Hello, and welcome to the Robert Half Third Quarter 2024 Conference Call. Today's conference is being recorded. [Operator Instructions] 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're 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. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website roberthalf.com. For the third quarter of 2024, company-wide revenues were $1.465 billion, down 6% from last year's third quarter on an as reported basis and down 8% on an as adjusted basis. Net income per share in the third quarter was $0.64 compared to $0.90 in the third quarter one year ago. Revenues and earnings for the third quarter exceeded our expectations, driven by very strong results from Protiviti, which posted sequential and year-on-year revenue gains. While client budgets remain constrained and decision cycles extended, business confidence levels are improving, aided by continuing progress on inflation and the beginning of a global rate cutting cycle. This is reflected in our most recent weekly sequential results, which have been stable and consistent for the past 12-weeks to 14-weeks. We continue to be confident, both in our ability to weather the current climate and in our future growth prospects as the macro landscape improves. We remain well positioned to capitalize on emerging opportunities and support our clients' growth initiatives with the strength of our industry-leading brand, people, technology, and unique business model that includes both professional staffing and business consulting services. Cash flow from operations during the quarter was $130 million. In September, we distributed a $0.53 per share cash dividend to our shareholders of record for a total cash outlay of $54 million. Our per share dividend has grown 11.3% annually since its inception in 2004. The September 2024 dividend was 10.4% higher than the prior year. We also acquired approximately 800,000 Robert Half shares during the quarter for $49 million. We have 8.3 million shares available for repurchase under our board approved stock repurchase plan. Return on invested capital for the company was 18% in the third quarter. Now, I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.465 billion in the third quarter. On an as adjusted basis, third quarter talent solutions revenues were down 13% year-over-year. U.S. Talent Solutions revenues were $725 million, down 13% from the prior year's third quarter. Non-U.S. talent solutions revenues were $229 million, also down 13% year-over-year. We conduct talent solutions operations through offices in the United States and 17 other countries. In the third quarter, there were 64.1 billing days compared to 63.1 billing days in the same quarter one year ago. The fourth quarter of 2024 has 61.6 billing days compared to 61.1 billing days during the fourth quarter of 2023. Currency exchange rate fluctuations during the third quarter had a de minimis impact on reported revenues. Contract talent solutions bill rates for the third quarter increased 3.2% compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. This rate for the second quarter was 3.1%. Now let's take a closer look at results for Protiviti. Global revenues in the third quarter were $511 million, $421 million of that is from the United States and $90 million is from outside of the United States. On an as adjusted basis, global third quarter Protiviti revenues were up 5% versus the year ago period. U.S. Protiviti revenues were up 8%, while non-U.S. Protiviti revenues were down 8%. Protiviti and its independently owned member firms serve clients through locations in the United States and 29 other countries. Turning now to gross margin. In Contract Talent Solutions, third quarter gross margin was 38.9% of applicable revenues versus 39.8% in the third quarter one year ago. Conversion revenues or contract to hire were 3.3% of revenues in the quarter compared to 3.5% of…

Thank you, Mike. Although sales cycles are still elongated, job openings remain significantly above historical averages, indicating substantial pent up demand for talent. While the tightness of the labor supply has eased somewhat, the unemployment rate in the United States for those with a college degree is still only 2.3% with rates for many in-demand accounting finance and IT positions even lower. With lower inflation and widespread expectations of further rate cuts, the NFIB's Small Business Optimism Index has been up five over the last six months. With that said, the NFIB's uncertainty Index is at all-time highs, in part due to the upcoming U.S. elections. Many economists are making upward revisions to their forecasts and as we get past the elections, the overall macro environment should begin to improve. As business confidence improves, hiring urgency returns, project demand accelerates, deferred backlogs and growth initiatives are reprioritized and labor churn normalizes. This puts pressure on client resources that are often already stretched in and creates hiring and consulting demand that traditionally sets the stage for very strong gains for us in the early part of growth cycles. We continue to invest in technology and innovation to fuel our core business. Our proprietary recruiters plus award winning AI strategy offers significant added-value to our clients. Protiviti reported very strong results for the quarter, achieving sequential and year-over-year revenue growth, each of its major solutions areas performed well, particularly the regulatory risk and compliance and internal audit solutions for its financial service industry clients. Gross margin and segment income both exceeded expectations, growing more than 250 basis points sequentially on top of similar growth last quarter, reflecting ongoing efficient resource management. This includes the growing leverage of contractors with Talent Solutions, which represent over 40% of the total hours billed by Protiviti,…

[Operator Instructions] Our first question comes from Andrew Steinerman with JPMorgan.

