Q1 2024 Robert Half Inc Earnings Call

Okay.

Operator: Hello, and welcome to the Robert Half First Quarter 2024 conference call. Today's conference call is being recorded. If you would 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 today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half, and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin

Speaker Change: Hello, and welcome to the Robert half first quarter 2024 conference call.

Speaker Change: This conference call is being recorded if you would.

Like to ask a question during the Q&A portion of the call. Please press star and the number one on your telephone keypad.

Speaker Change: 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. <unk> you may begin.

Keith Waddell: 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 risks and uncertainties that could cause actual results to differ materially from those in 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.

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

Speaker Change: 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 roes.

Speaker Change: <unk> to differ materially from the forward looking statements.

Risks and uncertainties are described in today's press release and our most recent 10-K and 10-Q filed with the SEC, we 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 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, roberthalf.com. Client and candidate caution continues to impact hiring activity and new project starts on a global basis.

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 for your convenience our prepared.

Speaker Change: <unk> for today's call are available in the Investor Center of our website Robert half Dot com.

Client and candidate caution continues to impact hiring activity and new project starts on a global basis. However, the trend towards stabilization that began in the second half of last year continued into the first quarter of this year.

Keith Waddell: However, the trend toward stabilization that began in the second half of last year continued into the first quarter of this year. First quarter results were largely in line with expectations, and we're encouraged that second quarter earnings guidance, led by productivity, anticipates higher sequential earnings for the first time in seven quarters. We remain 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.

First quarter results were largely in line with expectations and we're encouraged that second quarter earnings guidance led by Protiviti anticipates higher sequential earnings for the first time in seven quarters.

Speaker Change: We remain 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.

Keith Waddell: For the first quarter of 2024, company-wide revenues were $1.476 billion, down 14% from last year's first quarter on a reported basis and down 13% as adjusted. Net income per share in the first quarter was $0.61 compared to $1.14 in the first quarter a year ago.

For the first quarter of 'twenty 'twenty four companywide revenues were 1.476 billion down 14% from last year's first quarter on a reported basis and down 13% on as adjusted basis.

Net income per share of the first quarter was 61 cents compared to $1 14 in the first quarter a year ago in March we distributed at 53 cents per share cash dividend to our shareholders of record for a total cash outlay of 58 million.

Keith Waddell: In March, we distributed a $0.53 per share cash dividend to our shareholders of record for a total cash outlay of $58 million. Our per share dividend has increased. 11.6% annually since its inception in 2004. The March 2024 dividend was 10.4% higher than the prior year. We also acquired approximately 750,000 Robert Half shares during the quarter for $60 million. We have 10 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 16% in the first quarter. Now, I'll turn the call over to our CFO, Mike Buckley.

Speaker Change: Our per share dividend has grown.

11.6% annually since its inception in 2004.

The March 'twenty 'twenty, four dividend was 10.4% higher than the prior year. We also acquired approximately 750000, Robert half shares during the quarter for $60 million, we have 10 million shares available for repurchase under our board approved stock repurchase plan return on.

Speaker Change: And invested capital for the company was 16% in the first quarter now I'll turn the call over to our CFO Mike Buckley.

Michael C. Buckley: Thank you, Keith. Hello, everyone.

Michael C. Buckley: Thank you Keith Hello, everyone.

Michael C. Buckley: As Keith noted, global revenues were $1.476 billion in the first quarter. On an as-adjusted basis, first quarter talent solutions revenues were down 17% year-over-year. U.S. talent solutions revenues were $764 million, down 19% from the prior year's first quarter. Non-U.S.

Michael C. Buckley: Keith noted global revenues were 1.4 dollars 76 billion in the first quarter.

Michael C. Buckley: On an as adjusted basis first quarter talent solutions revenues were down 17% year over year.

Michael C. Buckley: U S talent solutions revenues were $764 million down 19% from the prior year's first quarter.

Michael C. Buckley: Talent Solutions revenues were $248 million, down 10% year over year. We have 315 talent solutions locations worldwide, including 91 locations in 17 countries outside of the United States. In the first quarter, there were 62.8 billing days compared to 63.3 billing days in the same quarter one year ago. The second quarter of 2024 had 63.5 billing days compared to 63.3 billing days during the second quarter of 2023. Currency exchange rate fluctuations during the first quarter had the effect of increasing reported year-over-year total revenues by $2 million.

Michael C. Buckley: Non U S talent solutions revenues were $248 million.

Michael C. Buckley: Down 10% year over year, we have 315 talent solutions locations worldwide, including 91 locations in 17 countries outside of the United States.

Michael C. Buckley: In the first quarter were 62.8 billing days compared to 63, three billing days in the same quarter one year ago.

Michael C. Buckley: The second quarter of 2024 has 63 five billing days compared to 63, three billing days during the second quarter of 2023.

Michael C. Buckley: Currency exchange rate fluctuations during the first quarter had the effect of increasing reported year over year total revenues by $2 million.

Michael C. Buckley: $2 million for talent solutions and a negligible amount for productivity. Contract Talent Solutions bill rates for the first quarter increased 3.1% compared to one year ago. Adjusted for changes in the mix of revenues by functional specialization, country, and currency, this rate for the fourth quarter was 3.7%. Now let's take a closer look at the results for proactivity.

Michael C. Buckley: 2 million for talent solutions, and a negligible amount for productivity.

Michael C. Buckley: Contract talent solutions Bill rates for the first quarter increased three 1% compared to one year ago.

Michael C. Buckley: Adjusted for changes in the mix of revenues by functional specialization country in currency.

Michael C. Buckley: This rate for the fourth quarter was three 7%.

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

Michael C. Buckley: Global revenues in the first quarter were $464 million; $378 million of that was from the United States, and $86 million was from outside of the United States. On an as-adjusted basis, global first quarter productivity revenues were down 5% versus the year-ago period. U.S. productivity revenues were down 4%, while non-U.S. productivity revenues were down 10%. Creativity and its independently owned member firms serve clients through a network of 89 locations in 29 countries.

Michael C. Buckley: Global revenues in the first quarter were $464 million.

Michael C. Buckley: $378 million of that is from the United States and 86 million is from outside of the United States.

Michael C. Buckley: On an as adjusted basis Global first quarter, Protiviti revenues were down 5% versus the year ago period period.

Michael C. Buckley: U S. Protiviti revenues were down 4%, while non U S. Protiviti revenues were down 10%.

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

Michael C. Buckley: Turning now to gross margin. In contract talent solutions, first quarter gross margin was 39.5% of applicable revenues versus 39.8% in the first quarter one year ago. Conversion revenues, or contract-to-hire, were 3.2% of revenues in the quarter, compared to 3.7% of revenues in the quarter one year ago.

Michael C. Buckley: Turning now to gross margin.

Michael C. Buckley: In contract talent solutions first quarter gross margin was 39, 5% of applicable revenues versus 39, 8% in the first quarter one year ago.

Michael C. Buckley: Conversion revenues or contract a higher or three 2% of revenues in the quarter compared to three 7% of revenues in the quarter one year ago.

Michael C. Buckley: Our permanent placement revenues in the first quarter were 12.3% of consolidated talent solutions revenues versus 12.8% in the same quarter one year ago. When combined with Contract Talent Solutions Gross Margin, overall gross margin for Talent Solutions was 47% compared to 47.5% of applicable revenues in the first quarter last year. For proactivity, gross margin was 18.9% of proactivity revenues compared to 22.2% of proactivity revenues one year ago, adjusted for the amount of deferred compensation that is completely offset by investment income related to the employee deferred compensation trust for the Deferred Compensation Investment Income Offset. Gross margin for productivity was 20.7% for the quarter just ended, compared to 23.2% last year. Moving on to SG&A.

Michael C. Buckley: Permanent placement revenues in the first quarter were 12, 3% of consolidated talent solutions revenues versus 12, 8% in the same quarter one year ago.

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

Michael C. Buckley: For Protiviti gross margin was 18, 9% of Protiviti revenues compared to 22, 2% of Protiviti revenues one year ago.

Michael C. Buckley: Adjusted for the amount of deferred compensation that is completely offset by investment income related to employee deferred compensation Trust.

Michael C. Buckley: For the deferred compensation investment income offset.

Michael C. Buckley: Gross margin for Protiviti was 27% for the quarter just ended compared to 23, 2% last year.

