Hello, and welcome to the Robert Half Fourth 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. We appreciate your time today. Before we get started, I would like to remind everyone that comments made on our call today 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 consider 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 convenience, we've made our prepared remarks 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 turn to Robert Half's financial results for the fourth quarter of 2018. Company-wide revenues were $1.482 billion. This is up 10% on both a reported and same-day, constant-currency basis, compared to the fourth quarter of 2017. Net income per share in the fourth quarter was $0.95, compared to $0.38 in the fourth quarter of 2017.

You may recall that in the fourth quarter of 2017, we recorded a one-time non-cash charge to our provision for income taxes related to the enactment of the U.S. Tax Cuts and Jobs Act. The amount recorded was $34 million, or $0.27 per share and resulted primarily from a revaluation of our deferred income tax net assets as of December 31, 2017.

Excluding this charge, our net income per share was $0.65 for the fourth quarter of 2017. Accompanying the release is a supplemental schedule showing year-over-year net income and diluted net income growth on both a reported and as-adjusted basis.

The term as adjusted reflects the impact to our 2017 and 2018 provisions for income taxes resulting from the Tax Cuts and Jobs Act. Cash flow from operations was $123 million and capital expenditures were $15 million in the fourth quarter.

In December 2018, we distributed a total of $34 million to shareholders in the form of a $0.28 per share quarterly cash dividend. We also repurchased 2.4 million Robert Half shares in the fourth quarter at a cost of $137 million. We have 6.7 million shares available for repurchase under our board-approved stock repurchase plan.

We ended the year strongly, with double-digit year-over-year growth in revenues and operating income on both a quarterly and annual basis. Full year 2018 revenues and operating income reached all-time high levels for the company, with broad-based strength in our staffing and Protiviti operations. U.S.

labor market remains very robust, with significant demand due to talent shortages across our professional disciplines. During the fourth quarter, return on invested capital for the company was 42%. I'll turn the call over to Keith now for a closer look at our results..

Thank you, Max. Global revenues in the fourth quarter were $1.482 billion. This is up 10% from the year-ago period on both a reported and same-day constant currency basis. Accompanying our earnings release is a supplemental schedule showing year-over-year revenue growth rates on both a reported and as-adjusted basis.

These figures are further broken out by U.S. and non-U.S. operations. The term “as adjusted”, in this case, reflects the removal of the impact of billing days, currency fluctuations and certain intercompany adjustments in our international operations.

This is a non-GAAP financial measure designed to provide insight into certain revenue trends in our operations. Fourth quarter total staffing revenues were up 9% on an as-adjusted basis. U.S. staffing revenues were $934 million, up 7% on a same-day basis, and non-U.S. staffing revenues were $285 million, up 14% on an as-adjusted basis.

We have 324 staffing locations worldwide including 85 locations in 17 countries outside the United States. The fourth quarter had 61.7 billing days, compared to 61.3 days in the fourth quarter of 2017. The current first quarter has 62.2 billing days, compared to 63 billing days in the first quarter one year ago.

Currency exchange rate movements versus the prior year had the effect of decreasing reported year-over-year staffing revenues by $12 million in the fourth quarter, which reduced our year-over-year reported staffing revenue growth by 1%.

Fourth quarter global revenues for Protiviti were $263 million, with $204 million coming from business within the United States and $59 million from operations outside the United States. Protiviti revenues were up 19% year-over-year on an as-adjusted basis. On a same-day basis, U.S.

Protiviti revenues were up 16% year-over-year in the fourth quarter, while non-U.S. revenues were up 30% on an as-adjusted basis. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $2 million in the fourth quarter and decreasing the year-over-year reported growth rate by 0.9%.

Protiviti and its independently owned Member Firms serve clients through a network of 83 locations in 26 countries. Now, let's turn to gross margin in the fourth quarter. Gross margin in our temporary and consulting staffing operations was 38.0% of applicable revenues, compared to 37.0% of applicable revenues in the same period one year ago.

