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spk06: 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.
spk08: 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.
spk03: 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.
spk08: Thank you, Mike. Global labor markets remain tight and clients continue to hire, albeit at a more conservative pace. Demand for talent remains high, notwithstanding the increasingly uncertain economic outlook, although the sales cycle has lengthened. Many clients are becoming more selective and requesting to see more candidates for their open positions. They're adding more steps to their hiring processes and prioritizing on-site or local hybrid candidates who take longer to hire. At the same time, talent shortages persist. In the United States, job openings and quit rates remain at elevated levels, although modestly off their highs. The unemployment rate stands at 3.5%, a 50-year low, while the rate for those with a college degree more representative of our candidate base is half that at 1.8%. The National Federation of Independent Business, NFIB, recently reported that 89% of small business owners hiring or trying to hire had few or no qualified applicants, and 46% of all small business owners Had job openings, they could not be filled. Many candidates continue to prefer remote and hybrid working models, a structural shift that's expected to remain. Sourcing from this talent pool plays to our numerous strengths, including our global brand, office network, candidate database, and advanced AI-driven technologies. Many times, clients' very specialized needs are only available on a remote basis. Productivity demand remains very strong, particularly in internal audit and regulatory risk and compliance practices. Productivity has successfully overcome the combined headwinds of much larger comparables, 55% growth in the same quarter a year ago, the wind down of a very large financial services project, and a shift in public sector client demand over to talent solutions, and still achieved record revenues for the quarter. Activity's pipeline remains robust and is a little impacted by current economic conditions. While short-term talent solution results may be impacted by a more uncertain macroeconomic environment, we remain optimistic about our overall outlook. We've successfully navigated many economic cycles each time achieving higher peaks. Our recovery to new peaks from the recent COVID-19 downturn was the fastest in our history. We also benefit from productivity's resiliency, which stems from its diversified solution offerings that are much less tied to the economic cycle. This is demonstrated by productivity's ability to grow through the last downturn. We've also demonstrated our ability to be nimble with our cost structure, aided by our AI-driven technology advancements, which continue. As always, our success is driven 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 to provide clients with the talent and subject matter expertise they need to confidently compete and grow. Finally, we're proud to have received several new accolades this quarter. We were named by Fortune as one of the best workplaces for women and by Forbes as one of the world's best employers. The Robert Half mobile app has been recognized for its excellence and innovation, receiving five awards in recent months. including a gold Stevie. None of this recognition would be possible without the dedication and commitment of our employees across the globe. Now, Mike and I would be happy to answer your questions. Please ask just one question and a single follow-up as needed. If there's time, we'll come back to you for additional questions.
spk06: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. To withdraw your question, please press star 2. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. First question comes from the line of Mark Maison with Robert W. Baird and Company.
spk02: Good afternoon, Keith and Mike. I have a couple of questions. One is on talent solutions and one is on productivity. With regards to talent solutions, can you talk a little bit about the admin and customer support business and specifically some of the factors that may have impacted it during the current quarter and what we should read into that looking ahead?
spk08: Sure. Admin and customer service has been most impacted by the public sector wind down as it relates to unemployment claims processing. Also, they didn't see quite the number of larger projects related to open enrollment that they've seen in the past. So they have been disproportionately impacted relative to our other practice groups.
spk02: Got it. And with regards to not as much open enrollment, was there an underlying reason for that?
spk08: Hard to know. And it's also early days. You tend to get more of that in the fourth quarter than in the third. In fact, internally, we just opened our open enrollment period. And so, I wouldn't over read that. But those are some of their larger projects typically. So the jury is out for the fourth quarter.
spk02: Okay. And then with regards to proactivity, you know, I was wondering what, I'm assuming that the portion of the public sector work that fell off was also tied to the claims. I'm just wondering, you know, as we think ahead, you know, what, how much, how are you thinking about the public sector, You gave the guidance for the fourth quarter, but I'm thinking about for next year, just broadly speaking. And then if you can talk a little bit about the exposure that productivity has to either M&A or IPOs, obviously with the cost of capital going up, challenging environment, how much of a headwind could that end up being on a go-forward basis?
