羅致恆富 (RHI) 2016 Q3 法說會逐字稿

Hello and welcome to the Robert Half third quarter 2016 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. Thank you for joining us. Before we get started I would like to remind everyone 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 form 8-K. We assume no obligation to update the statements made on today's call. For your convenience our prepared remarks are also available at our website at www.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 third quarter 2016 results. Revenues for the quarter were $1.339 billion, up 2% from the third quarter one year ago. Income per share was $0.71 compared to $0.73 in last year's third quarter. Cash flow from operations was $153 million and capital expenditures were $20 million in the third quarter. We paid our stockholders a quarterly cash dividend of $0.22 per share on September 15, for a total cash outlay of $28 million. We also repurchased 1.2 million Robert Half shares during the quarter at a cost of $46 million. We have 7.5 million shares still available for repurchase under our board authorized stock repurchase plan. We saw solid demand in the third quarter, particularly for our accounting and finance-related professional staffing and consulting services.

Our Accountemps and Robert Half Management Resources staffing divisions and Protiviti reported the highest year-over-year revenue gains. Our international operations also posted strong results. Unlevered return on equity for the Company remains strong at 33%. I will turn the call over to Keith now for a closer look at our third-quarter results.

Thank you. As Max mentioned, global revenues were $1.339 billion in the third quarter. This is up 2% from the third quarter one year ago on both a reported and same-day, constant-currency basis.

Let's break this out between our staffing business and Protiviti. Global staffing revenues were up 1% in the third quarter on a same-day constant-currency basis from one year ago. US staffing revenues were $890 million, roughly flat with last year and non-US staffing revenues were $231 million, up 7% when adjusted for billing days and exchange rates. We have 326 staffing locations worldwide, including 84 locations in 17 countries outside the United States.

The third quarter had 64.1 billing days compared to 64.2 days in last year's third quarter. The fourth quarter has 61.4 billing days compared to 62.3 days in the fourth quarter of 2015.

In the third quarter currency exchange rates had the effect of decreasing reported year-over-year staffing revenues by $3 million. Exchange rates decreased year-over-year reported staffing growth rates by 0.3%.

Third quarter global revenues for Protiviti were $217 million including $183 million in the United States and $34 million outside the US. Overall revenues for Protiviti were up 8% from one year ago on a same-day, constant-currency basis. US revenues were up 6% and non-US revenues were up 17% from last year's third quarter.

Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $300,000 in the third 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 measure we offer to provide insight into certain revenue trends in our operations.

Gross margin in our temporary and consulting staffing operations was 37.4% of applicable revenues in the third quarter. This is a 10-basis-point improvement from the same period one year ago as higher pay/bill spreads offset slightly lower temp-to-hire conversion revenues. Third quarter revenues for our permanent placement operations were 9.4% of consolidated staffing revenues, which is down modestly from last year's 10.0%. This modest mix shift caused overall staffing gross margin to decrease by 20 basis points versus one year ago, to 43.3%. Gross margin for Protiviti was $67 million in the third quarter, or 30.9% of Protiviti revenues. Last year's third quarter gross margin for Protiviti was $66 million or 32.9% of Protiviti revenues.

Staffing SG&A costs were 32.7% of staffing revenues in the third quarter, compared to 32.1% in the third quarter one year ago.

SG&A costs for Protiviti in the third quarter were 17.9% of Protiviti revenues versus 17.2% of Protiviti revenues in the same period last year.

Operating income from our staffing divisions was $118 million in the third quarter, producing an operating margin of 10.5%. This compares to an operating margin of 11.5% in last year's third quarter. Our temporary and consulting staffing divisions reported $98 million in operating income, resulting in an operating margin of 9.6%.

Operating income for our permanent placement division was $20 million in the third quarter, producing an operating margin of 19.3%.

Third-quarter operating profit for Protiviti was $28 million, yielding an operating margin of 13.0%.

Accounts receivable were $743 million at the end of the third quarter. Implied day sales outstanding, or DSO, was 50.5 days. During the quarter, we successfully implemented a new front-office CRM system for all US staffing branches and a new project management system for Protiviti. The conversions went smoothly and the related disruption and out-of-pocket costs were at the low end of our previous range. We estimate that revenues and EPS for the quarter were impacted by $9 million and [$0.05] per share respectively.

