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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.    Yes  ☒  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).    Yes  ☒    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.

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  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of September 30, 2023:

105,894,955 shares of $0.001 par value Common Stock

Nature of Operations. Robert Half 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 operates in North America, South America, Europe, Asia and Australia. The Company is a Delaware corporation.

Basis of Presentation. The unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). The comparative year-end Condensed Consolidated Statement of Financial Position data presented was derived from audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the periods presented have been included. These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2022, 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 Financial Statements to conform to the 2023 presentation.

Principles of Consolidation. The Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As of September 30, 2023, such estimates include allowances for credit losses, variable consideration, workers’ compensation losses, accrued medical expenses, income and other taxes, and assumptions used in the Company’s goodwill impairment assessment and in the valuation of stock grants subject to market conditions. Actual results and outcomes may differ from management’s estimates and assumptions.

Service Revenues. The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. See Note C for further discussion of the revenue recognition accounting policy.

Costs of Services. Direct costs of contract talent solutions consist of payroll, payroll taxes, and benefit costs for the Company’s engagement professionals, as well as reimbursable expenses. Direct costs of permanent placement talent solutions consist of reimbursable expenses. Protiviti direct costs of services include professional staff payroll, payroll taxes and benefit costs, as well as reimbursable expenses.

Advertising Costs. The Company expenses all advertising costs as incurred. Advertising costs were $13.4 million and $41.3 million for the three and nine months ended September 30, 2023, respectively, and $13.5 million and $42.2 million for the three and nine months ended September 30, 2022, respectively.

(Income) Loss from Investments Held in Employee Deferred Compensation Trusts. Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation plan obligations change and adjustments are recorded in selling, general and administrative expenses or, in the case of Protiviti, costs of services. The value of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments and is presented separately on the unaudited Condensed Consolidated Statements of Operations.

The following table presents the Company’s (income) loss from investments held in employee deferred compensation trusts (in thousands):

Comprehensive Income (Loss).    Comprehensive income (loss) includes net income and certain other items that are recorded directly to stockholders’ equity. The Company’s only sources of other comprehensive income (loss) are foreign currency translation and foreign defined benefit plan adjustments.

Fair Value of Financial Instruments. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market to measure fair value, summarized as follows:

Level 1: observable inputs for identical assets or liabilities, such as quoted prices in active markets

Level 2: inputs other than the quoted prices in active markets that are observable either directly or indirectly

Level 3: unobservable inputs in which there is little or no market data, which requires management’s best estimates and assumptions that market participants would use in pricing the asset or liability

The carrying value of cash 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).

The following tables set forth the composition of the underlying assets which comprise the Company’s deferred compensation trust assets (in thousands):

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.

Allowance for Credit Losses. The Company is exposed to credit losses resulting from the inability of its customers to make required payments. The Company establishes an allowance for these potential credit losses based on its review of customers’ credit profiles, historical loss statistics, prepayments, recoveries, age of customer receivable balances, current business conditions and macroeconomic trends. The Company considers risk characteristics of trade receivables based on asset type and geographical locations to evaluate trade receivables on a collective basis. The Company applies credit loss estimates to these pooled receivables to determine expected credit losses.

The following table sets forth the activity in the allowance for credit losses from December 31, 2022 through September 30, 2023 (in thousands):

Internal-use Software. The Company develops and implements software for internal use to enhance the performance and capabilities of the operating technology infrastructure. Direct costs incurred for the development of internal-use software are capitalized from the time when the completion of the internal-use software is considered probable until the software is ready for use. All other preliminary and planning stage costs are expensed as incurred. Cloud computing implementation costs incurred in hosting arrangements are capitalized and reported as a component of other current assets and other noncurrent assets, while all other capitalized internal-use software development costs are reported as a component of computer software within property and equipment on the unaudited Condensed Consolidated Statements of Financial Position. Capitalized software costs are amortized using the straight-line method over the estimated useful life of the software, ranging from two to five years.

None.

None.

The Company derives its revenues from three segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Revenues are recognized when promised goods or services are delivered to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Service revenues, as presented on the unaudited Condensed Consolidated Statements of Operations, represent services rendered to customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to travel and out-of-pocket expenses, are also included in service revenues, and equivalent amounts of reimbursable expenses are included in costs of services.