spk08: Let's talk generally and specifically. First of all, the impact to productivity's reported growth rate from the public sector runoff and the large project wind down is about 13 percentage points for the quarter. And as you look forward into how those two factors impact their growth rates, It will stay double digit in the fourth quarter, 10% or 11%. But then starting next year, in the first half of the year, that cuts in half to mid-single digits. In the second half of the year, it wouldn't exist at all. And so for the full year 2023, that drag, essentially, it's a very small single-digit number. And so the worst of that impact, the most impactful part of those two wind downs is behind them. And the fourth quarter coming will be, it should be the last time it has a double digit impact on their growth rates. On public sector specifically, let me just make some general comments. We're pleased with how the public sector's played out. We've essentially replaced the runoff of this unemployment claims processing with other work, all built on new client relationships. Some of the new work is on the talent solution side, some on the productivity side. Talent solution, helping these clients deal with their talent shortages, as well as elevated needs in education and housing. Productivity has a very high win rate for new projects, project management, financial controls. Although the project size is somewhat smaller than expected, that pipeline continues to build. So when you step back from this and take a two-year view, we now have a new industry group with new relationships producing about $400 million in revenue that largely didn't exist for us three years ago. And we'd also say that since about since most of the work in public sector has been jointly performed by talent solutions and productivity, frankly, it's given our entire organization more confidence that we can win together. And we're now approaching almost 600 million in revenue from joint engagements from this very unique business model that we have. And as I would say, we are one of one in this space. So our assessment of public sector two years in is that we've managed the runoff of unemployment claims very nicely. We now have a new industry group. We have further confirmed this go-to-market-together strategy. So we feel good about public sector. Then when you talk about IPO M&A, it's a small part, not a large part of what Pertivity does. Pertivity has the largest backlog they've ever had. Adjusted for these two factors that I just spoke of, their growth rates, their core growth rates remain quite high. So we feel great about Pertivity.
spk02: That's terrific. And then Just to button one thing up on the large financial services project that wound down, is that completely done?
spk08: It's not completely done. It's close, but it's not the only thing we do for that client. It's a very, very, very large project we did at that client. We do other things for that client, and we hope, frankly, to build from where we are, but By and large, we're down to a relatively small amount of revenue on that project.
spk13: Great. Thank you.
spk06: Your next question comes from the line of Andrew Steinerman with J.P. Morgan.
spk00: Hi, Keith. I wanted to ask you about the Talent Solutions Fourth Quarter Guide for revenues to be down 1% to up And obviously, I know when the company labels talent solutions, they're talking about both contract and perm. But when I look at the trends that you talked about for early October and contract was up five and perm was up two, and I put those together, it just seems like in the guide, you've built in some room for deceleration from the October trends. I was just wondering, did you do that for the sake of conservatism or just whatever dynamic helped you frame the Talent Solutions Fourth Quarter Revenue Guide?
spk08: So it's clearly a we're simply being more conservative. We've discounted the field forecast that we get each quarter more than what we would traditionally discount their forecast. Clearly, the economic environment's becoming more uncertain, and given that uncertainty, we thought it prudent to be more conservative. But you're very much correct in that our full quarter guide is pretty significantly less than our start, and there wouldn't typically be that big a delta.
spk00: And just if I could ask one more question about labor supply, I definitely heard your prepared comments. It seems like the labor supply for your addressable market hasn't meaningfully changed. So like kind of demand is more measured, but supply is still kind of persistently tight. Do you feel like that you might be looking at an outlook where kind of the talent shortages become –
spk08: little less you know persistent and you might be able to source talent more easily I think that's a fair assessment in that talent acquisition is still tight I would say it's not quite as tight as it has been having said that and relative to the conversation I We're also seeing some reluctance of candidates from changing jobs, which is yet another indication that the candidate side is softening a bit.
spk00: That's fair. Thank you.
spk06: Your next question comes from the line of Toby Summer with Truist Securities.
spk11: Jasper Vibbon Hey, good afternoon. This is Jasper Vibbon for Tobii. My first question was just on productivity. On the last call, you mentioned, you know, working to accelerate hiring as the mix is getting a bit too heavy on contract resources. Could you just update us on those hiring efforts and where the full-time versus contract mix stands today?
