Max Messmer - Chairman of the Board and Chief Executive Officer Keith Waddell - Vice Chairman of the Board, President and Chief Financial Officer.

Mark Marcon - R.W. Baird Gary Bisbee - Bank of America Merrill Lynch Andrew Steinerman - JPMorgan Jeff Silber - BMO Capital Markets Kevin McVeigh - Credit Suisse Ryan Leonard - Barclays Tim McHugh - William Blair & Company Jason Thomson - SunTrust Hamzah Mazari - Macquarie Capital Sean Kennedy - Nomura Instinet.

Hello, and welcome to the Robert Half Third Quarter 2018 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 hello everyone. Thank you for joining us. Before we begin, I would like to remind everyone that comments made on today’s 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 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 8-K.

We assume no obligation to update the statements made on today’s call. For your information, our prepared remarks also are available on our website at roberthalf.com. From the home page, click on Investor Center at the bottom left of the page, you will find the Quarterly Conference Calls link in the Investor Center.

Now, let’s review Robert Half’s financial results for the third quarter of 2018. Company-wide revenues were $1.466 billion. This is up 11% on both a reported and same-day constant currency basis compared to the third quarter of last year. Net income per share in the third quarter was $0.95, up 39% compared to the third quarter of 2017.

Cash flow from operations was $185 million and capital expenditures were $10 million in the third quarter. We paid a $0.28 dividend to stockholders in September at a total cost of $34 million. We also repurchased 1.1 million Robert Half shares in the third quarter, at a cost of $79 million.

We have 9.1 million shares available for repurchase under our Board approved stock repurchase plan. All of our staffing divisions and Protiviti reported solid year-over-year revenue gains in the third quarter. Our permanent placement and Protiviti operations performed particularly well during the quarter.

Skills shortages persist globally, driving heightened demand for skilled talent, especially in the professional-level segments in which Robert Half specializes.

Also buoying our business is the sustained optimism among small and midsize companies, particularly in the United States, which is leading to increased hiring activity by this key client base. Return on invested capital for the company was 41% during the third quarter.

I’ll turn the call over to Keith now for a closer look at our third quarter results..

Revenues, $1.430 billion to $1.495 billion. Income per share, $0.88 to $0.94. The midpoint of our fourth-quarter guidance implies year-over-year revenue growth of 9% on a same-day as-adjusted basis which included Protiviti and EPS growth of 40%. We limit our guidance to one quarter.

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

the ability to offer businesses highly regarded consulting solutions and technologies combined with access to a vast network of experienced interim talent to implement these solutions. Now, Keith and I would be happy to answer your questions. We ask that you please limit yourself as usual 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 questions. Thank you..

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

Good afternoon and congratulations on the strong results. I was wondering if you could talk a little bit about international. You maintained a very strong growth there despite much tougher comps.

Just wondering if you could talk a little bit about what you're seeing, if you're seeing any signs of weakness in any markets on the international side?.

Mark, I'd say that the strength we've seen for several quarters in staffing internationally has been Germany, Belgium, to some extent the UK. This quarter Canada was particularly good. And other than comps getting tougher, those markets are still quite bullish about their prospects.

Some of the other countries are much smaller as a percent of the total. But generally speaking, our country managers feel pretty good as we move into the fourth quarter. In Protiviti, internationally, very strong in Germany, very strong in Australia and the UK had another solid quarter.

So frankly, the sentiment our internal people have about tone of business as we go into the fourth quarter in those countries where our strength is, feels pretty good. .

That’s great. And then can you talk a little bit about RH Technology, I mean really nice acceleration there.

I’m wondering how much of that is due to what perceived to be the market relative to your go-to-market, fine tuning in terms of collaboration with Protiviti as well as some of the initiatives that you have from a technology perspective?.

Well the short answer is it's a combination. We did have a particularly good quarter in technology, while the year-on-year comparisons were relatively easy. The sequential comparisons were not and sequentially we grew almost 4% in technology for the quarter which we're very proud of.

And so first of all, we’ve higher small business confidence comps, higher tech budgets. So a rising tide raises all boats from the standpoint of the small business client base. In addition to that, you've got secular strength in cyber, cloud, digital transformation.

