Q2 2019 Earnings Call
[music] Hello, and welcome to the Robert half second quarter 2019 conference call. Our hosts for todays call are Mr., Max Messmer, Chairman and CEO of Robert half and Mr., Keith Waddell, Vice Chairman, President and Chief Financial Officer, Mr. Messmer, you may begin.
Thank you and Hello, everyone and thank you for joining todays call.
As a reminder, that comments made on today's call contain predictions estimates and other forward looking statements.
These statements represent our current judgment of what the future holds and include words, such as forecast estimate project expect believe guidance and similar expressions.
We consider these remarks to be reasonable however, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward looking statements.
Some of these risks and uncertainties are described in today's press release and in our SEC filings, including our 10-K s 10, Qs and today's eight K., we assume no obligation to update the statements made on today's call for your convenience our prepared remarks for today's call are available in the Investor Center of our website at Robert half Dot Com.
From the home page click on the Investor Center link at the bottom left of the page.
Now lets review Robert has financial results for the second quarter.
Global revenues for the company were $1.516 billion, an increase of 4% from last year's second quarter on a reported basis.
And an increase of 6% on a same day constant currency basis.
Second quarter net income per share was 98 cents versus 89 cents in the same period one year ago. This is an increase of 10% year over year.
Cash flow from operations was $121 million in the second quarter and capital expenditures were $16 million.
In June we distributed a 31 cents per share cash dividend to our shareholders of record for a total cash outlay of $36 million. We also repurchased approximately 1 million Robert half shares during the quarter for $60 million, we have 4.9 million shares available for repurchase under our board approved stock repurchase plan.
We saw solid demand for our staffing and Protiviti services during the second quarter global talent shortages persist across our professional disciplines, particularly in the United States.
Unemployment remains near a 50 year low this enhances the value of our services.
During the second quarter return on invested capital for the company was 42%.
I'll turn the call over to Keith for a more detailed discussion.
Thank you Max has noted global revenues in the second quarter.
Or 1.516 billion. This is up 4% from the prior year second quarter on a reported basis and up 6% on a same day constant currency currency basis from the year ago period.
Accompanying our earnings release today is a supplemental schedule showing year over year revenue growth rates on both a reported and as adjusted basis.
These figures are further broken out by us and non us operations.
The term as adjusted reflects the removal of the impact of billing days currency fluctuations and certain intercompany adjustments in our international operations. This is a non-GAAP financial measures designed to provide insight into certain revenue trends in our operations.
On an as adjusted basis second quarter staffing revenues were up 4% year over year us staffing revenues were $965 million up 4% on a same day basis.
Non us staffing revenues were 278 million.
Up 3% year over year on an as adjusted basis, we have 325 staffing locations worldwide, including 86 locations in 17 countries outside the United States.
There were 63.4 billing days in the second quarter versus 63.5 in the same quarter one year ago. The current quarter has 64.1 billing days compared to 63.3 days in the third quarter one year ago.
Currency exchange rate movements during the quarter had the effect of decreasing reported year over year staffing revenues by 16 million.
This reduced our year over year reported staffing revenue growth rate by 1.3 percentage points.
Global revenues for Protiviti were 273 million.
$211 million of that is from business within the United States and $62 million is from operations outside the United States.
On an as adjusted basis, Protiviti revenues were up 14% versus the year ago period.
On a same day basis U.S. Protiviti record revenues in the second quarter were up 15% from the prior year non us revenues were up 9% on an as adjusted basis.
Exchange rates had the effect of decreasing year over year Protiviti revenues by $3 million.
And decreasing the year over year reported growth rate by 1.2 percentage points activity and its independently owned member firms serve clients through a network of 86 locations in 27 countries.
Now, let's take a look at gross margin.
In our temporary and consulting staffing operations gross margin was 38.2% of applicable revenues compared to 37.5% of applicable revenues in the second quarter one year ago.
Expanding bill pay spreads and lower payroll tax rates were the largest contributors to the increase.
