羅致恆富 (RHI) 2015 Q3 法說會逐字稿

Hello and welcome to the Robert Half third-quarter 2015 conference call. Our hosts for today's call are Mr. Max Messmer, Chairman and CEO of Robert Half, and Mr. Keith Waddell, Vice Chairman, President and Chief Financial Officer. Mr. Messmer, you may begin.

Thank you and good afternoon everyone. We appreciate your time today.

Before we begin, I would like to remind you that comments made on today's call contain predictions, estimates and other forward-looking statements. These statements represent our current judgment of what the future holds and include words such as forecast, estimate, project, expects, believe guidance, and similar expressions. We believe these remarks to be reasonable. However, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Some of these risks and uncertainties are described in today's press release and in our SEC filings, including our 10-Ks, 10-Qs and today's 8-K. We assume no obligation to update the statements made on today's call.

For your convenience, our prepared remarks are also available on our website at RobertHalf.com. From the "About Us" tab, go to our Investor Center where you will find the Quarterly Conference Calls link.

Now let's review our third-quarter results. Revenues in the third quarter were $1.31 billion, up 7% from the same period one year ago on a reported basis, or up 11% adjusted for currency. Income per share was $0.73, up 16% from this time last year. Cash flow from operations was $94 million. Capital expenditures were $19 million.

During the quarter, we returned $25 million in cash to our shareholders through a dividend of $0.20 per share, and we also repurchased 1.6 million Robert Half shares for $82 million. There are approximately 1.8 million shares available for repurchase under our board approved stock repurchase plan.

Improving labor markets, particularly in the United States, contributed to higher demand for Robert Half's professional staffing and consulting services during the third quarter. Consolidated quarterly revenues reached record levels, fueled by strong results from Protiviti, Robert Half Technology, and our permanent placement operations.

Protiviti had an outstanding quarter with revenues up 23% from one year ago when adjusted for currency. This was Robert Half's 22nd straight quarter of double-digit net income and earnings per share growth on a year-over-year percentage basis. Our unlevered return on equity was 38%.

I'll turn the call over to Keith now for a closer look at our third-quarter results.

As Max noted, global revenues were $1.31 billion in the third quarter. This is up 7% from the third quarter of 2014 on a reported basis, and up 11% on a currency-adjusted basis. Third-quarter staffing revenues were up 9% on a currency adjusted basis. US staffing revenues were $891 million in the third quarter, up 10%. Non-US staffing revenues were $220 million, up 4% when adjusted for currency. We have 332 staffing locations worldwide, including 92 locations in 17 countries outside the US.

The third quarter had 64.2 billing days, the same number of days as the third quarter a year ago. The current fourth quarter has 62.3 billing days compared to 61.7 billing days in the fourth quarter of last year.

Accompanying our earnings release is a supplemental schedule showing year-over-year revenue growth rates for our staffing lines of businesses on both a reported and same-day currency-adjusted basis. This data is further broken out by US and non-US operations. This is a non-GAAP financial measure that offers insight into certain revenue trends in our operations.

Currency exchange rates had the effect of decreasing year-over-year staffing revenues by $40 million in the third quarter, and reducing year-over-year reported staffing growth rates by 4%.

Global revenues for Protiviti were $202 million in the third quarter, with $172 million in revenues in the United States and $30 million in revenues outside the US. Protiviti revenues were up 23% year-over-year on a currency adjusted basis, US revenues were up 25%, and non-US revenues were up 16% from the prior year when adjusted for currency. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $5 million in the third quarter, and decreasing year-over-year reported growth rates by 3%. Protiviti and its independently owned member firms serve clients through a network of 75 locations in 25 countries.

Gross margin in our temporary and consulting staffing operations in the third quarter was 37.3% of applicable revenues. This is a 40 basis point improvement from the same period a year ago. The improvement includes higher pay/bill spreads, higher temp-to-hire conversion fees, and lower insurance and payroll tax costs.

Third-quarter revenues for our permanent placement operations were 10% of consolidated staffing revenues, which is slightly higher than last year's 9.7%. Together with temporary and consulting gross margins, overall staffing gross margin improved 50 basis points versus a year ago to 43.5%.

