Harold Messmer - Chairman & Chief Executive Officer Keith Waddell - Vice Chairman, President & Chief Financial Officer.

Mark Marcon - R.W. Baird Andrew Steinerman - JPMorgan Tim McHugh - William Blair Jeff Silber - BMO Capital Markets Anj Singh - Credit Suisse Kevin McVeigh - Deutsche Bank Gary Bisbee - RBC Capital Markets Randy Reece - Avondale Partners Kwan Kim - SunTrust George Tong - Piper Jaffray Hamzah Mazari - Macquarie Capital Ryan Leonard - Barclays.

Hello and welcome to the Robert Half Third Quarter 2016 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..

Thank you, and good afternoon, everyone. Thank you for joining us. Before we get started, I would like to remind everyone there are comments on the call today that 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 expressions. We believe these remarks to be reasonable.

However, 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 Form 8-K.

We assume no obligation to update the statements made on today’s call. For your convenience, our prepared remarks also are available at our website at www.roberthalf.com. From the About Us tab, go to our Investor Center, where you will find the Quarterly Conference Calls link. Now let's discuss Robert Half's third quarter 2016 results.

Revenues for the quarter were $1.339 billion, up 2% from the third quarter one year ago. Income per share was $0.71 compared to $0.73 on last year's third quarter. Cash flow from operations was $153 million and capital expenditures were $20 million in the third quarter.

We paid our stockholders a quarterly cash dividend of $0.22 per share on September 15th for a total cash outlay of $28 million. We also repurchased 1.2 million Robert Half shares during the quarter at a cost of $46 million. We have 7.5 million shares still available for repurchase under our board authorized stock repurchase plan.

We saw solid demand in the third quarter, particularly for our accounting and finance related professional staffing and consulting services. Our Accountemps and Robert Half Management Resources, Staffing Divisions and Protiviti, reported the highest year-over-year revenue gains. Our international operations also posted strong results.

Unlevered return on equity for the company remains strong at 33%. I'll turn the call over to Keith now for a closer look at our third quarter results..

Thank you, as Max mentioned, global revenues were $1.339 billion in the third quarter, this is up 2% from the third quarter one year ago on both a reported and a same day constant currency basis. Let's break this out between our staffing business and Protiviti.

Global staffing revenues were up 1% in the third quarter on a same day constant currency basis from one year ago. US staffing revenues were $890 million, roughly flat with last year, and non-US staffing revenues were $231 million, up 7% when adjusted for billing days and exchange rates.

We have 326 staffing locations worldwide, including 84 locations in 17 countries outside the United States. The third quarter had 64.1 billing days, compared to 64.2 days in last year's third quarter. The fourth quarter has 61.4 billing days, compared to 62.3 days in the fourth quarter of 2015.

In the third quarter, currency exchange rates had the effect of decreasing reported year-over-year staffing revenues by $3 million, exchange rates decreased year-over-year reported staffing growth rates by 0.3%.

Third quarter global revenues for Protiviti were $217 million, including $183 million in the United States and $34 million outside of the US. Overall revenues for Protiviti were up 8% from one year ago on a same day constant currency basis, US revenues were up 6% and non-US revenues were up 17% from last year's third quarter.

Exchange rates had the effect of decreasing year-over-year Protiviti revenues by 300,000 in the third quarter and decreasing the year-over-year reported growth rate by 0.2%. Protiviti and its independently owned member firms serve clients through a network of 75 locations in 25 countries.

Along with our earnings release today, you'll find a supplemental schedule showing year-over-year revenue growth rates on both a reported and same day constant currency basis. This data is further broken out by our US and non-US operations. This is a non-GAAP measure we offer to provide insight into certain revenue trends in our operations.

Gross margins in our temporary and consulting staffing operations was 37.4% of applicable revenues in the third quarter. This is a 10 basis point improvement from the same period one year ago as higher pay/bill spreads offset slightly lower temp to hire conversion revenues.

