What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-04-30 · 229 added, 89 removed, 172 unchanged (65% of the section changed)

25 unchanged sentences

Additionally, with respect to Protiviti, other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients;

there can be no assurance that there will be ongoing demand for Sarbanes-Oxley or other regulatory compliance services;

there can be no assurance that there will be ongoing demand for broad based consulting, regulatory compliance, technology services, public sector or other high demand advisory services;

failure to produce projected revenues could adversely affect financial results;

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Executive Overview

The Company’s financial results during the first quarter of 2021 reflect continued early-cycle recovery from the economic crisis resulting from the COVID-19 pandemic, with accelerating growth during the quarter in the Company’s staffing business.

Our investments in advanced AI technologies and retention of our tenured employees has allowed us to adapt quickly to a new marketplace, where remote and hybrid work has become commonplace.

During the first quarter of 2021, service revenues were $1.40 billion, a decrease of 7.2% from the prior year.

Net income for the quarter was $111 million and diluted net income per share was $.98.

The Company's staffing operations significantly outperformed their historical sequential trends, led by small and medium-size businesses and permanent placement, which grew 22% sequentially.

Protiviti's revenues grew 35% year-on-year, reflecting continued momentum across its wide array of service offerings, including very strong demand for managed solutions with staffing.

This is Protiviti's 14th consecutive quarter of year-on-year revenue gains.

The Company’s blended solutions, complementing Protiviti's offerings with contract talent, allow the Company to be extremely nimble and cost effective in response to client needs, and we expect this offering to be an increasing part of our business going forward.

Demand for the Company’s temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad, which may continue to be impacted by COVID-19.

The United States economic backdrop as we ended the first quarter of 2021 showed early signs of economic recovery as real gross domestic product (“GDP”) increased 6.4%, while the unemployment rate decreased from 6.7% in December 2020 to 6.0% at the end of the first quarter of 2021.

In the United States, the number of job openings exceeded the number of hires at the end of February 2021, creating competition for skilled talent that increases the Company's value to clients.

The Company achieved record levels of service revenues and earnings in the second quarter due to a broad-based, global acceleration in demand for its staffing and business consulting services.

During the first half of 2021, service revenues were $2.98 billion, an increase of 14% from the prior year.

Net income increased 91% to $260 million and diluted net income per share increased 93% to $2.32.

The Company's staffing operations continue to reflect a faster pace of recovery than experienced in prior economic cycles.

Clients have lean staff levels as they begin to expand, which is exacerbated by generally higher levels of attrition.

Also, clients are elevating the skill and experience requirements for their job openings and are adding remotely located resources to fill their needs, which further adds to the demand for the Company's services.

The recovery is also broad-based and spans across industries, client size, skill levels, geographies, and lines of business.

Protiviti's multi-year record of consecutive growth continues to benefit from a highly diversified suite of solution offerings and client base.

The Company’s blended solutions pair Protiviti's world-class consulting talent with staffing's deep operational resources to provide a cost-effective solution to clients' skills and scalability needs.

The United States economic backdrop as we ended the first half of 2021 showed signs of economic recovery as real gross domestic product (“GDP”) increased 6.5%, while the unemployment rate decreased from 6.7% in December 2020 to 5.9% at the end of the second quarter of 2021.

In the United States, the number of job openings exceeded the number of hires at the end of June 2021, creating competition for skilled talent that increases the Company's value to clients.

labor market remains robust, with significant demand due to talent shortages across our professional disciplines.

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We continue to focus on the productivity levels of tenured staff and believe we have aligned staffing levels to drive increased profitability.

During the first quarter of 2021, headcount remained relatively flat in all three business segments, when compared to prior year-end levels.

Capital expenditures, including $8.5 million for cloud computing arrangements, for the three months ended March 31, 2021, totaled $18.2 million, approximately 89% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities.

During the first half of 2021, headcount remained relatively flat for the staffing segments, while Protiviti headcount increased, when compared to prior year-end levels.

Capital expenditures, including $16.2 million for cloud computing arrangements, for the six months ended June 30, 2021, totaled $32.4 million, approximately 87% 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.

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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, 2020.

There were no material changes to the Company’s critical accounting policies or estimates for the three months ended March 31, 2021.

There were no material changes to the Company’s critical accounting policies or estimates for the six months ended June 30, 2021.

Recent Accounting Pronouncements

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

The Company's technology investments have facilitated remote working models internally and, with the Company's advanced AI-driven capabilities, are providing clients with real-time choices of candidates across broader resource pools.

While uncertainty remains in the overall economic environment, we are excited about our current momentum and the Company’s prospects for the balance of 2021 and beyond, buoyed by the strengths of the Company’s brands, people, technology and professional business model.