Third-quarter gross margin for Protiviti was $66 million, or 32.9% of Protiviti revenues. Gross margin a year ago was $51 million, or 30.5% of Protiviti revenues.

Staffing SG&A cost were 32.1% of staffing revenues in the third quarter versus 31.7% in last year's third quarter. The increase relates largely to a higher number of internal field staff and related compensation costs. SG&A costs for Protiviti were 17.2% of Protiviti revenues in the third quarter compared to 19% of Protiviti revenues in the year-ago period.

Operating income from our staffing divisions was $127 million in the third quarter, up 7% from the prior year. Operating margin was 11.5%. Our temporary and consulting staffing divisions reported $103 million in operating income, an increase of 5% over the prior year. This resulted in an operating margin of 10.3%. Operating income for our permanent placement division was $24 million in the third quarter, up 14% from the prior year, and producing an operating margin of 22%. Third-quarter operating profit for Protiviti was $32 million, an increase of 65% from the prior year. This produced an operating margin of 15.7%.

Accounts Receivable at the end of the third quarter were $731 million. Implied days sales outstanding, or DSO, was 50.7 days.

Before we move to fourth-quarter guidance, let's review the monthly revenue trends we saw in the third quarter and so far in October, all adjusted for currency. Globally, year-over-year revenue growth rates for our temporary and consulting divisions decelerated slightly over the course of the third quarter. We exited the quarter with September growing at 7% as compared to 8% for the full quarter. Revenue growth for the first two weeks of October picked up slightly to 9% compared to the prior year. Global permanent placement revenue growth rates also decelerated throughout the quarter with September revenues growing at 10% as compared to 14% for the full quarter. For the first three weeks of October, permanent placement revenues increased 3% compared to the same period last year.

Overall, US versus non-US trends were not materially different except for permanent placement revenues during the first three weeks of October. Non-U. S. perm started slowly with a negative 14% growth rate during this short three-week period.

We provide this snapshot to give you additional insight into trends we saw during the third quarter and so far in October. But as you know, it's difficult to read a great deal into these numbers given the short time periods they represent. With that said, we offer the following fourth-quarter guidance: revenues, $1.285 billion to $1.335 billion; income per share $0.67 to $0.72. The midpoint of our guidance implies year-over-year revenue growth of 7% on a reported basis or 10% adjusted for currency, and EPS growth of 12%. 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 Max.

Thank you Keith. As we noted at the start of the call, we continue to see healthy demand for our services across the board, and we believe we have a number of reasons to be optimistic about our prospects for future growth. Economic trends are in our favor. In the United States, the unemployment rate hit its lowest level in seven years in August and remained there in September. The four-week moving average for initial jobless claims is near a 42-year low.

Non-US markets also are improving, particularly in Europe. The unemployment rate in the United Kingdom recently hit a seven-year low.

Technology remains the hottest segment of staffing, both here and abroad. We are investing in Robert Half Technology to take advantage of this demand. It's not just technology, however. There is a widening skills gap in a number of other professional specialty areas that has many employers struggling to find the talent they need. This presents us with the opportunity to partner with them to locate these workers, and that is precisely what our field teams are doing right now.

We are extremely pleased with how well our Protiviti business is doing. Protiviti has successfully diversified its service offerings and is being rewarded with broad-based growth in three of its major consulting segments: internal audit and financial advisory services, risk and compliance and information technology consulting. This is a business with a loyal and growing client base.

At this time, Keith and I will be happy to answer questions. We would request that you please limit yourself to one question and a single follow-up as needed. If time permits, we will certainly try to return to you later in the call if you have additional questions. Thank you.

(Operator Instructions). Andrew Steinerman, JPMorgan.

Hi gents. A lot of people are thinking about wage inflation in the United States. Do you think it's picked up recently? I know you said you were able to improve your spreads on bill rate/pay rate. Could you talk about what the bill rate/pay rate increased [to], and is this a conducive environment for Robert Half as it comes to spreads moving forward?

Andrew, on a global basis, our bill rates were up 4.6% year-over-year. On a global basis, that's down slightly from last quarter's 4.7%. Pay rates were up less, and therefore the spreads widened. However, if you look just at the US, the US bill rates were actually up a tick versus the third quarter, and that was offset by non-US bill rates being down a tick.

