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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-10 · 92 added, 92 removed, 247 unchanged (43% of the section changed)

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 not guarantees or promises that goals or targets will be met.

These statements may be identified by words such as “anticipate,” “estimate,” “forecast,” “target,” “project,” “plan,” “intend,” “believe,” “expect,” “should,” “could,” “would,” “may,” “might,” “will,” or variations or negatives thereof or by similar or comparable words or phrases.

In addition, historical, current, and forward-looking information about the Company’s environmental, social, and governance (“ESG”) and compliance programs, including targets or goals, may not be considered material for the Securities and Exchange Commission (“SEC”) reporting purposes and may be based on standards for measuring progress that are still developing, on internal controls, diligence, or processes that are evolving, and on assumptions that are subject to change in the future.

Forward-looking statements are estimates only, based on management’s current expectations, currently available information and current strategy, plans, or forecasts, and involve certain known and unknown risks, uncertainties, and assumptions that are difficult to predict and often beyond our control and are inherently uncertain.

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 to or new interpretations of United States of America (“U.S.”) or international tax regulations;

the global financial and economic situation;

changes in levels of unemployment and other economic conditions in the U.S.

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reduction in the supply of candidates for contract employment or the Company’s ability to attract candidates;

the development, proliferation and adoption of artificial intelligence (“AI”) by the Company and the third parties it serves;

the entry of new competitors into the marketplace or expansion by existing competitors;

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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;

litigation relating to prior or current transactions or activities, including litigation that may be disclosed from time to time in the Company’s SEC filings;

the ability of the Company to manage its international operations and comply with foreign laws and regulations;

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Executive Overview

During 2022 the Company unified its family of Robert Half brands to focus on its key 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 achieved record levels of service revenues and net income during 2022, and achieved new record levels for each.

Annual service revenues reached $7.24 billion in 2022, increasing 12.0% from the prior year.

Full-year 2022 net income was up 9.9% to $658 million and diluted net income per share increased 12.5% to $6.03.

All of our major practice areas — contract talent, permanent placement and Protiviti — reached all-time high revenues, over and above very strong growth reported in the prior year.

The Company’s results were impacted by the ongoing macroeconomic uncertainty that affects client and candidate confidence, lengthening decision cycles.

Gross margins have demonstrated resilience with pricing discipline and the ongoing benefit from the rising mix shift to higher skill levels.

The Company’s service revenues were $6.39 billion in 2023, a decrease of 11.7% from the prior year.

Full-year 2023 net income decreased 37.5% to $411 million and diluted net income per share decreased 35.7% to $3.88.

Demand for the Company’s contract talent solutions, permanent placement talent solutions, and Protiviti is largely dependent upon general economic and labor trends both domestically and abroad.

economic backdrop during 2022 was conducive to growth for the Company as real gross domestic product (“GDP”) increased 2.1% in 2022, compared to an increase of 5.7% in 2021, while the unemployment rate declined from 3.9% in December 2021, to 3.5% in December 2022.

Although recent metrics have come off all-time highs, talent shortages persist.

In the U.S., unemployment stands at a 50-year low and remains even lower for those with a college degree, where the rate is 1.9%.

Similar reports across the global also point to labor market resilience.

While there remains volatility in the macroeconomic environment, the Company is optimistic about its outlook for 2023.

Clients continue to hire, albeit at an even more measured pace, which has the effect of lengthening the sales cycle.

Longer term, the growth and margin prospects from an ongoing focus on services related to talent with higher level skills is encouraging.

In addition, the structural shift to remote work, particularly with higher skills, creates a new competitive advantage as it highlights the Company’s numerous strengths, including global brand, office network, candidate database and advanced AI-driven technologies.

The Company’s investments in innovation and technology position it to meaningfully improve the digital and recruiter experience for its clients and candidates and the internal productivity of its staff.

Reported results were unfavorably impacted by foreign currency exchange rates as the U.S.

dollar strengthened against the Euro, British pound, Australian Dollar and Canadian Dollar.

real gross domestic product increased 2.5% in 2023, compared to an increase of 2.1% in 2022, while the unemployment rate rose from 3.5% in December 2022, to 3.7% in December 2023.

