ROBERT HALF INTERNATIONAL, INC 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 ofRobert 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 ofU.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 inthe United States 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'sSecurities 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 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 achieved record levels of service revenues and earnings in the third quarter due to a broad-based, global acceleration in demand for its staffing and business consulting services. During the first three quarters of 2021, service revenues were$4.69 billion , an increase of 23.3% from the prior year. Net income increased 103.3% to$431 million and diluted net income per share increased 105.9% to$3.85 . The future of work increasingly includes flexible, hybrid and fully remote models and the Company can deliver deeper skills and more price-point choices to its clients by expanding candidate searches beyond local markets, leveraging its global office network and advanced AI-driven technologies. This trend, together with elevated employee attrition rates at clients, has contributed to the Company's staffing results recovering from the recent downturn at a faster pace than experienced in the past. Protiviti continues its trend of consecutive growth, with a highly diversified client base and suite of solution offerings. The collaboration between Protiviti and staffing continues to be a strong differentiator, and growth remains strong across internal audit, technology consulting, risk and compliance consulting, and business performance improvement. Demand for the Company's temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services is largely dependent upon general economic and labor trends both domestically and abroad.The United States economic backdrop throughout the first three quarters of 2021 was conducive to growth for the Company as real gross domestic product ("GDP") grew 6.1%, 6.5%, and 2.0% for the first, second, and third quarter, respectively, while the unemployment rate decreased from 6.7% inDecember 2020 to 4.8% at the end of the third quarter of 2021. Inthe United States , the number of job openings exceeded the number of hires at the end ofSeptember 2021 , creating competition for skilled talent that increases the Company's value to clients. TheU.S. labor market remains robust, with significant demand due to talent shortages across professional disciplines. 20 -------------------------------------------------------------------------------- We monitor various economic indicators and business trends in all of the countries in which we operate to anticipate demand for the Company's services. We evaluate these trends 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. We have limited visibility into future revenues 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, we typically assess headcount and other investments on at least a quarterly basis. During the first three quarters of 2021, the Company increased headcount across all segments, when compared to prior year-end levels. Capital expenditures, including$23.7 million for cloud computing arrangements, for the nine months endedSeptember 30, 2021 , totaled$48.5 million , approximately 84% 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. We currently expect that 2021 capital expenditures will range from$60 million to$70 million , of which$50 million to$60 million relates to software initiatives and technology infrastructure, including capitalized costs related to implementation of cloud computing arrangements. 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 endedDecember 31, 2020 . There were no material changes to the Company's critical accounting policies or estimates for the nine months endedSeptember 30, 2021 . 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 Demand for the Company's temporary and consultant staffing, permanent placement staffing and risk consulting and internal audit services is largely dependent upon general economic and labor market conditions 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. Third quarter results show that the recovery from the recent economic downturn continues with strong momentum. As we have done historically, the Company will continue to invest in its people, its technology, its brands and its business model to strengthen the ability to connect people to meaningful new work and provide clients with the talent and deep subject matter expertise they need to confidently compete and grow. The Company's temporary and permanent placement staffing business has 321 offices in 42 states, theDistrict of Columbia and 17 foreign countries, while Protiviti has 63 offices in 24 states and 12 foreign countries. 21
