10-Q 1 kfrc-20220930.htm 10-Q kfrc-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
____________________________________________________________________________________________
 
FORM 10-Q
 ________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 000-26058
_________________________________________________________________
kfrc-20220930_g1.jpg 
Kforce Inc.
Exact name of registrant as specified in its charter
_______________________________________________________________ 
Florida
59-3264661
State or other jurisdiction of incorporation or organization
IRS Employer Identification No.
1150 Assembly Drive, Suite 500, Tampa, Florida
33607
Address of principal executive offices
Zip Code
Registrant’s telephone number, including area code: (813552-5000
 _______________________________________________________

1001 East Palm Avenue, Tampa, Florida 33605
______________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 per shareKFRCNASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.):    Yes    No  x
The number of shares outstanding of the registrant’s common stock as of October 28, 2022 was 20,753,646.

KFORCE INC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
References in this document to the “Registrant,” “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context otherwise requires or indicates.
This report, particularly Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Part II, Item 1A, Risk Factors and the documents we incorporate into this report contain certain statements that are, or may be deemed to be, forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements may include, but may not be limited to: expectations of financial or operational performance; developments within the staffing sector including, but not limited to the growth rate in temporary staffing, a reduction in the supply of consultants and candidates or the Firm’s ability to attract such individuals, changes in client demand for our services and our ability to adapt to such changes, the entry of new competitors in the market, the ability of the Firm to maintain and attract clients in the face of changing economic or competitive conditions; our beliefs regarding the expected future benefits of our flexible working environment, the impact of the COVID-19 pandemic, inflationary pressures, rising interest rates and/or supply constraints on the global and U.S. macro-economic environments, and our business, customers, financial condition and results of operations; our ability to maintain compliance with our credit facility's covenants; our beliefs regarding potential government actions or changes in laws and regulations, including those related to the COVID-19 pandemic; anticipated costs and benefits of acquisitions, divestitures, joint ventures and other investments; effects of interest rate variations; financing needs or plans; expected funding or payment of employee benefits; estimates concerning the effects of litigation or other disputes; the impact of our joint venture's inability to achieve its financial objectives or changes in valuation assumptions, the occurrence of unanticipated expenses; as well as assumptions as to any of the foregoing and all statements that are not based on historical fact but rather reflect our current expectations concerning future results and events. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, refer to the Risk Factors and MD&A sections. In addition, when used in this discussion, the terms “anticipate,” “assume,” “estimate,” “expect,” “intend,” “plan,” “believe,” “will,” “may,” “likely,” “could,” “should,” “future” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this report, which speak only as of the date of this report. Kforce undertakes no obligation to update any forward-looking statements.


PART I - FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS.

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue$437,620 $402,725 $1,291,103 $1,169,564 
Direct costs310,950 283,461 909,475 832,687 
Gross profit126,670 119,264 381,628 336,877 
Selling, general and administrative expenses94,306 88,972 285,502 251,617 
Depreciation and amortization1,045 1,026 3,214 3,420 
Income from operations31,319 29,266 92,912 81,840 
Other expense (income), net906 1,448 (333)5,845 
Income from operations, before income taxes30,413 27,818 93,245 75,995 
Income tax expense8,151 7,650 24,886 21,378 
Net income22,262 20,168 68,359 54,617 
Other comprehensive income, net of tax:
Defined benefit pension plans   3,103 
Change in fair value of interest rate swaps— 152 (615)1,101 
Comprehensive income$22,262 $20,320 $67,744 $58,821 
Earnings per share – basic$1.11 $0.99 $3.38 $2.64 
Earnings per share – diluted$1.09 $0.96 $3.31 $2.57 
Weighted average shares outstanding – basic20,022 20,429 20,206 20,676 
Weighted average shares outstanding – diluted20,450 21,098 20,634 21,260 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$5,089 $96,989 
Trade receivables, net of allowances of $1,853 and $2,342, respectively
281,124 265,322 
Income tax refund receivable35 3,010 
Prepaid expenses and other current assets10,019 6,790 
Total current assets296,267 372,111 
Fixed assets, net6,500 5,964 
Other assets, net81,758 92,629 
Deferred tax assets, net3,272 7,657 
Goodwill25,040 25,040 
Total assets$412,837 $503,401 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities$73,030 $81,408 
Accrued payroll costs81,619 71,424 
Current portion of operating lease liabilities4,074 6,338 
Income taxes payable4,241 1,239 
Other current liabilities 22 22 
Total current liabilities162,986 160,431 
Long-term debt – credit facility 100,000 
Other long-term liabilities40,875 54,564 
Total liabilities203,861 314,995 
Commitments and contingencies (Note L)
Stockholders’ equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none issued and outstanding
  
Common stock, $0.01 par; 250,000 shares authorized, 73,006 and 72,997 issued, respectively
730 730 
Additional paid-in capital502,909 488,036 
Accumulated other comprehensive income6 621 
Retained earnings491,856 442,596 
Treasury stock, at cost; 52,172 and 51,493 shares, respectively
(786,525)(743,577)
Total stockholders’ equity208,976 188,406 
Total liabilities and stockholders’ equity$412,837 $503,401 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
 
