Robert Half Inc.

Hello and welcome to the Robert Half Second Quarter 2021 Conference Call. Our hosts for today's call are Mr. Keith Wiedel, President and Chief Executive Officer of Robert Half, and Mr. Michael Buckley, Chief Financial Officer. Mr. Wiedel, 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 risk 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 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. Our presentation of revenues and the related growth rates for accountants, office team, Robert Half Technology, and Robert Half Management Resources includes their intersegment revenues from services provided to productivity in connection with the company's blended staffing and consulting solutions. This is how we measure and manage these divisions internally. The combined amount of divisional intersegment revenues with productivity is also separately disclosed. The supplemental schedules you just mentioned also include a revenue schedule showing this information for 2019 through 2021. For your convenience, our prepared remarks for today's call are available in the investor center of our website, roberthaff.com. We achieved record levels of revenues and earnings in the second quarter due to a broad-based global acceleration in demand for our staffing and business consulting services. We were particularly pleased with the strength of our permanent placement and productivity operations, which grew year over year by 102% and 62% respectively. Protiviti reached its 15th consecutive quarter of revenue gains with very strong growth in each of its solution areas. I'm extremely proud of our staffing, Protiviti, and corporate services professionals who are the key to our success. Company-wide revenues were 1.581 billion in the second quarter of 2021, up 43% from last year's second quarter on a reported basis, and up 40% on an as-adjusted basis. That income per share in the second quarter was $1.33, increasing 227% compared to 41 cents in the second quarter a year ago. Cash flow from operations during the quarter was $165 million. In June, we distributed a $0.38 per share cash dividend to our shareholders of record for a total cash outlay of $42 million. We also acquired approximately 717,000 Robert Half shares during the quarter for $63 million. We have 8.4 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 49% in the second 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 $1.581 billion in the second quarter. On an as-adjusted basis, second quarter staffing revenues were up 33% year-over-year. U.S. staffing revenues were $855 million, up 34% from the prior year. Non-U.S. staffing revenues were $267 million, up 31% on a year-over-year basis, as-adjusted. We have 322 staffing locations worldwide, including 86 locations in 17 countries outside the United States. In the second quarter, there were 63.4 billing days unchanged from the same quarter one year ago. The current third quarter has 64.4 billing days compared to 64.3 billing days in the third quarter one year ago. Currency exchange rate movements during the second quarter had the effect of increasing reported year-over-year staffing revenues by $24 million. This impacted our year-over-year reported staffing revenue growth rate by 2.9 percentage points. Temporary and consultant bill rates for the quarter increased 3.7 percent compared to one year ago, adjusted for changes in the mix of revenues by line of business, currency, and country. This rate for Q1 2021 was 3.4%. Now let's take a closer look at results for productivity. Global revenues in the second quarter were $459 million, $366 million of that is from business within the United States, and $93 million is from operations outside the United States. On an as-adjusted basis, global second quarter productivity revenues were up 59%, versus the year-ago period, with U.S. productivity revenues up 63%. Non-U.S. revenues were up 43% on an as-adjusted basis. Exchange rates had the effect of increasing year-over-year productivity revenues by $8 million and increasing its year-over-year reported growth rate by 2.8 percentage points. Protiviti and its independently owned member firms serve clients through a network of 86 locations in 28 countries. Moving on to SG&A presentation. We remind you that changes in the company's deferred compensation obligations are classified as SG&A, or in the case of Protiviti, cost of services, with completely offsetting changes in the related trust investment assets classified separately below SG&A. Previously, they were both classified as SG&A. Our historical discussion of consolidated operating income has been replaced with the non-GAAP measure of combined segment income. This is calculated as consolidated income before income taxes adjusted for interest income in amortization of intangible assets. For your convenience, we've included a supplemental schedule to today's earnings release on page 7, highlighting the impact of changes in the deferred compensation accounts to the summary of operations for the second quarter of 2021 and 2020. This is a non-GAAP disclosure, so we also show a reconciliation to GAAP. Turning now to gross margin, in our