# KFORCE INC (KFRC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from KFORCE INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/930420/000093042025000022/kfrc-20241231.htm
Accession: 0000930420-25-000022
Filing date: 2025-02-21
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/KFRC/
All MD&A years: /company/KFRC/mda/
Previous year: /company/KFRC/mda/fy2023/ (FY 2023)
Next year: /company/KFRC/mda/fy2025/ (FY 2025)

ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained in Item 8. Financial Statements and Supplementary Data of this report, as well as Item 1. Business of this report, for an overview of our operations and business environment.

EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are highlights for 2024, 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, 2024 decreased 8.3% to $1.41 billion in 2024 from $1.53 billion in 2023. Revenue decreased 6.6% and 23.5% for Technology and FA, respectively, in 2024, primarily driven by the ongoing macroeconomic uncertainty.

•Flex revenue decreased 7.9% to $1.38 billion (8.6% on a billing day basis) in 2024 from $1.49 billion in 2023. In 2024, Flex revenue decreased 6.4% for Technology (7.1% on a billing day basis) and decreased 23.5% for FA (24.1% on a billing day basis). These decreases were driven by a decline in the number of consultants on assignment.

•Direct Hire revenue decreased 24.0% to $28.9 million in 2024 from $38.0 million in 2023.

•Gross profit margin decreased 50 basis points to 27.4% in 2024 from 27.9% in 2023, primarily as a result of a decline in the mix of Direct Hire revenue.

•Flex gross profit margin decreased 10 basis points to 25.9% for 2024 from 26.0% in 2023. Flex gross profit margin remained flat for Technology and decreased 80 basis points for FA in 2024 as compared to 2023. The decrease in FA was primarily driven by a greater mix of lower margin projects.

•Selling, General and Administrative (“SG&A”) expenses as a percentage of revenue for the year ended December 31, 2024, increased slightly to 22.0% from 21.9% in 2023.

•Net income for the year ended December 31, 2024, decreased 17.5% to $50.4 million, or $2.68 per share, from $61.1 million, or $3.13 per share, in 2023.

•The Firm returned $64.7 million of capital to our shareholders in the form of open market repurchases totaling $36.5 million, or 0.6 million shares, and quarterly dividends totaling $28.2 million during the year ended December 31, 2024. The total capital returned to shareholders in 2024 represented approximately 75% of operating cash flows.

•Cash provided by operating activities was $86.9 million during the year ended December 31, 2024, as compared to $91.5 million for 2023.

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RESULTS OF OPERATIONS

Certain discussions of the changes in our results of operations from the year ended December 31, 2023, as compared to the year ended December 31, 2022, have been omitted from this Form 10-K, and may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 23, 2024.

Our performance continued to be adversely affected by the ongoing macroeconomic uncertainty, which resulted in our clients being more cautious with the level of investment in their digital transformation efforts. With that said, our Technology business was largely stable throughout 2024 as indicated by our sequential billing day growth in both the second and fourth quarters of 2024 with a slight sequential decline in the third quarter. Against the backdrop of revenue declines, we continued to manage down our overall headcount levels, especially in our delivery roles, and tightly control spend levels in order to mitigate the pressure on profitability from the lower revenue and gross margin levels.

The political landscape in the U.S. remains unclear, particularly in relation to the impacts of the potential policy changes from the new administration. Geopolitical risks persist, including uncertainty in the Middle East and global supply chain disruptions. Despite these challenges, the U.S. economy demonstrated consistent growth in 2024, with real GDP expanding at 2.8%, largely driven by increased government spending and a healthy consumer. Although the unemployment rate rose to 4.1% in December 2024 from 3.7% in December 2023, employment grew across most sectors in the final quarter of 2024. Additionally, the Federal Reserve cut interest rates by a total of 100 basis points in late 2024, but the prospects for further interest rate cuts in 2025 appear less certain with inflation being a bit stickier and the labor markets continuing to show signs of strength.

