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 United States of America ("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 U.S. 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 which reflects a robust global labor market and demand environment, although reported results were unfavorably impacted by currency exchange rates as the U.S. dollar strengthened against the Euro and British pound. During the first half of 2022, service revenues were $3.68 billion, an increase of 23.5% from the prior year. Net income increased 32.4% to $344 million and diluted net income per share increased 34.5% to $3.12. 19 The Company’s talent solutions led the way, with permanent placement and contract talent solutions achieving year-over-year revenue growth of 51.5% and 24.3%, respectively. Protiviti also performed strong, growing year-over-year revenues by 13.2%. Remote and hybrid working models are here to stay and provide the Company with a significant opportunity to capitalize on the structure shift in how companies source talent. This plays to the Company’s numerous strengths, including its global brand, office network, candidate database and AI-driven technologies. 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 U.S. economic backdrop and labor trends for the first half 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 second quarter of 2022 . In the U.S., job openings and quit rates remain elevated and only modestly below all-time highs. The U.S. labor market remains robust, with significant demand due to talent shortages across professional disciplines. The Company monitors various economic indicators and business trends in all of the countries in which it operates to anticipate demand for the Company’s services. These trends are evaluated 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. Visibility into future revenues is limited 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, the Company’s headcount and other investments are typically assessed on at least a quarterly basis. During the first half 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 six months ended June 30, 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. 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 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. 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 talent solutions business has 316 offices in 42 states, the District of Columbia and 17 foreign countries, while Protiviti has 65 offices in 23 states and 13 foreign countries. 20 Non-GAAP Financial Measures The financial results of the Company are prepared in conformity with accounting principles generally accepted in the U.S. (“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 net interest (income) expense, 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 June 30, 2022 and 2021 Revenues. The Company’s revenues were $1.86 billion for the three months ended June 30, 2022, increasing by 17.9% compared to $1.58 billion for the three months ended June 30, 2021. Revenues from U.S. operations increased 20.2% to $1.47 billion (78.8% of total revenue) for the three months ended June 30, 2022, compared to $1.22 billion (77.2% of total revenue) for the three months ended June 30, 2021. Revenues from international operations increased 10.0% to $396 million (21.2% of total revenue) for the three months ended June 30, 2022, compared to $360 million (22.8% of total revenue) for the three months ended June 30, 2021. Contributing factors for each reportable segment are discussed below in further detail. Contract talent solutions revenues were $1.16 billion for the three months ended June 30, 2022, increasing by 19.2% compared to revenues of $978 million for the three months ended June 30, 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 increased 21.3% for the second quarter of 2022, compared to the second quarter of 2021, primarily due to an increase in the number of hours worked by the Company’s engagement professionals and an 8.2% 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 second quarter of 2022 increased 22.7% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2021. For the Company’s international 21 operations, revenues for the second quarter of 2022 increased 7.0% on an as reported basis, and increased 16.6% on an as adjusted basis compared to the second quarter of 2021. Permanent placement talent solutions revenues were $200 million for the three months ended June 30, 2022, increasing by 39.3% compared to revenues of $144 million for the three months ended June 30, 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 42.6% for the second quarter of 2022, compared to the second quarter of 2021, driven by an increase in number of placements. In the U.S., revenues for the second quarter of 2022 increased 44.3% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2021. For