-------------------------------------------------------------------------------- Non-GAAP Financial Measures The financial results of the Company are prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP") and the rules of theSEC . 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 lines of business 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. 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 interest income, net and amortization of intangible assets. The Company provides combined segment income because it is how the Company evaluates segment performance. The non-GAAP financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the Company's industry, as other companies may calculate such financial results differently. The Company's non-GAAP financial measures are not measurements of financial performance under GAAP and should not be considered as alternatives to amounts presented in accordance with GAAP. The Company does not consider these non-GAAP financial measures to be a substitute for, or superior to, the information provided by GAAP financial results. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided on the following pages. Refer to Item 3. "Quantitative and Qualitative Disclosures About Market Risk" for further discussion of the impact of foreign currency exchange rates on the Company's results of operations and financial condition. Three Months EndedSeptember 30, 2021 and 2020 Revenues. The Company's revenues were$1.71 billion for the three months endedSeptember 30, 2021 , increasing by 43.9% compared to$1.19 billion for three months endedSeptember 30, 2020 . Revenues from foreign operations represented 22.2% of total revenues for both the three months endedSeptember 30, 2021 and 2020. The Company analyzes its revenues for three reportable segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Contributing factors for each reportable segment are discussed below in further detail. Temporary and consultant staffing revenues were$1.05 billion for the three months endedSeptember 30, 2021 , increasing by 35.0% compared to revenues of$781 million for the three months endedSeptember 30, 2020 . Key drivers of temporary and consultant staffing 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, temporary and consultant staffing revenues increased 34.0% for the third quarter of 2021, compared to the third quarter of 2020, due primarily to more hours worked by the Company's engagement professionals on client engagements. In theU.S. , revenues in the third quarter of 2021 increased 35.5% on both an as reported basis and on an as adjusted basis, compared to the third quarter of 2020. For the Company's international operations, revenues for the third quarter of 2021 increased 33.0% on an as reported basis and increased 29.1% on an as adjusted basis, compared to the third quarter of 2020. Permanent placement staffing revenues were$156 million for the three months endedSeptember 30, 2021 , increasing by 79.4% compared to revenues of$87 million for the three months endedSeptember 30, 2020 . Key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement. On an as adjusted basis, permanent placement staffing revenues increased 77.7% for the third quarter of 2021, compared to the third quarter of 2020, driven by an increase in number of placements. In theU.S. , revenues for the third quarter of 2021 increased 85.1% on both an as reported basis and on an as adjusted basis, compared to the third quarter of 2020. For the Company's international operations, revenues for the third quarter of 2021 increased 67.3% on an as reported basis and 62.1% on an as adjusted basis, compared to the third quarter of 2020. Historically, demand for permanent placement staffing is even more 22 -------------------------------------------------------------------------------- sensitive to economic and labor market conditions than demand for temporary and consultant staffing and this is expected to continue. Risk consulting and internal audit services revenues were$501 million for the three months endedSeptember 30, 2021 , increasing by 56.1% compared to revenues of$321 million for the three months endedSeptember 30, 2020 . Key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. On an as adjusted basis, risk consulting and internal audit services revenues increased 55.1% for the third quarter of 2021, compared to the third quarter of 2020, due primarily to an increase in billable hours. In theU.S. , revenues in the third quarter of 2021 increased 53.7% on both an as reported basis and on an as adjusted basis, compared to the third quarter of 2020. The Company's risk consulting and internal audit services revenues for the third quarter of 2021 from international operations increased 65.9% on an as reported basis and 61.4% on an as adjusted basis, compared to the third quarter of 2020. 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 endedSeptember 30, 2021 , is presented in the following table: GlobalUnited States
International
