Kforce Inc: Form 10-Q for the period ended Sep 30, 2025

EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are highlights as of and for the nine months ended September 30, 2025, which should be considered in the context of the additional discussions herein and in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

• Revenue for the nine months ended September 30, 2025 decreased 6.1% (5.6% on a billing day basis) to nearly $1.00 billion from $1.06 billion in the comparable period in 2024. Revenue decreased 5.3% (4.8% on a billing day basis) and 15.1% (14.7% on a billing day basis) for Technology and FA, respectively, primarily driven by decreases in consultants on assignment, which we believe is primarily related to macroeconomic uncertainties.
• Flex revenue for the nine months ended September 30, 2025 decreased 6.0% (5.5% on a billing day basis) to $0.98 billion from $1.04 billion in the comparable period in 2024. Flex revenue decreased 5.2% (4.7% on a billing day basis) for Technology and 16.0% (15.6% on a billing day basis) for FA. Notably, Flex revenue for FA improved nearly 7% in the third quarter of 2025 on a sequential billing day basis primarily due to more consultants on assignment.
• Direct Hire revenue for the nine months ended September 30, 2025 decreased 11.0% to $19.7 million from $22.2 million in the comparable period in 2024.
• Gross profit margin for the nine months ended September 30, 2025 decreased 40 basis points to 27.2% from 27.6% in the comparable period in 2024 primarily driven by declines in the mix of Direct Hire revenue and Flex gross profit margins.
• Flex gross profit margin for the nine months ended September 30, 2025 decreased 30 basis points to 25.7% from 26.0% in the comparable period in 2024 primarily driven by higher healthcare costs.
• SG&A expenses as a percentage of revenue for the nine months ended September 30, 2025 increased to 22.6% from 22.1% in the comparable period in 2024 primarily driven by the declines in revenue and gross profit.
• Net income for the nine months ended September 30, 2025 decreased 24.6% to $29.7 million, or $1.66 diluted earnings per share, from $39.4 million, or $2.08 diluted earnings per share, for the nine months ended September 30, 2024.
• The Firm returned $61.9 million of capital to our shareholders in the form of open market repurchases totaling $41.1 million and quarterly dividends totaling $20.8 million during the nine months ended September 30, 2025.
• Cash provided by operating activities was $41.9 million during the nine months ended September 30, 2025, as compared to $65.1 million for the nine months ended September 30, 2024. The decrease was primarily related to lower profitability levels, higher capitalized implementation costs related to cloud computing arrangements for Workday, and the payment of 2024 federal income taxes that were deferred pursuant to IRS guidance.

RESULTS OF OPERATIONS

Business Overview

Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading companies. At September 30, 2025, Kforce employed over 1,600 associates and had approximately 7,500 consultants on assignment. Kforce serves clients across a diverse set of industries and organizations of all sizes, but we place a particular focus on serving Fortune 500 and other leading companies.

While early 2025 began with optimism around U.S. economic growth and increased investment in technology initiatives, persistent macro uncertainties have continued throughout 2025 including, the recent Federal Government shutdown; continuing global trade negotiations and the potential derivative negative effects on the U.S. consumer and broader U.S. economy; and the ongoing weakness in the labor markets marked by prolonged stagnation in job gains and increased layoff announcements, although unemployment remains near historically low levels. We believe that the uncertainties in the current macro environment, along with the technological roadmaps by companies being defined, and redefined, given the rapid advancements in AI, and derivatives thereof, have led many organizations to be cautious in their strategic planning and near-term technology investment decisions. Against the backdrop of these uncertainties, we are pleased with our recent financial performance. While conversations with our clients and overall market trends continue to indicate that we are operating in a demand-constrained environment, we believe our clients continue to carry a significant backlog of strategically imperative technology investments that they expect to execute once their confidence in the macro environment improves.

Based on data published by the Staffing Industry Analysts (“SIA”), temporary employment figures and trends are important indicators of staffing demand from an economic standpoint. The national U.S. unemployment rate increased to 4.3% in August 2025 as compared to 4.1% in December 2024. In the latest U.S. staffing industry forecast published by SIA in September 2025, the technology temporary staffing industry is estimated to decline 2% in 2025.