Third quarter revenues for our permanent placement operations were 9.4% of consolidated staffing revenues, which is down modestly from last years 10.0%. This modest mix shift caused overall staffing gross margin to decrease by 20 basis points versus one year ago to 43.3%.

Gross margin for Protiviti was $67 million in the third quarter or 30.9% of Protiviti revenues. Last year's third quarter gross margin for Protiviti was $66 million or 32.9% of Protiviti revenues. Staffing SG&A costs were 32.7% of staffing revenues in the third quarter compared to 32.1% in the third quarter one year ago.

SG&A cost for Protiviti in the third quarter were 17.9% of Protiviti revenues versus 17.2% of Protiviti revenues in the same period last year. Operating income from our staffing division was $118 million in the third quarter, producing an operating margin of 10.5%. This compares to an operating margin of an 11.5% in last year's third quarter.

Our temporary and consulting staffing divisions reported $98 million in operating income resulting in an operating margin of 9.6%. Operating income for our permanent placement division was $20 million in the third quarter, producing an operating margin of 19.3%.

Third quarter operating profit for Protiviti was $28 million, yielding an operating margin of 13.0%. Accounts receivable were 743 million at the end of the third quarter implied day’s sales outstanding or DSO was 50.5 days.

During the quarter, we successfully implemented a new front office CRM system for all US staffing branches and a new project management system for Protiviti. The conversions went smoothly and the related disruption and out-of-pocket costs were at the low end of our previous range.

We estimate that revenues and EPS for the quarter were impacted by $9 million and $0.005 [ph] per share respectively. Before we move to fourth-quarter guidance, I'd like to talk about the monthly trends we saw in the third order and thus far in October.

Globally, year-over-year revenue growth rates for our temporary and consulting staffing divisions decelerated during the third quarter and we exited the quarter with September revenues roughly flat versus the prior year, compared to a 2% increase for the full quarter.

Revenue growth for our staffing consulting services in the first two weeks of October was down 1.5% compared to the prior year. Global permanent placement revenue growth rates also decelerated during the first part of the third quarter with September down 4% compared to the 5% decline for the full quarter.

For the first three weeks of October permanent placement revenues increased 1% compared to the same period last year. All of these trends I described have been normalized for billing days and currency. As you know, we hesitate to read too much into these numbers as they represent very brief periods of time.

With that said, we offer the following fourth quarter guidance. Revenues $1.250 billion to $1.310 billion, income per share $0.60 to $0.66. We limit our guidance to one quarter. All estimates we provide on this call are subject to risks we mentioned in today's press release and in our SEC filings. Now I'll turn it back over to Max..

Thank you, Keith. The U S economy added fewer jobs in September than economists had expected and the unemployment rate ticked up slightly to 5%. Unemployment levels in the professional fields we serve remained much lower than the overall US rate. But we do continue to see our clients taking longer to make hiring decisions.

We have talked about this longer timeframe on prior conference calls. Internationally, we continue to see solid growth in many countries, most notably Germany. Business's appetite for specialized talent in areas important to the growth and profitability remained intact.

The - for computer systems design and related services, for example, the average unemployment rate in United States is 2.3%. Overall the average unemployment rate for college degree workers 25 or older is now 2.5%.

Employers continue to encounter a widening skills gap in key areas and they need help finding professionals who are fit with their needs and work environment. We were pleased with the results for Protiviti. Protiviti has been doing solid business in all of its practice areas and it currently works with 70% of Fortune 100 companies.

Their sweet spot, of course, is teaming with client to protect and enhance enterprise value by identifying, anticipating and solving critical business problems. At this time, Keith and I would be happy to answer your questions. We ask that you please limit yourself to one question and a single follow up as needed.

If time permits, we'll certainly try to return to you if you have additional question. Thank you..

[Operator Instructions] Your first question comes from the line of Mark Marcon from R.W. Baird. Your line is open. Please go ahead..