We've talked before about how we've broadened the metrics of candidates that we focus on up and down the stack, support the development including DevOps.

As you mentioned, we are getting more and more traction where we go to market together with Protiviti in technology as well as in finance and accounting relative to Protiviti and Management Resources in the latter case.

So really solid quarter in technology, some of it's the market, some of it's our strategy, some of it’s the unique positioning we have between staffing and Protiviti. .

Terrific. Thank you. .

Your next question comes from Gary Bisbee from Bank of America Merrill Lynch. Your line is open. Please go ahead. .

Hey. Good afternoon. You commented on the tougher comps international. I guess just any thoughts on how that plays out in the US? Obviously you started to really accelerate fourth quarter a year ago. .

Well, so as we talk about our guidance the backdrop to that is the comps get 5 points tougher year-on-year and particularly so in perm placement and in Protiviti. That said, the midpoint of our guidance still has a strong 8% same-day constant currency growth rate embedded there.

The momentum we've had the last couple of quarters continues into the fourth. So we're pretty pleased that with our midpoint of 8% given how much tougher the comps get. .

Yes, that sounds about right. I guess all of the economic data we've seen look good. You cited a bunch of small business et cetera. What are you hearing from clients about some of the things that have caused market sentiment or market malaise over the last month or two, is -- are the trade issues, are higher interest rates.

Is any of this stuff flowing down to the level of your customers or is everything you hear there continuing to be quite strong? I know the backwards looking data looks great but just any more updated forward commentary? Thank you..

I’d say so forward the sentiment does remain quite strong as does confidence. Trade issues and higher rates have not yet trickled into the conversations we have with clients or their buying habits. So, so far so good. There's no question given our results, given our data.

The underlying US economy is quite strong, particularly for small to midsize businesses. .

Gary I'd add one comment we hear is that, a lot of the small to midsize business people like to talk about Main Street versus Wall Street. They read about all the concerns of Wall Street but all they recognize is that business is very good and they expect it to continue that way. So, so far all things look good to them. .

Glad to hear it. Thank you. .

Your next question comes from Andrew Steinerman from JP Morgan. Your line is open. Please go ahead. .

Hi, it's Andrew. I wanted to ask you about bill rate increases. I definitely caught your comment that the bill/pay spread was positive in the third quarter.

Could you mention your bill rate gross in the third quarter? Give a comment about wage inflation and do you think this will pick up prospectively?.

So bill rates were up 4.9% year-on-year. That's an increase from last quarter where it was 3.7%. That's a direct reflection of some higher wage inflation that we're seeing across our lines of business that not only are we passing through but we're actually expanding our margins as well which our numbers reflect.

The 4.9% is getting into the range we saw during the last recovery where we had five straight years of 5-ish percent year-on-year bill rate increases that were slightly higher than year-on-year pay rate increases. .

Great. Thank you. .

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

Thank you so much. And again let me add my congratulations on a strong quarter as well. In terms of operating margins, if you drill down on two of the divisions, perm and Protiviti, operating margins were down a bit year-over-year.

Was there additional spending going on, I'm just curious what was behind that?.

Well so both relate to investment in internal heads and resources of perm placement where we've had several quarters in a row now of double-digit growth that we continue to invest in hedge pretty much commensurate with the top-line growth.

And Protiviti as we talked on the last call significantly added to its headcount between the second and the third quarter. For Protiviti that shows up in gross margin for staffing, that shows up in SG&A, both were expected, both were bullish on as to prospects, and therefore the investment in the heads. .

Okay, great. And then on the tax rate I know this is minor, but it was a little bit lower than what you had guided. If you could just give us a little bit color why that was and what are you incorporating in your guidance for the fourth quarter? Thanks. .

So tax rate, third quarter, we always reconcile our books to the tax return and the tax return, we had some credits that had not yet been recognized for book purposes. So that reconciliation drove a reduction in the rate.

For the fourth quarter, our range is 26% to 27% and that's up a couple of points from what we just had in the third quarter which was 24%. .

Okay, great. Thanks so much. .

And your next question comes from Kevin McVeigh from Credit Suisse. Your line is open. Please go ahead. .

