Letter to Stockholders

Chairman and Chief Executive Officer Harold M. Messmer, Jr.
Vice Chairman, President and Chief Financial Officer M. Keith Waddell.
Chairman and Chief Executive Officer Harold M. Messmer, Jr. (left); Vice Chairman, President and Chief Financial Officer M. Keith Waddell

To Our Stockholders,

Robert Half’s story in 2017 was one of first regaining and then increasing business momentum as the year unfolded. Worldwide full-year revenues reached a record level, slightly exceeding that of the prior year. By the fourth quarter of 2017, growth had accelerated noticeably. Late-in-the-year revenue gains were broad-based, both geographically and within all three of our reportable business segments.

Full-year global revenues were $5.27 billion, compared with $5.25 billion reported in the prior year. U.S. revenues declined 2.3 percent, and international revenues grew 11.2 percent in 2017. Performance improved in the fourth quarter of 2017, with worldwide revenues up 6.4 percent during that period. Domestic revenues increased 2.1 percent, and international revenues grew 23.8 percent in the fourth quarter of 2017.

Net income for the full year was $291 million, and diluted net income per share was $2.33. There were 3 percent fewer average shares outstanding during 2017, reflecting the continuation of our long-standing share repurchase program. Last year’s net income was reduced by a non-cash estimated amount of $34 million, or the equivalent of $0.27 per share, due to our provision for income taxes resulting from the recently enacted Tax Cuts and Jobs Act (TCJA) in the United States. Adjusted for this fourth-quarter, one-time charge, full-year net income per share was $2.60.* Among other things, the TCJA includes a lower prospective corporate tax rate. As a result, the value of deferred tax assets that had been recorded on our balance sheet earlier, when tax rates were higher, had to be remeasured to reflect the lower rate. The reduced valuation appears in the income statement as an increased tax provision.

Last year’s return on invested capital (ROIC) was 26 percent. Excluding the negative effect of the aforementioned non-cash charge, return on invested capital was 29 percent in 2017.* Last year’s ROIC performance compares favorably with our 20-year average of 25 percent.


The economic backdrop for our business during 2017 was generally favorable. Momentum seemed to build around much of the globe as the year progressed. In the U.S., real gross domestic product (GDP) grew 2.3 percent in 2017, a significant step up from the 1.5 percent growth reported the prior year.

U.S. labor markets were relatively robust throughout last year. The economy added approximately 2.2 million jobs, slightly fewer than the 2.3 million added in 2016. Non-farm payrolls grew each month in 2017, thus sustaining the positive trend we’ve seen for nearly a decade now. The unemployment rate in each of the last three months of 2017 was 4.1 percent, the lowest rate since December 2000.

Our staffing operations performed well, considering these trends. Temporary and consultant staffing revenues were $4.01 billion in 2017, or 76 percent of total revenues, and were essentially flat compared to the prior year. Permanent placement staffing revenues were $439 million, accounting for 8 percent of companywide revenues and representing a year-to-year increase of 5 percent. Operating income was $356 million and $77 million for our temporary and consultant and permanent placement staffing operations, respectively, in 2017. Total staffing revenue growth for the fourth quarter of 2017 was 6 percent on a reported basis, a considerable improvement from the negative growth rates posted in each of the previous three quarters.

Global economic conditions also benefited Protiviti in 2017. Protiviti’s $817 million in revenues last year represented 16 percent of the companywide total and were 2 percent higher than the prior year on a reported basis. Last year’s $84 million in operating income produced a solid double-digit percentage operating margin for the third consecutive year. Protiviti’s fourth-quarter revenues increased 6 percent year-to-year on a reported basis, and its operating profit margin that quarter was the highest interim margin in 2017.

We launched Protiviti in 2002 as a business unit of Robert Half after hiring more than 700 professionals from Arthur Andersen’s internal audit and business risk consulting practices. Our immediate aim was to provide clients with expertise in internal audit along with business and technology consulting. Opportunities also were emerging as several high-profile corporate collapses and accounting scandals led to more regulatory focus on governance and internal control over financial reporting. From its outset, Protiviti has generated a reliable core of recurring revenue by providing clients with internal audit services on an outsourced or cosourced basis and by helping them assess and strengthen internal controls. Protiviti has grown by providing these core services and by widening the suite of solutions it offers in the risk and compliance, technology, data and analytics, and business performance improvement consulting areas.

Protiviti also enjoys a key differentiator: It can combine its highly regarded expertise and technologies with the considerable strengths of Robert Half’s traditional staffing operations to provide managed services solutions to the clients of the enterprise. Blending the capabilities of both businesses enables us to provide Big Four-quality consulting services at competitive prices. Global and regional consulting firms that compete with Protiviti generally lack the flexible resource capabilities of our staffing operations.