Michael C. Buckley: Moving on to SG&A.

Michael C. Buckley: Enterprise SG&A costs were 35, 3% of global revenues in the first quarter compared to 32, 2% in the same quarter one year ago.

Michael C. Buckley: Adjusted for the deferred compensation investment income offset enterprise SG&A costs were 33% for the quarter just ended compared to 39% last year.

Michael C. Buckley: Enterprise SG&A costs were 35.3% of global revenues in the first quarter compared to 32.2% in the same quarter one year ago, adjusted for the Deferred Compensation Investment Income Offset. Enterprise SG&A costs were 33% for the quarter just ended compared to 30.9% last year. Talent Solutions' SG&A costs were 44.3% of Talent Solutions revenues in the first quarter versus 39% in the first quarter of 2023. Adjusted for the Deferred Compensation Investment Income Offset, Talent Solutions' SG&A costs were 40.8% for the quarter just ended, compared to 37.1% last year.

Michael C. Buckley: Talent solutions SG&A costs were 44, 3% of talent solutions revenues in the first quarter versus 39% in the first quarter of 2023.

Michael C. Buckley: Adjusted for the deferred compensation investment income offset talent solutions SG&A costs were 48% for the quarter just ended compared to 37, 1% last year.

Michael C. Buckley: First quarter SG&A costs for Protiviti were 15, 8% of Protiviti revenues compared to 15, 3% of revenues for the same quarter last year.

Michael C. Buckley: Yeah.

Michael C. Buckley: Operating income for the quarter was $41 million.

Michael C. Buckley: Adjusted for the deferred compensation investment income offset combined segment income was $85 million in the first quarter.

Michael C. Buckley: Combined segment margin was five 7%.

Michael C. Buckley: First quarter segment income from our talent solutions divisions was $62 million.

Michael C. Buckley: First quarter SG&A costs for productivity were 15.8% of productivity revenues compared to 15.3% of revenues for the same quarter last year. Operating income for the quarter was $41 million. Adjusted for the deferred compensation investment income offset, combined segment income was $85 million in the first quarter. Combined segment margin was 5.7%.

Michael C. Buckley: With a segment margin of six 1%.

Michael C. Buckley: Segment income for two for Protiviti in the first quarter was $23 million with a segment margin of four 9%.

Michael C. Buckley: Our first quarter 2020 for income statement includes $43 million as income from investments held in employee deferred compensation Trust.

Michael C. Buckley: This is completely offset by an equal amount of additional employee compensation, which is reflected in SG&A expenses indirect costs.

Michael C. Buckley: First quarter segment income from our talent solutions divisions was $62 million, with a segment margin of 6.1%. Segment income for productivity in the first quarter was $23 million, with a segment margin of 4.9%. Our first quarter 2024 income statement includes $43 million as income from investments held in an employee deferred compensation trust. This is completely offset by an equal amount of additional employee compensation, which is reflected in SG&A expenses and direct costs.

Michael C. Buckley: As such it has no effect on the reported on our reported net income.

Michael C. Buckley: Our first quarter tax rate was 30% compared to 28% one year ago.

Michael C. Buckley: At the end of the first quarter, the accounts receivable 861 million and implied days sales outstanding or DSO was 52.5 days.

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

Michael C. Buckley: Contract talent solutions exited the first quarter with March revenues down 16% versus the prior year.

Michael C. Buckley: Compared to a 16% decrease for the full quarter.

Michael C. Buckley: As such, it has no effect on our reported net income. Our first quarter tax rate was 30% compared to 28% one year ago. At the end of the first quarter, accounts receivable was $861 million, and implied day sales outstanding, or DSO, was 52.5 days.

Michael C. Buckley: Revenue for the first two weeks of April were down 16% compared to the same period last year.

Michael C. Buckley: Permanent placement revenues in March were down 17% versus March 2023.

Michael C. Buckley: This compares to a 20% decrease for the full quarter.

Michael C. Buckley: For the first three weeks of April permanent placement revenues were down 18% compared to the same period in 2023.

Michael C. Buckley: Before we move to second quarter guidance, let's review some of the monthly revenue trends we saw in the first quarter and so far in April, all adjusted for currency and billing. Contract Talent Solutions exited the first quarter with March revenues down 16% versus the prior year, compared to a 16% decrease for the full quarter. Revenue for the first two weeks of April was down 16% compared to the same period last year.

Michael C. Buckley: We provide this information so you have insight into some of the trends we saw during the first quarter and into April.

Michael C. Buckley: But as you know these are very brief time periods, we caution against reading too much into that.

Michael C. Buckley: With that in mind, we offer the following second quarter guidance.

Michael C. Buckley: Revenues 1.45 billion to 1.55 billion.

Michael C. Buckley: Income per share 63 to.

Michael C. Buckley: To 77.

Michael C. Buckley: Midpoint revenue of 1.5 billion.

Michael C. Buckley: Our 9% lower than the same period in 2023 on an as adjusted basis.

Michael C. Buckley: Permanent placement revenues in March were down 17% versus March 2023. This compares to a 20% decrease for the full quarter. For the first three weeks of April, permanent placement revenues were down 18% compared to the same period in 2023. We provide this information so you have insight into some of the trends we saw during the first quarter and into April. But, as you know, these are very brief time periods.

Michael C. Buckley: The major financial assumptions underlying the midpoint of these estimates are as follows.

Michael C. Buckley: Revenue growth.

Michael C. Buckley: On a year over year basis, as adjusted talent solutions down 10% to 14%.

Michael C. Buckley: For Protiviti down 3% to flat.

Michael C. Buckley: Overall down 7% to 11%.

Michael C. Buckley: Gross margin for contract talent, 38% to 41%.

Michael C. Buckley: For Protiviti on an on an as adjusted for the deferred compensation investment income offset.

Michael C. Buckley: 22% to 24%.

Michael C. Buckley: Overall, 38% to 40%.

Michael C. Buckley: SG&A as a percentage of revenues adjusted for the deferred compensation investment income offset.

Michael C. Buckley: We caution against reading too much into them. With that in mind, we offer the following second-quarter guide. Revenues $1.45 billion to $1.55 billion. Income per share $0.63 to $0.77. The midpoint revenue of $1.5 billion is 9% lower than the same period in 2023 on an as-adjusted basis. The major financial assumptions underlying the midpoint of these estimates are as follows.

Michael C. Buckley: Talent solutions, 40% to 42%.

Michael C. Buckley: Protiviti, 15% to 17% and overall, 32% to 34%.

Michael C. Buckley: Segment income for talent solutions.

Michael C. Buckley: 5% to 7%.

Michael C. Buckley: Protiviti, 6% to 8%.

Michael C. Buckley: Overall.

Michael C. Buckley: 5% to 8%.

Michael C. Buckley: Our tax rate, 29% to 30% and shares outstanding $103 million to $104 million.

Michael C. Buckley: 2020 for capital expenditures and capitalized cloud computing costs $90 million to $110 million with $20 million to $25 million in the second quarter.

Michael C. Buckley: Revenue growth, on a year-over-year basis as adjusted. Talent Solutions down 10 to 14 percent, for productivity down 3% to flat. Overall, down 7 to 11 percent. Gross margin for contract talent.

Michael C. Buckley: As always we limit our formal guidance to one court for two one quarter forward.

Speaker Change: Just for informational purposes.

Michael C. Buckley: We would note that the 10 year average performance for the third quarter.

Speaker Change: Excluding 2000, Twenty's Covid impact.

Michael C. Buckley: 38 to 41%, for productivity on an as adjusted for the deferred compensation investment income offset. 22% to 24%. Overall, 38 to 40%. SG&A has a percentage of revenues adjusted for the Deferred Compensation Investment Income Offset.

Speaker Change: As for sequential revenue gains of 1.1% and sequential EPS gains of 43%.

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.

Speaker Change: Now I'll turn the call back over to Keith.

Keith Waddell: Thank you Mike.

Michael C. Buckley: Consistent with prior quarters clients or budget sensitive and very selective in their hiring activities, including the approval of new projects.

