Q4 2023 Robert Half Inc Earnings Call

Hello, and welcome to the Robert half fourth quarter 2023 conference call.

Today's conference call is being recorded.

If you'd like to ask a question during the Q&A portion of the call. Please press star and the number one on your telephone keypad.

Our hosts for todays call, Mr. Keith Waddell, President and Chief Executive Officer of Robert half and Mr. Michael Buckley, Chief Financial Officer, Mr. <unk> you may begin.

Keith Waddell: Hello, everyone. We appreciate your time today.

Keith Waddell: Before we get started I'd like to remind you that the comments made on today's call contains forward looking statements, including predictions and estimates about our future performance.

Keith Waddell: These statements represent our current judgment of what the future holds however, they are subject to the risks and uncertainties that could cause actual results to differ materially from forward looking statements. These risks and uncertainties are described in today's press release.

Keith Waddell: Most recent 10-K and 10-Q filed with the SEC, we assume no obligation to update the statements made on today's call.

Keith Waddell: During this presentation, we may mention some non-GAAP financial measures and reference these figures as al suggested reconciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release.

Keith Waddell: For your convenience our prepared remarks for today's call are available in the Investor Center of our website Robert half Dot com.

Keith Waddell: We delivered above consensus top and bottom line results for the fourth quarter with Protiviti, leading the way.

Keith Waddell: Global Labor demand continues to be resilient and talent shortages persist, although both are modestly below their peaks.

Oil and growing economic uncertainty continues to impact client and candidate confidence as well as hiring activity and new project starts.

Keith Waddell: Unless we're encouraged that our improving weekly revenue trends that began in the third quarter and continued into the fourth quarter are approaching a positive inflection point.

Keith Waddell: We enter 'twenty 'twenty four confidence in our ability to navigate the current climate and optimistic about our growth prospects built on our industry, leading brand people technology and unique business model that includes both professional staffing and business consulting services.

Keith Waddell: The fourth quarter of 'twenty twenty-three companywide revenues were 1.473 billion down 15% from last year's fourth quarter on both a reported and as adjusted basis net income per share in the fourth quarter was 83 cents compared to $1 37 in the fourth.

Keith Waddell: One year ago.

Keith Waddell: Cash flow from operations during the quarter was 115 million in December we distributed a 48 cents per share cash dividend to our shareholders of record for a total cash outlay of $51 million our per share dividend has grown 11.2% annually.

Keith Waddell: Since its inception in 2000 and for the December 20th twenty-three dividend was 11, 6% higher than the prior year. We also acquired approximately 685000, Robert half shares during the quarter for 56 million. We have 10 8 million shares available for repurchase.

Keith Waddell: Under our board approved stock repurchase plan.

Total invested capital for the company was 22% in the fourth quarter now I'll turn the call to our CFO Mike Buckley.

Mike Buckley: Thank you Qi Hello, everyone.

Mike Buckley: Keith just noted global revenues were 1.4 dollars 73 billion in the fourth quarter.

Mike Buckley: On an as adjusted basis fourth quarter talent solutions revenues were down 18% year over year.

Mike Buckley: U S talent solutions revenues were $764 million down 21% from the prior year's fourth quarter.

Mike Buckley: Non U S talent solutions revenues were $245 million down 10% year over year.

Mike Buckley: We have 313 talent solutions locations worldwide, including 89 locations in 18 countries outside of the United States in.

Mike Buckley: In the fourth quarter, there were 61.1 billing days compared to 61.2 billing days in the same quarter one year ago.

Mike Buckley: The first quarter of 2024 has 62.8 billing days compared to 63, three billing days during the first quarter of 2023.

Mike Buckley: Billing days for the remaining for the remaining three quarters of 'twenty 'twenty four will be 63.5, 64.1, and 61.6 for a total of 252 billing days in the year.

Current currency exchange rate fluctuations during the fourth quarter had the effect of increasing reported year over year total revenues by $11 million 8 million for talent solutions and $3 million for Protiviti.

Mike Buckley: Contract talent solution Bill rates for the fourth quarter increased three 7% compared to one year ago.

Mike Buckley: Adjusted for changes in the mix of revenues by functional specialization currency and country. This rate for the third quarter was four 6%.

Mike Buckley: Now, let's take a closer look at the results for Protiviti.

Mike Buckley: Global revenues in the fourth quarter were $464 million.

Mike Buckley: 372 million of that is from the United States and 92 million is from outside of the United States.

Mike Buckley: As adjusted basis Global fourth quarter, Protiviti revenues were down 8% versus the year ago period.

Mike Buckley: U S. Protiviti revenues were down 7%, while non U S. Protiviti revenues were down 9%.

Mike Buckley: Protiviti and its independently owned member firms serve clients through a network of 89 locations in 29 countries.

Mike Buckley: Turning now to gross margin in contract Count solutions fourth quarter gross margin was 39, 7% of applicable revenues versus 39, 9% in the fourth quarter one year ago.

Mike Buckley: Conversion revenues for contract to hire were three 4% of revenues in the fourth quarter in the quarter compared to three 7% of revenues in the quarter one year ago.

Mike Buckley: Our permanent placement revenues in the fourth quarter, 12% of consolidated channel solutions revenues versus 12, 7% in the same quarter one year ago.

Mike Buckley: When combined with contract talent solutions gross margin overall gross margin for talent solutions was 46, 9% compared to 47, 5% of applicable revenues in the fourth quarter last year.

Mike Buckley: For Protiviti gross margin was 23, 9% of Protiviti revenues compared to 27, 2% of Protiviti revenues one year ago.

Mike Buckley: Adjusted for deferred compensation related classification impacts gross margin for Protiviti was 25, 9% for the quarter just ended compared to 28% last year.

Mike Buckley: We ended 2023 with 10500, fulltime protiviti employees and contractors down nine 6% from the prior year.

Mike Buckley: Moving on to selling general and administrative costs.

Mike Buckley: Enterprise SG&A costs were 35, 1% of global revenues in the fourth quarter compared to 31, 6% in the same quarter one year ago.

Mike Buckley: Adjusted for deferred compensation related classification impacts enterprise SG&A costs were 32, 5% for the quarter just ended compared to 34% last year.

Mike Buckley: Talent solutions SG&A costs were 44, 6% of talent solutions revenues in the fourth quarter versus 38, 9% in the fourth quarter of 2022.

Speaker Change: I'm sorry.

In the fourth quarter of 2023.

Speaker Change: Adjusted for deferred compensation related classification impacts talent solutions SG&A costs were 48% in the fourth in the quarter just ended compared to 37, 2% last year.

The lower mix of permanent placement revenues this quarter versus one year ago had the effect of decreasing the quarter's adjusted SG&A ratios by 0.4 percentage points. We ended 2023 with 8000 full time internal employees and our talent solutions divisions down 13, 8% from the prior year.

Speaker Change: Fourth quarter SG&A costs for Protiviti 13, 5% of Protiviti revenues compared to 13, 6% of revenues last year.

Speaker Change: Operating income for the fourth quarter was $67 million adjusted for deferred compensation related classification impacts combined segment income was $114 million in the fourth quarter combined segment margin was seven 8%.

Speaker Change: Fourth quarter segment income from our talent solutions divisions was $61 million with a segment margin of six 1% segment.

Segment income for Protiviti in the fourth quarter was $53 million with a second segment margin of 11, 4%.

Speaker Change: Our fourth quarter tax rate was 27% the same as one year ago.

Speaker Change: At the end of the fourth quarter accounts receivable were $861 million and implied days sales outside our days sales outstanding or DSO was 52.6 days.

Speaker Change: Before we move on to first quarter guidance, Let's review some of the monthly reviewed revenue trends, we saw in the fourth quarter and so far in January all adjusted for currency and billing days.

Speaker Change: Contract Count solutions exited the fourth quarter with December revenues down 17% versus the prior year compared to an 18% decrease for the full quarter.

Speaker Change: Revenues for the first three weeks of January were down 17% compared to the same period last year.

Speaker Change: On a week on week sequential basis.

Speaker Change: The rates of decline continued didn't continue to narrow during the quarter.

A pattern that began last quarter.

Speaker Change: Permanent placement revenues in December were down 22% versus December 2022.

Speaker Change: This compares to a 23% decrease for the full quarter.

Operator: Hello, and welcome to the Robert Haaf fourth quarter 2023 Today's conference call is being held If you would like to ask a question during the Q&A portion of the call, press star and the number one on your telephone. Our hosts for today's call are... and Jeff Phillips, Executive Officer of Robert H. Mr. Michael Buckley, Chief Financial Officer. Hello, everyone.