Bolstered by the strengths of the Company's brands, people, technology and professional business model, we are excited about our continued ability to find meaningful and exciting employment for the people we place and provide clients access to the specialized talent they need to grow and the deep subject matter expertise they need to confidently compete in a dynamic world.

The Company’s temporary and permanent placement staffing business has 322 offices in 43 states, the District of Columbia and 17 foreign countries, while Protiviti has 63 offices in 24 states and 12 foreign countries.

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segment income and combined segment income.

Variations in the Company’s financial results include the impact of changes in foreign currency exchange rates, billing days, and certain intercompany adjustments.

Variations in the Company’s financial results include the impact of changes in foreign currency exchange rates and billing days.

The Company provides “as adjusted” revenue growth calculations to remove the impact of these items.

These calculations show the year-over-year revenue growth rates for the Company’s lines of business on both a reported basis and also on an as-adjusted basis for global, U.S., and international operations.

This information is presented for each of the six most recent quarters.

The Company has provided this data because it focuses on the Company’s revenue growth rates attributable to operating activities and aids in evaluating revenue trends over time.

The Company expresses year-over-year revenue changes as calculated percentages using the same number of billing days, constant currency exchange rates, and certain intercompany adjustments.

The Company expresses year-over-year revenue changes as calculated percentages using the same number of billing days and constant currency exchange rates.

The following measures:

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The Company provides these measures because they are used by management to review its operational results.

Combined segment income is income before income taxes adjusted for interest income and amortization of intangible assets.

Combined segment income is income before income taxes adjusted for interest expense (income) and amortization of intangible assets.

The Company provides combined segment income because it is how the Company evaluates segment performance.

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“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, 2021 and 2020

The Company’s revenues were $1.40 billion for the three months ended March 31, 2021, decreasing by 7.2% compared to $1.51 billion for the three months ended March 31, 2020.

Revenues from foreign operations represented 23% of total revenues for the three months ended March 31, 2021, up from 22% of total revenues for the three months ended March 31, 2020.

Three Months Ended June 30, 2021 and 2020

The Company’s revenues were $1.58 billion for the three months ended June 30, 2021, increasing by 42.6% compared to $1.11 billion for three months ended June 30, 2020.

Revenues from foreign operations represented 22.8% of total revenues for three months ended June 30, 2021, up from 21.9% of total revenues for the three months ended June 30, 2020.

The Company analyzes its revenues for three reportable segments:

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

Temporary and consultant staffing revenues were $889 million for the three months ended March 31, 2021, decreasing by 18.6% compared to revenues of $1.09 billion for the three months ended March 31, 2020.

Temporary and consultant staffing revenues were $978 million for the three months ended June 30, 2021, increasing by 29.9% compared to revenues of $753 million for the three months ended June 30, 2020.

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 18.9% for the first quarter of 2021, compared to the first quarter of 2020, due primarily to fewer hours worked by the Company’s engagement professionals on client engagements.

In the U.S., revenues in the first quarter of 2021 decreased 20.3% on an as reported basis and 19.4% on an as adjusted basis, compared to the first quarter of 2020.

For the Company’s international operations, revenues for the first quarter of 2021 decreased 12.3% on an as reported basis and decreased 17.0% on an as adjusted basis, compared to the first quarter of 2020.

Permanent placement staffing revenues were $112 million for the three months ended March 31, 2021, decreasing by 7.3% compared to revenues of $120 million for the three months ended March 31, 2020.

On an as adjusted basis, temporary and consultant staffing revenues increased 27.2% for the second quarter of 2021, compared to the second quarter of 2020, due primarily to more hours worked by the Company’s engagement professionals on client engagements.

In the U.S., revenues in the second quarter of 2021 increased 27.5% on an as reported basis and 27.7% on an as adjusted basis, compared to the second quarter of 2020.

For the Company’s international operations, revenues for the second quarter of 2021 increased 38.6% on an as reported basis and increased 25.1% on an as adjusted basis, compared to the second quarter of 2020.

Permanent placement staffing revenues were $144 million for the three months ended June 30, 2021, increasing by 102.2% compared to revenues of $71 million for the three months ended June 30, 2020.

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 8.1% for the first quarter of 2021, compared to the first quarter of 2020, driven by a decrease in number of placements.

In the U.S., revenues for the first quarter of 2021 decreased 12.4% on an as reported basis and 11.4% on an as adjusted basis, compared to the first quarter of 2020.

For the Company’s international operations, revenues for the first quarter of 2021 increased 5.2% on an as reported basis and 0.3% on an as adjusted basis, compared to the first quarter of 2020.