Contract talent solutions revenues. Contract talent solutions revenues from contracts with customers are recognized in the amount to which the Company has a right to invoice when the services are rendered by the Company’s engagement professionals. The substantial majority of engagement professionals placed on assignment by the Company are the Company’s legal employees while they are working on assignments. The Company pays all related costs of employment, including workers’ compensation insurance, state and federal unemployment taxes, social security, and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers.

The Company records contract talent solutions revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties, and (iii) bears the risk for services that are not fully paid for by customers. Fees paid to time management or vendor management service providers selected by clients are recorded as a reduction of revenues, as the Company is not the primary obligor with respect to those services.

Permanent placement talent solutions revenues. Permanent placement talent solutions revenues from contracts with customers are primarily recognized when employment candidates accept offers of permanent employment. The Company has a substantial history of estimating the financial impact of permanent placement candidates who do not remain with its clients through the 90-day guarantee period. These amounts are established based primarily on historical data and are recorded as liabilities. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement talent solutions services are charged to employment candidates.

Protiviti revenues. Protiviti’s consulting services are generally provided on a time-and-material basis or fixed-fee basis. Revenues earned under time-and-material arrangements and fixed-fee arrangements are recognized using a proportional performance method. Revenue is measured using cost incurred relative to total estimated cost for the engagement to measure progress towards satisfying the Company’s performance obligations. Cost incurred represents work performed and thereby best depicts the transfer of control to the customer. Protiviti’s consulting services generally contain one or more performance obligation(s) which are satisfied over a period of time. Revenues are recognized over time as the performance obligations are satisfied, because the services provided do not have any alternative use to the Company, and contracts generally include language giving the Company an enforceable right to payment for services provided to date.

The Company periodically evaluates the need to provide for any losses on these projects, and losses are recognized when it is probable that a loss will be incurred.

The following table presents the Company’s revenues disaggregated by functional specialization and segment (in thousands):

(a) Service revenues for finance and accounting, administrative and customer support, and technology include intersegment revenues, which represent revenues from services provided to the Company’s Protiviti segment in connection with the Company’s blended business solutions. Intersegment revenues for each functional specialization are aggregated and then eliminated as a single line.

Payment terms in the Company’s contracts vary by the type and location of the Company’s customer and the services offered. The term between invoicing and when payment is due is not significant.

Contracts with multiple performance obligations are recognized as performance obligations are delivered, and contract value is allocated based on relative stand-alone selling values of the services and products in the arrangement. As of September 30, 2023, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $150.2 million. Of this amount, $131.5 million is expected to be recognized within the next twelve months. As of September 30, 2022, aggregate transaction price allocated to the performance obligations that were unsatisfied for contracts with an expected duration of greater than one year was $164.8 million.

Contract liabilities are recorded when cash payments are received or due in advance of performance and are reflected in accounts payable and accrued expenses on the unaudited Condensed Consolidated Statements of Financial Position. The following table sets forth the activity in contract liabilities from December 31, 2022 through September 30, 2023 (in thousands):

						Contract Liabilities
Balance as of December 31, 2022						$	21,983
Payments in advance of satisfaction of performance obligations						28,889
Revenue recognized						(35,837)
Other, including translation adjustments						(578)
Balance as of September 30, 2023						$	14,457

Other current assets consisted of the following (in thousands):

						September 30, 2023						December 31, 2022
Prepaid expenses						$	70,141					$	69,394
Unamortized cloud computing implementation costs						31,872						56,108
Other						31,660						49,963
Other current assets						$	133,673					$	175,465

Property and equipment consisted of the following (in thousands):

						September 30, 2023									December 31, 2022
Computer hardware						$	149,218								$	160,028
Computer software						216,075									219,863
Furniture and equipment						98,000									96,601
Leasehold improvements						181,607									171,893
Property and equipment, cost						644,900									648,385
Accumulated depreciation						(536,296)									(538,698)
Property and equipment, net						$	108,604								$	109,687

Other noncurrent assets consisted of the following (in thousands):

