Hello. And welcome to the Robert Half Fourth Quarter 2021 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 the forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Reconciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release. Our presentation of revenues and the related growth rates for Accountemps, OfficeTeam, Robert Half Technology and Robert Half Management Resources includes their intersegment revenues from services provided to Protiviti in connection with the company's blended staffing and consulting solutions. This is how we measure and manage these divisions internally. The combined amount of divisional intersegment revenues with Protiviti is also separately disclosed. The supplemental schedules just mentioned, also include a revenue schedule showing its information for 2019 through 2021. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com. 2021 was an extraordinary year, and we achieved record annual results all organically. Fourth quarter revenues grew 36% and net income grew 78%, exceeding the high-end of our guidance and reflecting sustained broad-based demand across our staffing and business consulting businesses. Our permanent placement and Protiviti operations continued to show very strong results growing year-on-year revenues by 73% and 37% respectively. Our temporary and consulting staffing…

Thank you, Keith. And hello, everyone. As Keith noted, global revenues were $1.77 billion in the fourth quarter. On an as adjusted basis, fourth quarter staffing revenues were up 36% year-over-year. U.S. staffing revenues were $992 million, up 37% from the prior year. Non-U.S. staffing revenues were $283 million, up 32% year-on-year on an as adjusted basis. We have 321 staffing locations worldwide, including 85 locations in 17 countries outside the United States. In the fourth quarter, there were 61.7 billing days, unchanged from the same quarter one year ago. The current first quarter has 62.4 billing days compared to 62.3 billing days from the first quarter of 2021. Currency exchange rate movements during the fourth quarter had the effect of decreasing reported year-over-year staffing revenues by $5 million. This impacted our year-over-year reported staffing revenue growth rate by 0.5 percentage points. Temporary and consultant bill rates for the quarter increased 8.5% compared to one year ago, adjusted for changes in the mix of revenues by line of business, currency and country. This rate for the third quarter of 2021 was 5.4%. Now let's take a closer look at results for Protiviti. Global revenues in the fourth quarter were $495 million, $387 million of that is from business within the United States and $108 million is from operations outside the United States. On an as adjusted basis, global fourth quarter Protiviti revenues were up 37% versus the year ago period, with U.S. Protiviti revenues up 32%. Non-U.S. revenues were up 61% 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 rates by 0.5 percentage points. Protiviti and its independently owned member firms serve clients through a network of 87 locations in 28 countries. Turning now to…

Thank you, Mike. The labor market is undergoing extraordinary change as remote and hybrid models continue to gain traction and professionals change jobs at record levels. Many candidates have a strong preference for working remotely. And our clients are also increasingly willing to recruit from outside their geography and embrace remote working arrangements. Clients benefit by gaining access to a deeper talent pool and or lower price points than they may be able to find locally. Remote work is here to stay and creates a significant opportunity for us. It brings together our numerous strengths, including our global brand, our global office network, our global candidate database, and advanced AI-driven technologies and data analytics at the scale needed to excel at out of market recruitment and placements. This strengthens our competitive position significantly since our traditionally toughest competitors, local and regional staffing firms simply do not have these capabilities. The National Federation of Independent Business, NFIB, recently reported that 95% of those hiring are trying to hire had few or no qualified applicants for open positions and 49% of all small business owners had job openings that could not be filled. This continues to bode well for us as we see increases in demand for our services on a very broad basis, spanning across industries, client size, skill levels, geographies and lines of business. This robust demand coupled with our continuing ability to successfully recruit candidates for our clients has contributed to our staffing results recovering at a faster pace than we've experienced in the past. Our permanent placement and temporary and consulting staffing segments including blended solutions with Protiviti have achieved cumulative sequential growth of 125% and 63%, respectively, during the 6 quarters since the pandemic trough. Similar numbers for the financial crisis and dot-com recoveries were 56% and…

Your first question comes from the line of Mark Marcon with Robert W. Baird.

Good afternoon. And congratulations on a great year. I was wondering if you could talk a little bit more about Protiviti, particularly with regards to the expectations on the government side versus the commercial side. Just how sustainable do you think the commercial growth is? It certainly seems like there are more digital transformation opportunities. You're obviously now technologically focused, that being your biggest practice area. So just wondering how sustainable do you think that sort of commercial growth is? And then can you also discuss the growth that you're seeing internationally? So that within the U.S., it's pretty clear that Protiviti is really distinguishing itself as a brand name and getting a lot of recognition. I'm wondering to what extent that's spreading internationally.

