Q3 2020 Robert Half International Inc Earnings Call
[music].
Our hosts for todays call are Mr., Keith Waddell, President and Chief Executive Officer of Robert half and Mr., Michael Buckley, Chief Financial Officer, Mr. why don't you may begin.
Hello, everyone.
We appreciate your time today.
Before we get started.
I like to remind you that the comments made on today's call contain forward looking statements, including predictions and estimates about our future performance.
These statements represent our current judgment of what the future holds however, they are subject to the risks and uncertainties that could cause actual results to differ materially from forward looking statements.
These risks and uncertainties are described in today's press release and our most recent 10-K and 10-Q filed with the FCC.
We assume no obligation to update the statements made on today's call.
During this presentation, we may mention some non-GAAP financial measures in reference to these figures as as adjusted reconciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release and.
In addition.
We have modified our presentation of revenues and the related growth rates for Accountemps, Officeteam, Robert half technology, and Robert half management resources to include their inter segment revenues from services provided to Protiviti in connection with the company's full.
Winded staffing and can.
And consulting solutions.
This is how we measure and manage these divisions internally and from now on it's how we'll report them externally.
The combined amount of divisional inter segment revenues with productivity is also separately disclosed.
For your convenience our prepared remarks for today's call are available in the Investor Center of our website at Robert half Dot Com.
We're very pleased the third quarter and early October results reflect consistent weekly and monthly sequential gains across our divisions.
Protiviti had another outstanding quarter reporting its twelveth consecutive quarter of year on year revenue gains leveraging a strong pipeline of diversified service offerings, including particularly robust growth with the blended solutions with our staffing operations.
We're also pleased with the quarter on quarter growth in our staffing divisions led by a permanent placement and Officeteam divisions too.
2020 continues to be an unprecedented year.
I'm extremely proud of the resourcefulness sent commitment exhibited by all of our employees as we maintain high levels of service to our clients and candidates.
Companywide revenues were 1.19 billion in the third quarter of 2020 down 23% from last year's third quarter on a reported basis and down 24% on an as adjusted basis.
Net income per share in the third quarter was 67 cents compared to a dollar one in the third quarter a year ago.
Cash flow from operations during the quarter was 139 million.
Capital expenditures were 7 million in September we distributed a 34 cents per share cash dividend to our shareholders of record for a total cash outlay of 38 million we all.
We also acquired approximately 450000 shares.
During the quarter for 24 million.
We have a million shares available for repurchase under our board approved stock repurchase plan, which.
Return on invested capital for the company was 25.8% in the third quarter now I'll turn the call over to our CFO Mike Huckabee.
Thank you Keith and Hello, everyone.
Let's start with revenues as Keith noted global revenues were 1.190 billion in the third quarter. This is a decrease of 23% from the third quarter, one year ago on a reported basis and a decrease of 24% on an as adjusted basis.
Also on an as adjusted basis third quarter staffing revenues were down 31% year over year US staffing revenues were 666 million down 32% from the prior year.
Non us staffing revenues were $203 million down 29% year over year on an as adjusted basis, we have 326 staffing locations worldwide, including 88 locations in 17 countries outside the United States.
In the third quarter, there were 64.3 billing days compared to 64.1 billing days in the third quarter, one year ago. The current fourth quarter has 61.7 billing days equivalent to the fourth quarter of one year ago.
Currency exchange rate movements during the third quarter had the effect of increasing reported year over year staffing revenues by 4 million.
This increased our year over year reported staffing revenue growth rate by 0.3 percentage points.
Now, let's take a closer look at the results for Protiviti glow.
Global revenues in the third quarter were 321 million 200.
$260 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 third quarter, Protiviti revenues were up 6% versus the year ago period with us Protiviti revenues up 10% now.
Non us revenues were down 8% on an as adjusted basis. Thanks.
Exchange rates had the effect of increasing year over year, protiviti revenues by $2 million and increasing its year over year reported growth rate by 0.7 percentage points positive.
Protiviti and its independently owned member firms serve clients through a network of 86 locations in 28 countries.
