Q3 2024 Robert Half Inc Earnings Call
Hello, and welcome to the Robert half third quarter 2024 conference call.
Today's conference 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 host for today call are Mr. Keith Waddell, President and Chief Executive Officer of Robert half and Mr. Michael Buckley, Chief Financial Officer.
Speaker Change: Mr. Waddell you may begin.
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.
Speaker Change: Is that could cause actual results to differ materially from the forward looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC, we assume no obligation to update the statements made on today's call.
Speaker Change: 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.
Speaker Change: For your convenience our prepared remarks for today's call are available in the Investor Center of our website.
Speaker Change: Half Dot coms.
Speaker Change: Got it.
Speaker Change: So the third quarter of 2024 companywide revenues were 1.465 billion down 6% from last year's third quarter on an as reported basis and down 8% on an as adjusted basis.
Speaker Change: Net income per share in the third quarter was 64 cents compared to 90 cents in the third quarter one year ago.
Speaker Change: Revenues and earnings for the third quarter exceeded our expectations driven by very strong results from Protiviti, which posted sequential and year on year revenue gains.
Speaker Change: While client budgets remain constrained and decision cycles extended.
Speaker Change: Business confidence levels are improving aided by continuing progress on inflation and the beginning of a global rate cutting cycle.
Speaker Change: This is reflected in our most recent weekly sequential results.
Speaker Change: Which had been stable and consistent.
Speaker Change: Past 12 to 14 weeks we.
Speaker Change: We continue to be confident both in our ability to weather the current climate and in our future growth prospects as the macro landscape improves.
Speaker Change: We remain well positioned to capitalize on emerging opportunities and support our clients growth initiatives with the strength of our industry, leading brand people technology and unique business model that includes both professional staffing and business consulting services.
Speaker Change: Cash flow from operations during the quarter was $130 million in September we distributed a 53 cents per share cash dividend to our shareholders of record for a total cash outlay of 54 million our per share dividend has grown 11, 3%.
Speaker Change: Annually since its inception in 2000 and for.
Speaker Change: September 2024 dividend was 10, 4% higher than the prior year. We also acquired approximately 800000, Robert half shares during the quarter for 49 million. We have eight 3 million shares available for repurchase under our board approved stock repurchase plan.
Speaker Change: Return on invested capital for the company was 18% in the third quarter now I will turn the call over to our CFO Mike Buckley.
Mike Buckley: Thank you Keith and Hello, everyone as Keith noted global revenues were 1.465 billion in the third quarter.
Mike Buckley: On an as adjusted basis third quarter talent solutions revenues were down 13% year over year.
Mike Buckley: U S talent solutions revenues were $725 million down 13% from the prior year's third quarter non.
Mike Buckley: Non U S talent solutions revenues were 229 million also down 13% year over year.
We conduct talent solutions operations through offices in the United States and 17 other countries.
Mike Buckley: In the third quarter, there were 64, one billing days compared to 63, one billing days in the same quarter one year ago.
Mike Buckley: The fourth quarter of 2024 at 61.6 billing days compared to 61.1 billing days during the fourth quarter of 2023.
Currency exchange rate fluctuations during the third quarter had a de minimis impact on reported revenues.
Contract talent solutions Bill rates for the third quarter increased three 2% compared to one year ago adjusted for changes in the mix of revenues by functional specialization currency and country.
Mike Buckley: This rate for the second quarter was three 1%.
Mike Buckley: Now, let's take a closer look at results for Protiviti.
Mike Buckley: Revenues in the third quarter were $511 million.
Mike Buckley: $421 million of that is from the United States and $90 million is from outside of the United States.
Mike Buckley: On an as adjusted basis Global third quarter, Protiviti revenues were up 5% versus the year ago period.
Mike Buckley: U S. Protiviti revenues were up 8%, while non U S. Protiviti revenues were down 8%.
Mike Buckley: Protiviti and its independently owned member firms serve clients through locations in the United States and 29 other countries.
Mike Buckley: Turning now to gross margin.
Mike Buckley: <unk> talent solutions third quarter gross margin was 38, 9% of applicable revenues versus 39, 8% in the third quarter one year ago.
Mike Buckley: Conversion revenues or contract to hire or three 3% of revenues in the quarter compared to three 5% of revenues in the quarter one year ago.