The following table presents certain items in our Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue for the years ended:

[[GREPCENT_TABLE]]
[["","DECEMBER 31,"],["","2024","","2023","","2022"],["Revenue by segment:"],["Technology","92.0","%","","90.4","%","","88.1","%"],["FA","8.0","","","9.6","","","11.9"],["Total Revenue","100.0","%","","100.0","%","","100.0","%"],["Revenue by type:"],["Flex","97.9","%","","97.5","%","","96.6","%"],["Direct Hire","2.1","","","2.5","","","3.4"],["Total Revenue","100.0","%","","100.0","%","","100.0","%"],["Gross profit","27.4","%","","27.9","%","","29.3","%"],["Selling, general and administrative expenses","22.0","%","","21.9","%","","22.2","%"],["Depreciation and amortization","0.4","%","","0.3","%","","0.3","%"],["Income from operations","5.0","%","","5.7","%","","6.8","%"],["Income from operations, before income taxes","4.8","%","","5.6","%","","6.0","%"],["Net income","3.6","%","","4.0","%","","4.4","%"]]
[[/GREPCENT_TABLE]]

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Revenue. The following table presents revenue by type for each segment and the percentage change from the prior period for the years ended December 31:

[[GREPCENT_TABLE]]
[["(in thousands)","2024","","Increase (Decrease)","","2023","","Increase (Decrease)","","2022"],["Technology"],["Flex revenue","$","1,278,715","","","(6.4)","%","","$","1,366,095","","","(7.4)","%","","$","1,476,055"],["Direct Hire revenue","14,028","","","(24.0)","%","","18,458","","","(41.5)","%","","31,572"],["Total Technology revenue","$","1,292,743","","","(6.6)","%","","$","1,384,553","","","(8.2)","%","","$","1,507,627"],["FA"],["Flex revenue","$","97,729","","","(23.5)","%","","$","127,679","","","(27.6)","%","","$","176,395"],["Direct Hire revenue","14,836","","","(24.0)","%","","19,524","","","(27.0)","%","","26,743"],["Total FA revenue","$","112,565","","","(23.5)","%","","$","147,203","","","(27.5)","%","","$","203,138"],["Total Flex revenue","$","1,376,444","","","(7.9)","%","","$","1,493,774","","","(9.6)","%","","$","1,652,450"],["Total Direct Hire revenue","28,864","","","(24.0)","%","","37,982","","","(34.9)","%","","58,315"],["Total Revenue","$","1,405,308","","","(8.3)","%","","$","1,531,756","","","(10.5)","%","","$","1,710,765"]]
[[/GREPCENT_TABLE]]

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 6.4% (7.1% per billing day) during the year ended December 31, 2024, as compared to the same period in 2023, primarily due to a decrease in the number of consultants on assignment. The average bill rate was approximately $90 per hour for 2024, which remained flat as compared to 2023. In the first quarter of 2025, we expect Technology Flex revenue to decline sequentially on a billing day basis in the low to mid-single digits, at a level that is largely consistent with pre-pandemic levels and in the low single digits year over year.

Our FA business experienced a decrease in Flex revenue of 23.5% (24.1% per billing day) during the year ended December 31, 2024, as compared to the same period in 2023, primarily driven by a decrease in the number of consultants on assignment. Our average bill rate of $51 per hour for the year ended December 31, 2024 was up slightly on a year-over-year basis. In the first quarter of 2025, we expect FA Flex revenue to decline sequentially on a billing day basis in the low double digits following greater than expected year-end assignment ends.

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

[[GREPCENT_TABLE]]
[["","YEAR ENDED DECEMBER 31,","","YEAR ENDED DECEMBER 31,"],["","2024 vs. 2023","","2023 vs. 2022"],["Key Drivers - Increase (Decrease)","Technology","","FA","","Technology","","FA"],["Volume - hours billed","$","(90,372)","","","$","(32,440)","","","$","(141,498)","","","$","(57,647)"],["Bill rate","3,092","","","2,469","","","33,320","","","8,949"],["Billable expenses","(100)","","","21","","","(1,782)","","","(18)"],["Total change in Flex revenue","$","(87,380)","","","$","(29,950)","","","$","(109,960)","","","$","(48,716)"]]
[[/GREPCENT_TABLE]]

The following table presents total Flex hours billed by segment and the percentage change over the prior period for the years ended December 31:

[[GREPCENT_TABLE]]
[["(in thousands)","2024","","Increase (Decrease)","","2023","","Increase (Decrease)","","2022"],["Technology","14,171","","","(6.6)","%","","15,178","","","(9.6)","%","","16,794"],["FA","1,902","","","(25.4)","%","","2,550","","","(32.7)","%","","3,789"],["Total Flex hours billed","16,073","","","(9.3)","%","","17,728","","","(13.9)","%","","20,583"]]
[[/GREPCENT_TABLE]]

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 24.0% during the year ended December 31, 2024, as compared to the same period in 2023, primarily driven by a decrease in placements. We expect Direct Hire revenue to be stable in the first quarter of 2025 year over year.

