To Our Stockholders,
Robert Half had an outstanding year in 2015. We reported record levels of net service revenues, net income and diluted earnings per share. Full-year revenues reached $5.1 billion, a 9 percent increase over the prior year. Revenue growth was 12 percent after eliminating the dampening effects of translating foreign currencies into U.S. dollars. Net income of $358 million was 17 percent ahead of the prior year.
All three of our reportable segments improved operating profitability during the year. Diluted earnings per share of $2.69 was 19 percent higher year over year on 1.9 percent fewer shares outstanding. The final quarter of 2015 was our 23rd consecutive quarter of year-over-year, double-digit percentage growth in both net income and diluted earnings per share.
The recovery from the 2008–2009 economic recession has been the most tepid of the 11 U.S. economic recoveries that have occurred since the end of World War II. Last year’s 2.4 percent growth in U.S. real gross domestic product (GDP) just matched that of 2014. One highlight of the 2015 macroeconomic environment of particular interest to us, however, was the continued strength of the employment market. Labor market conditions were healthy throughout the year, even with sharply lower oil prices that led to job cuts in energy-dependent industries and geographies. In 2015, U.S. employers added 2.7 million jobs — an average of 221,000 per month. The U.S. unemployment rate has continued to drift down and is currently at 4.9 percent, a rate that many economists believe is near theoretical full employment. We are seeing other signs of labor market tightening. Initial jobless claims are approaching a 42-year low, and a growing number of professional occupations have unemployment rates that are less than half of the overall U.S. rate.
Over the years, we have found that employers place a higher value on our services at times like these when demand for labor outstrips supply. Under these conditions, we tend to enjoy greater pricing flexibility. Robert Half has nearly seven decades of experience in specialty staffing. That long history makes us a unique resource for employers looking to staff positions in any economy, but especially in today’s challenging labor market conditions. We excel at matching hard-to-find professionals with the right positions, whether on a temporary or full-time basis. It is what we do best.
The temporary help industry continues to increase its presence in global labor markets. At year-end 2015, temporary workers had grown to represent a record 2.06 percent of the total domestic workforce. The percentage penetration is significantly higher in many overseas countries where labor laws often are more extensive and stringent. The U.S. trend toward more encompassing labor laws and regulations, including evolving healthcare initiatives, suggests there could be an even more prominent role for flexible staffing in the future in this country. Employers increasingly recognize the value that flexible staffing can bring to managing total labor costs. The staffing industry is in a good position to help employers navigate through an increasingly complex regulatory environment.
The pace of international economic recovery in 2015 generally trailed that of the United States. Our non-U.S. performance reflected the slower recovery in many countries. Reported non-U.S. revenue declined 8 percent from 2014; however, adjusting for the effect of foreign currency translation into U.S. dollars, international revenues actually increased by 8 percent. Non-U.S. revenues were 19 percent of last year’s total. We had solid performance in our operations in Germany, the United Kingdom and Belgium, which reflected improving labor markets in those countries. Led by Protiviti, our foreign operations posted improved profitability despite the decline in reported revenues. Though foreign currency translation pressures moderated our performance, Robert Half showed the ability to make good progress overseas under a range of market conditions.
Protiviti had an excellent year, with year-over-year revenue growth of 21.8 percent on a constant-currency basis and a record-high $96 million in operating income. Protiviti’s heritage in risk management and internal audit provides a solid platform for an expanded and diversified mix of consulting services. Protiviti’s consulting solutions now include business performance improvement, internal audit and financial advisory, IT consulting, restructuring and litigation, risk and compliance, data management, and transaction services.
Demand for Protiviti’s internal audit services is resulting in part from more stringent oversight of internal control over financial reporting (ICFR). Regulators now selectively inspect the work of larger public accounting firms on a regular basis in an effort to identify audit weaknesses, including inadequacies in the assessment of ICFR. The inspections often result in the need to improve the effectiveness of control systems. Protiviti has a core strength in the internal audit function, which ideally positions the business to help clients design and implement these systems and process improvements.
Protiviti’s IT practice is enjoying a surge in demand tied to an increased focus on data security and privacy. High-profile security breaches have heightened demand for enhancements to IT controls and increased the need for new systems implementation. Our risk and compliance practice is benefiting from a stricter regulatory environment, particularly in the financial services industry, which is driving interest in a wide range of solutions. Established just 14 years ago, Protiviti has developed a respected and widely recognized brand and a loyal client following.
A Strong Financial Position
Our financial position is solid. We believe this financial strength reflects the cash-generating characteristics of our business, as well as a relatively small investment in long-term assets. From a financial perspective, our business is primarily about managing working capital.
Cash provided by operating activities in 2015 was $438 million, up 29 percent from the prior year. We used the funds generated last year and a part of the beginning cash balance to: 1) fund capital expenditures; 2) pay cash dividends to stockholders; and 3) purchase shares in the open market.