Before we move to fourth-quarter guidance I would like to talk about the monthly trends that we saw in the third quarter and thus far in October. Globally, year-over-year revenue growth rates for our temporary and consulting staffing divisions decelerated during the third quarter and we exited the quarter with September revenues roughly flat versus the prior-year compared to a 2% increase for the full quarter. Revenue growth for our staffing and consulting services in the first two weeks of October was down 1.5% compared to the prior year.

Global permanent placement growth rates also decelerated in the first part of the third quarter, with September down 4% compared to the 5% decline for the full quarter. For the first three weeks of October permanent placement revenues increased 1% compared to the same period last year.

All of these trends that I have described have been normalized for billing days and currency.

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 fourth-quarter guidance:

Revenues $1.250 billion to $1.310 billion

Income per share $0.60 to $0.66.

We limit our guidance to one quarter. All estimates we provide on this call are subject to the risks that were mentioned in today's press release and our SEC filings. Now I will turn it back over to Max.

Thank you, Keith. The US economy added fewer jobs in September than economists had expected and the unemployment rate ticked up slightly to 5%. Unemployment levels in the professional fields we serve remain much lower than the overall US rate, but we do continue to see our clients taking longer to make hiring decisions. We have talked about this longer timeframe on prior conference calls. Internationally, we continue to see solid growth in many countries, most notably Germany.

Businesses appetite for specialized talent in areas important to their growth and profitability remains intact. For computer systems design and related services, for example, the average unemployment rate in the United States is 2.3%. Overall the average unemployment rate for college degreed workers 25 or older is now 2.5%.

Employers continue to encounter a widening skills gap in key areas, and they need help finding professionals who are a fit with their needs and work environment. We were pleased with the results for Protiviti. Protiviti has been doing solid business in all of its practice areas, and it currently works with 70% of Fortune 100 companies. Their sweet spot, of course, is teaming with clients to protect and enhance enterprise value by identifying, anticipating and solving critical business problems. At this time, Keith and I would be happy to answer your questions. We ask 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 if you have additional questions. Thank you.

(Operator Instructions)

Your first question comes from the line of Mark Marcon from R.W. Baird.

Max and Keith, I was wondering if you could give a little bit more color with regards to the pace of deceleration that you ended up seeing over the course of the quarter. And related to that, if you saw clients taking even more time as the quarter progressed. You'd spoken about that during the second quarter. So I just wondered if that has changed or if it has gotten incrementally longer. And then also if you could address specifically how the implementation of the CRM system ended up impacting the quarter, just in terms of a time frame perspective, when everything was completed and what sort of results you're seeing from that new implementation.

Okay. Several questions here. Now, on the pace of deceleration, I would say that we actually ended July stronger than we began it. We were encouraged by that. August wasn't bad. But then September, where we usually start getting a sequential lift in September we did not see the lift that we typically get. Instead it was sequentially about flat. And then again, traditionally we get even more lift yet again in October and we did not see that lift either. So it is essentially sequential flattening starting in July rather than the lift that we typically see in September and early October.

The issue around clients taking more time, clearly they remain cautious with little sense of urgency. It is in part due to macro uncertainty, in part due to election uncertainty. They cite budget pressures. They cite cost control measures. They therefore get even more selective. They only want your ideal candidates. That in turn pressures candidate supply when they are only looking for the top tranche of the candidate pool you have. They spend more time vetting. They want to do more interviews. It is not that we have an absence of orders, it is more that for the orders that we do have, it just takes longer to get a start if we're on the temp side or it's longer to make a placement if we are on the perm side. So frankly, Mark, it is a continuation of what we've talked about for 2 or 3 quarters, notwithstanding the easier comps.

On the Protiviti side they had very tough comps. Notwithstanding those comps, they still grew mid-single digits. Generally speaking, we were pleased relative to expectations on Protiviti. As to CRM, we were very pleased with the conversion. That happened the week of August 22. Most of the impact, frankly, was during the weeks preceding that where all of the training took place; where we essentially took our best producers out of production as they trained the trainers who, in turn, trained our staff. So from a financial impact, where we first estimated 0.5 days to 1.5 days on the staffing side, it came in closer to 0.5 days. Protiviti came in virtually precisely where we estimated it to be.

