Q4 2022 Robert Half International Inc Earnings Call
Hello, and welcome to the Robert half fourth quarter, 2022 conference call.
Today's conference call is being recorded.
You'd like to ask a question during the question and ask answer portion of the call. Please press the star and the number one on your telephone keypad.
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. Waddell 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 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 the forward looking statements.
Risks and uncertainties are described in today's press release and our most recent 10-K and 10-Q filed with the SEC we.
We assume no obligation to update the statements made on today's call.
During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted reconciliations and further explanations of these measures are included in a supplemental schedule to our press release today.
Our presentation of revenues and related growth rates for each of our contract functional specializations, including inter segment revenues from services provided to Protiviti and in connection with the company's blended talent solutions and consulting operations. This.
This is how we measure and manage these businesses internally.
Bind amount of intersegment revenues with Protiviti is also separately disclosed.
Mental schedule was just mentioned also include a revenue schedule showing this information for 'twenty 'twenty through 2022.
For your convenience our prepared remarks for today's call are available on the Investor Center of our website Robert half Dot com.
2022 was a very successful here across the entire at Robert half Enterprise, We grew full year revenues and earnings per share both by more than 12% and achieved new record levels for each.
All of our major practice areas contract permanent placement and Protiviti reached all time highs over and above the very strong growth in the prior year.
We enter 2023 optimistic about our ability to navigate the uncertain global macroeconomic environment and the tight labor markets around the world.
Fourth quarter of 2022 companywide revenues were 1.727 billion down 2% from last year's fourth quarter on a reported basis, but up 1% on an as adjusted basis.
Income per share for the fourth quarter was $1 37, compared to $1 51 in the fourth quarter a year ago.
Cash flow from operations during the quarter was $202 million in December we distributed a 43 cents per share cash dividend to our shareholders of record for a total cash outlay of 47 million.
Our per share dividend has grown 11.2% annually since its inception in 2004.
The December 'twenty, two dividend was $13, 2% higher than in 'twenty 'twenty. One. We also acquired approximately 800000, Robert half shares during the quarter for 61 million. We have three 8 million shares available for repurchase under our board approved stock repurchase plan return.
We've invested capital for the company was 39% in the fourth quarter that I'll turn the call over to our CFO Mike Buckley.
Thank you Qi Hello, everyone.
As Keith noted global revenues were $1 77 billion in the fourth quarter.
On an as adjusted basis fourth quarter talent solutions revenues were down 1% year over year.
<unk> talent solutions revenues were $964 million down 2% from the prior year.
Non U S talent solutions revenues were $264 million.
Up 5% year over year on an as adjusted basis.
We have 317 talent solutions locations worldwide.
<unk> 86 locations in 18 countries outside of the United States.
In the fourth quarter, there were 61.2 billing days compared to 61, seven billing days in the same quarter one year ago.
The first quarter of 2023 has 63 three billing days compared to 62 four billing days during the first quarter of 2022.
Billing days for the remaining three quarters of 2023 will be 63.3.
63.1, and 61.1 for a total of 250.8 billing days during the year.
Currency exchange rate movements during the fourth quarter had the effect of decreasing reported year over year revenues by $39 million.
$27 million for talent solutions and $12 million for Protiviti.
This negatively impacted our year over year overall revenue growth by two two percentage points too.
Two one percentage points for talent solutions, and two four percentage points for Protiviti.
Contract talent solutions Bill rates for the quarter increased seven 8% compared to one year ago adjusted for changes in the mix of revenues by functional specialization currency and country.
This rate for the third quarter was 9%.
Now, let's take a closer look at results for Protiviti.
Global revenues in the fourth quarter were $499 million.
$401 million of that is from business within the United States and $98 million is from operations outside of the United States.
On an as adjusted basis Global fourth quarter, Protiviti revenues were up 4% versus the year ago period with both U S and non U S productivity is up by 4% on an as adjusted basis.
Protiviti and its independently owned member firms serve clients through a network of 89 locations in 29 countries.
Company wide fourth quarter public sector revenues were 83 million of which $60 million was reported by Protiviti and the balance reported by talent solutions.
Currency exchange rates had the effect of decreasing year over year public sector revenues by approximately $3 million during the quarter.
Full year public sector revenues were down approximately 8% or 3% adjusted for currency.
Turning now to gross margin and contract talent solutions fourth quarter gross margin was 39, 9% of applicable revenues compared to 39, 8% of applicable revenues in the fourth quarter one year ago.
