.4% | 96.4% | | Direct Hire Revenue | 2.6% | 3.6% | | Gross profit | 28.1% | 29.7% | | Selling, general and administrative expenses | 22.0% | 22.8% | | Income from operations | 5.8% | 6.7% | | Net income | 4.0% | 4.6% | Revenue Analysis Analyzes Kforce Inc.'s revenue performance by segment and service type (Flex and Direct Hire) for Q1 2023 and 2022 | Segment/Type | Q1 2023 Revenue (in millions) | Q1 2022 Revenue (in millions) | YoY Change (%) | | :---------------- | :------------------------------- | :------------------------------- | :------------- | | Technology Flex | $359.5M | $351.7M | 2.2% | | Technology Direct Hire | $5.3M | $8.2M | (35.0)% | | Total Technology | $364.8M | $359.9M | 1.4% | | FA Flex | $36.0M | $50.2M | (28.2)% | | FA Direct Hire | $5.1M | $6.9M | (25.6)% | | Total FA | $41.2M | $57.1M | (27.9)% | | Total Flex | $395.5M | $401.9M | (1.6)% | | Total Direct Hire | $10.5M | $15.1M | (30.7)% | | Total Revenue | $406.0M | $417.0M | (2.6)% | | Flex Revenue Growth Rates (Per Billing Day) | Q1 2023 | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | :------ | | Billing Days | 64 | 61 | 64 | 64 | 64 | | Technology | 2.2% | 8.5% | 15.7% | 23.3% | 26.0% | | FA | (28.2)% | (28.8)% | (30.7)% | (49.0)% | (37.6)% | | Total Flex | (1.6)% | 3.1% | 8.7% | 7.2% | 11.8% | Flex Revenue Examines the drivers of Kforce Inc.'s Flex revenue changes, including volume, bill rates, and billable expenses, by segment - Technology Flex revenue increased 2.2% year-over-year, driven by a 4.7% increase in average bill rates, partially offset by a decrease in consultants on assignment68 - FA Flex revenue decreased 28.2% year-over-year, primarily due to business repositioning towards high-skilled roles and macroeconomic uncertainty, though average bill rates improved 10.4% year-over-year69 | Key Drivers - Change in Flex Revenue (Q1 2023 vs. Q1 2022, in millions) | Technology | FA | | :---------------------------------------------------------------------- | :--------- | :--------- | | Volume - hours billed | $(7.7M) | $(17.5M) | | Bill rate | $16.0M | $3.4M | | Billable expenses | $(0.5M) | $(9 thousand) | | Total change in Flex revenue | $7.8M | $(14.1M) | | Flex Hours Billed (in thousands) | Q1 2023 | Q1 2022 | YoY Change (%) | | :------------------------------- | :------ | :------ | :------------- | | Technology | 4,032 | 4,122 | (2.2)% | | FA | 748 | 1,150 | (35.0)% | | Total Flex hours billed | 4,780 | 5,272 | (9.3)% | Direct Hire Revenue Discusses the decrease in Kforce Inc.'s Direct Hire revenue for Q1 2023 compared to the same period in 2022 - Direct Hire revenue decreased 30.7% during the three months ended March 31, 2023, as compared to the same period in 2022, primarily driven by a decrease in placements72 Gross Profit Analysis Analyzes Kforce Inc.'s gross profit percentages by segment and overall, highlighting factors influencing changes | Gross Profit Percentage | Q1 2023 | Q1 2022 | YoY Change (%) | | :---------------------- | :------ | :------ | :------------- | | Technology | 27.0% | 28.5% | (5.3)% | | FA | 37.8% | 37.6% | 0.5% | | Total gross profit percentage | 28.1% | 29.7% | (5.4)% | - The total gross profit percentage for the three months ended March 31, 2023, decreased 160 basis points, primarily due to a decline in Direct Hire revenue mix and a decline in our Flex gross profit margin74 | Flex Gross Profit Percentage | Q1 2023 | Q1 2022 | YoY Change (%) | | :--------------------------- | :------ | :------ | :------------- | | Technology | 25.9% | 26.8% | (3.4)% | | FA | 28.9% | 29.0% | (0.3)% | | Total Flex gross profit percentage | 26.2% | 27.1% | (3.3)% | - Overall, our Flex gross profit percentage decreased 90 basis points, primarily due to a tighter pricing environment and business mix changes within our client portfolio in our Technology business76 SG&A Expenses Analysis Examines Kforce Inc.'s selling, general, and administrative (SG&A) expenses, including components and their percentage of revenue | SG&A Component | Q1 2023 (in millions) | % of Revenue (Q1 2023) | Q1 2022 (in millions) | % of Revenue (Q1 2022) | | :------------------------------------------ | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Compensation, commissions, payroll taxes and benefits costs | $75.6M | 18.6% | $80.2M | 19.2% | | Other | $13.7M | 3.4% | $14.8M | 3.6% | | Total SG&A | $89.3M | 22.0% | $95.0M | 22.8% | - SG&A as a percentage of revenue decreased 80 basis points, driven by lower performance-based compensation, cost efficiencies from reducing leased office space, and lower professional fees79 - Due to the softening demand environment, the company is prioritizing continued investments in strategic initiatives and exercising tighter discretionary spend control79 Depreciation and Amortization Analysis Details Kforce Inc.'s depreciation and amortization expenses for fixed assets and capitalized software | Category | Q1 2023 (in millions) | Q1 2022 (in millions) | YoY Change (%) | | :-------------------------------- | :----------------------- | :----------------------- | :------------- | | Fixed asset depreciation | $0.6M | $0.7M | (6.4)% | | Capitalized software amortization | $0.6M | $0.4M | 44.2% | | Total Depreciation and amortization | $1.2M | $1.1M | 12.9% | Other Expense, Net Analysis Reviews Kforce Inc.'s other expense, net, primarily consisting of interest expense and losses from equity method investment | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | | :-------------------------------- | :----------------------- | :----------------------- | | Other expense, net | $1.0M | $1.4M | | Loss from equity method investment | $0.8M | $0.8M | - Other expense, net primarily includes interest expense and losses related to the equity method investment, which was $0.8 million for both periods8081 Income Tax Expense Analysis Presents Kforce Inc.'s effective tax rate for the three months ended March 31, 2023 and 2022 | Metric | Q1 2023 | Q1 2022 | | :-------------------------------- | :------ | :------ | | Effective tax rate | 27.5% | 27.1% | Non-GAAP Financial Measures Defines and reconciles Kforce Inc.'s non-GAAP financial measures, including Free Cash Flow and Adjusted EBITDA - Non-GAAP financial measures like Free Cash Flow and Adjusted EBITDA are used by management to assess operations and provide additional insights for investors, complementing GAAP results8386 Free Cash Flow Defines and presents Kforce Inc.'s Free Cash Flow for Q1 2023 and 2022 - Free Cash Flow is defined as net cash provided by operating activities determined in accordance with GAAP, less capital expenditures83 | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | | :-------------------------------- | :----------------------- | :----------------------- | | Net cash provided by operating activities | $19.1M | $38.7M | | Capital expenditures | $(1.9M) | $(2.2M) | | Free cash flow | $17.2M | $36.5M | Adjusted EBITDA Defines and presents Kforce Inc.'s Adjusted EBITDA for Q1 2023 and 2022 - Adjusted EBITDA is defined as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income tax expense, loss from equity method investment and certain other items85 | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | | :-------------------------------- | :----------------------- | :----------------------- | | Net income | $16.2M | $19.2M | | Depreciation and amortization | $1.2M | $1.1M | | Stock-based compensation expense | $4.3M | $4.4M | | Interest expense, net | $0.3M | $0.6M | | Income tax expense | $6.1M | $7.1M | | Loss from equity method investment | $0.8M | $0.8M | | Adjusted EBITDA | $28.7M | $33.3M | Liquidity and Capital Resources Discusses Kforce Inc.'s liquidity and capital resources, including cash flows, credit facility, and stock repurchases - Kforce primarily relies on operating cash flows and borrowings under its credit facility to meet capital and liquidity requirements88 - The company believes that existing cash and cash equivalents, operating cash flows, and available borrowings under its Credit Facility will be adequate to meet capital expenditure and working capital requirements for at least the next 12 months93 Cash Flows Analyzes Kforce Inc.'s cash flow activities from operations, investing, and financing for Q1 2023 and 2022 | Cash Flow Activity | Q1 2023 (in millions) | Q1 2022 (in millions) | YoY Change (%) | | :-------------------------------- | :----------------------- | :----------------------- | :------------- | | Cash provided by operating activities | $19.1M | $38.7M | (50.8)% | | Cash provided by investing activities | $2.4M | $(2.7M) | N/A | | Cash used in financing activities | $(21.4M) | $(16.4M) | 30.9% | - The year-over-year decrease in cash provided by operating activities was primarily driven by lower profitability levels, the timing of payments, and a reduction in our deferred tax liability given the sale of our joint venture90 - Cash provided by investing activities in Q1 2023 was $2.4 million, primarily from the $5.1 million proceeds from the sale of a joint venture interest, partially offset by $1.9 million in capital expenditures91 | Common Stock Repurchase Activity (in millions) | Q1 2023 | Q1 2022 | | :---------------------------------------------- | :-------- | :-------- | | Open market repurchases | $11.0M | $10.1M | | Repurchase of shares related to tax withholding requirements | $0.1M | $0.2M | | Total cash flow impact of common stock repurchases | $11.1M | $10.3M | - Quarterly dividends increased by 20% per share, from $0.30 in Q1 2022 to $0.36 in Q1 2023, totaling $7.0 million92 Credit Facility Provides an update on Kforce Inc.'s credit facility, including outstanding amounts and borrowing availability - As of March 31, 2023, $22.3 million was outstanding under the credit facility, with $176.5 million of borrowing availability94 - The company expects to maintain compliance with its credit facility covenants94 Stock Repurchases Details Kforce Inc.'s stock repurchase program, including authorization increases and shares purchased during Q1 2023 - In February 2023, the Board approved an increase in the stock repurchase authorization, bringing the total authorization to $100.0 million96 | Repurchase Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased (in millions) | | :-------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------- | | January 1, 2023 to January 31, 2023 | 138,318 | $55.67 | $33.6M | | February 1, 2023 to February 28, 2023 | 42,248 | $58.02 | $98.8M | | March 1, 2023 to March 31, 2023 | — | — | $98.8M | | Total | 180,566 | $56.22 | $98.8M | - During Q1 2023, Kforce repurchased approximately 178 thousand shares of common stock for $10.0 million, with $98.8 million remaining available under the authorization96 - A 1% nondeductible excise tax on certain stock repurchases was recorded due to the IRA, but it is not expected to have a material impact on cash flows, results of operations, or financial position97 