Last year’s capital expenditures totaled $75 million. Even though last year’s spending outlay was the largest in nine years, it still remained at just 1.5 percent of annual revenues, a level in line with historical experience. The majority of expenditures were for investments in software and technology infrastructure. Key projects included upgrading our enterprise resource planning system and transitioning to our global, cloud-based customer relationship management platform. A significant amount of recent years’ software spending also went to internally developed technology solutions. We expect spending on these proprietary systems to moderate in the near term. Hardware outlays last year were aimed at providing mobile technology to our staff, improving data networks and upgrading other systems.
Although amounts will vary yearly, you can expect us to continue spending on technology innovation. The proliferation of the Internet and social networking vehicles has ushered in significant changes for the staffing industry. Employers and job candidates want greater flexibility and more choices in how they work with staffing firms. We believe more strongly than ever that it is vital to our future growth to develop and implement industry-leading technology solutions that meet the changing dynamics of the digital world of today and tomorrow.
Our investments in technology reflect a long-term view. We pioneered specialized staffing and have amassed expertise that we believe is unmatched in the industry segments we serve. We are combining these strengths with an IT infrastructure that gives our employees the most effective tools and resources. We are also making ongoing investments in technology innovation that incorporates data science and analytics to dramatically improve our candidate match capabilities. Our consistent focus on innovation is designed to drive efficiencies, improve service levels and increase our speed to market. The pace of business is faster than ever, and business innovation is an essential part of our commitment to further improve our ability to identify, match and prioritize business leads for our internal staff — all with the aim of meeting and exceeding our client and candidate expectations.
Protiviti completed a small acquisition in 2015 to support its business intelligence and advanced analytics practice. Although we are often presented with opportunities, we make few acquisitions, preferring instead to grow organically. But from time to time we see prospects that meet our demanding standards. We expect to continue to be selective and opportunistic in considering future acquisition candidates.
Free cash flow was $320 million in 2015, a 27 percent increase over the prior year’s amount. Free cash flow was $1.2 billion over the past five years. We have a long history of returning cash to stockholders through stock buybacks and cash dividends.
We have repurchased our shares in the open market every year since 1997. During that time, purchases have reduced the share count by 30 percent. Last year, we spent $228 million to acquire 4.3 million shares in open market transactions. The board of directors recently authorized the purchase of an additional 10 million shares, increasing the total to 10.4 million shares to be executed in this year and beyond. To put that amount in context, we concluded 2015 with 131.2 million shares outstanding.
We initiated a cash dividend back in 2004 and last year paid a $0.20 per share quarterly dividend for a total outlay of $108 million. The board recently upped the quarterly payout to $0.22 per share, marking the 11th consecutive year we have raised the dividend. Cash dividend distributions have compounded at a 12 percent average annual rate of growth since 2004.
We ended 2015 with total assets of $1.7 billion, including cash and equivalents of $225 million. We remain virtually debt-free. Our largest asset, accounts receivable, was $705 million at year-end, or 41 percent of total assets. We pay close attention to accounts receivable because of the importance of that asset. Last year’s average days sales outstanding (DSO) was 49.7, calculated for the full year, which is in line with our historical averages. Our return on average equity in 2015 was 36 percent; the comparable ratio for the past 20 years was an average of 25 percent. In both cases, the returns were produced with negligible use of financial leverage.
Growth Prospects Ahead
We enter 2016 optimistic about our future prospects. In the short term, the consensus among economists is that current economic expansion is likely to continue at its measured pace. In fact, we see little evidence of an imminent slowdown in the economic indicators we monitor. Still, we are realistic in recognizing the nature of our industry is such that it carries limited near-term visibility. And we are prepared to moderate expansion plans should conditions change.
From a longer-term view, we operate in an appealing market with solid long-term demographics. Economic trends are in our favor, and there is a widening skills gap in a number of our professional specialty areas that has many employers struggling to find needed talent. Collectively, these factors present us with growth opportunities that Robert Half is well-positioned to pursue.
We have decades of experience in our industry, reflecting an unparalleled level of expertise, insight and staying power. We have a solid balance sheet with ample liquidity and financial flexibility. Our financial strength provides us with the ability to make prudent investments to support organic growth and the occasional acquisition. Our powerful brand names are the product of decades of efforts to establish and strengthen them.
We provide valuable services across the industries we serve. And we have a proven strategy to drive organic growth while preserving the service-driven corporate culture that has long been the cornerstone of our success.
As we move ahead, we will continue to marshal these strengths to fortify our leadership position and capture additional market share in all of our business segments.
None of our success would be possible without the guidance of a time-tested veteran management team, backed by skilled and dedicated employees. We want to express our sincere appreciation for their many contributions and our confidence in their talent and passion moving forward.
We would also like to thank our board of directors for their ongoing strategic counsel. This year, we are pleased to welcome our newest board member, Marc H. Morial, an accomplished executive and attorney who is the President and Chief Executive Officer of the National Urban League and the former Mayor of New Orleans. And, as always, our gratitude extends to you — our valued stockholders — for your continued support of our business objectives.
Chief Executive Officer
March 23, 2016
Vice Chairman, President and
Chief Financial Officer
March 23, 2016