Mike Buckley: Our permanent placement revenues were 12, 9% of consolidated talent solutions revenues in both the current quarter and the third quarter of 2023.
Mike Buckley: When combined with contract talent solutions gross margin overall gross margin for talent solutions was 46, 8% compared to 47, 5% of applicable revenues in the third quarter last year.
For Protiviti gross margin was 24, 6% of Protiviti revenues compared to 26, 2% of Protiviti revenues one year ago.
Mike Buckley: Adjusted for the amount of deferred compensation that is completely offset by investment income related to employee deferred compensation Trust.
Or the deferred compensation investment income offset.
Speaker Change: Gross margin for Protiviti was 25, 8% for the quarter just ended compared to 25, 6% last year.
Mike Buckley: Enterprise SG&A costs were 34, 9% of global revenues in the third quarter compared to 38%.
Mike Buckley: One year ago.
Mike Buckley: Adjusted for the deferred compensation investment income offset enterprise SG&A costs were 33, 3% for the quarter just ended compared to 32, 5% last year.
Mike Buckley: Talent solutions SG&A costs were 45, 2% of talent solutions revenues in the third quarter.
Mike Buckley: Versus 39, 3% in the third quarter of 2023.
Mike Buckley: Adjusted for the deferred compensation investment income offset.
Mike Buckley: Talent solutions SG&A costs were 42, 8% for the quarter just ended compared to 44% last year.
Third quarter SG&A costs for Protiviti were 15, 6% of Protiviti revenues compared to 14, 7% of revenues for the same quarter last year.
Operating income for the quarter was $61 million adjusted for the deferred compensation investment income offset combined segment income was $90 million in the third quarter.
Mike Buckley: <unk> segment margin was six 2%.
Mike Buckley: Third quarter segment income from our talent solutions divisions was 38 million with a segment margin of 4%.
Segment income for Protiviti in the third quarter was $52 million with a segment margin of 10, 2%.
Mike Buckley: Our third quarter 2020 for income statement includes $29 million as income from investments held an employee deferred compensation plans.
Speaker Change: This is completely off.
Speaker Change: By an equal amount of additional employee deferred compensation costs, which are reflected in SG&A expenses indirect costs.
Speaker Change: As such it has no effect on our reported net income.
Speaker Change: Our third quarter tax rate was 31% compared to 30% one year ago.
Speaker Change: At the end of the third quarter accounts receivable were $885 million and implied days sales outstanding or DSO was 54 four days.
Speaker Change: Before we move to fourth quarter guidance, Let's review some of the monthly revenue trends, we saw in the third quarter and so far in October all adjusted for currency and billing.
Speaker Change: Contract talent solutions exited the third quarter with September revenues down 14% versus the prior year compared to a 13% decrease for the full quarter Rev.
Speaker Change: Revenues for the first two weeks of October were down 12% compared to the same period last year.
Speaker Change: Permanent placement revenues in September were down 7% versus September of 2023.
Speaker Change: This compares to a 13% decrease for the full quarter.
Speaker Change: Three weeks of October permanent placement revenues were down 19% compared to the same period in 2023.
We provide this information so that you have insight into some of the trends we saw during the third quarter and into October but as you know these are very brief time periods, we caution reading too much into that.
With that in mind, we offer the following fourth quarter guidance revenue 134 billion to 1.44 billion.
Speaker Change: Income per share of 47 to 61 cents.
Speaker Change: The midpoint revenues of 1.39 billion or 7% lower than 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 on a year over year as adjusted basis talent solutions down 9% to 13%.
Speaker Change: Protiviti up three two up 6% overall down 4% to 8%.
Speaker Change: Contract margin percentage for contract talent, 38% to 40%.
Speaker Change: <unk> on.
Speaker Change: On an as adjusted basis for the deferred compensation investment income offset 25% to 27% overall.
Speaker Change: Overall, 38% to 40%.
Speaker Change: SG&A as a percentage of revenues adjusted for the deferred compensation and just investment income offset.
Speaker Change: Talent solutions, 43% to 45%.
Speaker Change: <unk>, 14% to 16%.
Overall, 33% to 35%.
Speaker Change: Segment income for talent solutions, 2% to 4%.
Speaker Change: Protiviti, 10% to 12%.
Speaker Change: Overall.
Speaker Change: 4% to 6%.
Speaker Change: Tax rate, 28% to 30%.
