Robert Half International Inc. — Q3 2015 Form 10-Q
Business context and period. The company provides specialized temporary and permanent staffing, risk consulting, and internal audit services in the U.S. and internationally. This unaudited report covers the quarter and nine months ended September 30, 2015; comparisons are with the corresponding 2014 periods.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net service revenue | $1.313 billion | $1.224 billion | $3.790 billion | $3.474 billion |
| Gross margin | $550 million; 41.9% | $505 million; 41.3% | $1.574 billion; 41.5% | $1.422 billion; 40.9% |
| Operating income | $159 million; 12.1% of revenue | $138 million; 11.3% | $436 million; 11.5% | $364 million; 10.5% |
| Net income | $97 million | $85 million | $264 million | $222 million |
| Diluted EPS | $0.73 | $0.63 | $1.98 | $1.63 |
| Cash from operations | Not stated for the quarter | $320 million | $258 million |
At September 30, cash and cash equivalents were $252 million, current assets $1.383 billion, and current liabilities $664 million (current ratio approximately 2.1). Total notes payable and other indebtedness were approximately $1.2 million. Stockholders’ equity was $1.006 billion. Nine-month capital expenditures were $48 million. Cash declined $35 million from year-end 2014, mainly reflecting share repurchases, dividends, investing outflows, and currency effects.
Material changes and segment trends
- Q3 revenue increased 7.2% reported; net income rose 13.6% and diluted EPS 15.9%. For the first nine months, revenue increased 9.1%, net income 19.1%, and diluted EPS 21.5%.
- All three segments grew in Q3. Reported revenue growth was 4.8% in temporary and consultant staffing, 8.2% in permanent placement, and 20.5% in risk consulting and internal audit. Risk consulting was the fastest-growing segment.
- Foreign exchange materially reduced reported growth: Q3 international staffing revenue fell on a reported basis but rose on a same-billing-day, constant-currency basis. For the first nine months, currency reduced reported revenue by $129 million and reported net income by $5 million, according to management.
- Consolidated gross and operating margins improved. Management attributed staffing margin gains to higher pay/bill spreads, conversion fees, and lower fringe costs; risk consulting benefited from staff mix, utilization/demand alignment, and higher bill rates. SG&A declined as a share of revenue, reflecting operating leverage.
- Nine-month share repurchases totaled $201 million and cash dividends paid were $80 million. The company repurchased 2.9 million shares in open-market transactions and had 1.8 million shares remaining under the existing authorization at quarter-end.
Outlook, risks, and unusual items
- Management cited improving economic and labor-market conditions, particularly in the U.S., and expected targeted headcount increases to continue through Q4, especially in technology staffing and permanent placement. It emphasized limited revenue visibility because client engagements are generally short-term; no specific revenue or earnings guidance was provided.
- Management forecast 2015 capital expenditures of $70 million to $80 million, including software and technology infrastructure investments.
- On October 29, 2015, the board authorized repurchases of up to an additional 10 million shares, on top of the approximately 1.8 million then remaining, and declared a $0.20 quarterly dividend payable December 15, 2015. Repurchases are discretionary.
- Key risks include economic and labor-market changes, competition and margin pressure, candidate availability and retention, reliance on short-term engagements, foreign exchange, regulation, technology disruption, and litigation. The filing describes staffing-manager and California employee wage-related claims; outcomes and potential losses were not estimable, and no amounts were accrued for these matters. Management said it intended to defend the claims.
- The annual goodwill impairment test found no impairment; management noted future impairment could arise if revenue or profitability assumptions are not achieved. The Q3 effective tax rate was 39.3%, up from 38.4%, primarily due to fewer foreign tax benefits.
Important facts for investors to verify
- Whether Q4 and subsequent demand supports planned staffing additions, particularly in technology, permanent placement, and Protiviti/risk consulting.
- How much reported growth and earnings remain affected by currency movements, and whether constant-currency trends translate into reported results.
- Whether margin gains persist as wages, fringe costs, utilization, and competitive pricing change.
- The pace and price of share repurchases under the expanded authorization, and the effects on cash and share count.
- Developments in the wage-related lawsuits, goodwill assumptions, and the adoption impact of pending accounting standards.