Permanent placement revenues were 11.3% of consolidated staffing revenues in the second quarter compared to 11.0% during the same period, one year ago, when combined with the temporary and consulting gross margin overall staffing gross margin rose 70 basis points compared to the year ago period.
To 45.1%.
Protiviti gross margin was $76 million in the second quarter or 27.9% of Protiviti revenues, one year ago gross margin for Protiviti was $64 million or 27.3% Protiviti revenues.
Staffing SGN, a cost or 34.6% of staffing revenues in the second quarter compared to 33.7% in last years second quarter, the higher mix of permanent placement revenues this quarter versus one year ago added 20 basis points to the quarter's SGN a ratio.
SGN it calls for Protiviti in the second quarter were 17.3% of Protiviti revenues versus 19.4% of revenues in the year ago period.
Second quarter operating income from our staffing divisions was 130 million operating margin was 10.5%.
Our temporary and consulting staffing divisions reported 105 million in operating income and produced an operating margin of 9.5%.
Operating income for our permanent placement division was $25 million in the second quarter and produced an operating margin of 18 Dot zero percent second quarter operating profit for Protiviti was 29 million, resulting in an operating margin of 10.6%.
At the end of the second quarter accounts receivable were 842 million and implied days sales outstanding D.. So was 49.8 days.
Before we move to third quarter guidance lets review some of the monthly trends we saw in the second quarter of 2019, and thus far in July .
All adjusted for currency and billing days.
Our temporary and consulting staffing divisions.
Exceeded the second quarter with June revenues up 5.3% versus the prior year compared to a 3.7% increase for the full quarter.
Revenues for the first two weeks of July were up 4.3% compared to the same period in July one year ago.
Permanent placement revenues in June were up 7.6% versus June one year ago. This compares to a 6.2% increase for the full quarter.
For the first three weeks in July permanent placement revenues were down 4.6% compared to the same period last year.
We provide this information so that you have insight into some of the trends we saw during the second quarter and into July .
But as you know these are very brief time periods, we caution against reading too much into them.
With that in mind, we offer the following third quarter guidance.
Revenues 1.525 billion.
To $1.590 billion income per share 98 cents to a dollar for.
The midpoint of our guidance implies year over year revenue growth of 5% on a same day as adjusted basis, which includes Protiviti and EPS growth of 6% to projected tax rate for the third quarter is 28.5% compared to 24.1% a year ago.
We live in our guidance to one quarter. All estimates we provide on the call are subject to the risks mentioned in today's press release and in our SEC filings now I'll turn it over over to Max.
Thank you Keith.
We were pleased with our results in the second quarter, both in our us and non US operations Protiviti had a particularly strong quarter. The demand for skilled talent is something we don't see diminishing anytime soon skill shortages are most pronounced in the professional occupations in which we specialize likewise demand remains strong for the consulting expertise of our protiviti professionals as they work with companies on risk and compliance data and analytics performance improvement and technology related efforts.
Increasingly protiviti is collaborating with Robert half staffing divisions to work on major client initiatives, our blended staffing and Protiviti solutions allow us to meet these needs at every point in the staffing and consulting continuum.
We believe this is a key differentiator for us.
Access to talent of on a full time.
Project and consulting basis is at a premium right now and with our full spectrum of staffing and Protiviti solutions. We are reliable source for this hard to find talent and expertise.
As we've talked about many times on this call small and mid sized businesses make up the lion's share of our client base.
While small business optimism is still at historically high levels.
Of the surveys we follow have reported slightly lower business confidence in recent months.
This has had little impact on hiring activity. However, as of June the NFV be small business optimism index reported 19 months of consecutive employment growth among small companies.
In the June survey finding qualified workers remains the single most important business problem for these firms.
Looking at the U.S. workforce as a whole the June employment outlook was positive with job growth exceeding analysts' estimates the labor participation rate also rose slightly which is a positive sign that workers feel confident in their job prospects.
For these and other reasons, we are optimistic about our growth opportunities. We will continue to invest in technologies that enable us to deliver a world class digital experience that complements the personalized service, we have perfected over 70 years and the staffing and recruitment industry.