the Company’s international operations, revenues for the second quarter of 2022 increased 28.0% on an as reported basis and 39.0% on an as adjusted basis, compared to the second 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 $497 million for the three months ended June 30, 2022, increasing by 8.4% compared to revenues of $459 million for the three months ended June 30, 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 10.8% for the second quarter of 2022, compared to the second quarter of 2021, due primarily to an increase in billable hours. In the U.S., revenues in the second quarter of 2022 increased 8.3% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2021. For the Company’s international operations, revenues for the second quarter of 2022 increased 8.6% on an as reported basis and 20.6% on an as adjusted basis, compared to the second 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 June 30, 2022, is presented in the following table: Global United States International Contract talent solutions As Reported 19.2 % 22.7 % 7.0 % Billing Days Impact 0.0 % 0.0 % 0.2 % Currency Impact 2.1 % ― 9.4 % As Adjusted 21.3 % 22.7 % 16.6 % Permanent placement talent solutions As Reported 39.3 % 44.3 % 28.0 % Billing Days Impact 0.0 % 0.0 % 0.2 % Currency Impact 3.3 % ― 10.8 % As Adjusted 42.6 % 44.3 % 39.0 % Protiviti As Reported 8.4 % 8.3 % 8.6 % Billing Days Impact 0.0 % 0.0 % 0.2 % Currency Impact 2.4 % ― 11.8 % As Adjusted 10.8 % 8.3 % 20.6 % Gross Margin. The Company’s gross margin dollars were $816 million for the three months ended June 30, 2022, increasing by 22.7% compared to $665 million for the three months ended June 30, 2021. Contributing factors for each reportable segment are discussed below in further detail. 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 $465 million for the three months ended June 30, 2022, increasing 19.8% compared to $388 million for the three months ended June 30, 2021. As a percentage of revenues, gross margin for contract talent solutions was 39.9% in the second quarter of 2022, up from 39.7% in the second quarter of 2021. 22 Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $200 million for the three months ended June 30, 2022, increasing 39.2% from $143 million for the three months ended June 30, 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 and benefit costs and reimbursable expenses. The primary drivers of Protiviti’s gross margin are: i) the relative composition 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 $151 million for the three months ended June 30, 2022, increasing 13.3% compared to $133 million for the three months ended June 30, 2021. As a percentage of revenues, reported gross margin for Protiviti in the second quarter of 2022 was 30.4%, up from 29.1% in the second quarter of 2021. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 28.1% in the second quarter of 2022, down from 30.0% in the second quarter of 2021. The year-over-year decrease in adjusted gross margin percentage was due primarily to higher staff resource costs including continued expansion of 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 $509 million for the three months ended June 30, 2022, increasing 4.4% from $488 million for the three months ended June 30, 2021. As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 27.3% in the second quarter of 2022, down from 30.9% in the second quarter of 2021. As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 30.3% in the second quarter of 2022, up from 29.4% in the second quarter of 2021. Contributing factors for each reportable segment are discussed below in further detail. Selling, general and administrative expenses for contract talent solutions were $284 million for the three months ended June 30, 2022, decreasing 9.8% from $315 million for the three months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 24.4% in the second quarter of 2022, down from 32.2% in the second quarter of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 28.4% in the second quarter of 2022, down from 30.1% in the second quarter of 2021 due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for permanent placement talent solutions were $156 million for the three months ended June 30, 2022, increasing by 35.0% compared to $115 million for the three months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 77.9% in the second quarter of 2022, down from 80.4% in the second quarter of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions was 81.4% in the second quarter of 2022, up from 78.6% in the second quarter of 2021 due primarily to higher staff compensation costs. Selling, general and administrative expenses for Protiviti were $69 million for the three months ended June 30, 2022, increasing by 20.7% compared to $58 million for the three months ended June 30, 2021. As a percentage of revenues, selling, general and administrative expenses for Protiviti were 14.0% in the second quarter of 2022, up from 12.5% in the second quarter of 2021 due primarily to an increase in variable overhead costs. 