This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Hello, and welcome to the Robert Haas Second Quarter 2022 Conference Call. Today's conference call is being recorded. If you'd like to ask a question during the Q&A portion of the call, please press star and the number one on your phone. Our hosts for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Haas, and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.
spk09: 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 risks 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 in our most recent 10-K and 10-Q 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. We'd like to remind you that beginning in 2022, our financial disclosures for contract operations, formerly temporary and consulting staffing, are based on functional specialization rather than our previously branded divisions. The functional specializations are finance and accounting, administrative and customer support, and technology. Finance and accounting combines the former accountants and management resources, Administrative and customer support was previously office team, and technology was formerly Robert Half Technology. Productivity and our permanent placement operations continue to be reported separately. Also, what we previously referred to as our staffing operations are now referred to as talent solutions. There is no change to our underlying business operations or organization. Our presentation of revenues and the related growth rates For each of our contract functional specializations includes intersegment revenues from services provided to productivity in connection with the company's blended talent solutions and consulting operations. This is how we measure and manage these businesses internally. The combined amount of intersegment revenues with productivity is also separately disclosed. The supplemental schedules just mentioned also include a revenue schedule showing this information for 2020 through 2022. For your convenience, our prepared remarks for today's call are available at the investor center of our website, roberthalf.com. We are pleased to once again report very strong results, which continue to reflect a robust global labor market and demand environment. Talent solutions led the way with permanent placement and contract talent solutions growing 39% and 19% respectively on a year-on-year basis. Corporativity solutions also remain strong. I'd like to acknowledge the dedication and exemplary efforts of our entire global workforce, including talent solutions, productivity, and corporate services professionals who make our success possible. Company-wide revenues were $1.863 billion in the second quarter of 2022, up 18% from last year's second quarter on a reported basis and up 20% on an as-adjusted basis. That income per share in the second quarter was $1.60, increasing 20% compared to $1.33 in the second quarter one year ago. Cash flow from operations during the quarter was $233 million. In June, we distributed a $0.43 per share cash dividend to our shareholders of record for a total cash outlay of $49 million. Our per share dividend has grown 11.6% annually since inception in 2004. The June 22 dividend was 13.2% higher than 2021. We also acquired approximately 900,000 Robert Half shares during the quarter for $79 million. We have 5.8 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 48% in the second quarter. Now I'll turn it over to our CFO, Mike Buckley.
spk05: Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.863 billion in the second quarter. On an as-adjusted basis, second quarter talent solutions revenues were up 24% year-over-year. U.S. talent solutions revenue were $1.071 billion, up 25% from the prior year. Non-U.S. talent solutions revenues were $295 million, up 20% year-over-year on an as-adjusted basis. We have 316 Talent Solutions locations worldwide, including 85 locations in 17 countries outside of the United States. In the second quarter, there were 63.4 billing days unchanged from the same quarter one year ago. The current has 64.3 billing days compared to 64.4 billing days one year ago. Currency exchange rate movements during the second quarter had the effect of decreasing reported year-over-year total revenues by $37 million, $26 million for talent solutions, and $11 million for productivity. This negatively impacted our year-over-year overall revenue growth by 2.3 percentage points, 2.3 percentage points for talent solutions and 2.4 percentage points for productivity. Contract calendar solution bill rates for the quarter increased 8.2% compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. This rate for the first quarter of 2022 was 9.1%. Now let's take a closer look at the results for productivity. Global revenues in the second quarter were $497 million. 