During the quarter, we changed our presentation of sales.
General.
SGN a expenses to exclude gains.
In losses on investments held to fund our obligations under employee deferred compensation plans under these plans.
Employees direct the investments of their account balances and the company makes cash deposits into an investment trust consistent with these directions.
As realized and unrealized investment gains and losses occur the company.
The company's deferred compensation obligation to employees changes accordingly.
However, the value of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost to the company going.
Going forward changes to the company's deferred compensation obligations noted above we will continue to be included in ESG DNA or in the case of Protiviti direct cost. However, the offsetting changes in the investment trust assets will be presented separately below SDMA in outside of operating income.
This does not change the reported level of pre tax were after tax income or cash flows provided previously provided going.
Going forward, we will replace the discussion of consolidated operating income with the non-GAAP measure of combined segment income this will be.
This will be calculated as consolidated income before income taxes adjusted for interest income and amortization of intangible assets.
Turning now to gross margin.
In our temporary and consulting staffing operations third quarter gross margin was 37.5% of applicable revenues compared to 37.9% of applicable revenues in the third quarter one year ago.
The year over year decline in gross margin percentage is primarily due to lower conversion revenues.
Our permanent placement revenues in the third quarter were 10% of consolidated staffing revenues versus 10.7% of consolidated staffing revenues in the same quarter one year ago.
When combined with temporary and consulting gross margin overall staffing gross margin decreased 80 basis points compared to the year ago third period to 43.8%.
For Protiviti gross margin was 87 million in the third quarter were 27.1% of Protiviti revenues.
This includes $3.4 million for 1.1% of Protiviti revenues.
Deferred compensation expense related to increases in the underlying trust investment accounts.
One year ago gross margin for Protiviti was $88 million or 29.4% protiviti revenues, including $200000 of deferred compensation expense related to investment trust activities.
Yes.
Company wide as gene any costs were 32.8% of global revenues in the third quarter compared to 31.2% in the same quarter one year ago.
Third compensation expenses related to increases in underlying trust investments had the impact of increasing SGN as a percentage of revenue by 1.9% in the current third quarter and 0.1% in the same quarter one year ago.
Staffing SGN any costs were 40.2% of staffing revenues in the third quarter versus 34.8% in the third quarter of 2019.
Included in staffing as gene any costs was deferred compensation expense related to increases in the underlying trust investment assets of 2.6% in 0.1% respectively.
The increase in staffing as China is a percentage of revenues is primarily the result of continued negative leverage resulting from the decline in revenues.
Third quarter SDMA cost for Protiviti were 13% of Protiviti revenues compared to 16.2% of revenues in the year ago period.
Operating income for the quarter was 77 million. This includes 26 million of deferred compensation expense related to increases in the underlying investment trust assets can be.
Combined segment income was therefore $103 million in the third quarter combined.
Combined segment margin was 8.6%.
Third quarter segment income from our staffing divisions was 54 million with a segment margin of 6.2%.
Segment income for productivity in the third quarter was 49 million with a segment margin of 15.8%.
Our third quarter tax rate was 26% compared to 28% a year ago.
The lower third quarter tax rate is primarily due to annual adjustments made to reconcile our tax accounts to prior year's tax returns has actually filed our nine month year over year tax rate of 28% is in line with what we expect for the full year.
Moving onto the accounts receivable.
At the end of the third quarter accounts receivable were $690 million and implied days sales outstanding or Dsos was 52.3 days.
Before we move to fourth quarter guidance lets review some of the monthly revenue trends, we saw in the third quarter and so far in October all adjusted for currency and billing days.
Our temporary and consulting staffing divisions exited the third quarter was September revenues down 29.3% versus the prior year compared to a 30.7% decrease for the full quarter.
Revenues in the first two weeks of October were down 27% compared to the same period one year ago.
Permanent placement revenues in September were down 30.1% versus September of 2019. This compares to a 35.7% decrease for the full quarter for.
For the first three weeks in October permanent placement revenues were down 31% compared to the same period in 2019.
We provide this information so that you have insight into some of the trends we saw during the quarter and into October.
