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 future operating results or financial positions of Robert Half International Inc. (the "Company"). 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 or other 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 recently completed a multiyear process to unify its family of Robert Half endorsed divisional brands to a single brand, Robert Half. This simplifies the Company's go-to-market brand structure for clients and candidates and provides leverage for greater brand awareness and allows future flexibility to expand the Company's existing functional specializations. In connection with this process, the Company's current financial statement disclosures reflect new names for its reportable segments, including contract talent solutions (formerly temporary and consultant staffing), permanent placement talent solutions (formerly permanent placement staffing) and Protiviti (formerly risk consulting and internal audit services). What was previously referred to as staffing operations is now referred to as talent solutions. The presentation of contract talent solutions includes functional specializations rather than the previously branded divisions. The functional specializations are: finance and accounting, which combines the former Accountemps® and Robert Half® Management Resources divisions; administrative and customer support, which consists of the former OfficeTeam®; and technology, which includes the former Robert Half® Technology. The Company reported another very strong quarter driven by a robust demand environment across the globe. During the first quarter of 2022, service revenues were $1.81 billion, an increase of 29.8% from the prior year. Net income increased 52.1% to $168 million and diluted net income per share increased 55.1% to $1.52. 19 The Company's permanent placement talent solutions led the way, achieving year-over-year revenue growth of 67 percent. Contract talent solutions and Protiviti also continued to post very strong results, growing year-over-year revenues by 30 percent and 19 percent, respectively. The future of work continues to evolve as remote and hybrid work models gain wider acceptance, and the swift recovery across global labor markets has significantly increased the demand for the Company's services. More than ever before, clients are willing to recruit from outside their geographic region to access deeper talent pools and lower price points than may be available locally. Job candidates also benefit from the broader experiences and wider selection of jobs derived from out-of-market engagements. This remote work environment increasingly plays to the Company's strengths and presents an unparalleled opportunity to capitalize on a structural shift in how companies source talent. Protiviti reported double-digit revenue gains. Internal audit and blended solutions with contract talent solutions reported the strongest growth. The Company continues to see positive results in the collaboration between Protiviti and contract talent, which pairs Protiviti's world-class consulting talent with contract talent solutions's deep operational resources to provide a cost-effective solution to clients' skills and scalability needs. Protiviti's pipeline continues to be very strong. Demand for the Company’s contract talent solutions, permanent placement talent solutions, and consulting talent is largely dependent upon general economic and labor trends both domestically and abroad. The United States economic backdrop and labor trends for the first quarter of 2022 remained conducive to growth for the Company as the unemployment rate decreased from 3.9% in December 2021 to 3.6% at the end of the first quarter of 2022. In the United States, the number of job openings exceeded the number of hires at the end of March 2022, 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 professional disciplines. 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. During the first quarter of 2022, the Company increased headcount across all segments when compared to prior year-end levels. 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, 2021. There were no material changes to the Company’s critical accounting policies or estimates for the three months ended March 31, 2022. 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. 20 Results of Operations The Company analyzes its operating results for three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. The contract talent solutions segment provides specialized engagement professionals in the accounting and finance, administrative and office, information technology, legal, advertising, marketing and web design fields. The permanent placement talent solutions segment provides full-time personnel in the accounting, finance, administrative and office, legal, and information technology fields. The Protiviti segment provides business and technology risk consulting and internal audit services. Demand for the Company’s contract talent solutions, permanent placement talent solutions, and consulting talent is largely dependent upon general economic and labor trends 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 global brand, office network, candidate database and