Max and Keith, I was wondering if you could give a little bit more color with regards to the pace of deceleration that you ended up seeing over the course of the quarter. And related to that, if you saw clients taking even more time as the quarter progressed, you'd spoken about that during the second quarter.

So I just wondered if that’s changed or if it’s gotten incrementally longer? And then, also if you could address specifically, you know, how the implementation of the CRM system ended up impacting the quarter, just in terms of from a timeframe perspective when everything was completed and what sort of results you're seeing from that new implementation?.

Okay. Several questions here. 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. 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. 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. On the Protiviti side, they had very tough comps, notwithstanding those comps they still grew you know, mid single-digits, generally speaking, we were pleased relative to expectations on Protiviti.

As to CRM, we were very pleased with the conversion. That happened the week of August the 22nd. Most of the impact frankly was during the weeks preceding that, where all of the training took place, where we essentially took our best producers out of production as they train the trainers who in turn trained our staff.

So from a financial impact where we first estimated a half a day to a day and a half on the staffing side, it came in closer to half a day. Protiviti came in virtually precisely where we estimated it to be.

So, from a revenue standpoint, the 9 million splits out to 7 million staffing, 2 million Protiviti, the gross margin of 5 million impact breaks out between 3 million staffing, 2 million Protiviti. The SG&A impact was about what we expected at 4.5 and that splits out 3.5 staffing, 1 million Protiviti.

So, virtually, no surprises on the out-of-pocket cost impact. The revenue disruption impact actually better than we expected. It was quite a large undertaking. We are elated to have it behind us and we are elated with the capabilities that it has and provides to us as we move forward..

On that point, Keith, can you talk a little bit about how quickly you ended up seeing a productivity ramp in your international office this post-implementation?.

Well, so as you are alluding, we did this in five countries pre-United States and the United States experience turned out being very close to what had happened in those five countries, even though we worried that the impact would be more. I'd say, short term, Mark, this isn’t about getting more short-term productivity.

Short-term it’s more about replacing our old 15 year legacy system with something we could maintain, with something that provided global mobile access because it’s cloud-based.

With something as we move forward in time, as we provide more and more digital services to complement our traditional services, we needed an infrastructure that would facilitate that.

So, this isn’t a short-term productivity play, its more a long-term, make it easier to support, make it less expensive to support, but more importantly, we needed a platform that we could integrate to the client and candidate facing services that we intend to provide..

Great. Thank you..

Your next question comes from the line of Andrew Steinerman from JPMorgan. Your line is open. Please go ahead..

Hey, Keith. I am going to kind of ask you the question that’s the tough one about the cycle. My 20 years of covering staff success [ph] I don't remember Robert Half trending down outside of a recession.

Yet, our economist are saying real GDP looks really solid in the third and fourth quarter and I am just asking you how you could kind of give a little context for the cycle you think we're in right now?.

Well, first of all to reinforce what you said, I think most economists think we're looking at 2% GDP next year, which frankly would be an up-tick from the last – from the fourth quarter of '15, first two of '16 that we’re….

That's right..

Most economists only think there is a 20% chance of a recession in 2017..

Right..

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..

Right.

But there is really no context that you could point to that this is similar to in the past, right?.

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..

Keith, if you'll let me one more question on the Robert Half Technology side, is that also about just getting a better sense of urgencies and orders or is there anything on the recruiting side that you feel like Robert Half Technology has been or could be doing to firm up the revenues on Robert Half Technology?.

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.

And as clients get even more selective even in that area, it further puts pressure on candidate supply. If they will only take your best candidates, the supply of your best candidates per se is a smaller universe than your overall supply, even of solid candidates..

Totally agreed. Thank you..

Your next question comes from the line of Tim McHugh from William Blair. Your line is open. Please go ahead..

Thanks. Keith, how are you approaching spending at this point, it looks like if I strip through kind of the systems upgrade that you pulled back a little on the spending.

But I guess given the trends you are seeing, what’s your approach to kind of the staffing levels and as we go into even beyond Q4 as we move into '17, how are you managing the structure right now?.