Michael C. Buckley: Talent Solutions, 40 to 42%; productivity, 15 to 17%, and overall, 32 to 34%. Segment income for talent solutions, 5% to 7%, productivity, six to 8% Overall, five to eight percent. Your tax rate, 29 to 30 percent, and shares outstanding, 103 to 104 million. 2024 capital expenditures in capitalized cloud computing costs 90 to 110 million, with 20 to 25 million in the second quarter. As always, we limit our formal guidance to one quarter forward.

Michael C. Buckley: Also many are of maintaining their internal head counts based on the anticipated difficulty in finding suitable replacements.

Michael C. Buckley: Candidates are also more reluctant to change jobs, reflecting diminished competence in the market.

Speaker Change: The net impact is less churn in the labor force and employee attrition is down significantly across the globe.

Speaker Change: On a weekly basis, we exited the quarter with revenues very similar to those at the end of the prior quarter. Another sign of the stabilization. We have seen sits in the middle of last year.

Speaker Change: We have many reasons to be optimistic about the future.

Speaker Change: We have significant opportunities as macroeconomic conditions improve starting with the reacceleration in the velocity of hiring and the more normalized labor churn that typically follows when client and candidate confidence improve.

Michael C. Buckley: Just for informational purposes, we would note that the 10-year average performance for the third quarter, excluding 2020's COVID impact, is for sequential revenue gains of 1.1% and sequential EPS gains of 4.3%. 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.

Speaker Change: Job openings data, which is significantly higher now than in prior industry downturns indicate substantial amounts of pent up demand for future hiring.

Speaker Change: Also encouraged by the growth and margin prospects from our continued focus on services related to higher skilled talent.

Speaker Change: Within talent solutions and Protiviti.

Keith Waddell: Consistent with prior quarters, clients are budget sensitive and very selective in their hiring activities, including the approval of new projects. Also, many are maintaining their internal headcounts based on the anticipated difficulty in finding suitable replacements. Candidates are also more reluctant to change jobs, reflecting diminished confidence in the market.

Speaker Change: Our investments and higher skilled services carry many advantages higher bill rates and gross margins longer assignment.

Speaker Change: Increased client openness to remote talent more full time engagement professionals and less economic sensitivity.

Speaker Change: Our mix of revenues from higher skilled positions has been steadily rising over the past several years and currently exceeds 50%. We expect this positive trend to continue.

Keith Waddell: The net impact is less churn in the labor force, and employee attrition is down significantly across the globe, on a weekly basis. We exited the quarter with revenues very similar to those at the end of the previous year, another sign of the stabilization we have seen since the middle of last year. We have many reasons to be optimistic about the future. For example, we have significant opportunities as macroeconomic conditions improve, starting with the reacceleration in the velocity of hiring and the more normalized labor churn that typically follows when client and candidate confidence improves. Job openings data, which is significantly higher now than in prior industry downturns, indicate substantial amounts of pent-up demand for future hires.

Speaker Change: We continue to invest in technology and innovation to fuel our core business strategy, which places our specialized talent solutions professionals at the center of clients hiring experience along with digital tools that provide greater client convenience flexibility and transparency.

Speaker Change: Throughout the hiring process. We also continue to leverage our proprietary data assets to enhance the AI tools, our recruiters use to discover assess and select talent for our clients.

Keith Waddell: In the AI tools, our recruiters use to effectively target leads for additional revenue.

Speaker Change: Protiviti continues to have a strong pipeline and a diverse offering of solutions, which compete very effectively in the marketplace for activities first quarter results were also impacted by client budget measures and seasonally higher cost.

Keith Waddell: We're also encouraged by the growth in 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.

Speaker Change: We're encouraged that for the second quarter.

Keith Waddell: <unk> expects to report.

Keith Waddell: Sequential segment income growth for the first time in six quarters based on broad based strength in each of its solution areas all of which are expected to grow sequentially.

Keith Waddell: Longer assignments, increased client openness to remote talent, more full-time engagement professionals, and less economic sensitivity. Our mix of revenues from higher-skilled positions has been steadily rising over the past several years and currently exceeds 50%. We expect this positive trend to continue. We continue to invest in technology and innovation to fuel our core business strategy, which places our specialized talent solutions professionals at the center of clients' hiring experiences, along with digital tools that provide greater client convenience, flexibility, and transparency throughout the hiring process.

Speaker Change: Coupled with close control over its resource cost.

Keith Waddell: And staff utilization rates this anticipated growth drives approximately 200 basis points in sequential improvement in Protiviti projected gross margin and segment margin.

Keith Waddell: We've weathered many economic cycles in the past each time emerging gets you higher peaks, while macroeconomic conditions have constrained client resource levels in the short term. This also results in pent up demand for talent and projects as business conditions improve also.

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

Keith Waddell: With our current portfolio of talent and Protiviti solutions, we're even more confident about our future.

Keith Waddell: We also 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. Fertivity continues to have a strong pipeline and a diverse offering of solutions, which compete very effectively in the marketplace. However, its first quarter results were also impacted by client budget measures and seasonally higher costs.

Keith Waddell: We are held steadfast 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 constantly compete and grow.

Speaker Change: Finally, we'd like to extend our gratitude to our employees across the globe, whose efforts made possible a number of recent prestigious accolades.

Keith Waddell: Robert half was along and elite few companies and the only one in our industry to be honored as a fortune most admired company for 27 consecutive years.

Speaker Change: We were also recognized as one of Fortune's 100 companies 100 best companies to work for Forbes America's Best large employers and just this week.

Keith Waddell: We are encouraged that for the second quarter, Pertivity expects to report sequential Segment Income Growth for the first time in six quarters, based on broad-based strength in each of its solution areas, all of which are expected to grow sequentially, coupled with close control over its resource costs and Staff Utilization Rate. This anticipated growth drives approximately 200 basis points of sequential improvement in productivity, projected gross margin, and segment margin. We've weathered many economic cycles in the past, each time emerging at geo-higher peaks.

Keith Waddell: All of Forbes best employers for diversity.

Speaker Change: All are a testament to our people first culture, which is a cornerstone to our success.

Speaker Change: Now, Mike and I'd be happy to answer your questions. Please ask just one question and a single follow up as needed. If there's time, we will come back for additional questions.

Speaker Change: Thank you.

Speaker Change: If you would like to ask a question.

Speaker Change: By pressing star one on your telephone keypad.

Speaker Change: If you are using a speaker phone.

Keith Waddell: Please.

Keith Waddell: While macroeconomic conditions have constrained client resource levels in the short term, this also results in pent-up demand for talent and projects as business conditions improve. Also, aging workforce demographics and clients' desire for flexible resources and variable costs are structural tailwinds that are expected to benefit us for many years to come. With our current portfolio of talent and productivity solutions, we're even more confident about our future. We are held steadfast 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.

Keith Waddell: Yeah.

Speaker Change: Please.

Speaker Change: Good question.

Speaker Change: With a question.

Speaker Change: Yeah.

Speaker Change: Your first question.

Speaker Change: From the line of Andrew <unk> with.

Keith Waddell: J P Morgan.

Speaker Change: Hi, Keith I was intrigued by your your.

Andrew: Point about third quarter sequential averages and Mike My question has to do with once we get out of this you know kind of funk were temporary help.

Andrew: Down for so long, but we're not in a recession. When you look at your contract staffing business. What do you think the shape of the recovery will look like like do you feel like you know after we have this point of stability, we're going to kind of go back to typical sequential averages or do you feel like there'll be more of a spring loaded.

Keith Waddell: The rebound.

Andrew: Well I would argue the ladder the spring loaded rebound and.

Keith Waddell: Finally, we'd like to extend our gratitude to our employees across the globe whose efforts made possible a number of recent prestigious accolades. Robert Half was among an elite few companies and the only one in our industry to be honored as a Fortune Most Admired Company for 27 consecutive years. We were also recognized as one of Fortune's 100 companies, the 100 best companies to work for. Forbes, America's best large employers. And just this week... One of Forbes' best employers for diversity.

Keith Waddell: I base that in part on if you look at the number of job openings.

Keith Waddell: In the U S or just under $9 million, while I understand that so less than their peak or it was in the 12 ish range.

Andrew: If you compare to prior staffing industry downturns that $8 9 million is significantly higher than it was at those times and we view those openings as pent up demand for future hires be it contract or Perm placement. So we think the level of pent up.

Keith Waddell: Demand for hiring as further evidenced by the labor short market. We're in we think that bodes very well and we think we will come spring loaded when we get through this funk your word.