Great. Thank you. Hey Keith, it looks like the Q4 guide is pretty similar to Q3. Can you just help us understand obviously a real nice step up in bill rates? What's kind of the bill rate implied in that Q4 guidance? And then what would kind of cause you to be at the higher end versus the lower end.

And is there any way to maybe just give a little more color on what you'd expect it at temp versus Protiviti versus perm.

Any thoughts on that?.

Okay. So there are several questions here. So implied bill rates, we would expect the trend we've seen the 4.9 we just saw we would probably see getting into the low 5s, that’s something in that range. What would make us be at the higher versus the lower end? It's all about revenues.

If you looked at our third quarter, if you looked at how we finished the third quarter, and if you look at how we began the fourth quarter, pretty much across the board there was no slowing. That said, we’ve built in somewhat slower growth rates in the fourth quarter on the basis that the comps got higher, got tougher later in the quarter.

But to the extent we improve sequentially during the quarter as we have in the past, maybe that won’t come to past and there’s some upside on the revenues.

To the extent we would come in on the lower end, there are some concern that because clients have had a pretty good year, because many of our candidates have had a pretty good year, they're going to take more time off during the fourth quarter and that more time off would slowdown the process whereby we convert candidates to revenue.

So if you ask what's the biggest risk to the revenues? We would argue it's holiday impacted. As you know for following us quite a while, perm placement in December is always lumpy. Some companies close shop and do their hiring at the beginning of the next quarter, some try to get ahead of that. So current December is particularly hard to predict.

So with that in mind, we still feel good about our guidance, but upside, downside would be revenue related. Protiviti, notwithstanding their comps yet a lot tougher, I think it's 9 percentage points. They still think they can grow double-digits on top of that with the momentum that they have which is good. .

Thank you. Very helpful. .

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

Yeah this is Ryan filling in for Manav. Just a question on the hiring. The decision to hire commensurate with growth.

In the past when you've seen robust demand, have you tended to higher above the revenue growth rates? And I guess can you maybe give a little color on that decision to kind of keep it in line at this point in the cycle?.

It's a subjective call we make every quarter in concert with the top people we have in the field, temp, perm and Protiviti. Our thinking is given that we added more capacity than revenue supported a couple of years ago, we're holding to that capacity by continuing to hire in line with revenue growth.

So the dry powder, if you will, that we created a couple of years ago stays intact as long as we continue to hire in line and that's our strategy. We think we can grow the way we've just shown or projected or guided for Q4 given that strategy, but it's -- there is some art as well as science there..

Understood.

And I guess, if you look across your client mix, are there any exposures to people who would be more impacted by any trade wars or anything like that?.

Well, on the staffing side, the good news is we don't have any client concentrations period. Typically our clients on the staffing side, we have one or two temporaries out on assignment at a time, irrespective of how large the company is. Protiviti deals with larger companies.

Protiviti's exposure is principally in FSI larger banks, and I'm not sure of if the trade wars are projected to specifically, directly impact the larger banks.

So it's not the direct impacts that's the concern, it's the second order impacts of how does that impact confidence, how does that impact sentiment more so than how it directly impacts our client base..

Understood. Thanks a lot..

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

Thanks. I guess one, can you just elaborate on the comment that you are able to expand the bill pay rate spread, even as you're having to pass through higher wages both I suspect to the workers and you're able to price that with clients.

Is there anything else going on and why you feel like you're able to do that and do you think you can continue to do that where we continue to see high wage inflation?.

Is there anything else going on? I mean, clearly the candidate is king in today's market. A combination of our technology investments plus the experience of our recruiters together has done well for us on the recruiting side. Further, we're having to help clients with alternatives to their first choice.

Clients tend to be very title centric when they're looking for someone. And what we have to do often is to coach them on, there are different titles that have similar skills.

If you're looking for a financial analyst, if we don't have a financial analyst, maybe a budget analyst has many of the same skills and you wouldn't ordinarily look for a budget analyst when you're looking for a financial analyst.

But the point is, we're having to consult with our clients to help them get similar skills even when the titles don't match. And you'd probably be surprised how title sensitive many are. That's just one way we're helping our clients deal with the labor supply that we have.

