Harold M. Messmer, Jr. - CEO and Chairman M. Keith Waddell - CFO, Vice Chairman and President.

Mark S. Marcon - Robert W. Baird & Co. Inc. Andrew Steinerman - JPMorgan Jeffrey M. Silber - BMO Capital Markets Sara Gubins - Bank of America Merrill Lynch Timothy McHugh - William Blair & Company Paul Louis Ginocchio - Deutsche Bank Securities Inc.

Anj Singh - Credit Suisse Gary Bisbee - RBC Capital Market Tobey Sommer - SunTrust Robinson Humphrey Randy Reece - Avondale Partners George Tong - Piper Jaffray & Co..

Hello, and welcome to the Robert Half Fourth Quarter 2014 Conference 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..

Hello, everyone and thank you for your time today. As is our custom at the start of our call, I’d like to remind you that comments made on this call 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, but 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 we now publish the prepared remarks for this conference call at the same time we issue our quarterly earnings statement. You’ll find these remarks on the Robert Half website at roberthalf.com.

Just click on the Quarterly Conference Calls link from the home page of the Investor Center. Now let’s discuss the fourth quarter results. Fourth quarter revenues were $1.22 billion, up 13% from the fourth quarter of 2013. Income per share was $0.62, up 27% year-over-year.

Cash flow from operations was $83 million during the fourth quarter and capital expenditures were $27 million. We paid a cash dividend of $0.18 per share to stockholders of record on December 15, 2014 at a cost of $25 million. We also repurchased 800,000 Robert Half shares during the quarter at a cost of $46 million.

Approximately 4.8 million shares remain available for repurchase under our Board approved stock repurchase plan. Robert Half finished the year strongly with broad-based revenue expansion across our staffing and consulting businesses.

Fourth quarter 2014 revenues from staffing operations increased by 14% compared to the prior year adjusted for currency making this the fifth consecutive quarter in which growth rates have accelerated. Protiviti results also remained very strong with fourth quarter revenues increasing 22% on a constant currency basis over the same period in 2013.

While revenue gains were strongest in the United States our non-U.S. operations once again reported healthy year-over-year growth. This was Robert Half's 19th straight quarter of double digit net income and earnings per share percentage growth on a year-over-year basis. Unlevered return on equity remained robust at 34% in the fourth quarter.

Earnings per share of $2.26 for 2014 is the highest ever reported by the company. Now I’ll turn the call over to Keith for a more detailed review of our fourth quarter financial results..

Thank you Max. Companywide revenues were 1.22 billion in the fourth quarter of 2014. This is up 13% from the fourth quarter of 2013 on a reported basis and up 15% on a same day constant currency basis. Fourth quarter global staffing revenues were up 14% on a same day constant currency basis. U.S.

staffing revenues were 816 million in the fourth quarter, up 15% on a same day basis. Non-U.S. staffing revenues were $234 million, up 11% on a same day constant currency basis. We have 341 staffing locations worldwide, including 99 locations in 18 countries outside the U.S.

There were 61.7 billing days in the fourth quarter compared to 61.9 days in the fourth quarter of 2013. This had the effect of decreasing reported year-over-year staffing growth rates by 0.2%. The current quarter has 62 billing days compared to 62.4 days in the year ago first quarter.

Currency exchange rates had the effect of decreasing fourth quarter year-over-year staffing revenues by $18 million and depressing year-over-year reported staffing growth rates by 1.9%.

We provide a supplemental schedule with our earnings release that shows year-over-year revenue growth rates for our various staffing lines of business on a reported basis as well as on a same day constant currency basis. The schedule further divides the data between U.S. and non-U.S. operations.

You can find the schedule in today's press release and in the investor center of our website. This is a non-GAAP financial measure that provides information on certain revenue trends in our staffing operations.

Global revenues for Protiviti were $171 million in the fourth quarter with $142 million in revenues in the United States and $29 million in revenues outside the U.S. Global revenues for Protiviti were up 22% year-over-year on a same day constant currency basis with U.S. revenues up 27% and non-U.S. revenues up 5% from the prior year.