Earlier this month, we introduced a new mobile app that allows candidates to search for full time and temporary jobs apply instantly and track the status of their applications. The App also recommends on a real time basis, new jobs that metric candidates preferences.
Now Keith and I'd be happy to respond to your questions. We ask that you. Please limit yourself to one question as usual and a single follow up as needed.
If time permits we'll certainly try to return to you. If you have additional questions. Thank you.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from the line of Mark Mccollum from R.W. Baird. Your line is open. Please go ahead.
Good afternoon, Max and Keith I was wondering if you could give us a little bit of additional color with regards to the acceleration that you ended up seeing in June and.
Potentially continuing into July .
I know, we're not trying to make too much on a month to month trends, but just wondering if you could give a little bit of color in terms of where which specific segments within staffing you ended up seeing it in.
Relative to also from a geography geographic perspective, what are you seeing in the U.S. relative to Europe , which seems to be slowing.
And then how how would you.
How would you.
Comment with regards to how much of the benefit is basically coming from the collaboration that you're seeing between staffing and Protiviti division, which continues to perform extremely well.
So on the acceleration.
We did see improvement in you asked count across our lines of business.
Every month during the quarter May was better than April June was better than may.
In the U.S. Our July start is actually a little better than June so the U.S. trends across our lines of businesses and progressively got better year on year each month.
The international results were different we are see Mac macro slowing in the Europe and in the UK and they offset those trends somewhat.
Our guidance assumes that the growth for the quarter or will it be close to essentially on a year over year basis.
Globally, what it was in Q2, which is some firming in the U.S. According to the trends, we just talked about offset by some additional softening softening.
In.
Europe UK.
As to the collaboration.
It continues to go very well as we've talked about before.
Those results get reported in Protiviti not in staffing so the staffing trends I just talked about do not consider.
The additional benefits from what we call managed business services managed technology services, which were significant and were the fastest growing segment in protiviti.
Thats terrific and can you talk just a little bit about just on dancing EBIT margin and the staffing X genethree, partially due to mix as it relates to the mix between the U.S. in Europe in terms of DS generic going up a little bit.
And just to de leveraging that you may have seen over there.
Well, so the frankly the SGN a.
Deleveraging.
To use your word.
Is it more about our continued investment in tech initiatives.
We've talked about on prior calls that we continue and we continue.
Pretty much on abated from what we had in the last few quarters, we've talked about a a machine learning matching engine Micah micro targeting and marketing prioritizing leads for our staff.
We talked earlier on the call about we.
Leased a new mobile out couple of weeks ago, that's principally candidate focused so.
The tech spending.
Continues kind of irrespective of revenues its spending we're happy to make we we believe we're already getting payback, particularly in the candidate area. We're excited about the.
Additional initiatives, we have on the runway and that's the principal reason why SGN a is up as a percent of revenue and.
Going to guidance, we expect that to continue into guidance as well.
Terrific appreciate the color.
Our next question comes from Andrew Steinerman from Jpmorgan. Your line is open. Please go ahead.
Hi, Good evening. This is Michael shelf for for Andrew I, just had a question on key.
The comment you made about.
Acceleration in the U.S. staffing business across all lines.
And then every month of the quarter.
What do you what do you think is driving.
That that acceleration at least in the quarter and into July .
Well I would say that generally speaking.
Our clients think you've got a friendlier fed today than they did six months ago that trade tensions while still around don't seem to be as intense as they were six months ago.
But if you look at the sentiment measures we referenced in if I be you can look at.
PMI services.
The sentiment measures have stayed high and my personal belief is its primarily about a more friendly fed.
Got it thanks understood and then just.
Quick follow up.
The bill rate growth in the quarter.
So the bill rate growth was 5.4% year on year, that's down slightly from 5.7% last quarter.
But it's not unusual to see fluctuations.
Great Thank that neighborhood.
Thanks.
Our next question comes from Dan Dolev from Nomura. Your line is open. Please go ahead.
Hey, good evening. Thank you for taking my question.