Hi, Keith. Surely I heard you talk about U.S. business confidence a few times, particularly at your clients and surveyed more generally, have new orders for contract staffing picked up in recent weeks at Robert Half?

Well, we've said for the last 14 weeks, we've had very stable and consistent weekly results. And that's the longest consecutive period of flatness that we've had in the last two years. And so given that, that's better than it has been where it was drifting down week-on-week and month-over-month, I would say, yes, it's modest. But again, it's nice to see the duration of the flatness that we've seen, which is better than it's been.

And is it one area of contract staffing, which you think will rebound sooner or do you think your professional contract business will rebound together?

Well, if you look at our business now, I would say our higher skilled management resources and Robert Half technology, the higher piece of that are doing somewhat better. And it'd be our expectation that relative trend would continue.

Okay. Thanks, Keith.

Our next question comes from Mark Marcon with Robert W. Baird Company.

Hey, good afternoon, Keith and Mike. Wondering, can you talk a little bit about Protiviti, a little bit more about Protiviti. It sounds like you saw some really nice acceleration. If we take a look at the U.S., we went from 3.1% growth to 7.6% growth internationally, we went from negative 15.9% to negative 8.1%. And the comps for the fourth quarter are actually a little bit easier than they were in the third quarter, but the revenue guidance would basically suggest that we're not going to see acceleration relative to the third quarter? And so I'm wondering, given all the positives that we're seeing, including the commentary on the financial services and particularly what you're doing in terms of internal audit and risk compliance, why wouldn't we see continued acceleration on the Protiviti side?

So, the answer is very simple. They have a couple of large projects that are winding down and the pace of that wind down is a little uncertain, but they conservatively estimated a wind down rate and that has the impact on top of the holiday impact you always see in the fourth quarter, it's the shortest quarter. Protiviti even more so than Talent Solutions. Their clients go through a soft close and principally take the entire week of Christmas off, their full-time staff, take a lot of choice time off. And so the combination of it's a shorter quarter due to the holidays and you've got a couple of projects that are winding down. They have a very strong backlog. It always takes a little bit to build up for projects that replace those that wind down, but their pipeline is very solid. They're very positive, they're very upbeat. And I mean I can't think of a time, certainly not in the recent past that Protiviti hasn't been more optimistic, in part because of the breadth of the strength in their solution areas. It's all of their major solution areas. As we've said, led by financial services, they have very large backlog of AML, anti-money laundering projects. Many are understaffed relative to what they need to complete their 2024 internal audit plans, which the regulators require they do. And so Protiviti, quite optimistic. They've got this typical -- some projects wind down, other projects start up and there's a little bit of noise one to the other. But for that, I think you'd be very pleased with the numbers.

Okay. And then just to stay on Protiviti, I mean with the U.S. growth being at 7.6%, it seems like you're continuing to gain share relative to the big four. We've heard from some other players that some of the big four have overcapacity and perhaps are competing a little bit more on price. It doesn't seem like that's having an impact on you, but I'm wondering if you could just confirm or deny that that's having any sort of impact or and how we should think about Protiviti as we go into the first half of next year, given the investments that you've made and how we should think about the margins there?

