ROBERT HALF INC. Q1 FY2025 earnings call

• Business confidence levels moderated during the quarter due to heightened economic uncertainty over U.S. trade and other policy developments, with client and job seeker caution elongating decision cycles and subduing hiring activity and new project starts.
• The company is well-positioned to capitalize on emerging opportunities through its industry-leading brand, people, technology, and unique business model combining professional staffing and business consulting services.
• Cash flow used in operations during the quarter was $59 million, with cash outflows elevated in the first quarter due to annual bonus and SaaS subscription renewals.
• A $0.59 per share cash dividend was distributed, with the per share dividend growing an average of 11.6% annually. Approximately 650,000 Robert Half shares were acquired during the quarter for $39 million.
• Return on invested capital for the company was 5% in the first quarter. First quarter 2025 net income was reduced by $0.13 per share for one-time charges related to cost actions to reduce administrative expenses.
• Protiviti achieved year-over-year revenue growth for the third quarter in a row despite elevated economic uncertainty, with its prospect and pipeline remaining strong though conversion time was lengthened.
• The company has high employee engagement, earning recognition as One of America's Most Innovative Companies by Fortune and One of America's Best Large Employers by Forbes, and both Robert Half and Protiviti being named among Fortune's 100 Best Companies to Work For.

Global enterprise revenues for the first quarter of 2025 were $1.352 billion, down 8% from the prior year on a reported basis and 6% on an adjusted basis. For Talent Solutions, global revenues were down 11% year-over-year on an adjusted basis. U.S. Talent Solutions revenues were $676 million, down 10% from the prior year's first quarter, while non-U.S. Talent Solutions revenues were $199 million, down 15% year-over-year. Contract Talent Solutions bill rates increased 4.2% compared to one year ago, adjusted for mix changes. For Protiviti, global revenues in the first quarter were $477 million, with $387 million from the United States and $90 million from outside the U.S. Adjusted global first quarter Protiviti revenues were up 5% versus the year-ago period, with U.S. up 4% and non-U.S. up 8%. Protiviti's gross margin was 18.9% of revenues in both the current quarter and the first quarter of 2024, with adjusted gross margin at 18.1% for the quarter just ended compared to 20.7% last year.

• Second quarter revenues are expected to be $1.31 billion to $1.41 billion, with income per share $0.36 to $0.46. Midpoint revenues are 7% lower than the same period in 2024 on an adjusted basis, and down 4% sequentially.
• Adjusted revenue growth year-over-year for Talent Solutions is expected to be down 10% to 14%, and up 1% to 4% for Protiviti, overall down 5% to 9%.
• Adjusted gross margin percentages: contract talent 38% to 40%, Protiviti 21% to 24%, overall 37% to 39%.
• Adjusted SG&A as a percentage of revenue: Talent Solutions 43% to 45%, Protiviti 15% to 16%, overall 33% to 35%.
• Adjusted operating income as a percentage of revenues: Talent Solutions 2% to 4%, Protiviti 6% to 8%, overall 3% to 6%.
• Tax rate is expected to be 31% to 33% for the full year. Shares outstanding are expected to be 100 million to 101 million. 2025 capital expenditures and capitalized cloud computing costs are预计 to be $75 million to $95 million, with $15 million to $25 million in the second quarter.

• Economic uncertainty, including U.S. trade and other policy developments, which moderated business confidence and elongated decision cycles for clients and job seekers, subduing hiring activity and new project starts.
• One-time charges related to cost actions to reduce administrative expenses impacted margins in the first quarter.
• Seasonal cash flow issues, with cash outflows typically elevated in the first quarter due to annual bonus and SaaS subscription renewals.

Q: Hey good afternoon and thanks for taking my questions. Keith, when we take a look at Protiviti, clearly, the revenue was still up year-over-year. The margins ended up contracting. Obviously, you've got a bench model and deleveraging. So, the questions are around Protiviti. When you think about the book of business within Protiviti, how much would you characterize as basically being recurring or less discretionary relative to purely more discretionary, nice to have because you're still looking at potential growth for the first quarter, and I'm wondering how you think that kind of unfolds as the year goes along and where the margins could end up being if things stay steady-state or conversely, if things get a little bit worse? And then I've got a follow-up.

A: Well, I guess we've never really officially formally broken out discretionary versus non-discretionary. If you look at our big four solutions, risk and compliance, primarily regulatory remediation and compliance, that's not discretionary. If you look at technology consulting, clearly, there's a must do and -- it improves thing to do dichotomy there. So, that is split. Internal audit in our largest industry financial services is not discretionary. It has to happen in the non-FSI industries segments, there is some discretion there and then business process improvement is probably the most discretionary of all. If those four are about equal -- I mean, technology is a little larger and risk and consulting is a little smaller. I added up the split I just talked about. But there's a decent mix of the two. As we said, this is the third quarter in a row that they've had revenue growth. Notwithstanding, the uncertain macro, we expect sequential growth in all of those major solutions into the second quarter. We're more conservative with that sequential growth than we've been in years past, but we still feel good, given the pipeline. And adjusted for the slower conversion of pipeline time, we feel reasonably good about where Protiviti is from a profitability standpoint as you observed that the revenue shortfall relative to expectation was centered primarily on Protiviti employees versus contract employees. So, it had a disproportionate impact on profitability. The good news is in the coming quarter, just the opposite happens and that we actually convert more than the revenue improvement to the bottom-line because not only are we better utilizing the full-time staff we have, we're also swapping out some full-time staff contract staff and actually save direct cost dollars in that way. So, it's actually one of our better sequential improvements given that dynamic.

Q: That's great. And then I'm hesitant to ask this question, but I've been getting it a lot from a lot of different investors and so I know it's top of mind with a number of them. I think I know the answer already. But when we take a look at capital allocation, where does the dividend sit on your capital allocation priorities? And could you envision a scenario based on what you're currently seeing where the dividend would ever be cut?

A: And so we've had a long, long, long-term commitment to return our excess cash flow to shareholders. Over the long-term, that's been about 50% dividends, 50% repurchases. As earnings have contracted, dividends play a much larger role in that capital return. We're committed just as we have since we started in 2004, to raise that dividend. We just raised it last quarter and it would certainly be our intention not only to keep it but to keep increasing it. And that the cash flow of the first quarter, as we already commented, there are seasonable impacts to cash flow, i.e., annual bonus payments, annual SaaS payments as that make first quarter cash flow look low, but we certainly expect that to rebound nicely for that reason. So, no change in capital allocation strategy, still return all our cash flow to shareholders. Retain the dividend, and it just happens to be given where overall cash flow is, dividend is going to be a larger portion of the total, but that's something we believe will work its way out as we move forward in time just as we have in the past. But no change in capital allocation strategy.