Speaker Change: For the first four weeks of January permanent placement revenues were down 25% compared to the same period in 2023.

Speaker Change: We provide this information so you have insight into some of the trends we saw during the fourth quarter and into January but as you know these are very brief time periods, we caution against reading too much into that.

Speaker Change: With that in mind, we offer the following first quarter guidance.

Unnamed Speaker: 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 risks and uncertainties that could cause actual results to differ materially from forward-looking statements. These risks and uncertainties are described in today's press release and 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.

Speaker Change: Revenues 1.44 billion to 1.54 billion.

Speaker Change: Income per share 54 cents to 68 cents.

Speaker Change: Midpoint revenues of 1.49 billion or 13% lower than in the same period in 2023 on an as adjusted basis.

Speaker Change: The major financial assumptions underlying the midpoint of these estimates are as follows.

Speaker Change: Revenue growth year over year on an as adjusted basis.

Speaker Change: <unk> solutions down 14% to 19%.

Speaker Change: Protiviti down, 326% overall down 10% to 15%.

Unnamed Speaker: 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 earnings press release. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthapp.com. We delivered above-consensus top- and bottom-line results for the fourth quarter, with productivity leading the way. Global labor demand continues to be resilient, and talent shortages persist, although both are modestly below their peak. However, ongoing economic uncertainty continues to impact client and candidate confidence as well as hiring activity and new project starts. Nevertheless, we're encouraged that our improving weekly revenue trends that began in the third quarter and continued into the fourth quarter are approaching a positive inflection point.

Speaker Change: Gross margin percentage for contract talent, 38% to 41% productivity.

Speaker Change: 20% to 22% overall, 37% to 39%.

Speaker Change: SG&A as a percentage of revenues, excluding deferred compensation classification impacts talent solutions, 40% to 42% protiviti, 15% to 17%.

Speaker Change: Overall, 32% to 34%.

Speaker Change: Segment income for talent solutions, 4% to 7% Protiviti, 4% to 7% overall.

Speaker Change: 4% to 7%.

Tax rate, 29% to 30% shares $104 million to $105 million.

Speaker Change: 2020 for capital expenditures and capitalized cloud computing costs $90 million to $110 million with $15 million to $20 million in the first quarter.

Speaker Change: Protiviti is first quarter segment income guidance includes the seasonal impact of annual stack promotions and compensation increases all of which become fully effective on January 1st.

Unnamed Speaker: We enter 2024 confident in our ability to navigate the current climate and optimistic about our growth prospects, built on our industry-leading brand, people, technology, and unique business model that includes both professional staffing and business consulting services. For the fourth quarter of 2023, company-wide revenues were $1.473 billion, down 15% from last year's fourth quarter on both a reported and as-adjusted basis. That income per share in the fourth quarter was $0.83 compared to $1.37 in the fourth quarter one year ago. Cash flow from operations during the quarter was $115 million.

Speaker Change: This produces a sequential decline in midpoint midpoint estimated segment margin of six percentage points, which is consistent with the four to seven point decline experienced in most of the last 10 years.

Speaker Change: We limit our guidance to one quarter.

Speaker Change: 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.

Keith Waddell: Thank you Mike.

Keith Waddell: Well job opening demand continues to be above historical levels.

Keith Waddell: Canada supply remains tight.

Keith Waddell: The velocity of hiring remains impacted and there is less churn in the labor force.

Keith: In December, we distributed a $0.48 cents per share cash dividend to our shareholders of record for a total cash outlay of $51 million. Our per share dividend has grown 11.2% annually since its inception in 2004. The December 2023 dividend was 11.6% higher than the prior year. We also acquired approximately 685,000 Robert Half shares during the quarter for $56 million.

Keith Waddell: The great resignation following Covid has given way to the big stay and employee attrition is down significantly across the globe.

Keith Waddell: That said the.

Keith Waddell: The tone of client discussions has improved in the last 90 days due to some combination of lower inflation.

Keith Waddell: More favorable interest rate policy.

Keith Waddell: Fewer predictions a pending recession.

Mike Buckley: We have 10.8 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 22% in the fourth quarter. Now I'll turn the call over to our CFO, Mike Buckley. Thank you, Keith. Hello, everyone.

And newly approved staffing levels, resulting from the annual budget cycle.

Keith Waddell: These factors contribute to a more positive backdrop heading into 'twenty 'twenty four than we saw a year ago.

Keith Waddell: We're optimistic about our opportunities for the year ahead, starting with a reacceleration in the velocity of hiring and the more normalized labor churn that typically follows when client and candidate confidence improve.

Mike Buckley: As Keith just noted, global revenues were $1.473 billion in the fourth quarter. On an as-adjusted basis, fourth quarter talent solutions revenues were down 18% year-over-year. U.S. talent solutions revenues were $764 million, down 21% from the prior year's fourth quarter. Non-U.S. talent solutions revenues were $245 million, down 10% year-over-year. We have 313 Talent Solutions locations worldwide, including 89 locations in 18 countries outside of the United States.

Keith Waddell: We're also encouraged by the growth and margin prospects from our continued focus on services related to higher skill talent, both in talent solutions and Protiviti.

Keith Waddell: Our investments and higher skilled services carry many advantages higher bill rates and gross margins longer assignment links increase client openness, the remote tell or full time engaged with professionals and less economic sensitivity.

Mike Buckley: In the fourth quarter, there were 61.1 billing days compared to 61.2 billing days in the same quarter one year ago. The first quarter of 2024 had 62.8 billing days compared to 63.3 billing days during the first quarter of 2023. Billing days for the remaining three quarters of 2024 will be 63.5, 64.1, and 61.6 for a total of 252 billing days in the year. Currency exchange rate fluctuations during the fourth quarter had the effect of increasing reported year-over-year total revenues by $11 million.

Keith Waddell: This investment has already provided significant benefits in the current cycle as our cumulative sequential revenue declines during the last six quarters or about half of what they were compared to peak to trough declines of the dotcom and financial crisis downturns, we expect this positive.

Keith Waddell: The mix shift to continue.

Keith Waddell: We continue to invest in technology and innovation, including AI.

Keith Waddell: Major focus areas include providing a world class digital experience for our clients and candidates that is seamlessly connected to our specialized professional recruiters also we continue to leverage our proprietary data assets to enhance the AI tools IRA.

Mike Buckley: $8 million for talent solutions and $3 million for productivity. Contract Talent Solution bill rates for the fourth quarter increased 3.7% compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. Now, let's take a closer look at the results for Fertivity.

Keith Waddell: Routers use to discover assess and select talent for our clients and their AI tools, our recruiters use to effectively target leads for additional revenue.

Keith Waddell: We're pleased with Protiviti as a results for the quarter led again by the regulatory risk and compliance practice.

Keith Waddell: Their solutions areas, where again modestly impacted by client budget measures.

Mike Buckley: Global revenues in the fourth quarter were $464 million, $372 million of that was from the United States, and $92 million was from outside of the United States. On an as-adjusted basis, global fourth quarter productivity revenues were down 8% versus the year-ago period. U.S. productivity revenues were down 7%, while non-U.S. productivity revenues were down 9%. Creativity and its independently owned member firms serve clients through a network of 89 locations in 29 countries.

Keith Waddell: <unk> pipeline continues to grow although economic conditions continue to impact the average deal size and the time it takes to close contracts and began new engagements.

Keith Waddell: But he continues to compete very effectively in the marketplace.

Keith Waddell: Benefiting from its focused and nimble solutions offerings, and its differentiated breadth and depth of resources, including priority access to scalable contract talent at all skill levels through our talent solutions practices.

Mike Buckley: Turning now to gross margin, in Contract Talent Solutions, fourth-quarter gross margin was 39.7% of applicable revenues versus 39.9% in the fourth quarter one year ago. Conversion revenues for contract-to-hire were 3.4% of revenues in the quarter compared to 3.7% of revenues in the quarter one year ago. Our permanent placement revenues in the fourth quarter were 12% of consolidated talent solutions revenues versus 12.7% in the same quarter one year ago when combined with Contract Talent Solutions Gross Margin. Overall gross margin for Talent Solutions was 46.9%, compared to 47.5% of applicable revenues in the fourth quarter last year. For productivity, gross margin was 23.9% of productivity revenues compared to 27.2% of productivity revenues one year ago. Adjusted for Deferred Compensation-Related Classification Impact Gross margin for productivity was 25.9% for the quarter just ended, compared to 28% last year. We ended 2023 with 10,500 full-time productivity employees and contractors, down 9.6% from the prior year. Moving on to Selling General and Administrative Costs. Enterprise SG&A costs were 35.1% of global revenues in the fourth quarter, compared to 31.6% in the same quarter one year ago.

