10q10k10q10k.net

What changed in KFORCE INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of KFORCE INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+241 added−246 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in KFORCE INC's 2023 10-K

241 paragraphs added · 246 removed · 174 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+23 added−38 removed12 unchanged
Biggest changeBusiness Strategies Our primary objectives are driving long-term shareholder value by achieving above-market revenue growth, making prudent investments to enhance our efficiency and effectiveness within our operating model and significantly improving our profitability as we progress towards double digit operating margins. We believe the following strategies will help us achieve our objectives. Evolving our Integrated Sales Strategy.
Biggest changeIn addition, the college-level unemployment rate, which we believe serves as a better proxy for professional employment, and therefore aligns well with the consultant and candidate population that Kforce most typically serves, increased to 2.1% in December 2023, from 1.9% in December 2022. 3 Table of Contents Business Strategies Our primary business strategies are driving long-term shareholder value by achieving above-market revenue growth within the domestic technology solutions space, making prudent investments to enhance our efficiency and effectiveness within our consistent operating model, and significantly improving our profitability as we progress towards double digit operating margins.
These policies provide coverage subject to their terms, conditions, limits of liability and deductibles, for certain liabilities that may arise from Kforce’s operations. There can be no assurance that any of the above policies will be adequate for our needs or that we will maintain all such policies in the future.
These policies provide coverage, subject to certain terms, conditions, and limits of liability and deductibles, for certain liabilities that may arise from Kforce’s operations. There can be no assurance that any of the above policies will be adequate for our needs, or that we will maintain all such policies in the future.
Additionally for our associates and certain consultants, we provide paid leave. We have no collective bargaining agreements covering any of our employees, have never experienced any material labor disruption, and are unaware of any current efforts or plans of our employees to organize. Because we operate in a complex regulatory environment, one of our top priorities is compliance.
We also provide paid leave for our associates and certain consultants. We have no collective bargaining agreements covering any of our employees, have never experienced any material labor disruption and are unaware of any current efforts or plans of our employees to organize. Because we operate in a complex regulatory environment, one of our top priorities is compliance.
We post our filings, free of charge, at www.investor.kforce.com the same day they are electronically filed with, or furnished to, the SEC, including our annual and quarterly reports on Forms 10-K and 10-Q and current reports on Form 8-K, our proxy statements, and any amendments to those reports or statements.
We post our filings, free of charge, at https://investor.kforce.com the same day they are electronically filed with, or furnished to, the SEC, including our annual and quarterly reports on Forms 10-K and 10-Q, current reports on Form 8-K, our proxy statements, and any amendments to those reports or statements.
Our FA Business The talent solutions we offer our clients in our FA business include consultants in traditional finance and accounting roles such as: finance, planning and analysis; business intelligence analysis; general accounting; transactional accounting (e.g., payables, billing, cash applications, receivables); business and cost analysis; and taxation and treasury.
The talent solutions we offer our clients in our FA business include traditional finance and accounting roles, such as: finance, planning and analysis; business intelligence analysis; general accounting; transactional accounting (e.g., payables, billing, cash applications, receivables, etc.); business and cost analysis; and taxation and treasury.
Regulatory Environment Staffing and solutions firms are generally subject to one or more of the following types of government regulations: (1) regulation of the employer/employee relationship, such as wage and hour regulations, tax withholding and reporting, immigration/H-1B visa regulations, social security and other retirement, anti-discrimination, employee benefits and workers’ compensation regulations; (2) registration, licensing, recordkeeping and reporting requirements; and (3) worker classification regulations.
Regulatory Environment Staffing and solutions firms are generally subject to one or more of the following types of government regulations: (1) regulation of the employer/employee relationship, such as wage and hour regulations, payroll tax withholding and reporting, immigration/visa regulations, as well as social security and other retirement, anti-discrimination, employee benefits and workers’ compensation regulations; (2) registration, licensing, recordkeeping and reporting requirements; and (3) worker classification regulations.
Within our managed teams and project solutions offerings, we also face competition from global, national and regional accounting, consulting and advisory firms and national and regional strategic consulting and systems implementation firms.
Within our managed teams and project solutions offerings, we also face competition from global, national and regional accounting, consulting and advisory firms, as well as national and regional strategic consulting and systems implementation firms.
Our quarterly operating results can be affected by: • the number of billing days in a particular quarter; • the seasonality of our clients’ businesses; • increased holidays and vacation days taken, which is usually highest in the fourth quarter of each calendar year; and • increased costs as a result of certain annual U.S. state and federal employment tax resets that occur at the beginning of each calendar year, which negatively impacts our gross profit and overall profitability in the first fiscal quarter of each calendar year.
Our operating results can be affected by: • the number of billing days; • the seasonality of our clients’ businesses; • changes in holidays and vacation days taken, which is usually highest in the fourth quarter of each calendar year; and • increased costs as a result of certain annual U.S. state and federal employment tax resets that occur at the beginning of each calendar year, which negatively impact our gross profit and overall profitability in the first fiscal quarter of each calendar year.
These practices and policies, include firm-wide compliance with our Commitment to Integrity - Kforce’s Code of Business Conduct - that intends to set the highest ethical standards for how we conduct business (“Code of Conduct”).
These practices and policies include firm-wide compliance with our Commitment to Integrity - Kforce’s Code of Business Conduct - that intends to set the highest ethical standards for how we conduct business (“Code of Conduct”). The Board is responsible for the oversight of our ESG policies and strategy.
Oversigh t - Our Board of Directors (“Board”) meet regularly to assess strategic plans and manage risks to our business and people, as well as to promote sound corporate governance practices and policies.
Oversight - Our Board of Directors (“Board”) meets regularly to assess strategic plans and manage risks to our business and people, as well as to promote sound corporate governance practices and policies.
We continue to invest in these technologies to enhance our capabilities and processes in ways we believe will allow us to better evaluate and shape business opportunities with our clients and more seamlessly match candidates to assignments and projects.
We are continuing to make investments in these technologies, and others, to enhance our capabilities and processes in ways we believe will allow us to better evaluate and shape business opportunities with our clients and more seamlessly match candidates to assignments and projects.
We saw some of the greatest environmental benefits to date as a result of the continued rollout of our Office Occasional SM work model, which resulted in a significant reduction in office space, business travel, in-office electricity usage and reduced employee commutes. As we have continued to minimize our environmental impacts, we recognize the importance of measuring our efforts.
We saw some of the greatest environmental benefits to date as a result of the continued rollout of our Office Occasional ® work model, which resulted in a significant reduction in office space, business travel, in-office electricity usage and employee commutes.
We believe Kforce has been successfully winning these more complex engagements due to the strong, long-standing partnerships we have built with our clients, our reputation for delivering quality services and our capability in identifying quality technology talent.
Kforce has been successfully winning more complex engagements due to the strong, long-standing partnerships we have built with our clients, our capability in identifying quality technology talent, and our reputation for delivering quality services. We are continuing to further integrate this capability into our Technology business.
We believe that our boundaryless reach within the U.S., physical presence in larger markets, concentration of service offerings in areas of greatest demand (especially technology), national delivery teams, centralized delivery channels for foreign consultants, including those obtained via visa programs that optimize distribution and strengthens compliance, longevity of our brand and reputation in the market, along with our dedicated compliance and regulatory infrastructure, all provide a competitive advantage. 4 Table of Contents Many clients utilize Managed Service Providers (“MSP”) or Vendor Management Organizations (“VMO”) for the management and procurement of our services.
We believe that our physical presence in larger markets, concentration of service offerings in areas of greatest demand (especially technology), national delivery teams, centralized delivery channels for foreign consultants (including those obtained via visa programs that optimize distribution and strengthen compliance), longevity of our brand and reputation in the market, along with our dedicated compliance and regulatory infrastructure, all provide a competitive advantage.
Our Technology Business We provide talent solutions by striving to comprehensively understand our clients’ requirements and match their requirements with qualified candidates in highly skilled areas including, but not limited to, systems/applications architecture and development (mobility and/or web), data management and analytics, business and artificial intelligence, machine learning, project and program management, and network architecture and security.
Our Technology Business We provide talent solutions to our clients in highly skilled areas including, but not limited to, systems/applications architecture and development (mobility and/or web); data management and analytics; cloud architects and engineers; business and artificial intelligence (“AI”); machine learning; project and program management; and network architecture and security.
We believe we have made solid progress in this transition as is evidenced by our overall average bill rate in FA, which has improved from $37 per hour to $51 per hour (excluding the Hurricane Ian support project in the fourth quarter of 2022), or approximately 38%, in the fourth quarter of 2022 compared to the fourth quarter of 2019.
We believe we have made solid progress in this repositioning effort as evidenced by our overall average bill rate in our FA business of $51 per hour in the fourth quarter of 2023, which improved from $46 per hour, or 9.8%, as compared to the fourth quarter of 2022 and from $37 per hour, or 37.8%, as compared to the fourth quarter of 2019.
We will continue to support certain clients, where we have long-standing relationships and that are strategically important to our overall success, by providing consultants in lower skilled roles.
We will continue to support certain clients with whom we have long-standing relationships and that are strategically important to our overall success by providing consultants in lower skill roles (i.e. loan servicing; customer and call center support; data entry; and other administrative roles).
In addition, the aggregation of services by MSPs for their clients into a single program can result in significant buying power and, thus, pricing power. Therefore, the use of MSPs by our clients has, in certain instances, resulted in margin compression, but has also led to incremental client share through our client’s vendor consolidation efforts.
Therefore, the use of MSPs by our clients has, in certain instances, resulted in gross margin compression, but has also led to incremental client share through our client’s vendor consolidation efforts.
We believe that the principal elements of competition in our industry are differentiated offerings, reputation, ability of consultants to work on assignments with innovative and leading companies, the availability and quality of associates, consultants and candidates, level of service, effective monitoring of job performance, scope of geographic service, types of service offerings and compliance orientation.
Kforce does not currently provide MSP or VMO services directly to our clients; rather, our strategy has been to work with MSPs, VMOs and VMS providers that enable us to better extend our services to current and prospective clients. 4 Table of Contents We believe that the principal elements of competition in our industry are differentiated offerings; reputation; the ability of consultants to work on assignments with innovative and leading companies; the availability and quality of associates, consultants and candidates; the level of service provided; effective monitoring of job performance; scope of geographic service; the types of service offerings; and compliance orientation.
We believe that the organic investments that we have made in our managed teams and project solutions capabilities over the last several years have expanded Kforce’s total addressable market. Published reports indicate that the addressable market in the technology solutions space is well in excess of $100 billion.
We believe that the organic investments that we have made in our managed teams and project solutions capabilities over the last several years continues to expand Kforce’s total addressable market into the information technology solutions space. While reports differ in the size of the information technology solutions addressable market, IBIS World has indicated it is greater than $500 billion.
Competition We operate in a highly competitive and fragmented staffing industry comprised of large national and local staffing and solutions firms. The local firms are typically operator-owned, and each market generally has one or more significant competitors.
In the longer-term, we believe there is a tremendous opportunity for us to develop a more scalable nearshore and offshore delivery capability. Competition We operate in a highly competitive and fragmented staffing industry comprised of large national and local staffing and solutions firms. The local firms are typically operator-owned, and generally each geographic market has at least one significant competitor.
Code of Conduct - Our Code of Conduct reflects our commitment to operate in a fair, honest, responsible and ethical manner, and covers various topics including, but not limited to, cybersecurity, data privacy, equity opportunity employment and acceptable pay practices. Our associates receive annual training on our Code of Conduct and are required to certify compliance.
Refer to Item 1C. Cybersecurity for additional details regarding the oversight of cybersecurity. Code of Conduct - Our Code of Conduct reflects our commitment to operate in a fair, honest, responsible and ethical manner, and it covers various topics, including, but not limited to, cybersecurity, insider trading, data privacy, equal opportunity employment and acceptable pay practices.
During 2022, we engaged a third-party specialist to calculate our greenhouse gas emissions (“GHG”) for Scopes 1 and 2 for 2019 to 2021, which indicated a more than 30% decline over this period. This information is more fully detailed in our 2022 Sustainability Report.
During 2023, we engaged a third-party specialist to calculate our greenhouse gas emissions (“GHG”) for Scopes 1, 2 and 3 for 2023, which indicated a decline of approximately 55% compared to our 2019 baseline. This information is more fully detailed in our 2023 Sustainability Report. 6 Table of Contents Availability of Reports and Other Information Our internet address is www.kforce.com.
A report published by SIA in 2022 indicated that, in the United States, Kforce is one of the largest publicly-traded specialty staffing firms, the seventh largest technology temporary staffing firm and the fourth largest finance and accounting temporary staffing firm. 3 Table of Contents According to the September 2022 SIA report, the technology temporary staffing industry and finance and accounting temporary staffing industry are expected to generate projected revenues of $45 billion and $10 billion, respectively, in 2023.
A report based on revenues published by SIA in 2023 indicated that, in the United States, Kforce is one of the largest publicly-traded specialty staffing firms, the sixth largest technology temporary staffing firm and the eleventh largest finance and accounting temporary staffing firm.
People As of December 31, 2022, Kforce employed approximately 2,000 associates and had 10,000 consultants on assignment with our clients, of which a significant majority of these consultants are employed directly by Kforce. Our work environment is shaped by our people.
