ROBERT HALF INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain information contained in Management’s Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the Company’s future operating results or financial positions. These statements may be identified by words such as “estimate”, “forecast”, “project”, “plan”, “intend”, “believe”, “expect”, “anticipate”, or variations or negatives thereof or by similar or comparable words or phrases. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. These risks and uncertainties include, but are not limited to, the following: changes to or new interpretations of U.S. or international tax regulations, the global financial and economic situation; the duration and impact of the COVID-19 pandemic and efforts to mitigate its spread; changes in levels of unemployment and other economic conditions in the United States or foreign countries where the Company does business, or in particular regions or industries; reduction in the supply of candidates for contract employment or the Company’s ability to attract candidates; the entry of new competitors into the marketplace or expansion by existing competitors; the ability of the Company to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions; the impact of competitive pressures, including any change in the demand for the Company’s services, on the Company’s ability to maintain its margins; the possibility of the Company incurring liability for its activities, including the activities of its engagement professionals, or for events impacting its engagement professionals on clients’ premises; the possibility that adverse publicity could impact the Company’s ability to attract and retain clients and candidates; the success of the Company in attracting, training, and retaining qualified management personnel and other staff employees; the Company’s ability to comply with governmental regulations affecting personnel services businesses in particular or employer/employee relationships in general; whether there will be ongoing demand for Sarbanes-Oxley or other regulatory compliance services; the Company’s reliance on short-term contracts for a significant percentage of its business; litigation relating to prior or current transactions or activities, including litigation that may be disclosed from time to time in the Company’s Securities and Exchange Commission (“SEC”) filings; the ability of the Company to manage its international operations and comply with foreign laws and regulations; the impact of fluctuations in foreign currency exchange rates; the possibility that the additional costs the Company will incur as a result of health care reform legislation may adversely affect the Company’s profit margins or the demand for the Company’s services; the possibility that the Company’s computer and communications hardware and software systems could be damaged or their service interrupted or the Company could experience a cybersecurity breach; and the possibility that the Company may fail to maintain adequate financial and management controls and as a result suffer errors in its financial reporting. 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 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; and there is the possibility of involvement in litigation relating to prior or current transactions or activities. Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or extrapolating past results. Executive Overview 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. 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. 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. The U.S. labor market remains robust, with significant demand due to talent shortages across our professional disciplines. 19 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. We evaluate these trends to determine the appropriate level of investment, including personnel, which will best position the Company for success in the current and future global macroeconomic environment. The Company’s investments in headcount are typically structured to proactively support and align with expected revenue growth trends and productivity metrics. We have limited visibility into future revenues not only due to the dependence on macroeconomic conditions noted above, but also because of the relatively short duration of the Company’s client engagements. Accordingly, we typically assess headcount and other investments on at least a quarterly basis. 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 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. Capital expenditures included amounts spent on tenant improvements and furniture and equipment in the Company’s leased offices. We currently expect that 2021 capital expenditures will range from $65 million to $75 million, of which $50 million to $60 million relates to software initiatives and technology infrastructure, including capitalized costs related to implementation of cloud computing arrangements. Critical Accounting Policies and Estimates 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 six months ended June 30, 2021. Recent Accounting Pronouncements See Note B—“New Accounting Pronouncements” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report. Results of Operations 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 market conditions both domestically and abroad. 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 and geographies. 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. 20 Non-GAAP Financial Measures The financial results of Robert Half International Inc. (the “Company”) are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). To help readers understand the Company’s financial performance, the Company supplements its GAAP financial results with the following non-GAAP measures: as adjusted revenue growth rates; adjusted gross margin; adjusted selling, general and administrative expense; segment income and combined segment income. 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. 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 and constant currency exchange rates. The following measures: adjusted gross margin; adjusted selling, general and administrative expense; and segment income include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans. 