KFORCE INC (KFRC)

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 six months ended June 30, 2026, 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 six months ended June 30, 2026 increased 2.3% to $679.7 million from $664.3 million in the comparable period in 2025. Revenue increased 2.1% and 4.9% for Technology and FA, respectively, primarily driven by increases in consultants on assignment.

•Flex revenue for the six months ended June 30, 2026 increased 2.3% to $666.1 million from $651.0 million in the comparable period in 2025. Flex revenue increased 2.1% and 5.8% for Technology and FA, respectively.

•Direct Hire revenue for the six months ended June 30, 2026 increased 2.1% to $13.6 million from $13.4 million in the comparable period in 2025.

•Gross profit margin for the six months ended June 30, 2026 increased 100 basis points to 27.9% from 26.9% in the comparable period in 2025 primarily driven by an increase in Flex gross profit margins and a greater percentage of Direct Hire revenue.

•Flex gross profit margin for the six months ended June 30, 2026 increased 100 basis points to 26.4% from 25.4% in the comparable period in 2025 primarily driven by improved bill and pay spreads.

•SG&A expenses as a percentage of revenue for the six months ended June 30, 2026 increased to 23.0% from 22.5% in the comparable period in 2025 primarily driven by higher performance-based compensation costs due to improved financial performance.

•Net income for the six months ended June 30, 2026 increased 8.9% to $20.2 million, or $1.19 diluted earnings per share, from $18.6 million, or $1.03 diluted earnings per share, for the six months ended June 30, 2025.

•The Firm returned $28.2 million of capital to our shareholders in the form of open market repurchases totaling $14.7 million and quarterly dividends totaling $13.5 million during the six months ended June 30, 2026.

•Cash used in operating activities was $6.7 million during the six months ended June 30, 2026, as compared to cash provided by operating activities of $18.6 million for the six months ended June 30, 2025. The change was primarily driven by an increase in trade receivables given the improvement in revenue trends.

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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 companies. At June 30, 2026, Kforce employed over 1,600 associates and had more than 8,000 consultants on assignment. Kforce serves clients across a diverse set of industries and organizations of all sizes, but we place a particular focus on serving Fortune 500 and other leading companies.

There has been considerable discussion about whether our Firm and the broader sector can continue to deliver revenue growth given the much-speculated negative demand impact of AI tools and technologies. We are pleased to report that we have delivered three consecutive quarters of financial performance that have exceeded pre-pandemic and pre-AI averages. The revenue improvment that we have experienced in our business in the first half of 2026 is consistent with the improving macro demand environment for talent. Key indicators including the Institute for Supply Management (“ISM”) Services Purchasing Managers’ Index (“PMI”), American Staffing Association’s (“ASA”) Staffing Index and the Staffing Industry Analysts (“SIA”) Bullhorn Staffing Indicator have strengthened over the last several months. In addition, while overall U.S. job growth has moderated in recent months, recent gains have been increasingly concentrated in professional and business services, which are far more aligned to Kforce’s end markets than the growth drivers over the past couple of years.

We believe our results reflect disciplined execution and a meaningful shift in client behavior. We further believe that organizations are increasingly turning to flexible talent models to advance large backlogs of high-priority technology initiatives, particularly as AI accelerates transformation and CEOs remain measured in adding permanent headcount. Broader uncertainty, including geopolitical tensions and related volatility in global energy markets, has further reinforced the need for agility. We believe these dynamics highlight the value of flexible workforce solutions as clients adapt to near-term uncertainty while assessing the longer-term implications of emerging technologies on their businesses and talent strategies. We believe our go-to-market approach, shaped by our integrated strategy efforts, is gaining traction. Across Kforce, we see our people are operating more fully as One Kforce, bringing the full breadth of our capabilities to bear across our service offerings.

