Q2 2023 Robert Half Inc Earnings Call
Please standby.
Hello, and welcome to the Robert half second quarter 2023 Conference call Today's conference call is being recorded.
Like to ask a question during the Q&A portion of the call. Please press Star then 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. Wang.
You may begin.
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. These risks and uncertainties are described in today's press release.
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-GAAP financial measures and reference these figures as as adjusted Rec.
Reconciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release.
Presentation of revenues and the related growth rates for each of our contract practice groups, including Citrus segment revenues from services provided to Protiviti in connection with the company's blended talent solutions and consulting operations. This is how we measure and manage these businesses internally.
A combined amount of intersegment revenues with Protiviti is also separately disclosed for your convenience our prepared remarks for today's call are available in the Investor Center of our website Robert half dotcom.
Second quarter results for talent solutions were impacted by a long dated client hiring cycles, resulting from ongoing global macro uncertainty for.
Protiviti was much less impacted with its diversified suite of solutions offerings.
Pricing and gross margins remained strong demonstrating the value added benefits, we continue to deliver for our clients. We remain confident that we're well positioned to benefit significantly as the macro landscape improved for the second quarter of 2023.
[noise] wide revenues are $1 six $3 9 billion down 12% from last year's second quarter on both a reported and as adjusted basis net income per share in the second quarter was $1 compared to $1 60 in the second quarter one year ago.
Cash flow from operations during the quarter was $281 million in June we distributed a 48 cents per share cash dividend to our shareholders of record for.
For a total cash outlay of 51 million.
Our per share dividend has grown 11, 5% annually since its inception in 2004.
The June 2023 dividend was 11, 6% higher than in 2022.
We also acquired a practice of approximately 650000, Robert half shares during the quarter for 45 million, we have $12 7 million shares available for repurchase under our board approved stock repurchase plan.
Turn on invested capital for the company was 26% in the second 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 1.639 billion in the second quarter.
On an as adjusted basis second quarter talent solutions revenues were down 16% year over year.
S talent solution revenues were $885 million down 17% from the prior year's second quarter.
Non U S talent solution revenues $263 million down 9% year over year on an as adjusted basis we.
We have 318 talents locations worldwide.
Including 87 locations in 18 countries outside of the United States.
In the second quarter, there were 63, three billing days compared to 63, four billing days in the same quarter one year ago.
The third quarter of 2023 has 63, one billing days compared to 64.3 billing days during the third quarter of 2022.
Currency exchange rate movements for the second quarter had the effect of decreasing reported year over year total revenues by $3 million.
And that's $3 million for talent solutions, and a negligible impact for Protiviti.
Contract talent solutions Bill rates for the quarter increased 6% compared to one year ago adjusted for changes in the mix of revenues by functional specialization currency and country.
This rate for the first quarter was $6 9%.
Now, let's take a closer look at results for Protiviti.
Global revenues in the second quarter were $491 million.
$386 million of that is from business within the United States and $105 million is from operations outside of the United States.
On an as adjusted basis second quarter, Protiviti revenues were down 1% versus the year ago period.
Protiviti revenues were down 2%, while non U S. Protiviti revenues were up four point were up 4%.
Protiviti and its independently owned member firms serve clients through a network of 89 locations in 29 countries.
Turning now to gross margin in contract talent solutions second quarter gross margin was 39, 9% of applicable revenues the same as the second quarter one year ago.
Conversion revenues or contract to hire were three 7% of revenues in the quarter compared to four 1% of revenues in the quarter one year ago.
Our permanent placement revenues in the second quarter were 13% of consolidated talent solutions revenues versus 14, 7% in the same quarter one year ago.
When combined with contract Count solutions gross margin overall gross margin for talent solutions was 47, 7% compared to 48, 7% of applicable revenues in the second quarter one year ago.
For Protiviti gross margin was 22, 9% of Protiviti revenues compared to 34% of Protiviti revenues one year ago.