Speaker Change: Shares $102 million to $103 million.
Speaker Change: 2020 for capital expenditures and capitalized cloud computing costs 80 million to $90 million with $20 million to $25 million in the fourth quarter.
Speaker Change: All estimates we provide on this call are subject to the risks.
Speaker Change: In today's press release and in our SEC filings.
Keith Waddell: Now I'll turn the call back over to Keith.
Keith Waddell: Thank you Mike.
Keith Waddell: Although sales cycles are still a long dated job openings remained significantly above historical averages, indicating substantial pent up demand for talent.
Keith Waddell: All the tightness of the labor supply has eased somewhat.
Keith Waddell: Employment rate in the United States for those with a college degree is still only two 3%.
With rates for many in demand accounting finance and it positions even lower.
Keith Waddell: With lower inflation and widespread expectations of further rate cuts.
Keith Waddell: The NFIB small business optimism index has been up five over the last six months.
That said the Nfib's uncertainty index is at all time highs in part due to the upcoming U S elections.
Keith Waddell: Many economists are making upward revisions to their forecast and as we get past the elections, the overall macro environment should begin to improve.
Keith Waddell: As business confidence improves hiring urgency returns project demand accelerates deferred backlogs and growth initiatives are re prioritized and labor churn normalizes. This puts pressure on client resources that are often already stretched thin.
Keith Waddell: Creates hiring and consulting demand that traditionally sets the stage for very strong gains for us in the early part of growth cycles.
Keith Waddell: We continue to invest in technology and innovation to fuel our core business, our proprietary recruiters plus award winning AI strategy offer significant added value to our clients.
Keith Waddell: Protiviti reported very strong results for the quarter, achieving sequential and year over year revenue growth.
Keith Waddell: Each of its major solutions areas performed well, particularly the regulatory risk and compliance and internal audit solutions for its financial service industry clients.
Keith Waddell: Gross margin and segment income both exceeded expectations growing more than 250 basis points sequentially on top of similar growth last quarter.
Keith Waddell: Reflecting ongoing efficient resource management.
Keith Waddell: This includes the growing leverage of contractors with talent solutions, which represent over 40% of the total hours billed by <unk>.
Keith Waddell: A key part of our enterprise wide competitive advantage for.
Keith Waddell: Protiviti has prospects in pipeline remained very strong and we expect continued year on year revenue growth in the fourth quarter with broad participation across solutions and industries and the collaboration with talent solutions.
Keith Waddell: Aging workforce demographics, and increasing client preference for flexible resources play directly into our strengths. We've weathered many economic cycles in the past each time emerging to achieve higher peaks, we're even more confident about our future as our unique portfolio.
Keith Waddell: Of talent solutions, and consulting services positions as well as market confidence return.
Keith Waddell: As we've done historically, we continue to invest in our people our technology, our industry, leading brand and our unique business model.
Keith Waddell: <unk> and our ability to connect people to meaningful work and provide clients with the talent and the subject matter expertise they need to constantly compete and grow.
Keith Waddell: Finally, we'd like to thank our people across the globe, whose efforts have made possible a number of new accolades. Most recently Robert half was named one of Fortune's best workplaces in consulting and professional services.
Speaker Change: What are people's companies of their care.
Keith Waddell: And one of the world's best employers by Forbes.
Keith Waddell: We also received five prestigious Academy of interactive and visual Arts debut of three awards for our recent enhancements made to our Robert half mobile app, highlighting our ongoing commitment to innovation.
Now, Mike and I'd be happy to answer your questions. Please ask just one question and a single follow up as needed. If there is time, we'll come back to you for additional questions.
Keith Waddell: Okay.
Keith Waddell: At this time.
Speaker Change: Like to ask a question please signal by pressing star one.
Speaker Change: Telephone keypad, if you are using a speaker phone. Please make sure your mute function is turned off.
Speaker Change: Do you allow yourself to reach our equipment.
Speaker Change: Can you can press star one to ask a question, we'll pause for a brief moment to allow everyone an opportunity to take it up for questions.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Andrew Steinman with J P. Morgan.
Speaker Change: Hi, Keith.
Andrew Steinman: Surely I heard you talk about U S business confidence that few times, particularly at your clients and surveyed more generally have new orders for contract staffing picked up in recent weeks at Robert half.
