Robert Half(RHI) - 2021 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2021, showing total assets grew to $2.74 billion and net income surged to $259.8 million Condensed Consolidated Statements of Financial Position (Balance Sheet) | Account | June 30, 2021 ($ thousands) | December 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Total current assets | 2,053,229 | 1,842,738 | | Total assets | 2,741,368 | 2,557,424 | | Total current liabilities | 1,196,312 | 1,046,626 | | Total liabilities | 1,482,118 | 1,352,135 | | Total stockholders' equity | 1,259,250 | 1,205,289 | Condensed Consolidated Statements of Operations (Income Statement) | Metric | Three Months Ended June 30, 2021 ($ thousands) | Three Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Service revenues | 1,580,581 | 1,108,326 | 2,978,961 | 2,615,017 | | Gross margin | 664,872 | 416,535 | 1,226,583 | 1,030,923 | | Income before income taxes | 203,862 | 58,024 | 353,968 | 189,787 | | Net income | 149,213 | 46,196 | 259,811 | 136,111 | | Diluted EPS | $1.33 | $0.41 | $2.32 | $1.20 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2021 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 233,472 | 425,942 | | Net cash used in investing activities | (31,113) | (43,015) | | Net cash used in financing activities | (231,910) | (149,000) | | Change in cash and cash equivalents | (31,621) | 231,007 | Note A: Summary of Significant Accounting Policies The company provides specialized staffing and risk consulting services, preparing financial statements under U.S. GAAP, while monitoring COVID-19's impact on estimates - The company's primary operations involve specialized staffing in fields such as finance, accounting, technology, and legal, alongside global risk consulting services provided by its subsidiary, Protiviti[22] - The company continues to monitor the global economic uncertainty resulting from COVID-19, which affects the judgments and estimates required for financial reporting[25] Note C: Revenue Recognition This note details revenue recognition policies for temporary staffing, permanent placement, and risk consulting segments, with revenue recognized as services are rendered or when offers are accepted Service Revenues by Line of Business ($ thousands) | Line of Business | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Temporary and consultant staffing | 978,281 | 1,867,557 | | Permanent placement staffing | 143,640 | 255,344 | | Risk consulting and internal audit services | 458,660 | 856,060 | | Total Service Revenues | 1,580,581 | 2,978,961 | - As of June 30, 2021, the company had an aggregate transaction price of $173.5 million allocated to unsatisfied performance obligations for contracts with an expected duration greater than one year, with $162.9 million expected to be recognized within the next twelve months[57] Note J: Commitments and Contingencies The company is involved in two class-action lawsuits in California and extended its $100 million unsecured revolving credit facility to May 2024 with no outstanding borrowings - The company is defending against two class-action lawsuits in California related to employee compensation for interview time and misclassification of salaried recruiters, with the outcome and potential financial impact currently not predictable[75][76] - The company extended its $100 million unsecured revolving credit facility to May 2024, and as of June 30, 2021, was in compliance with all financial covenants and had no outstanding borrowings under the facility[82] Note K: Stockholders' Equity This note details the company's stock repurchase program, with 8.4 million shares authorized for repurchase and 1.765 million shares repurchased for $143.6 million in H1 2021 Common Stock Repurchases (Six Months Ended June 30) | Repurchase Type | 2021 Shares (thousands) | 2021 Cost ($ thousands) | 2020 Shares (thousands) | 2020 Cost ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Open Market | 1,514 | 124,210 | 983 | 51,477 | | Employee Stock Plans | 251 | 19,345 | 280 | 12,031 | Note M: Business Segments The company operates through three reportable segments, all showing significant year-over-year growth in revenue and income for Q2 2021, with performance evaluated based on segment income Segment Performance ($ thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Service Revenues | | | | | | Temporary & consultant staffing | 978,281 | 753,386 | 1,867,557 | 1,845,506 | | Permanent placement staffing | 143,640 | 71,030 | 255,344 | 191,519 | | Risk consulting & internal audit | 458,660 | 283,910 | 856,060 | 577,992 | | Segment Income | | | | | | Temporary & consultant staffing | 94,010 | 28,390 | 169,688 | 122,154 | | Permanent placement staffing | 30,599 | (248) | 48,234 | 10,663 | | Risk consulting & internal audit | 79,980 | 30,107 | 137,303 | 56,576 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's record-breaking Q2 and H1 2021 financial performance, driven by global demand acceleration, covering segment results, liquidity, and capital resources Executive Overview The company achieved record service revenues and earnings in Q2 2021 due to global demand acceleration, with H1 revenues growing 14% and net income increasing 91% - The