What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-13 compared with 2024-02-20 · 59 added, 52 removed, 287 unchanged (28% of the section changed)

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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 statements may be identified by words such as “anticipate,” “potential,” “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”) or other mandatory reporting purposes and may be based on standards for measuring progress that are still developing, on internal controls, diligence or processes that are evolving, on representations reviewed or provided by third parties, and on assumptions that are subject to change in the future.

Forward-looking statements are estimates only and are 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, often beyond our control and are inherently uncertain.

Forward-looking statements are subject to risks and uncertainties that could cause actual results and outcomes, or the timing of these results or outcomes, to differ materially from those expressed or implied in the statements.

These risks and uncertainties include, but are not limited to, the following:

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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 impact of competitive pressures, including any change in the demand for the Company’s services, or 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;

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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 impact of extreme weather conditions on the Company and its candidates and clients;

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

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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;

the possibility that the Company’s computer and communications hardware and software systems could be damaged or their service interrupted or that 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.

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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.

Except as required by law, the Company undertakes no obligation to update information in this report, whether as a result of new information, future events, or otherwise, and notwithstanding any historical practice of doing so.

Executive Overview

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 results were impacted by the ongoing macroeconomic uncertainty that affects client and candidate confidence, lengthening decision cycles and delaying hiring activities and projects in the short term.

The Company’s service revenues were $5.80 billion in 2024, a decrease of 9.3% from the prior year.

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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.

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.

real gross domestic product increased 2.3% in 2024, compared to an increase of 2.5% in 2023, while the unemployment rate rose from 3.8% in December

2023 to 4.1% in December 2024.

Global labor markets remain resilient with U.S.

job openings significantly above historical averages indicating pent-up demand for talent.

In the U.S., unemployment stands at 4.1% and remains even lower for those with a college degree, where the rate is 2.4%.

The Company is confident about its ability to weather the current economic cycle.

The NFIB’s Small Business Optimism Index continues to climb and recently reached levels not seen in more than six years.

Rising business confidence is conducive to hiring urgency, accelerated project demand and reprioritization of deferred growth initiatives.

The Company is encouraged by the current combination of elevated job openings, low unemployment and strong business confidence.

The Company is well-positioned to capitalize on emerging opportunities and support its clients’ talent and consulting needs through the strength of its industry-leading brand, people, technology and unique business model.

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

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Accordingly, the Company’s headcount and other investments are typically assessed on at least a quarterly basis.

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.

During 2024 the Company decreased headcount for its contract talent solutions and permanent placement talent solutions segments, when compared to prior year-end levels.

In addition, the full-time headcount for Protiviti increased 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.

The Organization of Economic Cooperation and Development (“OECD”), an international association of many countries, 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.

The Company is continuing to evaluate the GloBE Model Rules for Pillar Two and related legislation;

no material tax impacts are expected.

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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contract talent solutions, permanent placement talent solutions and Protiviti.

The contract talent solutions and permanent placement talent solutions segments provide engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, and administrative and customer support roles.

The Protiviti segment provides business and technology risk consulting and internal audit services.

Demand for the Company’s services is largely dependent upon general economic and labor trends both domestically and abroad.

The Protiviti segment provides internal audit, risk, business and technology consulting solutions.

Demand for the Company’s services is largely dependent upon global economic and labor trends.

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 conducts placement activities through 313 offices in 42 states, the District of Columbia, and 18 foreign countries, while Protiviti has 65 offices in 23 states and 13 foreign countries.

The Company’s talent solutions segments conduct operations through offices in the U.S.

and 17 other countries, while Protiviti has offices in the U.S.

and 13 other countries.

Non-GAAP Financial Measures

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and as adjusted revenue growth rates.

The following measures:

adjusted gross margin and adjusted selling, general and administrative expenses, include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans.

The following measures, adjusted gross margin and adjusted selling, general and administrative expenses, 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.

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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 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.

Protiviti revenues were $1.95 billion for the year ended December 31, 2024, increasing by 1.1% compared to revenues of $1.93 billion for the year ended December 31, 2023.

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

The increase in Protiviti revenues for 2024 was primarily due to a 2.4% increase in average hourly bill rate, partially offset by a 1.3% decrease in billable hours.

On an as adjusted basis, Protiviti revenues increased 0.6% for 2024 compared to 2023.

In the U.S., 2024 revenues increased 3.5% on a reported basis, and increased 3.0% on an as adjusted basis, compared to 2023.

International revenues for 2024 revenues decreased 8.5% on a reported basis, and decreased 8.9% on an as adjusted basis, compared to 2023.

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Gross margin dollars for contract talent solutions were $1.32 billion for the year ended December 31, 2024, down 15.0% from $1.55 billion for the year ended December 31, 2023.