Keith Waddell: All are testaments to our people-first culture, which is a cornerstone of our success. Now, Mike and I would be happy to answer your questions. Please ask just one question and provide a single follow-up, as needed. If there's time, we'll come back for additional questions.

Keith Waddell: That we've been experiencing for the last six seven quarters.

Speaker Change: Okay. Thank you very much.

Keith Waddell: Yeah.

Operator: Thank you. At this time, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. You may withdraw your question by pressing star 2. Your first question comes from the line of Andrew Steinerman with J.P. Morgan.

Keith Waddell: Your next question comes from the law.

Andrew: Okay.

Operator: Yeah.

Operator: Okay.

Andrew Charles Steinerman: Good afternoon.

Andrew: Keith you talked about the broad based strength and productivity.

Andrew Charles Steinerman: There are other companies.

Andrew: In the consulting space, you know arent seeing you.

Andrew Charles Steinerman: You know that that's sort of a bit of a rebound I'm wondering if you can talk a little bit about.

Andrew Charles Steinerman: What you think some of the underlying factors are for you to see you know some some broad based stabilization and the high confidence.

Andrew Charles Steinerman: Hi Keith, um, I was intrigued by your, your, um..., to kind of go back to typical sequential averages, or do you feel like there will be more of a spring-loaded rebound?

Andrew Charles Steinerman: That that you have that you should see a sequential improvement.

Andrew Charles Steinerman: Is it.

Andrew Charles Steinerman: Improved marketing on your end is it the value proposition.

Keith Waddell: I would argue the latter, the spring-loaded rebound. I base that in part on if you look at the number of job openings, which in the U.S. are just under 9 million. While I understand that's less than their peak, where it was in the 12-ish range, if you compare it to prior staffing industry downturns, that 8.9 million is significantly higher than it was at those times. And we view those openings as pin-up demand for future hires, be it contract or perm placement.

Andrew Charles Steinerman: Are there any things that you're doing differently.

Keith Waddell: Enabling you to continue to gain share.

Keith Waddell: Well I'd say first of all by solution, the regulatory risk and compliance continues to be strong and leads the way.

Keith Waddell: We had a very nice business process improvement quarter, where we had joint wins with Protiviti and with talent solutions.

Andrew: That contributed tourtelot, it and tech consulting.

Keith Waddell: So we think the level of pent-up demand for hiring, as further evidenced by the labor shortage market we're in, bodes very well, and we think we will come spring-loaded when we get through this funk, your word, that we've been experiencing for the last six, seven quarters.

Keith Waddell: Continue to be impact by client budget pressures pretty much like before.

Keith Waddell: But if we look at the pipeline, we've we've got very good pipeline statistics.

Andrew: This quarter as compared to last that gives us some confidence we typically see a seasonal lift in the second quarter for protiviti and while not quite what the average seasonal second quarter lift we're certainly back.

Andrew Charles Steinerman: Okay, thank you very much.

Operator: Your next question comes from the line of Mark Marcon with Baird. Go ahead.

Mark Marcon: Good afternoon. Keith, you talked about broad-based strength and productivity. You know, a number of other companies in the consulting space aren't seeing that sort of a bit of a rebound. I'm wondering if you can talk a little bit about what you think some of the underlying factors are for you to see some broad-based stabilization and the high confidence that you have that we should see sequential improvement. Is it improved marketing on your end? Is that the value proposition? Are there any things that you're doing differently that's enabling you to continue to gain share?

Mark Marcon: Getting close to that and with a little luck year on year, Protiviti will get back to flat and so based on the momentum they've got coming from first quarter based on the pipeline and the internals of that pipeline, which are very.

Mark Marcon: Drawn they feel good about sequential growth in the second quarter.

Mark Marcon: Much of which falls to the bottom line, we talked about.

Mark Marcon: 200 basis point improvements in gross margin and segment margin all because a disproportionate amount of that incremental revenue falls to the bottom line, which is a wonderful thing.

Keith Waddell: Well, I'd say first of all, by solution, regulatory risk and compliance continues to be strong and leads the way. We had a very nice business process improvement quarter, where we had joint wins with productivity and with talent solutions that contributed to a lot of and tech consulting continued to be impacted by client budget pressures, pretty much like before. But if we look at the pipeline, we've got very good pipeline statistics.

Keith Waddell: That is and then you know assuming that those trends continue.

Speaker Change: You know how would you think about the profitability margins as we start getting out towards the second half if we if we get back to kind of normal seasonal.

Keith Waddell: Turns.

Keith Waddell: Well typically you would see another nice lift in margins in the third quarter.

Keith Waddell: This quarter, as compared to last, that gives us some confidence. We typically see a seasonal lift in the second quarter for productivity, and while not quite as much as the average seasonal second quarter lift, we're certainly back to getting close to that. And with a little luck, year on year, productivity will get back to flat. And so, based on the momentum they've got coming from the first quarter, based on the pipeline and the internals of that pipeline, which are very strong, they feel good about sequential growth in the second quarter, much of which falls to the bottom line. We talked about the 200 basis point improvements in gross margin and segment margin, all because a disproportionate amount of that incremental revenue falls to the bottom line, which is a wonderful thing.

Keith Waddell: Well in the internal audit side, that's the big quarter for Sarbanes Oxley compliance work, so seasonally you get some lift from that.

Keith Waddell: You add to that in a cyclical improvement as you allude and so.

Keith Waddell: Seasonally the pattern over the course of the year is you have a step down in first quarter because of external audit crowd out of internal audit on the revenue side, you've got the new cost structure for our raises and promotions for your staff and then you recover that over there.

Keith Waddell: Cost of the next three quarters, So last year fourth quarter I think we ended up at 11 11, 4% a nice double digits in protiviti notwithstanding the environment, we're in so well, but we feel good with protiviti.

Keith Waddell: Control of their resource cost, which includes using their variable cost tranche, which are contractors from talent solutions.

Mark Marcon: That is, and then, you know, assuming that those trends continue, you know, how would you think about the profitability margins as we start getting out towards the second half if we get back to kind of normal seasonal patterns? [inaudible]

Mark Marcon: That their gross margins will recover nicely as they have in the past.

Mark Marcon: Okay.

Speaker Change: Perfect. Thank you.

Keith Waddell: Well, typically, you would see another nice lift in margins in the third quarter on the internal audit side because that's the big quarter for Sarbanes-Oxley compliance work. So seasonally, you get some lift from that. If you add to that any cyclical improvement, as you allude, And so Seasonally, the pattern over the course of the year is you have a step down in the first quarter because of external audit crowding out internal audit on the revenue side. You've got the new cost structure from raises and promotions for your staff. And then you recover that over the course of the next three quarters. So last year, in the fourth quarter, I think we ended up at 11, 11.4%, nice double digits in productivity, notwithstanding

Mark Marcon: Okay.

Mark Marcon: Your next question comes from the line of Manav Patnaik with Barclays.

Keith Waddell: Hi, Keith this is Tom.

Speaker Change: Thomas on for Manav.

Speaker Change: I wanted to just see if you could give us additional color on what youre seeing around staff attrition.

Keith Waddell: Sure.

Speaker Change: And are we talking about Protiviti are we talking about Robert half enterprise.

Keith Waddell: What's the context.

Keith Waddell: We were able to go into those.

Speaker Change: And as far as staff attrition at Robert half I'd say consistent with virtually every company across the globe our attrition is down.

Keith Waddell: Both at our corporate services area as well as out in our branches and so I think.

Keith Waddell: It's just a a.

Keith Waddell: As we've talked about before and because of our caution inclusive of our internal staff as well as those we place on assignment Theres just less attrition.

Keith Waddell: As to utilization.

Keith Waddell: Particularly on Protiviti, which is where we measure it part of that margin improvement a large part of that margin improvement is due to an increase in utilization.

Keith Waddell: So, but we feel good with productivity, control of their resource costs, which includes using their variable cost tranche, which are contractors from Talent Solutions, and that their gross margins will recover nicely as they have in the past. Thank you. You're next.

Keith Waddell: Which includes a controlling their cost by using contractors.

Keith Waddell: The utilization story is a good one and there's a big piece of the margin improvement story, but if you look year over year. If you look sequentially Protiviti has done a nice job of managing.

