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      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 ended 2018 with record annual revenues. Growth was widespread and consistent throughout the year, both geographically and in each of our three reportable business segments — temporary and consultant staffing, permanent placement, and Protiviti.

      Generally favorable economic conditions were accompanied by tight global labor markets in supporting our growth throughout the year. Full-year companywide revenues in 2018 were $5.8 billion, up 10 percent from the prior year. U.S. revenues grew 8 percent, while international revenues increased 19 percent. On a global basis, year-over-year quarterly revenue gains clustered around low double-digit percentage rates. U.S. quarterly gains improved sequentially, reaching high single-digit percentage advances in the second half of the year. International quarterly increases were faster overall but moderated later in the year compared to the first six months’ performance.

      Net income of $434 million was 49 percent ahead of the year-earlier amount of $291 million. Earnings per share in 2018 were $3.57 compared with $2.33 in 2017, a 53 percent gain. The income comparison was affected by noncash charges in both years. Those charges increased our tax provisions and reduced income in 2018 and 2017. The added tax provisions arose in connection with the Tax Cuts and Jobs Act (TCJA) enacted in December 2017.

      As adjusted to exclude these amounts, our 2018 net income was $439 million, or $3.61 per share,* and 2017 net income was $324 million, or $2.60 per share,* resulting in year- over-year gains of 35 percent and 39 percent, respectively. Earnings per share in 2018 benefitted from 3 percent fewer shares outstanding.

      We regard return on invested capital (ROIC) as an important measure of our performance. This ratio demonstrates the efficiency with which we employ our capital to generate earnings. Our goal is to allocate the company’s capital in a balanced way that produces superior long-term returns to our shareholders. Last year’s results were consistent with that objective. ROIC was 39 percent, which compares favorably with the average 22 percent generated over the past two decades.


      U.S. gross domestic product (GDP) grew at a rate of 2.9 percent in 2018, a notable increase from the prior year’s 2.2 percent. Increased economic activity was accompanied by improved job growth. Last year, the economy produced 2.7 million jobs, up from 2.2 million added in 2017. Nonfarm payrolls increased each month by at least 100,000 jobs and increased an average of 223,000 jobs monthly for the year. The positive trend continued in January 2019, with payrolls increasing by 311,000.

      The decline in the unemployment rate during the long economic recovery continued during much of 2018. The rate fell to 3.7 percent in September, nearly a 50-year low, before inching up to 3.9 percent at year’s end. It was 3.8 percent in February 2019. The modest uptick in the jobless rate in recent months is due in part to an increase in the labor force participation rate. Idle workers have been re-entering the labor force as employment prospects have brightened. We should point out that unemployment rates are significantly lower in the professional occupations in which we specialize, and talent shortages are more pronounced in these specialty fields.

      Total revenues outside the United States grew 19 percent in 2018. We enjoyed solid growth overseas despite uneven economic conditions in some of the international markets we serve. Persistently high talent demand has helped us grow in these countries even under less favorable economic conditions. The staffing component of our international business performed well in all European geographies, particularly Belgium and Germany. That was especially the case in our permanent placement business, which is a disproportionately larger part of our international operations. Our internal audit and risk consulting subsidiary, Protiviti, saw particular strength in the United Kingdom, Australia and Germany. Good international momentum in 2018 provides a sound basis for our optimism about growth opportunities ahead.

      Despite shortages of skilled workers and near-record low unemployment, wage increases have been unusually slow to materialize. Salaries finally began to climb noticeably for many U.S. workers in 2018. This was the case among highly specialized professionals like those we place at Robert Half. As a result, our bill-pay spreads (the difference between what we collect from clients and what we pay candidates) have moved up to levels more typical of those sustained in past tight labor markets. Clients now recognize that they need to pay more to get the candidates they want most. That realization becomes more acute if they have lost out multiple times on hiring preferred candidates. In a sense, we are becoming labor market consultants to clients as we help them understand the realities of tight labor market conditions.