On an as adjusted basis, permanent placement staffing revenues increased 96.9% for the second quarter of 2021, compared to the second quarter of 2020, driven by an increase in number of placements.

In the U.S., revenues for the second quarter of 2021 increased 109.3% on an as reported basis and 109.6% on an as adjusted basis, compared to the second quarter of 2020.

For the Company’s international operations, revenues for the second quarter of 2021 increased 87.8% on an as reported basis and 70.5% on an as adjusted basis, compared to the second quarter of 2020.

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 $397 million for the three months ended March 31, 2021, increasing by 35.1% compared to revenues of $294 million for the three months ended March 31, 2020.

Risk consulting and internal audit services revenues were $459 million for the three months ended June 30, 2021, increasing by 61.6% compared to revenues of $284 million for the three months ended June 30, 2020.

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 34.7% for the first quarter of 2021, compared to the first quarter of 2020, due primarily to an increase in billable hours.

In the U.S., revenues in the first quarter of 2021 increased 35.5% on an as reported basis and 37.1% on an as adjusted basis, compared to the first quarter of 2020.

The Company’s risk consulting and internal audit services revenues for the first quarter of 2021 from international operations increased 33.8% on an as reported basis and 26.1% on an as adjusted basis, compared to the first quarter of 2020.

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, 2021, is presented in the following table:

On an as adjusted basis, risk consulting and internal audit services revenues increased 58.8% for the second quarter of 2021, compared to the second quarter of 2020, due primarily to an increase in billable hours.

In the U.S., revenues in the second quarter of 2021 increased 62.6% on an as reported basis and 62.8% on an as adjusted basis, compared to the second quarter of 2020.

The Company’s risk consulting and internal audit services revenues for the second quarter of 2021 from international operations increased 57.6% on an as reported basis and 43.5% on an as adjusted basis, compared to the second quarter of 2020.

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, 2021, is presented in the following table:

Global United States International

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Gross Margin.

The Company’s gross margin dollars were $562 million for the three months ended March 31, 2021, decreasing by 8.6% compared to $614 million for the three months ended March 31, 2020.

The Company’s gross margin dollars were $665 million for the three months ended June 30, 2021, increasing by 59.6% compared to $417 million for the three months ended June 30, 2020.

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

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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;

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 $388 million for the three months ended June 30, 2021, increasing 38.9% compared to $279 million for the three months ended June 30, 2020.

As a percentage of revenues, gross margin for temporary and consultant staffing was 39.7% for the three months ended June 30, 2021, up from 37.1% for the three months ended June 30, 2020.

This year-over-year increase in gross margin percentage was primarily attributable to higher pay-bill spreads.

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

Gross margin dollars for the Company’s permanent placement staffing division were $143 million for the three months ended June 30, 2021, increasing 102.3% from $71 million for the three months ended June 30, 2020.

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 costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses.

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;

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 $133 million for the three months ended June 30, 2021, increasing 101% compared to $66 million for the three months ended June 30, 2020.

As a percentage of revenues, reported gross margin for risk consulting and internal audit services in the first three months of 2021 was 29.1%, up from 23.4% in the first three months of 2020.

As a percentage of revenues, adjusted gross margin dollars for risk consulting and internal audit services were 30.0% the second quarter of 2021, up from 25.7% in the second quarter of 2020.

The year-over-year increase in adjusted gross margin percentage was due primarily to higher 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 $488 million for the three months ended June 30, 2021, increasing 19.9% from $407 million for the three months ended June 30, 2020.

As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 30.9% for the second quarter of 2021, down from 36.7% the second quarter of 2020.

As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 29.4% in the second quarter of 2021 compared to 32.9% in the second quarter of 2020.

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 $315 million for the three months ended June 30, 2021, increasing 8.8% from $290 million for the three months ended June 30, 2020.

As a percentage of revenues, reported selling, general and administrative expenses for temporary and consultant staffing were 32.2% in the second quarter of 2021, down from 38.4% in the second quarter of 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for temporary and consultant staffing were 30.1% in the second quarter of 2021, down from 33.3% in the second quarter of 2020 due primarily to positive leverage from an increase in revenues.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $115 million for the three months ended June 30, 2021, increasing by 54.3% compared to $75 million for the three months ended June 30, 2020.

As a percentage of revenues, reported selling, general and administrative expenses for permanent placement staffing were 80.4% in the second quarter of 2021, down from 105.3% in the second quarter of 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement staffing was 78.6% in the second quarter of 2021, down from 100.2% in the second quarter of 2020 due primarily to positive leverage from an increase in revenues.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $58 million for the three months ended June 30, 2021, increasing by 34.5% compared to $43 million for the three months ended June 30, 2020.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 12.5% in the second quarter of 2021, down from 15.1% in the second quarter of 2020 due primarily to positive leverage from an increase in revenues.