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

Manav Patnaik: And are we talking about productivity? Are we talking about Robert Half Enterprise? What's the context?

Manav Patnaik: Managing their utilization levels.

Manav Patnaik: Okay.

Manav Patnaik: Thank you.

Manav Patnaik: Your next question comes from the line of Trevor Romeo with William Blair.

Keith Waddell: And as far as staff attrition at Robert Half, I'd say, consistent with virtually every company across the globe, our attrition's down, both in our corporate services area as well as out in our branches. And so I think it's just a... As we've talked about before, and because of the caution inclusive of our internal staff, as well as those we place on assignment, there's just less attrition. As to utilization... particularly productivity, which is where we measure it.

Speaker Change: Hi, good afternoon, thanks for taking the question.

Keith Waddell: I had one on pricing and bill rates. It sounded like you saw about 3% bill rate growth in the quarter I think that continued to moderate a bit relative to the past SKU.

Speaker Change: We're just kind of wondering if you could talk about your expectations for both low rate growth and bill pay spreads over the next few quarters and whether you see any variation across your mix of specialties within contract talent.

Keith Waddell: Part of that margin improvement, a large part of that margin improvement is due to an increase in utilization, which includes controlling their costs by using contractors. So the utilization story is a good one and is a big piece of the margin improvement story. But if you look year-over-year, if you look sequentially, Opportunity's done a nice job managing their utilization levels.

Keith Waddell: Well just like we have seen moderation in bill rate growth for several quarters in a row.

Keith Waddell: We would expect that moderation to continue however, we see very little impact to our spreads just as we've seen very little impact to our spreads over the last few quarters. If you look at our talent solution gross margins on the contract side.

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

Keith Waddell: <unk> has been primarily on conversions contract to hire those are down 40 to 50 basis points year on year, they're down another 10 sequentially. So those are driving the change in gross margins much more so than the moderating bill rate increases, which.

John Trevor Romeo: Hi, good afternoon. Thanks for taking the question. I had one on pricing and bill rates. It sounded like you saw about 3% bill rate growth in the quarter, but I think that continued to moderate a bit relative to the past few. I was just kind of wondering if you could talk about your expectations for both bill rate growth and bill pay spreads over the next few quarters and whether you see any variation across your mix of specialties within contract talent.

John Trevor Romeo: Our essentially pass throughs of pay rate increases.

John Trevor Romeo: Which we also expect to continue to moderate.

Speaker Change: Okay. Thank you and then for follow up.

John Trevor Romeo: A bit of a bigger picture question I wanted to ask about the <unk>.

Keith Waddell: Just like we've seen moderation in bill rate growth for several quarters in a row, we would expect that moderation to continue. However, we see very little impact on our spreads, just as we've seen very little impact on our spreads over the last few quarters. If you look at our talent solution gross margins on the contract side, the change has been primarily on conversions from contract to hire. Those are down 40 to 50 basis points year on year.

John Trevor Romeo: The rule earlier this week from the FTC.

Keith Waddell: Related to potentially banning noncompete agreements I think they estimated would affect almost 20% of the whole U S labor market.

Keith Waddell: Just given your view on kind of a professional labor market I was curious if you would expect any impact from fewer noncompete.

Keith Waddell: Maybe such as higher labor market churn and whether there could be any potential flow through.

Keith Waddell: Robert half or similar companies that could potentially fill gaps with contract talent. Thank you.

Keith Waddell: They're down another 10 sequentially, so those are driving the change in gross margins much more so than the moderating bill rate increases, which are essentially pass-throughs of pay rate increases, which we also expect to continue to moderate.

Keith Waddell: Well as you know <unk>.

Keith Waddell: Several states already don't enforce don't allow enforceability of non competes the biggest one being California. So we've seen that movie to that extent I think.

John Trevor Romeo: Okay, thank you. And then for follow up.

John Trevor Romeo: Maybe a bit of a bigger picture question. I wanted to ask about the new rule earlier this week from the FTC related to potentially banning non-compete agreements. I think they estimate it would affect almost 20% of the whole U.S. labor market. Just given your view on the professional labor market, I was curious if you would expect any impact from fewer non-competes, maybe such as higher labor market churn, and whether there could be any potential flow through to Robert Half or similar companies that could potentially fill gaps with contract talent.

Speaker Change: Logic would say there'd be more churn if there are no non competes how significant that would be in our area.

John Trevor Romeo: I'm not sure it would be that significant certainly in the news you talk about hair dressers and and people.

John Trevor Romeo: With very different skills than those replace but I'd say net net it probably results in more churn. However, remember now there there are trade secret agreements that are enforceable there our intellectual property.

John Trevor Romeo: Thank you.

John Trevor Romeo: Pieces to those agreements that are enforceable. So it doesn't just become the wild west when the noncompete goes away because theres still a trade secret theres still an intellectual property.

Keith Waddell: Well, as you know, several states already don't enforce don't allow the enforceability of non-competes, the biggest one being California. So we've seen that movie to that extent.

Keith Waddell: That would still impact one's ability and willingness to make a move.

Keith Waddell: I think logic would say there'd be more churn if there were no non-competes, but how significant that would be in our area, I'm not sure it'd be that significant. Certainly, in the news, you talk about hairdressers and people with very different skills than those we place, but I'd say net-net it probably results in more churn. However, remember now, there are trade secret agreements that are enforceable. There are intellectual property pieces to those agreements that are enforceable. So it doesn't just become the Wild West when the non-compete clause goes away because there's still a trade secret. There's still intellectual property that would still impact one's ability and willingness to make a move.

Keith Waddell: Okay very helpful. Thanks, Keith.

Keith Waddell: Okay.

Keith Waddell: Your next question comes from the line of Tobey Sommer with Truth Securities.

Keith Waddell: Hey, good afternoon. This is jasper bibb on for Tobey.

Keith Waddell: Wanted to ask how you're thinking about managing recruiter capacity for an eventual rebound at this stage of the cycle and what that might mean for G&A costs over the balance of the year.

Keith Waddell: And so far I few quarters now we have pretty much held the line on.

Keith Waddell: On our recruiter levels, notwithstanding some sequential reductions in our revenues.

Keith Waddell: And we've done that so that we have the capacity to participate in the spring load we talked about earlier, we feel good about our resource levels as we as we sit here today, we certainly have a few quarters of growth that.

John Trevor Romeo: Okay, very helpful. Thanks, Keith.

Operator: Your next question comes from the line of Tobey Sommer with Truist Security.

Jasper Bibb: Hey, good afternoon. This is Jasper Bibb on behalf of Tobey. I wanted to ask how you're thinking about managing recruiter capacity for an eventual rebound at this stage of the cycle and what that might mean for G&A costs over the balance of the year.

Tobey O'Brien Sommer: We could benefit from without having to add significantly to head count. So I think we've been pretty clear for two or three quarters minimum that we've been holding our resource levels are pretty pretty stable pretty steady notwithstanding.

Keith Waddell: And so for a few quarters now, we have pretty much held the line on our recruiter levels, notwithstanding some sequential reductions in our revenues. And we've done that so that we have the capacity to participate in the spring load we talked about earlier. We feel good about our resource level. As we sit here today, we certainly have a few quarters of growth that we could benefit from without having to add significantly to our head count. So I think we've been pretty clear for two or three quarters minimum that we've been holding our resource levels pretty stable, pretty steady, notwithstanding a sequentially declining revenue pattern.

Keith Waddell: Sequentially declining revenue pattern.

Keith Waddell: Okay.

Keith Waddell: Thanks, and then on the Tech staffing segment.

Keith Waddell: Some of your public peers have said, hey demand seems to be stabilizing at this point or there is still seeing revenue fall sequentially in the second quarter.

Speaker Change: I guess just kind of curious what your experience has been there and what the outlook might look like for the second quarter.

Keith Waddell: Oh.

Keith Waddell: I would say the our tech.

Keith Waddell: Staffing outlook for Q2 isn't that different than our overall outlook for the second quarter, which is for a small single digit.

Jasper Bibb: Thanks. And on the tech staffing segment, some of your public peers have said demand seems to be stabilizing at this point, others still seeing revenue fall sequentially in the second quarter. I guess I'd just kind of curious what your experience has been there and what the outlook might look like for the second quarter.

Keith Waddell: The sequential decline in topline, but pretty much.