Expanding bill/pay spreads and higher temp-to-hire conversion fees contributed significantly to the increase. Fourth quarter revenues for our permanent placement operations were 10.3% of consolidated staffing revenues, versus 9.9% of consolidated staffing revenues in the fourth quarter of 2017.

When combined with temporary and consulting gross margin, overall staffing gross margin increased 120 basis points versus one year ago to 44. 4%. For Protiviti gross margin in the fourth quarter was $80 million, or 30.2% of Protiviti revenues. One year ago, gross margin for Protiviti was $64 million or 30.0% of Protiviti revenues.

Fourth quarter staffing SG&A costs were 34.5% of staffing revenues, compared to 34.1% one year ago. The higher mix of permanent placement revenues this quarter versus a year ago added 20 basis points to the quarter's overall SG&A ratio. We ended 2018 with 14,900 full-time employees in our staffing divisions, up 9% from the prior year.

SG&A costs for Protiviti were 17.3% of Protiviti revenues in the fourth quarter, compared to 17.9% of Protiviti revenues in the year-ago period. We ended 2018 with 4,700 full-time employees and contractors, up 18% from the prior year. Fourth quarter operating income from our staffing division was $120 million, up 16% from the fourth quarter of 2017.

Operating margin was 9.8%. Our temporary and consulting staffing divisions reported $102 million in operating income, an increase of 20% from the fourth quarter of last year. This resulted in an operating margin of 9.3%. In the fourth quarter, operating income for our permanent placement division was $18 million.

This was down 2% from the prior year and produced an operating margin of 14.4%. Operating profit for Protiviti was $34 million in the fourth quarter, an increase of 32% from the prior year's fourth quarter. This produced an operating margin of 12.9%.

At the end of the fourth quarter accounts receivable were $794 million and implied days sales outstanding, DSO was 48.1 days. Before we move to first quarter guidance for 2019, let's review some of the monthly revenue trends we saw in the fourth quarter of 2018 and so far in January, all adjusted for currency and billing days.

Our temporary and consulting staffing divisions exited the fourth quarter with December revenues up 6.7% versus the prior year, compared to an 8% increase for the full quarter. Revenues for the first three weeks of January were up 10% compared to January of 2018.

December revenues for our permanent placement division were up 15.5% versus 2017 compared to 13.5% increase for the full quarter. For the first four weeks in January, permanent placement revenues were up 15% compared to the same period last year. This information provides a look into some of the trends we saw during the fourth quarter and in January.

But as you know they represent brief periods of time and we caution against reading too much into them. With that in mind, we offer the following first quarter guidance, revenues $1.460 billion to $1.525 billion; income per share $0.92 to $0.98.

The midpoint of our first quarter guidance implies year-over-year revenue growth of 10% on a same-day as-adjusted basis or 7% on a reported basis before adjusting for billing day and currency drags and EPS growth of 21%. We limit our guidance to one quarter.

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

Thank you, Keith. We ended the year with record results and we continue to benefit from a very strong labor market. Companies are having trouble locating the talent they need and Robert Half is expert at doing this work for them.

We are experienced in helping our clients find and more importantly hire candidates with hard-to-find skill sets many of whom will have competing offers from other employers. Our success is due to our personalized approach something we have done well for 70 years. I'd like to talk a little bit about the economy and how we view the current environment.

If you look at Main Street particularly the small and midsized companies that make up the majority of our staffing clients, they need people to continue growing their businesses. According to NFIB research, business optimism remains near historically high levels for this group.

The Vistage CEO Confidence Index which also measures small business optimism has recently shown a modest weakening in business confidence from a very high level, yet hiring plans remain robust. This tells us that small business owners are moving forward with hiring plans. In fact, the NFIB reported a record number of job openings last month.

Not being able to fill these jobs fast enough is the biggest barrier to growth. 60% of business owners said they are hiring or trying to hire and 90% of those reported fewer or no qualified applicants. These are compelling statistics and we believe they are evidence of a job market that is going to remain strong for the foreseeable future.

Skill shortages are global and we are confident we can be a valuable resource to companies as they navigate this tight market. It's one of the reasons we have invested heavily in developing our proprietary matching technology and laying the foundation for a world-class client and candidate experience online.