Keith Waddell: Protiviti now represents 34% of our annual segment income, which is expected to increase as it expands its small but growing market share in the growing global consulting industry.

Keith Waddell: We've weathered many economic cycles in the past each time emerging to achieve higher peaks.

Keith Waddell: Jing workforce demographics, and clients' desire for flexible resources and variable costs are structural tailwind that are expected to continue for many years to come.

Keith Waddell: We began the new year energized by our time tested corporate for purpose to connect people with a meaningful and exciting work and provide clients with the talent and consulting expertise they need to constantly compete and grow.

Keith Waddell: We'd also like to thank our people across the globe, whose commitment to success made possible at <unk>.

Keith Waddell: Number of new accolades in 'twenty two 'twenty three.

Keith Waddell: Fourth quarter recognition included being named one of the best workplaces for parents.

Keith Waddell: Great places to work.

Keith Waddell: One of America's most responsible companies by Newsweek.

Keith Waddell: And a best manage company of 2023 by the Wall Street Journal.

Speaker Change: 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.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: I would like to ask a question.

Mike Buckley: Adjusted for Deferred Compensation-Related Classification Impact. Enterprise SG&A costs were 32.5% for the quarter just ended compared to 30.4% last year. Talent Solutions SG&A costs were 44.6% of Talent Solutions revenues in the fourth quarter versus 38.9% in the fourth quarter of 2022. I'm sorry, in the fourth quarter of 2023.

Speaker Change: Pressing star one on your <unk>.

Speaker Change: Thank you.

Speaker Change: If you are using a speaker phone please make sure your mute function.

Speaker Change: Military.

Speaker Change: Again, Please press star one to ask a question.

Speaker Change: Our first question comes from the line of Mark.

Speaker Change: Yeah.

Mark: Hey, good afternoon, Keith and Mike.

Mark: I wanted to focus on productivity.

Mark: It looks like at the midpoint of your guidance, you're basically assuming a positive inflection with regards to the revenue trends.

Mark: Obviously against the <unk>.

Mike Buckley: Adjusted for deferred compensation-related classification impacts, Talent Solutions' SG&A costs were 40.8% in the quarter just ended, compared to 37.2% last year. The lower mix of permanent placement revenues this quarter versus one year ago had the effect of decreasing the quarter's adjusted SG&A ratio by 0.4 percentage points. We ended 2023 with 8,000 full-time internal employees in our talent solutions divisions, down 13.8% from the prior year. Fourth quarter SG&A costs for productivity were 13.5% of productivity revenues compared to 13.6% of revenues last year. Operating income for the fourth quarter was $67 million.

Not necessarily against an easier comp so I'm wondering.

Mark: You know how how does the level of visibility are the comments that you made about improving weekly trends.

Mark: Consistent there.

Mark: And in what areas or practice areas or geographies, you're seeing the strongest growth.

Mark: Within Protiviti.

Mark: Well.

Mark: The facts are that.

Mark: Let's first look at our Q1 guidance.

Mark: It assumes a above trend if you look at the last 10 years of what happens sequentially for Protiviti.

Mark: It assumes above trend growth, which is a good thing as to level of visibility Protiviti certainly has more backlog than is the case for talent solutions. They know what percent of their forecast is already scheduled and there.

Mike Buckley: Adjusted for deferred compensation-related classification impacts, combined segment income was $114 million in the fourth quarter. Combined segment margin was 7.8%. Fourth quarter segment income from our talent solutions divisions was $61 million, with a segment margin of 6.1%. Segment income for productivity in the fourth quarter was $53 million, with a segment margin of 11.4%. Our fourth quarter tax rate was 27%, the same as one year ago.

Mark: Resource system and that is strong.

Mark: And so as we look at Q4 into Q1 Q.

Mark: Q4, as we projected was very similar to Q3 on a same day basis slightly better.

Mark: <unk> forecast.

Mark: And.

As we move into Q1 as I said before slightly above traditional sequential trend, which is good for protiviti, we feel good about where protiviti is first quarter.

Mark: Sequentially or seasonally is always a tougher quarter for protiviti they own the one hand on the revenue side internal audit youth.

Mike Buckley: At the end of the fourth quarter, the accounts receivable were $861 million, and implied days sales outstanding, or DSO, was 52.6 days. Before we move on to first quarter guidance, Let's review some of the monthly reviewed revenue trends we saw in the fourth quarter and so far in January, all adjusted for currency and billing day. Contract Talent Solutions exited the fourth quarter with December revenues down 17% versus the prior year, compared to an 18% decrease for the full quarter. Revenues for the first three weeks of January were down 17% compared to the same period last year on a week-on-week sequential basis.

Mark: Utilization.

Mark: Declines modestly because clients focus on getting their external audits done which crowds out there work on internal audit that's something that's happened for years and years and further they've got their promotions and raises that happened all at once on Jay.

Mark: Annual already one firm lot globally.

Mark: And their client contract cycle, usually begins in the first quarter and so they began to recover those higher cost over the course of the year.

Mark: You don't have to look very far like a tornado one need to really look at the gross margin progress. They made from the first quarter to the fourth quarter.

Mark: Yeah.

We would expect they expect to see that kind of progress again as we look across 2024. So we feel good about protiviti if anything business conditions are same or a little better and we would say the same thing in tablet solutions same to a little better.

Mike Buckley: The rates of decline continued to narrow during the quarter, a pattern that began last quarter. However, permanent placement revenues in December were down 22% versus December 2020. This compares to a 23% decrease for the full quarter. For the first four weeks of January, permanent placement revenues were down 25% compared to the same period in 2023. We provide this information so you have insight into some of the trends we saw during the fourth quarter and into January. But, as you know, these are very brief time periods.

Speaker Change: That's great and then can you talk a little bit about what youre seeing in terms of.

Speaker Change: You know competition or pricing there have been some reports in terms of the big four about potentially having some excess capacity and perhaps discounting a little more than they usually have.

Speaker Change: Are you seeing that and you know to what degree have you offset that with regards to.

Mike Buckley: We caution against reading too much into them. With that in mind, we offer the following first quarter guidance: revenues of $1.44 billion to $1.54 billion; income per share, $0.54 to $0.68. Midpoint revenues of $1.49 billion are 13% lower than in the same period in 2023 on an as-adjusted basis. The major financial assumptions underlying the midpoint of these estimates are as follows.

Speaker Change: You know a reduction with regards to the number of contractors and professionals within productivity.

Speaker Change: In terms of their cost base.

Speaker Change: And so as we talked last quarter.

Speaker Change: The big four have gotten aggressive in certain locations based on their own utilization levels and price competition.

Speaker Change: As Ben.

Speaker Change: Tough for a couple of quarters, but that's not something thats, new and Thats something thats well built into the guidance we've given.

Speaker Change: As to Protiviti is on.

Mike Buckley: Revenue growth, year over year, on an as-adjusted basis. Talent Solutions, down 14% to 19%, productivity down 3 to 6% overall down 10 to 15%, gross margin percentage for contract talent 38 to 41%, productivity, 20 to 22 percent, overall 37 to 39 percent. SG&A as a percentage of revenues excluding deferred compensation classification impact: Talent Solutions 40-42%, Proactivity 15-17%, Overall 32-34%. Segment income for Talent Solutions was 4-7%, Creativity was 4-7%, Overall, 4-7%. Tax rate was 29 to 30 percent, and shares were 104 to 105 million.

Speaker Change: Cost control measures that they have made a significant reduction in fact that reduction we talked about in the prepared remarks is virtually all contractors year on year and it's certainly a nice variable cost lever they have from a cost standpoint.

Speaker Change: That helps as they deal with this environment.

Speaker Change: Versus more normal environments.

Speaker Change: Yeah.

Speaker Change: That's great. Thank you.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Andrew Steinman with J P. Morgan.

Andrew Charles Steinerman: Hi, Keith its Andrew what do you think has led to the improved tone of client discussions in the last 90 days and does that does that apply to both talent solutions in protiviti.

Keith Waddell: Well as we mentioned, it's it's the combination of all that there's less inflation.

