What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-04 · 179 added, 85 removed, 123 unchanged (68% of the section changed)

31 unchanged sentences

The global outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Government in March 2020 and has negatively affected the U.S.

and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place”.

The Company has been working to ensure the health and welfare of its employees while maintaining its service commitments to customers.

As we navigate through this crisis, preserving the long-term intrinsic value of the Company is our guiding principle.

Given the magnitude of the COVID 19 impact on the Company’s business, we fully understand that we must also adjust the Company’s cost structure.

The extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

Government in March 2020.

The subsequent global stay-at-home orders resulted in significant travel restrictions and business closures.

These actions have led to global economic disruptions.

The Company has prioritized the health and safety of its employees, and virtually all global staffing and Protiviti employees have been working remotely.

The Company has maintained full operations even where physical locations have remained closed.

Given the magnitude of the COVID-19 impact on the Company’s business, we have worked to effectively manage our costs and pursue revenue-generation opportunities.

Demand for the Company’s temporary and consulting staffing, permanent placement staffing, and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad.

Correspondingly, financial results for the first quarter of 2020, specifically the second half of March 2020, began to reflect the COVID-19 impact on the Company’s business, particularly its staffing operations.

During the first quarter of 2020, net service revenues were $1.51 billion, an increase of 3% from the prior year.

Net income for the quarter was $90 million and diluted net income per share was $.79.

Temporary and consultant staffing and risk consulting and internal audit services had modest growth, slightly offset by a decline in permanent placement staffing during the first quarter of 2020, compared to the first quarter of 2019.

The extent of the economic disruption on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

The Company’s financial results for the first half of 2020 were clearly affected by the economic crisis resulting from the COVID-19 pandemic, most acutely in the Company’s staffing business.

During the first half of 2020 net service revenues were $2.62 billion, a decrease of 12% from the prior year.

Net income for the first half of 2020 was $136 million and diluted net income per share was $1.20.

Risk consulting and internal audit services experienced strong revenue growth increasing by 10%, offset by declines in temporary and consultant staffing of 16% and permanent placement staffing of 30% during the first half of 2020, compared to the first half of 2019.

The Company’s staffing clients, most of whom are small and midsize businesses, are feeling the crisis, and the downstream effect is a much tougher business climate for the Company.

Demand for Protiviti’s services was broad-based

across its diversified service offerings, including internal audit, technology consulting and regulatory compliance consulting.

Protiviti continues to nurture and grow a loyal client base.

The United States economic backdrop as we ended the first quarter of 2020 was one of slowdown and uncertainty as real gross domestic product (“GDP”) decreased 4.8%, while the unemployment rate increased from 3.5% in December 2019 to 4.4% at the end of the first quarter of 2020.

Demand for Protiviti’s services was broad-based across its diversified service offerings, including internal audit, technology consulting and regulatory compliance consulting.

Protiviti had a strong first half of 2020 and continues to benefit from strong solutions offerings and pipeline.

The United States economic backdrop as we ended the first half of 2020 was one of slowdown and uncertainty as real gross domestic product (“GDP”) decreased 5.0% and 32.9% for the first and second quarter, respectively, while the unemployment rate increased from 3.5% in December 2019 to 11.1% at the end of the second quarter of 2020, respectively.

In one quarter’s time, we have shifted from operating in a candidate-constrained labor market to a labor market with unprecedented unemployment levels.

We monitor various economic indicators and business trends in all of the countries in which we operate to anticipate demand for the Company’s services.

3 unchanged sentences

Accordingly, we typically assess headcount and other investments on at least a quarterly basis.

As such, during the first quarter and early into the second quarter of 2020, we took actions to reduce operating costs including laying off the Company’s less experienced and lower performing staff.

As such, during the first half of 2020, we took actions to reduce operating costs including laying off the Company’s less experienced and lower performing staff.

Impacted corporate staff were furloughed with paid benefits, awaiting a return to higher activity levels.

Capital expenditures, including $10 million for cloud computing arrangements, for the three months ended March 31, 2020, totaled $25 million, approximately 62% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities.

Capital expenditures, including $8 million for cloud computing arrangements, for the six months ended June 30, 2020, totaled $16 million, approximately 71% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities.

Capital expenditures for cloud computing arrangements are included in cash flows from operating activities on the Company’s Condensed Consolidated Statements of Cash Flows.

3 unchanged sentences

The Company’s most critical accounting policies and estimates are those that involve subjective decisions or assessments and are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

There were no material changes to the Company’s critical accounting policies or estimates for the three months ended March 31, 2020.

