羅致恆富 (RHI) 2016 Q2 法說會逐字稿

Hello and welcome to the Robert Half second-quarter 2016 conference call. Our host 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, and thank you for joining us. As is our custom, I would like to remind you there are comments on the call today that 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, expect, 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 also are available at our website, RobertHalf.com. From the About Us tab go to our investor center where you will find the quarterly conference calls link.

Now let's discuss Robert Half's second-quarter 2016 results. Quarterly revenues were $1.344 billion, up 6% from the second quarter one year ago. Income per share was $0.71, also up 6% from last year's second quarter.

Cash flow from operations was $129 million and capital expenditures were $25 million in the second quarter. We paid our stockholders a quarterly cash dividend of $0.22 per share on June 15 for a total cash outlay of $29 million.

We also repurchased 1 million Robert Half shares during the quarter at a cost of $38 million. We have 8.7 million shares still available for repurchase under our Board-authorized stock repurchase plan.

Our second-quarter results reflect continued solid demand for our professional staffing and consulting services. Our financial staffing divisions and productivity reported the strongest year-over-year revenue gains. In the second quarter, unlevered return on equity for the Company was 35%.

I will turn the call over to Keith now for a closer look at our results.

Thank you, Max. Global revenues were $1.344 billion in the second quarter. This is up 6% from the second quarter of 2015 on a reported basis, and up 5% on a same-day constant currency basis.

Second-quarter staffing revenues were up 4% on a same-day constant currency basis. US staffing revenues were $911 million the second quarter, up 3%. Non-US staffing revenues were $234 million, up 8% when adjusted for billing days and currency exchange rates.

We have 328 staffing locations worldwide, including 86 locations in 17 countries outside the United States. The second quarter had 63.9 billing days compared to 63.2 billing days in last year's second quarter. The difference in billing days had the effect of increasing reported year-over-year revenue growth rates for the quarter by 1%. The current quarter has 64.1 billing days compared to 64.2 billing days in the third quarter of 2015.

Currency exchange rates had the effect of decreasing reported year-over-year staffing revenues by $4 million in the second quarter. Exchange rates decreased year-over-year reported staffing growth rates by 0.3%.

Global revenues for Protiviti were $199 million in the second quarter, with $164 million in revenues in the United States and $35 million in revenues outside the US. Protiviti revenues were up 8% year over year on a same-day constant currency basis. US revenues were up 6% and non-US revenues were up 17% from last year's second quarter.

Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $400,000 in the second quarter and decreasing the year-over-year reported growth rate by 0.2%. Protiviti and its independently owned member firms serve clients through a network of 75 locations in 25 countries.

Along with our earnings release today you will find a supplemental schedule showing year-over-year revenue growth rates on both a reported and same-day constant currency basis. This data is further broken out by our US and non-US operations. This is a non-GAAP financial measure we offer to give you insight into certain revenue trends in our operations.

Gross margin in our temporary and consulting staffing operations in the second quarter was 37.6% of applicable revenues. This is a 30 basis point improvement from the same period one year ago due primarily to higher pay/bill spreads. The second quarters of 2016 and 2015 include workers compensation credits of $1.4 million and $2.1 million, respectively, pursuant to third-party actuarial reviews of our workers' compensation accruals.

Second-quarter revenues for our permanent placement operations were 9.9% of consolidated staffing revenues, which is down slightly from last year's 10.1%. Together with temporary and consulting gross margin, overall staffing gross margin increased by 10 basis points versus one year ago to 43.8%.

Second-quarter gross margin for Protiviti was $56 million or 28.1% of Protiviti revenues. Last year, second-quarter gross margin for Protiviti was $54 million, or 29.9% of Protiviti revenues.

Second-quarter SG&A costs were 32.3% of staffing revenues compared to 31.9% in the second quarter one year ago. SG&A costs for Protiviti were 19.1% of Protiviti revenues in the second quarter versus 18.6% of Protiviti revenues in the same period last year.