So the biggest lever we have, as you know Tim, is our internal recruiter and sales professional headcounts. And the current thinking is to keep them flattish until we get a better sense of exactly where we are. The last thing we want to do is make itself fulfilling by reducing headcounts in advance of further revenue deceleration.

So I would say flattish on heads, they are down slightly in the third quarter. The fourth quarter our plan is for them to be flat to maybe down slightly again. But, we are not intending to do anything precipitous as it relates to our headcounts because we don’t see any precipitous decline in our revenues.

And like I said, the last thing you want to do is reduce your capacity to sell ahead of actual client demand..

Okay. And just and by - kind of by the vertical area, the counting ones have been holding up better I guess than [indiscernible] and IT, that seems like you are saying as the quarter progresses kind of broad-based.

Is there anything you saw differently in Accountemps and management resources?.

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.

And management resources, its all about project ends and start and clients were slower to get new projects started than we had expected, which our go forward guidance anticipates, yet again, management resources is going to have more variability than Accountemps because it is more project oriented and that was the case in the third quarter and that is the case in our embedded guidance for the fourth order..

Okay. Thanks..

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

Thanks so much, Keith your last answer is actually a segue to my question. If you can give us a little bit more color by vertical in terms of what's embedded in your guidance for the current quarter that would be helpful? Thanks..

Okay. So, by vertical, I'd say generally speaking the trend lines you saw during the third quarter would remain in tact during the fourth such that from a staffing perspective we would see a decline of about 1% year-over-year same-day constant currency. However, there is one fewer day this year than last, there will be a little bit of currency drag.

So that on a reported basis your staffing growth rates would be about – would be down about 3%. And again, the embedded 1% same day constant currency is at above the rate we started the quarter. Protiviti grows on a mid single digit rate versus their 15% tough year ago comps.

Gross margin encouragingly, we believe temp gross margins will be up 30 to 50 basis points in the fourth quarter. We had much better than expected experience with our state unemployment cost. We've been conservative for the first part of the year, which will give us some benefit in the fourth quarter.

That 30 to 50 basis point improvement does not include potential even further improvement when we get our semiannual workmen's comp review, so maybe there is upside there.

Protiviti similar to the third quarter on a year-on-year basis their gross margin would be down a couple of points, because they’ve got less mix of higher margin FSI, which we talked about in the past. But again, that’s consistent with what we just saw on the SG&A side. On staffing, the dollars year-on-year would be about flat.

But as I talked about on a reported basis, you've got revenues down 3%, so that’s going to create some negative leverage of around one point or 100 basis points. Protiviti SG&A would also be up about 100 basis points. Their marketing costs are intended to be higher. They've got higher administrative costs to support their higher headcounts.

So if you look at our projected operating margins on the temp side would be down 50 to 70 basis points, as the higher gross margin gets offset with the negative leverage and SG&A, perm would be down about one percentage point, same reason Protiviti would be down three to four percentage points, still double-digit versus a very high 14% a year ago.

The tax rate is going to be higher this year than last. We're thinking in the 37.5% range for the fourth quarter. Last year it was low at 35.3 because we got some discrete credits that won't repeat. Shares before consideration or further buybacks would be in the 127.5 range..

I really appreciate the thorough answer to that question. And if I could just follow-up with a couple numbers related questions. First of all, in the current quarter guidance is there any more impact of the systems conversion and if it’s possible to give us the average billing days by quarter in 2017, that would be great? Thank you so much..

Days by quarter, I have that, but I didn’t bring it, maybe we'll try to get it and I'll come back before the end of the call with those numbers. As to the system conversion, we do not expect any significant impact during this quarter. Our activity levels are pretty much back at the levels they had been pre-conversion.

And like I say, hopefully I could come back to or maybe it’s magically appeared sooner, say 2017 quarter one 63.4, quarter two 63.3, quarter three 63.1, quarter four 61.3 to give you a total of 251.1, which is one day shorter than 2016..

Great. I really appreciate the help. Thanks so much..