Keith Waddell: Theirs.

Andrew Charles Steinerman: There's really no fears of more rate increases and in fact hopes or rate decreases fewer economists are calling for a recession. So it's a cumulative in fact of all of those there's less concern.

Mike Buckley: 2024 capital expenditures in capitalized cloud computing costs $90 to $110 million, with $15 to $20 million in the first quarter. Pertivity's first quarter segment income guidance includes the seasonal impact of annual staff promotions and compensation increases, all of which become fully effective on January 1st. This produces a sequential decline in midpoint estimated segment margin of 6 percentage points, which is consistent with the four to seven point decline experienced in most of the last ten years. However, 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 filing. Now I'll turn the call back over to Mike. Thank you, Mike.

Andrew Charles Steinerman: By our clients that we're going into a recession than there were a year ago and it sets a slightly more positive tone I'd say that's true.

Andrew Charles Steinerman: Both the talent solutions and Protiviti side, I mean, it isn't huge don't get me wrong. The environment is safe to better on the talent solutions side, saying to better on the Protiviti side, but that's better than what we've been saying for several quarters.

Andrew Charles Steinerman: There it's been declining somewhat.

Speaker Change: Yeah I agree thank you very much.

Speaker Change: Your next question comes from the line of Heather.

Heather: Bank of America.

Heather: Hi, Thank you for taking my question actually I had a question on your Capex spend.

Heather: And if you can help us.

Heather: Kind of what are the investments for 2024.

Heather: What what might be driving the increase.

Unnamed Speaker: While job opening demand continues to be above historical levels, and candidate supply remains tight, the velocity of hiring remains impacted, and there is less churn in the labor force. The great resignation following COVID has given way to the big stay, and employee attrition is down significantly across the globe. That said, the tone of client discussions has improved in the last 90 days, due to some combination of lower inflation, a more favorable interest rate policy, fewer predictions of pending recession, and newly approved staffing levels resulting from the annual budget cycle. These factors contribute to a more positive backdrop heading into 2024 than we saw a year ago. We're optimistic about our opportunities for the year ahead, starting with the reacceleration in the velocity of hiring and the more normalized labor churn that typically follows when client and candidate confidence improves.

Heather:

Heather: And and I guess, how much of that it could be variable in nature, depending on how the environment got it. Thanks.

Speaker Change: Okay. So first of all we do we continue our commitment to technology innovation.

Speaker Change: As we have for several years in a row, so theres very little change in the piece of that that relates to technology innovation AI.

Speaker Change: The increase is almost entirely attributed to.

In corporate services in Menlo Park, and Pleasanton SaaS San Ramon.

Speaker Change: We are significantly downsizing, our space and in San Ramon we're actually moving.

Speaker Change: And that requires tenant improvements furniture fixtures, but that investment orders of magnitude, which is $20 million in turn.

Speaker Change: <unk> rent savings of about $5 million a year. So you can see that pays for itself quickly and in terms of San Ramon the leases 11 years and so for savings of $5 million for 11 years, you spend $20 million, so we're going to reduce our footprint.

Unnamed Speaker: We're also encouraged by the growth and margin prospects from our continued focus on services related to higher-skilled talent, both in talent solutions and productivity. Our investments in higher-skilled services carry many advantages, such as higher bill rates and gross margins, longer assignment links, increased client openness to remote talent, more full-time engagement professionals, and less economic sensitivity. This investment has already provided significant benefit in the current cycle as our cumulative sequential revenue declines during the last six quarters are about half of what they were compared to peak to trough declines of the dot-com and financial crisis downturn. We expect this positive makeshift to continue. We continue to invest in technology and innovation, including AI. Major focus areas include providing a world-class digital experience for our clients and candidates that is seamlessly connected to our specialized professional recruiters. Also, we continue to leverage our proprietary data assets to enhance the AI tools our recruiters use to discover, assess, and select talent for our clients, as well as the AI tools our recruiters use to effectively target leads for additional revenue.

Speaker Change: By about two thirds.

Speaker Change: That's really helpful and just as a quick follow up to that if we take $20 million out of your Capex is that the way to think about run rate in future years.

Speaker Change: Sure and so if you look at our Capex spending over a 10 year period. It averages about one 3% of revenue.

Speaker Change: But for this.

Speaker Change: Corporate services move downsize, our that's where we would be again in 2024.

Speaker Change: But as you can see the $20 million is money well spent because it's essentially.

Speaker Change: Driving cost savings.

Speaker Change: Got it that's helpful. Thank you very much.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Trevor Romeo with William Blair.

Trevor Romeo: Hi, Thanks for taking the questions.

Trevor Romeo: First one I just wanted to kind of follow up on your commentary about <unk>.

Trevor Romeo: Broaching or positive inflection points.

I think clearly it does seem like year over year declines have leveled off I guess two questions. On this one do you see this more of a factor of comps becoming easier or the underlying demand improvement may be getting slightly better and then two I guess could you just define exactly what you mean by positive inflection whether thats weekly revenues starting to.

Unnamed Speaker: We're pleased with Pertivity's results for the quarter, led again by the regulatory risk and compliance practice. Other solution areas were again modestly impacted by client budget measures. Fertivity's pipeline continues to grow, although economic conditions continue to impact the average deal size and the time it takes to close contracts and begin new engagements. However, Activity continues to compete very effectively in the marketplace, benefiting from its focused and nimble solutions offerings and its differentiated breadth and depth of resources, including priority access to scalable contract talent at all skill levels through our talent solutions. Productivity now represents 34% of our annual segment income, which is expected to increase as it expands its small but growing market share in the growing global consulting industry. We've weathered many economic cycles in the past, each time emerging to achieve higher peaks.

Speaker Change: <unk> again.

Speaker Change: Yeah.

Speaker Change: Okay and so on.

We're not talking about year on year comps getting easier as we talked about in prior quarters. In this environment. We think it's much more important to look at sequential trends and within that weekly sequential trends.

Speaker Change: So we talked last quarter about from beginning to end of the quarter, our weekly sequential revenue trends.

Speaker Change: Went were about negative 3% from the beginning to the end.

Speaker Change: If you compare that same statistic through the middle of December before the holidays impacted.

Speaker Change: That number is about 1% and so 13 weeks prior to mid December the beginning to end point only changed by 1% and so getting that to a 1% is getting very close to <unk>.

Speaker Change: Weekly sequential results going from negative to positive.

And that's what we mean by inflection point its got nothing to do with year on year, It's got nothing to do with comps being easier or harder year on year I'd say, if you look at.

Unnamed Speaker: Aging workforce demographics and clients' desire for flexible resources and variable costs are structural tailwinds that are expected to continue for many years to come. We begin the new year energized by 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 confidently compete and grow. We'd also like to thank our people across the globe, whose commitment to success made possible a number of new accolades in 2023. Fourth quarter recognition included being named one of the best workplaces for parents by Great Places to Work, one of America's most responsible companies by Newsweek, and a best managed company of 2023 by the Wall Street Journal. Now, Mike and I would be happy to answer your questions.

Speaker Change: Weekly trends.

Speaker Change: For the 13 weeks, which is about a quarter.

Speaker Change: Ending mid December which doesn't include holiday impacts.

Speaker Change: Beginning to end, we were only down 1% that's better than the 13 weeks in the third quarter, which was better than the 13 weeks in the second quarter. So we've got enough. We've got a couple of quarters, where the weekly sequential trends have improved and rather than talking about.

Narrowing declines, which is what we've talked about for the last couple of quarters, where we were very close to going.

Speaker Change: Even if you will to the point of having positive weekly trends.

Speaker Change: Okay, Great that's exactly what I was looking for.

Speaker Change: And then just maybe one on Protiviti I was just wondering if you could maybe give us an update on utilization.

Unnamed Speaker: Please ask just one question, and only one follow-up is needed. If there's time, we'll come back to you with additional questions. Thanks for watching. See you next time. I would like to ask you, star number one on your telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your voice to be heard.., http://TheBusinessProfessor.com The Bulletproof Executive 2013, Press star 1 to ask our first question. Good afternoon, Keith and Mike.

Speaker Change: Utilization trends in the quarter kind of how youre thinking about the balance that head count versus utilization and within that balance of contractors versus full time head count. Thank you.

Speaker Change: Well utilization.

Speaker Change: What we expected it to be in the fourth quarter generally protiviti performed better slightly better than we expected led by our risk and compliance as we've talked about.