A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the three months ended June 30, 2021 and 2020 is presented in the following table (in thousands):

Three Months Ended June 30, Relationships

2021 2020 2021 2020 2021 2020

Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted

SERVICE REVENUES:

Accountemps $ 453,342 $ — $ 453,342 $ 331,542 $ — $ 331,542 28.6 % 29.9 % 28.6 % 29.9 %

OfficeTeam 263,192 — 263,192 136,299 — 136,299 16.7 % 12.3 % 16.7 % 12.3 %

Robert Half Technology 194,233 — 194,233 162,028 — 162,028 12.3 % 14.6 % 12.3 % 14.6 %

Robert Half Management

210,550 — 210,550 165,031 — 165,031 13.3 % 14.9 % 13.3 % 14.9 %

Elimination of intersegment

(143,036) — (143,036) (41,514) — (41,514) (9.0 %) (3.7 %) (9.0 %) (3.7 %)

Temporary and consultant staffing 978,281 — 978,281 753,386 — 753,386 61.9 % 68.0 % 61.9 % 68.0 %

Permanent placement staffing 143,640 — 143,640 71,030 — 71,030 9.1 % 6.4 % 9.1 % 6.4 %

Protiviti 458,660 — 458,660 283,910 — 283,910 29.0 % 25.6 % 29.0 % 25.6 %

Total $ 1,580,581 $ — $ 1,580,581 $ 1,108,326 $ — $ 1,108,326 100.0 % 100.0 % 100.0 % 100.0 %

GROSS MARGIN:

Temporary and consultant staffing $ 388,070 $ — $ 388,070 $ 279,302 $ — $ 279,302 39.7 % 37.1 % 39.7 % 37.1 %

Permanent placement staffing 143,454 — 143,454 70,906 — 70,906 99.9 % 99.8 % 99.9 % 99.8 %

Protiviti 133,348 4,153 137,501 66,327 6,542 72,869 29.1 % 23.4 % 30.0 % 25.7 %

Total $ 664,872 $ 4,153 $ 669,025 $ 416,535 $ 6,542 $ 423,077 42.1 % 37.6 % 42.3 % 38.2 %

SELLING GENERAL AND

ADMINISTRATIVE EXPENSE:

Temporary and consultant staffing $ 315,114 $ (21,054) $ 294,060 $ 289,645 $ (38,733) $ 250,912 32.2 % 38.4 % 30.1 % 33.3 %

Permanent placement staffing 115,458 (2,603) 112,855 74,806 (3,652) 71,154 80.4 % 105.3 % 78.6 % 100.2 %

Protiviti 57,521 57,521 42,762 — 42,762 12.5 % 15.1 % 12.5 % 15.1 %

Total $ 488,093 $ (23,657) $ 464,436 $ 407,213 $ (42,385) $ 364,828 30.9 % 36.7 % 29.4 % 32.9 %

OPERATING/SEGMENT INCOME:

Temporary and consultant staffing $ 72,956 $ 21,054 $ 94,010 $ (10,343) $ 38,733 $ 28,390 7.5 % (1.4 %) 9.6 % 3.8 %

Permanent placement staffing 27,996 2,603 30,599 (3,900) 3,652 (248) 19.5 % (5.5 %) 21.3 % (0.3 %)

Protiviti 75,827 4,153 79,980 23,565 6,542 30,107 16.5 % 8.3 % 17.4 % 10.6 %

Total $ 176,779 $ 27,810 $ 204,589 $ 9,322 $ 48,927 $ 58,249 11.2 % 0.8 % 12.9 % 5.3 %

Amortization of intangible assets 576 — 576 330 — 330 0.0 % 0.0 % 0.0 % 0.1 %

(Income) loss from investments held in

employee deferred compensation trusts

(27,810) 27,810 — (48,927) 48,927 — 1.7 % 4.4 % 0.0 % 0.0 %

Interest expense (income), net 151 — 151 (105) — (105) 0.0 % 0.0 % 0.0 % 0.0 %

Income before income taxes $ 203,862 $ — $ 203,862 $ 58,024 $ — $ 58,024 12.9 % 5.2 % 12.9 % 5.2 %

(1) Changes in the Company’s deferred compensation obligations are included in selling, general and administrative expense or, in the case of Protiviti, costs of services, while the related investment income is presented separately.

The non-GAAP financial measures shown in the table above are adjusted to reclassify investment income from investments held in employee deferred compensation trusts to the same line item which includes the corresponding change in obligation.

These adjustments have no impact to income before income taxes.

Income from Investments Held in Employee Deferred Compensation Trusts .

Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions.