Common StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income
Treasury StockTotal Stockholders’ Equity
SharesAmountRetained EarningsSharesAmount
Balance, December 31, 202172,997 $730 $488,036 $621 $442,596 51,492 $(743,577)$188,406 
Net income— — — — 19,181 — — 19,181 
Issuance for stock-based compensation and dividends, net of forfeitures(1)— 319 — (318)— — 1 
Stock-based compensation expense— — 4,437 — — — — 4,437 
Employee stock purchase plan— — 193 — — (3)49 242 
Dividends ($0.30 per share)
— — — — (6,094)— — (6,094)
Change in fair value of interest rate swaps, net of tax benefit of $780
— — — 2,302 — — — 2,302 
Repurchases of common stock— — — — — 147 (10,270)(10,270)
Balance, March 31, 202272,996 $730 $492,985 $2,923 $455,365 51,636 $(753,798)$198,205 
Net income— — — — 26,916 — — 26,916 
Issuance for stock-based compensation and dividends, net of forfeitures11 298 — (298)— —  
Stock-based compensation expense— — 4,410 — — — — 4,410 
Employee stock purchase plan— — 234 — — (4)61 295 
Dividends ($0.30 per share)
— — — — (6,093)— — (6,093)
Change in fair value of interest rate swaps, net of tax expense of $989
— — — (2,917)— — — (2,917)
Repurchases of common stock— — — — — 162 (10,283)(10,283)
Balance, June 30, 202273,007 730 497,927 6 475,890 51,794 (764,020)210,533 
Net income— — — — 22,262 — — 22,262 
Issuance for stock-based compensation and dividends, net of forfeitures(1)— 318 — (319)— — (1)
Stock-based compensation expense— — 4,445 — — — — 4,445 
Employee stock purchase plan— — 219 — — (5)75 294 
Dividends ($0.30 per share)
— — — — (5,977)— — (5,977)
Repurchases of common stock— — — — — 383 (22,580)(22,580)
Balance, September 30, 202273,006 730 502,909 6 491,856 52,172 (786,525)208,976 



4

Common StockAdditional Paid-In CapitalAccumulated Other
Comprehensive (Loss) Income
Treasury StockTotal Stockholders’ Equity
SharesAmountRetained EarningsSharesAmount
Balance, December 31, 202072,600 $726 $472,378 $(4,423)$388,645 50,427 $(677,391)$179,935 
Net income— — — — 13,261 — — 13,261 
Issuance for stock-based compensation and dividends, net of forfeitures15 — 271 — (271)— —  
Stock-based compensation expense— — 3,403 — — — — 3,403 
Employee stock purchase plan— — 113 — — (4)57 170 
Dividends ($0.23 per share)
— — — — (4,786)— — (4,786)
Defined benefit pension plan, no tax benefit— — — 47 — — — 47 
Change in fair value of interest rate swap, net of tax benefit of $319
— — — 939 — — — 939 
Repurchases of common stock— — — — — 317 (16,313)(16,313)
Balance, March 31, 202172,615 $726 $476,165 $(3,437)$396,849 50,740 $(693,647)$176,656 
Net income— — — — 21,188 — — 21,188 
Issuance for stock-based compensation and dividends, net of forfeitures40 1 274 — (273)— — 2 
Stock-based compensation expense— — 3,532 — — — — 3,532 
Employee stock purchase plan— — 143 — — (4)52 195 
Dividends ($0.23 per share)
— — — — (4,746)— — (4,746)
Defined benefit pension plan, net of tax provision of $283
— — — 3,056 — — — 3,056 
Change in fair value of interest rate swap, net of tax benefit of $3
— — — 10 — — — 10 
Repurchases of common stock— — — — — 225 (13,614)(13,614)
Balance, June 30, 202172,655 727 480,114 (371)413,018 50,961 (707,209)186,279 
Net income— — — — 20,168 — — 20,168 
Issuance for stock-based compensation and dividends, net of forfeitures(15)(1)260 — (260)— — (1)
Stock-based compensation expense— — 3,512 — — — — 3,512 
Employee stock purchase plan— — 148 — — (3)45 193 
Dividends ($0.26 per share)
— — — — (5,304)— — (5,304)
Change in fair value of interest rate swap, net of tax benefit of $55
— — — 152 — — — 152 
Repurchases of common stock— — — — — 249 (15,030)(15,030)
Balance, September 30, 202172,640 726 484,034 (219)427,622 51,207 (722,194)189,969 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

