Robert Half 3Q16 Earnings Call Notes

Robert Half International (RHI) CEO Harold Messmer on Q3 2016 Results

The election is definitely an elephant in the room

“Yes. I’d just add that I spend a lot of time talking to executives of 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 in the horizon here soon after the election. But only time will tell, we do not know for sure. We just know it’s a very unusual circumstance.”

Keith Waddell

Didn’t get the lift we usually do in September and Oct

“Now, on the pace of deceleration, I’d say that July, 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 didn’t see the lift we typically get, instead, it was sequentially about flat. And then again, traditionally we get even more lift yet again in October and we didn’t see that lift either. So it’s essentially sequential flattening starting in July, rather than the lift we typically see in September and early October.”

Clients clearly remain cautious with little sense of urgency

“The issue around clients taking more time, I mean, clearly they remain cautious with little sense of urgency. It’s in part due to macro uncertainty, impart 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 [indiscernible] you have. They spend more time vetting. They want to do more interviews.”

We have orders, but it just takes longer to get them started

“Its not that we have an absent of orders, its more that 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’re on the perm side. So frankly, markets it’s a continuation of what we’ve talked about for two or three quarters, notwithstanding the easier comps.”

While we are forecasting a downtrend, it’s not as abrupt as what we’ve seen in the early parts of past down cycles

“But one thing we did look at, 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 look at bill rate trends, but we also looked at ours bill trends. And while they’ve gone slightly negative and are projected to go slightly negative in the fourth quarter, if you look back at 2001 and if you look at back at 2008, they fell much more abruptly than what’s implied in what we forecast. So, if you just look back at Robert Half volume data, unit data, what we saw in the third quarter, what we’re forecasting to the fourth quarter would not be near as abrupt as what we’ve seen in the past in the early parts of a down cycle.”

There has not been the abrupt negative turn in volume

“Well, this has been a more sluggish recovery than what we’ve 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 downturns, it drops and drops fairly abruptly. And again, I’m talking hours billed, I’m trying to take rates out of the equation. We have not – nor are we projecting that kind of abrupt negative turn in our volumes.”

Our growth is now under the most pressure in tech

“Well, first of all on Robert Half Technology, let’s not forget the year ago comps, we grew 15%. So we do have tough comps, we’re comparing to in tech. That said, the general trends that I described also apply to tech and as respects to tech development which is where we had seen most of our growth, that’s now where our growth is most under pressure.”

Saw more softness in the accounting operations which would be consistent with softness in macro

“Well, I’d say 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’s consistent that if you were to see softness in accounting due to macro conditions you’d see it in accounting operations.”

We don’t usually track the external indexes on employment

“So, we never track that closely to the external index as you talked about. Traditionally they’ve been very commercial staffing, light industrial production staffing centric. So sometimes we’re better, sometimes we’re worse, but rarely do we take that much stock in those external indexes.”

Tough to say if the election is affecting anything

“It’s hard to parse uncertainty between how much of its macro, how much of its – my own client financials aren’t where I wanted them to be, and therefore I am more cost conscience versus the part that’s election. The election uncertainty certainly didn’t help. How much it impacted negatively, its hard to know. It’s certainly part of the discussions that have taken place with our staff and our clients. But precisely what its impact is, it’s 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.”

Perm has performed poorly which isn’t surprising given GDP

“Well, given how anemic GDP growth has been, it doesn’t 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 don’t believe that we’ve lost any meaningful share of placements to whether you want to call it technology platforms, other new competitor”

If we get 2% GDP we’d see that as an improvement

“Well, the trends would have to turn more negative. We’re 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’re seeing. And here again, if the world believes we’re going to get 2% plus GDP in 2017, we would see that as an improvement not a decline.”