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 expense (income) and amortization of intangible assets. The Company provides combined segment income because it is how the Company evaluates segment performance. The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies may calculate such financial results differently. The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided on the following pages. Refer to Item 3. “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 June 30, 2021 and 2020 Revenues. 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: 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 $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 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. 21 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 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 $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 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 Temporary and consultant staffing As Reported 29.9 % 27.5 % 38.6 % Billing Days Impact 0.0 % 0.2 % -0.8 % Currency Impact -2.7 % ― -12.7 % As Adjusted 27.2 % 27.7 % 25.1 % Permanent placement staffing As Reported 102.2 % 109.3 % 87.8 % Billing Days Impact 0.0 % 0.3 % -1.1 % Currency Impact -5.3 % ― -16.2 % As Adjusted 96.9 % 109.6 % 70.5 % Risk consulting and internal audit services As Reported 61.6 % 62.6 % 57.6 % Billing Days Impact 0.0 % 0.2 % -0.8 % Currency Impact -2.8 % ― -13.3 % As Adjusted 58.8 % 62.8 % 43.5 % Gross Margin. 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. 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; 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. 22 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. 23 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 Resources 210,550 — 210,550 165,031 — 165,031 13.3 % 14.9 % 13.3 % 14.9 % Elimination of intersegment revenues (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. 24 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 June 30, 2021 2020 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. 25 Six Months Ended June 30, 2021 and 2020 Revenues. 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. 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 $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. 26 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 $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 $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. 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 $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. 27 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 $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 $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. 28 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 Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted SERVICE REVENUES: Accountemps $ 870,448 $ — $ 870,448 $ 821,426 $ — $ 821,426 29.3 % 31.4 % 29.3 % 31.4 % OfficeTeam 483,665 — 483,665 376,278 — 376,278 16.2 % 14.4 % 16.2 % 14.4 % Robert Half Technology 366,406 — 366,406 358,680 — 358,680 12.3 % 13.7 % 12.3 % 13.7 % Robert Half Management Resources 393,878 — 393,878 376,908 — 376,908 13.2 % 14.4 % 13.2 % 14.4 % Elimination of intersegment revenues (246,840) — (246,840) (87,786) — (87,786) (8.3 %) (3.4 %) (8.3 %) (3.4 %) Temporary and consultant staffing 1,867,557 — 1,867,557 1,845,506 — 1,845,506 62.7 % 70.6 % 62.7 % 70.6 % Permanent placement staffing 255,344 — 255,344 191,519 — 191,519 8.6 % 7.3 % 8.6 % 7.3 % Protiviti 856,060 — 856,060 577,992 — 577,992 28.7 % 22.1 % 28.7 % 22.1 % Total $ 2,978,961 $ — $ 2,978,961 $ 2,615,017 $ — $ 2,615,017 100.0 % 100.0 % 100.0 % 100.0 % GROSS MARGIN: Temporary and consultant staffing $ 733,003 $ — $ 733,003 $ 692,298 $ — $ 692,298 39.2 % 37.5 % 39.2 % 37.5 % Permanent placement staffing 254,951 — 254,951 191,186 — 191,186 99.8 % 99.8 % 99.8 % 99.8 % Protiviti 238,629 5,842 244,471 147,439 2,871 150,310 46.5 % 25.5 % 28.6 % 26.0 % Total $ 1,226,583 $ 5,842 $ 1,232,425 $ 1,030,923 $ 2,871 $ 1,033,794 27.9 % 39.4 % 41.4 % 39.5 % SELLING GENERAL AND ADMINISTRATIVE EXPENSE: Temporary and consultant staffing $ 593,627 $ (30,312) $ 563,315 $ 575,290 $ (5,146) $ 570,144 31.8 % 31.2 % 30.2 % 30.9 % Permanent placement staffing 210,360 (3,643) 206,717 181,057 (534) 180,523 82.4 % 94.5 % 81.0 % 94.3 % Protiviti 107,168 — 107,168 93,734 — 93,734 12.5 % 16.2 % 12.5 % 16.2 % Total $ 911,155 $ (33,955) $ 877,200 $ 850,081 $ (5,680) $ 844,401 30.6 % 32.5 % 29.4 % 32.3 % OPERATING/SEGMENT INCOME: Temporary and consultant staffing $ 139,376 $ 30,312 $ 169,688 $ 117,008 $ 5,146 $ 122,154 7.5 % 6.3 % 9.1 % 6.6 % Permanent placement staffing 44,591 3,643 48,234 10,129 534 10,663 17.5 % 5.3 % 18.9 % 5.6 % Protiviti 131,461 5,842 137,303 53,705 2,871 56,576 15.4 % 9.3 % 16.0 % 9.8 % Total $ 315,428 $ 39,797 $ 355,225 $ 180,842 $ 8,551 $ 189,393 10.6 % 6.9 % 11.9 % 7.2 % Amortization of intangible assets 1,152 — 1,152 668 — 668 0.0 % 0.1 % 0.0 % 0.1 % (Income) loss from investments held in employee deferred compensation trusts (39,797) 39,797 — (8,551) 8,551 — 1.3 % 0.3 % 0.0 % 0.0 % 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 % (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. 29 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 $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 $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 June 30, 2021 2020 Income before income taxes $ 353,968 $ 189,787 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 $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 26.6% 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. 30 Liquidity and Capital Resources 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 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 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 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 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 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 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. We have limited visibility into future cash flows as the Company’s revenues are dependent on macroeconomic conditions. The Company’s variable direct costs related to its temporary and consultant staffing business will largely fluctuate in relation to its revenues. 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. 31