Your next question comes from the line of Anj Singh from Credit Suisse. Your line is open. Please go ahead..

Hi. Thanks for taking my questions. I wanted to go back on some of the earlier questions and comments. I guess, first off on the environment your commentary there, I just wanted to make sure I understood you correctly.

Is the sale cycle lands about similar from Q2 to Q3 or do you see a continuing sort of length and moderately as you are getting into latter parts of the year?.

So as we talked about, we are seeing it lengthen moderately and we're also seeing some slowing in order rates because of the uncertainty that I talked about, that we are seeing some lengthening, primarily because they are more selective with the candidates they'll accept.

Those candidates are in turn the hardest ones to close because they are the ones with the most options..

Okay. Okay, got it. And then touching on headcount editions again, I think last quarter you guys had called out growing headcount a little bit, this quarter you are talking about flattish.

And I don't mean to split hairs, but wondering if that’s generally consistent quarter-to-quarter or should we be reading into that as you are moderating your plans a little bit? And then the second part to that question, you'd spoken to letting attrition play out in areas that aren’t really seeing much growth.

So would it be fair to say that you are seeing some attrition in systems like OfficeTeam. Perhaps you can just give us a sense of where you maybe seeing some attrition? Thank you..

The nature of our business for 30 years is particularly in the first 12 months, there is always attrition. We're a tough team to make. Many times people that come out of the profession going into a sales and recruiting role is more different than their functional role in their prior careers.

So we've always had a fair amount of attrition during the first 12 months, but, it is somewhat variable. So I would say our headcounts did not turn out that differently than we expected, nor do I expect our Q4 heads are going to be that different than Q3 heads. There is always going to be differences in attrition.

You can't peg it exactly, but I wouldn’t read anything into. Our overall thought is to keep our headcounts constant in level, while we get a better read on demand, because the last thing we want to do is essentially have a self fulfilling prophecy by reducing our capacity..

Okay. Understood. Thank you..

Your next question comes from the line of Kevin McVeigh from Deutsche Bank. Your line is open. Please go ahead..

Great. Thanks. Keith, your comments on kind of the sequential trends in margins were helpful.

But can you just help us frame how much the higher and expected tax rate set for Q4 EPS? Because if just the EPS doesn’t really reconcile to the revenues even appreciating that you know, there may be some fixed cost around FX, it's kind of stacked a little bit more.

But if I expand the model right, is $0.03 to $0.04 is that the way to think about what the higher tax rate in terms of Q4 impact?.

Well, its twofold points on pretax, hold on, I mean I didn’t figure it out all the way down to EPS. I mean, we could do the math, pretax, 120, so 3 million, so that's couple of pennies back of the envelope. But as I walk down the P&L, I am basically walking down the midpoint of our guidance. You've got higher gross margin for reasons I've talked about.

The SG& A, year-on-year is up about a percentage point, as I talked about. The number of shares is down, as I talked about, the tax rate is up. So I can assure you the math works at the midpoint of the range..

Got it.

And then just one other, we saw a pretty sizable up-tick in temp in December, was that kind of a data you have internally, was that lagging or we've kind of haven’t seen that rate of growth since December of last year, is that - how do you reconcile that with what you're seeing internally, if you will?.

And you're talking about an external ASA, BLS? I guess I would observe that over a long, long periods of time. We haven’t track all that closely to either BLS or ASA.

It was kind of interesting, this morning, PMI Services came out and if you look at the employment piece of PMI Services, and I don’t call it out because it’s reversing, but it just happened to come out this morning. But if you look at the employment portion of PMI Services, it continues to trend down as late as till today.

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..

Got it. Helpful. Thank you..

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

Good afternoon. Just – I wonder if I get a little more color on Protiviti, it sounds you referenced earlier the weaker demand from financial compliance et cetera. I guess, it sounds like that continues.

How would you know, any end of the – is there any light at the end of the tunnel there and is the pricing pressure you’ve referenced in the past still a factor with that end market? Thanks..