396 million of that is from business within the United States, and 101 million is from operations outside of the United States. On an as-adjusted basis, global second quarter productivity revenues were up 11% versus the year-ago period, with U.S. productivity revenues up 8%. Non-U.S. revenues were up 21% on an as-adjusted basis. Proactivity and its independently owned member firms serve clients through a network of 88 locations in 29 countries. Company-wide second quarter public sector revenue was $94 million, of which $70 million was reported by Proactivity and the balance reported by Talent Solutions. Currency exchange rates had the effect of decreasing year-over-year public sector revenues by $4 million. We expect third quarter 2022 public sector revenues to be 90 to 100 million, and we continue to expect full year 2022 public sector revenues to be flat to up 10% for the year. Turning now to gross margin. In contract talent solutions, second quarter gross margin was 39.9% of applicable revenues. compared to 39.7% of applicable revenues in the second quarter one year ago. Conversion revenues, or contract to hire, were 4.1% of revenues in the quarter. Our permanent placement talent solution revenues in the second quarter were 14.7% of consolidated talent solutions revenues versus 12.8% of consolidated talent solutions revenues in the same quarter one year ago. When combined with contract talent solutions gross margin, overall talent solution gross margin was 48.7%, an increase of 1.3 percentage points compared to the year-ago second quarter. For productivity, gross margin was 30.4% of productivity revenues compared to 29.1% of productivity revenues one year ago. Adjusted for deferred compensation related classification impacts, gross margin for productivity was 28.1% for the quarter just ended, compared to 30% one year ago. Gross margin in the current period was impacted by higher staff resource costs, including continued expansion of headcount in the quarter. Enterprise selling general and administrative costs were 27.3% of global revenues in the second quarter compared to 30.9% in the same quarter one year ago. Adjusted for deferred compensation related classification impacts, enterprise SG&A costs were 30.3% for the quarter just ended compared to 29.4% one year ago. Talent Solutions SG&A costs were 32.2% of Talent Solutions revenues for the second quarter versus 38.4% in the second quarter of 2021. Adjusted for deferred compensation related classification impacts, Talent Solutions SG&A costs were 36.2% for the quarter just ended compared to 36.3% one year ago. The higher mix of permanent placement revenues this quarter versus one year ago had the effect of adding 0.9 percentage points to the quarter's adjusted SG&A ratio. Second quarter SG&A costs for productivity were 14% of productivity revenues compared to 12.5% of revenues in the year-ago period. Operating income for the quarter was $306 million. Adjusted for deferred compensation related classification impacts, combined segment income was $241 million in the second quarter. Combined segment margin was 12.9%. Second quarter segment income from our talent solutions divisions was $171 million with a segment margin of 12.5%. Segment income for productivity in the second quarter was $70 million. with a segment margin of 14.1%. Our second quarter tax rate was 27%, the same as one year ago. At the end of the second quarter, accounts receivables was $1.092 billion and implied day sales outstanding, or DSO, was 52.6 days. Before we move to third quarter guidance, let's review some of the monthly trends we saw in the second quarter and so far in July, all adjusted for currency and billing days. Contract Talent Solutions exited the second quarter with June revenues up 18% versus the prior year, compared to a 21% increase for the full quarter. Revenues for the first week of July were up 16% compared to the same period one year ago. permanent placement revenues in June were up 38% versus June of 2021. This compares to a 43% increase for the full quarter. For the first two weeks of July, permanent placement revenues were up 3% compared to the same period in 2021. This period includes the historically variable impact of the 4th of July holiday. We provide this information so that you have insight into some of the trends we saw during the second quarter and into July. But 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. Revenues, $1.87 billion to $1.95 billion. Income per share, $1.60. to $1.70. Midpoint revenues of $1.910 billion are 14% higher than the same period in 2021 on an as-adjusted basis. Midpoint earnings per share of $1.65 is 8% higher than 2021, notwithstanding a 5-cent negative impact for currency and a higher tax rate. Note that in the prior year, Q3 2021 revenues and EPS had very strong year-over-year growth rates of 43% and 129%, respectively. The major financial assumptions underlying the midpoint of these assumptions are as follows. Revenue growth on a year-over-year basis, talent solutions up 16% to 19%, productivity up 6% to 9%, overall up 12% to 16%. Gross margin percentage, contract talent 38% to 40%, productivity 28% to 30%, overall 42% to 44%. SG&A has a percentage of revenue excluding deferred compensation classification impacts, talent solutions, 36 to 37%, productivity 14 to 16%, overall 30 to 32%. Segment income, talent solutions, 11 to 13%, productivity 13 to 15%, overall 11 to 13%. Tax rate, 26 to 27%, shares 108 to 110 million. Third quarter capital expenditures and capitalized cloud computing costs, 25 to 30 million. 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.