Temporary and consultant staffing As Reported 35.0 % 35.5 % 33.0 % Billing Days Impact -0.2 % 0.0 % -0.5 % Currency Impact -0.8 % - -3.4 % As Adjusted 34.0 % 35.5 % 29.1 % Permanent placement staffing As Reported 79.4 % 85.1 % 67.3 % Billing Days Impact -0.2 % 0.0 % -0.6 % Currency Impact -1.5 % - -4.6 % As Adjusted 77.7 % 85.1 % 62.1 % Risk consulting and internal audit services As Reported 56.1 % 53.7 % 65.9 % Billing Days Impact -0.3 % 0.0 % -0.7 % Currency Impact -0.7 % - -3.8 % As Adjusted 55.1 % 53.7 % 61.4 % Gross Margin. The Company's gross margin dollars were$725 million for the three months endedSeptember 30, 2021 , increasing by 55.2% compared to$467 million for the three months endedSeptember 30, 2020 . Contributing factors for each reportable segment are discussed below in further detail. Gross margin dollars for temporary and consultant staffing 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 temporary position converts to a permanent position with the Company's client. Gross margin dollars for the Company's temporary and consultant staffing division were$421 million for the three months endedSeptember 30, 2021 , increasing 43.7% compared to$293 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, gross margin for temporary and consultant staffing was 40.0% for the three months endedSeptember 30, 2021 , up from 37.5% for the three months endedSeptember 30, 2020 . This year-over-year increase in gross margin percentage was primarily attributable to higher pay-bill spreads and higher conversion revenues. Gross margin dollars for permanent placement staffing represent revenues less reimbursable expenses. Gross margin dollars for the Company's permanent placement staffing division were$156 million for the three months endedSeptember 30, 2021 , increasing 79.4% from$87 million for the three months endedSeptember 30, 2020 . Because reimbursable expenses for permanent placement staffing are de minimis, gross margin dollars are substantially explained by revenues previously discussed. Gross margin dollars for risk consulting and internal audit services represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses. The primary drivers of risk consulting and internal audit services gross margin are: i) the relative composition of 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 the Company's risk consulting and internal audit services staff. Gross margin dollars for the 23 -------------------------------------------------------------------------------- Company's risk consulting and internal audit division were$148 million for the three months endedSeptember 30, 2021 , increasing 69.8% compared to$87 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, reported gross margin for risk consulting and internal audit services in the third quarter of 2021 was 29.5%, up from 27.1% in the third quarter of 2020. As a percentage of revenues, adjusted gross margin dollars for risk consulting and internal audit services were 29.4% in the third quarter of 2021, up from 28.1% in the third quarter of 2020. The year-over-year improvement in gross margin percentage was primarily due to the relative composition of and number of professional staff and their respective pay and bill rates. 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$496 million for the three months endedSeptember 30, 2021 , increasing 26.8% from$391 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, the Company's reported selling, general and administrative expenses were 28.9% for the third quarter of 2021, down from 32.8% the third quarter of 2020. As a percentage of revenues, the Company's adjusted selling, general and administrative expenses were 29.0% in the third quarter of 2021, down from 30.9% in the third quarter of 2020. Contributing factors for each reportable segment are discussed below in further detail. Selling, general and administrative expenses for the Company's temporary and consultant staffing division were$310 million for the three months endedSeptember 30, 2021 , increasing 14.9% from$270 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, reported selling, general and administrative expenses for temporary and consultant staffing were 29.4% in the third quarter of 2021, down from 34.5% in the third quarter of 2020. As a percentage of revenues, adjusted selling, general and administrative expenses for temporary and consultant staffing were 29.5% in the third quarter of 2021, down from 31.9% in the third quarter of 2020 due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for the Company's permanent placement staffing division were$125 million for the three months endedSeptember 30, 2021 , increasing by 57.8% compared to$79 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, reported selling, general and administrative expenses for permanent placement staffing were 79.9% in the third quarter of 2021, down from 90.8% in the third quarter of 2020. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement staffing was 80.0% in the third quarter of 2021, down from 88.2% in the third quarter of 2020 due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for the Company's risk consulting and internal audit services division were$61 million for the three months endedSeptember 30, 2021 , increasing by 45.3% compared to$42 million for the three months endedSeptember 30, 2020 . As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 12.1% in the third quarter of 2021, down from 13.0% in the third quarter of 2020 due primarily to positive leverage from an increase in revenues. 24
