The Robert Half Third Quarter 2023 Conference Call is being recorded and will be hosted by President and CEO Keith Waddell and CFO Michael Buckley. Waddell reminds listeners that their comments may contain forward-looking statements and mentions the risks and uncertainties that could affect their future performance. Non-GAAP financial measures will be referenced and reconciliations are available on their website. Despite economic uncertainty, they have delivered above-consensus results for the third quarter.

In the third quarter, both talent solutions and Protiviti exceeded expectations and gross margins remained strong. The company's operating cost base also benefited from targeted cost alignment. Despite a 15% decrease in revenues compared to the previous year, net income per share was $0.90 and cash flow from operations was $176 million. The company distributed a $0.48 per share cash dividend and acquired 1.2 million shares during the quarter. Return on invested capital was 24%. The CFO, Mike Buckley, provided an overview of global revenues, which were $1.564 billion, and noted that Talent Solutions revenues were down 17% on an as adjusted basis. U.S. Talent Solutions revenues were $823 million and non-U.S. Talent Solutions revenues were $260 million. The company has 319 talent solutions locations worldwide.

The third quarter saw a decrease in billing days compared to the same quarter one year ago. Currency exchange rates had a positive impact on reported revenues, with an increase of $13 million. Contract Talent Solutions bill rates increased by 4.6%. Protiviti's global revenues were down by 5%, with a decrease of 6% in the United States and 2% outside of the US. Gross margin for Contract Talent Solutions was 39.8% and for Protiviti was 26.2%, down from 39.4% and 30.5% respectively from one year ago.

In the third quarter, Protiviti's gross margin was 25.6% after adjusting for deferred compensation impacts, while SG&A costs were 31.8% of global revenues. Talent Solutions SG&A costs were 39.3% of revenues, while Protiviti's SG&A costs were 14.7% of revenues. Operating income for the quarter was $144 million, with a combined segment income of $130 million and a segment margin of 8.3%. The third quarter tax rate was 30%, higher than the previous year due to non-deductible expenses and fewer tax credits. Accounts receivable were $941 million with an implied DSO of 54.2 days. Monthly revenue trends for the quarter and October were adjusted for currency and billing days.

In the third quarter, Contract Talent Solutions saw a 17% decrease in revenues compared to the prior year, with a 16% decrease for the full quarter. Permanent placement revenues were down 26% in September and 24% in the first three weeks of October. However, the rates of decline have narrowed in the past 10 to 12 weeks. The company provides fourth quarter guidance with revenues estimated to be $1.415 billion to $1.515 billion, a 15% decrease from the same period in 2022. The major financial assumptions for the quarter include lower revenue for Talent Solutions and Protiviti, gross margin percentages of 39% to 41%, and SG&A as a percentage of revenues of 32% to 34%. The estimated tax rate is 27% to 28% and the company expects to have 104.5 million to 105.5 million shares. Capital expenditures and capitalized cloud computing costs are estimated to be $80 million to $90 million, with $20 million to $25 million in the fourth quarter. The company only provides guidance for one quarter.

The company's estimates are subject to risks mentioned in their press release and SEC filings. The job market remains stable, but clients are cautious about hiring and are maintaining their internal headcounts. The company's Talent Solutions division is strategically investing in higher skilled positions, which has led to higher bill rates and longer assignment lengths. This has helped mitigate the effects of the current downturn, with the company's mix of higher skilled services being over 50%. The regulatory risk and compliance practice of Protiviti continues to see strong revenue growth.

The paragraph discusses the impact of client budget pressures on internal audit and technology consulting at Protiviti. It also mentions that the company's pipeline is strong, but economic conditions are affecting deal size and the time it takes to close contracts. Despite this, Protiviti remains competitive and confident about the future. The company has received prestigious accolades and is committed to its purpose of connecting people to meaningful work and providing clients with talent and consulting expertise. The speaker, Keith Waddell, is asked a question about the current environment, to which he responds that it is characterized by five consecutive quarters of slowing.

The speaker discusses the current economic environment and the impact it has had on their company's performance. They note that there has been a sequential slowing, but it is not as severe as previous downturns. The company has been able to manage their costs well and is focused on having resources for when the market improves. The speaker also mentions that economists have struggled to accurately predict the market and their company's weekly revenues have improved compared to the previous quarter. The discussion then shifts to the company's subsidiary, Protiviti, and their strengths in areas such as regulatory risk and compliance.

The speaker discusses the size of Protiviti and its four major solution areas. They also mention that the guidance for Protiviti revenue is expected to decline in the fourth quarter due to a shorter quarter. The speaker notes that the pipeline for new business is strong and compares it to the previous year. They also mention that campus recruiting was successful this summer, but do not provide specific numbers.