Keith Waddell: Well, we've said for the last 14 weeks, we've had very stable and consistent weekly results and that's the longest consecutive period of flatness that we've had in the last two years.
Andrew Steinman: And so given that that's better than it has been where it was drifting down week on week and month over month I would say yes.
Andrew Steinman: It's a modest but again, it's nice to see the duration of the flatness that we've seen which is better than it's been.
Andrew Steinman: Okay.
Is it one area of contract staffing, which you think will rebound sooner or do you think youre professional contract business will rebound together.
Andrew Steinman: Well, if you look at our business now I would say, our higher skilled management resources and Robert half technology, the higher piece of that are doing somewhat better.
Andrew Steinman: And it would be our expectation that that relative trend would continue.
Speaker Change: Okay. Thanks Keith.
Our next question comes from Mark Marcon with Robert W. Baird <unk> company.
Mark Marcon: Hey, good afternoon, Keith and Mike I'm wondering can you talk a little bit about productivity, a little bit more about productivity. It sounds like you saw some really nice acceleration if we take a look at the U S. We went from three 1% growth to seven 6% growth internationally, we went for.
Mark Marcon: A negative $15 nine to negative $8, one and the comps for the fourth quarter.
Speaker Change: Or actually a little bit easier than they were in the third quarter, but the revenue.
Speaker Change: Guidance basically suggests.
Speaker Change: But we're not going to see acceleration relative to the third quarter. So I'm wondering.
Speaker Change: Given all the positives that we're seeing including the commentary on the on the financial services, and particularly what Youre doing in terms of internal audit and risk compliance.
Why wouldn't we see continued acceleration on the productivity side.
Speaker Change: So the answer is very simple and they have a couple of large projects that are winding down.
Speaker Change: The pace of that wind down is a little uncertain.
Speaker Change: But they conservatively estimated a wind down right and that has the impact on top of the holiday impact you always see in the fourth quarter, it's the shortest quarter.
Speaker Change: Protiviti, even more so than talent solutions their clients go through a soft close and principally take the entire week of Christmas off their full time staff take a lot of choice time off and so the combination of its a shorter quarter due to the holidays.
Speaker Change: And you've got a couple of projects that are winding down they have a very strong backlog. It always takes a little bit to build up for projects that replace those that wind down but their pipeline is very solid they're very positive they're very upbeat.
Speaker Change:
I mean, I can't think of a time.
Speaker Change: It's certainly not in the recent past that Protiviti has it been more optimistic in part because of the breadth of the strength in their solution areas all of their major solution areas.
Speaker Change: As we've said led by financial services, they have very large backlog of AML.
M L anti money laundering projects.
Speaker Change: Many are understaffed relative to what they need to complete their 2020 for internal audit plans, which the regulators require they do and so.
Speaker Change: <unk> quite optimistic they've got this typical some projects wind down to other projects start up and there's a little bit of noise, one to the other but but for that.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Very pleased with the numbers.
Speaker Change: Okay, and then just to stay on productivity I mean, with the U S growth being at seven 6%. It seems like you are continuing to gain share relative to the big four we've heard from some other players that some of the big four have overcapacity and perhaps are competing a little bit more on <unk>.
Speaker Change: Price it doesn't seem like that's having an impact on you, but I'm wondering if you could just.
Speaker Change: Confirm or deny that that's having any sort of impact or how we should think about productivity as we go into the first half of next year.
Speaker Change: Given the investments that you've made and how we should think about the margins here.
Speaker Change: Okay and Oh.
Speaker Change: Price competition from some of the Big four is not new.
Speaker Change: Anything that leveled off it certainly didn't get more acute.
Speaker Change: During the period as to overcapacity and or management of resources generally I think protiviti has done an excellent job you see that in their gross margin accretion another 250 basis points on a sequential basis.
Speaker Change: And so like many companies post COVID-19 protiviti staffed up significantly with their full time staff.
Speaker Change: Since that time, they pretty much held the line at that high level some call it hoarding.
Speaker Change: But on the other hand, they significantly reduced their contractor usage.
Some 35% when demand softened a bit and their internal staff the attrition.
Speaker Change: It was cut in half such that.
Speaker Change: They reduced their overall resource capacity.
Speaker Change: By using fewer contractors, but the good news and what I think is instructive generally.