						September 30, 2023						December 31, 2022
Unamortized cloud computing implementation costs						$	27,354					$	—
Other intangible assets, net						3,154						5,317
Other noncurrent assets						$	30,508					$	5,317

The Company has operating leases for corporate and field offices, and certain equipment. The Company’s leases have remaining lease terms of less than 1 year to 9 years, some of which include options to extend the leases for up to 7 years, and some of which include options to terminate the leases within 1 year. Operating lease expense was $22.2 million and $67.1 million for the three and nine months ended September 30, 2023, respectively, and $22.0 million and $67.1 million for the three and nine months ended September 30, 2022, respectively.

Supplemental cash flow information related to leases consisted of the following (in thousands):

			Nine Months Ended September 30,
			2023						2022
Cash paid for operating lease liabilities			$	71,633					$	69,696
Right-of-use assets obtained in exchange for new operating lease liabilities			$	46,838					$	41,916

Supplemental balance sheet information related to leases consisted of the following:

			September 30, 2023						December 31, 2022
Weighted average remaining lease term for operating leases			3.4 years						3.5 years
Weighted average discount rate for operating leases			2.8		%				2.2		%

Future minimum lease payments under non-cancellable leases as of September 30, 2023, were as follows (in thousands):

(a) Includes the current portion of $80.7 million for operating leases.

As of September 30, 2023, the Company had additional future minimum lease obligations totaling $2.0 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 1 to 6 years.

The following table sets forth the activity in goodwill from December 31, 2022 through September 30, 2023 (in thousands):

Accrued payroll and benefit costs consisted of the following (in thousands):

						September 30, 2023									December 31, 2022
Payroll and benefits						$	412,486								$	423,439
Payroll taxes						7,024									33,559
Workers’ compensation						15,820									15,312
Accrued payroll and benefit costs						$	435,330								$	472,310

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 $523.8 million and $432.7 million as of September 30, 2023 and December 31, 2022, 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 $518.9 million and $474.1 million as of September 30, 2023 and December 31, 2022, respectively.

The following table presents the Company’s compensation expense related to its qualified defined contribution plans and nonqualified plans (in thousands):

The Company has statutory defined contribution plans and defined benefit plans outside the United States of America, which are not material.

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 Attorneys General Act (“PAGA”). At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements. The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation.

On April 6, 2018, Plaintiff Shari Dorff, on her own behalf and on behalf of a putative class of allegedly similarly situated individuals, filed a complaint against the Company in the Superior Court of California, County of Los Angeles. In addition to certain claims individual to Plaintiff Dorff, the complaint alleges that salaried recruiters based in California have been misclassified as exempt employees and seeks an unspecified amount for: unpaid wages resulting from such alleged misclassification; alleged failure to provide a reasonable opportunity to take meal periods and rest breaks; alleged failure to pay wages on a timely basis both during employment and upon separation; alleged failure to comply with California requirements regarding wage statements and record-keeping; and alleged improper denial of expense reimbursement. Plaintiff Dorff also seeks an unspecified amount of other damages, attorneys’ fees, and penalties, including but not limited to statutory penalties on behalf of herself and other allegedly “aggrieved employees” as defined by PAGA. At this stage of the litigation, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding and, accordingly, no amounts have been provided in the Company’s Financial Statements.

The Company believes it has meritorious defenses to the allegations and the Company intends to continue to vigorously defend against the litigation.

The Company is involved in a number of other lawsuits arising in the ordinary course of business. While management does not expect any of these other matters to have a material adverse effect on the Company’s results of operations, financial position or cash flows, litigation is subject to certain inherent uncertainties.

Legal costs associated with the resolution of claims, lawsuits and other contingencies are expensed as incurred.

Stock Repurchase Program. As of September 30, 2023, the Company is authorized to repurchase, from time to time, up to 11.5 million additional shares of the Company’s common stock on the open market or in privately negotiated transactions, depending on market conditions. The number and the cost of common stock shares repurchased during the nine months ended September 30, 2023 and 2022, 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. The number and the cost of employee stock plan repurchases made during the nine months ended September 30, 2023 and 2022, are reflected in the following table (in thousands):

The repurchased shares are held in treasury and are presented as if constructively retired. Treasury stock is accounted for using the cost method. Treasury stock activity for the nine months ended September 30, 2023 and 2022, (consisting of purchases of shares for the treasury) is presented in the unaudited Condensed Consolidated Statements of Stockholders’ Equity.

