Robert Half Inc.

Hello, and welcome to the Robert Half Second Quarter 2023 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 then 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.

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 and our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Reconciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release. Our presentation of revenues and the related growth rates for each of our contract practice groups 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. For your convenience, our prepared remarks for today's call are available in the investor center of our website, roberthalf.com. Second quarter results for talent solutions were impacted by elongated client hiring cycles resulting from ongoing global macro uncertainty. Productivity was much less impacted with its diversified suite of solutions offerings. Pricing and gross margins remain strong, demonstrating the value-added benefit we continue to deliver for our clients. We remain confident that we're well positioned to benefit significantly as the macro landscape improves. For the second quarter of 2023, Companywide revenues were $1.639 billion, down 12% from last year's second quarter on both a reported and as-adjusted basis. And income per share in the second quarter was $1 compared to $1.60 in the second quarter one year ago. Cash flow from operations during the quarter was $281 million in June and we distributed a 48 cent per share cash dividend to our shareholders of record for a total cash outlay of 51 million. Our per share dividend has grown 11.5% annually since its inception in 2004. The June 2023 dividend was 11.6% higher than in 2022. We also acquire approximately 650,000 Robert Half shares during the quarter for 45 million. We have 12.7 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 26% in the second quarter. Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.639 billion in the second quarter. On an as-adjusted basis, second quarter talent solutions revenues were down 16% year over year. U.S. talent solution revenues were $885 million, down 17% from the prior year's second quarter. Non-U.S. talent solution revenues, $263 million. down 9% year-over-year on an as-adjusted basis. We have 318 talent services locations worldwide, including 87 locations in 18 countries outside of the United States. In the second quarter, there were 63.3 billing days compared to 63.4 billing days in the same quarter one year ago. The third quarter of 2023 has 63.1 billing days compared to 64.3 billing days during the third quarter of 2022. Currency exchange rate movements for the second quarter had the effect of decreasing reported year-over-year total revenues by 3 million. And that's 3 million for Talent Solutions and a negligible impact for Protiviti. Contract Talent Solutions bill rates for the quarter increased 6% 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 was 6.9%. Now let's take a closer look at results for productivity. Global revenues in the second quarter were $491 million. $386 million of that is from business within the United States, and $105 million is from operations outside of the United States. On an as-adjusted basis, second quarter productivity revenues were down 1% versus the year-ago period. U.S. productivity revenues were down 2%, while non-U.S. productivity revenues were up 4%. Productivity and its independently-owned member firms serve clients through a network of 89 locations in 29 countries. Turning now to gross margin, in contract talent solutions, Second quarter gross margin was 39.9% of applicable revenues, the same as the second quarter one year ago. Conversion revenues, or contract to hire, were 3.7% of revenues in the quarter compared to 4.1% of revenues in the quarter one year ago. Our permanent placement revenues in the second quarter were 13% of consolidated talent solutions revenues versus 14.7% in the same quarter one year ago. When combined with contract talent solutions gross margin, overall gross margin for talent solutions was 47.7% compared to 48.7% of applicable revenues in the second quarter one year ago. For productivity, gross margin was 22.9% of productivity revenues compared to 30.4% of productivity revenues one year ago. Adjusted for deferred compensation-related classification impacts, Gross margin for productivity was 24% for the quarter just ended compared to 28.1% one year ago. Second quarter productivity gross margin included 2.8 million of severance costs related to employee headcount reductions. Enterprise SG&A costs were 33.1% of global revenues in the second quarter compared to 27.3% in the same quarter one year ago. Adjusted for deferred compensation related classification impacts, Enterprise SG&A costs were 31.6% for the quarter just ended compared to 30.3% one year ago. Talent Solutions SG&A costs were 40.7% of Talent Solutions revenues in the second quarter versus 32.2% in the second quarter of 2022. Adjusted for deferred compensation related classification impacts, Talent Solutions SG&A costs were 38.7% for the quarter just ended compared to 36.2% one year ago. Second quarter Talent Solutions SG&A costs included $5.1 million of severance costs related to employee headcount reductions. The lower mix of permanent placement revenues this quarter versus one year ago had the effect of decreasing the quarter's adjusted SG&A ratio by 0.9 percentage points. Second quarter SG&A costs for productivity were 15.1% of productivity revenues compared to 14% of revenues in the one year ago period, as operating expenditures continued to return to more normal pre-pandemic levels. Second quarter productivity SG&A costs also included $400,000 of severance costs related to employee headcount terminations. Operating income for the quarter was $118 million. This includes severance charges of $8 million or $0.05 per share. Adjusted for deferred compensation related classification impacts, combined segment income was $147 million in the second quarter. Combined segment margin was 8.9%. Second quarter segment income from our talent solutions divisions was $103 million with a segment margin of 9%. Segment income for productivity in the second quarter was $44 million, with a segment margin of 8.9%. Our second quarter tax rate was 30%, up from 27% for the same quarter one year ago. The higher tax rate for 2023 can be attributed to an increased impact of non-deductible expenses, fewer tax credits, as well as lower stock compensation deductions. At the end of the second quarter, accounts receivable were $974 million and implied day sales outstanding, or DSO, was 53.5 days. Before we move on to third quarter guidance, let's review some of the monthly revenue trends we saw in the second quarter and so far in July, all adjusted for currency and billing days. Contract Talent Solutions exited the second quarter with June revenues down 15% versus the prior year, compared to a 14% decrease for the full quarter. Revenues for the first two weeks of July were down 15% compared to the same period one year ago. Permanent placement revenues in June were down 26% versus June 2022. This compares to a 25% decrease for the full quarter. For the first three weeks in July, Permanent placement revenues were down 28% compared to the same period in 2022. We provide this information so 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 time periods. We caution against reading too much into them. With that in mind, we offer the following third quarter guidance. Revenues $1.48 billion to $1.58 billion. income per share $0.76 to $0.90. Midpoint revenues of $1.53 billion are 16% 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. Revenue growth year-over-year as-adjusted, talent solutions, down 17 to 22%. For productivity, down 4 to 7%. Overall, down 13 to 18%. Gross margin percentage for contract talent, 39 to 41%. For productivity, 25 to 27%. Overall, 39 to 41%. SG&A as a percentage of revenue, excluding deferred compensation classification impacts. Talent solutions, 39 to 41%. Productivity, 14 to 16%. Overall, 32 to 34%. Segment income for talent solutions, 5 to 8%. Productivity, 9 to 12%. Overall, 6 to 9%. Our tax rate, 29 to 30%. And shares, 105.5 to 106.5 million shares. 2023 capital expenditures and capitalized cloud computing costs, 70 million to 80 million, with 13 to 18 million in the third quarter. Limit our guidance to one quarter, All estimates we provide in 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.