Speaker Change: As things have improved that protiviti. They have added back to the contractors and in fact, if you look at the growth rates for the quarter, you'll see a year on year. Their revenues grew four 5%, but you've also look at that Intersegment line, which is you got contractors it grew 19%.
Speaker Change: 5%. So my point is I got it.
Speaker Change: Even though they're holding the line on that higher level of full time staff.
Speaker Change: They first when they were in cost cutting mode reduce contractors, but now they've added 90% of those back and I think it's instructive because many people believe that somehow there's conflict between hoarding your full times and whether there's any upside to add <unk>.
Speaker Change: <unk> I think British city is a is a case study in fact that shows that there is plenty of upside to add back contractors for those who've reduced it in the first case, which frankly is true industry wide because if you look at non farm payrolls overall.
Speaker Change: All they were up four 5%.
Speaker Change: Post COVID-19, yet temporary help contractors. If you will are down eight or 9%. So I would argue that even though our clients generally have quote hoard. It there are four times they in part funded with that with fewer contractors.
Speaker Change: <unk> and restoring their contractors because they're in a.
Speaker Change: Capacity constrained situation is our upside as things get better just as it has been in the past.
Speaker Change: That's perfect. Thank you.
Speaker Change: Your next question comes from the line of Manav Patnaik.
Speaker Change: With Barclays.
Speaker Change: Hi, Keith This is Thomas on for Manav. Thanks for taking my question I wanted to see are you seeing anything around finance and accounting positions and the risk from Jenny filling a lot of these contacts.
Speaker Change: The short answer is we're seeing very little currently as it relates to Gen. AI as we've talked about on prior calls we've seen many technology cycles in the past, where there was automation of spreadsheets a payroll tax preparation.
Speaker Change: ERP bookkeeping and all those cycles have been much more impactful to accounting and finance all of which we grew through individually and we also grew through in the aggregate and we think those were much more significant when you effectively went from manual to <unk>.
Speaker Change: <unk> in each of the areas that I talked about such that today virtually all our clients even the smallest have automated accounting system and the impact of Jade Gen AI relative to the stat that starting point pales in comparison to what I've mentioned to otherwise.
Speaker Change: Okay.
Speaker Change: Headlines around firms reinforcing further return to office mandates have you seen any clients.
Speaker Change: That are impacting hiring opportunities, we still seeing demand for hybrid.
Speaker Change: From clients.
Speaker Change: I'd say at higher skills, there is still demand for hybrid and remote roles at the more operational and transactional level, there's clearly a preference by clients.
Speaker Change: For on site frankly, they have to pay a premium to compensate those people for their commute time for their parking.
Speaker Change: There are otherwise their out of pocket costs to come on site, but at higher skill levels.
Speaker Change: Moat and hybrid work is alive, and very well, but at the transactional aberrational level, yes, it's very much more on site.
Speaker Change: Got it thank you.
Speaker Change: Your next question comes from the line of Trevor Romeo with William Blair.
Trevor Romeo: Hi, good afternoon, and thank you for taking the questions first one I just had a.
Trevor Romeo: It's a two part question on the election I think you mentioned some of the uncertainty in your prepared remarks.
Speaker Change: On the talent solutions side I'm, just wondering what your conversations with clients are telling you about the impact of that uncertainty on demand now and how that could change.
Speaker Change: And then on the productivity side I was just wondering if you've historically seen.
Speaker Change: Any increases or decreases in demand from a change in administration. For example, if people expect regulatory changes could that potentially drive demand or regulatory risk and compliance or the internal audit practices to manage that chain.
Speaker Change: I'd say on the talent solutions side, it's more uncertainty about the outcome than it is one outcome or the other having a lesser or greater impact theres collect theirs theres clearly election anxiety, if you will.
Speaker Change: It's just something.
Speaker Change: Hopefully we get pass quickly.
But in any event get passed and that's that's more of the issue won't talent solutions Protiviti at least immediately wouldn't be that impacted but to the to the extent one side or the other had a significantly different.
Speaker Change: Position as to regulation, particularly financial services regulation and quite frankly, that's not expected, particularly anti money laundering is not something that's usually emphasize more or less by one side or the other so there's not a huge impact expected.
But clearly.
Speaker Change: Regulation generally and enforcement of regulation.
Speaker Change: Is a demand driver for Protiviti.