Adjusted for deferred compensation related classification impacts gross margin for Protiviti was 24% for the quarter just ended compared to 28, 1% one year ago <unk>.
Second quarter Protiviti gross margin included $2 8 million of severance costs related to employee head count reductions.
Enterprise SG&A costs were 33, 1% of global revenues in the second quarter compared to 27, 3% in the same quarter, one year ago adjusted for deferred compensation related classification impacts enterprise SG&A costs were 31, 6% for the quarter.
Ended compared to 33% one year ago.
Talent solutions SG&A costs were 47% of talent solutions revenues in the second quarter versus 32, 2% in the second quarter of 2022.
Adjusted for deferred compensation related classification impacts talent solutions SG&A costs were 38, 7% for the quarter just ended compared to 36, 2% one year ago second.
Second quarter talent solutions SG&A costs included $5 1 million of severance costs related to employee head count reductions.
The lower mix of permanent placement revenues this quarter versus one year ago had the effect of decreasing the quarters adjusted SG&A ratio of 0.9 percentage points.
Second quarter SG&A costs for Protiviti were 15, 1% of Protiviti revenues compared to 14% of revenues in the one year ago period.
As operating expenditures continued to return to more normal pre pandemic levels.
Second quarter Protiviti SG&A costs also included 400000 of severance costs related to employee head count terminations.
Operating income for the quarter was 118 million. This includes severance charges of $8 million or <unk> <unk> per share.
Adjusted for deferred compensation related classification impacts combined segment income was $147 million in the second quarter <unk>.
Combined segment margin was eight 9%.
Second quarter segment income from our talent solutions divisions was $103 million with a segment margin of 9%.
Segment income for Protiviti in the second quarter was $44 million with the Cig segment margin of eight 9%.
Our second quarter tax rate was 30% up from $20 seven up from 27% for the same quarter, one year ago. The higher tax rate for 2023 can be attributed to an increased impact of non deductible expenses fewer tax credits as well as lower stock compensation deduction.
Yes.
At the end of the second quarter accounts receivable were $974 million and implied days sales outstanding or DSO was 53 five days.
Before we move on to third quarter guidance, Let's review some of the monthly revenue trends, we saw in the second quarter and so far in July all adjusted for currency and billing days.
Contract talent solutions exited the second quarter with June revenues down 15% versus the prior year compared to a 14% decrease for the full quarter.
Revenues for the first two weeks of July were down 15% compared to the same period one year ago.
Permanent placement revenues in June were down 26% versus June 2022.
This compares to a 25% decrease for the full quarter for the first three weeks in July permanent placement revenues were down 28% compared to the same period in 2022.
We provide this information so you have insight into some of the trends we saw during the second quarter and into July but as you know these are very brief time periods, we caution against reading too much into them.
With that in mind, we offer the following third quarter guidance revenues 1.48 billion to 1.58 billion income per share 76 cents.
To 90 cents.
Mid point revenues of our <unk>.
1.5 dollars 3 billion or 16% 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 revenue growth year over year as adjusted.
<unk> solutions down 17% to 22%.
For Protiviti down, 4% to 7% overall down 13% to 18%.
Gross margin percentage for contract talent, 39% to 41% for Protiviti, 25% to 27% overall, 39% to 41%.
SG&A as a percentage of revenue, excluding deferred compensation classification impacts talent solutions, 39% to 41% protiviti, 14% to 16%.
Overall, 32% to 34%.
Segment income for talent solutions, 5% to 8% productivity, 9% to 12% overall, 6% to 9%.
Our tax rate, 29% to 30% and shares 105.5 to 106 5 million shares.
2023 capital expenditures and capitalized cloud computing costs.
70 million to $80 million with $13 million to $18 million in the third 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.
Thank you Mike.
Global labor markets remain tight.
City of talent persists.
Client hiring and project needs continue to be significant however, the urgency or velocity of that demand is impacted by the prolonged period of macroeconomic uncertainty which continues.
As clients become more cost focused.
Bring timeframes extend projects are delayed contractor workloads are shifted to internal staff.