But as you know these are very brief time periods, we caution against reading too much into that.
With that in mind, we offer the following fourth quarter guidance revenues of $1.155 billion to $1.255 billion.
Income per share 55 to 75 cents.
The midpoint of our guidance implies a year over year revenue decline of 22% on an as adjusted basis inclusive of Protiviti.
The major financial assumptions underlying the midpoint of these assumptions are as follows revenue growth.
Revenue growth on a year over year basis staffing down 27% to 30%.
Activity of 5% to 7% overall.
Overall down 21% to 23%.
On the gross margin percentages temporary and consulting staffing, 37% to 38% protiviti, 27% to 29% overall, 39% to 40%.
As gene <unk> as a percentage of revenues, excluding deferred compensation investment impacts staffing, 36% to 38% protiviti, 14% to 16% overall, 30% to 32%.
Okay.
Segment income staffing, 6% to 8% Protiviti, 12% to 15% overall.
10%.
We expect our tax rate to be between 27, and 29% and shares the $113 million.
We limit our guidance to one quarter. All estimates we provide on this call are subject to the risks Minson mentioned today's press release and in the SEC filings now I will turn the call back over to Keith.
So thank you Mike.
As is evidenced in the growth of our newly reported inter segment revenues the partnership between Protiviti and our staffing operations continues to be an accelerating source of growth for our enterprise.
We've also seen particular strength in our services to the public sector and financial service clients. In addition, we have experienced increased demand for services and solutions and cloud technology online security data privacy and digital transformation as enterprise client companies.
We have continued to strategically invest in these areas.
A significant reductions we made to our cost structure in the second quarter have also benefited the third quarter and will continue to benefit future quarters.
Remote and hybrid working models will continue long after the pandemic ceases to require them access to talent has no longer limited to time zones or geographies with our global network of talent at World Class technology tools, we can provide the right match for clients and candidates regardless of location.
Yeah.
While uncertainty remains in the overall economic environment as the pandemic continues there's much to be optimistic about.
The fourth quarter progresses, the nature timing and amount of any additional fiscal stimulus should be no.
Medical solutions to the COVID-19 virus move ever closer to reality and the and if I be continues to report improving trends on the small business community. Our recent studies show that more than half of small business businesses are hiring are trying to hire but the vast majority reporting few or no qual.
Defied applicants.
We continue to believe that our positioning for future growth with the unique strengths of our brands people technology and professional business model.
Now, Mike and I will be happy to answer your questions. Please ask just one question and a single follow up as needed and if there is time will come back to you.
Thank you Sir at this time, if you'd like to ask a question press star one on your phone to withdraw your question press the pound key.
Your first question comes from the line of Andrew Steinerman from Jpmorgan. Please go ahead, hi, Keith that's a it's a big picture question about small small businesses and shortly I fall enough I'd just like you suggested the favorite these favorable trends reported there.
Going through this recession I was worried about Robert half's dependence on small and medium sized businesses and maybe it's about the types of small medium sized businesses that you serve.
Maybe not serving a lot of restaurant my question is.
Do you agree with that trend that and if they are suggesting that we have really kind of made it through this recession.
Favorably.
Do you think it's really dependent on more stimulus.
Stimulus for them and how are your small and medium sized business customers feeling.
So we would definitely agree that the trends are improving.
But as you started it's also true that SMB clients are more nimble than mid and large cap companies.
They cut more and they add it back more conservatively.
Thats, a very apparent in our own numbers weve talked in the past that about 80% of our businesses SMB, which we defined by the way 50 to 100 employees.
On average.
And 20% is mid cap mid to large mostly mid.
That is actually changed during the post pandemic period, such that the mid cap number is almost 30%.
Clearly our mid cap and larger clients have been more resilient that have been our SMB clients, but we are encouraged if you look at our weekly trends beginning in early June they've consistently.
Improved.
Fact, we've seen accelerating monthly sequential growth during the quarter.
We expect that to carry over into Q4 with one big caveat. It's been widely reported that most companies employees have not taken their paid time off so far this year, that's true at Robert half Thats true with many of our client companies. We therefore.