People As of December 31, 2023, Kforce employed approximately 1,800 associates and had 8,600 consultants on assignment with our clients, of which a significant majority of these consultants are employed directly by Kforce. Our work environment is shaped by our people. We maintain a commitment to well-being, flexibility and balance; learning and development; and diversity, equity and inclusion.
We provide services to clients in a variety of industries with a diversified footprint in, among others, the financial services, business services, healthcare and manufacturing sectors. No single industry represents more than approximately 19% of overall FA revenues in 2022. In addition, no single client comprised more than 5% of overall Firm revenues in 2022.
We provide services to clients in a variety of industries with a diversified footprint in, among others, the financial services, business services, healthcare and manufacturing sectors.
The shift in strategy to Office Occasional SM has allowed us to introduce a new design and streamline our overall physical footprint, which has led to a 40% decline in overall square footage compared to pre-pandemic periods. We expect further declines as remaining offices transition upon renewal.
The shift in strategy to Office Occasional ® has allowed us to introduce a new design and streamline our overall physical footprint, which has led to a decline in overall square footage compared to pre-pandemic periods. We believe that our Office Occasional ® model allows our associates to design their workdays; thus, additionally contributing to their health and well-being.
Included in our 2022 Sustainability Report are trends related to employee turnover rates and workforce demographics. 6 Table of Contents Environmental As a people-focused solutions business, our impact on the environment is relatively low. Still, we regularly look for ways to take action and serve as responsible stewards of the environment.
Refer to our 2023 Sustainability Report, which includes trends related to employee turnover rates and workforce demographics. Environmental As a people-focused solutions business, our impact on the environment is relatively low. With that said, we regularly look for opportunities to reduce our impact on the environment.
Diversity, Equity and Inclusion (“DE&I”) - Our DE&I mission is to advocate for and support the inclusion, growth and success of all people connected to Kforce.
We believe our leadership development programs help people grow their skills from the moment they join our Firm through the most senior level of their careers. Diversity, Equity and Inclusion (“DE&I”) - Our DE&I mission is to advocate for and support the inclusion, growth and success of all people connected to Kforce.
As the employer of the vast majority of our consultants, Kforce is responsible for the employer’s share of applicable social security taxes (“FICA”), federal and state unemployment taxes, workers’ compensation insurance and other direct labor costs. The more significant health, welfare and retirement benefits include comprehensive health insurance, workers’ compensation benefits, and retirement plan options.
Our Consultants The majority of our consultants are directly employed by Kforce, including domestic workers and foreign workers whose visas are sponsored by Kforce. As the employer of the vast majority of our consultants, Kforce is responsible for the employer’s share of applicable payroll taxes (“FICA”), federal and state unemployment taxes, workers’ compensation insurance and other direct labor costs.
The design of our new space is modern, open and technology-enabled and we believe it provides a flexible environment for our associates to work effectively. We have successfully transitioned many of our other offices to align with our Office Occasional SM strategy and will continue to transition our remaining offices as they come up for renewal.
Shaped by the feedback of our associates, our Office Occasional ® remote-first, hybrid work model is supported by flexibility and choice, and empowered by trust and technology. We have successfully transitioned many of our offices to align with our Office Occasional ® strategy and will continue to transition our remaining offices as they come up for renewal.
Over the last few years, we have been strategically repositioning our FA business to focus on more highly skilled assignments that are less susceptible to technological change and automation and more closely aligned with our Technology business.
While our Technology business is not immune to economic turbulence, we believe there is a critical need for innovation to support business strategies and sustain relevancy in today’s rapidly changing marketplace. 2 Table of Contents Our FA Business Over the last several years, we have been strategically repositioning our FA business to focus on more highly skilled assignments that are less susceptible to technological change and automation and that more closely aligned with our Technology business.
We measure the quality of our service to and support of our consultants using staffing industry benchmarks and net promoter score (“NPS”) surveys conducted by a specialized, independent third-party provider. Our consultant NPS ratings are well above staffing industry averages and have reached World-Class level as defined by the independent third-party provider we utilized.
We measure the quality of our service to and support of our consultants using staffing industry benchmarks and net promoter score (“NPS”) surveys conducted by a specialized, independent third-party provider. Additionally, we continually seek direct feedback from our consultants to help us identify opportunities to refine our services.
The investments we have made historically include our customer relationship management (“CRM”) and talent relationship management (“TRM”) capabilities, which are both on the Microsoft Dynamics platform.
Our customer relationship management (“CRM”) and talent relationship management (“TRM”) capabilities are now on the Microsoft Dynamics platform, which went live in March 2017 and June 2020, respectively.
While Kforce was incorporated in 1994 and completed its initial public offering in August 1995, we have been providing domestic staffing services through our predecessor companies since 1962. Over the last decade, we have driven significant, strategic change at Kforce including, but not limited to, streamlining the focus of our business on providing technology talent solutions.
Over the last decade, we have driven significant, strategic change at Kforce, including but not limited to, streamlining the focus of our business on providing technology talent solutions. In alignment with this goal, since 2008, we have completed various divestitures of businesses that did not relate to our core business.
We believe the performance of our Technology business in 2022 was very solid as revenues improved 18% on a billing day basis, year-over-year to $1.5 billion after growing more than 22% in 2021 on a billing day basis, year-over-year.
Although we experienced a decline in 2023, our Technology business grew 18% in 2022 on a year-over-year billing day basis after growing more than 22% in 2021 on a year-over-year billing day basis. The average bill rate in the fourth quarter of 2023 was approximately $90 per hour, which remained stable as compared to the fourth quarter of 2022.
In December 2022, the penetration rate (the percentage of temporary staffing to total employment) increased slightly to 2.0% from 1.9% in December 2021, while the unemployment rate, at 3.5%, was down from 3.9% in December 2021.
Bureau of Labor Statistics and SIA, temporary employment figures and trends are important indicators of staffing demand from an economic standpoint. The penetration rate (the percentage of temporary staffing to total employment) decreased to 1.8% in December 2023, from 2.0% in December 2022, while the unemployment rate, increased to 3.7% in December 2023 from 3.5% in December 2022.
The Board’s Audit Committee oversees the Firm’s cybersecurity and data privacy strategies and practices, and regularly reviews the Firm’s cybersecurity road maps and framework progress and receives updates on relevant activities and measures.
The Board delegates certain aspects to Board committees who inherently play an active role and are jointly responsible for ESG compliance and oversight. The Board’s Audit Committee (the “Audit Committee”) oversees the Firm’s cybersecurity and data privacy strategies and practices, regularly reviews the Firm’s cybersecurity roadmaps and framework progress and receives updates on relevant activities and measures.
Additionally, we continually seek direct feedback from our consultants, which helps us identify opportunities to refine our services. Industry Overview We operate in a highly competitive environment. The professional staffing industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to a relatively small local client base.
From a traditional staff augmentation standpoint, the staffing industry is made up of thousands of companies, most of which are small local firms providing limited service offerings to relatively small local client bases.
Going forward, we expect to further integrate this capability into our Technology business as we continue to solve increasingly complex challenges for our clients. We provide our clients with qualified individuals (“consultants”), or teams of consultants, on a temporary basis when the consultant's set of skills and experience is the right match for our clients.
For our Flex services, we provide our clients with qualified individuals (“consultants”), or teams of consultants, on a finite basis when the consultant's set of skills and experience is the right match for our clients. For our Direct Hire services, we identify qualified individuals (“candidates”) for permanent placement with our clients. We further describe our two operating segments below.
For a detailed discussion on our ESG initiatives, achievements and commitments, please refer to our 2022 Sustainability Report, publicly available on our website: https://www.kforce.com/about/kforce-corporate-social-responsibility/. We are grounded by our people-first approach with a set of Core Values that serves as a solid foundation. Core Values Our Core Values ground us.
Our 2023 Sustainability Report recognizes achievements in our ESG-related initiatives, and also outlines opportunities for continued growth and evolution. For a detailed discussion of our ESG initiatives, achievements and commitments, please refer to our 2023 Sustainability Report and 2023 Supplemental Greenhouse Gas (“GHG”) Report, publicly available on our website: https://www.kforce.com/about/kforce-corporate-social-responsibility/.
Kforce serves clients across a diverse set of industries and organizations of all sizes, but we place a particular focus on serving Fortune 500 and other large companies. Our 10 largest clients represented approximately 25% of revenue for the year ended December 31, 2022.
Kforce serves clients across a diverse set of industries and organizations of all sizes, but we place a particular focus on serving Fortune 500 and other large companies. Each year, over 20,000 talented consultants provide services to a significant majority of the Fortune 500. Together, we deliver Great Results Through Strategic Partnership and Knowledge Sharing ® .
We are committed to investing in the tools, resources and trainings necessary for our people to excel in all stages of their career. We believe our leadership development programs help people grow their skills from the moment they join our Firm through the most senior level of their careers. Roughly 90% of our leaders have participated in advanced leadership development.
Learning and Development - To turn a job into a career, we believe people need clear and attainable paths to grow. We are committed to investing in the tools, resources and trainings necessary for our people to excel in all stages of their career.
ITEM 1. BUSINESS. COMPANY OVERVIEW Kforce Inc., along with its subsidiaries (collectively, “Kforce”), is a leading domestic provider of technology and finance and accounting talent solutions primarily to many innovative and industry-leading companies.
ITEM 1. BUSINESS. COMPANY OVERVIEW Kforce Inc., along with its subsidiaries (collectively, “Kforce”), is a solutions firm specializing in technology and finance and accounting professional staffing services. Our KNOWLEDGEforce ® empowers industry-leading companies to achieve their digital transformation goals. We curate teams of technical experts who build solutions custom-tailored to each client's needs.
We expect to make continued investments in advancing our capabilities in this offering and further integrating this capability within our overall Technology business. We are leveraging the longevity of our relationships, primarily with Fortune 500 companies, and our understanding of existing client needs to provide services in areas including resource and capacity management as well as managed outcomes and solutions.
We expect to continue to make investments in advancing our capabilities in this service offering and further integrating this capability within our overall Technology business. Our integration strategy is intended to harness the longevity of our relationships, primarily with Fortune 500 companies, and execute a unified account pursuit and delivery approach that broadly leverages our capabilities across the Firm.
Based on these projected revenues, our current market share is slightly greater than 3%. Our business strategies are focused on continuing to expand our share of the U.S. temporary staffing industry, which we have been successful doing over the last 15 years (prior to the Great Recession), and investing in our capability to provide higher level IT services and solutions.
Our business strategies are focused on continuing to penetrate our share of the U.S. temporary staffing industry and continue investing in our capability to provide higher level technology services and solutions while also integrating that capability within our overall Technology business.
Generally, MSPs and VMOs standardize processes through the use of Vendor Management Systems (“VMS”), which are tools used to aggregate spend and measure supplier performance. VMSs are also offered through independent providers. Typically, MSPs, VMOs and/or VMS providers charge staffing firms administrative fees ranging from 1% to 4% of revenue.
Managed Service Providers (“MSP”) or Vendor Management Organizations (“VMO”) are utilized by certain of our clients for the management and procurement of our services. We do not consider these organizations as a competitive threat. Generally, MSPs and VMOs standardize processes through the use of Vendor Management Systems (“VMS”), which are tools used to aggregate spend and measure supplier performance.
The September 2022 report published by Staffing Industry Analysts (“SIA”) stated that temporary technology staffing is forecasted to experience growth of 16% and 8%, respectively, in 2022 and 2023.
The September 2023 report published by Staffing Industry Analysts (“SIA”) stated that temporary technology staffing was forecasted to decline by 3% in 2023 and grow by 5% in 2024. Technology, as a discipline, continues to be project driven, even amidst generational changes like AI.
Our Technology and FA businesses represent our two operating segments.
Our Technology and Finance and Accounting (“FA”) businesses represent our two operating segments. Our Technology business comprises 90% of our overall revenues, and the remainder is generated by our FA business.
A key ingredient to our overall success is to foster a positive experience for our consultants and to offer rewarding assignments with world-class companies, all of which has a direct correlation to consultant retention and redeployment.
The more significant health, welfare and retirement benefits include comprehensive health insurance, workers’ compensation benefits, and retirement plan options. A key ingredient to our overall success in attracting and retaining our consultants is fostering a positive experience for our consultants and offering rewarding assignments with world-class companies.
We provide services to clients in a variety of industries with a diversified footprint in, among others, financial and business services, communications, insurance, retail and technology. No single industry represents more than approximately 16% of our overall Technology revenues in 2022. In addition, no single client comprised more than 5% of overall Firm revenues in 2022.
We provide services to clients across virtually every industry with a diversified footprint in, among others, financial and business services, communications, insurance, retail and technology. We have continued to broaden our service offerings beyond traditional staffing to include managed teams and project solutions.
This assessment confirmed our belief that we have a tremendous opportunity to fundamentally transform how our back office functions support the Firm. In 2023, we expect to continue allocating significant investment towards this initiative as we look to make decisions around our future state technology and initiate detailed design and implementation steps.
This multi-year effort was initiated following a comprehensive assessment of our current state, and this assessment confirmed our belief that we have a tremendous opportunity to fundamentally transform and create advancements in our back office functions.