Well, we'll see several questions there. Protiviti continues to expect to expand significantly commercially. We talked about the public sector being flat to up 10%, which, frankly, is an improvement versus our expectations 90 days ago. On the commercial side, the expectation is that the 25% growth in the fourth quarter, ex public sector, would remain intact through the first quarter. There would be some dilution by the flat to up 10% on the public sector. Protiviti's issue is not demand and in fact, is internal employee staff. It's aggressively adding to staff as we speak. The business backdrop has never been better. The SG&A assumptions for the first quarter consider and contemplate additional -- significant additional recruiting and training cost for all the additional many of which are experienced hires they're going to bring on board. The IZ versus U.S., Protiviti IZ, you name the country also doing very well. We've had particular success in Germany, the UK, Australia, where the brands are also well recognized there. I think we now do business with 60% of the Fortune 1000 in the U.S. And so brand recognition is increasing as we get better penetration from those accounts.

That's great. As a follow-up, I'd like to ask about the 8.5% bill rate expansion. And how you juxtapose that with the increased level of virtual work that's being done. It seems like there's a labor cost arbitrage. And so seeing the 8.5% increase on a like-for-like basis is interesting. I'm wondering if you can comment on that.

Well, the 8.5% is certainly higher than we've seen early cycle in prior recoveries where the range would tend to be 4% to 6%. So it's a little high. It's not hugely high. That 8.5% is not limited to any practice group irrespective of its remote versus on-premise mix. So I wouldn't necessarily attribute the higher bill rate percentage to a higher portion of remote work. But instead, just the firmness of the labor markets across the board, across skill levels, across practice areas. The good news is while wage inflation is elevated, we're certainly able to pass that through and expand our gross margins just a little at the same time. It's a good place to be in.

Absolutely. Congratulations again.

Your next question comes from the line of Andrew Steinerman with JPMorgan.

I just wanted to ask you more about supply. And if you could answer it kind of both for Protiviti, which you mentioned a little bit, Protiviti aggressively adding to staff. My question really is, when you look at F&A professionals in the United States, we just generally hear labor is tight and maybe even too tight, we hear often. But if you could just focus on finance and accounting professionals, Keith. And tell us how you feel the supply of finance and accounting professionals are now versus other times that you've experienced in the past?

Well, we've used the term before, and I'll use it again, and I would say, manageably tight. It's true, candidates get multiple offers. They get counter offers. Generally, they want remote engagements and want to be paid a premium to go on site. Even though current unemployment levels are low, they're not at historical lows. College people with a college degree, their unemployment rate currently is 2.1. That's been sub-2 in the past. Our staff are very skilled at recruiting. They have access to our proprietary database that use our proprietary AI and data science. Remote work significantly expands the pool that they can recruit from. This is not a tool they've had in recoveries passed. Further, we've got a bench of full-time professionals that are also available for assignment, which also addresses the supply side of the equation. So for all of those reasons, we've been able to manage through the supply side of this. And we expect we'll continue to be able to manage given all the traditional tools we have, given the experience of our people and given the access to remote workers and the ability to use remote workers, which range from 20% to 70% depending on the practice group that you're talking about.

Maybe just be a little more specific about F&A. Like do you feel like when you're recruiting for F&A positions versus when you're recruiting for IT position that there might be a little more availability of F&A professionals again, compared to IT professionals, for example?

Well, I'd say they're both tight -- on the F&A side is probably tighter at the operational level than it is at higher levels. The higher levels tend to be more conducive to remote work than the operational levels where clients tend to want people on site. So relative to IT, I guess you could make the case that it's not as tight. I think that's fair, but it's tight. But again, manageably tight, we think we can manage our way through this.

Got it. Thank you so much. Appreciate it.

Your next question is from Hamzah Mazari with Jefferies.

Hi. This is Hans Hoffman filling in for Hamzah Mazari. So my first question is, it looks like technology and temp staffing slowed in Q4. Could you just provide some color on the drivers there?

Well, technology grew 21%, again, different than some of the other divisions, technology fared well, fared better during the pandemic than some of our others did. So generally speaking, they're going to have tougher comps than some of the others are. But frankly, we were pleased with technology in the fourth quarter and it was above our own internal forecast for that period.