All of these factors negatively impact short term results. They also result in reduced client labor capacity.
That serves to create pent up demand for talent as business conditions improve historically there is also a positive correlation between the level of job openings, which currently sit near record levels and the level of hiring which bodes well as macro headwinds subside.
We've weathered many economic cycles in the past each time emerging to achieve higher peaks.
Aging workforce demographics, and clients' desire for flexible resources and variable cost are structural tailwind that are expected to continue for many years to come.
Protiviti is regulatory risk and compliance practice.
Leads it solution offerings with significant double digit revenue growth.
Turtle audit and to a lesser extent technology consulting are being modestly impacted by client budget pressures, where projects are being deferred and or their scope. So limited and new deals are taking longer to close.
<unk> pipeline continues to grow and demonstrates its increasing presence in the marketplace.
It competes effectively against the other large accounting and consulting firm.
By differentiating the breadth and depth of its resources.
This includes it's more concentrated portfolio of specialized solutions and industry expertise.
Its greater balance of those with consulting backgrounds and professionals, who work directly in industry.
And its priority access to contract talent at all skill levels and at any scale through its relationship with talent solutions. We believe the future for Protiviti is very bright.
We continue to invest in the tools needed to secure top talent for our clients. This includes making enhancements to our advanced technologies and AI.
To further improve our already effective matching engines.
We are using our proprietary data and algorithms to customize our latest generation large language model and incorporate it into our AI.
We remain committed to our time tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent and consulting expertise they need to constantly compete and grow.
Finally, we're proud to have received a number of new accolades in the second quarter.
Robert half ranked number one on Forbes list of Americas, Best professional recruiting firms.
It was recognized by fortune as one of the best workplaces for millennials and just today named by Forbes as one of America's best employers for women.
None of this recognition would be possible without the dedication and commitment of our employees around the world.
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.
Thank you at this time, if you would like to ask questions. Please press star one on your Touchtone telephone.
If you would like to withdraw your question. Please press star two.
Tone telephone.
And your first question comes from the line of Mark Mark Hahn with Baird.
Hey, good afternoon, Keith and Mike I'm wondering.
You've been through many cycles right now the unemployment rate is still at three 6% when we take a look at you know the declines that we've seen thus far you obviously indicated that it's due to the elongation.
Of the hiring cycles.
How much do you think that is due to just the fact that we're we're comparing to a period.
A year ago that was you.
You know, particularly.
Beneficial to recruiting staffing and consulting.
And perhaps a distant.
Just an extraordinary period versus you know real signs of an economic slowdown and how does that impact.
How you think about managing expenses in the future and what the future trajectory could look like.
Hello.
There's no question that.
A year ago post COVID-19.
It was a very robust period for recruiting and consulting and so those comparisons matter.
That said we are seeing clients.
Being more conservative being more cautious.
With all of the rate hikes with all the leading indicator bearishness.
With our NFIB small businesses and their optimism index being below average I think now for 18 straight once there is caution there is focus on cost I think that's just a fact.
As to how we're thinking and how we're managing.
On the cost side, we continue to manage manage head count on an individual basis.
That's the same as we've always done.
We.
We've compared.
Peak to trough performance of prior cycles.
We've looked at.
Yep Yep.
Most recent four quarters that had been sequentially down to the first four quarters in prior cycles.
Downturns.
And we would observe that hey, I've made so far this time the revenue impact is about half what it's been in the past that gross margins have held up better that we've managed our SG&A better that the operating margins have declined less.
So we feel good from a cost management standpoint.
That we're doing the right things.
We talked on the script about severance that we had this quarter 8 million total 5 million talent solution is 3 million protiviti.
Our Q3 guidance.
Consider as cost savings that follow from that.
On the talent solutions side 19 million in quarterly savings on the Protiviti side 18, and a half million are primarily in direct cost.
That said, we will continue to invest in innovation.
Technology, because we think that's important to the future further on the head count front, we do want to have dry powder as things get better.