Conversion revenues or contract a higher or three 7% of revenues in the quarter.
Our permanent placement revenues in the fourth quarter were 12, 7% of consolidated talent solutions revenues versus 12, 4% of consolidated talent solutions revenues in the same quarter one year ago.
When combined with contract talent solutions gross margin overall talent solutions gross margins were 47, 5% compared to 47, 2% of applicable revenues in the fourth quarter one year ago.
For Protiviti gross margin was 27, 2% of Protiviti revenues compared to 28, 7% of Protiviti revenues one year ago.
Adjusted for deferred compensation related classification impacts gross margin for Protiviti was 28% for the quarter just ended compared to 29, 3% one year ago.
Moving on to SG&A.
Enterprise SG&A costs were 31, 6% of global revenues in the fourth quarter compared to 38% in the same quarter one year ago.
Adjusted for deferred compensation related classification impacts enterprise SG&A costs were 34% in the quarter just ended compared to 29, 7% one year ago.
Talent solutions SG&A costs were 38, 9% of talent solutions revenues in the fourth quarter versus 37, 7% in the fourth quarter of 2021.
Adjusted for deferred compensation related classification impacts.
Solutions SG&A costs were 37, 2% for the quarter just ended compared to 36, 2% one year ago.
The higher mix of permanent placement revenues this quarter versus one year ago had the effect of adding 0.2 percentage points to the quarter's adjusted SG&A rest ratio we.
We ended 2022 with 9300 full time internal employees and our talent solutions divisions up 5% from the prior year.
Fourth quarter SG&A costs for Protiviti were 13, 6% of Protiviti revenues compared to 12, 9% of revenues in the year ago period.
Operating expenditures returned to more normalized levels.
We ended 2022 with 11700, fulltime Protiviti employees and contractors up two 4% from the prior year.
Operating income for the quarter was $174 million.
Adjusted for deferred compensation related classification impacts combined segment income was $199 million in the fourth quarter.
Combined segment margin was 11, 5%.
Fourth quarter segment income from our talent solutions divisions was $127 million.
With a segment margin of 10, 3%.
Segment income for productivity in the fourth quarter was 72 million with a segment margin of 14, 4%.
Our fourth quarter tax rate was 27% up from 24% in the same quarter one year ago.
The higher tax rate for 2022 can be primarily attributable to higher non deductible expenses in 2022 as.
As well as lower stock compensation deductions due to the company's stock price.
At the end of the fourth quarter accounts receivable were 1.018 billion.
And implied days sales outstanding or DSO was 53, one days.
Before we move to first quarter guidance, Let's review some of the monthly revenue trends, we saw in the fourth quarter and so far in January all adjusted for currency and billing days.
Contract Count solutions exited the fourth quarter with December revenues down 6% versus the prior year compared to a 1% decrease for the full quarter Rev.
Revenues for the first two weeks of January were down 7% compared to the same period one year ago.
Permanent placement revenues in December were down 1% versus December of 2021.
This compares to a 2% increase for the full quarter.
The first three weeks of January permanent placement revenues were down 23% compared to the same period in 2022.
We provide this information so that you have insight into some of the trends we saw during the fourth quarter and in January .
But as you May know these are very brief time periods, we caution reading too much into that.
With that in mind, we offer the following first quarter guidance revenue 168, 5 billion to $1 76 5 billion.
Income per share $1 10.
Two $1 20.
The midpoint revenues of $1 75 billion or five 4% lower than the same period in 2022 on an as adjusted basis.
The major financial assumptions underlying the midpoint of these estimates are as follows.
For revenue.
On a year over year as adjusted basis.
<unk> solutions down 7% to down 12% Protiviti up six to up 9% overall down 3% to down 7%.
Gross margin percentage contract talent, 38% to 40% productivity, 24% to 26% overall, 39% to 41%.
SG&A as a percentage of revenue excluding deferred compensation classification impacts.
Talent solutions, 36% to 38% productivity, 14% to 16% overall, 30% to 32%.
Segment income for talent solutions, 8% to 11%.
<unk>, 8% to 11% overall, 8% to 11%.
Tax rate, 27% to 28% share.
Shares.
Six five.
107 5 million.
2023 capital expenditures and capitalized cloud computing costs $100 million to $120 million with $20 million to $25 million in the first 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 now I'll turn the call back over to Keith.
If you'd like.
Global Labor markets remain tight and the demand for talent remains high despite continued economic uncertainty.