All right. Great. Thank you. And then my next question is, can you just give us a sense of how much capacity you have within your current business in terms of recruiters, given your demand outlook? Or do you kind of have to go out there and hire more people? And is labor availability at all becoming an issue for you?

I'd say on the recruiter capacity side, on the contract side of the business, we do have capacity. That said, we are beginning to add to staff there. We have less capacity with permanent placement given its elevated growth rates. And we're much more aggressively adding to staff there. But I think one thing that in my tenure here that you can always count on is when you give our people the requisition approval to add to staff, they deliver. If you think about it, they recruit all day for a living. And some of those people, they are looking to place ultimately end up as recruiters working for us, placing others. And so as I sit here today, I don't have any issue with. We'll be able to recruit internally the number that we have. Another point there, we are very pleased with the lack of turnover we've seen. There's all this talk about the great resignation, the great reshuffle. But if you look at our internal staff at Robert Half, our attrition is actually down, and we're very proud of that.

Great. Thank you so much.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Thanks so much. Wanted to continue the discussion on your internal headcount. First of all, I just want to clarify something. The numbers that you gave for Protiviti, is that a year-end number or an annual number, averaging?

Well, it's an average over the full year, that's right. But it was somewhat back ended. And therefore, the cost as we enter 2022 we'll have the full effect of that, whereas the fourth quarter only had the average portion of that.

Got it. And in prior years, did you always given an average or was it the year-end? Because I know for staffing you give a year-end. I just wasn't sure of Protiviti.

This consistent the methodology hasn't changed. The contractor versus employee counts at Protiviti get a little confusing, but we try to explain that the combined headcount for Protiviti inclusive of the full-time equivalents for contractors is what we disclosed. And by the way, about 50% of the hours worked for Protiviti, at least during the fourth quarter, were worked by contractors rather than its own employees.

Okay. Great. Sorry to get in the weeds there. Let me ask my bigger picture question. So it looks like your Protiviti headcount is at an all-time high, so are revenues. Staffing, you seem to be back at pre-pandemic levels, but your internal headcount is much lower. I mean I know you've talked in the past about some of the productivity tools. You mentioned briefly that you're going to be ramping up hiring firms. But should we expect these productivity levels to continue to improve going forward?

We're proud of our productivity levels. I'd say it's a reflection of, a, the average experience level of who we now have is higher than it has been in the past. B, we've introduced all these technology tools that I'd be happy to talk about for the next 45 minutes, if you'd like to listen. Further, our own people are working remotely, which means when we fill orders we can spread that workload across a larger area of internal recruiters. Therefore, per se, making them more productive. And so we have all of that going for us. We're focused on productivity. We think those productivity levels are here to stay. We think we've got upside from where we are. But we do need to begin hiring. We've already begun aggressively hiring in perm. And we will begin to do that as well on the contract side. I've talked a couple of times about these people that work for us full time that we place on assignment. We're aggressively adding to the internal staff that manages that part of our business as well.

Okay. Fantastic. Thanks so much for the color.

Your next question comes from the line of Kevin McVeigh with Credit Suisse.

Great. Thanks so much. Congratulations on the results. Keith, I went back and I think my numbers are close, but the revenue overall since 2019 is up about 6.5%. But if you look at temp, it's down 8.5%, Perm is up almost 7%, and then Protiviti is up 64%. Is there any way to think about, obviously, a pretty wide delta there? How are you thinking about demand pull forward versus where we are in the cycle? I mean it's been so unprecedented. Is there any way to think about how you're thinking of kind of each one of the segments and from a demand perspective, I guess, is where I wanted to start? And is some of that structural as a result of remote workforce within Protiviti as opposed to the consulting, just such a kind of tricky cycle we're in. Just trying to understand any puts and takes across the three segments.

Well clearly, for staffing or talent solutions that we now call it. This recovery has been different in that the unemployment rates have recovered much more quickly than they've done in the past. Typically early cycle of the unemployment rates stay high with that larger pool of people we feel elevated orders from small business clients who were lean and whose transaction volumes recover and they get into projects. And so clearly, the labor markets are tighter stronger sooner than they've been in prior recoveries. As to Protiviti, Protiviti didn't go down during the pandemic. So it had uninterrupted growth. So when you look at a point in time now versus a point in time 2019, given that it never had -- it never went down. It's at a higher place and its benefit -- it's been the primary beneficiary, not only of public sector contractor work, but commercial sector contractor work as well -- and you could just as easily give our Talent Solutions operations credit for that work as you would Protiviti because it's blended that they both work on. So the distinction between one versus the other is blurred to some degree. As we talked or as we said in our prepared comments, for the fourth quarter relative to 2019, I think, was your reference point. Overall revenues are 15% higher and earnings are almost 50% higher, which is pretty incredible.