We want the right kind of dry powder and what we're finding that many of the people hired in the last few years, we're pretty recruiting focused and not as sales focused as they needed to be and therefore set the stage for some cost reduction actions that we've taken.
I think the bigger story is.
Recovery and what we've done historically.
And as we've said in the calls.
Every cycle, we've grown peak to peak.
That's not only at the revenue line. That's also what the earnings line.
And further we have significantly reduced our share count during those cycles.
Just in the last 10 years for example, we've reduced our share count by 23%. The last five years, we've reduced our accounts so head count by excuse me share count by 13%.
Given our policy of dollar cost averaging buying back essentially every quarter.
During this next cycle you could expect further reduction so the point is not only do we make new highs at a revenue level you get to leverage that the net income level and then you get further leverage up significant amount from lower share counts. So.
Our view is we've been here we've done this we've managed through it.
So far louder than what we've seen in the past.
We've managed better on the cost side than we have in the past we would expect that to continue our gross margins are holding up beautifully we're quite proud of that so we feel good about our long term prospects we think.
The earnings capacity, we have as we go forward is it a greater better than it's ever been.
And we'll just have to tough it through what we're going through and in short term.
I appreciate that.
Obviously, you've got a tremendous long term track record.
You mentioned, the 18 and $19 billion in quarterly savings.
Are you going to enjoy the full benefit of those severance actions in the third quarter or some of that also going to spill over into the fourth quarter.
Yes.
Most of that will benefit the third quarter there'll be some spillover, but orders of magnitude its not tremendous.
Okay, and then one last follow up just on the Protiviti side.
What are your thoughts with regards to <unk>.
Wink to expand that business from a head count from a permanent head count perspective, how would you.
Go into the fall and recruiting season.
When it comes to like on campus hiring and things of that nature.
Well, so first of all and <unk>.
Regulatory risk and compliance the business is extremely strong they continue to add head count to feed that growth and that will continue.
There are other businesses, we've talked before they've got less attrition, which is impacting their hiring plans and their charge ability.
That's more for experienced hires than for campus hires.
They will recruit and hire own campus in the fall maybe not quite to the extent they have in the past, but they will certainly have a presence there which is what they need to sustain their business going forward. So protiviti.
Not near as impacted as is the case and talent solutions, but somewhat impacted and internal audit as we talked about in the prepared comments. They've also got their business process improvement practice that includes some IPO that includes MMA M&A transaction related work and so that's also been impacted because it is.
Discretionary as you understand but generally speaking protiviti is holding in there quite well.
Their plan with their head count management, they had some severance during the quarter with their conversion to full time into contractors as they will continue to see recovering gross margins, which recovered. So in Q2 are expected to recover even more in Q3 and more yet again and.
Q4, such that they get back to more normalized gross margin levels, but we feel good about protiviti.
Terrific. Thank you.
And our next question will come from Andrew Steinman with J P. Morgan.
Obviously, just heard your you feels feelings about productivity could you just give us a little more sense not necessarily the second or third quarter here, but how do you think of productivity as revenues and margins holding up through a down cycle and particularly the largest vertical.
All financial services.
Well, Andrew we feel good about protiviti revenues and margins, including with F. S. I.
As we speak in internal audit with Ssi, you've got in many large financial institutions Slopping contractors for internal staff to protect their internal staff to reduce the cost of third party spend.
That's what those banks are doing from a cost cutting standpoint today as we also talked about earlier.
Classic to see companies.
First reduce contractors to then stretch their internal staff both of which have the.
The positive effect when things get better that they need more capacity, which is.
Pent up demand and a springboard for growth thereafter back to Protiviti.
We feel good the other than the great financial crisis, if youll look at Protiviti performance across cycles, the latest latest being COVID-19.
They performed quite a bit better and more resilient.
That was the case in talent solutions, and our expectation would be that that continues.
Makes sense thanks Keith.
Okay.
Thank you and our next question will come from Kevin Mcveigh with credit Suisse.
Okay.