spk08: I'd say they're still very aggressively adding to headcount. They compete well in the marketplace. They continue to win all kind of culture-related awards, which simply reinforces that and helps them with their recruiting. As to the mix, the mix is more tied to the nature of work. So certain types of projects, public sector being a good example, 90% of that work, was from contractors only 10% productivity full-time employees, whereas other engagements and the typical internal audit engagement, that mix might be more 15, 20, 25% of the total. So it's very much is driven by the nature of the work and productivity for every one of its solution offerings loves having access to the just-in-time resources they have access to by reason of being together with Talent Solutions.
spk11: Thanks. And then looking at the temp gross margin guidance, the midpoint would imply gross margins down from the third quarter. Are you seeing any kind of incremental pressure on contract bill pay spreads, or would you say you're taking kind of a similarly approach? conservative approach, as it sounds like was the case on your revenue guidance?
spk08: We're certainly not expecting any compression on spreads. Spreads are still good. They're strong. We project they'll stay strong. The fringes have creeped up a bit. We've had some more medical claims than we anticipated in the third quarter, and that impacts full-year estimates. So it's principally due to higher fringe rate than it is anything else. Conversions are also hanging in there nicely. So it's more about fringes, which is related to probably things that correct themselves, i.e. these large medical claims, which are unusual and certainly not expected to repeat into 2023. I appreciate the detail there.
spk12: Thanks for taking the question, Keith.
spk06: Your next question comes from the line of Kevin McVey with Credit Suisse.
spk07: Great, thanks so much. Hey, just one point of clarification. The guidance looks pretty similar to what it is for Q4, but the EPS is about 15 cents. Is that all tax? It looks like the tax rate is a little bit higher because it looks like the revenue range and kind of margins are similar. So is the delta there mostly taxed?
spk08: Well, you've got six pennies of tax and exchange currency that make it different. Other than that, the margins are a little lighter, as we talked about. The gross margin on talent that we just talked about impacts that. The productivity margins year on year are still less than they were a year ago because that normalizes their cost. And the fourth quarter is always a short quarter because of billing days. And so you get a little bit of negative leverage because the fourth quarter is always a short quarter because of the holidays.
spk07: Got it. And then I think you'd mentioned a pair of marks that you saw some of the shift in productivity was to talent solutions. Um, What drove that shift was just kind of scope of work that was more kind of tuned to what Talent Solutions does as opposed to productivity?
spk08: Yeah, it's where – whereas a year ago, the need of a given local government related to processing unemployment claims, now it's more they're understaffed and they need additional staff, which is right in the wheelhouse of Talent Solutions. Again, but for that relationship – Talent solutions wouldn't be at the table, so therefore we've nicely leveraged what we started as unemployment claims processing and transitioned that into something much more broad that benefits talent solutions. Enterprise-wide, we're very pleased that we're essentially going to be flat with a year ago, down 2% adjusted for currency. So we feel good about this whole transformation of being very unemployment claims processing centric to being much broader.
spk12: Understood. Thank you very much.
spk06: Your next question comes from the line of George Tong with Goldman Sachs.
spk14: Hi, thanks. Good afternoon. As you look across talent solutions and productivity in the third quarter, what factors most surprised you to the upside and downside relative to your internal expectations?
spk08: I'd say to the upside, Europe was not as impacted as the headlines we would have expected, both in the UK and in Germany. For that record, for that matter, and so I'd say that was a positive surprise. On the downside, our small business clients got a little more conservative in their hiring than we expected. Given the barrage of negative news as to inflation, as to interest rates, as to economic forecasts, that all impacts confidence, psychology, sentiment. Remember that our SMB clients are more nimble managing their costs than larger companies are. And so given that more nimbleness, they adjusted more quickly than bigger companies have, and they adjusted their hiring pace a little more than what we expected. I'd say as soon as I say that, I would also remind everyone that just like they're more nimble on the downside, they're also more nimble on the upside. And we demonstrated that most recently during COVID, where our recovery was the fastest in our history. And I'd further say that clients don't quickly forget about a tight labor market. And as soon as things start to get better, they start to add staff and they do so quickly, which we just saw our peak to peak growth we've experienced and achieved in every cycle we've been a part of in the last 35 years. So we feel good about where we're positioned. We love our SMB client base, but they are more nimble, but it's a balanced more nimble. And let's keep that in mind.
