Q1 2020 Earnings Call
Mr. Keith would tell us.
Second of officer, Robert half and Mr. Keith.
Mr., Michael Buckley, Chief Financial Officer, Mr., what else you may begin.
Hello, everyone. We appreciate your time today.
Before we get started I like to remind you that the comments made on todays call contain forward looking statements, including predictions estimates about our future performance.
These statements represent our current judgment of what the future holds however, they are subject to the real and uncertainties that could cause actual results to differ materially from the forward looking statements.
These risks and uncertainties are described in today's press release.
Most recent 10-K in 10-Q.
With the FCC.
Seeing no obligation to update the statements made on todays call.
During this presentation, we made mention some non-GAAP financial measures and reference these figures as has adjusted.
Reconciliations explanations of these measures are included in a supplemental schedule to our earnings press release.
For your convenience our prepared remarks for today's call are available in the Investor Center of our website at Robert half Dot Com.
[laughter] before we review our first quarter financial results.
Like to take a moment to talk about Robert Half's response to the Cobot 19 pandemic.
We've been working for many weeks now to ensure the health and welfare of our employees.
Also maintaining our service goodness to customers.
Safety of our employees remains our first priority early on we gave all staff the unconditional right to work from home and this will remain so.
We also agreed that time taken off today illness, or the Carol loved ones, who are sick would not be charged to employees.
As we navigate through this crisis.
Preserving the long term intrinsic value of Robert half as our guiding principle.
A key focus is retaining our best people, who proven time and again their ability to grow and sustain the organization.
They are critical to maintaining the culture, that's been an essential part of our success.
Given the magnitude of the covert 19 impact on our business, we fully understand that we must also adjust our cost structure and all other areas.
Reinforce that we're all this together.
I've got my base pay by 100% until the end of the year.
The other executive officers across the enterprise have also taken substantial pay cuts.
Our previous cloud and other infrastructure investments position does extremely well to seamlessly transition our employees to work from home status with access to all essential technology tools and communication options.
Actually all employees across the globe currently working remotely.
[noise], we've weathered many downturns.
Robert half 70, plus year history.
Oh into our strong balance sheet and cash flow.
Parallel brands.
Especially focused business model and what we believe it's the most driven and tenured workforce in the industry.
We are confident that we will emerge from this to what the ability to compete effectively and win and opposed to covert 19 world, maintaining and enhancing our industry leading brand.
Now, let's take a look at first quarter 2020 financial results company right wide revenues were 1.507 billion up 3% from last year's first quarter older reported basis and up 2% on an as adjusted basis that income per share for the quarter was 79.
Assets compared to 93 cents in the first quarter one year ago.
Cash flow from operations during the quarter was 125 million capital expenditures were 14 million in February we raised our quarterly cash dividend to shareholders from 31 cents the 34 cents per share.
We paid a dividend in March for a total cash outlay of 40 million.
Also repurchased approximately 1 million Robert half shares during the quarter for 51 million.
We have 1.5 yoga and shares available for repurchase under our border approved stock repurchase plan.
[noise] well results through the first half of March were strong and above plan.
The second half a March began to reflect the cobot 19 impact on our business.
Typically our staffing operations I, Robert half technology, and Robert half management resources divisions turned in solid results notwithstanding gifts.
Protiviti had another very strong quarter, posting double digit year on year revenue gains for eight consecutive quarter.
Yes, all bought strength across its diversified service offerings, including internal audit technology consulting and regulatory compliance consulting as well as services provided jointly with staffing.
Return on invested capital for the company was 32% into first quarter.
I'll turn the call over to our CFO, Mike Buckley [laughter], Thank you Keith and Hello, everyone.
Let's start with revenues as keep noted global revenues were 1.5 homes 7 billion in the first quarter. This is an increase of 3% from the first quarter, one year ago on reported basis, and an increase of 2% on an as adjusted basis.
Also on an as adjusted basis first quarter staffing revenues were down 1% year over year U.S. staffing revenues were 944 million down 0.2% from the prior year.
Non U.S. staffing revenues were 269 million down 4% year over year on it has adjusted basis.
We have 327 staffing locations worldwide, including 80 locations in 17 countries outside the United States.
In the first quarter, there were 63.1 billing days compared to 62.2 billing days in the same quarter one year ago.
The current second quarter has 63.4 billing days unchanged from the second quarter, one year ago.
Currency exchange rate movements during the first quarter had the effective decreasing reported year over year staffing revenues by 9 million.
This decreased our year over year reported staffing revenues staffing revenue growth rate by 0.7 percentage points.
Now, let's take a closer look at results for Protiviti.
Global revenues in the first quarter were 294 million.
233 million of that is from business within the United States and 61 million is from operations outside the United States.
