Robert Half International Inc. — Q2 2018 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2018. Robert Half provides temporary and permanent staffing, and risk consulting and internal audit services, principally through its staffing brands and Protiviti. Results are unaudited and prepared under U.S. GAAP.
Key financial results
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Net service revenues | $1.457 billion; up 11.4% year over year | $2.852 billion; up 9.9% |
| Gross margin | $607.1 million; 41.7% of revenue | $1.179 billion; 41.4% of revenue |
| Operating income | $149.5 million; 10.3% of revenue | $283.9 million; 10.0% of revenue |
| Net income | $109.3 million | $205.5 million |
| Diluted EPS | $0.89 | $1.68 |
| Operating cash flow | Not presented for the quarter | $264.0 million |
Q2 diluted EPS was $0.64 in 2017; first-half diluted EPS was $1.26. The effective tax rate fell to 27.2% for Q2 and 27.8% for the first half, from 38.6% and 38.0%, respectively, primarily reflecting the U.S. federal corporate tax rate reduction. The company also recorded a $3 million charge in the first half related to the TCJA transition tax.
For the first half, operating cash flow of $264.0 million was offset by $37.1 million of investing outflows and $207.1 million of financing outflows. Capital expenditures were $17.3 million; share repurchases were $138.0 million and dividends paid were $69.0 million. Cash increased $13.9 million from year-end 2017 to $308.7 million at June 30, 2018.
At June 30, cash was $308.7 million and current assets were $1.504 billion versus current liabilities of $808.9 million. Notes payable and other indebtedness totaled approximately $750,000, with no material borrowings indicated. Stockholders’ equity was $1.109 billion.
Changes and segment performance
- Q2 revenue increased across all three reportable segments: temporary and consultant staffing revenue rose 9.0% to $1.088 billion; permanent placement staffing rose 19.9% to $135.0 million; and risk consulting and internal audit services rose 18.5% to $234.0 million.
- For the first half, reported segment revenue growth was 8.5% in temporary and consultant staffing, 18.6% in permanent placement staffing, and 12.2% in risk consulting and internal audit services. International operations accounted for 24% of total revenue, up from 21% a year earlier.
- Q2 consolidated operating margin improved to 10.3% from 10.0% a year earlier. Temporary staffing gross margin rate edged up to 37.5% from 37.4%; risk consulting gross margin rate rose to 27.3% from 26.7%, primarily on higher utilization.
- First-half net income increased 29% year over year, while diluted EPS increased 33%, benefiting from lower taxes and a reduced weighted-average share count. The company repurchased 2.2 million shares in the first half.
Outlook, risks and unusual items
- Management cited a growing global economy and said it was well positioned, but emphasized limited revenue visibility because client engagements are generally short-term and results depend on economic and labor-market conditions. No revenue or earnings guidance was provided.
- Management expected full-time staff headcount to be modestly higher in each reporting segment through Q3 2018. It expected 2018 capital expenditures of $40 million to $50 million, including continued investment in software and technology infrastructure.
- The company expected internally generated cash to support working-capital needs, fixed payments, dividends and other obligations in the short and long term. A quarterly dividend of $0.28 per share was announced July 31, payable September 14, 2018.
- Foreign currency movements increased first-half reported revenue by $51 million, or 2.0%, and net income by $3 million, or 1.8%, compared with the prior-year period. Management said currency effects on full-year net income would be immaterial if July 2018 exchange rates persisted.
- Three California employment-related putative class actions seek unspecified damages and penalties. The company said loss outcomes and ranges could not be reasonably estimated, recorded no amounts for these matters, and intends to defend them. Management did not expect other ordinary-course lawsuits to have a material adverse effect.
- The company expected adoption of the new lease accounting standard, effective for it after December 31, 2018, to have a material impact on its consolidated balance sheet. No goodwill impairment was identified at June 30.
Important facts for investors to verify
- Whether staffing and consulting demand, bill rates, hours worked, placements and consultant utilization continue to support growth, especially given permanent placement’s greater sensitivity to economic conditions.
- How much of reported international growth reflects underlying activity versus currency, billing-day and intercompany effects; management’s adjusted growth measures are non-GAAP.
- The sustainability of earnings growth as the lower tax rate and share repurchases affect EPS, and how staffing, compensation and overhead costs affect margins.
- The eventual balance-sheet impact of lease accounting and the outcomes or potential exposure from the California employment lawsuits; the filing provides no clear loss estimate.