Repurchases of shares and issuances of dividends are applied first to the extent of retained earnings and any remaining amounts are applied to additional paid-in capital.

The calculation of net income per share for the three and nine months ended September 30, 2023 and 2022, is reflected in the following table (in thousands, except per share amounts):

 

The Company has three reportable segments: contract talent solutions, permanent placement talent solutions, and Protiviti. Operating segments are defined as components of the Company for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The contract talent solutions and permanent placement talent solutions segments provide specialized engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, administrative, and customer support 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, 2022. The Company evaluates performance based on income before intangible assets amortization expense, net interest income, and income taxes.

The following table provides a reconciliation of service revenues and segment income by reportable segment to consolidated results for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Service revenues presented above are shown net of eliminations of intersegment revenues. Intersegment revenues between contract talent solutions segment and Protiviti segment were $100.6 million and $341.2 million for the three and nine months ended September 30, 2023, respectively, and $132.7 million and $414.5 million for the three and nine months ended September 30, 2022, 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.

On October 30, 2023, the Company announced the following:

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 Inc. (the “Company”). Forward-looking statements are not guarantees or promises that goals or targets will be met. These statements may be identified by words such as “estimate,” “forecast,” “target,” “project,” “plan,” “intend,” “believe,” “expect,” “anticipate,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, historical, current, and forward-looking information about the Company’s ESG and compliance programs, including targets or goals, may not be considered material for the Securities and Exchange Commission (“SEC”) reporting purposes and may be based on standards for measuring progress that are still developing, on internal controls, diligence, or processes that are evolving, and on assumptions that are subject to change in the future. Forward-looking statements are estimates only, based on management’s current expectations, currently available information and current strategy, plans, or forecasts, and involve certain known and unknown risks, uncertainties, and assumptions that are difficult to predict and often beyond our control and are inherently uncertain. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. These risks and uncertainties include, but are not limited to, the following: changes to or new interpretations of United States of America (“U.S.”) or international tax regulations; the global financial and economic situation; the ongoing impact of the COVID-19 virus 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 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.

Revenue and net income results for the third quarter exceeded management's expectations, notwithstanding the ongoing macroeconomic uncertainty that lengthens client and job candidate decision cycles. Gross margins remained strong due to pricing discipline and the ongoing benefit from the rising mix shift to higher skill levels. The Company’s operating cost base also benefited from targeted actions to align costs with revenues across all reportable segments.

During the first three quarters of 2023, service revenues were $4.92 billion, a decrease of 10.7% from the prior year. Net income was $324 million and diluted net income per share was $3.04. Global labor markets remain tight and the scarcity of talent persists. The urgency and velocity of that demand is impacted by the prolonged period of macroeconomic uncertainty, which continued in the third-quarter. Clients are budget sensitive and very selective in their hiring activities - including approval of new projects.

On a segment basis, year-to-date revenues for contract talent solutions, permanent placement talent solutions and Protiviti were down 13.1%, 21.7% and 1.0% year-over-year, respectively.

Demand for the Company’s contract talent solutions, permanent placement talent solutions, and Protiviti is largely dependent upon general economic and labor trends both domestically and abroad. The U.S. economic backdrop and labor trends for the first three quarters of 2023 remained steady for the Company as the unemployment rate increased slightly from 3.5% for December 2022 to 3.8% at the end of the third quarter of 2023. Although recent metrics are modestly off their peaks, talent shortages persist. In the U.S., unemployment stands near a 50-year low and remains even lower for those with a college degree, where the rate is 2.1%. Although labor markets remain strong, ongoing uncertainty related to inflation and interest rates cause clients to be more cautious, resulting in elongated hiring cycles and a negative impact on short-term results.

