ROBERT HALF INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ROBERT HALF INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (in thousands, except share amounts) September 30, 2024 December 31, 2023 ASSETS Cash and cash equivalents $ 570,466 $ 731,740 Accounts receivable, net 885,401 860,872 Employee deferred compensation trust assets 667,509 571,046 Other current assets 132,929 133,481 Total current assets 2,256,305 2,297,139 Property and equipment, net 119,588 108,809 Right-of-use assets 205,009 209,256 Goodwill 237,977 237,970 Noncurrent deferred income taxes 150,003 140,135 Other noncurrent assets 13,343 17,480 Total assets $ 2,982,225 $ 3,010,789 LIABILITIES Accounts payable and accrued expenses $ 161,370 $ 156,662 Accrued payroll and benefit costs 404,417 413,933 Employee deferred compensation plan obligations 664,090 572,913 Income taxes payable 14,458 11,144 Current operating lease liabilities 65,917 80,459 Total current liabilities 1,310,252 1,235,111 Noncurrent operating lease liabilities 173,039 161,440 Other noncurrent liabilities 25,099 25,887 Total liabilities 1,508,390 1,422,438 Commitments and Contingencies (Note K) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.001 par value; authorized 5,000,000 shares; none issued — — Common stock, $ 0.001 par value; authorized 260,000,000 shares; issued and outstanding 103,246,830 shares and 105,208,817 shares 103 105 Additional paid-in capital 1,402,817 1,354,703 Accumulated other comprehensive loss ( 33,461 ) ( 32,626 ) Retained earnings 104,376 266,169 Total stockholders’ equity 1,473,835 1,588,351 Total liabilities and stockholders’ equity $ 2,982,225 $ 3,010,789 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 2 ROBERT HALF INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Service revenues $ 1,465,004 $ 1,563,812 $ 4,413,465 $ 4,919,625 Costs of services 893,348 922,873 2,702,333 2,928,785 Gross margin 571,656 640,939 1,711,132 1,990,840 Selling, general and administrative expenses 510,786 496,732 1,533,213 1,590,865 (Income) loss from investments held in employee deferred compensation trusts (which is completely offset by related costs and expenses - Note A) ( 29,230 ) 14,275 ( 88,339 ) ( 41,363 ) Amortization of intangible assets 305 720 913 2,162 Interest income, net ( 5,391 ) ( 7,131 ) ( 16,990 ) ( 17,276 ) Income before income taxes 95,186 136,343 282,335 456,452 Provision for income taxes 29,735 40,798 85,027 132,610 Net income $ 65,451 $ 95,545 $ 197,308 $ 323,842 Net income per share: Basic $ 0.64 $ 0.91 $ 1.91 $ 3.06 Diluted $ 0.64 $ 0.90 $ 1.91 $ 3.04 Weighted average shares: Basic 102,175 105,340 103,034 105,950 Diluted 102,393 105,810 103,371 106,450 Dividends declared per share $ 0.53 $ 0.48 $ 1.59 $ 1.44 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 3 ROBERT HALF INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 COMPREHENSIVE INCOME (LOSS): Net income $ 65,451 $ 95,545 $ 197,308 $ 323,842 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax 17,087 ( 13,442 ) ( 963 ) ( 6,476 ) Foreign defined benefit plan adjustments, net of tax 43 34 128 102 Total other comprehensive income (loss) 17,130 ( 13,408 ) ( 835 ) ( 6,374 ) Total comprehensive income (loss) $ 82,581 $ 82,137 $ 196,473 $ 317,468 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 4 ROBERT HALF INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Shares Par Value Balance at December 31, 2023 105,209 $ 105 $ 1,354,703 $ ( 32,626 ) $ 266,169 $ 1,588,351 Net income — — — — 63,701 63,701 Other comprehensive income (loss) — — — ( 11,379 ) — ( 11,379 ) Dividends declared ($ 0.53 per share) — — — — ( 56,382 ) ( 56,382 ) Net issuances of restricted stock 751 1 ( 1 ) — — — Stock-based compensation — — 16,777 — — 16,777 Repurchases of common stock ( 1,028 ) ( 1 ) — — ( 81,822 ) ( 81,823 ) Balance at March 31, 2024 104,932 $ 105 $ 1,371,479 $ ( 44,005 ) $ 191,666 $ 1,519,245 Net income — — — — 68,156 68,156 Other comprehensive income (loss) — — — ( 6,586 ) — ( 6,586 ) Dividends declared ($ 0.53 per share) — — — — ( 55,407 ) ( 55,407 ) Net issuances of restricted stock 27 — — — — — Stock-based compensation — — 15,631 — — 15,631 Repurchases of common stock ( 903 ) ( 1 ) — — ( 60,883 ) ( 60,884 ) Balance at June 30, 2024 104,056 $ 104 $ 1,387,110 $ ( 50,591 ) $ 143,532 $ 1,480,155 Net income — — — — 65,451 65,451 Other comprehensive income (loss) — — — 17,130 — 17,130 Dividends declared ($ 0.53 per share) — — — — ( 54,760 ) ( 54,760 ) Net issuances of restricted stock ( 8 ) — — — — — Stock-based compensation — — 15,707 — — 15,707 Repurchases of common stock ( 801 ) ( 1 ) — — ( 49,847 ) ( 49,848 ) Balance at September 30, 2024 103,247 $ 103 $ 1,402,817 $ ( 33,461 ) $ 104,376 $ 1,473,835 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 5 ROBERT HALF INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in thousands, except per share amounts) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Shares Par Value Balance at December 31, 2022 107,698 $ 108 $ 1,293,565 $ ( 43,623 ) $ 318,508 $ 1,568,558 Net income — — — — 122,005 122,005 