On an as adjusted basis Global first quarter, Protiviti revenues were up 15% versus a year ago peers.
The U.S. with U.S. Protiviti revenues up 20%.
Non U.S. revenues were up 2% on in has adjusted basis exchange rates had the effect of decreasing year over year Protiviti revenues by 2 million and decreasing its year over year reported growth rate by 0.6 percentage points.
Creativity and its independently owned member from UBS serve clients through a network of 86 locations in 27 countries.
Turning now to gross margin.
In our temporary and consulting staffing operations first quarter gross margin was 37.8% of applicable revenues compared to 38.0% of a political applicable revenues in the first quarter one year ago.
Our permanent placement revenues in the first quarter were 9.9% of consolidated staffing revenues versus 10.8% of consolidated staffing revenues in the same quarter one year ago.
When combined with temporary and consulting gross margin overall staffing gross margin decreased 70 basis points compared to the year ago first quarter, 244%.
For productivity gross margin was 78 million in the first quarter for 26.3% of Protiviti revenue.
One year ago gross margin for productivity was 64 million or 25.3% of Protiviti revenues.
[laughter] companywide SGN any costs were 31.8% of global revenues in the first quarter compared to 31.4% in the same quarter one year ago.
Staffing <unk> costs were 35.3% of staffing revenues in the first quarter versus 34.2% in the first quarter 2019.
The increase in staffing SGN, a as a percentage of revenue was significantly impacted by negative leverage as revenues decreased in response to the pandemic.
[laughter] first quarter SGN, a cost for Protiviti were 17.3% of Protiviti revenues compared to 17.9% of revenues in the year ago period.
Moving on to operating income.
Companywide operating income was 131 million in the first quarter.
Operating margin was 8.7%.
First quarter operating income for our staffing divisions was 105 million with an operating margin of 8.6%.
Operating income for productivity in the first quarter was 26 million with an operating margin of 9%.
Our first quarter tax rate was very high at 32% compared to 26% a year ago.
The primary driver was lower than expected tax deduction for the annual vesting of stock compensation, which was valued after recent stock price declines.
At the end of the first quarter accounts receivable was 854 million and applied day sales outstanding D.S.. So was 51 days.
[laughter].
Given the uncertainty caused by the Toby 19 pandemic and its impact on global economies, we are not offering overall guidance this quarter.
We will however review with you some of the monthly revenue trends, we saw in the first quarter and so far in April all adjusted for currency and billing days.
Our temporary and consulting staffing divisions exited the first quarter with March revenues down 6% versus the prior year.
Compared to being flat for the full court.
Revenues for the first three weeks of April were down 25% compared to the same period one year ago.
Permanent placement revenues in March were down 33.3% versus March of 2019.
This compares to a 9% decrease for the full quarter.
For the first three weeks of April permanent placement revenues were down 63% compared to the same period in 2019.
[laughter] activities pipeline remains strong.
Particularly for technology in regulatory compliance engagements.
Protiviti expects second quarter revenues to be in the range of flat to down 10% versus the prior year.
Huh.
As a result of these staffing trends and the continuing social distancing lockdowns across the globe. We took actions in March in early April to reduce our operating costs by approximately 20% compared to the first quarter of 2020.
Also we are currently taking further action to reduce SGN a cost by an additional 10%.
These actions have been focused on eliminating all nonessential costs, such as traveling events as well as late as well as laying off or less experienced and lower performing staff.
Impact in corporate staff were furloughed with paid benefits awaiting a return to higher activity levels.
Given the timing of these reductions in certain severance costs reported results in the second quarter will only reflect savings of approximately 25% versus the first quarter of 20 Twond.
We entered this period with a very strong balance sheet at the ended the quarter, we had $250 million in cash and $854 million in receivables both of which will be a significant source of ongoing liquidity and financial resilience.
Now I'll turn the call back over to keep.
Thank you Mike just noted earlier [laughter]. The cobot 19 pandemic is having a significant impact on global economies.
The result of stay at home orders and business closures to stop the spread of the virus.
Our staffing clients most of which are small and midsize businesses are filling the crisis, most acutely and that downstream effect is a much tougher business climate for Robert half.
I'm extremely proud of how our teams have been responding to this pandemic.
Even in the current environment, we see opportunity.
Were you aggressively pursuing significant opportunities in financial services government and public education.
And outsourced re shoring many times jointly with Protiviti.
We're already seeing many successes in these areas.
Protiviti is also successfully transitioned its existing and new client work to world most delivery model, which makes it even more possible to bring the most relevant deep subject matter experts to the table for its clients.
[laughter], we believe the factors that drive typical recovery recovery patterns are still very much in place.
Companies get lean and defer projects during downturns, particularly nimble small and midsize businesses.
