Robert Half Inc.

Hello and welcome to the Robert Half fourth quarter 2022 conference call. Today's conference call is being recorded. If you'd like to ask a question during the question and answer portion of the call, please press the star and the number one on your telephone keypad. 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. Mr. Waddell, you may begin.

Thank you. 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 actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Reconciliations and further explanations of these measures are included in a supplemental schedule to our press release today. Our presentation of revenues and 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 in the investor center of our website, roberthalf.com. 2022 was a very successful year across the entire Robert Half enterprise. We grew full-year revenues and earnings per share, both by more than 12%, and achieved new record levels for each. All of our major practice areas, contract, permanent placement, and productivity, reached all-time highs over and above the very strong growth in the prior year. We entered 2023 optimistic about our ability to navigate the uncertain global macroeconomic environment and the tight labor markets around the world. For the fourth quarter of 2022, company-wide revenues were $1.727 billion, down 2% from last year's fourth quarter on a reported basis, but up 1% on an as-adjusted basis. That income per share for the fourth quarter was $1.37 compared to $1.51 in the fourth quarter a year ago. Cash flow from operations during the quarter was $202 million. In December, we distributed a 43 cent per share cash dividend to our shareholders of record for a total cash outlay of $47 million. Our per share dividend has grown 11.2% annually since its inception in 2004. The December 22 dividend was 13.2% higher than in 2021. We also acquired approximately 800,000 Robert Half shares during the quarter for 61 million. We have 3.8 million shares available for repurchase under our board approved stock repurchase plan. Return on invested capital for the company was 39% in the fourth quarter. Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith. Hello, everyone. As Keith noted, global revenues were $1.727 billion in the fourth quarter. On an as-adjusted basis, fourth quarter talent solutions revenues were down 1% year-over-year. U.S. talent solutions revenues were $964 million, down 2% from the prior year. Non-U.S. talent solutions revenues were $264 million, up 5% year-over-year on an as-adjusted basis. We have 317 talent solutions locations worldwide, including 86 locations in 18 countries outside of the United States. In the fourth quarter, there were 61.2 billing days compared to 61.7 billing days in the same quarter one year ago. The first quarter of 2023 has 63.3 billing days compared to 62.4 billing days during the first quarter of 2022. Billing days for the remaining three quarters of 2023 will be 63.3, 63.1, and 61.1 for a total of 250.8 billing days during the year. Currency exchange rate movements during the fourth quarter had the effect of decreasing reported year-over-year revenues by $39 million, $27 million for talent solutions, and $12 million for productivity. This negatively impacted our year-over-year overall revenue growth by 2.2 percentage points, 2.1 percentage points for Talent Solutions, and 2.4 percentage points for Protivity. Contract Talent Solutions bill rates for the quarter increased 7.8% compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. This rate for the third quarter was 9%. Now let's take a closer look at results for productivity. Global revenues in the fourth quarter were $499 million. $401 million of that is from business within the United States, and $98 million is from operations outside of the United States. On an as-adjusted basis, global fourth quarter productivity revenues were up 4% versus the year-ago period. with both U.S. and non-U.S. proactivities up by 4% on an as-adjusted basis. Proactivity and its independently owned member firms serve clients through a network of 89 locations in 29 countries. Company-wide fourth quarter public sector revenues were $83 million, of which $60 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 approximately $3 million during the quarter. Full-year public sector revenues were down approximately 8% or 3% adjusted for currency. Turning now to gross margin, in contract talent solutions, fourth quarter gross margin was 39.9% of applicable revenues, compared to 39.8% of applicable revenues in the fourth quarter one year ago. Conversion revenues, or contract to hire, were 3.7% of revenues in the quarter. Our permanent placement revenues in the fourth quarter were 