But we believe you need a combination of technology and season staffing professionals to be truly effective at finding and making the right match between client and job candidate. We are making digital investments and we are making people investments to ensure we have the right mix of both.

Quarterly results for Protiviti also reached an all-time high in the fourth quarter. We are very pleased with how this business is performing. Financial services continues to be Protiviti's biggest industry sector. They are also putting greater focus on the technology sector.

Protiviti's cybersecurity services remained strong during the quarter as did their wide range of internal audit and risk and compliance solutions such as anti-money laundering services and work in the area of digital transformation. And we are optimistic about the successful go-to-market strategy with Protiviti and our staffing operations.

We are providing a full spectrum of consulting staff augmentation and managed services to our clients. Now Keith and I will be happy to answer your questions. [Operator Instructions].

Good afternoon. I was just wondering if you could talk a little bit about the divergence between the international trends relative to the domestic trends that it is contrary to kind of the narrative that's out there in terms of international slowing. And I imagine it's primarily Germany and Belgium.

Would love to hear a little more commentary with regards to that and in particular with regards to the strength in Protiviti international which was a lot stronger than what we were looking for? Thank you..

Okay. IZ versus domestic trends while there was some slowing in Europe, it was slowing from a very high base with very tough comps. We still have double-digit growth in the International Zone, which actually exceeded the growth rate in the U.S. So we're still doing quite well internationally.

As we talked about for many quarters, we were led by Germany, Belgium. More recently, Canada and Australia have participated nicely. As to Protiviti, internationally it's been very strong in Europe. It's strong in Australia. This quarter it was also very strong in Canada.

The interesting thing and the very nice thing not only Protiviti international, Protiviti U.S. as well is how broad-based across their solution offerings it is. It's internal audit. It's technology consulting Cyber privacy. It's also risk and compliance and financial services.

So it's very broad-based by solution offering and that's true both in the United States and in the U.S. As we talked about last quarter, we transferred some accounts that previously were in Management Resources on the staffing side to Protiviti that gets adjusted for in the pro forma non-GAAP analysis that we provide.

But absent that Protiviti's growth rates are also quite strong. And I will add that in the International Zone for Protiviti as well as in the U.S. the go-to-market together with staffing also continues to be very robust and was a significant contributing factor to the outperformance that Protiviti had during the quarter..

Great.

As a follow-up, can I just ask with regards to you added 9% to headcount on staffing in perm side and 18% on the Protiviti side? Can you talk a little bit about the plans for headcount investments as the current year unfolds?.

We've also talked about for several quarters, because the labor economy continues to be so strong that we intend to participate in that fully and we do that by adding to headcount in line with our expected revenue growth.

You'll notice that the growth rates you just quoted for 2018 closely mirrored the revenue growth rates for those lines of business. So we expect to continue to add to headcount in line with our expected growth rates in revenues..

Great. Thank you..

And our next question is from Andrew Steinerman from JPMorgan. Your line is open..

Hi.

Keith, could you just break down the 10% in the guide the middle of the range of the guide on the same-day constant currency basis? How do you see that forming Protiviti staffing firm?.

Well, we typically don't get that granular our guidance. I will say that, frankly if you take your major segment revenue growth rates for the fourth quarter and you roll them into the first quarter, they don't look that different. They're all within one point or two of each other at the midpoint of our guidance. So good momentum.

We had one of the strongest reentries in January of this year that we've seen in many years. You saw from what we disclosed that our growth rates in January actually accelerated. It had into the fourth quarter. So we're very pleased with the start we've had across our segments in January actually accelerated..

Right..

It had into the fourth quarter, so we're very pleased with the start we've had across our segments in January..

Okay. Thank you..

Our next question is from Dan Dolev from Nomura. Your line is open..

Hey, guys. Thank you. I'm sorry if I missed it. I was in another call, but did you discuss the pricing and volume components of organic growth already? Thanks..

We have not. So our bill rates were up 5.2% year-on-year. That compared with 4.9% of prior quarter. We expected that the prior quarter's rate increases would progress 5% as we've talked about before. We saw increases between 2004, 2008 annually for five straight years in the 5% range.