23 A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the three months ended June 30, 2022 and 2021 is presented in the following table (in thousands): Three Months Ended June 30, Relationships 2022 2021 2022 2021 2022 2021 Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted SERVICE REVENUES: Finance and accounting $ 810,910 $ — $ 810,910 $ 663,892 $ — $ 663,892 43.5 % 41.9 % 43.5 % 41.9 % Administrative and customer support 274,141 — 274,141 263,192 — 263,192 14.7 % 16.7 % 14.7 % 16.7 % Technology 218,190 — 218,190 194,233 — 194,233 11.7 % 12.3 % 11.7 % 12.3 % Elimination of intersegment revenues (137,548) — (137,548) (143,036) — (143,036) (7.3 %) (9.0 %) (7.3 %) (9.0 %) Contract talent solutions 1,165,693 — 1,165,693 978,281 — 978,281 62.6 % 61.9 % 62.6 % 61.9 % Permanent placement talent solutions 200,096 — 200,096 143,640 — 143,640 10.7 % 9.1 % 10.7 % 9.1 % Protiviti 497,038 — 497,038 458,660 — 458,660 26.7 % 29.0 % 26.7 % 29.0 % Total $ 1,862,827 $ — $ 1,862,827 $ 1,580,581 $ — $ 1,580,581 100.0 % 100.0 % 100.0 % 100.0 % GROSS MARGIN: Contract talent solutions $ 464,853 $ — $ 464,853 $ 388,070 $ — $ 388,070 39.9 % 39.7 % 39.9 % 39.7 % Permanent placement talent solutions 199,664 — 199,664 143,454 — 143,454 99.8 % 99.9 % 99.8 % 99.9 % Protiviti 151,030 (11,413) 139,617 133,348 4,153 137,501 30.4 % 29.1 % 28.1 % 30.0 % Total $ 815,547 $ (11,413) $ 804,134 $ 664,872 $ 4,153 $ 669,025 43.8 % 42.1 % 43.2 % 42.3 % SELLING GENERAL AND ADMINISTRATIVE EXPENSE: Contract talent solutions $ 284,090 $ 47,196 $ 331,286 $ 315,114 $ (21,054) $ 294,060 24.4 % 32.2 % 28.4 % 30.1 % Permanent placement talent solutions 155,900 7,013 162,913 115,458 (2,603) 112,855 77.9 % 80.4 % 81.4 % 78.6 % Protiviti 69,404 — 69,404 57,521 — 57,521 14.0 % 12.5 % 14.0 % 12.5 % Total $ 509,394 $ 54,209 $ 563,603 $ 488,093 $ (23,657) $ 464,436 27.3 % 30.9 % 30.3 % 29.4 % OPERATING/SEGMENT INCOME: Contract talent solutions $ 180,763 $ (47,196) $ 133,567 $ 72,956 $ 21,054 $ 94,010 15.5 % 7.5 % 11.5 % 9.6 % Permanent placement talent solutions 43,764 (7,013) 36,751 27,996 2,603 30,599 21.9 % 19.5 % 18.4 % 21.3 % Protiviti 81,626 (11,413) 70,213 75,827 4,153 79,980 16.4 % 16.5 % 14.1 % 17.4 % Total $ 306,153 $ (65,622) $ 240,531 $ 176,779 $ 27,810 $ 204,589 16.4 % 11.2 % 12.9 % 12.9 % (Income) loss from investments held in employee deferred compensation trusts 65,622 (65,622) — (27,810) 27,810 — 3.5 % (1.7 %) 0.0 % 0.0 % Amortization of intangible assets 416 — 416 576 — 576 0.0 % 0.0 % 0.0 % 0.0 % Interest (income) expense, net (718) (718) 151 — 151 0.0 % 0.0 % 0.0 % 0.0 % Income before income taxes $ 240,833 $ — $ 240,833 $ 203,862 $ — $ 203,862 12.9 % 12.9 % 12.9 % 12.9 % (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. 24 (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 $66 million and income of $28 million for the three months ended June 30, 2022 and 2021, respectively. The loss from trust investments was due to negative market returns in the second quarter of 2022. Income Before Income Taxes and Segment Income. The Company’s total income before income taxes was $241 million, or 12.9% of revenues, for the three months ended June 30, 2022, up from $204 million or 12.9% of revenues, for the three months ended June 30, 2021. Combined segment income was $241 million, or 12.9% of revenues, for the three months ended June 30, 2022, up from $205 million, or 12.9% of revenues, for the three months ended June 30, 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 June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, 2022 2021 Income before income taxes $ 240,833 $ 203,862 Interest (income) expense, net (718) 151 Amortization of intangible assets 416 576 Combined segment income $ 240,531 $ 204,589 Contract talent solutions segment income was $134 million, or 11.5% of applicable revenues, for the three months ended June 30, 2022, up from $94 million, or 9.6% of applicable revenues, for the three months ended June 30, 2021. Permanent placement talent solutions segment income was $37 million, or 18.4% of applicable revenues, for the three months ended June 30, 2022, up from $31 million, or 21.3% of applicable revenues, for the three months ended June 30, 2021. Protiviti segment income was $70 million, or 14.1% of applicable revenues, for the three months ended June 30, 2022, down from $80 million, or 17.4% of applicable revenues, for the three months ended June 30, 2021. Provision for income taxes . The provision for income taxes was 27.0% and 26.8% for the three months ended June 30, 2022 and 2021, respectively. Six Months Ended June 30, 2022 and 2021 Revenues. The Company’s revenues were $3.68 billion for