Driven by a shift in the breadth of service offerings our clients were looking for from Kforce, one of our strategies over the last several years has been to invest in organically building our managed teams and project solutions capabilities in order to provide a higher-value, differentiated offering to our clients.
Our clients are increasingly looking to us to deliver services across a spectrum from traditional staff augmentation to managed project solutions. We have been organically investing in our managed teams and project solutions capabilities over the last five years, and this offering has been positively contributing to our financial results.
Removed
Since the 2008 financial crisis, we successfully divested a number of businesses that we did not believe aligned with our vision to become a technology services focused organization.
Added
These scalable, flexible outcomes are shaped by deep market knowledge, thought leadership and our multi-industry expertise. Our integrated approach is rooted in 60 years of proven success deploying highly skilled professionals on a temporary (“Flex”) and permanent (“Direct Hire”) basis.
Removed
Those divestitures included our clinical research business (sold in March 2012), our healthcare staffing business (sold in August 2014), the assets of a business based in Manila, Philippines (sold in September 2017), our federal government solutions business (sold in April 2019), and our federal government product business (sold in June 2019).
Added
We believe our clients consider access to the right talent to be essential to their success and see our services as a cost-effective solution for their project requirements as demonstrated by more than 90% of our managed teams and project solutions being executed within existing clients.
Removed
Our Technology business now comprises nearly 90% of our overall revenues with the remainder being our finance and accounting (“FA”) business. In the fourth quarter of 2022, we moved into our new corporate headquarters in Tampa, Florida.
Added
There are a multitude of technology projects that need to be addressed to remain competitive, irrespective of economic performance. Our Technology revenues declined 8.2% year-over-year (7.8% per billing day), to $1.4 billion in 2023.
Removed
We refer to this as our Flex offering, which comprised roughly 98% of overall Technology revenues in 2022. We also identify qualified individuals (“candidates”) for permanent placement with our clients. We refer to this as our Direct Hire offering, which comprised approximately 2% of overall Technology revenue in 2022.
Added
Our average assignment duration has been steadily increasing over the last several years and is currently 10 months.
Removed
While we believe the evolving macro-economic environment may result in SIA lowering their expectations of growth for 2023, we expect the technology staffing market to be more resilient than the overall macro-economic environment to adverse economic climates.
Added
The strength of the secular drivers of demand in technology accelerated significantly coming out of both the Great Recession, with advancements in mobility and cloud computing, among many others, and the 2020 COVID-19 Pandemic, with further digitalization of businesses and the continued headlines around Generative AI technologies.
Removed
Digital transformation, as a general trend, is driving organizations across all industries to increase their technology investments as competition and the speed of change intensifies. Nontraditional competitors are also entering new emerging technologies and markets. This development puts increased pressure on companies to invest in innovation and the evolution of their business models.
Added
What remains clear to us is that the broad and strategic uses of technology, including AI technologies, will continue to evolve and play an increasingly instrumental role in powering businesses. Over the long term, we believe that AI and other technologies will continue to drive demand for, rather than replace technology resources, and that the pace of change will accelerate.
Removed
We believe the secular drivers of technology spend is driving many companies to become increasingly dependent on the efficiencies provided 2 Table of Contents by technology and the need for innovation to support business strategies and sustain relevancy in today’s rapidly changing marketplace.
Added
Revenue for our FA business decreased 27.5% to $147.2 million in 2023 compared to 2022, which was primarily driven by the repositioning efforts of our business towards higher skill roles and the continued uncertainty in the macroeconomic environment.
Removed
At the macro level, demand is also being driven by an ever-changing and complex regulatory and employment law environment, which increases the overall cost of employment for many companies. We believe that these factors, among others, are continuing to drive companies to look to temporary staffing and solutions providers, such as Kforce, to meet their human capital needs.
Added
Our 2023 consultant NPS are well above current industry averages and near the world class designation. Industry Overview and Addressable Market Opportunity We assist our clients, which are principally market-leading companies in their respective industries, in solving their complex business challenges and digitally transform their businesses.
Removed
We did experience a degree of moderation in demand in the second half of 2022 given the deterioration in the macro-economic environment. In the fourth quarter of 2022, our Technology business grew approximately 8% on a year-over-year basis.
Added
We continue to believe that technology is at the epicenter of how business is conducted and investments in technology are simply not optional in today’s competitive and disruptive business climate.
Removed
The average bill rate in the fourth quarter of 2022 was approximately $90 per hour, which increased approximately 10%, as compared to the fourth quarter of 2021. Our average assignment duration is approximately 11 months, which has continued to increase over the last several years.
Added
Our core competency is rooted in the ability to identify and provide qualified and highly-skilled consultants to our clients under a spectrum of engagement structures from traditional staff augmentation to delivering technology solutions.
Removed
We continue to benefit from an improving bill rate environment and longer assignment durations, which we believe is related to the acute labor shortage, particularly in the highly-skilled positions.
Added
According to the September 2023 SIA report, the technology temporary staffing industry and finance and accounting temporary staffing industry are expected to generate projected revenues of $43 billion and $9 billion, respectively, in 2024. Based on these projected revenues, our current market share is nearly 3%.
Removed
In addition to our capability to source highly qualified U.S. domestic technology talent, we believe an important differentiator in a candidate-constrained environment is our capability to source highly qualified foreign-born talent working domestically in the U.S. in higher-end technology roles.
Added
While the portion that is addressable by Kforce is debatable, what is clear to us is that our addressable market is significantly greater than the $43 billion and $9 billion for the technology and finance and accounting temporary staffing industries, respectively. Based on data published by the U.S.
Removed
We maintain this capability on a centralized basis, which we believe allows us to operate consistently with a keen focus on ensuring compliance in this highly regulated space. Our Technology Flex and Direct Hire offerings improved 18% and 20%, respectively, on a year-over-year basis for 2022 compared to 2021.
Added
We believe the following strategic priorities will help us achieve our objectives. Back-Office Transformation . Over the last five to ten years, we have been investing in high quality technologies that have significantly bolstered our associates’ productivity and enhanced our ability to effectively and efficiently support our clients, consultants and candidates.
Removed
We are very pleased with our performance in our Technology business in 2022. Our belief in the strength in the secular drivers of demand in the technology space has not changed as a result of the macro-economic environment.

… 34 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

44 edited+11 added−9 removed49 unchanged
Biggest changeThe possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens and compliance risk. We may be required to incur significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.
Biggest changeWe may be required to incur significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses suffered as a result of a breach of our systems or information.
Part of our business strategy includes enhancing our service offerings and relationships with larger consumers of our services, which is intended to provide relative durability to our revenue stream during adverse economic environments and enable us to more profitably grow our revenues.
Part of our business strategy includes enhancing our service offerings and relationships with larger consumers of our services, which is intended to provide relative durability to our revenue stream during adverse economic environments and enable us to grow our revenues more profitably.
Organizational changes occurring within those clients, or a deterioration of their financial condition or business prospects, or a change in their business strategies could reduce their need for our services and result in a significant decrease in the revenues we derive from those clients, which could have a material adverse effect on our financial results.
Organizational changes occurring within those clients, a deterioration of their financial condition or business prospects, or a change in their business strategies could reduce their need for our services and result in a significant decrease in the revenues we derive from those clients, which could have a material adverse effect on our financial results.
While we have policies, procedures and systems in place to detect, prevent and deter cyberattacks or security incidents, and, although we have not experienced a material data breach, we remain vulnerable to sophisticated techniques used to obtain unauthorized access, or cause system interruption, that change frequently and may not produce immediate signs of intrusion.
While we have policies, procedures and systems in place to prevent, deter and detect cyberattacks or security incidents, and, although we have not experienced a material data breach, we remain vulnerable to sophisticated techniques used to obtain unauthorized access, or cause system interruption, that change frequently and may not produce immediate signs of intrusion.
Vigorous enforcement and/or legislative or executive action relating to immigration could adversely affect our ability to recruit or retain foreign national consultants, and consequently, reduce our supply of skilled consultants and candidates and subject us to fines, penalties and sanctions, or result in increased labor and compliance costs.
Vigorous enforcement and legislative or executive action relating to immigration could adversely affect our ability to recruit or retain foreign national consultants, and consequently, reduce our supply of skilled consultants and candidates, and subject us to fines, penalties and sanctions, or result in increased labor and compliance costs.
Provisions in Kforce’s articles and bylaws and Florida law may have certain anti-takeover effects. Kforce’s articles of incorporation and bylaws and Florida law contain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination. In particular, our articles of incorporation provide for a staggered Board terms and permit the removal of directors only for cause.
Provisions in Kforce’s articles and bylaws and Florida law may have certain anti-takeover effects. Kforce’s articles of incorporation and bylaws and Florida law contain provisions that may have the effect of inhibiting a non-negotiated merger or other business combination. In particular, our articles of incorporation provide for staggered Board terms and permit the removal of directors only for cause.
Moreover, the existence of these provisions could negatively impact the market price of our common stock. Our business could be negatively affected as a result of actions of activist shareholders. We may be subject, from time to time, to legal and business challenges in the operation of our company due to actions instituted by activist shareholders or others.
Moreover, the existence of these provisions could negatively impact the market price of our common stock. Our business could be negatively affected as a result of activist shareholders. We may be subject, from time to time, to legal and business challenges in the operation of our company due to actions instituted by activist shareholders or others.
Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our relationships with vendors, customers, prospective and current employees and consultants, and others. Kforce’s stock price may be volatile.
Perceived uncertainties as to our future direction as a result of shareholder activism may lead to the perception of a change in the direction of the business or other instability and may affect our relationships with vendors, customers and prospective and current employees and consultants. Kforce’s stock price may be volatile.
If qualified individuals are not available to us in sufficient numbers and upon economic terms acceptable to us, it could have a material adverse effect on our business. Kforce faces significant employment-related legal risk. Kforce employs people either in the workplaces of our clients or virtually.
If qualified individuals are not available to us in sufficient numbers and upon economic terms acceptable to us, it could have a material adverse effect on our business. Kforce faces significant employment-related legal risk. Kforce employs consultants either in the workplaces of our clients or virtually.
A large part of our business entails employing individuals on a temporary basis and placing such individuals in clients’ workplaces. Increased government regulation of the workplace or of the employer/employee relationship could have a material adverse effect on Kforce.
A large part of our business entails employing individuals on a temporary basis and placing such individuals in client workplaces. Increased government regulation of the workplace or of the employer/employee relationship could have a material adverse effect on Kforce.
Additionally, the emergence and popularity of online staffing platforms as well as internal recruiting functions used by some clients as a low-cost alternative, may pose a competitive threat to our services. Some of our competitors possess substantially greater resources than we do and others may develop new and unique technologies, which may better position these competitors in certain markets.
Additionally, the emergence and popularity of online staffing platforms as well as internal recruiting functions used by some clients as an alternative, may pose a competitive threat to our services. Some of our competitors possess substantially greater resources than we do and others may develop new and unique technologies, which may better position these competitors in certain markets.
Immigration laws and regulations can be significantly affected by changes in administration, other political developments and levels of economic activity. Current and future restrictions on the availability of such visas could restrain our ability to employ the skilled professionals we need to meet our clients’ needs, which could have a material adverse effect on our business.
Immigration laws and regulations can be significantly affected by changes in administration, other political developments and levels of economic activity. Current and future restrictions on the availability of such work visas could restrain our ability to employ the skilled professionals we need to meet our clients’ needs, which could have a material adverse effect on our business. The U.S.
In addition, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost. Kforce’s success depends upon retaining the services of its management team and key operating employees.
In addition, our insurance coverage may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost. 8 Table of Contents Kforce’s success depends upon retaining the services of its management team and key operating employees.
Adverse results in tax audits or interpretations of tax laws could have an adverse impact on our business. Kforce is subject to periodic federal, state and local tax audits for various tax years. We also need to comply with new, evolving or revised tax laws and regulations.
Adverse results in tax audits or interpretations of tax laws could have an adverse impact on our business. Kforce is subject to periodic federal, state and local tax audits for various tax years. We are also required to comply with new, evolving or revised tax laws and regulations.
Any cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, corruption of data, misuse or theft of private or other sensitive information, or inadvertent acts by our associates or consultants, could result in the disclosure or misuse of confidential or proprietary information, and could adversely impact our systems, services, operations, financial results and reputation with clients and potential clients.
Any cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, corruption of data, misuse or theft of private or other sensitive information, or inadvertent acts by our associates, consultants or third-party independent contractors, could result in the disclosure or misuse of confidential or proprietary information, and could adversely impact our systems, services, operations, financial results and reputation with clients and potential clients.
If our systems become outdated, or if our investments in technology fail to provide the expected results, then we may be unable to maintain our technological capabilities relative to our competitors and our business could be negatively affected. Risks Related to Legal, Compliance and Regulatory Matters Kforce may be adversely affected by immigration restrictions and reform.
If our systems become outdated, or if our investments in technology fail to provide the expected results, then we may be unable to maintain our technological capabilities relative to our competitors and our business could be negatively affected. 9 Table of Contents Risks Related to Legal, Compliance and Regulatory Matters Kforce may be adversely affected by immigration restrictions and reform.
Accordingly, we may face increased competitive pricing pressures. We also face the risk that certain of our current and prospective clients will decide to provide similar services internally. Furthermore, many clients are retaining third parties to provide vendor management services, which may subject us to greater risks or lower margins.
