Robert Half International Inc. — Q3 2010 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2010. The company provides specialized staffing and risk consulting services. Financial figures below are in millions except per-share data.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Net service revenues | $817.3 | $725.9 | $2,323.5 | $2,299.1 |
| Gross margin | $309.1; 37.8% of revenue | $266.4; 36.7% | $867.1; 37.3% | $825.2; 35.9% |
| Operating income | $37.2; 4.5% of revenue | $17.5; 2.4% | $72.0; 3.1% | $44.3; 1.9% |
| Net income | $20.6 | $9.5 | $41.3 | $23.7 |
| Diluted EPS | $0.14 | $0.06 | $0.27 | $0.15 |
- Q3 revenue grew 13%, and net income more than doubled. Nine-month revenue increased about 1%, while net income rose about 74%.
- Q3 SG&A was $272.0 million, or 33.3% of revenue, versus $248.9 million, or 34.3%, a year earlier. The nine-month ratio was 34.2%, versus 34.0%.
- Nine-month operating cash flow was $101.5 million, down from $192.3 million. Capital expenditures were $22.0 million; investing cash outflow was $22.7 million. Financing cash outflow was $133.9 million, including $83.2 million of share repurchases and $57.6 million of dividends.
- Cash was $311.1 million at September 30, versus $365.8 million at December 31, 2009. Total debt was approximately $1.8 million. Current assets were $970.7 million and current liabilities $404.7 million.
Segments and changes versus prior year
- Temporary and consultant staffing: Q3 revenue rose 13% to $661.2 million; nine-month revenue was essentially flat at $1,879.7 million. Q3 segment operating income increased to $32.0 million from $17.3 million; nine-month operating income declined to $72.5 million from $82.3 million.
- Permanent placement: Q3 revenue rose 33% to $57.2 million; nine-month revenue increased 19% to $161.9 million. The segment returned to operating profit: $5.1 million in Q3 and $13.7 million for nine months, compared with losses in both 2009 periods.
- Risk consulting and internal audit: Q3 revenue increased 2% to $98.9 million, but operating income slipped to $0.1 million from $1.1 million. Nine-month revenue fell 2% to $281.9 million; the operating loss narrowed to $14.3 million from $31.1 million.
Liquidity, outlook, risks and unusual items
- Management expected internally generated cash to cover working capital, fixed payments, dividends and other obligations in the short and long term, while warning that renewed volatility in global capital and credit markets could adversely affect operations and liquidity.
- Management expected general macroeconomic conditions to continue affecting 2010 results and said demand could not be forecast reliably given economic uncertainty and the lack of significant long-term contracts. No numerical earnings or revenue guidance is provided.
- Management attributed staffing demand improvement to clients keeping labor costs variable and selectively rebuilding workforces. Risk consulting revenue remained pressured by weak conditions and lower compliance-related work, including Sarbanes-Oxley projects.
- Key risks include economic and labor-market conditions, competition, candidate supply and retention, client demand and margins, foreign exchange, regulatory and health-care reform costs, system disruptions, and wage-and-hour litigation. Several employee classification and wage-and-hour cases seek unspecified damages; the company said outcomes and potential losses could not be estimated and recorded no provision for the described cases.
- Goodwill was $189.3 million; the June 2010 annual impairment test found no impairment. Management noted that inaccurate recovery, revenue or profitability assumptions could lead to future impairment.
- After quarter-end, the board declared a $0.13-per-share dividend payable December 15, 2010, and authorized repurchases of up to 10 million additional shares, on top of 2.1 million shares remaining under the prior authorization.
- Disclosure controls were concluded effective, with no material change in internal control over financial reporting reported during the quarter.
Investor verification points
- Check whether the Q3 improvement in revenue and margins continued, particularly in temporary staffing and permanent placement.
- Track operating cash flow and accounts receivable: receivables increased to $427.8 million from $362.4 million at year-end, and nine-month operating cash flow declined materially.
- Assess Protiviti/risk consulting recovery and demand for compliance-related work, as well as the segment’s continuing nine-month operating loss.
- Review subsequent share repurchases and dividend commitments against cash generation, and monitor the identified wage-and-hour litigation and goodwill assumptions.