Clients continue to higher, albeit at an even more measured pace, which has the effect of lengthening the sales cycle.
Although recent metrics have come off their all time highs.
Talent shortages persist in the United States unemployment stands at three 5% a 50 year low.
It remains even lower for those with a college degree where the rate is one 9%.
Job openings and quit rates remained elevated unemployment claims remain low.
Similar reports our cost across the globe also point to labor market resilience.
Protiviti continues to have a very strong pipeline across an increasingly diverse offering of solutions.
Both the regulatory risk and compliance practice and the technology consulting practice show particular strength in.
In 2022 protiviti achieved record high revenues of nearly 2 billion, even while overcoming the wind down of very large financial services project.
And a shift in the trend of public sector engagements to projects more applicable to talent solutions.
Demand for Protiviti services remains robust.
It's only mildly impacted by current economic conditions.
While there remains volatility in the macroeconomic environment, we're optimistic about our outlook for 2023.
<unk> successfully navigated many economic cycles, each time, achieving higher peaks.
This was demonstrated by our ability to achieve the fastest recovery in our company's history. Following the COVID-19 downturn.
We also continue to benefit for Protiviti is resiliency, which stems from its diversified solution offerings that are much less tied to the economic cycle.
Longer term, we're encouraged by the growth and margin prospects from our ongoing focus on services related to talent with higher skill levels. These include management resources full time engaged with professionals managed solutions, Robert half technology and Protiviti.
In addition, the structural shift to remote work, particularly for higher skills creates new competitive advantage as it highlights our numerous strengths, including our global brand Office network candidate database and advanced AI driven technologies.
Also our very successful investments in innovation and technology, which continue position.
Positioned us to meaningfully improve.
Both the digital and recruiter experience for our clients and candidates and the internal productivity of our staff.
We remain committed to our time tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent is.
Subject matter expertise they need to confidently compete and grow.
I could not be more proud of all of our global teams, including gallon solutions, Protiviti and corporate services professionals, who put so much energy and dedication into our results this year.
Their efforts made possible a record number of awards and accolades in 2022.
Fourth quarter recognition included being named one of the best workplaces for parents and honored by Forbes as one of the worlds top female friendly companies, we're particularly proud of the recognition we continue to receive for our commitment to diversity equity and inclusion.
Now Mike It 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.
At this time, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
Okay.
Your first question comes from the line of Martin Mackay with Baird. Please go ahead.
Good afternoon, Keith and Mike I'm wondering if you can talk a little bit about protiviti, you're basically guiding to you know a re acceleration with regards to.
So the revenue growth you, obviously mentioned the regulatory risk and compliance as well as technology continues to be a source of strength, but I'm wondering if you can give a little bit of detail a little bit of you know what are you seeing from a visibility perspective to what extent is it being driven by you know any sort of reacceleration in terms of public sector or how youre assuming.
About that and you know to what extent is our two integrated are contributing to.
The Reacceleration and it seems like our two is fairly small about 40 employees, but wondering if that's having an outsized the factor or how we should just think about the reacceleration of productivity.
Well so first of all.
The impact of the wind down of the financial services project and public sector impact their growth rate by about 11 points. So you take the 4% growth that was reported that becomes 15 on a core basis.
That 15 is.
Due to as you spoke about the.
Regulatory risk and compliance where they've got some regulatory consent order remediation projects that are quite good on the technology side, you've got managed technology solutions, you've had data analytics, you've got security all of those are good.
We.
Our two integration it's small it it doesn't move the needle overall, but we're very happy happy to have those capabilities around digital transformation customer experience, primarily based on the Adobe platform.
Ironically, we're gonna use internally to re platform our own websites in 2023.
So if you look at the guide for the coming quarter mid points high single digits. The drag from the Big project wind down in public sector becomes five or 6%, so you're still in that mid teens double digit.
Growth rates for Q1, Protiviti pipeline is very strong it's very diversified they feel great about where they are.
We feel great about protiviti overall from a profitability standpoint as is always the case quarter. One seasonally is their lowest they have all their raises that are effective Jan one they frontload there staff additions to some degree and then their internal audit and Sox.
Business it always seasonally slows while their clients focus on external audit focus all following their SEC documents, which to some degree crowds out Sox and internal audit. So protiviti were very bullish about the profitability or do you see.
It is typical seasonal impacts as I just described.
That's perfect and then could you give us a little bit of help on the contract staffing just in terms of thinking about you gave the overall you.