Jasper Bibb: Continuation of this stabilization theme that we've seen since mid last year. So I'd say in line with our other segments, starting with accounting and finance.

Keith Waddell: I would say our tech Staffing Outlook for Q2 isn't that different than our overall outlook for the second quarter, which is for, you know, a small, single-digit sequential decline in top line, but pretty much... a continuation of this stabilization theme that we've seen since mid-last year. So I'd say in line with our other segments, starting with accounting and finance.

Speaker Change: That makes sense, thanks for taking the questions guys.

Keith Waddell: Okay.

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

Keith Waddell: With bank of America.

Speaker Change: Please go ahead.

Speaker Change: Thank you.

Speaker Change: Just curious about your pipeline for Protiviti.

Keith Waddell: About a strong pipeline.

Keith Waddell: When you look at the potential fraud.

Jasper Bibb: That makes sense. Thanks for taking the questions, guys.

Keith Waddell: Potential projects there.

Jasper Bibb: <unk>.

Jasper Bibb: And then you look at sort of.

Jasper Bibb: Within that business, where you're seeing strength and weaknesses, there or is there a correlation there and are there there.

Operator: Your next question comes from the line of Heather Balsky with Bank of America. Please go ahead.

Heather Balsky: Areas within Protiviti, if you that you think.

Heather Balsky: Hi, Thank you.

Heather Balsky: I was curious about your pipeline for proactivity. You talked about a strong pipeline. When you look at the potential projects there, and then you look sort of within that business where you're seeing strength and weaknesses, is there a correlation there? And are there areas within productivity that you think should rebound faster? I guess when you think about that business and how sales could come back or accelerate, kind of how do you see that evolving into recovery?

Heather Balsky: Should rebound faster I guess when you when you think about that business and how sales could come back or accelerate kind of how do you see that of all day into a recovery.

Heather Balsky: Yeah.

Heather Balsky: Yeah.

Heather Balsky: Well, our regulatory risk and compliance has been the strongest it's expected to continue to be the strongest it has a very nice pipeline.

Heather Balsky: The area most impacted by client cautiousness and focus on cost has been first internal audit and then next technology consulting and so.

Keith Waddell: Well, regulatory risk and compliance has been the strongest, and it's expected to continue to be the strongest. It has a very nice pipeline.

Heather Balsky: A reversal of those conditions would benefit a turtle audit and tax consulting the most.

Keith Waddell: But as we said.

Keith Waddell: The area most impacted by client cautiousness and focus on cost has been first internal audit and then next technology consulting. And so, a reversal of those conditions would benefit internal audit and tech consulting the most. But as we said, every single productivity solution is expecting sequential revenue growth in the second quarter. And that's very different than what we've seen for several quarters. So we see that as a very good trend. And the pipeline is reasonably strong across all those solutions, and it's very strong in areas like regulatory compliance.

Keith Waddell: Every single Protiviti solution is expecting sequential revenue growth in the second quarter and that's that's very different than what we've seen for.

Keith Waddell: For several quarters, so we see that as a very good trend.

Keith Waddell: And the pipeline is reasonably strong across all of those solutions and it's very strong in areas like regulatory compliance.

Speaker Change: Got it.

Keith Waddell: Yeah.

Speaker Change: And the pipeline you've talked about the pipeline being strong for a while are you are you seeing it continue to build quarter over quarter as you wait for the recovery.

Speaker Change: Oh, and Protiviti has all type of statistics, a probability weighted they they slice and dice.

Keith Waddell: In many ways, but if you looked at all of those internals that I'm not about to start disclosing publicly I think you'd be very encouraged about how those sub components of their pipeline stack up relative to not only a year ago, but to a quarter ago as well.

Heather Balsky: Got it. And are you seeing the pipeline, you've talked about the pipeline being strong for a while, is it continuing to build quarter over quarter as you wait for the recovery?

Keith Waddell: Oh, and Proactivity has all types of statistics. They are probability weighted, and they slice and dice many ways. But if you looked at all those internals that I'm not about to start disclosing publicly, I think you'd be very encouraged about how those subcomponents of their pipeline stack up relative to not only a year ago but to a quarter ago as well. That's not to say that conditions aren't choppy, which tends to be their favorite word.

Keith Waddell: That's not to say that conditions are choppy, which tends to be their favorite word.

Keith Waddell: Clearly, it's competitive clearly an internal audit you've got big four firms with additional.

Keith Waddell: Additional capacity in certain markets, they're very price competitive all of that so there. It's been there for several quarters, we built that into our guidance, but that said the.

Keith Waddell: The pipeline and its components are quite strong, which makes us quite optimistic.

Heather Balsky: Clearly, it's competitive, clearly an internal audit. You've got the big four firms with additional capacity in certain markets. They're very price competitive. All that's there. It's been there for several quarters. We built that into our guidance. But that said, the pipeline and its components are quite strong, which makes us quite optimistic. That's really helpful.

Heather Balsky: That's really helpful. Thank you very much.

Heather Balsky: Okay.

Heather Balsky: Your next question comes from the line of Stephanie Meyer with Jefferies.

Speaker Change: Hi, good afternoon. Thank you.

Heather Balsky: So I think Keith you called out what we've been continuing to see that clients are just simply very budget sensitive and very selective in their hiring activities, but you know based on your conversations with clients what do they need to be a bit more aggressive with hiring now what are the factors that you hear from them.

Operator: That's really helpful. Thank you very much.

Stephanie Lynn Benjamin Moore: Your next question comes from the line of Stephanie Moore with Jeffreys.

Stephanie Lynn Benjamin Moore: Hi, good afternoon. Thank you.

Keith Waddell: So, you know, I think, you know, Keith, you called out what we've been continuing to see, that clients are just simply very budget-sensitive and very selective in their hiring activities. But, you know, based on your conversations with clients, what do they need to see to be a bit more aggressive with hiring? You know, what are the factors that you hear the most from them?

Keith Waddell: I think it comes down to confidence.

Keith Waddell:

Keith Waddell: If you if you look at NFIB, it'll tell you that small business to say there number one business problem is inflation.

Keith Waddell: And clearly there was more progress on inflation kind of going into the new year. It seems to have been stickier.

Keith Waddell: There is this thought of higher for longer all of which impact confidence and so I think what's needed is.

Keith Waddell: Yeah, I think it comes down to confidence. If you look at NFIB, it will tell you that small businesses say their number one business problem is inflation. And clearly, there was more progress on inflation going into the new year. However, it seems to have been stickier. There's this thought of higher for longer, all of which impacts confidence. And so I think what's needed is more client confidence, and therefore, all of that pent-up demand for hiring has more urgency to get done.

Keith Waddell: We need more client confidence and therefore, all of that pent up demand for hiring they have more urgency to get done.

Speaker Change: Got it helpful. And then maybe just one clarification question just kind of looking at the geographic performance in the quarter it looks like the U S.

Keith Waddell: Ladies down.

Keith Waddell: A little bit more materially then.

Keith Waddell: <unk>.

Keith Waddell: To call out there.

Keith Waddell: But so and talent solutions, that's been the case for several quarters I'd say generally speaking that's led by Germany.

Stephanie Lynn Benjamin Moore: Got it. Helpful. And then maybe just one clarification question. Just kind of looking at the geographic performance in the quarter, it looks like the U.S. actually is down, you know, a little bit more materially than the non-U.S. Anything to call out there?

Keith Waddell: And I would say that in turn is.

Stephanie Lynn Benjamin Moore: Largely attributable to Germany, probably has has had the most success of talent solutions and Protiviti go into market together and in combination it's had a meaningful impact on the results from Germany, and therefore, a meaningful impact.

Keith Waddell: but so in Talent Solutions. That's been the case for several quarters.

Keith Waddell: I'd say, generally speaking, that it's led by Germany. And I would say that, in turn, is largely attributable to Germany probably having the most success with talent solutions and productivity going to market together. And in combination, it's had a meaningful impact on the results from Germany and, therefore, a meaningful impact on the relative performance of non-U.S. and U.S. And I would also add that for the last, I don't know, five, six quarters, Brazil has been coming on nicely.

Keith Waddell: The relative performance of non U S and U S and I would also add for the last I don't know five six quarters, Brazil has been coming on nicely. It's now in our top six countries by dollars converted dollars.