spk09: Thank you, Mike. Global labor markets remain strong. In the United States, job openings and quit rates remained elevated and only modestly below all-time highs. The unemployment rate continues to hold near a record low, particularly those with a college degree where the rate is 2.1%. For small businesses, the National Federation of Independent Businesses, or NFIB, recently reported that 94% of those hiring or trying to hire had few or no qualified applicants for open positions and 50% of small business owners had job openings they could not be filled. Remote and hybrid working models are here to stay and provide us with a significant opportunity to capitalize on the structural shift in how companies source talent. This plays to our numerous strengths, including our global brand, office network, candidate database, and advanced AI-driven technologies. The demand environment remains strong on a broad basis, spanning industries, company size, skill level, and geographies. We continue to see our talent solution results recovering at a faster pace than we've experienced in the past. Our permanent placement and contract talent solution segments, including blended solutions with productivity, have achieved cumulative sequential growth of 180% and 63%, respectively, during the eight quarters since the pandemic trough. Similar numbers for the financial crisis and the dot-com recoveries were 78% and 36%, and 121% and 47%, respectively. Partivity reported double-digit, year-on-year adjusted revenue growth, notwithstanding the previously disclosed and expected wind down of a very large financial services regulatory remediation project and the anticipated moderation in stimulus-related public sector revenues. Internal audit and technology consulting solutions led the way. Pertiviti's pipeline remains strong across each of its solution areas, particularly internal audit, as clients struggle to internally staff the rising demands of this function. We continue to be optimistic about our growth prospects for the remainder of 2022, propelled by the strength of our people, our technology, our brand, and our business model. We remain steadfast in our focus on our purpose to connect people to meaningful work and provide clients with the talent and subject matter expertise they need to confidently compete and grow. Finally, we'd like to thank our people who are our greatest asset. and what differentiates us in the marketplace for the significant company recognition received this quarter. We are proud to have recently ranked number one by Forbes on three prestigious lists, America's best professional recruiting firm, America's best temporary staffing firm, and America's best executive recruiting firm. This is the first time any company has placed first in all three categories. This is a credit to all of our employees and their incredible drive to deliver outstanding service to our clients and our candidates. Now, Mike and I'd be happy to answer your questions. Please ask just one question and a single follow-up is needed. If there's time, we'll come back to you for additional questions.
spk00: And at this time, if you might have a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. You may remove yourself from the queue at any time by pressing the star key followed by the digit 2. Once again, that is star 1 if you would like to ask a question. And your first question comes from the line of Mark Marcon with Baird.
spk02: Good afternoon, Keith and Mike, and congratulations on the recognitions that came from Forbes. I was wondering, can you talk a little bit more about what you're seeing in productivity? From the prepared remarks, it sounds like the overall public sector, including talent solutions, is going to be flat. I'm wondering, do you expect the public sector for productivity to be flat? And can you talk a little bit about more about the areas of strength that you're seeing within productivity since it looks like productivity was up 17.4% X public sector. You mentioned internal audit wondering, is that, you know, primarily young companies or is that established, you know, fortune 2000.
spk09: So productivity has a very strong pipeline across its solution areas. It's aggressively adding its staff in part to fund growth and in part to bring its mix of contractors to full-time staff below 50%. It got above 50%. There was a view that that was a little too much toward the contractor, so they're bringing that mix down by adding more full-time staff. Technology consulting, IA, the hottest as we talked about. As clients struggle to hire their own people for internal audit, there's also increasing demands. If you think about all the modernization, all the inner innovation projects that companies of all sizes have, there's an internal audit element to bringing the results of those projects online that stimulates demand. And again, that's all, all sizes of productivity clients. In technology consulting, you've got data analytics, enterprise applications that are also strong. If you combine the impact of public sector plus the wind down of the large regulatory project, their growth rate was impacted by about 12 points. And so you can take what's reported at 12 to get the impact of those two projects that have wound down. The good news is the regulatory project, The people have been redeployed, but just to replace that means flat growth, not increasing growth on that element of their business. The point being, apart from those two very specific areas, Pertivity's core is growing very strong, double digit. They're very bullish about their prospects. They're competing very effectively with the big four. Their margins are recovering up 200 basis points this quarter to 14%. I understand it's not the 17 that you had last year, but last year had no travel, had no training, had very little recruiting, had no practice development. We're very happy with a 14 to 15% margin range, which is where they are. So again, apart from the two areas that we've talked about before and again today, Partivity is growing quite nicely. Frankly, their biggest issue is not demand. Their biggest issue is attracting people, which they're working on aggressively and are being successful doing so. They've won many awards of their own type. I think just this week they won a Best Place for Millennials to Work award by the Great Places to Work organization. So they're doing quite well. So we're pleased with productivity. We're pleased with the results. We're pleased with its pipeline. They're working through these two issues. And I'd say, too, on public sector, since you asked the question, that's pretty much tracking as expected. Housing assistance, education, IT services, project management, those engagements are leading the way. Public sector also struggling to compete in a tight labor market. There's been a mixed shift to talent solutions in public sector, as we've talked about, as we've expected. So productivity is down by more than we're down overall because talent solutions public sector is growing. The public sector pipeline, excuse me, is 2x what it was a year ago. So we're very pleased with that. But bottom line on public sector, it pretty much tracked as expected. There were some FX impact. If you add that back, we're right in the range that we talked about. So pleased with public sector. It's a whole new line of business for us, if you will, both talent solutions and productivity, but tracking as expected.
