羅致恆富 (RHI) 2016 Q4 法說會逐字稿

Hello and welcome to the Robert Half Q4 2016 earnings 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. 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 such 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 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 fourth quarter results. Quarterly revenues were $1.265 billion, down 1% on a same-day constant currency basis and down 3% on a reported basis from the year ago period. Income per share was $0.61, cash flow from operations was $82 million in the fourth quarter and capital expenditures were $20 million.

We returned $28 million to our shareholders during the quarter through a $0.22 per share cash dividend. We also repurchased 1.1 million Robert Half shares for $51 million. We have 6.4 million shares available for repurchase under our board approved stock repurchase plan.

These results are within the range of guidance we provided last quarter. Robert Half continued to benefit from a tightening job market and solid service demand domestically, and in our non-US markets during the fourth quarter. International staffing operations performed particularly well, and Protiviti reported year-over-year revenue gains. For a while now, we have highlighted on these calls our unlevered return on equity, which remained strong during the quarter at 29%.

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

Thank you, Max. As Max just noted, global revenues were $1.265 billion in the fourth quarter. This is down 3% from the fourth-quarter of 2015 on a reported basis, and down 1% on a same-day constant-currency basis. Fourth-quarter staffing revenues were down 2% on a same-day constant currency basis. US staffing revenues were $845 million in the fourth quarter, down 4% on a same-day basis. Non-US staffing revenues were $219 million, up 5% when adjusted for billing days and currency exchange rates. We have 325 staffing locations worldwide, including 83 locations in 17 countries outside the US.

The fourth quarter had 61.4 billing days, compared to 62.3 days in the fourth quarter one year ago. The current quarter has 63.4 billing days, compared to 62.7 days in the first quarter last year.

Accompanying our earnings releases is 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 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 reported year-over-year staffing revenues by $6 million in the fourth quarter, which decreased year-over-year reported staffing growth rates by 0.6%.

Global revenues for Protiviti were $201 million in the fourth quarter, with $170 million coming from revenues in the United States and $31 million from revenues outside the US. Protiviti revenues were up 5% year over year on a same-day, constant-currency basis. US Protiviti revenues were up 5% from the prior year on a same-day basis and non-US revenues were also up 5%. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $1 million in the fourth quarter and decreasing year-over-year reported growth by 0.5%. Protiviti, and it's independently owned member firms serve clients through a network of 75 locations in 25 countries.

Now let's turn to gross margin. Gross margin in our temporary and consulting staffing operations was 38.0% of applicable revenues in the fourth quarter. This is a 70 basis-point improvement from the same period one year ago, and relates primarily to higher pay/bill spreads and lower insurance and payroll tax costs.

Our fourth quarter results include $4.3 million in workers' compensation credits pursuant to third-party actuarial reviews of our workers' compensation accruals. Fourth quarter revenues for our permanent placement operations were 8.9% of consolidated staffing revenues, which is down 30 basis points from last year's fourth quarter. Together with temporary and consulting gross margin, overall staffing gross margin improved 50 basis points versus one year ago, to 43.5%.

Fourth quarter gross margin for Protiviti was $57 million, or 28.3% of Protiviti revenues. Gross margin one year ago for Protiviti was $62 million, or 32.0 % of Protiviti revenues.

Staffing SG&A costs were 33.6% of staffing revenues in the fourth quarter, versus 32.5% in the previous year's fourth quarter. We ended 2016 with 12,800 full-time employees in our staffing divisions, flat with the prior year.

SG&A costs for Protiviti were 18.3% of Protiviti revenues in the fourth quarter, compared to 18.0% of Protiviti revenues in the year-ago period. We ended 2016 with 4000 full-time employees and contractors for Protiviti, up 5% from the prior year.

Operating income from our staffing division was $105 million in the fourth quarter, down 11% from the prior year. Operating margin was 9.8%.

Our temporary and consulting staffing divisions reported $91 million in operating income, a decrease of 9% from the prior year. This resulted in an operating margin of 9.4%.

Operating income for our permanent placement division was $14 million in the fourth quarter, down 22% from the prior year and producing an operating margin of 14.4%. Fourth-quarter operating profit for Protiviti was $20 million, a decrease of 26% from the prior year. This produced an operating margin of 10%.

At the end of the fourth quarter, accounts receivable were $703 million, implied days sales outstanding was 50.6 days.