You know guide, but just how we should think about it in terms of finance and accounting versus admin and customer support and technology.
And to what extent you know what are we thinking with regards to just the temp contract gross margin just from a sequential perspective.
Yeah.
So we did give the overall guide which is.
Hopefully the most conservative we've been in quite some time.
A practice crew standpoint.
We're seeing strength in finance and accounting, particularly at the senior level and above.
Within that are full time engagement professionals remains incredibly strong has held up incredibly well.
Administrative customer support has been impacted by public sector falloff.
<unk> been impacted by less open enrollment.
It's also impacted to the extent clients get more cost conscious stretching their administrative staff seems to be one of the first places they go so.
C S.
But have a lower.
Would have a bigger negative impact in Q1 than F. In a tech looks more like FAA again, because our tech clients are larger SMB as is the case for F. N E. R Tech nature of services Skus largely to infrastructure and opera.
<unk>, rather than software and applications and they tend to be a little more impacted that is the case with software and applications.
Yeah.
And then the sequential gross margin.
Our sequential gross margin the fourth quarter, we got a lift as we true up estimates to actual for workers' comp and for state and federal unemployment. We got some credits those credits don't repeat and so frankly most of this sequential difference Q4 to Q.
One is the absence of those true up credits.
Got it.
Pay bill spreads continue solid.
Conversions were a little lighter in Q4, consistent with Perm and that same kind of level. It's what's embedded in the Q1 guide.
Perfect. Thanks, very much Keith.
Your next question comes from the line of Andrew Steinman with J P. Morgan. Please go ahead.
Hi, Keith.
I know you you guide for talent solutions, which is your contract business in your Perm business together when when thinking about the midpoint for the first quarter.
Margins for town solution of 9.5 could you just give us a sense of how that might break down between.
Perm and temp.
I know you just gave us a little sense of why the contract gross margin will be down.
Is it just still feels like a kind of a sequential a conservatism when you're trying to model when I'm trying to model the contract operating margin in the first quarter, even past the gross margin comment that you just made.
Well contract versus Perm, we don't split out our guidance I think it would be safe to assume.
Based on the Q4 trends the early post quarter trends.
That our Perm assumption is lower than our contract assumption for the first quarter.
From a contract operating margin standpoint.
Since our stance toward head count adjusting has always been never to anticipate but pretty much to adjust coincident with what we see at the top line, there's always going to be a one or two quarter lag between the actions we take.
On our Cogs, particularly head count and how they show up in the P&L and so you'll see a little bit of negative leverage in contract operating margins in Q1 for that reason, which.
Adjust auto correct shows up if you will in Qs two and three.
Hum.
And then lastly, when you say youre optimistic about 23, and you use that word reenter twenty-three optimistically do you mean like Robert half as it was ready for whatever scenario. The economy brings or you say youre optimistic that the economy will hold up.
It's more the former.
We've been through many downturns of different intensities and durations. We've emerged from every single one of them to make new highs.
We're the most nimble we've ever been with our cost structure, we manage our head counts on an individual basis relative to how they stand relative to our standard given their tenure.
And so we just feel really good about where we are with our cost structure, where we where we are with the capability to take advantage of what business is there. We have some business is growing quite nicely quite double digits, we talked about protiviti before but in talent solutions.
Management resources higher level, M&A still growing nicely double digit.
Full time engagement professionals growing at really high double digit levels and so we've been particularly pleased with the way that has held up and will add to staff. There. So our optimism is.
Whatever hand, well that we're dealt we'll deal with it and we believe we'll emerge on the other side whenever the other side is.
Higher than ever.
Excellent well thank you so much Keith.
Your next question comes from the line of Jeff Silber with BMO capital markets. Please go ahead Sir.
MS. <unk>. Your line is open. Please go ahead.
Hi, Thank you.
I appreciate you taking my question.
You talked about being nimble with your cost structure, and you gave a little bit of color around head count.
I I would love to hear how you're thinking about the <unk>.
<unk>, you're making in your business you know when you've been making your business and managing those costs and then also with regards to head count I think in the past you typically have adjusted SG&A.
Could you be kind of in line with sales, although with a lag is that how youre thinking about being currently in this environment.
Yep.
Not thinking any differently than we traditionally have thought.
As to head counts, we just to top line as we just talked about theres, a lag of a quarter or two but.
Trading that against anticipating downturns that may not occur, we'll take that lag of a quarter or two.
As it relates to.
Technology.
Hi innovation.