Protiviti and its independently owned member firms serve clients through a network of 74 locations in 25 countries. Gross margin in our temporary consulting staffing operations in the fourth quarter was 36.9% of applicable revenues. This is up 40 basis points from the same period one year ago.

The fourth quarters of 2014 and 2013 include workers compensation and other payroll-related credits of $2.4 million and $2.7 million respectively. Fourth quarter revenues for our permanent replacement operations were 9.2% of overall staffing revenues compared to 9.1% of staffing revenues in the fourth quarter of 2013.

Together with temporary and consulting gross margin overall staffing gross margin expanded by 40 basis points versus one year ago to 42.7%. Fourth quarter gross margin for Protiviti was $53 million or 30.7% of Protiviti revenues compared to $45 million or 31.8% of Protiviti revenues one year ago.

Staffing SG&A costs were 32% of staffing revenues in the fourth quarter versus 33% in last year’s fourth quarter. We ended 2014 with 11,200 full time employees in our staffing divisions, up 9% from the prior year.

SG&A cost for Protiviti were 18.3% of Protiviti revenues in the fourth quarter compared to 20.1% of Protiviti revenues reported this time last year. We ended 2014 with 3,300 full time Protiviti employees and contractors, up 5% from the prior year.

Operating income from our staffing division was $112 million in the fourth quarter, growing 28% over the prior year and resulting in an operating margin of 10.7%. Our temporary and consulting divisions reported $95 million in operating income, an increase of 26% over the prior year. This resulted in an operating margin of 9.9%.

Operating income for our permanent placement division was $17 million in the fourth quarter, up 36% from the prior year and producing an operating margin of 17.8%. Fourth quarter operating profit for Protiviti was $21 million, an increase of 29% from the prior year and producing an operating margin of 12.4%.

Our fourth quarter 2014 income tax rate increased to 37.0%, up from 35.6% in last year’s fourth quarter. This was primarily due to fewer available foreign tax benefits. Accounts receivable at the end of the fourth quarter were $658 million with implied day sales outstanding of 49 days. Now turning to guidance.

Before we move to first quarter guidance let’s review the monthly trends we saw as we moved through the fourth quarter of 2014 and so far in January. In the U.S., year-over-year growth rates for our temporary and consulting divisions were flat in October and in November and then accelerated in December.

Also in the U.S., year-over-year growth rates for our permanent placement divisions decelerated in October, accelerated in November and then decelerated in December. Outside the U.S., year-over-year temporary and consulting staffing growth rates were flat in October, accelerated in November and decelerated in December.

Permanent placement growth rates outside the U.S. decelerated in October, accelerated in November and then decelerated in December. For the first two weeks of January, revenues for our temporary and consulting operations were up 17% on a same day constant currency basis, compared to the same period last year, with U.S.

temporary and consulting revenues up 19% and non-U.S. temporary and consulting revenues up 11%. For the first three weeks of January, permanent placement revenues were up 19% on a same day constant currency basis, compared to the same period last year with U.S. perm revenues up 26% and non-U.S. revenues up 2%.

We provide this information with a caveat that it’s difficult to read a great deal under these trends given the short time periods they represent. The higher 2015 post quarter growth rates just noted include a benefit from the absence of harsh weather conditions experienced last year.

We estimate this increased our year-over-year growth rates by approximately 2 percentage points. We offer the following first quarter guidance; revenues, $1.195 billion to $1.245 billion; income per share $0.53 to $0.58. We limit our guidance to one quarter.

All estimates we provide on this call are subject to the risk mentioned in today's press release and in our SEC filings. Now I'll turn the call back over to Max. .

Thank you Keith. As previously noted we saw healthy demand across the board for our staffing and consulting services in the fourth quarter. The revenue growth was broad-based and extended to both our U.S. and non-U.S. operations. The U.S.

labor market has strengthened in recent months and skill shortages persist in professional disciplines such as accounting and information technology. We are seeing similar trends outside the United States although growth has been less robust.