As to "Is this a conducive environment," the answer is absolutely. We have spoken many times about, as candidates get tighter, clients place a larger premium on recruiting. That allows us to pass through not only the higher pay rate, but to get a little more spread as well.

And those comments you just made include Protiviti or don't include Protiviti? And maybe could you make a Protiviti comment when it comes to a similar attribute?

So the rates I gave were staff only. I'd say, if anything, the market conditions for Protiviti are even stronger than is the case for staffing, as the results indicate. And those conditions are also conducive to margin expansion, which has occurred very nicely over the course of this year, and our hope is it continues to proceed next year, although at not quite the same pace given the much tougher comps.

Got it. Thank you so much.

Mark Marcon, Baird.

Good afternoon. I've got two questions. One is just related to Accountemps and RH Technology with regards to we saw a slight level of deceleration in terms of the year-over-year growth rates. But the sequential trends compared to most years was in line. And so I'm wondering if you would characterize the slowdown as basically being primarily a function of going up against tougher comps, or if you think there are some areas that do seem to be slowing within the US from your perspective.

I'd make a couple of comments. First of all, the month of August was weaker for us than usual not only in the US but outside the US as well. As everyone knows, in Continental Europe, August is a holiday month. We certainly saw more holiday impact in Europe, particularly France, this year than we typically do. But also in the US, August was a little softer than we thought. Whether that's because of the market decline and the sentiment that resulted from that, whether that's because it's holiday vacation season to some extent in the US as well, it's hard to say, but we did see a softer August. The good news is we bounced back from that nicely in September. And that bounce-back has been confirmed and actually gotten a little better so far in October, so we feel good about that.

In addition, the comps had gotten tougher, and our deceleration was less than the amount by which the comps got tougher. On the comps front, the good news is, for the fourth quarter we are now in, for the temp business, the comps are only 1 point tougher versus a year ago whereas, in the last few quarters, the comps had accelerated by much more than that.

Great. And then with regards to Protiviti, can you just talk a little bit about the profitability level there? It's fantastic, obviously. And just wondering how sustainable the current level is. Obviously, there is seasonality, but could you give us some comments in terms of how to think about it going forward, both for the fourth quarter and the foreseeable future?

I guess I'll first have to observe, it's quite the difference versus the past where the questions were "Will you ever get to double digits in operating margins?" And now the questions are "Once you've gotten there, can you sustain it?" And I'd much rather have the latter question than the former.

Glad to provide it.

The truth is we do believe the Protiviti operating margins are sustainable. Clearly, the third-quarter seasonally is Protiviti's strongest quarter, so third-quarter alone operating margins at midteens aren't total-year operating margins, but as we've said for a long time, low to mid double-digit operating margins we do think are sustainable. If anything, this year has proven that out.

We do think there is room, if you look at year-to-date for improvement in 2016, but the rate of improvement can't be the same rate of improvement you've seen this year. Said simply, we are delighted with the operating margin improvement we have seen at Protiviti. We are delighted with Protiviti, period. And the operating margins have come into the range that we have long expected, and we think they can stay there.

Great. Thank you.

Tim McHugh, William Blair.

Thanks. I just want to ask about the staffing SG&A, and if I missed it I apologize. But what was the field staff headcount growth this quarter? And I guess just a little more color on how you're thinking about the investment in that, and whether this is more of a medium-term trend where we should see SG&A growing faster than revenue as you're investing faster in expansion, or if it's just a short-term ramp-up type of trend.

The simple answer is that it's mostly a short-term ramp-up. We've added to headcount in the second half much more aggressively than we did in the first half. The same is true a year ago as well. The hiring we've done the second half of this year has been very broad-based temp line of businesses as well as perm, principally US, a little bit of non-US, primarily Germany.

The first-quarter expectation would be that our headcount additions would moderate as was the case a year ago, and the headcount additions be more targeted to technology and permanent placement, where we have greater growth and we think we have greater prospects for growth. So SG&A, there's clearly been a bulge as a percent of revenue in the third and is expected to carry into the fourth quarter, but we expect that to moderate in the first quarter. And if you look a year ago, to some extent the same happened.

