Robert Half International Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Robert Half provides specialized staffing and Protiviti risk consulting and internal audit services. Results are unaudited.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Service revenues | $1,712.6 million | $1,189.9 million | $4,691.5 million | $3,804.9 million |
| Gross margin | $725.3 million; 42.4% | $467.3 million; 39.3% | $1,951.9 million; 41.6% | $1,498.3 million; 39.4% |
| Income before taxes | $227.7 million | $102.5 million | $581.6 million | $292.3 million |
| Net income | $170.9 million | $75.7 million | $430.7 million | $211.9 million |
| Diluted EPS | $1.53 | $0.67 | $3.85 | $1.87 |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $458.3 million | $564.6 million |
Q3 revenue rose 43.9% year over year and net income more than doubled. For the first nine months, revenue increased 23.3%, net income 103.3%, and diluted EPS 105.9%. Q3 income before taxes was 13.3% of revenue versus 8.6% a year earlier; the nine-month margin was 12.4% versus 7.7%.
Q3 segment revenue growth was broad-based: temporary and consultant staffing increased 35.0%, permanent placement staffing 79.4%, and risk consulting and internal audit 56.1%. Nine-month increases were 11.2%, 47.7%, and 50.9%, respectively. Management attributed growth primarily to higher hours worked or billable hours and, for permanent placement, more placements. Adjusted growth rates exclude billing-day and currency effects.
Cash, liquidity, and capital allocation
- Cash and cash equivalents were $633.7 million at September 30, 2021, versus $574.4 million at December 31, 2020. Accounts receivable was $1,005.6 million.
- Nine-month operating cash flow of $458.3 million was below $564.6 million in 2020, principally reflecting a $308.8 million use of cash from accounts receivable; the prior-year period had a $138.4 million source from receivables.
- Investing activities used $49.8 million and financing activities used $340.6 million in the first nine months. Financing included $212.1 million of share repurchases and $128.3 million of dividends paid.
- Notes payable were $62,000 at period-end. The $100 million revolving credit facility was extended to May 2024; there were no borrowings and the company was in compliance with its covenants.
- Operating lease liabilities totaled $268.6 million. Management said internally generated cash should cover working capital, fixed payments, dividends, and other obligations in the short and long term.
Material changes, outlook, and risks
- Management described Q3 as a record quarter for revenue and earnings, citing a broad-based global acceleration in demand, a robust U.S. labor market, and skilled-talent shortages. It also reported increased headcount across segments during 2021.
- Management expects 2021 capital expenditures of $60 million to $70 million, including $50 million to $60 million for software initiatives and technology infrastructure. The filing gives no specific revenue or earnings guidance and notes limited visibility because client engagements are generally short-term.
- Management cited COVID-19 uncertainty, macroeconomic and labor-market conditions, candidate supply, competition, client demand, margin pressure, foreign exchange, cybersecurity, regulation, and litigation among the risks to results. It stated there were no material changes to previously disclosed risk factors.
- Foreign operations generated 22.7% of nine-month revenue. Currency movements increased reported nine-month revenue by $63.6 million and net income by $3.6 million versus 2020; management said the potential full-year net-income effect at then-current rates would be immaterial.
- Two California putative class actions involving alleged interview-related unpaid compensation and alleged recruiter misclassification remain unresolved. The company said loss outcomes or ranges were not estimable, recorded no amounts, and intends to defend the matters. No material developments in previously disclosed legal proceedings were reported.
- Deferred compensation trust investment gains and losses are offset by changes in plan obligations and have no net cost to the company. The nine-month income from those investments was $38.0 million; investors should distinguish this presentation effect from operating trends.
Important facts for investors to verify
- Whether staffing and Protiviti revenue growth and improved margins persist as labor-market conditions, client demand, and talent availability change.
- Whether receivables growth and collection timing affect operating cash flow; nine-month operating cash flow declined despite higher earnings.
- The company’s continuing repurchases and dividends relative to cash generation, including remaining authorization to repurchase approximately 7.7 million shares at September 30.
- Developments in the California litigation and the potential exposure, which the filing says cannot currently be estimated.
- Actual 2021 capital spending and the effect of technology investments, foreign exchange, and COVID-19-related uncertainty on subsequent results.