There were no material changes to the Company’s critical accounting policies or estimates for the six months ended June 30, 2020.

Recent Accounting Pronouncements

2 unchanged sentences

Because of the inherent difficulty in predicting economic trends and the absence of material long-term contracts in any of the Company’s business units, future demand for the Company’s services cannot be forecast with certainty.

Because of the inherent difficulty in predicting economic trends, future demand for the Company’s services cannot be forecast with certainty.

The Company’s investments in technology have allowed its internal staff to remain fully functional during this pandemic.

We believe the Company is well positioned to meet the demand of our customers.

Temporary and consultant staffing and risk consulting and internal audit services had modest growth, slightly offset by a decline in permanent placement staffing during the first quarter.

Robert Half Technology and Robert Half Management Resources divisions turned in solid results during the first quarter.

Protiviti had a strong quarter, posting double-digit, year-on-year revenue gains for the eighth consecutive quarter.

We have found innovative ways to maintain connections with candidates and clients in a remote environment and we believe the Company is well positioned to meet the demand of our customers.

The Company’s second-quarter results were clearly affected by the economic crisis resulting from the COVID-19 pandemic, most acutely in our staffing business.

Protiviti had an outstanding quarter and continues to benefit from strong solutions offerings and pipeline.

We are encouraged by recent signs of week-on-week sequential growth in our staffing operations at the end of the second quarter.

Although significant uncertainty continues, we approach the third quarter with optimism.

The Company’s temporary and permanent placement staffing business has 326 offices in 42 states, the District of Columbia and 17 foreign countries, while Protiviti has 63 offices in 23 states and 12 foreign countries.

19 unchanged sentences

“Quantitative and Qualitative Disclosures About Market Risk” for further discussion of the impact of foreign currency exchange rates on the Company’s results of operations and financial condition.

Three Months Ended March 31, 2020 and 2019

The Company’s revenues were $1.51 billion for the three months ended March 31, 2020, increasing by 2.6% compared to $1.47 billion for the three months ended March 31, 2019.

Revenues from foreign operations represented 22% of total revenues for the three months ended March 31, 2020, down from 24% of total revenues for the three months ended March 31, 2019.

Three Months Ended June 30, 2020 and 2019

The Company’s revenues were $1.11 billion for the three months ended June 30, 2020, decreasing by 26.9% compared to $1.52 billion for the three months ended June 30, 2019.

Revenues from foreign operations represented 22% of total revenues for both the three months ended June 30, 2020 and 2019.

The Company analyzes its revenues for three reportable segments:

temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services.

For the three months ended March 31, 2020, risk consulting and internal audit services continued to post strong growth rates, compared to the same period in 2019.

For the three months ended June 30, 2020, risk consulting and internal audit services continued to post solid growth rates, compared to the same period in 2019.

The Company’s revenues for the three months ended June 30, 2020 were impacted by the global stay-at-home orders, significant travel restrictions, and business closures which resulted in global economic disruptions.

Contributing factors for each reportable segment are discussed below in further detail.

Temporary and consultant staffing revenues were $1.09 billion for the three months ended March 31, 2020, increasing by 0.7% compared to revenues of $1.08 billion for the three months ended March 31, 2019.

Temporary and consultant staffing revenues were $753 million for the three months ended June 30, 2020, decreasing by 31.7% compared to revenues of $1.10 billion for the three months ended June 30, 2019.

Key drivers of temporary and consultant staffing revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements.

On an as adjusted basis, temporary and consultant staffing revenues were essentially flat for the first quarter of 2020 compared to the first quarter of 2019.

In the U.S., revenues in the first quarter of 2020 increased 2.0% on an as reported basis and 0.5% on an as adjusted basis, compared to the first quarter of 2019.

For the Company’s international operations, 2020 first quarter revenues decreased 3.8% on an as reported basis and decreased 1.9% on an as adjusted basis, compared to the first quarter of 2019.

Permanent placement staffing revenues were $120 million for the three months ended March 31, 2020, decreasing by 8.4% compared to revenues of $132 million for the three months ended March 31, 2019.

The Company’s temporary and consultant staffing revenue in the second quarter of 2020 reflected the economic circumstances present in the quarter.

On an as adjusted basis, temporary and consultant staffing revenues decreased 31.2% for the second quarter of 2020 compared to the second quarter of 2019.