As a result, we may face increased competitive pricing pressures. We also face the risk that certain of our current and prospective clients will decide to provide similar services internally. Furthermore, many clients are retaining third parties to provide vendor management services, which may subject us to greater risks or lower margins.
To attract and retain executives and other key employees (particularly management, client servicing, and consultant and candidate recruiting employees) in a competitive marketplace, we must provide a competitive compensation package, including 8 Table of Contents a mix of cash-based and equity-based compensation.
To attract and retain executives and other key employees (particularly management, client servicing and consultant and candidate recruiting employees) in a competitive marketplace, we must provide a competitive compensation package, including a mix of cash-based and equity-based compensation.
Our success depends in part on our ability to keep pace with rapid technological changes in the development and implementation of these services.
Our success depends in part on our ability to keep pace with rapid technological advancements in the development and implementation of these services.
The COVID-19 economic and health crisis (including all of its variants) has impacted and may continue to impact many of our clients’ business operations due to reduced demand in their businesses, which in some cases was caused by closures and/or initiatives to reduce costs or preserve cash, thereby decreasing demand for our services and/or adversely affecting our profitability and collectability of our accounts receivable.
The COVID-19 economic and health crisis (including all of its variants) impacted many of our clients’ business operations due to reduced demand, which in some cases was caused by government closures and/or initiatives to reduce costs or preserve cash, thereby decreasing demand for our services and/or adversely affecting our profitability and collectability of our accounts receivable.
Companies across many industries are facing increasing scrutiny related to their ESG practices. Investor advocacy groups, certain institutional investors and other influential investors and regulators such as the SEC, among others, are increasingly focused on ESG practices and, in recent years, have placed increasing importance on the non-financial impacts of their investments.
Investor advocacy groups, certain institutional investors and other influential investors and regulators such as the SEC, among others, are increasingly focused on ESG practices and, in recent years, have placed increasing importance on the non-financial impacts of their investments.
The U.S. 9 Table of Contents Citizenship and Immigration Service (“USCIS”) continues to closely scrutinize companies seeking to sponsor, renew or transfer H-1B status, including Kforce and Kforce’s subcontractors, and has issued internal guidance to its field offices that appears to narrow the eligibility criteria for H-1B status in the context of staffing services.
Citizenship and Immigration Service (“USCIS”) continues to closely scrutinize companies seeking to sponsor, renew or transfer H-1B status, including Kforce and Kforce’s third-party independent contractors, and has issued internal guidance to its field offices that appears to narrow the eligibility criteria for H-1B status in the context of staffing services.
The staffing services market is highly competitive with limited barriers to entry. The competition among staffing and solutions firms is intense and we face significant competition in the markets we serve. We compete in national, regional and local markets with full-service and specialized temporary staffing and consulting companies.
The competition among staffing and solutions firms is intense and we face significant competition in the markets we serve. We compete in national, regional and local markets with full-service and specialized temporary staffing and consulting companies.
Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by Kforce of defense costs, monetary damages or fines that may be significant, discontinuation of client relationships or other material adverse effects on our business.
Additionally, in some circumstances, we are contractually obligated to indemnify our clients against such risks. Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by Kforce of defense costs, monetary damages or fines that may be significant, discontinuation of client relationships or other material adverse effects on our business.
Our corporate headquarters and data center are located in a hurricane-prone area. Failure or interruption of our critical information systems may require significant additional capital and management resources to resolve, which could have a material adverse effect on our business.
Our corporate headquarters and data center are located in a hurricane-prone area. Failure or interruption of our critical information systems may require significant additional capital and management resources to resolve, which could have a material adverse effect on our business. Our failure to keep pace with technological change in our industry could potentially place us at a competitive disadvantage.
Critical information systems are used in every aspect of our daily operations, perhaps most significantly, in the identification and matching of resources to client assignments and in the client billing and consultant or vendor payment functions.
Kforce depends on the proper functioning of its information systems. Kforce is dependent on the proper functioning of information systems in operating our business. Critical information systems are used in every aspect of our daily operations, perhaps most significantly, in the identification and matching of resources to client assignments and in the client billing and consultant or vendor payment functions.
The volatility also could impair our ability in the future to offer common stock as a source of additional capital or as consideration in the acquisition of other businesses, or as compensation for our key employees.
The volatility also could impair our ability in the future to offer common stock as a source of additional capital or as consideration in the acquisition of other businesses, or as compensation for our key employees. Kforce may be negatively affected by outbreaks of disease, such as epidemics or pandemics.
We must continually evaluate and upgrade our methods of attracting qualified consultants and candidates to keep pace with changing client needs and emerging technologies. We expect significant competition for individuals with proven technical or professional skills to continue or increase for the foreseeable future given the scarcity of highly skilled consultants and candidates, especially in our Technology business.
We expect significant competition for individuals with proven technical or professional skills to continue or increase for the foreseeable future given the scarcity of highly skilled consultants and candidates, especially in our Technology business.
We are also continuously exposed to unauthorized attempts to compromise sensitive information from network or information technology used by our associates and consultants. Attacks on information technology systems continue to grow in frequency and sophistication.
Risk Related to Cybersecurity and Technology Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations. We are continuously exposed to unauthorized attempts to compromise sensitive information from network or information technology used by our associates and consultants. Attacks on information technology systems continue to grow in frequency and sophistication.
Additionally, uncharacteristic or significant weather conditions may increase in frequency or severity due to climate change and can affect travel and the ability of businesses to remain open, which could lead to decreased ability to offer our services and negatively affect our results of operations.
Additionally, uncharacteristic or significant weather conditions may increase in frequency or severity due to climate change and can affect travel and the ability of businesses to remain open, which could lead to decreased ability to offer our services and negatively affect our results of operations. 11 Table of Contents Kforce may maintain levels of debt that exposes us to interest rate risk and contains restrictive covenants that could trigger prepayment of obligations or additional costs.
Other results of these incidents could include, but are not limited to, increased cybersecurity protection costs, litigation, regulatory penalties, monetary damages and reputational damage adversely affecting client or investor confidence. Kforce depends on the proper functioning of its information systems. Kforce is dependent on the proper functioning of information systems in operating our business.
The collection, possession and use of personal information and data in conducting our business subjects us to legislative and regulatory burdens and compliance risk. Other results of these incidents could include, but are not limited to, increased cybersecurity protection costs, litigation, regulatory penalties, monetary damages and reputational damage adversely affecting client or investor confidence.
Borrowings under the credit facility are secured by substantially all of the tangible and intangible assets of the Firm, and certain other designated collateral. Adverse changes in credit markets, including increases in interest rates, could increase our cost of borrowing and/or make it more difficult to refinance our existing indebtedness, if necessary.
Adverse changes in credit markets, including increases in interest rates, could increase our cost of borrowing and/or make it more difficult to refinance our existing indebtedness, if necessary. Kforce is subject to certain affirmative and negative covenants under our credit facility.
In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. U.S. courts in recent years have been receiving large numbers of wage and hour class action claims alleging misclassification of overtime-eligible workers and/or failure to pay overtime-eligible workers for all hours worked.
U.S. courts in recent years have been receiving large numbers of wage and hour class action claims alleging misclassification of overtime-eligible workers and/or failure to pay overtime-eligible workers for all hours worked. In some situations, as a practical matter, we may not be in control of the work environment.
In addition, a security breach by us could cause serious harm to our business, damage our reputation and prevent us from being eligible for further work on sensitive or classified systems for federal government clients. General Risk Factors Kforce may be negatively affected by outbreaks of disease, such as epidemics or pandemics, including the COVID-19 pandemic.
In addition, a security breach by us could cause serious harm to our business, damage our reputation and prevent us from being eligible for further work on sensitive or classified systems for federal government clients. 10 Table of Contents General Risk Factors Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting.
Kforce may be exposed to unforeseeable negative acts by our personnel that could have a material adverse effect on our business. An inherent risk of employing people is that they may have access or may gain access to information systems and confidential information.
An inherent risk of employing people is that they may have access or may gain access to information systems and confidential information.
New business initiatives and strategic changes in the composition of our business mix can be a diversion to our management’s attention from other business concerns and could be disruptive to our operations, which could cause our business and results of operations to suffer materially. 7 Table of Contents Kforce’s current market share may decrease as a result of limited barriers to entry for new competitors and discontinuation of clients looking to outside providers to support their talent needs.
New business initiatives and strategic changes in the composition of our business mix can be a diversion to our management’s attention from other business concerns and could be disruptive to our operations, which could cause our business and results of operations to suffer materially. 7 Table of Contents Kforce may not be able to recruit and retain qualified consultants and candidates.
A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met.
Our Technology business utilizes a significant number of foreign nationals employed by us on work visas, primarily under the H-1B visa classification. The H-1B visa classification that enables U.S. employers to hire qualified foreign nationals is subject to legislative and administrative changes, as well as changes in the application of standards and enforcement.
Our Technology business utilizes a significant number of foreign nationals employed by us on work visas, primarily under the H-1B visa classification.
Kforce may not be able to recruit and retain qualified consultants and candidates. Kforce depends upon the abilities of its staff to attract and retain consultants and candidates, particularly in technology disciplines, who possess the skills and experience necessary to meet the requirements of our clients.
Kforce depends upon its ability to attract and retain consultants and candidates, particularly in technology disciplines, who possess the skills and experience necessary to meet the requirements of our clients. We must continually evaluate and upgrade our methods of attracting qualified consultants and candidates to keep pace with changing client needs and emerging technologies.
We seek to reduce these risks by performing vendor due diligence procedures prior to engaging with any third-party vendor who will have access to sensitive data. Additionally, we require audits of the certain third parties’ information technology processes on an annual basis.
The risk of a cyberattack or security breach on a third party carries the same risks to Kforce as those associated with our internal systems. We seek to reduce these risks by performing vendor due diligence procedures prior to engaging with any third-party vendor who will have access to sensitive data.
However, there can be no assurance that such parties will not experience cybersecurity incidents that could adversely affect our employees, consultants, customers and businesses, or that our audit or diligence processes will successfully deter or prevent such breach. Our failure to keep pace with technological change in our industry could potentially place us at a competitive disadvantage.
Additionally, we require audits of certain third parties’ information technology processes on an annual basis. However, there can be no assurance that such parties will not experience cybersecurity incidents that could adversely affect our employees, consultants, customers and businesses, or that our audit or diligence processes will successfully deter or prevent such breach.
The outbreaks of diseases, including the ongoing COVID-19 pandemic, could negatively affect our business, financial position, results of operation, and/or cash flows in the future. Increased scrutiny and changing expectations from stakeholders with respect to ESG practices and the impacts of climate change may result in additional costs or risks.
Increased scrutiny and changing expectations from stakeholders with respect to ESG practices and the impacts of climate change may result in additional costs or risks. Companies across many industries are facing increasing scrutiny related to their ESG practices.
Additionally, many of our information technology systems and networks are cloud-based or managed by third parties, whose future performance and reliability we cannot control. The risk of a cyberattack or security breach on a third party carries the same risks to Kforce as those associated with our internal systems.
Our information technology may not provide sufficient protection, and as a result we may lose significant information about us, our employees, candidates, consultants, vendors, or clients. Additionally, many of our information technology systems and networks are cloud-based or managed by third parties, whose future performance and reliability we cannot control.
New business initiatives and strategic changes may divert management’s attention from normal business operations, which could have an adverse effect on our performance. We expect to continue to make enhancements to our business and data intelligence as part of a multi-year effort to significantly upgrade our technology tools, including cloud-based platforms.
New business initiatives and strategic changes may divert management’s attention from normal business operations or may not be successful, which could have an adverse effect on our performance.
Removed
We also expect to continue enhancing the quality of our revenue stream to focus on higher-value skill areas for our FA business, and investing in the growth of our managed teams and project solutions offerings.
Added
Kforce’s current market share may decrease as a result of limited barriers to entry for new competitors and discontinuation of clients looking to outside providers to support their talent needs. The staffing services market is highly competitive with limited barriers to entry.
Removed
In some situations, as a practical matter, we may not be in control of the work environment. Additionally, in some circumstances, we are contractually obligated to indemnify our clients against such risks.
Added
We expect to continue allocating significant investments towards our multi-year transformation program for our back-office technology, investing in our managed teams and project solutions capabilities, and evolving our nearshore and offshore delivery strategy.
Removed
Risk Related to Cybersecurity and Technology Cybersecurity risks and cyber incidents could adversely affect our business and disrupt operations. In the ordinary course of our business, we collect and retain personal information of our customers, associates and consultants and their dependents.
Added
In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility. Kforce may not be able to utilize the services of our third-party suppliers.
Removed
We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems or information. Our information technology may not provide sufficient protection, and as a result we may lose significant information about us, our employees or clients.
Added
Our third-party suppliers may be impacted by economic conditions and cycles as well as changing laws and regulatory requirements, which could impact their ability to do business with us, or cause us to terminate our relationship with them, and require us to find replacements, which we may have difficulty doing.
Removed
The ultimate impact of COVID-19 on our operations and financial performance in future periods will depend on future COVID-19 related developments, including potential subsequent waves of COVID-19 infections or potential new variants, the effectiveness of COVID-19 vaccines and the impacts of implementation of any vaccine mandates, and related government 10 Table of Contents actions to prevent and manage disease spread, all of which continue to be uncertain.
