Hello and welcome to the Robert Half First Quarter 2020 Conference Call. Our Host for today’s call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half, and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, I’d like to remind you that the comments made on today’s call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today’s press release and our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today’s call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as as-adjusted. Reconciliations and explanations of these measures are included in a supplemental schedule to our earnings press release. For your convenience, our prepared remarks for today’s call are available in the Investor Center of our website at roberthalf.com. Before we review our first quarter financial results, I’d like to take a moment to talk about Robert Half’s response to the COVID-19 pandemic. We’ve been working for many weeks now to ensure the health and welfare of our employees, while also maintaining our service commitments to customers. The safety of our employees remains our first priority. Early on, we gave all staff the unconditional right to work from home and this will remain so. We also agreed the time taken off due to illness or the care of loved ones who are sick would not be charged to employees. As we navigate through this crisis, preserving the long-term intrinsic value of Robert Half is our guiding principle. The key focus is retaining our best people, who have proven time and again their ability to grow and sustain the organization. They are critical to maintaining the culture that’s been…

Thank you, Keith and hello, everyone. Let’s start with revenues. As Keith noted, global revenues were $1.507 billion in the first quarter. This is an increase of 3% from the first quarter one year ago on a reported basis and an increase of 2% on an as-adjusted basis. Also on an as-adjusted basis, first quarter staffing revenues were down 1% year-over-year. U.S. staffing revenues were $944 million, down 0.2% from the prior year. Non-U.S. staffing revenues were $269 million, down 4% year-over-year on an as-adjusted basis. We have 327 staffing locations worldwide, including 88 locations in 17 countries outside the United States. In the first quarter, there were 63.1 billing days, compared to 62.2 billing days in the same quarter one year ago. The current second quarter has 63.4 billing days, unchanged from the second quarter one year ago. Currency exchange rate movements during the first quarter had the effect of decreasing reported year-over-year staffing revenues by $9 million. This decreased our year-over-year reported staffing revenue growth rate by 0.7 percentage points. Now let’s take a closer look at results for Protiviti. Global revenues in the first quarter were $294 million: $233 million of that is from business within the United States, and $61 million is from operations outside the United States. On an as-adjusted basis, global first quarter Protiviti revenues were up 15% versus the year-ago period, with U.S. Protiviti revenues up 20%. Non-U.S. revenues were up 2% on an as-adjusted basis. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $2 million and decreasing its year-over-year reported growth rate by 0.6 percentage points. Protiviti and its independently owned Member Firms serve clients through a network of 86 locations in 27 countries. Turning now to gross margin. In our temporary and consulting staffing operations, first quarter gross…

Thank you, Mike. As noted earlier, the COVID-19 pandemic is having a significant impact on global economies as a result of stay-at-home orders and business closures to stop the spread of the virus. Our staffing clients, most of which are small and midsize businesses, are feeling the crisis most acutely, and the downstream effect is a much tougher business climate for Robert Half. I am extremely proud of how our teams have been responding to this pandemic. Even in the current environment, we see opportunity. We are aggressively pursuing significant opportunities in financial services, government and public education, and outsourced re-shoring, many times jointly with Protiviti. We’re already seeing many successes in these areas. Protiviti has also successfully transitioned its existing and new client work to a remote delivery model, which makes it even more possible to bring the most relevant deep-subject-matter experts to the table for its clients. We believe the factors that drive typical recovery patterns are very much still in place. Companies get lean and defer projects during downturns, particularly nimble small and midsize businesses. Because they start lean, employers need help as business picks up and they resume projects that were put on hold. Variable cost, labor models are ideal in the early stages of a recovery until the business stabilizes. As the recovery accelerates, there is typically pent-up demand, especially for specialized skill sets. The quality of the available labor pool is never better than in the early part of a recovery. Many people who lost their jobs during the downturn did so because of business conditions, not performance. Some companies will tap into this talent pool by hiring full time as their business picks up. Others will upgrade existing staff, and some will tap into the high quality temporary and contractor pool because they…

[Operator Instructions] Your first question comes from Mark Marcon from Baird. Your line is open. Please go ahead.