Although recent metrics are modestly off their peaks, global labor markets remain tight and the scarcity of talent persists.

In the U.S., unemployment stands near a 50-year low and remains even lower for those with a college degree, where the rate is 2.1%.

However, the urgency and velocity of the demand is impacted by the prolonged period

of macroeconomic uncertainty.

Clients are budget sensitive and very selective in their hiring activities—including approval of new projects - resulting in elongated hiring cycles and a negative impact on short-term results.

The Company is confident about its ability to weather the current global macroeconomic environment and its future growth prospects, built on our industry-leading brand, people, technology and unique business model that includes both professional staffing and business consulting services.

The Company continues to invest in technology and innovation, including AI.

Major focus areas include providing a world-class digital experience for clients and candidates that is seamlessly connected to the Company’s specialized professional recruiters.

Also, the Company will continue to leverage its proprietary data assets to enhance the AI tools its recruiters use to discover, assess and select talent for its clients, and the AI tools recruiters use to effectively target leads for additional revenue.

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.

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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.

Visibility into future revenues is limited not only due to the dependence on macroeconomic and labor market 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 2022 the Company increased headcount across all segments, when compared to prior year-end levels.

During 2023 the Company decreased headcount for its contract talent solutions and permanent placement talent solutions segments, while full-time headcount for its Protiviti segment remained flat, when compared to prior year-end levels.

Critical Accounting Policies and Estimates

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If such losses are ultimately utilized to offset future operating income, the Company will recognize a tax benefit up to the full amount of the related valuation reserve.

The Organization of Economic Cooperation and Development (“OECD”), an international association of many countries including the U.S., has introduced a framework to impose a 15% global minimum corporate tax, referred to as Pillar Two, effective for tax years beginning in 2024.

Currently, there are no laws enacted incorporating Pillar Two in the U.S., however, certain countries in which the Company operates have adopted, or are in the process of adopting legislation to implement Pillar Two.

The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Global Anti-Base Erosion (“GloBE”) Model Rules for Pillar Two.

The Company is continuing to evaluate the GloBE Model Rules for Pillar Two and related legislation, and their potential impact on future periods.

While management believes that its judgments and interpretations regarding income taxes are appropriate, significant differences in actual experience may materially affect the future financial results of the Company.

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adjusted gross margin;

adjusted selling, general and administrative expense;

adjusted selling, general and administrative expenses;

combined segment income;

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

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

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

As adjusted revenue growth rates represent year-over-year revenue growth rates after removing the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates.

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Service Revenues.

The Company’s revenues were $7.24 billion for the year ended December 31, 2022, increasing by 12.0%, compared to $6.46 billion for the year ended December 31, 2021.

The Company’s revenues were $6.39 billion for the year ended December 31, 2023, a decrease of 11.7%, compared to $7.24 billion for the year ended December 31, 2022.

Revenues from U.S.

operations increased 14.1% to $5.71 billion (78.9% of total revenue) for the year ended December 31, 2022, compared to $5.01 billion (77.5% of total revenue) for the year ended December 31, 2021.

Revenues from international operations increased 4.9% to $1.53 billion (21.1% of total revenue) for the year ended December 31, 2022, compared to $1.45 billion (22.5% of total revenue) for the year ended December 31, 2021.

operations decreased 13.2% to $4.96 billion (77.5% of total revenue) for the year ended December 31, 2023, compared to $5.71 billion (78.9% of total revenue) for the year ended December 31, 2022.

Revenues from international operations decreased 5.9% to $1.44 billion (22.5% of total revenue) for the year ended December 31, 2023, compared to $1.53 billion (21.1% of total revenue) for the year ended December 31, 2022.

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

Contract talent solutions revenues were $4.53 billion for the year ended December 31, 2022, increasing by 12.2% compared to revenues of $4.04 billion for the year ended December 31, 2021.

Contract talent solutions revenues were $3.90 billion for the year ended December 31, 2023, decreasing by 14.1% compared to revenues of $4.53 billion for the year ended December 31, 2022.

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.

The increase in contract talent solutions revenues for 2022 was primarily due to a 9.5% increase in average bill rates and a 2.2% increase in the number of hours worked by the Company's engagement professionals.