Again, the price competition from some of the big four is not new. If anything that leveled off, it certainly didn't get more acute during the period. As to overcapacity and/or management of resources generally, I think Protiviti has done an excellent job. You see that in their gross margin accretion, another 250 basis points on a sequential basis. And so like many companies, post-COVID Protiviti staffed up significantly with their full-time staff. Since that time, they pretty much held the line at that high level, some call that hoarding. But on the other hand, they significantly reduced their contractor usage, some 35% when demand softened a bit and their internal staff, the attrition was cut in half, such that they reduce their overall resource capacity by using fewer contractors. But the good news and what I think is instructive generally. As things have improved at Protiviti, they have added back to the contractors. And in fact, if you look at the growth rates for the quarter, you'll see year-on-year the revenues grew 4.5%, but you've also look at that intersegment line, which is use of contractors, it grew 19.5%. So my point is, even though they're holding the line on that higher level of full-time staff, they first, when they were in cost-cutting mode, reduced contractors, but now they've added 90% of those back. And I think it's instructive, because many people believe that somehow there's conflict between hoarding your full-times and whether there's any upside to add contractors, I think Protiviti is a case study in fact, that shows that there's plenty of upside to add back contractors for those who've reduced it in the first case, which frankly is true industry-wide because if you look at non-farm payrolls overall, they're up 4% or 5% post-COVID, yet temporary help contractors, if you will, are down 8% or 9%. So I would argue that even though our clients generally have hoarded their full-times, they in part funded with that, with fewer contractors, and restoring their contractors because they're in a capacity constrained situation is our upside as things get better just as it has been in the past.

That's perfect. Thank you.

Your next question comes from the line of Manav Patnaik with Barclays.

Hi, Keith. This is Princy Thomas on for Manav. Thanks for taking my question. Wanted to see, are you seeing anything around finance and accounting positions and the risk from GenAI fulfilling a lot of these temp tasks?

The short answer is, we're seeing very little currently as it relates to GenAI. As we've talked about on prior calls, we've seen many technology cycles in the past, where there was automation of spreadsheets, of payroll, of tax preparation, ERP, bookkeeping. And all those cycles have been much more impactful to accounting finance, all of which we grew through individually and we also grew through in the aggregate. And we think those were much more significant, when you effectively went from manual to automated in each of the areas I talked about, such that today, virtually all our clients, even the smallest have automated accounting systems and the impact of GenAI relative to the -- that starting point pales in comparison to what I mentioned otherwise.

Got it. And then in terms of headlines around firms reinforcing further return-to-office mandates, have you seen any client shifts that are impacting hiring opportunities? We're still seeing demand for hybrid and remote roles from clients?

I'd say at higher skills, there is still demand for hybrid and remote roles. At the more operational and transactional level, there's clearly a preference by clients for on-site. Frankly, they have to pay a premium to compensate those people for their commute time, for their parking, their otherwise their out-of-pocket costs to come on-site, but at higher skill levels, remote and hybrid work is alive and very well, but at the transactional operational level, it's very much more on-site.

Got it. Thank you.

Your next question comes from the line of Trevor Romeo with William Blair. Please go ahead.

Hi, good afternoon. Thank you for taking the questions. First one, I just had a -- I guess, a two part question on the election. I think you mentioned some of the uncertainty in your prepared remarks. On the Talent Solutions side, just wondering what your conversations with clients are telling you about the impact of that uncertainty on-demand now and how that could change as we move past it. And then on the Protiviti side, I was just wondering if you've historically seen any increases or decreases in demand from a change in administration. For example, if people expect regulatory changes, could that potentially drive demand for the regulatory risk and compliance for the internal audit practices to manage that change?

I'd say on the Talent Solutions side, as for more uncertainty about the outcome than it is one outcome or the other having a lesser or greater impact. There's collect -- there's clearly election anxiety if you will. And I think it's just something that hopefully we get past quickly, but in any event, get past and that's more the issue on Talent Solutions. Protiviti, at least immediately wouldn't be that impacted, but to the extent, one side or the other had a significantly different position as to regulation, particularly financial services regulation. And quite frankly, that's not expected, particularly anti-money laundering is not something that's usually emphasized more or less by one side or the other. So there's not a huge impact expected. But clearly, regulation generally and enforcement of regulation is a demand driver for Protiviti.

Okay. Thank you. That's helpful. And then for the follow-up, just wanted to ask on internal headcount levels. I think last quarter you said you could grow 20% or 30% plus on the top line without adding heads. Is that still about the right range to think about in a demand rebound? And then considering the macro uncertainty is still pretty high. If we didn't see a meaningful uptick in demand going into next year, let's say, what would it take, if anything, for you to kind of change your approach on holding the line on recruiter count? Thank you.

