Robert Half International Inc. — FY2015 Form 10-K
Business context and reporting period: The filing covers the fiscal year ended December 31, 2015; it is an annual report, not a standalone fourth-quarter filing. Robert Half provides specialized temporary and permanent staffing and, through Protiviti, risk consulting and internal audit services. Its three reportable segments are temporary and consultant staffing, permanent placement staffing, and risk consulting and internal audit services.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Net service revenue | $5.095 billion | $4.695 billion | +8.5% |
| Gross margin | $2.114 billion (41.5% of revenue) | $1.923 billion (40.9%) | +10.0% |
| SG&A | $1.534 billion (30.1% of revenue) | $1.426 billion (30.4%) | +7.6% |
| Operating income | $581 million (11.4% of revenue) | $497 million (10.6%) | +16.8% |
| Net income | $358 million | $306 million | +17.0% |
| Diluted EPS | $2.69 | $2.26 | +19.0% |
| Cash from operations | $438 million | $341 million | +$98 million |
Segment revenue growth was broad-based: temporary and consultant staffing rose 6.9% reported (10.3% same billing days and constant currency); permanent placement rose 6.8% reported (11.7% on that adjusted basis); and Protiviti risk consulting rose 19.0% reported (21.8% adjusted). Protiviti was the fastest-growing segment. Domestic demand was stronger than international demand; foreign operations were 19% of revenue, down from 23% in 2014.
For the fourth quarter, revenue was $1.305 billion versus $1.221 billion in Q4 2014; net income was $93.4 million versus $84.1 million, and diluted EPS was $0.71 versus $0.62.
Cash, liquidity and capital
- Cash and cash equivalents were $225 million at year-end, down from $287 million. Operating cash flow was $438 million; capital expenditures were $75 million. Operating cash flow less capital expenditures was approximately $363 million.
- Current assets were $1.344 billion and current liabilities $656 million. Total debt and other indebtedness was approximately $1.2 million; the company also had $13.5 million of standby letters of credit outstanding under an uncommitted facility.
- Financing used $369 million, including $271 million of share repurchases and $108 million of dividends. The company repurchased 4.3 million shares in open-market transactions. The annual dividend rose to $0.80 per share from $0.72.
- Contractual obligations totaled $467 million, including $381 million of operating lease commitments and $74 million of purchase obligations. Management said internally generated cash should cover working capital, fixed payments, dividends and other obligations.
Changes, outlook and key considerations
- Improved economic and labor-market conditions, particularly in the U.S., supported results. Management cited 2.4% U.S. GDP growth, falling unemployment and tight supply in some professional occupations. It added headcount across business lines, especially in the second half of 2015.
- Management gave no formal revenue or earnings guidance and emphasized limited visibility because client engagements are short-term and long-term contracts are not significant. It expects 2016 capital expenditures of $90–$100 million, including technology investment and higher tenant-improvement spending.
- Currency movements reduced 2015 reported revenue by $162 million, or 3.5%, and net income by $6.6 million, or 2.2%, versus 2014. Management expected exchange rates at January 2016 levels to affect reported revenue unfavorably, largely offset by lower reported operating expenses.
- In November 2015, Protiviti acquired certain assets of Decision First Technologies; the acquisition used $14.7 million of cash, net of acquired cash, and added approximately $11 million of goodwill.
- Material risks include economic deterioration, talent availability and competition, international and foreign-exchange exposure, regulation and health-care costs, cybersecurity and systems disruption, and potential employment-related liabilities. Several wage-and-hour and Fair Credit Reporting Act matters remain unresolved. Loss ranges were not estimable and no amounts were accrued for the disclosed cases; in January 2016, a court denied the company’s motion to compel arbitration of most claims in the Gentry case.
- The company reported no goodwill impairment in 2015. The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
- After year-end, the company announced a quarterly dividend of $0.22 per share, payable March 15, 2016.
Important facts for investors to verify
- Whether staffing demand, bill rates, hours worked and Protiviti’s growth continued after year-end, particularly given the company’s limited forward visibility.
- Whether international revenue weakness on a reported basis and foreign-exchange effects persist.
- Progress on the disclosed employment-related litigation, potential exposure and any effects on compensation practices.
- Whether planned 2016 capital spending and higher headcount generate adequate returns while dividends and repurchases continue.
- The renewal and terms of the standby letter-of-credit facility, which was scheduled to expire August 31, 2016.