We're just now getting into that range, which was reflective of the strong labor market that continues..

Understood. Great. Thank you so much for taking my question..

And our next question comes from Jeff Silber from BMO Capital Markets. Your line is open..

Thanks so much. Wanted to circle back to Mark's earlier question about your internal headcount additions. Can we get a little bit more color on the staffing side, if they came more on the perm side than on the temp side? And within the temp side, any divisional color would be helpful as well? Thanks..

So, generally speaking, our headcount changes mirror our revenue changes. And so because perm is growing significantly faster than temp, we added heads in perm significantly faster than we did in temp. Within the various segments, you can look at the various segment growth rates and pretty closely predict what the headcount changes were..

That's what I figured. I just wanted to hear that. I appreciate it. Then just my follow-up, just a little more color on guidance. And I know you don't give annual guidance, but can you tell us what we should be modeling for tax rate and capital spending for 2019? And also billing dates for the rest of the year would be great? Thanks..

Okay. So tax rate, first of all, for the quarter, the range is 25% to 26%, which is lower than a year ago, because a year ago we had an adjustment to the Tax Act deferred tax valuation that is not expected to repeat. For the full year, I broadened that range to 25% to 27% with kind of 26% being in the middle.

CapEx, we're predicting $60 million to $70 million. That's up quite a bit from 2018. It's consistent with the run rate. We just reported $15 million in the fourth quarter, so the run rate is $60 million. I'd also add that if you look on a 10-year basis on average, we've spent about 1.2% of revenue on CapEx.

And at the high end of $70 million, we'd be at 1.1%. So while it's somewhat higher than 2018, it's pretty much in line with our traditional range. Most of that additional spending is in the digital transformation area.

As Max mentioned earlier, we continue to focus on improving our client and candidate digital experience both on the web and with the mobile app. We're ever broadening our use of AI. We use it in recruiting for candidate discovery. We use it when we fill jobs with matching engines.

We use it in marketing where we micro-target candidates and clients where we individualize the message by candidate and by client. We use it in sales where we prioritize for our field staff the leads using our scoring engines. Remember that our algorithms are driven by proprietary data which is based on post-placement performance.

We analyze the candidates with the best outcomes and we work backwards from there to determine our algorithms. We believe we have more accounting performance data than anybody on the planet that we use to inform those algorithms.

That said, you still need human beings to assess soft skills, to assess attitude, professionalism, demeanor, and you still need human beings to close candidates that have multiple opportunities.

It's a long-winded answer to a pretty short question, but the point is the $60 million to $70 million is somewhat higher than the $42 million we spent in 2018..

Great. I'm sorry.

And then billing days by quarter?.

Okay. Billing days by quarter Q1 62.2; Q2 63.4; Q3 64.1; Q4 61.7. So, as we talked about reported growth versus as-adjusted growth in our guidance, the 10% versus 7%, notice that we have one fewer billing day in this year's first quarter and we'll make that up in the third quarter, but it does impact reported versus same-day for the first quarter..

Okay, great. That's very helpful. Thanks so much..

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

Hi guys, good afternoon. I guess just the first question on the guidance. Any more color you can provide on the trending of margins within the guidance? And was there anything you'd call out as unusual? I know you true-up the workers' comp credit, I don't know if that had any benefit to Q4, but that would be helpful..

Yes. So, on the margins, first of all, temp gross margins, we expect the momentum we've seen with our pay bill spreads to continue into the first quarter. We're thinking somewhere between 50 to 70 basis points increase year-over-year.

Protiviti, the gross margins will be flat to down slightly because remember their staff gets their annual salary increases on January 1. And it takes some time over the course of the year to recover that, but that's ordinary. From the standpoint, was there anything unusual? So, first of all, with workers' comp, a year ago, we had $1 million credit.

This year, we had virtually zero. We did have and we always have in the fourth quarter where we true-up our estimates for state unemployment, federal unemployment, FICA, et cetera.