Speaker Change: In the first quarter guidance as always because of the internal audit dynamics I talked about earlier, there's always a modest decline in utilization for the first quarter. That's a seasonal thing, but that seasonal impact again is about what we traditionally see and as what we.

Unnamed Speaker: I just wanted to focus on proactivity. It looks like at the midpoint of your guidance, you're basically assuming a positive inflection with regard to revenue trends, obviously, and not necessarily against an easier comp.

Speaker Change: We expect so we would argue that sequentially seasonally however, you want to think about it.

Unnamed Speaker: So I'm wondering, you know, how the level of visibility is? Are the comments that you made about improving weekly trends consistent there? And what areas..., practice areas or geography? https://www.kenhub.com, Well.

Speaker Change: Protiviti is first quarter is about what we would expect on a sequential basis.

Speaker Change: Year on year, because you've had three quarters that had been sequentially softer than in the past year on year is still impacted by that but.

Speaker Change: But if you just focus on current results.

Unnamed Speaker: The facts are that Let's first look at our Q1 guidance. It assumes above-trend growth, which is a good thing. As to the level of visibility, Pertivity certainly has more backlog than is the case for Talent Solutions. They know what percent of their forecast is already scheduled in their resource system, and that is strong.

Speaker Change: Forecasted first quarter results.

Speaker Change: Sequential.

Speaker Change: Impacts are about what we expect.

Speaker Change: <unk>, yet topline is actually projecting above trend first quarter relative to the last several years.

Okay.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Stephanie Mora with Jefferies.

Speaker Change: Okay.

Unnamed Speaker: And so, as we look at Q4 into Q1, Q4, as we projected, was very similar to Q3 on a same-day basis, slightly better than Deep Forecast, and as we move into Q1, as I said before, slightly above traditional sequential trend, which is good for productivity. We feel good about where productivity is. The first quarter, sequentially or seasonally, is always a tough recorder for productivity. They, on the one hand, on the revenue side, internal audit. Utilization declines modestly because clients focus on getting their external audits done, which crowds out their work on internal audit. That's something that's happened for years and years.

Speaker Change: Yeah.

Speaker Change: Okay.

Stephanie Mora: Hi, Good afternoon, sorry, I was on mute I. Thank you for the question.

Stephanie Mora: I just wanted to follow up.

Stephanie Mora: Thank you.

Stephanie Mora: Explain kind of what you're seeing on a week over week basis.

Speaker Change: So my question is have you started to maybe adjust maybe ramping of recruiters are preparing for a potential inflection or improvement or the market or what would you need to see to maybe if you haven't done. So what would you need to see from a sequential or trends standpoint to start making those adjustments. Thank you.

Speaker Change: Well the cause we haven't reduced our recruiter head counts commensurate with revenue declines, we do have dry powder capacity.

Speaker Change: As business conditions improve so we would not look to immediately begin to add to head count.

Unnamed Speaker: And furthermore, they've got their promotions and raises that happen all at once on January 1, firm-wide, globally. And their client contract cycle usually begins in the first quarter. And so they begin to recover those higher costs over the course of the year. You don't have to look very far.

Speaker Change: The more continued weekly sequential improvement we see.

Speaker Change: The more likely it would be that we would begin to add head count.

Speaker Change: We have some capacity as we speak which is by design, we haven't been looking to optimize trough margins. We've been looking to have dry powder as things get better we have that we can rely on that probably for a quarter or two depending on.

Unnamed Speaker: Look at 2023. Look at the gross margin progress they made from the first quarter to the fourth quarter. We would expect, they expect to see that kind of progress again as we look across 2024. So we feel good about productivity. If anything, business conditions are the same or a little better, and we would say the same thing in talent solutions, the same to a little better. Great.

Speaker Change: How quickly things get better.

Speaker Change: Then we would begin to add to head count and I can assure you. There is plenty of pent up demand out in our branch offices for us to add to head count.

Speaker Change: That that's the understatement of everything I've said, so far today.

Speaker Change: [laughter], Okay got it.

Unnamed Speaker: And then can you talk a little bit about what you're seeing in terms of, you know, competition or pricing? There have been some reports in terms of the big four about, you know, potentially having some excess capacity and perhaps discounting a little more than they usually do. Are you seeing that?

Speaker Change: Well that's it for me. Thank you so much.

Your next question comes from the line of George Tong with Goldman Sachs.

George Tong: Hi, Thanks, good afternoon.

George Tong: At the midpoint, you're guiding to about a 200 basis point step down in EBIT margins from <unk> to <unk> can you elaborate on what's driving the step down in margins.

Unnamed Speaker: And, you know, to what degree have you offset that with regard to, you know, a reduction in the number of contractors and professionals within proactivity in terms of the cost? So, as we talked last quarter, the big four have gotten aggressive in certain locations, based on their own utilization levels. And price competition has been tough for a couple of quarters, but that's not something that's new, and that's something that's well built into the guidance we've given as to protivities on cost control measures. They have made a significant reduction, and in fact, the reduction we talked about in the prepared remarks is virtually all contractors year on year, and it's certainly a nice variable cost lever they have from a cost standpoint that Great, thank you, www.globalonenessproject.org. Hi Keith, it's Andrew.

George Tong: Well the I.

George Tong: And I think youre talking sequential step down.

George Tong: And that sequential step down is virtually all protiviti and that's that typical seasonal impact of less charge ability utilization at the revenue line for internal audit.

George Tong: External audit crowd out that I talked about and then at the cost line, you've got all those raises and the impact of promotions that get recovered on a lagged basis over the course of the year.

George Tong: Again, very typical seasonal impact.

George Tong: And something that we reverse over the course of the year just as we did during 2023 and in prior years.

Speaker Change: Got it that's helpful and sticking with Protiviti, you mentioned that economic conditions are continuing to impact the average deal size and the time. It takes to close contracts can you elaborate on some of those developments in terms of maybe providing some metrics.

Speaker Change: How much deal sizes have changed and how long sales cycles may have elongated.

Unnamed Speaker: What do you think has led to the improved tone of client discussions in the last 90 days? And does that apply to both talent solutions? Well, as we mentioned, it's the combination of there being less inflation. There are really no fears of more rate increases and, in fact, hopes for rate decreases. Fewer economists are calling for a recession.

Speaker Change: Well, we haven't gotten that granular as clients focus on cost.

Speaker Change: They're conservative they're more tentative and to the extent they have demand there more.

Speaker Change: They take longer to decide when to pull the trigger and then once they decide it takes longer to get the contract and then get the project started but that's an environment <unk> been seeing for the last two or three at a minimum.

Unnamed Speaker: So it's cumulative. In fact, of all of those, there's less concern by our clients that we're going into a recession than there were a year ago, and it sets a slightly more positive tone. I'd say that's true on both the talent solutions and productivity side. But it isn't huge. Don't get me wrong.

Speaker Change: The good news is the aggregate pipeline continues to grow.

Speaker Change: However, because it takes longer to convert those to contracts and then longer still to convert those to actual.

Unnamed Speaker: The environment is sane to better on the talent solution side, and sane to better on the productivity side. But that's better than what we've been saying for several quarters, where it's been declining somewhat. Yep, I agree. Thank you very much. Transcribed by https://otter.ai Hi, thank you for taking my question.

Speaker Change: Project starts their revenues are impacted but the overall pipeline continues to grow which we're very pleased and we're very optimistic with it it's not new.

Speaker Change: And they've been dealing with for the last at least two or three quarters.

Speaker Change: And it's not just protiviti, it's a pretty much a consulting industry wide phenomenon.

Speaker Change: Great. Thanks very much.

Speaker Change: Your next question comes from the line of Manav Patnaik with Barclays.

Unnamed Speaker: I actually just had a question on your CapEx spend, and if you can help us just kind of, what are the investments for 2024? Kind of what might be driving the increase? And anyway, I guess how much of that could be variable in nature, depending on how the environment goes.

Manav Patnaik: Thank you just back on the margins I mean, I understand you know sequentially. This is what you see I guess every year, but is there something else. This year. It just feels a little bit lower than I think we all thought in and maybe perhaps there's a big catch up for the rest of the if you could help us with the cadence there.