temporary and consultant staffing operations, second quarter gross margin was 39.7% of applicable revenues. compared to 37.1% of applicable revenues in the second quarter one year ago. Our permanent placement revenues in the second quarter were 12.8% of consolidated staffing revenues versus 8.6% of consolidated staffing revenues in the same quarter one year ago. When combined with temporary and consultant gross margin, overall staffing gross margin increased 490 basis points compared to the year-ago second quarter to 47.4%. For productivity, gross margin was 29.1% of productivity revenues compared to 23.4% of productivity revenues one year ago. Adjusted for the effect of deferred compensation expense related to changes in the underlying trust investment assets as previously mentioned, adjusted gross margin for productivity was 30% for the quarter just ended versus 25.7% one year ago. Transitioning to selling general and administrative costs, company SG&A costs were 30.9% of global revenues in the second quarter compared to 36.7% in the same quarter one year ago. Changes in deferred compensation obligations related to increases in underlying trust investments had the impact of increasing SG&A as a percentage of revenue by 1.5% in the current second quarter and increasing SG&A by 3.8% in the same quarter one year ago. When adjusted for these changes, company-wide SG&A costs were 29.4% for the quarter just ended compared to 32.9% one year ago. Staffing SG&A costs were 38.4% of staffing revenues in the second quarter versus 44.2% in the second quarter of 2020. Included in staffing SG&A costs was deferred compensation expense related to increases in the underlying trust investment assets of 2.1% in the second quarter compared to an expense of 5.1% related to increases in the underlying trust investment assets in the same quarter one year ago. When adjusted for these changes, Staffing SG&A costs were 36.3% for the quarter just ended compared to 39.1% one year ago. Second quarter SG&A costs for productivity were 12.5% of productivity revenues compared to 15.1% of revenues in the year-ago period. Operating income for the quarter was $177 million. This includes $28 million of deferred compensation expense related to increases in the underlying trust investment assets. Combined segment income was therefore $205 million in the second quarter. Combined segment margin was 12.9%. Second quarter segment income from our staffing divisions was $125 million, with a segment margin of 11.1%. Segment income for productivity in the second quarter was $80 million, with a segment margin of 17.4%. Our second quarter tax rate was 27% compared to 20% one year ago. The comparative rate in 2020 was lower than normal due to adjustments made to the estimates of the pandemic impact on the 2020 tax rate. At the end of the second quarter, accounts receivable were $908 million, An implied day sales outstanding, or DSO, was 51.6 days. Before we move to third quarter guidance, let's review some of the monthly revenue trends we saw in the second quarter and so far in July, all adjusted for currency and billing days. Our temporary and consultant staffing divisions exited the second quarter with June revenues up 34% versus the prior year. compared to a 27% increase for the full quarter. Revenues for the first two weeks of July were up 35% compared to the same period one year ago. Permanent placement revenues in June were up 83% versus June of 2020. This compares to a 97% increase for the full quarter. For the first three weeks in July, permanent placement revenues were up 83% compared to the same period in 2020. We provide this information so that you have insight into some of the trends we saw during the second quarter and into July. As you know, these are very brief periods of time. We caution against reading too much into them. With that in mind, we offer the following third quarter guidance. revenue $1.61 billion to $1.69 billion, income per share $1.35 to $1.45. The midpoint of our guidance implies new all-time high revenue and EPS levels for the company. Midpoint revenues of $1.65 billion are 37% higher than 2020, and 5% higher than 2019 levels on an as-adjusted basis. Midpoint EPS of $1.40 is 110% higher than 2020 and 39% higher than 2019. The major financial assumptions underlying the midpoint of these estimates are as follows. Revenue growth on a year-over-year basis, staffing up 33% to 35%, productivity up 46 to 48%, overall up 36 to 38%. Gross margin percentage, temporary and consulting staffing, 39 to 40%, productivity 29 to 31%, overall 41 to 43%. SG&A as a percent of revenues, excluding deferred compensation investment impacts, staffing, 35 to 36%, productivity 12 to 13%, overall 29 to 30%. Segment income for staffing 10 to 11%, productivity 17 to 18%, overall 12 to 13%, a tax rate of 26 to 27%, and shares outstanding $111.5 million. 2021 capital expenditures and capitalized cloud computing costs, $65 to $75 million, with $15 to $20 million incurred during the third quarter. We limit our guidance to one quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings. Now I'll turn the call back over to Keith. Thank you, Mike.