December will be more holiday impacted holiday slash paid time off impacted me, we'll have less plant capacity as our employees take that time off our clients will have less plus less plant capacity to close deals. So we're expecting a bigger than normal.
December impact, but that said the adjusted for that we do feel good about that.
The progression of our SMB clients, which is now 70% of the total and history shows that once they do get comfortable which we would.
Define as probably.
Closer to the post pandemic period.
That well participate in an outsized way going forward and yes, we do think the stimulus would be helpful and hopefully that gets resolved pre or post election.
Perfect then just to make sure I got the point right. The December holiday effect that is already included in the midpoint of your fourth quarter Guide right. That's correct. Okay. Thank you bye.
Thank you.
Our next question comes from the line of Mark MOCON from Robert W. Baird and company. Please go ahead.
Good afternoon, Keith and Mike I was wondering if you could talk a little bit about the differences that you're seeing with regards to the needs for finance and accounting.
Fashionable between.
What you're seeing on the Accountemp side versus.
Productivity, we've had some discussions with some investors who are concerned that maybe accounting isn't going to come back strongly obviously on the productivity side.
You're clearly doing very very well there, but I'm wondering if you could compare and contrast, and how should we how we should think about it you know as we start coming out of this.
Downturn when we eventually do have.
Vaccine.
And so at a high level.
Finance and accounting, particularly at the account tips level.
Staff accounting positions that are very transactional or volume driven and as our clients.
Hi, good levels and transaction levels are down so is that business. That's no different than every downturn, we've been through and as you know I've been here over 30 years. So we fully expect as transaction volumes to improve accountemps will participate nicely. There I'll also say that.
That transaction volumes there is.
Generally speaking.
Those type of positions are less conducive to a remote work than the project driven positions, which also impacts accountemps negatively relative to protiviti and or management resources.
Protiviti has been doing great.
As we've talked about it has multiple service offerings new to us diversification efforts.
For the first time ever technology consulting within Protiviti is the largest practice area, which I think is incredible so they've done well in their technology consulting they've done well with risk and compliance, particularly in financial services, we've talked about anti money.
Laundering, we've talked about.
Credit risk.
Enforcement actions that they're involved with with certain of their clients and.
And then.
While internal audit at Protiviti is somewhat impacted it's not as impacted as the transaction driven accountemps type positions. So.
We're we're very up to.
Optimistic about how accountemps will participate when things get more back to normal from a covance standpoint.
That's terrific can you talk a little bit about your stance with regards to.
How much excess capacity you have currently and how you're thinking about.
Potential additions or Subtractions with regards to.
Internal personnel, there's some chatter going on with regards to what your internal hiring profile is like and so I'm wondering if you could clarify.
Clarify that.
Sure. So first of all I'd say.
If you compared the first quarter, so let's call that pre pandemic with the third quarter.
Our revenues are down, 21% and our incomes down 21% so.
So quite frankly, I think it's pretty incredible that given the type of impacts Cove. It had that we effectively got through that with no net negative leverage principally because we aggressively cut our cost.
We are cautiously optimistic that when we get that 20% revenue back that will do better and it will actually leverage in a positive way out.
Our current workforce is more tenured because our less tenured workforce.
Is a piece of the workforce that we had to part ways with where.
We are very focused on the productivity levels of our internal staff, we have better data to measure that we have.
Very consistent by end internally across the organization frankly, our people internally make more money as we let their productivity is rise versus adding more people such as you got you're spreading your revenues over more people. There are more profitable if you spread that over a few or so we have a we have very good and turn.
The alignment that we're going to let our productivity levels.
Drive up which will be good for their individual profitability and will be good for our corporate profitability, but we're optimistic we're going to do better.
Next 20% off than we did on the 20% down having said that again, we are super pleased that 20% down at the top line mid no more than 20% down at the bottom line.
That was impressive thank you.
Thank you.
Next question comes from the line of Jeff Silber from BMO capital markets. Please go ahead.
Thanks, So much just to follow up on and answer to marks last question.
