Q3 2021 Robert Half International Inc Earnings Call
Yes.
Hello, and welcome to the Robert half third quarter 2021 conference call.
Our.
For today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert half and Mr. Michael Buckley, Chief Financial Officer, Sir you may begin.
Thank you.
Hello, everyone. We appreciate your time today before we get started I'd like to remind you that the comments made.
Today's call contains 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 risks 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 and in our most recent 10-K and 10-Q filed with the SEC, we assume no obligation to update the statements made on today's call.
During this presentation, we may mention some non.
Non-GAAP financial measures and reference these figures as as adjusted.
Conciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release.
Our presentation of revenues and the related growth rates for Accountemps office team Robert half.
Technology and Robert half management resources include their inter segment revenues from services provided to Protiviti in connection with the company's blended staffing and consulting solutions.
This is how we measure and manage these divisions internally the combined.
Combined amount of divisional intersegment revenues with Protiviti is also separately disclosed.
The supplemental schedule as just mentioned also include a revenue schedule showing this information for 2019 through 2021.
For your convenience.
Our prepared remarks for today's call are available in Investor Center of our website Robert half dotcom.
We once again achieved a record level of both revenues and earnings in the third quarter exceeding the high end of our guidance and as a result of continued broad based access.
Celebration and the demand for our staffing and business consulting services.
Permanent placement and Protiviti operations continued to show very strong results growing year over year revenues by 79% and 56% respectively.
Temporary and consulting staffing operations also.
Nickel accelerated in the quarter with year on year revenue growth of 35% overall, our total revenues were 10% higher than the pre pandemic third quarter of 2019.
I'm very grateful for the notable efforts of our staffing Protiviti and.
<unk> also had services professionals who've continued to show an outstanding commitment to our success.
Companywide revenues were 1.17 billion in the third quarter of 2021 up 44% from last year's third quarter on a reported basis and up 43%.
<unk> on an as adjusted basis.
Net income per share in the third quarter was $1 53, increasing a 129% compared to 67 cents in the third quarter one year ago.
Cash flow from operations during the quarter was $225 million in September.
We distributed 38 cents per share cash dividend to our shareholders of record for a total cash outlay of $42 million. We also acquired approximately 740000, Robert half shares during the quarter for $75 million, we have seven 7 million shares available for repurchase under.
Under our board approved stock repurchase plan.
Return on invested capital for the company was 53% for the third quarter.
Now I'll turn the call over to our CFO, Mike Buckley.
Thank you Keith and Hello, everyone as Keith noted global revenues were $1 70.
$1 billion in the third quarter.
On an as adjusted basis third quarter staffing revenues were up 38% year over year.
U S staffing revenues were $932 million up 40% from the prior year.
Non U S staffing revenues were $279 million up 30.
34% year over year on an as adjusted basis, we have 321 staffing locations worldwide, including 85 locations in 17 countries outside the United States.
In the third quarter, there were $64 four billing days compared to $64 three.
<unk> three in the same quarter one year ago.
The current fourth quarter has 61, seven billing days unchanged from the fourth quarter one year ago.
Currency exchange rate movements during the third quarter had the effect of increasing reported year over year staffing revenues by $7 million.
This impacted our year over year reported staffing revenue growth rate by 0.8 percentage points.
Temporary and consultant build rates for the quarter increased five 4% compared to one year ago adjusted for changes in the mix of revenues by line of business currency and country.
This rate for the second quarter of 2021 was three 7%.
Now, let's take a closer look at results for Protiviti.
Global revenues in the third quarter were $501 million.
$400 million of this is from business within the United States and $101 million is from operations.
Outside the United States.
On an as adjusted basis Global third quarter, Protiviti revenues were up 55% versus the year ago period with U S. Protiviti revenues up 54%.
Non U S revenues were up 61% on an as adjusted basis.
Exchange.
Operation had the effective increasing year over year, protiviti revenues by $3 million and increasing its year over year reported growth rate by 0.7 percentage points.