Based on data published by SIA, temporary employment figures and trends are important indicators of staffing demand from an economic standpoint. The national U.S. unemployment rate declined to 4.2% in June 2026 as compared to 4.4% in December 2025. In the latest U.S. staffing industry forecast published by SIA in March 2026, the technology temporary staffing industry is estimated to grow 1% in 2026.

Operating Results - Three and Six Months Ended June 30, 2026 and 2025

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

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

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 4.0% and 2.1% during the three and six months ended June 30, 2026, respectively, as compared to the same periods in 2025, primarily driven by an increase in consultants on assignment. In the third quarter, we expect Technology Flex revenue to increase in the low single digits sequentially and mid single digits year over year.

Our FA business experienced an increase in Flex revenue of 6.0% and 5.8% during the three and six months ended June 30, 2026, respectively, as compared to the same periods in 2025, primarily driven by an increase in consultants on assignment. In the third quarter, we expect FA Flex revenue to increase in the low single digits sequentially and year over year.

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

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

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

Direct Hire revenue increased 27.0% and 2.1% during the three and six months ended June 30, 2026, respectively, as compared to the same periods in 2025, which was primarily driven by an increase in placements. We expect Direct Hire to decrease in the third quarter due to seasonal impacts.

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

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

Total gross profit percentage increased 140 and 100 basis points for the three and six months ended June 30, 2026, respectively, as compared to the same periods in 2025, primarily driven by an increase in Flex gross profit margins and a greater percentage of Direct Hire revenue.

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

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

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

EXECUTIVE SUMMARY

The following is an executive summary of what Kforce believes are highlights for the year ended December 31, 2025, 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, 2025 decreased 5.4% (5.1% on a billing day basis) to $1.33 billion in 2025 from $1.41 billion in 2024. Revenue decreased 4.8% (4.5% on a billing day basis) and 12.3% (11.9% on a billing day basis) for Technology and FA, respectively, in 2025, primarily driven by decreases in consultants on assignment. We believe these decreases are primarily related to macroeconomic uncertainties and the natural impacts of the early phases of significant technology evolutions (such as AI) as companies assess the implications on their businesses and their investment strategies.

•Flex revenue decreased 5.3% (4.9% on a billing day basis) to $1.30 billion in 2025 from $1.38 billion in 2024. In 2025, Flex revenue decreased 4.7% (4.4% on a billing day basis) for Technology and 12.8% (12.5% on a billing day basis) for FA. Notably, Tech Flex revenue decreased 0.2% sequentially (increased 3.0% on a billing day basis), and FA Flex revenue improved sequentially 2.4% (5.7% on a billing day basis) in the fourth quarter 2025. For our FA business, this represented the third consecutive quarter of sequential improvement, primarily due to, in our opinion, the benefits of a realignment in early 2025 intended to bring a greater intensity and focus on our FA business.

•Direct Hire revenue decreased 11.1% to $25.7 million in 2025 from $28.9 million in 2024.

•Gross profit margin decreased 20 basis points to 27.2% in 2025 from 27.4% in 2024, primarily driven by a decline in the mix of Direct Hire revenue.

•Flex gross profit margin decreased 10 basis points to 25.8% for 2025 from 25.9% in 2024. Flex gross profit margin decreased 10 basis points for Technology and 80 basis points for FA in 2025 as compared to 2024. Notably, our Flex gross profit margin increased 40 basis points in our Technology business in the fourth quarter of 2025 as compared to the same period in 2024.

•Selling, General and Administrative (“SG&A”) expenses as a percentage of revenue for the year ended December 31, 2025, increased to 23.0% from 22.0% in 2024, primarily driven by the declines in revenue and gross profit. In the fourth quarter of 2025, we recognized charges of $3.4 million related to refinements in our organizational structure and other non-recurring costs, which negatively impacted earnings per share for the fourth quarter of 2025 and fiscal 2025 by $0.13, net of the related tax effect.

