Robert Half Inc.

Hello, and welcome to the Robert Half Third Quarter 2023 Conference Call. Today's conference 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 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 forward-looking statements. These risks and uncertainties are described in today's press release and 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 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. For your convenience, our prepared remarks for today's call are available in the investor center of our website, roberthalf.com. We delivered above consensus top and bottom line results for the third quarter, notwithstanding the ongoing macroeconomic uncertainty that lengthens both client and job candidate decision cycles. Both talent solutions and productivity exceeded expectations. Gross margins remain strong due to pricing discipline and the ongoing benefit from the rising mix of revenues from higher skilled services. Our operating cost base also benefited from the targeted actions we've taken to align costs with revenues. We remain confident, both in our ability to weather the current climate and in our future growth prospects as the macro landscape improves. For the third quarter of 2023, company-wide revenues were $1.564 billion, down 15% from last year's third quarter on a reported basis and down 14% on an as-adjusted basis. That income per share in the third quarter was $0.90 compared to $1.53 in the third quarter a year ago. Cash flow from operations during the quarter was $176 million. In September, 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 11.4% annually since its inception in 2004. The September 2023 dividend was 11.6% higher than in 2022. We also acquired approximately 1.2 million Robert Happ shares during the quarter for $90 million. We have 11.5 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 24% 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 $1.564 billion in the third quarter. On an as-adjusted basis, third quarter talent solutions revenues were down 17% year-over-year. U.S. talent solutions revenues were $823 million, down 20% from the prior year's third quarter. Non-U.S. talent solutions revenues were $260 million, down 7% year-over-year on an as-adjusted basis. We have 319 Talent Solutions locations worldwide, including 89 locations in 18 countries outside of the United States. In the third quarter, there were 63.1 billing days compared to 64.3 billing days in the same quarter one year ago. The fourth quarter of 2023 has 61.1 billing days compared to 61.2 billing days during the fourth quarter of 2022. Currency exchange rate movements during the third quarter had the effect of increasing reported year-over-year total revenues by $13 million, $10 million for talent solutions, and $3 million for productivity. Contract talent solutions bill rates for the third quarter increased 4.6 percent compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. This rate for the second quarter was 6%. Now let's take a closer look at results for productivity. Global revenues in the third quarter were $481 million. $386 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 down 5% versus the year-ago periods. U.S. productivity revenues were down 6%, while non-U.S. productivity revenues were down 2%. Productivity and its independently owned member firms served clients through a network of 89 locations in 29 countries. Turning now to gross margin. In contract talent solutions, third quarter gross margin was 39.8% of applicable revenues versus 39.4% in the third quarter one year ago. conversion revenues or contract to hire were 3.5% of revenues in the quarter compared to 4.1% of revenues in the quarter one year ago. Our permanent placement revenues in the third quarter were 12.9% of consolidated talent solutions revenues versus 13.8% in the same quarter one year ago. When combined with contract talent solutions gross margin, Overall gross margin for talent solutions was 47.5% compared to 47.8% of applicable revenues in the third quarter last year. For productivity, gross margin was 26.2% of productivity revenues compared to 30.5% of productivity revenues one year ago. Adjusted for deferred compensation-related classification impacts, gross margin for productivity was 25.6% for the quarter just ended compared to 30% last year. Moving on to SG&A, enterprise SG&A costs were 31.8% of global revenues in the third quarter compared to 29.9% in the quarter one year ago. Adjusted for deferred compensation related classification impacts, enterprise SG&A costs were 32.5% for the quarter just ended compared to 30.6% last year. Talent Solutions SG&A costs were 39.3% of Talent Solutions revenues in the third quarter versus 35.3% in the third quarter of 2022. Adjusted for deferred compensation related classification impacts, Talent Solutions SG&A costs were 40.4% for the quarter just ended compared to 36.3% last year. 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 0.5 percentage points. Third quarter SG&A costs for productivity were 14.7% of productivity revenues compared to 16% of revenues last year. Operating income for the quarter was $144 million. Adjusted for deferred compensation-related classification impacts, combined segment income was $130 million in the third quarter. Combined segment margin was 8.3%. Third quarter segment income from our talent solutions divisions was $78 million with a segment margin of 7.2%. Segment income for productivity in the third quarter was $52 million with a segment margin of 10.9%. Our third quarter tax rate was 30% up from 26% for the same quarter one year ago. The higher tax rate for 2023 can be attributed to an increased impact from non-deductible expenses and fewer tax credits. At the end of the third quarter, accounts receivable were $941 million and implied day sales outstanding, or DSO, was 54.2 days. Before we move to fourth quarter guidance, let's review some of the monthly revenue trends we saw in the quarter and so far in October, all adjusted for currency and billing days. Contract Talent Solutions exited the third quarter with September revenues down 17% versus the prior year, compared to a 16% decrease for the full quarter. Revenues for the first two weeks of October were down 17% compared to the same period last year. On a week-on-week sequential basis, the rates of decline have narrowed over the past 10 to 12 weeks. Permanent placement revenues in September were down 26% versus September 2022. This compares to a 23% decrease for the full quarter. For the first three weeks of October, permanent placement revenues were down 24% 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 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. Revenues, 1.415 billion to 1.515 billion. Income per share, 75 cents to 89 cents. Midpoint revenues of $1.465 billion are 15% 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 growth, year-over-year as-adjusted, talent solutions down 15% to 20%, productivity down 8% to 10%, Overall, down 13 to 18%. Gross margin percentage for contract talent, 39 to 41%. Productivity, 25 to 27%. Overall, 39 to 41%. For SG&A as a percentage of revenues, excluding deferred compensation classification impacts, for talent solutions, 39 to 41%. Productivity, 15 to 17%. Overall, 32 to 34%. And for segment income, talent solutions, 5 to 8%. Productivity, 9 to 12%. And overall, 6 to 9%. Tax rate, 27 to 28%. Shares $104.5 to $105.5 million. 2023 capital expenditures and capitalized cloud computing costs $80 to $90 million with $20 to $25 million in the fourth 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.