In the U.S., revenues in the second quarter of 2020 decreased 31.7% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2019.

For the Company’s international operations, 2020 second quarter revenues decreased 31.8% on an as reported basis and decreased 28.9% on an as adjusted basis, compared to the second quarter of 2019.

The decreases ultimately resulted from fewer hours worked by the Company’s engagement professionals on client engagements.

Permanent placement staffing revenues were $71 million for the three months ended June 30, 2020, decreasing by 49.6% compared to revenues of $141 million for the three months ended June 30, 2019.

Key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement.

The second half of March 2020, began to reflect the COVID-19 impact on permanent placement staffing operations.

On an as adjusted basis,

permanent placement staffing revenues decreased 9.0% for the first quarter of 2020 compared to the first quarter of 2019, driven by a decrease in number of placements, partially offset by an increase in average fees earned per placement.

In the U.S., revenues for the first quarter of 2020 decreased 4.9% on an as reported basis and 6.3% on an as adjusted basis, compared to the first quarter of 2019.

For the Company’s international operations, revenues for the first quarter of 2020 decreased 15.9% on an as reported basis and decreased 14.6% on an as adjusted basis, compared to the first quarter of 2019.

Permanent placement staffing revenues in the second quarter of 2020, reflected the economic circumstances present in the quarter.

On an as adjusted basis, permanent placement staffing revenues decreased 49.1% for the second quarter of 2020 compared to the second quarter of 2019, driven by a decrease in number of placements, partially offset by an increase in average fees earned per placement.

In the U.S., revenues for the second quarter of 2020 decreased 51.6% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2019.

For the Company’s international operations, revenues for the second quarter of 2020 decreased 45.0% on an as reported basis and decreased 43.2% on an as adjusted basis, compared to the second quarter of 2019.

Demand for permanent placement staffing is even more sensitive to economic and labor market conditions than demand for temporary and consultant staffing as demonstrated by the results in the current economic environment.

Risk consulting and internal audit services revenues were $294 million for the three months ended March 31, 2020, increasing by 16.5% compared to revenues of $252 million for the three months ended March 31, 2019.

Risk consulting and internal audit services revenues were $284 million for the three months ended June 30, 2020, increasing by 4.1% compared to revenues of $273 million for the three months ended June 30, 2019.

Key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average hourly bill rates.

On an as adjusted basis, risk consulting and internal audit services revenues increased 15.5% for the first quarter of 2020 compared to the first quarter of 2019, primarily due to an increase in billable hours.

In the U.S., revenues in the first quarter of 2020 increased 21.3% on an as reported basis and 19.5% on an as adjusted basis, compared to the first quarter of 2019.

On an as adjusted basis, risk consulting and internal audit services revenues increased 4.5% for the second quarter of 2020 compared to the second quarter of 2019, primarily due to an increase in billable hours.

In the U.S., revenues in the second quarter of 2020 increased 6.4% on an as reported basis and 6.3% on an as adjusted basis, compared to the second quarter of 2019.

Contributing to the U.S.

increase were services related to business performance improvement, technology consulting, and internal audit and financial advisory practice areas.

The Company’s risk consulting and internal audit services revenues from international operations increased 1.3% on an as reported basis and 2.4% on an as adjusted basis for the first quarter of 2020 compared to the first quarter of 2019.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the three months ended March 31, 2020, is presented in the following table:

The Company’s risk consulting and internal audit services revenues from international operations decreased 3.9% on an as reported basis and 1.5% on an as adjusted basis for the second quarter of 2020 compared to the second quarter of 2019.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the three months ended June 30, 2020, is presented in the following table:

Global United States International

15 unchanged sentences

Gross Margin.

The Company’s gross margin dollars were $611 million for the three months ended March 31, 2020, increasing by 0.5% compared to $608 million for the three months ended March 31, 2019.

The Company’s gross margin dollars were $423 million for the three months ended June 30, 2020, decreasing by 33.6% compared to $638 million for the three months ended June 30, 2019.

Contributing factors for each reportable segment are discussed below in further detail.

4 unchanged sentences

and iii) conversion revenues, which are earned when a temporary position converts to a permanent position with the Company’s client.

Gross margin dollars for the Company’s temporary and consultant staffing division were $413 million for the three months ended of both March 31, 2020 and March 31, 2019.

As a percentage of revenues, gross margin for temporary and consultant staffing was 37.8% in the first quarter of 2020, down slightly from 38.0% in the first quarter of 2019.