Before we move to first-quarter guidance, let's review the monthly revenue trends we saw during the fourth-quarter of 2016 and so far in January all adjusted for currency. During the quarter, average daily revenues for our temporary and consulting staffing divisions were essentially flat with the immediately preceding third quarter.

In years past, we often had sequential growth during this period. Accordingly, on a year-over-year basis, our growth rates were negative and became slightly more negative as the quarter progressed. We exited the quarter down 2.5% in December versus the prior year compared to a 1.8% decline for the full quarter.

Revenue growth for the first two weeks of January was down 2.6% compared to the prior year. Global permanent placement negative revenue growth rates were fairly consistent throughout the quarter, with December revenues down 4.2% versus a 4.9% decline for the full quarter. So far in January, permanent placement revenues are down 18.8% compared to the same period last year.

This information is designed to offer a glimpse into trends we saw during the fourth quarter and in January. But, as you know, we hesitate to read too much into these numbers as they represent very brief periods of time, and they cover holiday periods, which can be volatile.

With that said, we offer the following first-quarter guidance:

Revenue: $1.250 billion to $1.310 billion,

Income per share: $0.55 to $0.61.

The midpoint of our guidance implies year-over-year revenue declines of 2% on both the reported and same-day, constant-currency basis, including Protiviti, and an EPS decline of 9%.

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 our SEC filings. Now, I will turn the call back over to Max.

Thank you, Keith. We ended the year with annual revenues that once again surpassed $5 billion and, in fact, reached an all-time high. We saw solid demand across the board for our professional staffing and consulting divisions, although clients were more cautious during the quarter, particularly in December.

All indications are that the US job market continues to tighten. Unemployment for college-degreed workers 25 years and older is just 2.5% today. This is placing pressure on the labor supply, particularly at higher skill levels. And the number of temporary workers as a percentage of the overall US workforce remains near an all-time high, a sign employers are building flexible staffing options into their human resources plans with increasing frequency.

We are also encouraged by recent data from the National Federation of Independent Business that showed that, while hiring levels did not increase in the fourth quarter, small business optimism reached its highest level since December 2004. Outside the United States, we also see improving markets. Our international staffing operations had a solid fourth quarter.

As we look at the coming year, we are optimistic about the technology investments we have made, which are designed to foster and accelerate continued innovation. In 2016, we migrated our global staffing teams to a new unified front-office CRM system and we moved Protiviti's North American operations to a new resource management system.

Going forward we will continue to expand our client- and candidate-facing digital functionality. We have already introduced new online services, including the ability to search candidate profiles on our websites. To serve up the best matches, we have developed intelligent matching algorithms based on nearly 70 years of placement experience, and we are constantly working to improve these algorithms through machine learning.

We offer innovative matching technology to find temporary and full-time job candidates with the right skills but technology alone cannot produce the correct fit. There are many steps in the staffing and onboarding processes, including assessing the chemistry and business culture fit between the employer and the job candidate, and in the case of temporary assignments, the person's availability.

Our major competitive advantage lies in the combination of technology and personal service that we provide because it gives our clients the best opportunity to avoid costly and disruptive staffing mistakes and find the right person every time for their business needs.

Finally, a few closing notes about Protiviti, which had a solid fourth quarter. We are optimistic about the considerable opportunities in the year ahead for this business. Protiviti has focused on diversifying its service offerings, developing and growing a loyal client base, and hiring rewarding great talent, all with very good results. This business is seeing solid demand across all practice areas right now.

At this time, Keith and I would be happy to respond to 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'll certainly try to return to you if you have additional questions, Thank you. Operator?

(Operator Instructions)

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

Good afternoon. Thanks for taking my question. I was wondering if we could talk about the US staffing trends. Just a little more color there. Can you discuss to what extent you think it was driven by caution among potential employers, and if there was any sort of vertical concentration in terms of that caution?

And then, to what extent would you attribute the trends to the tightness of the labor supply and the ability to fill the orders? Thank you.

Sure, Mark. As it relates to US trends and tone of business, on the one hand conversationally our people would tell you that client optimism, client sentiment, has clearly and markedly improved. That said, when you look at their actual activity levels as we speak, there is little sense of urgency. They're waiting for the perfect candidate. They take more time to vet and more time to interview. It is more a wait-and-see and show me as it relates to the more optimistic view that they have, as confirmed by the NFIB study that we cited, the University of Michigan Sentiment Index, the PMI Services that came out today. So, our clients clearly feel better.

