Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Protiviti posted strong results, led by US growth in revenues and segment income both on a sequential and year-on-year basis.
- Cash flow from operations during the quarter was $142 million.
- The company distributed a $0.53 per share cash dividend, which has grown 11.5% annually since its inception in 2004.
- Robert Half Inc (RHI, Financial) acquired 900,000 shares during the quarter for $60 million.
- Return on invested capital for the company was 18% in the second quarter.
Negative Points
- Company-wide revenues were $1.473 billion, down 10% from last year's second quarter.
- Net income per share in the second quarter was $0.66 compared to $1 in the second quarter one year ago.
- Client and candidate caution continues to impact hiring activity and new project starts due to macroeconomic and interest rate uncertainty.
- Second-quarter talent solutions revenues were down 14% year over year.
- Enterprise SG&A costs were 34% of global revenues in the second quarter compared to 33.1% in the same quarter one year ago.
Q & A Highlights
Q: Given the elevated job openings but soft trends in temp and perm hiring, do you think companies over-hired post-COVID and are now hesitant to use flexible staffing?
A: Early post-COVID, over-hiring was a factor, but we're now eight quarters into down sequential quarters, indicating that this has largely played out. We see signs of project deferrals and clients using contractors as a variable cost lever. Deferred demand is indicative of future demand, and as business confidence improves, we expect hiring urgency to return.
Q: Can you discuss the productivity improvements within the US and the impact of transitioning Protiviti's Mainland China operations?
A: Protiviti's solution strength was balanced across its four major areas, with sequential growth in each. The impact of transitioning Mainland China operations is small, with annual revenues less than $10 million. The EPS impact is due to the conversion from owned to member firm, but the revenue impact is minimal.
Q: Could you provide more color on the consulting market and Protiviti's performance?
A: The consulting market remains competitive, with some firms having excess capacity and aggressive pricing. Protiviti has managed through this well by optimizing utilization and leveraging contractors. Protiviti's pipeline is strong, and they are gaining market share, particularly in financial services and internal audit.
Q: How are you managing recruiter levels and what are clients saying about their hiring needs?
A: We manage headcount through performance management, retaining proven performers despite lower productivity. We estimate we could grow revenue by 20-30% without adding heads. Clients are deferring projects, indicating future demand. As business confidence improves, we expect increased hiring and project demand.
Q: Amidst the current economic backdrop, how are you managing costs and positioning for recovery?
A: Our largest cost is headcount, and we continue to manage it through performance management. We reduced SG&A by $32 million year-over-year in the second quarter. We are committed to retaining proven performers to have capacity for growth when the market recovers.
Q: Can you explain the dynamics of contract talent solution margins and the impact of pricing competition?
A: Contract talent solution margins were down due to conversions and payroll fringes. Negative leverage on fixed SG&A costs also impacted margins. Pricing competition is localized and Protiviti manages through it by optimizing utilization and leveraging contractors.
Q: How are you seeing trends in temp staffing versus perm placement in the current macro environment?
A: Both temp and perm placement are highly correlated, with perm placement being more volatile. In this staffing downturn, perm placement is down less than in previous downturns, indicating a more benign impact. Temp staffing is also down but not as significantly.
Q: What are the trends in different verticals and markets, particularly in Europe?
A: There has been no notable change in our international operations, including Europe. Sequential performance is similar across practice groups, and year-over-year differences are more about comparables than current performance. We see some strength in enterprise clients, which generally leads SMB performance.
Q: Can you discuss the impact of blended solutions with Protiviti and the economic effects?
A: Blended solutions with Protiviti have grown sequentially for three quarters. The gross margins are similar whether we place candidates directly or through Protiviti. Going through Protiviti allows us to achieve SMB gross margins for enterprise accounts.
Q: How do you see the impact of AI on your business strategy and results?
A: Our clients want both AI and recruiter capabilities. We provide a seamless connection between AI and recruiters, allowing clients to choose their preferred approach. This strategy will have a broad impact across our business lines, enhancing our ability to meet client needs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