Protiviti and its independently owned member firms serve clients through a network of 86 locations in 28 countries.
Right moving on to SG&A and gross margin presentation.
We remind you that changes in the company's deferred compensation obligations are classified as SG&A or in the case of Protiviti cost of services with completely offsetting changes and the related trust investment assets classified separately.
Low SG&A.
Previously they were both classified as SG&A.
SG&A.
Our historical discussion of consolidated operating income has been replaced with a non-GAAP measure of combined segment income.
This is calculated as consolidated income before income taxes.
Blood for interest income and amortization of intangible assets.
For your convenience we have included a supplemental schedule to today's earning release on page seven highlighting the impact of the impact of changes in the deferred compensation accounts to the summary of operations for the third quarter of 2021.
And 2020.
This is a non-GAAP disclosure. So we also show a reconciliation to GAAP.
Turning now to gross margin in our temporary and consulting staffing operations third quarter gross margin was 40% of applicable revenues compared to 30.
One 5% of applicable revenues in the third quarter, one year ago.
Gross margins were positively impacted by expanding pay bill spreads and higher conversion revenues.
Our permanent placement revenues in the third quarter were 12, 9% of consolidated staffing revenues versus 10% of consulted.
30, <unk> staffing revenues in the same quarter one year ago.
When combined with temporary and consulting gross margin overall staffing gross margin increased three nine percentage points compared to the year ago third quarter to 47.
7%.
For Protiviti.
<unk> margin was 29, 5% of Protiviti revenues compared to 27, 1% of Protiviti revenues one year ago.
Adjusted for the effect of deferred compensation changes related to changes in the underlying trust investment assets as previously mentioned adjusted gross margin for Protiviti was 29.
<unk> <unk> percent for the quarter, just ended compared to 28, 1% one year ago.
Company wide SG&A costs were 28, 9% of global revenues in the third quarter compared to 32, 8% in the same quarter one year ago.
Changes.
Forward compensation obligations related to changes in underlying trust investments had the impact of decreasing SG&A as a percentage of revenue by 0.1% in the current third quarter and increasing SG&A by one 9% in the same quarter one year ago.
When adjusted for.
And the fringes companywide SG&A costs were 29% for the quarter just ended compared to 39% one year ago.
Staffing SG&A costs were 35, 9% of staffing revenues in the third quarter versus 42% in the third quarter of 2020.
These included in staffing SG&A costs were deferred compensation reductions related to decreases in the underlying trust investment assets of 0.1% in the third quarter compared to additions of two 6% related to increases in the underlying trust investment assets in the same quarter one year ago.
When adjusted for these changes staffing SG&A costs were 36% for the quarter just ended compared to 37, 6% one year ago.
Third quarter SG&A costs for Protiviti were 12, 1% of Protiviti revenues compared to 13% of revenues in the one year.
Sure.
Operating income for the quarter was $230 million.
This includes $2 million of deferred compensation reductions related to changes in the underlying trust investment assets combined segment income was therefore $228 million in the third quarter.
Combined.
<unk> segment margin was 13, 3%.
Third quarter segment income from our staffing divisions was $141 million with a segment margin of 11, 6% segment income for Protiviti in the third quarter was $87 million with a segment margin of 17, 3%.
Our third quarter tax rate was 25% compared to 26% one year ago.
At the end of the third quarter accounts receivable were $1 billion and implied days sales outstanding were 52 eight days.
Yes.
Before we move on to fourth quarter guidance, Let's 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 with September revenues up 36% versus the prior year.
Compared to a 34% increase for the full quarter.
Revenues for the first two weeks of October were up 35% compared to the same period one year ago.
Permanent placement revenues in September were up 68% versus September of 2020. This compares to a 78% increase for.
Good quarter for the first three weeks in October permanent placement revenues were up 62% compared to the same period in 2020.
We provide this information so that you have insight into some of the trends we saw during the third quarter and into October.
But as you know these are very brief time periods.
For the full we use caution against reading too much into them.
With that in mind, we offer the following fourth quarter guidance.
