In the Robert Half Fourth Quarter 2023 Conference Call, President and CEO Keith Waddell and CFO Michael Buckley discuss the company's current performance and future predictions. They remind listeners that their statements contain forward-looking information and mention the risks and uncertainties that could affect their results. They also mention non-GAAP financial measures and provide a link to their prepared remarks. Despite ongoing economic uncertainty, the company had above-consensus results in the fourth quarter, with Protiviti leading the way. Labor demand remains strong, but talent shortages and economic uncertainty are impacting hiring and project activity. However, the company is seeing improving revenue trends and expects a positive inflection point in the near future.

In the fourth quarter of 2023, the company reported a decrease in revenues compared to the previous year, but remained confident in their ability to grow. They distributed a cash dividend to shareholders and acquired shares for repurchase. The CFO also provided details on talent solutions revenues and billing days for the quarter.

The remaining three quarters of 2024 will have a total of 252 billing days, with an increase in total revenues due to currency exchange rate fluctuations. The contract talent solutions bill rates increased by 3.7% in the fourth quarter compared to one year ago. Protiviti's global revenues in the fourth quarter were $464 million, with a decrease of 8% from the previous year. Gross margin for contract talent solutions was 39.7% and for Protiviti was 23.9%, both lower than the previous year.

In the fourth quarter, Protiviti's gross margin decreased to 25.9% due to decreased full-time employees and contractors. Enterprise SG&A costs increased to 35.1% of global revenues, while talent solutions' SG&A costs increased to 44.6% of revenues. The lower mix of permanent placement revenues decreased adjusted SG&A ratios by 0.4 percentage points. Protiviti's operating income was $67 million and combined segment income was $114 million. The tax rate remained at 27% and accounts receivable were $861 million with an implied DSO of 52.6 days.

The company saw a decrease in contract talent and permanent placement revenues in the fourth quarter and the first few weeks of January. However, the rates of decline have been narrowing. The company cautions against reading too much into these trends due to the short time periods. The company is offering first quarter guidance with expected revenues of $1.44 billion to $1.54 billion and income per share of $0.54 to $0.68, which is a 13% decrease from the same period in 2023.

The financial assumptions for the midpoint of the company's estimates include projected revenue growth, gross margin percentage, and segment income. The company's first quarter segment income guidance takes into account seasonal factors and a decline in midpoint estimated segment margin. The job market remains tight, but there has been a decrease in employee attrition and an improvement in client discussions. This is likely due to factors such as lower inflation and a more favorable interest rate policy.

The positive factors heading into 2024 include an increase in hiring and labor churn, growth and margin prospects from higher skilled services, and investments in technology and innovation, including AI. The company is also pleased with Protiviti's results for the quarter, with the regulatory risk and compliance practice leading the way. However, other solutions areas were slightly affected by client budget measures, and economic conditions are impacting the average deal size and time to close contracts.

Protiviti, which represents 34% of the company's annual segment income, is expected to continue to grow in the global consulting industry. The company is benefiting from its focused and nimble solutions offerings, as well as its access to scalable contract talent. The aging workforce and clients' desire for flexible resources are expected to be long-term tailwinds. In the fourth quarter of 2023, the company received several accolades. The company's executives are confident in their corporate purpose and thank their employees for their commitment to success. During the Q&A session, the company's executives were asked about the visibility and improving trends in Protiviti's revenue.

In Paragraph 9, Keith Waddell, the CEO of Protiviti, discusses the growth areas within the company and its strong backlog. He mentions that Q1 is a traditionally tougher quarter for Protiviti due to declines in utilization and higher costs for promotions and raises. However, he expects to see progress in gross margins throughout 2024. He also notes that business conditions are the same or slightly better for both Protiviti and talent solutions. When asked about competition and pricing, Waddell does not provide a direct answer.

The improved tone of client discussions in the last 90 days can be attributed to a combination of factors, including less inflation, no fears of rate increases, and fewer predictions of a recession. This applies to both the talent solutions and Protiviti sides of the business, but the improvement is not significant.

The environment is showing improvement in the talent solutions and Protiviti sides, which is a change from previous quarters. A question was asked about CapEx spending, and the response was that there will be an increase due to downsizing in certain locations, which will result in cost savings in the long term. The average CapEx spending over 10 years is about 1.3% of revenue.