spk02: That's great. And then, you know, Robert Haft did an amazing job of navigating through COVID with an 8.3% EBITDA margin for 2020. Nobody knows, you know, if we're going to have a soft landing, a mild recession, or perhaps something worse. What's the philosophy? How would you guide investors to think about how you would navigate through this cycle if we end up having a mild recession in terms of expense controls and positioning Robert Half for the snapback and the rebound when the inevitable upcycle comes?
spk09: Well, I think you correctly point to, and you don't have to look very, very far as to how we perform in a downturn by just looking at how we did during pandemic. And just the playbook we ran is no different than the playbook we always run on the talent solution side. We look at the productivity of our internal staff and the underperformers we become less patient with than we typically would be in typical times than normal times. And so there's some right sizing of the staff on the talent solution side. The nice thing on the productivity side, productivity did not go down. Productivity did not have negative revenue growth during the pandemic. Said differently, productivity continued to grow through the pandemic. It showed to be more resilient than is the case in staffing. And we would expect that again. So I think the other good thing about looking back pandemic and forward, as we talked about in the call, you know, the eight quarters since the trough, we've grown the fastest we've ever grown post a recession trough. And so if a mild recession does come, you don't have to look far to see how well we came out of it, both from a revenue standpoint and a profitability standpoint.
spk02: Terrific. Thank you.
spk00: Our next question comes from the line of Heather Bulski with Bank of America.
spk06: Hi. Thank you for taking my question. Can you talk a little bit about the permanent placement part of your business and kind of just the strength you're seeing and how long you think this can last and your comfort in, I guess, that number?
spk09: higher as a percent of revenue just how you're how you're thinking about that business our placement is actually one of the strongest part of talent solutions as we've talked earlier it grew 39% year-on-year on tough compares virtually to a person when you talk to our people they're probably the most bullish about permanent placement Given the state of the labor market, which remains strong, given the talent shortages that exist, many companies, even today, prefer to hire full-time, and that's for the benefit of perm placement. So to show our confidence in perm placement, it's the area where we're hiring the most aggressively internally because, frankly, the productivity level of our current staff is so high I mean, the only way we're going to grow permanent placement is to have some more internal resources. So we feel good about permanent placement. We just talk to all of our people. They feel good about permanent placement. So we're bullish on permanent placement.
spk06: Thank you. And given all the concerns about a potential downturn, how are you thinking about managing your costs in this? I guess in this strong environment today, but given the risk of potentially slower labor market in the near term, given that action. Thanks.
spk09: I talked a little bit with Mark about how we deal with our staff costs. I think we've got a long track record across many downturns of right-sizing our staff relative to expected revenue trends, and we would do same. But we're not going to do is make itself fulfilling and cut in advance of that. There is so much noise about there about whether there's going to be a recession, how deep there's going to be a recession, when the recession might occur. There are so many conflicting signals. The one thing we are not going to do is cut in advance of that. And we've told our people it is business as usual. We will continue to feed the hot hands, which include permanent placement, which include management resources. which include our full-time engagement professionals. We're going to continue to feed those hot hands as long as they're hot. We will manage everything else on a productivity basis, which is the way we've always managed the business, and we're very confident and comfortable about that.