Following up on the bill rates versus billable hours, I guess 5.4 would imply about 1.6% negative billable hours. If my math is right getting to 3.7.
Same day constant currency.
That's probably the weakest it's been since the third quarter of 2017, what do we need what needs to happen to get that number.
To trend back into positive territory and kind of what.
Are you implicitly.
Modeling in your head for the third quarter for that for those two components.
Our third quarter modeling is very very similar to second quarter. Actual so that was an easy one to answer as to what needs to happen to turn it around I'd say the.
You asked macro sentiment that needs to continue to.
At least get no worse and improve would be nice.
And then to the extent, we get better and better with.
Attracting.
And retaining candidates that we place on assignment and or provide for permanent placement.
The.
More pressure will take off of the sales cycle, which will help hours as we've talked about on prior calls.
It's not unusual.
In this part of a cycle for hours to be pressured because a it's harder to recruit candidates be more candidates leave mid assignment and you have to replace them all of which is additional work for our staff all of which ultimately lead to pressure on ours.
As Weve also said on calls because of the pressure on hours. We also feel like we need to get paid when we have the eligible candidates, which is why you see the bill rates, increasing in the 5% range and have so for a few quarters now.
Got it and just to clarify something you said the third quarter guidance, you're basically implying about 3.7%.
Staffing Tim organic growth for Sandy.
With this roughly similar components that what you were saying.
Staffing overall is roughly expected to grow the same rate by which it did in the second quarter, we leave ourselves some wiggle room between Perm and temp, but staffing overall the guidance is Q3 growth looks the same as Q2 growth, which notably isn't any slowing versus the growth what we just showed.
In part because of the trend line, the improving trend line Weve talked about.
Got it.
I appreciate it.
Thank you.
Nice results.
Our next question comes from Jeff Silber BMO capital markets. Your line is open. Please go ahead.
Thanks, So much wanted to shift gears talk about productivity, a little bit yet some nice margin expansion. Both on the gross margin line and operating margin line you could talk about what drove that and if you could also give us a little bit more color what's embedded in your threeq guidance for Protiviti, both revenues and margins. Thanks.
So protiviti had a very strong quarter. The good news is it was very broad based.
Every one of their major segments had double digit year over year revenue growth.
Internal audit was strong.
I.
Got it was the strongest part within that.
Tech install salting was strong cloud cyber digital.
Fs I regulatory was strong.
And then the strongest of all managed business services managed technology services, where the pipeline continues to be strong.
We had.
Various types of projects, where staffing and Protiviti work together.
Examples include Remediating material weaknesses, resolving processing backlogs back office modernization standing up shared service centers user experience user interface improvements again, our model, where we have scalable staff from the staffing side deep such as subject matter expertise from productivity continues to go very well.
But as I just said yes.
In addition to.
Their traditional segments also already doing well.
We did see margin expansion on SGN, a you got better leveraging of costs at the gross margin line, they had slightly better pricing slightly better utilization.
We're very happy there margin operating margin for the quarter was double digit.
Year to date, there at 9%, which is just below double digit still better than 7.6, a year ago.
Our expectation is that they'll have double digit margins. The last two quarters of the year and we will end the year.
With double digit margins, which we've talked about our being our goal for some time so.
Very strong revenue performance.
You asked and non U.S., although non U.S.
Had very high bar very high comps from a year ago. They also saw some slowing.
In Europe , UK, but still.
All things considered protiviti non U.S. wasn't bad.
Protiviti U.S. was outstanding.
Okay. That's helpful and just a couple of quick numbers questions.
What share count is embedded in your Threeq EPS guidance, and I know, you're not giving for Q guidance, but at least from a tax rate perspective should we use that 28.5% for the fourth quarter as well.
So we're using 116 five for share account tax rate should normalize in the fourth quarter 27 to 27 and a half.
We pointed out let's call Weve, our Q3 guidance is 28, and a half which is four points higher than a year ago, a year ago. We had some nonrecurring credits for foreign taxes, when we reconciled our return to our.
