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(Exact name of registrant as specified in its charter)
iDelaware
i94-1648752
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i2884 Sand Hill Road
iSuite
200
iMenlo Park,
iCalifornia
i94025
(Address
of principal executive offices)
(zip-code)
Registrant’s telephone number, including area code: (i650) i234-6000
Securities
registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, par value $0.001 per share
iRHI
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). iYes☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2022:
i109,567,871shares of $.001 par value Common Stock
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROBERT HALF INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
Note
A—iSummary of Significant Accounting Policies
i
Nature of Operations. Robert Half International Inc. (the “Company”) is a specialized talent solutions and
business consulting firm that connects opportunities at great companies with highly skilled job seekers. Robert Half® offers contract talent solutions and permanent placement talent solutions for finance and accounting, technology, marketing and creative, legal, administrative and customer support roles. Robert Half is also the parent company of Protiviti®, a global consulting firm that provides internal audit, risk, business, and technology consulting solutions.
The Company recently completed a multiyear process to unify its family of Robert Half endorsed divisional
brands to a single brand, Robert Half. This simplifies the Company’s go-to-market brand structure for clients and candidates, provides leverage for greater brand awareness, and allows future flexibility to expand the Company’s existing functional specializations. In connection with this process, the Company’s current financial statement disclosures reflect new names for its reportable segments, including contract talent solutions (formerly temporary and consultant staffing), permanent placement talent solutions (formerly permanent placement staffing) and Protiviti (formerly risk consulting
and internal audit services). What was previously referred to as staffing operations is now referred to as talent solutions.
The presentation of contract talent solutions includes functional specializations rather than the previously branded divisions. The functional specializations are: finance and accounting, which combines the former Accountemps® and Robert Half® Management Resources divisions; administrative and customer support, which consists of the former OfficeTeam®; and technology, which includes the former Robert Half®
Technology.
The Company operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation.
iBasis of Presentation. The unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of the
Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). The comparative year-end Condensed Consolidated Statement of Financial Position data presented was derived from audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the periods presented have been included. These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2021, included in its Annual Report on Form 10-K. The results of operations for any interim period are not necessarily
indicative of, nor comparable to, the results of operations for a full year. Certain reclassifications have been made to prior year’s Condensed Consolidated Financial Statements to conform to the 2022 presentation.
iPrinciples 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.
iUse of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As of June 30, 2022, such estimates include allowances for credit losses, variable consideration,
workers’ compensation losses, accrued medical expenses, income and other taxes, assumptions used in the Company’s goodwill impairment assessment and in the valuation of stock grants subject to market conditions. Actual results and outcomes may differ from management’s estimates and assumptions.
iService Revenues. The Company
derives its revenues from ithree segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. See Note C for further discussion of the revenue recognition
accounting policy./
7
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Costs of Services. Direct costs of contract talent solutions
consist of professional staff payroll, payroll taxes and benefit costs for the Company’s engagement professionals, as well as reimbursable expenses. Direct costs of permanent placement talent solutions consist of reimbursable expenses. Protiviti direct costs of services include professional staff payroll, payroll taxes and benefit costs, as well as reimbursable expenses.
iAdvertising Costs. The
Company expenses all advertising costs as incurred. Advertising costs were $i14.5 million and $i28.7 million for the three and six months ended June 30,
2022, respectively, and $i11.8 million and $i20.2 million for the three and six months ended June 30, 2021, respectively.
i(Income)
Loss from Investments Held in Employee Deferred Compensation Trusts. Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s deferred compensation obligation to employees changes accordingly. Changes in the Company’s deferred compensation obligations remain in selling, general and administrative expenses or, in the case of Protiviti, costs of services. The value
of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments.
i
The
following table presents the Company’s (income) loss from investments held in employee deferred compensation trusts (in thousands):
(Income)
loss from investments held in employee deferred compensation trusts
$
i65,622
$
(i27,810)
$
i95,623
$
(i39,797)
/
iComprehensive
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.
i
Fair Value of Financial Instruments. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy
based on the observability of the inputs available in the market to measure fair value, summarized as follows:
Level 1: observable inputs for identical assets or liabilities, such as quoted prices in active markets
Level 2: inputs other than the quoted prices in active markets that are observable either directly or indirectly
Level 3: unobservable inputs in which there is little or no market data, which requires management’s best estimates and assumptions that market participants would use in pricing the asset or liability
The carrying value of cash and cash equivalents, net accounts receivable, and accounts payable and accrued expenses approximates fair value because of their short-term nature. The Company
holds mutual funds and money market funds to satisfy its obligations under its employee deferred compensation plans, which are carried at fair value based on quoted market prices in active markets for identical assets (level 1).
8
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
The
following table sets forth the composition of the underlying assets which comprise the Company’s deferred compensation trust assets (in thousands):
Quoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
Assets
Money market funds
$
i66,700
$
i66,700
i—
i—
Mutual
funds - bond
i30,750
i30,750
i—
i—
Mutual
funds - stock
i303,277
i303,277
i—
i—
Mutual
funds - blend
i94,264
i94,264
i—
i—
$
i494,991
$
i494,991
i—
i—
/
Certain
items such as goodwill and other intangible assets are recognized or disclosed at fair value on a non-recurring basis. The Company determines the fair value of these items using level 3 inputs. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
iAllowance
for Credit Losses. The Company is exposed to credit losses resulting from the inability of its customers to make required payments. The Company establishes an allowance for these potential credit losses based on its review of customers’ credit profiles, historical loss statistics, prepayments, recoveries, age of customer receivable balances, current business conditions and macroeconomic trends. The Company considers risk characteristics of trade receivables based on asset type and geographical locations to evaluate trade receivables on a collective basis. The Company applies credit loss estimates to these pooled
receivables to determine expected credit losses.
9
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Government
Assistance. In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” to increase the transparency of government assistance including the disclosure of the types of assistance an entity receives, an entity’s method of accounting for government assistance and the effect of the assistance on an entity’s financial statements. This standard is effective for annual periods beginning after December 15, 2021. The amendments should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application, or (2) retrospectively to those transactions. The
Company adopted this ASU in January 2022. The adoption of this guidance did not have a material impact on its financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
None.