Other comprehensive income (loss) — — — 4,886 — 4,886 Dividends declared ($ 0.48 per share) — — — — ( 52,529 ) ( 52,529 ) Net issuances of restricted stock 831 1 ( 1 ) — — — Stock-based compensation — — 15,434 — — 15,434 Repurchases of common stock ( 766 ) ( 1 ) — — ( 59,872 ) ( 59,873 ) Balance at March 31, 2023 107,763 $ 108 $ 1,308,998 $ ( 38,737 ) $ 328,112 $ 1,598,481 Net income — — — — 106,292 106,292 Other comprehensive income (loss) — — — 2,148 — 2,148 Dividends declared ($ 0.48 per share) — — — — ( 51,565 ) ( 51,565 ) Net issuances of restricted stock 23 — — — — — Stock-based compensation — — 15,453 — — 15,453 Repurchases of common stock ( 654 ) ( 1 ) — — ( 45,537 ) ( 45,538 ) Balance at June 30, 2023 107,132 $ 107 $ 1,324,451 $ ( 36,589 ) $ 337,302 $ 1,625,271 Net income — — — — 95,545 95,545 Other comprehensive income (loss) — — — ( 13,408 ) — ( 13,408 ) Dividends declared ($ 0.48 per share) — — — — ( 51,228 ) ( 51,228 ) Net issuances of restricted stock ( 10 ) — — — — — Stock-based compensation — — 15,233 — — 15,233 Repurchases of common stock ( 1,227 ) ( 1 ) — — ( 91,441 ) ( 91,442 ) Balance at September 30, 2023 105,895 $ 106 $ 1,339,684 $ ( 49,997 ) $ 290,178 $ 1,579,971 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 6 ROBERT HALF INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine Months Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 197,308 $ 323,842 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for credit losses 2,481 7,812 Depreciation 38,713 37,963 Amortization of cloud computing implementation costs 27,537 25,202 Amortization of intangible assets 913 2,162 Realized and unrealized gains from investments held in employee deferred compensation trusts ( 80,634 ) ( 35,207 ) Stock-based compensation 48,115 46,120 Deferred income taxes ( 9,782 ) ( 8,941 ) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable ( 25,946 ) 66,585 Capitalized cloud computing implementation costs ( 22,879 ) ( 28,479 ) Accounts payable and accrued expenses 5,266 ( 21,833 ) Accrued payroll and benefit costs ( 9,869 ) ( 34,912 ) Employee deferred compensation plan obligations 91,177 44,749 Income taxes payable ( 4,688 ) 99,670 Other assets and liabilities, net ( 2,076 ) ( 2,485 ) Net cash flows provided by operating activities 255,636 522,248 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 42,012 ) ( 34,149 ) Investments in employee deferred compensation trusts ( 50,220 ) ( 89,133 ) Proceeds from employee deferred compensation trust redemptions 34,391 33,231 Payments for acquisition ( 264 ) ( 1,035 ) Net cash flows used in investing activities ( 58,105 ) ( 91,086 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock ( 195,548 ) ( 198,888 ) Dividends paid ( 166,269 ) ( 155,242 ) Net cash flows used in financing activities ( 361,817 ) ( 354,130 ) Effect of exchange rate fluctuations 3,012 ( 6,186 ) Change in cash and cash equivalents ( 161,274 ) 70,846 Cash and cash equivalents at beginning of period 731,740 658,626 Cash and cash equivalents at end of period $ 570,466 $ 729,472 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Non-cash items: Fund exchanges within employee deferred compensation trusts $ 72,190 $ 88,758 Contingent consideration related to acquisition $ — $ 350 The accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) are an integral part of these financial statements. 7 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 2024 Note A— Summary of Significant Accounting Policies Nature of Operations . Robert Half Inc. (the “Company”) is a specialized talent solutions and business consulting firm, connecting highly skilled job seekers with rewarding opportunities at great companies. Robert Half ® offers contract talent solutions and permanent placement talent solutions for finance and accounting, technology, marketing and creative, legal, and administrative and customer support, and provides executive search services. Robert Half is also the parent company of Protiviti ® , a global consulting firm that delivers internal audit, risk, business, and technology consulting solutions. The Company operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation. Basis of Presentation. The unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). The comparative year-end Condensed Consolidated Statement of Financial Position data presented was derived from audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the periods presented have been included. These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2023, included in its Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for a full year. Principles of Consolidation. The Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. As of September 30, 2024, such estimates include allowances for credit losses, variable consideration, workers’ compensation losses, accrued medical expenses, income and other taxes, and assumptions used in the Company’s goodwill impairment assessment and in the valuation of stock grants subject to market conditions. Actual results and outcomes may differ from management’s estimates