Well, we continue to performance manage those that are struggling from an individual performance standpoint, but we stand by in a strong V-shaped recovery. There's no reason we can't get back to the same productivity levels, we saw a couple of years ago. And given that, the math says there is 20% to 30% upside. But again, based on how strong and based on how much we want to get ahead of that as we're in it, it would be a good thing if we started adding heads in advance of when we had to because that would signal that we're particularly bullish about our prospects. But on a pure productivity basis, we've proven that productivity levels can be 20% to 30% higher than what they currently are. But again, so same economic backdrop to same economic backdrop, that's just math, but the question is kind of what's our expectation beyond that which would also drive what our headcounts are.

Got it. Okay. Thank you, Keith.

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

Thank you. I wonder if you could update us on your government book of business, in the last several years, you expanded that during the pandemic, and even though that project was going to taper off, you thought you'd kind of have a good prospects over time in that vertical. Could you refresh us on what that looks like today?

Sure. And you are correct. We built up government during pandemic on some of those stimulus related projects. There were -- there was significant concern that we would have a negative Cliff event when that ended. Happy to report that didn't happen. We converted those into ongoing projects, both at the state, local, and federal level. And we're generally pleased with how government has done for us relative to the other sectors that we're in. So nothing major to report and I would argue no news there is good news given the short history we have.

Right. Not looking for an argument here. In terms of the tech business, is there a difference in the way you're -- what you're hearing from customers about that and seeing in terms of your own placement and bill rate trends versus the other staffing lines of business.

And I alluded to this earlier. And so when we think of tech, we split it between software and applications on the high end and infrastructure and operations on the operational end. And what we're seeing is more strength in software and applications, directly result of data, cloud, security, privacy. And so we are seeing some strength. And if you look at our growth rates this quarter, you'll see compared to F&A and administrative technology was a little better and those were the reasons.

Thank you.

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

Hi, thanks. Good afternoon. Can you discuss trends that you're seeing with broader white collar hiring and if you are noticing any sort of slowdown there? I know earlier you mentioned that weekly sequential trends were stable. So trying to see if you're seeing any second derivative changes. And then what white collar hiring trends are you assuming in your 4Q guide?

Well, so given that all we do is white collar, white collar is everything. As we said that, we now have the longest period of stability or flatness, we have 14 consecutive weeks of flatness and we haven't seen that kind of duration over the last two years, which was the period we've been otherwise drifting down sequentially. So the trend, the white collar trend is the overall trend that we referenced and it's a better trend than we had been seeing. You have to start somewhere. We flattened out. It's more than a week or two. It's more than four or five or six weeks. It's a long time, it's 14 straight weeks. So we're encouraged that we've flattened out for that period of time. And given the Optimism Index improvements we see from NFIB, given the hope that we get through the election uncertainty relatively quickly, we're optimistic. Now, as far as what's built into our guidance. Even though we've got that flatness that I described, we're more conservative than that in our guidance. We have included a kind of low-single-digit sequential down for the quarter. PERM placement in the fourth quarter, there's always a lot of uncertainty. Clients go on holiday, clients run through their hiring budget. Candidates are even stickier to displace because they're not only going on holiday, they're also waiting around for their bonus in hopes that they get one. So there's always more volatility for PERM, you'll notice that we ended the quarter much better than the full quarter, only to come the first few weeks after and going the other direction, which is further demonstrates the volatility that PERM has, particularly over short periods of time. But the principal issue for our guidance from a profitability standpoint, it's a short quarter. But…

Got it. That's very helpful. And continuing the line of thought on margins. Aside from seasonality, can you discuss some of the factors that may be causing operating margins to step down at the midpoint in 4Q compared to 3Q?

Well, it's all about the shorter quarter. And so you don't leverage your fixed cost because it's 2.5 -- it's at least 2.5 days shorter. As we talked about Protiviti is because of its clients saw close, they lose more than 2.5 days. But it's all about the short quarter, in the fourth quarter. But again, that's just one piece of what trough margins look like in this cycle, which history says get quickly forgotten as you focus on the upside in a recovery.

Got it. Very helpful. Thank you.

Your next question comes from the line of Stephanie Moore with Jefferies.

Hi, good afternoon. Thank you. I think you answered probably five of my questions and that last one, so that was very thorough. But I guess actually taking it a step further, I really appreciate the color comparing this cycle to kind of the prior two and importantly, your ability to reach new highs from a margin standpoint as you came out of the cycle. As you think about the ability to -- as you think about the recovery from this cycle, maybe talk a little bit about the drivers and what you have in place today, that give you confidence that you could effectively get back to that double-digit operating margin, but more importantly, maybe reach a new high on the margin standpoint compared to again those prior examples that you gave. Thank you.