advanced AI-driven technologies allows the Company to successfully recruit the necessary talent for its clients to thrive and grow amid the Great Reshuffle, as professionals continue to change jobs at record levels and companies across the globe struggle to navigate unprecedented employee turnover. Global labor markets remain very robust. In the U.S., this is seen in the elevated levels of job openings and quits rates, as well as low initial unemployment claims and a low unemployment rate. As a result of this very strong demand environment, coupled with the Company's unique ability to successfully secure hard-to-find candidates for its clients, the Company continues to see its talent solutions results recovering at a faster pace than experienced in the past. The Company’s talent solutions business has 317 offices in 42 states, the District of Columbia and 17 foreign countries, while Protiviti has 65 offices in 24 states and 13 foreign countries. 21 Non-GAAP Financial Measures The financial results of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the 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 functional specializations and segments 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. In order to calculate constant currency revenue growth rates, as reported amounts are retranslated using foreign currency exchange rates from the prior year’s comparable period. Management then calculates a global, weighted-average number of billing days for each reporting period based upon input from all countries and all functional specializations and segments. In order to remove the fluctuations caused by comparable periods having different billing days, the Company calculates same billing day revenue growth rates by dividing each comparative period’s reported revenues by the calculated number of billing days for that period to arrive at a per billing day amount. Same billing day growth rates are then calculated based upon the per billing day amounts. The term “as adjusted” means that the impact of different billing days and currency fluctuations are removed from the revenue growth rate calculation. 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 income, net and amortization of intangible assets. The Company provides combined segment income because it is how management 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 March 31, 2022 and 2021 Revenues. The Company’s revenues were $1.81 billion for the three months ended March 31, 2022, increasing by 29.8% compared to $1.40 billion for the three months ended March 31, 2021. Revenues from U.S. operations increased 31.7% to $1.42 billion (78.0% of total revenue) for the three months ended March 31, 2022, compared to $1.07 billion (76.8% of total revenue) for the three months ended March 31, 2021. Revenues from foreign operations increased 23.4% to $400 million (22.0% of total revenue) for the three months ended March 31, 2022, compared to $324 million (23.2% of total revenue) for the three months ended March 31, 2021. The economic recovery in the United States and abroad contributed to the broad-based demand for the Company’s talent solutions and business consulting services. Contributing factors for each reportable segment are discussed below in further detail. 22 Contract talent solutions revenues were $1.16 billion for the three months ended March 31, 2022, increasing by 30.0% compared to revenues of $889 million for the three months ended March 31, 2021. Key drivers of contract talent solutions 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, contract talent solutions revenues in the first quarter of 2022 increased 31.0% compared to the first quarter of 2021, primarily due to an increase in the number of hours worked by the Company's engagement professionals and a 9.1% increase in weighted average bill rates, adjusted for changes in the mix of revenues by functional specialization, currency and country. In the U.S., revenues in the first quarter of 2022 increased 33.4% on both an as reported basis and an as adjusted basis, compared to the first quarter of 2021. For the Company’s international operations, revenues for the first quarter of 2022 increased 18.5% on an as reported basis and increased 23.5% on an as adjusted basis, compared to the first quarter of 2021. Permanent placement talent solutions revenues were $187 million for the three months ended March 31, 2022, increasing by 67.2% compared to revenues of $112 million for the three months ended March 31, 2021. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues increased 68.8% for the first quarter of 2022, compared to the first quarter of 2021, driven primarily by an increase in the number of placements. In the U.S., revenues for the first quarter of 2022 increased 78.3% on both an as reported basis and an as adjusted basis, compared to the first quarter of 2021. For the Company’s international operations, revenues for the first quarter of 2022 increased 44.7% on an as reported basis, and increased 50.0% on an as adjusted basis, compared to the first quarter of 2021. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue. Protiviti revenues were $472 million for the three months ended March 31, 2022, increasing by 18.9% compared to revenues of $397 million for the three months ended March 31, 2021. Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. On an as adjusted basis, Protiviti revenues increased 20.0% for the first quarter of 2022, compared to the first quarter of 2021, due primarily to an increase in billable hours. In the U.S., revenues in the first quarter of 2022 increased 17.0% on both an as reported basis and an as adjusted basis, compared to the first quarter of 2021. For the Company’s international operations, revenues in the first quarter of 2022 increased 26.2% on an as reported basis, and increased 32.3% on an as adjusted basis, compared to the first quarter of 2021. 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, 2022, is presented in the following table: Global United States International Contract talent solutions As Reported 30.0 % 33.4 % 18.5 % Billing Days Impact -0.2 % 0.0 % -0.4 % Currency Impact 1.2 % ― 5.4 % As Adjusted 31.0 % 33.4 % 23.5 % Permanent placement talent solutions As Reported 67.2 % 78.3 % 44.7 % Billing Days Impact -0.3 % 0.0 % -0.5 % Currency Impact 1.9 % ― 5.8 % As Adjusted 68.8 % 78.3 % 50.0 % Protiviti As Reported 18.9 % 17.0 % 26.2 % Billing Days Impact -0.2 % 0.0 % -0.5 % Currency Impact 1.3 % ― 6.6 % As Adjusted 20.0 % 17.0 % 32.3 % Gross Margin. The Company’s gross margin dollars were $772 million for the three months ended March 31, 2022, increasing by 37.4% compared to $562 million for the three months ended March 31, 2021. Contributing factors for each reportable segment are discussed below in further detail. 23 Gross margin dollars for contract talent solutions 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 contract talent solutions position converts to a permanent position with the Company’s client. Gross margin dollars for contract talent solutions were $462 million for the three months ended March 31, 2022, increasing 33.9% compared to $345 million for the three months ended March 31, 2021. As a percentage of revenues, gross margin for contract talent solutions was 40.0% for the three months ended March 31, 2022, up from 38.8% for the three months ended March 31, 2021. This year-over-year improvement in gross margin percentage was attributable to expanding pay-bill spreads and higher conversion revenues. Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $186 million for the three months ended March 31, 2022, increasing 67.2% from $111 million for the three months ended March 31, 2021. Because reimbursable expenses for permanent placement talent solutions are de minimis, gross margin dollars are substantially explained by revenues previously discussed. Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses. The primary drivers of Protiviti's 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 Protiviti's staff. Gross margin dollars for Protiviti were $124 million for the three months ended March 31, 2022, increasing 17.3% compared to $105 million for the three months ended March 31, 2021. As a percentage of revenues, reported gross margin for Protiviti in the first quarter of 2022 was 26.2%, down from 26.5% in the first quarter of 2021. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 25.3% the first quarter of 2022, down from 26.9% in the first quarter of 2021. The year-over-year decrease in adjusted gross margin percentage was due to lower staff utilization rates and a significant increase in headcount. 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 $514 million for the three months ended March 31, 2022, increasing 21.5% from $423 million for the three months ended March 31, 2021. As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 28.3% for the first quarter of 2022, down from 30.3% the first quarter of 2021. As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 29.8% in the first quarter of 2022, up from 29.5% in the first quarter of 2021, due primarily to the higher mix of permanent placement talent solutions revenues. Contributing factors for each reportable segment are discussed below in further detail. Selling, general and administrative expenses for contract talent solutions were $305 million for the three months ended March 31, 2022, increasing 9.6% from $279 million for the three months ended March 31, 2021. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 26.4% in the first quarter of 2022, down from 31.3% in the first quarter of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 28.4% in the first quarter of 2022, down from 30.3% in the first quarter of 2021, due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for permanent placement talent solutions were $146 million for the three months ended March 31, 2022, increasing by 54.2% compared to $95 million for the three months ended March 31, 2021. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 78.3% in the first quarter of 2022, down from 84.9% in the first quarter of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions was 79.8% in the first quarter of 2022, down from 83.9% in the first quarter of 2021, due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for Protiviti were $63 million for the three months ended March 31, 2022, increasing by 26.1% compared to $50 million for the three months ended March 31, 2021. As a percentage of revenues, selling, general and administrative expenses for Protiviti were 13.3% in the first quarter of 2022, up from 12.5% in the first quarter of 2021, due primarily to an increase in variable overhead costs. 