Tax accounts, we don't expect those credits to repeat although Q3 is always a noisy quarter for tax rate given that it's the quarter you reconcile your tax return to your accounts.
Okay. Thanks, so much for the color.
Our next question comes from Kevin Mcveigh from Credit Suisse.
Your line is open. Please go ahead.
Great, Thanks, Keith or Max any sense of how conversion fees came in the quarter and then just.
What's been the tenor of client and they become kind of less.
Picky or just is pushing out the hiring decision at all just any thoughts on the margin, particularly on the Perm side.
So conversions were 3.5% of revenue on the temp side, which is consistent with last quarter.
As to tone of business in Perm.
Particularly from a client point of view clients are just as picky.
As they were.
Which slows us down.
We're further slowed down by.
Candidates are getting counter offers from their existing employers when they go tell them. They are going to leave they further get multiple outside offers when it's known that theyre looking so many times, we go through an entire process with a candidate and the 12 hour they.
Decide to stay with their existing company or they take another offer and we have to start over or we have to go to plan b to the extent, we got a plan b in the works, but the point is clients are still demanding they're still picky theres still selective candidates are still tight their end demand. They have many opportunities, which makes them more selective and more picky. So you've got both sides counterintuitively being more selective.
Got it and then just any of the step up in the tax rate was that just mix or any any particular reason for that.
The tax rate.
There are certain costs that are non deductible under the new tax Act.
We had more of those this year than last and we had the absence of credits we got a year ago as I just talked about but.
A normal rate should be more in the 20, 727, and a half and thats, what we hope to see.
In the fourth quarter.
Alright, thank you.
Our next question comes from Gary Bisbee from Bank of America Merrill Lynch. Your line is open. Please go ahead.
Hey, guys good afternoon.
I guess just wanted to ask given the success, you're having going to market with protiviti and and using some of the staffing business I realize in the Grand scheme of the company Thats still fairly small numbers, but.
Is that have any any sort of exacerbating any any ability to find candidates for tempur engagements or in.
And then thus, having an impact on the growth or or presumably you'd prioritize.
Those for your own your own protiviti engagements or is that not.
Not of the scale that that's been an issue at all.
Well, we like to think that we provide each of our candidates our clients. The very best candidate available and we don't Cherry pick for the benefit of positivity.
But clearly.
Protiviti is staffing is the largest clients so they impact the candidate pool.
But frankly, it's a high class problem to have and we'd like to have more of it.
So I would say.
That the success.
With Protiviti is to the detriment of.
Success with.
Third party clients, but Theres no question that the candidate pool is tight.
But.
Particularly the tech initiatives, we have in place.
I believe is having a meaningful impact on our ability to recruit candidates and to deliver them to clients whether that client is protiviti or whether that client is a third party client.
Frankly, our people on the staffing side internally they get paid the same either way so they're ambivalent theyre agnostic.
They're neutral on whether the clients for tivity over whether the clients a third party.
Okay. Thanks, and then the follow up you you've mentioned a couple of times the concept that the technology investments are helping with candidates.
How do you how do you measure that and is there any I guess, how do you get that out to the candidates are you are you having to do an advertising campaign or marketing campaign or you just introduce it to people who are currently working with you.
Well, we do a lot of things, but as an example, the new mobile App, we we released two weeks ago.
Every time, we get a new order.
We will match that against our candidate inventory and you will in real time get pushed to you that opportunity.
If you're on our mobile App, if you're not on our mobile App will communicate with you by email or however, you have.
Told US you want to be communicated with but the point is.
For the first time in the history of Robert half when we get a new order we immediately match into our inventory and then we reach out to everybody that matches that order and ask them to apply for that position.
That's that's much more proactive than we were five years ago much less 10 years ago as just one example.
Okay. Thank you.
Our next question comes from Tim.
From William Blair.
Your line is open. Please go ahead.
Thanks.
Just maybe one question, but two parts I guess internationally can you is the softening broad based is there anything specific.
To certain countries and then secondly, the trends in June is it.