spk14: Got it. That's helpful. Can you discuss how your internal hiring intentions for recruiters and sales have evolved? And what factors are influencing your outlook for internal hiring?
spk08: I'd say we're going to manage our headcount on a very targeted basis. both on the upside and the downside. This is the same way we've managed headcount forever. We'll continue to hire where we're growing and we'll adjust appropriately where we'll not. Also consistent with the past, we will not make major reductions in heads ahead of near-term market conditions, which would make our results even more negative and self-fulfilling. There's too much uncertainty about the timing and the extent of any downturn to make that kind of call. But we look at current conditions, we look at the environment, we look at forecasts, but we largely attempt to balance our cost structure against our revenue. We've been more nimble with our cost structure in the last three to five years than we have in our history. If you look during 2020, our margins bought, I think, for the year, they were at over 8%. We did not have that much negative leverage in SG&A, meaning we managed our headcount well. So I would argue, just as our clients are very nimble in managing their businesses, we've also made ourselves very nimble as we manage our cost and our head counts and our business very targeted we have data down to the individual we know how everybody performs relative to the standard that's also adjusted based on their tenure so we very objectively manage our head count great thank you
spk06: Our next question comes from the line with B of A Global Research.
spk04: Hi. Thank you for taking my question. I was curious, you've been investing this year into your businesses. And in light of what you're hearing from your customers right now, I know you talked about ability to manage costs. I'm curious how you're thinking about your investment spend.
spk08: into your businesses and and thoughts around cost control as well especially into next year thanks and so i just talked about headcount which is our largest cost we will be nimble we will adjust based on what's happening in the top line we will not get way ahead of it as i just talked about our other major investment has been innovation i got a couple comments there And so we just had our first full quarter where we added a new additional component to our AI and it leverages the learnings of our recruiters with respect to a given candidate. Did we vet them? How far did we place them? How did they perform? By definition, this is very proprietary to us. So using this updated model, We had many branches rely almost exclusively on technology to identify candidates. It's the most successful pilot we've ever had. Metrics across many spreadsheets that we have improved meaningfully. Adoption rates for our AI are increasing rapidly in part because of the testimonials that have come from this. Essentially, we've totally transformed candidate discovery, candidate identification. It creates more capacity for our workforce. So more specifically to your question, We will continue to invest in AI and innovation because it's paying off in a very meaningful way. We will continue to enhance client and candidates' digital experiences as they interact with us. We will continue to make our candidate-driven matching AI better. And as I've also said before, we're focused as well on client-facing AI, helping our internal staff better identify which clients, which prospects are most likely to react positively to their outreach. So headcount, we talked about, and it's the same way we managed headcount forever. We're more nimble than ever. Innovation, we'll continue to invest in because we're getting real payback from as recently as this quarter, especially this quarter.
spk04: Thank you very much.
spk06: Your next question comes from the line of Manav Patnaik with Barclays. Please go ahead.
spk01: Hi, how are you? This is Ronan Kennedy. I'm from Manav. Thank you for taking my question. May I just confirm, you spoke of some of the leading indicators you are seeing within SMB and the nimbleness there. I was wondering if you could elaborate on that and what other leading indicators you would see in addition to the selectivity and say the conservatism in hiring and what your visibility would be in seeing those indicators into a potential downturn.
spk08: Well, as to visibility, the nature of our business is we don't have a lot of visibility and clients use contract staff part to have more flexibility with their cost structure and so we've never had visibility to any great extent and we still don't have visibility we look at our weekly trends we look at our anecdotal interactions with clients and it's a subjective judgmental assessment of where we think the business is headed but as I said Because we can be so nimble with our cost structure, we don't have to get way ahead of it. We can keep pace with it, and we'll be just fine.
spk01: Okay, thank you. And then may I ask, what was the driver of the sequential decline in the administrative and customer support business line? I think on the call you mentioned a lengthening sales cycle, but was there anything with regards to that skill set in particular that caused it to slow?