On an as adjusted basis, contract talent solutions revenues increased 14.5% for 2022, compared to 2021.

In the U.S., 2022 revenues increased 14.7% on a reported basis, and increased 14.8% on an as adjusted basis, compared to 2021.

For the Company’s international operations, 2022 revenues increased 3.5% on a reported basis, and increased 13.2% on an as adjusted basis, compared to 2021.

Permanent placement talent solutions revenues were $725 million for the year ended December 31, 2022, increasing by 27.2% compared to revenues of $570 million for the year ended December 31, 2021.

The decrease in contract talent solutions revenues for 2023 was primarily due to a 20.8% decrease in the number of hours worked by the Company’s engagement professionals, partially offset by a 7.7% increase in average bill rates.

On an as adjusted basis, contract talent solutions revenues decreased 13.9% for 2023, compared to 2022.

In the U.S., 2023 revenues decreased 16.4% on a reported basis, and decreased 16.2% on an as adjusted basis, compared to 2022.

International revenues for 2023 decreased 5.0% on a reported basis, and decreased 4.8% on an as adjusted basis, compared to 2022.

Permanent placement talent solutions revenues were $567 million for the year ended December 31, 2023, decreasing by 21.7% compared to revenues of $725 million for the year ended December 31, 2022.

Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement .

The increase in permanent placement talent solutions revenues for 2022 was primarily due to an 18.6% increase in the number of placements and an 8.6% increase in average fees earned per placement.

On an as adjusted basis, permanent placement talent solutions revenues increased 30.5% for 2022 compared to 2021.

In the U.S., 2022 revenues increased 32.7% on a reported basis, and increased 32.9% on an as adjusted basis, compared to 2021.

For the Company’s international operations, 2022 revenues increased 15.0% on a reported basis, and increased 25.4% on an as adjusted basis, compared to 2021.

Historically, demand for permanent placement services 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 $1.98 billion for the year ended December 31, 2022, increasing by 6.9% compared to revenues of $1.85 billion for the year ended December 31, 2021.

The decrease in permanent placement talent solutions revenues for 2023 was due to a 24.1% decrease in the number of placements, partially offset by a 2.4% increase in average fees earned per placement.

On an as adjusted basis, permanent placement talent solutions revenues decreased 21.5% for 2023 compared to 2022.

In the U.S., 2023 revenues decreased 23.3% on a reported basis, and decreased 23.1% on an as adjusted basis, compared to 2022.

International revenues for 2023 revenues decreased 17.9% on a reported basis, and decreased 17.2% on an as adjusted basis, compared to 2022.

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 $1.93 billion for the year ended December 31, 2023, decreasing by 2.5% compared to revenues of $1.98 billion for the year ended December 31, 2022.

Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates.

The increase in Protiviti revenues for 2022 was primarily due to a 16.5% increase in average hourly bill rates, partially offset by a 9.6% decrease in billable hours.

The increase in hourly bill rates and decrease in billable hours for 2022 was primarily due to an increase in the mix of full-time Protiviti consultants relative to contractors.

On an as adjusted basis, Protiviti revenues increased 9.3% for 2022 compared to 2021.

In the U.S., 2022 revenues increased 7.8% on a reported basis, and increased 7.9% on an as adjusted basis, compared to 2021.

For the Company’s international operations, 2022 revenues increased 3.4% on a reported basis, and increased 14.8% on an as adjusted basis, compared to 2021.

The decrease in Protiviti revenues for 2023 was primarily due to a 6.6% decrease in billable hours, partially offset by a 4.1% increase in average hourly bill rates.

On an as adjusted basis, Protiviti revenues decreased 2.4% for 2023 compared to 2022.

In the U.S., 2023 revenues decreased 2.7% on a reported basis, and decreased 2.5% on an as adjusted basis, compared to 2022.

International revenues for 2023 revenues decreased 2.1% on a reported basis, and decreased 1.8% on an as adjusted basis, compared to 2022.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the reported year-over-year revenue growth rates for the year ended December 31, 2023, is presented in the following table:

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Gross Margin .