All right. Good afternoon Keith and Mike, I hope you guys are both well and as well as your families. I’m wondering, can you talk a little bit about the weekly trends that you ended up seeing in terms of going through late March and through April, just in terms of whether you’ve seen any signs that perhaps what we’re seeing in April is kind of close to a bottom? Or are things continuing to deteriorate? And could you discuss that with a little bit of granularity between the different sub-segments that if you put? And then I have a follow-up.

Okay. Happy too. And yes, Mike and I are well as all our families. So trends, as we said through mid-March, we were strong and above plan, now we’re talking temp. The last two weeks of March, showed the biggest drops as the shutdown spread. After that the rate of decline has progressive really slowed to a small single-digit percentage. To be clear, that means April week-three was only a small single-digit percentage less than April week-two. Also the number of new assignments that we’re getting on the temp side has actually flattened out, which we’re encouraged by. Office team is the most impacted as admin support is more discretionary and they took longer to transition to work-from-home. Management Resources, Robert Half Technology were the least impacted, they’re higher level, longer duration projects and they moved to remote work more easily. Most of our temps and contractors are working remotely either using client laptops, Robert Half provided laptops. We have thousands in inventory that we send to them. Plus we have a cloud solution that quickly converts a candidates’ personal device to a virtual secure desktops and we can do that in a matter of minutes. Before I talk about perm, I’ll also talk that on the temp side, our conversations with clients are getting more positive. We’re seeing significant traction and wins many times jointly with Protiviti. Hot areas include mortgage, refinancing and forbearance, credit and collections, particularly in consumer lending, loan processors, particularly as it relates to the stimulus loans. We’ve got assignments with some states helping them to process their unemployment claims. We have tech support assignments for organizations that are new to working remotely. Some companies found that at outsource certain of their processes, particularly to India, learned that those outsourcers were not well setup for work-from-home or remote work and are now reassuring those back to the United States. Those are perfect assignments for a joint Protiviti staffing, managed business solution and managed technology solution. As it relates to perm placement, perm placement was also solid through mid-March. And frankly through mid-March, we were probably on pace to have the best first quarter. We’ve had in quite a while. However, the last two weeks of March for perm, interestingly, flattened out, didn’t go down, but that’s a time period in years past where there’s a significant jump or lift, which didn’t happen this year. Then the first two weeks of April, there was a significant drop in perm. The good news is our job orders – the new job orders in perm the last three weeks are flat. So we’re cautiously optimistic based on everything I’ve just said that we’re close to, if not at the bottom, because it certainly appears that the trends are flattening out.

That’s terrific. And I’m wondering you gave some guidance for Protiviti, which seems fantastic. I’m wondering if you can talk to how sustainable you think that is, particularly in light of some of the things that you mentioned in terms of the opportunities that you’re seeing in financial services, government reassuring and some of the projects that they’re doing there?

Well, Protiviti had the fantastic first quarter. Our operating income was up 42% year-on-year. We couldn’t be happier. It was broad based as we’ve talked in the past, led by technology, consulting which was cyber, which was privacy, which was cloud, FSI regulatory, which is anti-money laundering, which was consumer-lending as well as the joint engagement, which was staffing, the pipeline in tech, with a pipeline in FSI regulatory remains very strong. They’ve remained very bullish on that. Internal audit is seeing some impact, fewer pre-IPO engagements, certain portions of their internal audit – their client’s internal audit budgets are discretionary which are being reduced. Protiviti has some, but not an outsized. Some exposure to energy, to transportation and hospitality and all those clients have cut back their internal audit budgets. But by and large, particularly for tech and FSI, Protiviti has a very strong pipeline and feel very good at least through the second quarter. And frankly, beyond as it relates to those two internal audit, some softness for reasons I just explained. I think importantly, many of you are now looking us today versus the last downturn. And I think the differences in Protiviti are the most striking. Going into the last downturn, over 70% of Protiviti’s revenues were Sarbanes-Oxley compliance. So during the downturn, they had not only to deal with downturn discretionary spending reductions, but they also had to deal with clients rationalizing their Sarbanes-Oxley. The initial Sarbanes-Oxley compliance costs. Now Sarbanes-Oxley compliance is less than 15% of revenue. They’ve diversified very nicely. So I think you’re going to see a very different Protiviti performance this time than last. And that’s already being demonstrated by what you’re seeing so far.

That’s fantastic. Thank you.

Your next question comes from Andrew Steinerman from JPMorgan. Your line is open. Please go ahead.

