羅致恆富 (RHI) 2023 Q1 法說會逐字稿

Hello, and welcome to the Robert Half First Quarter 2023 Conference Call. Today's conference call is being recorded. (Operator Instructions)

Our hosts for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Michael Buckley, Chief Financial Officer.

Mr. Waddell, you may begin.

Thank you. Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that the comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as "as adjusted." Reconciliations and further explanations of these measures are included in the supplemental schedule to our earnings press release.

Our presentation of revenues and the related growth rates for each of our contract functional specializations includes intersegment revenues from services provided to Protiviti in connection with the company's blended talent solutions and consulting operations. This is how we measure and manage these businesses internally. The combined amount of intersegment revenues with Protiviti is also separately disclosed. For your convenience, our prepared remarks for today's call are available in the investor center of our website, roberthalf.com.

First quarter results were largely in line with expectations. Protiviti led the way with its 22nd consecutive quarter of year-over-year revenue growth. Talent solutions performed well against a backdrop of client hiring caution and tight labor markets. We remain very optimistic about our ability to navigate the uncertain global macroeconomic environment and are well positioned to benefit as the macro landscape improves.

For the first quarter of 2023, companywide revenues were $1.716 billion, down 5% from last year's first quarter on a reported basis and down 6% on an as-adjusted basis.

Net income per share in the first quarter was $1.14 compared to $1.52 in the first quarter 1 year ago.

Cash flow from operations during the quarter was $66 million. In March, we distributed a $0.48 per share cash dividend to our shareholders of record for a total cash outlay of $54 million. Our per share dividend growth was 11.7% annually since its inception in 2004. The March 2023 dividend was 11.6% higher than in 2022. We also acquired approximately 500,000 Robert Half shares during the quarter for $38 million. We have 13.3 million shares available for repurchase under our board-approved stock repurchase plan.

Return on invested capital for the company was 31% in the first quarter.

Now I'll turn it over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.716 billion in the first quarter.

On an as-adjusted basis, first quarter talent solutions revenues were down 9% year-over-year. U.S. talent solutions revenues were $944 million, down 11% from the prior year. Non-U.S. talent solutions revenues were $278 million, down 3% year-over-year on an as-adjusted basis. We have 317 talent solutions locations worldwide, including 86 locations in 18 countries outside of the United States.

In the first quarter, there were 63.3 billing days compared to 62.4 billing days in the same quarter 1 year ago. The second quarter of 2023 had 63.3 billing days compared to 63.4 billing days during the second quarter of 2022.

Currency exchange rate movements during the first quarter had the effect of decreasing reported year-over-year total revenues by $21 million -- $15 million for talent solutions and $6 million for Protiviti. This negatively impacted our year-over-year overall revenue growth rate by 1.2 percentage points -- 1.1 percentage points for talent solutions and 1.3 percentage points for Protiviti. Contract talent solutions bill rates for the quarter increased 6.9% compared to 1 year ago, adjusted for changes in the mix of revenues by functional specialization, currency and country. The rate for the fourth quarter was 7.8%.

Now let's take a closer look at the results for Protiviti. Global revenues in the first quarter were $494 million: $397 million of that is from business within the United States, and $97 million is from operations outside of the United States. On an as-adjusted basis, global first quarter Protiviti revenues were up 4% versus a year ago period, with U.S. Protiviti revenues up 6%, while non-U.S. Protiviti revenues were down 1%. Protiviti and its independently owned member firms serve clients through a network of 89 locations in 29 countries.

Turning now to gross margin. In contract talent solutions, first quarter gross margin was 39.8% of applicable revenues, compared to 40% of applicable revenues in the first quarter 1 year ago. Conversion revenues (or contract to hire) were 3.7% of revenues in the quarter compared to 4% of revenues in the quarter 1 year ago.

Our permanent placement revenues in the quarter were 12.8% of consolidated talent solutions revenues versus 13.9% in the same quarter 1 year ago. When combined with contract talent solutions gross margin, overall gross margin for talent solutions was 47.5%, compared to 48.3% of applicable revenues in the first quarter 1 year ago.

For Protiviti, gross margin was 22.2% of Protiviti revenues compared to 26.2% of Protiviti revenues 1 year ago. Adjusted for deferred compensation-related classification impacts, gross margin for Protiviti was 23.2% for the quarter just ended compared to 25.3% 1 year ago.

