ROBERT HALF INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (in thousands, except share amounts) June 30, 2022 December 31, 2021 ASSETS Cash and cash equivalents $ 590,909 $ 619,001 Accounts receivable, net 1,091,598 984,691 Employee deferred compensation trust assets 416,678 494,991 Other current assets 161,557 169,864 Total current assets 2,260,742 2,268,547 Property and equipment, net 103,616 93,403 Right-of-use assets 215,656 228,793 Other intangible assets, net 2,500 3,334 Goodwill 222,268 222,855 Noncurrent deferred income taxes 129,053 135,427 Total assets $ 2,933,835 $ 2,952,359 LIABILITIES Accounts payable and accrued expenses $ 174,724 $ 183,796 Accrued payroll and benefit costs 545,342 540,183 Employee deferred compensation plan obligations 440,319 535,276 Income taxes payable 22,094 15,631 Current operating lease liabilities 84,394 83,787 Total current liabilities 1,266,873 1,358,673 Noncurrent operating lease liabilities 166,197 181,291 Other liabilities 33,097 31,344 Total liabilities 1,466,167 1,571,308 Commitments and Contingencies (Note J) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.001 par value; authorized 5,000,000 shares; none issued — — Common stock, $ 0.001 par value; authorized 260,000,000 shares; issued and outstanding 109,606,600 shares and 110,685,989 shares 110 111 Additional paid-in capital 1,265,495 1,235,903 Accumulated other comprehensive income (loss) ( 47,607 ) ( 22,622 ) Retained earnings 249,670 167,659 Total stockholders’ equity 1,467,668 1,381,051 Total liabilities and stockholders’ equity $ 2,933,835 $ 2,952,359 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 2 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Service revenues $ 1,862,827 $ 1,580,581 $ 3,677,661 $ 2,978,961 Costs of services 1,047,280 915,709 2,090,268 1,752,378 Gross margin 815,547 664,872 1,587,393 1,226,583 Selling, general and administrative expenses 509,394 488,093 1,023,588 911,155 (Income) loss from investments held in employee deferred compensation trusts (which is completely offset by related costs and expenses - Notes A & I) 65,622 ( 27,810 ) 95,623 ( 39,797 ) Amortization of intangible assets 416 576 833 1,152 Interest (income) expense, net ( 718 ) 151 ( 884 ) 105 Income before income taxes 240,833 203,862 468,233 353,968 Provision for income taxes 65,012 54,649 124,173 94,157 Net income $ 175,821 $ 149,213 $ 344,060 $ 259,811 Net income per share: Basic $ 1.62 $ 1.35 $ 3.16 $ 2.34 Diluted $ 1.60 $ 1.33 $ 3.12 $ 2.32 Shares: Basic 108,833 110,861 109,025 111,141 Diluted 109,696 111,889 110,143 112,191 Dividends declared per share $ 0.43 $ 0.38 $ 0.86 $ 0.76 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 3 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 COMPREHENSIVE INCOME (LOSS): Net income $ 175,821 $ 149,213 $ 344,060 $ 259,811 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax ( 24,048 ) 4,398 ( 25,016 ) ( 4,439 ) Foreign defined benefit plan adjustments, net of tax 15 39 31 79 Total other comprehensive income (loss) ( 24,033 ) 4,437 ( 24,985 ) ( 4,360 ) Total comprehensive income (loss) $ 151,788 $ 153,650 $ 319,075 $ 255,451 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 4 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shares Par Value Balance at December 31, 2021 110,686 $ 111 $ 1,235,903 $ ( 22,622 ) $ 167,659 $ 1,381,051 Net income — — — — 168,239 168,239 Other comprehensive income (loss) — — — ( 952 ) — ( 952 ) Dividends declared ($ 0.43 per share) — — — — ( 48,413 ) ( 48,413 ) Net issuances of restricted stock 598 1 ( 1 ) — — — Stock-based compensation — — 15,184 — — 15,184 Repurchases of common stock ( 537 ) ( 1 ) — — ( 62,340 ) ( 62,341 ) Balance at March 31, 2022 110,747 $ 111 $ 1,251,086 $ ( 23,574 ) $ 225,145 $ 1,452,768 Net income — $ — $ — $ — $ 175,821 $ 175,821 Other comprehensive income (loss) — — — ( 24,033 ) — ( 24,033 ) Dividends declared ($ 0.43 per share) — — — — ( 47,325 ) ( 47,325 ) Net issuances of restricted stock 4 — — — — — Stock-based compensation — — 14,409 — — 14,409 Repurchases of common stock ( 1,144 ) ( 1 ) — — ( 103,971 ) ( 103,972 ) Balance at June 30, 2022 109,607 $ 110 $ 1,265,495 $ ( 47,607 ) $ 249,670 $ 1,467,668 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shares Par Value Balance at December 31, 2020 113,128 $ 113 $ 1,179,972 $ ( 4,732 ) $ 29,936 $ 1,205,289 Net income — — — — 110,598 110,598 Other comprehensive income (loss) — — — ( 8,797 ) — ( 8,797 ) Dividends declared ($ 0.38 per share) — — — — ( 43,300 ) ( 43,300 ) Net issuances of restricted stock 602 1 ( 1 ) — — — Stock-based compensation — — 14,182 — — 14,182 Repurchases of common stock ( 1,048 ) ( 1 ) — — ( 80,272 ) ( 80,273 ) Balance at March 31, 2021 112,682 $ 113 $ 1,194,153 $ ( 13,529 ) $ 16,962 $ 1,197,699 Net income — $ — $ — $ — $ 149,213 $ 149,213 Other comprehensive income (loss) — — — 4,437 — 4,437 Dividends declared ($ 0.38 per share) — — — — ( 42,720 ) ( 42,720 ) Net issuances of restricted stock 5 — — — — — Stock-based compensation — — 13,903 — — 13,903 Repurchases of common stock ( 717 ) ( 1 ) — — ( 63,281 ) ( 63,282 ) Balance at June 30, 2021 111,970 $ 112 $ 1,208,056 $ ( 9,092 ) $ 60,174 $ 1,259,250 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 5 ROBERT HALF INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Six Months Ended June 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 344,060 $ 259,811 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for credit losses 4,316 4,733 Depreciation 22,907 27,715 Amortization of cloud computing implementation costs 13,804 13,353 Amortization of intangible assets 833 1,152 Realized and unrealized (gains) losses from investments held in employee deferred compensation trusts 98,233 ( 36,949 ) Stock-based compensation 29,593 28,085 Deferred income taxes 6,421 ( 5,524 ) Changes in operating assets and liabilities: Accounts receivable ( 129,983 ) ( 201,602 ) Capitalized cloud computing implementation costs ( 19,540 ) ( 16,236 ) Accounts payable and accrued expenses ( 8,374 ) 17,138 Accrued payroll and benefit costs 15,848 68,340 Employee deferred compensation plan obligations ( 94,957 ) 46,236 Income taxes payable 21,516 22,110 Other assets and liabilities, net ( 2,599 ) 5,110 Net cash flows provided by operating activities 302,078 233,472 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 35,275 ) ( 16,114 ) Investments in employee deferred compensation trusts ( 45,061 ) ( 42,423 ) Proceeds from employee deferred compensation trust redemptions 25,140 27,424 Net cash flows used in investing activities ( 55,196 ) ( 31,113 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of notes payable — ( 117 ) Repurchases of common stock ( 160,610 ) ( 145,314 ) Dividends paid ( 96,229 ) ( 86,479 ) Net cash flows used in financing activities ( 256,839 ) ( 231,910 ) Effect of exchange rate fluctuations ( 18,135 ) ( 2,070 ) Change in cash and cash equivalents ( 28,092 ) ( 31,621 ) Cash and cash equivalents at beginning of period 619,001 574,426 Cash and cash equivalents at end of period $ 590,909 $ 542,805 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Non-cash items: Repurchases of common stock awaiting settlement $ 11,296 $ 1,345 Fund exchanges within employee deferred compensation trusts $ 66,645 $ 63,154 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 6 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 2022 Note A— Summary of Significant Accounting Policies Nature of Operations . Robert Half International Inc. (the “Company”) is a specialized talent solutions and business consulting firm that connects opportunities at great companies with highly skilled job seekers. Robert Half ® offers contract talent solutions and permanent placement talent solutions for finance and accounting, technology, marketing and creative, legal, administrative and customer support roles. Robert Half is also the parent company of Protiviti ® , a global consulting firm that provides internal audit, risk, business, and technology consulting solutions. 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, 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 operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation. Basis of Presentation. The unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). The comparative year-end Condensed Consolidated Statement of Financial Position data presented was derived from audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the periods presented have been included. These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2021, included in its Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for a full year. Certain reclassifications have been made to prior year’s Condensed Consolidated Financial Statements to conform to the 2022 presentation. Principles of Consolidation. The Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As of June 30, 2022, such estimates include allowances for credit losses, variable consideration, workers’ compensation losses, accrued medical expenses, income and other taxes, assumptions used in the Company’s goodwill impairment assessment and in the valuation of stock grants subject to market conditions. Actual results and outcomes may differ from management’s estimates and assumptions. Service Revenues. The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. See Note C for further discussion of the revenue recognition accounting policy. 