Keith Waddell: As you look at our international Zone countries, and if you do it on an hours basis, it ranks even higher than that and so I'm happy to first start talking about Brazil, because Brazil, starting to do quite well, what's it's been doing quite well.

Speaker Change: Got it well thank you so much.

Keith Waddell: Okay.

Keith Waddell: Your next question comes from the line of Jeff Silber with BMO capital market.

Keith Waddell: It's now in our top six countries by dollars, converted dollars, as you look at our international zone countries. And if you do it on an hourly basis, it ranks even higher than that. And so I'm happy to first start talking about Brazil, because Brazil is starting to do quite well.

Speaker Change: Thanks, So much Keith you mentioned the words price competition. When you were talking about productivity I was wondering if you can give us some color about price competition and your talent solutions businesses that meaningfully changed or not.

Speaker Change: Yeah, I would say it has not meaningfully changed.

Stephanie Lynn Benjamin Moore: Got it. Well, thank you so much. Your next question comes from the line of Jeff Silber with BMO Capital Marks.

Keith Waddell: Clearly.

Stephanie Lynn Benjamin Moore: Pay rates arent rising as quickly as they had been just in the market.

Operator: Your next question comes from Jeff Silber with BMO Capital Markets.

Jeffrey Marc Silber: Bill rates that pass those through aren't rising as as fast as they were we.

Jeffrey Marc Silber: Yeah, I would say it has not meaningfully changed. Clearly, pay rates aren't rising as quickly as they were in just the market. Bill rates that pass those through aren't rising as fast as they were. We've always been premium priced relative to the competition, notwithstanding that premium pricing position. And so that hasn't changed much, and our margins are pretty much intact relative to where they typically are. As I said earlier, the big swing is more about temp-to-hire, temp-to-contract-to-hire conversions, which is a function of the full-time hiring market.

Operator: We've always been premium priced relative to the competition, but over time, we've shown that value add to our client and we've been able to sustain that and that spread we've continued to sustained throughout these last seven quarters.

Jeffrey Marc Silber: Notwithstanding that premium pricing position and so that hasnt changed much in our margins are.

Jeffrey Marc Silber: Pretty much intact.

Jeffrey Marc Silber: Relative to where they typically are as I said earlier, the big swing is more about our attempt to hire to contract a higher conversions, which is a function of the full time hiring market.

Jeffrey Marc Silber: Okay. So our gross margin.

Keith Waddell: But our gross margins, which certainly reflect the competitive marketplace, our gross margins have held remarkably well. I appreciate that call. If I could just sneak in one number question, you typically give us operating cash flow in your prepared remarks. So this quarter, is it possible to get that? Let's see, let me see if anybody in the room has a number. If not, I can follow up offline.

Speaker Change: Right right, our gross margins that that certainly reflect the competitive marketplace. Our gross margins have held in remarkably well.

Keith Waddell: Okay I appreciate that color if I could just sneak in one numbers question you typically give us operating cash flow in your prepared remarks I don't think you did so this quarter is it possible to get that number.

Keith Waddell: Oh, let's see let's see if anybody in the room has a number.

Keith Waddell: I can follow up offline.

Keith Waddell: Operating cash flow is, I think it's a use of $16 million, and the reason it's a use is the first quarter is the quarter where we pay annual bonuses in addition to the normal quarterly bonuses. And it's also the quarter we pay all our technology SAS subscriptions for the coming year. So if you look back over time, there's been the most differential between earnings and cash flow in the first quarter of any quarter.

Keith Waddell: It's.

Keith Waddell: Operating cash flow was I think it's a use of $16 million.

Keith Waddell: And the reason, it's a use as the first quarter is the quarter, where we pay annual bonuses. In addition to the normally normal quarterly bonuses and it's also the core we pay all of our technology SAS subscriptions for the coming year. So if you look back over.

Keith Waddell: Time is there is the most differential between earnings and cash flow in the first quarter of any of the quarters.

Operator: Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Speaker Change: Okay. That's really helpful. Thanks, so much.

Operator: Yeah.

Operator: Your next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Keen Fai Tong: Hi, thanks. Good afternoon.

Keen Fai Tong: Hi, Thanks, good afternoon.

Keen Fai Tong: Labor hoarding has been causing temporary staffing to underperform overall nonfarm payrolls. When would you expect that phenomenon to peak? And if it does, to what extent would it be accompanied by lower client demand for staffing in general?

Keen Fai Tong: Labour porting has been causing temp staffing to underperform overall nonfarm payrolls, one would you expect that phenomenon to lap and if it does so.

Keen Fai Tong: To what extent would it be accompanied by lower client demand for staffing in general.

Keith Waddell: Whoa, labor hoarding has multiple causes, uh... one of which is that there's concern that it'd be difficult to find suitable replacements for any involuntary attrition from the standpoint of the candidate. I see labor hoarding.

Keith Waddell: Well labor hoarding.

Keith Waddell: Has has multiple causes.

Keith Waddell: One of which is there's concern that it would be difficult to replace find suitable replacements.

Keith Waddell: For any <unk>.

Keith Waddell: In voluntary.

Keith Waddell: Attrition.

Keith Waddell: From the standpoint of the candidate.

Keith Waddell: I see candidate confidence to make a move, which is also impacted by, what's the compensation outlook if they make a move? You know, during the height of... Post COVID, you could switch jobs and get a large compensation increase. That's not the case anymore. So it's not just a matter of candid caution. It's also a matter of you don't get the premium to move that you once did.

Keith Waddell: I see labor hoarding, I see candidate confidence to make a move.

Keith Waddell: She is also impacted by.

Keith Waddell: Whats the compensation outlook, if they make a move during the height of post Covid, you could switch jobs and get a large compensation increase that's not the case anymore. So it's not just a matter of can that caution. It's also a matter of you don't get the premium to move that you once did.

Keith Waddell: It.

Keith Waddell: No.

Keith Waddell: There's no question that this whole churn that hoarding is a piece of churn is, it's no, there's no doubt, a function of the macro. And there has to be macro improvement, there has to be confidence improvement, for that churn to change, but churn is way down, and clearly that's impacting our revenues.

Keith Waddell: There's no question that this whole churn.

Keith Waddell: That hoarding is a piece of <unk>.

Keith Waddell: <unk> is no there's no doubt is.

Keith Waddell: A function of the macro and there has to be macro improvement there has to be confidence improvement.

Keith Waddell: For that churn to change.

Keith Waddell: But churn is way down and clearly that's impacting our revenues and for me, it's probably the answer to one of the most asked questions. We get is why is it when the labor markets otherwise look pretty strong.

Keen Fai Tong: And for me, it's probably the answer to one of the most asked questions we get is, why is the entire staffing industry down for the last seven quarters when the labor markets otherwise look pretty strong? And I think the biggest reconciliation item there is, you know, post COVID, there was hyper churn, there's been some normalization of that hyper churn, and you've now got below-trend churn, all of which impacts staffing industry revenue.

Keen Fai Tong: Is the entire staffing industry down for the last seven quarters and I think the biggest reconciliation item. There is no post COVID-19. There was hyper churn there's been some normalization of that hyper churn and you've now got below two.

Keen Fai Tong: <unk> churn all of which impact staffing industry revenues.

Keen Fai Tong: But you need confidence, you need client confidence, that hasn't been there for several quarters. You look at NFIB, their optimism index, I think it's flat-lined to slightly down, and that measures directly, at least small business confidence or optimism. But it's down two years below its multi-decade average. It's all about confidence, which gets to the urgency of hiring. We need more confidence.

Keen Fai Tong: But you need confidence you need client confidence that hasn't been there for several quarters, you'll look at NFIB. Their optimism index I think it's flat line to slightly down and that measures directly at least small business confidence are off.

Keen Fai Tong: To visit but it's down two years.

Keen Fai Tong: Below it.

Keen Fai Tong: Multi decade average, it's all about confidence which gets to urgency of hiring.

Keen Fai Tong: We need more confidence.

Keen Fai Tong: Got it. That's a helpful perspective. And then your operating margin guidance for 2Q points to quite a bit of margin contraction on a year over year basis. To what extent does the margin contraction simply reflect the leveraging from top line declines, and how much control over the margin profile in 2Q do you have?

Keen Fai Tong: Got it that's helpful perspective.

Keen Fai Tong: And then your operating margin guidance for <unk> points do quite a bit.