Enterprise selling, general and administrative costs, or SG&A, were 32.2% of global revenues in the first quarter compared to 28.3% in the same quarter 1 year ago. Adjusted for deferred compensation-related classification impact, enterprise SG&A costs were 30.9% for the quarter just ended compared to 29.8% 1 year ago.

Talent solutions SG&A costs were 39% of talent solutions revenue in the first quarter versus 33.6% in the first quarter of 2022. Adjusted for deferred compensation-related classification impacts, talent solutions SG&A costs were 37.1% for the quarter just ended compared to 35.6% 1 year ago.

The lower mix of permanent placement revenues this quarter versus 1 year ago had the effect of decreasing the quarter's adjusted SG&A ratio by 0.6 percentage points. The increase in talent solutions SG&A as a percent of revenues in the current period was driven primarily by internal staff compensation costs.

First quarter SG&A costs for Protiviti were 15.3% of Protiviti revenues compared to 13.3% of revenues in the year-ago period as operating expenditures returned to more normal pre-pandemic levels.

Operating income for the quarter was $138 million. Adjusted for deferred compensation-related classification impacts, combined segment income was $165 million in the first quarter. Combined segment margin was 9.6%. First quarter segment income from our talent solutions divisions was $126 million, with a segment margin of 10.3%. Segment income for Protiviti in the first quarter was $39 million, with a segment margin of 7.9%.

Our first quarter tax rate was 28%, up from 26% for the same quarter 1 year ago. The higher tax rate for 2023 can be primarily attributed to lower tax credits as well as lower stock compensation deductions due to the company's stock price.

At the end of the first quarter, accounts receivable were $1.009 billion, and implied days sales outstanding, or DSO, was 52.9 days.

Before we move to second quarter guidance, let's review some of the monthly revenue trends we saw in the first quarter and so far in April, all adjusted for currency and billing days. Contract talent solutions exited the first quarter with March revenues down 9% versus the prior year, compared to an 8% decrease for the full quarter. Revenues for the first 2 weeks of April were down 11% compared to the same period 1 year ago.

Permanent placement revenues in March were down 17% versus March of 2022. This compares to a 16% decrease for the full quarter. For the first 3 weeks of April, permanent placement revenues were down 13% compared to the same period in 2022. We provide this information so that you have insight into some of the trends we saw during the first quarter and into April. But as you know, these are very brief time periods, we caution against reading too much into them.

With that in mind, we offer the following second quarter guidance: Revenues, $1.655 billion to $1.735 billion; income per share, $1.09 to $1.19. Midpoint revenues of $1.695 billion are 9% lower than the same period in 2022 on an as-adjusted basis. The major financial assumptions underlying the midpoint of these estimates are as follows: Revenue growth year-over-year on an as-adjusted basis, talent solutions, down 11% to down 16%. Protiviti, up 2% to up 5%. Overall, down 7% to down 11%.

Gross margin percentage for contract talent, 39% to 41%; Protiviti, 24% to 26%; overall, 40% to 42%.

SG&A as a percentage of revenues, excluding deferred compensation classification impacts. Talent solutions, 37% to 39%; Protiviti, 14% to 16%; overall, 30% to 32%.

For segment income, talent solutions, 8% to 11%; Protiviti, 9% to 12%; overall, 8% to 11%.

For the tax rate, 28% to 29%. Shares outstanding, $106 million to $107 million.

2023 capital expenditures and capitalized computing costs, $90 million to [$110 million] (corrected by company after the call), with $20 million to $25 million in the second quarter. We limit our guidance to 1 quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings.

Now I'll turn the call back over to Keith.

Thank you, Mike. Global labor markets remain tight and clients continue to hire, albeit at a more measured pace, many are more selective and have added steps to their hiring processes, which impacts their decision time frames and lengthens our sales cycle. Talent shortages continue. While modestly off their peaks, job openings and quit rates in the United States remain well above historical levels, and the unemployment rate stands at 3.5%, a 50-year low. The National Federation of Independent Businesses, NFIB, recently reported that 90% of small business owners hiring or trying to hire, have few or no qualified applicants and 43% of all small business owners had job openings that cannot be filled.

Protiviti achieved another solid quarter of revenue growth led by the regulatory risk and compliance practice as well as technology consulting. Protiviti continues to have a very strong pipeline across an increasingly diverse offering of solutions.