the six months ended June 30, 2022, increasing by 23.5% compared to $2.98 billion for the six months ended June 30, 2021. Revenues from U.S. operations increased 25.6% to $2.88 billion (78.4% of total revenue) for the six months ended June 30, 2022, compared to $2.30 billion (77.1% of total revenue) for the six months ended June 30, 2021. Revenues from international operations increased 16.4% to $795 million (21.6% of total revenue) for the six months ended June 30, 2022, compared to $683 million (22.9% of total revenue) for the six months ended June 30, 2021. Contributing factors for each reportable segment are discussed below in further detail. Contract talent solutions revenues were $2.32 billion for the six months ended June 30, 2022, increasing by 24.3% compared to revenues of $1.87 billion for the six months ended June 30, 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 half of 2022 increased 25.9% compared to the first half of 2021, primarily due to an increase in the number of hours worked by the Company’s engagement professionals and an 8.7% 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 half of 2022 increased 27.8% on both an as reported basis and an as adjusted basis, compared to the first half of 2021. For the Company’s international operations, revenues for the first half of 2022 increased 12.5% on an as reported basis and increased 19.9% on an as adjusted basis, compared to the first half of 2021. 25 Permanent placement talent solutions revenues were $387 million for the six months ended June 30, 2022, increasing by 51.5% compared to revenues of $255 million for the six months ended June 30, 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 54.1% for the first half of 2022, compared to the first half of 2021, driven primarily by an increase in the number of placements. In the U.S., revenues for the first half of 2022 increased 58.8% on both an as reported basis and an as adjusted basis, compared to the first half of 2021. For the Company’s international operations, revenues for the first half of 2022 increased 35.6% on an as reported basis, and increased 44.0% on an as adjusted basis, compared to the first half 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 $969 million for the six months ended June 30, 2022, increasing by 13.2% compared to revenues of $856 million for the six months ended June 30, 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 15.1% for the first half of 2022, compared to the first half of 2021, due primarily to an increase in billable hours. In the U.S., revenues in the first half of 2022 increased 12.3% on both an as reported basis and an as adjusted basis, compared to the first half of 2021. For the Company’s international operations, revenues in the first half of 2022 increased 16.8% on an as reported basis, and increased 26.0% on an as adjusted basis, compared to the first half 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 six months ended June 30, 2022, is presented in the following table: Global United States International Contract talent solutions As Reported 24.3 % 27.8 % 12.5 % Billing Days Impact -0.1 % 0.0 % -0.1 % Currency Impact 1.7 % ― 7.5 % As Adjusted 25.9 % 27.8 % 19.9 % Permanent placement talent solutions As Reported 51.5 % 58.8 % 35.6 % Billing Days Impact -0.1 % 0.0 % -0.1 % Currency Impact 2.7 % ― 8.5 % As Adjusted 54.1 % 58.8 % 44.0 % Protiviti As Reported 13.2 % 12.3 % 16.8 % Billing Days Impact -0.1 % 0.0 % -0.1 % Currency Impact 2.0 % ― 9.3 % As Adjusted 15.1 % 12.3 % 26.0 % Gross Margin. The Company’s gross margin dollars were $1.59 billion for the six months ended June 30, 2022, increasing by 29.4% compared to $1.23 billion for the six months ended June 30, 2021. Contributing factors for each reportable segment are discussed below in further detail. 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 $927 million for the six months ended June 30, 2022, increasing 26.4% compared to $733 million for the six months ended June 30, 2021. As a percentage of revenues, gross margin for contract talent solutions was 39.9% for the six months ended June 30, 2022, up from 39.2% for the six months ended June 30, 2021. This year-over-year improvement in gross margin percentage was attributable to expanding pay-bill spreads and higher conversion revenues. 26 Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $386 million for the six months ended June 30, 2022, increasing 51.4% from $255 million for the six months ended June 30, 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 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 $275 million for the six months ended June 30, 2022, increasing 15.1% compared to $239 million for the six months ended June 30, 2021. As a percentage of revenues, reported gross margin for Protiviti in the first half of 2022 was 28.3%, up from 27.9% in the first half of 2021. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 26.8% the first half of 2022, down from 28.6% in the first half 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 $1.02 billion for the six months ended June 30, 2022, increasing 12.3% from $911 million for the six months ended June 30, 2021. As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 27.8% for the first half of 2022, down from 30.6% the first half of 2021. As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 30.0% in the first half of 2022, up from 29.4% in the first half 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 $589 million for the six months ended June 30, 2022, decreasing 0.7% from $594 million for the six months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 25.4% in the first half of 2022, down from 31.8% in the first half of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 28.4% in the first half of 2022, down from 30.2% in the first half of 2021, due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for permanent placement talent solutions were $302 million for the six months ended June 30, 2022, increasing by 43.6% compared to $210 million for the six months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 78.1% in the first half of 2022, down from 82.4% in the first half of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions was 80.7% in the first half of 2022, down from 81.0% in the first half of 2021. Selling, general and administrative expenses for Protiviti were $132 million for the six months ended June 30, 2022, increasing by 23.2% compared to $107 million for the six months ended June 30, 2021. As a percentage of revenues, selling, general and administrative expenses for Protiviti were 13.6% in the first half of 2022, up from 12.5% in the first half of 2021, due primarily to an increase in variable overhead costs. 27 A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the six months ended June 30, 2022 and 2021 is presented in the following table (in thousands): Six Months Ended June 30, Relationships 2022 2021 2022 2021 2022 2021 Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted SERVICE REVENUES: Finance and accounting $ 1,612,600 $ — $ 1,612,600 $ 1,264,326 $ — $ 1,264,326 43.9 % 42.5 % 43.9 % 42.5 % Administrative and customer support 559,047 — 559,047 483,665 — 483,665 15.2 % 16.2 % 15.2 % 16.2 % Technology 431,517 — 431,517 366,406 — 366,406 11.7 % 12.3 % 11.7 % 12.3 % Elimination of intersegment revenues (281,748) — (281,748) (246,840) — (246,840) (7.7 %) (8.3 %) (7.7 %) (8.3 %) Contract talent solutions 2,321,416 — 2,321,416 1,867,557 — 1,867,557 63.1 % 62.7 % 63.1 % 62.7 % Permanent placement talent solutions 386,878 — 386,878 255,344 — 255,344 10.5 % 8.6 % 10.5 % 8.6 % Protiviti 969,367 — 969,367 856,060 — 856,060 26.4 % 28.7 % 26.4 % 28.7 % Total $ 3,677,661 $ — $ 3,677,661 $ 2,978,961 $ — $ 2,978,961 100.0 % 100.0 % 100.0 % 100.0 % GROSS MARGIN: Contract talent solutions $ 926,714 $ — $ 926,714 $ 733,003 $ — $ 733,003 39.9 % 39.2 % 39.9 % 39.2 % Permanent placement talent solutions 386,113 — 386,113 254,951 — 254,951 99.8 % 99.8 % 99.8 % 99.8 % Protiviti 274,566 (15,259) 259,307 238,629 5,842 244,471 28.3 % 27.9 % 26.8 % 28.6 % Total $ 1,587,393 $ (15,259) $ 1,572,134 $ 1,226,583 $ 5,842 $ 1,232,425 43.2 % 41.2 % 42.7 % 41.4 % SELLING GENERAL AND ADMINISTRATIVE EXPENSE: Contract talent solutions $ 589,424 $ 70,477 $ 659,901 $ 593,627 $ (30,312) $ 563,315 25.4 % 31.8 % 28.4 % 30.2 % Permanent placement talent solutions 302,147 9,887 312,034 210,360 (3,643) 206,717 78.1 % 82.4 % 80.7 % 81.0 % Protiviti 132,017 — 132,017 107,168 — 107,168 13.6 % 12.5 % 13.6 % 12.5 % Total $ 1,023,588 $ 80,364 $ 1,103,952 $ 911,155 $ (33,955) $ 877,200 27.8 % 30.6 % 30.0 % 29.4 % OPERATING/SEGMENT INCOME: Contract talent solutions $ 337,290 $ (70,477) $ 266,813 $ 139,376 $ 30,312 $ 169,688 14.5 % 7.5 % 11.5 % 9.1 % Permanent placement talent solutions 83,966 (9,887) 74,079 44,591 3,643 48,234 21.7 % 17.5 % 19.1 % 18.9 % Protiviti 142,549 (15,259) 127,290 131,461 5,842 137,303 14.7 % 15.4 % 13.1 % 16.0 % Total $ 563,805 $ (95,623) $ 468,182 $ 315,428 $ 39,797 $ 355,225 15.3 % 10.6 % 12.7 % 11.9 % (Income) loss from investments held in employee deferred compensation trusts 95,623 (95,623) — (39,797) 39,797 — 2.6 % (1.3 %) — — Amortization of intangible assets 833 — 833 1,152 — 1,152 0.0 % 0.0 % 0.0 % 0.0 % Interest (income) expense, net (884) (884) 105 — 105 0.0 % 0.0 % 0.0 % 0.0 % Income before income taxes $ 468,233 $ — $ 468,233 $ 353,968 $ — $ 353,968 12.7 % 11.9 % 12.7 % 11.9 % (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. 