ROBERT HALF INC. Q3 FY2024 earnings call

• Company-wide revenues in the third quarter were $1.465 billion, down 6% as reported and 8% as adjusted from last year. - Net income per share was $0.64 compared to $0.90 last year. - Protiviti posted strong sequential and year-on-year revenue gains. - Business confidence is improving aided by inflation progress and rate cutting. - Cash flow from operations was $130 million. - $0.53 per share cash dividend was distributed. - Approximately 800,000 shares were repurchased for $49 million. - Return on invested capital was 18% in the third quarter.

Global revenues for the third quarter were $1.465 billion. Talent Solutions: U.S. Talent Solutions revenues were $725 million, non-U.S. was $229 million, both down 13% year-over-year. Contract talent solutions bill rates increased 3.2% compared to one year ago. Protiviti: Global revenues were $511 million, with U.S. at $421 million and non-U.S. at $90 million. 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%. Gross margin for Contract Talent Solutions was 38.9% of applicable revenues versus 39.8% in the prior year. Overall gross margin for Talent Solutions was 46.8% compared to 47.5% last year. Protiviti gross margin was 24.6% of revenues compared to 26.2% last year. Segment income for Talent Solutions was $38 million with a segment margin of 4%, and for Protiviti was $52 million with a segment margin of 10.2%.

• Fourth quarter 2024 revenue guidance: $1.34 billion to $1.44 billion. - Income per share guidance: $0.47 to $0.61. - Major financial assumptions: Talent Solutions down 9% to 13%, Protiviti up 3% to 6% on an as-adjusted basis. Contract margin percentage for contract talent 38% to 40%, Protiviti 25% to 27% on an as-adjusted basis. SG&A as a percentage of revenues adjusted for deferred compensation and investment income offset: Talent Solutions 43% to 45%, Protiviti 14% to 16%. Segment income for Talent Solutions 2% to 4%, Protiviti 10% to 12%. Tax rate 28% to 30%. Shares 102 million to 103 million. 2024 capital expenditures and capitalized cloud computing costs $80 million to $90 million, with $20 million to $25 million in the fourth quarter.

• Risks include economic uncertainties, extended decision cycles due to client budget constraints, election-related uncertainty impacting business confidence, and currency exchange rate fluctuations.

Q: 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?

A: 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.

Q: 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?

A: 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.