Robert Half International Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. Robert Half provides specialized staffing and risk consulting services across North America and international markets. Comparisons are with Q1 2011 unless otherwise stated.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net service revenue | $1,015.4 million | $880.9 million | Up 15% |
| Gross margin | $402.1 million; 39.6% of revenue | $338.1 million; 38.4% | Up 19% |
| SG&A | $322.0 million; 31.7% of revenue | $293.7 million; 33.3% | Up 10% in dollars |
| Operating income | $80.1 million; 7.9% of revenue | $44.4 million; 5.0% | Up 80% |
| Net income | $48.3 million | $26.7 million | Up 81% |
| Diluted earnings per share | $0.34 | $0.18 | Up 89% |
| Operating cash flow | $23.2 million | $19.0 million | Up $4.3 million |
Income tax provision was 40% in both periods. Dividends declared were $0.15 per share versus $0.14. Foreign operations generated 28% of revenue, down from 31%.
Segments and material changes
- Temporary and consultant staffing: Revenue rose 16% to $829.7 million (17% constant currency); operating income increased to $69.2 million from $38.1 million. Gross margin rate improved to 35.6% from 34.4%, mainly on higher bill rates and conversion revenue.
- Permanent placement staffing: Revenue rose 23% to $82.9 million (24% constant currency); operating income increased to $13.3 million from $7.9 million. Demand is described as especially sensitive to economic and labor-market conditions.
- Risk consulting and internal audit: Revenue rose 4% to $102.9 million (5% constant currency), but segment operating loss widened to $2.4 million from $1.5 million. Gross margin rate fell to 23.1% from 25.2%, primarily due to lower utilization outside the U.S.
All segments grew revenue. SG&A grew more slowly than revenue, improving overall operating leverage and margins.
Cash, liquidity, and debt
- Cash and cash equivalents were $244.5 million at March 31, 2012, versus $279.3 million at December 31, 2011; cash decreased $34.9 million during the quarter.
- Current assets were $1,006.5 million and current liabilities $454.9 million; working capital was approximately $551.6 million.
- Total notes payable and other indebtedness were approximately $1.6 million. Management said internally generated cash should support working-capital needs, fixed payments, dividends, and other obligations in the short and long term.
- Investing activities used $11.9 million, including $10.4 million of capital expenditures. Financing activities used $48.9 million, including $56.4 million of share repurchases and $21.0 million of dividends, partly offset by option-exercise proceeds and tax benefits.
Outlook, risks, and contingencies
Management attributed improved Q1 results partly to improving global economic conditions, but expects results in 2012 to remain affected by macroeconomic conditions. The filing provides no specific revenue, earnings, or margin guidance; management cautions that demand is difficult to forecast because of economic uncertainty and limited long-term contracts.
Risks discussed include economic and labor-market changes, competition, candidate supply and retention, client demand, margin pressure, foreign-exchange movements, regulatory and health-care costs, technology disruptions, and litigation. Foreign-currency changes affect reported results and equity.
Three California class actions involving alleged employee misclassification, overtime, meal/rest periods, and wage statements resumed or had stays lifted; voluntary mediations were scheduled for June 18, 2012. The company says potential settlement amounts may be material, but loss outcomes and ranges were not estimable, and no amounts were accrued. In a separate staffing-manager overtime case, a court had granted the company’s motion to compel arbitration. The company says it intends to defend the claims.
The board announced a $0.15 quarterly dividend on May 2, payable June 15, 2012. The company had authorization to repurchase up to 5.1 million additional shares at March 31. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Investor verification priorities
- Track whether staffing and permanent-placement growth persists if economic or labor-market conditions weaken.
- Monitor Protiviti utilization and margins, particularly outside the U.S., and the effect of currency changes.
- Review developments and potential financial exposure in the California employment class actions; no loss estimate was recorded.
- Assess cash generation against the scale of share repurchases and dividends, and confirm liquidity remains adequate.
- Compare future reported results with management’s macroeconomic commentary; this filing gives no quantitative guidance.