company experienced a faster pace of recovery than in prior economic cycles, driven by lean client staffing, higher attrition, and increased demand for skilled and remote professionals[98] - The economic backdrop was favorable, with U.S. real GDP increasing 6.5% and the unemployment rate falling to 5.9% at the end of Q2 2021, creating a competitive market for skilled talent[99] Results of Operations - Three Months Ended June 30, 2021 Total revenues increased 42.6% year-over-year to $1.58 billion in Q2 2021, with strong growth across all segments driving significant gross margin expansion and a 252% increase in income before taxes As Adjusted Revenue Growth vs. Prior Year (Q2 2021) | Segment | Global | United States | International | | :--- | :--- | :--- | :--- | | Temporary and consultant staffing | 27.2% | 27.7% | 25.1% | | Permanent placement staffing | 96.9% | 109.6% | 70.5% | | Risk consulting and internal audit | 58.8% | 62.8% | 43.5% | - Gross margin for temporary and consultant staffing increased to 39.7% from 37.1% YoY, primarily due to higher pay-bill spreads[120] - Adjusted selling, general and administrative (SG&A) expenses as a percentage of revenue decreased from 32.9% to 29.4% YoY, demonstrating positive operating leverage from increased revenues[124][129] Segment Income vs. Prior Year (Q2) | Segment | 2021 Income ($M) | 2021 Margin | 2020 Income ($M) | 2020 Margin | | :--- | :--- | :--- | :--- | :--- | | Temporary & consultant staffing | 94.0 | 9.6% | 28.4 | 3.8% | | Permanent placement staffing | 30.6 | 21.3% | (0.2) | (0.3)% | | Risk consulting & internal audit | 80.0 | 17.4% | 30.1 | 10.6% | Results of Operations - Six Months Ended June 30, 2021 Total revenues grew 13.9% to $2.98 billion in H1 2021, with permanent placement and risk consulting showing strong growth, leading to a nearly doubled income before taxes As Adjusted Revenue Growth vs. Prior Year (H1 2021) | Segment | Global | United States | International | | :--- | :--- | :--- | :--- | | Temporary and consultant staffing | 0.0% | -0.1% | 0.3% | | Permanent placement staffing | 30.9% | 32.0% | 28.3% | | Risk consulting and internal audit | 46.6% | 49.7% | 34.8% | - Gross margin for temporary and consultant staffing for the six-month period increased to 39.2% from 37.5% YoY, driven by higher pay-bill spreads[142] Segment Income vs. Prior Year (H1) | Segment | 2021 Income ($M) | 2021 Margin | 2020 Income ($M) | 2020 Margin | | :--- | :--- | :--- | :--- | :--- | | Temporary & consultant staffing | 170 | 9.1% | 122 | 6.6% | | Permanent placement staffing | 48 | 18.9% | 11 | 5.6% | | Risk consulting & internal audit | 137 | 16.0% | 57 | 9.8% | Liquidity and Capital Resources The company maintains strong liquidity with $543 million in cash, generating $233 million from operations in H1 2021, and expects internally generated cash to cover all working capital needs Cash Flow Summary (Six Months Ended June 30, $ millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | 233 | 426 | | Net cash used in investing activities | (31) | (43) | | Net cash used in financing activities | (232) | (149) | - During the first six months of 2021, the company repurchased 1.5 million shares on the open market for $124 million and paid dividends of $86 million[162][163] - The company maintains a $100 million unsecured revolving credit facility, extended to May 2024, with no borrowings as of June 30, 2021[166] - A quarterly dividend of $0.38 per share was announced on August 3, 2021, payable on September 15, 2021[167] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency fluctuations, with 22.9% of H1 2021 revenues from outside the U.S., where a weakening U.S. dollar positively impacted reported results - For the six months ended June 30, 2021, 22.9% of the company's revenues were generated outside the United States, exposing the company to foreign currency risk[171] - In H1 2021, currency exchange rates increased reported service revenues by $32.0 million (2.9%) and net income by $2.2 million (4.8%) compared to H1 2020[172] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2021, following modifications to internal controls due to a new financial processing system implementation - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[176] - A new financial processing system was implemented in Q2 2021, leading to modifications in the design and documentation of internal controls related to the new platform[177] PART II—OTHER INFORMATION Legal Proceedings & Risk Factors No material developments in legal proceedings or changes to risk factors have occurred since the 2020 Annual Report on Form 10-K - There have been no material developments in legal proceedings or material changes to risk factors since the company's 2020 Annual Report[180][181] Issuer Purchases of Equity Securities The company repurchased 717,242 shares at an average price of approximately $88.40 per share during Q2 2021, with 8.4 million shares remaining authorized for repurchase Share Repurchases (Q2 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2021 | 50,000 | $87.91 | | May 2021 | 204,000 | $87.91 | | June 2021 | 463,242 | $88.56 | | Total Q2 2021 | 717,242 | - 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