So, we did have a little 20, 30 basis points something in that range where we cleaned up all of those accruals and adjusted them to actual, so that doesn't repeat into the first quarter. But again that's very typical for the fourth quarter and the first quarter guidance.

From an SG&A standpoint as we talked about earlier, we're continuing to hire in line on headcount. Note that overall, the SG&A percentage for staffing will go up call it 50, 60 basis points. Half of that’s because of mix.

With perm growing faster than temp and with perm having a higher SG&A, significantly higher SG&A percentage, mix alone impacts the overall reported rate. But when you put everything together, SG&A as a percent of revenue for the company first quarter ought to be in line with what it was a year ago plus or minus 10 or 20 basis points either direction.

So operating margins overall for the first quarter don't look that different than the fourth quarter, which means they would be up 30 to 50 basis points versus a year ago, which we're very happy with. We basically take a 7% -- at our midpoint, we take a 7% reported revenue increase to a 21% increase in earnings per share..

Okay. That's very helpful. And then the perm SG&A stepped up.

This was just hiring in line with that strong revenue trend? Or was there anything else within that you'd call out?.

So we hired just a touch heavier than the revenue trend. But, yeah, it's all about hiring. I mean, it's not perfect to the person, so we were a little strong. But over time it averages out for the year just as our full year headcount numbers indicated..

Great. Thank you very much..

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

Hey, this is Ryan Leonard filling in for Manav. Just a question on the 1Q revenue guidance. At this time last year, there were some storm-related headwinds from some East Coast storms.

Is there any impact in terms of the growth rate on the first quarter of 2019?.

Well, so we clear we haven't had any storms of note, although it's really cold in the Midwest at the moment, but we haven't had storms of note so far that impacts this years first quarter. But last year's first quarter, January if you look at the growth rates, the year-over-year growth rates, a year-ago, January, February, March.

January had the smallest last year year-on-year growth rate. So if anything, January, has the easiest compare versus a year ago as any of the three months..

But for the quarter, it's no meaningful impact?.

No, no. And we said that I believe when we had last year's quarterly call, no..

Okay. And then….

We've never had a quarter in our history where there was a significant impact due to storms..

Fair enough. And then the pace of buybacks, it stepped up throughout 2018.

I mean, is that you guys are just getting more confidence in deploying that cash? And should we expect that to continue?.

Well, as things would turn out for the full year, our free cash flow was $485 million and our spending on buybacks and dividends was $490 million. So consistent with our long, long, long policy, we take our free cash flow. We return it to shareholders and dividends and repurchases and for the full year that was the case as well.

With the price coming off as it did in the fourth quarter, we were happy to step up the pace and get the full year in line..

Got it. Thank you..

Your next question comes from Kevin McVeigh from Credit Suisse. Your line is open..

Great, thank you. Nice color on the bill rate.

Keith if you said it I missed it but what was the wage inflation in the quarter? And what did the spread look like?.

Well the wage inflation trailed slightly the bill rate increase such that we did increase the spread between the two a bit, but there wasn't a huge difference between the two. Our bill/pay spreads are at all-time highs. We're proud of that.

With the wage inflation we expect to continue, we expect to be to pass that on and continue to widen our spreads a bit from here. As I said our guidance there's 50 to 70 basis points of gross margin improvement year-on-year embedded in our first quarter guidance for temp staffing..

Got it. And then just real quick, it doesn't look like you see as much of a seasonal step-down in the EPS guidance relative to Q4. Is there kind of anything in there? Or is that just a function of -- normally I think it's a couple or $0.05 or so. It doesn't look like it's that pronounced.

Is there anything to kind of call out that kind of takes that out of what historical trends have been?.

I would say one; we've got a stronger start in staffing. It's the strongest reentry in January we've seen in quite a while. So sequentially that would play out there. I mean frankly because of that candidate shortage, many of our clients whereas in years past when something ended toward the end of the year, our temporary would come back to us.

This year because they were fearful they couldn't get them back if they wanted, they extended and/or moved them into new projects, so very much a reflection of the tight labor market that played to our advantage for their reentry into this year.