They are more optimistic, but that is in the future. And they are waiting to see more activity in their business before their hiring activity reflects that. I'd say there is not a particular vertical concentration. It is pretty much across the board. Our clients across our verticals are pretty much middle-market companies.

From a supply and demand standpoint, we would observe it is more about demand than it is supply. On the one hand, when they wait for the perfect candidate, you have fewer perfect candidates than you have candidates overall. That said, if there was more urgency in their need, they would be more accepting of the best candidate available.

So our people would tell you between having more A-level orders versus having more candidates, they would take more orders than they would take candidates. Having said that, we would observe that our order levels have improved in the new year which would be expected following the holidays, which we have experienced again this year. So, tone of business, the conversations are more upbeat. There is more optimism. But as far as actual making placements, getting starts on the temp side, it remains sluggish.

I appreciate the color. Just with regards to the comment that you made about the orders picking up, obviously, seasonally that would occur. Are the orders improving on a year-over-year basis relative to the recent trend?

And typically when you start hearing some more positive chatter from the clients, is there a historical precedent that you would say, here is the rough benchmark between the time that they start chattering a little bit more positively versus real action? Thank you.

Well, we have never gotten too granular with order dating because a quality of the order and the urgency of the order is just as important as the quantity of the order. There is no question there is a lag between better order activity and actual hours billed. And that lag also changes over time.

So, we do not want to make too much of the fact that order activity has improved. Because some of that is seasonal. That said, it certainly is consistent with the better optimism and the better sentiment that anecdotally our people are seeing with their clients.

Terrific. Thank you.

Your next question comes from the line of Kevin McVeigh from Deutsche Bank. Your line is open, please go ahead.

Great, thanks. Very helpful commentary. Keith, it looks like the revenue guide is pretty close to Q4 and Q1, which typically there's some seasonality where I would typically expect a step down. But there is a delta in EPS. Can we just walk through what the delta in EPS is, is that payroll tax reset? Is that additional investment in Salesforce you've positioned for this optimism? Or is there any way to frame the bridge between the EPS guide relative to the revenue? And again, the revenue seemed relatively consistent with a Q4 but there is a delta in the EPS.

Well, the midpoint of the revenue pretty much assumes that the trends that existed in the latter part of the fourth quarter continue into the first. Gross margin, we don't have in the first quarter the payroll tax and insurance true-up credits that we had in the fourth quarter. And those credits are about 68-basis points when you add workers' comp to state and federal unemployment. So, the absence of those credits impacts profitability, clearly. Further, your SG&A dollars are about even year on year. But your slightly lower revenues give you some negative leverage. And then Protiviti, seasonally, the first quarter is their seasonally slowest quarter. So, if we are looking sequentially, they never do in the first quarter what they do in the fourth. But I will say this, if you look at that sequential trend, there is less falloff in our guidance for Q1 2017, sequentially, in their operating income than was the case in Q1 2016. So, that is a good thing. Generally speaking, it is less revenue, it is the absence of the true-up credits, the tax rate will be higher. So, the tax rate for the fourth quarter was 37.6%, which was a little undertrend, which is 38%ish. Our tax rate guidance for the first quarter is somewhere between 38.25%, 38.5%, and there is always volatility there. A little of it is tax rate, as well. But it is mostly revenues, a couple of points lower, gross margin, the absence of the credits, SG&A, a little negative leverage because of the revenues and a higher tax rate.

Got it. It sounds like fundamentally, things are in this holding pattern until we get some jolt one way or the other from a macro perspective. Just real quick, if I could, with the new administration, and there has been talk about H1Bs and stuff like that going away, how does that impact the model? Particularly as we think about the IT business?

Well, first of all, we do virtually no H1Bs directly as far as the people that we supply. To the extent that the industry uses fewer H1Bs, and therefore everybody focuses on the domestic supply, potentially, that tightens the supply, and generally speaking, we would think that is a good thing. It is already tight at the high end on the development side. But as I said earlier, if you ask our people, technology included, technology development included, they would tell you that they [would] take more orders if they had to choose between more orders and more supply. So we do not expect that the supply thing is growth constraining to a significant degree. And H1Bs certainly directly won't impact our business, potentially, they could indirectly impact it.

