Robert Half International Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This annual filing also reports unaudited fourth-quarter results. Robert Half provides specialized staffing and recruitment services and, through Protiviti, risk consulting and internal audit services.
Financial performance
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Net service revenue | $5.267 billion | $5.250 billion | +0.3% |
| Gross margin | $2.164 billion; 41.1% of revenue | $2.161 billion; 41.2% | +0.1% |
| Operating income | $517 million; 9.8% of revenue | $555 million; 10.6% | -6.7% |
| Net income | $291 million | $343 million | -15% |
| Diluted EPS | $2.33 | $2.67 | -13% |
| Cash from operations | $453 million | $442 million | +$11 million |
Net income included a $34 million non-cash tax charge ($0.27 per diluted share) related to the Tax Cuts and Jobs Act (TCJA). The effective tax rate rose to 43.9% from 38.0%. Capital expenditures were $41 million; operating cash flow less capital expenditures was approximately $412 million.
Business segments: Temporary and consultant staffing revenue was $4.011 billion (-0.4% reported; -0.3% on a same-billing-day, constant-currency basis). Permanent placement revenue was $439 million (+4.7% reported; +4.9% adjusted). Risk consulting and internal audit revenue was $817 million (+1.5% reported; +1.9% adjusted). International revenue increased 11% in temporary staffing, 14.1% in permanent placement, and 9.5% in risk consulting on a reported basis; international operations represented 22% of total revenue.
Liquidity, debt and capital returns
- Year-end cash and cash equivalents were $295 million; current assets were $1.432 billion and current liabilities $748 million.
- Notes payable and other indebtedness totaled approximately $0.8 million. The company also had an uncommitted letter-of-credit facility of up to $35 million, with $17.4 million used at year-end; it intended to renew the facility before its August 2018 expiration and reported compliance with its covenants.
- FY2017 financing cash outflows included $232 million of share repurchases and $121 million of dividends. Dividends declared were $0.96 per share, up from $0.88 in 2016.
- In February 2018, the board authorized repurchases of up to an additional 10 million shares and announced a quarterly dividend of $0.28 per share.
Fourth-quarter results and material changes
Q4 2017 revenue was $1.346 billion versus $1.265 billion in Q4 2016; gross margin was $553 million versus $519 million. Income before taxes increased to $129 million from $125 million, while net income fell to $47 million from $78 million and diluted EPS to $0.38 from $0.61, primarily reflecting the TCJA charge.
For the full year, revenue was nearly flat and gross margin dollars were essentially unchanged, but operating income and profitability margins declined. Temporary staffing gross margin rate fell to 37.2% from 37.5%, primarily due to higher workers’ compensation and other benefit costs. Risk consulting gross margin rate fell to 28.4% from 28.7%, mainly due to slightly lower utilization. SG&A increased 2.5% and rose to 31.3% of revenue from 30.6%.
Outlook, commentary and risks
- Management said improving global economic conditions supported results as 2017 progressed, and described the U.S. labor market as tightening, with talent shortages in some occupations. Protiviti reported continued growth in risk and compliance and internal audit and financial advisory, and expansion in data analytics and cybersecurity.
- Management expected full-time staff headcount in each reporting segment to be modestly higher through Q1 2018. It forecast 2018 capital expenditures of $45 million to $55 million and said internally generated cash should support operating needs, fixed payments, dividends and other obligations.
- Management cautioned that short client engagements and limited long-term contracts make future revenue difficult to forecast; demand depends on economic and labor-market conditions. Risks include candidate shortages, competition and margin pressure, international and currency exposure, regulation and healthcare costs, cybersecurity and data privacy, and potential changes in demand for compliance services.
- The TCJA accounting was provisional and subject to refinement as guidance emerged. The company cited Brexit and broader geopolitical and regulatory uncertainty as potential risks to international demand.
- Two California employee lawsuits allege wage-and-hour violations related to interview activities and wage statements. Outcomes and potential losses could not be estimated; no amounts were accrued. The company said it intends to defend the claims.
Investor verification points
- Separate underlying earnings trends from the one-time $34 million TCJA charge, and monitor final tax accounting and the effective tax rate after the 2018 rate reduction.
- Track U.S. temporary-staffing hours and revenue, bill-rate growth, and whether international growth can offset domestic softness.
- Monitor gross margin and SG&A ratios, especially workers’ compensation and benefit costs, staffing utilization, and digital-technology spending.
- Review cash conversion, share repurchases, dividends, and renewal of the uncommitted letter-of-credit facility.
- Follow the California litigation and potential costs of data-protection compliance, including the EU General Data Protection Regulation effective May 2018.