Employers in the United States added nearly three million jobs over the course of 2014 making it the best year for job growth since 1999. Secular trends continue to shape the demand for interim talent. More and more companies are using temporary and consulting professionals as a permanent part of their human resources mix. In the U.S.

alone nearly 3 million people work on a temporary basis every day. The number of temporary workers as a percentage of the total U.S. workforce is also at an all-time high right now. We remain bullish about Protiviti as well as Keith noted global revenues for Protiviti were up 22% in the fourth quarter.

Protiviti has a stellar reputation in the marketplace and we are very pleased with how this business is performing. Protiviti service lines information technology consulting risk and compliance and internal audit among others. Looking at our business operations as a whole we are optimistic.

We believe Robert Half is well positioned to benefit in the current macro environment. We are making investments in people and infrastructure to support business expansion and we are extremely confident in the ability of our field and corporate leadership teams to grow the business. At this time we'll be happy to answer questions.

We would request that you please limit yourself to one question and a single follow up as needed. If time permits we will try to return to you later in the call if you have additional questions. Thank you. .

[Operator Instructions]. Your first question comes from the line of Mark Marcon from RW Baird. Your line is open. .

Good afternoon and congratulations on a great quarter and a great year. I have a question and a follow-up. I am wondering if you can address a couple of areas where the macro environment has been weaker or might seem to be tipping over, specifically what are you seeing on the continent as well as within the U.S.

within the oil patch, Texas et cetera? And then secondly how are you thinking about your expansion of your internal headcount relative to what we ended up seeing at the end of ’14. You had 5% growth in Protiviti headcount with really strong revenue growth and obviously you over indexed also in the other divisions.

So how are you thinking about that, how much capacity do you have? Thank you. .

Sure on the first question about continent, we had a very solid quarter in the international zone generally. On the continent we actually accelerated in Germany and in France. The UK stayed very strong which it has for many quarters.

It had tougher comparisons but generally speaking we were very pleased with our international operations, including the continent where not only did it not decelerate, the growth rates actually accelerated during the quarter and our outlook for the first quarter that we're in for international operations is solid as well.

As to the oil patch we did see some slowing during the fourth quarter, which is logical. That said that was more than offset by acceleration in other locations notably places like New York accelerated nicely.

So that taken together we're not overly concerned about the impact of oil prices specifically as it relates to Oklahoma, Texas, Calgary et cetera. On the headcount front we -- during the second half of 2014 we pretty aggressively added to heads, that included the fourth quarter just ended.

It is our plan to aggressively continue to add to heads, during at least the first quarter of 2015 and probably the first half of 2015 given the strong results we're seeing and given the outlook and the momentum that we're experiencing.

The relative to revenue growth on the staffing side for 2014, for the full year headcount growth lagged revenue growth by little bit. Protiviti is a little more nuanced in the U.S., the headcount growth and revenue growth are more closely aligned. Outside the U.S. we have been more aggressive cutting heads than what we've experienced with revenues.

So as to unused capacity while we do have unused capacity, given the growth we're experiencing we are planning to add aggressively to that capacity but not necessarily significantly faster than the revenue growth that we're seeing. .

Great. Thank you. Can you just say how much of that oil patch is -- what percentage of the U.S.

that comprises, I imagine it's relatively less than 20%?.

Well it's clearly less than that. I mean we never broken things out by state. But I generally feel that you can look at relative population. .

Sure..

And our relative revenues map pretty closely to that. .

Great. Thank you. .

It's not like that's the only thing going on in Texas either. So I wouldn't even take all of Texas and say well there is an oil patch issue there. Places like Dallas particularly, are much more diversified. There is a lot of small businesses there. Healthcare is quite strong.

Our people are optimistic that there are opportunities in the healthcare industry which will help offset some of the softness that's expected in oil and gas. .

Fully appreciate that. Thank you. .

Your next question comes from the line of Andrew Steinerman with JPMorgan. Your line is open. .

Hi there. I just wanted to ask Keith to go through the comparison of the fourth quarter EPS guide the $0.53 to $0.58.