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

As a percentage of revenues, gross margin dollars for contract talent solutions were 39.2% in 2024, down from 39.8% in 2023.

The decrease in gross margin percentage was primarily due to lower conversions and a smaller mix of higher margin services which impacted pay-bill spreads.

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

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As a percentage of revenues, adjusted gross margin dollars for Protiviti were 23.7% in 2024, down from 24.6% in 2023.

The year-over-year decrease in adjusted gross margin percentage was primarily due to lower staff utilization rates.

The year-over-year decrease in adjusted gross margin percentage was primarily due to the relative composition of and number of professional staff and their respective pay and bill rates.

The Company’s gross margin by reporting segment is summarized as follows (in thousands):

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As Adjusted $ 1,549,312 39.8 % $ 566,381 99.8 % $ 475,572 24.6 % $ 2,591,265 40.5 %

(1) Changes in the Company’s deferred compensation obligations related to Protiviti operations are included in costs of services, 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.

(1) Changes in the Company’s deferred compensation obligations related to Protiviti operations are included in costs of services, while the related investment income is presented separately.

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

These adjustments have no impact on income before income taxes.

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

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.

Selling, general and administrative expenses for contract talent solutions, on an as-reported basis, were $1.25 billion for the year ended December 31, 2024, decreasing 5.2% from $1.32 billion the year ended December 31, 2023.

As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 37.3% in 2024, up from 33.9% in 2023.

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As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions services were 92.1% in 2024, up from 87.9% in 2023.

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.

As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions were 90.3% in 2024, up from 86.6% in 2023, due primarily to negative leverage as revenues decreased as a result of economic conditions.

Selling, general and administrative expenses for Protiviti were $303 million for the year ended December 31, 2024, increasing by 5.3% from $288 million for the year ended December 31, 2023.

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.

As a percentage of revenues, selling, general and administrative expenses for Protiviti were 15.5% in 2024, up from 14.9% in 2023.

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

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As Adjusted $ 1,256,497 32.3 % $ 491,377 86.6 % $ 287,898 14.9 % $ 2,035,772 31.8 %

(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.

These adjustments have no impact on income before income taxes.

(Income) Loss from Investments Held in Employee Deferred Compensation Trusts .

Income 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 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 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 value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company, and therefore no effect on reported net

The Company’s income 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 from investments held in employee deferred compensation trusts was $94 million for the year ended December 31, 2024, and $88 million for the year ended December 31, 2023.

The income from trust investments was due to positive market returns during 2024.

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Operating activities provided $637 million during the year ended December 31, 2023, offset by $112 million and $461 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.

Fluctuations in foreign currency exchange rates had the effect of decreasing reported cash and cash equivalents by $21 million during the year ended December 31, 2024, compared to an increase of $9 million in 2023.

Operating activities—Net cash provided by operating activities for the year ended December 31, 2024, was $410 million.

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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.

Investing activities—Cash used in investing activities for the year ended December 31, 2024, was $87 million.

This was composed of capital expenditures of $46 million, investments in employee deferred compensation trusts of $103 million and $1 million cash paid for an acquisition, partially offset by proceeds from employee deferred compensation trust redemptions of $38 million.

This was composed of capital expenditures of $56 million and investments in employee deferred compensation trusts of $69 million, partially offset by proceeds from employee deferred compensation trust redemptions of $38 million.

Cash used in investing activities for the year ended December 31, 2023, was $112 million.

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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.

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 December 31, 2024.

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As of December 31, 2024, the Company reported current and long-term operating lease liabilities of $65 million and $169 million, respectively.

These balances consist of the minimum rental commitments for 2024 and thereafter, discounted to reflect the Company’s cost of borrowing, under non-cancelable lease contracts executed as of December 31, 2023.

These balances consist of the minimum rental commitments for 2025 and thereafter, discounted to reflect the Company’s cost of borrowing, under noncancelable lease contracts executed as of December 31, 2024.

The majority of these leases are for real estate.

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Purchase Obligations.

As of December 31, 2023, the Company incurred contractual purchase obligations of $201.6 million primarily related to software subscriptions, services, telecom services and software maintenance agreements.

Of this amount, $105.3 million is expected to be paid within the next twelve months.

As of December 31, 2024, the Company’s contractual purchase obligations were $255 million, primarily related to software subscriptions, services, telecom services and software maintenance agreements.

Of this amount, $112 million is expected to be paid within the next 12 months.

These purchase obligations are incurred during the normal course of business.

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The timing of these payments may change based upon factors including termination of the Company’s employment arrangement with a participant.

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.

These obligations are funded through contributions to investment trusts, whose assets as of December 31, 2024, were substantially equal to the obligations.

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 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