The thought is our spending for 2023 will be flattish with what we spent in 2022.
We're very pleased with the returns we've gotten particularly in AI.
We've transformed how we identify and select candidates.
We're turning our attention to using AI to identify the warm as leads for our field professionals on the sales side, it's early days, but we're optimistic.
Earlier about we've got a new website coming or re platforming that we're very focused on improving the digital experience of our clients and candidates.
That new website will come sometime second half of the year, probably the latter part of that so we're continuing our innovation technology spending pretty much at a level flat with 2022, which we think is strategic and we think is appropriate but other than that our cost.
Rupture is the most nimble has ever been our highest caused by leaps and bounds is our branch payroll cost and as I spoke to earlier, we have the tools to manage that.
Individually.
The best we've had in our history.
Thank you and one quick question on the January trend I think in the July quarter. You had noted that because of the July 4th holiday there can sometimes be some noise in in the.
In those three week trend I'm curious just given that January youre coming off the holidays, if theres any.
Seasonality or noise that that may be in those numbers.
Holiday impacts are always hard to predict.
Predict.
Generally speaking I'd say for the Christmas new year holiday.
We had more clients take time off we had more internal staff take time off which had some impact.
The view was.
They came back a little later than normal, but that's anecdotal.
It's hard to.
Get a.
Super precise read on holiday impacts.
We've always talked about in Perm placement, which was the weakest in January as we reported it's also.
The least predictive if you take the early part of a quarter for Perm relative to the full quarter. The early part isn't the least predictive of the full and so to some to some extent we always discount.
Post quarter early following quarter results affirm that said, what I, what I'd, rather be up 20% and down 20 per cent Sherwood.
But by the same token we don't get overly excited about post quarter Perm.
Thank you I appreciate it.
We will take our next question from the line of Jeff Silber with BMO capital markets. Please go ahead Jeff.
Hi, I'm going to try again can you hear me now.
We can.
[laughter].
I wanted to focus on contrast talent solution Bill rate they were very strong in the quarter.
Do you expect them to stay at this level I'm just curious what's incorporated into your outlook for the first quarter and what should we expect for the rest of the year.
We would expect them to subside somewhat and so while that might have a topline impact as we've talked before.
It'll have not much gross margin impact because with the higher pay rates, we pretty much pass through them through intact and have an expanded gross margins. So if that unwind to some degree, which I think would be reasonable given.
Economic expectations that rather than be at seven to eight 9%. It would return to something more normal call. It 345%, it's going to more be a topline phenomenon than a margin phenomenon.
Okay. That's helpful. And then on conversion fees, you gave us a little bit of color. What we should incorporate in terms of <unk> can you just remind us what the historical range of conversion fees have been for your company in up cycles and down cycles and any reason to think things will be different this time.
Well.
Depending on what timeframe you use.
I can remember, saying many times the typical range is 3% to 5% of revenue.
That 5% is long ago. If you look at the past 10 years and I'm not looking at anything specifically yet.
The it tops out probably more in the low fours than getting to five and so there is downside 100 150 basis points.
This is where we are.
It tracks to some degree with permanent placement, which as a percent of the total also get smaller but again very normal and comes back strong in fact, if anything permanent conversions come back stronger when things improve that is the case on the contract side.
Alright thats helpful. Thanks, so much.
And your next question comes from the line of Manav Patnaik with Barclays. Please go ahead.
Hi, This is roni Kennedy on for Manav. Thank you for taking my question can you shed some light on this to a certain extent with regards to some comments on that.
Labor markets remaining tight demand for talent high clients continuing to hire slower pace. Just wondering you know with all the news and the data we see on the labor markets.
I think you even recently there were headlines on the contributions from SMB and four out of five open roles or for SMB. Although December had the highest levels of termination attempt since early 'twenty. One can you just kind of reconcile what you saw throughout the quarter and December in the first two weeks.
In your lead comments and results with the broader headlines and narratives within the BBB.
These media on the labor market.
Well.
First of all I think this is the most anticipated downturn ever.
And the cumulative impact of all of that negative news clearly has an impact on confidence.
And I believe the same story, you're referencing <unk>.
Toward the end also talked about the NFIB small businesses their optimism index was down 12 straight months.
Lower than their 48 year average.
And so while the hard data seems to be hanging in there pretty well the softer data, which is about expectations be at NFIB B B at conference Board's, leading indicators are being in a b E, which also had some negative.