The just reported fourth quarter $0.62 obviously I know there is a seasonal factor, there is an FX factor but if you could walk us through the $0.62 just reported to the range of $0.53 to $0.58, kind of how you came up with the range that would be helpful?.

Well so if we're talking fourth quarter actual versus first quarter guidance I think that's what your question is. .

Yes. .

So let’s kind of take a tour down the P&L. From a revenue standpoint, on a same day constant currency basis, at the midpoint we've dialed in a touch of additional acceleration. As you can see even adjusted for weather we started January very strongly, which we’re encouraged by.

We didn't dial that much acceleration in but we did dial in a little bit of acceleration.

Protiviti, given its 22% growth in the fourth quarter we dialed that back just a bit, in part because they had a couple of really good projects that are winding down a bit and in part because it's 22%, and in part because they've got to have comps but when you put the package together, revenues at the midpoint are still accelerating a point, a percentage point versus what we just reported.

On the gross margin side, the fourth quarter’s always noisy, not only in the fourth quarter do you have the workers comp true-ups that we talk about very specifically but we're also truing up estimates for state and federal unemployment taxes, for estimates on FICO for estimates of the temporaries that qualify for holiday and vacation pay.

So the fourth quarter standalone is always a bit noisy. That said year-over-year our temp gross margins did expand 40 basis points.

We do expect further year-over-year expansion of gross margins into the first quarter which is dialed into the guidance and that expansion is the typical some pay bill expansion, some relief from state unemployment taxes, conversions are up about 20 basis points year-over-year and we hope that trend continues.

So again on a year-over-year basis we do expect to see continuing gross margin expansion that we’ve seen for several quarters. SG&A, because of the investments we’re making in the headcount early in 2015 and remember early in 2014 we weren’t investing very aggressively in heads.

So year-over-year as a percent of revenue, 2015 ought to look a lot like 2014, if we’re talking at the midpoint. Protiviti year-over-year we do expect margin expansion sequentially.

Protiviti always is more challenged in the first quarter than the prior fourth that will be particularly so sequentially, this year because of the big projects they had in the fourth quarter. The other comments I would make that the tax rate for 2015 we expect to be higher, more in the 39% range.

The foreign tax benefits that we benefited from the last couple of years have progressively gotten smaller and smaller and smaller and will do so again in 2015. Maybe that’s more than you wanted to hear but that pretty much went from top to bottom. .

I also asked about FX. .

FX, so during the quarter just ended it negatively impacted our growth rates by two percentage points. In the first quarter we expect our growth rates to be negatively impacted by three percentage points or about $30 million on a year-over-year basis.

From an EPS standpoint that converts to about a $0.01 per share and that’s been reflected in the guidance that we gave. So while there is some drag from currency it’s certainly more at the revenue line than it is at the EPS line. .

Perfect, thank you. .

Your next question comes from the line of Jeff Silber with BMO Capital Markets. Please go ahead. .

I am sorry, just to go back on some of the investing in people that you’ve done, is it possible to get an understanding which specific verticals did you do that investment in, was there one more than others?.

I’d say during 2014 Robert Half technology probably got more than its share. We got broader during the second half of 2014. For 2015 it will be more broad-based than 2014.

That said, our management resources division and our perm placement division seem to be doing particularly well and if anything we’ll investing more heads there, than we will the other. But overall it will be more broad based than it was in 2014. .

Okay, great that’s helpful. And then just one -- just a few numbers questions, going back to your international exposure, can you just remind us which countries you have exposure to? And also what you’re expecting for capital expenditures in 2015? Thanks. .

Sure, so overall international is about 24% of revenues. 12% of that’s Europe; 4% of that’s the UK, 4% is Canada and the balance of 4% is Asia Pacific. So Europe broadly defined is 16% of the total; Europe the continent is split pretty equally between Germany, Belgium and France. .

And I’m sorry, CapEx for the year?.

CapEx so we ended 2014 at $62 million. We do plan to dial that up some in 2015. The range we would give would be between $70 million and $80 million. We’ve got more lease expirations falling in 2015 which will require more tenant improvement dollars.