Revenues $1 $65 5 billion to $1 73 5 billion.
Income per share of $1 37 to $1 <unk>.
47.
The midpoint revenues of $1 695 billion or 30% higher than 2020, and 10% higher than 2019 levels on an as adjusted basis mid.
<unk> earnings per share of $1 42 is 69% higher than 2020.
Period, and 44% higher than 2019.
The major financial assumptions underlying the midpoint of these estimates are as follows.
Revenue growth on a year over year basis, staffing up 27% to 30% Protiviti up 34% to 36%.
Overall up 29% to 31%.
Gross margin percentages temporary and consulting staffing 39, 5% to 45% protiviti, 27% to 29% overall, 41% to 43%.
SG&A as a percentage of revenue excluding deferred compensation investment impacts staffing 35, 5% to 36, 5% Protiviti 12, five to 13, 5% overall, 29% to 30%.
Segment income for staffing, 11% to 12% for Protiviti 14, five to 15, 5% overall, 12% to 13%.
<unk> right, 25% to 26% shares 111.
$2 million.
2021 capital expenditures and capitalized computing cost, 15% to $20 million for the fourth quarter.
We limit our guidance to one quarter.
All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings.
I will turn the call back over to Keith Thank.
Thank you Mike.
The future of work increasingly includes flexible hybrid and fully remote models and we are uniquely positioned to benefit in this environment.
We can deliver deeper skills and more price point choices to our.
Now <unk> by expanding our candidate searches beyond local markets, we leverage our global office network and our advanced AI driven technologies to deliver to deliver the best candidates for contract or permanent roles regardless of location.
All while continuing to.
The same superior customer experience our clients have come to expect.
This trend together with elevated employee attrition attrition rates at clients has contributed to our staffing results recovering at a faster pace than we've experienced in the past.
Our Permian.
Delivering a temporary and consulting staffing segments, including blended solutions with fertility.
<unk> achieved cumulative sequential growth of 92% and 50% respectively. During the first five quarters since the trough.
Similar numbers for.
Placement Youll crisis, and the dotcom recoveries were 41% and 23%.
And 45% to 31% respectively.
The National Federation of independent business, NFIB recently reported that 62% of small businesses had fewer no qualified applicant.
The finance for open positions and had 51% job openings that cannot be filled a 48 year record high.
And we are seeing the impact of this on demand for our services on a very broad basis spanning industries client size skill levels geographies and lines of.
Efficacy.
Protiviti continues to excel with multiple years of consecutive growth in a highly diversified client base and suite of solution offerings. The collaboration between Protiviti and staffing continues to be a strong differentiator pairing <unk> oral class can.
I think talent with staffing <unk> deep operational resources to provide a cost effective solution to clients skills and scalability needs.
Growth remained strong across internal audit technology consulting risk and compliance consulting and business performance improvement.
Protiviti also continues to benefit from project work in the public sector, resulting from various federal and state stimulus programs.
<unk> $110 million in revenue this quarter resulted from work related to these programs.
Approximately seven of our earnings per.
Consultor.
Growth in the public sector contributed 26 points to Protiviti is year on year growth rate of 56%.
While the core business maintained a growth rate of 30% public sector revenues represent 6% of total revenues and contributed seven.
Sure it's to the company's overall, 44% growth rate.
We're excited about the opportunities ahead of us as the recovery continues with strong momentum and as the future of work continues to evolve as we've done historically, we will continue to invest in our people our technology our.
<unk> and our business model to strengthen our ability to connect people to meaningful new work and to provide clients with the talent and deep subject matter expertise they need to confidently compete and grow.
Finally, we'd like to thank our employees around the world for making possible and.
Another.
<unk> Branca recognition received this quarter as Forbes named US one of the world's best employers. We were also recognized by Newsweek as one of America's most responsible companies for our ESG efforts many of which are outlined in our recently released corporate citizenship report.
Now, Mike and I'd be happy to answer your questions. Please ask just one question and a single follow up as needed. If there is time, we'll come back to you for additional questions.