and assumptions. Service Revenues. The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. See Note C for further discussion of the revenue recognition accounting policy. Costs of Services. Direct costs of contract talent solutions consist of payroll, payroll taxes, and benefit costs for the Company’s engagement professionals, as well as reimbursable expenses. Direct costs of permanent placement talent solutions consist of reimbursable expenses. Protiviti direct costs of services include professional staff payroll, payroll taxes and benefit costs, as well as reimbursable expenses. Advertising Costs. The Company expenses all advertising costs as incurred. Advertising costs were $ 13.0 million and $ 40.8 million for the three and nine months ended September 30, 2024, respectively, and $ 13.4 million and $ 41.3 million for the three and nine months ended September 30, 2023, respectively. (Income) Loss from Investments Held in Employee Deferred Compensation Trusts . Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s 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 an equal and offsetting amount, leaving no net cost to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists of unrealized and realized gains and losses, and dividend income from trust investments and is presented separately on the unaudited Condensed Consolidated Statements of Operations. 8 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 The following table presents the Company’s (income) loss from investments held in employee deferred compensation trusts (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Dividend income $ ( 3,007 ) $ ( 2,361 ) $ ( 7,705 ) $ ( 6,156 ) Realized and unrealized (gains) losses ( 26,223 ) 16,636 ( 80,634 ) ( 35,207 ) (Income) loss from investments held in employee deferred compensation trusts (which is completely offset by related costs and expenses) $ ( 29,230 ) $ 14,275 $ ( 88,339 ) $ ( 41,363 ) The following table presents the Company’s increase (decrease) in employee deferred compensation costs and expense related to changes in the fair value of trust assets for its nonqualified employee deferred compensation plans (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Increase (decrease) in employee deferred compensation costs and expense related to changes in the fair value of trust assets $ 29,230 $ ( 14,275 ) $ 88,339 $ 41,363 Comprehensive Income (Loss). Comprehensive income (loss) includes net income and certain other items that are recorded directly to stockholders’ equity. The Company’s only sources of other comprehensive income (loss) are foreign currency translation and foreign defined benefit plan adjustments. Fair Value of Financial Instruments. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market to measure fair value, summarized as follows: Level 1: Observable inputs for identical assets or liabilities, such as quoted prices in active markets Level 2: Inputs other than the quoted prices in active markets that are observable either directly or indirectly Level 3: Unobservable inputs in which there is little or no market data, which requires management’s best estimates and assumptions that market participants would use in pricing the asset or liability The carrying value of cash, net accounts receivable, and accounts payable and accrued expenses approximates fair value because of their short-term nature. The Company holds mutual funds and money market funds to satisfy its obligations under its employee deferred compensation plans, which are carried at fair value based on quoted market prices in active markets for identical assets (level 1). 9 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 The following tables summarize the Company’s financial instruments by significant category and fair value measurement on a recurring basis (in thousands): Fair Value Measurements Using Balance at September 30, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents Money market funds $ 308,436 $ 308,436 — — Employee deferred compensation trust assets Money market funds $ 126,542 $ 126,542 — — Mutual funds - bond 39,692 39,692 — — Mutual funds - stock 391,463 391,463 — — Mutual funds - blend 109,812 109,812 — — Total employee deferred compensation trust assets $ 667,509 $ 667,509 — — Fair Value Measurements Using Balance at December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents Money market funds $ 351,230 $ 351,230 — — Employee deferred compensation trust assets Money market funds $ 124,710 $ 124,710 — — Mutual funds - bond 35,373 35,373 — — Mutual funds - stock 316,764 316,764 — — Mutual funds - blend 94,199 94,199 — — Total employee deferred compensation trust assets $ 571,046 $ 571,046 — — Certain items, such as goodwill and other intangible assets, are recognized or disclosed at fair value on a nonrecurring basis. The Company determines the fair value of these items using level 3 inputs. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions. Allowance for Credit Losses. The Company is exposed to credit losses resulting from the inability of its customers to make required payments. The Company establishes an allowance for these potential credit losses based on its review of customers’ credit profiles, historical loss statistics, prepayments, recoveries, age of customer receivable balances, current business conditions and macroeconomic trends. The Company considers risk characteristics of trade receivables based on asset type and geographical locations to evaluate trade receivables on a collective basis. The Company applies credit loss estimates to these pooled receivables to determine expected credit losses. 10 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 The following table sets forth the activity in the allowance for credit losses from December 31, 2023, through September 30, 2024 (in thousands): Allowance for Credit Losses Balance as of December 31, 2023 $ 25,189 Charges to expense 2,481 Deductions ( 5,351 ) Other, including foreign currency translation adjustments 142 Balance as of September 30, 2024 $ 22,461 Note B— New Accounting Pronouncements Recently Adopted Accounting Pronouncements None. Recently Issued Accounting Pronouncements Not Yet Adopted Segment Reporting. In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for public filers for fiscal periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, however early adoption is permitted. The Company will first apply this amendment to its annual disclosures for the year ending December 31, 2024, and expects this amendment will result in additional disclosures to the Company’s segment financial information footnote. This amendment is not expected to have a material impact on the Company's consolidated financial statements. Income Tax Disclosures . In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Under this ASU, public filers must disclose annually (1) specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold, if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate. The new guidance is effective for public filers for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. Note C— Revenue Recognition The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Service revenues, as presented on the unaudited Condensed Consolidated Statements of Operations, represent services rendered to customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in service revenues, and equivalent amounts of reimbursable expenses are included in costs of services. Contract talent solutions revenues. Contract talent solutions revenues from contracts with customers are recognized in the amount to which the Company has a right to invoice when the services are rendered by the Company’s engagement professionals. The substantial majority of engagement professionals placed on assignment by the Company are the Company’s legal employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers. 11 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 The Company records contract talent solutions revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers. Fees paid to time management or vendor management service providers selected by clients are recorded as a reduction of revenues, as the Company is not the primary obligor with respect to those services. Permanent placement talent solutions revenues. Permanent placement talent solutions revenues from contracts with customers are primarily recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 90 -day guarantee period. These amounts are established based primarily on historical data and are recorded as liabilities. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement talent solutions services are charged to employment candidates. Protiviti revenues. Protiviti’s consulting services are generally provided on a time-and-material basis or fixed-fee basis. Revenues earned under time-and-material arrangements and fixed-fee arrangements are recognized using a proportional performance method. Revenue is measured using cost incurred relative to total estimated cost for the engagement to measure progress towards satisfying the Company’s performance obligations. Cost incurred represents work performed and thereby best depicts the transfer of control to the customer. Protiviti’s consulting services generally contain one or more performance obligation(s) which are satisfied over a period of time. Revenues are recognized over time as the performance obligations are satisfied, because the services provided do not have any alternative use to the Company, and contracts generally include language giving the Company an enforceable right to payment for services provided to date. The Company periodically evaluates the need to provide for any losses on these projects, and losses are recognized when it is probable that a loss will be incurred. The following table presents the Company’s revenues disaggregated by functional specialization and segment (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Contract talent solutions Finance and accounting $ 614,131 $ 676,588 $ 1,879,221 $ 2,175,812 Administrative and customer support 178,409 196,565 568,685 626,938 Technology 160,184 170,574 