So from a revenue standpoint, the $9 million splits out to $7 million staffing, $2 million Protiviti. The gross margin of $5 million impact breaks out to $3 million staffing, $2 million Protiviti. The SG&A impact was about what we expected at $4.5 million and that splits out $3.5 million staffing, $1 million Protiviti. So virtually no surprises on the out-of-pocket cost impact. The revenue disruption impact was actually better than we expected. It was quite a large undertaking. We are elated to have it behind us, and we are elated with the capabilities it has and provides to us as we move forward.

On that point, Keith, can you talk a little bit about how quickly you ended up seeing a productivity ramp in your international offices post implementation?

So as you are alluding, we did this in five countries pre-United States. And the United States experience turned out to being very close to what had happened in those five countries even though we worried that the impact would be more. I would say short-term, Mark, this is not about getting more short-term productivity. Short-term, it is more about replacing our 15-year-old legacy system with something we could maintain with something that provided global mobile access because it is cloud-based. With something, as we move forward in time, as we provide more and more digital services to complement our traditional services, we needed an infrastructure that would facilitate that. So this is not a short-term productivity play. It is more a long-term, make it easier to support, make it less expensive to support, but more importantly, we needed a platform that we could integrate to the client and candidate-facing services that we intend to provide.

Great. Thank you.

Andrew Steinerman from JPMorgan.

Hi, Keith. I am going to kind of ask you the tough question that's the tough one about the cycle. My 20 years of covering staffing stocks, I don't remember Robert Half trending down outside of a recession. Yet our economists are saying real GDP looks really solid in the third and fourth quarter. And I am just asking, could give a little context for the cycle you think we're in right now.

Well first of all, to reinforce what you have said, I think that most economists think we're looking at 2% GDP next year, which frankly would be an uptick from the fourth quarter of 2015, first two of 2016 ...

That's right.

Most economists only think there's a 20% chance of a recession in 2017. But one thing we did look at is that we have not only bill rates, which by the way were up 3.5% this quarter year-over-year, which is down a bit from ... I believe it was 4.8% last quarter. So we not only looked at bill-rate trends but we also looked at hours billed trends. And while they have gone slightly negative and are projected to go slightly negative in the fourth quarter, if you look back at 2001 and if you look back at 2008, they fell much more abruptly than what is implied in what we have forecast. So if you just look back at Robert Half volume data, unit data, what we saw in the third quarter, what we are forecasting to the fourth quarter would not be near as abrupt as what we have seen in the past in the early parts of a down cycle.

Right. But there is really no context that you could point to that this is similar to in the past. Right?

Well, this has been a more sluggish recovery than what we have seen in the past. Some, therefore, surmise that if there is going to be a downturn, it will be less severe as well. But to the extent I compare this to 2001 and 2008, in the early periods of those downturn it drops and drops fairly abruptly. And again, I am talking hours billed. I am trying to take rates out of the equation. We have not, nor are we projecting, that kind of abrupt negative turn in our volumes.

Keith, if you will let me, one more question on the Robert Half Technology side. Is that also about just getting a better sense of urgency and orders? Or is there anything on the recruiting side that you feel like Robert Half Technology has been or could be doing to firm up the revenues on Robert Half Technology?

Well first of all on Robert Half Technology, let's not forget year ago comps grew 15%. So we do have tough comps we are comparing to in tech. That said, the general trends that I described also apply to tech. And with respect to tech development, which is where we had seen most of our growth, that is now where our growth is most under pressure. And as clients get even more selective even in that area, it further puts pressure on candidate supply. If they will only take your best candidates, the supply of your best candidates per se is a smaller universe than your overall supply -- even of solid candidates.

Totally agree. Thank you.

Tim McHugh from William Blair.

Thanks. Keith, how are you approaching spending at this point? It looked like, if I strip through of the systems upgrades, that you pulled back a little on the spending. But I guess, given the trends you are seeing, what is your approach to the staffing levels? And as we go into even beyond Q4 as we move into 2017, how are you managing the structure right now?