Note C—iRevenue Recognition
The
Company derives its revenues from ithree segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Service revenues as presented in the unaudited Condensed
Consolidated Statements of Operations represent services rendered to customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in service revenues, and equivalent amounts of reimbursable expenses are included in costs of services.
Contract talent solutionsrevenues.Contract talent solutions revenues are recognized in the amount to which the Company has a right to invoice when the services are rendered by the
Company’s engagement professionals. The substantial majority of engagement professionals placed on assignment by the Company are the Company’s legal employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers.
The Company records contract
talent solutions revenues on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers. Fees paid to Time Management or Vendor Management service providers selected by clients are recorded as a reduction of revenues, as the Company is not the primary obligor with respect to those services.
10
ROBERT
HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Permanent placement talent solutions revenues. Permanent placement talent solutions revenues are primarily recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the i90-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.
i
The
following table presents the Company’s service revenues disaggregated by functional specialization and segment (in thousands):
(a) Service
revenues for finance and accounting, administrative and customer support, and technology include intersegment revenues, which represent revenues from services provided to the Company’s Protiviti segment in connection with the Company’s blended business solutions. Intersegment revenues for each functional specialization are aggregated and then eliminated as a single line.
/
Payment terms in the Company’s contracts
vary by the type of the Company’s customer and the services offered. The term between invoicing and when payment is due is not significant.
Contracts with multiple performance obligations are recognized as performance obligations are delivered, and contract value is allocated based on relative standalone selling values of the services and products in the arrangement. As of June 30, 2022, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater
than ione year was $i202.4 million. Of this amount, $i183.6 million
is expected to be recognized within the next itwelve months. As of June 30, 2021, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than ione
year was $i173.5 million.
11
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
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. iThe following table sets forth the activity in contract liabilities from December
31, 2021 through June 30, 2022 (in thousands):
The Company has operating leases for corporate and field offices, and certain equipment. The
Company’s leases have remaining lease terms of less than i1 year to i8 years, some of which include options to extend the leases for up to i10
years, and some of which include options to terminate the leases within i1 year. Operating lease expenses were $i22.5 million and $i45.1 million
for the three and six months ended June 30, 2022, respectively, and $i21.7 million and $i43.2 million for the three and six months ended
June 30, 2021, respectively.
iSupplemental cash flow information related to leases consisted of the following (in thousands):
(a)
Includes current portion of $i84.4 million for operating leases.
/
As of June 30, 2022, the Company had additional future minimum lease obligations totaling $i6.1 million
under executed operating lease contracts that had not yet commenced. These operating leases include agreements for corporate and field office facilities with lease terms of i1 to i6
years.
13
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
The
Company completed its annual assessment of the recoverability of goodwill during the quarter ended June 30, 2022, and determined there were no events or circumstances that would more likely than not reduce the fair value of the Company’s reporting units below their carrying value.
Note H—iAccrued
Payroll and Benefit Costs
iAccrued payroll and benefit costs consisted of the following (in thousands):
The
Company, under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, deferred paying $ii51.1/ million of
applicable payroll taxes as of both June 30, 2022 and December 31, 2021, which is expected to be paid during the next 12 months and is included in payroll taxes.
Note I—iEmployee 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 $i416.7 million
and $i495.0 million as of June 30, 2022 and December 31, 2021, respectively. The Company holds these assets to satisfy the Company’s liabilities under its deferred compensation plans.
The liability value for the nonqualified
plans was $i440.3 million and $i535.3 million as of June 30, 2022 and December 31,
2021, respectively.
14
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
The
following table presents the Company’s compensation expense related to its qualified defined contribution plans and nonqualified plans (in thousands):
Increase
(decrease) in employee deferred compensation expense related to changes in the fair value of trust assets
(i65,622)
i27,810
(i95,623)
i39,797
$
(i52,828)
$
i41,728
$
(i70,627)
$
i63,269
/
The
Company has statutory defined contribution plans and defined benefit plans outside the United States of America, which are not material.
Note J—iCommitments and Contingencies
On March 23, 2015, Plaintiff Jessica Gentry, on her own behalf and on behalf of a putative class of allegedly similarly situated
individuals, filed a complaint against the Company in the Superior Court of California, San Francisco County, which was subsequently amended on October 23, 2015. The complaint alleges that a putative class of current and former employees of the Company working in California since March 13, 2010, were denied compensation for the time they spent interviewing “for temporary and permanent employment opportunities” as well as performing activities related to the interview process. Gentry seeks recovery on her own behalf and on behalf of the putative class in an unspecified amount for this allegedly unpaid compensation. Gentry also seeks recovery of an unspecified amount for the alleged failure of the
Company to provide her and the putative class with accurate wage statements. Gentry also seeks an unspecified amount of other damages, attorneys’ fees, and statutory penalties, including penalties for allegedly not paying all wages due upon separation to former employees and statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by California’s Labor Code Private Attorney General Act (“PAGA”). On January 4, 2016, the Court denied a motion by the Company to compel all of Gentry’s claims, except the PAGA claim, to individual arbitration. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, ino
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, ino
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.
iLegal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred.
15
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)—(Continued)
In May 2021, the Company entered into an amendment to extend the maturity of its $i100.0 million unsecured revolving credit facility (the “Credit Agreement”) to May 2024. Borrowings under the Credit Agreement will bear interest in accordance with the terms of the
borrowing, which typically will be calculated according to the London Interbank Offered Rate or an alternative base rate, plus an applicable margin. The Credit Agreement is subject to certain financial covenants and the Company was in compliance with these covenants as of June 30, 2022. There were ino borrowings under the Credit Agreement as of June 30, 2022.
Note
K—iStockholders’ Equity
Stock Repurchase Program. As of June 30, 2022, the Company is authorized to repurchase, from time to time, up to i5.8 million
additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. iThe number and the cost of common stock shares repurchased during the six months ended June 30, 2022 and 2021, are reflected in the following table (in thousands):
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. iThe number and the cost of employee stock plan repurchases made during the six months ended June 30, 2022 and 2021, are reflected in the following table (in thousands):
Repurchases related to employee stock plans (in shares)
i295
i251
Repurchases
related to employee stock plans
$
i32,786
$
i19,345
iThe
repurchased shares are held in treasury and are presented as if constructively retired. Treasury stock is accounted for using the cost method. Treasury stock activity for the six months ended June 30, 2022 and 2021, (consisting of purchase of shares for the treasury) is presented in the unaudited Condensed Consolidated Statements of Stockholders’ Equity.