Operating income from our staffing divisions was $131 million in the second quarter of 2016, up 2% from the previous year. Operating margin was 11.5%, down slightly from the 11.8% in last year's second quarter.

Our temporary and consulting staffing divisions reported $107 million in operating income, an increase of 2% from the second quarter of 2015. This resulted in an operating margin of 10.4%. Operating income for our permanent placement division was $24 million in the second quarter, up 2% from the previous year and producing an operating margin-of 21.7%.

Second-quarter operating profit for Protiviti was $18 million, a decrease of 13% from the prior year. This produced an operating margin of 9.0%. At the end of the second quarter, accounts receivable were $732 million, implied days sales outstanding or DSO was 49.6 days.

Before we moved to third-quarter guidance, I would like to give you some more color on our Q2 results, specifically the monthly revenue trends we saw in the second quarter and thus far in July, all normalized for billing days and currency. Globally, year-over-year revenue growth rates for our temporary and consulting staffing division decelerated during the second quarter, and we exited the quarter with June revenues growing 3.7% compared to an increase of 4.5% for the full quarter. Revenue growth for our staffing consulting services in the first two weeks of July was up 2.8% compared to the prior year.

Global permanent placement revenue growth rates also decelerated during the quarter, with June revenues declining 1.6% compared to 2.1% for the full quarter. For the first three weeks of July, permanent placement revenues declined 17.6% compared to the same period last year. As you know, we hesitate to read too much into these numbers as they represent very brief periods of time.

With that said, we offer the following third-quarter guidance -- revenues $1.335 billion to $1.395 billion and income per share $0.68 to $0.74. Note that our third-quarter guidance considers the estimated revenue and cost impacts to all US staffing and Protiviti offices of converting to new front office CRM and project management systems, respectively. These are both scheduled to occur in the third quarter. The mid point of our guidance implies year-over-year revenue growth of 4.0% on a reported basis and 4.6% adjusted for billing days and currency, including Protiviti, and negative EPS growth of 3%.

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 would turn the call back over to Max.

Thank you, Keith. The US job market rebounded strongly in June with 287,000 jobs added during the month. It was the largest single monthly job expansion since October 2015. This was on the heels of weaker reports in April and May. The US unemployment rate ticked up to 4.9% as a result of more workers entering the workforce in June.

Outside the United States, we were pleased with the improved revenue growth rates in our international staffing and Protiviti operations. The Brexit vote in the UK has dominated news headlines, but we believe it is too early to tell what, if any, impact it will have on our operations there, and the UK only accounts for 3% of our revenues in any event.

The demand for skilled talent remains a consistent theme for us. For a number of years now many of our specialty areas have had unemployment rates of less than half the overall rate of unemployment in the United States. The employment rate for accountants and auditors is just 2.2%, and for software developers it is just 1% according to recent data from the Bureau of Labor Statistics.

These are just two examples that place a spotlight on the talent shortages that exist in the United States and elsewhere in some job categories. This is resulting in demand for both temporary and full-time staffing in the professional segments we serve.

Looking at Protiviti, it is building a strong brand that is resulting in continued expansion of its client base and a broadening of its service offerings. This is a business that benefits from a strong regulatory environment because of its strength in helping clients navigate these environments. Protiviti excels in helping clients develop stronger internal controls, data security measures and other important safeguards.

At this time Keith and I would be happy to answer your questions. We ask that you please limit yourself as usual to one question and a single follow up as needed. If time permits, we will try to return to you if you have additional questions. Thank you.

(Operator Instructions)

Mark Marcon, RW Baird.

Good afternoon. I've got one question and one follow up. With regards to the first question, could you just talk a little bit about the trends that you are seeing in RH Technology, specifically with regards to what you are seeing in terms of order rates relative to fill rates and how that's impacting trends?

And then the second question has to do with what you're anticipating in terms of the new systems that are going into place in the US in the third quarter, both in terms of potential disruption for revenue as well as incremental expense that may be just for one or two quarters. Thank you.

Sure, Mark. I would say our Robert Half Technology division, our growth rates did slow during the quarter on very tough comps. Note that a year ago we did grow at 19%.