-------------------------------------------------------------------------------- A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the three months endedSeptember 30, 2021 and 2020 is presented in the following table (in thousands): Three Months EndedSeptember 30 , Relationships 2021 2020 2021 2020 2021 2020 Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted SERVICE REVENUES:Accountemps $ 492,558 $ -$ 492,558 $ 351,598 $ -$ 351,598 28.8 % 29.5 % 28.8 % 29.6 % OfficeTeam 279,370 - 279,370 173,685 - 173,685 16.3 % 14.6 % 16.3 % 14.6 % Robert Half Technology 215,500 - 215,500 161,007 - 161,007 12.6 % 13.5 % 12.6 % 13.5 % Robert Half Management Resources 239,807 - 239,807 154,917 - 154,917 14.0 % 13.0 % 14.0 % 13.0 % Elimination of intersegment revenues (172,534) - (172,534) (59,816) - (59,816) (10.1 %) (5.0 %) (10.1 %) (5.0 %) Temporary and consultant staffing 1,054,701 - 1,054,701 781,391 - 781,391 61.6 % 65.7 % 61.6 % 65.7 % Permanent placement staffing 156,444 - 156,444 87,203 - 87,203 9.1 % 7.3 % 9.1 % 7.3 % Protiviti 501,421 - 501,421 321,303 - 321,303 29.3 % 27.0 % 29.3 % 27.0 % Total$ 1,712,566 $ -$ 1,712,566 $ 1,189,897 $ -$ 1,189,897 100.0 % 100.0 % 100.0 % 100.0 % GROSS MARGIN: Temporary and consultant staffing$ 421,419 $ -
40.0 % 37.5 % 40.0 % 37.5 %
Permanent placement staffing 156,170 - 156,170 87,043 - 87,043 99.8 % 99.8 % 99.8 % 99.8 %
Protiviti 147,738 (277) 147,461 86,985 3,392 90,377 29.5 % 27.1 % 29.4 % 28.1 %
Total $ 725,327 $ (277) $ 725,050 $ 467,346 $ 3,392 $ 470,738 42.4 % 39.3 % 42.3 % 39.6 %
SELLING GENERAL AND
ADMINISTRATIVE EXPENSE:
Temporary and consultant staffing $ 310,112 $ 1,297
29.4 % 34.5 % 29.5 % 31.9 %
Permanent placement staffing 124,955 185 125,140 79,194 (2,279) 76,915 79.9 % 90.8 % 80.0 % 88.2 %
Protiviti 60,509 - 60,509 41,642 - 41,642 12.1 % 13.0 % 12.1 % 13.0 %
Total $ 495,576 $ 1,482 $ 497,058 $ 390,799 $ (22,703) $ 368,096 28.9 % 32.8 % 29.0 % 30.9 %
OPERATING/SEGMENT INCOME:
Temporary and consultant staffing $ 111,307 $ (1,297)
10.6 % 3.0 % 10.4 % 5.6 %
Permanent placement staffing 31,215 (185) 31,030 7,849 2,279 10,128 20.0 % 9.0 % 19.8 % 11.6 %
Protiviti 87,229 (277) 86,952 45,343 3,392 48,735 17.4 % 14.1 % 17.3 % 15.2 %
Total $ 229,751 $ (1,759) $ 227,992 $ 76,547 $ 26,095 $ 102,642 13.4 % 6.4 % 13.3 % 8.6 %
(Income) loss from investments held
in
employee deferred compensation
trusts 1,759 (1,759) - (26,095) 26,095 - (0.1 %) 2.2 % 0.0 % 0.0 %
Amortization of intangible assets 572 - 572 334 - 334 0.0 % 0.0 % 0.0 % 0.0 %
Interest income, net (238) - (238) (202) - (202) 0.0 % 0.0 % 0.0 % 0.0 %
Income before income taxes $ 227,658 $ - $ 227,658 $ 102,510 $ -$ 102,510 13.3 % 8.6 % 13.3 % 8.6 % (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. 25 -------------------------------------------------------------------------------- (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 the Company's risk consulting and internal audit services division, 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$2 million and ($26 million ) for the three months endedSeptember 30, 2021 and 2020, respectively. Income Before Income Taxes and Segment Income. The Company's total income before income taxes was$228 million , or 13.3% of revenues, for the three months endedSeptember 30, 2021 , up from$103 million or 8.6% of revenues, for the three months endedSeptember 30, 2020 . Combined segment income was$228 million , or 13.3% of revenues, for the three months endedSeptember 30, 2021 , up from$103 million , or 8.6% of revenues, for the three months endedSeptember 30, 2020 . The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the three months endedSeptember 30, 2021 and 2020 (in thousands): Three Months Ended September 30, 2021 2020 Income before income taxes$ 227,658 $ 102,510 Interest income, net (238) (202) Amortization of intangible assets 572 334 Combined segment income$ 227,992 $ 102,642 For the Company's temporary and consultant staffing division, segment income was$110 million , or 10.4% of applicable revenues, for the three months endedSeptember 30, 2021 , up from$44 million , or 5.6% of applicable revenues, for the three months endedSeptember 30, 2020 . For the Company's permanent placement staffing division, segment income was$31 million , or 19.8% of applicable revenues, for the three months endedSeptember 30, 2021 , up from$10 million , or 11.6% of applicable revenues, for the three months endedSeptember 30, 2020 . For the Company's risk consulting and internal audit services division, segment income was$87 million , or 17.3% of applicable revenues, for the three months endedSeptember 30, 2021 , up from$49 million , or 15.2% of applicable revenues, for the three months endedSeptember 30, 2020 . Provision for income taxes. The provision