As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation obligation to employees changes accordingly.

Changes in the Company’s deferred compensation obligations noted above remain in selling, general and administrative or in the case of the Company’s risk consulting and internal audit services division, costs of services.

The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company.

The Company’s income from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments.

The Company’s income from investments held in employee deferred compensation trusts was $28 million and $49 million for the three months ended June 30, 2021 and 2020, respectively.

Income Before Income Taxes and Segment Income.

The Company’s total income before income taxes was $204 million, or 12.9% of revenues, for the three months ended June 30, 2021, up from $58 million or 5.2% of revenues, for the three months ended June 30, 2020.

Combined segment income was $205 million, or 12.9% of revenues, for the three months ended June 30, 2021, up from $58 million or 5.3% of revenues, for the three months ended June 30, 2020.

The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the three months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

Income before income taxes $ 203,862 $ 58,024

Interest expense (income), net 151 (105)

Amortization of intangible assets 576 330

Combined segment income $ 204,589 $ 58,249

For the Company’s temporary and consultant staffing division, segment income was $94 million, or 9.6% of applicable revenues, for the three months ended June 30, 2021, up from $28 million, or 3.8% of applicable revenues, for the three months ended June 30, 2020.

For the Company’s permanent placement staffing division, segment income was $31 million, or 21.3% of applicable revenues, for the three months ended June 30, 2021, up from segment loss of $0.2 million, or (0.3)% of applicable revenues, for the three months ended June 30, 2020.

For the Company’s risk consulting and internal audit services division, segment income was $80 million, or 17.4% of applicable revenues, for the three months ended June 30, 2021, up from segment income of $30 million or 10.6% of applicable revenues, for the three months ended June 30, 2020.

Provision for income taxes .

The provision for income taxes was 26.8% and 20.4% for the three months ended June 30, 2021 and 2020, respectively.

The comparative rate in 2020 was lower than normal due to adjustments made to the estimates of the pandemic impact to the 2020 tax rate.

Six Months Ended June 30, 2021 and 2020

The Company’s revenues were $2.98 billion for the six months ended June 30, 2021, increasing by 13.9% compared to $2.62 billion for the six months ended June 30, 2020.

Revenues from foreign operations represented 23% of total revenues for the six months ended June 30, 2021, up from 22% of total revenues for the six months ended June 30, 2020.

The Company analyzes its revenues for three reportable segments:

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

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

Temporary and consultant staffing revenues were $1.87 billion for the six months ended June 30, 2021, increasing by 1.2% compared to revenues of $1.85 billion for the six months ended June 30, 2020.

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 flat for the first half of 2021, compared to the first half of 2020.

In the U.S., revenues in the first half of 2021 decreased 0.8% on an as reported basis and decreased 0.1% on an as adjusted basis, compared to the first half of 2020.

For the Company’s international operations, revenues for the first half of 2021 increased 8.4% on an as reported basis and increased 0.3% on an as adjusted basis, compared to the first half of 2020.

Permanent placement staffing revenues were $255 million for the six months ended June 30, 2021, increasing by 33.3% compared to revenues of $192 million for the six months ended June 30, 2020.

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 increased 30.9% for the first half of 2021, compared to the first half of 2020, driven by a increase in number of placements.

In the U.S., revenues for the first half of 2021 increased 31.2% on an as reported basis and 32.0% on an as adjusted basis, compared to the first half of 2020.

For the Company’s international operations, revenues for the first half of 2021 increased 38.2% on an as reported basis and 28.3% on an as adjusted basis, compared to the first half of 2020.

Risk consulting and internal audit services revenues were $856 million for the six months ended June 30, 2021, increasing by 48.1% compared to revenues of $578 million for the six months ended June 30, 2020.

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 46.6% for the first half of 2021, compared to the first half of 2020, due primarily to an increase in billable hours.

In the U.S., revenues in the first half of 2021 increased 48.8% on an as reported basis and 49.7% on an as adjusted basis, compared to the first half of 2020.

The Company’s risk consulting and internal audit services revenues for the first half of 2021 from international operations increased 45.5% on an as reported basis and 34.8% on an as adjusted basis, compared to the first half of 2020.

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, 2021, is presented in the following table:

Global United States International

Temporary and consultant staffing

As Reported 1.2 % -0.8 % 8.4 %

Billing Days Impact 0.6 % 0.7 % 0.5 %

Currency Impact -1.8 % ― -8.6 %

As Adjusted 0.0 % -0.1 % 0.3 %

Permanent placement staffing

As Reported 33.3 % 31.2 % 38.2 %

Billing Days Impact 0.8 % 0.8 % 0.7 %

Currency Impact -3.2 % ― -10.6 %

As Adjusted 30.9 % 32.0 % 28.3 %

Risk consulting and internal audit services

As Reported 48.1 % 48.8 % 45.5 %

Billing Days Impact 0.9 % 0.9 % 0.8 %

Currency Impact -2.4 % ― -11.5 %

As Adjusted 46.6 % 49.7 % 34.8 %

Gross Margin.