For our tech support division, or subdivision, which is desktop support, help desk, et cetera, clients did get more cautious on the demand side. There was less sense of urgency.

For our tech development positions -- which are the programmer analysts, the software engineers -- candidate supply was the issue which continues to tighten. Further, in the tech development area, we withdrew from a very large client due to their what we viewed as excessive pricing demands. Our support development mix is about 50-50 based on hours, and it's 40-60 in favor of development based on dollars.

As it relates to our new systems, let's talk a little bit about those then we'll talk about impact as well. First of all, we are replacing 15-year-old proprietary legacy systems which were very difficult to use and maintain. We're going to a single global front office platform.

Note that we've already rolled this out in five other countries -- successfully, I might add. It is cloud based versus our own hosted data center, which will have the benefit of giving our people mobile access to our system. It has a modern user interface which will significantly enhance the new hire ramp time over time.

It further greatly facilitates future changes, including our innovation initiatives, including integration with the client-facing digital functionality that we've been working on for some time. Further, we get real-time reporting and dashboards. In short, we're actually a very excited to be where we are and to be right on the verge of this conversion.

There is going to be some disruption. Using the other five countries as a guide, understanding that none are at the size and scale that is the case in the United States, we estimate the revenue impact to be between 0.5 days and 1.5 days of revenue. In the US that's about $14 million of revenue impact at the mid point.

Protiviti, it actually has the benefit of taking the people that are going to be on training and figuring out their chargeability, their rate, et cetera. And the impact of their revenues will be about $2 million. So, that overall, again at the midpoint of our estimate, we are thinking about a $16 million revenue impact. That converts at our normal gross margins to about an $8 million gross margin impact.

Further, there's going to be out-of-pocket training, out-of-pocket travel. There's going to be labor costs connected to the support of the conversion period, both before and after. So we estimate the SG&A impact to be between $4 million and $5 million, call it $4.5 million at the midpoint. So that would total up to an operating income impact of $12 million to $13 million, which is $0.05-$0.07 per share.

So, while relative to the quarter it has a significant impact, on the basis that this is something you do every 15 or 20 years, and we have a long history of getting a lot of use out of our software, it's not that large of an impact. But the facts are, it all falls in the third quarter, not only for staffing, but Protiviti as well is going to their new product management system and, hence, the Protiviti inclusion in the numbers that I just talked about.

I really appreciate the color. Did any of that impact July at all?

We started training. We began some of the training. So, in the United States you train the trainers, and then the trainers train the super users, and then the super users train the rest of the staff. That training did begin in July. But remember, now, the post quarter period includes the Fourth of July, and the Fourth of July there's always volatility around how that's impacted.

Great, thank you.

Sara Gubins, Bank of America Merrill Lynch.

Great, thanks for taking my question. Protiviti slowed down quite a bit in the US, the growth rate. Could you talk about the trends that you're seeing there and what you're expecting aside from the impact of the new project management system?

Sure. Protiviti did grow 8% on super tough comps. They grew 23% a year ago, but clearly fell short of their estimates, as well. Our FSI regulatory consulting practice was negatively impacted by heightened client cost cutting, which impacted both our hours billed and our rates. New projects that we started had lower rates than previously completed projects.

Our other solution practices had a very solid quarter. Our gross margins compressed by about 180 basis points due to this lower mix of higher margin, FSI regulatory practice, and the lower staff utilization attributable to less than expected revenue growth.

Protiviti operating margins were still quite good at 9%, but they certainly compare unfavorably to a year ago's very strong 11%. Our Q3 Protiviti guidance assumes mid single-digit revenue growth -- again, on very tough comps. It grew 23% a year ago in the third quarter. Operating margins, which, while they are projected to rise sequentially, they will be quite a bit lower than the very high levels a year ago.

Great, thank you. And then, last quarter you had talked a bit about seeing a lengthening in the sales cycle, with some caution on the client side, but confidence on the candidate side. Have you seen any changes in that in the last couple of months?