Hi. And Keith, one of the big segments are really the focus of your clients are small and medium-sized businesses, I know it’s also small order sizes, but I just wanted to get a sense of small and medium-sized businesses, like, is the PPP are helping them. And when you guys say, small and medium-sized businesses, is that like companies of 500 employees or less? Just give us a sense of how you think of small and medium-sized businesses?

Okay. And so let’s profile our client base a bit on the staffing side. So about 80% of our revenue we would describe as small and middle sized businesses, SMBs, the other 20% we call strategic accounts and strategic accounts. You would probably call it midcap companies. And so our SMBs, the median would be between 50 and 100 employees with accounts temps and office team tending more towards the 50. And Robert Half Management Resources, Robert Half technology tending toward the 100, again, that’s 80% of our staffing business. The balance is strategic accounts. Now strategic accounts, while their margins are modestly lower than what we get from SMBs, they are lighter as higher than what the large general staffing firms get from those types of clients. The median-size of our strategic account clients would be in the $4 billion to $6 billion in revenue, which I would call a midcap company. As to PPE, it was interesting, FIB released a couple of days ago that 75% of its constituents had applied for a PPP loan, but that only 20% had received any money to-date. I can tell you, we have many engagements where we’re helping our clients prepare for the application related to PPE as well as the employee retention credit that they can qualify for. So I’d say there’s a lot of activity there. I’m not sure a lot of actual cash has yet flowed to our client base in that way. So the other point, I would make that I found of interest. There was a study by one of the larger Wall Street firms. That study, the performance of SMBs during the downturns and I have some notes and I’m trying to find. They compared the recovery after the 1982 recession to the recovery after the 2008 recession. And they believe the recessions were similar in size and in nature, and they conclude it, that the SMB recovery post 1982 was much stronger than the SMB recovery post 2008, because of a policy focus was principally on SMB. So we’re very encouraged that much of the current policy focus, including hopefully today’s extension is focused on those SMBs.

Great. Thanks, Keith.

Your next question comes from Jeff Silber from BMO Capital Markets. Your line is open. Please go ahead.

Thank you so much. Keith, you talked about a little bit about how Protiviti is different this downturn. I’m just wondering if you could give us some color on the rest of your businesses and maybe what you learned coming out of last downturn that you might’ve thought change or you might think you’d be different positions in temporary and consulting staffing and perm?

Well, I guess without talking about what’s different, let me first talk generally. I first would observe that we have a very experienced management team at both corporate and in the field. Most of us have managed through the downturn of the early 2000s as well as 2008-2009. The declines we’ve seen so far we’ve seen before. It’s just that they’re happening much quicker. We’ve learned over those years that once it’s clear there’s going to be a sharp downturn, that we act quickly to reduce inexperience and underperforming staff as well as reduce discretionary cost. To the extent, these staff struggle during good times, it’s unlikely they’d perform any better during a tougher market. This benefits our best performers as the ongoing revenues are spread over fewer people. We believe in targeted reductions rather than across the board ones. Every office, every market, every person is different. We have very detailed performance data that drives these decisions. As Mike mentioned, we’ve already taken the actions reduce our SG&A costs by 30%. However, given our intent to protect our best people, we have to have their back. They have to know we’ve got their back. It will be much harder to get significant additional savings because they got a primarily come from non-payroll areas. The playbook is not about just cutting cost. It’s also about mobilizing quickly to pursue those pockets of demand or labor resources are needed. I have talked about those earlier. We’re confident that this strategy, which has worked before or work again, which is what we’re executing on. Now from the standpoint of how is staffing difference. Forget Protiviti, I’d say, it isn’t dramatically different. The fact that staffing has Protiviti to go-to-market with gives staffing more opportunities than it would have on its own or which you had in the last downturn/recovery. So many of the opportunities I described earlier are at companies that are larger than staffing’ traditional client base, more akin to the strategic account base that I talked about. But there’s no question in my mind that staffing or whether it gets reported as Protiviti or reported as staffing, doesn’t matter. There’s no question. Staffing will do better. Staffing is already doing better because it has Protiviti to go-to-market with that it didn’t have in the last downturn and that’s significant.