The biggest lever that we have, as you know, Tim, is our internal recruiter and sales professional headcounts. And the current thinking is to keep them flattish until we get a better sense of exactly where we are. The last thing we want to do is make it self-fulfilling by reducing headcounts in advance of further revenue deceleration. So, I would say flattish on heads. They are down slightly in the third quarter. The fourth quarter -- our plan is for them to be flat to maybe down slightly again. But we are not intending to do anything precipitous as it relates to our headcounts because we do not see any precipitous decline in our revenues. And like I said, the last thing that we want to do is reduce our capacity to sell ahead of actual client demand.

Okay. And by the vertical area, the accounting ones have been holding up better than clerical and IT but it seems like you are saying as the quarter progressed it was kind of broad-based. Is there anything that you saw differently in Accountemps and Management Resources?

I would say for Accountemps, we saw more softness in the accounting operations positions. And those are the ones that are typically more client demand sensitive, more client volume sensitive. So it is consistent that if you were to see softness in accounting due to macro conditions you would see it in accounting operations. In Management Resources, it is all about project ends and starts. And clients were slower to get new projects started than we had expected, which our go-forward guidance anticipates. Yet again, Management Resources is going to have more variability than Accountemps because it is more project oriented. And that was the case in the third quarter, and that is the case in our embedded guidance for the fourth quarter.

Okay. Thanks.

Jeff Silber from BMO Capital Markets.

Thanks so much. Keith, your last answer is actually a segue to my question. If you can give us a little bit more color by vertical in terms of what is embedded into your guidance for the quarter that would be helpful. Thanks.

Okay. So by vertical, I would say generally speaking, the trend lines you saw during the third quarter would remain intact during the fourth, such that from a staffing perspective, we would see a decline of about 1% year-over-year, same-day constant currency. However, there is one fewer day this year than last. There will be a little bit of currency drag so that on a reported basis, your staffing growth rates would be down about 3%. And again, the embedded 1% same-day, constant currency is at about the rate we started the quarter.

Protiviti grows at a mid-single-digit rate versus their 15%, tough year-ago comps. Gross margin - encouragingly, we believe temp gross margin will be up 30 to 50 basis points in the fourth quarter. We have had much better than expected experience with our state unemployment costs. We have been conservative for the first part of the year, which will give us some benefit in the fourth quarter. That 30 to 50 basis-point improvement does not include potentially even further improvement when we get our semiannual workers comp review. So maybe there is upside there. Protiviti, similar to the third quarter, on a year-on-year basis their gross margin would be down a couple of points because they have got less mix of the higher-margin FSI, which we've talked about in the past. But again, that is consistent with what we just saw on the SG&A side.

On staffing, the dollars year-on-year would be about flat. But as I talked about, on a reported basis you have got revenues down 3%. So that is going to create some negative leverage of around 1 point or 100 basis points. Protiviti SG&A would also be up about 100 basis points. Their marketing costs are intended to be higher. They've got higher administrative costs to support their higher headcount. So if you look at our projected operating margins, on the temp side we would be down 50 to 70 basis points as the higher gross margin gets offset with the negative leverage in SG&A. Perm would be down about 1 percentage point -- same reason. Protiviti would be down 3 to 4 percentage points, still double-digit versus a very high 14% one year ago. The tax rate is going to be higher this year than last, we are thinking, at the 37.5% range for the fourth quarter. Last year it was low at 35.3% because we got some discrete credits that won't repeat. Shares before consideration of further buybacks would be in the [127.5] range.

I really appreciate that thorough answer to that question. And if actually I could just follow up with a couple numbers-related questions. First of all, in the current quarter guidance, is there any more impact of the systems conversion? And if it's possible to give us the average billing days by quarter in 2017, that would be great. Thanks so much.

Days by quarter -- I have that but I did not bring it. Maybe we will try to get it and I will come back before the end of the call with those numbers. As to the system conversion, we do not expect any significant impact during this quarter. Our activity levels are pretty much back at the levels they had been pre-conversion. And like I said, hopefully I can come back to -- or maybe it has magically appeared sooner. Let's see, 2017 quarter one, 63.4; quarter two, 63.3; quarter three, 63.1; quarter four, 61.3 to give you a total of 251.1, which is one day shorter than 2016.

Great. I really appreciate the help. Thanks so much.