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

[[GREPCENT_TABLE]]
[["","2024","","Increase (Decrease)","","2023","","Increase (Decrease)","","2022"],["Technology","26.5","%","","(0.7)","%","","26.7","%","","(4.6)","%","","28.0","%"],["FA","38.5","%","","(1.8)","%","","39.2","%","","0.5","%","","39.0","%"],["Total gross profit percentage","27.4","%","","(1.8)","%","","27.9","%","","(4.8)","%","","29.3","%"]]
[[/GREPCENT_TABLE]]

Total gross profit percentage decreased 50 basis points for the year ended December 31, 2024, as compared to the same period in 2023, primarily as a result of a decline in the mix of Direct Hire revenue.

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.

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:

[[GREPCENT_TABLE]]
[["","2024","","Increase (Decrease)","","2023","","Increase (Decrease)","","2022"],["Technology","25.7","%","","\u2014","%","","25.7","%","","(2.7)","%","","26.4","%"],["FA","29.1","%","","(2.7)","%","","29.9","%","","0.7","%","","29.7","%"],["Total Flex gross profit percentage","25.9","%","","(0.4)","%","","26.0","%","","(3.0)","%","","26.8","%"]]
[[/GREPCENT_TABLE]]

Our Flex gross profit percentage decreased 10 basis points for the year ended December 31, 2024, as compared to the same period in 2023.

•Technology Flex gross profit margins remained stable at 25.7% for the year ended December 31, 2024, as compared to the same period in 2023. The impact from a tighter pricing environment in 2023 that carried over into 2024 was offset by lower healthcare costs. Overall bill and pay spreads in our Technology business were largely stable throughout 2024 with a slight improvement in the second half of 2024. We expect Technology Flex gross profit margins for the first quarter of 2025 to remain stable year over year.

•FA Flex gross profit margins decreased 80 basis points for the year ended December 31, 2024, as compared to the same period in 2023, primarily driven by a greater mix of lower margin projects, which was partially offset by lower healthcare costs. As a result of this mix, we expect FA Flex gross profit margins for the first quarter of 2025 to be down on a year-over-year basis.

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

[[GREPCENT_TABLE]]
[["","YEAR ENDED DECEMBER 31,","","YEAR ENDED DECEMBER 31,"],["","2024 vs. 2023","","2023 vs. 2022"],["Key Drivers - Increase (Decrease)","Technology","","FA","","Technology","","FA"],["Revenue impact (volume)","$","(22,448)","","","$","(8,948)","","","$","(29,079)","","","$","(14,483)"],["Profitability impact (rate)","(364)","","","(743)","","","(10,333)","","","187"],["Total change in Flex gross profit","$","(22,812)","","","$","(9,691)","","","$","(39,412)","","","$","(14,296)"]]
[[/GREPCENT_TABLE]]

SG&A Expenses. Total compensation, commissions, payroll taxes and benefit costs as a percentage of SG&A represented 84.2%, 84.3% and 84.1% of SG&A for the years ended December 31, 2024, 2023 and 2022, 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.

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The following table presents certain components of SG&A as a percentage of total revenue for the years ended December 31:

[[GREPCENT_TABLE]]
[["(in thousands)","2024","","% of Revenue","","2023","","% of Revenue","","2022","","% of Revenue"],["Compensation, commissions, payroll taxes and benefits costs","$","260,839","","","18.6","%","","$","282,439","","","18.4","%","","$","319,501","","","18.7","%"],["Other (1)","48,963","","","3.4","%","","52,494","","","3.5","%","","60,314","","","3.5","%"],["Total SG&A","$","309,802","","","22.0","%","","$","334,933","","","21.9","%","","$","379,815","","","22.2","%"]]
[[/GREPCENT_TABLE]]

(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 10 basis points for the year ended December 31, 2024, as compared to the same period in 2023.

For compensation and related expenses, we have experienced a degree of SG&A deleverage as compared to 2023, as we continued to make investments in our strategic priorities and to retain our most productive associates to strategically position the Firm to capture an increased market share when the demand environment eventually improves. To mitigate the pressure on our profitability levels from the revenue and gross profit declines, we have taken certain actions to align our costs such as tight discretionary spend control and decreases in personnel, specifically within our delivery capabilities.

The decrease in Other SG&A expenses was primarily attributable to lower professional fees pertaining to the settlement of legal claims in 2023.

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, and the evolution of our nearshore and offshore delivery capabilities. We expect to continue exercising tight discretionary spend control and balance productivity levels.