Added
Without the use of our third-party suppliers, we may be unable to provide a sufficient number of consultants with the required skills and expertise to our clients, which may result in reduced client satisfaction. A reduced pool of candidates may prevent us from expanding into new markets.
Removed
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud.
Added
This lack of flexibility and adaptability can hinder the Firm’s growth potential, which could have a material adverse effect on our business. Kforce may be adversely affected by utilizing third-party software providers. An inherent risk of using a third-party software provide is dependency on their performance, reliability and availability.
Removed
Kforce may maintain levels of debt that exposes us to interest rate risk and contains restrictive covenants that could trigger prepayment of obligations or additional costs. We have a credit facility consisting of a revolving line of credit of up to $200.0 million, subject to certain limitations.
Added
Any issues or downtime experienced by the provider may impact our operations and productivity. Third-party software solutions may not always fully align with our specific business requirements or workflows. Customization options might be limited, making it challenging to tailor the software to our exact needs, which may hinder our ability to optimize processes and achieve maximum efficiency.
Removed
We have reduced our exposure to rising interest rates by entering into an interest rate hedging arrangement, although this and other arrangements may result in us incurring higher 11 Table of Contents interest expenses than we would have otherwise incurred.
Added
Relying on third-party solutions may result in higher costs over time, due to subscription fees and licensing costs for support or upgrades, which could have a material adverse effect on our financial results. Kforce may be exposed to unforeseeable negative acts by our personnel that could have a material adverse effect on our business.
Removed
If interest rates increase in the absence of such arrangements though, we would need to dedicate more of our cash flow from operations to service our debt. Kforce is subject to certain affirmative and negative covenants under our credit facility.
Added
While Kforce engages persons with multiple types of legal work authorizations and visas, the H-1B visa is of particular use in our industry and enables U.S. employers to hire qualified foreign nationals, subject to legislative and administrative changes, as well as changes in the application of standards and enforcement.
Added
Outbreaks of disease, including epidemics and pandemics, can affect our operations and financial performance if potential new variants are declared, vaccines are mandated, and government actions to prevent and manage disease spread. Outbreaks of diseases could negatively affect our business, financial position, results of operations and/or cash flows in the future.
Added
We have a credit facility consisting of a revolving line of credit of up to $200.0 million, subject to certain limitations. Borrowings under the credit facility are secured by substantially all of the tangible and intangible assets of the Firm and certain other designated collateral.

Item 2. Properties

Properties — owned and leased real estate

1 edited+1 added−0 removed0 unchanged
Biggest changeITEM 2. PROPERTIES. As of December 31, 2022, we leased approximately 169,000 square feet of total office space in 34 offices located throughout the U.S. The lease terms range from two to eleven years, although a limited number of leases contain short-term renewal provisions that range from month-to-month to one year.
Biggest changeITEM 2. PROPERTIES. As of December 31, 2023, we leased approximately 132,000 square feet of total office space in 29 offices located throughout the U.S.
Added
When not being done remotely in our Office Occasional ® model, most of our operations for both Technology and FA segments are conducted from these leased premises, and we do not anticipate any difficulty in renewing these leases, or in finding alternative sites in the ordinary course of business.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+1 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures. 12 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 12 Item 6. [Reserved . ] 12 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 23 Item 8.
Biggest changeItem 4. Mine Safety Disclosures. 13 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 13 Item 6. [Reserved.] 14 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 25 Item 8.
Added
Financial Statements and Supplementary Data. 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 45 Item 9A. Controls and Procedures. 46 Item 9B. Other Information. 46

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed0 unchanged
Biggest changeThe following table presents information with respect to our repurchases of Kforce common stock during the three months ended December 31, 2022: Period Total Number of Shares Purchased (1)(2)(3) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2022 to October 31, 2022 110,658 $ 60.82 105,714 $ 59,844,814 November 1, 2022 to November 30, 2022 188,866 $ 57.52 187,319 $ 49,069,125 December 1, 2022 to December 31, 2022 276,444 $ 54.18 145,817 $ 41,276,204 Total 575,968 $ 56.55 438,850 $ 41,276,204 (1) Includes 4,944 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period October 1, 2022 to October 31, 2022.
Biggest changePurchases of common stock under the Plan are subject to certain price, market, volume and timing constraints, which are specified in the plan. 13 Table of Contents The following table presents information with respect to our repurchases of Kforce common stock during the three months ended December 31, 2023: Period Total Number of Shares Purchased (1)(2)(3) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 to October 31, 2023 5,124 $ 59.23 — $ 66,822,516 November 1, 2023 to November 30, 2023 221,392 $ 65.38 219,473 $ 52,472,901 December 1, 2023 to December 31, 2023 253,855 $ 68.56 155,722 $ 41,731,977 Total 480,371 $ 66.99 375,195 $ 41,731,977 (1) Includes 5,124 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period October 1, 2023 to October 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Holders of Common Stock Our common stock trades on the NASDAQ using the ticker symbol “KFRC”. As of February 22, 2023, there were 145 holders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Holders of Common Stock Our common stock trades on the NASDAQ using the ticker symbol “KFRC.” As of February 20, 2024, there were 138 holders of record.
(2) Includes 1,547 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period November 1, 2022 to November 30, 2022. (3) Includes 130,627 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period December 1, 2022 to December 31, 2022.
(2) Includes 1,919 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period November 1, 2023 to November 30, 2023. (3) Includes 98,133 shares of stock received upon vesting of restricted stock to satisfy tax withholding requirements for the period December 1, 2023 to December 31, 2023.
Purchases of Equity Securities by the Issuer In February 2023, the Board approved an increase in our stock repurchase authorization, bringing the total authorization from $41.3 million to $100.0 million. Purchases of common stock under the Plan are subject to certain price, market, volume and timing constraints, which are specified in the plan.
Purchases of Equity Securities by the Issuer In February 2024, the Board approved an increase in our stock repurchase authorization, bringing the total authorization from $41.7 million to $100.0 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

68 edited+31 added−25 removed21 unchanged
Biggest changeTherefore, we believe it is important to view Free Cash Flow as a complement to, but not as a replacement for, our Consolidated Statements of Cash Flows. 17 Table of Contents The following table presents Free Cash Flow (in thousands): YEARS ENDED DECEMBER 31, 2022 2021 2020 Net income $ 75,431 $ 75,177 $ 56,039 Non-cash provisions and other 50,294 30,188 27,582 Changes in operating assets/liabilities (34,920) (32,467) 25,538 Net cash provided by operating activities 90,805 72,898 109,159 Capital expenditures (8,109) (6,441) (6,475) Free cash flow 82,696 66,457 102,684 Note receivable issued to our joint venture (6,750) — — Cash proceeds received from Company-owned life insurance 1,077 — — Equity method investment (500) (9,000) (4,000) Change in debt (74,400) — 35,000 Repurchases of common stock (74,913) (66,210) (35,613) Cash dividends (24,027) (20,120) (16,787) Net proceeds from the sale of assets held for sale — 23,742 3,548 Other (51) (1,366) (1,177) Change in cash and cash equivalents $ (96,868) $ (6,497) $ 83,655 Adjusted EBITDA.
Biggest changeThe following table presents Free Cash Flow (in thousands): YEARS ENDED DECEMBER 31, 2023 2022 2021 Net income $ 61,075 $ 75,431 $ 75,177 Non-cash provisions and other 30,713 50,294 30,188 Changes in operating assets/liabilities (323) (34,920) (32,467) Net cash provided by operating activities 91,465 90,805 72,898 Capital expenditures (7,763) (8,109) (6,441) Free cash flow 83,702 82,696 66,457 Change in debt 16,000 (74,400) — Repurchases of common stock (75,024) (74,913) (66,210) Cash dividends (27,562) (24,027) (20,120) Proceeds from the sale of our joint venture interest 5,059 — — (Premiums paid for) cash proceeds received from company-owned life insurance (1,408) 1,077 — Note receivable issued to our joint venture (750) (6,750) — Equity method investment — (500) (9,000) Net proceeds from the sale of assets held for sale — — 23,742 Other (19) (51) (1,366) Change in cash and cash equivalents $ (2) $ (96,868) $ (6,497) 20 Table of Contents Adjusted EBITDA.
Total payments, however, are inherently uncertain as the Interest rates related to this outstanding balance are variable and the outstanding borrowings that will occur over the remaining term of the credit facility is unknown. Refer to Note 13 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8.
Total payments, however, are inherently uncertain as the interest rates related to this outstanding balance are variable and the outstanding borrowings that will occur over the remaining term of the Credit Facility are unknown. Refer to Note 13 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8.
Investing Activities Cash used in investing activities was $14.3 million during the year ended December 31, 2022, and primarily consisted of cash used for capital expenditures of $8.1 million and the issuance of secured promissory notes to our joint venture totaling $6.8 million.
Cash used in investing activities of $14.3 million during the year ended December 31, 2022 primarily consisted of cash used for capital expenditures of $8.1 million and the issuance of secured promissory notes to our joint venture totaling $6.8 million.
Cash Flows Our business has historically generated a significant amount of operating cash flows, which allows us to balance deploying available capital towards: (i) investing in our infrastructure to allow sustainable growth via capital expenditures; (ii) our dividend and share repurchase programs; and (iii) maintaining sufficient liquidity for potential acquisitions or other strategic investments.
Cash Flows Our business has historically generated a significant amount of operating cash flows, which allows us to balance deploying available capital towards: (i) investing in our infrastructure to allow sustainable growth; (ii) our dividend and share repurchase programs; and (iii) maintaining sufficient liquidity for potential acquisitions or other strategic investments.
Amounts payable upon the retirement or termination of employment may become payable during the next five years if a covered employee retires, terminates, or schedules a distribution. • Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.
Amounts payable upon the retirement or termination of employment may become payable during the next five years if a covered employee retires, terminates, or schedules a distribution. • Our purchase commitments consist of agreements to purchase goods and services entered into in the ordinary course of business.
“Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income tax expense, loss from equity method investment, gain from Swap termination, reserve associated with the note receivable issued to our joint venture, impairment of equity method investment, gain on the sale of the corporate headquarters, legal settlement expense and SERP termination expense.
“Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization, stock-based compensation expense, interest expense, net, income tax expense, organizational realignment activities, legal settlement expense, loss from equity method investment, reserve associated with the note receivable issued to our joint venture, impairment of equity method investment, gain from termination of interest rate swap, gain on the sale of the corporate headquarters, and SERP termination expense.
Financial Statements and Supplementary Data of this report, for a complete discussion of the components of our income tax expense, as well as the temporary differences that exist as of December 31, 2022.
Financial Statements and Supplementary Data of this report, for a complete discussion of the components of our income tax expense, as well as the temporary differences that exist as of December 31, 2023.
A 10% change in our self-insured liabilities related to health insurance, as of December 31, 2022, would have impacted our net income by approximately $0.3 million in 2022. NEW ACCOUNTING STANDARDS Refer to Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8.
A 10% change in our self-insured liabilities related to health insurance, as of December 31, 2023, would have impacted our net income by approximately $0.4 million in 2023. NEW ACCOUNTING STANDARDS Refer to Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8.
The following table presents certain items in our Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue for the years ended: DECEMBER 31, 2022 2021 2020 Revenue by segment: Technology 88.1 % 80.6 % 75.1 % FA 11.9 19.4 24.9 Total Revenue 100.0 % 100.0 % 100.0 % Revenue by type: Flex 96.6 % 96.9 % 97.6 % Direct Hire 3.4 3.1 2.4 Total Revenue 100.0 % 100.0 % 100.0 % Gross profit 29.3 % 28.9 % 28.3 % Selling, general and administrative expenses 22.2 % 21.9 % 22.2 % Depreciation and amortization 0.3 % 0.3 % 0.4 % Income from operations 6.8 % 6.7 % 5.7 % Income from operations, before income taxes 6.0 % 6.3 % 5.4 % Net income 4.4 % 4.8 % 4.0 % Revenue.
The following table presents certain items in our Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue for the years ended: DECEMBER 31, 2023 2022 2021 Revenue by segment: Technology 90.4 % 88.1 % 80.6 % FA 9.6 11.9 19.4 Total Revenue 100.0 % 100.0 % 100.0 % Revenue by type: Flex 97.5 % 96.6 % 96.9 % Direct Hire 2.5 3.4 3.1 Total Revenue 100.0 % 100.0 % 100.0 % Gross profit 27.9 % 29.3 % 28.9 % Selling, general and administrative expenses 21.9 % 22.2 % 21.9 % Depreciation and amortization 0.3 % 0.3 % 0.3 % Income from operations 5.7 % 6.8 % 6.7 % Income from operations, before income taxes 5.6 % 6.0 % 6.3 % Net income 4.0 % 4.4 % 4.8 % 16 Table of Contents Revenue.
In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures.
Financial Statements and Supplementary Data of this report. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 24, 2023.
At December 31, 2022, our liability would be approximately $40.3 million for terminations related to a change in control and $17.3 million related to terminations in the absence of cause. Refer to Note 17 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements, included in Item 8.