Right was it was that broad based in the U.S. It was that broad based as well or any of the practice lines more pronounced than the other ones in terms of improving trends. Thanks.
In the international Zone.
Softening was principally Europe and UK.
Although we will say, while Germany slowed a lot it slowed a lot on a high base and it still had a solid single digit growth number year on year, which given the environment. We thought was pretty good but generally speaking it was Belgium, the slowing Belgium, Germany, France the UK.
As to June trends, while there are some differences by line of business. It was broad it was broad it was broad.
Throughout the quarter and it was broad by line of business that wasn't isolated in any one line of business.
Okay, great. Thank you.
Our next question comes from Manav Patnaik.
From Barclays. Your line is open. Please go ahead.
Hi, This is Ryan on for Mike just curious on the.
Perm declines in July is there anything specific to call out there in the fourth of July time anything like that.
Perm is always a more volatile be the post quarter as electric less predictive of the full quarter.
I think the most volatile period of time, we have over the course of the entire year is around the fourth of July holiday.
And so if we've studied the post quarter start relative to the full month.
With hindsight, we've looked at the post quarter start with respect to the full quarter with hindsight and the lease predictive period all year alone is.
July 4th post quarter period, So would we like for it to have been stronger absolutely.
But.
While I wouldn't say grain of salt we certainly.
Aren't particularly concerned about it and we continue to be very bullish on per in fact continue to add heads disproportionately.
In Pur, which also somewhat impacts our SG today.
Got it thanks, and then on the mobile App I mean.
I guess, if you're looking out the next couple of years.
What are some milestones that we should think of either in terms of number of rules placed or candidates.
On the App itself as we kind of track the progress of this kind of new initiatives.
Well I think the idea is we want to.
Communicate with candidates on their terms not just ours. So if they prefer to come to our website fine. They can do that if they'd prefer we email them fine we can do that if instead they like to be pushed they can set up their own agents and pull jobs to themselves.
We can push jobs to them based on what they matched to the point is we want to be everywhere. They are so I'm not sure the metrics of.
Any one channel over any other channel are critical but the point is theres no question.
We live in a more mobile centric world than we ever have and we've just in a major way upgraded the user friendliness and the functionality.
I'll follow what we provided on our website and Oh by the way if you report your time to us.
On that website or on the new mobile App, you get paid within 24 hours and not a lot of companies can say that.
Sure. Thanks, a lot.
Our next question comes from Tobey Sommer from Suntrust. Your line is open. Please go ahead.
Thanks.
I was wondering if you could comment about.
Bill pay spreads expectations or.
Pricing bill rate.
In the context of the slightly improved.
Demand you're seeing in historical trends.
So we would say if you look at the 2004 2009 period.
While unemployment wasn't quite as low and as it is now it was low.
And we consistently got around 5%.
Bill rate increases that.
In virtually every case slightly exceeded our pay rate increases such that we expanded our gross margins. So we've been in that 5% range now.
For a few quarters it would be our expectation that we stay in that range, we not go significantly higher.
Or significantly lower it seems based on history to kind of be the sweet spot.
Giving what wage inflation is as we see it.
In could you.
Frame that for us in terms of.
Gross margin what kind of expansion did you have in that five year period.
In the last expansion if you don't mind also incorporating in the kind of refreshing us on.
Whatever social costs Theres still may be.
That could be alleviated from the gross margin.
This cycle. Thanks.
Well so the.
The social cost I presume, you're referring to the the most significant one we have is a state unemployment.
And with.
Unemployment rates at 50 year lows one of the positives of that are each state has fewer claims we have fewer claims charge to our account at each state and in turn the rate. We're charged against current payroll declines. So I think it was 10 or 15 basis points of the decline of the improvement.
This quarter year on year relates to an improvement or a lowering of the state unemployment tax rate and as unemployment rates continue to come down our expectation would be we'll continue to see benefits from that.
As to the gross margin expansion.
Yes, I don't have five years of history in front of me.
We have to constantly weigh against.
Our spreads versus the market versus our competitors that are largely local and regional.