Gross margin dollars for the Company’s temporary and consultant staffing division were $279 million for the three months ended June 30, 2020, decreasing 33.6% compared to $421 million for the three months ended June 30, 2019.

As a percentage of revenues, gross margin for temporary and consultant staffing was 37.1% in the second

quarter of 2020, down from 38.2% in the second quarter of 2019.

This year-over-year decline in gross margin percentage was primarily attributable to lower conversion revenues.

Gross margin dollars for permanent placement staffing represent revenues less reimbursable expenses.

Gross margin dollars for the Company’s permanent placement staffing division were $120 million for the three months ended March 31, 2020, decreasing 8.4% from $131 million for the three months ended March 31, 2019.

Because reimbursable expenses for

permanent placement staffing are de minimis, gross margin dollars are substantially explained by revenues previously discussed.

Gross margin dollars for the Company’s permanent placement staffing division were $71 million for the three months ended June 30, 2020, decreasing 49.6% from $141 million for the three months ended June 30, 2019.

Because reimbursable expenses for permanent placement staffing are de minimis, gross margin dollars are substantially explained by revenues previously discussed.

Gross margin dollars for risk consulting and internal audit services represent revenues less direct costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses.

2 unchanged sentences

and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for the Company’s risk consulting and internal audit services staff.

Gross margin dollars for the Company’s risk consulting and internal audit division were $78 million for the three months ended March 31, 2020, increasing 21.4% compared to $64 million for the three months ended March 31, 2019.

As a percentage of revenues, gross margin for risk consulting and internal audit services in the first quarter of 2020 was 26.3%, up from 25.3% in the first quarter of 2019.

The year-over-year improvement in gross margin percentage was due primarily to improved staff utilization and the relative composition of professional staff.

Gross margin dollars for the Company’s risk consulting and internal audit division were $73 million for the three months ended June 30, 2020, decreasing 4.2% compared to $76 million for the three months ended June 30, 2019.

As a percentage of revenues, gross margin for risk consulting and internal audit services in the second quarter of 2020 was 25.7%, down from 27.9% in the second quarter of 2019.

The year-over-year decline in gross margin percentage was due primarily to lower staff utilization rates.

Selling, General and Administrative Expenses.

The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs.

The Company’s selling, general and administrative expenses were $480 million for the three months ended March 31, 2020, increasing 3.9% from $461 million for the three months ended March 31, 2019.

As a percentage of revenues, the Company’s selling, general and administrative expenses were 31.8% for the first quarter of 2020, up from 31.4% in the first quarter of 2019.

The Company’s selling, general and administrative expenses were $365 million for the three months ended June 30, 2020, decreasing 23.7% from $478 million for the three months ended June 30, 2019.

Despite the significant reduction in selling, general and administrative cost during the quarter, as a percentage of revenues, the Company’s selling, general and administrative expenses were 32.9% for the second quarter of 2020, up from 31.5% in the second quarter of 2019.

The increase in selling, general and administrative expenses as a percentage of revenues was significantly impacted by negative leverage as revenues decreased.

The timing of our cost-reduction actions, including compensation-related costs associated with employee terminations, impacted total selling, general and administrative costs for the quarter.

Contributing factors for each reportable segment are discussed below in further detail.

Selling, general and administrative expenses for the Company’s temporary and consultant staffing division were $319 million for the three months ended March 31, 2020, increasing 4.2% from $306 million for the three months ended March 31, 2019.

As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing were 29.2% in the first quarter of 2020, up from 28.3% in the first quarter of 2019 due primarily to negative leverage as revenues decreased in response to the COVID-19 pandemic.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $110 million for the three months ended of both March 31, 2020 and March 31, 2019.

As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing were 90.8% in the first quarter of 2020, up from 83.4% in the first quarter of 2019 due primarily to negative leverage as revenues decreased in response to the COVID-19 pandemic.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $51 million for the three months ended March 31, 2020, increasing by 12.9% compared to $45 million for the three months ended March 31, 2019.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 17.3% in the first quarter of 2020, down from 17.9% in the first quarter of 2019 due primarily to positive operating leverage resulting from increased revenues.

Selling, general and administrative expenses for the Company’s temporary and consultant staffing division were $251 million for the three months ended June 30, 2020, decreasing 20.5% from $316 million for the three months ended June 30, 2019.

As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing were 33.3% in the second quarter of 2020, up from 28.6% in the second quarter of 2019 due primarily to negative leverage as revenues decreased as a result of financial conditions during the quarter.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $71 million for the three months ended June 30, 2020, decreasing by 38.3% compared to $115 million for the three months ended June 30, 2019.