At December 31, 2023, our liability would be approximately $30.3 million for terminations related to a change in control and $11.4 million related to terminations in the absence of cause. Refer to Note 17 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements, included in Item 8.
We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.
Our assumptions, estimates and judgments are based on our historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Management regularly reviews the accounting policies, estimates, assumptions and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.
As of December 31, 2022, the value of our non-cancellable unconditional purchase obligations was $21.9 million. • We have employment agreements with certain executives that provide for minimum compensation, salary and continuation of certain benefits for a six-month to a three-year period after their employment ends under certain circumstances.
As of December 31, 2023, the value of our non-cancellable unconditional purchase commitments was $38.0 million. • We have employment agreements with certain executives that provide for minimum compensation, salary and continuation of certain benefits for a six-month to a three-year period after their employment ends under certain circumstances.
As of December 31, 2022, $41.3 million remained available for further repurchases under the Board-authorized common stock repurchase program.
As of December 31, 2023, $41.7 million remained available for further repurchases under the Board-authorized common stock repurchase program.
Financial Statements and Supplementary Data for additional information regarding our commitments related to employment agreements. • We lease certain facilities and other properties under non-cancellable operating lease arrangements that expire at various dates through 2033. As of December 31, 2022, the value of our obligations under operating leases was $22.8 million.
Financial Statements and Supplementary Data for additional information regarding our commitments related to employment agreements. • We lease certain facilities and other properties under non-cancellable operating lease arrangements that expire at various dates through 2033. As of December 31, 2023, the total amount of our obligations under operating leases was $18.2 million.
Financial Statements and Supplementary Data of this report, for a discussion of new accounting standards. 22 Table of Contents
Financial Statements and Supplementary Data of this report, for a discussion of new accounting standards.
As of December 31, 2022, the amount of our obligation under these plans was $40.5 million. These amounts are included in the accompanying Consolidated Balance Sheets and classified as Accounts payable and other accrued liabilities and Other long-term liabilities, as appropriate, and are payable based upon the elections of the plan participants (e.g., retirement, termination of employment, change-in-control).
As of December 31, 2023, the total amount of our obligations under these plans was $48.0 million. These amounts are included in the accompanying Consolidated Balance Sheets and classified as Accounts payable and other accrued liabilities and Other long-term liabilities, as appropriate, and are payable based upon the elections of the plan participants (e.g., retirement, termination of employment, change-in-control, etc.).
Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate total cost to settle reported claims and claims incurred but not reported (“IBNR”) as of the balance sheet date.
Periodically, management reviews its assumptions to determine the adequacy of our self-insured liabilities. 24 Table of Contents Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate total cost to settle reported claims and claims incurred but not reported (“IBNR”) as of the balance sheet date.
Financial Statements and Supplementary Data, for a complete discussion of the interest rate swap derivative instruments. During the year ended December 31, 2021, Other expense, net includes $1.8 million expense related to the termination of our SERP in 2021. Refer to Note 12 - “Employee Benefit Plans” in the Notes to Consolidated Financial Statements, included in Item 8.
Refer to Note 14 - “Derivative Instrument and Hedging Activity” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data, for a complete discussion of the interest rate swap derivative instruments. During the year ended December 31, 2021, Other expense, net included expense of $1.8 million related to the termination of our SERP.
At December 31, 2022, Kforce had letters of credit outstanding for operating lease and insurance coverage deposits totaling $1.3 million. These off-balance sheet arrangements do not have a material impact on our liquidity or capital resources. These off-balance sheet arrangements do not provide financing, liquidity, market or credit risk support.
At December 31, 2023, Kforce had letters of credit outstanding for operating lease and insurance coverage deposits totaling $1.2 million. These off-balance sheet arrangements do not have a material impact on our liquidity or capital resources.
Contractual Obligations In addition to our discussion and analysis surrounding our liquidity and capital resources, consideration should also be given to significant contractual obligations: • Our credit facility matures October 20, 2026, and as of December 31, 2022, our outstanding debt balance was $25.6 million.
Contractual Obligations In addition to our discussion and analysis surrounding our liquidity and capital resources, consideration should also be given to significant contractual obligations: • The Amended and Restated Credit Facility matures on October 20, 2026, and as of December 31, 2023, our outstanding debt balance under the credit facility was $41.6 million.
Under the Amended and Restated Credit Facility, the Firm has a maximum borrowing capacity of $200.0 million, which may, subject to certain conditions and the participation of the lenders, be increased up to an aggregate additional amount of $150.0 million. The maturity date of the Amended and Restated Credit Facility is October 20, 2026.
Credit Facility On October 20, 2021, the Firm entered into an Amended and Restated Credit Facility, which has a maximum borrowing capacity of $200.0 million, and subject to certain conditions and the participation of the lenders, may be increased up to an aggregate additional amount of $150.0 million.
Financial Statements and Supplementary Data for further detail of our credit facility. 20 Table of Contents • We maintain various non-qualified deferred compensation plans pursuant to which eligible management and highly-compensated key employees may elect to defer all or part of their compensation to later years.
Financial Statements and Supplementary Data for further details on the Amended and Restated Credit Facility. • We maintain various non-qualified deferred compensation plans pursuant to which eligible management and highly-compensated key employees may elect to defer all or part of their compensation to later years.
Flex gross profit margin was flat for Technology and increased 230 basis points for FA in 2022 over 2021. • Selling, General and Administrative (“SG&A”) expenses as a percentage of revenue for the year ended December 31, 2022, increased to 22.2% from 21.9% in 2021.
Flex gross profit margin decreased 70 basis points for Technology and increased 20 basis points for FA in 2023 as compared to 2022. • Selling, General and Administrative (“SG&A”) expenses as a percentage of revenue for the year ended December 31, 2023, decreased to 21.9% from 22.2% in 2022.
When estimating our self-insured liabilities, we consider a number of factors, including historical claims experience, plan structure, internal claims management activities, demographic factors and severity factors. Periodically, management reviews its assumptions to determine the adequacy of our self-insured liabilities.
When estimating our self-insured liabilities, we consider a number of factors, including historical claims experience, plan structure, internal claims management activities, demographic factors and severity factors.
The following table presents the cash flow impact of the common stock repurchase activity for the years ended December 31 (in thousands): 2022 2021 2020 Open market repurchases $ 66,806 $ 54,265 $ 29,386 Repurchase of shares related to tax withholding requirements for vesting of restricted stock 8,107 11,945 6,227 Total cash flow impact of common stock repurchases $ 74,913 $ 66,210 $ 35,613 Cash paid in current year for settlement of prior year repurchases $ 181 $ — $ — During the years ended December 31, 2022, 2021 and 2020, Kforce declared and paid dividends of $24.0 million ($1.20 per share), $20.1 million ($0.98 per share) and $16.8 million ($0.80 per share), respectively.
The following table presents the cash flow impact of the common stock repurchase activity for the years ended December 31 (in thousands): 2023 2022 2021 Open market repurchases $ 67,178 $ 66,806 $ 54,265 Repurchase of shares related to tax withholding requirements for restricted stock vesting 7,846 8,107 11,945 Total cash flow impact of common stock repurchases $ 75,024 $ 74,913 $ 66,210 Cash paid in current year for settlement of prior year repurchases $ 974 $ 181 $ — Kforce’s Board declared and paid dividends of $27.6 million ($1.44 per share), $24.0 million ($1.20 per share) and $20.1 million ($0.98 per share) for the years ended December 31, 2023, 2022 and 2021, respectively.
EXECUTIVE SUMMARY The following is an executive summary of what Kforce believes are highlights for 2022, which should be considered in the context of the additional discussions herein and in conjunction with the consolidated financial statements and notes thereto. • Revenue for the year ended December 31, 2022, increased 7.9%, per billing day, to $1.7 billion in 2022 from $1.6 billion in 2021.
EXECUTIVE SUMMARY The following is an executive summary of what Kforce believes are highlights for 2023, which should be considered in the context of the additional discussions herein and in conjunction with the consolidated financial statements and notes thereto. • Revenue for the year ended December 31, 2023, decreased 10.5% to $1.53 billion in 2023 from $1.71 billion in 2022.
The following table presents a summary of our net cash flows from operating, investing and financing activities (in thousands): YEARS ENDED DECEMBER 31, Cash Provided by (Used in) 2022 2021 2020 Operating activities $ 90,805 $ 72,898 $ 109,159 Investing activities (14,282) 8,301 (6,927) Financing activities (173,391) (87,696) (18,577) Change in cash and cash equivalents $ (96,868) $ (6,497) $ 83,655 Operating Activities Cash provided by operating activities was $90.8 million during the year ended December 31, 2022, as compared to $72.9 million during the year ended December 31, 2021.
The following table presents a summary of our net cash flows from operating, investing and financing activities (in thousands): YEARS ENDED DECEMBER 31, Cash Provided by (Used in) 2023 2022 2021 Operating activities $ 91,465 $ 90,805 $ 72,898 Investing activities (4,862) (14,282) 8,301 Financing activities (86,605) (173,391) (87,696) Change in cash and cash equivalents $ (2) $ (96,868) $ (6,497) 21 Table of Contents Operating Activities Cash provided by operating activities was $91.5 million during the year ended December 31, 2023, as compared to $90.8 million during the year ended December 31, 2022.
The total capital returned to shareholders in 2022 represented approximately 100% of operating cash flows. • Net debt was $25.5 million as of December 31, 2022, as compared to $3.0 million as of December 31, 2021. • Cash provided by operating activities was $90.8 million during the year ended December 31, 2022, as compared to $72.9 million for 2021.
The total capital returned to shareholders in 2023 represented over 100% of operating cash flows. • Cash provided by operating activities was $91.5 million during the year ended December 31, 2023, as compared to $90.8 million for 2022.
We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position. 18 Table of Contents The following table presents Adjusted EBITDA and includes a reconciliation of net income to Adjusted EBITDA (in thousands): YEARS ENDED DECEMBER 31, 2022 2021 2020 Net income $ 75,431 $ 75,177 $ 56,039 Depreciation and amortization 4,427 4,500 5,255 Stock-based compensation expense 17,655 13,999 11,595 Interest expense, net 973 3,073 3,396 Income tax expense 27,011 24,090 19,173 Loss from equity method investment 3,824 2,480 1,681 Gain from termination of interest rate swap (4,059) — — Reserve associated with note receivable issued to our joint venture 1,925 — — Impairment of equity method investment 13,684 — — Gain on sale of corporate headquarters — (2,051) — Legal settlement expense — 3,350 — SERP termination expense — 1,821 — Adjusted EBITDA $ 140,871 $ 126,439 $ 97,139 LIQUIDITY AND CAPITAL RESOURCES To meet our capital and liquidity requirements, we primarily rely on operating cash flow, as well as borrowings under our credit facility.
The following table presents Adjusted EBITDA and includes a reconciliation of net income to Adjusted EBITDA (in thousands): YEARS ENDED DECEMBER 31, 2023 2022 2021 Net income $ 61,075 $ 75,431 $ 75,177 Depreciation and amortization 5,012 4,427 4,500 Stock-based compensation expense 17,747 17,655 13,999 Interest expense, net 1,122 973 3,073 Income tax expense 24,175 27,011 24,090 Organizational realignment activities 3,662 — — Legal settlement expense 2,175 — 3,350 Loss from equity method investment 750 3,824 2,480 Reserve associated with note receivable issued to our joint venture — 1,925 — Impairment of equity method investment — 13,684 — Gain from termination of interest rate swap — (4,059) — Gain on sale of corporate headquarters — — (2,051) SERP termination expense — — 1,821 Adjusted EBITDA $ 115,718 $ 140,871 $ 126,439 LIQUIDITY AND CAPITAL RESOURCES To meet our capital and liquidity requirements, we primarily rely on operating cash flow, as well as borrowings under our credit facility.
The following table presents depreciation and amortization expense and percentage change over the prior period by major category for the years ended December 31 (in thousands): 2022 Increase (Decrease) 2021 Increase (Decrease) 2020 Fixed asset depreciation (includes finance leases) $ 2,655 (5.9) % $ 2,822 (30.7) % $ 4,073 Capitalized software amortization 1,772 5.6 % 1,678 42.0 % 1,182 Total Depreciation and amortization $ 4,427 (1.6) % $ 4,500 (14.4) % $ 5,255 Other Expense, Net.
The following table presents depreciation and amortization expense and percentage change over the prior period by major category for the years ended December 31 (in thousands): 2023 Increase (Decrease) 2022 Increase (Decrease) 2021 Fixed asset depreciation $ 3,142 18.3 % $ 2,655 (5.9) % $ 2,822 Capitalized software amortization 1,870 5.5 % 1,772 5.6 % 1,678 Total Depreciation and amortization $ 5,012 13.2 % $ 4,427 (1.6) % $ 4,500 Other Expense, Net.
Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insight into the other drivers of total gross profit percentage driven by our Flex business such as changes in the spread between the consultants’ bill rate and pay rate.
Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insight into the other drivers of total gross profit percentage driven by our Flex business such as changes in the spread between the consultants’ bill rate and pay rate, changes in payroll tax rates or benefits costs, as well as the impact of billable expenses, which provide no profit margin.
Other expense, net was $14.4 million in 2022, $7.4 million in 2021 and $5.0 million in 2020. Other expense, net consists of our proportionate share of losses for our joint venture and interest expense related to outstanding borrowings under our credit facility.