Great. Thanks, so much.
Keith you typically don't Miss relative to the guide I mean, it seems like it happened around macro inflection point.
<unk>.
So.
Is it I guess, if you think about it relative to initial expectations.
The revenue and EPS.
Where do you think in terms of where the initial guidance was where.
Maybe the most adjustments were intra quarter.
Typically it doesn't.
Looks good and then maybe the guidance will be a little light but.
It seems like the.
He missed which you typically don't.
I'd say broadly clients or more cautious more conservative more tentative than we had counted on they've got modestly more so during the quarter, which we had not forecast, but that was broad.
Was it.
Confined to any particular state or two it was broader than that.
While it wasn't.
Quite as severe outside of the U S. As inside of the U S. Everybody was impacted and so it was more.
Macro related than any kind of internal execution or internal specific area of weakness and also pretty much span practice groups.
It impacted finance it accounting and the fact that technology in it.
<unk> administrative.
And customer service it impacted everything.
Olivia Thank you.
And our next question will come from Trevor Romeo with William Blair.
Hi, good afternoon. Thanks, so much for taking the questions.
Purchased on the contract talent solutions business it looked like the deceleration this quarter.
Kind of strongest for finance accounting and technology. So I was just wondering if you could maybe drill down into the trends for each of the three contract talent sub segments that kind of talk about what youre seeing now and what you've embedded into guidance for next quarter.
And so for accounting and technology, the operational level skills or more impacted by the higher level.
And so for accounting accounts payable accounts receivable payroll et cetera.
For technology.
Technology, that's a tech support help desk, the more operational level and so those were more impacted than higher level.
Customer service, we've talked about for some time.
When companies cut costs, that's an area, where they often go first.
<unk>.
Potential good news on the horizon with all of the Medicaid changes in many states you have got a lot of people that no longer qualify for Medicaid will now be looking for insurance that will impact enrollment.
Many times at private companies and open enrollment is certainly a demand driver for.
<unk> AC.
Yes, administrative and customer support and so hopefully, we'll get a little bit of a lift from that.
As to guidance.
Thankfully, it's pretty simple we looked at long term seasonal slash sequential trends.
They are most noticeable in Perm, where summer in Perm is typically down mid ish single digits sequentially.
And so we took those long term sequential trends contract and Perm and we applied to that the variance from normal trends, we've seen in the last two or three quarters and that in turn then pretty much gives you what we've forecast for Q3.
Great. Thanks very helpful.
Follow up just kind of wondering.
How much do you think labor hoarding is having an impact on the talent solutions business I would imagine a lot of companies are kind of holding onto more staff maybe than they normally would in this economic climate because they may have let people go in 2020 and had a hard time kind of re hiring during the recovery. So just kind of curious for your thoughts on that topic of labor hoarding.
Well I think they're more apt to hoard full time, then they are contract employees.
And therefore since we're out of the contract employee business, primarily that certainly has an impact.
All of our full time side, there's less churn than there has been because of that hoarding and less churns means fewer at bats for our Perm placement business. There. So there's some impact there.
But I.
I guess, we ultimately come back to we've seen these kind of circumstances multiple times in the past.
And.
In part for structural reasons as I talked about earlier, we always come back we always make new peaks and that's the leverage as you move down the P&L and leveraged yet again when you look at the share count.
Alright, Thank you I appreciate it.
And our next question will come from Stephanie Moore with Jefferies.
Good evening this is harold onto on for stuff anymore.
Just wanted to know if you could break out the drivers of gross margin performance.
<unk> and.
What do you think the puts and takes there.
With respect to <unk>.
Well as we called out in our prepared remarks, we are very pleased with.
Gross margin in Q2.
Conversions declined a bit year on year, we more than made that up with higher pay bill spreads.
Some of that's mix related more management resources more full time engaged with professionals, which by the way continue to grow and as the strongest part of our contract business, which is great for bill rates, which is great for gross margins.
As we carry into Q3.
While our forecast conservatively includes a.
