Robert Half International Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Robert Half provides specialized staffing and Protiviti risk consulting and internal audit services. Management described the quarter as an early-stage recovery from the COVID-19 economic downturn, with staffing growth accelerating during the quarter.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Service revenue | $1,398.4 million | $1,506.7 million | Down 7.2% |
| Gross margin | $561.7 million; 40.2% of revenue | $614.4 million; 40.8% | Down 8.6% |
| Income before taxes | $150.1 million; 10.7% of revenue | $131.8 million; 8.7% | Up 13.9% |
| Net income | $110.6 million | $89.9 million | Up 23.0% |
| Diluted EPS | $0.98 | $0.79 | Up 24.1% |
| Operating cash flow | $68.1 million | $124.9 million | Down $56.9 million |
Temporary and consultant staffing revenue was $889.3 million, down 18.6% reported (18.9% as adjusted); permanent placement was $111.7 million, down 7.3% reported (8.1% as adjusted). Protiviti risk consulting revenue was $397.4 million, up 35.1% reported (34.7% as adjusted). Protiviti’s reported gross margin rate was 26.5%, versus 27.6%; adjusted, it rose to 26.9% from 26.3%, primarily on higher utilization. Temporary staffing gross margin rate improved to 38.8% from 37.8%.
Combined segment income, a non-GAAP measure, was $150.6 million (10.8% of revenue), versus $131.1 million (8.7%). GAAP SG&A fell 4.5% to $423.1 million, but increased to 30.3% of revenue from 29.4%. The effective tax rate was 26.3%, compared with 31.8%; the prior-year rate was elevated, according to management, by lower pandemic-affected revenue and the resulting lower coverage of nondeductible tax items. Deferred-compensation investment gains of $12.0 million, compared with a $40.4 million loss in Q1 2020, were offset by corresponding changes in employee-plan costs and did not affect pretax income.
Financial position and liquidity
At March 31, 2021, cash and cash equivalents were $497.9 million, accounts receivable net was $799.7 million, and current assets and current liabilities were $1,873.9 million and $1,076.6 million, respectively. Total liabilities were $1,367.5 million. Notes payable were only $0.2 million; the company reported no borrowings on its $100 million revolving facility and was in compliance with its covenants. Operating lease liabilities totaled $287.4 million.
Cash declined $76.5 million during the quarter. Operating activities generated $68.1 million, while investing activities used $15.4 million and financing activities used $123.8 million, including $79.5 million for share repurchases and $44.3 million for dividends. Operating cash flow was lower year over year, with the company citing a larger working-capital cash use, including a $95.0 million increase in accounts receivable.
Outlook, risks and notable items
- Management expressed optimism about momentum and prospects for the balance of 2021, but provided no revenue or earnings forecast. It noted limited visibility due to macroeconomic uncertainty and short-duration client engagements.
- Management expects 2021 capital expenditures of $85 million to $95 million, including $45 million to $55 million for software and technology infrastructure.
- Management cited robust U.S. labor demand and skilled-talent shortages, and said staffing operations performed well sequentially; permanent placement grew 22% sequentially. Headcount was relatively flat versus year-end.
- COVID-19 effects, economic and labor-market trends, candidate availability, competition, margins, foreign exchange, cybersecurity, regulation and litigation remain among the disclosed risks. Foreign operations generated 23% of revenue; currency movements increased reported Q1 revenue by $22.6 million and net income by $0.8 million versus Q1 2020.
- Two California putative class actions involving alleged unpaid interview time and recruiter classification/wage practices remain unresolved. The company said outcomes and potential loss ranges could not be estimated and recorded no amounts for these matters; it intends to defend them.
- The company declared a $0.38-per-share dividend on April 29, payable June 15, 2021, to shareholders of record May 25.
Important facts for investors to verify
- Whether staffing revenue declines continue to ease, and whether Protiviti’s rapid growth and utilization levels are sustained.
- How much of earnings improvement reflects operating performance versus the lower prior-year comparison and changes in deferred-compensation investment markets.
- Whether receivables and working-capital movements normalize and operating cash flow supports planned investment, dividends and repurchases.
- Updates on COVID-19 and labor-market conditions, capital spending, foreign-exchange effects, and the unresolved California litigation.