spk06: Thank you very much.
spk00: Your next question comes from the line of Andrew Steinerman with JP Morgan.
spk01: Hi, it's Andrew. Two questions. You were very clear about that FX was a larger than expected revenue headwind in the second quarter. Could you just give the EPS impact on the second quarter from FX? And then my second question has to do, here's kind of an interesting question. What happens if we don't go into a recession and we have more of a soft landing here and there's more time on the cycle, I wanted to ask you about your views on contract gross margins. You know, contract gross margins were 39.9 in the quarter, about the same as last quarter. But in the guide, contract gross margins are guided to be 38 to 40. And so you're actually guiding contract gross margins down sequentially. My question is, like, do you worry that if we have more years on this expansion that contract gross margins have already peaked?
spk09: Okay, first one, easy. EPS impact Q2 of foreign exchange is two pennies. And for Q3, it's two and a half pennies for FX and two and a half for tax rate. On the what if there's not a recession, and that's precisely why we say we're acting business as usual and feeding the hot hands is that we're not going to miss out on any business that we do have. As to contract gross margins, frankly, we're bullish on contract gross margins. There's the mix element. As we move more to higher skills, they have higher gross margins. As we move more to full-time engagement professionals, they have higher gross margins. As the labor market remains tight, that's good for conversions. That's higher gross margins. And that further, as PERM stays strong, the mix of PERM versus contract skews further PERM, which also helps overall gross margins. So were we a little bit conservative in the guidance overall? Yes. Gross margins specifically? Yes. But I can assure you, if there's not a recession, we're nothing but bullish on our contract gross margins.
spk01: Thank you. That's perfect.
spk00: Your next question comes from the line of Kevin McVey with Credit Suisse.
spk03: Great. Thanks so much and congratulations again on the Forbes recognition. Hey Keith, circling back to productivity, on the government side, is there any way to think about the funding of the projects that occurred in productivity? You know, how much of that was kind of federal? versus state and is there any kind of sequencing you'd call out as to some of that running off as opposed to maybe getting renewed? Is there any way to think about that within the context of productivity?
spk09: Well, first of all, it's more state and local than federal. It's not all state and local, but it's more state and local and federal. So the housing assistance and the education is more state and local. As to the runoff, We've been very transparent about what our numbers were by quarters split between talent solutions and productivity for all of 2021. We've now broken that out for 2022. We've said that for full year 2022, notwithstanding some of the stimulus related has run off, we expect to be flat to up. And so We've said about as many ways as we know how that, sure, some of the stimulus-related work is declining. We are backfilling that, particularly on an enterprise basis, with all the other project work that I talked about, such that when you put all the pieces together on a company-wide basis, we think we'll be flat to up slightly, notwithstanding the runoff that you described. Got it.
spk03: And then the remixing of kind of full-time versus supplemental staff on productivity, what's the optimal mix there? And I guess what drove the decision? Was it kind of service delivery or just the remixing, I guess, of staff?
spk09: So it went north of 50% of the hours worked to contract the last couple quarters. Had you asked me five years ago what the highest contractor percentage that we could ever even dream about at productivity, I wouldn't have said higher than 30%. And so the fact that they've taken it beyond 50 is pretty incredible. But there's a practical level. There's a career impact to the people that work at productivity. 50-50 and below feels reasonable to me. There's nothing magic about it. It's subjective. It's the nature of work, right? There's one mix for certain types of special projects. There's another mix for recurring annual internal audit engagement. It's not one mix across all their projects. 50-50 is unbelievably good and unbelievably strong. And it just shows how the resources of the entire enterprise can be brought to bear for the benefit of productivity and its clients and have catalyzed its growth in a major way. But let's pause and let's kind of look at 50-50. which is certainly closer to traditional, at least to the last couple of three years, and then reassess. But it's an incredible success story overall, the way Protiviti and Talent Solutions have come together for the benefit, first for the whole enterprise, but particularly for Protiviti's clients.
spk03: Makes sense. Thank you.
spk00: Your next question comes from the line of George Tong with Goldman Sachs.
