RHI

Business Context and Reporting Period

Company: Robert Half International Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: The Company provides specialized staffing and risk consulting services through divisions including Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Legal, The Creative Group, and Protiviti. Operations span North America, South America, Europe, Asia, and Australia.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 10% year-over-year to $737.2 million, driven by weak global economic conditions. On a constant-currency basis, the decline was 12%.
• Segment Performance:
  • Temporary and Consultant Staffing: Revenues fell 11% ($598.7M vs. $672.6M). Operating income dropped 57% to $16.9M due to higher unemployment tax rates and compressed pay/bill spreads.
  • Permanent Placement: Revenues declined 3% ($48.6M vs. $49.9M). The segment returned to profitability with $3.1M operating income, compared to a $4.2M loss in Q1 2009.
  • Risk Consulting (Protiviti): Revenues decreased 11% ($89.8M vs. $100.8M). However, operating loss improved significantly to $7.6M from $18.9M, aided by lower staff reduction charges and reduced headcount.
• Cash Flow: Net cash provided by operating activities decreased 70% to $14.5 million, primarily due to an increase in accounts receivable and a decrease in accrued liabilities compared to the prior year.
• Dividends: Cash dividends declared per share increased to $0.13 from $0.12 in the prior year.

Outlook, Risks, and Contingencies

• Management Commentary: Management expects total results to continue being impacted by general macroeconomic conditions in 2010. Demand for services remains sensitive to labor market conditions and unemployment rates (9.7% in March 2010 vs. 8.6% in March 2009).
• Legal Proceedings: The Company is a defendant in multiple class-action lawsuits alleging wage and hour violations (misclassification of employees as exempt). Notable cases include the Laffitte matter (stayed pending California Supreme Court rulings) and a new suit filed in April 2010 in New Jersey. The Company states it is not feasible to predict the outcome or range of loss for these proceedings.
• Goodwill Impairment: The Company performed its annual goodwill impairment test in Q2 2009 with no adjustment required. Management assumes the economic downturn will continue through 2010. A hypothetical 30% decrease in fair value would be required before impairment is triggered.
• Health Care Reform: The passage of the Health Care and Education Reconciliation Act of 2010 may increase costs for temporary staffing operations, potentially affecting profit margins or demand.

Investor Verification Checklist

• Accounts Receivable Quality: Verify the adequacy of the allowance for doubtful accounts (5.3% of gross receivables) given the economic downturn and increased receivable balances.
• Legal Exposure: Monitor the status of the Laffitte and Tran class-action lawsuits and the impact of pending California Supreme Court rulings on potential liability.
• Segment Margins: Track the compression in pay/bill spreads within the Temporary and Consultant segment and the sustainability of margin improvements in the Risk Consulting segment.
• Cash Burn vs. Generation: Assess the sustainability of the dividend ($0.13/share) and capital expenditures given the significant drop in operating cash flow ($14.5M vs. $48.1M prior year).
• Foreign Currency Impact: Evaluate the sensitivity of future earnings to exchange rate fluctuations, as 29% of revenue is generated outside the U.S.