Super. Thank you.

Your next question comes from the line of Jeff Silber from PMO. Your line is open. Please go ahead.

Good afternoon it is Henry Chen calling for Jeff. I just have a follow-up question on the impact of the new administration. I am curious what type of initiatives are you most paying attention to from the new Trump administration or policies?

Keith Waddell Well, I think the most directly impactful would be the discussed reduction in corporate tax rates. Understand that we are a full-tax-rate company. We pay 35% federal, 3.5% state, to get you to the 38.5% I just talked about. Further, understand that about 97% of our global income is taxed at US rates. So not only is our US income taxed at US rates, much of our non-US income gets taxed at US rates as well. And further, I would say to the extent there have been discussions about the new tax plan having offsets, we would have no interest deductibility offset. We would have essentially no deemed repatriation tax offset. We would have no border adjustment or border tax adjustment offset. So frankly, based on everything discussed so far, we get all of the benefit and none of the offset.

Got it. Okay. And just a question on your hiring outlook. If trends stay in this sluggish environment, how are you thinking about hiring or adapting the temp business in this kind of environment? Thanks.

So, I would say it is a little bit bifurcated. Non-US things are improving. Particularly Germany, Belgium. There, we are adding to headcount in support of that growth. In the US where our growth rates are a bit negative, we are essentially holding the line. Particularly given the optimism in the air that we hope converts into actual hours billed and placements. We are holding the line. So, you are going to get a little bit of negative leverage as I just talked about in the short term. But we think prudent given anticipated market conditions.

Got it. Okay. Thanks for the color.

Your next question comes from the line of Tim McHugh, William Blair & Company. Your line is open. Please go ahead.

Thanks. I just want to ask a little more on Protiviti. The gross margin being down year-over-year, it was a tough comp. There is also a comment, Max, in your prepared remarks about trying to diversify the business and investing in it. How do we think about the gross margin there and the margin profile? More so, I know you talked about first quarter. But just more broadly, how we think forward on that business?

Sure. Tim, the Protiviti gross margin came in very close to what we had predicted it would. The issue year-on-year is the mix of business where, as of a year ago, we had a higher mix of higher-margin FSI regulatory compliance work versus this year, we have a lower mix of that. And that which we do have has a lower margin than it did a year ago. Although that margin is still higher than our average margin. So it is essentially a mix matter. It is a matter we have dealt with now for a few quarters. The good news is, starting in Q1 2017, you're anniversarying that mix issue such that in Q1 2017, we think the gross margin percentage will be flattish versus down year-on-year. Which it has been for a few quarters now because of that mix issue.

Okay. Is there any reason to think that mix will continue to change? Your answer says no, but just a make sure.

Mix is stabilized. FSI regulatory has flattened out. It actually got a little better, quite frankly. So we are optimistic that, worst case, it stabilized and maybe it gets a little better.

Okay. And then just a follow-up or second question. The new tools, Max referred to them in the comments, both internal as well as one of the things you put on the website. The market is obviously not great. I guess it may be tough to tell but anything you can tell us about the extent they're having a difference in internal operations efficiency? Leads low? Or is it too hard to tell or too early to tell in this environment?

What we can say is that we track the extent to which we are getting leads that then converts to revenue from our digital sources. What is hard to know is how much of that would you have gotten anyway. So, if you look just at the absolute numbers, they are encouraging, particularly how early days it is, and particularly, how we hadn't rolled it out thoroughly to all locations. So, we feel good about the extent to which we are interacting with our clients in a digital way, which is significantly more than we ever have before.

I would add to what Keith says. It is early. And I think the field will get better and better at using these tools as we go forward but results to date are encouraging.

Okay. Thank you.

Your next question comes from the line of Anj Singh, Credit Suisse. Your line is open, please go ahead.

Hi, thanks for taking my questions. First a follow-up on Protiviti. With some of the potential changes in the regulatory landscape under the new administration, what is your outlook on the strength this business has been seeing from increased regulatory scrutiny in areas like financial services? Could you update us on perhaps Protiviti's market mix as it stands today?