spk12: Hi, thanks. Good afternoon. You expect full year 2022 public sector revenues to be flat to up 10% for the year. Can you discuss how much public sector productivity revenues
spk09: Will will go up by or how the how it will perform for the year and what will drive potential growth in public sector productivity spend Well George Frankly the split between talent solutions and productivity as to how it's reported is somewhat arbitrary Many times the very same people on one project because of how the contracting is took place, it gets reported on productivity. The very same people on the next project might be reported in talent solutions. So we think it's better to think about from a company-wide or enterprise basis. But there's no question, as we've talked about, the things that are growing fastest at the moment in public sector tend more toward talent solutions than Pertivity, be it housing assistance, be it education. That said, Pertivity is very active with RFPs. Pertivity has a very good success rate with the RFPs they have where they have the contract. But even during the heyday of public sector, 90% of the hours worked or worked by contractors. And so whether those contractors get reported as talent solutions revenue or productivity revenue is often as arbitrary as who had the contract with the client. And the contract with the client many times related to the GSA schedules that only productivity had. So there's some arbitrariness between talent solutions versus productivity on public sector, which is why I think it's fairer to look at it overall, and we've said overall we'll be flat to up 10%.
spk12: Got it. And this is a higher-level question, I guess, stepping back. As you think about the overall macro environment, what are some areas where you're seeing potential weakness? If you had the rank order, you pointed out areas of strength, what are the areas where you see potential cracks in the armament?
spk09: Well, I'm not sure I would call it cracks in the armor. I would start by saying while labor markets and demand environment is very strong, it's not quite as strong as it was last quarter. I'd say clients are taking a little longer to make offers. Often they want to see one more candidate or they want to interview their finalist one more time. or they want to insist on the person work on site, particularly if it's at the operations level. That said, they also understand if they drag their feet too long, they're going to lose the candidate. So I would say if anything, if we're going to talk on the negative side, clients are taking a little longer to make their offers. That said, Candidates are still in demand. Candidates are still short. I talked about the multiple offers. I talked about the counter offers. It's still a candidate-driven market, but clients are taking a little longer with an underscore on the word little to make their offers.
spk12: Got it. Very helpful. Thank you.
spk10: your next question comes from the line of critique meta with north coast research hi good afternoon um i know you've talked about talent procurement that it's still difficult i'm just wondering uh you know compared to maybe three months six months ago if it's got any easier if you're seeing more if you're able to see more candidates uh if it's just loosened up at all
spk09: There's been no significant easing of candidate shortage and in fact if anything with higher gas prices candidates won't remote work and don't want to have to commute in to a client even more so and so there's sometimes there's conflict between what the client works wants and which would be at the operational level for the person to be on site two or three days versus what the candidate wants. And if anything, the candidates won't remote even more than they wanted 90 days ago. And if anything, clients want a couple of days on site more than they did 90 days ago. So our people have to bridge that gap between the parties to make deals happen.
spk10: And just as a follow-up, any change in wage inflation? It seems like, based on your comments, probably not, since it's still difficult to get talent. But I'm curious if you've seen any change in growth rate on wage inflation.
spk09: No. It tracks closely with bill rate changes. And we talk about This quarter, it was 8-ish percent, and last quarter, it was 9-ish percent. I think the quarter before that, it was 8-ish percent. So it's been 8 or 9 on the bill rate side, and you can take a couple of points off of that to get what the pay rate is.
spk10: Thank you very much. I really appreciate it.
spk00: Your next question comes from the line of Manav Patnaik with Barclays.
spk04: Thank you. Keith, I was just wondering, like, what are some of the leading indicators that you would look for in terms of, you know, when it won't be business as usual? Like, is productivity on the consulting side something that'll give you that lead? And I know you showed some deceleration, but it's only the first two weeks of July. So just curious, you know, what you track or what you need to see to, you know, change some of the business patterns.
spk09: Well, I'd first say the first few weeks of July are very holiday impacted, so we read virtually nothing into that one way or the other. In the leading indicators, if you look back over prior downturns, when you first look at PERM placement versus contract, they're mostly coincident. Maybe PERM leads a little bit versus contract, but there's certainly no external data we can look to and whether it be BLS, SIA, ASA, any other of the economic, ISI, you name it. There's no magic external data we've found that helpful in its predictiveness or as a leading indicator. We get weekly data. the contract side we get daily data on the firm placement side and so there's nothing like our own data that help us out and as I said we just talked to our key people this week and while they said it's not quite as strong as it was last quarter it's still very strong and they feel very good about Frankly, the numbers they submitted for the coming quarter are stronger than what we published because we were just a little more conservative, but our people feel good.