476,053 546,432 Elimination of intersegment revenues (a) ( 122,321 ) ( 100,630 ) ( 351,601 ) ( 341,228 ) Total contract talent solutions 830,403 943,097 2,572,358 3,007,954 Permanent placement talent solutions 123,275 139,931 379,105 445,922 Protiviti 511,326 480,784 1,462,002 1,465,749 Total service revenues $ 1,465,004 $ 1,563,812 $ 4,413,465 $ 4,919,625 (a) Service revenues for finance and accounting, administrative and customer support, and technology include intersegment revenues, which represent revenues from services provided to the Company’s Protiviti segment in connection with the Company’s blended business solutions. Intersegment revenues for each functional specialization are aggregated and then eliminated as a single line. Payment terms in the Company’s contracts vary by the type and location of the Company’s customer and the services offered. The term between invoicing and when payment is due is not significant. 12 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 Contracts with multiple performance obligations are recognized as performance obligations are delivered, and contract value is allocated based on relative stand-alone selling values of the services and products in the arrangement. As of September 30, 2024, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 187.0 million. Of this amount, $ 167.2 million is expected to be recognized within the next 12 months. As of September 30, 2023, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $ 150.2 million. Contract liabilities are recorded when cash payments are received or due in advance of performance and are reflected in accounts payable and accrued expenses on the unaudited Condensed Consolidated Statements of Financial Position. The following table sets forth the activity in contract liabilities from December 31, 2023, through September 30, 2024 (in thousands): Contract Liabilities Balance as of December 31, 2023 $ 24,574 Payments in advance of satisfaction of performance obligations 28,922 Revenue recognized ( 35,768 ) Other, including translation adjustments 115 Balance as of September 30, 2024 $ 17,843 Note D— Other Current Assets Other current assets consisted of the following (in thousands): September 30, 2024 December 31, 2023 Prepaid expenses $ 55,940 $ 67,999 Unamortized cloud computing implementation costs 29,504 31,049 Other 47,485 34,433 Other current assets $ 132,929 $ 133,481 Note E— Property and Equipment, Net Property and equipment consisted of the following (in thousands): September 30, 2024 December 31, 2023 Computer hardware $ 133,563 $ 150,165 Computer software 223,364 220,004 Furniture and equipment 96,917 99,547 Leasehold improvements 198,525 187,806 Property and equipment, cost 652,369 657,522 Accumulated depreciation ( 532,781 ) ( 548,713 ) Property and equipment, net $ 119,588 $ 108,809 13 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 Note F— Other Noncurrent Assets Other noncurrent assets consisted of the following (in thousands): September 30, 2024 December 31, 2023 Unamortized cloud computing implementation costs $ 11,822 $ 15,047 Other intangible assets, net 1,521 2,433 Other noncurrent assets $ 13,343 $ 17,480 Note G— Leases The Company has operating leases for corporate and field offices, and certain equipment. The Company’s leases have remaining lease terms of less than one year to 11 years, some of which include options to extend the leases for up to seven years , and some of which include options to terminate the leases within one year . Operating lease expense was $ 20.6 million and $ 62.9 million for the three and nine months ended September 30, 2024, respectively, and $ 22.2 million and $ 67.1 million for the three and nine months ended September 30, 2023, respectively. Supplemental cash flow information related to leases consisted of the following (in thousands): Nine Months Ended September 30, 2024 2023 Cash paid for operating lease liabilities $ 71,637 $ 71,633 Right-of-use assets obtained in exchange for new operating lease liabilities $ 62,043 $ 46,838 Supplemental balance sheet information related to leases consisted of the following: September 30, 2024 December 31, 2023 Weighted average remaining lease term for operating leases 4.5 years 4.3 years Weighted average discount rate for operating leases 3.7 % 3.2 % Future minimum lease payments under non-cancellable leases as of September 30, 2024, were as follows (in thousands): 2024 (excluding the nine months ended September 30, 2024) $ 20,068 2025 72,344 2026 58,755 2027 38,844 2028 26,474 Thereafter 48,237 Less: Imputed interest ( 25,766 ) Present value of operating lease liabilities (a) $ 238,956 (a) Includes the current portion of $ 65.9 million for operating leases. As of September 30, 2024, the Company had additional future minimum lease obligations totaling $ 16.2 million under executed operating lease contracts that had not yet commenced. These operating leases include agreements for corporate and field office facilities with lease terms of one to 11 years. 