KFORCE INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net income$68,359 $54,617 
Adjustments to reconcile net income to cash provided by operating activities:
Deferred income tax provision, net4,386 302 
Provision for credit losses(231)(139)
Depreciation and amortization3,214 3,420 
Stock-based compensation expense13,293 10,448 
Defined benefit pension plan expense 2,157 
Loss (gain) on disposal or impairment of assets155 (1,979)
Noncash lease expense 4,313 3,992 
Loss on equity method investment2,737 1,709 
Other(322)681 
Increase in operating assets
Trade receivables, net(15,571)(41,397)
Other assets(1,989)(6,384)
Increase (decrease) in operating liabilities
Accrued payroll costs11,025 7,715 
Payment of benefit under terminated pension plan(19,965) 
Other liabilities8,659 24,801 
Cash provided by operating activities78,063 59,943 
Cash flows from investing activities:
Capital expenditures(4,656)(5,026)
Contributions to WorkLLama joint venture(500)(7,000)
Note receivable issued to WorkLLama joint venture(4,500) 
Net proceeds from the sale of assets  23,742 
Cash (used in) provided by investing activities(9,656)11,716 
Cash flows from financing activities:
Payments on credit facility(100,000) 
Repurchases of common stock(42,103)(44,407)
Cash dividends(18,164)(14,836)
Payments on other financing arrangements(40)(271)
Cash used in financing activities(160,307)(59,514)
Change in cash and cash equivalents(91,900)12,145 
Cash and cash equivalents, beginning of period96,989 103,486 
Cash and cash equivalents, end of period$5,089 $115,631 
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Nine Months Ended September 30,
Supplemental Disclosure of Cash Flow Information20222021
Cash Paid During the Period For:
Income taxes$14,348 $17,845 
Operating lease liabilities5,413 5,591 
Interest, net918 1,934 
Non-Cash Investing and Financing Transactions:
ROU assets obtained from operating leases$274 $4,053 
Employee stock purchase plan831 558 
Unsettled repurchases of common stock1,030  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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KFORCE INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A - Summary of Significant Accounting Policies
Unless otherwise noted below, there have been no material changes to the accounting policies presented in Note 1 - “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of the 2021 Annual Report on Form 10-K.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and footnotes normally required by GAAP for complete financial statements have been condensed or omitted pursuant to those rules and regulations, although management believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2021 Annual Report on Form 10-K. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2021, was derived from our audited Consolidated Balance Sheet as of December 31, 2021, as presented in our 2021 Annual Report on Form 10-K.
Our quarterly operating results are affected by the number of billing days in a particular quarter, the seasonality of our clients’ businesses and increased holiday and vacation days taken. In addition, we typically experience higher costs in the first quarter of each fiscal year as a result of certain U.S. state and federal employment tax resets, which adversely affects our gross profit and overall profitability relative to the remainder of the fiscal year. As such, the results of operations for any interim period may be impacted by these factors, among others, and are not necessarily indicative of, nor comparable to, the results of operations for a full year.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of Kforce Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. References in this document to “Kforce,” the “Company,” “we,” the “Firm,” “management,” “our” or “us” refer to Kforce Inc. and its subsidiaries, except where the context indicates otherwise.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most critical of these estimates and assumptions relate to the following: allowance for credit losses; income taxes; self-insured liabilities for health insurance; and the impairment of goodwill, other long-lived assets and the equity method investment. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. In addition, the potential economic consequences of the COVID-19 pandemic, inflationary pressures, and supply constraints, among others, have been and may continue to be uncertain, rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions might change materially in future periods.
Health Insurance
Except for certain fully insured health insurance lines of coverage, Kforce retains the risk of loss per participant for each health insurance claim up to $600 thousand in claims annually. Additionally, for all claim amounts exceeding $600 thousand, Kforce retains the risk of loss up to an aggregate annual loss of those claims of $200 thousand. For its partially self-insured lines of coverage, health insurance costs are accrued using estimates to approximate the liability for reported claims and incurred but not reported claims, which are primarily based upon an evaluation of historical claims experience, completion factors determined by an actuary and a qualitative review of our health insurance exposure including the extent of outstanding claims and expected changes in health insurance costs.
Earnings per Share
Basic earnings per share is computed as net income divided by the weighted average number of common shares outstanding (“WASO”) during the period. WASO excludes unvested shares of restricted stock. Diluted earnings per share is computed by dividing net income by diluted WASO. Diluted WASO includes the dilutive effect of potentially dilutive securities such as unvested shares of restricted stock using the treasury stock method, except where the effect of including potential common shares would be anti-dilutive.
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For the three and nine months ended September 30, 2022, 428 thousand and 428 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30, 2021, 669 thousand and 584 thousand common stock equivalents were included in the diluted WASO, respectively. For the three and nine months ended September 30, 2022, there were 304 thousand and 301 thousand anti-dilutive common stock equivalents, respectively. For the three and nine months ended September 30, 2021, there was an insignificant amount of anti-dilutive common stock equivalents.
Recently Adopted Accounting Standards
There were no new accounting standards adopted during the nine months ended September 30, 2022 that had a significant impact on our financial statements.
Recently Issued Accounting Standards Not Yet Adopted
There are no accounting standards that have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.