spk04: Okay. And, you know, given that you sound pretty good, obviously, and this talk is pulled back, I mean, I guess I'm just curious, any changes in your, you know, capital allocation philosophy?
spk09: Our capital allocation policy forever has been, you know, first do what's necessary for the business, which is principally around technology, innovation, spending, which we're doing. Then we look to continue the dividend, grow the dividend. We talked on the call earlier about we've grown the dividend double digits since inception. And with the balance, we dollar cost average. the balance of our free cash flow. We dollar cost average stock buybacks. And so sometimes it stocks up, sometimes it's down, sometimes you feel like it's undervalued, sometimes you feel like it's overvalued. What we do is we're there, we're consistent, we dollar cost average, and over time it works its way out. And we continue to do that as we speak. You can look at our free cash flow, you can look at our financing on our cash flow statement, and we're pretty much spending all our free cash flow between tech, internal innovation, dividends, and repurchases.
spk04: Got it. Thank you so much, Keith.
spk00: Your next question comes from the line of Toby Summer with Truist Securities.
spk13: Thank you. Given your long tenure in the industry, is there an example in any geography of what some people are now calling a job full recession? Should we hit the soft landing and have the firm labor market maintain that characteristic?
spk09: As I sit here, nothing comes to mind. I think the head scratcher for many is given how strong the labor markets are, if in fact we're beginning a recession, how impactful is that strong start to how the labor markets will perform? And is there enough slack and all those job openings that actual jobs won't be that impacted or instead Will actual jobs or actual unemployment be impacted? All we can say is what I've already said. As we speak and as we look forward to the coming quarter, our people are very positive. The markets are very strong. There's a lot of demand from our clients. Not quite as much as the prior quarter, but it's very strong. We can do very well. and an environment like the one we're in.
spk13: Excellent. My follow-up is you talk about a previous question I asked about external data that you may look at. In your prepared remarks, you cite some NFIB data is favorable and there are some hiring components that do demonstrate that, yet the overall survey fell to a 13-year low. How do you square the overall sentiment declining so precipitously and then Sider, the labor component.
spk09: And so I think you're talking about the optimism index. And one of the reasons why their optimism fell is because they're having a hard time finding people. And so that's how you square the two pieces. They're somewhat pessimistic because they're having trouble finding the people they need to grow their business. The other piece of that is inflation.
spk07: Thank you very much.
spk00: Your next question comes from the line of Jeff Silver with BMO Capital Markets.
spk11: Thanks so much. I apologize. I joined late, but this question was asked. Just please ignore me. I'm just curious in terms of your own internal hiring, recruiters, account managers, et cetera, how that's been tracking so far this year and what plans you have for the rest of the year.
spk09: And so we've, aggressively added to the areas that are growing the fastest and for us that starts with permanent placement, management resources, and full-time engagement professionals. All three of those areas are still strong as we sit here and we have plans to continue to add the staff in those areas because the productivity of those people currently in those areas is high and And the only way we can take advantage of those hot markets is to continue to add to staff. For our other practice groups, we manage on a productivity basis. And only as productivity dictates do we add to staff there. But we haven't changed our policy. And as I said, I don't know whether you were on the call, the last thing we're going to do is make a downturn self-fulfilling by not feeding the hot hands that I just described.
spk11: Okay, that's really helpful. And then I know there was an FX impact on revenues and the rest of the business in the quarter, but specifically focusing on revenues. If I take that out, you still came in at the low end of guidance or maybe at the midpoint of guidance. Are there any specific segments that either outperformed or underperformed during the quarter?
spk09: I'd say the one that struggled the most was our administrative and customer service, and that's the one most closely tied to public sector. So other than that, there was no big story. And most of the revenue differential was currency related.
spk11: All right. Appreciate you pointing that out. Thanks so much.
spk09: Yep.
spk00: Your next question comes from the line of David Silver with CL King & Associates.