for income taxes was 24.9% and 26.1% for the three months endedSeptember 30, 2021 and 2020, respectively. Nine Months EndedSeptember 30, 2021 and 2020 Revenues. The Company's revenues were$4.69 billion for the nine months endedSeptember 30, 2021 , increasing by 23.3% compared to$3.80 billion for the nine months endedSeptember 30, 2020 . Revenues from foreign operations represented 22.7% of total revenues for the nine months endedSeptember 30, 2021 , up from 22.0% of total revenues for the nine months endedSeptember 30, 2020 . The Company analyzes its revenues for three reportable segments: temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services. Contributing factors for each reportable segment are discussed below in further detail. Temporary and consultant staffing revenues were$2.92 billion for the nine months endedSeptember 30, 2021 , increasing by 11.2% compared to revenues of$2.63 billion for the nine months endedSeptember 30, 2020 . Key drivers of temporary and consultant staffing 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, temporary and consultant staffing revenues in the first three quarters of 2021 increased 10.1% compared to the first three quarters of 2020, due primarily to more hours worked by the Company's engagement professionals on client engagements. In theU.S. , revenues in the first three quarters of 2021 increased 9.9% on an as reported basis and increased 10.4% on an as adjusted basis, compared to the first three quarters of 2020. For the Company's international operations, revenues for the first three quarters of 2021 increased 15.9% on an as reported basis and increased 9.2% on an as adjusted basis, compared to the first three quarters of 2020. 26 -------------------------------------------------------------------------------- Permanent placement staffing revenues were$412 million for the nine months endedSeptember 30, 2021 , increasing by 47.7% compared to revenues of$279 million for the nine months endedSeptember 30, 2020 . Key drivers of permanent placement staffing revenues consist of the number of candidate placements and average fees earned per placement. On an as adjusted basis, permanent placement staffing revenues increased 45.6% for the first three quarters of 2021, compared to the first three quarters of 2020, driven primarily by an increase in number of placements. In theU.S. , revenues for the first three quarters of 2021 increased 47.8% on an as reported basis and 48.4% on an as adjusted basis, compared to the first three quarters of 2020. For the Company's international operations, revenues for the first three quarters of 2021 increased 47.6% on an as reported basis and 39.3% on an as adjusted basis, compared to the first three quarters of 2020. Historically, demand for permanent placement staffing is even more sensitive to economic and labor market conditions than demand for temporary and consultant staffing and this is expected to continue. Risk consulting and internal audit services revenues were$1.36 billion for the nine months endedSeptember 30, 2021 , increasing by 50.9% compared to revenues of$899 million for the nine months endedSeptember 30, 2020 . Key drivers of risk consulting and internal audit services revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. On an as adjusted basis, risk consulting and internal audit services revenues increased 49.7% for the first three quarters of 2021, compared to the first three quarters of 2020, due primarily to an increase in billable hours. In theU.S. , revenues in the first three quarters of 2021 increased 50.6% on an as reported basis and 51.2% on an as adjusted basis, compared to the first three quarters of 2020. The Company's risk consulting and internal audit services revenues for the first three quarters of 2021 from international operations increased 52.4% on an as reported basis and 43.8% on an as adjusted basis, compared to the first three quarters of 2020. A reconciliation of the non-GAAP year-over-year revenue growth rates to the as reported year-over-year revenue growth rates for the nine months endedSeptember 30, 2021 , is presented in the following table: Global United States
International
Temporary and consultant staffing As Reported 11.2 % 9.9 % 15.9 % Billing Days Impact 0.4 % 0.5 % 0.3 % Currency Impact -1.5 % - -7.0 % As Adjusted 10.1 % 10.4 % 9.2 % Permanent placement staffing As Reported 47.7 % 47.8 % 47.6 % Billing Days Impact 0.6 % 0.6 % 0.4 % Currency Impact -2.7 % - -8.7 % As Adjusted 45.6 % 48.4 % 39.3 % Risk consulting and internal audit services As Reported 50.9 % 50.6 % 52.4 % Billing Days Impact 0.6 % 0.6 % 0.3 % Currency Impact -1.8 % - -8.9 % As Adjusted 49.7 % 51.2 % 43.8 % Gross Margin. The Company's gross margin dollars were$1.95 billion for the nine months endedSeptember 30, 2021 , increasing by 30.3% compared to$1.50 billion for the nine months endedSeptember 30, 2020 . Contributing factors for each reportable segment are discussed below in further detail. Gross margin dollars for temporary and consultant