The Company is confident about its ability to weather the current global macroeconomic environment and its future growth prospects as the macro landscape improves. Clients continue to hire, but are generally maintaining internal headcounts based on the anticipated difficulty in finding suitable replacements, resulting in less churn in the labor markets. The Company continues to invest in services involving higher-skilled positions across its practice groups. This has advantages of higher bill rates and gross margins, longer assignment lengths, and less economic sensitivity.

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 and labor market conditions noted above, but also because of the relatively short duration of the Company’s client engagements. Accordingly, the Company’s headcount and other investments are typically assessed on at least a quarterly basis. During the first three quarters of 2023, the Company decreased headcount for its contract talent solutions and permanent placement talent solutions segments, while it increased its full-time headcount for its Protiviti segment, when compared to prior year-end levels.

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, 2022. There were no material changes to the Company’s critical accounting policies or estimates for the nine months ended September 30, 2023.

See Note B—“New Accounting Pronouncements” to the Company’s Condensed Consolidated Financial Statements included under Part I—Item 1 of this report.

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 engagement professionals and full-time personnel, respectively, for finance and accounting, technology, marketing and creative, legal, and administrative and customer support roles. The Protiviti segment provides business and technology risk consulting and internal audit services.

Demand for the Company’s services is largely dependent upon general economic and labor trends both domestically and abroad. 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 segments conducts placement activities through 319 offices in 42 states, the District of Columbia and 18 foreign countries, while Protiviti has 65 offices in 23 states and 13 foreign countries.

The 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: adjusted gross margin; adjusted selling, general and administrative expenses; combined segment income; and as adjusted revenue growth rates.

The following measures: adjusted gross margin and adjusted selling, general and administrative expenses, include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans. The 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 and amortization of intangible assets. The Company provides combined segment income because it is how management evaluates performance.

As adjusted revenue growth rates represent year-over-year revenue growth rates after removing the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates. The Company provides 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 impacts from the changes in billing days and foreign currency exchange rates are calculated as follows:

•Billing days impact is calculated by dividing each comparative period’s reported revenues by the number of billing days for that period to arrive at a per billing day amount. Same billing day growth rates are then calculated based on the per billing day amounts. Management calculates a global, weighted-average number of billing days for each reporting period based upon inputs from all countries and all functional specializations and segments.

•Foreign currency impact is calculated by retranslating current period international revenues using foreign currency exchange rates from the prior year’s comparable period.

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 Ended September 30, 2023 and 2022

Service Revenues. The Company’s revenues were $1.56 billion for the three months ended September 30, 2023, a decrease of 14.7% compared to $1.83 billion for the three months ended September 30, 2022. Revenues from U.S. operations decreased 17.5% to $1.21 billion (77.3% of total revenue) for the three months ended September 30, 2023, compared to $1.47 billion (79.9% of total revenue) for the three months ended September 30, 2022. Revenues from international operations decreased 3.5% to $355 million (22.7% of total revenue) for the three months ended September 30, 2023, compared to $368 million (20.1% of total revenue) for the three months ended September 30, 2022. Contributing factors for each reportable segment are discussed below in further detail.

Contract talent solutions revenues were $943 million for the three months ended September 30, 2023, decreasing by 17.3% compared to revenues of $1.14 billion for the three months ended September 30, 2022. Key drivers of contract talent solutions revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements. The decrease in contract talent solutions revenues for the three months ended September 30, 2023, was primarily due to a 22.9% decrease in the number of hours worked by the Company’s engagement professionals, partially offset by a 6.9% increase in average bill rates. On an as adjusted basis, contract talent solutions revenues decreased 16.4% for the third quarter of 2023, compared to the third quarter of 2022. In the U.S., revenues in the third quarter of 2023 decreased 20.7% on an as reported basis, and decreased 19.2% on an as adjusted basis, compared to the third quarter of 2022. International revenues for the third quarter of 2023 decreased 3.1% on an as reported basis, and decreased 4.9% on an as adjusted basis compared to the third quarter of 2022.