Plus we’re continuing to spin money and make investments in internal IT initiatives, both from the standpoint of building tools for our recruiters and sales people and to improve the client and talent [ph] experience on our website and across devices including mobile. .

Okay, great. Thanks so much. .

Your next question comes from the line of Sara Gubins with Bank of America. Your line is open..

Hi, thanks good afternoon. I was hoping to ask some questions about gross margins. Protiviti gross margins were down year-over-year. You talked last quarter about making some investments in hires, particularly at the Managing Director level. So that might have been impacting your operating margins.

But can you just talk in general about what you are seeing in pricing in Protiviti, kind of the general cross trends both at the gross margin and then the operating margin level?.

Well so first of all let me say that we were elated that we almost for our full year got to double-digit margin for Protiviti. We got to 9.7%. We have talked now for a couple of years that our objective was to get to double digit operating margins at Protiviti. We have certainly gotten there on a quarterly basis.

For the fourth quarter we were above 12% in Protiviti, again for the full year just under 10%. It would be our hope in 2015 that we get over 10% on a full year basis.

When we focus just on the gross margin, you are correct there was a little contraction in the gross margin given Protiviti’s revenue growth rates, which have been essentially the highest in the company now for several quarters.

They are making the most people investments and their people investments tend to be higher cost people investments with Managing Directors. We continue to make those type of investments and it’s a trade-off we are happy to continue to make given the expanding operating margins and the expectation of that continued expansion..

Great, thanks. And then there are number of components that have been helping drive gross margin improvement in staffing, the pay spreads and some conversion et cetera. Could you talk about the pay spread and then also just where do you see the most potential from the various drivers going forward? Thanks..

Sure. So on a year-over-year basis for the fourth quarter our spreads were pretty much level with the prior year. Conversions were up roughly 20 basis points versus the prior year but still on the low end of the 3% to 5% of revenue range.

So it is our hope that they are still a hundredish basis points of upside with conversions to get back to more normal cycle, 4% of revenue, much less 5% of revenue which we have seen in prior cycles. The payroll tax and fringe area year-over-year is also down about 20 basis points.

That’s primarily less state unemployment tax as we talked about, as the cycle improves there is lag as to when you see the benefit on the state unemployment taxes, which typically are a three year moving average calculation at the state.

Our expectation that moving into ’15 we will continue to see some further improvement in state unemployment taxes, that 20 basis points to 30 basis points would be our expectation over the next two to three years, how quickly we get there. In part it will be a function of how robust the recovery is.

We are still bullish on gross margins as I said earlier. We expect and at our midpoint guidance have dialed in further year-over-year expansion of temp gross margins in frankly each of the three elements that you described..

Great, thank you..

Your question comes from the line of Tim McHugh with William Blair & Company. Please go ahead..

Hi, yes, thanks. When we talk about gross margin you didn’t mention the healthcare cost of fully adopting healthcare reform.

It is just not noticeable at this point or what type of, as we -- not even just first quarter but 2015 and I guess ‘16ish as to kind of have that fully rolled out?.

So we have gone through an open enrollment period where all of the temporaries that qualified based on their 2,000 performance that met the threshold were offered coverage and the sign-up rates we got, were if anything somewhat less than we had modeled. What you don’t know is what the cost per person is going to be.

So based on everything we know what we modeled is more than adequate and that additional cost was a single, a small single-digit percentage that we can pass through. But no surprises there based on actually going through an open enrolment period using actual numbers based on 2014 experience..

Okay, great. As we think about productivity for next year, is opportunity still on the international margins or if you cut enough there that, that profitability is where you at. I guess what’s the natural like, I imagine U.S.

margins are pretty strong?.

Well, I think the next lag is two-fold. We not think we peaked out with our U.S. margins and we think there is an opportunity to expand the gross margins at least a 100 basis points from where we are today to the extent, the relative impact of the investments get smaller as it is gets larger.

Further there has been dilution from the international margins. That dilution has declined and we do expect it to continue to decline. We’ve done much better in Europe Asia is more of our focused area. It has been for several quarters it will continue to be but we far from believe we’ve gotten to peak margins in Protiviti U.S.

and then to the extent there is less dilution outside the U.S. that’s additive as well. .

One follow up is for Protiviti, the large projects that are ending, what type of projects are they and just training to gauge the potential for other large that come on..

Well, it’s a nuanced in that we have couple of existing accounts, long-term relationships where they had some special project requirements in the fourth quarter. We continue with those accounts, they continue to be sizable accounts. It’s just that they had a couple of special projects that were concentrated in the quarter.

So I don’t want to make too big a deal about it and it’s nothing like some of the other big projects that we’ve talked about in years past as it relates to the staffing side but they did spike our growth rates in the fourth quarter beyond what we expected and we would expect the growth in the first quarter to moderate but let’s be real, moderate at really high double digit rates, which we are very pleased about.

So there is no theme there that’s you need to worry, you have to extract or extrapolate across other pieces of that business..

Okay, thank you. .

Your next question comes from the line of Paul Ginocchio with Deutsche Bank. Your line is open..

Thank you. Just want to follow up on Tim’s last question.

Is that the small single digit increases, are your clients pushing back on that at all? Are they happy with that and then what do you think that is relative to what maybe some of your competitors are, the player or the other players in the market are doing, that seem about right? And then just quick follow up on temp to perm conversions, where are we in that 3% to 5% range, can you tell us, thanks?.

Well, clients are never happy when you ask for more and clients always push back somewhat so I’d say we have mixed results in passing through on new assignment, the impact of ACA, but again because the impact isn’t that large and frankly its smaller than increases in state unemployment taxes we had to deal within year pass it’s not just a huge, huge matter which is why we are cautiously optimistic we will be able to digest that and without much notice to the overall gross margin rate, temp to perm was still at the lower end of the 3% to 5% I think, we highlighted 3.1% for two to three quarters in a row.

So there is not a lot of movement there. It’s better than it was a year ago and it would be our expectation and history would say that it will get better from here and to be conservative we are saying let’s take half of the upside that we might typically see and that’s still 100 basis points. .

Great and you were kind enough to mention office team benefiting a little bit from more admin around ACA.

You are seeing any other demand drivers from companies around 100 employees?.

Yeah, others than the open enrollment impact of ACA across clients generally we’ve seen very little benefit from under 50 to around 100 and there just hasn’t been much benefit from that. So the good news is that if there is anything it’s ahead of us and we don’t have any of that at risk. .

Great, thank you very much. .

Your next question comes from the line of Anj Singh with Credit Suisse. Your line is open. .

Hi, thanks for taking my questions.

My first one would you say that the pickup in growth rates in Tech have been mostly due to your headcount additions or are there any other drivers besides the strong end market that you care to call out?.

Well, I would say because of strong demand we’ve added recruiters and because we’ve added recruiters we have more capacity to recruit to fill that demand. So clearly they are related but in the tech development area, app developers, web developers we called of that before and this quarter was a continuation of what we’ve seen in the past.

Except this quarter was even better and that’s pretty much through across our lines of business. .

Got it and if I got it correctly I think there was some slowdown in the perm growth internationally in the first three weeks.

I realize it’s a very small sample but is there anything that you attribute that slowdown in growth to, is there anything that you can call out in these early days?.

As I said before and having done this for a long, long time, the early quarter start in perm isn’t very well correlated with how we do for the full quarter and that always been true. It’s always been more volatile and it’s particularly true in perm. We started disclosing that information, it’s more meaningful in temp.

So it was easier to continue it than to discontinue it. But that said -- it’s we’ve disclosed it forever and you can prove to yourself that’s not very correlative [ph]. .

Understood, one final one and I know you guys said that there is a positive impact from the comp due to the weather conditions last year, wondering if there’s anything from the weather impact from the recent blizzard in the Northeast or was that really insignificant?.

Well there’ll be an impact. So remember for the full quarter a year ago there was about 1% negative impact. So we have added as a cushion if you will for first quarter 2015 impacts, of which this latest Northeastern storm made a dip in. So did it have an impact, yes, did it have an impact to the extent of the prior year, no.

But the full impact of even a prior year [ph] on a full quarter basis only impacted our growth rates by one percentage point. .

Understood, thanks for your help. .

Your next question comes from the line of Gary Bisbee with RBC Capital Markets. Your line is open. .

Hi guys, good afternoon. Just looking back at the history, it seems like in the past few employment cycles, in the second half of the up cycle the perm business has frequently accelerated to maybe closer to twice the growth rate of the temp.

I know it’s growing faster and it’s been really well but anything that you see that’s different this cycle or that feels like that same pattern could happen. How are we thinking about it over the next year or whatever relatively you have seen in the past? Thanks. .

Well, because perm falls more in a downturn it accelerates more than an up cycle. I would say the last several quarters perm is feeling pretty classic, relative to history.

Candidates are getting tighter, candidates are getting multiple offers, candidates are getting counter offered by their existing employer, and clients are beginning to take their second choice when their first choice takes another position somewhere else, without starting to search over again, all of those things are very classic science, that the labor markets are heating up, that candidates are getting tighter, that a larger and larger premium is placed by our clients on recruiting of candidates, which is our strong suite and our sweet spot.

So it feels very classic and we would expect acceleration, and as I said earlier we're going to invest disproportionally in headcount in perm and in management resources. .

Okay and then just a follow-up, Protiviti’s obviously been exceptionally strong, really for two years now.

Looking back on that period what's been more important in terms of driving that, has it been expanding the areas of focus you work on or is it really just rising demand everywhere and how much -- is it the market versus your execution and hires?.

Well, I'd say there are three principle demand drivers. There is internal audit, where the PCA will be insisting on more work, more documentation by the outside audit firms which is trickled down to internal audit, has been very helpful.

With the restricting of the IPO market, there is a lot of pre-IPO companies that have to get their controls in order. That's benefited internal audio with Protiviti.

In the financial services arena risk and compliance, anti-money laundering, the regulatory actions that typically follow with some kind of remediation and monitoring have benefited Protiviti. And then in the IT space, IT controls, IT security are pretty much top of line at most companies.

So the combination of more internal audit demand, more financial services risk in regulatory demand and in the IT controls and security area, those three things have all been strong and they've all been strong for a couple of years.

They were all strong in the quarter just ended and they're all expected to be strong in the first quarter that we're in. .

Great, thank you. .

Your next question comes from the line of Tobey Sommer with SunTrust. Your line is open. .

Thank you. I was wondering if you could give us the build rates in the quarter and maybe given the fact that you're hiring quite a bit, where did you think in this kind of context particularly U.S. build rate growth could go in 2015? Thanks. .

So build rates in the quarter adjusted for currency were up 3.5% which is pretty consistent with what it's been, maybe a touch better than the last couple of quarters. As to where it might go usually in the middle, the middle robust part of the cycle you see 5%, 6%, 7% build rate growth. We haven't seen those rates.

If you look back to history to say what do you typically see, you typically see those and there been, as everyone knows, tons, tons and tons tons written about wage inflation, the absence of wage inflation, whether this cycle is different, whether the baby boom or retirement aging demographics, labor force participation, you can say it a 1000 ways, there are a lot of theories out there, about whether this one is going to be different.

But it's feeling more classic than not and that would say, rather than mid threes you're headed to mid-fives or sixes and whether that's a 2015 thing or 2016 thing your guess is as good as ours. .

Thank you very much. .

Your next question comes from the line of [indiscernible] with Barclays. Please go ahead..

Hi, this is Ryan filling in for Munaf [ph].

A lot of my questions have been answered but I've heard you say classic a few times and obviously the jobless claims today and just the temp penetration rate reaching new highs, I was wondering you could just kind a give some sense on the temp penetration rate and just kind of where you see upside to there and just kind of the relative to prior cycles.

.

We've talked about for some time in the early part of the cycle we benefited primarily from a secular shift to using more temporaries. Those jobs that were created were about three times more temporary in it, than in prior cycles, I think it's 9% of the jobs created in this cycle have been jobs, that’s typically 2% to 3%.

So until a few quarters ago we pretty much benefited exclusively from secular growth because there hadn’t been much cyclical growth.

In the last two or three quarter we’ve clearly seen the labor markets improve, our middle market clients have more processing level demand, which ties very directly to the health of their own businesses, such that now we see the more typical cyclical demand starting to kick in as well.

So we believe given that the temp penetration rates are already at all-time highs that’s pretty much happened in the absence of much cyclical improvement and therefore we would believe and expect that those penetration rates go higher.

And the other thing as you grow jobless claims those also are coming down, not in a straight line but showing improvement which is also a classic sign that the labor markets are improving..

Great, thanks a lot..

Your next question comes from the line of Randy Reece with Avondale Partners. Your line is open..

Good afternoon.

Did you say that Protiviti grew its internal and contractor headcount 5% year-over-year?.

We did. We said that it’s a tale of two cities and if you guys split U.S. and non-U.S. and U.S. the headcount grew more in line with revenue growth and the disparity is more on the non-U.S. where we reduced headcount yet the revenue still grew a bit. .

So that 40% increase in operating profit you had in Protiviti would be a pretty tough comp for ’15, is that correct?.

It would be but they have had tough comps now for a while. I mean they’ve done well for two years. So they’ve already had to anniversary some tough comps. Now clearly they get even tougher.

But that said we continue to make headcount investments, the growth rates have stayed nicely in the mid-double digits and our expectation is that, that would continue and while you not might see 40% year-over-year growth you are going to see year-over-year growth that should exceed top line growth and therefore get their full year operating margins above 10%, which is what we’ve been shooting for now for a couple of years.

.

So when I look at the fourth quarter growth number for Protiviti in the U.S. it’s a bit of a weaker comp but it is still pretty strong.

What is the strength concentrated in if you just were to normalize it?.

It’s actually pretty balanced across the three areas that we’ve talked about it; internal audit, financial services, risk and compliance, IT, controls and security. In the fourth quarter we had a couple of large projects from existing clients that spiked their growth rate somewhat but even in the absence of that it did great..

Very good, thank you very much. .

The final question comes from the line of George Tong with Piper Jaffray. Your line is open. .

Hi, I would like to dig in more on gross margins on the temp side. Where would U.S.

wage growth need to accelerate to for bill paid spread to show the kind of gross margin improvement you are targeting in the near and intermediate term?.

Well, if we are talking U.S. wage growth from a macro standpoint there is too many moving parts there that I can figure out. But as we’ve just talked about we’ve been seeing mid-3% wage growth for the last few quarters, typically as labor markets improve that, would go to mid-5%, mid-6% wage growth.

We’ve expanded our spreads to some degree already even in an environment where we are talking mid-3% growth. We would hope we can do even better than that as we move to 4% and 5% and 6% growth. Again we deal primarily with professional level college educated people.

The unemployment rate for those people is about half what it is overall and so as those labor markets tighten we will have to pay those people more. We are already seeing that, which then gives us an opportunity to pass that on with a little more spread. .

Right, and I would like to get your views on the sort of timing perspective for gross margins, how far do you think you are from peak? Just your view and how do you bridge there given the three buckets you have already outlined in terms of sources of gross margin expansion?.

Well so we are about 30 basis points below peak, if you look at the most recent quarter, 30, 36.9.

I think we peaked out at least on a full year at 37.2 So we are about 30 basis points below and between pay/bill spread expansion, less state unemployment cost and taking temp to perm conversions more to the midpoint of the range, we would be very disappointed if we don’t make new highs in gross margin in this expansion, in this cycle..

And where you do think those new highs can possibly get to, based on the trends you are currently seeing?.

We are not going to speculate but we are very pleased with where we have gotten gross margins to this point in this cycle and we are quite optimistic that we have the momentum that we can take those higher..

Great, thank you..

Thank you very much. That was our last question. We appreciate you joining us on today’s call..

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 call replay. Dial-in details and the conference ID are contained in the company’s press release issued earlier today..