staffing 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 for temporary and consultant staffing employees; and iii) conversion revenues, which are earned when a temporary position converts to a permanent position with the Company's client. Gross margin dollars for the Company's temporary and consultant staffing division were$1.15 billion for the nine months endedSeptember 30, 2021 , increasing 17.1% compared to$986 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, gross margin for temporary and consultant staffing was 39.5% for the nine months endedSeptember 30, 2021 , up from 37.5% for the nine months endedSeptember 30, 2020 . This year-over-year increase in gross margin percentage was primarily attributable to higher pay-bill spreads and higher conversion revenues. 27 -------------------------------------------------------------------------------- Gross margin dollars for permanent placement staffing represent revenues less reimbursable expenses. Gross margin dollars for the Company's permanent placement staffing division were$411 million for the nine months endedSeptember 30, 2021 , increasing 47.8% from$278 million for the nine months endedSeptember 30, 2020 . Because reimbursable expenses for permanent placement staffing are de minimis, gross margin dollars are substantially explained by revenues previously discussed. Gross margin dollars for risk consulting and internal audit services represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs and reimbursable expenses. The primary drivers of risk consulting and internal audit services gross margin are: i) the relative composition of 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 the Company's risk consulting and internal audit services staff. Gross margin dollars for the Company's risk consulting and internal audit division were$386 million for the nine months endedSeptember 30, 2021 , increasing 64.8% compared to$234 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, reported gross margin for risk consulting and internal audit services in the first three quarters of 2021 was 28.5%, up from 26.1% in the first three quarters of 2020. As a percentage of revenues, adjusted gross margin dollars for risk consulting and internal audit services were 28.9% the first three quarters of 2021, up from 26.8% in the first three quarters of 2020. The year-over-year increase in adjusted gross margin percentage was due primarily to higher staff utilization rates. 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$1.41 billion for the nine months endedSeptember 30, 2021 , increasing 13.4% from$1.24 billion for the nine months endedSeptember 30, 2020 . As a percentage of revenues, the Company's reported selling, general and administrative expenses were 30.0% for the first three quarters of 2021, down from 32.6% the first three quarters of 2020. As a percentage of revenues, the Company's adjusted selling, general and administrative expenses were 29.3% in the first three quarters of 2021 down from 31.9% in the first three quarters of 2020. Contributing factors for each reportable segment are discussed below in further detail. Selling, general and administrative expenses for the Company's temporary and consultant staffing division were$904 million for the nine months endedSeptember 30, 2021 , increasing 6.9% from$845 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, reported selling, general and administrative expenses for temporary and consultant staffing were 30.9% in the first three quarters of 2021, down from 32.2% in the first three quarters of 2020. As a percentage of revenues, adjusted selling, general and administrative expenses for temporary and consultant staffing were 29.9% in the first three quarters of 2021, down from 31.2% in the first three quarters of 2020 due primarily to positive leverage from an increase in revenues and a continued reduction in expenses. Selling, general and administrative expenses for the Company's permanent placement staffing division were$335 million for the nine months endedSeptember 30, 2021 , increasing by 28.9% compared to$260 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, reported selling, general and administrative expenses for permanent placement staffing were 81.4% in the first three quarters of 2021, down from 93.3% in the first three quarters of 2020. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement staffing was 80.6% in the first three quarters of 2021, down from 92.4% in the first three quarters of 2020 due primarily to positive leverage from an increase in revenues. Selling, general and administrative expenses for the Company's risk consulting and internal audit services division were$168 million for the nine months endedSeptember 30, 2021 , increasing by 23.9% compared to$135 million for the nine months endedSeptember 30, 2020 . As a percentage of revenues, selling, general and administrative expenses for risk consulting and internal audit services were 12.4% in the first three quarters of 2021, down from 15.1% in the first three quarters of 2020 due primarily to positive leverage from an increase in revenues. 