Robert Half International Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report; fourth-quarter figures are unaudited. The company provides specialized staffing and Protiviti risk consulting and internal audit services.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Service revenue | $5.109 billion | $6.074 billion | -15.9% |
| Gross margin | $2.013 billion (39.4% of revenue) | $2.525 billion (41.6%) | -20.3% |
| Income before taxes | $421.9 million (8.3% of revenue) | $625.5 million (10.3%) | -32.6% |
| Net income | $306.3 million | $454.4 million | -32.6% |
| Diluted EPS | $2.70 | $3.90 | -30.8% |
| Operating cash flow | $596.5 million | $519.6 million | +14.8% |
Segment revenue: temporary and consultant staffing was $3.477 billion, down 21.2%; permanent placement was $370.1 million, down 30.6%; and risk consulting and internal audit services was $1.262 billion, up 11.8%. Combined segment income, a non-GAAP measure, was $421.8 million versus $621.8 million.
Fourth quarter: Revenue was $1.304 billion versus $1.537 billion in Q4 2019; gross margin was $514.3 million versus $636.9 million; pretax income was $129.6 million versus $154.2 million; net income was $94.4 million versus $112.8 million; and diluted EPS was $0.84 versus $0.98.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $574.4 million at year-end, up from $270.5 million. Accounts receivable was $714.2 million. Current assets were $1.843 billion and current liabilities $1.047 billion.
- Operating cash flow of $596.5 million was supported by working-capital changes, including a $127.7 million cash source from accounts receivable. Investing activities provided $9.5 million; financing used $315.3 million, including $159.2 million of share repurchases and $155.9 million of dividends paid.
- Notes payable totaled $239,000 current and no long-term balance. The company had no borrowings on its $100 million unsecured revolving facility and reported covenant compliance. Operating lease liabilities totaled approximately $302.5 million.
- FY2020 declared dividends were $1.36 per share. In February 2021, the company announced a $0.38 quarterly dividend. Management said internally generated cash should meet working-capital, fixed-payment, dividend and other obligations.
Material changes and management commentary
- COVID-19-related closures, travel restrictions and economic disruption sharply reduced demand, particularly in staffing. Temporary staffing revenue fell primarily because of fewer hours worked, partly offset by a 6.4% increase in weighted-average bill rates; permanent placement declined mainly because of fewer placements.
- Protiviti revenue grew 11.8%, with strength in technology consulting and blended offerings. Its segment income increased to $155.7 million from $127.7 million; staffing segment income declined materially.
- The company reduced staffing headcount and increased Protiviti headcount year over year. It maintained operations with most employees working remotely and emphasized cost control and productivity.
- Capital expenditures were $67 million, including $33 million for cloud-computing implementation. Management expected 2021 capitalized expenditures of $85–$95 million, including $50–$60 million for software and technology infrastructure.
- The presentation of gains and losses on employee deferred-compensation trust investments changed. Those investment results are substantially offset by corresponding employee compensation obligations; the change did not affect previously reported pretax income, net income or cash flow.
Risks, contingencies and unusual items
- Management cited continuing uncertainty from COVID-19, including renewed outbreaks and restrictions, client demand and payment risk, candidate availability, remote-work and cybersecurity exposure, and potential effects on revenue, earnings and liquidity.
- Other key risks include economic sensitivity, short-duration and generally non-exclusive client arrangements, competition for clients and skilled workers, international and foreign-exchange exposure, regulation, privacy and cybersecurity, and the ability to retain personnel and keep pace with technology.
- Two California putative class actions allege wage-and-hour violations, including interview-time compensation and recruiter classification issues. Outcomes and potential loss ranges were not estimable; no amounts were provided in the financial statements. The company says it intends to defend the cases.
- The company deferred $102.2 million of payroll taxes under the CARES Act: $51.1 million was expected to be paid within 12 months and the remainder thereafter.
- A December 2020 Protiviti acquisition of Identropy added $12.2 million of goodwill. The company reported no goodwill impairment. Deferred-tax valuation allowances were $24.1 million.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. Income taxes were identified as a critical audit matter.
Important facts for investors to verify
- Whether staffing demand and hours worked recovered after year-end, and whether Protiviti growth continued.
- Whether lower staffing revenue and utilization pressures continue to weigh on gross and operating margins.
- Cash conversion and working-capital trends, including receivable collections, payroll-tax repayment timing and deferred-compensation trust movements.
- Execution and returns on planned 2021 technology and cloud-related spending, and sustainability of dividends and repurchases.
- Developments in the California lawsuits, cybersecurity and privacy exposure, and COVID-related business disruption.