Robert Half International Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results; it is an annual report, not a standalone Q4 filing. Amounts below are in U.S. dollars.
Business context
Robert Half provides specialized temporary, project and permanent staffing, alongside risk consulting and internal audit services through Protiviti. Its three reportable segments are temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit. The company operated 349 staffing offices and 60 Protiviti offices at year-end.
Financial and operating results
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net service revenues | $4,111.2 million | $3,777.0 million | +9% |
| Gross margin | $1,649.1 million; 40.1% of revenue | $1,489.6 million; 39.4% | +11% in dollars |
| Operating income | $343.4 million; 8.4% of revenue | $249.4 million; 6.6% | +38% |
| Income before taxes | $344.2 million | $250.2 million | +38% |
| Net income | $209.9 million | $149.9 million | +40% |
| Diluted earnings per share | $1.50 | $1.04 | +44% |
| Cash from operating activities | $289.2 million | $256.3 million | +$32.9 million |
- Temporary and consultant staffing revenue was $3,324.3 million, up 9.0% reported and 10.0% on a same-billing-day, constant-currency basis. U.S. revenue grew 13.7% reported; international revenue declined 3.0% reported but grew 1.3% on the adjusted basis.
- Permanent placement revenue was $334.2 million, up 10.6% reported and 12.6% on the adjusted basis. U.S. revenue rose 20.5% reported; international revenue declined 0.6% reported.
- Risk consulting and internal audit revenue was $452.7 million, up 6.8%; U.S. revenue rose 11%, while international revenue declined 5%.
- Temporary staffing gross margin increased to 36.0% from 35.2%. Protiviti’s gross margin declined to 25.9% from 26.8%, primarily reflecting weaker international margins.
- SG&A was $1,305.6 million, up about 5%, but declined to 31.8% of revenue from 32.8%, reflecting operating leverage. The filing identifies a $19 million litigation settlement charge in 2012.
- Fourth-quarter revenue was $1,034.2 million, versus $973.5 million in Q4 2011. Q4 2012 net income was $58.6 million and diluted EPS was $0.42, versus $42.6 million and $0.30, respectively.
Cash, liquidity and capital allocation
- Year-end cash and cash equivalents were $287.6 million, compared with $279.3 million a year earlier. Current assets were $1,064.7 million and current liabilities $501.6 million.
- Total notes payable and other indebtedness were approximately $1.5 million, with $117,000 current; the company therefore reported minimal funded debt.
- Cash used in investing was $73.0 million, including $50.1 million of capital expenditures and $14.4 million for acquisitions. Cash used in financing was $209.6 million, including $176.8 million in share repurchases and $84.1 million in dividends.
- The company declared $0.60 per share in dividends for 2012 and announced a $0.16 quarterly dividend in February 2013. It had authorization to repurchase up to 11.4 million additional shares at year-end.
- Management stated that internally generated cash should be sufficient for working capital, fixed payments, dividends and other obligations. Contractual obligations totaled $479.5 million, primarily operating leases of $416.6 million.
Changes, outlook and risks
- Results improved across all three reportable segments, with U.S. operations strongest. Management attributed the overall improvement to improving global economic conditions, while noting weaker economies in several countries, especially in Europe.
- Management expected general macroeconomic conditions to continue affecting 2013 results. It gave no specific revenue or earnings guidance and cautioned that demand is difficult to forecast because long-term contracts are not significant.
- A non-recurring $19.0 million pre-tax litigation settlement charge reduced Q2 2012 net income by $11.4 million, or $0.08 per share.
- The company faces wage-and-hour litigation alleging staffing managers were misclassified as exempt. The court ordered arbitration; the company said the outcome and potential loss range could not be predicted and recorded no provision for this matter.
- Key risks include economic downturns and unemployment, intense competition and margin pressure, availability of qualified candidates and employees, international exposure and foreign exchange, client and workplace-related claims, regulation and health-care costs, cybersecurity or system interruption, and uncertain demand for compliance-related consulting. The filing also warns that changes to Sarbanes-Oxley requirements could reduce Protiviti demand.
- Goodwill was $201.3 million. The annual impairment test found no impairment; management said a hypothetical fair-value decline of at least 75% would have been required to produce impairment under its test assumptions. Future results could differ from those estimates.
- The auditor reported that the financial statements were fairly presented under U.S. GAAP and that internal control over financial reporting was effective as of December 31, 2012.
Important facts for investors to verify
- Whether U.S. staffing growth can continue and whether international operations, particularly in Europe, recover.
- Whether the improvement in operating margin and staffing gross margin is sustainable as demand, wages and competition change.
- Developments in the staffing-manager wage-and-hour litigation and any further legal settlements or related costs.
- Cash generation relative to ongoing buybacks, dividends, lease commitments and other obligations.
- Future Protiviti growth and exposure to changes in regulatory-compliance demand, foreign exchange and goodwill valuation assumptions.