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

Thank you. 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 the risks and uncertainties that could cause actual results to differ materially from 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.

Thank you, Keith. And hello, everyone. Let's start with revenues. As Keith noted, global revenues were $1.304 billion in the fourth quarter. This is a decrease of 15% from the fourth quarter one year ago on a reported basis and a decrease of 16% on an as-adjusted basis. On an as-adjusted basis, fourth-quarter staffing revenues were down 24% year over year. US staffing revenues were $723 million, down 25% from the prior year. Non-US staffing revenues were $219 million, down 23% year over year on an as-adjusted basis. We have 326 staffing locations worldwide, including 88 locations in 17 countries outside the United States. In the fourth quarter, there were 61.7 billing days, equal to the number of billing days in the fourth quarter one year ago. The current first quarter has 62.3 billing days, compared to 63.1 billing days in the first quarter one year ago. The billing days for 2021, by quarter, are 62.3, 63.4, 64.4 and 61.7 for a total of 251.8 days, which is approximately one day less than 2020 due to it being a leap year. Currency exchange rate movements during the fourth quarter had the effect of increasing reported year-over-year staffing revenues by $8 million. This increased our year-over-year reported staffing revenue growth rate by 0.7 percentage points. Temporary and consultant bill rates for the quarter increased 2% compared to a year ago, adjusted for changes in the mix of revenues by line of business. This rate for Q3 2020 was 3.1%. Now, let's take a closer look at results for Protiviti. Global revenues in the fourth quarter were $362 million: $294 million of that is from business within the United States, and $68 million is from operations outside the United States. On an as-adjusted basis, global fourth-quarter Protiviti revenues were up 18% versus the year-ago period, with US Protiviti revenues up 23%. Non-US revenues were down 2% on an as-adjusted basis. Exchange rates had the effect of increasing year-over-year Protiviti revenues by $3 million and increasing its year-over-year reported growth rate by 1 percentage point. Protiviti and its independently owned Member Firms serve clients through a network of 86 locations in 28 countries. Turning to SG&A Presentation. As first noted last quarter, changes in the Company's deferred compensation obligations are now included in SG&A or, in the case of Protiviti, direct cost, with offsetting changes in the investment trust assets presented separately below SG&A. As a reminder, our historical discussion of consolidated operating income has been replaced with the non-GAAP measure of combined segment income. This is calculated as consolidated income before income taxes, adjusted for interest income and amortization of intangible assets.

Thank you, Mike.

Our first question comes from the line of Mark Marcon with Baird. Your line is open.

Wondering, can you talk about the opportunities that you're seeing across Protiviti. Obviously you're accelerating. It seems like there would be a lot of opportunities and a lot of different areas within IT including cyber security audits, particularly in the wake of SolarWinds, and you did make the acquisition with regards to identify. So I was just wondering if you could talk a little bit about the areas of growth that you're seeing there? And kind of what inning you think Protiviti is gaining then I've got a follow-up for the staffing side.

So the good news for Protiviti is that its success is broad based. It's led by technology consulting and managed solutions, on the tech side, which we've talked about for a few quarters now. Its cloud, it's cyber, its privacy, its digital transformation and the managed solutions with staffing, it's public sector led by unemployment, housing, education, vaccine. FSI continues to lead with anti-money laundering and consumer lending, regulatory actions leading that way. Internal audits down 8% to 10% year-on-year, some more got delayed, some scopes got produced. There is a little bit of fee pressure. As we've talked about now for a few quarters, Protiviti's pipeline remains very strong as to which inning we're in. It's clearly not a late-inning because not only do we have macro coming back and discretionary spending, is that will benefit particularly internal audit. You've also got a new administration in United States, that's viewed to be more regulatory friendly, which is a better thing and not as it relates to Protiviti. So we feel great about where they are. We feel great about our prospects and we feel like it's early innings.

That's terrific. And can you talk a little bit about the fit with the most recent acquisition and the opportunities there? I know it's really small and 40 people, but it seems like it would be a really good fit in terms of - but any sort of IT audits that you're doing.

Sure. Identity access management is clearly an important sub-component of cyber security and we've got a team very expert in a certain platform, a leading platform in that space. So we're happy to have part of the family. We feel like we can leverage our existing database, while we also grow theirs and we feel good about that as well.

Terrific. And then can you talk a little bit about the staffing side. As we come out of this, Keith And Mike, obviously we're just in the early stages of inflecting and nobody knows how long this cycle is going to be. But you're really seeing a nice improvement in terms of productivity. Your headcount was down 32% on the staffing side, revenue down a lot less than that. You've put in place a number of different tools to increase productivity. So how should we think about the productivity over the course of the current cycle as we continue to come out of this? And what I'm wondering is, it looks like you picked up you're hiring but it's not at a super robust pace yet. So just how should we think about that?