And then just could you repeat and you were clear on it, but I just missed them, the project work, the public work versus the commercial within Protiviti in the quarter?

Right. And so -- for the quarter, we talked about Protiviti public sector. We gave you the number, the $89 million took its core commercial growth rate of 25% to the overall growth rate of 37%. So without public sector grew 25%, with public sector, it grew 37%. So that's the impact of public sector. We expect that 25% to remain intact into the first quarter, which is built into the guidance. Even though year-on-year, the public sector work slows, we're still optimistic that for the full year 2022 will be at or better than 2021, notwithstanding the moderation in unemployment claims processing, that's been so large a part of what happened in 2021 and to some degree, late-2020. So core commercial growth, Protiviti, very strong, 25% Q4, expected to be 25% again in Q1. And then public sector adds or subtracts as I just talked about. Underlying core very strong. Protiviti's biggest issue was not demand, not demand. It's getting internal staff for which they're hiring aggressively, primarily experienced staff that they're getting from other consulting firms that they're getting from other accounting firms, and they're very successful at doing it.

Thank you.

Your next question comes from the line of Tobey Sommer with Truist Securities.

Thank you. If you could delve into wage growth, bill rate growth and put it in some historical context. I believe there was a period of 4 or 5 consecutive years. We had 5% growth in the 2000s with unemployment rate where you said it is, it's low, but it's not at historic lows. How long could we see this kind of high-single digit, maybe a little bit above the normal band that you characterized earlier on the call?

Well, as you just said, which is correct, if you look in the last recovery, we had 4 or 5 years where we had sustained bill rate growth between 4% and 6%. So I'd call that normal. So we're a bit higher than normal as we speak. Unemployment is lower than it is at a similar point in prior recoveries. We believe because we're still not at historical lows, as you also mentioned that there's -- that current rates can be sustained but whether they're 6% or 8%, we're going to do well. And it's an environment where we can add to enhance our margins. Again, wage inflation is our friend when we can pass it through with a little margin enhancement.

Right. And if we think about gross margins from a social cost perspective given the payroll taxes, et cetera. Do we have a runway where those could add and contribute to gross margin expansion? Or has the pace of this recovery has been so different that much of that is already sort of embedded in the income statement at this point?

Well, we talked a little bit about this last quarter. I'm happy to report that we expect our state unemployment costs for 2022 to be roughly flat with what they were as a percentage in 2021. And that's dramatically better than prior recoveries where they're elevated for 1 to 3 years based on the higher claims filed against our account during the downturn. So if anything, the historical drag we've seen from higher social cost early cycle, we're not seeing so far this time for reasons I explained on the last call. And I'm not going to bore everybody again. So there's good news on the social cost front. And in fact, if you talk about gross margins, generally we think there's a lot of room for improvement. A, you've got mix going more towards management resources, good for gross margin. Mix going more toward full-time contractors, good for gross margins; mix going to higher conversions as full-time hiring stays robust, good for gross margins; social cost, not rising at the same pace they had in prior recoveries, good for gross margins. So we've got a lot going for us. At the gross margin line, not to mention, as perm grows faster than contract, that's also good for gross margins.

Your next question comes from the line of George Tong with Goldman Sachs.

Hi, thanks. Good afternoon. You provided guidance on public sector Protiviti demand for 1Q. Can you provide thoughts around when you would expect public sector COVID-related relief work on Protiviti to normalize? How that time line would look like over the next several quarters?

Well, George, we believe that for full year 2022, we'll be at or above what we were in 2021. And notwithstanding, we have headwinds on unemployment. We have tailwinds on education. We have tailwinds on housing assistance, and we have tailwinds on finance and IT modernization projects for which the backlog is growing significantly. So just as 2021 ramped up with public sector, we expect 2022 to ramp. It is just the nature of the projects that ramp 2022 will be different than those that ramp 2021. But for the full year, we actually think we'll be flat or grow, not down. And that will normalize over the course of the year. And as we said earlier, for the first quarter alone, we said we think we'll be flat to up 10% with public sector. Public sector measurement gets a little confusing because part of it is recorded as Talent Solutions and part of it is recorded as Protiviti. And as we move forward, the educational component public sector is more Talent Solution centric. The unemployment and housing assistance portion is more Protiviti centric. And this modernization, IT accounting modernization is blended. And so it will be in both places. So you have to stitch together the pieces of this to come to an overall number, which is a little confusing when you look at the numbers. But when you stitch all of the pieces together in 2021 and you stitch all the pieces together for 2022, we think will actually be flat or up. And that's a more positive outlook than we had 90 days ago, which is a function of, a, the pretty dramatic increase in the pipeline for new projects; and b, our success rate, which has been very high.