7 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 Costs of Services. Direct costs of contract talent solutions consist of professional staff payroll, payroll taxes and benefit costs for the Company’s engagement professionals, as well as reimbursable expenses. Direct costs of permanent placement talent solutions consist of reimbursable expenses. Protiviti direct costs of services include professional staff payroll, payroll taxes and benefit costs, as well as reimbursable expenses. Advertising Costs. The Company expenses all advertising costs as incurred. Advertising costs were $ 14.5 million and $ 28.7 million for the three and six months ended June 30, 2022, respectively, and $ 11.8 million and $ 20.2 million for the three and six months ended June 30, 2021, respectively. (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 deferred compensation obligation to employees changes accordingly. Changes in the Company’s deferred compensation obligations remain in selling, general and administrative expenses or, in the case of Protiviti, costs of services. The value of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost 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 following table presents the Company’s (income) loss from investments held in employee deferred compensation trusts (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Dividend income $ ( 2,315 ) $ ( 2,556 ) $ ( 2,610 ) $ ( 2,848 ) Realized and unrealized (gains) losses 67,937 ( 25,254 ) 98,233 ( 36,949 ) (Income) loss from investments held in employee deferred compensation trusts $ 65,622 $ ( 27,810 ) $ 95,623 $ ( 39,797 ) Comprehensive Income (Loss). Comprehensive income (loss) includes net income and certain other items that are recorded directly to stockholders’ equity. The Company’s only sources of other comprehensive income (loss) are foreign currency translation and foreign defined benefit plan adjustments. Fair Value of Financial Instruments. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market to measure fair value, summarized as follows: Level 1: observable inputs for identical assets or liabilities, such as quoted prices in active markets Level 2: inputs other than the quoted prices in active markets that are observable either directly or indirectly Level 3: unobservable inputs in which there is little or no market data, which requires management’s best estimates and assumptions that market participants would use in pricing the asset or liability The carrying value of cash and cash equivalents, net accounts receivable, and accounts payable and accrued expenses approximates fair value because of their short-term nature. The Company holds mutual funds and money market funds to satisfy its obligations under its employee deferred compensation plans, which are carried at fair value based on quoted market prices in active markets for identical assets (level 1). 8 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 The following table sets forth the composition of the underlying assets which comprise the Company’s deferred compensation trust assets (in thousands): Fair Value Measurements Using Balance at June 30, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Money market funds $ 76,166 $ 76,166 — — Mutual funds - bond 29,939 29,939 — — Mutual funds - stock 232,565 232,565 — — Mutual funds - blend 78,008 78,008 — — $ 416,678 $ 416,678 — — Fair Value Measurements Using Balance at December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Money market funds $ 66,700 $ 66,700 — — Mutual funds - bond 30,750 30,750 — — Mutual funds - stock 303,277 303,277 — — Mutual funds - blend 94,264 94,264 — — $ 494,991 $ 494,991 — — Certain items such as goodwill and other intangible assets are recognized or disclosed at fair value on a non-recurring basis. The Company determines the fair value of these items using level 3 inputs. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions. Allowance for Credit Losses. The Company is exposed to credit losses resulting from the inability of its customers to make required payments. The Company establishes an allowance for these potential credit losses based on its review of customers’ credit profiles, historical loss statistics, prepayments, recoveries, age of customer receivable balances, current business conditions and macroeconomic trends. The Company considers risk characteristics of trade receivables based on asset type and geographical locations to evaluate trade receivables on a collective basis. The Company applies credit loss estimates to these pooled receivables to determine expected credit losses. 