Well, as we've talked for a few quarters now, we've retained our tenured staff. Their productivity is always greater than the less experienced staff. We feel like we've got additional capacity with that group. We think we can leverage that capacity as we grow without adding in an outsized way to heads. There is a little bit of an offset in that our incentive plans, our graduated rate plans, hockey stick, if you will. So as these more tenured people get further and further up the hockey stick, some of that leverage will go back to them appropriately. So, - but we'll still benefit overall and we expect to have some profitability upside as we continue to grow relative to where we were at same revenue points in the past.

Our next question comes from Andrew Steinerman with JPMorgan. Your line is open.

Two questions. The first one is, when thinking about that year ago first quarter of 2020, obviously, the month of March was that COVID effected quarter. I mean, COVID affected months. How did you take into that kind of year-over-year consideration when giving first quarter of '21 staffing and when I say staffing. I mean, both flex and perm revenue guidance. That's my first question. I am giving you my second question at the same time. My second question is, how should we think about the flex staffing revenues sequentially in the first quarter of 21, recalling that our first quarter is a slower, seasonal time for flex staffing.

So your two questions are related. We effectively took our fourth quarter actual results superimposed a typical sequential progression into the first quarter and that was the basis for our Q1 guidance. And the year-on-year, Andrew, fell out to whatever it was, because we felt like using where we currently are i.e. fourth quarter as the baseline for our forecast rather than a year ago, which did had the impacts of that March month in it. We felt like Q4 was a better baseline and the sequential embedded in our forecast is typical first quarter sequential patterns temp and perm.

Okay. Yes. No, that answers my question. Could you just give us a sense of, if you think temp or perm will do better in the first quarter.

We hope they both do better, and we're just coming off a quarter where they both did a lot better. So we were happy about the momentum that we've had. Our people will tell you, it's one of our best restarts to a new year in a long time. So anecdotally I can assure you the enthusiasm level is very high. That said, we thought it prudent to given the big step up we had in Q4 to confirm that into Q1 with normal patterns, but not be more aggressive than that.

Well, thank you. Thank you.

Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Appreciate you guys giving the headcount numbers like you typically do at the end of every year. And I wanted to focus on the internal staff and staffing. It was down pretty substantially. But again, your revenues weren't down as bad, so we saw some productivity there. What do you need to see to start hiring internal staff in your staffing division, when you think that will happen.

Well, as we've said, because we have a more tenured staff and because they have productivity capacity as we speak. We're going to utilize that capacity before we aggressively add more heads. It's good for them, it's good for their compensation, it's good for us. So we don't think, certainly in the next quarter or two, that will have to add to staff in a meaningful way but can still grow nicely as we just showed we could do with the existing staff. Our staff cutbacks were primarily in the second quarter. And so the increases we saw in the third quarter without - were without any additional staff and we think there is room to go with who we already have. So I certainly wouldn't take our lack of hiring either as evidenced by our job postings or otherwise as any indication that we're not bullish and we don't think we can grow. Instead, we believe there is significant unused capacity of our current tenured staff.

As a follow-up, you pointed out at the end of your prepared remarks about your services to, you know mid-cap clients now about a third of their revenues. Can you talk about that what have you've been doing there differently and what do you think that could be over time. Thanks.

Well, I'd say, what we've done differently is a few things. One, we focused on it. We've had success with it. Two, with Protiviti with many of those companies and even larger cap companies, we come through the consulting door rather than the staffing door. And by so doing, it's not margin dilutive that it might otherwise be. So the combination of the focus, the success and the ability to leverage Protiviti and its relationships and its contractual relationships, all plays a part. We continue to believe there is upside there, as you know, traditionally we've been principally SMB. And trust me, we're not walking away from SMB. We're not de-emphasizing SMB to the contrary, we feel like it's the perfect time in the cycle to be SMB. The last couple of quarters that they've been more impacted than mid cap and beyond. So we've endured the bad side of that, if you will, so now it's time to endure the good side of SMB and we're excited about how well we can leverage our SMB client base as we've demonstrated in the past. That said, we do think mid cap is incremental to that. We've done well. We've done it without any net margin dilution and we continue to invest in that.

Our next question comes from Hamzah Mazari with Jefferies. Your line is open.

This is Mario Cortellacci, filling in for Hamzah. I appreciate the time. Maybe you can just touch on or remind us of your exposure to the travel and leisure industry, but from a temp staffing perspective and maybe you can talk about outside of that, how do you think the impact of the vaccine will have on your business?

So we have very little exposure to travel and leisure. Clearly that industry is most impacted by the shutdowns and restarts and shutdowns. And so just looking at numbers, there's really no correlation between geography shutdowns, because we have so little exposure to travel and leisure. And clearly the impact of the vaccine can be nothing, but positive. While on the one hand our clients have by and large adjusted to the current environment and have become very virtual. On the other hand, I think everybody is excited about the possibility of not being virtual. And on that score, I thought it was interesting. This week we were recognized as a top 20 company in the Fortune 500 for embracing remote work. So we thought that was pretty cool.