      Small and midsize businesses (SMBs) make up the majority of our staffing clients. This market segment is the largest and may be the least served by the staffing and consulting industries. Paradoxically, SMB clients are everywhere, yet they are hard to reach. They often lack dedicated human resources staff. Our competitors often overlook them. Pricing for them may be less sensitive. Our business model has been honed over decades to reach this vast market. It is hard for anyone else to duplicate what we have built.

      There is plenty of evidence that SMB clients are in a hiring mode. The National Federation of Independent Business (NFIB) Small Business Optimism Index remained near historic highs throughout 2018. Elsewhere, a fourth-quarter CEO confidence index compiled by Vistage (a long-established executive coaching organization) reported that 65 percent of CEOs of small and midsize businesses planned to expand their workforce in 2019. It is no secret that it has been a struggle to find workers with expertise in high-profile areas like cybersecurity, cloud computing and digital transformation. Demand is likely to remain heated for professionals with skills in these areas. We have had success in targeting our information technology recruiting and marketing efforts to these fields.

      SMBs remain the backbone of our staffing client base, but we also target select larger corporations that are drawn to the professional level of our services. It is common for these companies to undertake large, complex projects requiring employees with a broad range of skills. We are positioned to meet their needs by providing a full suite of staffing and Protiviti capabilities, which we discuss later in this letter.

      Temporary and consultant staffing is our largest reporting segment. Its $4.33 billion of 2018 global revenues accounted for 75 percent of the companywide total and increased 8 percent over the prior year. Global quarterly increases were fairly uniform at high single-digit percentage rates throughout the year. U.S. staffing growth lagged that of international operations, but the domestic quarterly trend showed steady improvement. By contrast, international quarterly gains were faster, but the trend moderated as the year unfolded.

      Our permanent placement reporting segment is Robert Half’s oldest business. Its $512 million in revenues accounted for 9 percent of the 2018 companywide total, a rate consistent with long-term trends. On a global basis, permanent placement revenues grew 17 percent for the year, with quarterly gains at consistently solid double-digit percentage rates. U.S. quarterly increases were consistent at rates in the mid- to high teens.


      Protiviti reported global revenues last year of $958 million, an increase of 17 percent over the prior year. Protiviti’s service offerings were relatively limited when it was launched as a Robert Half subsidiary in 2002. Now, 16 years and nearly a billion dollars in annual revenues later, Protiviti has become a key part of our business. Protiviti accounted for 16 percent of total revenues in 2018 and produced a near-record $93 million in operating income. The importance of this business, however, goes beyond its direct financial contribution to our results.

      Protiviti’s leadership and talent have made it a respected competitor in consulting with more than 5,000 full-time employees, contractors and Member Firm staff at the end of 2018. Soon after its creation, Protiviti was a beneficiary of the compliance requirements of the Sarbanes-Oxley Act (SOX), which became law in 2002. Although we still help clients with SOX compliance, we have expanded by adding other regulatory-driven and traditional business and technology consulting efforts. Our expanded suite of consulting offerings includes risk and compliance, data and analytics, and performance improvement, among others. Protiviti is putting more focus on technology consulting, with an additional emphasis on cybersecurity, cloud computing and digital transformation consulting.

      Increasingly, Protiviti is collaborating with Robert Half’s staffing operations to work on major client initiatives. In these engagements, Protiviti not only offers its consulting expertise and technologies but is also able to draw on the reservoir of experienced workers available through our staffing lines of business, professionals who are not easy to access in a tight labor market like today’s. This gives Protiviti access to supporting talent with hands-on skills, the nature of which — and the need for — can fluctuate during the term of the engagement. Our flexible human resources capability distinguishes us from other global and regional consulting firms.

      The ability, as a single provider, to offer clients managed solutions consisting of project oversight, deep subject matter expertise, deliverables and a scalable network of experienced staff to help complete their projects is unique in our industry. Clients appreciate the efficiencies and lower costs inherent in these projects that employ a full spectrum of resources. Joint activities like these are not new to us, but we are now taking them to a new level.