As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing were 100.2% in the second quarter of 2020, up from 81.8% in the second quarter of 2019 due primarily to negative leverage as revenues decreased in response to the COVID-19 pandemic.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $43 million for the three months ended June 30, 2020, decreasing by 9.5% compared to $47 million for the three months ended June 30, 2019.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 15.1% in the second quarter of 2020, down from 17.3% in the second quarter of 2019 due primarily to a decrease in variable overhead costs.

Operating Income.

The Company’s total operating income was $131 million, or 8.7% of revenues, for the three months ended March 31, 2020, down from $146 million, or 10.0% of revenues, for the three months ended March 31, 2019.

For the Company’s temporary and consultant staffing division, operating income was $94 million, or 8.6% of applicable revenues, down from $106 million, or 9.8% of applicable revenues, in the first quarter of 2019.

For the Company’s permanent placement staffing division, operating income was $11 million, or 9.1% of applicable revenues, compared to an operating income of $21 million, or 16.4% of applicable revenues, in the first quarter of 2019.

For the Company’s risk consulting and internal audit services division, operating income was $26 million, or 9.0% of applicable revenues, compared to an operating income of $19 million, or 7.4% of applicable revenues, in the first quarter of 2019.

The Company’s total operating income was $58 million, or 5.3% of revenues, for the three months ended June 30, 2020, down from $159 million, or 10.5% of revenues, for the three months ended June 30, 2019.

For the Company’s temporary and consultant staffing division, operating income was $28 million, or 3.8% of applicable revenues, down from $105 million, or 9.5% of applicable revenues, in the second quarter of 2019.

For the Company’s permanent placement staffing division, operating loss was less than a million, or (0.3)% of applicable revenues, compared to an operating income of $25 million, or 18.0% of applicable revenues, in the second quarter of 2019.

For the Company’s risk consulting and internal audit services division, operating income was $30 million, or 10.6% of applicable revenues, compared to an operating income of $29 million, or 10.6% of applicable revenues, in the second quarter of 2019.

Provision for income taxes .

The provision for income taxes was 31.8% and 25.5% for the three months ended March 31, 2020 and 2019, respectively.

The higher tax rate in the first quarter of 2020 is primarily due to a larger percentage impact that permanent non-deductible tax items have on lower year-over-year income before taxes.

Also contributing to the increase is a lower tax benefit this quarter compared to last year for restricted stock vesting.

The provision for income taxes was 20.4% and 28.4% for the three months ended June 30, 2020 and 2019, respectively.

The relatively low second quarter tax rate in 2020 is a consequence of a lower anticipated full-year tax rate compared to the full-year estimate in the first quarter.

Six Months Ended June 30, 2020 and 2019

The Company’s revenues were $2.62 billion for the six months ended June 30, 2020, decreasing by 12.4% compared to $2.98 billion for the six months ended June 30, 2019.

Revenues from foreign operations represented 22% of total revenues for the six months ended June 30, 2020, down from 23% of total revenues for the six months ended June 30, 2019.

The Company analyzes its revenues for three reportable segments:

temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services.

Risk consulting and internal audit services increased, offset by decreases in temporary and consulting staffing and permanent placement staffing Contributing factors for each reportable segment are discussed below in further detail.

Temporary and consultant staffing revenues were $1.85 billion for the six months ended June 30, 2020, decreasing by 15.6% compared to revenues of $2.19 billion for the six months ended June 30, 2019.

Key drivers of temporary and consultant staffing revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements.

On an as adjusted basis, temporary and consultant staffing revenues decreased 15.6% for the first half of 2020 compared to the first half of 2019.

In the U.S., revenues in the first half of 2020 decreased 15.1% on an as reported basis and 15.7% on an as adjusted basis, compared to the first half of 2019.

For the Company’s international operations, revenues for the first half of 2020 decreased 17.6% on an as reported basis and decreased 15.1% on an as adjusted basis, compared to the first half of 2019.

The decreases ultimately resulted from fewer hours worked by the Company’s engagement professionals on client engagements.

Permanent placement staffing revenues were $192 million for the six months ended June 30, 2020, decreasing by 29.7% compared to revenues of $272 million for the six months ended June 30, 2019.

Key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement.

On an as adjusted basis, permanent placement staffing revenues decreased 29.6% for the first half of 2020 compared to the first half of 2019, driven by a decrease in number of placements, partially offset by an increase in average fees earned per placement.