Anj Singh from Credit Suisse.

Hi. Thanks for taking my questions. I wanted to go back on some of the other earlier questions and comments. I guess first off on the environment and your commentary there, I just wanted to make sure that I understood you correctly. Is the sales cycle length about similar from Q2 to Q3, or do you see it continuing to sort of lengthen moderately as you are getting into the latter part of the year?

As we talked about, we are seeing it lengthen moderately, and we are also seeing some slowing in order rates because of the uncertainty that I talked about. But we are seeing some lengthening primarily because they are more selective with the candidates they will accept. Those candidates are in turn the hardest ones to close because they are the ones with the most options.

Okay got it. And then touching on headcount additions again, I think last quarter you guys had called out growing headcount a little bit. This quarter, you are talking about flattish. And I don't mean to split hairs but wondering if that is generally consistent quarter-to-quarter, or should we be reading into that as you're moderating your plans a little bit? And then the second part to that question, you had spoken to letting attrition play out in areas that are not really seeing much growth. So would it be fair to say that you are seeing some attrition in segments like OfficeTeam? Perhaps you can just give a sense of where you may be seeing some attrition. Thank you.

The nature of our business for 30 years is particularly in the first 12 months, there is always attrition. We are a tough team to make. Many times for people that come out of the profession, going into a sales and recruiting role is more different than their functional role in their prior careers. So we have always had a fair amount of attrition during the first 12 months. But it is somewhat variable.

So, I would say that our headcounts did not turn out that differently than we expected nor do I expect our Q4 heads are going to be that different than Q3 heads. There are always going to be differences in attrition. You cannot peg it exactly. But I would not read anything into it. Our overall thought is to keep our headcounts constant and level while we get a better read on demand. Because the last thing that we want to do is, essentially, have a self-fulfilling prophecy by reducing our capacity.

Okay. Understood. Thank you.

Kevin McVeigh from Deutsche Bank.

Great. Thanks. Your comments on the sequential trends and margins were helpful but can you help us frame how much the higher than expected tax rate is set for Q4 EPS? Because the EPS does not really reconcile to the revenue, even appreciating that there may be some fixed costs around FX. It kind of lacks a little bit more. But if I have the model right, is it $0.03 to $0.04? Is that the way to think about with the higher tax rate in terms Q4 effect?

It is 2 full points on pretax. Hold on. I did not figure it out all the way down to EPS. We could do the math. Pretax -- 120 -- so 3 million -- it is a couple of pennies -- back of the envelope. But as I walk down the P&L, I am basically walking down the midpoint of our guidance. You have got higher gross margin for reasons I have talked about. The SG&A year-on-year is up about 1 percentage point as I talked about. The number of shares is down, as I talked about. The tax rate is up. So I can assure you the math works at the midpoint of the range.

Got it. And then just one other. We saw a pretty sizable uptick in temp in December. Was that the data you have internally -- was that lagging or because we haven't seen that rate of growth since December of last year? How do you reconcile that to what you are seeing internally, if you will?

And you are talking about an external index, ASA, BLS? I guess I would observe that over a long, long periods of time we've not tracked all that closely to either BLS or ASA. It was kind of interesting, this morning PMI Services came out. And if you look at the employment piece of PMI Services -- and I do not call it out because it is the thing, but it just happened to come out this morning. If you look at the employment portion of PMI Services, it continues to trend down as late as til today.

So we have never tracked that closely to the external index as you have talked about. Traditionally, they have been very commercial staffing, light industrial production staffing centric. So sometimes we are better, sometimes we are worse. But rarely do we take that much stock in those external indexes.

Got it. That is helpful. Thank you.

Gary Bisbee from RBC Capital Markets.

Hi. Good afternoon. I wonder if I could get a little more color on Protiviti. You referenced earlier the weaker demand from financial compliance et cetera. It sounds like that continues. Any light at the end of the tunnel there? And is that pricing pressure you've referenced in the past still a factor with that end market? Thanks.