9 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 The following table sets forth the activity in the allowance for credit losses from December 31, 2021 through June 30, 2022 (in thousands): Allowance for Credit Losses Balance as of December 31, 2021 $ 21,530 Charges to expense 4,316 Deductions ( 2,206 ) Other, including foreign currency translation adjustments ( 805 ) Balance as of June 30, 2022 $ 22,835 Note B— New Accounting Pronouncements Recently Adopted Accounting Pronouncements Government Assistance. In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” to increase the transparency of government assistance including the disclosure of the types of assistance an entity receives, an entity’s method of accounting for government assistance and the effect of the assistance on an entity’s financial statements. This standard is effective for annual periods beginning after December 15, 2021. The amendments should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application, or (2) retrospectively to those transactions. The Company adopted this ASU in January 2022. The adoption of this guidance did not have a material impact on its financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted None. Note C— Revenue Recognition The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Service revenues as presented in the unaudited Condensed Consolidated Statements of Operations represent services rendered to customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in service revenues, and equivalent amounts of reimbursable expenses are included in costs of services. Contract talent solutions revenues. Contract talent solutions revenues are recognized in the amount to which the Company has a right to invoice when the services are rendered by the Company’s engagement professionals. The substantial majority of engagement professionals placed on assignment by the Company are the Company’s legal employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers. The Company records contract talent solutions revenues on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers. Fees paid to Time Management or Vendor Management service providers selected by clients are recorded as a reduction of revenues, as the Company is not the primary obligor with respect to those services. 10 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 Permanent placement talent solutions revenues. Permanent placement talent solutions revenues are primarily recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 90 -day guarantee period. These amounts are established based primarily on historical data and are recorded as liabilities. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement talent solutions services are charged to employment candidates. Protiviti revenues. Protiviti’s consulting services are generally provided on a time-and-material basis or fixed-fee basis. Revenues earned under time-and-material arrangements and fixed-fee arrangements are recognized using a proportional performance method. Revenue is measured using cost incurred relative to total estimated cost for the engagement to measure progress towards satisfying the Company’s performance obligations. Cost incurred represents work performed and thereby best depicts the transfer of control to the customer. Protiviti’s consulting services generally contain one or more performance obligation(s) which are satisfied over a period of time. Revenues are recognized over time as the performance obligations are satisfied because the services provided do not have any alternative use to the Company and contracts generally include language giving the Company an enforceable right to payment for services provided to date. The Company periodically evaluates the need to provide for any losses on these projects, and losses are recognized when it is probable that a loss will be incurred. The following table presents the Company’s service revenues disaggregated by functional specialization and segment (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Contract talent solutions Finance and accounting $ 810,910 $ 663,892 $ 1,612,600 $ 1,264,326 Administrative and customer support 274,141 263,192 559,047 483,665 Technology 218,190 194,233 431,517 366,406 Elimination of intersegment revenues (a) ( 137,548 ) ( 143,036 ) ( 281,748 ) ( 246,840 ) Total contract talent solutions 1,165,693 978,281 2,321,416 1,867,557 Permanent placement talent solutions 200,096 143,640 386,878 255,344 Protiviti 497,038 458,660 969,367 856,060 Total service revenues $ 1,862,827 $ 1,580,581 $ 3,677,661 $ 2,978,961 (a) Service revenues for finance and accounting, administrative and customer support, and technology include intersegment revenues, which represent revenues from services provided to the Company’s Protiviti segment in connection with the Company’s blended business solutions. Intersegment revenues for each functional specialization are aggregated and then eliminated as a single line. Payment terms in the Company’s contracts vary by the type of the Company’s customer and the services offered. The term between invoicing and when payment is due is not significant. Contracts with multiple performance obligations are recognized as performance obligations are delivered, and contract value is allocated based on relative standalone selling values of the services and products in the arrangement. As of June 30, 2022, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 202.4 million. Of this amount, $ 183.6 million is expected to be recognized within the next twelve months . As of June 30, 2021, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 173.5 million. 