Got it. Very helpful. And then with respect to the impact of COVID, which sectors and end markets, would you say have seen the most impact from Omicron from a temp staffing demand perspective at Robert Half.

And so we disclosed that for the first 2 weeks out of the gate right during the teeth of Omicron, our contract side grew 40% which is an acceleration from where we exited 2021. And so while clearly, we saw contract professional absenteeism due to Omicron, the numbers would have been even higher. Protiviti also saw some absenteeism from Omicron. But it was fairly short-lived, a week or 2 and viewed as a short-term thing that's in the scheme of a full quarter, it's not a huge impact. But again, like I say, we came out of the gate hot up 40% year-on-year, which was an acceleration, notwithstanding a small drag from Omicron.

Great. Thank you.

Your next question comes from the line of Kevin McVeigh with Credit Suisse.

And I apologize in advance on this. So just so we're clear, the comments on Protiviti. Was that overall Protiviti flat to up or just the commercial and government work? Was that flat up or?

Flat to up, all right? So first of all, in our guidance for the first quarter, we said Protiviti's revenues would grow 19% to 21%, so let's call it, 20%. So that's overall Protiviti. Then if you just look at the public sector impact on Protiviti, which is about 18% of their revenues, we said that piece would be flat to up. So what that means then is that the commercial part of Protiviti call it 80%, will be growing 25%. And the balance will be flat to up 10%. But Protiviti overall, our guidance has growing 20%.

I thought you talked about '22 overall, Keith, I apologize. I thought you said flat to up for the full year. I just want to clarify that.

Well, okay. That's public sector overall, for the full year, we do expect to be flat to up. For the first quarter, we expect it to be flat to up 10%. So the explanations of the same, frankly, whether you're talking in the quarter or the year, for the public sector piece only, but that's less than 20% of the total. The other 80% is growing 25% and not slowing down. Demand isn't the issue, they need the staff.

Thank you.

Your next question comes from the line of Mark Marcon with Robert W. Baird.

You just answered my question, which is basically, it's public work for all of 2021 was 18% of Protiviti or was it 20%?

So we're saying for the first quarter, Protiviti consolidated everything. The guidance has grows 20%, everything, commercial and public sector, everything. If you just focus on the public sector piece, which is less than 20% of Protiviti's total, it will be flat to up 10%. So the commercial side will grow faster than the public sector side for the first quarter.

Keith, I got all that. What I was trying to get a precision on was just the percentage of Protiviti revenue that came from the public sector in all of 2021 for the full year. I wasn't sure if that 18% that is public sector was a fourth quarter reference number or 2021 reference.

It was a calculated fourth quarter. It was $89 million on $495 million. That's the 18%. I don't have those same numbers right here in front of me. So we had ramped. It probably -- it started less than that in the first quarter of 2021. It ramped to more than that in the second and third quarter. My guess is 20% to 25% for the full year would be where it ended up. But I'm guessing, I don't have numbers in front of me.

Okay. But regardless, you've gone through the calculation, and it's -- for the full year, you would expect it ultimately will end up being up for the full year of 2022. And then that's notwithstanding the fact that some of the jobless claims work is going to be tailing off, which means that the other parts are growing faster, which means that conceivably, we should see growth even in 2023, for the public sector area as well.

We believe public sector will be a nice, permanent additional revenue source for Protiviti 2023 and beyond. And we absolutely believe for the full year 2022, Protiviti will grow nicely notwithstanding for 2022. The public sector component will grow somewhat more slowly. I'm now being told that for the full year 2021, Public sector was 19% of the total.

Perfect. Thank you.

There are no further questions in queue at this time. I'll turn the call back over to Keith for closing remarks.

Okay. Thanks, everybody, for joining today. Thank you very much.

This concludes today's teleconference. If you have 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.