Protiviti grew 8% on very tough comps. They grew 23% a year ago -- very tough comps. The US was solid. Non-US was very strong. Australia, Japan, solid in the EU, so from a revenue standpoint, Protiviti's third quarter was pretty much spot on what we expected. They had some gross margin compression and that compression was less than we expected, actually quite a bit less than what we expected. They did a very good job controlling their costs. They used fewer contractors, which is a variable portion of their cost structure. They had fewer experienced hires coming on board. So Protiviti, from a profitability standpoint in the third quarter, while not as much as a year ago, which was a tough comp, it was actually pretty significantly better than the guidance we had given for the third quarter.

Fourth quarter, we are still embedded in our guidance as mid-single-digit growth. The comps a year ago were again very tough, 15% growth. Profitability remains double-digit, notwithstanding it is an even shorter quarter for Protiviti because many of their clients have a soft close between Christmas and New Year's, which shortens the effective length of their quarter even more. So clearly, as we have talked about on prior calls, their FSI clients have gotten more cost conscious. That has resulted in fewer hours for us; the hours that we do have at somewhat lower rates. But, overall, all things considered, we were very pleased with the quarter Protiviti had and the one that we're projecting for the fourth.

Understood. Then just a follow-up, one of the uncertainty factors that you've referenced, and I think a lot of others have referenced, is the upcoming election here. Is there any way to sense how big a factor that is or is that something a lot of clients are mentioning or are you hearing once in a while? Or is there any sense that as we get through that, you might see some loosening in some of the trends?

It is hard to parse uncertainty between how much of it is macro, how much of it is -- my own clients' financials are not where I wanted them to be, and therefore, I am more cost-conscious versus the part that is the election. The election uncertainty certainly did not help. How much it impacts negatively, it is hard to know. It is certainly part of the discussions that have taken place with our staff and our clients. But precisely what its impact is is hard to know and I guess only time will tell. We look back to some prior election years and there was a little bit of impact in the quarter prior to the election. But quite frankly, I don't think there has been any election like this election.

I would just add that I spend a lot of time talking to executives at other companies and many of our clients, and the elephant in the room probably is the election. Nobody really knows exactly what the impact is, they just know it is much different. You couple that with anemic GDP growth this year, which has resulted in a tremendous cost-consciousness on the part of many clients, it becomes very easy to drag your feet, drag out the hiring process, be very careful about expanding.

I would like to think we're going to see an improvement on the horizon here soon after the election. But only time will tell. We do not know for sure. We just know it is a very unusual circumstance. There has been an awful lot of negativity, none of which is great for the economy. So let's see what happens. We hope it is an improvement that occurs.

It's interesting, for six or seven years, we have been complaining about 2% GDP growth. Now we're sitting here hoping for GDP growth that is 2% or better. And so to the extent you believe we are going to get a 2017 2% or better GDP growth for the year, that is actually an improvement from where we have been. And we would welcome that. We can do just fine with two 2, 2+ GDP growth. It is not 1 and sub 1 and around 1 -- that's a little tough.

Yes. It is amazing how a frame of reference -- how important that is. I appreciate all the color. Thank you.

Randy Reece, Avondale Partners.

Good afternoon. To analyze your quarterly revenue guidance, I have broken it down two ways. First, looking at the sequential change in revenue per day. Second, looking at your history where actual revenue fell within the guidance range. From this I have two observations.

First your fourth quarter guidance is [300] basis points weaker than we have seen in this expansion. And second, this was the seventh consecutive quarter where revenue came in at or below the midpoint of your guidance range. I have two questions. First of all, I want to get a better understanding of why fourth quarter guidance is so much weaker than normal, even when you are coming off a third quarter that had some disruption effect that is going away. And the other question is what is preventing you from making your revenue guidance ranges more conservative than they have been for almost two years?

Well why is our fourth quarter guidance so much weaker? We are simply looking at current trends all the way through last week. And based on those trends, based on the discussions we have had with our field management teams, those are the calls we have made. I would say as to missing the midpoint of revenue guidance, we have clearly done much better than you referenced at the bottom line. And I would also say that most of those misses, as you call them, have been 1% or 2% misses.

So I think for context, we need to talk about the extent of the misses. But further I would say we call it like it is. And we are not sand baggers. We're not back slappers and so we try to call it like it is. And we are close. We are usually within 1% or 2% of the revenues and we are usually at or above the EPS. But where I grew up, coming within 98% or 99% of a $1 billion or more revenue estimate for the quarter is not bad.