Starting to ramp up internal hiring on a net basis and now what do you need to see to start doing that.
Well, because we're talking staffing now, but yes, we think we have a lot of unused capacity with.
With the more tenured staff that we currently have.
We don't think we need to do much hiring in the short term, we have got to replace turnover and by and large we've done that largely with furloughs, but thats pretty much all behind us now so.
If you're looking at our job postings on line to some indication as to our level of confidence in the future I would say don't because we're happy with the staffing levels, we have and we're happy that there is inherent upside in their productivity levels, particularly tenure adjusted.
Which is the best its ever been.
All right. That's helpful. I appreciate that and this question. The second question might be for Mike We.
Regarding the change in the S. Three an increase in patient I'm. Just curious why now is because of the volatility that you might have seen in these trust assets you can give us.
You can give us some color on that I. Appreciate it. Thanks. So let me talk at 50000 feet and then Mike can be more practical.
So first of all understand we've had these plans for over 10 years I understand we've got over 2300 participants as we said earlier as Mike said earlier it doesn't impact.
Earnings doesn't impact cash flow Weve disclose these numbers in our footnotes, we've got no net costs there so net economic costs from doing this.
And the simple answer for why now is because the FCC believes it's more appropriate that we take the take one side of the equation out of SDMA and making its own line item, but I simply sort of putting those two line items together you have the same SG M&A that you tip.
We had are they to use staff.
One over simplified way of thinking about is is that we have to mark to market every quarter our obligation to employees under these plans and we also have to mark to market the underlying assets and the mark to market adjustment for both of those is exactly the same thing and opposite.
At amounts.
Opposite directions to save them out so.
Economically it's zero and we've had this for ever 10 plus years.
And the short answer again, the FCC has ask us going forward.
To take what we had put in our footnotes and instead put it on the face of the income statement.
And that was the only thing I understand.
It has been disclosed in the footnotes and so it's really just a geography movement.
Got it and so the presentation that we see in this quarter's press releases. The same presentation, we're going to be seeing going forward is that correct or is there something different.
It's just what you're seeing it we will do our best to help you get back to it so we will do.
We will do our best to help you not have to change your model because if you look on the face of the income statement thats attached to the press release, there's two rows right now.
Right next to each other and if you put those two together you'll have exactly the same as seen that you would have gotten historically we.
We can't tell you to do that but we could suggest if you did at that the combination of two rows would be exactly the same as the DNA you've had traditionally in your model.
Okay I appreciate that suggestion thanks, so much.
Thank you your next.
Your next question comes from the line of Manav Patnaik from Barclays. Please go ahead.
Hi, Good evening keep my first question was just you talked about some of the good work from home virtual goal tally can go beyond I guess, where the geographically located.
And I agree with that high level and I would think thats.
Next ability with the Nigel.
Firms probably benefits from that but I was just curious with your SMB clients are you seeing that like is the is this small 5200 basis and shop.
Willing to hire someone across the country.
Well I'd say that there's so.
Suddenly there's two different questions here, one is remote versus on site and the remote could be in the same geography, it's not just in the office and then there's real mode as in a different geography all together.
And I'd say clearly SMB has shown that they are willing to have not on premise, but largely in the same local geography.
It has a bigger businesses not only.
Our amenable to that they're also a minimal to particularly for project work.
Going outside the local market.
But we've been very pleased that depending on line of business that you are talking sometimes 70, 80% of the people. We have on assignment are not working in the clients premises.
They are working remotely either in the same geography oriented distant geography.
Got it and maybe just on Protiviti can you give us a flavor of kindness eat away the.
Gauge the strongest which areas are you seeing the growth and maybe which areas.
Either idle or declining weight down.
Well.
The area, where there are the strongest sales.
And frankly, the area that we're probably really proud.
The joint success, Protiviti and staffing are having in the public sector.
We've got joint pursuit teams selling the work.
By and large the resources get provided by staffing.
But protiviti manages them. If you think about it process management process optimization is right in Protiviti is will house. The fact that it's the wheelhouse of their wheelhouse if you.