11 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 Contract liabilities are recorded when cash payments are received or due in advance of performance and are reflected in accounts payable and accrued expenses on the unaudited Condensed Consolidated Statements of Financial Position. The following table sets forth the activity in contract liabilities from December 31, 2021 through June 30, 2022 (in thousands): Contract Liabilities Balance as of December 31, 2021 $ 25,601 Payments in advance of satisfaction of performance obligations 36,646 Revenue recognized ( 41,310 ) Other, including translation adjustments ( 876 ) Balance as of June 30, 2022 $ 20,061 Note D— Other Current Assets Other current assets consisted of the following (in thousands): June 30, 2022 December 31, 2021 Prepaid expenses $ 72,932 $ 69,526 Unamortized cloud computing implementation costs 50,410 44,692 Other 38,215 55,646 Other current assets $ 161,557 $ 169,864 Note E— Property and Equipment, Net Property and equipment consisted of the following (in thousands): June 30, 2022 December 31, 2021 Computer hardware $ 168,714 $ 157,408 Computer software 248,496 246,013 Furniture and equipment 94,206 93,144 Leasehold improvements 164,611 165,153 Property and equipment, cost 676,027 661,718 Accumulated depreciation ( 572,411 ) ( 568,315 ) Property and equipment, net $ 103,616 $ 93,403 12 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 Note F— Leases The Company has operating leases for corporate and field offices, and certain equipment. The Company’s leases have remaining lease terms of less than 1 year to 8 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year. Operating lease expenses were $ 22.5 million and $ 45.1 million for the three and six months ended June 30, 2022, respectively, and $ 21.7 million and $ 43.2 million for the three and six months ended June 30, 2021, respectively. Supplemental cash flow information related to leases consisted of the following (in thousands): Six Months Ended June 30, 2022 2021 Cash paid for operating lease liabilities $ 46,743 $ 45,531 Right-of-use assets obtained in exchange for operating lease liabilities from new leases $ 17,384 $ 8,467 Right-of-use assets obtained in exchange for operating lease liabilities from lease modifications or reassessments $ 17,744 $ 13,829 Supplemental balance sheet information related to leases consisted of the following: June 30, 2022 December 31, 2021 Weighted average remaining lease term for operating leases 3.6 years 3.9 years Weighted average discount rate for operating leases 2.3 % 2.3 % Future minimum lease payments under non-cancellable leases as of June 30, 2022, were as follows (in thousands): 2022 (excluding the six months ended June 30, 2022) $ 46,348 2023 79,956 2024 60,256 2025 36,690 2026 23,270 Thereafter 14,623 Less: Imputed interest ( 10,552 ) Present value of operating lease liabilities (a) $ 250,591 (a) Includes current portion of $ 84.4 million for operating leases. As of June 30, 2022, the Company had additional future minimum lease obligations totaling $ 6.1 million under executed operating lease contracts that had not yet commenced. These operating leases include agreements for corporate and field office facilities with lease terms of 1 to 6 years. 13 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 Note G— Goodwill The following table sets forth the activity in goodwill from December 31, 2021 through June 30, 2022 (in thousands): Goodwill Contract talent solutions Permanent placement talent solutions Protiviti Total Balance as of December 31, 2021 $ 134,584 $ 26,189 $ 62,082 $ 222,855 Foreign currency translation adjustments ( 369 ) ( 72 ) ( 146 ) ( 587 ) Balance as of June 30, 2022 $ 134,215 $ 26,117 $ 61,936 $ 222,268 The Company completed its annual assessment of the recoverability of goodwill during the quarter ended June 30, 2022, and determined there were no events or circumstances that would more likely than not reduce the fair value of the Company’s reporting units below their carrying value. Note H— Accrued Payroll and Benefit Costs Accrued payroll and benefit costs consisted