Chief Executive Officer
Chief Financial Officer
To Our Stockholders,
Robert Half performed well in 2012. Full-year revenues of $4.1 billion grew 9 percent from the prior year, and diluted earnings per share of $1.50 increased much faster, at 44 percent. Our business last year was characterized by generally healthy U.S. demand for our temporary staffing and permanent placement services and Protiviti's offerings. By contrast, our non-U.S. operations were challenged by weaker economies in select countries, particularly in parts of Europe.
U.S. real gross domestic product grew during 2012 at a 2.2 percent rate, modestly ahead of the prior year's 1.8 percent increase. Labor markets also showed moderate improvement, with monthly U.S. nonfarm job growth averaging 182,750 in 2012. Those employment increases, along with a shrinking labor participation rate, caused the unemployment rate to decline to 7.8 percent at the end of 2012, down from 8.3 percent at the start of the year. In February 2013, the U.S. jobless rate declined further, to 7.7 percent.
Stepped-up secular demand for flexible staffing provided a tailwind for our business, particularly in the United States. Companies are using temporary and project-based workers to gain access to skills when and for as long as they need them, which keeps their labor costs variable. The appeal of flexible staffing is magnified during periods of increased economic and political uncertainty, and this was true in 2012. The penetration of temporary employees into the overall labor force has continued to rise. Temporary workers today represent 1.9 percent of U.S. nonfarm employment, a penetration level that approaches the record high of slightly more than 2 percent in 2000.
By the middle of last year, Robert Half's quarterly revenues had returned to 2006 levels. This is notable when considering the U.S. unemployment rate averaged 4.6 percent in 2006, compared to a much-higher average unemployment rate of 8.2 percent in the first half of 2012. This ability to generate comparable revenues in a more challenging labor market underscores the higher secular demand for flexible staffing and is testament to the hard work and effectiveness of our experienced field staff and corporate services leaders.
International staffing activities accounted for 27 percent of our 2012 overall staffing revenues and declined 3 percent from the prior year. The majority of the total (16 percent) came from Europe, where we operate in 10 countries. Our best-performing European business was in Germany, where demand drivers are similar to those in the United States. We see a considerable market opportunity in Germany and continue to make staffing investments there. In the United Kingdom, results were affected by difficult economic conditions and persistent high unemployment. To combat the weaker demand environment, we reduced spending, limited geographic expansion and focused on growing profitability in established markets.
Once again, our business demonstrated the ability to produce generous amounts of cash. Last year, cash provided by operating activities totaled $289 million; the past five-year total was $1.4 billion. We used nearly all of the cash generated in 2012 to: 1) invest in the business; 2) purchase our shares in the open market; 3) pay cash dividends; and 4) complete two small acquisitions. Our $288 million cash balance at year-end was up $8 million from the prior year.
Capital expenditures in 2012 were $50.1 million. Those outlays were equivalent to 1.2 percent of revenues, which is a bit below the prior five-year average of 1.5 percent. Both percentages are relatively low by typical U.S. corporate standards. We are not a brick-and-mortar-intensive business. Much of our spending in recent years has been for updating computer hardware and software used throughout our organization. The Internet has had a significant effect on the job search and recruitment processes. More recently, the proliferation of social networking vehicles has introduced new tools for our recruiters to employ. Early on, we recognized the considerable benefits the digital world would bring to the staffing industry. We are committed to continuing to provide our people with state-of-the-art technologies.
After netting investing outlays, free cash flow totaled $216 million and was $1.1 billion for the past five years. We have long been dedicated to returning cash to our shareholders. Last year was the 16th consecutive year in which we purchased our common shares in the open market. During 2012, we spent $133 million to acquire 4.7 million shares in the open market. An additional 11.4 million shares remain authorized for purchase through 2013 and beyond. We have also returned cash to shareholders through the payment of cash dividends since 2004. Last year, our board declared a $0.15 per share quarterly payout, which consumed $84 million of cash. Early in 2013, the board raised the quarterly cash dividend to $0.16 per share. The dividend amount has been increased yearly since it was initiated while compounding at a 12 percent average annual rate.