Depreciation and Amortization. The following table presents depreciation and amortization expense and percentage change over the prior period by major category for the years ended December 31:

[[GREPCENT_TABLE]]
[["(in thousands)","2024","","Increase (Decrease)","","2023","","Increase (Decrease)","","2022"],["Fixed asset depreciation","$","3,178","","","1.1","%","","$","3,142","","","18.3","%","","$","2,655"],["Capitalized software amortization","2,744","","","46.7","%","","1,870","","","5.5","%","","1,772"],["Total Depreciation and amortization","$","5,922","","","18.2","%","","$","5,012","","","13.2","%","","$","4,427"]]
[[/GREPCENT_TABLE]]

Other Expense, Net. Other expense, net was $2.1 million, $1.9 million and $14.4 million for the years ended December 31, 2024, 2023 and 2022, 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.

During the years ended December 31, 2024, 2023 and 2022, we recognized nil, $0.8 million, and $3.8 million, respectively, related to our share of losses associated with our equity method investment. 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 sale of our equity method investment in February 2023.

Income Tax Expense. Income tax expense as a percentage of income from operations, before income taxes (our “effective tax rate”) were 25.4%, 28.4% and 26.4% for the years ended December 31, 2024, 2023 and 2022, respectively. The primary driver for the decrease relates to a reduction in nondeductible executive compensation, non-taxable proceeds from company-owned life insurance, and the recognition of research and development tax credits.

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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.

[[GREPCENT_TABLE]]
[["","Sequential Growth Rates (GAAP)"],["","2024","","2023"],["","","Q4","","Q3","","Q2","","Q1","","Q4"],["Technology Flex","","(2.5)%","","(0.6)%","","1.7%","","(2.3)%","","(2.5)%"],["FA Flex","","(2.7)%","","(4.1)%","","(5.7)%","","(11.5)%","","(1.0)%"],["Total Flex revenue","","(2.5)%","","(0.8)%","","1.2%","","(3.1)%","","(2.3)%"],["","Sequential Growth Rates (Non-GAAP)"],["","2024","","2023"],["","","Q4","","Q3","","Q2","","Q1","","Q4"],["Billing Days","","62","","64","","64","","64","","61"],["Technology Flex","","0.6%","","(0.6)%","","1.7%","","(6.9)%","","0.7%"],["FA Flex","","0.5%","","(4.1)%","","(5.7)%","","(15.7)%","","2.3%"],["Total Flex revenue","","0.6%","","(0.8)%","","1.2%","","(7.6)%","","0.9%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year-Over-Year Growth Rates (GAAP)"],["","","2024","","2023"],["","","YTD","","Q4","","Q3","","Q2","","Q1","","YTD","","Q4"],["Technology Flex","","(6.4)%","","(3.7)%","","(3.6)%","","(6.4)%","","(11.4)%","","(7.4)%","","(11.1)%"],["FA Flex","","(23.5)%","","(22.1)%","","(20.7)%","","(23.1)%","","(27.2)%","","(27.6)%","","(28.0)%"],["Total Flex revenue","","(7.9)%","","(5.2)%","","(5.0)%","","(7.8)%","","(12.8)%","","(9.6)%","","(12.8)%"],["","","Year-Over-Year Growth Rates (Non-GAAP)"],["","","2024","","2023"],["","","YTD","","Q4","","Q3","","Q2","","Q1","","YTD","","Q4"],["Billing Days","","254","","62","","64","","64","","64","","252","","61"],["Technology Flex","","(7.1)%","","(5.2)%","","(5.1)%","","(6.4)%","","(11.4)%","","(7.1)%","","(11.1)%"],["FA Flex","","(24.1)%","","(23.3)%","","(21.9)%","","(23.1)%","","(27.2)%","","(27.3)%","","(28.0)%"],["Total Flex revenue","","(8.6)%","","(6.7)%","","(6.5)%","","(7.8)%","","(12.8)%","","(9.2)%","","(12.8)%"]]
[[/GREPCENT_TABLE]]

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 as a replacement for, our Consolidated Statements of Cash Flows.