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Note B - Reportable Segments
Kforce provides services through our Technology and Finance and Accounting (“FA”) segments. Historically, and for the three and nine months ended September 30, 2022, we have reported sales and gross profit information on a segment basis. Total assets, liabilities and operating expenses are not reported separately by segment as our operations are largely combined.
The following table provides information on the operations of our segments (in thousands):
TechnologyFATotal
Three Months Ended September 30,
2022
Revenue$390,496 $47,124 $437,620 
Gross profit$107,793 $18,877 $126,670 
Operating and other expenses$96,257 
Income from operations, before income taxes$30,413 
2021
Revenue$337,230 $65,495 $402,725 
Gross profit$95,934 $23,330 $119,264 
Operating and other expenses$91,446 
Income from operations, before income taxes$27,818 
Nine Months Ended September 30,
2022
Revenue$1,134,996 $156,107 $1,291,103 
Gross profit$320,160 $61,468 $381,628 
Operating and other expenses$288,383 
Income from operations, before income taxes$93,245 
2021
Revenue$927,518 $242,046 $1,169,564 
Gross profit$258,449 $78,428 $336,877 
Operating and other expenses$260,882 
Income from operations, before income taxes$75,995 

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Note C - Disaggregation of Revenue
The following table provides the disaggregation of revenue by segment and type (in thousands):
TechnologyFATotal
Three Months Ended September 30,
2022
Revenue by type:
Flex revenue$382,072 $40,896 $422,968 
Direct Hire revenue8,424 6,228 14,652 
Total Revenue$390,496 $47,124 $437,620 
2021
Revenue by type:
Flex revenue$330,170 $59,003 $389,173 
Direct Hire revenue7,060 6,492 13,552 
Total Revenue$337,230 $65,495 $402,725 
Nine Months Ended September 30,
2022
Revenue by type:
Flex revenue$1,109,294 $135,239 $1,244,533 
Direct Hire revenue25,702 20,868 46,570 
Total Revenue$1,134,996 $156,107 $1,291,103 
2021
Revenue by type:
Flex revenue$909,599 $224,783 $1,134,382 
Direct Hire revenue17,919 17,263 35,182 
Total Revenue$927,518 $242,046 $1,169,564 

Note D - Allowance for Credit Losses
The allowance for credit losses on trade receivables is determined based on a number of factors such as recent and historical write-off and delinquency trends, a specific analysis of significant receivable balances that are past due, the concentration of trade receivables among clients and the current state of the U.S. economy. As part of our analysis, we apply credit loss rates to outstanding receivables by aging category. For certain clients, we perform a quarterly credit review, which considers the client’s credit rating and financial position as well as our total credit loss exposure. Trade receivables are written off after all reasonable collection efforts have been exhausted. Recoveries of trade receivables previously written off are recorded when received and are immaterial for the three and nine months ended September 30, 2022.
The following table presents the activity within the allowance for credit losses on trade receivables for the nine months ended September 30, 2022 (in thousands):
Allowance for credit losses, January 1, 2022$1,729 
Current period provision (credit)(231)
Write-offs charged against the allowance, net of recoveries of amounts previously written off(240)
Allowance for credit losses, September 30, 2022$1,258 
The allowances on trade receivables presented in the Unaudited Condensed Consolidated Balance Sheets include $0.6 million and $0.6 million at September 30, 2022 and December 31, 2021, respectively, for reserves unrelated to credit losses.
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Note E - Other Assets, Net
Other assets, net consisted of the following (in thousands):
September 30, 2022December 31, 2021
Assets held in Rabbi Trust$30,199 $41,607 
Right-of-use assets for operating leases, net10,331 15,395 
Capitalized software, net (1)16,404 14,666 
Equity method investment (2)14,772 17,008 
Deferred loan costs, net939 1,115 
Notes receivable (3) 4,500  
Other non-current assets 4,613 2,838 
Total Other assets, net$81,758 $92,629 
(1) Accumulated amortization of capitalized software was $36.3 million and $35.5 million as of September 30, 2022 and December 31, 2021, respectively.
(2) In June 2019, Kforce entered into a joint venture resulting in a 50% noncontrolling interest in WorkLLama, LLC (“WorkLLama”), which is accounted for as an equity method investment. The loss on this WorkLLama investment was $0.9 million and $2.7 million for the three months and nine months ended September 30, 2022, respectively. In addition, Kforce contributed $0.5 million and $9.0 million of capital during the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively. Refer to Note L - “Commitments and Contingencies” for more information on contingencies related to WorkLLama.
(3) In the three months ended June 30, 2022, Kforce loaned WorkLLama LLC $2.0 million, pursuant to a secured promissory note. In the three months ended September 30, 2022, Kforce amended the secured promissory note and increased the total amount available to loan to WorkLLama by an additional $4.0 million, of which an additional $2.5 million was extended, resulting in an outstanding balance of $4.5 million at September 30, 2022. All of the notes have the same terms, bearing interest at 7% annually with principal and accrued interest payable in a single payment in June 2025.
Note F - Current Liabilities
The following table provides information on certain current liabilities (in thousands):
September 30, 2022December 31, 2021
Accounts payable and other accrued liabilities:
Accounts payable$52,032 $40,241 
Accrued liabilities20,998 41,167 
Total Accounts payable and other accrued liabilities$73,030 $81,408 
Accrued payroll costs:
Payroll and benefits$54,470 $43,738 
Payroll taxes 22,432 22,466 
Health insurance liabilities3,895 4,474 
Workers’ compensation liabilities822 746 
Total Accrued payroll costs$81,619 $71,424 
Our accounts payable balance includes vendor and third party payables. Our accrued liabilities balance includes the current portion of our deferred compensation plans liability, contract liabilities from contracts with customers (such as customer rebates), other accrued liabilities and amounts owed under the Supplemental Executive Retirement Plan (‘SERP ”). Effective April 30, 2021, Kforce’s Board of Directors irrevocably terminated the SERP. The benefits owed to the two participants under the SERP, as of June 30, 2022 and December 31, 2021, was $20.0 million in the aggregate. In July 2022, the amount owed was fully paid thereby reducing accrued liabilities and relieving us of any future obligation related to the SERP.
Our payroll taxes as of September 30, 2022 and December 31, 2021 include approximately $19.3 million in payroll tax payments as a result of the application of the CARES Act 2020, which is anticipated to be repaid no later than December 31, 2022.
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Note G - 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.
In May 2022, the Firm repaid the outstanding balance of $100.0 million in connection with the termination of its Swap B (as defined in Note J - “Derivative Instruments and Hedging Activity” to these financial statements) with a notional amount of $100.0 million. As of September 30, 2022 and December 31, 2021, $0 and $100.0 million was outstanding under the Amended and Restated Credit Facility.
Note H - Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
September 30, 2022December 31, 2021
Deferred compensation plan $32,990 $42,623 
Operating lease liabilities7,877 11,919 
Other long-term liabilities8 22 
Total Other long-term liabilities$40,875 $54,564 
Note I - Stock Incentive Plans
On April 22, 2021, Kforce’s shareholders approved the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the issuance of stock options, stock appreciation rights (“SAR”), stock awards (including restricted stock awards (“RSAs”) and restricted stock units (“RSUs”)) and other stock-based awards. The aggregate number of shares reserved under the 2021 Plan is approximately 3.9 million. Grants of an option or SAR reduce the reserve by one share, while a stock award reduces the reserve by 2.72 shares. The 2021 Plan terminates on April 22, 2031.
Restricted stock (including RSAs and RSUs) is granted to directors, executives and management either for awards related to Kforce’s annual long-term incentive program or as part of a compensation package for attraction and retention purposes. Restricted stock granted during the nine months ended September 30, 2022 will vest over a period of one to ten years, with vesting occurring in equal annual installments.
During the three and nine months ended September 30, 2022, stock-based compensation expense was $4.5 million and $13.3 million, respectively. During the three and nine months ended September 30, 2021, stock-based compensation expense was $3.5 million and $10.5 million, respectively, and is included in Selling, general and administrative expenses.
The following table presents the restricted stock activity for the nine months ended September 30, 2022 (in thousands, except per share amounts):
Number of 
Restricted Stock
Weighted-Average
Grant Date
Fair Value
Total Intrinsic
Value of Restricted
Stock Vested
Outstanding at December 31, 20211,083 $48.86 
Granted42 $61.38 
Forfeited(33)$51.24 
Vested(43)$45.69 $2,831 
Outstanding at September 30, 20221,049 $49.65 
As of September 30, 2022, total unrecognized stock-based compensation expense related to restricted stock was $37.2 million, which will be recognized over a weighted-average remaining period of 4.3 years.