Okay, that’s helpful. I appreciate that. My second question, what’s the focus on perm? There’s probably not a lot of fulltime hiring these days yet. You’re still getting some business. Who are the types of clients or what are the types of positions that are using your perm recruiters to hire fulltime? Thanks.

Well, remember now that in our perm business, our clients typically will only pay a fee for us to find for them someone who’s fully employed. And so the ranks of those who are currently unemployed don’t really impact the pool of people that are, or if anything, they shrink the pool of people that are currently employed. So to some degree, it makes it even harder for our recruiters given that. But there are many – there were many searches in place when this happened. Clients understand how tough it was to get right people. You don’t forget that in four weeks. I know even ourselves internally, we’ve had certain positions particularly in IT that we’ve struggled to get really good people and I can assure you we’re now looking to hire fulltime in those areas, because we may now have that opportunity. But in an accounting, finance, many of those types of positions are considered essential cash flow, budgeting, liquidity, all of those things are top of mind for companies of every size and we have people right in that sweet spot for which there’s continuing demand for. As I said, as we look at our new job orders in perm the last three weeks they’ve been flat. I mean flat at a low level, I’ll give you that, but they’re not continuing to decline.

Okay. That’s very helpful. Thanks so much.

Your next comes from Kevin McVeigh from Credit Suisse. Your line is open. Please go ahead.

Great, thanks Keith. Keith, there’s just been a couple of downturns. This severity and kind of the quickness of this is really unprecedented it. When you’ve talked a lot about kind of the bottoming, any sense of what you look for in terms of the bottoming to come back out, appreciating the duration of the downturn could be a lot quicker. Just I guess anything you’re kind of looking to key in on as things stabilize and start to recover?

Well, we primarily are looking very closely at all our internal metrics. Our starts and ends on the temp side, the job orders to client visits. There’s all type of activity metrics we look at. And then we have weekly hours billed, weekly number of people on assignment, weekly dollars billed, so we have many types of data that we look at, but it’s principally week-by-week. The nature of the business is such that you never have a huge amount of visibility forward. And so instead, you’ve got to be very attentive to weekly trends. And as I described earlier, the good news is the rate of decline week versus week has slowed significantly to a very small single-digit amount.

That’s helpful. And then just how are you thinking about capital allocation in terms of dividend versus buyback in the near term?

So for this quarter, kind of given the severity of the impact, we’re going to take a pause on buybacks. However, it is our plan to continue the dividend, because the cash flow that will generate plus that was get to generated from the receivables as your revenues decline, we’ll think, we believe will be more than adequate to continue to pay the dividend. If you look at what we’ve distributed to shareholders over time, it’s been about two-thirds buybacks, one-third dividends. So by pausing this quarter on the buybacks, you’ve cut two-thirds if you will, which in part justifies paying the other third, which is dividends. I would also hasten to add that over the last 15 years we’ve bought in about one-third of our outstanding and the average price paid was in the mid-30s. So even by today’s standards, that’s not bad.

Not at all. Stay safe. Thank you.

Your next question comes from Tobey Sommer from SunTrust. Your line is open. Please go ahead.

Hey, good afternoon. This is Jasper Bibb on for Tobey. I wanted to ask how performance is trending in some of the larger European markets given the stimulus measures that have been put in place there?

Well, and so it’s kind of interesting for the first quarter. We actually had positive growth in Germany, which I found to be incredible and it stood out positively in that way. But if you look at the post quarter periods, it’s interesting as well that the year-on-year declines across our major countries outside the U.S. are very similar to what we’re seeing in the United States. So it’s all mid-20-ish. I guess France probably stands out as being the worst, but the rest of them cluster pretty close to mid-20s, which is similar to what we’re seeing in the United States.

Thanks. And then I was wondering how much of the impacts social costs have on gross margin in the last recession and whether you’re expecting a difference there at this time around?

Well, in the last downturn, I think we lost 300 basis points in gross margin peak to trough, about half of that was conversions, which are related to perm placement. They’re just converting temp to perm. So we would certainly expect to see an impact from that. Some of that you get some margin compression as some clients demand lower pricing, which we for the most part avoid, but there’s some of that. Some of that’s hire unemployment cost, what’s interesting about what’s going on now is that the unemployment benefits being paid out by the states currently, can’t be charged back to individual companies like they have been in times past, if they’re taking the additional federal amount for the benefit of their constituents. And I think virtually every state is doing so. So it’ll be interesting to see coming out in a recovery what happens to individual company on employment rates given that unlike in the past, these claims aren’t going to be charged back to us individually as a company.