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The following table presents Free Cash Flow:

[[GREPCENT_TABLE]]
[["","","YEARS ENDED DECEMBER 31,"],["(in thousands)","","2024","","2023","","2022"],["Net cash provided by operating activities","","$","86,874","","","$","91,465","","","$","90,805"],["Capital expenditures","","(7,573)","","","(7,763)","","","(8,109)"],["Free cash flow","","79,301","","","83,702","","","82,696"],["Change in debt","","(8,900)","","","16,000","","","(74,400)"],["Repurchases of common stock","","(41,938)","","","(75,024)","","","(74,913)"],["Cash dividends","","(28,236)","","","(27,562)","","","(24,027)"],["Proceeds from company-owned life insurance","","2,377","","","\u2014","","","1,077"],["Premiums paid for company-owned life insurance","","(2,368)","","","(1,408)","","","\u2014"],["Note receivable issued to our joint venture","","\u2014","","","(750)","","","(6,750)"],["Proceeds from the sale of our joint venture interest","","\u2014","","","5,059","","","\u2014"],["Equity method investment","","\u2014","","","\u2014","","","(500)"],["Other","","(6)","","","(19)","","","(51)"],["Change in cash and cash equivalents","","$","230","","","$","(2)","","","$","(96,868)"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA. “Adjusted EBITDA”, a non-GAAP financial measure, is defined by Kforce as net income before depreciation and amortization; stock-based compensation expense; interest expense, net; income tax expense; organizational realignment activities; legal settlement expense; loss from equity method investment; reserve associated with the note receivable issued to our joint venture; impairment of equity method investment; and gain from termination of interest rate swap. 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 consolidated financial statements as indicators of financial performance or liquidity. The measure is not determined in accordance with GAAP and is thus susceptible to varying calculations. Also, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

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 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.

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

[[GREPCENT_TABLE]]
[["","YEARS ENDED DECEMBER 31,"],["(in thousands)","2024","","2023","","2022"],["Net income","$","50,414","","","$","61,075","","","$","75,431"],["Depreciation and amortization","5,922","","","5,012","","","4,427"],["Stock-based compensation expense","14,044","","","17,747","","","17,655"],["Interest expense, net","2,097","","","1,122","","","973"],["Income tax expense","17,210","","","24,175","","","27,011"],["Organizational realignment activities","\u2014","","","3,662","","","\u2014"],["Legal settlement expense","\u2014","","","2,175","","","\u2014"],["Loss from equity method investment","\u2014","","","750","","","3,824"],["Reserve associated with note receivable issued to our joint venture","\u2014","","","\u2014","","","1,925"],["Impairment of equity method investment","\u2014","","","\u2014","","","13,684"],["Gain from termination of interest rate swap","\u2014","","","\u2014","","","(4,059)"],["Adjusted EBITDA","$","89,687","","","$","115,718","","","$","140,871"]]
[[/GREPCENT_TABLE]]

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. At December 31, 2024 and 2023, we had $32.7 million and $41.6 million outstanding under our Amended and Restated Credit Facility, respectively, and the borrowing availability was $166.3 million and $157.2 million, respectively, subject to certain covenants. At December 31, 2024, Kforce had $112.9 million in working capital compared to $141.5 million at December 31, 2023.

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.

The following table presents a summary of our net cash flows from operating, investing and financing activities (in thousands):

[[GREPCENT_TABLE]]
[["","YEARS ENDED DECEMBER 31,"],["Cash Provided by (Used in)","2024","","2023","","2022"],["Operating activities","$","86,874","","","$","91,465","","","$","90,805"],["Investing activities","(7,564)","","","(4,862)","","","(14,282)"],["Financing activities","(79,080)","","","(86,605)","","","(173,391)"],["Change in cash and cash equivalents","$","230","","","$","(2)","","","$","(96,868)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash provided by operating activities was $86.9 million during the year ended December 31, 2024, as compared to $91.5 million during the year ended December 31, 2023. Our largest source of operating cash flows is the collection of trade receivables, and our largest use of operating cash flows is the payment of our associate and consultant compensation. The year-over-year decrease was primarily driven by lower profitability levels, lower collections of trade receivables, and continued management of working capital partially offset by the timing of payments.

Investing Activities

Cash used in investing activities was $7.6 million during the year ended December 31, 2024, and primarily consisted of cash used for capital expenditures. Cash used in investing activities was $4.9 million during the year ended December 31, 2023, which 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.

Financing Activities

Cash used in financing activities was $79.1 million during the year ended December 31, 2024, as compared to $86.6 million during the year ended December 31, 2023. This change was primarily driven by a decrease in repurchases of common stock driven by lower operating cash flows, partially offset by the net payments made on our Amended and Restated Credit Facility.