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Note J - Derivative Instruments and Hedging Activity
As of September 30, 2022, the Firm did not have any outstanding derivative instruments. On April 21, 2017, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A (“Swap A”). Swap A was effective on May 31, 2017 and matured on April 29, 2022. Other information related to Swap A is as follows: Notional amount - $25.0 million; and Fixed interest rate - 1.81%.
On March 12, 2020, Kforce entered into a forward-starting interest rate swap agreement with Wells Fargo Bank, N.A (“Swap B”, together with Swap A, the "Swaps"). Swap B was effective on March 17, 2020. Other information related to Swap B is as follows: Scheduled maturity date - May 30, 2025; Fixed interest rate - 0.61%; and Notional amount - $100.0 million.
The Firm used the Swaps as an interest rate risk management tool to mitigate the potential impact of rising interest rates on variable rate debt. The fixed interest rate for each Swap plus the applicable interest margin under our credit facility, was included in interest expense and recorded in Other (income) expense, net in the accompanying Consolidated Financial Statements of Operations and Comprehensive Income.
In May 2022, the Firm terminated Swap B in anticipation of paying the outstanding amount on its credit facility, which was $100.0 million. At the termination of Swap B, the amount recorded in Accumulated other comprehensive income was recognized. The Firm received $4.1 million in income, which represented the gain and fair value of Swap B at the time of termination, and is included in other income in the accompanying Consolidated Financial Statements of Operations and Comprehensive Income.
Both Swap A and B were designated as cash flow hedges. The change in the fair value of the Swaps was previously recorded as a component of Accumulated other comprehensive income (loss) in the unaudited consolidated financial statements.
The following table sets forth the activity in the accumulated derivative instrument activity (in thousands):
Nine Months Ended September 30,
20222021
Accumulated derivative instrument gain (loss), beginning of period$823 $(1,774)
Net change associated with current period hedging transactions (1)(823)1,478 
Accumulated derivative instrument gain (loss), end of period$— $(296)