Operating Results - Three and Nine Months Ended September 30, 2025 and 2024

The following table presents certain items in our Unaudited Condensed Consolidated Statements of Operations as a percentage of revenue:

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

(in thousands)

Flex Revenue. The key drivers of Flex revenue are the number of consultants on assignment, billable hours, the bill rate per hour and, to a limited extent, the amount of billable expenses incurred by Kforce.

Flex revenue for our Technology business decreased 5.5% and 5.2% during the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. On a billing day basis, the decreases were 5.5% and 4.7% during the three and nine months ended September 30, 2025, respectively. These changes are primarily driven by a decrease in consultants on assignment, which we believe is primarily related to macroeconomic uncertainties. Our average Technology bill rate was $90 for the three and nine months ended September 30, 2025, which remained flat as compared to the same periods in 2024. In the fourth quarter, we expect Technology Flex revenue to increase in the low single digits sequentially on a billing day basis and decline in the mid-single digits year over year on a billing day basis.

Our FA business experienced a decrease in Flex revenue of 7.3% and 16.0% during the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. On a billing day basis, the decreases were 7.3% and 15.6% during the three and nine months ended September 30, 2025, respectively. These changes are primarily driven by a decrease in consultants on assignment, which we believe is related to macroeconomic uncertainties. Notably, FA Flex revenue increased 6.9% on a sequential basis in the third quarter, representing the second consecutive quarter of sequential improvement on a billing day basis, primarily due to more consultants on assignment. Our average FA bill rates improved by 2.2% and 2.8% for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024, which is reflective of the higher-skilled assignments that we are strategically pursuing. In the fourth quarter, we expect FA Flex revenue to be slightly up sequentially on a billing day basis and decline in the mid-single digits year over year on a billing day basis.

The following table presents the key drivers for the change in Flex revenue by segment over the prior period (in thousands):

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

(in thousands)

Direct Hire Revenue. The key drivers of Direct Hire revenue are the number of placements and the associated placement fee. Direct Hire revenue also includes conversion revenue, which may occur when a consultant initially assigned to a client on a temporary basis is later converted to a permanent placement for a fee.

Direct Hire revenue decreased 14.8% and 11.0% during the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024, which was primarily driven by a decrease in placements, partially offset by an increase in placement fees. In the fourth quarter, we expect Direct Hire Revenue to decline slightly on a sequential basis due to seasonality and decrease in the low-teens range year over year.

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

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

Total gross profit percentage decreased 20 basis points for the three months ended September 30, 2025, as compared to the same period in 2024, primarily driven by declines in the mix of Direct Hire revenue and FA Flex gross profit margins. Total gross profit percentage decreased 40 basis points for the nine months ended September 30, 2025, as compared to the same period in 2024, primarily driven by declines in the mix of Direct Hire revenue and Flex gross profit margins.

Flex gross profit percentage (Flex gross profit as a percentage of Flex revenue) provides management with helpful insights 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.

The following table presents the Flex gross profit percentage by segment and percentage change over the prior period:

Our Flex gross profit percentage remained flat and decreased 30 basis points for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024.

• Technology Flex gross profit margins remained flat and decreased 20 basis points for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The decrease for the nine months ended September 30, 2025 was primarily driven by higher healthcare costs, which was partially offset by slightly improved bill and pay spreads. In the fourth quarter, we expect Technology Flex gross profit margins to decline sequentially due to the typical season impact of vacation days taken by our consultants, although the underlying bill and pay spreads are expected to be stable.
• FA Flex gross profit margins decreased 30 and 110 basis points for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The decrease for the three months ended September 30, 2025 was primarily driven by changes in our client portfolio mix and unfavorable payroll taxes. The decrease for the nine months ended September 30, 2025 includes the aforementioned items, in addition to higher healthcare costs. In the fourth quarter, we expect FA Flex gross profit margins to decline slightly due to seasonality on a sequential basis.

The following table presents the key drivers for the change in Flex gross profit by segment over the prior period (in thousands):

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 84.1% and 84.4% for the three and nine months ended September 30, 2025, respectively, as compared to 84.5% and 84.2% for the comparable periods in 2024, respectively. Commissions and other bonus incentives are variable costs driven primarily by revenue and gross profit levels. Therefore, as those levels change, these expenses would also generally be anticipated to change.

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

(in thousands)

(1) Includes items such as credit loss expense, lease expense, professional fees, travel, communication and office-related expense, and certain other expenses.

SG&A as a percentage of revenue increased 60 and 50 basis points for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024.