Robert Half’s financial position remains sound. Total assets at year-end were $1.9 billion. Our cash balance of $295 million far exceeded long-term debt of less than $1 million. Accounts receivable of $732 million were 4 percent higher than the prior year-end total. Highly liquid assets represented 55 percent of the total. Last year’s receivables increase exceeded the revenue gain as the year-end balance reflects faster revenue growth produced in the final months of the year. We benefit from the collectability of our receivables due to the granular nature of our small-to-midsize customer base. We are free of concentrations — in customers, industries and geographies. Our receivables’ average days sales outstanding (DSO), as calculated for the full year at 50.6 days, was consistent with past trends.

The strength of our balance sheet reflects the outstanding cash-generating characteristics of our business; we have a long record of producing generous amounts of cash under both favorable and unfavorable business conditions. Last year’s net cash provided by operating activities was an all-time high of $453 million.

Capital expenditures in 2017 were $41 million. Important projects included the completion of the global rollout of an enhanced customer relationship management (CRM) system. Now, for the first time, Robert Half’s global branch network is united on a single CRM platform. In addition, we have increased spending to take advantage of an entire suite of cloud-based applications offered by our CRM vendor. We also invested in software that consolidates into a single human resources platform the previously separate and diverse systems of our staffing operations and Protiviti. Besides spending on these internal tools, we continued to invest in digital service options for our clients and job candidates. We discuss more about our technology investments later in this letter.

The $41 million of capital outlays in 2017 was below the previous year’s $83 million and the five-year average of $63 million. The lower amount for capital expenditures reflects the completion of the multiyear CRM and human resources software implementations just described. In addition, new technology spending weighs more toward internal-use cloud computing arrangements (CCAs), where implementation costs are expensed rather than capitalized. U.S. accounting standard authorities are currently re-examining the accounting for CCA implementation costs, but the timing and outcome are uncertain.

Cash provided by operating activities less cash used for investing activities (free cash flow) in 2017 was $374 million, and $197 million of that amount was used to repurchase Robert Half shares in open-market transactions. We began to repurchase our shares in 1997 and have acquired 106 million shares since then. In the last decade alone, we spent $1.6 billion of the $2.6 billion of free cash flow generated by the business to purchase 47 million of our shares, contributing to a 10-year net reduction of 24 percent of our outstanding shares. For perspective, we ended 2017 with 124 million shares. Recently, our board authorized the purchase of 10 million shares in addition to the 2.3 million authorized shares already in place.

We have paid a quarterly cash dividend consistently since 2004. Last year’s $0.24 per share quarterly payout was equivalent to a total annual outlay of $121 million. The board recently increased the dividend to $0.28 per share per quarter, a 17 percent increase. Since its initial payment, the dividend has been raised yearly and has compounded at a 12 percent average annual rate.

We made no large acquisitions last year, which is consistent with our well-known preference to grow organically. Our predisposition for internal growth is based on the fundamental belief that our industry provides ample growth opportunities. The staffing industry is large, global and growing. It’s also evolving, with digitalization playing an ever-larger role. While some companies have chosen to acquire technology-based services, we have opted to develop proprietary solutions with the expectation that our path carries less risk and provides us with a more durable competitive advantage.


Our business is evolving. Innovations that are aimed at digital transformation are at the heart of the evolution. We recognized early on that clients and candidates would expect to engage with a staffing firm online, just as they do with most other businesses. We have responded by developing proprietary solutions that give our customers multiple ways to interact with us online — from submitting job orders through our website to browsing for job candidates. We have invested in strengthening our digital storefront to enable us to reach new segments of the market.

We continue to evaluate and adapt new online services that can bring our resources to more customers. For example, we are using artificial intelligence and machine learning to help us make better job matches. These and other new initiatives support our goal of improving the service experience for clients and candidates.

Over the years, we have learned that digital solutions alone are usually inadequate to make effective job matches. A pivotal part of the customer experience involves a personal component. In our case, that experience includes helping a candidate find meaningful work or a client hire the right candidate to fill a critical position.

We frequently have seen competitors emerge that enter the business pursuing a digital-only strategy. It usually does not take long for them to realize that a singular approach often is inadequate. Human involvement is almost always critically important to completing a successful match. In today’s world of tightening labor markets, success often means convincing someone with sought-after skills to take your job over other available opportunities. Robert Half’s staffing professionals are given extensive training and development in managing the many aspects of job placements, including ensuring candidates have the right skills and personality to fit the position and job environment. We also provide technical training so our employees can fully leverage the many technology tools available to them. We believe the combination of personal consultation and digital service options we offer our clients is a differentiator for Robert Half.