Repurchases of shares and issuances of dividends are applied first to the extent of retained earnings and any remaining amounts are applied to additional paid-in capital.
16
ROBERT
HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
The
calculation of net income per share for the three and six months ended June 30, 2022 and 2021, is reflected in the following table (in thousands, except per share amounts):
The Company has ithree
reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Operating segments are defined as components of the Company for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The contract talent solutions and permanent placement talent solutions segments provide specialized engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative and customer support roles. The Protiviti segment provides business and technology risk consulting and internal audit services.
The
accounting policies of the segments are set forth in Note A—“Summary of Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company evaluates performance based on income before net interest (income) expense, intangible assets amortization expense, and income taxes.
17
ROBERT HALF INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
The following table provides a reconciliation of service revenues and segment income by reportable segment to consolidated results for the three and six months ended June 30, 2022 and 2021 (in thousands):
Service
revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between the contract talent solutions segment and Protiviti segment were $i137.5 million and $i281.7
million for the three and six months ended June 30, 2022, respectively, and $i143.0 million and $i246.8
million six months ended June 30, 2021, respectively.
Revenue and direct costs related to the intersegment activity are reflected in the Protiviti segment, including the costs of candidate payroll, fringe benefits and incremental recruiter compensation.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain information contained in Management’s Discussion and Analysis and in other parts of this report may be deemed forward-looking statements regarding events and financial trends that may affect the future operating results or financial positions of Robert Half
International Inc. (the “Company”). These statements may be identified by words such as “estimate,”“forecast,”“project,”“plan,”“intend,”“believe,”“expect,”“anticipate,” or variations or negatives thereof or by similar or comparable words or phrases. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. These risks and uncertainties include, but are not limited to, the following: changes to or new interpretations of United States of America ("U.S.") or international tax regulations, the global financial and economic situation; the duration and impact of the COVID-19 pandemic and efforts to mitigate its spread; changes in levels of unemployment and other economic conditions in the U.S. or foreign countries where the
Company does business, or in particular regions or industries; reduction in the supply of candidates for contract employment or the Company’s ability to attract candidates; the entry of new competitors into the marketplace or expansion by existing competitors; the ability of the Company to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions; the impact of competitive pressures, including any change in the demand for the Company’s services, on the Company’s ability to maintain
its margins; the possibility of the Company incurring liability for its activities, including the activities of its engagement professionals, or for events impacting its engagement professionals on clients’ premises; the possibility that adverse publicity could impact the Company’s ability to attract and retain clients and candidates; the success of the Company in attracting, training, and retaining qualified management personnel and other staff employees; the Company’s ability to comply with governmental regulations affecting personnel services businesses in particular or employer/employee relationships in general; whether there will
be ongoing demand for Sarbanes-Oxley or other regulatory compliance services; the Company’s reliance on short-term contracts for a significant percentage of its business; litigation relating to prior or current transactions or activities, including litigation that may be disclosed from time to time in the Company’s Securities and Exchange Commission (“SEC”) filings; the ability of the Company to manage its international operations and comply with foreign laws and regulations; the impact of fluctuations in foreign currency exchange rates; the possibility that the additional costs the
Company will incur as a result of health care or other reform legislation may adversely affect the Company’s profit margins or the demand for the Company’s services; the possibility that the Company’s computer and communications hardware and software systems could be damaged or their service interrupted or the Company could experience a cybersecurity breach; and the possibility that the Company may fail to maintain adequate financial and management controls and as a result suffer errors in its financial reporting. Additionally, with respect to Protiviti,
other risks and uncertainties include the fact that future success will depend on its ability to retain employees and attract clients; there can be no assurance that there will be ongoing demand for broad based consulting, regulatory compliance, technology services, public sector or other high demand advisory services; failure to produce projected revenues could adversely affect financial results; and there is the possibility of involvement in litigation relating to prior or current transactions or activities. Because long-term contracts are not a significant part of the Company’s business, future results cannot be reliably predicted by considering past trends or extrapolating past results.
Executive Overview
The
Company recently completed a multiyear process to unify its family of Robert Half endorsed divisional brands to a single brand, Robert Half. This simplifies the Company’s go-to-market brand structure for clients and candidates and provides leverage for greater brand awareness and allows future flexibility to expand the Company’s existing functional specializations. In connection with this process, the Company’s current financial statement disclosures reflect new names for its reportable segments, including contract talent solutions
(formerly temporary and consultant staffing), permanent placement talent solutions (formerly permanent placement staffing) and Protiviti (formerly risk consulting and internal audit services). What was previously referred to as staffing operations is now referred to as talent solutions.
The presentation of contract talent solutions includes functional specializations rather than the previously branded divisions. The functional specializations are: finance and accounting, which combines the former Accountemps® and Robert Half®Management Resources divisions; administrative and customer support, which consists of the former OfficeTeam®;
and technology, which includes the former Robert Half® Technology.
The Company reported another very strong quarter which reflects a robust global labor market and demand environment, although reported results were unfavorably impacted by currency exchange rates as the U.S. dollar strengthened against the Euro and British pound. During the first half of 2022, service revenues were $3.68 billion, an increase of 23.5% from the prior year. Net income increased 32.4% to $344 million and diluted net income per share increased 34.5% to $3.12.
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The
Company’s talent solutions led the way, with permanent placement and contract talent solutions achieving year-over-year revenue growth of 51.5% and 24.3%, respectively. Protiviti also performed strong, growing year-over-year revenues by 13.2%.
Remote and hybrid working models are here to stay and provide the Company with a significant opportunity to capitalize on the structure shift in how companies source talent. This plays to the Company’s numerous strengths, including its global brand, office network, candidate database and AI-driven technologies.