Okay, that's helpful. And Management Resources, is it as simple as a tough comparison, or are there other factors that drove the slower growth there?

It's principally tougher comparisons. Again, from a staffing line of business standpoint, Management Resources had very tough comparisons. So a year ago, as an example, Management Resources grew 18% on a same day constant-currency basis. The fourth-quarter comp is 17%, and those are leaps and bounds tougher comparisons than any other line of business.

Sequentially we were quite encouraged with how Management Resources did in the third quarter. And in the fourth quarter, the comparisons start to get a little easier for Management Resources because they had a few larger projects fall off in the fourth quarter a year ago. So, we feel pretty solid about Management Resources.

Fair enough. Thanks.

Jeff Silber, BMO Capital Markets.

Good afternoon. It's Henry Chen calling in for Jeff. I had a question on your share repurchases. It looks like that picked up a bit in the quarter. Just wondering how you're thinking about share repurchases for the next quarter, and any change in how you're looking at capital allocation going forward? Thanks.

There is no real change in how we are looking at capital allocation. So, we are still looking to return our free cash flow to shareholders. We've done that for many, many years. We got a little more aggressive this quarter as the price was more conducive to do so. Over the last 10 years, I think we've shrunk our share count almost 25%, and that's been a steady-as-you-go every quarter returning excess cash flow to shareholders first through dividends and the residual through repurchases. But there's no new direction. There's no new news as it relates to capital allocation. We continue to be very proud of our return on equity and return on invested capital, which was high 30s%, which is pretty incredible.

Got it, okay. And I was curious to know if you have any thoughts on what's driving some of the acceleration in the temp and consulting from September to October that you mentioned in your guidance. Just wondering if you have any thoughts there. Thanks.

Maybe I would take the opportunity to expand a little more broadly on our guidance. And then I'll come back more specifically to temp acceleration. If you look at our guidance, for the full fourth quarter, our guidance assumes at midpoint a little bit of temp deceleration. This is all on a constant-currency basis. It assumes a little bit of deceleration, less than 1 point on comps that get tougher by 1 point. As you just mentioned, our October start is better than that, and we would love for that to hold. So, we've been a little more conservative than our start.

If you look at perm midpoint guidance, we look for those growth rates to be stable to a small acceleration, and there the comps are neutral. The October start, as we've said many times, the perm start, that short a period of time is particularly not predictive, outside the US, even within perm, is less predictive, so we are not at all swayed in our thoughts about full quarter based on the slow start we had primarily outside the US in perm so far this quarter.

Protiviti, we see some deceleration in the growth rate to a high teen percentage, which is still great because there the comps are monster comps. If you go back a year ago, you will find that Protiviti had a couple of very large jobs that continued right to the end of the year. Typically, Protiviti is more impacted on a sequential basis by the holidays where their clients take time off. That encourages our staff to take time off, and the staff take time off anyway. So decelerating, but decelerating to high teens, that's a high-class problem to have where we are.

Temp gross margin we think will continue to expand on a year-over-year basis, better markups, lower fringe costs. We think there's 30 to 50 basis points of improvement there year-over-year.

SG&A, as we mentioned earlier, the more aggressive hiring we've done in the second half -- well, first of all, in the third quarter, will continue into the fourth quarter. You've got the carryover of the third quarter plus you've got some new fourth-quarter hiring. We think those are moderate in the first quarter, as we talked. So we see SG&A being up 50 to 80 basis points, effectively funded by the higher gross margins. If you look at operating margins, again, we are talking midpoint. Staffing, flat to up slightly, as the headcount investments offset the expanding gross margins. Protiviti, we think the operating margins will be up nicely year-over-year, given the momentum into the quarter. But on a sequential basis, because of a short quarter, as we talked about, sequentially, the operating margins for Protiviti will be down.