A pause and they start Wayne employers need help as business picks up and they resume projects that were put on hold.
Variable costs labor models are ideal in the early stages of a recovery until the business stabilizes as thick recovery celebrates there is typically pin up demand, especially for specialized skills.
The quality of the available labor pool is it never better than in the early part of a recovery.
Many people who lost their jobs during the downturn did so because of business conditions not performance. Some companies what's happened yet this talent pool by hiring full time as their business picks up others will upgrade existing staff and some will tap into the high quality temporary and contractor pool.
No because they're reluctant to hire for time, either way Robert half gets a lift in permanent placement and temporary incontact revenues.
What's particularly good news. This time is it employers have seen their remote work can be effective with fewer geographical constraints, we can find and even better fit on the Kansas side, which effectively raises the quality of the candidate pool that much further we're already seeing examples of this.
In short as business picks up demand for our services also picks up because clients start with lean staffs. Likewise, the quality of the candidate supply benefits from high unemployment and fewer geographic limitations, which provides further incentive for our clients.
Yes.
During early periods of recovery clients, particularly need our help to avoid becoming overwhelmed with the massive volume of candidate responses to their open positions. There ill equipped to handle the interviewing vetting follow up at consummation of their employment requirements. They all.
Also need our help persuading fully employed candidates to make a job changed at a time when Dave valued at the security you have with your existing jobs and to get access to candidates who were only known to us confidentially.
In the past two downturns once the trough was reached our revenue growth was very robust for the next three to five years with permanent placement outpacing temporary and consulting.
Much of the current unprecedented monetary and fiscal policy response to this crisis, including this week's 484 billion extension is targeted at our client base. This gifts. This cause for optimism, we're confident that Robert half will participate fully in any.
He recovery as business conditions improve.
Now, Mike and I would be happy to answer your questions. Please ask just one question and a single follow up as needed. If there's time, we'll come back to you for additional questions.
[noise] at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from Mark Mccollum from Baird. Your line is open. Please go ahead.
[noise] or good afternoon keep in mind I Hope you guys are both well and as well as your families. I'm wondering can you talk a little bit about the weekly trends that you ended up seeing in terms of going through late March through April just in terms of whether you've seen.
Signs that perhaps what we're seeing in April or it's kind of close well autumn were or are things continuing just deteriorate and could you discuss that with a little bit of granularity between the different sub segments.
And then I have a follow.
Okay happy to answer, yes, so like and I are well that's our families.
So.
Trends.
We said through mid March we were strong and above plan that we're talking too.
The last two weeks of March showed the biggest drops as the shutdown spread.
After that the rate of decline has progressed civil we slow.
The way small single digit percentage.
To be clear that means April week, three was only a small single digit percentage less than April we too.
Also the number of new assignments that weren't getting on the temp side has actually flattened out which were encouraged by.
Office team is the most impacted.
As admin support is more discretionary and they took longer to transition to work from hole.
Management resources, Robert half technology, or the least impacted their higher level longer duration projects and they move to a remote work more easily.
Most of our timpson contractors are working remotely.
Either using client laptops.
Robert half provided laptops, we have thousands and inventory that we sent to them.
Plus we have a cloud solution that quickly converts are candidates personal device to a virtual secure desktop and we can do that in a matter of minutes.
Before I talk about per also talk that owns a tip side, our conversations with clients are getting more positive.
We're seeing significant traction and wins many times jointly with positivity.
Hot areas include mortgage refinancing and forbearance.
Credit in collections, particularly in consumer lending.
Loan processors, particularly as it relates to the stimulus loans.
We've got assignments with some states, helping them to process. There unemployment claims we have tech support assignments for organizations that are new to working remotely.
Some companies found that had outsourced certain love their processes, particularly to India.
Learned that those outsourcers or not well set up for work from home Oromo work and are now re shoring those back to the United States. Those are perfect assignments for a joint Protiviti staffing manage the business solution managed technology solutions.
[laughter] as it relates to Perm placement.
Replacement was also saw the through mid March into frankly through mid March we were probably on pace to have the best first quarter, we've had quite awhile.
However, the last two weeks of March for per interestingly flattened out didn't go down, but that's the time period in years past, where there's a significant joel or lift which you didnt happen this year.
And then the first two weeks of April there was a significant drop in per.
The good news is our job orders the new job orders in per the last three weeks are flat.
So we're cautiously optimistic based on everything up just said that we're close to if not at the bottom because if it certainly appears that the trends are flattening out.
Okay, that's terrific and I'm wondering you gave you know some guidance for Protiviti, which seems fantastic I'm wondering if you can talk to how sustainable you think that is particularly in light of some of the things that you mentioned in terms of the opportunities that you're seeing substantial services governed.