      Our balance sheet is exceptionally sound. From a financial perspective, our business is largely about managing working capital. More than half of year-end 2018 total assets of $1.9 billion consisted of highly liquid assets. Cash and cash equivalents net of debt was $276 million, little changed from the prior year. Accounts receivable totaled $794 million at year-end, increasing during the year at a rate generally paralleling our revenue growth. We have made timely collection of receivables a priority because of their relative importance on our balance sheet. Our average days sales outstanding at 49 days was consistent with past trends. Our exposure to receivables collectability risk is reduced by the composition of our customer base. We are free of concentrations — in customers, industries or geographies. We are also free of the risks that come with carrying and managing inventory — we have none. Our capital expenditure needs are modest.

      We have a long history of producing generous amounts of cash under both favorable and unfavorable business conditions. Last year’s net cash provided by operating activities reached an all-time high of $572 million, 26 percent ahead of 2017’s total. We spent $43 million of that amount on capital expenditures, a level consistent with the prior year’s total but below the five-year average of $61 million annually. Spending picked up throughout the year with the final quarter’s $15 million outlay annualizing at $60 million, a level expected to be within 2019’s budgeted range of $60 million to $70 million for capital expenditures.

      A significant percentage of last year’s capital outlays was for investments in software and technology infrastructure. You will not find these assets identified separately on our balance sheet, but that does not mean they are unimportant. We consider technology investments to be essential to our growth. As such, you can expect us to continue to invest heavily in technology in the future. We discuss certain of these investments later in this letter.

      All of last year’s $484 million of free cash flow (cash provided by operating activities less cash used for investing activities), and then some, was returned to shareholders via cash dividends and the repurchase of Robert Half shares. Last year’s $.28 per share quarterly cash dividend was equivalent to a $136 million annual outlay. We initiated a $.06 per share quarterly cash dividend back in 2004. Annual increases since 2004 have been uninterrupted while compounding at a 12 percent average annual rate. Our board recently increased the quarterly cash dividend to $.31 per share.

      We have repurchased Robert Half shares yearly since 1997. Over that extended period, we repurchased 111 million shares for $3.4 billion. In the past decade alone, we spent $1.7 billion to acquire 43 million shares. That is a significant percentage of the $2.7 billion of free cash flow generated during that interval. The repurchase effort is continuing; we acquired 5.6 million shares, for $351 million, in 2018. There are 6.7 million shares available under our current board-authorized repurchase plan. We concluded 2018 with 119 million shares outstanding.

      We made no acquisitions last year. That is consistent with our long-held preference to grow organically. Our approach recognizes that the market for our services is vast, with many opportunities for growth. Further, we believe that expanding through acquisitions carries more risk, particularly the challenges of integrating acquisitions into our culture, which is highly service-driven.


      We believe our record results in 2018 reflect our steadfast adherence to our corporate purpose: helping job candidates build their careers and companies grow their business. This purpose permeates our organizational culture at Robert Half. It leads to the personal rewards our professionals experience from helping job seekers and businesses in aspects central to their existence: their livelihood and their ability to evolve and acquire new customers. Our company culture is also expressed through our long-held belief in placing ethics first in our business dealings, serving our communities, and providing a safe and inclusive workplace.

      The combination of technology and personal service we provide is key to our continued growth and reputation. We are convinced that you can’t have one without the other and still provide clients with the hiring help they need. All of our people and technology investments are designed to offer an optimal mix of high-tech and high-touch.

      We are always working to make it easier and faster for employers and job seekers to hire and be hired. That is especially true in tight labor markets. During 2018, we introduced more proprietary digital solutions at critical customer touch points. These enhancements include a single platform connecting our front office, back office, mobile apps, and clients and candidates to offer a unique digital customer experience. We will continue to introduce new functionality in 2019.