On the client side, we would say they are incrementally more cautious, they incrementally have less sense of urgency, and, therefore, there is some slowing for that reason. On the candidate side, the most acute supply issue we have is tech development. But even in the other divisions, we see the lower level positions, call it accounting operations, with relatively more supply than we do the upper level positions where supply is more of an issue, but not as much of an issue as it is in tech.

I think one of the highlights for the quarter is how well we did with our gross margins. That's particularly in accounting, finance. And that's not only better pay/bill spreads, but that's also mix gravitating to higher-level, longer-duration assignments. So we were very pleased with our accounting gross margins during the quarter.

Thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much. I wanted to focus on your 3Q guidance. You were just kind enough to give us a little bit more color on Protiviti's impact on the guidance. Can we do the same thing on the temp and perm divisions, if we can talk about revenue and margin trends you are expecting in the third quarter? Thanks.

Overall our staffing growth rates do decelerate slightly, but that's less than a point. As we just said, clients remaining cautious. There's less sense of urgency.

Our higher-level in-demand candidates have options, as we've talked about in the past. We've got the conversion to our sales force platform that we've also talked about. So, absent the sales force conversion, the trends would say there is some continued slowing, but it's not necessarily off trend line from what it has for the past few quarters.

And, I'm sorry, that would be the temp side. How about the perm side? And again some margin color would be great.

Okay. The perm side, there the lengthening of the sales cycle clearly has an impact. You've got clients ever more selective. They want to see more candidates before making a decision. There is more vetting as a way to slow play us or slow the process generally. So, we clearly are seeing sales cycle slowing in the perm side.

As we go down the P&L, gross margins we do expect to see up 10 to 20 basis points year over year due to continued strong spreads, due to continued mix shift, to the higher level accounting and finance assignments. Protiviti gross margin is going to be down 3.5 to 4 percentage points. That's lower mix of the higher-margin FSI regulatory, and it's the cost impact of the annual campus hires and the interns which come onboard in the third quarter.

SG&A up 60 basis points year over year. 40 to 50 of that is the sales force and Protiviti conversion.

One thing that was quite unusual in the quarter and continues on in the third quarter a bit is our internal medical insurance costs. For the first time in many years, we had a negative surprise in our internal medical insurance costs, which were up almost 40 basis points in the second quarter year over year. Those higher costs are expected to continue into the third quarter, but maybe not quite to that extent on a year-over-year basis.

Protiviti's SG&A would be up 1 to 2 percentage points, with the additional training and travel costs related to their conversion, which then, as you go down to the P&L, at our midpoint of guidance you've got temp operating margins down about 50 basis points, primarily due to the higher SG&A from the conversion to sales force, perm operating margins down 1 to 2 percentage points, primarily because of the conversion to salesforce.com. And then Protiviti, its operating margins would be down about 5 percentage points as a combination of the lower gross margin that we talked about earlier and the higher SG&A because of, one, their conversion; two, the training and travel costs relative to their new hires and their interns.

But, again, remember, the comparable for Protiviti, it's third-quarter operating margins were 15.7%. Those were the toughest operating margin comps we had of any division a year ago. So, while they will make sequential progress in both revenues and operating margin, notwithstanding their conversion, they are comparing to a year ago's very high comps.

Appreciate the color. If I could sneak just one more in, just about tax rate and share count for the third quarter. Thanks so much.

The tax rate is going to be in the range of 38.5% plus or minus 0.5%. And the share count, if you carry through the repurchases that we did during the quarter, and assume some in the quarter to come, the share count should be somewhere down 700,000, 750,000 shares. Note that we on a year-to-date basis returned over 90% of our free cash flow back to shareholders, either as a dividend or as stock repurchases.

Great. Thanks so much.

Tim McHugh, William Blair.

Hi, it's Stephen Sheldon in for Tim today. Thanks for taking my questions. First, strong performance internationally in the quarter. So, could you talk some more about what you're seeing in Europe specifically on a country level basis, and also what trends are like throughout the quarter and into July? Thanks.