Expectation data I think all of those would point to some continued softness but theres no question that there is tension between the very resilient labor market data, which clearly.
Is indicative of supply.
And the forward looking expectations data of the group's I've talked about which we see as more consistent with our clients, having said that orders have not dried up we want to make that clear. It's just taking longer to get them closed our clients are less urgent or taking more steps they want to see.
More candidates they won't involved more people in the interview process. It simply lengthens the sales cycle, we still have orders orders have not dried up.
[noise] can you help me understand.
Sure.
Margins.
And the dynamics of the margin drivers could you talk about the importance of mix in conversions versus I think what most people less familiar with.
Robert half, we think is place.
Place an emphasis on wage rate inflation in bill pay spreads.
Well as we've always talked earlier from a promo.
Bill rate increase.
Pay bill spread increase the point is for the most part at these elevated levels they've been pass throughs. So we've been 789% higher wage rates Bill rates recently, which have had very little margin impact.
<unk> on the other hand have almost day.
For dollar percent per percent impact and so conversions so far this cycle.
At a high or a 441% and I think this quarter will go back down to three 7%.
And so clearly they have a margin impact, but we talked earlier on the call about.
Traditional range and while they do show volatility on the downside as I mentioned, they show volatility on the upside as well and you'll see if you study prior up cycles.
Herman conversions recover the most quickly.
As clients ramp up their staff, particularly if they're coming from tight labor markets. They want to they want to lock up their good staff early in an up cycle, which benefits perm, which benefits conversions.
Got it. Thank you appreciate it.
Your next.
Question comes from the line of Stephanie Miller with Jefferies. Please go ahead.
Hi, good afternoon. Thanks for the question.
I wanted to know if you have seen.
Any maybe signs of wage inflation being a little bit more subdued or even on the other side companies pushing back on what has been a really tight market in that tight.
Wage inflationary environment, so any any improvement there.
Well, we would say we're definitely seeing clients.
<unk> back more than they they were.
In part because they think they can which is understandable.
As I talked earlier as well we would expect.
Some dialing back of the wage rate wage rate pressures, we're seeing as well as the bill rates that go along with that so as things are.
Soften a bit we would expect pay rates and bill rates to dial back a bit but as I talked about we don't think that have much of a margin impact for reasons that I talked.
Okay.
Right, absolutely and then discontinuing.
As you think about as you look at it.
Ross.
Talent solutions for the quarter finance and accounting administrative and customer support and tech where there any of those that surprised you in terms of the performance.
[noise].
Well.
The biggest positive surprises, where we had strong double digit growth in management resources, and we had really strong double digit growth in full time engagement professionals and so that that was good.
On the negative side I'd say Acs was a little more impacted I think clients as they get more cost conscious tend to go first to their administrative staff and dealing with that and we saw that in our Acs numbers.
Okay.
Great. Thank you so <unk> is interesting.
As interesting on one hand, you've got big tech that over hired.
That with great fanfare as announcing all of their layoffs.
And while we're not directly impacted much by Big Tech I'd say, there's a psychological and sentiment impact to all tech and that Theres a perception that there are a lot of tech people on the market that the tech market has loosened.
A lot the reality is a lot of those layoffs arent even tech people their recruiters HR back office people at Tech companies. Further those that are getting laid off typically are finding new positions fairly quickly and.
So we would say that the.
Tech market in fact is stronger than the perception, that's being led by Big Tech, which has very specific in many cases company specific circumstances.
Absolutely and then sorry last one last one for me.
And maybe this is more of you can provide a little bit more of a history lesson just from prior down cycle.
Do you feel like SMB.
In prior cycles slower to kind of respond or slower to see the impact and a weaker.
Economic environment or how would you think that kind of played out throughout a cycle and any reason why this cycle might be different from those in the past on F&B.
History would say smbs are more nimble more cost focus and would respond more quickly not more slowly to macro uncertainty.
By the same token they would recover more quickly than larger enterprise organizations. That's been the consistent experience we've seen at least across the last three cycles and we have no reason to believe it wouldn't be the case again.
Got it thanks, so much.
Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.
Alright, thanks, good afternoon.
Our goal has been to replace Covid related public sector Protiviti spend with other forms of public sector spend how do you expect federal budget constraints to potentially impact public sector spending on Protiviti and what's your.
Bedded assumption around public sector spending your first quarter guidance for Protiviti.
Okay.
Well so first of all.
Just to kind of step back for public sector for a moment.
Going into 2022, there was all this concern.