I appreciate the detail there. Thank you for taking the questions.

Your next question comes from Gary Bisbee from Bank of America. Your line is open. Please go ahead.

Thank you. So you referenced a lot of attempt businesses, not just Protiviti having transitioned to workers working remotely. Can you provide a little more color on that? How broad-based is that been broadly received well and adopted by clients? And is there any change in sort of contract structure or how it works in terms of billing – what you’re billing, what you’re paying in any of that as you have those people working remote.

So I think your question is on the temp side, not Protiviti, some more color on our temporary and contractors and they’re working remotely.

That’s right.

And the facts are, most of those that we have on assignment today as we speak are working remotely. And they’re either using client provided laptops with VPN connections back to the client. Robert Half provided laptops, which have been imaged by us to provide a secure environment that can be connected to our clients. Or as I said earlier, we have this cloud solution where we can virtually stand up a secure desktop for our candidates and we can do that in a matter of minutes. And all of that positions us very well to have our candidate pool remote ready pretty much at a moment’s notice.

And you’ve seen clients broadly adopting that and…

Absolutely. As I said, the business we have today now given it’s down 20% but that’s 75% that we still have is still largely working remotely. And I’m talking our temporaries and contractors. Our internal staffs are 100% remote. Protiviti staff is 100% remote, but I’m talking our temporaries and contractors, they’re largely working remote.

Okay, great. And then the follow-up, I just wanted to clarify the cost reduction efforts that you’re undertaking. You said 20% of operating costs and another 10% of SG&A. Was that operating costs also focused at SG&A, so roughly 30% of the Q1 SG&A.

That’s precisely correct. So if you take Q1 SG&A dollars, which is about $480 million, I believe. So because we acted quickly, the first 20% reduction, you’re going to get a full quarter’s benefit of, and that next 10% bring the total to 30%, you’re going to get about half of that, that it hit in the second quarter.

Great. Thank you.

Your next question is from Hamzah Mazari from Jefferies. Your line is open. Please go ahead.

Hi. This is Mario Cortellacci calling in for Hamzah. So you guys pointed to working capital as a source of cash. I believe you’ve done that in the past and on the downturns. I just kind of want to see if you can give us a sense of how much of a benefit that could be. And then given the fact that your client base obviously is a small and medium sized businesses and they’re under stress, and others sector we’re seeing customers asking for deferral of payment or delayed payment. Have you seen anything like that in staffing as well?

And so the answer to how much of benefit is that direct function of your revenue or something. So clearly the more severe the drop in revenue, the more severe the drop in receivables, which is actually cash positive. Interestingly, in the last downturn, our DSO didn’t go up by a single day. Now in the last downturn, there weren’t shutdowns either like they are this time. So do we expect that DSO won’t change by a single day? No. But as of yesterday, the cash collections are pretty normal relative to what we would expect given revenues. And while we expect there will be some DSO impact during this particular downturn, we still believe receivable reductions will be a significant source of cash.

Okay. And then obviously, I know you’re not an economist and then I was not expecting you to predict the future. But I just want to get a sense for what we’re hearing from some customers and clients about what their temp hiring plans are? How much visibility you have? I think kind of the assumption is, maybe we started seeing some kind of return to normalcy meet in June-ish, July. And if didn’t know, I guess what’s the timeframe that you think your customers are expecting for the economy to kind of open up and things get to a little more normal? Not saying that we’ll be operating like we were last year in July. But I guess, what’s kind of the cadence of reopening and your customer expectations?

Well, we have very little visibility. But as we said earlier, our clients are very nimble and get very lean and given initial unemployment claims the last four weeks, I think it’s safe to assume that they’ve gotten very lean very quickly. And so at the first moment that things pick up, they’re going to need help, which is very consistent with past cycles, which is the point we tried to make earlier. We don’t know the timeframe. We don’t know whether this is V-shape, U-shape, what the shape is. As we’ve said, we’ve run the playbook that has stood us well in prior downturns. We feel good about the actions we’ve taken. We feel good about the capacity we have with our best people to participate the second things get better. By the way, we have all of these particular opportunities that are focused on current circumstances, particularly with financial services institutions, as I talked about. So timeframe, I don’t know. Visibility, we don’t have much of. History says, our clients get really lean, which puts them in a spot to have a lot of requirements when things get better. We think they’ve acted just as I’ve acted in the past. If anything more so, and they’ve gotten even more lean and whether their source of cash is their PPP loan or it’s because their business picks up, we liked how we’re positioned.