Okay. As to changes in the regulatory landscape, as we talked about before on these calls. FSI regulatory for Protiviti is principally anti-money laundering and consumer lending practices and regulation thereof. The view of Protiviti is the anti-money laundering piece of what they do probably doesn't get impacted very much by proposed changes to regulations. If anything, to the extent it relates to protecting our border, it might get better before it gets worse. On the consumer lending side, while there is some discussion about relaxing the CFPB and other consumer lending, the thought there is, based on what has been proposed at least, there is no view there would be a significant impact. On the positive side, the discussions about cyber and the importance of cyber and the regulations related to cyber, particularly for FSI, would be an opportunity for us because of the technology consulting practice that Protiviti has is very focused on security. And cyber would be right in their wheelhouse. Further, Protiviti typically works with the largest of the money center banks, and it is viewed that the banks that would most benefit from a relaxed regulatory environment would be more the middle-market, the non-money center banks. To the extent a SIFI designation moves to a larger size, it probably [isn't going to impact] Protiviti's clients as much as it would smaller financial institutions. So net-net, the view internally at least as to what is understood today, is that it shouldn't have significant negative impact. On the cyber side there could be some upside.

Okay. Got it. That super helpful. And then Max, I wanted to get your thoughts on the earlier comments on the disconnect between the small business optimism and the lack of increase in hiring levels. As you see this translate to actual hard making of placements as referenced by Keith earlier, do you expect this to show up more markedly for your temp business? Or your PRO business considering the tightness in the labor market and where temp penetration stands today?

Well I think to some extent we're speculating. Personally, I'm not surprised you haven't seen a big pick up yet in terms of the NFIB report, for example. Optimism has to precede hiring. If you look at the fourth quarter, through much of the quarter people seem to be in a very bad mood, negative about the election and so forth. At the end of the day, our types of clients are the types that they are from Missouri. Wait and see, show me, and so forth. So I think that the good news is the optimism is up. As they start seeing more activity and so forth among their own clients, I think their hiring levels will pick up and they will move more rapidly. Our placement processes might get condensed. So if you want to be an optimist, there is a lot to be optimistic about. And when Keith talked about the tax proposals that the Trump administration has, I have to admit it is hard for us to constrain ourselves because I don't see anything negative at all in any of that for us. So that would be a very good thing for us. I think we will just have to wait and see what happens. We are optimistic, though, that these changes, if they continue in terms of optimism and so forth, will lead to increased placement activity as well as temporary activity.

Okay. Thank you. And one last quick housekeeping question from me. Could you just comment on bill/pay spreads in the quarter and conversions at both Q4 and Q3?

So bill pay spreads were stronger during the quarter. The conversions, which often follow permanent placement, per se, were softer during the quarter. They were around 2.9% of revenue, which was down 20 basis-points from the third quarter. So conversions, softer. Pay bill spreads, stronger. When you put the package together with the credit, the true-up credits we got on payroll taxes overall, they were up. Our guidance for the first quarter is that year-on-year, you will get 10 to 30 basis points of improvement, which is principally higher pay/bill spreads. For the moment, we found everything else pretty constant.

Okay. Thanks so much. I appreciated.

Your next question comes from the line Manav Patnaik, Barclays Capital.

Thank you. Good evening gentlemen. The near-term trends to [look back], they're tough for you guys. But there were signs of optimism, thinking out a little further ahead. The one question I had around that was capacity. How should [we] think about the utilization levels today if things do start getting better? Do you need to ramp up? Do you have the capacity? Any way to think about that?

I would say that in the short term, particularly, we are carrying capacity. We have pretty much held our US headcounts level for a few quarters. We have added to headcounts modestly outside the US. But in the short term, if we see an increase in activity levels in the US, I think there would be a few quarters where you could do that without a commensurate increase in our staff levels.

Okay. That's helpful. And the follow-up was just around the ACA. When it first came out, there was a lot of noise around your stock and what that could mean. It ended up being not much of an impact really. But just curious on how you guys think about whether the repeal and replace will have any impact on the other side?

So, early on, there was optimism about the incremental revenue we will get because of ACA with small companies trying to avoid thresholds by using temporaries. That never really came to pass. On the flip side, there was concern that many of our temporaries would qualify for medical insurance that theretofore had not. That never really came to fruition either, because those that qualify tended not to elect the coverage. So frankly, just like there ultimately wasn't much impact initially, we do not think there would be much impact by the replace and appeal or repeal and replace.

All right. Thanks guys.

Your next question comes from the line of Gary Bisbee, RBC Capital Markets. Your line is open. Please go ahead.