28 (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 $96 million for the six months ended June 30, 2022, compared to income of $40 million for the six months ended June 30, 2021. The loss from trust investments was due to negative market returns in the first half of 2022. Income Before Income Taxes and Segment Income. The Company’s total income before income taxes was $468 million, or 12.7% of revenues, for the six months ended June 30, 2022, up from $354 million or 11.9% of revenues, for the six months ended June 30, 2021. Combined segment income was $468 million, or 12.7% of revenues, for the six months ended June 30, 2022, up from $355 million, or 11.9% of revenues, for the six months ended June 30, 2021. 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, 2022 and 2021 (in thousands): Six Months Ended June 30, 2022 2021 Income before income taxes $ 468,233 $ 353,968 Interest (income) expense, net (884) 105 Amortization of intangible assets 833 1,152 Combined segment income $ 468,182 $ 355,225 Contract talent solutions segment income was $267 million, or 11.5% of applicable revenues for the six months ended June 30, 2022, up from $170 million, or 9.1% of applicable revenues for the six months ended June 30, 2021. Permanent placement talent solutions segment income was $74 million, or 19.1% of applicable revenues in the first half of 2022, up from $48 million, or 18.9% of applicable revenues, in the first half of 2021. Protiviti segment income was $127 million, or 13.1% of applicable revenues in the first half of 2022, compared to segment income of $137 million, or 16.0% of applicable revenues, in the first half of 2021. Provision for income taxes . The provision for income taxes was 26.5% and 26.6% for the six months ended June 30, 2022 and 2021, respectively. Liquidity and Capital Resources The change in the Company’s liquidity during the six months ended June 30, 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 $591 million and $543 million at June 30, 2022 and 2021, respectively. Operating activities provided cash flows of $302 million during the six months ended June 30, 2022, offset by $55 million and $257 million of net cash used in investing activities and financing activities, respectively. Operating activities provided cash flows of $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—Net cash provided by operating activities for the six months ended June 30, 2022, was composed of net income of $344 million adjusted upward for non-cash items of $176 million, offset by net cash used in changes in working capital of $218 million. 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. Investing activities—Cash used in investing activities for the six months ended June 30, 2022, was $55 million. This was composed of capital expenditures of $35 million and investments in employee deferred compensation trusts of $45 million, 29 partially offset by proceeds from employee deferred compensation trusts redemptions of $25 million. 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 investments in employee deferred compensation trusts of $42 million, partially offset by proceeds from employee deferred compensation trusts redemptions of $27 million. Capital expenditures, including $20 million for cloud computing arrangements, for the six months ended June 30, 2022, totaled $55 million, approximately 82.5% 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 six months ended June 30, 2022, was $257 million. This included repurchases of $161 million in common stock and $96 million in dividends paid to stockholders. 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. 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. During the six months ended June 30, 2022 and 2021, the Company repurchased 1.4 million shares, at a cost of $133 million, and 1.5 million shares, at a cost of $124 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, 2022 and 2021, such repurchases totaled 0.3 million shares, at a cost of $33 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 June 30, 2022, included $591 million in cash and cash equivalents and $1.09 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 June 30, 2022. There were no borrowings under the Credit Agreement as of June 30, 2022. On August 2, 2022, the Company announced a quarterly dividend of $0.43 per share to be paid to all shareholders of record as of August 25, 2022. The dividend will be paid on September 15, 2022. Material Cash Requirements from Contractual Obligations Leases. As of June 30, 2022, the Company reported current and long-term operating lease liabilities of $84 million and $166 million, respectively. These balances consist of the minimum rental commitments for July 2022 and thereafter, discounted to reflect the Company’s cost of borrowing, under noncancellable lease contracts executed as of June 30, 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 half of 2022. 30 Employee Deferred Compensation Plan. As of June 30, 2022, the Company reported deferred compensation plan obligations of $440 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.