In the U.S., revenues for the first half of 2020 decreased 29.3% on an as reported basis and 29.8% on an as adjusted basis, compared to the first half of 2019.

For the Company’s international operations, revenues for the first half of 2020 decreased 30.6% on an as reported basis and 29.0% on an as adjusted basis, compared to the first half of 2019.

Historically, demand for permanent placement staffing is even more sensitive to economic and labor market conditions than demand for temporary and consultant staffing and this is expected to continue.

Risk consulting and internal audit services revenues were $578 million for the six months ended June 30, 2020, increasing by 10.1% compared to revenues of $525 million for the six months ended June 30, 2019.

Key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average hourly bill rates.

For the six months ended June 30, 2020, risk consulting and internal audit services continued to post strong growth rates, compared to the same period in 2019.

On an as adjusted basis, risk consulting and internal audit services revenues increased 9.8% for the first half of 2020 compared to the first half of 2019, due primarily to an increase in billable hours.

In the U.S., revenues in the first half of 2020 increased 13.5% on an as reported basis and 12.6% on an as adjusted basis, compared to the first half of 2019.

The Company’s risk consulting and internal audit services revenues for the first half of 2020 from international operations decreased 1.3% on an as reported basis and increased 0.4% on an as adjusted basis, compared to the first half of 2019.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the six months ended June 30, 2020, is presented in the following table:

Global United States International

Temporary and consultant staffing

As Reported -15.6 % -15.1 % -17.6 %

Billing Days Impact -0.7 % -0.6 % -0.5 %

Currency Impact 0.7 % — 3.0 %

As Adjusted -15.6 % -15.7 % -15.1 %

Permanent placement staffing

As Reported -29.7 % -29.3 % -30.6 %

Billing Days Impact -0.5 % -0.5 % -0.5 %

Currency Impact 0.6 % — 2.1 %

As Adjusted -29.6 % -29.8 % -29.0 %

Risk consulting and internal audit services

As Reported 10.1 % 13.5 % -1.3 %

Billing Days Impact -0.9 % -0.9 % -0.7 %

Currency Impact 0.6 % — 2.4 %

As Adjusted 9.8 % 12.6 % 0.4 %

Gross Margin.

The Company’s gross margin dollars were $1.03 billion for the six months ended June 30, 2020, decreasing by 17% compared to $1.25 billion for the six months ended June 30, 2019.

Contributing factors for each reportable segment are discussed below in further detail.

Gross margin dollars for temporary and consultant staffing represent revenues less direct costs of services, which consist of payroll, payroll taxes and benefit costs for engagement professionals, and reimbursable expenses.

The key drivers of gross margin are:

i) pay-bill spreads, which represent the differential between wages paid to engagement professionals and amounts billed to clients;

ii) fringe costs, which are primarily composed of payroll taxes and benefit costs for temporary and consultant staffing employees;

and iii) conversion revenues, which are earned when a temporary position converts to a permanent position with the Company’s client.

Gross margin dollars for the Company’s temporary and consultant staffing division were $692 million for the six months ended June 30, 2020, decreasing 16.9% compared to $833 million for the six months ended June 30, 2019.

As a percentage of revenues, gross margin for temporary and consultant staffing was 37.5% for the six months ended June 30, 2020, down from 38.1% for the six months ended June 30, 2019.

This year-over-year decline in gross margin percentage was primarily attributable to lower conversion revenues.

Gross margin dollars for permanent placement staffing represent revenues less reimbursable expenses.

Gross margin dollars for the Company’s permanent placement staffing division were $191 million for the six months ended June 30, 2020, decreasing 29.7% from $272 million for the six months ended June 30, 2019.

Because reimbursable expenses for permanent placement staffing are de minimis, gross margin dollars are substantially explained by revenues previously discussed.

The primary drivers of risk consulting and internal audit services gross margin are:

i) the relative composition of and number of professional staff and their respective pay and bill rates;

Gross margin dollars for the Company’s risk consulting and internal audit division were $150 million for the six months ended June 30, 2020, increasing 7.5% compared to $140 million for the six months ended June 30, 2019.

As a percentage of revenues, gross margin for risk consulting and internal audit services in the first half of 2020 was 26.0%, down from 26.6% in the first half of 2019.

The year-over-year decline in gross margin percentage was due primarily to slightly lower staff utilization rates.

Selling, General and Administrative Expenses.