Unnamed Speaker: Okay, so first of all, we continue our commitment to technology, innovation, and AI as we have for several years in a row, so there's very little change in the piece of that that relates to technology, innovation, and AI. The increase is almost entirely attributed to Corporate Services in Menlo Park and Pleasanton, Sash San Ramon. We are significantly downsizing our space, and in San Ramon, we're actually moving. And that requires tenant improvements, such as furniture fixtures. But that investment, orders of magnitude, which is $20 million, in turn results in rent savings of about $5 million a year. So you can see that it pays for itself quickly. And in terms of San Ramon, the lease is for 11 years.

Speaker Change: Well the sequential decline is in line as we talked about.

Speaker Change: I think the issue is you're starting from a lower Q4, when you will apply that sequential decline to it to get to Q1 than you have in years past, but as far as the sequential impact of the seasonality that I've talked about it's no.

Speaker Change: Greater than before and in fact, we talked about how at the segment income or operating income level.

Speaker Change: Chile, which entities down about six percentage points and if you look at the last 10 years. The range of that has been four to seven so while maybe it's a little bit at the higher end of that range lash.

Speaker Change: Last year that same sequential decline was six five percentage points. So if anything it's an improvement relative to a year ago.

Unnamed Speaker: And so for savings of $5 million for 11 years, you'd spend $20 million. So we're going to reduce our footprint by about two-thirds. That's really helpful. And just as a quick follow-up to that, if we take 20 million out of your CapEx, is that the way to think about run rate in future years? Sure, and so if you look at our CapEx spending over a 10-year period, it averages about 1.3% of revenue. And but for this corporate services move, downsize, that's where we would be again in 2024. But as you can see, the $20 million is money well spent because it's essentially driving cost savings. That's got it.

Speaker Change: So I didn't know there is nothing else theres not something there's not something else.

Speaker Change: Okay Fine and then just in terms of the can you just talk about the cross.

Speaker Change: Cross sell in and kind of the success rates you're seeing again.

Speaker Change: Between Protiviti and staffing and you know if theres anything in particular to call out there.

Speaker Change: We continue to compete effectively by having resources from <unk> solutions and Protiviti available to our clients under one roof was one our sales and delivery team.

Speaker Change: <unk>.

Some of the optimism that some of the reason why we're above trend over the Q1 guidance as we've had a couple of wins recently that are pretty significant that are in fact.

Unnamed Speaker: That's helpful. Thank you very much. Subs by www.zeoranger.co.uk and Lionel Trefereaux.

Speaker Change: Bind wins, where tower solutions in Protiviti went to market together. So we're encouraged by that if you look at Protiviti revenues about 25% of their revenues for for 2023.

Unnamed Speaker: Hi, thanks for taking the questions. First one, I just wanted to kind of follow up on your commentary about approaching a positive inflection point. I think, you know, clearly, year-over-year declines have leveled off. I guess two questions on this: one, do you see this more as a factor of comps becoming easier or the underlying demand improvement maybe getting slightly better? And then two, I guess. Could you just define exactly what you mean by positive inflection, whether that's, you know, weekly revenues starting to grow again? Yeah. Okay, and so on.

Speaker Change: We're with resources staff from talent solutions that peaked at about 30% just post COVID-19 when due to the nature of some of those.

Speaker Change: Public sector engagements, they were more contract or heavy but we're about 25% of protiviti revenues come from resources that are sourced from talent solutions. We think that's wonderful I mean, the hours would be even larger than that because the average hourly rate for contractors as well.

Speaker Change: And it is for their full time employees are protiviti, but 25% of revenues Protiviti comes from contractor resources.

Unnamed Speaker: We're not talking about year-on-year comps getting easier, as we talked about in prior quarters. In this environment, we think it's much more important to look at sequential trends, and within that, weekly sequential trends. So we talked last quarter about, from beginning to end of the quarter, our weekly sequential revenue trends were about negative 3% from the beginning to the end. If you compare that same statistic through the middle of December before the holidays were impacted, that number is about 1%. And so, 13 weeks prior to mid-December, the beginning to end point only changed by 1%. And so, getting that to 1% is getting very close to weekly sequential results going from negative to positive. And that's what we mean by an inflection point.

Speaker Change: I'm showing it works, we think that will grow over time, and it's a competitive advantage nobody else has a business model that under one roof plus professional level contractors.

Speaker Change: Together with.

Speaker Change: Big four level consulting resources.

Speaker Change: Okay. Thank you Keith.

Your next question comes from the line of Kevin Mcveigh with UBS.

Kevin Mcveigh: Great. Thanks, and congratulations on the awards, especially the management well deserved.

Kevin Mcveigh:

Kevin Mcveigh: Keep the productivity you head count adjustments and the employee head count.

Is that a function of just the deleveraging in the business or is that some of the technological efficiencies you're starting to see things.

Kevin Mcveigh: Things like that or is that just purely the step function in the revenue.

Unnamed Speaker: It's got nothing to do with year on year. It's got nothing to do with comps being easier or harder year on year. It's saying, if you look at weekly trends, for the 13 weeks, which is about a quarter, ending mid-December, which doesn't include holiday impact, beginning to end, we were only down 1%. That's better than the 13 weeks in the third quarter, which was better than the 13 weeks in the second. So we've got a couple of quarters where the weekly sequential trends have improved. And rather than talking about narrowing declines, which is what we've talked about for the last couple of quarters, we're very close to going even, if you will, to the point of having positive weekly trends. Great, that's exactly what I was looking for.

Well it's.

It started with revenue impacts and Protiviti revenues.

Kevin Mcveigh: Taking 2023 on an annual basis, we're only down.

Kevin Mcveigh: A couple of single digit percentage points, so not a lot.

Kevin Mcveigh: That said.

Kevin Mcveigh: They had anticipated.

Kevin Mcveigh: Higher revenues.

Kevin Mcveigh: And when they recruiting 12 months in advance of that so they had.

Kevin Mcveigh: Full time employees coming onboard that they had to adjust for given the flattening of revenues and the good news is by and large all of those adjustments slash reductions came from contractors and by and large they are.

Kevin Mcveigh: Protected their full time employees.

Kevin Mcveigh: But it's it's not some.

Kevin Mcveigh: AI technology driven.

The impact on the Protiviti side, it's more their matching their cost to revenues using this tranche of variable cost. They have is that frankly in there.

Unnamed Speaker: And then maybe one on productivity; I was just wondering if you could maybe give us an update on utilization trends in the quarter, kind of how you're thinking about the balance of head count versus utilization, that balance of contractors versus full-time employees. Thank you.

Kevin Mcveigh: Prior lives is a big four firm they didn't have that lever and nor do any other big four firms have that variable lever either.

Kevin Mcveigh: So what a wonderful thing that they have that tranche of variable cost that they can use when they need to which they have in the last 24 in the last 12 months.

Unnamed Speaker: Well, utilization was what we expected it to be in the fourth quarter. Generally, productivity performed better, slightly better than we expected, led by risk and compliance, as we've talked about. In the first quarter guidance, as always, because of the internal audit dynamics I talked about earlier, there's always a modest decline in utilization for the first quarter. That's a seasonal thing, but that seasonal impact, again, is about what we traditionally see and is what we expect. So we would argue that sequentially, seasonally, however you want to think about it, productivity's first quarter is about what we would expect on a sequential basis, year-on-year, because you've had three quarters that have been sequentially softer than in the past, year-on-year, is still impacted by this. But if you just focus on current results.

Speaker Change: That makes sense and I just wanted to go back because I just want to make sure I'm clear on the margins because I understand the seasonal step function, but when I look at the absolute dollar of revenue you're guiding to relative to the EPS.

Like it just seems I'm missing something I mean is there any maybe a workers comp accruals something else because.

Speaker Change: No.

Speaker Change: Levels vary, but if I go back to even 'twenty, one and look at you know what.

Speaker Change: Point 4 billion of revenue you did 98 cents and just.

Speaker Change: Can we reconcile that and then is there any way I know you typically don't give annual guidance, but is there way to think about you know the start the year at the midpoint.

Speaker Change: Does that kind of scale over the course of the year.

Speaker Change: Again.

Speaker Change: <unk> been clear right I'm just missing it.

Speaker Change: Well on the talent solutions side, you've got some negative leverage because we havent cut our headcount commensurate with topline declines as I talked about earlier, we haven't tried to optimize trough margins, but instead, we've cap capacity for when things get better.

Unnamed Speaker: Forecasted first quarter results, some quarterly... impacts are about what we expect. Productivity at the top line is actually projecting above trend in the first quarter relative to the last several years. http://www.youtube.com. Your next question comes from the line of Stephanie Moore with Jeff. Hi, good afternoon. Sorry, I was on mute.