The Company’s gross margin dollars were $1.23 billion for the six months ended June 30, 2021, increasing by 19% compared to $1.03 billion for the six months ended June 30, 2020.

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

Gross margin dollars for temporary and consultant staffing represent revenues less 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 $345 million for the three months ended March 31, 2021, decreasing 16.5% compared to $413 million for the three months ended March 31, 2020.

As a percentage of revenues, gross margin for temporary and consultant staffing was 38.8% for the three months ended March 31, 2021, up from 37.8% for the three months ended March 31, 2020.

Gross margin dollars for the Company’s temporary and consultant staffing division were $733 million for the six months ended June 30, 2021, increasing 5.9% compared to $692 million for the six months ended June 30, 2020.

As a percentage of revenues, gross margin for temporary and consultant staffing was 39.2% for the six months ended June 30, 2021, up from 37.5% for the six months ended June 30, 2020.

This year-over-year increase in gross margin percentage was primarily attributable to higher pay-bill spreads.

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

Gross margin dollars for the Company’s permanent placement staffing division were $111 million for the three months ended March 31, 2021, decreasing 7.3% from $120 million for the three months ended March 31, 2020.

Gross margin dollars for the Company’s permanent placement staffing division were $255 million for the six months ended June 30, 2021, increasing 33.4% from $191 million for the six months ended June 30, 2020.

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

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Gross margin dollars for the Company’s risk consulting and internal audit division were $105 million for the three months ended March 31, 2021, increasing 29.8% compared to $81 million for the three months ended March 31, 2020.

As a percentage of revenues, reported gross margin for risk consulting and internal audit services in the first quarter of 2021 was 26.5%, down from 27.6% in the first quarter of 2020.

As a percentage of revenues, adjusted gross margin dollars for risk consulting and internal audit services were 26.9% the first quarter of 2021, up from 26.3% in the first quarter of 2020.

Gross margin dollars for the Company’s risk consulting and internal audit division were $239 million for the six months ended June 30, 2021, increasing 61.8% compared to $147 million for the six months ended June 30, 2020.

As a percentage of revenues, reported gross margin for risk consulting and internal audit services in the first half of 2021 was 27.9%, up from 25.5% in the first half of 2020.

As a percentage of revenues, adjusted gross margin dollars for risk consulting and internal audit services were 28.6% the first half of 2021, up from 26.0% in the first half of 2020.

The year-over-year increase in adjusted gross margin percentage was due primarily to higher staff utilization rates.

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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 $423 million for the three months ended March 31, 2021, decreasing 4.5% from $443 million for the three months ended March 31, 2020.

As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 30.3% for the first quarter of 2021, up from 29.4% the first quarter of 2020.

As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 29.5% in the first quarter of 2021 compared to 31.8% in the first quarter of 2020.

The Company’s selling, general and administrative expenses were $911 million for the six months ended June 30, 2021, increasing 7.2% from $850 million for the six months ended June 30, 2020.

As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 30.6% for the first half of 2021, down from 32.5% the first half of 2020.

As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 29.4% in the first half of 2021 down from 32.3% in the first half of 2020.

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 $279 million for the three months ended March 31, 2021, decreasing 2.7% from $286 million for the three months ended March 31, 2020.

As a percentage of revenues, reported selling, general and administrative expenses for temporary and consultant staffing were 31.3% in the first quarter of 2021, up from 26.2% in the first quarter of 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for temporary and consultant staffing were 30.3% in the first quarter of 2021, up from 29.2% in the first quarter of 2020 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 $95 million for the three months ended March 31, 2021, decreasing by 10.3% compared to $106 million for the three months ended March 31, 2020.

As a percentage of revenues, reported selling, general and administrative expenses for permanent placement staffing were 84.9% in the first quarter of 2021, down from 87.7% in the first quarter of 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement staffing was 83.9% in the first quarter of 2021, down from 90.8% in the first quarter of 2020 due primarily to positive leverage as the decrease in expenses exceeded the decrease in revenues as a result of cost curtailing initiatives implemented during 2020.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $50 million for the three months ended March 31, 2021, decreasing by 2.6% compared to $51 million for the three months ended March 31, 2020.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 12.5% in the first quarter of 2021, down from 17.3% in the first quarter of 2020 due primarily to positive leverage from an increase in revenues.