Your next question comes from Seth Weber from RBC Capital Markets. Your line is open. Please go ahead.

Hi. Good afternoon, everybody. Wanted to go back to Gary’s question just about the cost reductions. Is there any chance that through technology or any of your corporate initiatives that some of those costs may not come back with revenue – once revenue comes back? Or do you think that those – I guess the question is, are any of those costs cuts permanent or do you think they all kind of come back with volume? Thanks.

I think it’s a really good question. And I think it’s a really good opportunity for us to kind of stretch the limits of what kind of benefits can we get with technology. We’ve made significant investments in AI and other things that we’ve talked about many times on these calls. But we’re actually cautiously optimistic that the productivity of the workforce coming out of this will be better than the productivity of workforce we’ve had more recently and there’s upside there.

Right, okay. Yes, that’s what I was getting at just with all your investments and stuff. I guess just my quick follow-up, on the Protiviti business with revenue kind of earmarked flat to down a little bit. Do you think that margin can still be up year-over-year in that type of revenue cadence?

I think with flat to down revenue for Protiviti that means they’re going to be – they’re going to have less utilization, lower charge ability. So that says that their gross margin would be down more than their revenue, which would stress their margins a bit. So I would expect their margins to take a bigger hit than their revenue. Now they do have this tranche of variable labor when they’re using contractors and temporaries from us and they will swap them out for their own full time staff. But because the cost of their own full time staff is higher than the cost of the contractors, that’s actually margin compressing as well. So I think you’re going to see a little more margin compression and you’re going to see revenue decline on Protiviti. That said, given the circumstances, I think their performance is outstanding.

Okay. That’s very helpful. Thank you very much guys. Stay well.

Your next question comes from Ryan Leonard from Barclays. Your line is open. Please go ahead.

Yes. Hey guys. When you were talking about some of the April trends, particularly in temp, I think you mentioned some onshoring. I just wasn’t clear if you were talking about Protiviti temp kind of joint projects or specifically have temp trends in April kind of flat-flat line.

And so when I talk temp trends, I was talking pure temp staffing that had nothing to do with Protiviti, pure temp where the rate of decline has slowed to a low single digit percentage, nothing to do with Protiviti. When I talked about many of the opportunities we have that we’re excited about, many of those opportunities are joint opportunities with Protiviti, but that’s more about from today forward rather than the periods of time I talked about with regard to trends.

Got it. And would you say you are not providing guidance is more a reflection of the uncertainty today. Even though you think things are stabilizing, you just don’t want to commit to anything at this point given the uncertainty.

I think given the uncertainty, we don’t know when everybody’s going back to work, we don’t know whether it’s going to be phased. We don’t know whether it’s county-by-county, city-by-city, state-by-state, country-by-country. There’s just too much we don’t know. And while we have a nice six week period where we can judge trends, who knows whether those six weeks are representative of the next six weeks. We feel good about the trends as we see them for the reason we’ve talked about. But there’s just too much uncertainty about how representative that is of what we’re getting ready to see.

Got it. And if I can sneak in one more, just this is such a unique circumstance, but part of the government response has really been to offer these PPP loans to hold up payrolls. As things start to come back, I mean, do you envision any tradeoff there where there’s a lot of people on the sideline who may be hired back first as a result or maybe are able to be used quicker than temp just because of the uniqueness of the fiscal response?

Well, most of those PPP loans have to be spent 75% on payroll, meaning you retained the payroll. And therefore to the extent what you retained isn’t enough, you’re going to need help. And might there be a little bit of a pause as you catch up on those that you furloughed if you didn’t seek a PPP loan or receive a PPP loan. But I think the overarching comment that our clients get laying because they’re nimble. I don’t think at a high level that’s changed because of PPP loans and at least so far they haven’t even received their PPP loans.

Thank you.

Your next question comes from David Silver from CL King. Your line is open. Please go ahead.