spk08: Well, admin customer service, as we said earlier, it's been disproportionately impacted by public sector wind down, unemployment claims, and it also hasn't had as many larger projects as in years past, many of which related to open enrollment. But open enrollment season is still very much open, so that book hadn't been completely written yet.
spk13: Okay, thank you.
spk06: Your next question comes from the line of Jeff Silber with BMO Capital Markets.
spk10: Thanks so much. Just wanted to slip in one more question. If we just focus on the technology contract solutions segment, or line of business, excuse me. I know that growth slowed from 2Q to 3Q. I know the comps on a year-over-year basis were tough versus 3Q last year. But was there anything else going on? I'm just wondering what you're seeing within that segment. Thanks.
spk08: Well, because the client base is SMB across all our talent solutions practice groups, the trends aren't that different. And as you pointed out, The change in the growth rate is entirely explained by the change in the year-ago comps. And that's just as true for technology as it is for finance and accounting. So the differential between the two isn't any different. And the client base is also largely SMB.
spk10: Are you seeing any projects potentially ending early? Is there any slowdown? just specific to what's going on in the end market?
spk08: I'd say the only distinction that's been noted is that the gap between what candidates want, i.e. remote, and what clients want, many times on site, seems to be the most acute in technology and got worse and not better during the quarter. It's hard to quantify how much impact that had, but it's certainly a discussion point. But to me, the bigger point, it's still SMB clients changing growth rate explained entirely by changing comps.
spk13: Okay, fair enough. Thanks so much for the call, Keith.
spk06: Your next question comes from the line of Mark Marcon with Robert W. Baird and Company.
spk02: Thanks for taking a couple of follow-up questions. What are the bill rate assumptions for Q4, and how are you thinking about, you know, bill rate inflation on a go-forward basis and wage rate inflation?
spk08: Well, you broke up. I think you said what are the bill rate assumptions, and I would say they're not – materially change from what we're currently seeing. But I'll say this as well, that we haven't gotten much additional gross margin from the higher bill rates. They've essentially been a pass-through of higher pay rates. And to the extent wage inflation subsides somewhat, while it might hurt top line a bit and that you'll pass the less, it shouldn't have much impact on margin.
spk02: Are you seeing any signs of wage inflation becoming more subdued?
spk08: Well, we're certainly seeing signs of clients pushing back more on having to pay more. And it's also a factor in why the pace of their hiring is less than what it was. They're having to pay more. But my point is, it's not a margin.
spk12: It's not a margin impact.
spk13: Got it.
spk02: And then, Keith, you've been through so many cycles. You probably ended up seeing this week that You know, there was a survey published by the Wall Street Journal of economists who were basically expecting a shallow recession in the first half of 23. If it occurs, how do you think for investors who aren't as familiar with you and your history, how do you think RHI is going to behave differently during this downturn relative to prior downturns? And then what are you most excited about for the next upcycle?
spk08: Well, so I think the first point I'd make is you're right. We have been around a while, 35 years for me. I'm happy to report in every cycle we've grown peak to peak. And kind of interestingly, in the dot-com cycle, we CAGR'd peak to peak in the 7% a year range. In the COVID cycle, we CAGR'd 7% again, peak to peak. Financial crisis was about half of that, but that lasted longer. It was more directed closer to our wheelhouse. But point one is we grow peak to peak. Point two is we've got the most nimble cost structure we've ever had, and we just proved that less than two years ago. Point three, we now have productivity. It's much less tied to the economic cycle. It has a diversified suite of solution offerings. Its current pipeline is the best they've ever had. Protiviti's revenue not only did not decline, they actually grew 12%, 2020 versus 2019. Protiviti is now a third of our consolidated revenue and earnings, said differently productivity is half the size of talent solution, and it has significant more resiliency than talent solutions has just by the nature of its business. So there's a huge difference between this cycle and cycles past, and that we now have something half as large as talent solutions that's quite resilient.
spk13: That's great. Thank you.
spk08: Okay, I think that was our last question, so we appreciate everybody's time, and thank you very much.
spk06: This concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investor Center of Robert Half's website at roberthalf.com. You can also log in to the conference call replay. Details are contained in the company's press release issued earlier today.
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