The Company’s gross margin dollars were $3.09 billion for the year ended December 31, 2022, up 14.8% from $2.70 billion for the year ended December 31, 2021.

The Company’s gross margin dollars were $2.58 billion for the year ended December 31, 2023, down 16.8% from $3.09 billion for the year ended December 31, 2022.

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

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and iii) conversion revenues, which are earned when a contract position converts to a permanent position with the Company’s client.

Gross margin dollars for contract talent solutions were $1.80 billion for the year ended December 31, 2022, up 12.8% from $1.60 billion for the year ended December 31, 2021.

As a percentage of revenues, gross margin dollars for contract talent solutions were 39.8% in 2022, up from 39.6% in 2021.

This year-over-year improvement in gross margin percentage was primarily due to higher conversion revenues.

Gross margin dollars for contract talent solutions were $1.55 billion for the year ended December 31, 2023, down 14.1% from $1.80 billion for the year ended December 31, 2022.

As a percentage of revenues, gross margin dollars for contract talent solutions were 39.8% in both 2023 and 2022.

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

Gross margin dollars for permanent placement talent solutions were $724 million for the year ended December 31, 2022, up 27.2% from $569 million for the year ended December 31, 2021.

Because reimbursable expenses for permanent placement talent solutions are de minimis, the increase in gross margin dollars is substantially explained by the increase in revenues previously discussed.

Gross margin dollars for permanent placement talent solutions were $566 million for the year ended December 31, 2023, down 21.7% from $724 million for the year ended December 31, 2022.

Because reimbursable expenses for permanent placement talent solutions are de minimis, the decrease in gross margin dollars is substantially explained by the decrease in 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.

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and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for the Company’s Protiviti staff.

Gross margin dollars for Protiviti were $566 million for the year ended December 31, 2022, up 7.2% from $528 million for the year ended December 31, 2021.

As a percentage of revenues, reported gross margin dollars for Protiviti were 28.6% in 2022, up from 28.5% in 2021.

Gross margin dollars for Protiviti were $459 million for the year ended December 31, 2023, down 18.9% from $566 million for the year ended December 31, 2022.

As a percentage of revenues, reported gross margin dollars for Protiviti were 23.8% in 2023, down from 28.6% in 2022.

As a percentage of revenues, adjusted gross margin dollars for Protiviti were 24.6% in 2023, down from 27.9% in 2022.

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Total $ 2,575,004 $ 3,094,049 $ 2,591,265 $ 3,080,200 40.3 % 42.7 % 40.5 % 42.6 %

The following tables provide reconciliations of the non-GAAP adjusted gross margin to reported gross margin for the years ended 2022 and 2021 (in thousands):

The following tables provide reconciliations of the non-GAAP adjusted gross margin to reported gross margin for the years ended December 31, 2023, and 2022 (in thousands):

Year Ended December 31, 2023

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The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs.

The Company’s selling, general and administrative expenses were $2.12 billion for the year ended December 31, 2022, up 8.5% from $1.95 billion for the year ended December 31, 2021.

As a percentage of revenues, reported selling, general and administrative expenses were 29.3% in 2022, down from 30.2% in 2021.

The Company’s reported selling, general and administrative expenses were $2.11 billion for the year ended December 31, 2023, down 0.5% from $2.12 billion for the year ended December 31, 2022.

As a percentage of revenues, reported selling, general and administrative expenses were 33.0% in 2023, up from 29.3% in 2022.

The Company’s adjusted selling, general and administrative expenses were $2.04 billion for the year ended December 31, 2023, down 7.0% from $2.19 billion in 2022.

As a percentage of revenues, adjusted selling, general and administrative expenses were 31.8% in 2023, up from 30.3% in 2022.

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

Selling, general and administrative expenses for contract talent solutions were $1.25 billion for the year ended December 31, 2022, flat compared to the year ended December 31, 2021.

As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 27.5% in 2022, down from 31.0% in 2021.

As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 28.9% in 2022, down from 29.8% in 2021, due primarily to positive leverage from an increase in revenues.

Selling, general and administrative expenses for permanent placement talent solutions were $587 million for the year ended December 31, 2022, increasing by 25.5% from $468 million for the year ended December 31, 2021.