Permanent placement talent solutions revenues were $140 million for the three months ended September 30, 2023, decreasing by 23.3% compared to revenues of $182 million for the three months ended September 30, 2022. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. The decrease in permanent placement talent revenues for the three months ended September 30, 2023, was due to a 26.8% decrease in the number of placements, partially offset by a 3.5% increase in average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues decreased 22.5% for the third quarter of 2023, compared to the third quarter of 2022. In the U.S., revenues for the third quarter of 2023 decreased 26.9% on an as reported basis, and decreased 25.5% on an as adjusted basis, compared to the third quarter of 2022. International revenues for the third quarter of 2023 decreased 13.0% on an as reported basis and decreased 14.2% on an as adjusted basis, compared to the third quarter of 2022. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue.

Protiviti revenues were $481 million for the three months ended September 30, 2023, decreasing by 6.0% compared to revenues of $511 million for the three months ended September 30, 2022. Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. The decrease in Protiviti revenues for the three months ended September 30, 2023, was due to a 10.2% decrease in billable hours, partially offset by a 4.2% increase in average hourly bill rates. On an as adjusted basis, Protiviti revenues decreased 4.9% for the third quarter of 2023, compared to the third quarter of 2022. In the U.S., revenues in the third quarter of 2023 decreased 7.4% on an as reported basis, and decreased 5.6% on an as adjusted basis, compared to the third quarter of 2022. International revenues for the third quarter of 2023 increased 0.3% on an as reported basis and decreased 1.5% on an as adjusted basis, compared to the third quarter of 2022.

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 September 30, 2023, is presented in the following table:

Gross Margin.    The Company’s gross margin dollars were $641 million for the three months ended September 30, 2023, down 18.6% from $788 million for the three months ended September 30, 2022. Contributing factors for each reportable segment are discussed below in further detail.

Gross margin dollars for contract talent solutions were $375 million for the three months ended September 30, 2023, decreasing by 16.6% from $450 million for the three months ended September 30, 2022. As a percentage of revenues, gross margin dollars for contract talent solutions were 39.8% in the third quarter of 2023, up from 39.4% in the third quarter of 2022. The increase in gross margin percentage was primarily due to lower fringe costs and higher pay-bill spreads.

Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $140 million for the three months ended September 30, 2023, down 23.3% from $182 million for the three months ended September 30, 2022. Because reimbursable expenses for permanent placement talent solutions are de minimis, the decrease in gross margin dollars is substantially explained by the decrease in revenues previously discussed.

Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs, and reimbursable expenses. The primary drivers of Protiviti’s 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 Protiviti staff. Gross margin dollars for Protiviti were $126 million for the three months ended September 30, 2023, down 19.2% from $156 million for the three months ended September 30, 2022. As a percentage of revenues, reported gross margin dollars for Protiviti were 26.2% in the third quarter of 2023, down from 30.5% in the third quarter of 2022. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 25.6% in the third quarter of 2023, down from 30.0% in the third quarter of 2022. The year-over-year decrease in adjusted gross margin percentage was primarily due to increases in the pay rates for its professional staff, which were only partially offset by higher bill rates.

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

The following tables provide reconciliations of the non-GAAP adjusted gross margin to reported gross margin for the three months ended September 30, 2023 and 2022 (in thousands):

(1)Changes in the Company’s employee deferred compensation plan obligations related to Protiviti operations are included in costs of services, while the related investment (income) loss is presented separately. The non-GAAP financial adjustments shown in the table above are to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation. These adjustments have no impact on income before income taxes.

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 $497 million for the three months ended September 30, 2023, decreasing by 9.5% from $549 million for the three months ended September 30, 2022. As a percentage of revenues, reported selling, general and administrative expenses were 31.8% in the third quarter of 2023, up from 29.9% in the third quarter of 2022. As a percentage of revenues, adjusted selling, general and administrative expenses were 32.5% in the third quarter of 2023, up from 30.6% in the third quarter of 2022. Contributing factors for each reportable segment are discussed below in further detail.

Selling, general and administrative expenses for contract talent solutions were $307 million for the three months ended September 30, 2023, decreasing by 3.8% from $319 million for the three months ended September 30, 2022. As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 32.5% in the third quarter of 2023, up from 27.9% in the third quarter of 2022. As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 33.6% in the third quarter of 2023, up from 28.9% in the third quarter of 2022, due primarily to negative leverage as revenues decreased as a result of economic conditions during the quarter.