Our preference has been to grow the business internally rather than to expand by making acquisitions. We believe strongly that there is ample market opportunity for our industry and company to grow organically. We also believe that relying on acquisitions as a primary growth strategy carries higher risk, especially to our unique corporate culture. However, that does not mean we will not look at acquisition opportunities when the businesses involved represent an excellent fit both culturally and strategically. Last year, we completed two relatively small transactions. In June, Protiviti, our internal audit and consulting unit, purchased Arsenal Security Group, Inc., a Virginia-based business that provides IT security and privacy consulting services. Then, in December, Protiviti purchased the assets of SusQtech Inc. It will complement Protiviti's Microsoft technology-based consulting services. It will also have a role in serving the client base of Robert Half's staffing operations.
Our three finance and accounting staffing divisions represent the majority of our staffing business domestically and internationally. Combined revenues in 2012 were $2.4 billion and represented 57 percent of consolidated revenues. Revenues from these three mainstay businesses combined grew 9 percent last year.
Accountemps provides accounting personnel on a temporary basis. It was our initial temporary staffing offering and is our largest single business unit. Its 2012 revenues were $1.5 billion, or 37 percent of the corporate total. Its global full-year revenues increased 9 percent, with domestic business showing better gains than those in international markets. All four quarters produced year-to-year improvement, but quarterly increases moderated as year-ago comparisons became more demanding.
Robert Half Management Resources provides senior-level accounting and finance professionals on a project basis, often for longer-duration assignments. This business was launched in 1997. Last year's revenues of $506 million were 10 percent higher than the prior year and were equivalent to 12 percent of the companywide total. All four quarters showed solid gains, with the first six months stronger than the second half of the year. Robert Half Management Resources, as well as our other staffing lines of business, provide us with an important competitive advantage: They enable us to offer a unique delivery model by combining highly experienced interim professionals with Protiviti's consultants and its business solutions to serve a broad range of client needs at attractive prices.
Robert Half Finance & Accounting provides specialized permanent placement services and was our original business. Its 2012 revenues of $334 million increased 11 percent from the prior year and represented 8 percent of consolidated revenues. The permanent placement business enjoyed solid gains throughout the year, with stronger increases in the first two quarters of 2012.
OfficeTeam is our specialty administrative staffing unit. Last year's revenues of $815 million increased 8 percent over the prior year. OfficeTeam revenues represented 20 percent of the consolidated total. This business began in 1991 and was our first expansion effort outside of the accounting and finance specialties. Over those more than two decades, OfficeTeam has differentiated itself by focusing on high-end administrative staffing.
Robert Half Technology revenues of $476 million were 12 percent of the total and 11 percent ahead of last year. We have identified IT staffing as a significant growth vehicle and have supported it domestically and in select international markets with increased staffing investment. The digital world has become integral to our small to midmarket client base. However, many of these smaller businesses cannot justify adding full-time employees and turn to staffing firms for technical support and assistance with software customization and development. We aim to leverage our well-established relationships with accounting and finance managers to achieve a leadership position in the growing IT business sector.
Robert Half staffing divisions operate in 19 countries outside the United States. Revenues for international staffing operations were $983 million in 2012, down just under 3 percent from the prior year's total. Non-U.S. temporary staffing revenues accounted for 86 percent of that total and declined 3 percent, while foreign permanent placement produced the other 14 percent of revenues, down less than 1 percent. Soft economic conditions in parts of Europe and elsewhere overseas negatively affected our non-U.S. staffing business, but the effect was moderated by our limited presence in the hardest-hit countries. Our business in Germany held up well, and, in North America, Canada remained strong.
Protiviti, our global business consulting unit, had its best year since 2008. 2012 revenues were $453 million, or 11 percent of the corporate total, and were 7 percent ahead of the prior year. Domestic revenues accounted for 77 percent of the total and grew 11 percent. By contrast, non-U.S. Protiviti billings declined 5 percent.
Protiviti celebrated its 10th anniversary in 2012. In the first half of that decade, surging demand for the unit's compliance services was fueled by the 2002 enactment of the Sarbanes-Oxley Act. But then, large companies, and later smaller businesses, affected by the act became compliant and needed less assistance, and Protiviti was challenged to replace a significant part of those lost revenues. In recent years, it has done an exceptional job of achieving that objective. Protiviti continues to be a leader in providing internal audit and internal controls-related activities and now also provides consulting services in areas such as finance, technology, operations, governance and risk.
Protiviti's non-U.S. operations were pressured last year by unsettled European economic conditions, stemming in part from the lingering debt crisis on the Continent. Economic weakness led to uneven demand, which, in turn, was reflected in price compression in select markets. In the Asia-Pacific region, consulting billings were limited by persistent economic uncertainty in Japan and slower growth in China.