At least shoring and some of the projects that they're doing there.
[noise] for Protiviti had fantastic first quarter.
Our operating income was up 42% year on year, we couldn't be happier.
It was broad based as we've talked in in the past.
Led by technology consulting, which was cyber which was privacy, which was cloud at that site regulatory which is anti money laundering, which was consumer lending as well as the joint engagements with staffing.
That's a pipeline in tech to pipeline and half ESI regulatory remains very strong they remain very bullish on that internal audit is seeing some impact.
Fewer pre IPO engagements.
Certain portions of their internal audit their clients internal audits audit budgets are discretionary which are being reduced protiviti has song, but not an outsized saum exposure to energy transportation and hospitality and all of those clients have cut back their internal audit budgets.
[laughter].
But by and large, particularly for check and at that site Protiviti has a very strong pipeline and feel very good at least through the second quarter and frankly beyond as it relates to those two.
Internal audit some softness for reason inside just explain I.
I think importantly, many cup. Many of you are now looking us today versus the last downturn.
I think.
The differences in Protiviti are the most striking going into the last downturn over 70% of Protiviti is revenues were sarbanes Oxley compliance. So during the downturn they had not only to deal with downturn discretionary spending reductions, but they also had to deal with clients rationalizing.
Or sarbanes Oxley, the initial sarbanes Oxley compliance cost.
Now Sarbanes Oxley compliance is less than 15% or revenue they've diversified very nicely. So I think you're going to see a very different protiviti performance. At this time, then last and that's already being demonstrated by what you're seeing so far.
It's fantastic. Thank you [laughter]. Your next question comes from Andrew Steinerman from JP Morgan.
Your line is open who's kind I, Keith one of the dig segments really the focus of your clients is small and medium sized businesses. I know, it's also small order sizes, but I just wanted to get a sense of small and medium sized businesses like is the P. P. P I, helping Dan and when you guys say small and medium sized businesses.
Is that like companies or 500 laser less just give us a sense of how you think of small and medium sizes.
Okay, and so I'm, a little less loss profile, our client base a bit on the staffing side. So.
Yeah.
About 80% of our revenue, we would describe as small and middle sized businesses SMB is the other 20% we call strategic accounts and strategic accounts, you would probably call it mid cap companies and so our SMB space.
The median would be between 50, and 100 employees, what accountemps officeteam tending more toward the 50 and Robert half management resources, Robert half technology tending toward the hundred again, that's 80% of our staffing business. The balance is strategic accounts now so.
For TG accounts.
While there are margins are modestly lower than what we get from Smbs. They are light years higher than what the large general staffing firms get from those types of clients. The median size of our strategic account clients would be in the forward.
6 billion in revenue, which which I would call a mid cap company.
Asked to P P.
[noise].
It is interesting enough I be released a couple of days ago that 75% of its constituents had applied for a P.P.P. loan, but it only 20% had received any money to date I can tell you we have many engagements where we're helping our clients.
[laughter] prepare for.
The application related to two P.P.E. as well as Oh employee retention credit. They can qualify for so I'd say, there's a lot of activity there I'm not sure a lot of actual cash has yet followed it to our client base in that way.
[noise], that's another point I would make that I've found of interest.
There was a study by [noise].
One of the law the larger wall Street for [noise].
That study that's performance of S. NVS during downturns.
And I have some notes really trying to find.
They compared the recovery after the 1982 recession to the recovery after the 2008 recession and they believe the recession is were similar in size and in nature and they concluded that the S.N.B. recovery post 82 was much stronger than the S.N.V. Rick.
Every post a 2008 or calls with a policy focus was principally on S. M. B. So we're very encouraged that much of the corrupt policy focus including hopefully today's extension is focused on those asked him be.
Great. Thanks, Keith.
Your next question comes from Jeff Silber BMO capital markets. Your line is open. Please go ahead.
Thanks, So much keep you talk about a little bit about how productivity a different this downturn I'm just wondering if you could give us some color on the rest of your businesses and maybe what you learned coming out of last downturn that you might have thought change or you might think you'd be different position in temporary and consulting staffing and parent. Thanks.
Well I guess without talking about whats different let me first talk generally.
First I would observe that we have a very experienced management team.
That both corporate and in the field.
Most of US have managed through the downturn of the early 2000 as well as though eight or nine.
The declines we've seen so far we've seen before.
It's just that they're happening much quicker.
Well, we've learned over those years that wants it's clear there was going to be a sharp downturn that we act quickly to reduce and experience and underperforming staff as well as reduce.
Discretionary cost.
To the extent de staff struggled during good times, it's unlikely they perform any better during a tougher market.
[laughter] benefits, our best performers as the ongoing revenues are spread over fewer people.