Demand for the
Company’s contract talent solutions, permanent placement talent solutions, and consulting talent is largely dependent upon general economic and labor trends both domestically and abroad. The U.S. economic backdrop and labor trends for the first half of 2022 remained conducive to growth for the Company as the unemployment rate decreased from 3.9% in December 2021 to 3.6% at the end of the second quarter of 2022. In the U.S., job openings and quit rates remain elevated and only modestly below all-time highs. The U.S. labor market remains robust, with significant demand due to talent shortages across professional disciplines.
The
Company monitors various economic indicators and business trends in all of the countries in which it operates to anticipate demand for the Company’s services. These trends are evaluated to determine the appropriate level of investment, including personnel, which will best position the Company for success in the current and future global macroeconomic environment. The Company’s investments in headcount are typically structured to proactively support and align with expected revenue growth trends and productivity metrics. Visibility into future revenues is limited not only due to the dependence on macroeconomic conditions noted above, but also because of the relatively short duration of the
Company’s client engagements. Accordingly, the Company’s headcount and other investments are typically assessed on at least a quarterly basis. During the first half of 2022, the Companyincreased headcount across all segments when compared to prior year-end levels.
Critical Accounting Policies and Estimates
The Company’s most critical accounting policies and estimates are those that involve subjective decisions or assessments and are included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to the Company’s critical accounting policies or estimates for the six months ended June 30, 2022.
Recent Accounting Pronouncements
See Note B—“New Accounting Pronouncements” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report.
Results
of Operations
The Company analyzes its operating results for three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. The contract talent solutions and permanent placement talent solutions segments provide specialized engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative and customer support roles. The Protiviti segment provides business and technology risk consulting and internal audit services.
Demand for the
Company’s contract talent solutions, permanent placement talent solutions, and consulting talent is largely dependent upon general economic and labor trends both domestically and abroad. Because of the inherent difficulty in predicting economic trends, future demand for the Company’s services cannot be forecast with certainty.
The Company’s talent solutions business has 316 offices in 42 states, the District of Columbia and 17 foreign countries, while Protiviti has 65 offices in 23 states and 13 foreign countries.
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Non-GAAP
Financial Measures
The financial results of the Company are prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”) and the rules of the SEC. To help readers understand the Company’s financial performance, the Company supplements its GAAP financial results with the following non-GAAP measures: as adjusted revenue growth rates; adjusted gross margin; adjusted selling, general and administrative expense; segment income and combined segment income.
Variations in the Company’s financial results include the impact
of changes in foreign currency exchange rates and billing days. The Company provides “as adjusted” revenue growth calculations to remove the impact of these items. These calculations show the year-over-year revenue growth rates for the Company’s functional specializations and segments on both a reported basis and also on an as adjusted basis for global, U.S., and international operations. The Company has provided this data because it focuses on the Company’s revenue growth rates attributable to operating activities and aids in evaluating revenue trends over time. The
Company expresses year-over-year revenue changes as calculated percentages using the same number of billing days and constant currency exchange rates.
In order to calculate constant currency revenue growth rates, as reported amounts are retranslated using foreign currency exchange rates from the prior year’s comparable period. Management then calculates a global, weighted average number of billing days for each reporting period based upon input from all countries and all functional specializations and segments. In order to remove the fluctuations caused by comparable periods having different billing days, the Company calculates same billing day revenue growth rates by dividing each comparative period’s reported revenues by the calculated number of billing days for that period to arrive at a per billing day amount. Same billing day growth
rates are then calculated based upon the per billing day amounts. The term “as adjusted” means that the impact of different billing days and currency fluctuations are removed from the revenue growth rate calculation.
The following measures: adjusted gross margin; adjusted selling, general and administrative expense; and segment income include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans. The Company provides these measures because they are used by management to review its operational results.
Combined segment income is income before income taxes adjusted for net interest (income) expense, net and amortization of intangible assets. The
Company provides combined segment income because it is how management evaluates segment performance.
The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies may calculate such financial results differently. The Company’s non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided on the following pages.
Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for further discussion of the impact of foreign currency exchange rates on the Company’s results of operations and financial condition.
Revenues.The
Company’s revenues were $1.86 billion for the three months ended June 30, 2022, increasing by 17.9% compared to $1.58 billion for the three months ended June 30, 2021. Revenues from U.S. operations increased 20.2% to $1.47 billion (78.8% of total revenue) for the three months ended June 30, 2022, compared to $1.22 billion (77.2% of total revenue) for the three months ended June 30, 2021. Revenues from international operations increased 10.0% to $396 million (21.2% of total revenue) for the three months ended June 30, 2022, compared to $360 million (22.8% of total revenue) for the three months ended June 30, 2021. Contributing factors for each reportable segment are discussed
below in further detail.
Contract talent solutions revenues were $1.16 billion for the three months ended June 30, 2022, increasing by 19.2% compared to revenues of $978 million for the three months ended June 30, 2021.Key drivers of contract talent solutions revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements. On an as adjusted basis, contract
talent solutions revenues increased 21.3% for the second quarter of 2022, compared to the second quarter of 2021, primarily due to an increase in the number of hours worked by the Company’s engagement professionals and an 8.2% increase in weighted average bill rates, adjusted for changes in the mix of revenues by functional specialization, currency and country.In the U.S., revenues in the second quarter of 2022 increased 22.7% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2021.For the Company’s international
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operations,
revenues for the second quarter of 2022 increased 7.0% on an as reported basis, and increased 16.6% on an as adjusted basis compared to the second quarter of 2021.
Permanent placement talent solutions revenues were $200 million for the three months ended June 30, 2022, increasing by 39.3% compared to revenues of $144 million for the three months ended June 30, 2021. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues increased 42.6% for the second quarter of 2022, compared to the second quarter of 2021, driven by an increase in number of placements. In the U.S., revenues for the second quarter of 2022 increased 44.3% on both an as reported basis and on an as adjusted
basis, compared to the second quarter of 2021. For the Company’s international operations, revenues for the second quarter of 2022 increased 28.0% on an as reported basis and 39.0% on an as adjusted basis, compared to the second quarter of 2021. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue.