24 A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the three months ended March 31, 2022 and 2021 is presented in the following table (in thousands): Three Months Ended March 31, Relationships 2022 2021 2022 2021 2022 2021 Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted SERVICE REVENUES: Finance and accounting $ 801,690 $ — $ 801,690 $ 600,387 $ — $ 600,387 44.2 % 42.9 % 44.2 % 42.9 % Administrative and customer support 284,906 — 284,906 220,467 — 220,467 15.7 % 15.8 % 15.7 % 15.8 % Technology 213,327 — 213,327 172,239 — 172,239 11.7 % 12.3 % 11.7 % 12.3 % Elimination of intersegment revenues (144,200) — (144,200) (103,818) — (103,818) (7.9 %) (7.4 %) (7.9 %) (7.4 %) Contract talent solutions 1,155,723 — 1,155,723 889,275 — 889,275 63.7 % 63.6 % 63.7 % 63.6 % Permanent placement talent solutions 186,782 — 186,782 111,703 — 111,703 10.3 % 8.0 % 10.3 % 8.0 % Protiviti 472,329 — 472,329 397,402 — 397,402 26.0 % 28.4 % 26.0 % 28.4 % Total $ 1,814,834 $ — $ 1,814,834 $ 1,398,380 $ — $ 1,398,380 100.0 % 100.0 % 100.0 % 100.0 % GROSS MARGIN: Contract talent solutions $ 461,861 $ — $ 461,861 $ 344,931 $ — $ 344,931 40.0 % 38.8 % 40.0 % 38.8 % Permanent placement talent solutions 186,449 — 186,449 111,498 — 111,498 99.8 % 99.8 % 99.8 % 99.8 % Protiviti 123,536 (3,846) 119,690 105,282 1,688 106,970 26.2 % 26.5 % 25.3 % 26.9 % Total $ 771,846 $ (3,846) $ 768,000 $ 561,711 $ 1,688 $ 563,399 42.5 % 40.2 % 42.3 % 40.3 % SELLING GENERAL AND ADMINISTRATIVE EXPENSE: Contract talent solutions $ 305,334 $ 23,281 $ 328,615 $ 278,547 $ (9,151) $ 269,396 26.4 % 31.3 % 28.4 % 30.3 % Permanent placement talent solutions 146,247 2,874 149,121 94,867 (1,149) 93,718 78.3 % 84.9 % 79.8 % 83.9 % Protiviti 62,613 — 62,613 49,648 — 49,648 13.3 % 12.5 % 13.3 % 12.5 % Total $ 514,194 $ 26,155 $ 540,349 $ 423,062 $ (10,300) $ 412,762 28.3 % 30.3 % 29.8 % 29.5 % OPERATING/SEGMENT INCOME: Contract talent solutions $ 156,527 $ (23,281) $ 133,246 $ 66,384 $ 9,151 $ 75,535 13.5 % 7.5 % 11.5 % 8.5 % Permanent placement talent solutions 40,202 (2,874) 37,328 16,631 1,149 17,780 21.5 % 14.9 % 20.0 % 15.9 % Protiviti 60,923 (3,846) 57,077 55,634 1,688 57,322 12.9 % 14.0 % 12.1 % 14.4 % Total $ 257,652 $ (30,001) $ 227,651 $ 138,649 $ 11,988 $ 150,637 14.2 % 9.9 % 12.5 % 10.8 % (Income) loss from investments held in employee deferred compensation trusts 30,001 (30,001) — (11,988) 11,988 — 1.7 % (0.9 %) — — Amortization of intangible assets 417 — 417 576 — 576 0.0 % 0.1 % 0.0 % 0.1 % Interest income, net (166) (166) (45) — (45) 0.0 % 0.0 % 0.0 % 0.0 % Income before income taxes $ 227,400 $ — $ 227,400 $ 150,106 $ — $ 150,106 12.5 % 10.7 % 12.5 % 10.7 % (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) loss is presented separately. The non-GAAP financial measures shown in the table above are adjusted to reclassify investment (income) loss 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. 25 (Income) Loss 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 Protiviti, 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) loss 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 a loss of $30 million for the three months ended March 31, 2022, compared to income of $12 million for the three months ended March 31, 2021. The loss from trust investments was due to negative market returns in the first quarter of 2022. Income Before Income Taxes and Segment Income. The Company’s total income before income taxes was $227 million, or 12.5% of revenues, for the three months ended March 31, 2022, up from $150 million or 10.7% of revenues, for the three months ended March 31, 2021. Combined segment income was $228 million, or 12.5% of revenues, for the three months ended March 31, 2022, up from $151 million, or 10.8% of revenues, for the three months ended March 31, 2021. 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, 2022 and 2021 (in thousands): Three Months Ended March 31, 2022 2021 Income before income taxes $ 227,400 $ 150,106 Interest income, net (166) (45) Amortization of intangible assets 417 576 Combined segment income $ 227,651 $ 150,637 Contract talent solutions segment income was $133 million, or 11.5% of applicable revenues for the three months ended March 31, 2022, up from $76 million, or 8.5% of applicable revenues for the three months ended March 31, 2021. Permanent placement talent solutions segment income was $37 million, or 20.0% of applicable revenues in the first quarter of 2022, up from $18 million, or 15.9% of applicable revenues, in the first quarter of 2021. Protiviti segment income was $57 million, or 12.1% of applicable revenues in the first quarter of 2022, compared to segment income of $57 million, or 14.4% of applicable revenues, in the first quarter of 2021. Provision for income taxes . The provision for income taxes was 26.0% and 26.3% for the three months ended March 31, 2022 and 2021, respectively. Liquidity and Capital Resources The change in the Company’s liquidity during the three months ended March 31, 2022 and 2021, 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 $550 million and $498 million at March 31, 2022 and 2021, respectively. Operating activities provided cash flows of $69 million during the three months ended March 31, 2022, offset by $27 million and $110 million of net cash used in investing activities and financing activities, respectively. Operating activities provided cash flows of $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—Net cash provided by operating activities for the three months ended March 31, 2022 was composed of net income of $168 million adjusted upward for non-cash items of $72 million, offset by net cash used in changes in working capital of $171 million. 