Robert Half International Inc. — FY 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013; quarterly data are unaudited. Robert Half provides specialized temporary and permanent staffing and, through Protiviti, risk consulting and internal audit services. Operations span the U.S. and 18 other countries, with 345 staffing offices and 59 Protiviti offices at year-end.
Financial performance and position
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Net service revenue | $4,245.9 million | $4,111.2 million | +3.3% |
| Gross margin | $1,723.1 million; 40.6% of revenue | $1,649.1 million; 40.1% | +4.5% |
| Operating income | $398.3 million; 9.4% of revenue | $343.4 million; 8.4% | +16.0% |
| Net income | $252.2 million | $209.9 million | +20.1% |
| Diluted EPS | $1.83 | $1.50 | +22.0% |
| Operating cash flow | $309.2 million | $289.2 million | +$20.0 million |
- Fourth-quarter revenue was $1,083.9 million, compared with $1,034.2 million a year earlier. Q4 net income was $66.9 million and diluted EPS was $0.49, versus $58.6 million and $0.42.
- FY 2013 segment revenue: temporary and consultant staffing $3,369.8 million (+1.4%); permanent placement $347.7 million (+4.0%); risk consulting and internal audit $528.3 million (+16.7%). Segment operating income was $301.2 million, $54.4 million and $42.7 million, respectively.
- Cash and cash equivalents were $275.8 million at year-end, down from $287.6 million. Current assets were $1,172.5 million and current liabilities $535.9 million. Notes payable and other indebtedness totaled approximately $1.4 million.
- Investing cash use was $97.8 million, including $53.7 million of capital expenditures and $44.1 million deposited into employee-benefit and retirement trusts. Financing cash use was $220.3 million, including $168.0 million of share repurchases and $89.2 million of dividends. Cash flow from operations less capital expenditures was approximately $255.5 million.
Material changes versus prior period
- Revenue growth reflected improvement in global economic conditions, but performance was stronger in the U.S.; foreign revenue fell to 24% of total revenue from 26% in 2012. Temporary staffing international revenue declined 6.7% reported (6.5% on a same-billing-day, constant-currency basis); international permanent placement revenue declined 7.5% reported.
- Protiviti’s revenue and operating income rose substantially. Management attributed the improvement in its gross margin rate, up to 29.3% from 25.9%, primarily to higher staff utilization.
- SG&A increased 1.5% in dollars but declined to 31.2% of revenue from 31.8%. The 2012 comparison included a non-recurring $19.0 million pre-tax litigation-settlement charge.
- The effective tax rate declined to 36.6% from 39.0%, primarily due to foreign restructuring, improved foreign results and increased federal tax credits.
Outlook, risks and unusual items
- Management expected 2014 results to remain affected by macroeconomic conditions, and cautioned that demand cannot be forecast with certainty: long-term contracts are not significant and staffing backlogs are not material.
- Management said internally generated cash should cover working-capital needs, fixed payments, dividends and other obligations. The company announced a quarterly dividend of $0.18 per share in February 2014, up from $0.16 per quarter paid during 2013.
- Key risks include economic and labor-market weakness, intense competition, candidate availability and retention, foreign-market weakness and currency movements, workplace and regulatory obligations, and possible added costs from U.S. health-care reform.
- The company faces wage-and-hour litigation alleging staffing managers were misclassified as exempt. The outcome and potential loss could not be estimated, so no amount was accrued; the company stated it would defend the claims. Other ordinary-course lawsuits were also disclosed.
- Contractual obligations totaled $464.0 million, including $381.7 million of operating leases. An uncommitted letter-of-credit facility of up to $35.0 million, with $18.6 million used at year-end, expires August 31, 2014; the company intended to renew it.
- No goodwill impairment was recorded. Management noted that future impairment could result if forecast revenue or profitability assumptions are not achieved. The auditor opined that the financial statements were fairly presented and internal control over financial reporting was effective.
Important facts for investors to verify
- Whether U.S. staffing growth can offset continued weakness in international markets, particularly Europe.
- Whether Protiviti can sustain its revenue growth and utilization-driven margin improvement.
- The status and potential financial exposure of wage-and-hour litigation and other contingencies.
- Cash deployment, including ongoing repurchases and dividends, and the renewal of the letter-of-credit facility before its August 2014 expiry.
- The assumptions behind receivables allowances, workers’ compensation reserves, deferred tax assets and goodwill impairment testing.