Speaker Change: Okay. Thank you that's helpful and then for the follow up just wanted to ask on internal head count levels. I think last quarter, you said you could grow.
Speaker Change: 1% or 30% on the top line without adding head is that still about the right range to think about in a demand rebound and then considering your macro uncertainty is still pretty high if we didn't see a meaningful uptick in demand going into next year, Let's say you know what would it take if anything for you to kind of change your approach on.
Speaker Change: The lineup recruiter count thank you.
Speaker Change: Well, we continue to performance manage those that are struggling from an individual performance standpoint, but we stand by and a strong V shaped recovery. There's no reason, we can't get back to the same productivity levels we saw.
Speaker Change: Couple of years ago, and given that the math says there is 20% to 30% upside, but again based on how strong and based on how much we want to get ahead of that as we're in it it would be a good thing if we started adding heads.
Speaker Change: In advance of when we had to because that would signal that we're particularly bullish about our prospects, but on a pure productivity basis.
Speaker Change: <unk> proven that productivity levels can be 20% to 30% higher than what they currently are but again, so same economic back drop to same economic backdrop.
Speaker Change: That's just math, but the question is kind of what's our expectation beyond that.
Speaker Change: Which would which would also drive what our head counts are.
Speaker Change: Got it okay. Thank you Keith.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Tobey Sommer with chewy.
Speaker Change: Yeah.
Speaker Change: Thank you.
Tobey Sommer: I Wonder if you could update us on your.
Speaker Change: Government book of business over the last several years you expanded that.
Speaker Change: During during the pandemic in an even though that project is going to taper off you thought you'd kind of have a good prospects over time in that vertical could you refresh us on what that looks like today.
Speaker Change: Sure and you are correct.
Speaker Change: We.
Speaker Change: We built up government Darrin pandemic on some of those stimulus related project. There were there was a significant concern that we would have a negative cliff event. When that ended happy to report that didn't happen we converted those into ongoing.
Speaker Change: Projects, both at the state local and federal level.
Speaker Change: And where we're generally pleased with how government has done for us relative to the other sectors that we're in so nothing major to report and I would argue no news there is good news given the short history, we have.
Speaker Change: Right.
Speaker Change: They're not looking for an argument here.
Speaker Change: In terms of the tech business is there.
A difference in the way Youre, what youre hearing from customers about that and seeing in terms of your own placement and bill rate trends.
Speaker Change: Versus the.
Speaker Change: The other staffing lines of business.
Speaker Change: And I alluded to this earlier and so when we think of tech we split it between.
Speaker Change: We're at applications on the high end and infrastructure and operations on the operational and and what we're seeing is more strength in software and applications directly result of data cloud security privacy and so we are seeing.
Speaker Change: Some strength and if you look at our growth rates this quarter youll see compared to F. N E and administrative technology was a little better and those were the reasons.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of George Tong with Goldman Sachs.
George Tong: Hi, Thanks. Good afternoon can you discuss trends that you're seeing with broader white collar hiring and if you are noticing any sort of slowdown there I know earlier, you mentioned that weekly sequential trends were stable. So I'm trying to see if youre seeing any second derivative changes and then what white collar hiring.
George Tong: Trends are you assuming in your <unk> guide.
Speaker Change: Well, so given that all we do is white collar.
Speaker Change: White collar is everything.
Speaker Change: As we said that we now have the longest period of stability or flat as we have 14 consecutive weeks of a flatness and we haven't seen that kind of duration.
Speaker Change: Over the last two years, which was the period, we've been otherwise drifting down sequentially. So.
Speaker Change: Trend the quote Whitecup they were quiet collared trend is the overall trend that we referenced.
Speaker Change: And it's a better trend than we had been seeing you have to start somewhere we flattened out it's more than a week or two it's more than four or five or six weeks. It's a long time its 14th straight weeks. So we're encouraged that we've flattened out for that period of time.
Speaker Change: And given the the <unk>.
Speaker Change: <unk> optimism index improvements, we see from NFIB, given the hope that we get through the election uncertainty relatively quickly.
Speaker Change: We're optimistic now as far as what's built into our guidance.
Speaker Change: Even though we've got that flatness that I described we're more conservative than that.
Speaker Change: Our guidance, we have included a kind of low single digit sequential down for the quarter.
Speaker Change: Perm placement in the fourth quarter, there's always a lot of uncertainty.