We believe in targeted reductions rather that across the board. Once every office every market every person is different we have very detail performance the data that to that drives. These decisions. It's Mike mentioned, we've already taken the actions.
Reduce are asking a cost by 30%.
However.
Given our intent to protect our past people we have to have their back they have to know we've got her back.
It will be much harder to get significant additional savings because they've got a primarily come from non payroll areas.
The playbook is not about just cutting cost.
It's also about mobilizing quickly.
To pursue those pockets of demand.
Or labor resources are needed I've talked about those earlier.
We're confident that this strategy, which has worked before or work again, which is what we're executing on.
Now from the standpoint of how is staffing different forget Christianity I'd say it is it dramatically different.
The fact that.
Staffing has protiviti to go to market with.
Give staffing more opportunities than it would have on its own or which you had had in the last downturn slash recovery. So many of the opportunities I described earlier or are at companies that are larger than.
Oh staffing its traditional client base, nor I can tell their strategic account base that I talked about but there's no question in my mind that staffing whether it gets reported as protiviti or purported to staffing doesn't matter. There's no question staffing will do better staffing is already doing.
Better because it has protiviti to go to market with that it didn't have in the last downturn and that's significant.
Okay. That's helpful. I appreciate that.
My second question, what the focused on Perm, they're probably not a lot of hiring these days.
Yeah, you know you're still getting some business.
<unk> type of clients or what are the type of physicians that are using your perm recruiters to higher full time. Thanks.
[laughter] [noise].
Well remember now that.
In our Perm business, our clients typically will only pay a fee.
For us to find for them someone who's fully employed.
And so.
Though ranks of those who are currently only employ don't really impact.
Oh pool of people that are where if anything they shrink the pool of people that are currently employed so to some degree it makes it even harder for our recruiters given that but there are many there were many searches in place when this happened client Sun.
Understand how tough it was to get great people you don't forget that in four weeks I know even ourselves internally, we've had certain positions, particularly in I T. A that we've struggled to get really good people that I can assure you. We're now looking to hire full time in those areas because we.
You may now have that opportunity.
But in an accounting finance many of those types of positions are considered essential cash flow budgeting liquidity, although all of those things are top of mind for companies up every size and we have people right in that sweet spot for which there is.
Continuing demand for as I've said as we look at our new job orders in Perm the last three weeks they've been flat.
I mean flat at a low level I'll give you that but they're not continuing to decline.
Okay. That's very helpful. Thanks, so much.
Your next question comes from Kevin Mcveigh Credit Suisse. Your line is open. Please go ahead.
Great. Thanks, Keith.
He keeps you know there's been a couple of downturns the severity impounded the quick Nishu. This is really in person they need.
And you've talked a lot about kind of the bottoming any sense of what you look for.
In terms of the bother me to come back gallon appreciating your.
The duration of the downturn could be a lot quicker just I guess.
You come to look at me keen on existing steep rise in store team.
Recover.
Well, where we primarily are looking very closely.
That all our internal metrics.
Our starts and ends on the temp side the job orders to client visits there's all type of activity metrics, we look at.
And then we have.
Weekly hours billed weekly number of people on assignment.
Weekly dollars build so we have.
[laughter] many types of.
Data that we look at that it's principally week by week.
The nature of the business is such that you never have a huge amount of visibility forward and so instead, you got to be very attentive to weekly trends and as I described earlier the good news is.
The rate of decline. We first is weak has slowed significantly significantly to a very small single digit amount.
So for women, just three thinking about capital allocation in terms of dividends versus buybacks <unk> in the near term.
So for this quarter kinda given the severity of the impact we're gonna take a pause on buybacks.
However, it is our plan to continue that dividend.
Cause the cash flow that will generate plus.
That was gets generated from the receivables as your revenues decline will think we believe will be more than adequate to continue to pay the dividend.
If you look at what we've distributed to shareholders over time spent about two thirds buybacks one third dividends. So by pausing this quarter on the buybacks you've cut two thirds, if you will which in part justifies paying the other third which is dividends.
I would also hasten to add that over the last 15 years, we bought in about a third of our outstanding and the average price paid was in the mid Thirtys.
So even by today's standards, that's not bad.
No no Stacey thank you.
Your next question comes from Tobey Sommer Suntrust. Your line is open. Please go ahead [noise].
Hey, good afternoon. This is Jasper bid 100, Tobey I wanted to ask how performance is trending in some of the larger European markets given the stimulus measures that have been put in place there.
[laughter] well if so.
[laughter], it's kind of interesting for the first quarter.
We actually had positive growth in Germany, which I found to be incredible and it stood out positively in that way.
But if you look at the post quarter periods.
It's interesting as well that the year on year declines across our major countries outside the U.S.