Protiviti revenues were $497 million for the three months ended June 30, 2022, increasing by 8.4% compared to revenues of $459 million for the three months ended June 30, 2021. Key drivers of Protiviti revenues are
the billable hours worked by consultants on client engagements and average hourly bill rates. On an as adjusted basis, Protiviti revenues increased 10.8% for the second quarter of 2022, compared to the second quarter of 2021, due primarilyto an increase in billable hours. In the U.S., revenues in the second quarter of 2022 increased 8.3% on both an as reported basis and on an as adjusted basis, compared to the second quarter of 2021. For the Company’s international operations, revenues for the second quarter of 2022 increased 8.6% on an as reported basis and 20.6% on an as adjusted basis, compared to the second quarter of 2021.
A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the three months ended June 30,
2022, is presented in the following table:
Gross Margin.The Company’s gross margin dollars were $816 million for the three months ended June 30, 2022, increasing by 22.7% compared to $665 million for the three months ended June 30, 2021. Contributing factors for each reportable segment are discussed below in further detail.
Gross
margin dollars for contract talent solutions represent revenues less costs of services, which consist of payroll, payroll taxes and benefit costs for engagement professionals, and reimbursable expenses. The key drivers of gross margin are: i) pay-bill spreads, which represent the differential between wages paid to engagement professionals and amounts billed to clients; ii) fringe costs, which are primarily composed of payroll taxes and benefit costs; and iii) conversion revenues, which are earned when a contract talent solutions position converts to a permanent position with the Company’s client. Gross margin dollars for contract
talent solutions were $465 million for the three months ended June 30, 2022, increasing 19.8% compared to $388 million for the three months ended June 30, 2021. As a percentage of revenues, gross margin for contract talent solutions was 39.9% in the second quarter of 2022, up from 39.7% in the second quarter of 2021.
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Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $200 million for the three months ended June 30,
2022, increasing 39.2% from $143 million for the three months ended June 30, 2021. Because reimbursable expenses for permanent placement talent solutions are de minimis, gross margin dollars are substantially explained by revenues previously discussed.
Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes and benefit costs and reimbursable expenses. The primary drivers of Protiviti’s gross margin are: i) the relative composition and number of professional staff and their respective pay and bill rates; and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for Protiviti’s staff. Gross margin dollars for Protiviti were $151 million for the three months ended June 30,
2022, increasing 13.3% compared to $133 million for the three months ended June 30, 2021. As a percentage of revenues, reported gross margin for Protiviti in the second quarter of 2022 was 30.4%, up from 29.1% in the second quarter of 2021. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 28.1% in the second quarter of 2022, down from 30.0% in the second quarter of 2021. The year-over-year decrease in adjusted gross margin percentage was due primarily to higher staff resource costs including continued expansion of headcount.
Selling, General and Administrative Expenses.The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs.
The Company’s selling, general and administrative expenses were $509 million for the three months ended June 30, 2022, increasing 4.4% from $488 million for the three months ended June 30, 2021. As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 27.3% in the second quarter of 2022, down from 30.9% in the second quarter of 2021. As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 30.3% in the second quarter of 2022, up from 29.4% in the second quarter of 2021. Contributing factors for each reportable segment are discussed
below in further detail.
Selling, general and administrative expenses for contract talent solutions were $284 million for the three months ended June 30, 2022, decreasing 9.8% from $315 million for the three months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 24.4% in the second quarter of 2022, down from 32.2% in the second quarter of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 28.4% in
the second quarter of 2022, down from 30.1% in the second quarter of 2021 due primarily to positive leverage from an increase in revenues.
Selling, general and administrative expenses for permanent placement talent solutions were $156 million for the three months ended June 30, 2022, increasing by 35.0% compared to $115 million for the three months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 77.9% in the second quarter of 2022, down from 80.4% in the second quarter of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions was 81.4% in the second quarter of 2022, up from 78.6% in the second quarter of 2021 due primarily tohigher
staff compensation costs.
Selling, general and administrative expenses for Protiviti were $69 million for the three months ended June 30, 2022, increasing by 20.7% compared to $58 million for the three months ended June 30, 2021. As a percentage of revenues, selling, general and administrative expenses for Protiviti were 14.0% in the second quarter of 2022, up from 12.5% in the second quarter of 2021 due primarily to an increase in variable overhead costs.
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A
reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the three months ended June 30, 2022 and 2021 is presented in the following table (in thousands):
(1) Changes
in the Company’s deferred compensation obligations are included in selling, general and administrative expense or, in the case of Protiviti, costs of services, while the related investment (income) loss is presented separately. The non-GAAP financial measures shown in the table above are adjusted to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item, which includes the corresponding change in obligation. These adjustments have no impact to income before income taxes.
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(Income)
Loss from Investments Held in Employee Deferred Compensation Trusts. Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation obligation to employees changes accordingly. Changes in the Company’s deferred compensation obligations noted above remain in selling, general and administrative, or in the case of Protiviti, costs of services. The value
of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments. The Company’s (income) loss from investments held in employee deferred compensation trusts was a loss of $66 million and income of $28 million for the three months ended June 30, 2022 and 2021, respectively. The loss from trust investments was due to negative market returns in the second quarter of 2022.
Income
Before Income Taxes and Segment Income.The Company’s total income before income taxes was $241 million, or 12.9% of revenues, for the three months ended June 30, 2022, up from $204 million or 12.9% of revenues, for the three months ended June 30, 2021. Combined segment income was $241 million, or 12.9% of revenues, for the three months ended June 30, 2022, up from $205 million, or 12.9% of revenues, for the three months ended June 30, 2021.
The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the three months ended June 30,
2022 and 2021 (in thousands):
Contract talent solutions segment income was $134 million, or 11.5% of applicable revenues, for the three months ended June 30, 2022, up from $94 million, or 9.6% of applicable revenues, for the three months ended June 30, 2021. Permanent placement talent solutions segment income was $37 million, or 18.4% of applicable revenues, for the
three months ended June 30, 2022, up from $31 million, or 21.3% of applicable revenues, for the three months ended June 30, 2021. Protiviti segment income was $70 million, or 14.1% of applicable revenues, for the three months ended June 30, 2022, down from $80 million, or 17.4% of applicable revenues, for the three months ended June 30, 2021.