For compensation and related expenses, we continue to experience a degree of SG&A deleverage as we continue to make investments in our strategic priorities and retain our most productive associates to strategically position the Firm to capture an increased market share when the demand environment improves. We also experienced an increase in healthcare costs during the nine months ended September 30, 2025, as compared to the same period in 2024. To mitigate the pressure on our profitability levels from the revenue and gross profit declines, we continue to take certain actions to align our costs such as balancing revenue levels against productivity expectations and tight discretionary spend control.

We continue to prioritize investments in our strategic initiatives, including the implementation of Workday as part of our back-office transformation program, integrated strategy efforts, the evolution of our nearshore and offshore delivery capabilities, and driving our strategy through leverage of AI.

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

(in thousands)

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Other Expense, Net. Other expense, net was $0.8 million and $0.4 million for the three months ended September 30, 2025 and 2024, respectively. Other expense, net was $2.4 million and $1.6 million for the nine months ended September 30, 2025 and 2024, respectively. Other expense, net primarily includes interest expense related to outstanding borrowings under our credit facility.

Income Tax Expense. Income tax expense as a percentage of income before income taxes (our “effective tax rate”) was 24.3% and 25.1% for the nine months ended September 30, 2025 and 2024, respectively. The primary driver for the decrease relates to increased research and development tax credits associated with our strategic priorities.

Non-GAAP Financial Measures

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

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***Free Cash Flow. “***Free Cash Flow,” a non-GAAP financial measure, is defined by Kforce as net cash provided by operating activities determined in accordance with GAAP, less capital expenditures. Management believes this provides an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and is useful information to investors as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities, including investing in our business, repurchasing common stock, paying dividends or making acquisitions. Free Cash Flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. Therefore, we believe it is important to view Free Cash Flow as a complement to, but not a replacement of, our Unaudited Condensed Consolidated Statements of Cash Flows.

The following table presents Free Cash Flow:

(in thousands)

***Adjusted EBITDA. “***Adjusted EBITDA,” a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization; stock-based compensation expense; interest expense, net; and income tax expense. Adjusted EBITDA should not be considered a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing our past and future financial performance, and this presentation should not be construed as an inference by us that our future results will be unaffected by those items excluded from Adjusted EBITDA. Adjusted EBITDA is a key measure used by management to assess our operations including our ability to generate cash flows and our ability to repay our debt obligations, and management believes it provides a good metric of our core profitability in comparing our performance to our competitors, as well as our performance over different time periods. Consequently, management believes it is useful information to investors. The measure should not be considered in isolation or as an alternative to net income, cash flows or other financial statement information presented in the unaudited condensed consolidated financial statements as indicators of financial performance or liquidity. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

In addition, although we excluded stock-based compensation expense because it is a non-cash expense, we expect to continue to incur stock-based compensation expense in the future and the associated stock issued may result in an increase in our outstanding shares of stock, which may result in the dilution of our shareholder ownership interest. We suggest that you evaluate these items and the potential risks of excluding such items when analyzing our financial position.

The following table presents Adjusted EBITDA and includes a reconciliation of Net income to Adjusted EBITDA:

(in thousands)

LIQUIDITY AND CAPITAL RESOURCES

To meet our capital and liquidity requirements, we primarily rely on our operating cash flows, as well as borrowings under our credit facility. At September 30, 2025 and December 31, 2024, we had $65.0 million and $32.7 million outstanding under our Amended and Restated Credit Facility, respectively, and the borrowing availability was $134.0 million and $166.3 million, respectively, subject to certain covenants. At September 30, 2025, Kforce had $101.7 million in working capital compared to $112.9 million at December 31, 2024.

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 strategic priorities that we expect will accelerate future revenue growth and profitability levels; (ii) our dividend and share repurchase programs; and (iii) maintaining sufficient liquidity for potential acquisitions or other strategic investments.

Cash provided by operating activities was $41.9 million during the nine months ended September 30, 2025, as compared to $65.1 million during the nine months ended September 30, 2024. Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. The year-over-year decrease in cash provided by operating activities was primarily driven by lower profitability levels, higher capitalized implementation costs related to cloud computing arrangements for Workday, and the payment of 2024 federal income taxes that were deferred pursuant to IRS guidance.