Significantly.
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.
And our first question comes from the line of Andrew Steinman J P. Morgan.
Keith could you just look at the fourth quarter guide with us on the staffing revenue.
Revenue side up 27% to 30% could you just break it down a little bit for us to give a sense of that fourth quarter guide of how much might flex revenues to be up versus Perm, and then within flex, which sub segments might grow faster than the average.
Well, Andrew we historically don't breakout.
Flex our contract versus Perm.
<unk>.
It would be logical to assume we would have perm continuing to outgrow contract consistent with the quarter consistent with the exit to the quarter and consistent with the post quarter.
<unk> to the quarter that we're in.
Generally speaking our higher level.
Contract.
Our practice groups. Our line of businesses are growing more quickly they're project based the clients are more open to a remote work.
They're more interested in it.
Stock lining deeper skills that we can access through remote work so.
Not that they all arent growing which they are its just that management resources and Robert technology are growing faster you can also see that if you would compare.
Quarter three.
The revenues for quarter three of 2019, which is pre pandemic and Youll see that management resources and Robert half technology I'll have done better than the other divisions for all the reasons I just mentioned.
Thanks Keith.
Our next question will come from the line of Mark Marcon.
Baird.
Hey, good afternoon, Mike.
Congratulations on a terrific quarter I was wondering if you could talk a little bit more about productivity in the guidance.
We take the midpoint of the guidance.
Looks like.
Perhaps we might have.
Slight sequential decline.
In Q4 relative to Q3.
And we've had that before in 2015 and 2016 in terms of going from Q3 Q4.
A big deal.
Alright.
It seems like.
Theres, probably some differences going on with regards to sequential trend.
And the government.
And public side relative to the private with the private seeming to accelerate sequentially.
Yes.
This last quarter. So I was wondering if you could talk a little bit about like what are you seeing on the how are you thinking about.
Public versus private.
Productivity is.
I'll go through the near term.
Trends.
Okay. So we've got public versus private and we've got holiday impact to talk about.
So first of all let's talk a little bit about public we disclosed $110 million overall.
That 110 92 relate to contrary.
Term factors, so, whereas the 172 million total for a blended solution contractors $92 million of that relates to public sector, which is just a little over half.
Our expectation is that for the fourth quarter that.
Contract at $92 million.
Is.
Is down 5% to 10% sequentially in the fourth quarter.
The balance of the one.
$172 million, if you will the other half and again, while we're talking.
And sequentially.
In the.
Third quarter.
Sequentially about 80% of the growth.
Blended solutions overall came from commercial or non public sector engagements.
And so.
Other than focus just on the public sector have.
Our blended solutions, let's think about the whole and the other half which is a non public sector engagements was 80% of the sequential growth.
Now as we roll into Q.
As I said earlier, we do expect some moderation 5% to 10%.
Yes.
Unemployment claims processing moderates on the other hand housing and education assistance is growing well.
We do have.
Our backlog of <unk>.
For the Cork, that's not transactional.
Tend to be smaller projects. The sales cycle is somewhat longer. So all of that was figured in when I said, we expect down 5% to 10% for the half that is public sector only the.
The other point I will make.
<unk> is that many activities clients have a soft close in the fourth quarter, many protiviti internal staff.
Take pay time off during the first fourth quarter and so just for time, they expect related to those two theres a 14 million.
Sequential revenue impact.
So we've talked many times about December it's our hardest month.
Project, both on the SaaS side as well as on the Protiviti side because of the impact of.
<unk> downtime holiday.
<unk> <unk>, whatever you want to call it.
Soft close from clients, but protiviti alone with their own staff projects that their revenue impact would be $14 million sequentially from that alone.
So.
We've been talking about sequentially, but if we talk about year on year.
Protiviti as comps or the toughest a year ago much of that was public sector.
Together with the impact of soft close pay time off I think you get to wear.
Our projection is for our mid point.
I'll also say this.
<unk> the tone of Protiviti business has never been better.
They are aggressively hiring people across there.