A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the three months ended March 31, 2021 and 2020 is presented in the following table (in thousands):

Quarter Ended March 31, Relationships

Selling, general and administrative expenses for the Company’s temporary and consultant staffing division were $594 million for the six months ended June 30, 2021, increasing 3.2% from $575 million for the six months ended June 30, 2020.

As a percentage of revenues, reported selling, general and administrative expenses for temporary and consultant staffing were 31.8% in the first half of 2021, up from 31.2% in the first half of 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for temporary and consultant staffing were 30.2% in the first half of 2021, down from 30.9% in the first half of 2020 due primarily to positive leverage from an increase in revenues and reduction in expenses from cost cutting initiatives implemented throughout 2020.

Selling, general and administrative expenses for the Company’s permanent placement staffing division were $210 million for the six months ended June 30, 2021, increasing by 16.2% compared to $181 million for the six months ended June 30, 2020.

As a percentage of revenues, reported selling, general and administrative expenses for permanent placement staffing were 82.4% in the first half of 2021, down from 94.5% in the first half of 2020.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement staffing was 81.0% in the first half of 2021, down from 94.3% in the first half of 2020 due primarily to positive leverage from an increase in revenues.

Selling, general and administrative expenses for the Company’s risk consulting and internal audit services division were $107 million for the six months ended June 30, 2021, increasing by 14.3% compared to $94 million for the six months ended June 30, 2020.

As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 12.5% in the first half of 2021, down from 16.2% in the first half of 2020 due primarily to positive leverage from an increase in revenues.

A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the six months ended June 30, 2021 and 2020 is presented in the following table (in thousands):

Six Months Ended June 30, Relationships

2021 2020 2021 2020 2021 2020

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(39,797) 39,797 — (8,551) 8,551 — 1.3 % 0.3 % 0.0 % 0.0 %

Interest income, net (45) — (45) (957) — (957) 0.0 % 0.1 % 0.0 % 0.1 %

Interest expense (income), net 105 — 105 (1,062) — (1,062) 0.0 % 0.0 % 0.0 % 0.0 %

Income before income taxes $ 353,968 $ — $ 353,968 $ 189,787 $ — $ 189,787 11.9 % 7.3 % 11.9 % 7.3 %

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The Company’s income from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments.

The Company’s income/loss from investments held in employee deferred compensation trusts was an income of $12 million for the three months ended March 31, 2021 whereas it had a loss of $40 million for the three months ended March 31, 2020.

The Company’s income from investments held in employee deferred compensation trusts was $40 million for the six months ended June 30, 2021, up from $9 million for the six months ended June 30, 2020.

The increase in income from trust investments was due to positive market returns in 2021.

Income Before Income Taxes and Segment Income.

The Company’s total income before income taxes was $150 million, or 10.7% of revenues, for the three months ended March 31, 2021, up from $132 million or 8.7% of revenues, for the three months ended March 31, 2020.

Combined segment income was $151 million, or 10.8% of revenues, for the three months ended March 31, 2021, up from $131 million or 8.7% of revenues, for the three months ended March 31, 2020.

The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

The Company’s total income before income taxes was $354 million, or 11.9% of revenues, for the six months ended June 30, 2021, up from $190 million or 7.3% of revenues, for the six months ended June 30, 2020.

Combined segment income was $355 million, or 11.9% of revenues, for the six months ended June 30, 2021, up from $189 million or 7.2% of revenues, for the six months ended June 30, 2020.

The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended

Income before income taxes $ 353,968 $ 189,787

Interest income, net (45) (957)

Interest expense (income), net 105 (1,062)

Amortization of intangible assets 1,152 668

Combined segment income $ 355,225 $ 189,393

For the Company’s temporary and consultant staffing division, segment income was $76 million, or 8.5% of applicable revenues, down from $94 million, or 8.6% of applicable revenues, in the first quarter of 2020.

For the Company’s permanent placement staffing division, segment income was $18 million, or 15.9% of applicable revenues, up from segment income of $11 million, or 9.1% of applicable revenues, in the first quarter of 2020.

For the Company’s risk consulting and internal audit services division, segment income was $57 million, or 14.4% of applicable revenues, compared to segment income of $26 million or 9.0% of applicable revenues, in the first quarter of 2020.

For the Company’s temporary and consultant staffing division, segment income was $170 million, or 9.1% of applicable revenues for the six months ended June 30, 2021, up from $122 million, or 6.6% of applicable revenues for the six months ended June 30, 2020.

For the Company’s permanent placement staffing division, segment income was $48 million, or 18.9% of applicable revenues in the first half of 2021, up from segment income of $11 million, or 5.6% of applicable revenues, in the first half of 2020.