(1) The accumulated derivative instrument activity as of the end the nine month period ending September 30, 2022, includes the beginning balance of $823 thousand, a change in fair value of $3.1 million and a reversal due to termination of $3.9 million resulting in an ending balance of zero.
Note K - Fair Value Measurements
Our interest rate swaps were previously measured at fair value using readily observable inputs, which are considered to be Level 2 inputs and were recorded in Other long-term liabilities within the accompanying Unaudited Condensed Consolidated Balance Sheets. In April 2022, Swap A matured and in May 2022, we terminated Swap B. At September 30, 2022, Kforce had no interest rate swaps. Refer to Note J - “Derivative Instruments and Hedging Activity” for a complete discussion of our interest rate swaps.
There were no transfers into or out of Level 1, 2 or 3 assets or liabilities during the nine months ended September 30, 2022. The fair value of the interest rate swap derivative instrument asset at December 31, 2021 was $823 thousand and was classified as a Level 2 instrument.
Note L - Commitments and Contingencies
Employment Agreements
Kforce has employment agreements with certain executives that provide for certain post-employment benefits under certain circumstances. At September 30, 2022, our liability would be approximately $38.2 million if, following a change in control, all of the executives under contract were terminated without cause by the employer or if the executives resigned for good reason and $13.7 million if, in the absence of a change in control, all of the executives under contract were terminated by Kforce without cause or if the executives resigned for good reason.
Litigation and Loss Contingencies
Except as stated below, there have been no material developments with regard to the legal proceedings previously disclosed in our 2021 Annual Report on Form 10-K or in our Form 10-Q for the quarter ending June 30, 2022.
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On December 17, 2019, Kforce Inc., et al. was served with a complaint brought in Superior Court of the State of California, Alameda County. Kathleen Wahrer, et al. v. Kforce Inc., et al., Case Number: RG19047269. The former employee purports to bring a representative action on her own behalf and on behalf of other allegedly aggrieved employees pursuant to California Private Attorneys General Act of 2004, California Labor Code Section 2968, et seq. (“PAGA”) alleging violations of the California Labor Code, §201, et seq. (“Labor Code”). The plaintiff seeks civil penalties, interest, attorneys’ fees, and costs under the Labor Code for alleged failure to: provide and pay for work performed during meal and rest periods; properly calculate and pay all earned minimum and overtime wages; provide compliant wage statements; timely pay wages during employment and upon termination; and reimburse business expenses. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to continue to vigorously defend the claims.
On November 18, 2020, Kforce Inc., et al. was served with a complaint brought in the Superior Court of the State of California, San Diego County, which was subsequently amended on January 21, 2021, to add Kforce Flexible Solutions as a party. Bernardo Buchsbaum, et al. v. Kforce Inc., et al., Case Number: 37-2020-00030994-CU-OE-CTL. The former employee purports to bring a representative action on his own behalf and on behalf of other allegedly aggrieved employees pursuant to PAGA alleging violations of the Labor Code. The plaintiff seeks civil penalties, interest, attorney’s fees, and costs under the Labor Code for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide and pay for work performed during meal and rest periods; reimburse business expenses; provide compliant wage statements; and provide unused vacation wages upon termination. The parties reached a preliminary settlement agreement to resolve this matter along with Elliott-Brand, et al. v. Kforce Inc., et al., and the Court granted preliminary approval on September 21, 2022. The settlement agreement is subject to final approval by the Court. Plaintiff Buchsbaum has been added as a plaintiff to the Elliott-Brand lawsuit, and this lawsuit will be dismissed after the Court’s final approval of the settlement. We believe that this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.
On December 11, 2020, a complaint was filed against Kforce and its client, Verity Health System of California (Verity) in the Superior Court of California, County of Los Angeles, which was subsequently amended on February 19, 2021. Ramona Webb v. Kforce Flexible Solutions, LLC, et al., Case Number: 20STCV47529. Former consultant Ramona Webb has sued both Kforce and Verity alleging certain individual claims in addition to a PAGA claim based on alleged violations of various provisions of the Labor Code. With respect to the PAGA claim, Plaintiff seeks to recover on her behalf, on behalf of the State of California, and on behalf of all allegedly aggrieved employees, the civil penalties provided by PAGA, attorney’s fees and costs. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to continue to vigorously defend the claims.
On December 24, 2020, a complaint was filed against Kforce Inc., et al. in Superior Court of the State of California, Los Angeles County. Sydney Elliott-Brand, et al. v. Kforce Inc., et al., Case Number: 20STCV49193. On January 7, 2022, the lawsuit was amended to add Bernardo Buchsbaum and Josie Meister as plaintiffs and to add claims under PAGA and the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. On behalf of themselves and a putative class and collective of talent recruiters and allegedly aggrieved employees in California and nationwide, the plaintiffs purport to bring a class action for alleged violations of the Labor Code, Industrial Welfare Commission Wage Orders, and the California Business and Professions Code, §17200, et seq., a collective action for alleged violations of FLSA, and a PAGA action for alleged violations of the Labor Code. The plaintiffs seek payment to recover unpaid wages and benefits, interest, attorneys’ fees, costs and expenses, penalties, and liquidated damages for alleged failure to: properly calculate and pay all earned minimum and overtime wages; provide meal and rest periods or provide compensation in lieu thereof; provide accurate itemized wage statements; reimburse for all business expenses; pay wages due upon separation; and pay for all hours worked over forty hours in one or more workweeks. Plaintiffs also seek an order requiring defendants to restore and disgorge all funds acquired by means of unfair competition under the California Business and Professions Code. The parties reached an agreement to resolve this matter along with Lewis, et al. v. Kforce Inc. and Buchsbaum, et al. v. Kforce Inc., et al., which was preliminarily approved by the Court on September 21, 2022, and we have set reserves accordingly. The settlement agreement is subject to final approval by the Court. We believe that this matter is unlikely to have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.
On January 6, 2022, a complaint was filed against Kforce Inc. in the Superior Court of the State of California for the County of Los Angeles and was served on January 21, 2022. Jessica Cook and Brianna Pratt, et al. v. Kforce Inc., Case Number: 22STCV00602. On behalf of themselves and others similarly situated, plaintiffs purport to bring a class action alleging violations of Labor Code and the California Business and Professional Code and challenging the exempt classification of a select class of recruiters. Plaintiffs and class members seek damages for all earned wages, statutory penalties, injunctive relief, attorney’s fees, and interest for alleged failure to: properly classify certain recruiters as nonexempt from overtime; timely pay all wages earned, including overtime premium pay; provide
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accurate wage statements; provide meal and rest periods; and comply with California's Unfair Competition Law. Kforce anticipated this action would be filed as a result of failed early resolution attempts in the previously disclosed Jessica Cook v. Kforce, et al. lawsuit. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to vigorously defend the claims.
On January 6, 2022, a complaint was filed against Kforce Inc. in the United States District Court for the Middle District of Florida and was served on February 4, 2022. Sam Whiteman, et al. v. Kforce Inc., Case Number: 8:22-cv-00056. On behalf of himself and all others similarly situated, the plaintiff brings a one-count collective action complaint for alleged violations of the FLSA by failing to pay overtime wages. Plaintiff, on behalf of himself and the putative collective, seeks to recover unpaid wages, liquidated damages, attorneys’ fees and costs, and prejudgment interest for alleged failure to properly classify specified recruiters as nonexempt from overtime and properly compensate for all hours worked over 40 hours in one or more workweeks. At this stage in the litigation, it is not feasible to predict the outcome of this matter or reasonably estimate a range of loss, should a loss occur, from this proceeding. We intend to vigorously defend the claims.
We are involved in legal proceedings, claims, and administrative matters from time to time, and may also be exposed to loss contingencies, that arise in the ordinary course of business. We have made accruals with respect to certain of these matters, where appropriate, that are reflected in our consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters for which an accrual has not been made, we have not yet determined that a loss is probable, or the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, we currently do not expect that these proceedings and claims, individually or in the aggregate, will have a material effect on our financial position, results of operations or cash flows. The outcome of any litigation is inherently uncertain, however, and if decided adversely to us, or if we determine that settlement of particular litigation is appropriate, we may be subject to liability that could have a material adverse effect on our financial position, results of operations or cash flows. Kforce maintains liability insurance in amounts and with such coverage and deductibles as management believes is reasonable. The principal liability risks that Kforce insures against are workers’ compensation, personal injury, bodily injury, property damage, directors’ and officers’ liability, errors and omissions, cyber liability, employment practices liability and fidelity losses. There can be no assurance that Kforce’s liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities.