And then on the gross margin, maybe you can help us understand or maybe give us a sense for how we should think about gross margins going forward. Obviously in the quarter, you had some fringe benefits, insurance, things like payroll. But could you give us a sense for some of the puts and takes that you are expecting in 2021.

Okay, let's talk a little bit about gross margin. Because, first of all, if you look at prior downturns, peak to trough, we've lost 300 basis points in gross margin. Happy to report that this time around, we lost a third of that, a 100 basis points. And I'm even further happy to report that we're now back this most recent quarter, we're now back to peak gross margins in our temp businesses. For 2021, given that we are already back while there might be some upside as we move through the year, we certainly had modeled a lot of upside remembering that we have the highest gross margins in the industry by leaps and bounds as it is. But trust me, I think one of the things we're most proud of is how we've managed our gross margins. A, during the pandemic, the height of the pandemic. How we've gotten them back and how we intend to sustain that in to 2021.

Our next question comes from Kevin McVeigh with Credit Suisse. Your line is open.

Keith, any sense of how the bill rates have been trending in the quarter versus prior quarter and maybe year-on-year. If you break that out maybe by segment.

Well, we said in our prepared remarks, that they were up 2% year-on-year adjusted for mix. That was down a little bit from the prior quarter. It all starts with pay rates and with higher unemployment, we aren't paying quite as much, still more than we were a year ago. But the rate of wage inflation has subsided to some degree. But all things considered to have - to still have a little bit of low single digit, wage inflation and then bill rate inflation and protect the margins for the differential is where we are and where we're happy to be.

I understand. And then just real quick, what's the tax rate assumed in Q1 and then for the full year 2021, if you have that.

Yes, I think it's for 27.5%, Mike.

Yes, and it's going to be the about the same for the full year.

Yes. So, between 27% and 28%.

Our next question comes from Gary Bisbee with Bank of America. Your line is open.

Just wanted to ask another one about Protiviti. So quarter ago you told us your expectation was 5% to 7% revenue growth and it did 18%, and obviously you're calling for even further acceleration in Q1. What sort of happened in the last three months and what is - I understand all the areas of strength you've frankly been discussing for several years now. But like what changed there? What's happening and how maybe durable or sustainable are the drivers of that recent acceleration.

The thing that changed the most as we had more public sector demand right to the end of the year than we expected. We service that primarily with contractors, which is why when you look at the supplemental schedules where we break out the inter-segment revenues, you see there was a $30 million spike between quarters three and four. And the lion's share of that was public sector related. As to sustainability, the jury is out. That said, we have relationships, we've never had before. We've certainly got a look into many local, regional, state governments and their business processes and we certainly are excited at the opportunity to improve those processes, be it overpayments, lot in the press about some fraud as it relates to payment of unemployment claims. And so again, there is no question that there is some spike in that as it relates to elevated unemployment claims that the states are having to process as same for housing assistance, same for remote learning support for school systems. That said, we do believe we're confident and we've got teams put together whose objective is just what you described as far as ensuring the sustainability and leveraging these new relationships that we have never had. Traditionally our revenues from government-related entities was less than 1% of revenue. So it was almost nothing. So, everything we're doing today is virtually incremental.

And then is - do you feel like either through that last discussion you gave or just more broadly, how you've gone to market and leverage the staffing business of Protiviti. Who are you gaining share from? You're outgrowing almost everyone else in any kind of consultative type approach we see. Does it or is there a certain place you're taking that from?

No. I think it's somewhat in the - on the staffing side, and it's somewhat on the consulting side, because neither have the full picture. And there are many staffing firms that can provide customers support people, where their client manages them. There are virtually none that do that where we also provide the management and not only is the management, it's with a view toward constant optimization which has been quite the winner. And so - but for us, who would have gotten that work, my guess is, some of it would have gone to the consulting firms, the accounting firms. Some of that would have gone to the staffing firms. But none of those players have what we have and it's actually pretty incredible how well it's done. It grew 82%, 82% this quarter, 82%. That's a big number.

And ability question, for sure. But yeah, no, it was outstanding. Thank you. I appreciate the color.

Our next question comes from Tobey Sommer with Truist Securities. Your line is open.

Could you tell us what you think the increased exposure to mid cap clients goes to your TAM?

Well, there's no question that staffing at mid-and large cap companies is many times the size as the opportunity was smaller businesses. Traditionally, we have a focus there because margin pressures or such that we felt like we were better off - offering our better candidates to small businesses that would pay us for of them. But as I said earlier, it's a whole new world, when we go hand in hand with Protiviti and its - there is the umbrella of an honest to god consulting arrangement, with honest to god deliverables such that we do think it's a new day and clearly the addressable market is much larger which is why we're investing. Think about just during the pandemic, our exposure to mid-cap has gone from low 20%, today it's 34%. That's huge. That's huge and it is in a small period of time and it was done in a period where we didn't dilute our margins.