So you've got some negative leverage there and then on the Protiviti side, we've now talked about many times you've got the beginning of your promotions beginning of year.

Salary increases and you've got beginning of year utilization contraction for seasonal reasons and internal audit, but if you look over the course of a year Protiviti last year. As an example had started the first quarter its operating margin or segment.

Unnamed Speaker: Thank you for the question. I just wanted to follow up. You've clearly explained kind of what you're saying on a week-over-week basis. You know, so my question is, have you started to maybe adjust maybe ramping up recruiters or preparing for a potential inflection or improvement in the market, or what would you need to see to maybe, if you haven't done so, what would you need to see from a sequential or trend standpoint to start making those adjustments? Thank you. Well, because we haven't reduced our recruiter headcounts commensurate with revenue declines. And we do have dry powder capacity.

Speaker Change: Margin was seven nine and went to eight nine went to 10 nine and went to 11 four between the first quarter and the fourth quarter and so that's recovering at the topline with contracts with higher Bill rates. That's also better managing the contract or a full time.

Speaker Change: Employee mix and so virtually every year there they improve their margins over the course of the year and our expectation would be that's true in 2024 as well.

Speaker Change: But there's no.

Speaker Change: Theres no missing piece.

Unnamed Speaker: As business conditions improve, we would not look to immediately begin to add to headcount, but the more continued weekly sequential improvement we see, the more likely it would be that we would begin to add headcount. So, we have some capacity as we speak, which is by design. We haven't been looking to optimize trough margins. We've been looking to have dry powder as things get better.

Speaker Change: Sure you've got some negative leverage on the tower solution side as I just said.

Speaker Change: And you've got Protiviti out of the gate with smaller margins, but that's always true in the first quarter.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Kartik Mehta with Northcoast research.

Manav Patnaik: Good evening.

You talked about a little bit about the big or be aggressive on pricing in some geographies and I'm wondering.

Unnamed Speaker: We have that. We can rely on that probably for a quarter or two, depending on how quickly things get better. Then, we would begin to add to headcount, and I can assure you there is plenty of pent-up demand out in our branch offices for us to add to headcount. That's the understatement of everything I've said so far today.

Manav Patnaik: With that as a backdrop, maybe your ability to recover some of the cost increases you're seeing kind of good way.

Manav Patnaik: And promotions and maybe how those dynamics play.

Manav Patnaik: Would play out throughout the year.

Oh.

Manav Patnaik: Protiviti gross margins are a function of several factors one is bill rate increases what are their raises flash promotions.

Unnamed Speaker: Thank you. Okay, I got it. Well, that's it for me.

Manav Patnaik: One is the mix of contractors versus full time.

Unnamed Speaker: Thank you so much. Thank you. Thank you. Thank you. Your next question comes from the line of George Tong with Goldman Sachs. Hi, thanks, good afternoon.

Manav Patnaik: One is the shape of the pyramid bad meaning the ratio of the higher level managing directors to the lower level consultant level ones on the contractors and so there are multiple levers that can be adjusted to manage gross margin.

Unnamed Speaker: At the midpoint, you're guiding to about a 200 basis point step down in EBIT margins from 4Q to 1Q. To elaborate on what's driving this step down, well, I think you're talking about a sequential step down. And that sequential step down is virtually all productivity, and that's that typical seasonal impact of less chargeability utilization at the revenue line for internal audit, and external audit crowd out that I talked about. And then at the cost line, you've got all those raises and the impact of promotions that get recovered on a lag basis over the course of the year. Again, a very typical seasonal impact and something that we reverse over the course of the year, just as we did during 2023 and in prior years.

Manav Patnaik: And to the extent that you might not get as much as an example from bill rate increases you can tweak your employee versus contractor mix in part to deal with that so there are multiple levers and protiviti well knows each of those levers.

And have actively manage them did a very good job during 'twenty two 'twenty three managing.

Manav Patnaik: The blend of those levers.

Manav Patnaik: During their their margins up significantly from beginning to end of the year. They had 11, 4% segment income margins in the fourth quarter, which is fantastic.

Unnamed Speaker: That's helpful. And sticking with productivity, you mentioned that economic conditions are..., pack the average deal size, and time it takes to close contracts. Can you elaborate on some of those developments for Lighting Symmetry, how much deal sizes, and how long sales cycles may be?

Manav Patnaik: Alright.

Manav Patnaik: Just a question on bank spending you've talked about obviously the need for banged on rent.

Manav Patnaik: Kind of compliance I mean, I'm wondering if it's protiviti any pressure.

Unnamed Speaker: Well, we haven't gotten that granular as clients focus on cost. They're conservative, they're more tentative, and to the extent they have demand, they're more... They take longer to decide when to pull the trigger, and then once they decide, it takes longer to get the contract and then get the project started. But that's an environment Pertitti's been seeing for the last two or three at a minimum.

Manav Patnaik: Consulting on the technology or any other part on.

Manav Patnaik: On the banking side.

Manav Patnaik: Well I'd say on the regulatory compliance.

Manav Patnaik: And Reed remediation.

Manav Patnaik: Thanks.

Manav Patnaik: Those things have to happen and in many cases the regulators require.

Manav Patnaik: Third party consultant at the table and so that's been very resilient and in Tony twenty-three Protiviti had double digit revenue growth, primarily from big banks and financial institutions. So that piece of big banks grew nicely the internal audit piece of big banks. However.

Unnamed Speaker: The good news is the aggregate pipeline continues to grow. However, because it takes longer to convert those to contracts and then longer still to convert those to actual project starts, their revenues are impacted, but the overall pipeline continues to grow, which we're very pleased about and we're very optimistic. It's not new.

Manav Patnaik: <unk> was pressured somewhat as their cost measures put them in a position to.

Manav Patnaik: Convert some of the work that was done by third parties to internal staff and that was at the expense of all consulting firms Protiviti included but when you put the package together.

Unnamed Speaker: It's something they've been dealing with for the last at least two or three quarters. And it's not just productivity; it's pretty much a consulting industry-wide phenomenon. Great. Thanks very much.

The financial services industry for Protiviti that includes regulatory risk and compliance as well as internal audit it still grew single.

Manav Patnaik: Single digits.

Unnamed Speaker: Your next question comes from the line of Manav Patnaik with Spark. Thank you. Just back on the margins, I mean, sequentially, this is what you see, I guess, every year, but is there something else this year? It just feels a little bit lower than I think we all thought, and perhaps there's a bigger catch-up for the rest of the year, if you could help us with the cadence there. Well, sequential decline is in line, as we talked about. I think the issue is you're starting from a lower Q4, when you will apply that sequential decline to it to get to Q1, than you have in years past. But as far as the sequential impact of the seasonality that I've talked about, it's no greater than before.

Manav Patnaik: But there was two different pieces of that one grew nicely and one was impacted by big bank cost measures.

Thank you very much appreciate it.

Manav Patnaik: Okay.

Manav Patnaik: Your next question comes from the line of Jeff Silber with BMO capital markets.

Manav Patnaik: Hey, Good afternoon. This is Ryan on for Jeff.

Ryan: Can you talk about your bill rates or replacement for fee assumptions for 2024.

Ryan: As you've seen now for many quarters as wage inflation has come down.

Ryan: There has been a smaller pass through of that on our side. So the bill rates have come down as well and we would expect over the course of 2024.

Ryan: That wage rate increases would continue to moderate and therefore, our bill rates would moderate accordingly, but our gross margin spread or the percentage gross margin.

Unnamed Speaker: In fact, we talked about how, sequentially, productivity is down about 6 percentage points. And if you look at the last 10 years, the range of that has been 4 to 7. So while maybe it's a little bit at the higher end of that range, last year, that same sequential decline was 6.5 percentage points. So, if anything, it's an improvement relative to a year ago. So I don't know. There is nothing else. There's not anything. There's not anything else.

Ryan: Should remain intact and frankly, the biggest swing factor just like we look year on year in the fourth quarter. The biggest swing factor was conversions.

Ryan: Converting contractors to full time.

Ryan: Those were down about 30 basis points year on year, and that's pretty much the change in gross margins year on year.

Unnamed Speaker: Okay, fine. And then just in terms of the, can you just talk about the cross-sell and the kind of the success rates you're seeing again with productivity and staffing and, you know, if there's anything in particular to call out there. We continue to compete effectively by having resources from Talent Solutions and Pertivity available to our clients under one roof with one sales and delivery team. Some of the optimism, some of the reason why we're above trend on the Q1 guidance, as we've had a couple of wins recently that are pretty significant, that are, in fact..., combined wins, where Talent Solutions and Pertivity went to market together. So we're encouraged by that.