As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions services were 81.0% in 2022, down from 82.1% in 2021.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions was 82.2% in 2022, up from 81.2% in 2021, due primarily to higher staff compensation costs.

Selling, general and administrative expenses for contract talent solutions, on an as-reported basis, were $1.32 billion for the year ended December 31, 2023, increasing 5.8% from $1.25 billion the year ended December 31, 2022.

As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 33.9% in 2023, up from 27.5% in 2022.

Selling, general and administrative expenses for contract talent solutions, on an adjusted basis, were $1.26 billion for the year ended December 31, 2023, down 4.2% from $1.31 billion in 2022.

As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 32.3% in 2023, up from 28.9% in 2022, due primarily to negative leverage as revenues decreased as a result of economic conditions.

Selling, general and administrative expenses for permanent placement talent solutions were $499 million for the year ended December 31, 2023, decreasing by 15.0% from $587 million for the year ended December 31, 2022.

As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions services were 87.9% in 2023, up from 81.0% in 2022.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions were 86.6% in 2023, up from 82.2% in 2022, due primarily negative leverage as revenues decreased as a result of economic conditions.

Selling, general and administrative expenses for Protiviti were $288 million for the year ended December 31, 2023, increasing by 2.2% from $282 million for the year ended December 31, 2022.

As a percentage of revenues, selling, general and administrative expenses for Protiviti were 14.2% in 2022, up from 12.5% in 2021, due primarily to operating expenditures returning to more normal levels following lower levels of expenditures experienced during the COVID-19 pandemic.

As a percentage of revenues, selling, general and administrative expenses for Protiviti were 14.9% in 2023, up from 14.2% in 2022, due primarily to negative leverage as revenues decreased as a result of economic conditions.

The Company’s selling, general and administrative expenses by reportable segment are summarized as follows (in thousands):

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Total $ 2,107,531 $ 2,117,296 $ 2,035,772 $ 2,189,586 33.0 % 29.3 % 31.8 % 30.3 %

The following tables provide reconciliations of the non-GAAP selling, general and administrative expenses to reported selling, general and administrative expenses for the years ended 2022 and 2021 (in thousands):

Year Ended December 31, 2023

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As Adjusted $ 1,311,748 28.9 % $ 596,084 82.2 % $ 281,754 14.2 % $ 2,189,586 30.3 %

(1) Changes in the Company’s deferred compensation obligations related to talent solutions operations are included in selling, general and administrative expenses, while the related investment (income) loss is presented separately.

(1) Changes in the Company’s employee deferred compensation plan obligations related to talent solutions operations are included in selling, general and administrative expenses, while the related investment (income) loss is presented separately.

The non-GAAP financial adjustments shown in the table above are to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation.

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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 and adjustments are recorded 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 the equal and offsetting amount, leaving no net costs to the Company.

As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation plan obligations change and adjustments are recorded 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 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 and is presented separately on the Consolidated Statements of Operations.

The Company’s (income) loss from investments held in employee deferred compensation trusts was a loss of $86 million for the year ended December 31, 2022, down from income of $61 million for the year ended December 31, 2021.

The decrease in income from trust investments was due to negative market returns in 2022.

The Company’s (income) loss from investments held in employee deferred compensation trusts was income of $88 million for the year ended December 31, 2023, and a loss of $86 million for the year ended December 31, 2022.

The income from trust investments was due to positive market returns during 2023.

Income Before Income Taxes and Segment Income.

The Company’s total income before income taxes was $897 million, or 12.4% of revenues, for the year ended December 31, 2022, up from $804 million or 12.4% of revenues for the year ended December 31, 2021.

Combined segment income was $891 million, or 12.3% of revenues, for the year ended December 31, 2022, up from $806 million, or 12.5% of revenues, for the year ended December 31, 2021.

The Company’s total income before income taxes was $577 million, or 9.0% of revenues, for the year ended December 31, 2023, down from $897 million or 12.4% of revenues for the year ended December 31, 2022.

Combined segment income was $555 million, or 8.7% of revenues, for the year ended December 31, 2023, down from $891 million, or 12.3% of revenues, for the year ended December 31, 2022.