Equity Method Investment
In June 2019, we entered into a joint venture whereby Kforce obtained a 50% noncontrolling interest in WorkLLama. We determined, based on the corporate structure and governance, that WorkLLama is a variable interest entity and not subject to consolidation, as we are not the primary beneficiary of WorkLLama because we do not have the power to direct the activities that most significantly impact WorkLLama’s economic performance. As a result, WorkLLama is accounted for as an equity method investment.
Under the joint venture operating agreement for WorkLLama, Kforce was originally obligated to make additional cash contributions subsequent to the initial contribution, contingent on WorkLLama's achievement of certain operational and financial milestones. Under the operating agreement, our maximum potential capital contributions were $22.5 million. Although the operational and financial milestones were not achieved, we contributed the full $22.5 million as of September 30, 2022. We contributed $0.5 million and $9.0 million of capital during the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively.
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 the fair value of an investment is based on the income approach and market approach. Like most developing business enterprises, WorkLLama was impacted by the COVID-19 pandemic over the last two years. Additionally, in 2021, WorkLLama also strategically repositioned its business to focus its platform on providing its clients with an ability to directly source and engage talent. While WorkLLama is seeing demand for its platform, it was taking longer than expected to achieve its original financial expectations. Given this, Kforce management determined that an indicator of impairment had occurred in the second quarter of 2022. Thus, we performed an impairment test as of June 30, 2022, utilizing the market and income approaches. For the income approach, we utilized 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
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and appropriate adjustments thereto; and (6) market multiples. The fair value determined in our impairment test is highly sensitive to changes in key assumptions, including but not limited to the discount rate that is applied to the financial projections. As a result of the impairment test, we concluded that the carrying value of the equity method investment was not impaired. At June 30, 2022, the fair value of the equity investment, determined in our impairment test, exceeded the carrying value by less than ten percent.
We have not identified any indicators that an other than temporary impairment has occurred in the three months ended September 30, 2022 that would require further analysis. We will continue to monitor potential indicators in future quarters that may have a bearing on the recoverability of the carrying value of our investment.
Lease commitments
We lease office space and certain equipment under operating leases that expire between 2022 and 2033. The terms of the leases provide for rental payments on a graduated scale, options to renew the leases (one to five years), landlord incentives or allowances, and periods of free rent.
During the year ended December 31, 2021, we entered into a lease agreement for office space in Tampa, Florida, that will become our new corporate headquarters. This new lease for office space is intended to replace our current headquarters, also in Tampa, Florida, the lease for which expires November 2022. Lease payments will be required beginning July 1, 2023. During October 2022, we began occupying the facility, which also signified the start of the accounting lease commencement date for financial reporting purposes. The new lease requires aggregate future lease payments of approximately $10.9 million over the entire lease term, which includes annual upward adjustments, and has a non-cancellable lease term of 129 months, excluding renewal options.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EXECUTIVE SUMMARY
The following is an executive summary of what Kforce believes are highlights as of and for the nine months ended September 30, 2022, 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, 2022, increased 9.8%, on a billing day basis, to $1,291.1 million from $1,169.6 million in the comparable period in 2021. Revenue increased 21.7% for Technology and decreased 35.8% for FA, on a billing day basis. The decrease in FA is primarily a result of the planned decrease in COVID-19 related business and repositioning efforts. There was a minimal amount of COVID-19 related business in the first nine months of 2022 compared to $66.3 million in the first nine months of 2021.
Flex revenue for the nine months ended September 30, 2022 increased 9.1%, on a billing day basis, to $1,244.5 million from $1,134.4 million in the comparable period in 2021. Flex revenue increased 21.3% and decreased 40.1% for Technology and FA, respectively, on a billing day basis..
Direct Hire revenue for the nine months ended September 30, 2022 increased 32.4% to $46.6 million from $35.2 million in the comparable period in 2021.
Gross profit margin for the nine months ended September 30, 2022, increased 80 basis points to 29.6%, compared to the same period in 2021 primarily as a result of a higher mix of Direct Hire business and improved Flex gross profit margins.
Flex gross profit margin for the nine months ended September 30, 2022, increased 30 basis points to 26.9%, compared to September 30, 2021. Technology Flex gross profit margin increased 10 basis points for the nine months ended September 30, 2022, as compared to the same period in 2021. FA Flex gross profit margin increased 280 basis points for the nine months ended September 30, 2022, respectively, as compared to the same period in 2021. The increase for the nine months ended September 30, 2022 was primarily attributable to a decrease in COVID-19 related business and the repositioning of the business.
SG&A expenses as a percentage of revenue for the nine months ended September 30, 2022, increased to 22.1% from 21.5% in the comparable period in 2021 due to the sale of our corporate headquarters that occurred in the second quarter of 2021, which offset SG&A expenses and resulted in the recognition of a gain, higher performance-based compensation given the strength in our performance, and other investments in our business.
Income from operations for the nine months ended September 30, 2022, increased 25.2% to $68.4 million, or $3.31 per share, from $54.6 million, or $2.57 per share, in the comparable period in 2021.
The Firm returned $60.8 million of capital to our shareholders in the form of open market repurchases totaling $42.6 million and quarterly dividends totaling $18.2 million during the nine months ending September 30, 2022.
Cash provided by operating activities was $78.1 million during the nine months ended September 30, 2022, as compared to $59.9 million for the nine months ended September 30, 2021.
Cash and cash equivalents was $5.1 million as of September 30, 2022.