Tax rate, our tax rate assumption for our fourth-quarter midpoint is mid-38s%, call it 38.5%. That compares negatively to a year ago where our fourth-quarter tax rate was 37%. And again, the issue was the timing of foreign and other tax credits. The tax rate differential alone cost us about $0.02 a share in our guidance. EPS midpoint, $0.70, up 12%, as we talked about earlier. If you equalize the tax rates, it would be up 15%. Sequentially, EPS would be down $0.03 at our midpoint. That compares to sequentially being down $0.01 a year ago. Keep in mind, a year ago we had a $0.01 workers comp credit. We haven't dialed anything in for this year. The typical semiannual review was still pending a year ago. Sequentially, Protiviti had a monster quarter versus the past. And additionally, from a tax rate standpoint looking sequentially, a year ago, there was more tax rate relief third quarter to fourth than we expect this year third quarter to fourth. So that's long-winded, but that tries to give you some color on how we come up with guidance.

We feel good about where the business is. We feel good about where the momentum is. August was the low watermark. We've improved from that. We feel good as late as last week about the bounce we've gotten from those August loans.

So when you talk about our start with acceleration in temp, we feel good about that. But it's only a week and a half, we called it two weeks, but it's really a week and a half. So you can't get too carried away on a week and a half, but you would rather be better than be worse, and it's certainly better than what we forecast for the full quarter.

Got it. Okay. Thank you so much.

Sara Gubins, Bank of America.

Good afternoon. First question, were there areas in the third-quarter revenue where you were either negatively or positively surprised?

I'd say generally, as I just said, August was softer than we expected, both in the US and outside the US. Nothing else sticks out as being dramatically different than we expected. Management Resources probably a little better than what we expected. Continental Europe a little worse. We expected Canada to be weak because of energy. We expected Australia to be weak because of energy. We didn't expect the France holiday impact to be more severe than normal. But by line of business, there were no big stories there other than what I just said.

Okay, great. And separately, could you talk a bit about the type of work in technology where you are seeing stronger demand in your ability to find people with those skills?

We've talked about before how the tech development, the engineers, the programmers, the analysts, the web developers, that those type of positions have become relevant to middle-market companies, which is our sweet spot with mobile, with the Web, with the cloud. And therefore, we see much more growth at those higher-level positions with higher bill rates than we do at the tech-support level, not that the tech-support level is doing poorly. So we are quite pleased that we've been able to recruit people into those kinds of positions with our middle-market client base. And is recruiting difficult? Absolutely it is. And it's been difficult for some time. But a candidate-short market is a market we prefer, because we can better distinguish our capabilities versus the other firms.

Thank you.

Tobey Sommer, SunTrust.

Thank you. Was there an appreciable difference in the growth rate between the Creative business in the overall reported segments, or did they both kind of decelerate in the quarter?

We don't break out the results of our Creative business. It's doing very well, particularly at the intersection of digital marketing and technology. I think everybody in that business would confirm that's the hottest part of that business. So, we have very substantial growth rates in our Creative Group and we are very pleased with its results, but those aren't results that we break out.

Okay. Could you give us any color or numbers, however you prefer, on the rate of internal hiring in the change here in the back half of the year versus how you had been running in the first half of the year? Thank you.

There's a pretty dramatic difference. The growth in the first half of the year is pretty modest. And that's in part because of the prior back half of the year, we've added to have the capacity to grow for the following full year. So once again, we've backloaded our hiring this year to have capacity for growth into the next calendar year. And the prospects as we see them today for 2016, which is the next calendar year, are still solid. And therefore, we continue to add to internal capacity in the third quarter, which will continue into the fourth.

Thank you very much.

Randy Reece, Avondale Partners.

This is Ben on for Randy. First thing, you had touched on is the UK staffing market slowing down a bit. I'm just curious if there is a meaningful drag on results in guidance or if it's negligible.

The UK is not a drag. The two highlights of our non-US results would be Germany, and to a lesser extent the UK, but the UK has been solid for a while and remains solid and is expected to remain solid. And if we go around the globe, we've already talked about Canada and Australia being weaker due to energy. We've talked about France having a very tough August holiday, Germany great again, prospects for Germany great again, UK solid.

Okay. And then one more question on Protiviti. You had mentioned some comp issues potentially. First and foremost, I'm curious about what kind of engagements are hot right now within the different sorts of things you're doing there. And then also looking out to 2016 and beyond, how should we think about modeling this in terms of looking at these comps?