We continue to invest in the tools we need to secure top talent for our clients by combining the power of our proven, artificial intelligence-based technologies with the skills, judgment and expertise of our specialized recruiting professionals. It is our unique and powerful combination of both that sets us part of the marketplace. We've weathered many economic cycles in the past, each time emerging to achieve higher peaks. The most recent includes the fastest recovery in our company's history following the COVID-19 downturn. We also benefit from Protiviti's greater resiliency stemming from its diversified solutions offerings. We remain committed to our time-tested corporate purpose to connect people to meaningful and exciting work and to provide clients with the talent and consulting expertise they need to confidently compete and grow. Our employees across the globe made possible a number of accolades in the first quarter.

We are proud to have earned 3 prestigious awards from Fortune -- the Inaugural America's Most Innovative Companies, the 100 Best Companies To Work for and for the 26th consecutive year, the Most Admired companies. We were also recognized by Forbes as a best employer diversity just yesterday.

Now Mike and I'd be happy to answer your questions. Please ask just 1 question and a single follow-up as needed. If there's time, we'll come back to you for additional questions.

(Operator Instructions) Our first question comes from the line of Andrew Steinerman with JPMorgan.

So when you guide second quarter Protiviti revenues to be up 2% to 5%, that's about the same as the first quarter that we just saw at 4%. My question is, what's holding back higher growth at Protiviti. Would you consider the economy weighing on Protiviti's growth here?

Well, I'd say, first of all, Protiviti is still growing. First quarter, frankly, it had a normal seasonal quarter. We had expected a somewhat better than normal seasonal quarter. For the second quarter, the expectation in part because they were a little light in the first quarter, for the second quarter, the expectation is a little below trend. So whereas the first quarter expectation was a little above trend, second quarter expectation, a little below trend. I'd say if you look across its solution areas, regulatory risk and compliance is going extremely well. If anything, they're more talent-constrained than they are demand-constrained. Technology consulting also going well. Internal audit was clearly the most impacted, yet still growing, but clients are a bit slower to sign contracts. They're delaying some projects. There was a very small impact from regional banks for information. About 10% to 12% of Protiviti's FSI practice is with regional banks, and FSI is about 40% of Protiviti's total. So translated only 4% or 5% of Protiviti revenues relate to regional banks, but there was a little softness there. And further, in Europe, there was a very large project that downsized quite abruptly that impacted their rates. The good news is they almost immediately replaced that with a project of an even larger size, which should be good for Q2. So Q2 guidance, I think, is a bit more conservative with Protiviti than was Q1 guidance. Internal audit is seeing some impact from client slowness/delays. That said, there's still an expectation that it grows both sequentially and year-on-year and that in regulatory compliance and in technology consulting, the growth be even stronger. So overall, we feel good about Protiviti's pipeline. We feel good about where it is, the fact that it's growing, notwithstanding the environment, and hopefully, Q2 guidance will end up being more conservative.

Your next question comes from the line of Mark Marcon with Baird.

Wondering if you can talk a little bit more about Protiviti with regards to the margin profile. Revenue was just slightly changed in Q1 relative to Q4 of last year, but the gross margin ended up declining sequentially as did the operating margin. I'm wondering to what extent was that just because you had bench strength and potentially some impacts from that European client that you mentioned. How should we think about the margins on a go-forward basis, not just for the second quarter, which you've given us guidance for. But just thinking about it, if the economy gets materially worse, and I fully recognize Protiviti grew during all of the COVID downturn, but if things get a little bit worse than expected, how should we think about the decremental margins there as you continue to invest in the long term?

Okay. So let's separate typical seasonal margin impacts. Seasonally, Q1 margins are always compressed to some degree because they've given annual raises January 1st, it takes some period of time to recover that. Seasonally, revenues and internal audit and Sarbanes-Oxley compliance are always lower because to some degree, they're crowded out by clients working on their external audits with their external auditors. So some seasonal compression is always the case on a sequential basis. It was a little larger this time because of staff utilization with revenues in internal audit being a bit softer than the aggressive forecast. That had a utilization impact. Further their staff attrition is running at about 1/2 of their normal levels, and that also pressures utilization. So the two together impacted gross margin, which in turn fell down to operating or segment income. Looking forward, we do expect just in the second quarter over 200 basis points of improvement on a sequential basis. They will adjust their contractor employee mix to help utilization. They will adjust the hiring rate for experienced hires because of the lower attrition. And from those they'll get better utilization. It still won't quite be what it was a year ago, but it will be 200 basis points plus what it was in the first quarter, and they expect they will continue to make progress on utilization/profitability for the rest of the year.