Ryan: So we would expect some moderation.

But at the top line, but our gross margin percentage shouldn't be impacted because whatever left our bill rates are our pay rates would be down accordingly.

Speaker Change: Got it. Thank you and then just related to the prior question can you give us a breakdown on some of those underlying protiviti businesses between the internal audit and the tech consulting and risk and compliance.

Speaker Change: Well strongest was.

The regulatory risk and compliance.

Speaker Change: And where they grew nice double digit rates for the year technology consulting I would say is flattish.

Speaker Change: And internal audit would be down mid single digits.

Unnamed Speaker: If you look at Pertivity's revenues, about 25 percent of their revenues for 2023 were with resources staffed from Talent Solutions. That peaked at about 30 percent just post-COVID, when due to the nature of some of those public sector engagements, they were more contractor heavy. But we're about 25 percent of Pertivity's revenues come from resources that are sourced from Talent Solutions. We think that's wonderful.

Speaker Change: And our business process improvement, which includes things like IPO M&A to some extent public sector.

Speaker Change: That was down by double digit rates as expected.

Speaker Change: The good news is if you just focus on that public sector piece.

As state and local governments are understaffed as local education understaffed are they're seeing some nice wins and some of that first quarter above trend optimism relates to public sector engagements.

Speaker Change: Which is a wonderful thing.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Okay. So that was our last question. Thank you very much for joining us.

Speaker Change: Yeah.

Speaker Change: This concludes today's teleconference.

Speaker Change: Any part of the call it will be archived in audio format in the Investor Center of Robert Half's website at Robert half Dot Com you.

Unnamed Speaker: I mean, the hours would be even larger than that because the average hourly rate for contractors is less than it is for their full-time employees at Pertivity. But 25 percent of revenues at Pertivity come from contractor resources, showing it works. We think that will grow over time, and it's a competitive advantage. Nobody else has a business model that, under one roof, puts professional-level contractors together with Big Four level consulting resources. Thank you. Thank you. Thank you. Thank you. The next question... On the line is Kevin McVeigh.

Speaker Change: You can also log in to the conference call replay.

Speaker Change: Sales are contained in the company's press release issued earlier today.

Speaker Change: Yeah.

Speaker Change: [music].

Yeah.

Speaker Change: [music].

Unnamed Speaker: Well, it's, it started with revenue impacts and productivity's revenues. Taking 2023 on an annual basis, we're only down, you know, a couple of single-digit percentage points, not a lot. That said... they had anticipated higher revenues, you know, and when they were recruiting 12 months in advance of that, so they had full-time employees coming on board that they had to adjust for given the flattening of revenues. And the good news is, by and large, all of those adjustments and cuts came from contractors, and, by and large, they protected their full-time employees. But it's not some AI technology-driven impact on the productivity side.

Unnamed Speaker: It's more they're matching their costs to revenues using this tranche of variable costs they have that, frankly, in their prior lives as a Big Four firm, they didn't have that lever, and nor do any other Big Four firms have that variable lever either. So what a wonderful thing that they have that tranche of variable costs that they can use when they need to, which they have done in the last 24, in the last 12 months. Rev.

Unnamed Speaker: We reconcile that, and then there's really... Well, on the talent solution side, you've got some negative leverage because we haven't cut our head count commensurate with top line declines. As I talked about earlier, we haven't tried to optimize trough margins, but instead, we've kept capacity for when things get better. So you've got some negative leverage there.

Unnamed Speaker: And then on the productivity side, which we've talked about many times, you've got the beginning of year promotions, beginning of year salary increases, and you've got beginning of year utilization contraction for seasonal reasons in internal audit. But if you look over the course of a year, productivity last year, as an example, started the first quarter, its operating margin or segment margin was 7.9, then went to 8.9, then went to 10.9, then went to 11.4 between the first quarter and the fourth quarter. And so that's recovering at the top line with contracts with higher bill rates. That's also better for managing the contractor full-time employee mix. And so, virtually every year, they improve their margins over the course of the year. And our expectation would be that it will be true in 2024 as well. But there's no such thing. There's no missing piece.

Unnamed Speaker: Sure, you've got some negative leverage on the talent solution side, as I just said, and you've got productivity out of the gate with smaller margins, but that's always true in the first quarter and for the rest of us. Thank you for watching. We'll see you next time. The line starts with Karthik Mehta with, Good evening.

Unnamed Speaker: I wanted to ask you a little bit about the big four being aggressive and some pricing and some geographies, and I'm wondering, you know, with that as a backdrop, maybe your ability to recover some of the cost increases you're seeing because of raises and promotions, and maybe how those dynamics would play out throughout the year. Well, productivity's gross margins are a function of several factors. One is bill rate increases. Another is raises slash promotions. One is the mix of contractors versus full-time employees. Another is the shape of the pyramid, meaning the ratio of the higher-level managing directors to the lower-level consultant level ones and the contractors.

Unnamed Speaker: And so there are multiple levers that can be adjusted to manage gross margin. And to the extent that you might not get as much as an example from bill rate increases, you can tweak your employee versus contractor mix in part to deal with that. So there are multiple levers, and Fertivity knows each of those levers and has actively managed them. Fertivity did a very good job during 2023, managing the blend of those levers to bring their margins up significantly from beginning to end of the year. They had 11.4 percent segment income margins in the fourth quarter, which is fantastic. And just a question on bank spending. You've talked about, obviously, the need for banks to spend on risk and kind of compliance spending. I'm wondering, has Pultivity seen any pressure from maybe consulting on the technology part or any other part on the banking side? Well, I'd say on regulatory compliance and Reeb remediation. Banks, you know, those things have to happen. And in many cases, the regulators require a third-party consultant at the table.

Unnamed Speaker: And so that's been very resilient. And in 2023, productivity had double-digit revenue growth, primarily from big banks and financial institutions. So that piece of big banks grew nicely. The internal audit piece of big banks, however, was pressured somewhat as their cost measures put them in a position to convert some of the work that was done by third parties to internal staff.

Unnamed Speaker: And that was at the expense of all consulting firms, productivity included. But when you put the package together, the financial services industry for productivity, which includes regulatory risk and compliance, as well as internal audit, it still grew, you know, single-digit. But there were two different pieces to that.

Unnamed Speaker: One grew nicely, and one was impacted by big bank cost measures. Thank you very much. Appreciate it. Thank you. Bye-bye. Your next question... and Jeff Silber with BMO Capital Marketing. Hey, good afternoon. This is Ryan on for Jeff.

Unnamed Speaker: Can you talk about your bill rates or placements for fee assumptions for 2024? Well, as you've seen for many quarters, as wage inflation has come down... There's been a smaller pass-through of that on our side, so the bill rates have come down as well. And we would expect, over the course of 2024, that wage rate increases would continue to moderate, and therefore, our bill rates would moderate accordingly, but our gross margin spread, the percentage gross margin, should remain intact. Frankly, the biggest swing factor, just like we looked year-on-year in the fourth quarter, was conversions, converting contractors to full-time. And those were down about 30 basis points year-on-year, and that's pretty much the change in gross margins year-on-year. So, we would expect some moderation. But at the top line, our gross margin percentage shouldn't be impacted because whatever remains of our bill rates are, our pay rates would be down accordingly. Got it, thank you. And then, just related to the prior question.

Unnamed Speaker: Can you give us a breakdown on some of those underlying productivity businesses between the internal audit and the tech consulting and risk and compliance? Well, the strongest was regulatory risk and compliance, where they grew at nice double-digit rates for the year. Technology consulting, I would say, is flattish, and internal audit would be down mid-single digits. And business process improvement, which includes things like IPO, M&A, and to some extent, the public sector, that was down by double digit rates, as expected. The good news is, if you just focus on that public sector piece, as state and local governments are understaffed, as local education is understaffed, they're seeing some nice wins, and some of that first-quarter, above-trend optimism relates to public sector engagement, which is a wonderful thing.

Unnamed Speaker: Thank you, www.youtube.com Okay, so that was our last question. Thank you very much for joining us. If you missed any part of the call, it will be archived in audio format in the Investor Center of Robert Half's website at roberthalf.com. You can also log in to the conference call. Details are contained in the company's press release, shot earlier. Subs by www.zeoranger.co.uk