Well, first and foremost, we've retained our top producers. We've had negative leverage because we haven't reduced headcount at the same pace that our revenues declined sequentially, all because we wanted to have capacity from a recruiter standpoint to participate. B, we've made significant strides from a technology standpoint and improving the productivity of our staff given better tools than they've ever had, which continues to improve as we speak. We lever the fixed cost on the upside at least to the extent we did on the downside. So we retrace our steps, if you will, as that reverses, we have Protiviti that is performing extremely well, no end in sight, taking share from the Big Four and we're very well-positioned broadly across its solution areas, technology, regulatory compliance, internal audit, business process improvement. You put that package together, I would argue we have more upside than we've ever had.

Great. Thank you. And then maybe switching gears to the gross margin front, I think you held in very well and pricing has trended pretty well as well. So can you talk a little bit about the potential for maybe any gross margin pressure here or anything that you're seeing that can suggest that?

I think our biggest upside on gross margin is mix. And as we move up the skill curve, we get a higher gross margin on higher skilled positions than we do on operational scale positions. And we've been on this journey for many years to take that mix even higher, which we expect to continue to do. And therefore, I believe there is gross margin upside for mix alone.

Great. Thank you.

Your next question comes from the line of Kevin Mcveigh with UBS.

Hello, good afternoon. This is Mark [Indiscernible] on for Kevin Mcveigh. Last quarter, you guided to $0.08 in restructuring expenses related to Protiviti in Q3. Does today's report EPS number account for the restructuring? And if so, what was the actual impact from restructuring? Thank you.

So the impact was exactly what we thought it would be and it's $5.6 million in SG&A and it's $2.5 million of tax provision. It gets you right to the $0.08 that we forecast and it's embedded -- it was embedded in our guidance. So there's no difference from what we guided to as it relates to that. And it's because we converted our Mainland China owned operation to a member firm, independently owned member firm.

Got it. Thanks so much.

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

Thank you. I just had a quick follow-up on, you're very clear about the margin impact for the fourth quarter. Three months from now, we'll be talking about the first quarter. And I was just wondering if you wanted to remind people just kind of some of the seasonal impacts as it relates to the first quarter and how people should think about this kind of normal margin sequential patterns going from Q4 to Q1.

I'd say typically in the first quarter on a same-day basis, contract is pretty flat seasonally and PERM because you're comparing it to the shorter, more volatile fourth quarter, PERM typically has a mid-single-digit step up in the first quarter of -- for that reason. So same-day contract about the same, but you have more days, right? You pick up those holiday days. So overall, you have more days on a -- in same per day, whereas in PERM, you have more days and you get more per day.

Got it. And then in Protiviti, we've seen the pattern over the last few years, anything that would be different this time around relative to that typical pattern?

Well, in Protiviti, because internal audit gets crowded out by clients focusing on their external audit, there's a seasonal step down per day that's typically mid-single-digits on a same-day basis. And again, it's a seasonal thing. We've gone through that pattern in prior quarters we've discussed. And from a profitability standpoint, remember too, Protiviti does all their raises, their compensation increase was effective Jan 1. So you have a double impact where the costs go up all in one day and the revenues seasonally sequentially go down for the reasons I talked about. And so from a profitability standpoint, Q1 is Protiviti's lowest profitability quarter, but happy to report, Protiviti had double-digit operating margins in the third quarter. So it's nice to see them back there. I mean, I can't say enough about how well they manage their resource base, keeping that high level of full-time employees by very effectively managing their contractor base and that contractor base is a -- it's a bullet they have relative to the Big Four that don't have that. So they very effectively have managed their resources, just look at those gross margins up 250 basis points sequentially, two quarters in a row.

And Mark, just so that you have them, the days for next year, by quarter -- first quarter 61.9, second quarter 63.2, third quarter 64.2, fourth quarter 61.4% for a total of 250.7.

Perfect. That's very helpful. Thank you so much.

So that was our last question. Thank you all for joining us today. So long.

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 roberthalf.com. You can also log into the conference call replay. Details are contained in the company's press release issued earlier today.