Protiviti the seasonal pattern Q4 to Q1 as is always the case, internal audits quite strong in Q4, but in Q1 that gets crowded out to some degree as clients work with their external auditors to get their external audits done and that has a seasonal impact on Protiviti.

So I would say if you compare the pieces sequentially, it's more about staffing strength relative to the fourth quarter than anything..

That’s helpful. Thank you very much..

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

Thanks.

In Robert Half Technology, when you look out this year, do you expect the faster rate of growth to continue above some of the other lines of staffing? And if so what are the top factors you've been driving on tech demand?.

We do expect the momentum we have in tech staffing to continue and we would expect that the growth rates that are elevated relative to our other lines of business we would expect that to continue. Tech demand broadly is strong. It's cyber. It's cloud. It's digital transformation both from a consulting and an IT operations point of view.

We've talked in the past about how we broadened the focus of the positions we specialize in, that's played nicely and our revenue growth rates have responded accordingly. Further, we're having increasing success going to market in tech with both Protiviti and with staffing where Protiviti manages the tech projects.

And often much of the staffing comes from Robert Half Technology. So a factor of all of those we would expect the growth rates in technology Robert Half Technology staffing to continue to outpace the other lines of business..

Thank you.

And for my follow-up with respect to Protiviti and staffing where are you – you think in the evolution of the joint go-to-market strategy? Is it early days? Or are you already working together in the areas you think that are appropriate?.

We've said very early days. Many of the solutions we haven't even rolled out to all of our locations. So we would argue its very early days. Where we have it, it's done very well. We're aggressively expanding that. The view is that ultimately we'll offer everything everywhere.

But particularly in technology, it's even newer where we go to market on the accounting finance side with management resources and Accountemps together with Protiviti. But particularly in technology, it even lags going to market in accounting finance..

Okay. Thank you very much..

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

Yes. Thanks. Just on Protiviti can you – I guess a few questions. One is, I guess who you competing with? Is it still the Big 4? Or has that changed at all? I know you talked about digital transformation work which is a little different than I would've thought two or three years ago.

Secondly, I guess also just at a high-level what's different this year? I mean, growth really just kind of accelerated.

So is this partnering with staffing the answer? Is that truly moving the needle as much as we're seeing in the growth rate? Or would you attribute it when you look back at 2018 to something different?.

Well, who we're competing with continues to be primarily the Big 4 and the Big 4 have moved into the digital transformation space as well. So frankly that has – while there are digital-only digital-first competitors by and large Protiviti's principal competitors are the Big 4.

And what's different clearly the go-to-market with staffing and Protiviti is different and more successful and more advanced and success breeds success. Both the staffing organization and the Protiviti organization have totally bought into, we have something special, we have something no one else has under one roof.

We have world-class consulting and world-class staffing, nobody else has that. The clients understand it. The clients buy it. The clients benefit not only from a quality point of view, but from a price point of view as well because by blending staffing in, the average hourly cost goes down.

So I would give a big assist to their acceleration to the go-to-market -- the combined go-to-market together with Protiviti having the confidence that they can sell engagements that they might have not the full-time internal staff for, that they have the confidence that they can find the staff on a just-in-time basis through our staffing organization which also benefits the growth rates across their service offerings.

Having said that, as I spoke to earlier, it's not just about one of their service lines, it's internal audit, it's technology consulting and it's financial services regulatory compliance. It's amazing how balanced it is, not only in the U.S. but outside the U.S. as well.

So from the kudos to Protiviti and it's not just Protiviti remember that, we report revenue externally based on who has the contract with the client. So we have engagements where 80% of the hours are performed by our staffing organization. But what you see reported externally all shows up in Protiviti.

And in fact if you looked at the out-performance in revenues for the quarter at least based on our internal expectations, externally it all sells Protiviti. But we know internally that 75% of that was performed by our staffing organization. And it's a beautiful thing because when it works together like that, it's almost magical. .

Okay. Great. I mean, I guess you kind of touched on given the diversity of it, its above consulting business. I guess you worry about scaling in comps. I guess after you see consecutive periods of growth like this.

So I guess any thoughts on that? I guess, does diversity make you comfortable that there's no big I guess items you have to grow over?.