Our very similar to what we're saying in the United States. So it's all mid 20 ish I guess, France, probably stands out as being the worst but the rest of 'em cluster or pretty close to mid Twentys, which is similar to what we're saying in the United States.
Thanks, and then I was wondering how much more impacts a social costs have on gross margin in the last recession, and whether you're expecting a difference there this time around.
[laughter] [laughter].
[laughter] well in the last downturn I take we lost 300 basis points in gross margin peak to trough.
About half of that was conversions, which are related to perm placement there just converting temp to perm. So we would certainly expect to see an impact from that.
Some of that you'd get some margin compression.
At some clients demand lower pricing, which we for the most part avoid but there's some of that.
Some of that's higher unemployment cost.
What's interesting about what's going on now is that.
The.
Unemployment benefits being paid out by the states currently.
Can't be charge back to individual companies like they have been in times past, if they're taking the additional federal them out for the benefit of their constituents. He's and I think virtually every state is doing so so it'll be interesting to see.
Coming out under recovery, what happens to individual company on employment rates given that unlike in the past. These claims aren't going to be charged back to us individually as a company.
I appreciate the detail there thanks for taking the questions [noise].
[noise] [laughter], Gary Bisbee from Bank of America.
Your line is open. Please go ahead.
Thank you. So you referenced a a lot of attempt business is not just protiviti, having transition to workers working remotely and.
Probably a little more a little more color on that how broad based is that <unk> that that broadly it well and adopted by clients.
Any change.
Sort of contract structure or how it works in terms of Billy what you're building, what you're paying in any of that is.
<unk>.
You have those people.
[laughter]. So I think your question is on the tip side not protiviti, some more color on our temporary and contractors and they're working remotely.
That's right and the facts are most of those that we have on assignment today as we speak are working remotely.
And they're either using client provide at laptops with VP in connections back to the client.
Robert half provided laptops, which have been image by us to provide a secure environment Debbie can be connected to our clients.
Or.
Yes, I said earlier, we have this cloud solution, where we can virtually stand up a secure a desktop for our candidates and we can do that in a matter of minutes and all of that positions us very well to have our candidate pool.
No.
[noise] Romo ready pretty much at a moment's notice.
And you've seen clients broadly broadly adopting that.
[laughter], absolutely as as I said.
So business, we have today now given its down 20%, but that 75% that we still have.
It's still largely working remotely.
And I'm talking to our temporaries and contractors, our internal staff are a 100% remote protiviti staff is 100% remote.
But I'm talking about temporaries and contractors.
They're largely working remote.
Okay, Great and then the follow up I, just wanted to clarify cost reduction.
That you're undertaking you said, 20% of operating cost.
And another 10% of SGN day was it was that operating costs also focus it yesterday. So so roughly 30% of the Q1 yesterday or are there.
<unk>.
That's precisely correct. So if you take Q1, SGN $8, which is about 480 million I believe.
So because we acted quickly.
The first 20% reduction.
You are going to get a full quarters benefit of and that next 10%, bringing the total to 30% you're going to get about half of that benefit in the second quarter.
Right.
Our next question is from Hamzah Mazari from Jefferies. Your line is open. Please go ahead.
Hi, This is married up quite a lot she comes up.
So you guys for its is working capital source of cash I, just I believe you you've done the in the passing on the downturn. So I don't want to see if you can give a sense of how much of a benefit that could be and then and then given the fact that your client base I'm pretty even small and medium sized businesses and their under stress.
In other sectors, we receive.
Asking for deferral of payment or late TV or are you seeing anything like that in staffing as well.
[noise] and so.
The answer to how much of benefit does that direct functions of your revenue assumption.
So clearly the more severe the drop in revenue the more severe the drop in receivables, which is actually cash positive.
Interestingly in the last downturn, our D.S. So didn't go up by a single day.
Now in the last downturn there weren't shutdowns either like they are this time. So do we expect that D.S.. So won't change by a single day, no but as of yesterday.
The cash collections are pretty normal relative to what we would expect given revenues and while we expect there we will be saum DSL impact. During this particular downturn, we still believe receivable reductions will be.
Can source of cash.
And then.
Obviously, I know they're going on economists.
[laughter] through but I I, just want to get a sense for what you're hearing from some customers fine.
About what they're hiring plans are how much visibility you have.
I don't need assumption in maybe we'd be start need some kind of return to normalcy me either in June and July.
And you just didn't know I guess, what's the timeframe that you think.
Your your customers are expecting for economy to kind of but I got them things get to that a little more normal not in that will be operating like Werent last year in July, but I guess, what's the cadence of are you running in your customer expectations.
Well, we have very little visibility, but as we said earlier.
Our clients are very nimble.
And get very lean.
And given the initial unemployment claims the last four weeks I think it's safe to assume that they've gotten very lean very quickly.