Selling, general and administrative expenses for permanent placement talent solutions were $119 million for the three months ended September 30, 2023, decreasing by 19.5% from $148 million for the three months ended September 30, 2022. As a percentage of revenues, reported selling, general and administrative expenses for permanent placement talent solutions were 85.3% in the third quarter of 2023, up from 81.3% in the third quarter of 2022. As a percentage of revenues, adjusted selling, general and administrative expenses for permanent placement was 86.2% in the third quarter of 2023, up from 82.2% in the third quarter of 2022, due primarily to negative leverage as revenues decreased as a result of economic conditions during the quarter.

Selling, general and administrative expenses for Protiviti were $71 million for the three months ended September 30, 2023, decreasing by 13.4% from $82 million for the three months ended September 30, 2022. As a percentage of revenues, selling, general and administrative expenses for Protiviti services were 14.7% in the third quarter of 2023, down from 16.0% in the third quarter of 2022, due primarily to lower variable overhead costs.

The following tables provide reconciliations of the non-GAAP selling, general and administrative expenses to reported selling, general and administrative expenses for the three months ended September 30, 2023 and 2022 (in thousands):

(1)Changes in the Company’s employee deferred compensation plan obligations related to talent solutions operations are included in selling, general and administrative expenses, while the related investment (income) loss is presented separately. The non-GAAP financial adjustments shown in the table above are to reclassify investment (income) loss from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation. These adjustments have no impact on income before income taxes.

(Income) Loss from Investments Held in Employee Deferred Compensation Trusts. Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions. As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation plan obligations change and adjustments are recorded in selling, general and administrative expenses, or in the case of Protiviti, costs of services. The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company. The Company’s (income) loss from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments and is presented separately on the unaudited Condensed Consolidated Statements of Operations. The Company’s loss from investments held in employee deferred compensation trusts was $14 million and $15 million for the three months ended September 30, 2023 and 2022, respectively. The loss from trust investments was due to negative market returns during the third quarter of 2023.

Income Before Income Taxes and Segment Income. The Company’s total income before income taxes was $136 million, or 8.7% of revenues, for the three months ended September 30, 2023, down from $226 million or 12.3% of revenues, for the three months ended September 30, 2022. Combined segment income was $130 million, or 8.3% of revenues, for the three months ended September 30, 2023, down from $224 million, or 12.2% of revenues, for the three months ended September 30, 2022.

The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the three months ended September 30, 2023 and 2022 (in thousands):

Provision for income taxes. The provision for income taxes was 29.9% and 26.3% for the three months ended September 30, 2023 and 2022, respectively. The higher tax rate for 2023 can be attributed to an increased impact of nondeductible expenses and fewer tax credits.

Nine Months Ended September 30, 2023 and 2022

Service Revenues. The Company’s revenues were $4.92 billion for the nine months ended September 30, 2023, a decrease of 10.7% compared to $5.51 billion for the nine months ended September 30, 2022. Revenues from U.S. operations decreased 12.1% to $3.82 billion (77.7% of total revenue) for the nine months ended September 30, 2023, compared to $4.35 billion (78.9% of total revenue) for the nine months ended September 30, 2022. Revenues from international operations decreased 5.6% to $1.10 billion (22.3% of total revenue) for the nine months ended September 30, 2023, compared to $1.16 billion (21.1% of total revenue) for the nine months ended September 30, 2022. Contributing factors for each reportable segment are discussed below in further detail.

Contract talent solutions revenues were $3.01 billion for the nine months ended September 30, 2023, decreasing by 13.1% compared to revenues of $3.46 billion for the nine months ended September 30, 2022. Key drivers of contract talent solutions revenues include average hourly bill rates and the number of hours worked by the Company’s engagement professionals on client engagements. The decrease in contract talent solutions revenues for the nine months ended September 30, 2023, was primarily due to a 20.7% decrease in the number of hours worked by the Company’s engagement professionals, partially offset by an 8.5% increase in average bill rates. On an as adjusted basis, contract talent solutions revenues in the first three quarters of 2023 decreased 12.7% compared to the first three quarters of 2022. In the U.S., revenues in the first three quarters of 2023 decreased 15.1% on an as reported basis, and decreased 15.0% on as adjusted basis, compared to the first three quarters of 2022. International revenues for the first three quarters of 2023 decreased 5.1% on an as reported basis, and decreased 4.0% on an as adjusted basis, compared to the first three quarters of 2022.