Particularly when there is not exactly a big backlog to take a look at.

I am just trying to get a feel for whether there is something about the business that has become a little bit less predictable than you are used to.

I think that is fair. I would say Management Resources is more project-driven than Accountemps. To some degree, Robert Half Technology is more project-driven than Accountemps. Protiviti is certainly more project driven than traditionally Accountemps to the extent we have added these additional non-Accountemps services. To some degree, there is a little more volatility because they are more project-driven.

But Accountemps itself -- I do not think it has gotten any more variable or volatile. And the classic split between how accounting operations performs within Accountemps versus how the more staff accounting or financial positions perform within Accountemps -- they are all pretty consistent. And I might add that in the third quarter just ended, we reported pretty decent growth in our finance and accounting divisions. It was the non-finance and accounting divisions that lowered those rates somewhat.

Do you believe that permanent placement is acting the way you would have expected it to in past cycles? Do you think you are capturing the share of placements -- just total hiring that you would expect to get?

Well given how anemic GDP growth has been, it does not surprise us the way perm has performed. Perm is always more economically sensitive than is temp. We are seeing that as we speak. It was more impacted in the third quarter, albeit it was on tougher comps than temp. But I do not believe that we have lost any meaningful share of placements to whether you want to call it technology platforms, other new competitors. If GDP had grown at the same extent that it had in prior cycles and we did not perform similarly, I think there would be a credible case to be made that there is a missing delta that we need to talk about. But the fact that GDP has not performed and we are essentially back to prior peaks in perm, I think is totally understandable.

That makes sense. Thank you very much.

Tobey Sommer from SunTrust.

Hi. This is Kwan Kim on for Tobey. I have a question on the technology segment. What is your outlook on the bill/rate growth and how would you compare that to the Company average?

So bill rates were up 3.5% year-over-year. That was down a little bit from the 4.8% that we saw last quarter. That was pretty much down versus last quarter in all of our verticals. It is consistent with all of the commentary we have given already about overall business conditions. Does that get at your question or was there some other question?

I asked about your outlook.

My outlook? If conditions continue along the current glide path, you would expect to see slightly less bill/rate growth. If instead GDP growth picks back up to where it had been, I would not expect the glide path to be downward but instead to turn back upward.

Thank you.

George Tong from Piper Jaffray.

Hi. Thanks. You've mentioned some slowing in order rates on top of a lengthening sales cycle. Can you elaborate on the trends you saw in order flow during the course of the quarter, and what is currently incorporated into your fourth quarter guidance?

With client cautiousness, with client's less sense of urgency, the order flow rate does slow somewhat. We saw it happen during the quarter. We saw that continue into the fourth quarter. We've extrapolated that trend and considered it in the guidance we have given for the fourth quarter.

Great. And now that your new CRM and project management systems have been implemented, can you help quantify what you expect to see in revenue and cost benefits associated with the investment?

In the short term, we expect very little short-term benefit from those investments. They are more long-term, infrastructure building, platform, foundational type of investments that we expect long-term, but not short-term benefit from.

Can you help frame up what those long-term benefits might be?

Well they are cloud-based. We do not have the hosted infrastructure to have to maintain. They are intensely mobile-accessible, which means our staff can sit down with our clients in their offices and have full access to all of our databases. As we offer more and more of our services digitally to our clients and to our candidates, this enables that to happen in a way that it could not happen with our 15 year-old proprietary legacy systems. So exactly how you put a dollar value on that, I would argue, quite frankly, to remain competitive in the staffing business you not only have to offer the traditional services you have always offered, you also have to have digital offerings that are complementary to the traditional offerings you have always had.

Very helpful. Thank you.

Hamzah Mazari from Macquarie Capital.

Good afternoon. I just had a question on permanent staffing. Any comments on the recovery you saw in October? And any color on the temp-to-hire conversions you saw during the quarter? Thank you.

Clearly, our start in perm was better than Q3 and the trends. But as we have said many times, it is only three weeks. If you recall, last quarter we hobbled out of the starting gate. I think we were down 17% or something and we certainly did not finish the quarter anything like that. So, quite frankly, perm is volatile. It is more volatile than temp. The start over a three-week period of time does not mean much. That said, I would rather start better than the prior quarter than worse, which we did. However, our guidance does assume that there would be slight negative year-over-year growth in perm.