Provision for income taxes. The provision for income taxes was 27.0% and 26.8% for the three months ended June 30, 2022 and 2021, respectively.
Revenues.The Company’s revenues were $3.68 billion for the six months ended June 30, 2022, increasing by 23.5% compared to $2.98 billion for the six months ended June 30, 2021. Revenues from U.S. operations increased 25.6% to $2.88 billion (78.4% of total revenue) for the six months ended June 30, 2022, compared to $2.30 billion (77.1% of total revenue) for the six months ended June 30, 2021. Revenues from international operations increased
16.4% to $795 million (21.6% of total revenue) for the six months ended June 30, 2022, compared to $683 million (22.9% of total revenue) for the six months ended June 30, 2021.Contributing factors for each reportable segment are discussed below in further detail.
Contract talent solutions revenues were $2.32 billion for the six months ended June 30, 2022, increasing by 24.3% compared to revenues of $1.87 billion for the six months ended June 30, 2021. Key drivers of contract talent solutions revenues
include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements. On an as adjusted basis, contract talent solutions revenues in the first half of 2022 increased 25.9% compared to the first half of 2021, primarily due to an increase in the number of hours worked by the Company’s engagement professionals and an 8.7% increase in weighted average bill rates, adjusted for changes in the mix of revenues by functional specialization, currency and country. In the U.S., revenues in the first half of 2022 increased 27.8% on both an as reported basis and an as adjusted basis, compared to the first half of 2021. For the
Company’s international operations, revenues for the first half of 2022 increased 12.5% on an as reported basis and increased 19.9% on an as adjusted basis, compared to the first half of 2021.
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Permanent placement talent solutions revenues were $387 million for the six months ended June 30, 2022, increasing by 51.5% compared to revenues of $255 million for the six months ended June 30, 2021. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues increased 54.1% for the
first half of 2022, compared to the first half of 2021, driven primarily by an increase in the number of placements. In the U.S., revenues for the first half of 2022 increased 58.8% on both an as reported basis and an as adjusted basis, compared to the first half of 2021. For the Company’s international operations, revenues for the first half of 2022 increased 35.6% on an as reported basis, and increased 44.0% on an as adjusted basis, compared to the first half of 2021. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue.
Protiviti revenues were $969 million for the six months ended June 30,
2022, increasing by 13.2% compared to revenues of $856 million for the six months ended June 30, 2021. Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. On an as adjusted basis, Protiviti revenues increased 15.1% for the first half of 2022, compared to the first half of 2021, due primarily to an increase in billable hours. In the U.S., revenues in the first half of 2022 increased 12.3% on both an as reported basis and an as adjusted basis, compared to the first half of 2021. For the Company’s international operations, revenues in the first half of 2022 increased 16.8% on an as reported basis, and increased 26.0% on an as adjusted basis, compared to the first half of 2021.
A reconciliation of the non-GAAP year-over-year
revenue growth rates to the as reported year-over-year revenue growth rates for the six months ended June 30, 2022, is presented in the following table:
Gross
Margin.The Company’s gross margin dollars were $1.59 billion for the six months ended June 30, 2022, increasing by 29.4% compared to $1.23 billion for the six months ended June 30, 2021. Contributing factors for each reportable segment are discussed below in further detail.
Gross margin dollars for contract talent solutions represent revenues less costs of services, which consist of payroll, payroll taxes and benefit costs for engagement professionals, and reimbursable expenses. The key drivers of gross margin are: i) pay-bill spreads, which represent the differential between wages paid to engagement professionals and amounts billed
to clients; ii) fringe costs, which are primarily composed of payroll taxes and benefit costs; and iii) conversion revenues, which are earned when a contract talent solutions position converts to a permanent position with the Company’s client. Gross margin dollars for contract talent solutions were $927 million for the six months ended June 30, 2022, increasing 26.4% compared to $733 million for the six months ended June 30, 2021. As a percentage of revenues, gross margin for contract talent solutions was 39.9% for the
six months ended June 30, 2022, up from 39.2% for the six months ended June 30, 2021. This year-over-year improvement in gross margin percentage was attributable to expanding pay-bill spreads and higher conversion revenues.
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Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $386 million for the six months ended June 30, 2022, increasing 51.4% from $255 million for the six months ended June 30, 2021. Because reimbursable
expenses for permanent placement talent solutions are de minimis, gross margin dollars are substantially explained by revenues previously discussed.
Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses. The primary drivers of Protiviti’s gross margin are: i) the relative composition and number of professional staff and their respective pay and bill rates; and ii) staff utilization, which is the relationship of time spent on client engagements in proportion to the total time available for Protiviti’s staff. Gross margin dollars for Protiviti were $275 million for the six months ended June 30, 2022, increasing 15.1% compared to $239 million for the six months ended June 30, 2021. As a percentage
of revenues, reported gross margin for Protiviti in the first half of 2022 was 28.3%, up from 27.9% in the first half of 2021. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 26.8% the first half of 2022, down from 28.6% in the first half of 2021. The year-over-year decrease in adjusted gross margin percentage was due to lower staff utilization rates and a significant increase in headcount.
Selling, General and Administrative Expenses.The Company’s selling, general and administrative expenses consist primarily of staff compensation, advertising, variable overhead, depreciation, and occupancy costs. The Company’s selling, general and administrative expenses were $1.02 billion for the six months ended June 30,
2022, increasing 12.3% from $911 million for the six months ended June 30, 2021. As a percentage of revenues, the Company’s reported selling, general and administrative expenses were 27.8% for the first half of 2022, down from 30.6% the first half of 2021. As a percentage of revenues, the Company’s adjusted selling, general and administrative expenses were 30.0% in the first half of 2022, up from 29.4% in the first half of 2021, due primarily to the higher mix of permanent placement talent solutions revenues. Contributing factors for each reportable segment are discussed below in further detail.
Selling, general and administrative expenses for contract
talent solutions were $589 million for the six months ended June 30, 2022, decreasing 0.7% from $594 million for the six months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 25.4% in the first half of 2022, down from 31.8% in the first half of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 28.4% in the first half of 2022, down from 30.2% in the first half of 2021, due primarily to positive leverage from an increase in revenues.