That there was going to be this cliff event due to the absence of unemployment claims processing that would have to be replaced.
As 2022 was ultimately reported we were down 3% adjusted for currency 'twenty one for 'twenty, two so from where I come from we were essentially flat in 'twenty two versus 21, the feared cliff event.
Didn't materialize and we were successful.
At replacing that work.
As we move forward into 2023, we're optimistic that on an enterprise basis, you can't just look at Protiviti you can't just look at talent solutions you have to put the two together that on an enterprise basis that we're on solid footing. We've got good foundational client relationships that we can.
Leverage and we feel good about that given its overall size relative to protiviti and or two talent solutions.
We don't plan to make a lot of specific disclosures about.
Public sector going forward, because quite frankly, we have many sectors, mainly practice groups. Many industry groups that are way larger than public sector and given that there's fear cliff event is behind us we didn't feel the need to do so but we're very pleased.
And how we manage through.
And replaced all that unemployment claims processing work or effectively flat and we'll build from there.
Got it.
You mentioned that lower <unk> margins reflects the seasonal impact from compensation and head count Your guide for <unk> Protiviti SG&A as a percentage of revenue of 14% to 16% looks like it comes above the prior year's <unk> SG&A as a percentage of revenue of 13%.
Can you unpack that a little bit what's driving that since it seems like it's a little bit more than seasonality.
Well, if you look at the progression over 2022 of Protiviti SG&A percentage, you will see that it grew quarter by quarter by quarter to get back to more normal levels. Because 2021 early 2022, they didn't have as much training they did.
We have as much practice development they didn't have as much marketing and so those have returned to a more normal level. So from a Q1 only perspective, you're comparing Q1 2023 with normal levels of spending to <unk>.
<unk> Q1, 2022 that hadn't yet built back to normal levels of spending.
But the featured five the main event for understanding <unk> Q1 segment margins operating margins is what happens at the gross margin line and that's where they're impacted by all the raises that come all at once on Jan one by the front ending of some of their hires and from.
The seasonal <unk>.
Soft newness in their internal audit Sarbanes Oxley that happens every year that they recover from nicely Protiviti had 14% operating margins in Q4, we were very very pleased with that those stepped down in Q1, which is very consistent with how they've stepped down in prior year.
Years, and that step downs, mostly about gross margin not necessarily about SG&A.
Got it very helpful. Thank you.
Your next question comes from the line of Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much.
<unk>.
Just to unpack the Q1 guidance a little bit again, I know, there's some seasonality there, but it looks like the range is similar to Q4 and if you take the midpoint the revenue it looks like the midpoint of the EPS about 21 cents less is that the typical seasonality or is there anything else in there that you'd kind of call out one way or another may be utilized.
<unk> being a little bit lower I know there is always the typical seasonal step down but is there anything else because again the revenue range looks pretty close.
<unk>, what I would say <unk> got typical protiviti seasonality.
Maybe it's a little more this year than last because the raises were a little higher this year than last that viewpoint one.
Two because our perm assumption is more conservative than contract you've got a smaller per mix, which has higher margins.
Three there are some negative SG&A leverage because of this one to two quarter lag that I talked about earlier as we adjust our head counts that current levels of revenue.
You put on top of that.
Tax rate is elevated he was elevated in Q4, it will be elevated again in Q1 in part because the stock price is down but if you compare Q1 to Q1, a year ago, the tax rate's up pretty.
Significantly.
So it's essentially it's essentially about protiviti seasonality less per mix because of conservative guidance.
Some negative SG&A leverage because theres, a one or two quarter lag between top line and how we adjust heads, but otherwise pretty much as expected.
Got it and then Keith you've been around a couple of cycles I think there's a lot of us have.
And no two are the same but if you would a parallel anytime and it just so tricky with COVID-19 dialed in and the stimulus.
Think about the outlook in your prepare and then and again no. Two are the same is there any time in history you draw similar parallels too.
Just based on what you're seeing today.
Well there are also different and there's never been.
Our strong and underlying labor market right through the softness like Theres been this time, so one would like to think that that would provide some buffer make this one milder.
As I said earlier this is the most anticipated downturn ever.
And the debate continues about soft landing hard landing recession no recession.
I can't really say it feels like the financial crisis or it feels like the dotcom.
It's just too different clearly COVID-19, it's way different than that.
But what is the same and I'll say it again.
And every one of those cycles no matter what their duration no matter what their intensity, we came back and made new highs.