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The following table presents the cash flow impact of the common stock repurchase activity for the years ended December 31:

[[GREPCENT_TABLE]]
[["(in thousands)","2024","","2023","","2022"],["Open market repurchases","$","37,162","","","$","67,178","","","$","66,806"],["Repurchased shares withheld for tax withholding upon vesting of restricted stock","4,776","","","7,846","","","8,107"],["Total cash flow impact from Repurchases of common stock","$","41,938","","","$","75,024","","","$","74,913"],["Cash paid in current year for settlement of prior year repurchases","$","920","","","$","974","","","$","181"]]
[[/GREPCENT_TABLE]]

Kforce’s Board declared and paid dividends of $28.2 million ($1.52 per share), $27.6 million ($1.44 per share) and $24.0 million ($1.20 per share) for the years ended December 31, 2024, 2023 and 2022, respectively.

In January 2025, Kforce’s Board approved an increase to the Company's dividend from $1.52 per share to $1.56 per share, which is the sixth consecutive annual increase. The declaration, payment and amount of future dividends are discretionary and will be subject to determination by Kforce’s 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 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. As of December 31, 2024, $32.7 million was outstanding and $166.3 million, net of $1.0 million in letters of credit outstanding, was available under the Amended and Restated Credit Facility. As of December 31, 2024, we were in compliance with all of our financial covenants.

In June 2023, Kforce entered into the First Amendment to the Amended and Restated Credit Facility, by and among Wells Fargo, as administrative agent, and the lenders and financial institutions from time to time party thereto (the “First Amendment”), to replace the interest rates based on the London Inter-Bank Offered Rate (“LIBOR”) with benchmark interest rates based on the Secured Overnight Financing Rate (“SOFR”). Refer to Note 12 - “Credit Facility” 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 Amended and Restated Credit Facility.

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:

[[GREPCENT_TABLE]]
[["","2024","","2023"],["(in thousands)","Shares","$","","Shares","$"],["Open market repurchases","609","","$","36,502","","","1,097","","$","67,124"]]
[[/GREPCENT_TABLE]]
As of December 31, 2024, $63.5 million remained available for further repurchases under the Board-authorized common stock repurchase program.

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, 2024, our outstanding debt balance under the credit facility was $32.7 million. 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 Amended and Restated Credit Facility are unknown. Refer to Note 12 - “Credit Facility” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data for further details on the Amended and Restated Credit Facility.

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•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. As of December 31, 2024, the total amount of our obligations under these plans was $54.8 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.). 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. As of December 31, 2024, the value of our unconditional purchase obligations with a remaining term in excess of one year was $30.7 million.

•We have employment agreements with certain executives that provide for minimum compensation, salary and continuation of certain benefits for a one-year to a three-year period after their employment ends under certain circumstances. At December 31, 2024, our liability would be approximately $27.7 million for terminations related to a change in control and $8.8 million related to terminations in the absence of cause. Refer to Note 15 - “Commitments and Contingencies” in the Notes to Consolidated Financial Statements, included in Item 8. 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, 2024, the total amount of our obligations under operating leases was $17.0 million. Refer to Note 10 - “Operating Leases” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data for additional information regarding our lease obligations and the timing of expected future payments, including a five-year maturity schedule.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements that have or are reasonably likely to have a material impact on our liquidity or capital resources.

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. 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. 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. 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. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have not made any material changes in our accounting methodologies used in prior years.

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.

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. 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 $0.3 million in 2024.

Refer to Note 7 – “Income Taxes” 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 components of our income tax expense, as well as the temporary differences that exist as of December 31, 2024.

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Goodwill Impairment

Goodwill is tested at the reporting unit level, which is generally an operating segment or one level below the operating segment level, where a business operates and for which discrete financial information is available and reviewed by segment management. We evaluate goodwill for impairment annually or more frequently whenever events or circumstances indicate that the fair value of a reporting unit is below its carrying value. We monitor the existence of potential impairment indicators throughout the year. It is our policy to conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations.

When performing a quantitative assessment, we determine the fair value of our reporting units using widely accepted valuation techniques, including the discounted cash flow, guideline transaction and guideline company methods. These types of analyses contain uncertainties because the inputs require management to make significant assumptions and judgments including: (1) an appropriate rate to discount the expected future cash flows; (2) the inherent risk in achieving forecasted operating results; (3) long-term growth rates; (4) expectations for future economic cycles; (5) market comparable companies and appropriate adjustments thereto; and (6) market multiples. When performing a qualitative assessment, we assess qualitative factors to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of the reporting unit was less than its carrying amount.

Refer to Note 8 – “Goodwill” 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 valuation methodologies employed.

NEW ACCOUNTING STANDARDS

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 discussion of new accounting standards.