If you look at states there are overwhelmed with volumes that unemployment claims.
Eligibility for unemployment payments processing there.
They are dealing with housing assistance claims their call and volumes are off the charts.
Additionally, you've got school districts can't keep up with the technical support requirements of all of the virtual learning models. So.
The public sector has made a meaningful difference to both staffing and Protiviti this quarter.
You will notice in the.
Schedules attached to the press release for the first time ever we've actually shown you.
How much revenue is built by staffing to Protiviti, we've shown you the growth and.
And we're pleased to report that for this quarter.
Staffing revenues from Protiviti grew by 28% year on year and public sector activities were a big piece of that that.
That said that's not the total picture strongest part of Protiviti at the moment as technology consulting hits its cyber its cloud its transformation, but also risk and compliance and money laundering.
The retail.
Operational risk all.
All those are strong as well so.
So protiviti.
Very well very good the internal audit has been a little impacted.
More discretion and client budgets. There is some fee pressure there, it's down eight or 10%, while everything up is up even more than that.
To get to where you see it overall and as I said last quarter remember.
Protiviti is fees are actually up more than their revenues because they've got less reimbursable expenses, because they are not traveling and if you looked at a fee level versus a revenue level you could add another four percentage points to that.
So protiviti doing very well and protiviti together with staffing doing very well.
As well and we actually show you that both in numbers and in growth rate percentages in the schedules that we attached to the press release.
Got it thanks.
Thank you.
Next question comes from the line of Hamzah Mazari from Jefferies. Please go ahead.
Hi, This is merial corelogic filling in for Hamzah.
Could you just give us a quick update on what the bill pay spread was in the quarter and maybe you can even give us a sense how that trended throughout the quarter and into the first few weeks of October.
Well the so adjusted for mix to get apples and apples the bill rates were up 3% and thats versus 5% a quarter ago, and 6% to quarter before that so not surprisingly given the overall environment. There's some pressure on our bill rates.
We're still increasing them and as you know this all starts with the pay rates, we have to attract the right talent to a given clients assignment.
Great. Thanks, and then on I guess.
I guess historically Perm had improved faster than then Ted.
I guess, you're starting to see that now already.
Just curious to know I mean, because of how extreme and unique situation or do you see anything different about this cycle that could.
Claude maybe the portion of that rebound to lag a little more I know that we've had obviously an early the shape recovery.
Since viewing it feels like the economy has had a slower pace of improvement. So I didn't know it given the dynamic you are seeing with Smbs and your mid cap customers and then also like I said this will be followed by slower pace.
Could maybe drag out the.
Portion of the rebound longer than than it normally would.
I guess the recession.
And the short answer would be we don't think so its true perm has recovered well off the trough.
Not unusual many of our clients cut too deep and as they need staff.
They come to us they are upgrading staff, including out of market remote resources that they haven't done before but also.
But also remember there are coming off a lower trough that is the case for two all of which is normal so I would say based on everything we've seen so far.
Relationship of chip versus Perm, there's very little of surprises us.
Office team actually rebounded nicely off their trough, because they're actually participating disproportionally and this public sector work that I talked about earlier.
And call centers are a big part of the demand from the states from the reasons that I talked about.
Great. Thank you so much.
Thank you.
Your next question comes from the line of Kevin Mcveigh from Credit Suisse. Please go ahead.
Great. Thanks.
You talked about furloughs, a little bit, but any sense of how that dynamics than playing out in this recovery, whether its internal Robert half or just as your client your maneuvering through you know the furlough process as opposed to Perm because it seems like the firms come in a little bit stronger than what you would have expected given.
How how aggressive firms for with furloughs the cycle.
Well, Hey, I think furloughs have largely played their way out in a major way given.
We are several months from when those people were furloughed.
I'd also say if you look to peak to trough Perm fell a little less than it would traditionally so theres no evidence that furloughs impacted that and Thats and further.
From the trough Perm is coming back nicely as you observed and so as we talked about extensively on the last call I don't think furloughs are having any meaningful negative effect on the demand for our services.