Selling, general and administrative expenses for permanent
placement talent solutions were $302 million for the six months ended June 30, 2022, increasing by 43.6% compared to $210 million for the six months ended June 30, 2021. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 78.1% in the first half of 2022, down from 82.4% in the first half of 2021. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement talent solutions was 80.7% in the first half of 2022, down from 81.0% in the first half of 2021.
Selling, general and administrative expenses for Protiviti were $132 million for the six months ended June 30, 2022, increasing by 23.2% compared to $107 million for the six months ended June 30,
2021. As a percentage of revenues, selling, general and administrative expenses for Protiviti were 13.6% in the first half of 2022, up from 12.5% in the first half of 2021, due primarily to an increase in variable overhead costs.
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A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the six months ended June 30, 2022 and 2021 is presented in the following table (in thousands):
(1) Changes
in the Company’s deferred compensation obligations are included in selling, general and administrative expense or, in the case of Protiviti, costs of services, while the related investment (income) loss is presented separately. The non-GAAP financial measures shown in the table above are adjusted to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item, which includes the corresponding change in obligation. These adjustments have no impact to income before income taxes.
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(Income)
Loss from Investments Held in Employee Deferred Compensation Trusts. Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation obligation to employees changes accordingly. Changes in the Company’s deferred compensation obligations noted above remain in selling, general and administrative, or in the case of Protiviti, costs of services. The value
of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments. The Company’s (income) loss from investments held in employee deferred compensation trusts was a loss of $96 million for the six months ended June 30, 2022, compared to income of $40 million for the six months ended June 30, 2021. The loss from trust investments was due to negative market returns in the
first half of 2022.
Income Before Income Taxes and Segment Income.The Company’s total income before income taxes was $468 million, or 12.7% of revenues, for the six months ended June 30, 2022, up from $354 million or 11.9% of revenues, for the six months ended June 30, 2021. Combined segment income was $468 million, or 12.7% of revenues, for the six months ended June 30, 2022, up from $355 million, or 11.9% of revenues, for the six months ended June 30, 2021.
The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income
taxes for the six months ended June 30, 2022 and 2021 (in thousands):
Contract talent solutions segment income was $267 million, or 11.5% of applicable revenues for the six months ended June 30, 2022, up from $170 million, or 9.1% of applicable revenues for the six months ended June 30, 2021. Permanent placement talent solutions segment income was $74 million, or 19.1% of applicable revenues in the first
half of 2022, up from $48 million, or 18.9% of applicable revenues, in the first half of 2021. Protiviti segment income was $127 million, or 13.1% of applicable revenues in the first half of 2022, compared to segment income of $137 million, or 16.0% of applicable revenues, in the first half of 2021.
Provision for income taxes. The provision for income taxes was 26.5% and 26.6% for the six months ended June 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
The change in the Company’s liquidity during
the six months ended June 30, 2022 and 2021, is primarily the net effect of funds generated by operations and the funds used for capital expenditures, investment in employee deferred compensation trusts, net of redemptions from employee deferred compensation trusts, repurchases of common stock, and payment of dividends.
Cash and cash equivalents were $591 million and $543 million at June 30, 2022 and 2021, respectively. Operating activities provided cash flows of $302 million during the six months ended June 30, 2022, offset by $55 million and $257 million of net cash used in investing activities and financing activities, respectively. Operating activities provided cash flows
of $233 million during the six months ended June 30, 2021, offset by $31 million and $232 million of net cash used in investing activities and financing activities, respectively.
Operating activities—Net cash provided by operating activities for the six months ended June 30, 2022, was composed of net income of $344 million adjusted upward for non-cash items of $176 million, offset by net cash used in changes in working capital of $218 million. Net cash provided by operating activities for the six months ended June 30, 2021, was composed of net income of $260 million adjusted upward for non-cash items of $32 million, offset by net cash used in changes in working capital of $59 million.
Investing activities—Cash used in investing activities
for the six months ended June 30, 2022, was $55 million. This was composed of capital expenditures of $35 million and investments in employee deferred compensation trusts of $45 million,
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partially offset by proceeds from employee deferred compensation trusts redemptions of $25 million. Cash used in investing activities for the six months ended June 30, 2021, was $31 million. This was composed of capital expenditures of $16 million and investments in employee deferred compensation trusts of $42 million, partially offset by proceeds from employee deferred compensation trusts redemptions of $27 million.
Capital
expenditures, including $20 million for cloud computing arrangements, for the six months ended June 30, 2022, totaled $55 million, approximately 82.5% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities. Capital expenditures for cloud computing arrangements are included in cash flows from operating activities on the Company’s Condensed Consolidated Statements of Cash Flows. Capital expenditures included amounts spent on tenant improvements and furniture and equipment in the Company’s leased offices. The
Company currently expects that 2022 capital expenditures will range from $95 million to $105 million, of which $75 million to $85 million relates to software initiatives and technology infrastructure, including capitalized costs related to implementation of cloud computing arrangements.
Financing activities—Cash used in financing activities for the six months ended June 30, 2022, was $257 million. This included repurchases of $161 million in common stock and $96 million in dividends paid to stockholders. Cash used in financing activities for the six months ended June 30, 2021, was $232 million. This included repurchases of $146 million in common stock and $86 million in dividends paid to stockholders.
As of June 30, 2022, the
Company is authorized to repurchase, from time to time, up to 5.8 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. During the six months ended June 30, 2022 and 2021, the Company repurchased 1.4 million shares, at a cost of $133 million, and 1.5 million shares, at a cost of $124 million, on the open market, respectively. Additional stock repurchases were made in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of exercise price and applicable statutory withholding taxes. During the six months ended June 30,
2022 and 2021, such repurchases totaled 0.3 million shares, at a cost of $33 million, and 0.3 million shares, at a cost of $19 million, respectively. Repurchases of shares have been funded with cash generated from operations.
The Company’s working capital at June 30, 2022, included $591 million in cash and cash equivalents and $1.09 billion in accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience. The Company expects that internally generated cash will be sufficient to support the working capital needs of the Company,
the Company’s fixed payments, dividends, and other obligations on both a short-term and long-term basis.