Okay. Thank you very much. Keith and Mike, thanks very much for all the great detail. I have kind of a small board question and then a bigger question. Firstly, it would have to do with the costs associated with the 30% reduction in your base level of SG&A. So Keith, one feature I think of your reported results is it’s extremely rare when you call out an item and it’s like a restructuring cost or a one-time item that analysts like us adjust for when we’re protecting your earnings per share. So I’m interested the costs that were involved in achieving the 20% first phase reduction and the 10% second phase reduction in your SG&A. Do you intend to call that out as a separate line item? And then secondly, if you could just ballpark that cost, that would be very helpful. Thank you.

Well, orders of magnitude to first round of reductions, we had severance of about $5 million and that was recorded in the first quarter. For the second round of reductions, notice we said we’ve cut the cost by 30% and only 25% of that gets reflected in the second quarter. So there’s a 5% there that doesn’t. If you take that 5%, you can kind of split it in half between how much relates to severance and how much relates to timing and that you don’t get a full quarter’s benefit. So I think you’ll find that the severance is orders of magnitude $10 million for the second round. And the reason it’s more than the first round, the first round was geared more toward inexperienced people. The second round was geared more toward lower performing people that had been here longer than the inexperienced people.

Okay. And I’m assuming that won’t be called out separately then.

It’s not our style, I just did obviously.

Correct. No, no, just for forecasting. Second question is more of a big picture item. You’ve commented on different angles of what’s different this time around versus the past couple of downturns. I’m going to just throw one out at you. But one thing that I expect and many other people expect to be different is the role of China within the world economy. That there will be a significant reorientation or repositioning of global supply chains away from China. And back, I’m assuming to the western economies broadly who had been offshoring or outsourcing. I guess, a lot of their production and distribution and service operations. I know it’s extremely early days, but does that seem like a viable kind of incremental source of growth? Is that something that maybe some of your more sophisticated clients have started to ask you about? Do you have any thoughts on that and what parts of your business maybe the most sensitive to kind of bringing global supply chains back into domestic markets and the economies where you have operations. Thank you.

Well, I’m not sure supply chain repositioning impacts us that much directly. I think related but different would be to the extent our mid-cap clients have outsource certain of their processes to India and Ireland and other places that proved they weren’t very well positioned to work remotely when they were shut down. And so I know, we are already seeing opportunities where companies are bringing those processes back, which is an opportunity for us either to consult, to provide labor or even to outsource to ourselves with our joint offerings. That’s clearly already having an impact and is expected to have an impact. So it’s similar theme, but it’s not China supply chain specifically.

Okay. Yes, I thought it might be analogous, but I hadn’t heard you mentioned China specifically in your comments. So thank you for that. Appreciate it.

Your next question comes from George Tong from Goldman Sachs. Your line is open. Please go ahead.

Hi. Thanks. Good afternoon. You mentioned that temp declines have begun to stabilize over the past six weeks. Given the broad-based nature of the shutdowns already, based on what you’re seeing, what factors could potentially cause trends to begin worsening again?

Well, I’d say, clearly that’s not the trend that we’re seeing. If there would be new outbreaks of significance that would extend worsen the shutdowns, clearly that would have an impact. But as I said, relative to the shutdowns that have occurred so far, we had a significant drop for a couple of weeks the last two weeks of March. But beyond that, we have seen a path towards stabilization. But I would say, we would take it lower and we’d start with science and health reasons more than anything else.

Excellent. On the cost side, you’re reducing operating costs by 30%, like you said, by 2Q. How much of those costs reductions involved the elimination of recruiter headcount? And how quickly are you able to re-staff recruiters when business trends do improve?

Well, we haven’t and don’t plan to break out the reductions by nature. But I think it’s safe to say, given that payroll is roughly two-thirds of our SG&A. Payroll has got to be the lion’s share of the reductions. And as far as how quickly can we re-staff, we’re in the recruiting business. That’s our day job and to the extent we need to recruit for ourselves, is that something we’re well positioned to do. And hopefully because the labor market when we go to hire those people will be less tight than the labor market. When we hired the people, we just let go. Potentially, we get people that can have higher productivity.

Got it. Thank you.

Okay, operator, I think that was our last question.

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.roberthalf.com. You can also dial the conference call replay. Dial-in details and the conference ID are contained in the company’s press release issued earlier today.