Well, Protiviti grew 8% on very tough comps; they grew 23% a year ago, very tough comps. The US was solid, non-US was very strong, Australia, Japan, solid in EU. So from a revenue standpoint, Protiviti’s third quarter was pretty much spot on what we expected.

They had some gross margin compression and that compression was less than we expected, actually quite a bit less than we expected. They did a very good job controlling their costs. They used fewer contractors, which is a variable portion of their cost structure. They had fewer experienced hires come on board.

So Protiviti from a profitability standpoint in the third quarter, while not as much as a year ago which was a tough comp, it was actually pretty significantly better than the guidance we had given for the third quarter. Fourth quarter, we're still embedded in our guidance as mid single digit growth.

The comps a year ago were again very tough, 15% growth. Profitability remains double-digit, notwithstanding its an even shorter quarter for Protiviti, because many of their clients have a soft close between Christmas and New Year's which shortens the effective length of their quarter even more.

So, clearly as we've talked about on prior calls, their FSI clients have got more cost conscious. That’s resulted in fewer hours for us, the hours that we do have at somewhat lower rates. But overall, all things considered, we were very pleased with the quarter Protiviti had and the one that we're projecting for the fourth..

Understood. Then just a follow-up, one of the uncertainty factors that you referenced and I think a lot of others have referenced is just the upcoming election here.

Is there any way to sense how big a factor that is or how many – is that something a lot of clients are mentioning or are you hearing it once in a while or is there any sense that as we get through that you might see some loosening in some of the trends?.

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..

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. There has been an awful lot of negativity, none of which is great for the economy. So let's see what happens. We hope it’s an improvement that occurs..

What's interesting for six to seven years, we've been complaining about 2% GDP growth. Now we're sitting here and hoping for a GDP growth that’s 2% or better. And such an extent you believe we're going to get to 2017 2% or better GDP growth for the year, that’s actually an improvement from where we've been and we would welcome that.

We can do just fine with two 2 plus GDP growth. It’s that one and sub one and around one, that's a little tough..

Yes. Its amazing how to frame a reference, how important that is. So I appreciate all the color. Thank you..

Your next question comes from the line of Randy Reece from Avondale Partners. Your line is open. Please go ahead..

Good afternoon. To analyze your quarterly revenue guidance, I have broken it down to ways. First, looking at the sequential change in revenue per day. Second looking at your history where actual revenue fell within the guidance range. From this I have two observations.

First, your fourth-quarter guidance is 300 basis points weaker than we've seen in this expansion, and second, this was the seventh consecutive quarter where revenue came in at or below the mid-point of your guidance range. And I have two questions.

First of all, why is - I want to get a better understanding of why fourth quarter guidance is so much weaker than normal, even when you are coming off a third quarter that had some disruption effect that’s going away.

And, the other question is what is preventing you from making your revenue guidance ranges more conservative than they’ve been for almost two years?.

Well, why is our fourth-quarter guidance so much weaker? We are simply looking at current trends all the way through last week and based on those trends, based on the discussions we've had with our field management teams, those are the calls we've made.

I’d say as to missing the mid-point of revenue guidance, we've clearly done much better than you referenced at the bottom line. And I would also say that most of those misses, as you call them, has been 1% or 2% misses. So I think for context we need to talk about the extent of the misses.

But further I’d say we call it like it is, and we’re not sandbaggers, we're not backslappers. And so we try to call like it is, and we’re close. We’re usually within 1% or 2% of the revenues and we're usually at or above the EPS. But, where I grew up, coming 98% or 99% of $1 billion more revenue estimate for the quarter isn’t bad..

Particularly when there is not exactly a big backlog to take a look at..

Yes.

I'm just trying to get a feel for whether there is something about the business that has become a little bit less predictable than you are used to?.

Well, I'd say that’s fair. I'd say management resource is more projects driven than Accountemps.