Internationally, as we've talked about for many quarters, Germany carried the day. Germany had a very strong quarter that we are very proud of. We have invested headcount in Germany for some time, and it's paying off significantly.

Belgium also had a very strong quarter. The UK was solid. France a little less so. Australia, very strong quarter. And Canada not quite as negative as it had been in quarter's past.

The trends, they are mixed, they are uneven. I would say those that were strong in the second quarter, that continued their strength into the third quarter. So, we certainly have high expectations of Germany and Belgium specifically.

In the UK, with all the Brexit talk, remember UK's 3% of our revenues. While on the one hand some clients have deferred hiring; on the other hand some clients need help figuring out what Brexit may mean, which has stimulated hiring. And net-net so far there hasn't been much impact what the focus is on so far.

Okay, great. Thank you. And then just one follow up. You mentioned that you withdrew from a large client in RH Technology. Could you just quantify the impact of that on the quarter?

It's not huge-huge, but it's 2 or 3 percentage points on our growth rate.

Okay. Thanks.

Gary Bisbee, RBC Capital Markets.

This is actually Jay Hanna on the line for Gary today. Given the level of margin contraction, particularly within Protiviti, how much of that is attributable to just additional new hires in the quarter, if at all?

The margin contraction is principally mix related where you've got significantly less mix toward higher-margin financial services, regulatory compliance. There weren't necessarily that many hires during the quarter, but you had the carryover impact of the raises that were granted January 1. Protiviti's hiring is largely campus hiring and interns, and that largely occurs during the third quarter. So, while Protiviti will have a nice lift sequentially in quarter three revenues, they will also have incremental payroll costs from the campus hires and the interns they committed to almost a year ago.

Okay, thank you. And then just given the current level of demand and recent margin performance this quarter and previous quarter, would a reduction in headcount be a strategy to consider going forward or at least somewhat of a slowdown?

First of all, let's not forget, overall we're still growing. And while we front ended our headcount for this year into the latter part of last year, we have almost caught up with that. So, the thought would be, because we're still growing, our headcounts will grow a little toward the divisions that are growing. And, again, I would offer that our accounting and finance divisions, particularly Accountemps, particularly Management Resources, they had very good quarters, and we will add to their headcounts.

That said, we had other divisions that aren't showing that kind of growth, so we would let attrition play out to some degree and fund the headcount additions that we make to those divisions that are growing. So, net, we see small increases to our net overall headcount. But let's not forget, we need to continue to feed our accounting and finance staffing divisions because they are growing nicely.

Okay, thank you.

Anj Singh, Credit Suisse.

Thanks for taking my questions. The first one, following up on the Protiviti margins, what's your outlook for Protiviti margins in light of some of the issues on mix and the CRM systems migration that you highlighted? Do you still anticipate hitting double-digit operating margins for the full year as you did at Q2?

We certainly haven't changed our long-term view of Protiviti operating margins. Clearly, given that we made headcount commitments almost a year in advance, with the benefit of hindsight we were a little aggressive in the hiring that we committed to with Protiviti. But over a few quarters, we can work that out.

We had double-digit operating margins the second half of last year. We still believe, and our estimates consider, that we will have double-digit operating margins in the second half of this year, just not as strong as they were a year ago.

So, there's been a pullback with our financial services clients that have gotten much more focused on their cost. That's had a double impact because it's not only fewer hours for us, but they are the most profitable hours that we've had. But that's something we can adjust to over time. It's just that when you commit to your staff levels three or four quarters in advance, you can't turn on a dime marrying that to the demand as we now see it.

The margins are still going to be good and decent and double digits. There's nothing wrong with a business growing at Protiviti's rates, given the comps that they have, to have low double-digit operating margins. It's just less than we enjoyed a year ago, and so the comparison when you put them next to each other, it's negative.

Okay, got it. And on my second question, could you talk a bit about the weaker perm growth at Q2? I believe you'd typically gotten a nice sequential lift versus Q1. And I think you had anticipated this at Q1. I know you called out the one thing on the sales cycle, et cetera. But what changed from the time you issued guidance at Q1 that led to some of the weaker sequential growth in perm?