Other expense, net was $1.9 million, $14.4 million and $7.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. Other expense, net consists of our proportionate share of losses for our joint venture and interest expense related to outstanding borrowings under our credit facility.
The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands): YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2022 vs. 2021 2021 vs. 2020 Key Drivers - Increase (Decrease) Technology FA Technology FA Volume - hours billed $ 118,757 $ (144,684) $ 177,865 $ (63,558) Bill rate 109,357 38,456 35,242 15,167 Billable expenses 381 26 1,552 (208) Total change in Flex revenue $ 228,495 $ (106,202) $ 214,659 $ (48,599) The following table presents total Flex hours billed by segment and the percentage change over the prior period for the years ended December 31 (in thousands): 2022 Increase (Decrease) 2021 Increase (Decrease) 2020 Technology 16,794 9.6 % 15,329 17.3 % 13,070 FA 3,789 (51.2) % 7,768 (19.2) % 9,615 Total Flex hours billed 20,583 (10.9) % 23,097 1.8 % 22,685 Direct Hire Revenue.
The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands): YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2023 vs. 2022 2022 vs. 2021 Key Drivers - Increase (Decrease) Technology FA Technology FA Volume - hours billed $ (141,498) $ (57,647) $ 118,757 $ (144,684) Bill rate 33,320 8,949 109,357 38,456 Billable expenses (1,782) (18) 381 26 Total change in Flex revenue $ (109,960) $ (48,716) $ 228,495 $ (106,202) The following table presents total Flex hours billed by segment and the percentage change over the prior period for the years ended December 31 (in thousands): 2023 Increase (Decrease) 2022 Increase (Decrease) 2021 Technology 15,178 (9.6) % 16,794 9.6 % 15,329 FA 2,550 (32.7) % 3,789 (51.2) % 7,768 Total Flex hours billed 17,728 (13.9) % 20,583 (10.9) % 23,097 17 Table of Contents Direct Hire Revenue.
The following table presents the key drivers for the change in Flex gross profit by segment over the prior period (in thousands): YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2022 vs. 2021 2021 vs. 2020 Key Drivers - Increase (Decrease) Technology FA Technology FA Revenue impact $ 60,365 $ (29,128) $ 56,734 $ (13,152) Profitability impact 395 4,061 (137) 1,033 Total change in Flex gross profit $ 60,760 $ (25,067) $ 56,597 $ (12,119) SG&A Expenses.
The following table presents the key drivers for the change in Flex gross profit by segment over the prior period (in thousands): YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 2023 vs. 2022 2022 vs. 2021 Key Drivers - Increase (Decrease) Technology FA Technology FA Revenue impact (volume) $ (29,079) $ (14,483) $ 60,365 $ (29,128) Profitability impact (rate) (10,333) 187 395 4,061 Total change in Flex gross profit $ (39,412) $ (14,296) $ 60,760 $ (25,067) SG&A Expenses.
On February 3, 2023, Kforce’s Board approved a 20% annual increase to the Company's dividend from $1.20 per share to $1.44 per share.
In February 2024, Kforce’s Board approved a 5.5% annual increase to the Company's dividend from $1.44 per share to $1.52 per share.
Financial Statements and Supplementary Data of this report, for a complete discussion of the termination of our SERP. Income Tax Expense. Income tax expense as a percentage of income from operations, before income taxes (our “effective tax rate”) for the years ended December 31, 2022, 2021 and 2020 were 26.4%, 24.3% and 25.5%, respectively.
Income tax expense as a percentage of income from operations, before income taxes (our “effective tax rate”) were 28.4%, 26.4% and 24.3% for the years ended December 31, 2023, 2022 and 2021, respectively.
Management evaluates positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized. If appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized.
We are also required to exercise judgment with respect to the realization of our net deferred tax assets. Management evaluates positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized.
The 2022 effective tax rate was unfavorably impacted by a lower work opportunity tax credit and a lower tax benefit from the vesting of restricted stock in 2022, as compared to 2021. Non-GAAP Financial Measures Free Cash Flow.
The 2023 effective tax rate was unfavorably impacted by a lower work opportunity tax credit, a lower tax benefit from the vesting of restricted stock, and higher non-deductible expenses, as compared to 2022. 19 Table of Contents Non-GAAP Financial Measures Revenue Growth Rates.
The following table presents certain components of SG&A as a percentage of total revenue for the years ended December 31 (in thousands): 2022 % of Revenue 2021 % of Revenue 2020 % of Revenue Compensation, commissions, payroll taxes and benefits costs $ 319,501 18.7 % $ 295,187 18.7 % $ 257,802 18.4 % Other (1) 60,314 3.5 % 50,534 3.2 % 52,911 3.8 % Total SG&A $ 379,815 22.2 % $ 345,721 21.9 % $ 310,713 22.2 % (1) In cludes items such as credit loss expense, lease expense, professional fees, travel, telephone, computer and certain other expenses.
Commissions and other bonus incentives for our revenue-generating talent are variable costs driven primarily by revenue and gross profit levels, and associate performance. 18 Table of Contents The following table presents certain components of SG&A as a percentage of total revenue for the years ended December 31 (in thousands): 2023 % of Revenue 2022 % of Revenue 2021 % of Revenue Compensation, commissions, payroll taxes and benefits costs $ 282,439 18.4 % $ 319,501 18.7 % $ 295,187 18.7 % Other (1) 52,494 3.5 % 60,314 3.5 % 50,534 3.2 % Total SG&A $ 334,933 21.9 % $ 379,815 22.2 % $ 345,721 21.9 % (1) Includes items such as credit loss expense, lease expense, professional fees, travel, communication and office related expense, and certain other expenses.
Stock Repurchases The following table presents the open market repurchase activity under the Board-authorized common stock repurchase program for the years ended December 31 (in thousands): 2022 2021 Shares $ Shares $ Open market repurchases 1,124 $ 67,599 922 $ 54,446 On February 3, 2023, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million.
Financial Statements and Supplementary Data of this report for a complete discussion of our interest rate swaps. 22 Table of Contents Stock Repurchases The following table presents the open market repurchase activity under the Board-authorized common stock repurchase program for the years ended December 31 (in thousands): 2023 2022 Shares $ Shares $ Open market repurchases 1,097 $ 67,124 1,124 $ 67,599 In February 2024, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million.
Cash provided by investing activities of $8.3 million during the year ended December 31, 2021 primarily included $23.7 million in net proceeds from the sale of our corporate headquarters, partially offset by cash used for capital expenditures and capital contributions to our joint venture.
Investing Activities Cash used in investing activities was $4.9 million during the year ended December 31, 2023, and primarily consisted of cash used for capital expenditures of $7.8 million, partially offset by the proceeds from the sale of our joint venture interest of $5.1 million.
The following table presents the Flex gross profit percentage for each segment and percentage change over the prior period for the years ended December 31: 2022 Increase (Decrease) 2021 Increase (Decrease) 2020 Technology 26.4 % — % 26.4 % — % 26.4 % FA 29.7 % 8.4 % 27.4 % 1.1 % 27.1 % Total Flex gross profit percentage 26.8 % 0.8 % 26.6 % — % 26.6 % Our Flex gross profit percentage for the year ended December 31, 2022, as compared to the same period in 2021, increased 20 basis points.
The following table presents the Flex gross profit percentage for each segment and the percentage change over the prior period for the years ended December 31: 2023 Increase (Decrease) 2022 Increase (Decrease) 2021 Technology 25.7 % (2.7) % 26.4 % — % 26.4 % FA 29.9 % 0.7 % 29.7 % 8.4 % 27.4 % Total Flex gross profit percentage 26.0 % (3.0) % 26.8 % 0.8 % 26.6 % Our Flex gross profit percentage decreased 80 basis points for the year ended December 31, 2023, as compared to the same period in 2022. • Technology Flex gross profit margins decreased 70 basis points for the year ended December 31, 2023, as compared to the same period in 2022, primarily due to a tighter pricing environment. • FA Flex gross profit margins increased 20 basis points for the year ended December 31, 2023, as compared to the same period in 2022, primarily a result of favorable benefits and payroll taxes due to a change in our client portfolio mix, partially offset by a tighter pricing environment.
A 0.5% change in our effective tax rate would have impacted our net income by approximately $0.5 million in 2022. Refer to Note 6 – “Income Taxes” in the Notes to Consolidated Financial Statements, included in Item 8.
If appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized. A 0.5% change in our effective tax rate would have impacted our net income by approximately $0.4 million in 2023. Refer to Note 6 – “Income Taxes” in the Notes to Consolidated Financial Statements, included in Item 8.
The following table presents revenue by type for each segment and percentage change from the prior period for the years ended December 31 (in thousands): 2022 Increase (Decrease) 2021 Increase (Decrease) 2020 Technology Flex revenue $ 1,476,055 18.3 % $ 1,247,560 20.8 % $ 1,032,901 Direct Hire revenue 31,572 19.7 % 26,381 57.7 % 16,727 Total Technology revenue $ 1,507,627 18.3 % $ 1,273,941 21.4 % $ 1,049,628 FA Flex revenue $ 176,395 (37.6) % $ 282,597 (14.7) % $ 331,196 Direct Hire revenue 26,743 14.4 % 23,384 38.6 % 16,876 Total FA revenue $ 203,138 (33.6) % $ 305,981 (12.1) % $ 348,072 Total Flex revenue $ 1,652,450 8.0 % $ 1,530,157 12.2 % $ 1,364,097 Total Direct Hire revenue 58,315 17.2 % 49,765 48.1 % 33,603 Total Revenue $ 1,710,765 8.3 % $ 1,579,922 13.0 % $ 1,397,700 14 Table of Contents Our quarterly operating results are affected by the number of billing days in a quarter.
The following table presents revenue by type for each segment and the percentage change from the prior period for the years ended December 31 (in thousands): 2023 Increase (Decrease) 2022 Increase (Decrease) 2021 Technology Flex revenue $ 1,366,095 (7.4) % $ 1,476,055 18.3 % $ 1,247,560 Direct Hire revenue 18,458 (41.5) % 31,572 19.7 % 26,381 Total Technology revenue $ 1,384,553 (8.2) % $ 1,507,627 18.3 % $ 1,273,941 FA Flex revenue $ 127,679 (27.6) % $ 176,395 (37.6) % $ 282,597 Direct Hire revenue 19,524 (27.0) % 26,743 14.4 % 23,384 Total FA revenue $ 147,203 (27.5) % $ 203,138 (33.6) % $ 305,981 Total Flex revenue $ 1,493,774 (9.6) % $ 1,652,450 8.0 % $ 1,530,157 Total Direct Hire revenue 37,982 (34.9) % 58,315 17.2 % 49,765 Total Revenue $ 1,531,756 (10.5) % $ 1,710,765 8.3 % $ 1,579,922 Flex Revenue.
In addition, there are no consultant payroll costs associated with Direct Hire placements; thus, all Direct Hire revenue increases gross profit by the full amount of the placement fee. 15 Table of Contents The following table presents the gross profit as a percentage of total revenue (“gross profit percentage”) for each segment and percentage change over the prior period for the years ended December 31: 2022 Increase (Decrease) 2021 Increase (Decrease) 2020 Technology 28.0 % 0.4 % 27.9 % 1.1 % 27.6 % FA 39.0 % 18.2 % 33.0 % 7.8 % 30.6 % Total gross profit percentage 29.3 % 1.4 % 28.9 % 2.1 % 28.3 % Total gross profit percentage increased 40 basis points for the year ended December 31, 2022, as compared to the same period in 2021, primarily as a result of an increased mix of Direct Hire revenue and the expected run-off of the COVID-19 related business, which had a lower margin profile.
The following table presents the gross profit as a percentage of total revenue (“gross profit percentage”) for each segment and the percentage change over the prior period for the years ended December 31: 2023 Increase (Decrease) 2022 Increase (Decrease) 2021 Technology 26.7 % (4.6) % 28.0 % 0.4 % 27.9 % FA 39.2 % 0.5 % 39.0 % 18.2 % 33.0 % Total gross profit percentage 27.9 % (4.8) % 29.3 % 1.4 % 28.9 % Total gross profit percentage decreased 140 basis points for the year ended December 31, 2023, as compared to the same period in 2022, primarily as a result of a decline in the mix of Direct Hire revenue and lower Technology Flex gross profit margins.
Refer to Note 14 - “Derivative Instrument and Hedging Activity” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of our interest rate swaps.
Refer to Note 12 - “Employee Benefit Plans” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for a complete discussion of the termination of our SERP. Income Tax Expense.
The key drivers of Flex revenue are the number of consultants on assignment, billable hours, the bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce. Flex revenue for our Technology business increased 17.8% per billing day, during the year ended December 31, 2022, as compared to the same period in 2021.
The key drivers of Flex revenue are the number of consultants on assignment, billable hours, the bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce.
CRITICAL ACCOUNTING ESTIMATES Our significant accounting policies are discussed in Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report. Our consolidated financial statements are prepared in accordance with GAAP.
These off-balance sheet arrangements do not provide financing, liquidity, market or credit risk support. 23 Table of Contents CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements are prepared in accordance with GAAP, and our significant accounting policies are discussed in Note 1 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8.