      A new marketing automation program driven by our proprietary artificial intelligence (AI) matching technology is also helping us more easily and quickly find the right fit for both employers and job seekers. Using AI, machine learning and our deep pool of candidates, we are able to send personalized candidate and job recommendations to clients and job seekers. Using data only we have, we also can evaluate how well our temporary candidates align with their respective job assignments, facilitating even better matches for clients. Through targeted marketing messages, we are able to reach brand-new clients and companies.

      There is, however, no AI technology capable of evaluating a candidate’s soft skills, attitude, professionalism or demeanor. This is where the other half of the equation, our very experienced staffing professionals, comes in. While online interaction can facilitate the job search and recruitment processes, our accompanying personalized service is critical because identifying someone who is a possible match with a job is just the start of the hiring process. In-demand full-time candidates frequently have multiple opportunities available to them. Salary must be negotiated. Counteroffers must be managed. This is work we do for our clients, so they don’t have to. It is even more complex when it comes to temporary placements. Candidate availability for immediate temporary employment is fluid and ever-changing.


      Current trends leave us optimistic about where the company is positioned right now. We believe businesses and other employers will be challenged for the foreseeable future by shortages of skilled workers.

      The biggest obstacle to growth for many employers is their inability to fill jobs fast enough. In December 2018, 60 percent of business owners polled by NFIB were hiring or trying to hire, and 90 percent reported few or no qualified applicants. Entering 2019, the talent shortage jumped from third to first place among emerging risks for organizations worldwide, according to senior executives in global research firm Gartner’s latest Emerging Risks Survey. Long-term demographics will exacerbate this trend. Not only are companies continuing to lose the institutional knowledge of retiring baby boomers — as many as 10,000 reach retirement age every day — but the increasing automation of routine jobs will boost demand for higher-skilled workers who are already hard to find.

      We offer a wide spectrum of staffing and consulting services that can be tailored to the needs of any company — from a small business to a Fortune 500 corporation. Our SMB staffing client base, as well as larger businesses with more complex staffing needs, value our consultative approach. This is particularly true at a time when clients’ demand for help in business and technology transformation is growing daily.

      The long-predicted global talent shortage is now upon us, and there is no evidence of an imminent solution. It is difficult to see major changes to hiring demand coming anytime soon.

      Our industry continues to grow. The global staffing industry’s annual revenues exceed $450 billion. And the temp penetration rate in the United States — temporary jobs as a percent of total employment — continues to rise, reflecting businesses’ growing acceptance of flexible staffing models. We are pleased with the opportunities for Protiviti as it continues to build a loyal client base and expands its suite of consulting solutions. Our combined staffing and Protiviti services allow us to meet a company’s needs at every point in the staffing and consulting continuum.

      Our brands are among the staffing and consulting world’s most recognized and respected, our financial position is strong, and we have the most experienced field and corporate management team in our industry. We are very proud of the job they have been doing in guiding our talented staffing, recruiting, Corporate Services and Protiviti professionals. The dedication of these teams to serving customers and continually sparking innovations in our operations is key to our success.

      On a final note, we want to thank our board of directors for their sound guidance and strategic counsel during the year. This year, we are pleased to welcome our newest board members, noted macro- and labor economist Julia L. Coronado, Ph.D., and Dirk A. Kempthorne, who brings deep experience from a distinguished career in public office, as well as in business. We would also like to express our gratitude to you, our stockholders, for your continued support of our business.

      Respectfully submitted,

      Max Messmer Signature
      Harold M. Messmer, Jr.
      Chairman and
      Chief Executive Officer
      March 20, 2019
      Keith Waddell Signature
      M. Keith Waddell
      Vice Chairman, President and
      Chief Financial Officer
      March 20, 2019

      * See Appendix A to the Company’s Proxy Statement mailed to stockholders in April 2019 for a reconciliation of the non-GAAP measures to the most comparable GAAP measures: http://www.chutuo.net.cn/investor-center/sec-filings/definitive-14a

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