A couple 10 20 basis points.
<unk>.
Conservatism by and large they are flat and continue into Q3.
Our gross margins have held up remarkably well as partly indicative of the tightness of the labor market, that's partly indicative of how we add value to our clients and they pay for our services.
Thank you and then just internationally.
You can call out any countries, where you saw the most stringent touched on one of the most weakness as compared to the U S.
And so in Europe , as we've said for many quarters, Germany stands out positively.
They continued to have a very solid quarter and the outlook is good.
A couple.
Our new wins Protiviti Youll notice I Z international.
<unk> actually had a check up with their growth rate between quarters year on year and that was more Asia related and within Asia, Hong Kong Hong Kong MSI.
And so.
As you see that area of the country totally reopening from Covid, we had a nice little lift from Asia Pacific specifically Hong Kong.
Thank you.
And our next question will come from Manav Patnaik with Barclays.
Hi, Keith this is Thomas on for Manav. Thanks for the question.
I wanted to just see based on what you've been seeing where do you think we are in the cycle and can you give us an idea of the typical Q4, Q seasonality revenue and margin trends.
So where are we in the cycle.
That's a very hard.
Hard question to answer.
We've now just had our fourth quarter fourth consecutive quarter of sequential declines and as I said earlier, we certainly can look back to prior cycles, and say, where where are we four quarters in and those cycles and as I said before where output.
Forming at the revenue line, the gross margin line and the SG&A line and the operating income line.
But what that says about the ultimate duration.
Whatever in.
Who knows.
I think there's this question about.
Or are we going to have a recession, how deep the recession is going to be is there going to be a soft landing or are we going to stick to landing as it shortens shallow.
Those questions have been debated for 18 months and for 18 months the answers have been incorrect, but at some point, even a broken clock is right and so we don't know.
<unk>.
Because the answer to exactly where we are in the cycle. All we're saying is wherever we are.
<unk>.
Dealing with the downside of it from a cost side better than we ever have and.
We feel strongly that we'll recover from wherever whatever we have to deal with just as we always have in the past 25 years, where we've personally been been here.
Okay.
Got it and can you. Please also talk about the seasonality trends that you've seen.
Historically for.
For the second half seasonality alright on the contract side, it's flattish Q3 versus Q2 on the Perm side, it's down kind of mid ish single digits Q2 versus Q3 versus two which are the summer months and so as I said earlier.
Are we discounted those by a percentage that's indicative of the various since we've seen the last two or three quarters.
So the only the more significant and typically it's perm is softer during the summer.
Our guidance reflects that typical softness and <unk>.
Additional softness consistent with the past two or three quarters.
Got it thank you.
And we have a question from Josh Chan with UBS.
Hi, good afternoon, Keith and Mike.
I guess historically, Robert half has done a good job aligning SG&A when when demand slows in and so I guess it sounds like you had some severance in Q2. So wonder if there is any severance in the Q3 number and whether you expect SG&A to.
Kind of declined close to revenue over time as you go through the downturn.
So there's no severance in Q3.
But there is also no benefit that would result from any severance either.
We've long said that we manage our SG&A on an individual head count basis that Hasnt changed.
History says our cost are relatively in line aligned with revenues and if anything if you look cycle to cycle.
Our costs are relatively better aligned each time.
And we would expect that to continue as we move forward.
Yes, Thanks Ed.
Okay.
Okay.
Okay, Alright, and then I guess my follow up is I guess could you talk about your approach to that to the buyback program.
There is an opportunity.
The share price is at a level that's attractive that you could be more opportunistic than programmatic in the past.
Sure. So first of all understand as revenues decline receivables decline and convert to cash. So just from ordinary course programmatic buying as you call. It will have an additional opportunity for that reason alone.
And to the extent the ship.
If the stock goes all sale, we will certainly consider going beyond that and we have $700 million of cash on the balance sheet.
So programmatically will have more funding from receivable reduction.
And then there is an opportunity given our substantial balance sheet and cash balance to go beyond that.