Protiviti operates in 73 locations in 23 countries. This total includes company-owned offices and independently owned member firms in Europe, the Middle East, Asia-Pacific and the Americas.
Our Service and Our Brands
Over the years, we have strived to develop a reputation for providing unparalleled service to our clients and job candidates. In 2012, we made it faster and easier for job candidates to register with us online. We also introduced remote skills evaluation and increased our use of video interviews of prospective job candidates to make the process more convenient. Clients benefited from these efforts because candidates with the right skills were presented to them more rapidly.
We believe our brands are among the most visible in the staffing industry. Last year, we continued to make investments in marketing and public relations to further strengthen our brand presence. The popularity of our Salary Guides has increased, and we now publish them around the globe in six languages. Each of our staffing divisions makes Salary Calculators available as mobile applications. Our various brand names have been featured tens of thousands of times in media outlets that reached millions of readers, viewers, listeners and website visitors. And the number of followers of our multilanguage corporate social media sites doubled in 2012.
Blogs, online networks and other popular social media vehicles have fundamentally changed how people communicate and share information. Last year, we continued to invest in ways to use online channels and social media networks to build awareness of our brands and to improve service levels. Social networking tools have become increasingly important to help us do what we do. But we are equally committed to providing the personal service and know-how that are the hallmarks of our skilled staffing and recruitment professionals.
Clients who believe they can use the Internet alone to meet their staffing needs often become open to using our services once they recognize that web searches are simply a starting point. Robert Half professionals have the expertise it takes to complete the multiple steps in the recruiting process: personal interviews, technical skills evaluations, reference checks, soft skills assessments and, critically, assessing the fit with an employer's work environment.
Robert Half is positioned to grow. Our optimism about the future is based on underlying economic and business trends, as well as the unique strengths of our company. Global staffing is a huge industry: Annual worldwide revenues are estimated at $400 billion. Moreover, the industry is growing. In the United States, the Bureau of Labor Statistics reports that employment services will be among the 20 industries adding the most jobs between 2010 and 2020.
The industry growth we are already seeing in this cycle suggests that at least some employers are using professional temporary workers for the first time. As the benefits of using flexible staffing become visible to the newly initiated, we expect that temporary help could have a bigger role in companies' future staffing strategies.
We occupy an enviable place within the industry. Shortages of highly skilled professional workers persist despite lingering high general unemployment rates. Many of the shortages are in fields in which we are the leader in sourcing and placing candidates. Our global networks provide us with a competitive advantage. We enjoy a well-established reputation for helping clients locate talent that is proving so elusive this cycle.
Our target market, small and midsize companies, is hiring. We believe skilled temporary professionals are an enduring part of the human resources mix for an increasing number of companies. Employing variable-cost labor gives companies greater control over their personnel budgets and provides them with access to skilled talent on demand. We believe there is opportunity for the U.S. temporary worker penetration rate to increase further based on recurring demand for staffing flexibility.
We are optimistic about the promise of the technology staffing market and its implications for Robert Half. Companies, including small and midsize businesses, are under pressure to keep pace with technology innovation in order to stay competitive. Flexible staffing can be an economical solution in these situations.
Ongoing regulatory changes in the financial services industry and the implementation of new healthcare legislation in the United States could be a source of demand for our staffing services and for Protiviti. The Patient Protection and Affordable Care Act may provide Robert Half with business opportunities as employers evaluate staffing decisions in the new healthcare environment. A flexible staffing approach may help reduce the cost of compliance for certain businesses.
Robert Half differentiates itself in the staffing industry by our ability to combine the services of our staffing divisions with the consulting capabilities of Protiviti. Offering blended solutions means we can provide high-value services more cost-effectively than our competitors.
Our accomplishments in 2012 are the result of the hard work and dedication of our single greatest asset: our people. We believe we have the best professionals and the most experienced management teams in our industry. We thank our employees for their contributions last year and for the passion they bring to their work every day.
We also would like to convey our gratitude to the members of our board of directors for the counsel, encouragement and guidance they provide. And, of course, our appreciation extends to you, our stockholders, for your continued confidence and support.
Chief Executive Officer
March 11, 2013
Vice Chairman, President and
Chief Financial Officer
March 11, 2013