Now can we continue to expand our gross margins? Clearly they are at absolute high levels such that we're going to be careful not to run them up too much on an absolute basis. But from a directional standpoint, we do think we can pass through as supply continues to tighten and clients more and more accept that that's the reality of the marketplace..

Okay.

And then just the other question, the technology investments that you've made internally over the last year or two here, I guess, can you give an update? I mean, is there -- how tangible is the impacts, I guess how are -- is the deal responding to using them, I guess any more color on that?.

Well, first of all if you look at internal productivity it's essentially flat and I would argue that what your technologies help you do is offset the dilution you would have from dealing with a tight candidate market where candidates are harder to close, where candidates have multiple opportunities and it takes longer to close candidates.

We've been able to offset that by streamlining the discovery part of the candidate sourcing and recruiting process with our technology investments. So net, our productivity is flat, I would argue, but for our technology investments, our productivity would be down.

The other thing, as we talked about on the call last quarter, clearly we're making a big push into digital marketing. And we're pleased with how that's proceeding.

We continue to expand the places where we apply our AI with machine learning in the marketing space such that ultimately I think the larger payoff will come from extending the markets that we reach into, extending the candidates that we interact with, extending the clients that we're able to identify and interact with.

So to me, it's as much about better revenue growth because of digital investments as it is about internal productivity growth..

Okay. Thank you..

[Operator Instructions]. Your next question comes from Tobey Sommer from SunTrust. Your line is open. Please go ahead..

Hi. This is Joseph Thomson on the line for Tobey. Thank you for taking my question. Last quarter you mentioned that you were focused on revenue growth maybe more so than profitability growth.

To what extent do you see this -- would you see this -- would you say this still defines your approach so far in the fourth quarter of 2018 and what's your plan for 2019? Thank you..

Well, I'd say not much has changed since last quarter. That said, I still think we can grow and grow very profitably. We're going to lever our fixed cost as we grow. So some margin expansion is in order and the facts are the margins we reported for the third quarter are higher than we had guided to.

So we're optimistic that we can grow and grow profitably, but we're not going to optimize totally for higher profitability because we think the market is conducive for us to continue to grow..

Thank you..

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

Thank you for taking my question. You talked about bill rates approaching a little over 5%.

Do you -- how sustainable do you view that? Is that just a function of sort of wage inflation or do you view that sort of as a stronger market backdrop with clients willing to pay a number of years? Well, I'd probably say a couple of quarters ago you had talked about clients being frugal.

So just wondering if there has been a change post tax reform or you view this as more wage inflation related? Thank you..

Well, it starts with wage inflation which is a function of supply and demand. As the labor markets tighten, it's just logical that you have to pay more for it. Clients understand that. Given the economic backdrop, they're willing to recognize and pay for that. So they are all very interconnected.

How sustainable is it? If you look back to 2004 to 2008, you had five straight years where our bill rates increased by roughly 5%. So we've certainly had periods of time in the past where we had multiple years, much less multiple quarters of bill rate increases in the 5% range..

Great. Thank you..

And your next question comes from Sean Kennedy from Nomura Instinet. Your line is open. Please go ahead..

Good evening, gentlemen. Nice job on the quarter. I was wondering what conditions would be necessary to accelerate our growth from the current 4% range to the 6% range to achieve double-digit temp growth? And is there any chance we see it this cycle? Thank you..

Well, currently demand is quite strong and the heavier lifting is on the candidate supply side. And so to take the hours growth up a couple of points, we would have to get even more efficient in delivering candidates to assignments.

We've certainly had many periods in the past even in low unemployment periods where we've grown faster than we're now growing. So it's certainly not impossible and we've also had several quarters now where we've actually accelerated our rates of growth. We hope we're being conservative with our newer guidance because of the tougher comps.

With a little luck, we'll do better than what we've guided. So candidate is king. And to the extent we recruit more candidates, we convert more candidates to revenue on assignments, the growth rate accelerates and that would be the focus..

Great. Thank you..

That was our last question. We'd like to thank everyone for joining us today. We appreciate your interest..

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. Thank you..