28 -------------------------------------------------------------------------------- A reconciliation of the non-GAAP adjusted summary of operations to the reported summary of operations, for the nine months endedSeptember 30, 2021 and 2020 is presented in the following table (in thousands): Nine Months EndedSeptember 30 , Relationships 2021 2020 2021 2020 2021 2020 Reported Adjustments Adjusted (1) Reported Adjustments Adjusted (1) Reported Adjusted SERVICE REVENUES:Accountemps $ 1,363,007 $ -$ 1,363,007 $ 1,173,024 $ -$ 1,173,024 29.0 % 30.8 % 29.0 % 30.8 % OfficeTeam 763,035 - 763,035 549,963 - 549,963 16.3 % 14.5 % 16.3 % 14.5 % Robert Half Technology 581,905 - 581,905 519,687 - 519,687 12.4 % 13.7 % 12.4 % 13.7 % Robert Half Management Resources 633,685 - 633,685 531,826 - 531,826 13.5 % 14.0 % 13.5 % 14.0 % Elimination of intersegment revenues (419,375) - (419,375) (147,603) - (147,603) (8.9 %) (3.9 %) (8.9 %) (3.9 %) Temporary and consultant staffing 2,922,257 - 2,922,257 2,626,897 - 2,626,897 62.3 % 69.0 % 62.3 % 69.0 % Permanent placement staffing 411,788 - 411,788 278,722 - 278,722 8.8 % 7.3 % 8.8 % 7.3 % Protiviti 1,357,482 - 1,357,482 899,295 - 899,295 28.9 % 23.6 % 28.9 % 23.6 % Total$ 4,691,527 $ -$ 4,691,527 $ 3,804,914 $ -$ 3,804,914 100.0 % 100.0 % 100.0 % 100.0 % GROSS MARGIN: Temporary and consultant staffing$ 1,154,420 $ -
39.5 % 37.5 % 39.5 % 37.5 %
Permanent placement staffing 411,122 - 411,122 278,229 - 278,229 99.8 % 99.8 % 99.8 % 99.8 %
Protiviti 386,367 5,565 391,932 234,439 6,248 240,687 47.0 % 26.1 % 28.9 % 26.8 %
Total $ 1,951,909 $ 5,565 $ 1,957,474 $ 1,498,284 $ 6,248 $ 1,504,532 28.5 % 39.4 % 41.7 % 39.5 %
SELLING GENERAL AND
ADMINISTRATIVE EXPENSE:
Temporary and consultant staffing $ 903,739 $ (29,016)
30.9 % 32.2 % 29.9 % 31.2 %
Permanent placement staffing 335,316 (3,458) 331,858 260,161 (2,723) 257,438 81.4 % 93.3 % 80.6 % 92.4 %
Protiviti 167,676 - 167,676 135,376 - 135,376 12.4 % 15.1 % 12.4 % 15.1 %
Total $ 1,406,731 $ (32,474) $ 1,374,257 $ 1,240,879 $ (28,382) $ 1,212,497 30.0 % 32.6 % 29.3 % 31.9 %
OPERATING/SEGMENT INCOME:
Temporary and consultant staffing $ 250,681 $ 29,016
8.6 % 5.3 % 9.6 % 6.3 %
Permanent placement staffing 75,806 3,458 79,264 18,068 2,723 20,791 18.4 % 6.5 % 19.2 % 7.5 %
Protiviti 218,691 5,565 224,256 99,063 6,248 105,311 16.1 % 11.0 % 16.5 % 11.7 %
Total $ 545,178 $ 38,039 $ 583,217 $ 257,405 $ 34,630 $ 292,035 11.6 % 6.8 % 12.4 % 7.7 %
(Income) loss from investments held
in
employee deferred compensation
trusts (38,039) 38,039 - (34,630) 34,630 - 0.8 % 0.9 % 0.0 % 0.0 %
Amortization of intangible assets 1,724 - 1,724 1,002 - 1,002 0.0 % 0.0 % 0.0 % 0.0 %
Interest income, net (145) - (145) (1,264) - (1,264) 0.0 % 0.0 % 0.0 % 0.0 %
Income before income taxes $ 581,638 $ - $ 581,638 $ 292,297 $ - $ 292,297 12.4 % 7.7 % 12.4 % 7.7 %
(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 the Company's risk consulting and
internal audit services division, 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 ($38 million ) for the nine months ended September 30, 2021 , up from
($35 million ) for the nine months ended September 30, 2020 . The increase in
income from trust investments was due to positive market returns in 2021.
Income Before Income Taxes and Segment Income. The Company's total income before
income taxes was $582 million , or 12.4% of revenues, for the nine months ended
September 30, 2021 , up from $292 million or 7.7% of revenues, for the nine
months ended September 30, 2020 . Combined segment income was $583 million , or
12.4% of revenues, for the nine months ended September 30, 2021 , up from $292
million , or 7.7% of revenues, for the nine months ended September 30, 2020 .
The following table provides a reconciliation of the non-GAAP combined segment
income to reported income before income taxes for the nine months ended
September 30, 2021 and 2020 (in thousands):
Nine Months Ended
September 30,
2021 2020
Income before income taxes $ 581,638 $ 292,297
Interest income, net (145) (1,264)
Amortization of intangible assets 1,724 1,002
Combined segment income $ 583,217 $ 292,035
For the Company's temporary and consultant staffing division, segment income was
$280 million , or 9.6% of applicable revenues for the nine months ended
September 30, 2021 , up from $166 million , or 6.3% of applicable revenues for the
nine months ended September 30, 2020 . For the Company's permanent placement
staffing division, segment income was $79 million , or 19.2% of applicable
revenues in the first three quarters of 2021, up from segment income of $21
million , or 7.5% of applicable revenues, in the first three quarters of 2020.
For the Company's risk consulting and internal audit services division, segment
income was $224 million , or 16.5% of applicable revenues in the first three
quarters of 2021, compared to segment income of $105 million , or 11.7% of
applicable revenues, in the first three quarters of 2020.