We're very confident we will come back and make new highs.
We have.
Our most experienced people.
Absolutely engaged in in place to help us participate in that upside when it comes.
Our cost structure is as nimble as it's ever been.
So we feel good about what our cost structure looks like what our margins will look like until that happens, but the point is when it gets better we will be that and we've proven that many times.
So if women did you <unk> did you say what the impact of the <unk> acquisition was in terms of the guidance in the first quarter.
A rabbit variants.
I think they had a total of 70 75 people, it's very small, but important but important and gives us a capability, we didn't have and that's an important capability.
So.
We love their part of the family.
Got it thank you.
Your next question comes from the line of Kartik Mehta with Northcoast Research. Please go ahead.
Keith I wanted to ask you a little bit more about permanent placement, Mike you had indicated that the first part of a quarter, especially the first part of a month is difficult to gauge and I am wondering if you look at your clients and the number of job openings, they have compared to maybe what they had before.
As a way to kind of look at it and maybe that's why.
Conservatism on your part on the conversion and just on the permanent placement.
Just trying to figure out maybe what the reality is compared to maybe what the first three weeks of January might have shown.
Well you can't really look to the number of openings either.
Does it take so much longer to close and opening today than it did a year ago and so if you're a client very urgently is filling a need.
The time from order to Phil's ability you've already close if in fact, they don't since that urgency they've got all kinds of reasons, how they can slow play a slow walk here. However, you want to call. It it just takes longer.
So there is no magic metric.
That we can say well we understand the revenue say this but in fact the orders save is the order flow isn't bad.
But its the time it takes to close an order that's the issue not the presence or absence of an order.
Fair enough and then just one last one just on productivity.
The competition are you seeing anything change or.
Would you say the environment about the same.
Yeah, I'd say the environment is about the same.
Say that in that environment.
We're getting a larger and larger share because we have something there competitors don't and that's under one roof. We have talent solutions and protiviti. They have access to the operational resources at scale is that none of their competitors have we're winning more and more every day and further.
As they compete with their traditional big four competitors I believe even their clients would tell you that protiviti as resources are more specialized as to industry. There are split more specialized as to their capabilities because protiviti doesn't have near as broad.
Our solution offering as those other firms to where many times, they're leveraging the staff across those solution offerings in a way to keep their charge ability protiviti doesn't have too so a pretty heavy is more specialized.
Protiviti has access to talent solutions, both of which give protiviti competitive advantage and they are increasing market share and they're doing great.
Well, thank you both and I really appreciate it.
Okay.
And your next question comes from the line of Mark Marcon with Baird. Please go ahead.
Recognize we're out of time, but wanted to ask this in a public forum.
Are you seeing any sort of differences.
From a regional perspective, just in terms of the trends.
Whether it's northeast, California versus Texas, Florida, where industry differences.
Or.
Illuminating in any way shape or form.
And then.
You want to discuss briefly.
Central impacted.
In terms of increasing the efficiency of your operations from a longer term perspective.
I guess, the only regional comment I would make is that the coasts are a little softer than the middle of the country.
I would also point out that Germany, and the UK.
<unk> had very good quarters they have.
Better outlooks for this quarter than we would've expected.
Our international results are frankly, a little better than United States results in Germany, particularly in UK as well impact that.
As to AI, we've talked before it's totally transformed how we identify talent.
We have a we have 30 million people and our proprietary candidate database in real time, we can get a short list of the most matching candidates.
<unk> candidates that have a proven track record with us of candidates that are active in the job market, we get in real time can access through that $30 million.
Hmm.
The number of people and that candidate database, which is a huge competitive advantage for us, it's making our people more productive.
Allowing our people to earn more money.
So internally we call it art AI recommended talent, but our Isabella household world word in Robert half a year ago that would not be the case.
We would like to do the same thing on the client side on the lead side as I talked about earlier. So we would like to have an a or C. As well as in a R. T receiving AI recommended clients and so that's where we're focused at the moment I'm cautiously optimistic that we will have an impact there.
But.
We are we couldnt be more pleased with what AI has done for our organization.
Perfect. Thank you.
Okay. So I think we're a little bit over so that will be our last question. Thanks to everybody for joining.
Okay.
This concludes today's teleconference. If you missed any part of the call will be archived in audio format in the Investor Center of Robert Half's website at Robert half Dot Com you can also log into the conference call replay details are contained in the company's press.
Release issued earlier today you may now disconnect.
Yes.
Okay.
Yeah.