Robert Half International Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Robert Half provides specialized staffing and Protiviti risk consulting and internal audit services. Results were significantly affected by COVID-19-related economic disruption.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Service revenue | $1.190B | $1.552B | $3.805B | $4.537B |
| Gross margin dollars | $467M | $646M | $1.498B | $1.888B |
| Income before taxes | $103M | $164M | $292M | $471M |
| Net income | $76M | $117M | $212M | $342M |
| Diluted EPS | $0.67 | $1.01 | $1.87 | $2.92 |
| Operating cash flow | — | $565M | $439M |
- Q3 revenue fell 23.3% year over year; nine-month revenue fell 16.1%. Nine-month net income declined 38.0% and diluted EPS declined 36.0%.
- Gross margin was 39.3% of revenue in Q3, versus 41.6% a year earlier; nine-month gross margin was 39.4%, versus 41.6%. Income before taxes was 8.6% of Q3 revenue and 7.7% of nine-month revenue, compared with 10.6% and 10.4%, respectively, in 2019.
- By segment, Q3 revenue declined 30.1% in temporary and consultant staffing and 35.2% in permanent placement, while risk consulting and internal audit revenue increased 7.4%. For the first nine months, the respective changes were -20.5%, -31.5%, and +9.1%.
- At September 30, cash was $587M, up from $270M at December 31, 2019; accounts receivable was $690M. Current assets were $1.854B and current liabilities $1.053B. Notes payable totaled approximately $0.3M; operating lease liabilities totaled $299.7M.
- Nine-month cash flow: $565M provided by operations, $43M used in investing, and $208M used in financing. Financing included $91M of share repurchases and $117M of dividends paid. Cash increased $317M.
Changes, outlook and notable items
- Staffing declines reflected fewer hours worked and fewer permanent placements amid pandemic-related closures and economic disruption. Management reduced headcount and continued cost controls. Protiviti reported broad-based demand and growth, particularly in U.S. risk, compliance and technology consulting.
- Management said the U.S. economy showed signs of modest recovery and approached Q4 with optimism, while noting limited revenue visibility due to macroeconomic uncertainty and short client engagements. No specific revenue or earnings guidance was provided.
- Management expected 2020 capital expenditures of $65M–$75M, including $40M–$50M for software and technology infrastructure. It said internally generated cash should cover working capital, fixed payments, dividends and other obligations.
- A $100M unsecured 364-day revolving credit facility was established in May; there were no borrowings and the company was covenant-compliant at quarter-end. A $0.34-per-share quarterly dividend was announced for payment in December. On October 29, the company authorized repurchases of up to an additional 10M shares, beyond approximately 1M then remaining under the existing authorization.
- Employee deferred-compensation trust investment income was $26M in Q3 versus $1M in Q3 2019, and $35M for each nine-month period. These gains are offset by related compensation costs, with no net cost to the company; the filing separately presents the investment income in the income statement.
- COVID-19 duration and economic effects remain major uncertainties and may meaningfully affect future estimates and results. Other disclosed risks include labor-market and client demand changes, competition, foreign exchange, cybersecurity and regulatory exposure. Two California putative class actions have unspecified potential losses; the company says outcomes and loss ranges are not estimable and intends to defend them. No related amounts were accrued.
Investor verification points
- Track the pace of recovery in staffing hours, permanent placements, and Protiviti demand, including segment margins and utilization.
- Assess whether cost reductions and cash generation remain sustainable if revenue weakness continues; review working-capital movements and receivables quality.
- Monitor the COVID-19 outlook, the California litigation, and compliance with credit-facility covenants.
- Confirm actual capital spending, dividend payments, and any share repurchases under the expanded authorization.