That's great. Thanks for the color.
And our next question will come from Kartik Mehta with Northcoast research.
Good afternoon.
Wondering.
Other companies have reported softness in perm as well, but when you look at numbers being published job openings are at near record highs and I'm wondering as you've talked to your customers or as you look are your customers, reducing the number of people they want or is it just a matter of.
Taking longer and maybe waiting to figure out what's going to happen with the economy.
It's clearly the ladder.
Our people will tell you that clients clearly have openings that they'd like to hire four they are taking a wait and see attitude given the uncertainty they're taking longer they are being more selective.
They want to see more candidates they've got more approval levels.
All of those things that we've talked about for several quarters in a row.
They will also tell you there are many many many projects in the hopper on the runway that had been delayed not cancelled, but delayed and Thats also a source for revenue growth on the other side as things look better so it's not about absolute <unk>.
Man or aggregate demand, it's about the velocity or the urgency of that demand and our SMB clients that are more nimble, they're taking a wait and see attitude there are being more cautious but the requirements are there and that's a good thing and I think that Beth.
As shown by the job openings you talk about we also went back I think it was for 20 plus years and correlated job openings at hiring and you can take the jolts data and do the same thing and as common sense would tell you they're highly correlated so the more openings are there are there more hiring there.
Thereafter.
So it's a good thing that openings are in the $10 million level, where typically they are in the five or $6 million level.
And then just as a follow up.
Your thoughts on the health of your SMB customers.
<unk> seen any changes or is this just maybe a little bit of a pullback because.
Everybody else.
Just waiting to see what's going to happen.
It's very typical behavior for smbs to be more nimble to be more budget focused and to do it more quickly.
And as we've said before that same behavior pattern happens only upside as well while they are quick to cut and can serve on the downside. There also to quicker to add on the upside, particularly if they've got reduced internal capacity and quite frankly.
<unk> stretching your internal capacity is less and less acceptable the stronger the labor markets are.
Thank you very much less you have a retention.
No.
Keith I'm sorry.
No I'm, saying you cant stretch your internal capacity, but so far particularly in a tight labor market.
Les you have a retention problem.
Alright.
Thank you very much I appreciate it.
And our next question will come from Jeff Silber with BMO capital markets.
Thanks, So much I know, it's late I'll, just ask one I wanted to focus on productivity margin.
They were below.
Our numbers and I think your guidance as well and I know in your prepared remarks.
Deferred comp classification.
And as well as severance.
We took those out would it have come in within your guidance and if not what else was going on there.
So if you took those out it would still be a little below guidance.
In large part because internal audit.
To a lesser degree technology consulting, but also a business process improvement were both a bit softer than forecasts because clients Scott more budget focused.
And many times as it particularly as it relates to internal audit Protiviti does a lot of co sourcing work, where the client does some of the work activity that some of the work and as clients get more.
Cost conscious.
They key a bigger share of the work which comes to some degree at the expense of Protiviti.
Because protiviti has more fixed cost whether they are full time labor force.
Revenues were a little soft in those two areas not near as impacted as what we see in talent solutions modestly saw and so you had some negative leverage from that.
And their margins.
Given the cost actions they've taken.
Related to the severance in the quarter related to the using fewer contractors and spreading the workload to other internal SaaS. The exact same phenomenon I just talked about our other clients are using right.
They do we expect those margins to expand in the third quarter and again in the fourth quarter and so the trajectory is good it's just in the second quarter.
Revenues in those two areas were a little softer than they expected not significantly softer, but a little softer.
Okay. That's really helpful. Thanks, so much.
And our next question will come from Tobey Sommer with <unk> Securities.
Thanks, I wanted to get your perspective.
On what growth May look like in year, one or two of a rebound.
On the other side of whatever we're in or about to go in.
Unemployment rate doesn't pick up significantly and that's been a head scratcher.
Sort of slowdown and so forth, but I'd love to get your perspective on what that could look like versus other cycles, where the unemployment rate goes up significantly and then the growth rates are sort of equally robust on the other side.