And so at a at the first moment that things pick up.
There are going to need help what she was very consistent with past cycles, which was the phone we tried to make earlier.
We don't know the timeframe.
We don't know whether this is a V shape U shape what to shape is.
As we've said we've run the playbook that has served us well in prior downturns, we feel good about the actions we've taken we feel good about the capacity you here, we have whether our best people to participate.
Second things get better and old by the way we have all these.
Particular opportunities that are focused on.
Correct.
Circumstances, particularly with financial services institutions as I talked about so timeframe I don't know visibility we don't have much of.
History says our clients get really lean, which puts them at a spot to have a lot of requirements when things get better.
Well, we think they've acted.
Just as I have acted in into passive anything more so and I've gotten even more lean.
And whether their source of cash is there a P.P.P. loan for us because our business picks up we liked how we're positioned.
Yes.
[noise] [noise] [laughter]. Your next question comes from Seth Weber from RBC capital markets. Your line is open. Please go ahead.
Hi, good good afternoon everybody.
Wanting to go back to two Gary's question, just about the cost reductions.
<unk> is there any chance that through technology or any of your you know your corporate initiatives that some of those costs may not come back.
You know with revenue when once revenue comes back or do you think that those are you I guess for questions or any of those cost cuts permanent or do you think they they all kind of come back with volume. Thanks.
I think it's really good question I think it's a really got opportunity for us to kind of stretch, but the limits of what kind of benefits can we get what technology, we've made significant.
Hi investments in AI in.
Other things that we've talked about many times on these calls.
We're actually cautiously optimistic that the productivity of the workforce coming out of this will be better than the productivity of their workforce, we've had more recently and there's upside there.
Okay.
Right. Okay. Yeah. That's that's what I was getting at just with all your investments and stuff I guess, just my quick follow up on the Protiviti businesses with revenue you know kind of earmarked flat to down a little bit do you think that margin can still be up year over year and that type of that type of revenue cadence.
I think with flat to down revenue for Protiviti that means they're going to be theres, they're gonna have less utilization a lower charge ability. So that says that their gross margin would be down more than their revenue.
Which which stress their margins of bid so I would expect.
I would expect their margins to check a bigger hit them their revenue how they do have.
This tranche of variable labor window, using contractors and temporaries from us and they will swap them out for their own full time staff.
But because the cost of their own full time staff is higher than the cost of the contractors.
That's actually margin compressing as well so I think you're going to see a little more margin compression then you're going to see revenue decline on productivity that said given the circumstances I I think their performances outstanding.
Sure. Okay. That's very helpful. Thank you very much guys stay well.
Our next question comes from Ryan Leonard from Barclays. Your line is open. Please go ahead.
[noise], Yeah, Hey, guys when you're talking about some of the April trends, particularly intense.
You mentioned some onshoring it wasn't clear if you were talking about creativity 10, kinda joint projects or specific we have 10 trend in April [laughter] kind of flat flatline [noise].
And so when I talk Pip trends I was talking pure temp staffing that had nothing to do with Protiviti.
Pure can't where the rate of decline has slowed to a low single digit percentage nothing to do with creativity.
When I talked about.
Many of the opportunities we have that we're excited about many of those opportunities our joint opportunities with protiviti, but that's more about from today forward rather than the periods of time I talked about with regard to trends.
Yeah, and would you say, you're not providing guidance is more reflection of the uncertainty today, even though even though you think things are stabilizing.
Just want to commit to anything at this point given the uncertain.
[laughter] I think given the uncertainty.
We don't know when everybody's going back to work, we don't know whether it's going to be phased we don't know whether its county by County City by city state by state country by country.
There's just too much we don't know.
And while we have a nice six week period, where we can judge trends, who knows whether those six weeks are representative of the next six weeks.
We feel good about the trends as we see them. So the reason we've talked about what's your just too much uncertainty about how representative that is that what we're getting ready to see.
Got it looks like its can you give little more you know just.
This is such a unique circumstance, but part of the government response has really been faster. These PPP loans the hold up payrolls as things start to come back I mean, do you envision any tradeoffs, there where there's a lot of people on the sidelines, who may be hired back first as a result, there or maybe who are you are able to be used quicker.
And then Tom just because of the uniqueness is the the Cisco response.
[laughter].
Well the.
Most of those PPP loans have to be sit spent 75% on payroll, meaning you retain the payroll.
And therefore to the extent.
What you retained isn't enough you're going to need help.
And my therapy, a little bit of a pause as you catch up on those that you furloughed.
If you didn't.
CK PPP loan or receive a PPP alone, but I think the the overarching.
Comment that our clients get lane that caused their nimble I don't think at a high level, that's changed because of P.P.P. loans and at least so far they haven't even received their PPP loans.