There is limited visibility into future cash flows as the Company’s revenues are dependent on macroeconomic conditions. The Company’s variable direct costs related to its contract talent solutions business will largely fluctuate in relation to its revenues.
In May 2021, the Company entered into an amendment to extend the maturity of its $100 million unsecured
revolving credit facility (the “Credit Agreement”) to May 2024. Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing, which typically will be calculated according to the LIBOR, or an alternative base rate, plus an applicable margin. The Credit Agreement is subject to certain financial covenants and the Company was in compliance with these covenants as of June 30, 2022. There were no borrowings under the Credit Agreement as of June 30, 2022.
Material Cash Requirements from Contractual Obligations
Leases.As of June 30, 2022, the Company reported current and long-term operating lease liabilities of $84 million and $166 million, respectively. These balances consist of the minimum rental commitments for July 2022 and thereafter, discounted to reflect the Company’s cost of borrowing, under noncancellable lease contracts
executed as of June 30, 2022.
The majority of these leases are for real estate. In the event the Company vacates a location prior to the end of the lease term, the Company may be obliged to continue making lease payments. For further information, see Note F— “Leases” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report.
Purchase Obligations. Purchase obligations are discussed in more detail in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes to the Company’s contractual purchase obligations during the first half of 2022.
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Employee Deferred Compensation Plan.As of June 30, 2022, the Company reported deferred compensation plan obligations
of $440 million in its accompanying Condensed Consolidated Statements of Financial Position. The balances are due to employees based upon elections they make at the time of deferring their funds. The timing of these payments may change based upon factors including termination of the Company’s employment arrangement with a participant. Assets of these plans are held by an independent trustee for the sole benefit of participating employees and consist of money market funds and mutual funds.For further information, see Note I—“Employee Deferred Compensation Plan Obligations” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report.
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
Because a portion of the Company’s net revenues are derived from its operations outside the U.S. and are denominated in local currencies, the Company is exposed to the impact of foreign currency fluctuations. The Company’s exposure to foreign currency exchange rates relates primarily to the Company’s foreign subsidiaries. Exchange rates impact the U.S. dollar value of the
Company’s reported revenues, expenses, earnings, assets and liabilities.
For the six months ended June 30, 2022, approximately 21.6% Company’s revenues were generated outside of the U.S.. These operations transact business in their functional currency, which is the same as their local currency. As a result, fluctuations in the value of foreign currencies against the U.S. dollar, particularly the Canadian dollar, British pound, Euro, Australian dollar and Brazilian real, have an impact on the Company’s reported results. Under GAAP, revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rates prevailing during the period. Consequently, as the value of the U.S. dollar changes relative to the currencies of the
Company’s non-U.S. markets, the Company’s reported results vary.
During the first six months of 2022, the U.S. dollar fluctuated, and generally strengthened, against the primary currencies in which the Company conducts business, compared to one year ago. Currency exchange rates had the effect of decreasing reported service revenues by $55 million, or 1.9%, in the first half of 2022 compared to the same period one year ago. The general strengthening of the U.S. dollar also affected the reported level of expenses incurred in the Company’s international operations. Because substantially all the
Company’s international operations generated revenues and incurred expenses within the same country and currency, the effect of lower reported revenues is largely offset by the decrease in reported operating expenses. Reported net income was $3 million, or 1.1%, lower in the first half of 2022 compared to the same period one year ago due to the effect of currency exchange rates. If currency exchange rates were to remain at June 30, 2022 levels throughout the remainder of 2022, the currency impact on the Company’s full-year reported revenues and operating expenses would be consistent with the first half of 2022 results. Should current trends continue, the impact to reported net income would be immaterial.
For the one month ended July 31, 2022,
the U.S. dollar has weakened against the Canadian Dollar, British Pound, Australian Dollar, and the Brazilian Real, and strengthened against the Euro, since June 30, 2022. If currency exchange rates were to remain at July 2022 levels throughout 2022, the currency impact on the Company’s full-year reported revenues would be unfavorable, offset by a favorable impact on operating expenses. These results will likely have an immaterial impact on reported net income.
Fluctuations in currency exchange rates impact the U.S. dollar amount of the Company’s stockholders’ equity. The assets and liabilities of the Company’s
non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at period end. The resulting translation adjustments are recorded in stockholders’ equity as a component of accumulated other comprehensive income. Although currency fluctuations impact the Company’s reported results and shareholders’ equity, such fluctuations generally do not affect cash flow or result in actual economic gains or losses. The Company generally has few cross-border transfers of funds, consisting of dividends from the Company’s foreign subsidiaries,
and transfers to and from the U.S. related to intercompany working capital requirements.
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ITEM 4. Controls and Procedures
Management, including the Company’s President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this
report. Based upon that evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. In accordance with this review, no material changes to controls and procedures were made in the quarter ended June 30, 2022.
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PART II—OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no material developments with
regard to any of the legal proceedings previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021.
ITEM 1A. Risk Factors
There have not been any material changes with regard to the risk factors previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021.
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Total Number of Shares Purchased
Average Price Paid per Share
Total Number
of Shares Purchased as Part of Publicly Announced Plans
Maximum Number of Shares that May Yet Be Purchased Under Publicly Announced Plans (c)
(a)Includes 233,401 shares repurchased in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable withholding
taxes.
(b)Includes 208 shares repurchased in connection with employee stock plans, whereby Company shares were tendered by employees for the payment of applicable withholding taxes.
(c)Commencing in October 1997, the Company’s Board of Directors has, at various times, authorized the repurchase, from time to time, of the Company’s common stock on the open market or in privately negotiated transactions depending on market conditions. Since plan inception, a total of 128,000,000 shares have been authorized for repurchase, of which 122,234,466 shares have been repurchased as of June 30, 2022.
Part I, Item 1 of this Form 10-Q formatted in Inline XBRL.
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Cover page of this Form 10-Q formatted in Inline XBRL and contained in Exhibit 101.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ROBERT HALF INTERNATIONAL INC.
(Registrant)
/S/ Michael
C. Buckley
Michael C. Buckley
Executive Vice President and Chief Financial Officer