Pyramid, meaning.
Excuse me managing directors, all the way down to consultants. So their issue is not.
You're way shape or form demand, it's how quickly can they hire and onboard additional staff.
The demand environment, frankly has has rarely been better than what protiviti sees today.
Okay.
Great color and then I'm wondering.
You did see that really strong sequential growth.
On the commercial side.
Protiviti has been has been clearly ramping up.
With multiple commercial clients, including I think youre dealing with 70% of the Fortune 500, now I'm wondering if you can talk a little bit about your expectations a little.
Beyond this.
Current quarter on the commercial versus the government side and also what the.
The new delivery center in the Americas mean, as we've talked about the impact there.
Well as I've said earlier, 80% of our sequential growth.
In college.
Contractor blended solutions came from the commercial side not the public sector side, such that now they are about 50 50, when you look at their impact overall.
You have projects like.
Accounting operation processing backlogs transformation on <unk>.
Project management ERP implementation assistance.
Operations modernization Helpdesk management, Theyre, just a myriad of counting and <unk>.
Related project demand that are a glove fit for the blended solutions of staffing.
<unk> and Protiviti.
That delivery center.
Is intended to be.
Hey.
A space.
It's in Ohio, that's lower cost base, where well and it's also in a lower cost of living area.
<unk> and the thought is the more routine assignments.
Assignments that we have to some degree can be.
<unk> can be delivered from that alternative delivery center, which is just one more alternative that protiviti has and another.
Excuse me.
This point choice.
Protiviti can provide its clients.
That's all good news all good.
Early days, it's already doing better than we expected.
Yeah.
Thank you and our next question will come from the line of Hamzah.
<unk> <unk> with Jefferies.
Hi, This is Mario <unk> filling in for Hamzah.
I guess, maybe you can just touch on how youre thinking about labor availability and labor inflation.
Specifically and how that's being contemplated in your guide and your revenue guide and your margin guidance.
Alright.
I would say.
<unk>.
Labor availability.
We would say that candidate supply is manageable tight.
We have successfully recruited at much lower unemployment rates the current rate.
For those with a college degree of two 5% is still well north of the high ones. We got back in 18 19 as an example.
Further our ability to recruit beyond local markets meaningfully expands the candidate pool.
We've taken full advantage of this.
Particularly in.
In management resources, and Robert half technology, we have a very large percentage of our placements being sourced from people outside the local market, where the client is firm.
As we've talked about before we hire people full time, and then send them out on assignment as contractors to clients, which is another way we address candidate availability, but when you put all those together we're cautiously.
We optimistic that we're not going to have a supply issue as it relates to meeting demand.
From an inflation standpoint, we're in the mid five level, that's not unusual in the early part of the cycle.
We have a multi decade.
Track record of passing.
Through our <unk>.
Wage inflation, if anything wage inflation is our friend because we expand our gross margins.
Okay.
As we talked about earlier and Mike.
Section, we have expanded our gross margins again, both sequential sequentially in Europe.
<unk> part of that is conversions, which rose to three 7% of revenue and part of that's pay bill spreads that have widened as well in the presence of that wage inflation. So again wage inflations are friends, we think we can manage availability.
Got it and then.
Then I mean, you just.
You just mentioned the cycle a little bit. So maybe you can just update us on what your view is of the employment cycle.
In the U S versus international and then you've said it before and I think you. Obviously just mentioned again that we're starting a brand new cycle.
How do you see impact to your customer.
In this new cycle, but given the new supply chain issues as it related to an issue for you at all because it's more of a blue collar issue than a white collar issue, but and any color you can provide there would be helpful.
And so U S versus international.
Very good.
Good.
<unk> from Germany, Canada, United Kingdom, Australia, just to name a few.
The growth rates aren't that different between the U S and what we call IV.
So I'm not sure there's a huge story there.
Our IC is a little more perm.
<unk> focused then is that is the case in the U S and as Perm outperforms contractor tenant that's to their benefit in our benefit.