To some degree Robert Half Technology is more project driven than Accountemps, Protiviti is certainly more project driven than traditionally Accountemps, to the extent we've added these additional non-Accountemps services, to some degree there's a little more volatility because they are more project driven.

But Accountemps itself, I don’t think its gotten any more variable or volatile, and the classic split between how accounting operations performs within Accountemps versus how the more staff accountant or financial business performs within Accountemps, they are all pretty consistent.

And I might add that the third quarter just ended, we reported pretty decent growth in our finance and accounting divisions. It was the non-finance and accounting divisions that lowered those rate somewhat..

Do you believe that permanent placement is acting the way you would have expected it to in past cycles.

Do you think you are capturing the share of placements just total hiring that you would expect to get?.

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 competitors. If GDP had grown at the same extent that it had in prior cycles and we didn’t perform similarly, I think there would be a credible case to be made that there is a missing delta that we need to talk about.

But the fact that GDP hasn’t performed and we're essentially back to prior peak in perm, I think is totally understandable..

That makes sense. Thank you very much..

Your next question comes from the line of Tobey Sommer from SunTrust. Your line is open. Please go ahead..

Hi. This is Kwan Kim for Tobey.

I got a question on the technology segment, what is your outlook on the bill rate growth and how do you compare that to company average?.

So bill rates were up 3.5% year-over-year, that was down a little bit from the 4.8% we saw last quarter. That was pretty much down versus last quarter in all of our verticals. It’s consistent with all of the commentary we've given already about overall business conditions.

And I am struggling for it - does that get at your question or was there some other question?.

I asked about your outlook..

My outlook, well, if conditions continue along the current glide path, you would expect to see slightly less bill rate growth. If instead, GDP growth picks back up to where it had been, I would not expect the glide path to be downward, but instead to turn back upwards..

Thank you..

Your next question comes from the line of George Tong from Piper Jaffray. Your line is open. Please go ahead..

Hi. Thanks. You mentioned some slowing in order rates on top of a lengthening sales cycle.

Can you elaborate on the trends we saw in order flow during the course of the quarter and what's currently incorporated into your fourth quarter guidance?.

With client cautiousness, with client lessons of urgency, the order flow rate does slow somewhat. We saw it happen during the quarter. We saw that continue into the fourth quarter. We extrapolated that trend and considered it in the guidance we have given for the fourth quarter..

Great.

And now that your new CRM and project management systems have been implemented, can you help quantify what you expect to see in revenue and cost benefits associated with the investment?.

In the short term, we expect very little short-term benefit from those investments. They are more long-term, infrastructure building platform, foundational type of investments that we expect long-term, but not short-term benefit from..

And can you help frame up what those long-term benefits might be?.

Well, the - they are cloud-based. We do not have the hosted infrastructure they have to maintain. They are instantly, globally accessible, which means our staff can sit down with our clients in their offices and have full access to all of our databases.

As we offer more and more of our services digitally to our clients and to our candidates, we are - this enables that to happen in a way that it couldn’t happen with our 15 year old proprietary legacy systems.

So, exactly how you put a dollar value on that, I would argue, quite frankly, to remain competitive in the staffing business, you not only have to offer the traditional services you've always offered, you also have to have digital offerings that are complementary to the traditional offerings you've always had..

Very helpful. Thank you..

Your next question comes from the line of Hamzah Mazari from Macquarie Capital. Your line is open. Please go ahead..

Good afternoon. I just had a question on permanent staffing. Any comments on the recovery you saw in October and any color on the temp to higher conversions you saw during the quarter? Thank you..

Well, clearly our start in perm was better than Q3 and the trends. But as we've said, many times it’s only three weeks. If you recall, last quarter, we hobbled out of the starting gate, I think we were down 17% or something and we certainly didn’t finish the quarter anything like that.

So quite frankly, perm is volatile, its more volatile than temp, the start over a three-week period of time doesn’t mean much. That said, I'd rather start better than the prior quarter than worse, which we did. However, our guidance does assume that there would be slight negative year-over-year growth in perm. Temp to hire traditionally follows perm.