At December 31, 2022 and 2021, we had $0.1 million and $97.0 million, respectively, in cash and cash equivalents, which consisted primarily of government money market funds. At December 31, 2022, Kforce had $146.3 million in working capital compared to $211.7 million at December 31, 2021.
At December 31, 2023 and 2022, we had $0.1 million in cash and cash equivalents. At December 31, 2023, Kforce had $141.5 million in working capital compared to $146.3 million at December 31, 2022.
Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 84.1%, 85.4% and 83.0% of SG&A for the years ended December 31, 2022, 2021 and 2020, respectively. Commissions and other bonus incentives for our revenue-generating talent are variable costs driven primarily by revenue and gross profit levels, and associate performance.
Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 84.3%, 84.1% and 85.4% of SG&A for the years ended December 31, 2023, 2022 and 2021, respectively.
Gross profit is determined by deducting direct costs (primarily consultant compensation, payroll taxes, payroll-related insurance and certain fringe benefits, as well as independent contractor costs) from total revenue.
Gross profit is determined by deducting direct costs (primarily consultant compensation, payroll taxes and certain fringe benefits, as well as independent contractor costs) from total revenue. In addition, there are no consultant payroll costs associated with Direct Hire placements; thus, all Direct Hire revenue increases gross profit by the full amount of the placement fee.
Free Cash Flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures.
Free Cash Flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view Free Cash Flow as a complement to, but not as a replacement for, our Consolidated Statements of Cash Flows.
During the year ended December 31, 2022, Other expense, net also includes a $4.1 million gain recognized as a result of the termination of an interest rate swap agreement in May 2022. Refer to Note 14 - “Derivative Instrument and Hedging Activity” in the Notes to Consolidated Financial Statements, included in Item 8.
Financial Statements and Supplementary Data of this report, for a more detailed discussion on the sale of our equity method investment. During the year ended December 31, 2022, Other expense, net also included a $4.1 million gain recognized as a result of the termination of an interest rate swap agreement in May 2022.
Our FA business experienced a decrease in Flex revenue of 37.8%, per billing day, during the year ended December 31, 2022, as compared to the same period in 2021, primarily driven by the expected run-off of the COVID-related project business.
Our FA business experienced a decrease in Flex revenue of 27.6% (27.3% on a billing day basis), during the year ended December 31, 2023, as compared to the same period in 2022, primarily driven by the repositioning of this business towards more highly-skilled roles and the continued uncertainty in the macro environment.
During the years ended December 31, 2022, 2021 and 2020, we recognized $3.8 million, $2.5 million, and $1.7 million, respectively, related to our share of losses related to our equity method investment. During the year ended December 31, 2022, Other expense, net also includes an impairment charge of $13.7 million for our equity method investment.
Other expense, net also includes an impairment charge of $13.7 million for our equity method investment for the year ended December 31, 2022. Refer to Note 1 - “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8.
Excluding this impact, earnings per share improved approximately 20% in 2022 on a year-over-year basis. • The Firm returned $91.6 million of capital to our shareholders in the form of open market repurchases totaling $67.6 million, or 1.1 million shares, and quarterly dividends totaling $24.0 million during the year ended December 31, 2022.
These costs, net of related tax benefits, impacted our earnings per share by $0.36 per share. • Net income for the year ended December 31, 2023, decreased 19.0% to $61.1 million, or $3.13 per share, from $75.4 million, or $3.68 per share, in 2022. • The Firm returned $94.7 million of capital to our shareholders in the form of open market repurchases totaling $67.1 million, or 1.1 million shares, and quarterly dividends totaling $27.6 million during the year ended December 31, 2023.
The following table presents the year-over-year revenue growth rates, per billing day, for the last five quarters: Year-Over-Year Revenue Growth Rates (Per Billing Day) Q4 2022 Q3 2022 Q2 2022 Q1 2022 Q4 2021 Billing days 61 64 64 64 61 Technology Flex 8.5 % 15.7 % 23.3 % 26.0 % 31.0 % FA Flex (28.8) % (30.7) % (49.0) % (37.6) % (28.9) % Total Flex 3.1 % 8.7 % 7.2 % 11.8 % 16.6 % Flex Revenue.
Year-Over-Year Growth Rates (As Reported) 2023 2022 YTD Q4 Q3 Q2 Q1 Q4 Technology Flex (7.4)% (11.1)% (12.5)% (7.8)% 2.2% 8.5% FA Flex (27.6)% (28.0)% (26.9)% (27.3)% (28.2)% (28.8)% Total Flex revenue (9.6)% (12.8)% (13.9)% (9.8)% (1.6)% 3.1% Year-Over-Year Growth Rates (As Adjusted) 2023 2022 YTD Q4 Q3 Q2 Q1 Q4 Billing Days 252 61 63 64 64 61 Technology Flex (7.1)% (11.1)% (11.1)% (7.8)% 2.2% 8.5% FA Flex (27.3)% (28.0)% (25.7)% (27.3)% (28.2)% (28.8)% Total Flex revenue (9.2)% (12.8)% (12.5)% (9.8)% (1.6)% 3.1% Free Cash Flow.
Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation.
Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. In 2022, there were higher cash outlays related to the payment of deferred payroll taxes under the CARES Act and the settlement of the SERP, totaling approximately $39 million.
Significant judgment is required in determining our effective tax rate and in evaluating our tax positions, including those that may be uncertain. We are also required to exercise judgment with respect to the realization of our net deferred tax assets.
Accounting for Income Taxes Our effective income tax rate is influenced by tax planning opportunities available to us in the various jurisdictions in which we conduct business. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions, including those that may be uncertain.
In April 2017 and March 2020, Kforce entered into two forward-starting interest rate swap agreements to mitigate the risk of rising interest rates. As of December 31, 2022, the Firm did not have any outstanding interest rate swap derivative instruments.
Refer to Note 13 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in this report for a complete discussion of the Amended and Restated Credit Facility. In April 2017 and March 2020, Kforce entered into two forward-starting interest rate swap agreements to mitigate the risk of rising interest rates.
Refer to Note 1 - “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for a more detailed discussion on the impairment of our equity method investment.
A 10% change in accounts reserved at December 31, 2023 would have impacted our net income by approximately $0.1 million in 2023. Refer to Note 4 – “Allowance for Credit Losses” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report, for more details on our allowance for credit losses.
Revenue per billing day increased 17.9% in our Technology business and decreased 33.9% in our FA business, which was impacted by the expected run-off in the COVID-19 project-related business and repositioning efforts. • Flex revenue increased 7.6%, per billing day, to $1.65 billion in 2022 from $1.53 billion in 2021.
Revenue decreased 8.2% and 27.5% for Technology and FA, respectively, in 2023, primarily driven by the uncertainty in the macro environment and our repositioning efforts in our FA business. • Flex revenue decreased 9.6% (9.2% on a billing day basis), to $1.49 billion in 2023 from $1.65 billion in 2022.
Revenue in this more cyclically sensitive business was down 19.4% in the fourth quarter of 2022 on a year-over-year basis. • Gross profit margin increased 40 basis points to 29.3% in 2022 from 28.9% in 2021, primarily as a result of an increased mix of Direct Hire revenue and increased margins in our FA business.
In 2023, Flex revenue decreased 7.4% (7.1% on a billing day basis) for Technology and decreased 27.6% (27.3% on a billing day basis) for FA. • Direct Hire revenue decreased 34.9% to $38.0 million in 2023 from $58.3 million in 2022. • Gross profit margin decreased 140 basis points to 27.9% in 2023 from 29.3% in 2022, primarily as a result of a decline in the mix of Direct Hire revenue and Technology Flex gross profit margins. • Flex gross profit margin decreased 80 basis points to 26.0% for 2023 from 26.8% in 2022.
This increase is primarily driven by the strength in our accounts receivable portfolio and improved profitability levels, partially offset by payments for deferred payroll taxes as a result of the Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”) of approximately $19 million and final payments under our terminated Supplemental Executive Retirement Plan (“SERP”) of approximately $20 million. 13 Table of Contents RESULTS OF OPERATIONS Certain discussions of the changes in our results of operations from the year ended December 31, 2021, as compared to the year ended December 31, 2020, have been omitted from this Form 10-K, and may be found in “Item 7.
Operating cash flows in 2023 were negatively impacted by lower profitability levels due to the decline in revenues stemming from the uncertainty in the macro environment. 15 Table of Contents RESULTS OF OPERATIONS Certain discussions of the changes in our results of operations from the year ended December 31, 2022, as compared to the year ended December 31, 2021, have been omitted from this Form 10-K, and may be found in “Item 7.
The change was primarily driven by $74.4 million of net payments on our credit facility, which includes payments of $112.6 million and draw downs of $38.2 million, as well as an overall increase in repurchases of common stock and dividend payments.
Financing Activities Cash used in financing activities was $86.6 million during the year ended December 31, 2023, as compared to $173.4 million during the year ended December 31, 2022. This change was primarily driven by $16.0 million of net borrowings on our credit facility in 2023 and $74.4 million of net payments in 2022.
Excluding the COVID-related business in 2021, FA Flex revenues declined 16.7% in 2022, per billing day, primarily as a result of our repositioning effort towards more highly-skilled roles. We expect first quarter 2023 FA Flex revenue to be down in the mid 20% range year-over year.
In the first quarter of 2024, we expect FA Flex revenue to decrease in the mid 20% range on a year-over-year basis.
Removed
Flex revenue increased 17.8%, per billing day, for Technology and decreased 37.8%, per billing day, for FA.
Added
SG&A expenses for the year ended December 31, 2023, include costs of $8.4 million related to (i) organizational realignment activities and actions taken to reduce our costs to better align with the lower revenue levels and (ii) legal costs for settlements.
Removed
Excluding revenues from the COVID-19 project-related business for both periods, our FA Flex business would have declined 16.7% in 2022 on a year-over-year, billing day basis primarily as a result of our repositioning efforts. • While our growth rates slowed in the second half of 2022 given the macro-economic uncertainties, our Technology business carried momentum into the fourth quarter of 2022 as evidenced by 8% growth on a year-over-year billing day basis. • Direct Hire revenue, per billing day, increased 16.7% to $58.3 million in 2022 from $49.8 million in 2021.
Added
In 2022, there were higher cash outlays related to the payment of deferred payroll taxes under the Coronavirus Aid, Relief and Economic Securities Act (the “CARES Act”) and settlement of the Supplemental Executive Retirement Plan (“SERP”) obligation, totaling approximately $39 million.
Removed
Flex gross profit margin increased 20 basis points to 26.8% for 2022 from 26.6% in 2021.
Added
There has been heightened uncertainty in the macroeconomic environment, and concerns that the U.S. economy may fall into a recession, since the Federal Reserve began aggressively raising interest rates in March 2022 to address persistently high inflation. The U.S.
Removed
The increase is primarily driven by a provision for the note receivable from our joint venture recognized in the fourth quarter of 2022 and a gain on the sale of our corporate headquarters in 2021. • Net income for the year ended December 31, 2022, increased to $75.4 million, or $3.68 per share, from $75.2 million, or $3.54 per share, in 2021.
Added
Treasury’s yield curve has also been significantly inverted, which, for more than 50 years, has been a very strong indicator of a likely recession. There are also significant geopolitical concerns including, but not limited to, the Ukraine-Russia War, ongoing supply chain issues, U.S. political uncertainties and the Israel-Hamas War.
Removed
The impairment charge and provision for the note receivable from our joint venture negatively impacted earnings per share in 2022 by $0.57.
Added
With that said, growth in the U.S. economy was reasonably strong in 2023 as real gross domestic product (“GDP”) grew at a pace of roughly 3% led by robust consumer spending. In addition, the labor markets remained quite strong in 2023 as the overall unemployment rate of 3.7% in December 2023 remained near historically low levels.
Removed
The increase was driven principally by a combination of significant growth in the number of consultants on assignment and higher average bill rates. Given the inflationary pressures on wages and scarcity of highly-skilled technology consultants, we have continued to experience a meaningful acceleration in average bill rates, which increased 1.7% sequentially in the fourth quarter of 2022.
Added
Despite the expansion in the U.S. economy, the uncertainties in the macro environment caused companies, broadly speaking, to exercise restraint in the number of new technology investments they initiated and to selectively scale back on existing projects in 2023.

… 44 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed0 unchanged
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. In addition to the inherent operational risks, Kforce is exposed to certain market risks, primarily related to changes in interest rates. As of December 31, 2022, we had $25.6 million outstanding under our credit facility.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. In addition to the inherent operational risks, Kforce is exposed to certain market risks, primarily related to changes in interest rates. As of December 31, 2023, we had $41.6 million outstanding under the Amended and Restated Credit Facility.
A hypothetical 10% increase in interest rates in effect at December 31, 2022 would increase Kforce’s annual interest expense by less than $0.2 million. Refer to Note 13 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8.
A hypothetical 10% increase in interest rates in effect at December 31, 2023 would increase Kforce’s annual interest expense by less than $0.4 million. Refer to Note 13 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8.
Financial Statements and Supplementary Data of this report, for further details on our credit facility. 23 Table of Contents
Financial Statements and Supplementary Data of this report, for further details on the Amended and Restated Credit Facility. 25 Table of Contents

Other KFRC 10-K year-over-year comparisons