Cash used in investing activities was $11.1 million during the nine months ended September 30, 2025, and primarily consisted of cash used for capital expenditures of $11.8 million, partially offset by proceeds from company-owned life insurance of $1.4 million. Cash used in investing activities during the nine months ended September 30, 2024 was $7.9 million and primarily consisted of cash used for capital expenditures of $8.5 million and premiums paid on company-owned life insurance policies of $1.8 million, partially offset by proceeds from company-owned life insurance of $2.4 million.

Cash provided by financing activities was $29.9 million during the nine months ended September 30, 2025, as compared to $57.2 million of cash used in financing activities during the nine months ended September 30, 2024. This change was primarily driven by the net proceeds on our Amended and Restated Credit Facility, partially offset by an increase in repurchases of common stock.

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

(in thousands)

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During the nine months ended September 30, 2025 and 2024, Kforce’s Board of Directors (the “Board”) declared and paid quarterly dividends of $20.8 million ($1.17 per share) and $21.3 million ($1.14 per share), respectively, which represents a 3% increase on a per share basis. While the Board has declared and paid quarterly dividends since the fourth quarter of 2014, and intends to in the foreseeable future, dividends will be subject to determination by our Board each quarter following its review of, among other things, the Firm’s current and expected financial performance as well as the ability to pay dividends under applicable law.

We believe that existing cash and cash equivalents, operating cash flows and available borrowings under our Amended and Restated Credit Facility will be adequate to meet the capital expenditure and working capital requirements of our operations for at least the next 12 months, and the foreseeable future, which we believe will provide us the flexibility to continue returning significant capital to our shareholders. However, a material deterioration in the macroeconomic environment or market conditions, among other things, could adversely affect operating results and liquidity, as well as the ability of our lenders to fund borrowings. Actual results could also differ materially from those indicated as a result of a number of factors, including the use of currently available resources for capital expenditures, investments, additional common stock repurchases or dividends.

Credit Facility

On October 20, 2021, the Firm entered into the Amended and Restated Credit Facility, which has a maximum borrowing capacity of $200.0 million, and subject to certain conditions and the participation of the lenders, may be increased up to an aggregate additional amount of $150.0 million. At September 30, 2025, $65.0 million was outstanding and $134.0 million was available on our Amended and Restated Credit Facility, and at December 31, 2024, $32.7 million was outstanding. At September 30, 2025, we were in compliance with all of the covenants contained in the Amended and Restated Credit Facility as described in our 2024 Annual Report on Form 10-K, and we currently expect that we will be able to maintain compliance with these covenants.

On November 5, 2025, the Firm entered into a senior secured credit facility with Bank of America, N.A., as administrative and collateral agent, BofA Securities, Inc. and PNC Capital Markets LLC as joint lead arrangers, BofA Securities, Inc. as bookrunner and the lenders referred to therein. For additional details on the Credit Facility, refer to Note K - “Subsequent Events” in the Unaudited Condensed Consolidated Financial Statements, included in this report on Form 10-Q.

Stock Repurchases

In October 2025, the Board approved an increase in our stock repurchase authorization, bringing the total authorization to $100.0 million. During the nine months ended September 30, 2025, Kforce repurchased approximately 950 thousand shares of common stock on the open market at a total cost of approximately $41.1 million. In addition, $22.3 million remained available for further repurchases under the Board-authorized common stock repurchase program at September 30, 2025.

Contractual Obligations and Commitments

Other than the changes described elsewhere in this Quarterly Report, there have been no material changes during the period covered by this report on Form 10-Q to our contractual obligations previously disclosed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our unaudited condensed consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenues, expenses and the related disclosures. Our assumptions, estimates and judgments are based on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. Management regularly reviews the accounting policies, estimates, assumptions and judgments to ensure that our unaudited condensed consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

NEW ACCOUNTING STANDARDS

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

With respect to our quantitative and qualitative disclosures about market risk, there have been no material changes to the information included in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our 2024 Annual Report on Form 10-K.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2025, we carried out an evaluation required by Rules 13a-15 and 15d-15 under the Exchange Act (the “Evaluation”), under the supervision and with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 and 15d-15 under the Exchange Act (“Disclosure Controls”). Based on the Evaluation, our CEO and CFO concluded that the design and operation of our Disclosure Controls were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

Management has evaluated, with the participation of our CEO and CFO, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.

Inherent Limitations of Internal Control Over Financial Reporting

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This section contains the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.