The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs.

The Company’s selling, general and administrative expenses were $844 million for the six months ended June 30, 2020, decreasing 10.1% from $939 million for the six months ended June 30, 2019.

As a percentage of revenues, the Company’s selling, general and administrative

expenses were 32.3% for the first half of 2020, up from 31.5% the first half of 2019.

Contributing factors for each reportable segment are discussed below in further detail.

Selling, general and administrative expenses for the Company’s temporary and consultant staffing division were $570 million for the six months ended June 30, 2020, decreasing 8.3% from $622 million for the six months ended June 30, 2019.

As a percentage of revenues, selling, general and administrative expenses for temporary and consultant staffing were 30.9% in the first half of 2020, up from 28.4% in the first half of 2019 due primarily to negative leverage as revenues decreased in response to the COVID-19 pandemic.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $180 million for the six months ended June 30, 2020, decreasing by 19.8% compared to $225 million for the six months ended June 30, 2019.

As a percentage of revenues, selling, general and administrative expenses for permanent placement staffing were 94.3% in the first half of 2020, up from 82.6% in the first half of 2019 due primarily to negative leverage as revenues decreased in response to the COVID-19 pandemic.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $94 million for the six months ended June 30, 2020, increasing by 1.4% compared to $92 million for the six months ended June 30, 2019.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 16.2% in the first half of 2020, down from 17.6% in the first half of 2019 due primarily to a decrease in variable overhead costs.

Operating Income.

The Company’s total operating income was $189 million, or 7.2% of revenues, for the six months ended June 30, 2020, down from $306 million or 10.2% of revenues, for the six months ended June 30, 2019.

For the Company’s temporary and consultant staffing division, operating income was $122 million, or 6.6% of applicable revenues, down from $211 million, or 9.7% of applicable revenues, in the first half of 2019.

For the Company’s permanent placement staffing division, operating income was $11 million, or 5.6% of applicable revenues, down from an operating income of $47 million, or 17.2% of applicable revenues, in the first half of 2019.

For the Company’s risk consulting and internal audit services division, operating income was $57 million, or 9.8% of applicable revenues, compared to an operating income of $48 million or 9.0% of applicable revenues, in the first half of 2019.

Provision for income taxes .

The provision for income taxes was 28.3% and 27.0% for the six months ended June 30, 2020 and 2019, respectively.

The higher tax rate in 2020 is primarily due to the relatively greater impact of disallowed expenses on the full-year estimated rate and less tax benefits related to year-to-date restricted stock vesting at a lower price compared to the first half of 2019.

Liquidity and Capital Resources

The change in the Company’s liquidity during the three months ended March 31, 2020 and 2019, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, payment to trusts for employee deferred compensation plans, repurchases of common stock, and payment of dividends.

Cash and cash equivalents were $250 million and $270 million at March 31, 2020 and 2019, respectively.

Operating activities provided $125 million during the three months ended March 31, 2020, offset by $28 million and $110 million of net cash used in investing activities and financing activities, respectively.

Operating activities provided $127 million during the three months ended March 31, 2019, offset by $23 million and $110 million of net cash used in investing activities and financing activities, respectively.

Operating activities—Net cash provided by operating activities for the three months ended March 31, 2020, was composed of net income of $90 million adjusted upward for non-cash items of $50 million, offset by net cash used in working capital of $15 million.

Net cash provided by operating activities for the three months ended March 31, 2019, was composed of net income of $110 million adjusted upward for non-cash items of $35 million, offset by net cash used in changes in working capital of $18 million.

Investing activities—Cash used in investing activities for the three months ended March 31, 2020, was $28 million.

The change in the Company’s liquidity during the six months ended June 30, 2020 and 2019, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, payment to trusts for employee deferred compensation plans, repurchases of common stock, and payment of dividends.

Cash and cash equivalents were $501 million and $269 million at June 30, 2020 and 2019, respectively.

Operating activities provided $426 million during the six months ended June 30, 2020, offset by $43 million and $149 million of net cash used in investing activities and financing activities, respectively.

Operating activities provided $248 million during the six months ended June 30, 2019, offset by $48 million and $208 million of net cash used in investing activities and financing activities, respectively.

Operating activities—Net cash provided by operating activities for the six months ended June 30, 2020, was composed of net income of $136 million adjusted upward for non-cash items of $69 million and net cash provided by changes in working capital of $221 million.