12.7% of consolidated talent solutions revenues versus 12.4% of consolidated talent solutions revenues in the same quarter one year ago. When combined with contract talent solutions gross margin, overall talent solutions gross margins were 47.5% compared to 47.2% of applicable revenues in the fourth quarter one year ago. For productivity, gross margin was 27.2% of productivity revenues compared to 28.7% of productivity revenues one year ago. Adjusted for deferred compensation related classification impacts, Gross margin for productivity was 28% for the quarter just ended, compared to 29.3% one year ago. Moving on to SG&A. Enterprise SG&A costs were 31.6% of global revenues in the fourth quarter, compared to 30.8% in the same quarter one year ago. Adjusted for deferred compensation related classification impacts, Enterprise SG&A costs were 30.4% in the quarter just ended compared to 29.7% one year ago. Talent Solutions SG&A costs were 38.9% of Talent Solutions revenues in the fourth quarter versus 37.7% in the fourth quarter of 2021. Adjusted for deferred compensation related classification impacts, Talent Solutions SG&A costs were 37.2% for the quarter just ended compared to 36.2% one year ago. The higher mix of permanent placement revenues this quarter versus one year ago had the effect of adding 0.2 percentage points to the quarter's adjusted SG&A risk ratio. We ended 2022 with 9,300 full-time internal employees in our Talent Solutions divisions up 5% from the prior year. Fourth quarter SG&A costs for productivity were 13.6% of productivity revenues compared to 12.9% of revenues in the year-ago period, as operating expenditures returned to more normalized levels. We ended 2022 with 11,700 full-time productivity employees and contractors, up 2.4% from the prior year. Operating income for the quarter was $174 million. Adjusted for deferred compensation-related classification impacts, combined segment income was $199 million in the fourth quarter. Combined segment margin was 11.5%. Fourth quarter segment income from our talent solutions divisions was $127 million, with a segment margin of 10.3%. Segment income productivity in the fourth quarter was $72 million, with a segment margin of 14.4%. Our fourth quarter tax rate was 27%, up from 24% in the same quarter one year ago. The higher tax rate for 2022 can be primarily attributable to higher non-deductible expenses in 2022, as well as lower stock compensation deductions due to the company's stock price. At the end of the fourth quarter, accounts receivable were $1.018 billion and implied day sales outstanding, or DSO, was 53.1 days. Before we move to first quarter guidance, let's review some of the monthly revenue trends we saw in the fourth quarter and so far in January, all adjusted for currency and billing days. Contract talent solutions exited the fourth quarter with December revenues down 6% versus the prior year compared to a 1% decrease for the full quarter. Revenues for the first two weeks of January were down 7% compared to the same period one year ago. Permanent placement revenues in December were down 1% versus December of 2021. This compares to a 2% increase for the full quarter. For the first three weeks of January, permanent placement revenues were down 23% compared to the same period in 2022. We provide this information so that you have insight into some of the trends we saw during the fourth quarter and into January. But as you may know, these are very brief time periods. We caution reading too much into them. With that in mind, we offer the following first quarter guidance. revenue $1.685 billion to $1.765 billion, income per share $1.10 to $1.20. The midpoint revenues of $1.725 billion are 5.4% lower than the same period in 2022 on an as-adjusted basis. The major financial assumptions underlying the midpoint of these estimates are as follows. for revenue on a year-over-year, as-adjusted basis. Talent solutions, down 7% to down 12%. Productivity, up 6% to up 9%. Overall, down 3% to down 7%. Gross margin percentage. Contract talent, 38% to 40%. Productivity, 24% to 26%. Overall, 39 to 41 percent. SG&A as a percentage of revenue, excluding deferred compensation classification impacts. Talent solutions, 36 to 38 percent. Creativity, 14 to 16 percent. Overall, 30 to 32 percent. Segment income for talent solutions, 8 to 11 percent. Creativity, 8 to 11 percent. overall 8 to 11 percent tax rate 27 to 28 percent shares 106.5 to 107.5 million 2023 capital expenditures and capitalized cloud computing costs 100 to 120 million with 20 to 25 million in the first quarter we limit our guidance to one quarter All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings. Now I'll turn the call back over to Keith.