So just as perm was a little softer than temp this quarter, so was temp to hire as compared to temp hours billed. It’s all about ultimately, full time hiring the environment, full time hiring, one follows the other. Clearly temp to higher in this cycle has been somewhat anemic, as has perm generally. But, that was also the case in the Q3 just ended..

Great. And just a follow-up, last question from me, I know that the UK is a small part of your business 3% or so, anything you saw in that market post the Brexit, or is it too early to tell for you guys? Thank you..

I'd say that we had a very good quarter on the temporary side in the UK. The perm side was not as strong. The uncertainty there seems to impact perm more than temp. While we're talking about international, let's not forget that we had a very good quarter internationally both Protiviti and staffing.

Germany continues to do very well, Belgium did well, Australia did well. In Protiviti, Australia did extremely well. We're seeing improvement in Japan for the first time in years, which we're very encouraged by. Generally speaking international was a bright spot not only for staffing, but for Protiviti, UK temp very good, UK perm not as much..

Great. Very helpful. I appreciate the time. Thank you..

Your next question comes from the line of Manav Patnaik from Barclays. Your line is open. Please go ahead..

Hi, good afternoon. This is Ryan Leonard filling in for Manav.

The comments you make about the clients and just kind of the cautiousness and those forward sales, I guess what would have to change to the downside that would result in you flexing some of the cost leverage you mentioned before?.

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..

Fair enough. And then just on some of the more digital offerings you’ve been talking about, with the rollout of the new CRM and investment in technology.

I mean, do you see more investment in technology going forward needed as more and more kind of staffing services go digital?.

I would say yes, we do see more investment needed. They shouldn’t be to the extent that we’ve had the last two years where we’ve essentially done new front office and project management systems in both staffing and Protiviti virtually all at the same time.

In addition to that, we do have what we call business transformation which our innovation initiatives, that will continue. But it’s not the lion share of what our CapEx budgets have been the last couple of years. But yes, we do need to continue to spend on technology. We do need to broaden our digital capabilities. I think we're well down that path.

We're using artificial intelligence. We're using machine learning. We have client facing and candidate facing functionality we’ve never had before. I think that will only get better as we go forward in time. It will take some investments, but it won't be as much an outsized investment as we've had the last couple of years..

Perfect. Thanks a lot..

We have time for just one more question. Our next question comes from the line of Mark Marcon [Robert W. Baird] Your line is open. Please go ahead..

Thanks for squeezing in my follow-up.

I was wondering, IFRS rev rac [ph] is that going to be a benefit do you think on the Protiviti side as we look ahead? And if so what are you hearing from your folks?.

So, we think rev rac ultimately will be a single, not a double or a triple. We right now have a lot of diagnostic projects which are smaller projects in Protiviti where you figure out what the gap is, no pun intended. Frankly, we're probably more excited, but not – but maybe a double, maybe between a single and a double on lease accounting.

Lease accounting is a year further out, lease accounting is 2019, rev rac is 2018. They are both helpful. We do not think either of them are going to be major movers of the needle, but we'll take all we can get..

Great. And then can you talk a little bit about anything that people should take into consideration for next year, outside of the economy.

So for example, new overtime regulations, anything that people should try to factor in?.

I would say, as to the overtime regs, we are dealing with that by changing the salary levels to the extent needed to, which isn’t a huge impact. We're also restructuring some of our comp plans otherwise to more or less pay for that.

I'd say in 2017 there is a change in the tax accounting, as it relates to equity compensation that will put pressure on our tax rate. We'll have to figure out precisely what that will be. We'll talk to you about that next quarter.

But I think there's going to be a lot more volatility in our tax rate and company's generally because effectively the impact of your stock price at the day equity vest versus the stock price at the day equity was issued, that the tax effective of that differential you're going to run through P&L for the first time..

I look forward to the guidance..

Okay. That was our last question. We’d like to thank everyone again for joining us on today's call..

This concludes today's teleconference. If you missed any part of this 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..