Got it and then just to follow up on the wage Keith is any of that is it just.
The environment, we're in or is any of that may be just the source and the candidates from a wider spread geographically and you would historically see I guess said another way you're going to maybe more cost efficient regions is that precedent to wage rate at all.
I would say generally speaking we started.
This.
Disruption period.
With tighter unemployment at ever and so you started from a very strong place and.
And further because its event driven I think by and large clients.
See the end of the tunnel more clearly than they took it typically would add.
And the fact that it happened more quickly than in prior downturns, where others like water torture over 18 months. This happened over a few I think all of those are.
Relevant to this business about what happens to pay rates and what happens to bill rates.
The pay rates.
Are not up as much as they were but are still up bill rates are not up as much as they were but they are still up.
While it might be impacted a little bit by the remote work phenomenon by and large I don't think thats steps the driver.
Very helpful. Thank you.
Thank you.
Your next question comes from the line of Gary Bisbee from Bank of America. Please go ahead.
Hey, good afternoon. Thanks, So I just wanted to ask within that temp staffing business. When we look at the sub segments.
Technology management resources, obviously the growth rate two rating from last quarter is that just.
The lag typically we see professional maybe longer engagements took a while to roll off and or is there anything else you'd point to and is that is it fair to say that those two businesses have also seen the trend of week to week revenue improvement that you discussed earlier.
And so as you observe.
Blacks are the assignment links are longer in management resources and tech and so they had in flight assignments that they rode longer than our other divisions and hit meaning they were impacted later.
Happy to report that once they got to that period, they have begun to improve week to week. Although it was a bit later than early June they have had several weeks of consistent growth as well.
The other thing that I talked about earlier was that because they're focused more on project for and transactional work project work is more remote friendly than transactional work. So that if you look cumulatively at kind of peak to trough during a pandemic of our accountemps.
Office team and you compare that to management resources Tech.
Theres less impact to managers resources tech than there is to the former.
Because of the project or and it seems to be more resilient than the transaction or.
Partly because it's more remote friendly.
Okay that makes sense and then.
Within the cost reductions that you've delivered particularly at the DNA level. It interesting to me that Protiviti, which is doing holding up better and continuing to grow has seen pretty similar in fact, it looks like more larger percentage than it Tim.
Reduction in S. DNA was there anything in particular to the quarter and I guess, how should we think about that.
That trending I know you commented on next quarter, a bit but but.
Trending over the next few quarters or anything you'd point out there. Thank you okay.
Well first of all remember that part.
Activities principal payroll cost our indirect costs not NSG DNA.
But for those cost at our NSG and I think they've certainly been a customers less travel overall, including non billable travel that's a factor they reduce their marketing cost just because of the impact.
The impacts primarily to their internal audit practice during the year.
Having said that if you'll notice for the fourth quarter, we are calling for their SGN, a cost to increase and thats driven by the same reasons, they're going to turn the marketing spigot back on and they've got some training cost attached to all the people that they've added.
But protiviti is profitability for.
2020 calendar 2020 will be the largest it's been in many many years, which which in and of itself is also incredible.
They are growing the fastest and the most profitable.
Many of our lines of business.
Which is a really good place to be.
Yes for sure. Thanks.
Yes.
Thank you.
Your next question comes from the line of Tobey Sommer from <unk> Securities. Please go ahead.
Hey, good afternoon. This is jasper been filling in for Tobey I was hoping you could speak to what you've been hearing from customers kind of regarding re shoring or onshoring of outsource labor and what that might mean for your business. Thanks.
We hear a little bit of it prime.
Primarily on the Protiviti side, I wouldn't say, it's a major theme or trend, but clearly.
Some companies are are happy to have heavily reliant on their supply chain offshore and they're bringing some of that back and so again, we have a few engagements, but it's not moving the needle.
Thanks Ann.
And then as volumes kind of coming back here I was hoping you could speak to what you're hearing from clients on kind of the split between flexible in Perm labor need.
And whether that dynamic might vary from what you've seen in kind of the early stages of prior cycles.