In the upcoming year, Protiviti's recruiting class is larger than the previous year, but the conversion of pipeline opportunities to project starts has slowed. However, this may be a positive sign for the future. The company is managing well despite high staff raises and attrition rates, and they are still recruiting on campus, although with more caution. The contract Talent Solutions gross margin has shown resilience.

The speaker discusses the stability of their company despite a softer market and mentions that pricing and mix have remained steady. They believe that the tight labor market will continue to support pricing and that their focus on higher skilled employees has led to improved gross margins. The speaker also mentions the complexity of comparing revenue on a weekly, quarterly, and yearly basis.

The company believes that the best indicator of their performance is their weekly revenue compared to previous weeks. They have had three consecutive quarters of declining revenue, leading to negative year-on-year growth rates. However, they have recently seen a flattening out of revenue, which is a positive sign. The company believes that current market conditions are best reflected by their weekly revenue trends. Customers are still cautious, but there are signs of stabilization.

The speaker discusses the company's recent financial performance, noting that their average weekly numbers have only changed by 2%, which is an improvement from 90 days ago. They also mention that customers are still in need of workers, but are being selective in their hiring. The speaker then shifts to discussing the company's tech investments, specifically in AI, and shares positive results from a three-year back test that showed the accuracy of their AI model in predicting successful placements and increasing client satisfaction.

The company is pleased with the success of their AI technology in recruiting and is currently customizing a large language model to further improve it. They are also using AI to help their employees reach out to potential customers. The company has been investing in AI for a while and leverages data to make it practical. The impact of labor strikes on the company is minimal. In terms of internal hiring, the company is focused on the productivity of their current employees and has had to let go of those who were not performing well.

The company is always looking for talented and experienced staff, but is not aggressively adding to their internal staff due to the current environment. They have a good amount of "dry powder" and feel confident in their sales and recruiting capabilities. The Talent Solutions business is mostly made up of small and medium-sized clients, with no specific industries standing out in terms of demand. On the Protiviti side, there is some budget pressure in internal audit and tech consulting, but there are no major industry or geographic trends.

In this paragraph, Keith Waddell discusses the current state of Protiviti's services, particularly in relation to their internal audit work program. He mentions that they have seen a shift towards co-sourcing with clients, as they become more budget conscious. However, he also mentions that Protiviti feels confident in the stability of their services and is optimistic about signing new contracts in the coming year. In terms of pricing, Waddell acknowledges that there is always competition, but believes that Protiviti's strong brand and quality of talent allows them to compete effectively.

The speaker discusses the impact of the Big 4 accounting firms on Protiviti and Robert Half. He mentions that the Big 4 have been heavily hiring and some have excess capacity, leading to competitive pricing. He also notes that the decision of E&Y to not split has a neutral effect on Robert Half. He adds that Protiviti has been able to attract experienced partners from the early retirement practices of the Big 4.

The speaker, M. Keith Waddell, confirms that the international business has been outperforming the US business for several quarters, with Germany, Belgium, and the UK being strong markets. They have taken cost actions to right size their staff and have saved $42 million in Talent Solutions. Their goal is not to optimize trough margins, but to have the right capacity when things improve. They will continue to monitor revenues and make adjustments as needed.

The speaker explains that many clients reduce their capacity during a downturn, but as soon as things get better, they need more capacity and the company is a great source for them to scale up. The questioner then asks about how growth will look in a mid-cycle slowdown, and the speaker responds that the high number of job openings gives him confidence that there will be a strong upturn. The speaker also mentions that the company is not concerned about supply of candidates, as they have multiple sources for potential employees.

The speaker discusses the use of AI to find suitable candidates for remote work, which is still a viable option for upper skilled positions. They also mention the advantage of recruiting full-time employees who are already employed, rather than relying on those who have been displaced during a downturn. The speaker is optimistic about the supply of candidates, even though there may not be a large pool of unemployed individuals to choose from. They also mention that remote and hybrid work arrangements are more prevalent for higher skilled positions, and clients are still accepting of remote work for project-based roles.

The company has a special project that requires highly skilled workers, and they are open to staffing it remotely. The Q4 guide assumes some stabilization in end markets, but the company has discounted the traditional trend line due to the volatility of the fourth quarter. The company's performance in the third quarter was above consensus for both revenue and profitability.

In the paragraph, M. Keith Waddell discusses the positive and negative surprises in the company's internal metrics for the quarter. He mentions that the improvement in weekly sequential performance was a positive surprise, while there were no major negatives. He also notes that Protiviti made significant improvements in their segment income, exceeding expectations. Overall, Waddell is pleased with the company's performance and the improvements made by Protiviti. The call concludes with the operator providing information on how to access the audio recording of the call.

This summary was generated with AI and may contain some inaccuracies.