Now as to economic sensitivity, the good news is that regulatory risk and compliance has little to no economic sensitivity. And if anything, the current banking environment would tell you that there will be more rather than less regulation as we move forward. So I would argue the future is even brighter for that, technology consulting, cyber, data analytics, future still bright. Internal audit -- the growth will still be impacted by the discretion that clients have with respect to internal audit, including the ability to use some of their own staff rather than co-source to firms like Protiviti. But the expectation is that even internal audit will continue to grow, it will just be at a slower pace. So net-net, we're very pleased with Protiviti. As we said, we've almost had six years now of uninterrupted year-on-year revenue growth, and we're very optimistic about the future. Their pipeline is very good. It's just that the velocity of that pipeline has slowed a bit as clients take longer to decide, take longer to start projects. But again, it's slowing growth rather than creating negative growth.

That's great. And then can you talk a little bit about two dynamics that are occurring in the market. One, just implications with regards to generative AI and these large language modules. To what extent do you have an opportunity to take your location, what you've already done on AI and build that out in a practice from a consulting perspective within Protiviti. And then what sort of opportunities does some of the dislocations that are occurring at E&Y provide?

Okay. So on generative AI, so let's first deal with a lot of what you read in the press. Accounting jobs have been called out numerous times in the past for disruption. During our careers, we can think about the period of manual to spreadsheets. We can think about the payroll processing software, the accounting software that came to be, then there was RPA, then there was blockchain. And in each case, there was no net reduction in the number of jobs in the accounting. So notwithstanding what you read in the press, and in fact, today's press had a story, today's Wall Street Journal, World Economic Forum, said that while there might be 85 million jobs lost due to generative AI, there will be another 97 million new ones, which reinforces that. And while generative AI might streamline the automation of routine accounting tasks, virtually all companies already have some kind of automated accounting, which might lessen the upside from it. And while we're very optimistic about the potential for generative AI, including potential consulting services that you referenced, it's very early days. And while ChatGPT and others write very persuasively, they're often confidently wrong. And in accounting, the output has to be accurate, trustworthy, ultimately subject to audit, and so that also will impact the impact the generative AI has on accounting. So that's kind of dealing with the potential downside of generative AI. On the upside, as you say, there clearly will be skills and consulting opportunities with Protiviti clients' use of generative AI. I'd say, who heard about prompt engineers, as an example, as a skill set even a year ago that's talked about pretty routinely now. But clearly, there's some skill involved even today in how you use the consumer-friendly prompt that ChatGPT produces.

As to Ernst & Young, we talked before about if it went through, they don't have -- if their strongest external audit practice has never been financial services, and it would have been more concerning had they then been freed up by this separation to compete more in consulting, but they already compete in consulting because they don't have that extensive financial services, external audit practice. But since it didn't happen and because even while they thought it was going to happen, we already had interest from partners there that weren't necessarily pleased with how they thought they were going to end up, where they were going to end up or just the uncertainty of it. So I think there are some talent opportunities that we will have because it appears that it's not going to happen. But as you know, many Protiviti people are Arthur Anderson alums. They firsthand went through the Anderson Consulting, Accenture audit separation. So they knew from the beginning that there was some heavy lifting to be done, and it wasn't an easy thing to do.

Next question comes from the line of Tobey Sommer with Truist.

This is Jasper Bibb on for Tobey. I was just hoping you could give some additional color on the guidance for contract talent solutions from a practice group standpoint. I'm curious if finance or accounting or IT, which of the subsegments are trending more positively or maybe a bit weaker in the second quarter.

Well, from a trend standpoint, the absolute strongest thing we have going are what we call our full-time engagement professionals, where we employ full time and then we deploy on a contract basis. Our clients love the continuity. The clients love that we source them from the full-time employment pool. We have very, very strong double-digit growth in the first quarter from we shortcut FTAP, and our guidance for Q2 assumes that, that continues. We also had a very solid first quarter with management resources on the accounting finance side, the higher skilled levels there, positive growth. We expect that to continue into the second quarter. Our more staff level or operational positions in both F&A and in technology were more challenged during the first quarter, and we would expect that to continue into the second. As we've talked on prior calls, the administrative and customer support function is the most impacted by economic conditions, and our guidance would also assume that, that continues. So pretty much what you saw in the first quarter translated to the second, maybe a little softer because the macro has softened a little bit, but not dramatically.

I was hoping you could comment on how you're intending to manage internal capacity in light of what you're seeing on the demand side. Are there areas where you might be reducing staff levels today? And where are you investing most aggressively in internal growth?