14 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 Note H— Goodwill The following table sets forth the activity in goodwill from December 31, 2023 through September 30, 2024 (in thousands): Goodwill Contract talent solutions Permanent placement talent solutions Protiviti Total Balance as of December 31, 2023 $ 134,287 $ 26,131 $ 77,552 $ 237,970 Foreign currency translation adjustments 82 16 ( 91 ) 7 Balance as of September 30, 2024 $ 134,369 $ 26,147 $ 77,461 $ 237,977 Note I— Accrued Payroll and Benefit Costs Accrued payroll and benefit costs consisted of the following (in thousands): September 30, 2024 December 31, 2023 Payroll and benefits $ 377,101 $ 367,830 Payroll taxes 12,351 31,439 Workers’ compensation 14,965 14,664 Accrued payroll and benefit costs $ 404,417 $ 413,933 Note J— Employee Deferred Compensation Plan Obligations The Company provides various qualified defined contribution 401(k) plans covering eligible employees. The plans offer a savings feature with the Company matching employee contributions. Assets of this plan are held by an independent trustee for the sole benefit of participating employees. Nonqualified plans are provided for employees on a discretionary basis, including those not eligible for the qualified plans. These plans include provisions for salary deferrals and discretionary contributions. The asset value of the nonqualified plans was $ 667.5 million and $ 571.0 million as of September 30, 2024 and December 31, 2023, respectively. The Company holds these assets to satisfy the Company’s liabilities under its deferred compensation plans. The liability value for the nonqualified plans was $ 664.1 million and $ 572.9 million as of September 30, 2024 and December 31, 2023, respectively. Contribution expenses for the Company’s qualified and nonqualified defined contribution plans were $ 11.8 million and $ 36.6 million for the three and nine months ended September 30, 2024, respectively, and $ 10.7 million and $ 33.5 million for the three and nine months ended September 30, 2023, respectively. The Company has statutory defined contribution plans and defined benefit plans outside the United States of America, which are not material. Note K— Commitments and Contingencies On March 23, 2015, Plaintiff Jessica Gentry, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, San Francisco County, which was subsequently amended on October 23, 2015. The complaint alleges that a putative class of current and former employees of the Company working in California since March 13, 2010, were denied compensation for the time they spent interviewing “for temporary and permanent employment opportunities” as well as performing activities related to the interview process. Gentry seeks recovery on her own behalf and on behalf of the putative class in an unspecified amount for this allegedly unpaid compensation. Gentry also seeks recovery of an unspecified amount for the alleged failure of the Company to provide her and 15 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 the putative class with accurate wage statements. Gentry also seeks an unspecified amount of other damages, attorneys’ fees, and statutory penalties, including penalties for allegedly not paying all wages due upon separation to former employees and statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by California’s Labor Code Private Attorneys General Act (“PAGA”). On January 4, 2016, the Court denied a motion by the Company to compel all of Gentry’s claims, except the PAGA claim, to individual arbitration. On March 8, 2024, the Court issued an order certifying: (1) a class of California-based temporary employees who attended at least one uncompensated interview with a third-party client at any time since March 13, 2010; (2) a subclass of class members who held a prior temporary job assignment before interviewing for a subsequent assignment; and (3) a subclass of class members who are no longer employed by the Company (i.e., a “waiting time penalties” subclass). At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation. On April 6, 2018, Plaintiff Shari Dorff, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, County of Los Angeles. In addition to certain claims individual to Plaintiff Dorff, the complaint alleges that salaried recruiters based in California have been misclassified as exempt employees and seeks an unspecified amount for: unpaid wages resulting from such alleged misclassification; alleged failure to provide a reasonable opportunity to take meal periods and rest breaks; alleged failure to pay wages on a timely basis both during employment and upon separation; alleged failure to comply with California requirements regarding wage statements and record-keeping; and alleged improper denial of expense reimbursement. Plaintiff Dorff also seeks an unspecified amount of other damages, attorneys’ fees, and penalties, including but not limited to statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by PAGA. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation. The Company is involved in a number of other lawsuits arising in the ordinary course of business. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties. Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred. The Company has an unsecured revolving credit facility (the “Credit Agreement”) of $ 100.0 million, which matures May 2026. Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing which 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 September 30, 2024. There were no borrowings under the Credit Agreement as of September 30, 2024, or December 31, 2023. Note L— Stockholders’ Equity Stock Repurchase Program. As of September 30, 2024, the Company is authorized to repurchase, from time to time, up to 8.3 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. The number and the cost of common stock shares repurchased during the nine months ended September 30, 2024 and 2023, are reflected in the following table (in thousands): Nine Months Ended September 30, 2024 2023 Common stock repurchased (in shares) 2,460 2,362 Common stock repurchased $ 171,047 $ 175,005 16 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable statutory withholding taxes. The number and the cost of employee stock plan repurchases made during the nine months ended September 30, 2024 and 2023, are reflected in the following table (in thousands): Nine Months Ended September 30, 2024 2023 Repurchases related to employee stock plans (in shares) 272 285 Repurchases related to employee stock plans $ 21,508 $ 21,848 The repurchased shares are held in treasury and are presented as if constructively retired. Treasury stock is accounted for using the cost method. Treasury stock activity for the nine months ended September 30, 2024 and 2023, (consisting of purchases of shares for the treasury) is presented in the unaudited Condensed Consolidated Statements of Stockholders’ Equity. Repurchases of shares and issuances of dividends are applied first to the extent of retained earnings and any remaining amounts are applied to additional paid-in capital. Note M— Net Income Per Share The calculation of net income per share for the three and nine months ended September 30, 2024 and 2023, is reflected in the following table (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 65,451 $ 95,545 $ 197,308 $ 323,842 Basic: Weighted average shares 102,175 105,340 103,034 105,950 Diluted: Weighted average shares 102,175 105,340 103,034 105,950 Dilutive effect of potential common shares 218 470 337 500 Diluted weighted average shares 102,393 105,810 103,371 106,450 Net income per share: Basic $ 0.64 $ 0.91 $ 1.91 $ 3.06 Diluted $ 0.64 $ 0.90 $ 1.91 $ 3.04 Note N— Business Segments The Company has three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Operating segments are defined as components of the Company for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The contract talent solutions and permanent placement talent solutions segments provide specialized engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative and customer support, and executive searches. The Protiviti segment provides internal audit, risk, business, and technology consulting solutions. The accounting policies of the segments are set forth in Note A—“Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The Company evaluates performance based on income before intangible assets amortization expense, net interest income, and income taxes. 17 ROBERT HALF INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) September 30, 2024 The following table provides a reconciliation of service revenues and segment income by reportable segment to consolidated results for the three and nine months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Service revenues Contract talent solutions $ 830,403 $ 943,097 $ 2,572,358 $ 3,007,954 Permanent placement talent solutions 123,275 139,931 379,105 445,922 Protiviti 511,326 480,784 1,462,002 1,465,749 $ 1,465,004 $ 1,563,812 $ 4,413,465 $ 4,919,625 Segment income Contract talent solutions $ 25,844 $ 58,475 $ 114,108 $ 241,937 Permanent placement talent solutions 12,187 19,055 40,190 64,612 Protiviti 52,069 52,402 111,960 134,789 Combined segment income 90,100 129,932 266,258 441,338 Amortization of intangible assets 305 720 913 2,162 Interest income, net ( 5,391 ) ( 7,131 ) ( 16,990 ) ( 17,276 ) Income before income taxes $ 95,186 $ 136,343 $ 282,335 $ 456,452 Service revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between contract talent solutions segment and Protiviti segment were $ 122.3 million and $ 351.6 million for the three and nine months ended September 30, 2024, respectively, and $ 100.6 million and $ 341.2 million for the three and nine months ended September 30, 2023, respectively. Revenue and direct costs related to the intersegment activity are reflected in the Protiviti segment, including the costs of candidate payroll, fringe benefits and incremental recruiter compensation. Note O— Subsequent Events On October 29, 2024, the Company announced the following: Quarterly dividend per share $ 0.53 Declaration date October 29, 2024 Record date November 25, 2024 Payment date December 13, 2024 18