I think clients got incrementally more selective, they got incrementally less sense of urgency in doing their hiring, and, therefore, perm didn't get the sequential lift that it traditionally enjoys in the second quarter. It still got some sequential lift. It just didn't get either what we expected or what it had seen in the past.

Okay, got it. A quick one for me, did you mention the bill rate increase in conversions? If not, I'd appreciate you discussing those. Thanks.

The bill rate increases were 4.8%, which were very close. Last quarter's was 4.7%. So, again, back on the theme that our gross margin was quite strong for the quarter, that's confirmed by the year-over-year bill rate increases that we saw.

Conversions were 3.3% of revenue, which I believe year on year was down a few basis points and sequentially was up a few basis points. So, frankly, it's still hovering in and around the same number.

Okay. Thanks so much.

Randy Reece, Avondale Partners.

This is Ben Flox on for Randy. I wanted to circle back on perm for a second. Can you talk about the competitive landscape there and how that's escalated over the last four, six quarters?

I'm not sure the competitive landscape has really changed in the last four to six quarters. Again, I think it's more about our middle market client base getting incrementally more cautious. I really don't think it's about new competition or heightened competition in the last four to six quarters.

Okay, got it. And then when you talk about temp trends you're seeing in the first few weeks of July, can you speak specifically to the US and where you are seeing strengths and weaknesses?

There are always state-by-state differences. Northern California is the strongest. It's been the strongest for some time. That's not surprising.

Texas is the weakest. It's been the weakest for quite some time. That's not surprising.

Everything else is somewhere in between. There are always pluses and minuses. Nothing just screams at you and moves the needle in a major way.

Looking at segments rather than geographically?

Segments, the trends that you've seen the last few quarters continue. We would expect that Accountemps and Management Resources would do the best in quarter three. We would believe that Robert Half Technology and Office Team, again with very tough comparisons, would do not as well as the accounting and finance divisions.

Okay. I appreciate the color. Thanks guys.

George Tong, Piper Jaffray.

Hi, thanks for taking my questions. Digging deeper into the Protiviti business, can you discuss your expectations around financial services, regulatory mix going forward, and any actions you have to improve staff utilization?

We believe that the FSI regulatory mix will continue to drift downward. And we've seen that now for two quarters in a row. But we've built that into our guidance. And notwithstanding that, we are still estimating that we're going to get nice double-digit operating margins in the third quarter.

Staff utilization, again, as we talked about earlier, we commit to campus hires, we commit to interns well in advance. We remain committed to them, and it will take a few quarters to get the utilization back up to where it had been in the near past.

As we look forward to this year's hiring season on campus and with interns, we will throttle that back further. We will look at the contractor usage of Protiviti where they do have variable labor costs primarily with contractors sourced through Robert Half. Those will be looked at. But we will have solid operating margins for the next few quarters. And in the background we will throttle back our capacity, our additions to capacity given new revenue realities.

Very helpful. In your temp and consulting segment, gross margins expanded year over year yet operating margins declined. Does this reflect elevated recruiter hiring or other investments you made in the quarter?

It was actually quite simple. The delta is the outside medical insurance expenses we incurred during the quarter which were about a 40 basis point surprise. It is very unusual that we would have that kind of spike in that short a period of time.

Some of that spike will continue for a quarter or two, but we are certainly told by our outside advisors and actuaries in that area that our Company-specific trend at the moment is very unusual and would expect to normalize itself in the next year.

Got it. Very helpful. Thank you. Manav Patnaik, Barclays.

Hi, thanks. This is Ryan filling in for Manav. Just a question on buybacks looking at obviously another pretty solid quarter. Is that a trend you think you could continue or is it something where it's purely opportunistic and you'll just play it as the market goes?

I think, again, so far this year we've returned to shareholders about 92% of our free cash flow. That's a continuation of something we've done for many quarters. So, the plan would be, we first determine what our operating requirements are, and then with the residual we pretty much return it to shareholders, first through dividends and then with what's left through buybacks.