As to internal capacity, we've talked many times about we manage headcount on an individual performance basis. We've continued to do that, and we do that quietly in the background. That said, relative to the second quarter of last year, we've already taken actions primarily headcount related, that reduced our SG&A spend by $40 million per quarter, again, on an individual performance basis. Our expectation would be we would continue that strategy into the third quarter. There's always a bit of a lag, taking that approach. There's probably a couple of pennies that we did not report in the first quarter applicable to the reductions I just talked about that would inure to the benefit of the second quarter. That said, we also have a higher tax rate in the second quarter that pretty much offsets that. So capacity management is very similar to the past, done individually. We've done very quietly in the background based on individual performance. As to where are we investing, it's the same places I just referred to, full-time engagement professionals, management resources are the hottest things we got going.

Your next question comes from the line of Heather Balsky with Bank of America.

I was hoping if you could touch on your public sector work and how that's trending right now in a tougher macro? Is there a potential to kind of benefit from that environment in that business. And I know you're pretty agnostic as to where those revenues come from, whether it's the staffing side of the business or the consulting. But I'm curious, when you look at sort of your revenue for the quarter, was there a material shift between the segments that may have played into Protiviti's sales growth?

So it's a bit ironic, we announced last quarter that we were no longer going to break out public sector. Well so lo and behold, we had the first sequential growth in public sector in several quarters -- this quarter. And that happened both in Protiviti and in talent solutions, and there was a big shift one to the other. But we were very encouraged that it appears we bottomed out the end of last year, and we've now sequentially, we had mid-single-digit sequential growth both in Protiviti and in talent solutions and public sector.

Next question comes from the line of George Tong with Goldman Sachs.

You mentioned that client hiring is moderating and sales cycles are elongating. Can you compare how the cycle is playing out compared to other cycles in Robert Half's history? What are some of the similarities and differences that you're seeing?

Well, I'd say that, the thing that's most different is the labor market's stronger in the early part of -- if we're in a cycle, the early part of this cycle. And so we certainly hadn't seen the kind of revenue impacts we would see if we were in a recession proper. And as you know, every day, that continues to be debated. National Association for Business Economics is still less than 50% to call for a recession in the next 12 months. So we certainly haven't seen full-on recession revenue impacts so far, and many believe we're not going to based on their forecast, but the jury is out on that. So I guess what is similar is that to the extent there is an impact, perm placement is always about double on a year-on-year basis, the impact that you see for the contract side of the business and that companies get more cautious sooner on permanent hiring than they do on contract hiring. And there's some shift that happens there, and we're seeing that as well. We saw that in the first quarter. Our guidance for the second quarter assumes the same.

Got it. That's helpful. And then in the past, you talked about taking out costs and there being a 1- to 2-quarter lag for the cost takeout can accurately reflect top-line trends and flow through to margins. Where are you in your journey of cost takeout, and how many additional heads or FTEs do you expect to rightsize based on the trends -- on the revenue trends that you're seeing today?

On the lag side, there was a couple of pennies of additional benefit not recorded in the first quarter because of that lag that would otherwise fall into the second quarter. But as I just said, that's somewhat offset by we've got a higher second quarter tax rate as well. As to calling out number of FTEs, we manage FTEs on an individual performance basis, and we don't have overall goals or targets as to headcounts, but we instead manage it just as I described. By and large, our headcounts tend to track pretty closely to top line. And so whatever your top-line assumptions are, maybe with a bit of a lag, our headcounts typically follow relatively closely. Also just said that we've taken $40 million out of our cost on a base of $490 million for talent solutions, if you compare to the second quarter of last year.

Your next question comes from the line of Manav Patnaik with Barclays.

Keith, I just wanted to follow up. Do you have any reasonable bank exposure outside of Protiviti? And since you were pretty much close to ground-zero there, I was just wondering if you add any insights in terms of the impact there? I know there's been press around small businesses, maybe finding it harder to get access to loans. And I don't know if any of your customer base is seeing that. So I'm just hoping you could give us some insights there.

Yes. I talked about earlier, Protiviti regional banking exposure, about 5% of the revenues, pretty insignificance. I'd say even less so on the talent solutions side, not material at all. And as far as impacts, I would say, rather than being impacted specifically, the regional banking crisis to me, it's just one more thing that clients worry about. It's just one more level of uncertainty on top of the cumulative other uncertainties that have been out there now for many, many months. So I wouldn't say it specifically has impacted either Protiviti or talent solutions, but it just generally adds to the overall level of macro uncertainty.