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. 26 Investing activities—Cash used in investing activities for the three months ended March 31, 2022 was $27 million. This was composed of capital expenditures of $15 million and investments in employee deferred compensation trusts of $34 million, partially offset by proceeds from employee deferred compensation trusts redemptions of $22 million. Cash used in investing activities for the three months ended March 31, 2021 was $15 million. This was composed of capital expenditures of $10 million and investments in employee deferred compensation trusts of $28 million, partially offset by proceeds from employee deferred compensation trusts redemptions of $23 million. Capital expenditures, including $9.5 million for cloud computing arrangements, for the three months ended March 31, 2022, totaled $24.5 million, approximately 81% 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. The Company currently expects that 2022 capital expenditures will range from $95 million to $105 million, of which $75 million to $85 million relates to software initiatives and technology infrastructure, including capitalized costs related to implementation of cloud computing arrangements. Financing activities—Cash used in financing activities for the three months ended March 31, 2022 was $110 million. This included repurchases of $62 million in common stock and $48 million in dividends paid to stockholders. Cash used in financing activities for the three months ended March 31, 2021 was $124 million. This included repurchases of $80 million in common stock and $44 million in dividends paid to stockholders. As of March 31, 2022, the Company is authorized to repurchase, from time to time, up to 6.7 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, 2022 and 2021, the Company repurchased 0.5 million shares, at a cost of $55 million, and 0.8 million shares, at a cost of $61 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, 2022 and 2021, such repurchases totaled 0.1 million shares, at a cost of $7 million, and 0.3 million shares, at a cost of $19 million, respectively. Repurchases of shares have been funded with cash generated from operations. The Company’s working capital at March 31, 2022 included $550 million in cash and cash equivalents and $1.07 billion 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. There is 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 contract talent solutions business will largely fluctuate in relation to its revenues. In May 2021, the Company entered into an amendment 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 March 31, 2022. There were no borrowings under the Credit Agreement as of March 31, 2022. On May 3, 2022, the Company announced a quarterly dividend of $.43 per share to be paid to all shareholders of record as of May 25, 2022. The dividend will be paid on June 15, 2022. Material Cash Requirements from Contractual Obligations Leases. As of March 31, 2022, the Company reported current and long-term operating lease liabilities of $86.3 million and $176.4 million, respectively. These balances consist of the minimum rental commitments for April 2022 and thereafter, discounted to reflect the Company’s cost of borrowing, under noncancelable lease contracts executed as of March 31, 2022. The majority of these leases are for real estate. In the event the Company vacates a location prior to the end of the lease term, the Company may be obliged to continue making lease payments. For further information, see Note F— “Leases” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report. Purchase Obligations. Purchase obligations are discussed in more detail in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes to the Company's contractual purchase obligations during the first quarter of 2022. 27 Employee Deferred Compensation Plan. As of March 31, 2022, the Company reported deferred compensation plan obligations of $495.3 million in its accompanying Condensed Consolidated Statements of Financial Position. The balances are due to employees based upon elections they make at the time of deferring their funds. The timing of these payments may change based upon factors including termination of the Company’s employment arrangement with a participant. Assets of these plans are held by an independent trustee for the sole benefit of participating employees and consist of money market funds and mutual funds. For further information, see Note I—“Employee Deferred Compensation Plan Obligations” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report.