Robert Half 1Q16 Earnings Call Notes

Max Messmer

The sales cycle has elongated as customers uncertain

” clearly we see clients remaining cautious due to the uncertain macro environment. That lengthens the sale cycle. Further as we talked about before, candidates have many options with their current employer, with other employers. That makes them harder to close. That also lengthens the sale cycle. So generally speaking across our divisions, less so with the accounting and finance ones, but the sale cycle has elongated which has impacted our growth rates and is expected to impact our growth rates into the second quarter.”

We haven’t seen the white hot demand that usually happens at the top of the cycle

“Compared to prior cycles, it usually gets white hot for candidates such that clients will very quickly take any candidate that’s close and the current environment is no where near that environment, so to the extent in prior cycles, late stage has been indicated by this white hot hyper demand where permanent placement grows at very high double-digit rates. That hasn’t happened and notwithstanding the fact that we’re in year seven or whatever of this cycle, we still don’t see that type of hyper demand that we would typically see late cycle, but instead we continue to slug it out in this relatively sluggish macro environment. We saw that again in the first quarter. Our guidance anticipates more of same in the second quarter.”

Deceleration in tech and perm, but not unexpected

“With respect to RH Tech and Perm I would say those trends were particularly evident in both of those divisions. While it’s true that Tech’s year-over-year growth rate slowed from 10% to 6%, if you look at the year-ago comps they got harder from 12% to 19%. So given the tougher comps, the deceleration in the growth wasn’t totally unexpected. Perm did fine in the beginning of the quarter, as we said. It decelerated late. That deceleration continued into the first part of this quarter.”

everyone is in a little bit state of limbo here

“So I think everyone is in a little bit state of limbo here, waiting to see what the macro economy is going to do. From our standpoint, it certainly doesn’t feel late cycle, let’s put it that way. We’ve had elongated sales cycles in the past and my guess this one will change also and go to a more traditional format depending on which way the economy breaks in the months ahead.”

Keith Waddell

Germany is strongest non-US operation

Sure. The – once again Germany by leaps and bounds was our strongest non-U.S. operation. It performed just wonderfully on very tough, tough comps a year ago. It’s where we’ve invested the most head count. It’s where we focused the most effort. And we’re getting a very nice return on our German investment. The UK and Belgium were also very solid. On the flip side we had challenges in Canada and Australia, which are minerals mining related and France continues to struggle a little bit as well, but Germany easily number one, UK Belgium solid, the other three trailing behind a bit.

Tech softness tough comps

“Well, clearly tougher comps was a big part of the story, given how much tougher the comps got. But this whole this phenomena of the sales cycle elongating certainly applies to Tech. We have had clients take longer to pull the trigger; if you want to call that softening that would be fair. Candidates are still in tight supply, particularly the mid to higher level candidates. It does take longer to close them. That impacts growth rates as well. So we would characterize as the market for Tech as firm, as strong, but it’s taking us longer to get deals closed and therefore our growth rates are slowing, exacerbated by the toughness of the comps.”

Not yet at peak in temp gross margins

“Well, we do not believe we’re at or near peak on Temp gross margins. We do not believe 3.2% of revenue is peak conversions when the traditional range is 3% to 5%, midpoint being 4%; we just do not accept that 3.2% is as good as it gets. And whatever more we get above that is pure margin. ”

Longest we’ve ever seen a sluggish cycle last

“we certainly haven’t seen a cycle that’s lasted this long, that’s had sluggish 2% and less growth rates economically for this long. And so you’ve got this odd situation where clients are still cautious because they’re worried about the macro. But because the lapse time has been so long on the candidate side, they have a lot of choices. And so you get both sides of the equation dragging their feet to our detriment to some degree.”