Okay. And to your comments on trying to be a bit more conservative, I think that was specific to Protiviti. But maybe just some color on how you're thinking about the rest of the businesses relative to maybe the last quarter that you gave guidance on.

I'd say relative to trend, and we look at the last several years trends by quarter. I'd say, relative to trend, our guidance is pretty consistent. Second quarter to first quarter on the talent solutions side. As is usually the case, our people in the field are more optimistic than that. We were a little above midpoint last quarter. And so we over discounted, and that doesn't surprise me. But relative to trend, we've applied similar discounts this quarter to what we did last quarter.

Your next question comes from the line of Stephanie Moore with Jefferies.

It looks like your international business is a bit stronger than what you're seeing in the U.S. Can you talk about maybe what markets or verticals or areas of your business where you're seeing the most strength?

Sure. The standout country, which has been the case for many, many quarters now is Germany. Germany did very well. Germany is projecting to continue to do well. Europe generally was more solid than the United States on the talent solutions side. On the Protiviti side, there was that one major project I talked about that's already been replaced. But generally speaking, Europe a little stronger across the board, particularly in Germany. U.K. also had a good quarter.

Great. And then just I wanted to touch a bit on bill rates. I think for the quarter, they came in a little bit lower than what we've seen in the last several quarters or so. So could you maybe talk a little bit about at what level should the company be able to kind of take an incremental spread on those bill rates as they ease or how you're thinking about even the market dynamics and your ability to do so?

And so as the growth in bill rates declines, we're currently -- we've come from 9-ish to high 6s, would not surprise us for that to go to the 3%, 4%, 5% range. Frankly, we don't see that being a margin-accretive trend it's pretty much been passed through. And given macro conditions, I wouldn't expect, so let's say it goes to 3%, I wouldn't expect that 3% that to be more margin accretive than the current 6.8% or 7%. It's pretty much a pass-through.

Your next question comes from the line of Kevin McVeigh with Credit Suisse.

Can you just, to follow up to that, what's the implied bill rate in the Q2 guidance percentage?

I'm not sure there's a specific number. I would argue that embedded in that would probably be something a little less than what we saw in this quarter, kind of along the trend line from the 9-ish we had 2 or 3 quarters ago. But again, not much impact to margin. And I would argue, and if you looked at our range for the first quarter just ended, our margins did very well, and our margins are doing very well. And one of the strongest things about what's going on now, which would also differ in part going back to the prior question about comparing it to prior downturns, our margins have held up beautifully in part because these full-time engagement professionals are actually margin accretive relative to core, because we've got a higher mix of higher skilled management resources which are also accretive to core. So margins are a good story. Margins are a strong story, and that was true for Q1, and that's expected to continue into Q2, but we are very pleased about our margins.

Kevin McVeigh Just on that point, can you just remind us to what's the mix of Protiviti today kind of fixed debt versus variable?

Well, fixed versus the contractor versus full time, they're in the 40-ish percent range of hours worked done by contractors versus full time. That's very much driven by the nature of their projects. Some projects are more susceptible to use of contractors, public sector being one of them. It also looks to how they're trying to manage their utilization levels. We would expect that 40% to come down somewhat as Protiviti tries to bring their utilization higher in part because of their lower attrition, in part because internal audit is growing at a slightly smaller rate than they had projected, but still strong. 40% is still a good number, or 30% would be a good number relative to our early expectations, but it's a very effective way for them to manage their utilization and therefore, their profitability. They do expect to be back to double-digit segment income in the second quarter, that's a great thing.

Next question comes from the line of Jeff Silber with BMO Capital Markets.

I know it's late. I'll just ask one. You talked a little bit about the regional bank crisis. I'm just curious from a potentially positive perspective, are you seeing any more interest in some of your risk consulting work because of what's been happening even beyond what you do in your financial services practice?

Well, we do have new opportunities that relate to that crisis. We never talk about specific clients, but there are new opportunities. I think the regulatory environment and FSI, particularly for the smaller-sized banks, if anything, it's going to get tougher, not easier. I think that will also be a new opportunity, and so it's not all negative as it relates to regional banks, and Protiviti's exposure to that was relatively limited to start with.

So operator, we are told that was the last question. So thank you, everyone, for joining us today. Thank you very much.

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 roberthalf.com. You can also log in to the conference call replay. Details are contained in the company's press release issued earlier today.