We do think it's a brand new cycle, we have talked about once we get going we CAGR very nice double digit growth rates.
Three to five years, we gave you the numbers earlier that five quarters into this recovery.
Sure.
Cumulative growth off the bottom is almost double this time, what it was last.
So we are.
<unk> for your bullish.
The other thing Thats, new that we talked about as well puts this whole remote hybrid to future of work.
The combination of our global network, our local candidate relationships, our technology, which can be location agnostic.
Gnostic when we decide who the best fit the best fitting candidates are for a given assignment. So we feel good about the cycle, we feel good about the incremental growth opportunities, we have particularly with remote work. That's in addition to.
The early cycle.
Success, we always have.
Great. Thank you so much.
Your next question will come from the line of Jeff Silber with BMO capital markets.
Thank you so much I wanted to go back to the issue about the tight labor market.
Can you talk a little bit about how low rates are tracking compared to either you know when you mentioned that the unemployment rate for college graduates were in the high 1% or a quote unquote normal environment I'm just wondering if it's more difficult even in this environment didn't even though you're managing it.
No I'm not sure it's more.
More difficult.
And the fact that we've got the new lever to recruit remotely.
Fact that were more willing than ever.
Higher professionals full time and put them on the bench if you will also.
Some.
Of that pressure. So it's a combination of all of those things and the fact that the fact that we arent even back to.
2018, 19 unemployment levels all taken together.
We think the labor the tight labor market is manageable from the standpoint of our supply.
<unk>.
At <unk>.
Transactional level accounting operations technology operations clients or more app for them to want them to be on site for the higher level management resources for tech developers.
Database administrators.
They're more inclined or more accepting of remote role was there. So it makes it makes it easier for us with a ladder than with the former.
Candidates actually want a premium today, if you want them to be onsite and many clients will pay that some won't.
Yeah, and actually that's a.
A good segue to my next question just in terms of the overall market you mentioned about the five 5% billing rate increases are you seeing any client pushback in that area.
So theres always some client pushback.
And our our people would tell you that.
One of the things they.
You have to deal with is our candidates perspective on the labor market versus the clients' perspective on the labor market, but it's helpful that virtually every day in the news there some story about how tight the labor market is and how many unfilled jobs, there are and how much.
Attrition, there is and all of those and make it easier for our staff to convince our clients that they need to pay.
Got it.
It's just human nature that Theres always some pushback.
Okay. That's fair enough. Thanks, so much.
Yes.
Our next question.
You always come from the line.
Kevin Mcveigh with credit Suisse.
Yes.
Great. Thanks, so much and congratulations on the results.
One number question and then just one.
A little more relative to the cycle can you just remind us what conversions were in the quarter.
Yes, so convert.
<unk> or three 7% of revenue in the quarter that's up.
Few basis points from last quarter.
Remember, we've been 4% and higher in the Paas. So we don't think we peaked at three 7% and or.
Some margin upside there.
That's helpful and then Keith.
It's been such a tricky cycle in terms of how quickly.
Decelerated and then the re acceleration and I know no. Two cycles are the same but do you think theres any pull forward of demand not to say that it's not going to be a normal cycle, but.
What do you think theres been any pull forward of demand and maybe in the outer years.
The sequencing may be not as robust or do you think we continue to kind of build on the good momentum you've had so far.
Well, we're now five quarters from trough and we've grown twice as quickly as.
We've done in the past.
As I see.
Said earlier, we think this remote hybrid work the future of work.
Improves our competitive position significantly.
Clients themselves have a much harder time recruiting.
For their own account remotely.
Our competitors that by and large are local and regional don't have the office network don't have the local candidate relationships don't have the technology and so on.
We're very bullish and we're very pleased at the investments.
Since we've made in network in people and technology.
All come together.
Beneficial way for us vis vis our competitors as we move forward, which make which make us very bullish as we move forward in this cycle.
It makes a ton of sense. Thank you.
Our next question will come from the line of Gary Bisbee with Bank of America Securities.
Hey, thanks.