Contractual Obligations and Commitments States that there have been no material changes to Kforce Inc.'s contractual obligations since the 2022 Annual Report - There have been no material changes to contractual obligations previously disclosed in the 2022 Annual Report on Form 10-K, other than those described elsewhere in this report98 Critical Accounting Estimates Highlights Kforce Inc.'s critical accounting estimates and the inherent uncertainties in financial reporting - The preparation of financial statements requires management to make assumptions and estimates, particularly for allowance for credit losses, income taxes, self-insured health liabilities, and the impairment of goodwill and other long-lived assets2699 - Actual results could differ materially from these estimates due to the inherent uncertainty of future events99 New Accounting Standards Discusses Kforce Inc.'s adoption of new FASB guidance for reference rate reform and its expected impact - Kforce adopted FASB guidance for reference rate reform as of January 1, 2023, extending the final sunset date to December 31, 2024, with no material impact expected on consolidated financial statements33100 Item 3. Quantitative and Qualitative Disclosures About Market Risk. No material changes to Kforce Inc.'s quantitative and qualitative disclosures about market risk since the 2022 Annual Report on Form 10-K - There have been no material changes to the information included in Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022101 Item 4. Controls and Procedures. Details the evaluation of Kforce Inc.'s disclosure controls, internal control over financial reporting, inherent limitations, and CEO/CFO certifications Evaluation of Disclosure Controls and Procedures Reports on the effectiveness of Kforce Inc.'s disclosure controls and procedures as of March 31, 2023 - The CEO and CFO concluded that the design and operation of the company's disclosure controls and procedures were effective as of March 31, 2023102 Changes in Internal Control over Financial Reporting States that no material changes in Kforce Inc.'s internal control over financial reporting occurred during the last fiscal quarter - Management concluded that no material changes in internal control over financial reporting occurred during the last fiscal quarter103 Inherent Limitations of Internal Control Over Financial Reporting Acknowledges the inherent limitations of internal control over financial reporting in preventing or detecting all material misstatements - Due to inherent limitations, internal control over financial reporting may not prevent or detect all material misstatements due to error or fraud on a timely basis104 CEO and CFO Certifications Confirms the inclusion of CEO and CFO certifications as required by Section 302 of 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 2002105 PART II - OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings. Refers to Note L for legal proceedings, noting that while outcomes are uncertain, they are not expected to materially affect financial position - The company is involved in legal proceedings, claims, and administrative matters that arise in the ordinary course of business, which are not expected to have a material effect on its financial position107 Item 1A. Risk Factors. No material changes in Kforce Inc.'s risk factors previously disclosed in the 2022 Annual Report on Form 10-K - There have been no material changes in the risk factors previously disclosed in our 2022 Annual Report on Form 10-K108 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Details Kforce Inc.'s common stock repurchases during Q1 2023 under its publicly announced repurchase program | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased (in millions) | | :-------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------- | | January 1, 2023 to January 31, 2023 | 138,318 | $55.67 | $33.6M | | February 1, 2023 to February 28, 2023 | 42,248 | $58.02 | $98.8M | | March 1, 2023 to March 31, 2023 | — | — | $98.8M | | Total | 180,566 | $56.22 | $98.8M | - In February 2023, the Board approved an increase in the stock repurchase authorization, increasing the available authorization to $100.0 million110 - All dollar amounts presented exclude the 1% nondeductible excise tax imposed by the IRA on the net value of certain open market stock repurchases made after December 31, 2022110 Item 3. Defaults Upon Senior Securities. States that there were no defaults upon senior securities - No defaults upon senior securities were reported111 Item 4. Mine Safety Disclosures. States that there are no mine safety disclosures - No mine safety disclosures were reported112 Item 5. Other Information. States that there is no other information to disclose - No other information was reported113 Item 6. Exhibits. Lists the exhibits filed as part of the Form 10-Q, including corporate documents, stock incentive plans, certifications, and XBRL data - The report includes various exhibits such as Amended and Restated Articles of Incorporation, Bylaws, the 2023 Stock Incentive Plan, and CEO/CFO certifications114 - XBRL formatted financial statements and related notes are provided as Exhibit 101.1114 SIGNATURES This section contains the required signatures for the Form 10-Q filing - The report is signed by David M. Kelly, Executive Vice President, Chief Financial Officer, and Jeffrey B. Hackman, Senior Vice President, Finance and Accounting, on May 9, 2023118