Robert Half Inc.

Hello and welcome to the Robert Half Third Quarter 2022 Conference Call. Today's conference call is being recorded. If you would 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 Half, and Mr. Michael Buckley, Chief Financial Officer.

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 the risks and uncertainties that could cause these 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, followed 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 each of our contract functional specializations includes intersegment revenues from services provided to Pertivity 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 Pertivity 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 in the Investor Center of our website, roberthapp.com. We're pleased to report third quarter year-over-year revenue growth of 7%, 10% adjusted for currency, over and above the very strong 44% in the same quarter last year. Permanent placement led the way, growing 17% or 20% adjusted for currency, and productivity revenues reached new all-time highs. Our results are a testament to the strength of our global teams as they demonstrate their agility and persistence, which makes our success possible. Company-wide revenues were $1.833 billion in the third quarter of 2022, up 7% from last year's third quarter on a reported basis and up 10% on an as adjusted basis. That income per share in the third quarter was $1.53, the same as the third quarter a year ago. Cash flow from operations during the quarter was $179 million. In September, we distributed a $0.43 per share cash dividend to our shareholders of record for a total cash outlay of $46 million. Our per share dividend has grown 11.4% annually since inception in 2004. The September 22 dividend was 13.2% higher than in 2021. We also acquired approximately 1.1 million Robert Half shares during the quarter for 86 million. We have 4.7 million shares available for repurchase under our board approved stock repurchase plan. Return on invested capital for the company was 45% in the third 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 $1.833 billion in the third quarter. On an as-adjusted basis, third quarter talent solutions revenues were up 12% year over year. U.S. talent solutions revenue were $1.049 billion, up 13% from the prior year. Non-U.S. talent solutions revenues were $273 million, up 10% 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 third quarter, there were 64.3 billing days compared to 64.4 billing days in the same quarter one year ago. The current fourth quarter has 61.2 billing days compared to 61.7 billing days one year ago. For 2023, billing days by quarter will be 63.3, 63.4, 63.1, and 61.1 for a total of 250.9. Currency exchange rates movements during the third quarter had the effect of decreasing reported year-over-year total revenues by $45 million, $32 million for talent solutions, and $13 million for productivity. This negatively impacted our year-over-year overall revenue growth by 2.6 percentage points, 2.7 percentage points for talent solutions, and 2.6 percentage points for productivity. Contract talent solutions bill rates for the quarter increased 9% compared to one year ago, adjusted for changes in mix of revenues by functional specialization, currency, and country. This rate for the second quarter was 8.2%. Now let's take a closer look at results for productivity. Global revenues in the third quarter were $511 million. $416 million of that is from business within the United States, and $95 million is from operations outside of the United States. On an as-adjusted basis, global third quarter productivity revenues were up 5% versus the year-ago period, with U.S. productivity revenues up 4%. Non-U.S. revenues were up 7% on an as-adjusted basis. Productivity and its independently owned member firms served clients through a network of 89 locations in 29 countries. Company-wide third quarter public sector revenues were $89 million, of which $63 million were reported by productivity and the balance reported by Talent Solutions. Currency exchange rates had the effect of decreasing year-over-year public sector revenues by approximately $5 million. We expect fourth quarter 2022 public sector revenues to be $80 to $90 million, which will result in full-year revenues being down approximately 6% or 2% adjusted for currency. Turning now to gross margin, in contract talent solutions, third quarter gross margin was 39.4% of applicable revenues compared to 40% of applicable revenues in the third quarter one year ago. Conversion revenues, or contract to hire, were 4.1% of revenues in the quarter. Our permanent placement revenues in the third quarter were 13.8% of consolidated talent solutions revenues, versus 12.9% of consolidated Talent Solutions revenues in the same quarter one year ago. When combined with contract Talent Solutions gross margin, overall Talent Solutions gross margin was 47.8% compared to 47.7% of applicable revenues in the third quarter one year ago. For productivity, gross margin was 30.5% of productivity revenues compared to 29.5% of productivity revenues one year ago. Adjusted for deferred compensation related classification impacts, gross margin for productivity was 30% for the quarter just ended compared to 29.4% one year ago. Moving on to SG&A. Enterprise SG&A costs were 29.9% of global revenues in the third quarter compared to 28.9% in the same quarter one year ago. Adjusted for deferred compensation related classification impacts, Enterprise SG&A costs were 30.6% for the quarter just ended compared to 29% one year ago. Talent Solutions SG&A costs were 35.3% of Talent Solutions revenues in the third quarter versus 35.9% in the third quarter of 2021. Adjusted for deferred compensation-related classification impacts, Talent Solutions SG&A were 36.3% for the quarter just ended compared to 36% one year ago. The higher mix of permanent placement revenues this quarter versus one year ago had the effect of adding 0.4 percentage points to the quarter's adjusted SG&A ratio. Third quarter SG&A costs for productivity were 16% of productivity revenues compared to 12.1% of revenues in the year-ago period as operating expenditures returned to more normal levels. Operating income for the quarter was $239 million. Adjusted for deferred compensation-related classification impacts, combined segment income was $224 million in the third quarter. Combined segment margin was 12.2%. Third quarter segment income from our talent solutions divisions was 152 million with a segment margin of 11.5%. Segment income for productivity in the third quarter was 72 million with a segment margin of 14%. Our third quarter tax rate was 26% up from 25% in the same quarter one year ago. At the end of the third quarter, accounts receivable were $1.101 billion and implied sales outstanding, or DSO, was 54 days. Before we move to fourth quarter guidance, let's review some of the monthly revenue trends we saw in the third quarter and so far in October, all adjusted for currency and billing days. Contract Talent Solutions exited the third quarter with September revenues up 6% versus the prior year compared to an 11% increase for the full quarter. Revenues for the first week of October were up 5% compared to the same period one year ago. Permanent placement revenues in September were up 17% versus September of 2021. This compares to a 20% increase for the full quarter. For the first two weeks of October, permanent placement revenues were up 2% compared to the same period in 2021. We provide this information so that you have insight into some of the trends we saw during the third quarter and into October. But as you know, these are very brief time periods. We caution against reading too much into them. With that in mind, we offer the following fourth quarter guidance. 1.695 billion to 1.775 billion. Income per share, $1.31 to $1.41. Midpoint revenues of 1.735 billion are 1.7% higher than the same period in 2021 on an as-adjusted basis. The major financial assumptions underlying the midpoint of these estimates are as follows. Revenue growth year-over-year on an as-adjusted basis. Talent solutions, down 1% to up 4%. Productivity, up 1% to up 4%. Overall, flat to up 4%. Gross margin percentages, contract talent, 38% to 40%. Productivity, 27% to 29%. Overall, 41 to 43 percent. SG&A as a percent of revenues excluding deferred compensation classification impacts. Talent solutions 36 to 38 percent. Productivity 14 to 16 percent. Overall 30 to 32 percent. Segment income for talent solutions 10 to 12 percent. For productivity 13 to 15% and overall 11 to 13% tax rate, 26 to 27% and shares 107 to 108 million. Fourth quarter capital expenditures and capitalized cloud computing costs 15 million to 20 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.