•Net income for the year ended December 31, 2025, decreased 30.9% to $34.8 million, or $1.96 diluted earnings per share, from $50.4 million, or $2.68 diluted earnings per share, in 2024.

•The Firm returned $76.0 million of capital to our shareholders in the form of open market repurchases totaling $48.5 million, or 1.2 million shares, and quarterly dividends totaling $27.5 million during the year ended December 31, 2025. The total capital returned to shareholders in 2025 represented over 100% of operating cash flows.

•Cash provided by operating activities was $61.6 million during the year ended December 31, 2025, as compared to $86.9 million for 2024. The decrease was primarily related to lower profitability levels, higher capitalized implementation costs related to cloud computing arrangements for Workday, and the payment of 2024 federal income taxes that were deferred pursuant to IRS guidance.

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RESULTS OF OPERATIONS

Certain discussions of the changes in our results of operations from the year ended December 31, 2024, as compared to the year ended December 31, 2023, 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, 2024, filed with the SEC on February 21, 2025.

While early 2025 began with optimism around U.S. economic growth and increased investment in technology initiatives, the macro environment remained challenging throughout the year, with significant disruption beginning in April 2025 as a result of global trade policy negotiations and the labor market data continuing to reflect a persistently weak and largely frozen hiring landscape characterized by prolonged stagnation in job gains. We believe the relative impact of AI on revenue trends and the effects of a fairly soft economy and weak labor market has created uncertainty, leading many organizations to proceed cautiously in their strategic planning and near‑term technology investments. Despite these conditions, our recent operating trends, combined with our historical experience, give us confidence that companies typically turn to flexible talent solutions as an initial step prior to making permanent hires while they assess the durability of the macro environment. The potential use of flexible talent solutions may be further influenced by the growing belief that the returns that will be generated from continuing AI investments may take longer to realize and may be more specific in nature to unique business problems rather than an overarching solution to all technology challenges. Although client conversations and broader market signals reaffirm that we are still operating in a demand‑constrained environment, our results in the fourth quarter of 2025 and the relatively stronger start to 2026 suggest greater confidence in the operating environment heading into 2026. We believe clients have maintained a meaningful backlog of strategically essential technology initiatives that they expect to advance once confidence in the macroeconomic outlook improves and their technology roadmaps are better defined.

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

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

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

Flex revenue for our Technology business decreased 4.7% (4.4% on a billing day basis) during the year ended December 31, 2025, as compared to the same period in 2024, primarily due to a decrease in consultants on assignment, which we believe is primarily related to macroeconomic uncertainties. Our average Technology bill rate was approximately $90 per hour for the year ended December 31, 2025, which remained flat as compared to 2024. Notably, Flex revenues in our Technology business in the fourth quarter of 2025 improved 3.0% sequentially on a billing day basis. In the first quarter of 2026, we expect Technology Flex revenue to decrease on a sequential billing day basis in the low single digits due to normal seasonality and slightly decline on a year over year basis.

Our FA business experienced a decrease in Flex revenue of 12.8% (12.5% on a billing day basis) during the year ended December 31, 2025, as compared to the same period in 2024, primarily driven by a decrease in consultants on assignment, which we believe is primarily related to macroeconomic uncertainties. Notably, FA Flex revenue improved sequentially 2.4% (5.7% on a billing day basis) in the fourth quarter, representing the third consecutive quarter of sequential improvement, primarily due to more consultants on assignment. Our average FA bill rate was approximately $53 per hour for the year ended December 31, 2025, which improved 3.9% as compared to 2024. In the first quarter of 2026, we expect FA Flex revenue to decline sequentially on a billing day basis in the mid-single digits and to increase in the mid to high single digits year over year.

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

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

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

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Direct Hire revenue decreased 11.1% during the year ended December 31, 2025, as compared to the same period in 2024, primarily driven by a decrease in placements, partially offset by an increase in placement fees. In the first quarter of 2026, we expect Direct Hire revenue to remain stable sequen

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