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RESULTS OF OPERATIONS
Business Overview
Kforce is a leading domestic provider of technology and finance and accounting talent solutions to innovative and industry-leading clients. Our Technology and FA businesses represent our two operating segments. Our corporate headquarters is in Tampa, Florida. As of September 30, 2022, Kforce employed approximately 2,100 associates, including approximately 1,400 supporting the revenue-generating aspects of our business and approximately 700 supporting the revenue-enabling aspects. We also had approximately 10,100 consultants on assignment providing flexible staffing services and solutions to our clients. Kforce serves clients across many industries and geographies as well as organizations of all sizes, with a particular focus on Fortune 1000 and other large companies. We believe that our 100% domestic U.S. focus, concentration on technology talent solutions (representing nearly 90% of overall revenues) and client portfolio comprised of world-class companies have been key contributors to our continued strong performance and will be key drivers to our future success.
From an economic standpoint, total and temporary employment figures and trends have historically been important indicators of staffing demand. Based on information published by the Bureau of Labor Statistics and Staffing Industry Analysts (“SIA”), these figures and trends have been trending positively since the end of the third quarter of 2020. The national unemployment rate fell to 3.5% at the end of September 2022. In the latest U.S. staffing industry forecast published by SIA in September 2022, the technology temporary staffing industry and finance and accounting temporary staffing industry are estimated to grow 16% and 12%, respectively, in 2022, and 8% and 7%, respectively, in 2023.
The macro environment certainly became cloudier in the third quarter ended September 30, 2022, with persistently elevated levels of inflation, rapidly rising interest rates, which, among other reasons, is impacting prospects for global and domestic economic growth. While trends in the third quarter were below levels experienced in 2021 and the first half of 2022, they remain above pre-pandemic levels.
Operating Results - Three and Nine Months Ended September 30, 2022 and 2021
The following table presents certain items in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income as a percentage of revenue:
Three Months EndedNine Months Ended
September 30,