For the Company’s risk consulting and internal audit services division, segment income was $137 million, or 16.0% of applicable revenues in the first half of 2021, compared to segment income of $57 million or 9.8% of applicable revenues, in the first half of 2020.

Provision for income taxes .

The provision for income taxes was 26.3% and 31.8% for the three months ended March 31, 2021 and 2020, respectively.

The 2020 rate was elevated based on the estimated lower coverage of non-deductible tax items due to lower pandemic-impacted revenues.

The provision for income taxes was 26.6% and 28.3% for the six months ended June 30, 2021 and 2020, respectively.

The 2020 rate was elevated based on lesser coverage of non-deductible tax items due to lower estimated pandemic-impacted income.

Liquidity and Capital Resources

The change in the Company’s liquidity during the three months ended March 31, 2021 and 2020, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payment of dividends.

Cash and cash equivalents were $498 million and $250 million at March 31, 2021 and 2020, respectively.

Operating activities provided $68 million during the three months ended March 31, 2021, offset by $15 million and $124 million of net cash used in investing activities and financing activities, 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—Net cash provided by operating activities for the three months ended March 31, 2021, was composed of net income of $111 million adjusted upward for non-cash items of $33 million, offset by net cash used in changes in working capital of $76 million.

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 $91 million, offset by net cash used in changes in working capital of $56 million.

Investing activities—Cash used in investing activities for the three months ended March 31, 2021, was $15 million.

The change in the Company’s liquidity during the six months ended June 30, 2021 and 2020, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payment of dividends.

Cash and cash equivalents were $543 million and $501 million at June 30, 2021 and 2020, respectively.

Operating activities provided $233 million during the six months ended June 30, 2021, offset by $31 million and $232 million of net cash used in investing activities and financing activities, 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—Net cash provided by operating activities for the six months ended June 30, 2021, was composed of net income of $260 million adjusted upward for non-cash items of $32 million, offset by net cash used in changes in working capital of $59 million.

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 $62 million and net cash provided by changes in working capital of $228 million.

Investing activities—Cash used in investing activities for the six months ended June 30, 2021, was $31 million.

This was composed of capital expenditures of $16 million and investment in employee deferred compensation trusts of $42 million, offset by proceeds from employee deferred compensation trusts redemptions of $27 million.

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

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 investment in employee deferred compensation trusts of $49 million, offset by proceeds from employee deferred compensation trusts redemptions of $28 million.

Financing activities—Cash used in financing activities for the three months ended March 31, 2021, was $124 million.

Financing activities—Cash used in financing activities for the six months ended June 30, 2021, was $232 million.

This included repurchases of $146 million in common stock and $86 million in dividends paid to stockholders.

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

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.

As of March 31, 2021, the Company is authorized to repurchase, from time to time, up to 9.2 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, 2021 and 2020, the Company repurchased 0.8 million shares, at a cost of $61 million, and 1.0 million shares, at a cost of $51 million, on the open market, respectively.

As of June 30, 2021, the Company is authorized to repurchase, from time to time, up to 8.4 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, 2021 and 2020, the Company repurchased 1.5 million shares, at a cost of $124 million, and 1.0 million shares, at a cost of $51 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, 2021 and 2020, such repurchases totaled 0.3 million shares, at a cost of $19 million, and 0.3 million shares, at a cost of $12 million, respectively.

During the six months ended June 30, 2021 and 2020, such repurchases totaled 0.3 million shares, at a cost of $19 million, and 0.3 million shares, at a cost of $12 million, respectively.

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

The Company’s working capital at March 31, 2021, included $498 million in cash and cash equivalents and $800 million in accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

The Company’s working capital at June 30, 2021, included $543 million in cash and cash equivalents and $908 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.

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The Company’s variable direct costs related to its temporary and consultant staffing business will largely fluctuate in relation to its revenues.

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 March 31, 2021.

There were no borrowings under the 364-Day Credit Agreement as of March 31, 2021.

On April 29, 2021, the Company announced a quarterly dividend of $.38 per share to be paid to all shareholders of record as of May 25, 2021.

The dividend will be paid on June 15, 2021.

In May 2021, the Company entered into an amendment (“Amendment No.

1”) to extend the maturity of its $100 million unsecured revolving credit facility (the “Credit Agreement”) to May 2024.

Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing, which typically will be calculated according to the LIBOR, or an alternative base rate, plus an applicable margin.

The Credit Agreement is subject to certain financial covenants and the Company was in compliance with these covenants as of June 30, 2021.

There were no borrowings under the Credit Agreement as of June 30, 2021.

On August 3, 2021, the Company announced a quarterly dividend of $.38 per share to be paid to all shareholders of record as of August 25, 2021.

The dividend will be paid on September 15, 2021.

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