spk08: Yeah, hi, thank you. I have a basically kind of a very naive sounding question about your perm business. So, you know, I think of that business as, you know, striking a balance between the demand for full-time candidates and the supply. And for years now, I think, you know, the JOLTS data, the unfilled positions data indicate there's a, you know, shortfall on the candidate supply side. When I look at your first half revenues, 387 million or so from perm, it's up 29% over the first half of 2021 and up 23% over the back half of 2021. And I'm just kind of wondering on a very naive basis, I mean, to drive that growth, you need more candidates. Where are the candidates in your opinion, you know, where are you finding them? to make these incremental placements. Thank you.
spk09: And so on the permanent placement side, by and large, we recruit people that already have a full-time job to change jobs and take a new job. And so we've got the entire universe of people currently employed that we recruit from on the permanent placement side.
spk08: Okay, and I'd like to maybe, my second question would be to build on that answer. And I guess, you know, some people use the moniker, the great resignation, but, you know, I would just say churn or job hopping. How does Robert Happ strike that balance, you know, between the clients who want a candidate who's going to stick around for a long time and justify the fees they're paying? and the candidate's desire to take advantage of a hot job market and go for either higher pay or a more amenable remote in-person balance. In other words, is there a slight conflict or how do you manage that trade-off between serving the candidate in a certain way and serving the employer? Thank you.
spk09: Most of the great reshuffle is not candidate makes a change and then shortly after makes another change. It's more that first change for career and or compensation purposes. They make the change. And so while there's some of the former, that's the exception rather than the rule. And so, I mean, we guarantee that if they do leave, we replace them on a reduced basis. But other than that, I don't think we've seen a major business problem of candidates we place the first time in large numbers then leave in a relatively short period of time for yet a better opportunity. So I guess it's possible, but I'm just saying
spk08: on the ground that's certainly not the norm okay we're not there yet okay no I appreciate that context thanks very much your next question comes from the line of Mark Marcon with Baird
spk02: Keith, I had a couple of quick follow-up questions. Number one, there weren't any questions with regards to internationals on the call. Wondering, can you talk a little bit about what you're seeing on a country-by-country basis? Any sort of, we can see the overall trends, but just wondering, you know, are you seeing any sort of distinct patterns emerging between the countries, particularly in Europe?
spk09: Well, I'd say we're strong in the U.K., We're particularly strong in Germany, and the really nice thing about Germany is that Germany talent solutions and productivity are going to market very well. And, in fact, it may be our most successful country where productivity and talent solutions go to market together, and both are benefiting accordingly. And their outlook, notwithstanding all the talk about energy, Russia, et cetera, the German outlook is still quite good because of those managed business solution opportunities they jointly have.
spk02: Great. And any areas that are pulling back or that seem a little bit weaker? Sure.
spk09: I think Belgium was a little softer this quarter than normal, but is expected to be better in the coming quarter. But there's no real major outlier in a negative way, Belgium included.
spk02: Great. And then the pipeline for productivity, how much visibility do you have into the pipeline for projects that would start in Q4? The reason why I'm asking is because the comps become significantly easier when we get to Q4. You obviously had really strong comps for productivity in Q2 and Q3. So just wondering if maybe we even have an inflection point in Q4.
spk09: Well, I haven't looked at their pipeline based on when it starts. My guess is they actually have it. I just don't have it on the top of my head. But their pipeline is strong. People constrained. They're not demand constrained. And internal audit is by leaps and bounds their hottest area, as I talked about. Their clients can't staff their own internal audit departments. They need help. Their clients, as they have their modernization and innovation projects, those projects usually require internal audit before they go live. There's more of that. So good, all internal audit, which is productivity is a long-term core business is its strongest and it's a wonderful thing.
spk02: And Q4 is a strong quarter for that.
spk09: That's correct. You have seasonally Q3, you have a step up where a lot of the Sarbanes-Oxley work gets done. Uh, you mostly hold that because that work continues into Q4. So those seasonal patterns and the guidance we've given. assumes a seasonal step up in productivity in large part because of Sarbanes-Hoxley slash internal audit.
spk02: Great. Thank you.
spk07: Okay.
spk09: I believe that is our last question. We appreciate everybody joining. Thank you very much.
Disclaimer