The Company’s non-GAAP combined segment income is summarized as follows (in thousands):

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The provision for income taxes was 28.7% and 26.6% for the years ended December 31, 2023 and 2022, respectively.

The higher tax rate for 2022 can be primarily attributed to higher non-deductible expenses in 2022, as well as lower stock compensation deductions due to the Company's stock price.

The higher tax rate for 2023 can be attributed to an increased impact of nondeductible expenses and fewer tax credits.

Years ended December 31, 2022 and 2021

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Liquidity and Capital Resources

The change in the Company’s liquidity during the years ended December 31, 2022 and 2021, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payment of dividends.

The change in the Company’s liquidity during the years ended December 31, 2023 and 2022, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investments in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payments of dividends.

Cash and cash equivalents were $732 million and $659 million at December 31, 2023, and 2022, respectively.

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Operating activities provided $684 million during the year ended December 31, 2022, offset by $117 million and $509 million of net cash used in investing and financing activities, respectively.

Fluctuations in foreign currency exchange rates had the effect of increasing reported cash and cash equivalents by $9 million during the year ended December 31, 2023, compared to a decrease of $18 million in 2022.

Operating activities—Net cash provided by operating activities for the year ended December 31, 2023, was $637 million.

This was composed of net income of $658 million adjusted upward for non-cash items of $254 million, offset by net cash used in changes in working capital of $228 million.

This was composed of net income of $411 million, adjusted upward for non-cash items of $79 million, and cash provided by changes in working capital of $147 million.

Net cash provided by operating activities for the year ended December 31, 2022, was $684 million.

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Cash used in investing activities for the year ended December 31, 2022, was $117 million.

This was composed of capital expenditures of $37 million and investments in employee deferred compensation trusts of $85 million, partially offset by proceeds from employee deferred compensation trust redemptions of $34 million.

This was composed of capital expenditures of $61 million, investments in employee deferred compensation trusts of $67 million, and $19 million cash paid for an acquisition, partially offset by proceeds from employee deferred compensation trust redemptions of $30 million.

Capital expenditures, including $35 million related to cloud computing implementations, in 2023, totaled $81 million, approximately 67% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities.

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As of December 31, 2023, the Company is authorized to repurchase, from time to time, up to 10.8 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions.

On February 9, 2023, the Company authorized the repurchase, from time to time, of up to an additional 10.0 million shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions.

During the years ended December 31, 2023 and 2022, the Company repurchased 3.0 million shares, at a cost of $232 million, and 3.3 million shares, at a cost of $280 million, on the open market, respectively.

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

The Company’s working capital as of December 31, 2022, included $659 million in cash and cash equivalents and $1.02 billion in net accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

The Company’s working capital as of December 31, 2023, included $732 million in cash and cash equivalents and $861 million in net 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 and net income are dependent on macroeconomic conditions.

There is limited visibility into future cash flows as the Company’s revenues and net income are largely 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.

The Company has an unsecured revolving credit facility (the “Credit Agreement”) of $100 million, which matures in 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.

In May 2023, the Company entered into an amendment to extend the maturity of its $100 million unsecured revolving credit facility (the “Credit Agreement”) to May 2026.

Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing which, effective May 2023, will be calculated according to the Adjusted Term Secured Overnight Financing Rate (“SOFR”), 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 December 31, 2023.

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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 Consolidated Financial Statements included under Part II—Item 8 of this report.

For further information, see Note G— “ Leases ” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

Purchase Obligations.

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Employee Deferred Compensation Plan.

As of December 31, 2022, the Company reported deferred compensation plan obligations of $474.1 million in its accompanying Consolidated Statements of Financial Position.

As of December 31, 2023, the Company reported employee deferred compensation plan obligations of $572.9 million in its accompanying 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 Plans ” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

These obligations are funded through contributions to investment trusts whose assets at December 31, 2023, are substantially equal to the obligations.

Assets of these plans are held by an independent trustee for the benefit of participating employees and consist of money market funds and mutual funds.

For further information, see Note J— “ Employee Deferred Compensation Plans ” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis