Robert Half International Inc. (RHI) Q2 2016 Earnings Report, Transcript and Summary

Hello and welcome to the Robert Half Second Quarter 2016 Conference Call. Our hosts for today's 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. Harold M. Messmer - Chairman & Chief Executive Officer: Thank you, and good afternoon, everyone; and thank you for joining us. As is our custom, I would like to remind you there are comments on the call today that 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 believe 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-Ks, 10-Qs and today's 8-K. We assume no obligation to update the statements made on today's call. For your convenience, our prepared remarks also are available on our website at roberthalf.com. From the About Us tab, go to our Investor Center, where you will find the Quarterly Conference Calls link. Now let's discuss Robert Half's second quarter 2016 results. Quarterly revenues were $1.344 billion, up 6% from the second quarter one year ago. Income per share was $0.71, also up 6% from last year's second quarter. Cash flow from operations was $129 million, and capital expenditures were $25 million in the second quarter. We paid our stockholders a quarterly cash dividend of $0.22 per share on June 15, for a total cash outlay of $29 million. We also repurchased one million Robert Half shares during the quarter at a cost of $38 million. We have 8.7 million shares still available for repurchase under our board-authorized stock repurchase plan. Our second quarter results reflect continued solid demand for our professional staffing and consulting services. Our financial staffing divisions and Protiviti reported the strongest year-over-year revenue gains. In the second quarter, unlevered return on equity for the company was 35%. I'll turn the call over to Keith now, for a closer look at our results. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Thank you, Max. Global revenues were $1.344 billion in the second quarter. This is up 6% from the second quarter of 2015 on a reported basis and up 5% on a same day constant currency basis. Second quarter staffing revenues were up 4% on a same day constant currency basis. U.S. staffing revenues were $911 million in the second quarter, up 3%. Non-U.S. staffing revenues were $234 million, up 8% when adjusted for billing days and currency-exchange rates. We have 328 staffing locations worldwide including 86 locations in 17 countries outside the United States. The second quarter had 63.9 billing days compared to 63.2 billing days in last year's second quarter. The difference in billing days had the effect of increasing reported year-over-year revenue growth rates for the quarter by 1%. The current quarter has 64.1 billing days compared to 64.2 billing days in the third quarter of 2015. Currency exchange rates had the effect of decreasing reported year-over-year staffing revenues by $4 million in the second quarter. Exchange rates decreased year-over-year reported staffing growth rates by 0.3%. Global revenues for Protiviti were $199 million in the second quarter with $164 million in revenues in the United States and $35 million in revenues outside the U.S. Protiviti revenues were up 8% year-over-year on a same-day, constant-currency basis. U.S. revenues were up 6% and non-U.S. revenues were up 17% from last year's second quarter. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $400,000 in the second quarter and decreasing the year-over-year reported growth rate by 0.2%. Protiviti and its independently-owned member firms serve clients through a network of 75 locations in 25 countries. Along with our earnings release today, you'll find a supplemental schedule showing year-over-year revenue growth rates on both a reported and same-day, constant-currency basis. This data is further broken out by our U.S. and non-U.S. operations. This is a non-GAAP financial measure we offer to give you insight into certain revenue trends in our operations. Gross margin in our temporary and consulting staffing operations in the second quarter was 37.6% of applicable revenues. This is a 30 basis point improvement from the same period one year ago due primarily to higher pay/bill spreads. The second quarters of 2016 and 2015 include workers' compensation credits of $1.4 million and $2.1 million respectively, pursuant to third-party actuarial reviews of our workers' compensation accruals. Second quarter revenues for our permanent placement operations were 9.9% of consolidated staffing revenues, which is down slightly from last year's 10.1%. Together with temporary and consulting gross margin, overall staffing gross margin increased by 10 basis points versus one year ago, to 43.8%. Second quarter gross margin for Protiviti was $56 million or 28.1% of Protiviti revenues. Last year, second quarter gross margin for Protiviti was $54 million or 29.9% of Protiviti revenues. Second quarter SG&A costs were 32.3% of staffing revenues, compared to 31.9% in the second quarter one year ago. SG&A costs for Protiviti were 19.1% of Protiviti revenues in the second quarter versus 18.6% of Protiviti revenues in the same period last year. Operating income from our staffing divisions was $131 million in the second quarter of 2016, up 2% from the previous year. Operating margin was 11.5%, down slightly from the 11.8% in last year's second quarter. Our temporary and consulting staffing divisions reported $107 million in operating income, an increase of 2% from the second quarter of 2015. This resulted in an operating margin of 10.4%. Operating income for our permanent placement division was $24 million in the second quarter, up 2% from the previous year and producing an operating margin of 21.7%. Second quarter operating profit for Protiviti was $18 million, a decrease of 13% from the prior year. This produced an operating margin of 9.0%. At the end of the second quarter, accounts receivable were $732 million. Implied days sales outstanding or DSO was 49.6 days. Before we move to third quarter guidance, I'd like to give you some more color on our Q2 results, specifically the monthly revenue trends we saw in the second quarter and thus far in July, all normalized for billing days and currency. Globally, year-over-year revenue growth rates for our temporary and consulting staffing divisions decelerated during the second quarter, and we exited the quarter with June revenues growing 3.7% compared to an increase of 4.5% for the full quarter. Revenue growth for our staffing and consulting services in the first two weeks of July was up 2.8% compared to the prior year. Global permanent placement revenue growth rates also decelerated during the quarter with June revenues declining 1.6% compared to 2.1% for the full quarter. For the first three weeks of July, permanent placement revenues declined 17.6% compared to the same period last year. As you know, we hesitate to read too much into these numbers, as they represent very brief periods of time. With that said, we offer the following third quarter guidance. Revenues: $1.335 billion to $1.395 billion. Income per share: $0.68 to $0.74. Note that our third quarter guidance considers the estimated revenue and cost impacts to all U.S. Staffing and Protiviti office of converting to new front-office CRM and project management systems, respectively. These are both scheduled to occur in the third quarter. The midpoint of our guidance implies year-over-year revenue growth of 4.0% on a reported basis and 4.6% adjusted for billing days and currency, including Protiviti; and negative EPS growth of 3%. We limit our guidance to one quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings. Now, I'll turn the call back over to Max. Harold M. Messmer - Chairman & Chief Executive Officer: Thank you, Keith. The U.S. job market rebounded strongly in June with 287,000 jobs added during the month. It was the largest single monthly job expansion since October of 2015. This was on the heels of weaker reports in April and May. The U.S. unemployment rate ticked up to 4.9% as a result of more workers entering the workforce in June. Outside the United States, we were pleased with the improved revenue growth rates in our international staffing and Protiviti operations. The Brexit vote in the U.K. has dominated news headlines, but we believe it is too early to tell what if any impact it will have on our operations there, and the U.K. only accounts for 3% of our revenues in any event. The demand for skilled talent remains a consistent theme for us. For a number of years now, many of our specialty areas have had unemployment rates of less than half the overall rate of unemployment in the United States. The unemployment rate for accountants and auditors is just 2.2%; and for software developers, it is just 1% according to recent data from the Bureau of Labor Statistics. These are just two examples that place a spotlight on the talent shortages that exist in the United States and elsewhere in some job categories. This is resulting in demand for both temporary and full-time staffing in the professional segments we serve. Looking at Protiviti, it is building a strong brand that is resulting in continued expansion of its client base and a broadening of its service offerings. This is a business that benefits from a strong regulatory environment because of its strength in helping clients navigate these environments. Protiviti excels at helping clients develop stronger internal controls, data security measures and other important safeguards. At this time, Keith and I would be happy to answer your questions. We ask that you please limit yourself as usual to one question and a single follow-up, as needed. If time permits, we'll try to return to you if you have additional questions. Thank you.

Your first question is from Mark Marcon with R.W. Baird. Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker): Good afternoon. I've got one question and one follow-up. With regards to the first question, could you just talk a little bit about the trends that you are seeing in RH Technology, specifically with regards to what you're seeing in terms of order rates relative to fill rates and how that's impacting trends? And then the second question has to do with what you're anticipating in terms of the new systems that are going into place in the U.S. in the third quarter, both in terms of potential disruption for revenue as well as incremental expense that maybe just for one or two quarters? Thank you. Harold M. Messmer - Chairman & Chief Executive Officer: Sure, Mark. I'd say, our Robert Half Technology division – our growth rates did slow during the quarter on very tough comps. Note that a year ago, we did grow at 19%. For our Tech Support division or subdivision, which is desktop support, helpdesk et cetera, clients did get more cautious on the demand side. There was less sense of urgency. For our tech development positions, which were the programmer, analysts, the software engineers, candidate supply was the issue which continued to tighten. Further, in the tech development area, we withdrew from a very large client due to their, what we viewed, as excessive pricing demands. Our support and development mix is about 50-50 based on hours, and it's 40-60 in favor of development based on dollars. As it relates to our new systems, let's talk a little bit about those then we'll talk about impact as well. So first of all, we're replacing 15-year-old proprietary legacy systems which were very difficult to use and maintain. We're going to a single global front-office platform. Note that we've already rolled this out in five other countries successfully, I might add. It is cloud-based versus our own hosted data center, which will have the benefit of giving our people mobile access to our system. It has a modern user interface, which will significantly enhance the new hire ramp time over time. It further greatly facilitates future changes, including our innovation initiatives, including integration with the client-facing digital functionality that we've been working on for some time. Further, we get real-time reporting and dashboards. In short, we're actually very excited to be where we are and to be on the – right on the verge of this conversion. There is going to be some disruption. Using the other five countries as a guide, understanding that none are at the size and scale that is the case in the United States. We estimate the revenue impact to be between a half a day and one and a half days of revenue, and in the U.S. that's about $14 million of revenue impact at the midpoint. Protiviti, it actually has the benefit of taking the people that are going to be on training and figuring out their chargeability, their rate et cetera, and the impact of their revenues will be about $2 million. So that overall, again at the midpoint of our estimate, we're thinking about a $16 million revenue impact that converts at our normal gross margins to about an $8 million gross margin impact. Further, there's going to be out-of-pocket training, out-of-pocket travel. There's going to be labor cost with – connected to the support of the conversion period, both before and after. So we estimate the SG&A impact to be between $4 million and $5 million, call it $4.5 million at the midpoint. So that would total up to an operating income impact of $12 million to $13 million, which is $0.05 to $0.07 per share. So, while relative to the quarter, it has a significant impact on the basis that this is something you do every 15 years or 20 years and we have a long history of getting a lot of use out of our software, it's not that large of impact. But the facts are, it all falls in the third quarter, not only for staffing, but Protiviti as well is going to their new project management system and hence the Protiviti inclusion in the numbers that I just talked about. Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker): I really appreciate the color. Did any of that impact July at all? Harold M. Messmer - Chairman & Chief Executive Officer: Well, we started training. We began some of the training, some in the United States. You train the trainers, and then the trainers train the super users and then the super users train the rest of the staff; and that training did begin in July. But remember now, the post-quarter period includes the Fourth of July and the fourth quarter – I mean excuse me, the Fourth of July, there's always volatility around how that's impacted. Mark S. Marcon - Robert W. Baird & Co., Inc. (Broker): Great, thank you.

The next question is from Sara Gubins from Bank of America Merrill Lynch.

Great. Thanks for taking my question. Protiviti slowed down quite a bit in the U.S. the growth rate. Could you talk about the trends that you're seeing there and what you're expecting aside from the impact of the new project management system? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Sure. So Protiviti did grow 8% on super tough comps. They grew 23% a year ago, but clearly fell short of their estimates as well. So our FSI regulatory consulting practice was negatively impacted by heightened client cost-cutting, which impacted both our hours billed and our rates. New projects that we started had lower rates than previously completed projects. Our other solution practices had a very solid quarter. Our gross margins compressed by about 180 basis points due to this lower mix of higher margin, FSI regulatory practice and the lower staff utilization attributable to less-than-expected revenue growth. Protiviti operating margins were still quite good at 9%, but they certainly compared unfavorably to a year-ago's very strong 11%. Our Q3 Protiviti guidance assumes mid single-digit revenue growth, again, on very tough comps. They grew 23% a year ago in the third quarter. Operating margins, which – while they're projected to rise sequentially, they will be quite a bit lower than the very high levels a year ago.

Great. Thank you. And then, last quarter you had talked a bit about seeing lengthening in the sales cycle with some caution on the client side, but confidence on the candidate side. Have you seen any changes in that in the last couple of months? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Well, on the client side, we would say they're incrementally more cautious, they incrementally have less sense of urgency, and therefore, there is some slowing for that reason. On the candidate side, the most acute supply issue we have is Tech development, but even in the other divisions we see the lower level positions, call it accounting operations, with relatively more supply than we do the upper level positions where supply is more of an issue, but not as much of an issue as it is intact. I think one of the highlights for the quarter is how we did – how well we did with our gross margins that's particularly in accounting and finance and that's not only better pay/bill spreads, but that's also mix gravitating to higher level longer duration assignments. So, we were very pleased with our accounting gross margins during the quarter.

Thank you.

The next question is from Jeff Silber from BMO Capital Markets.

Thanks so much. Wanted to focus on your 3Q guidance, you were just kind enough to give us a little bit more color on Protiviti's impact on the guidance. Can we do the same thing on the Temp and Perm divisions if we can talk about revenue and margin trends you're expecting in the third quarter? Thanks. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: So overall, our staffing growth rates do decelerate slightly, but that's less than a point. As we just said, clients remain cautious. There's less sense of urgency. Our higher level and demand candidates have options as we've talked about in the past. We've got the conversion to our Salesforce platform that we've also talked about. So, absent the Salesforce conversion, the trends would say there's some continued slowing, but it's not necessarily off trend line from what it has for the past few quarters.

Yeah. And I'm sorry, that would be both – that would be the Temp side. How about the Perm side, and again some margin color would be great. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Okay. The Perm side, there the lengthening of the sales cycle clearly has an impact. You've got clients ever more selective. They want to see more candidates before making a decision. There is more vetting as a way to slow play us or slow the process generally. So, we clearly are seeing sales cycle slowing in the Perm side. As we go down the P&L, gross margins, we do expect to see up 10 basis points to 20 basis points year-over-year due to continued strong spreads, due to continued mix shift to the higher level accounting and finance assignments. Protiviti gross margins going to be down 3.5 percentage points to 4 percentage points. That's lower mix of the higher margin FSI regulatory and it's the cost impact of the annual campus hires and the interns, which come on board in the third quarter. SG&A up 60 basis points year-over-year, 40 basis points to 50 basis points of that is the Salesforce and Protiviti conversion. One thing that was quite unusual in the quarter and continues on into the third quarter a bit, is our internal medical insurance costs. For the first time in many, many, many, many years, we had a negative surprise in our internal medical insurance costs which were up almost 40 basis points into the second quarter year-over-year. Those higher costs are expected to continue into the third quarter, but maybe not quite to that extent on a year-over-year basis. Protiviti's SG&A would be up 1 to 2 percentage points, with the additional training and travel cost related to their conversion, which then as you go down to the P&L, at our midpoint of guidance, you've got Temp operating margins down about 50 basis points primarily due to the higher SG&A from the conversion to Salesforce. Perm operating margins down 1 to 2 percentage points, primarily because of the conversion to Salesforce.com. And then Protiviti, it's operating margins would be down about 5 percentage points, as the combination of the lower gross margin that we talked about earlier and the higher SG&A because of, one, their conversion; two, the training and travel costs relative to their new hires and their interns. But again, remember, comparable for Protiviti, its third quarter operating margins were 15.7% Those were the toughest operating margin comps we had of any division a year ago. So while they will make sequential progress in both revenues and operating margin, notwithstanding their conversion, they're comparing to a year ago's very high comps.

We appreciate the color, if I could sneak just one more in; just about tax rate and share count for the third quarter. Thanks so much. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Yeah, the tax rate is going to be in the range of 38.5% plus or minus 0.5%. And the share count, if you carry through the repurchases that we did during the quarter and assume some in the quarter to come, the share count should be somewhere down 700,000 shares, 750,000 shares. Note that, on a year-to-date basis, we've returned over 90% of our free cash flow back to shareholders, either as a dividend or as stock repurchases.

Okay. Thank you so much.

The next question is from Tim McHugh from William Blair. Stephen H. Sheldon - William Blair & Co. LLC: Hi. It's Stephen Sheldon for Tim today. Thanks for taking my questions. First, strong performance internationally in the quarter, so could you talk some more about what you're seeing in Europe specifically on a country level basis, and also what trends are like throughout the quarter and end of July? Thanks. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: So internationally, as we talk about for many quarters, Germany carried the day. Germany had a very, very strong quarter that we are very proud of. We've invested head count in Germany for some time and it's paying off significantly. Belgium also had a very strong quarter. The UK was solid. France, a little less so. Australia, very strong quarter; and Canada not quite as negative as it had been in quarters past. The trends, they're mixed, they're uneven. I would say, those that were strong in the second quarter that continued their strength into the third quarter. So we certainly have high expectations of Germany and Belgium specifically. In the UK, with all the Brexit talk, remember UK is 3% of our revenues. While on the one hand some clients have deferred hiring, on the other hand some clients need help figuring out what Brexit may mean, which is stimulated hiring. And net-net so far, there hasn't been much impact, but the focus is on so far. Stephen H. Sheldon - William Blair & Co. LLC: Okay, great. Thank you. And then just one follow-up. You mentioned that you withdrew from a large client in RH Technology. Could you just quantify the impact of that in the quarter? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: It's not you huge, huge, but it's 2 percentage points or 3 percentage points on our growth rate. Stephen H. Sheldon - William Blair & Co. LLC: Okay. Thanks.

The next question is from Gary Bisbee from RBC Capital Markets.

Hi. This is actually Jay Hanna on the line for Gary today. Given the level of margin contraction, particularly within Protiviti, how much of that is attributable to additional new hires in the quarter if at all? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Well, so the margin contraction is principally mix-related, where you've got significantly less mix toward higher margin financial services regulatory compliance. There weren't necessarily that many hires during the quarter, but you had the carryover impact of the raises that were granted January 1. Protiviti's hiring is largely campus hiring and interns, and that largely occurs during the third quarter. So while Protiviti will have a nice lift sequentially in quarter three revenues, they will also have incremental payroll costs from the campus hires and the interns they committed to almost a year ago.

Okay. Thank you. And then, just given the current level of demand in recent margin performance I guess in this quarter and previous quarter, with reduction in head count a strategy to consider going forward or at least somewhat of a slowdown? Harold M. Messmer - Chairman & Chief Executive Officer: Well, so first of all, let's not forget, overall we're still growing. And while we front-ended our head count for this year into the latter part of last year, we've almost caught up with that. So the thought would be, because we're still growing our headcounts will grow a little toward the divisions that are growing. And again, I would offer that our accounting and finance divisions; particularly Accountemps, particularly Management Resources, they had very good quarters and we will add to their headcounts. That said, we had other divisions that aren't showing that kind of growth, so we would let attrition play out to some degree and fund the head count additions to we make to those divisions that are growing. So net, we see small increases to our net overall head count. But let's not forget, we need to continue to feed our accounting and finance staffing divisions, because they're growing nicely.

Okay. Thank you.

The next question is from Anj Singh from Credit Suisse. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Hi. Thanks for taking my questions. The first one, following up on the Protiviti margins. What's your outlook for Protiviti margins in light of some of the issues on mix and the CRM systems migration that you highlighted? Do you still anticipate hitting double-digit operating margins for the full year, as you did at Q2? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Well, we certainly haven't changed our long-term view of Protiviti operating margins. Clearly, given that we made head count commitments almost a year in advance, with the benefit of hindsight, we were a little aggressive in the hiring that we committed to with Protiviti. But over a few quarters, we can work that out. We had double-digit operating margins the second half of last year. We still believe, and our estimates consider, that we'll have double-digit operating margins in the second half of this year, just not as strong as they were a year ago. So, there's been a pullback with our financial services clients that have gotten much more focused on their costs. That's had a double impact, because it's not only fewer hours for us, but they're the most profitable hours that we've had, but that's something we can adjust to over time. It's just that when you commit to your staff levels three quarters or four quarters in advance, you can't turn on a dime marrying that to the demand as we now see it. So, the margins are still going to be good and decent and double-digit. There's nothing wrong with a business growing at Protiviti's rates, given the comps that they have, to have low double-digit operating margins. It's just less than we enjoyed a year ago, and so the comparison when you put them next to each other is negative. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Okay, got it. And on my second question, could you talk a bit about the weaker Perm growth at Q2? I believe you typically gotten a nice sequential lift versus Q1, and I think you'd anticipated this at Q1. I know you've called out the lengthening of the sales cycles, et cetera, but I guess what changed from the time you issued guidance at Q1 that led to some of the weaker sequential growth in Perm? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: I think clients got incrementally more selective. They got incrementally less sense of urgency in doing their hiring. And therefore, Perm didn't get the sequential lift that it traditionally enjoys in the second quarter. It still got some sequential lift, it just didn't get either what we expected or what had seen in the past. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Okay, got it. Quick one from me. Did you mention the bill rate increase in conversions? If not, I'd appreciate you just discussing those. Thanks. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: So the bill rate increases were 4.8%, which were very close. Last quarter's was 4.7%. So again, back on the theme that our gross margin was quite strong for the quarter, that's confirmed by the year-over-year bill rate increases that we saw. Conversions were 3.3% of revenue, which I believe year-on-year was down a few basis points and sequentially was up a few basis points. So frankly, it's still hovering in and around the same number. Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker): Okay. Thanks so much.

The next question is from Randy Reece from Avondale Partners.

Hey, guys. This is Ben Flox on for Randy. I wanted to circle back on Perm for a second. Can you talk about the competitive landscape there and kind of how that's escalated over the last four quarters to six quarters? Harold M. Messmer - Chairman & Chief Executive Officer: I'm not sure the competitive landscape's really changed in the last four quarters to six quarters. Again, I think it's more about our middle market client base getting incrementally more cautious.

Okay. Harold M. Messmer - Chairman & Chief Executive Officer: I really don't think it's about new competition or heightened competition in the last four quarters to six quarters.

Okay. Got it. And then, can you talk about – when you talk about Temp trends you're seeing in the first few weeks of July, can you speak to that specifically to the U.S. and kind of where you're seeing strengths and weaknesses? Harold M. Messmer - Chairman & Chief Executive Officer: There are always state-by-state differences. Northern California is the strongest, it's been the strongest for some time. That's not surprising. Texas is the weakest, it's been the weakest for quite some time. That's not surprising. Everything else is somewhere in between. There are always pluses and minuses. I think nothing just screams at you and moves the needle in a major way.

Looking at segments rather than geographically? Harold M. Messmer - Chairman & Chief Executive Officer: Segments, the trends that you've seen in the last few quarters continue. We would expect that Accountemps and Management Resources would do the best in quarter three. We would believe that Robert Half Technology and OfficeTeam, again with very tough comparisons, would do, not as well, as the accounting and finance divisions.

Okay. I appreciate the color. Thanks, guys.

The next question is from George Tong from Piper Jaffray. George K. F. Tong - Piper Jaffray & Co. (Broker): Hi. Thanks for taking my questions. Digging deeper into the Protiviti business, can you discuss your expectations around financial services, regulatory mix going forward, and any actions you have to improve staff utilization? Harold M. Messmer - Chairman & Chief Executive Officer: So, we believe that FSI regulatory mix will continue to drift downward and we've seen that now for two quarters in a row. But we've built that into our guidance, and notwithstanding that, we're still estimating that we're going to get nice double-digit operating margins in the third quarter. Staff utilization, again as we talked about earlier, we commit to campus hires, we commit to interns well in advance. We remain committed to them, and it will take a few quarters to get the utilization backup to where it had been in the near past. As we look forward to this year's hiring season, on-campus and within interns, we will throttle that back further. We'll look at the contractor usage of Protiviti, where they do have variable labor costs, primarily with contractors sourced through Robert Half. Those will be looked at. But we will have solid operating margins for the next few quarters, and in the background we will throttle back our capacity, our additions to capacity given new revenue realities. George K. F. Tong - Piper Jaffray & Co. (Broker): Very helpful. In your temp and consulting segment, gross margins expanded year-over-year yet operating margins declined. Does this reflect elevated recruiter hiring or other investments you made in the quarter? Harold M. Messmer - Chairman & Chief Executive Officer: No, it's actually quite simple. The delta is the outside medical insurance expenses we incurred during the quarter which were about a 40 basis points surprise. It is very unusual that we would have that kind of spike in that short a period of time. Some of that spike will continue for a quarter or two, but we're certainly told by our outside advisors and actuaries in that area that our company specific trend at the moment is very unusual and would expect to normalize itself in the next year. George K. F. Tong - Piper Jaffray & Co. (Broker): Got it. Very helpful, thank you.

The next question is from Manav Patnaik from Barclays.

Hi, thanks. This is Ryan filling in for Manav. Just a question on buybacks, looking out obviously another pretty solid quarter. Is that a trend you think you could continue or is it something where it's clearly opportunistic and you'll just kind of play it as the market goes? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: I think, again, so far this year we return to shareholders about 92% of our free cash flow. That's a continuation of something we've done for many, many, many quarters. So the plan would be, we first determine what our operating requirements are and then with the residual, we pretty much return it to shareholders, first through dividends and then with what's left through buybacks. So what we did during the second quarter is very similar to what we've done in prior quarters and as the price goes up and down, we get fewer or more shares and over time we dollar cost average and it seems to work out just fine.

All right. Fair enough. Thanks. Is there anything in the quarter to call out just in terms of kind of one time seasonality events, obviously, we saw it in the May jobs report there seem to be an outsize impact I guess from the Verizon strike. I mean, were there any kind of timing things in the quarter that kind of, could skew growth trends in your business? Harold M. Messmer - Chairman & Chief Executive Officer: I don't – nothing comes to mind and we were not impacted by Verizon.

