KFORCE INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

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
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. 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. Flex revenue increased 17.8%, per billing day, for
Technology and decreased 37.8%, per billing day, for FA. 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. 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. Flex gross profit margin increased 20
basis points to 26.8% for 2022 from 26.6% in 2021. 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. 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. The impairment
charge and provision for the note receivable from our joint venture negatively
impacted earnings per share in 2022 by $0.57. 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. 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. 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.
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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. 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.

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 revenue by type for each segment and
percentage change from the prior period for the years ended December 31 (in
thousands):
                                               Increase                         Increase
                                2022          (Decrease)         2021          (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


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Our quarterly operating results are affected by the number of billing days in a
quarter. 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. 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
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. We believe that the growth in consultants on assignment was fueled by
strong secular drivers of demand, the strength of our client portfolio, our
concentration in highly-skilled technology talent, and solid execution. While we
may be susceptible to short-term disruption with specific clients or
industry-specific dynamics as a result of the macro-economic environment, we
believe that we are positioned well to achieve our long-term growth ambitions.
We expect first quarter 2023 Technology Flex revenue to grow in the low to
mid-single digits year-over year.

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. 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.

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):
                                           Increase                      Increase
                              2022        (Decrease)        2021        (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 key drivers of Direct Hire revenue are the number of
placements and the associated placement fee.


Direct Hire revenue increased 16.7% per billing day, during the year ended
December 31, 2022, as compared to the same period in 2021, primarily driven by a
significant increase in both placement fees and the number of placements. There
has, however, been a moderation in the performance of this more cyclically
sensitive business in the second half of 2022 given the macro-economic concerns.
We expect Direct Hire revenue to decline in the first quarter of 2023 on a
year-over-year basis by approximately 30%.

Gross Profit. 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. 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.
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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:

                                               Increase                    Increase
                                   2022       (Decrease)       2021       (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.


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.

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:
                                                     Increase                    Increase
                                         2022       (Decrease)       2021       (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. We have seen
good stability in our Technology Flex gross margins over the last several years
as the benefit from higher growth in our managed teams and project solutions
business, which typically carries a higher margin profile, has offset any spread
compression in the remainder of our Technology business.

FA Flex gross profit margins increased 230 basis points for the year ended
December 31, 2022, as compared to the same period in 2021, primarily due to the
expected run-off of the lower margin COVID-19 related business and our
repositioning efforts.

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. 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.

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

                                                          % of                                     % of                                     % of
                                      2022               Revenue               2021               Revenue               2020               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) Includes items such as credit loss expense, lease expense, professional
fees, travel, telephone, computer and certain other expenses.


SG&A as a percentage of revenue increased 30 basis points for the year ended
December 31, 2022, as compared to the same period in 2021, mostly driven by a
$1.9 million reserve related to the note receivable issued to our joint venture
and a $2.0 million gain on the sale of our previous corporate headquarters in
2021.
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The Firm continues to focus on improving the productivity of our associates and
generating increased operating leverage as revenues grow.

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 (in thousands):

                                                             Increase                                  Increase
                                          2022              (Decrease)              2021              (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. 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.

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. 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.

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, 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. 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. 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. "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 (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. "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 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 amortization of 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 (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. 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.

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.

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. 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. Cash provided by operating
activities during the year ended December 31, 2022, includes the payment of
$20.0 million for amounts owed to two participants under the terminated SERP and
the payment of approximately $19.3 million in deferred payroll taxes as a result
of the application of the CARES Act. The year-over-year increase in cash
provided by operating activities was primarily driven by strong collections of
accounts receivable, improved profitability levels, proceeds from the
termination of our interest rate swap, and continued management of working
capital. This is partially offset by payments for deferred payroll taxes under
the CARES Act.

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 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. We expect to continue selectively investing in our
infrastructure, primarily focusing on implementing new and upgrading existing
technologies that we expect will help deliver exceptional service to our
clients, consultants, and candidates and improve productivity of our associates
and the scalability of our organization.
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Financing Activities


Cash used in financing activities was $173.4 million during the year ended
December 31, 2022, as compared to $87.7 million during the year ended
December 31, 2021. 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.

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.


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. 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, cash flow from operations
and available borrowings under our credit facility will be adequate to meet the
capital expenditure and working capital requirements of our operations for at
least the next 12 months. However, a material deterioration in the economic
environment or market conditions, among other things, could negatively impact
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 potential acquisitions and additional stock repurchases.

Credit Facility


On October 20, 2021, the Firm entered into an amended and restated credit
agreement with Wells Fargo Bank, National Association, as administrative agent,
Wells Fargo Securities, LLC, as lead arranger and bookrunner, Bank of America,
N.A., as syndication agent, BMO Harris Bank, N.A., as documentation agent, and
the lenders referred to therein (the "Amended and Restated Credit Facility").
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. 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 a complete discussion of our credit
facility. As of December 31, 2022, $25.6 million was outstanding and $173.1
million, subject to certain covenants, was available.

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 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.

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. As of
December 31, 2022, $41.3 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:


•Our credit facility matures October 20, 2026, and as of December 31, 2022, our
outstanding debt balance was $25.6 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 credit facility is unknown. Refer to Note 13 - "Credit Facility" in
the Notes to Consolidated Financial Statements, included in Item 8. Financial
Statements and Supplementary Data for further detail of our 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, 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).
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. 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. 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. 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. Refer to Note 11 - "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


Kforce provides letters of credit to certain vendors in lieu of cash deposits.
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.

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. 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. 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. 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 they 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.

Equity Method Investment

Initial Investment

We entered into a joint venture with WorkLLama in June 2019 and contributed
$22.5 million in equity capital from inception through December 31, 2022.

Impairment Assessment


We review the equity method investment for impairment whenever events or changes
in circumstances indicate that the carrying amount of the investment may not be
recoverable. An impairment loss is recognized in the event that an
other-than-temporary decline in the fair value of the investment occurs.
Management's estimate of fair value of the investment is generally based on the
income approach and/or market approach or another acceptable fair value method.
For the income approach, we utilize estimated discounted future cash flows
expected to be generated by WorkLLama. For the market approach, we utilized
market multiples of revenue and earnings derived from comparable publicly-traded
companies. These types of analyses contain uncertainties because they 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.


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For the year ended December 31, 2022, we recognized an impairment charge of
$13.7 million, which was recorded in Other Expense, net, on the accompanying
Consolidated Statements of Operations and Comprehensive Income.


Refer to Note 1 - "Summary of Significant Accounting Policies" and Note 15 -
"Fair Value Measurements" 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 equity method investment and our impairment
analysis.

Allowance for Credit Losses


Management performs an ongoing analysis of factors in establishing its allowance
for doubtful accounts including recent write-off and delinquency trends, a
specific analysis of significant receivable balances that are past due, the
concentration of accounts receivable among clients and higher-risk sectors, and
the current state of the U.S. economy. A 10% change in accounts reserved, at
December 31, 2022, would have impacted our net income by approximately
$0.1 million in 2022.

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
$0.5 million in 2022.

Refer to Note 6 – “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,
2022
.

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 they 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.

Self-Insured Liabilities


We are self-insured for certain losses related to health insurance claims that
are below insurable limits. However, we obtain third-party insurance coverage to
limit our exposure to claims in excess of insurable limits. 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.

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. 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. Financial Statements and
Supplementary Data of this report, for a discussion of new accounting standards.

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