of the following (in thousands): June 30, 2022 December 31, 2021 Payroll and benefits $ 471,325 $ 449,246 Payroll taxes 57,108 74,117 Workers’ compensation 16,909 16,820 Accrued payroll and benefit costs $ 545,342 $ 540,183 The Company, under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, deferred paying $ 51.1 million of applicable payroll taxes as of both June 30, 2022 and December 31, 2021, which is expected to be paid during the next 12 months and is included in payroll taxes . Note I— Employee Deferred Compensation Plan Obligations The Company provides various qualified defined contribution 401(k) plans covering eligible employees. The plans offer a savings feature with the Company matching employee contributions. Assets of this plan are held by an independent trustee for the sole benefit of participating employees. Nonqualified plans are provided for employees on a discretionary basis, including those not eligible for the qualified plans. These plans include provisions for salary deferrals and discretionary contributions. The asset value of the nonqualified plans was $ 416.7 million and $ 495.0 million as of June 30, 2022 and December 31, 2021, respectively. The Company holds these assets to satisfy the Company’s liabilities under its deferred compensation plans. The liability value for the nonqualified plans was $ 440.3 million and $ 535.3 million as of June 30, 2022 and December 31, 2021, respectively. 14 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 The following table presents the Company’s compensation expense related to its qualified defined contribution plans and nonqualified plans (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Contribution expense $ 12,794 $ 13,918 $ 24,996 $ 23,472 Increase (decrease) in employee deferred compensation expense related to changes in the fair value of trust assets ( 65,622 ) 27,810 ( 95,623 ) 39,797 $ ( 52,828 ) $ 41,728 $ ( 70,627 ) $ 63,269 The Company has statutory defined contribution plans and defined benefit plans outside the United States of America, which are not material. Note J— Commitments and Contingencies On March 23, 2015, Plaintiff Jessica Gentry, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, San Francisco County, which was subsequently amended on October 23, 2015. The complaint alleges that a putative class of current and former employees of the Company working in California since March 13, 2010, were denied compensation for the time they spent interviewing “for temporary and permanent employment opportunities” as well as performing activities related to the interview process. Gentry seeks recovery on her own behalf and on behalf of the putative class in an unspecified amount for this allegedly unpaid compensation. Gentry also seeks recovery of an unspecified amount for the alleged failure of the Company to provide her and the putative class with accurate wage statements. Gentry also seeks an unspecified amount of other damages, attorneys’ fees, and statutory penalties, including penalties for allegedly not paying all wages due upon separation to former employees and statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by California’s Labor Code Private Attorney General Act (“PAGA”). On January 4, 2016, the Court denied a motion by the Company to compel all of Gentry’s claims, except the PAGA claim, to individual arbitration. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation. On April 6, 2018, Plaintiff Shari Dorff, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, County of Los Angeles. In addition to certain claims individual to Plaintiff Dorff, the complaint alleges that salaried recruiters based in California have been misclassified as exempt employees and seeks an unspecified amount for: unpaid wages resulting from such alleged misclassification; alleged failure to provide a reasonable opportunity to take meal periods and rest breaks; alleged failure to pay wages on a timely basis both during employment and upon separation; alleged failure to comply with California requirements regarding wage statements and record-keeping; and alleged improper denial of expense reimbursement. Plaintiff Dorff also seeks an unspecified amount of other damages, attorneys’ fees, and penalties, including but not limited to statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by PAGA. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation. The Company is involved in a number of other lawsuits arising in the ordinary course of business. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties. Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred. 15 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 In May 2021, the Company entered into an amendment to extend the maturity of its $ 100.0 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 London Interbank Offered Rate 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, 2022. There were no borrowings under the Credit Agreement as of June 30, 2022. Note K— Stockholders’ Equity Stock Repurchase Program. As of June 30, 2022, the Company is authorized to repurchase, from time to time, up to 5.8 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. The number and the cost of common stock shares repurchased during the six months ended June 30, 2022 and 2021, are reflected in the following table (in thousands): Six Months Ended June 30, 2022 2021 Common stock repurchased (in shares) 1,386 1,514 Common stock repurchased $ 133,527 $ 124,210 Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable statutory withholding taxes. The number and the cost of employee stock plan repurchases made during the six months ended June 30, 2022 and 2021, are reflected in the following table (in thousands): Six Months Ended June 30, 2022 2021 Repurchases related to employee stock plans (in shares) 295 251 Repurchases related to employee stock plans $ 32,786 $ 19,345 The repurchased shares are held in treasury and are presented as if constructively retired. Treasury stock is accounted for using the cost method. Treasury stock activity for the six months ended June 30, 2022 and 2021, (consisting of purchase of shares for the treasury) is presented in the unaudited Condensed Consolidated Statements of Stockholders’ Equity. Repurchases of shares and issuances of dividends are applied first to the extent of retained earnings and any remaining amounts are applied to additional paid-in capital. 16 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 Note L— Net Income Per Share The calculation of net income per share for the three and six months ended June 30, 2022 and 2021, is reflected in the following table (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 175,821 $ 149,213 $ 344,060 $ 259,811 Basic: Weighted average shares 108,833 110,861 109,025 111,141 Diluted: Weighted average shares 108,833 110,861 109,025 111,141 Dilutive effect of potential common shares 863 1,028 1,118 1,050 Diluted weighted average shares 109,696 111,889 110,143 112,191 Net income per share: Basic $ 1.62 $ 1.35 $ 3.16 $ 2.34 Diluted $ 1.60 $ 1.33 $ 3.12 $ 2.32 Note M— Business Segments The Company has three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Operating segments are defined as components of the Company for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The contract talent solutions and permanent placement talent solutions segments provide specialized engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative and customer support roles. The Protiviti segment provides business and technology risk consulting and internal audit services. The accounting policies of the segments are set forth in Note A—“Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company evaluates performance based on income before net interest (income) expense, intangible assets amortization expense, and income taxes. 17 ROBERT HALF INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) June 30, 2022 The following table provides a reconciliation of service revenues and segment income by reportable segment to consolidated results for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Service revenues Contract talent solutions $ 1,165,693 $ 978,281 $ 2,321,416 $ 1,867,557 Permanent placement talent solutions 200,096 143,640 386,878 255,344 Protiviti 497,038 458,660 969,367 856,060 $ 1,862,827 $ 1,580,581 $ 3,677,661 $ 2,978,961 Segment income Contract talent solutions $ 133,567 $ 94,010 $ 266,813 $ 169,688 Permanent placement talent solutions 36,751 30,599 74,079 48,234 Protiviti 70,213 79,980 127,290 137,303 Combined segment income 240,531 204,589 468,182 355,225 Amortization of intangible assets 416 576 833 1,152 Interest (income) expense, net ( 718 ) 151 ( 884 ) 105 Income before income taxes $ 240,833 $ 203,862 $ 468,233 $ 353,968 Service revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between the contract talent solutions segment and Protiviti segment were $ 137.5 million and $ 281.7 million for the three and six months ended June 30, 2022, respectively, and $ 143.0 million and $ 246.8 million six months ended June 30, 2021, respectively. Revenue and direct costs related to the intersegment activity are reflected in the Protiviti segment, including the costs of candidate payroll, fringe benefits and incremental recruiter compensation. Note N— Subsequent Events On August 2, 2022, the Company announced the following: Quarterly dividend per share $ 0.43 Declaration date August 2, 2022 Record date August 25, 2022 Payment date September 15, 2022 18