In response to a question about the company's positive inflection point, Keith Waddell clarifies that it is not based on year-over-year comparisons, but rather on sequential trends. He explains that the company's weekly sequential revenue trends have improved over the past few quarters and are now close to being positive. This is a significant improvement from previous quarters where the company only saw narrowing declines.

Trevor Romeo asks Keith Waddell for an update on utilization trends at Protiviti. Waddell responds by saying that utilization in the fourth quarter was as expected, with Protiviti performing slightly better than expected. However, he notes that there is always a seasonal decline in utilization in the first quarter due to internal audit dynamics. Waddell also mentions that Protiviti's first quarter projections are above trend compared to previous years. Stephanie Moore follows up by asking if the company has started adjusting their recruitment strategies in anticipation of a potential market improvement, to which Waddell responds that they have not yet made any adjustments and would need to see a positive trend before doing so.

Keith Waddell explains that the company has reduced its recruiter head count due to revenue declines, but has capacity to add headcount as business conditions improve. He also mentions that there is pent-up demand for headcount in branch offices. In response to a question about a 200 basis point step down in EBIT margins, Waddell attributes this to the typical seasonal impact of less chargeability utilization and the impact of raises and promotions at Protiviti. He also notes that economic conditions are affecting deal size and contract closing times.

Keith Waddell discusses the impact of cost-focused clients on Protiviti's sales cycles and revenue. He notes that while the overall pipeline continues to grow, it takes longer to convert to contracts and projects, resulting in a decline in revenue. This trend has been seen for the past few quarters and is not unique to Protiviti. The sequential decline in margins is in line with previous years, but may seem larger due to starting from a lower Q4.

The speaker discusses the range of sequential declines in revenue over the past 10 years, which has been between 4 and 7 percentage points. They note that last year's decline was 6.5 percentage points, showing an improvement from the previous year. The speaker also mentions that recent wins have been a result of combined efforts from talent solutions and Protiviti, and that 25% of Protiviti's revenues come from resources sourced from talent solutions. They believe this is a competitive advantage and will continue to grow over time. The next question asked is about the success rate of cross-selling between the two companies.

Kevin McVeigh asks Keith Waddell about the headcount adjustments at Protiviti and whether they are due to deleveraging, technological efficiencies, or a step function in revenue. Waddell explains that the adjustments were necessary due to a slight decrease in revenue and that they were able to protect full-time employees by utilizing a tranche of variable cost. McVeigh also asks about the margins and if there are any other factors, such as workers' comp accrual, that may be impacting them. Waddell clarifies that the seasonal step function is the main factor and that they do not typically give annual guidance.

Keith Waddell discusses the potential impact of starting the year at the midpoint and how it may scale over the course of the year. He mentions negative leverage on the talent solutions side due to not cutting headcount, but keeping capacity for when things improve. He also discusses the expected improvement in margins for Protiviti over the course of the year. In response to a question about the aggressive pricing of the big four and cost increases, Waddell suggests that the company may be able to recover some of these costs throughout the year.

Keith Waddell, a representative from Protiviti, explains that the company's gross margins are affected by various factors such as bill rate increases, employee and contractor mix, and the ratio of higher level managing directors to lower level consultants. The company has successfully managed these levers to increase their margins in 2023. Waddell also mentions that Protiviti has seen strong demand from banks for regulatory compliance and remediation services, but there has been some pressure on the internal audit work due to cost-cutting measures.

The financial services industry for Protiviti, which includes regulatory risk and compliance as well as internal audit, saw single digit growth in the overall package. However, there were two different pieces to this growth, with one growing nicely and the other being impacted by cost measures from big banks. During the Q&A session, the company was asked about their bill rates and fee assumptions for 2024, to which they responded that they expect wage rate increases to continue moderating, resulting in a moderation of bill rates as well. However, their gross margin percentage should remain intact. The biggest factor affecting gross margins was the conversion of contractors to full-time employees, which was down from the previous year. The breakdown of Protiviti's underlying businesses showed that regulatory risk and compliance had the strongest growth, while technology consulting was flat and internal audit was down mid-single digits.

In the first quarter, business process improvement was down by double digits, but the public sector saw some positive results due to understaffing in state and local governments and education. This contributed to above-trend optimism in the first quarter. The call has now ended and a replay will be available on the company's website.

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