Net cash provided by operating activities for the six months ended June 30, 2019, was composed of net income of $224 million adjusted upward for non-cash items of $57 million, offset by net cash used in changes in working capital of $33 million.

Investing activities—Cash used in investing activities for the six months ended June 30, 2020, was $43 million.

This was composed of capital expenditures of $22 million and net payments for employee deferred compensation plans of $21 million.

Cash used in investing activities for the three months ended March 31, 2019, was $23 million.

Cash used in investing activities for the six months ended June 30, 2019, was $48 million.

This was composed of capital expenditures of $29 million and net payments for employee deferred compensation plans of $19 million.

Financing activities—Cash used in financing activities for the three months ended March 31, 2020, was $110 million.

Financing activities—Cash used in financing activities for the six months ended June 30, 2020, was $149 million.

This included repurchases of $70 million in common stock and $79 million in dividends paid to stockholders.

Cash used in financing activities for the three months ended March 31, 2019, was $110 million.

Cash used in financing activities for the six months ended June 30, 2019, was $208 million.

This included repurchases of $134 million in common stock and $74 million in dividends paid to stockholders.

As of March 31, 2020, the Company is authorized to repurchase, from time to time, up to 1.5 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions.

During the three months ended March 31, 2020 and 2019, the Company repurchased 1.0 million shares, at a cost of $51 million, and 0.8 million shares, at a cost of $52 million, on the open market, respectively.

As of June 30, 2020, the Company is authorized to repurchase, from time to time, up to 1.5 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions.

During the six months ended June 30, 2020 and 2019, the Company repurchased 1.0 million shares, at a cost of $51 million, and 1.8 million shares, at a cost of $111 million, on the open market, respectively.

Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of exercise price and applicable statutory withholding taxes.

During the three months ended March 31, 2020 and 2019, such repurchases totaled 0.3 million shares, at a cost of $12 million, and 0.2 million shares, at a cost of $17 million, respectively.

During the six months ended June 30, 2020 and 2019, such repurchases totaled 0.3 million shares, at a cost of $12 million, and 0.3 million shares, at a cost of $17 million, respectively.

Repurchases of shares have been funded with cash generated from operations.

Future repurchases of shares may be made after considering market conditions, cash flow from operations, and other relevant factors.

The Company’s working capital at March 31, 2020, included $250 million in cash and cash equivalents and $854 million in accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

There were no open market share repurchases during the second quarter of 2020.

We anticipate repurchase activity to commence again in the third quarter of 2020, at a reduced rate.

The Company’s working capital at June 30, 2020, included $501 million in cash and cash equivalents and $665 million in accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

The Company expects that internally generated cash will be sufficient to support the working capital needs of the Company, the Company’s fixed payments, dividends, and other obligations on both a short-term and long-term basis.

We have limited visibility into future cash flows as the Company’s revenues are dependent on macroeconomic conditions, including COVID-19.

In order to mitigate expected declines in revenue, during the first quarter and early into the second quarter of 2020, we took actions to reduce selling, general and administrative costs by approximately 30%, however, given the timing of these reductions, reported results for the second quarter are expected to reflect savings of approximately 25%, compared to the first quarter of 2020.

We have limited visibility into future cash flows as the Company’s revenues are dependent on macroeconomic conditions.

In order to mitigate expected declines in revenue, we aggressively cut costs in the quarter.

These actions have been focused on eliminating all non-essential costs such as travel and events, as well as laying off the Company’s less experienced and lower performing staff.

These aggressive cost reductions, coupled with a talented and driven team that is backed by our industry-leading technology, position us to fully participate in any economic recovery.

In addition, the Company’s variable direct costs related to its temporary and consultant staffing business will largely fluctuate in relation to its revenues

On April 30, 2020, the Company announced a quarterly dividend of $.34 per share to be paid to all shareholders of record as of May 26, 2020.

The dividend will be paid on June 15, 2020.

In May 2020, the Company entered into a new $100 million unsecured revolving credit facility (the “364-Day Credit Agreement”).

Borrowings under the 364-Day Credit Agreement will bear interest in accordance with the terms of the borrowing, which typically will be calculated according to the LIBOR plus an applicable margin.

The 364-Day Credit Agreement is subject to certain financial covenants and the Company was in compliance with these covenants as of June 30, 2020.

There were no borrowings under the 364-Day Credit Agreement as of June 30, 2020.

On July 30, 2020, the Company announced a quarterly dividend of $.34 per share to be paid to all shareholders of record as of August 25, 2020.

The dividend will be paid on September 15, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis