Robert Half International Inc. — Q2 2015 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2015. Robert Half provides specialized temporary and permanent staffing, risk consulting, and internal audit services; staffing services generate most revenue. All financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net service revenue | $1,272.1 million | $1,164.9 million | $2,477.6 million | $2,249.3 million |
| Gross margin | $530.5 million; 41.7% | $478.4 million; 41.0% | $1,024.6 million; 41.4% | $916.9 million; 40.8% |
| Operating income | $149.1 million; 11.7% | $123.7 million; 10.6% | $277.2 million; 11.2% | $225.8 million; 10.0% |
| Net income | $89.7 million | $75.1 million | $167.6 million | $136.7 million |
| Diluted EPS | $0.67 | $0.55 | $1.25 | $1.01 |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $226.4 million | $164.1 million |
- Q2 revenue rose 9.2% and net income 19.4% year over year; six-month revenue rose 10.2% and net income 22.6%.
- At June 30, cash and cash equivalents were $313.1 million, current assets $1,397.4 million, and current liabilities $663.8 million (current ratio approximately 2.1). Total debt and other indebtedness was approximately $1.2 million, including current and long-term portions.
- Six-month investing cash outflow was $42.5 million, including $29.5 million of capital expenditures and $13.0 million deposited to employee deferred-compensation trusts. Financing cash outflow was $152.2 million, including $104.2 million of share repurchases and $53.9 million of dividends. Cash increased $26.0 million during the period.
- Cash dividends declared were $0.20 per share in Q2 and $0.40 per share for the first half. A further $0.20 quarterly dividend was declared July 30, payable September 15, 2015.
Material changes and segment trends
- All three segments grew in Q2. Temporary and consultant staffing revenue was $979.6 million, permanent placement $110.6 million, and risk consulting and internal audit $181.9 million.
- Q2 reported segment revenue growth was 7.5% for temporary and consultant staffing, 7.5% for permanent placement, and 20.4% for risk consulting. On a same-billing-day, constant-currency basis, growth was 11.3%, 13.0%, and 23.4%, respectively.
- U.S. demand was strongest. International revenue declined as reported in staffing, but grew on a constant-currency basis; currency translation reduced first-half reported revenue by $85 million, or 3.8%.
- Management attributed improved staffing gross margin to lower fringe costs, higher pay/bill spreads and conversion fees; risk consulting margin improved with better staff mix, utilization alignment and higher bill rates. Lower SG&A as a percentage of revenue reflected operating leverage.
Outlook, risks and unusual items
- Management expects broad-based headcount increases to continue through the second half of 2015, based on current trends, while noting limited revenue visibility because client engagements are short term and demand depends on economic and labor-market conditions.
- 2015 capital expenditures were forecast at $70 million to $80 million; approximately 70% of first-half spending related to software initiatives and technology infrastructure. Management expects internally generated cash to fund working capital, fixed payments, dividends and other obligations.
- Management cited improving U.S. conditions and more modest improvement in non-U.S. markets. A stronger U.S. dollar pressured reported revenue; management expected the currency effect on full-year net income to be likely immaterial if July 2015 rates persisted.
- Key stated risks include economic and hiring-market changes, candidate availability, competition and margin pressure, short-duration contracts, staffing-related liability and regulation, retention of employees and clients, international operations, foreign-exchange movements, technology outages, and litigation. The filing reported no material change to previously disclosed risk factors.
- Three employment-related matters remained unresolved: a U.S. staffing-manager overtime classification case, California claims regarding compensation for interview-related activities, and a similar putative class action. Outcomes and potential losses were not estimable, and no amounts were accrued. A separate California Recruiting Manager matter was settled in May 2015 for an amount management described as immaterial and dismissed.
- The annual goodwill impairment review found no impairment. The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether growth and margin improvements continue across all segments, particularly the strong risk consulting growth and improved staffing spreads.
- The effect of foreign exchange on reported results and whether international demand improves beyond constant-currency comparisons.
- Progress and returns from the $70–$80 million 2015 capital-expenditure program, including software and technology projects.
- Cash generation relative to dividends and ongoing share repurchases, and the remaining repurchase authorization of approximately 3.4 million shares at June 30.
- Developments in the employment-related litigation, for which potential loss ranges were not estimable.