Robert Half International Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Robert Half provides contract and permanent-placement talent solutions; Protiviti provides consulting services. Results are unaudited and prepared under U.S. GAAP.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Service revenues | $1.716 billion | $1.815 billion | Down 5.4% |
| Gross margin | $689.7 million; 40.2% of revenue | $771.8 million; 42.5% | Down 10.6%; margin down 2.3 points |
| Income before income taxes | $168.9 million; 9.8% of revenue | $227.4 million; 12.5% | Down 25.7% |
| Net income | $122.0 million | $168.2 million | Down 27.5% |
| Diluted EPS | $1.14 | $1.52 | Down 25.0% |
| Operating cash flow | $65.5 million | $69.2 million | Down $3.6 million |
Reported SG&A increased 7.4% to $552.2 million, or 32.2% of revenue versus 28.3%. Management’s adjusted SG&A measure was $529.7 million, or 30.9% of revenue, compared with $540.3 million, or 29.8%, in Q1 2022. The effective tax rate rose to 27.8% from 26.0%, primarily due to lower tax credits and lower stock-compensation deductions.
Revenue by segment
| Segment | Q1 2023 revenue | Year-over-year change | Segment income |
|---|---|---|---|
| Contract talent solutions | $1.065 billion | Down 7.8% | $102.1 million, versus $133.2 million |
| Permanent placement talent solutions | $156.7 million | Down 16.1% | $23.8 million, versus $37.3 million |
| Protiviti | $494.1 million | Up 4.6% | $38.8 million, versus $57.1 million |
Contract revenue fell primarily because hours worked declined 18.1%, partly offset by an 11.0% increase in average bill rates. Permanent placements declined 18.5%, partly offset by average fees up 2.4%. Protiviti revenue growth reflected higher average bill rates and slightly higher billable hours. Protiviti recorded its 22nd consecutive quarter of year-over-year revenue growth.
Consolidated reported gross margin declined to 40.2% from 42.5%. Contract talent gross margin was 39.8% versus 40.0%, with lower conversion revenue cited as a factor. Protiviti’s reported gross margin was 22.2% versus 26.2%; its adjusted margin was 23.2% versus 25.3%, primarily reflecting lower staff utilization.
Cash, liquidity and capital
- Cash and cash equivalents were $547.7 million at March 31, 2023, down from $658.6 million at December 31, 2022. Net accounts receivable was $1.009 billion.
- Operating activities provided $65.5 million; investing activities used $62.8 million and financing activities used $117.0 million. Financing outflows included $63.2 million of share repurchases and $53.7 million of dividends paid.
- The company reported no borrowings under its $100 million unsecured revolving credit facility, which matures in May 2024, and was in compliance with its covenants. The filing reports no other borrowings; operating lease liabilities were $222.0 million in total.
- Management expects internally generated cash to support working capital, fixed payments, dividends and other obligations, while noting limited visibility because results depend on macroeconomic conditions.
- 2023 capital expenditures are forecast at $90 million to $110 million, including $50 million to $70 million for software initiatives and technology infrastructure. Q1 cash capital expenditures were $9.4 million; the filing also identifies $10 million of cloud-computing arrangement expenditures within operating cash flows.
Business outlook, risks and unusual items
Management said Q1 results were largely in line with expectations. Clients continued hiring but were more selective, adding steps that lengthened sales cycles. Management described tight labor markets and persistent talent shortages, and expressed optimism about the company’s position as conditions improve. The filing provides no specific revenue or earnings forecast.
Foreign exchange reduced reported Q1 revenue by $21 million, or 1.2%, and net income by approximately $1 million, or 0.6%, year over year. Management said currency effects on net income would likely be immaterial if then-current trends continued. The company cited macroeconomic and labor-market uncertainty, demand and competitive pressures, candidate availability, short-duration engagements, foreign exchange, regulatory and employment-related liabilities, cybersecurity and systems risks, and its ability to attract and retain staff and clients.
Investment income from employee deferred-compensation trusts was $27.3 million in Q1 2023, compared with a $30.0 million loss in Q1 2022. The related trust assets and employee obligations move correspondingly; the company states that this activity leaves no net cost to it, though it affects the presentation of reported expenses. Two California employment-related class or representative actions remain unresolved; management said losses or ranges of loss were not estimable and recorded no amounts for them. No material changes to previously disclosed risk factors or material developments in previously reported legal proceedings were noted.
The board declared a $0.48-per-share quarterly dividend on May 2, payable June 15, 2023 to shareholders of record May 25.
Important facts for investors to verify
- Whether hiring caution, longer sales cycles, and reduced contract hours and permanent placements persist, and how these trends affect margins.
- Protiviti utilization and margin trends, given revenue growth alongside lower segment income and gross margin.
- Cash generation relative to dividends, repurchases, planned capital expenditures, and lease commitments.
- The company’s assumptions behind its outlook and the effect of foreign exchange and macroeconomic conditions; the filing gives no specific revenue or EPS guidance.
- Developments in the California litigation and any change in the company’s ability to estimate potential losses.