The good news about Protiviti's growth is it's actually quite balanced between internal audit and financial controls, technology controls, and financial services, risk and compliance. All three of them continue to do very well. The PCAOB continues to issue its inspection reports and say to the Big Four accounting firms you need to do more. There's been communications from the PCAOB as late as last week that confirms yet again one of the problem areas is how companies document their internal controls. Guess what? That's right in our sweet spot.

You look at technology, technology infrastructure, technology security, you don't wake up a day anymore where there isn't a technology security article about a breach, something, all of which drive demand for technology security consulting. And similarly, financial services regulatory compliance, we've talked many times about our two sub-specialties there. They are the largest -- our anti-money-laundering and consumer lending. And both of those areas continue very strong.

And the good news even there is financial institution projects are somewhat different. It's not single threaded. It's not the same thing everywhere. So, there's even some diversity for the same types of engagements, client to client. So we feel very good about the balance that we have in Protiviti with the three large solution areas that I talked about. There are other smaller solution areas, data analytics, that's coming on, but it's small. So, we feel very good about the prospects for Protiviti into 2016. But if you look at the comps there, they've anniversaried 20% on 20% on 20% on 20%. So for that to slow down to the midteens, as we talked earlier, we think is a high-class problem to have, particularly as you see those operating margins expanding into the zone that we expect and currently enjoy.

Got you. Just a quick follow-up on that. Have you seen anything yet in terms of the changes that are coming in revenue recognition? Have you seen any work coming online from that or is it still a bit early?

We don't see anything significant yet. The whole thing I believe has pushed off to 2018.

Correct, yes.

So some companies are beginning to do diagnostics. But certainly there isn't any reported revenue that moves the needle. But it certainly is nice to have that potential new revenue stream, to whatever extent it exists, in addition to the revenue streams that we just talked about.

Got it. Thank you.

Anj Singh, Credit Suisse.

Thanks for taking my questions. I realize you referenced higher temp-to-perm conversion fees in your prepared remarks. I was wondering if you could share what that figure was, how that trended year-over-year and sequentially, and if you could maybe elaborate on your thoughts with regards to perm growth rates that are sustainable based on what you are seeing in the business.

Sure. So year-over-year conversions I believe were up 10 basis points. Excuse me while I look at my notes. They were 3.2% this year. Third quarter a year ago, they were 3.1%. Note that sequentially they were down 20 basis points. That's not unusual, and it also coincides with if you look at perm placement mix as a percentage of revenue, it often declines in the third quarter sequentially versus the second. So full-time hiring during the summer isn't the most robust. And so the first derivative being temp-to-hire, full-time hiring is similarly impacted. So year-over-year, we are up 10 basis points. Sequentially, we are down 20, but not particularly concerning.

Got it. And a little bit on your recruiters. Could you discuss how recruiter tenure and turnover are currently trending, especially in light of the ramp-up in hires? Just trying to get a sense of what the average recruiter productivity looks like, and perhaps how that is being managed internally.

There's a lot there. I would say there haven't been dramatic swings in either tenure or turnover. Clearly, as we ramp-up hiring, and as we have long talked about, we are a pretty demanding team to make. Most of our turnover is early, and so if you have more people early, you're going to have more turnover attached to that. But adjusted for the higher mix of newer people, there's not a lot to say in changes in turnover or tenure. And again, as we've said many times, after that first couple or three years, our tenure is outstanding. And that continues to this moment as we speak.

Okay, great. Thank you.

Gary Bisbee, RBC Capital Markets.

Good afternoon. I realize tougher comps is a lot of the deceleration you're seeing, but we've also clearly seen deceleration in total US employment and temp data throughout the summer. Is there anything you can talk about what you're hearing from your clients around demand, how they are thinking about project demand? Any signs of getting into later innings of the cycle that you have seen in past cycles that are popping up, or just any color on the macro deal?

I guess we would observe it's still a candidate short market. The wage rate inflation is accelerating, not decelerating, in the US. And we think that speaks volumes about the health of the labor markets as it relates to the white-collar professions where we specialize.

Much of the overall data you quote, and particularly the temp staffing overall data, is very light industrial and lower-end clerical centric, so not terribly transferable to how we are doing. But from where we stand, the labor markets are still solid. They're very solid. And it's still primarily about recruiting candidates, and that per se says the demand environment is strong.