I wanted to go back to the public sector for a second.
When you first began discussing I guess over a year ago.
Our initial focus was on the pandemic created these opportunities and you've alluded a couple times do you think there.
The relationships you are.
Creating maybe non pandemic longer term more durable opportunities can you just give us any color on that like whats the mix of stuff that you think is pretty much directly pandemic related.
Related versus not or how do the pipelines longer term and I'm, obviously, not asking about Q4, but thinking into 'twenty two or over over time as you think about that opportunity.
And so.
The 92 million in contract or this quarter.
That's a piece.
172 million and total blended solutions is largely pandemic related.
There is very little non pandemic related in there and it's principally split between unemployment and housing.
As we move forward we have.
So education coming on that will be very helpful that we're very bullish about in this it's much more distributed by local school district and.
We have hundreds upon hundreds of preexisting relationships with local school districts.
But as it relates to non pandemic assignments with the same pandemic state clients.
We have talked about how the backlog has increased dramatically increased again this quarter.
The sales cycles are different and longer.
<unk> the pure pyramid process is different for the pandemic or work, we did at pursuant to emergency authorizations, which were quick for the non pandemic work you do it pursuant to a blanket purchase agreements.
We're happy to report we've secured those for multiple states.
Including in our largest state client, where we just got a blanket purchase agreement for it support virtually anything it related.
It's early days.
Sales cycles longer we're bullish that over time, we will net add because of those relationship.
Chips, but my other point is let's not just focus on the half of our blended solutions that's public sector unless also focus on the other half.
And that other half was 80% of our sequential growth during the third quarter.
Public sector was 20.
20% of our sequential growth for this quarter.
So lets think about both halves not just the public sector have.
Yes, as we said, we expect a modest fourth quarter decline, 5% to 10% in public sector for 2022.
We expect further modest declines we do not expect a cliff decline in public sector across 2022.
And then if we go to that other half blended solutions is growing nicely very nicely.
That's helpful.
That's a great story I guess the follow up.
The last few quarters that especially in our staffing businesses. You you have some good capacity, but I just wanted to get an update on that given the continued robust growth. How are you thinking about ramping up hiring in those businesses. You clearly said youre doing that aggressively in protiviti today, but any update on your staffing.
Sure I'd say we have.
The lease capacity and are the most aggressive adding to staff in permanent placement.
The growth rates speak for themselves the cumulative progress off the trough speaks for itself. So we're aggressively.
Adding permanent placement recruiters as we speak.
We're also adding recruiters to this full time contractors segment, where we hire people full time, when we put them out as contractors.
That's something where we get very good margins, where we go up the scale curve.
In our accounting operations groups and so we're we're being very aggressive there we do still have some capacity in the other.
Temporary contract practice groups lines of business, if you will and so.
It'll still be.
A quarter or two before we add to that head count, but when you put all of the ads together, it's not going to be disproportionate to the revenue growth. So I wouldn't expect negative leverage.
Okay.
Just less positive leverage.
Great. Thanks.
<unk>.
Your next question comes from the line.
Toby Sommer with Truest Securities.
Thank you with respect to <unk>.
Bill rates and sort of wage inflation.
How do you expect that to unfold this cycle versus history is or.
Are there any key differences.
<unk> expects that would cause you to have a different expectation than normal.
Well, there's this whole transitory not transitory arguments.
I don't have any better insight than any other person would have.
Typically for us.
There are three to five year period, we would see mid single digit wage inflation that we would pass through.
And in fact expand our margins a bit.
The only thing Thats, new this time.
That.
It makes for interesting thought.
Is this notion that we're going to place.
Non local candidates.
Into local clients.
And some of that is done as a labor arbitrage better price point.
Other times, it's done so you can get a more pin.
<unk> pointed deeper SKU.
But potentially.
That could take some pressure off wave.
Wage inflation, but again wage inflations are friend, it's not something we fear.
<unk>.
We will let the game come.
Us.
But.
Typically for three to five years.
Early cycle early to mid cycle, we see single digit mid single digit wage inflation.