Speaker Change: Clients go on holiday clients.
Speaker Change: Run through their hiring budget candidates are even stickier to displace because they're not only going into holiday. There also waiting around for their bonus in hopes that they get one.
Speaker Change: So there is always more volatility for perm, you'll notice that we ended the quarter much better than the full quarter only to come the first few weeks after and going the other direction, which is further demonstrates the volatility that part.
Speaker Change: Firm has particularly over short periods of time.
Speaker Change: But the principal issue for our guidance from a profitability standpoint, its a short quarter.
Speaker Change: But for us to put it all in perspective, we compare how we are doing today to prior cycles and so dot com, we had sequential down for 10 quarters as we've talked about financial crisis was five quarters, but it was steeper during that period.
Speaker Change: At a time.
Speaker Change: Trough margins in the Dot Com period, we're about two 5% for talent solutions.
Speaker Change: Similarly during financial crisis, shorter, but steeper trough margins to 6%.
Speaker Change: So far nine quarters into this.
Speaker Change: Sequential down cycle.
We're at four but if you look at the mid point of our guidance for Q4 were right back to that two 5%.
Speaker Change: Composition of that's a little different.
Speaker Change: I'm, a little more pressure on SG&A because of the cumulative inflation during this down cycle less negative per mixed in prior cycles, but interestingly, if you kind of view over the over the entire cycle versus the last two that I described.
Speaker Change: From a trough margin standpoint, they're very similar.
Speaker Change: But for US the focus is in on how good are your trough margins, but instead what are your prospects coming out of this and I gave protiviti as a real example of we believe because our clients have reduced their contractors they're in.
Speaker Change: A constrained capacity situation such that as their businesses improve theyre going to need more resources and the path of least resistance is always the higher con contractors before full time virtually every company will more quickly.
Speaker Change: Approve. The addition of contractors then they will fall time talent. So we remain bullish on the upside notwithstanding this focus on what our trough margins trough margins are very consistent what they have been in cycles past and by the way and dotcom that true.
Speaker Change: <unk> margin of two 5%, but came 11.3 on the upside financial crisis. Two six became 12 five on the upside. So we're as optimistic as ever we will get back to double digit operating margins in talent solutions.
As the macro improves.
Speaker Change: Got it.
Speaker Change: Very helpful and continuing the line of thought on margins.
Speaker Change: <unk> from seasonality can you discuss some of the factors that may be causing operating margin.
Speaker Change: Down at the midpoint in <unk> compared to <unk>.
Speaker Change: Well, it's all about the shorter quarter and so you don't leverage your fixed cost because it's it's two and a half it's at least two and a half days shorter as we talked about protiviti has because of its clients solve close they lose more than two and a half days, but it's it's all.
Speaker Change: All about the short quarter and the fourth quarter, but again.
Speaker Change: That's just one piece of what trough margins look like in this cycle, which history says get quickly forgotten as you focus on the upside in a recovery.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: Your next question comes from the line of Stephanie Miller with Jefferies.
Stephanie Miller: Hi, good afternoon, and thank you.
Stephanie Miller: I think you answered probably five of my questions about that last one so that was very thorough but I guess actually taking a step further.
Really appreciate the color comparing this cycle to kind of the prior Q and importantly.
Stephanie Miller: Your ability to reach new highs from a margin standpoint, as you came out of the cycle.
As you think about the ability to as you think about the recovery from this cycle.
Stephanie Miller: Maybe talk a little bit about the drivers and what you have in place today that give you confidence that you could possibly get back to that double digit operating margin, but more importantly, maybe reached a new high on the margin standpoint compared to again those prior examples that you gave thank you.
Well first and foremost we've retained our top producers.
Speaker Change: We've had negative leverage because we haven't reduced head count at the same pace that our revenues declined sequentially. All because we wanted to have capacity from a recruiter standpoint to participate.
Speaker Change: We've made significant strides from a technology standpoint.
Speaker Change: Improving the productivity of our staff given better tools than they've ever had which continues to improve as we speak.
Speaker Change: We lever the fixed cost on the upside at least to the extent we did on the downside. So we we retrace.
Speaker Change: Our steps if you will as that reverses we have for agility that is performing extremely well.
Speaker Change: No end in sight, taking share from the big four.
Speaker Change: Very well positioned.