Okay, great. And then on Protiviti, obviously it's just been a terrific performer for a number of years now. How do you think about the market opportunity for this as we think over the next few years? Are you already doing business with the vast majority of the Fortune 1000 type customers you target here, or is it still very much a penetration story? Where are you in that evolution of the business? Thank you.

Protiviti competes primarily with the Big Four. And relative to the size and penetration of the Big Four, Protiviti barely registers, not only with respect to the number of the Fortune 1000 they do business with, which is impressive, but certainly not the majority, but further the types of projects they have at those clients, the depth of penetration that they have at those clients.

We are very proud of the Protiviti brand recognition. We've attained at the C-suite particularly the chief audit executive, which they target primarily, and the progress they've made there. So, we feel good about the market opportunity with Protiviti, particularly relative to the Big Four, with the trends toward independence, with the trends toward financial services regulatory compliance, where Protiviti has developed quite a brand identity. So, we couldn't feel better about where Protiviti is, and we couldn't feel better about its market opportunity. Note that its other solution areas in the lab, while small, also provide for future opportunity.

Great. Thank you.

George Tong, Piper Jaffray.

Thanks, good afternoon. You're seeing very strong growth in your perm business. Can you look back at prior cycles and tell us when perm begins to pick up in growth similar to what you're seeing? How does that correspond to where in the temp cycle you are?

Sorry, I'm trying to process a little bit exactly what your question is. So perm in a down cycle always gets impacted more than temp does. In a recovery cycle, perm bounces back off a lower start and the growth rates are typically more than temp. Full-time hiring takes a bigger hit than does temp hiring. And as the economy improves, as it gets tougher and tougher to find people, clients look to lock in more and more internal staff by hiring them full-time.

So I'm still trying to precisely answer the temp cycle relative to the perm cycle. The relation of one to the other we wouldn't find unusual relative to recoveries of the past. But the overall recovery has been more anemic than years past. Whether you look at cumulative GDP growth, you look at cumulative additions to the US workforce, there are a lot of factors you can look at that says, for the elapsed time of this recovery, it's been more anemic from a macro standpoint than prior recoveries. But with that backdrop, the temp versus perm relationship isn't unusual. We would expect perm to be stronger than temp growth rate-wise, which is where we are.

I guess the question is, with perm accelerating, is there a risk that we are nearing a peak in the temp cycle?

Our experience would not indicate that to be the case. This is a very different cycle, as we've just talked about. So predicting precisely what inning we are in when the whole cycle looks different than prior cycles is a difficult thing to do.

All of that said, we feel good. We remain in a candidate short market. We feel good that wage rates continue to accelerate in the US. We feel good about the demand backdrop. And we don't see the extreme candidate shortages that typically signal you're getting later cycle. We don't see those broad-based extreme shortages as we sit here today.

That's helpful. Turning to Robert Half Technology, can you discuss what risks you see the growth coming in from the financial services and government sectors, in addition to corporate ERP spend?

Frankly, with our middle-market focus, we don't have a lot of exposure to financial services or government in our tech business. We do a little financial services business in tech. We do very little government services in tech. So unlike many of the other firms, where they are more Fortune 1000-centric in their client base, that's not us. So we're not a good place to get a read-through to how they might be doing in those sectors.

Great. Thank you.

Manav Patnaik, Barclays.

Most of my questions you guys covered, but I just wanted to ask you, can you address if there are -- or what the trends you've seen in terms of the competitive dynamics in the industry? I ask from the context of obviously we've seen a lot of the smaller guys deconsolidating, and that's been going on for some time, but some of your bigger competitors have been making noise, trying to come into the US space as well. So I was just curious if you guys are seeing any visible changes in particular areas, or broadly speaking.

The simple answer is no. In perm placement in a healthy part of a recovery, you always find smaller perm placement firms pop up. While they are a nuisance - that is a word that comes to mind. I wish I could come up with a better word, while you'd rather they not be there, they don't move the needle in the fact that they are there. And as far as the bigger firms, there's nothing there of note.

Okay. All right. Thank you, guys.

That was our last question. Keith and I would like to thank everyone again for joining us on today's call.

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