What we did during the second quarter is very similar to what we've done in prior quarters. As the price goes up and down, we get fewer or more shares, and over time we dollar cost average and it seems to work out just fine.

Fair enough, thanks. Is there anything in the quarter to call out just in terms of one-time seasonality events? Obviously we saw in the May jobs report, there seemed to be an outsized impact from the Verizon strike. Were there any timing things in the quarter that could skew growth trends in your business?

Nothing comes to mind and we were not impacted by Verizon.

Fair enough. Thanks a lot.

Andrew Steinerman, JPMorgan.

Hi, Keith. I understand you're saying that the mid-sized clients are just more cautious on the labor front here. I was just wondering if you sense that the US is not in a 2% real GDP environment like our JPMorgan economists think we're already back in. And so what needs to change for Robert Half's revenue growth to stabilize and perhaps re-accelerate? Is there anything on the supply side?

Frankly, Andrew the only division that's significantly impacted by supply is tech development, for us. The rest of our divisions primarily need more orders than they need more candidates. So, you ask in a double negative way, it appears that the US economy is slugging along in the 1% to 2% GDP path that it has for some time, but as clients have gotten more cautious our growth rates have slowed.

And then the third quarter is going to be a very noisy quarter for these conversions that we've got going that will impact virtually every single person that works for us in the United States. So, third quarter, it's very hard to figure out trend lines given how noisy it's going to be. But if you step above that, it seems to be more of the same versus the last few quarters, maybe with clients getting a little more cautious.

What has to change is they need to get less cautious. They need to do less vetting. They need to say -- yes, I will take them -- rather than -- show me somebody else and let me compare.

Perfect. Thanks, Keith. Appreciate it.

Sara Gubins, Bank of America Merrill Lynch.

Hi, thanks for taking my follow-up. I just wanted to clarify your response to a prior question. The large client that you withdrew from, you said it was a 2% to 3% impact on the growth rate. Was that for revenue overall or for Robert Half Technology specifically?

That's just Robert Half Technology.

Okay, thank you.

Randy Reece, Avondale Partners.

Hey, guys, Ben Flox again. I just wanted to follow up on one last thing, higher level. If hiring demand in the US does regain some momentum, how far behind should we expect accounting and finance staffing demand to lag?

I would argue, quite frankly, it's doing the best in the current environment, and therefore would participate quickly in an improved environment. So, it would be the one I would least be concerned that there's any lag for.

As I say, this trend toward higher level, more complex has certainly served it well for the last few quarters relative to the market in our other lines of business. But I would think as market conditions improve -- because I think you would see it in our accounting operations positions, which tend to be more transaction volume driven than the more complex accounting analysts, senior accountants and above. So, I don't think there'd be that much of a lag in accounting.

Okay. That's very helpful. Thank you.

Tobey Sommer, SunTrust.

Thanks. I'm curious, in the tech space you had contracted there were some pricing that you didn't like. Are you seeing the same kind of behavior among large customers as well as your more traditional ones? I know generally you don't serve a lot of large customers, but in the tech space that's a little bit more inherent to the market. Thank you.

I would say financial services clients, be in tech or otherwise, are more focused on controlling their costs than any other sector. And to the extent we have exposure to financial services, we've talked very openly about Protiviti and the impact on Protiviti.

But other than that sector, and as you pointed out, larger clients aren't our sweet spot. But we do have a few here and there, and when we can get reasonable margins we are happy to do that business. When we can't get reasonable margins, we withdraw. Other staffing firms don't have that same view, but that's who we are and that's who we've been for a long time.

Have you noticed a difference between demand from public companies versus private entrepreneur owned and led businesses?

Our sweet spot is more the privately held 75 to 150 employee firm. So, I think if you look at our results and say it's a proxy for anything, it's not for public companies. It's for smaller mid-sized private companies.

Thank you very much.

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

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 www.RobertHalf.com. You can also dial the conference call replay. Dial-in details and the conference ID are contained in the Company's press release issued earlier today.