Right. As my follow-up, I wanted to ask you a question on the cost side of delivering your service. Every call we start with talking about the number of locations that you deliver your services to particularly on the staffing side, but also Protiviti. Are there any meaningful opportunities from the experience in 2020 and now into this year to adjust the cost structure, so as to favorably impact margins over the course of the whole cycle?

Well, our biggest cost is our internal payroll cost and we've talked earlier about, we think we've got with a large assist with the technology we've developed in the last three to four years. We think our internal staff can inherently be more productive across this entire cycle. Real estate is more nuanced. On the one hand traditionally, our real estate is very dense. We put a lot of people in our space. There is not a lot of square footage traditionally per person in today's world of distancing even post-pandemic query whether we'll have to relax that somewhat and offset what we would otherwise save if we're on a hybrid model where everybody doesn't come in every day. So the jury is out on that. I mean, our current thinking is probably more of push than anything, but it's early days and we don't know. We don't know, ultimately how many people are going to want to work remotely versus come in, excuse me, and further we don't know whether the density we've traditionally had which kind of creates an electricity and energy level in an office, which has been helpful. We don't know whether we're going to have to spread people out more for obvious reasons. It's kind of interesting, Australia has some of the fewest number of cases. And so I would argue they're most along post pandemic and they've been surprised how much people want to come in and don't want. They work remotely. And in fact they talk about is, 92% to 95% of the staff want to come back into the office. That surprises me. Whether that's sustainable in Australia itself or whether you can replicate that other places, I don't know. But that's what they report.

Our next question comes from George Tong with Goldman Sachs. Your line is open.

Revenue trends in OfficeTeam stepped up pretty meaningfully in the quarter. What were the main drivers of that improvement? And were there any one of new benefits you'd call out in the quarter in that particular business?

I'd say a couple of things. So first of all, fourth quarter George, OfficeTeam always benefits from e-commerce customer support and they got some fourth quarter lift from that again. They also get open enrollment support lift in the fourth quarter. They got some of that again, traditional. But this public sector work with Protiviti that I've been talking about, a lot of that has been customer service driven, call center driven, and OfficeTeam is the beneficiary of that. OfficeTeam had an incredible couple of three quarters. Who would have believed that OfficeTeam and Protiviti would have gone to market together best at anytime much less during the pandemic.

You mentioned that revenues in the first three weeks of January were down 23% year-over-year compared to down 21% in December. In which areas did you see the most moderation in growth, moving from December to January?

First thing you need to zoom out from that and consider what January post quarter results mean and what they don't mean. And in fact, if you go back in time and you compare January post quarter to what with hindsight, you learn about the entire quarter. It's one of the least predictive post quarter periods that we have because of the holiday impacts. And so I would tell you that we tend to discount January post quarter more than most. And therefore, the fact that the year-over-year growth rates change by three percentage points, we don't ascribe much importance to.

Got it. Very helpful. Thank you.

As I said earlier, we're very happy with our restart. The enthusiasm level of our people has never been higher. And we got one more week of data this morning and frankly it was even better yet again.

Our next question comes from Kevin McVeigh with Credit Suisse. Your line is open.

Keith or Mike, just one follow-up. When you talk about the public sector work, is that primarily COVID related work where you're hoping there'll be some follow through, or is there any way to frame maybe how much of it is kind of COVID related that you're looking to extend once things start to normalize and to more normal relationships?

Well. And so it's helping states deal with their unemployment claims, customer service, claims processing, claims adjudication, in its housing, processing, assistance claims, its customer service, call centers into that, education, it's helping school systems deal with tech support for remote learning, the vaccine, again customer service, call center, people calling in wanting to register, it's helping with checking in, it's helping with the government reporting, once it's done. And so it's a whole host of things that clearly are initially related to CVOID, if you will. But as I said earlier, it's given us a look into their internal systems and we think it's a target rich environment to do follow-up work, which we are very focused on doing.

That's helpful. And that's all state and federal or a combination of both?

It's more state and local, more state and local.

Is there any way to maybe frame how much that was in the quarter, like in terms of revenue.

Well, we've disclosed to you the staffing, Protiviti revenue magnitude between the two. This quarter going back, we've told you there was a $30 million lift and we've told you that a large part of that lift relates to what I just described. So you can kind of use those puzzle pieces and come back to what you're looking for.

Very helpful. Thank you.

Okay. Operator, I think that's our last question. Thank you very much everyone for participating on the call.

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 also can dial the conference call replay. Dial-in details and the conference ID are contained in the Company's press release issued earlier today.