Temp-to-hire traditionally follows perm. So just as perm was a little softer than temp this quarter, so was temp-to-hire as compared to temp hours billed. It is all about ultimately full-time hiring, the environment for full-time hiring, one follows the other. Clearly temp-to-hire in this cycle has been somewhat anemic as has perm, generally. But that was also the case in the Q3 just ended.

Great. And just a follow-up -- last question from me. I know the UK is a small part of your business at 3% or so. Anything you saw in that market post-Brexit or is it too early to tell for you guys? Thank you.

I would say we had a very good quarter on the temporary side in the UK. The perm side was not as strong. The uncertainty there seems to impact perm more than temp. While we're talking about international, let's not forget we had a very good quarter internationally, both Protiviti and staffing. Germany continued to do well. Belgium did well. Australia did well. In Protiviti, Australia did extremely well. We're seeing improvement in Japan for the first time in years, which we are very encouraged by. Generally speaking, international was a bright spot not only for staffing but for Protiviti. UK temp very good. UK perm not as much.

Great. Very helpful. I appreciate the time. Thank you.

Manav Patnaik from Barclays.

Hi. Good afternoon. This is Ryan Leonard filling in for Manav. The comments you make about the clients and just the cautiousness in some of those slower sales cycles, what would have to change to the downside that would result in you flexing some of the cost leverage you mentioned before?

The trends would have to turn more negative. We are talking about revenues being down 1% in our guidance. And you don't take drastic headcount actions based on a 1% swing, frankly, in either direction. So for us to get much more aggressive on the cost side, we would have to see much more negative trends than we are seeing. And here again, if the world believes we are going to get 2% plus GDP in 2017, we would see that as an improvement not a decline.

Fair enough. And then just on some of the more digital offerings you've been talking about with the rollout of the new CRM and investment in technology, do you see more investment in technology going forward needed as more and more staffing services go digital?

I would say, yes, we do see more investment needed. They should not be to the extent that we have had the last two years where we have essentially done new front-office and project management systems in both staffing and Protiviti virtually all at the same time. In addition to that, we do have what we call business transformation, which are our innovation initiatives. That will continue but it is not the lion's share of what our CapEx budgets have been the last couple of years.

But, yes, we do need to continue to spend on technology. We do need to broaden our digital capabilities. I think we are well down that path. We are using artificial intelligence. We are using machine learning. We have client-facing and candidate-facing functionality we have never had before. I think that will only get better as we go forward in time. It will take some investment but it won't be as much an outsized investment as we have had the last couple of years.

Perfect. Thanks a lot.

We have time for just one more questions. Our next question comes from the line of Mark Marcon

Thanks for squeezing in my follow-up. I was wondering, IFRS [rev rec] -- is that going to be a benefit do you think on the Protiviti side as we look ahead? And if so what are you hearing from your folks?

We think rev rec ultimately will be a single, not a double or a triple. We right now have a lot of diagnostic projects, which are smaller projects in Protiviti where you figure out what the gap is -- no pun intended. Frankly, we are probably more excited but maybe a double, maybe between a single and a double on lease accounting. Lease accounting is a year further out. Lease accounting is 2019, rev rec is 2018. They are both helpful. We do not think either of them are going to be major movers of the needle, but we will take all that we can get.

Great. And then can you talk a little bit about anything that people should take into consideration for next year outside of the economy? For example, new overtime regulations -- anything that people should try to factor in.

I would say as to the overtime regs, we are dealing with that by changing the salary levels to the extent needed to, which is not a huge impact. We're also restructuring some of our comp plans otherwise to more or less pay for that. I would say in 2017, there is a change in the tax accounting as it relates to equity compensation that will put pressure on our tax rate. We will have to figure out precisely what that will be. We will talk to you about that next quarter. But I think there is going to be a lot more volatility in our tax rate and companies generally because effectively the impact of your stock price at the day equity vests versus the stock price at the day equity was issued -- the tax effect of that differential you're going to run through P&L for the first time.

I look forward to the guidance.

Okay.

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 this 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.