Well, which is always the case and in prior cycles.
Most of our very nimble SMB clients.
Get really lean during the downturn and that first hand.
Of optimism and more transaction volume they need help.
And frankly, if you look for the last couple of downturns and recoveries thereafter, temp and Perm have recovered pretty much together, but.
Because perm has.
Has a deeper trough it typically has higher growth rates coming.
Coming out of that trough, but.
By and large just economic incentives to keep your cost variable are.
Our just as true at the beginning of a recovery as they are any other time on.
On the other hand to the extent, they overcome or got extra lean and want to take advantage of one of the best labor markets. There are going to see because it's early in a recovery many of choose.
To tap into that market and upgrade their talent.
So frankly, we don't see anything different in.
In impact of downturn.
Early stages of recovery that different than in the past other than it was condensed into a much smaller timeframe.
I appreciate it thanks for taking the questions Keith.
Thank you.
Our next question comes from the line of George Tong from Goldman Sachs. Please go ahead.
Hi, Thanks, good afternoon.
Im staffing gross margins contracted 40, bips year over year due to lower conversion revenues for the most or can you talk about how you expect the recent slowdown in temp wage growth the impact bill pay spreads.
Well first of all I'm glad you mentioned temp gross margins because frankly, it's one of the things. We're most proud of and how we've managed during the pandemic period typically peak to trough during the downturn, we'd be down 300 basis points.
And our temp gross margins and as we said here less now we are significantly less than that meaning we've done significantly better.
As to slowing tip wage growth.
It's not going to have much impact on our spread because we're going to take to the extent there are lower tip wages in an absolute way, we're going to take that amount and apply the same margin to it that we would otherwise so.
Compression with wage growth does.
Doesn't mean compression in margin.
Got it that's helpful. And then I wanted to dive in into your assumptions around your Fourq Guide can you elaborate on what you're assuming with cobot infection rate locked down in your outlook.
Well the assumption is that just like has been the case in the last few months.
They're going to be ebbs and flows there going to be hot spots.
There's going to be partial lockdowns partial.
Partial restrictions, it's just all part of the calculus and that.
Thats a reason why we only have modest sequential growth in the midpoint of our guide.
Doesn't it doesn't assume a major.
Country complete shutdown and does assume that there will continue to be ebbs and flows.
Got it very helpful. Thank you.
Thank you.
Your next question comes from the line of Mark Mccarthy from Baird. Please go ahead.
Just had one quick follow up.
Keith and Mike you've talked about the public sector and I was wondering if you could talk about to what extent, you're got has plateaued or if you're seeing continued growth and how long you think those projects.
Projects are going to go on for it certainly seems like you.
Given how far behind the public sector is that it would continue for a while but.
Love to hear your perspective.
Well clearly some of the key.
The current demand is bulge in demand because of unemployment rates because of need for housing assistance.
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Theres no question that there is a false component to it but we believe we're building relationships for the first time ever.
They're going to have legs as we go forward and as.
And as I said earlier.
Protiviti laws to show up when process optimization is the objective.
And for many of these.
State and local governments their processes could use some optimization.
And we believe that that lives past this volatile period.
Defaults period, certainly is nice to have as we bridge ourselves to the other side of Cove it.
Would you use.
Initial unemployment claims as kind of a proxy for that bulge period, and this tracking that or how are you thinking about how long.
Less well.
Well, if our penetration rates.
Among the states, we're only dealing with a handful of states and.
And so if we were dealing with every single state.
And this.
This surge related primarily to their search I would say, yes, but the fact that we're continuing to go to new states and referencing the states, where we already are that itself as a source of growth.
Such that we're growing share if you will in addition to just the surgeon unemployment and housing assistance claims.
Great. Thank you.
Okay.
Okay.
That was our last question. Thank you very much for joining us.
Okay.
This concludes today's teleconference. If you missed any part of the call. It will be archived audio format in the Investor Center of Robert Half's website at Www Dot Robert half Dot Com you can also dial the conference call replay dial in details and the conference I'd are contained in the company's press release.
Issued earlier today.
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