Thank you.
Your next question comes from David Silver from C.L. King.
One thing. Please go ahead.
Okay. Thank you very much.
Keith I'm, Mike Thanks, very much for all the great detail I have kind of a small board question and then a bigger question.
Firstly, it would have to do.
The cost associated with the 30% reduction in your.
Base level of SG today so.
Keith One feature I think of your reported results is it's extremely rare when you call out at night on that is like a restructuring cost or one time item that that analysts like US you know adjust for when we're protecting your your earnings per share.
So I'm interested the cost that were involved in achieving the 20%.
First the first phase reduction and the 10% a second phase reduction in your question. They do you intend to called that out as a separate line item and then secondly, if you could just ballpark that caused that would be very helpful. Thank you.
[laughter] well orders of magnitude.
So first round of reductions we had severance of about $5 million and that was recorded in the first core.
For the second round of reductions.
Notice, we said we've cut to cost by 30%.
And only.
25% of that gets reflected in the second quarter. So there was a 5% there that does it.
If you take that 5%.
Can you can kind of split in half between how much relates to severance and how much relates to.
Training and that you don't get a full quarters benefit.
So I think you'll find that to severance isn't as orders of magnitude 10 million.
For the second round tend the reason, it's more than the first round.
The first round was geared more towards inexperienced people. The second round was secured more toward.
Lower performing people that had been there longer than inexperienced people.
Okay, and I'm, assuming that won't be called out separately, then you're going to it's it's not our style that I just did obviously [laughter] no no, but that's for the third forecasting [laughter] second question is more of a big picture item, but.
[laughter] you know Ah.
Theres you've commented on different angles of you know what's different this time around versus the past couple of downturns and I'm going to just throw one out to you, but one thing that I expect and many other people expect to be different is the role of China within the world economy.
There will be a significant reorientation or repositioning of global supply chain away from China, and you know back I'm, assuming to the western economies broadly who had been offshoring are outsourcing I guess a lot of there.
Production and distribution services operation.
I I know, it's extremely early days, but does that seem like a valuable kind of incremental source of growth.
It's something that maybe some of your more sophisticated clients and started to ask you about being and you know do you have any thoughts on that and what parts of your business maybe the most.
Sensitive to kind of bringing.
Global supply chains back into you know domestic markets and make economies, where your view of operation. Thank you.
Well.
I'm not sure supply chain repositioning.
Impacts us that much directly I think related but different would be to the extent our mid cap clients have outsourced certain of their processes to India, and Ireland and other places.
That proved they work very well positioned.
To work remotely when they were shut down.
So I I know I quit we're already seeing opportunities where companies are being those processes back.
Which is an opportunity for us either to consult to provide labor or even to outsource to ourselves with our joint offerings. That's clearly already having an impact and is expected to have an impact so it's.
Similar theme, but it's not China supply chain specifically.
Okay, Yeah, I know I I thought it might be analogous, but I hadn't heard you mentioned, China specifically in your comments. Thank you for that appreciate it.
Your next question comes from George Tong from Goldman Sachs. Your line is open. Please go ahead.
Hi, Thanks, good afternoon.
I mentioned attempt declines have begun to stabilize over the past six weeks given the broad based nature of the shutdowns already based on what you're seeing what factors could potentially cause trends to beacon worsen.
Well I'd I'd say.
[noise] clearly that's not the trend we're seeing.
Yes, there would be new outbreaks of significance.
That would extend worsen the shutdowns clearly that would have an impact.
But as I said relative to the shutdown said if occurred so far.
We had a.
A significant drop for a couple of weeks the last two weeks.
As of March.
But for it but beyond that we have seen a path towards stabilization.
But I would not a what would take it lower would start with science and health reasons more than anything else.
Make sense on the on the cost side, you're reducing operating costs by 30% like you said, but to Q how much of those cost reductions involved the elimination of recruiter headcount and how quickly are you able to restaff recruiters when business trends do improve.
Well, we haven't and don't plan to break out the reductions by nature, but I think it's safe to say given that payrolls roughly two thirds of rest DNA payroll is got to be the lions share of the reductions.
And as far as how quickly can we read staff. We're in the recruiting business. That's what that's our day job and to the extent, we need to recruit for ourselves that's something we're well positioned to do and hopefully because there's a labor market when we go to.
Higher those people won't be less tight than the labor market. When we hired the people we just let it go.
Potentially we get people that can have higher productivity.
Which would be a good very helpful.
Got it thank you.
Okay, operator, I think that was our last question.
This concludes todays teleconference. You missed any part of the call there will be archived audio format and the Investor Center of Robert Half's website at Www Dot Robert half Dotcom can also dialed the conference call replay.
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