Speaker Change: Broadly across our solution areas technology regulatory compliance internal audit business process improvement you put that package together I would argue we have more upside than we've ever had.
Speaker Change: Great. Thank you and then maybe switching gears to the gross margin front I think held in very well and pricing has trended pretty well as well. So can you talk a little bit about the.
Speaker Change: The potential for maybe any gross margin pressure here or anything that you're seeing that could push at that.
Speaker Change: But I think our biggest upside on gross margin is mix and as we move up the scale curve, we get a higher gross margin on higher skilled positions than we do on operational scale positions and we've been on this journey for many years.
Speaker Change: To take that mix, even higher which we expect to continue to do and therefore I believe there is a gross margin upside for mix alone.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Kevin Mcveigh with UBS.
Speaker Change: Hello. Good afternoon. This is mark good and then on for Kevin Mcveigh last quarter, you guys did two eight and restructuring expenses related to productivity in Q3.
Speaker Change: With today's report EPS number account for their structuring and if so what was the actual impact from restructuring. Thank you.
Speaker Change: So the impact was exactly what we thought it would be.
Speaker Change: And Thats $5 6 million in SG&A, and it's $2 5 million of tax provision. It gets you right to the <unk> that we forecast and is embedded in it was embedded in our guidance.
Speaker Change: So there's no difference from what we guided to as it relates to that and it's because we converted our mainland China.
Speaker Change: Owned operation to a member firm independently owned member firms.
Speaker Change: Yeah.
Speaker Change: Got it thanks.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Mark Marcon with Baird.
Thank you just had a quick follow up.
Mark Marcon: Youre very clear about the margin impact.
Mark Marcon: For the fourth quarter.
Mark Marcon: Three months from now we'll be talking about the first quarter and I was just wondering if you wanted to remind people just kind of some of the seasonal impacts as it relates to the first quarter and how people should think about this.
Speaker Change: Normal margin sequential patterns going from Q4 to Q1.
Speaker Change: I'd say typically in the first quarter on a same day basis contract is pretty flat.
Speaker Change: Seasonally.
Speaker Change: And perm, because you're comparing it to the shorter more volatile fourth quarter per typically has a mid single digit a step up in the first quarter.
Speaker Change: For that reason so same day contract about the same but you have more days right you pick up those holiday days. So when the overall you have more days.
Speaker Change: And same per day, whereas in Perm, you have more days and you get more per day.
Speaker Change: Got it and then on <unk>.
Speaker Change: <unk>, we've seen the pattern over the last few years.
Speaker Change: Anything that would be different this time around relative to the typical pattern.
Speaker Change: Well and fertility.
Speaker Change: Because internal audit.
Speaker Change: Gets crowded out by clients focusing on their external audit.
Speaker Change: There is.
Speaker Change: A seasonal step down per day.
Speaker Change: It's typically mid single digits on a same day basis.
Speaker Change: And again, it's a seasonal thing we've gone through that pattern.
Speaker Change: In prior quarters, we've discussed and from a profitability standpoint, remember too opportunity does all of their raises or compensation increase was effective Jan one. So you have got double impacts yet.
Speaker Change: Where the cost go up all on one day and the revenues seasonally sequentially go down for the reasons I talked about and so from a profitability standpoint, Q1 is protiviti is lowest profitability quarter, but happy to report the.
Speaker Change: Activity had double digit operating margins.
Speaker Change: In the third quarter. So it's nice to see them back there I mean, I can't say enough about how well they've managed their resource base keeping that high level of <unk>.
Speaker Change: Full time employees by very effectively managing their contractor base and that contractor base is.
Speaker Change: As a.
It's a bullet they have relative to the big four that don't have that so they very effectively have managed their resources just look at those gross margins up 250 basis points sequentially two quarters in a row.
Speaker Change: Mark just so that you have them the days for next year.
Mark: By order first quarter 61 nine.
Speaker Change: Second quarter 63 point too.
Speaker Change: Third quarter 64, two.
Speaker Change: Fourth quarter 61, four for a total of $2 57.
Speaker Change: Perfect. That's very helpful. Thank you so much.
Speaker Change: So that was our last question. Thank you all for joining us today so long.
Speaker Change: 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 Robert half Dot Com.
Speaker Change: You can also now into the conference call replay.
Speaker Change: Details are contained in the company's press release issued earlier today.
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