Thank you and then my follow up question is.
You answered sort of are we having any pull forward on the revenue side and that was clear in terms of the margin in a normal cycle.
Is there any difference in the way the social costs kind of dampen gross margins typically during a recession and for a while and over time that's alleviated.
Two of them contributing to EBITDA margin expansion at the firm.
Different this time versus what might have happened in recent cycles.
Well. So this is a little esoteric so so bear with me.
Yeah.
In prior down cycles.
As unemployment.
Claims for people that work temporary slash contract for us their claims got charged to our account.
On a three three year look back period that then form the basis for elevated charges to us for the next three to five years.
What's different this time is that.
For states to get federal assistance, they had to agree not to charge.
Unemployment claims to specific company accounts.
Instead, it went into the general account.
So the the million dollar question is.
Are we going to be better off or not to be part of the general pool, only rather than being primarily.
Accountable to the individual claims of our former contract employees.
And as I sit here today my sense is.
It's going to be a little better, but its never happened before.
The leisure hospitality has been the lion's share of the unemployment that's gone into that general pool.
So we would.
Sure and that.
So the good news the good news is we won't have to pay for our own claims they're not as good news is we're going to have to share in the leisure hospitality claims that are in the general pool. So I said it was going to be esoteric and I've now just proven it but.
But it was a long winded way of saying.
I think it's going to be better, but I don't think it's going to be dramatically different.
That's helpful. I appreciate your answer.
The next question will come from the line of George Tong with Goldman Sachs.
Alright, thanks, good afternoon.
Supply chain disruptions have had.
Had a negative impact on multiple verticals, including many of the verticals that Robert half serves are there any signals that you're seeing that suggest there could be a shock to client demand, perhaps further down the line.
Yes.
Well.
I would say.
Clearly.
Supply chain disruptions have been most acute to manufacturing.
We're not exposed to that vertical in fact are our two biggest verticals as we've talked before our financial services and professional services.
So George there is nothing that would leave us lead us to.
I believe theres, some black Swan shock because of supply chain as it relates to our client base.
Okay got it.
You mentioned that.
Protiviti declines next year should be relatively gradual.
Not a cliff.
That assumed that the public sector work in productivity specifically.
As it relates to Covid. Some measure of it continues into 2022 does that is that baked into your assumption.
Well first of all let me be clear.
I did not say.
We expect Protiviti overall to decline in 2022.
Third the public sector portion of Protiviti.
Which is half of a third of their revenues I was saying that would decline modestly.
Which means some of the unemployment claims processing support some of the housing rental assistance support.
Would continue into 2022.
Further this educational assistance that's been coming on strong the last few months.
We had also continues into 2022 such that our current thinking is for all of 2022 for the public sector portion only of Protiviti.
It would be down modestly, 5% to 10%, but the rest of Protiviti is growing.
The quite well.
The demand environment has rarely been better and they are aggressively adding to staff all the way from New College grads too.
Mds.
Because of the robustness of that demand.
The environment. So we absolutely expect protiviti overall year on year.
To grow nicely.
Yeah, I was referring to the public sector piece of Protiviti apologies for the confusion and just to be clear. The part that is public sector that you expect a moderate.
The decline so you don't expect the public sector to completely go away.
Right.
Lingering.
Right no no cliff decline.
No severe decline.
It was modestly decline.
Demand and again that's that's.
We might surprise ourselves to the upside to the extent, we get traction with this non pandemic related work with those states it could be better.
In our earlier point as well as let's not forget about the other half of our blended.
Solutions public sectors.
Half of the 34% there is the other half of that 34% that has nothing to do with public sector and has nothing to do with pandemic.
Yeah.
Great. Thank you.
Yeah.
Okay, operator, I think that was our last question thanks, everyone for joining.
This concludes today's teleconference. If you missed any part of the call it'll be archived in the audio format in the Investor Center of Robert Half's website at Www Dot Robert half Dot com.
Ended so 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.
This does conclude today's conference you may now disconnect.
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