Keen Fai Tong: Margin contraction on a year over year basis.

Keen Fai Tong: To what extent does the margin contraction simply reflect deleveraging from top line declines and how much control over the margin profile in <unk> do you have.

Keith Waddell: Well, I'd say first of all, we've got sequential margin accretion. Okay, let's keep that in mind.

Keith Waddell: Well.

Keith Waddell: I'd say first of all we've got sequential margin accretion.

Speaker Change: Let's keep that in mind year on year, you've got deleveraging from your additional SG&A costs tied to administrative compensation, both corporate services the fixed component of compensation out in the branches as well as in Protiviti. So you're.

Keith Waddell: Year on year, you've got deleveraging from your additional SG&A costs tied to administrative compensation, both the fixed component of compensation out in the branches, as well as impretivity. So, year on year, there are contractions sequentially that are actually accreting, and it's nice to see that accretion. And in fact, as we said in our prepared remarks, this is the first time in seven quarters where we're talking about a sequential increase in operating margins.

Keith Waddell: We're on year, there's contraction sequentially, we're actually are creating and it's nice to see that are creating and in fact as we said in our prepared remarks. It's the first time in seven quarters, where we're talking about a sequential increase in operating margins.

Keith Waddell: But year on year, as you point out, it's still down. And it's because of the leveraging of those fixed costs, in part because we're retaining capacity for participation in a broader improvement in the macro and the confidence levels that we just talked about, that we've seen, by the way, in every single cycle since we've been around, which is a long time.

Keith Waddell: But year on year as you point out, yes, it's still down and it's because of deleveraging of those fixed cost.

Keith Waddell: In part because we're we're retaining capacity.

Keith Waddell: For participation in a broader improvement in the macro and the confidence levels that we just talked about that we've seen by the way in every single cycle since we've been around which is a long time.

Keen Fai Tong: Got it.

Speaker Change: Got it very helpful. Thank you.

Operator: Your next question comes from Kartik Mehta with North Coast. Go ahead. Good afternoon. Well, thank you. Keith, you talked a little bit about price competition and productivity, especially in some areas. Has that at all resulted in you having to walk away from any business because maybe the margin profile wasn't what you wanted?

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

Speaker Change: Please go ahead good afternoon.

Operator: Good afternoon, Keith you talked a little bit about price competition and productivity, especially in some areas.

Operator: Is that at all resulted in you having to walk away from any business because maybe the margin profile wasn't what you wanted.

Kartik Mehta: There are examples where, for their own business reasons, our competitors had crazy, I mean, crazy, pricing. And so did we walk away? No. Did we think we priced it aggressively to win the business? Yes.

Kartik Mehta: Well.

Kartik Mehta: There are examples where.

Kartik Mehta: Our competitors for their own business reasons had crazy I mean crazy pricing.

Kartik Mehta: And so.

Kartik Mehta: Did we walk away no did we think we priced it aggressively to win the business, yes, which we didn't win the competition.

Keith Waddell: Which we didn't when the competition crazy priced it. So I wouldn't say we walked away. We rarely declined to even propose, but Some firms, some markets, given their capacity levels, yet super aggressive in their pricing.

Keith Waddell: Crazy priced it so I wouldn't say we walked away.

Keith Waddell: We we rarely.

Keith Waddell: Declined to even propose but.

Keith Waddell: <unk>.

Keith Waddell: Some firms some markets given their capacity levels.

Keith Waddell: Yet super aggressive in their pricing that's not new.

Kartik Mehta: That's not new. That was built into our margins this past quarter and the quarter before that. It's not new. We expect that to continue for a few quarters longer, but that's all built into our guide. And just as a follow-up, Keith...

Keith Waddell: <unk> built into our margins this past quarter the quarter before that it's not new we will be.

Kartik Mehta: We expect that to continue for a few quarters longer but that's all built into our guidance.

Kartik Mehta: And just as well, Keith, you've talked about AI and, obviously, AI benefiting Robert Half. And I'm wondering today where AI sits, is it more of an expense or more of a benefit? And I didn't know if it just needed time for it to become a benefit.

Kartik Mehta: And just as a follow up Keith you've talked about AI and obviously.

Kartik Mehta: Benefiting.

Speaker Change: Robert half I'm wondering today, where AI.

Speaker Change: Is it more of an expense or more of a benefit and I didn't know.

Speaker Change: It just needed time for it to become a benefit.

Keith Waddell: We continue to invest in AI. We're currently incorporating large language models into our matching algorithms, and we use our proprietary data to customize these large language models. The good news is there's this whole group of parameter-efficient, fine-tuning models that let you customize at a relatively low cost and use your own data.

Keith Waddell: Well so.

Keith Waddell: We continue to invest in AI.

Keith Waddell: <unk>.

Keith Waddell: We're currently incorporating large language models into our matching algorithms.

Keith Waddell: Or using our proprietary data to customize these large language models.

Keith Waddell: The good news is there is these this whole group of parameter efficient fine tuning models that let you customize at a relatively low cost and you and use your own data.

Keith Waddell: We certainly benefit. We believe we can add more value for our clients, most of which are small businesses, and for candidates with our AI algorithms. And that further differentiates us from our competitors, most of whom are small, that don't have our data, that don't have our technology. And so I could go down the P&L and talk about how we know we have additional revenue because of our AI. We've been talking about AI, particularly for matching, for seven to 10 years.

Keith Waddell:

Keith Waddell: We certainly benefit we believe we can add more value for our clients most of which are small businesses and for candidates with our.

Keith Waddell: AI algorithms.

Keith Waddell: And it further differentiates us from our competitors most of which are small that don't have our data. They don't have our technology and so I could I could go down the P&L and talk about.

Keith Waddell: We know we have additional revenue because of our AI.

Keith Waddell: We've been about AI, particularly for matching for seven to 10 years, if they weren't large language models, but they were medium language models in today's world. So we've got a we've.

Keith Waddell: They were large language models, but they were medium-sized language models in today's world. So we've got a head start; we've got a leg up. We've been doing this for a while, and I think that means we can more quickly participate in the upside of large language models, which at the end of the day expand the context window for understanding the meanings of words, which is important when you're matching. Candidate Titles, Skills, and Work History

Keith Waddell: We got a head start we've got a leg up we've been doing this for a while I think that means it's we we more quickly.

Keith Waddell: <unk> participate in the upside of large language models, which at the end of the day expand the contacts window for understanding the meanings of words, which are important when you're matching Canada.

Keith Waddell: Canada titles skills and work history. So.

Kartik Mehta: Personally, there's no question, just based on the revenue we can measure for candidates we source and place using our AI greatly exceeds the cost of that and our. The high cost of these large language models is more for these hyperscalers that are doing the foundation models themselves. I mean, we're taking the open source version of those. We're customizing those for our use. And as I said earlier, there are wonderful advancements being made in customizing those large language models for your individual use cases that use your own data. So that's a real long-winded way of saying I think the benefits outweigh the cost. Thank you very much. I really appreciate it.

Keith Waddell: Personally there's no question just based on the revenue we can measure for candidates we source.

Kartik Mehta: And placed using our AI.

Kartik Mehta: Greatly exceeds the cost of that and our.

Kartik Mehta: The high cost of these large language models is more for these hyperscale or is that or doing the foundation models ourselves I mean, we're taking the open source version of those we're customizing those for our use and as I said earlier.

Kartik Mehta: There are they're wonderful advancements being made.

Kartik Mehta: One.

Kartik Mehta: Customizing those large language models for your individual use cases that use your own data. So that's a real long winded way of saying I think the benefits will outweigh the cost.

Speaker Change: Thank you very much I really appreciate it.

Keith Waddell: Okay, that was our last question. We appreciate everyone participating today. Thank you very much.

Speaker Change: Okay. So that was our last question. We appreciate everyone participating today. Thank you very much.

Operator: This concludes today's teleconference. 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 replay. Details are contained in the company's press release issued earlier today.

Keith Waddell: Yeah.

Operator: Okay.

Operator: This concludes today's teleconference.

Operator: Missed any part of the call will be archived in audio format in the Investor Center of Robert Half's website at Robert half Dot Com you can also log in to the conference call replay.

Operator: I contained in the company's press release issued earlier today.

Operator: Yeah.

Operator: [music].