I don't think anybody would dispute that we had industry, leading margins and we're aware of that and we therefore, we certainly don't want to price ourselves out of the market.
So while we believe we can modestly expand our gross margins from here.
Objective one is the pass through wage inflation, which we're doing an objective to is to modestly expand gross margins understanding we're already have the highest margin.
Supplier.
In most local markets relative to local competition.
Thank you very much.
[noise] again, if he would like to ask a question. Please press Star then the number one on your telephone keypad.
Our next question comes from Seth Weber from RBC capital markets. Your line is open. Please go ahead.
Hey, good afternoon.
Wanted to go back to the to the Europe commentary in the kind of relative strength in Germany can you just remind us whats.
Unique to your position there that's enabling you to put up positive growth numbers in a pretty at a pretty soft market. Thank you.
Well I guess I'd start with we have a really good experience team in Germany.
We've made significant headcount investments consistently for many years and much less many quarters in a row.
Our.
Project based businesses management resources at Robert half technology.
Generally speaking in Europe .
Our more resilient than is accountemps officeteam that are more transactional they seem to be more macro impacted than does management of resources or Robert half technology. So I think it's a combination of consistent past investment.
The quality and experience of our team.
And the positioning of our revenue mix.
Toward the higher level project oriented lines of businesses.
Okay. That's helpful. Thank you and then just I'm sorry, if I missed it but did you give a.
Third quarter, Threeq use staffing operating margin guidance targeted or.
I know you get Protiviti double digits.
But.
Anything that we should be aware that with our guidance, let's just do a brief little.
Tour down the P. it now.
Staffing gross margins of 30 to 50 basis points higher spreads lower.
Sui taxes as we just talked about Protiviti gross margins up 75 to 100.
Basis points higher rates and utilization.
SGN, a staffing up 60 to 80 basis points more tech investments more perm heads.
Protiviti asked DNA down 50 to 80 basis points leverage from their outsized growth.
Operating income staffing down 20 to 40 basis points as the SGN today is more than the increase in gross margin.
Protiviti up a 100 to 200 basis points, you've got the double benefit of higher gross margin and last SGN a.
However.
The bad news is when you get down to the tax rate it's up.
Four points over last year and.
Takes away some of the benefit we just described.
Perfect Thats very helpful. Thank you very much guys have a good night.
Our next question comes from George Tong from Goldman Sachs. Your line is open. Please go ahead.
Hi, This is Blake on for George Thanks for taking my question.
Given that bill rates expanded 5.4% this quarter, how much of the 70 basis points of gross margin expansion in temp staffing.
Was driven by increasing bill pay spreads versus the change in payroll tax rates.
Okay. So as we as we talked about a second ago.
Our state unemployment.
Rates.
Came down and they added somewhere between 10 and 15 basis points.
To the.
Increase in spreads and the balance is print is principally the difference between pay rates and bill rates.
Got it. Thank you and then regarding hiring are you continuing to grow head count or have you pared back your hiring this quarter.
Our objective with hiring is to stay as consistent as we can with our expectations on topline growth.
We've gotten a little ahead in Perm, we're still bullish on per we're still hiring in Perm. So we'll still stay a little bit ahead, you will see the perm margins operating margins, rather than being 20% or 18%, but will take 18% all day long.
Generally speaking, we continue to hire commensurate with consistent with what we expect topline growth to be.
Great. That's helpful. Thank you.
Our next question comes from Jeff Silber from BMO capital markets.
Your line is open. Please go ahead.
Thanks, So much just a quick follow up Keith that the margin guidance that you gave was that compared to the prior quarter. The one that just ended were the prior year.
Prior year.
Okay, just wanted to clarify that thanks to my prior prior year.
Two Q3 Q1 8.
Threeq you 18.
Great. Thanks, so much.
That was our last question, we'd like to thank everyone for joining us today on the call.
[noise].
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 Www Dot Robert half Dot Com you can also dial the conference call replay dial in details and the conference I'd are contained in the company's press release issued earlier today.
[noise].
[music].