Okay.
Well I guess.
We would think about supply and demand a little differently I would say for traditional structural reasons clients reduce their capacity with fewer contractors. They stretch their internal capacity by transferring workloads to them there is a.
Theres a rubber band effect that happens early on that we would expect to reoccur.
The unemployment rate impact.
Typically that higher unemployment rate.
Produce is a bigger candidate pool.
It's available to us to service that additional demand.
To the extent unemployment does it rise like it has traditionally we're confident we have other sources of that candidate supply and it's the same ones. We've look to during peak period of <unk>.
Last few quarters, namely a we have our 30 million candidate database B, we have our advanced AI, where we can pinpoint scales quickly.
<unk> co.
Clients.
Even today will accept remote work hybrid work, particularly at high skill levels and maybe most importantly of all we've got these full time engaged with professionals, where we're recruiting from a much large larger pool of people I E. Those that already have a full time job not those that are between jobs and so.
Collectively we're confident that we'll find the candidates to service that heightened demand that we always see in the early part of an up cycle it'll just be sourced differently than what we traditionally do because you've got this <unk>.
It's a larger group of unemployed people traditionally early in an up cycle.
Which looks like one will occur this time won't reoccur this time.
Thank you.
Okay.
And our next question will come from George Tong with Goldman Sachs.
Alright, thanks, good afternoon.
You talked about seeing elongated client hiring cycles because of macro uncertainty.
Based on trends that youre seeing so far through July in conversations with clients. When do you expect to see those sales cycles stabilized.
So when do we expect them to stabilize all I can say is our short term guidance continued.
Assumes that the glide path continues pretty much as it has been the last two or three quarters. So we're not expecting stabilization. If you will in the very short term as too.
When they stabilize that's as much a macro question as anything and I'm, certainly not a macro a expert or be fortune teller and so.
<unk>.
I'm not sure I have a great answer to win.
All I've said and I've said it multiple times now as that.
We've managed through many downturns in the past much more severe than what we've seen here.
We've come out on the other side, we've made new peaks at the topline new peaks at the Bottomline, we spread it over many fewer shares and ultimately got significantly higher peaks at the EPS line. So that went out whenever it does stabilize or not only stabilize with our SMB clients.
As things began to look up as the clouds began to part our SMB clients react very quickly.
And we will participate significantly in that as we've talked about many of the very same factors that are negative in the short term fewer contractors.
More workload to internal staff those very same factors spring load demand on the other side it.
It's happened every single cycle, and we expect it to happen again.
Got it that's helpful. And then you have varying performance across business lines based on functional and end market exposure as you look across the business where would you say you saw the most.
Slight surprise in the quarter and then Conversely, where would you see you saw the most downside surprises in the quarter.
Well the upside that wasn't necessarily a surprise our full time engagement professionals. We continue to grow sequentially. We continue to grow year on year, our clients love. The fact that we're recruiting from a very broad pool of people that already have a full time job the clients a lot.
These people because on the one hand, they want the security of a full time job, but they love the variety.
Different engagements.
Semi consultants if you will so on the contract catalyst side, our <unk> as we call them continue to grow continue to do well.
And we couldnt be more happy about that from a mix of business. Those full time engagement professionals range from 5% to 30% of a given practice groups workforce.
And it skews the higher the skill level the more of the higher the mix of full time engagement professionals to the total on the downside.
Our administrative and customer support group has been the most impacted.
As clients have gotten more cautious thats not new thats not unexpected we're seeing that yet again, you see it in the numbers.
Hopefully with a little help on open enrollment as I talked about that will be a bit of a boost from them, but again, it's not unusual to see them most impacted.
Got it very helpful. Thank you.
Okay.
Okay that was our last question. Thank you very much.
Thank you and this concludes today's teleconference. If you missed any part of the call will be archived in audio format in the Investor Center on Robert half website at Robert half Dot Com.
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<unk> are contained in the company's press release issued earlier today.
Yeah.
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