Provision for income taxes. The provision for income taxes was 26.0% and 27.5%
for the nine months ended September 30, 2021 and 2020, respectively. The 2020
rate was elevated based on lesser coverage of non-deductible tax items due to
lower pandemic-impacted income.
Liquidity and Capital Resources
The change in the Company's liquidity during the nine months ended September 30,
2021 and 2020, 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 $634 million and $587 million at September 30,
2021 and 2020, respectively. Operating activities provided $458 million during
the nine months ended September 30, 2021 , offset by $50 million and $341 million
of net cash used in investing activities and financing activities, respectively.
Operating activities provided $565 million during the nine months ended
September 30, 2020 , offset by $43 million and $208 million of net cash used in
investing activities and financing activities, respectively.
Operating activities-Net cash provided by operating activities for the nine
months ended September 30, 2021 was composed of net income of $431 million
adjusted upward for non-cash items of $49 million , offset by net cash used in
changes in working capital of $22 million . Net cash provided by operating
activities for the nine months ended September 30, 2020 was composed of net
income of $212 million adjusted upward for non-cash items of $52 million and net
cash provided by changes in working capital of $301 million .
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Investing activities-Cash used in investing activities for the nine months ended
September 30, 2021 was $50 million . This was composed of capital expenditures of
$25 million and investments in employee deferred compensation trusts of $56
million , offset by proceeds from employee deferred compensation trusts
redemptions of $31 million . Cash used in investing activities for the nine
months ended September 30, 2020 was $43 million . This was composed of capital
expenditures of $29 million and investments in employee deferred compensation
trusts of $48 million , offset by proceeds from employee deferred compensation
trusts redemptions of $34 million .
Financing activities-Cash used in financing activities for the nine months ended
September 30, 2021 was $341 million . This included repurchases of $212 million
in common stock and $129 million in dividends paid to stockholders. Cash used in
financing activities for the nine months ended September 30, 2020 was $208
million . This included repurchases of $91 million in common stock and $117
million in dividends paid to stockholders.
As of September 30, 2021 , the Company is authorized to repurchase, from time to
time, up to 7.7 million additional shares of the Company's common stock on the
open market or in privately negotiated transactions, depending on market
conditions. During the nine months ended September 30, 2021 and 2020, the
Company repurchased 2.3 million shares, at a cost of $200 million , and 1.4
million shares, at a cost of $75 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 nine months ended
September 30, 2021 and 2020, such repurchases totaled 0.3 million shares, at a
cost of $20 million , and 0.3 million shares, at a cost of $12 million ,
respectively. Repurchases of shares have been funded with cash generated from
operations.
The Company's working capital at September 30, 2021 included $634 million in
cash and cash equivalents and $1.01 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.
We have 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 temporary and consultant staffing 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 September 30, 2021 . There were no
borrowings under the Credit Agreement as of September 30, 2021 .
On October 28, 2021 , the Company announced a quarterly dividend of $.38 per
share to be paid to all shareholders of record as of November 24, 2021 . The
dividend will be paid on December 15, 2021 .
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We continue to monitor the global economic uncertainty as a result of
coronavirus ("COVID-19") to assess the impact on the Company's results of
operations, financial condition, and liquidity. Actual results and outcomes may
differ from management's estimates and assumptions.
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 nine months ended September 30, 2021 , approximately 22.7% of the
Company's revenues were generated outside of the United States . 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, and
Australian dollar, 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 nine months of 2021, the U.S. dollar fluctuated, and generally
weakened, against the primary currencies in which the Company conducts business,
compared to one year ago. Currency exchange rates had the effect of increasing
reported service revenues by $63.6 million , or 1.7%, in the first three quarters
of 2021 compared to the same period one year
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ago. The general weakening of the U.S. dollar also affected the reported level
of expenses incurred in the Company's foreign operations. Because substantially
all the Company's foreign operations generated revenues and incurred expenses
within the same country and currency, the effect of higher reported revenues is
largely offset by the increase in reported operating expenses. Reported net
income was $3.6 million , or 1.7%, higher in the first three quarters of 2021
compared to the same period one year ago due to the effect of currency exchange
rates. If currency exchange rates were to remain at September 30, 2021 levels
throughout the remainder of 2021, the currency impact on the Company's full-year
reported revenues and operating expenses would be nearly flat compared to full
year 2020 results. Should current trends continue, the impact to reported net
income would be immaterial.
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, except for transfers to the U.S. for payment of
intercompany loans, working capital loans made between the U.S. and the
Company's foreign subsidiaries, and dividends from the Company's foreign
subsidiaries.
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.
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