Fair enough, thanks a lot.

The next question is from Andrew Steinerman from JPMorgan.

Hi Keith. I understand you're saying that the midsized clients are just more cautious on the labor front here. I was just wondering if you sense that the U.S. is not in a 2% real GDP environment like our JPMorgan economist think we're already back in. And so, what needs to change for Robert Half's revenue growth to stabilize and perhaps reaccelerate? Is there anything on the supply side? M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Well, I mean, frankly, Andrew the only division that's significantly impacted by supply is Tech Development for us. The rest of our divisions, primarily need more orders...

Right. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: Than they need more candidates. So, you ask kind of in a double negative way, it appears that the U.S. economy is slugging along in the 1% to 2% GDP path that it has for some time, but as clients have gotten more cautious, our growth rates have slowed. And then the third quarter is going to be a very noisy quarter for these conversions that we've got going, that are going to impact virtually every single person that works for us in the United States. So third quarter, it's very hard to figure out trend lines given how noisy it's going to be. But if you step above that, it seems to be more of the same versus the last three quarters – versus the last few quarters, maybe with clients getting a little more cautious.

Right. But if you... M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: What has to change – what has to change is...

Yeah. M. Keith Waddell - Vice Chairman, President & Chief Financial Officer: They need to get less cautious, right? They need to do less vetting. They need to say yes, I'll take them rather than show me somebody else or let me compare.

Perfect. Thanks Keith. Appreciate it.

The next question is from Sara Gubins from Bank of America Merrill Lynch.

Hi, thanks for taking my follow-up. I just wanted to clarify your response to a prior question. The large client that you withdrew from, you said it was a 2% to 3% impact on the growth rate, was that for revenue overall or for Robert Half Technology specifically? Harold M. Messmer - Chairman & Chief Executive Officer: That's just Robert Half Technology.

Okay. Thank you.

And the next question is from Randy Reece from Avondale partners.

Hey, guys. Ben Flox again. Just wanted to follow-up on one last thing kind of higher level. If hiring demand in the U.S. does regain some momentum, how far behind should we expect Accounting and Finance Staffing demand to lag? Harold M. Messmer - Chairman & Chief Executive Officer: Well, I would argue quite frankly it's doing the best in the current environment, and therefore, would participate quickly in an improved environment. So it would be the one I would least be concerned that there's any lag for. As I say, this trend toward higher level more complex has certainly served it well for the last few quarters relative to the market and our other lines of business, but I would think as market conditions improve, because I think you'd see it in our accounting operations positions which tend to be more transactions volume driven than the more complex accounting analyst, senior accountants and above. So I don't think there'd be that much of a lag in Accounting.

Okay. That's very helpful. Thank you.

It looks like we have just one more question. The last question is from Tobey Sommer from SunTrust.

Thanks. I'm curious in the tech space, you had contracted – there was some pricing that you didn't like. Is there – are you seeing the same kind of behavior among large customers as well as your more traditional ones? I know generally you don't serve a lot of large customers, but in the tech space, that's a little bit more inherent in the market. Thank you. Harold M. Messmer - Chairman & Chief Executive Officer: I would say financial services clients be it tech or otherwise are more focused on controlling their cost than any other sector, and to the extent we have exposure to financial services, we've talked very openly about Protiviti and the impact on Protiviti. But other than that sector, and as you pointed out, larger clients aren't our sweet spot, but we do have a few here and there and when we can get reasonable margins, we're happy to do that business. When we can't get reasonable margins, we withdraw. And other staffing firms don't have that same view. But that's who we are, and that's who we've been for a long time.

Have you notice a difference between a public demand from public companies versus private entrepreneur owned and led businesses? Harold M. Messmer - Chairman & Chief Executive Officer: No, I mean sweet spot is more the privately held 75 to 150 employee firm. So, I think if you look at our results and say it's a proxy for anything, it's not for public companies. It's for smaller, midsized private companies.

Thank you very much. Harold M. Messmer - Chairman & Chief Executive Officer: That was our last question. We'd like to thank everyone again for joining us on today's call.

This concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investors Center of Robert Half's website at www.roberthalf.com. You can also dial the conference call replay. Dial in details and the conference ID are contained in the conference press release issued earlier today.