Permanent placement talent solutions revenues were $446 million for the nine months ended September 30, 2023, decreasing by 21.7% compared to revenues of $569 million for the nine months ended September 30, 2022. Key drivers of permanent placement talent solutions revenues consist of the number of candidate placements and average fees earned per placement. The decrease in permanent placement staffing revenues for the nine months ended September 30, 2023, was due to a 23.7% decrease in the number of placements, partially offset by a 2.0% increase in average fees earned per placement. On an as adjusted basis, permanent placement talent solutions revenues decreased 21.2% for the first three quarters of 2023, compared to the first three quarters of 2022. In the U.S., revenues for the first three quarters of 2023 decreased 23.4% on an as reported basis and decreased 23.3% on an as adjusted basis, compared to the first three quarters of 2022. International revenues for the first three quarters of 2023 decreased 17.0% on an as reported basis, and decreased 15.6% on an as adjusted basis, compared to the first three quarters of 2022. Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue.

Protiviti revenues were $1.47 billion for the nine months ended September 30, 2023, decreasing by 1.0% compared to revenues of $1.48 billion for the nine months ended September 30, 2022. Key drivers of Protiviti revenues are the billable hours worked by consultants on client engagements and average hourly bill rates. The decrease in Protiviti revenues for the nine months ended September 30, 2023, was due to a 4.5% decrease in billable hours, partially offset by a 3.5% increase in average hourly bill rates. On an as adjusted basis, Protiviti revenues decreased 0.6% for the first three quarters of 2023, compared to the first three quarters of 2022. In the U.S., revenues in the first three quarters of 2023 decreased 1.1% on an as reported basis and decreased 0.9% on an as adjusted basis, compared to the first three quarters of 2022. International revenues in the first three quarters of 2023 decreased 0.7% on an as reported basis, and increased 0.5% on an as adjusted basis, compared to the first three quarters of 2022.

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 ended September 30, 2023, is presented in the following table:

Gross Margin.    The Company’s gross margin dollars were $1.99 billion for the nine months ended September 30, 2023, down 16.2% from $2.38 billion for the nine months ended September 30, 2022. Contributing factors for each reportable segment are discussed below in further detail.

Gross margin dollars for contract talent solutions were $1.20 billion for the nine months ended September 30, 2023, down 13.0% from $1.38 billion for the nine months ended September 30, 2022. As a percentage of revenues, gross margin dollars for contract talent solutions were 39.8% in the first three quarters of both 2023 and 2022.

Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses. Gross margin dollars for permanent placement talent solutions were $445 million for the nine months ended September 30, 2023, down 21.7% from $568 million for the nine months ended September 30, 2022. Because reimbursable expenses for permanent placement talent solutions are de minimis, the decrease in gross margin dollars is substantially explained by the decrease in revenues previously discussed.

Gross margin dollars for Protiviti represent revenues less costs of services, which consist primarily of professional staff payroll, payroll taxes, benefit costs, and reimbursable expenses. The primary drivers of Protiviti’s 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 Protiviti staff. Gross margin dollars for Protiviti were $348 million for the nine months ended September 30, 2023, down 19.1% from $431 million for the nine months ended September 30, 2022. As a percentage of revenues, reported gross margin dollars for Protiviti were 23.8% in the first three quarters of 2023, down from 29.1% in the first three quarters of 2022. As a percentage of revenues, adjusted gross margin dollars for Protiviti were 24.3% in the first three quarters of 2023, down from 27.9% in the first three quarters of 2022. The year-over-year decrease in adjusted gross margin percentage was primarily due to increases in the pay rates for its professional staff, which were only partially offset by higher bill rates.

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

The following tables provide reconciliations of the non-GAAP adjusted gross margin to reported gross margin for the nine months ended September 30, 2023 and 2022 (in thousands):