We offer a suite of solutions for companies of all sizes — from small businesses to Fortune 500 firms. The core client base of our staffing operations is the largest and least-served segment of the economy — small and midsize businesses (SMBs). Clients of this size often lack human resources departments. They are less able to absorb the costs of a poor hiring fit, particularly compared to larger organizations that are more likely to have deep bench strength.

The SMB market segment appears poised for expansion. The Small Business Optimism Index published by the National Federation of Independent Business (NFIB) in February 2018 reached the second-strongest reading in the 45 years the NFIB has conducted the survey. A key priority of ours is to enlarge our share of this vast market.

For some time now, we also have been targeting select larger corporations, those with revenues in the range of $500 million to $2 billion or higher. These companies have staffing needs that are typically more complex than those of SMB clients, including a desire to bring their staffing efforts in multiple locations under a single point of contact. We have found that clients of this size often have more flexibility than much larger corporations, and they value our personal, consultative approach.


There are many reasons to be optimistic about the outlook for Robert Half’s business in 2018 and beyond. Near term, the U.S. labor market continues to tighten, which typically provides a boost to our business. For several months now, the U.S. unemployment rate has remained at a 17-year low. In addition, the U.S. Department of Labor in late February reported that jobless claims were near a 49-year low. It also reported that, as of the third week of February, claims remained below the 300,000 threshold for the 156th consecutive week. This trend held steady as the longest stretch since 1970, when the labor market was considerably smaller. Over the past decade, the civilian labor force has risen more than 5 percent, while the labor force participation rate has fallen nearly 5 percent. The trend is even more pronounced in the population of workers 25 and older with a college degree. That worker population has grown 25 percent over the past decade, but its labor force participation rate has declined 6 percent. Even a slight increase in the labor force participation rate would have a positive impact on the pool of available talent.

Global economic growth is increasing. The International Monetary Fund in its World Economic Outlook recently raised its global growth outlook to 3.9 percent to reflect increased momentum and the expected positive effect of recent U.S. tax policy changes. The staffing industry continues to increase its penetration into worldwide labor forces. Annual global revenues for the staffing industry now exceed $400 billion. In the United States, the percentage of temporary workers in the overall workforce is 2.04 percent. Higher concentrations of temporary workers in select European labor markets suggest there is ample opportunity for further U.S. growth in the contingent workforce.

Long-term demographic trends indicate the already heated competition for talent is likely to intensify. Skills shortages in occupations that include our professional specialties are becoming increasingly acute. The U.S. Bureau of Labor Statistics (BLS) expects job growth in the United States for financial analysts, and accountants and auditors, for example, to outpace the national average between 2016 and 2026. Furthermore, accountants and auditors are among the top 20 roles with the highest projected job growth during this period. The information technology (IT) staffing market appears to be even more promising: It is three to four times larger than accounting staffing. The IT staffing market continues to produce robust growth as companies seek to satisfy appetites for help in business and technology transformation.

We believe we are just beginning to exploit the opportunities that are arising in the space where Protiviti meets our staffing resources. It is fortuitous that many of these opportunities are surfacing at a time when Protiviti has expanded its technology consulting practice. The pervasiveness of mission-critical IT systems in modern businesses and the pace of change mean finding the right IT talent is tremendously important.

Thus far in our extended economic recovery, wage rate increases have not been proportional to the low unemployment and candidate shortages we are seeing day to day. Experience suggests that tight labor market conditions eventually will translate into faster growth in wage rates. In fact, over the past few months we have seen evidence in the form of more positive business sentiment, particularly in the United States, suggesting the situation may be changing. Clients are taking on more projects, and there appears to be a greater urgency to ensure they have the right people to grow their businesses. As evidence mounts, this should result in faster wage growth and a premium for high-demand skills.

Our brands are second to none in our industry, our finances are strong, and our field management is seasoned and solid. We are committed to attracting, motivating and retaining the best people. In short, we are very enthusiastic about our prospects. We have never been better positioned as a company for future success.

None of these accomplishments would have been possible without the exemplary efforts of the people who comprise our teams across the globe and work hard every day to provide outstanding service to our clients and candidates. We thank them for their continued passion and pursuit of excellence.

We would also like to express our appreciation to our board of directors for their guidance and counsel during 2017, and to you, our stockholders, for your continued support of Robert Half.

Respectfully submitted,

Max Messmer Signature
Harold M. Messmer, Jr.
Chairman and
Chief Executive Officer
March 9, 2018
Keith Waddell Signature
M. Keith Waddell
Vice Chairman, President and
Chief Financial Officer
March 9, 2018

* See Appendix A to the Company’s Proxy Statement mailed to stockholders in April 2018 for a reconciliation of the non-GAAP measures to the most comparable GAAP measures: https://www.roberthalf.com/investor-center/sec-filings/definitive-14a

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