Hi, good afternoon. On the perm business, I just wanted to ask, what is implied at the midpoint of the guide or the range of outcomes for Q1? Normally, that business improves sequentially on a dollar basis as you get in a new budget year. Is that happening? Or should we think that the weak start to January that you referenced is an indication that you haven't seen that normal seasonal? I realize it is early.

The first thing we would say about the January start, and if you look back in history, the perm start relative to the ultimate quarter is the least predictive of all. And so you don't have to look back many quarters where you see us down double digits where we end up down much less than at or even up. So we read very little into the start, particularly when the start includes a couple of holidays which it always does in January. The holidays, they fall on different days. People's patterns about the time they take off differs to some degree based on which day of the week the holiday falls. So it is a noisy start. It is always noisy. But it is even noisier based on day of week. Our guidance assumes a little bit of sequential dollar growth, a little bit but less than what we have seen in the past. And therefore, year-on-year, the growth rate would be more negative than our guidance for Q1 than what we just saw.

Okay. Thanks.

Go ahead.

And then the follow-up on Protiviti. Outside of the financial regulatory, which you have talked of lot about in recent quarters, can you give us some color on how the rest of the business is doing? I think IT and some of the other areas you talked about in the past that have been doing well, are those slowing as well? And is it just a comp issue or just any update on demand outside of financial regulatory? Thank you.

The story is good there. The two other major practice areas of Protiviti [one is] our internal audit and the other is technology, which is principally security. Those have been very solid. The one that has been the most volatile has been the FSI regulatory compliance consulting area. But internal audit has done very well. We've still got the PCAOB hammering external audit firms about their clients' controls which ultimately trickles down to the benefit of internal audit that Protiviti benefits from -- IT, security, cyber. Hardly a day goes by where there isn't some kind of breach or something in that area that needs attention. So, we have had a very solid year or two or three in internal audit and in technology security, and we remain positive into 2017.

Thank you.

Your next question comes from the line of Tobey Sommer from SunTrust. Your line is open. Please go ahead.

Thank you. A question for you about the changes for the tax code that are being discussed. I think you addressed it from your own internal cash flow perspective. But historically, when you have seen broad changes to the tax code, what has been the impact on demand for your services? Where, if anywhere, have you felt a change in demand as a result of these kinds of changes that are being discussed currently? Thanks.

Well tax code changes, change is always good in that clients have to figure out what is new, what is different and comply with the new regs. So change is always good. The more the change, the better from the standpoint of you need help to comply. Has it been a major driver of incremental revenue? No. But at the margin, it is good more so than it is bad.

Okay. In terms of the tech base, have you been hearing from your customers the increased tendency for domestic labor? There seems to be a lot of pushback against offshoring, to the extent that occurs less over the next four years. Do you have any expectation for what that can do for demand for tech and/or bill/rate growth rates?

First of all, because we deal primarily with middle-market companies, there's never been that much appetite from our clients for offshoring. And therefore it has never had that big an impact. Clearly, you hear more about reshoring, you hear more about inshoring. There are several terms that get used for domestic, but other than the extent to which it pressures supply, we do not think our business would be that impacted one way or the other.

Your next question comes from the line of Randy Reece, Avondale Partners. Your line is open. Please go ahead.

Good afternoon. I wanted to ask about how labor supply is affecting near-growth potential in your view? First in the US and then outside the US.

So, it is true that as clients take more time, they are more selective. And they want only what they view as the perfect candidate. And clearly, our supply of perfect candidates is different than our supply of solid candidates. And therefore, one could say that our growth is being constrained by candidate supply. However, we wouldn't really articulate it that way. Because in a normal demand environment, where there is more sense of urgency to get your projects done, to get your people hired, they are more flexible in adjusting to market conditions and the candidates that are available. So as we said earlier, if we were given a choice today between more quality orders and more quality supply, we would take the order side if we had to choose. We will take both, but if we have to choose, we will take more quality orders. Non-US, while supply is always an issue, it certainly hasn't risen to the level of a significantly growth-constraining issue.

Very good. Thank you.

Your next question comes from the line of Hamzah Mazari, Macquarie Capital. Your line is open. Please go ahead.

Hi. This is Kayvon Rahbar filling in for Hamzah. You guys have a customer base as you have mentioned, it's mostly small and midsized companies. Can you give us a sense of whether there's a correlation to your sales from a small business confidence index? Because that's been up recently. And do you guys see that impacting either presently or going into 2017?

I don't think there is a hard correlation if you are talking about the NFIB optimism index. There is certainly a directional correlation. And, therefore, we are encouraged to see the optimism index improve. And, in fact, improve significantly based on what it had. I think, if you look at NFIB, if you look at University of Michigan sentiment, they are both back to 2004 levels, and that's a really good thing. We are encouraged by that. If you do a leased squares correlation on that index versus or either of those in Texas versus our revenues, I don't think you're going to find a number that is going to be that meaningful overall. But again, directionally, I do think it is helpful and I do think it is predictive.

All right. Thank you.

Your next question comes from the line of George Tong, Piper Jaffray & Co. Your line is open. Please go ahead.

Hi, this is Adrian Paz on for George Tong. I just wanted to touch on Accountemps, specifically, and see if you can discuss trends that you're seeing for the US and if there is any specific area of weakness or increasing competition, or if there's a broad-based slowdown.

So, similar to the other divisions, Accountemps flattened out during the fourth quarter. It did not go down in the absolute sense; it flattened out based on where it had been in the third quarter. And that compares to a typical fourth quarter, where you get some sequential lift. Therefore, the year-over-year comparison is a negative. But in an absolute sense, it is not negative, it is flat. If you look at the components of Accountemps, the accounting operations portion of Accountemps which is accounts payable, accounts receivable, payroll, the transactional positions, they are the most impacted. That is expected. That is consistent. They are the most macrosensitive positions within Accountemps. Our guidance for the first quarter is that on a sequential basis, they declined a little going into the first quarter but not significantly. But you are still going to get the year-over-year negative from that phenomenon.

Thanks. And can you discuss the pricing trends in the temp segment and how you balance between pushing bill rates and margins versus targeting higher bill rates?

So, our bill rates for the quarter were up 3.6% year-over-year. That is very consistent with last quarter, which was 3.5%. You are always balancing pricing and volume. We provide our people with a lot of authority, a lot of autonomy in that way. But 3.5%-ish up to 4% bill- rate/wage inflation has been pretty consistent the last few quarters.

Do you think that is impacting placement negotiations or placements for temps?

Well, they are always part of a negotiation, but with a middle-market client they typically need one or two people for a few months. The bill rate is rarely the most important part of that discussion, not that it is not important. I think you will find that our pricing power has been intact for almost 30 years now. It is something we are quite proud of, but it is the onesie, twosie nature of the volumes that we place as well as the middle-market accounts that we deal with.

Great. Thanks for the color.

And our final question will come from the line of Dan Dolev from Instinet. Your line is open please go ahead.

Thanks for taking my question. We have a very pro-growth president. This seems unprecedented. Do you think there is any chance we would be getting into a new cycle or do you see this just is a continuation of the prior cycle?

You know, I'm not sure you can parse a re-acceleration as to whether that means it is new or a continuation of the prior. As long as it gets better, frankly, it doesn't really matter what you want to label it. We will take it, and our clients feel better. They do, our clients are more optimistic. You just don't see it yet. But we are encouraged that our clients are encouraged. We would be more encouraged if our clients were actually acting on it, but they need to get encouraged before they start acting on it. So we will take what we can get.

Thank you. And as a follow-up, if we did get tax reform, what would you do with the cash?

As is consistent with our practice for many, many years, we first look to the needs of our business from a capital standpoint. We deal with those. Our cash flow has always been in excess of that. The residue, we typically return to shareholders with more dividends, with more repurchases. And it would be our expectation that is what we would do with any tax savings that we have. There have been a few questions about whether that tax savings would be competed away by our competitors, essentially returning that through lower bill rates back to the clients. I will tell you, in 30 years, we have never seen anything like that. Nor would it be our expectation that would be the case here, particularly since it's an income tax and not a payroll tax. If it were a payroll tax, it would be more germane to the discussion with our clients. But since we are talking about an income tax, it is our view that it would not get competed away and that our cash flow would benefit which would ultimately benefit the level of repurchases and dividends we could do with that cash flow.

Excellent. Thank you very much.

The bottom line, as Keith said, is it would be more money for dividends and repurchases. That was our last question. We would like to thank everyone for joining us on today's call, we appreciate it.

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 replay. Dial in details in the conference ID are contained in the Company's press release issued earlier today.