Well diversity in revenue sources helps. You worry about tough comps a year from now and enjoy the good quarter at least for a day. .

Fair enough. Okay. Thank you..

Your next question is from George Tong from Goldman Sachs. .

Hi, thanks good afternoon. Your midpoint of guidance for revenue growth in 1Q is 10% which is consistent with the growth you've seen in the first two weeks of January.

Can you talk about what conditions for bill rate growth and volume growth you need to see in order for you to deliver on the guidance of 10% growth this quarter given more difficult year-ago comps?.

So George, you're right. Notwithstanding the more difficult comps that get tougher by a couple of points. Our midpoint projects no further slowing or no second derivative deterioration, if you will.

The pricing versus volume expectations would be, that the pricing would be at or slightly higher than what we've seen in this past quarter and what we've seen out of the gate so far in 2019 and the volume to be consistent as well.

So, pretty much the momentum we have in the fourth quarter continuing into the first notwithstanding the tougher comps, we still think we can hold our growth rates..

Got it, that's helpful. You indicated that staffing SG&A as a percentage of revenue will be up 50 to 60 bps in 1Q, half of which will be due to mix from perm.

Can you elaborate on the other expected drivers of increase in SG&A as a percentage of revenue?.

Sure. It's headcount to some degree and it's spending all these digital initiatives that I talked about earlier. And we like to think in terms of our -- the lump, if you will, in SG&A due to our digital transformation strategies is measured in nickels per share per quarter, not in dimes or in quarters.

And so given how important we believe that to be to the future of our company, we think investing in terms of nickels per quarter per share is frankly pretty modest. But when you look at SG&A as a percent of revenue, we do expect to turn pick it up in 2019 consistent with what I talked about earlier..

Got it. Thank you..

Your next question comes from Hamzah Mazari from Macquarie Capital. Your line is open..

Good evening. Thank you. My first question is just on the bill rate, you talked about 5% bill rate.

When you compare the bill rate to what you're seeing in wage inflation in past cycles is that 50 to 70 bps gross margin on temp is that what you've seen normally in past cycles when your bill rate is 5%? Or is this sort of abnormal then we see temp gross margins move up?.

Frankly, it's very normal. And the point I tried to make is that relative to this 5% and above range, we just got there in this cycle. And in the last cycle, we were there for five straight years. And during those five years, not only did we increase bill rates in an absolute sense; we widened gross margins as well.

But it's quite normal at 5% increases in bill rates that you can do that and expand your gross margins at the same time. Clients understand that it's a candidate-short market.

Again, as we've spoken to in the past, all you have to do is lose out on your first choice, then lose out on your second choice, settle on your third choice, or settle for someone pretty significantly less experienced than you first hoped for before you understand you have to pay more. That's not unusual; we've seen it in every cycle.

We as a management team individually have all been here over 30 years. We've seen this before. This is very normal. This is very typical.

And the good news about our business where many companies worry about their input costs rising and that's diluting their margins, our input cost are rising and we're expanding our margins and that's normal and that's a good thing. .

Great. Very helpful. And just my follow-up question just around you talked about January accelerating despite tougher comps.

Just curious as to how you think about visibility in your business? Is it three months, six months, one month? And any change -- are your customers more positive, less positive versus last quarter? Just any thoughts as to customer sentiment, how that's changing? I realize there's a lot of macro uncertainty out there, but I also realize your customers are U.S.

midsized companies different than sort of multinationals. But any color you can give as to what you're seeing there? Thank you..

Well, so the facts of this business as to visibility are that there's very little and that's always been the case. Companies hire temporaries in part to have flexibility, so when they no longer need them, they no longer have to pay them and that's been the case for 30 years.

Sometimes, that's a good thing, sometimes, that's not, but essentially no visibility. That hasn't changed.

As far as customer sentiment, as we alluded to earlier from a confident standpoint, whether it's NFIB, whether it's CEO Vista there's many, many, many studies that says their sentiment is not quite what it was, but on an absolute basis, it's still quite high.

But what's key for us and what's kind of not open for dispute is that the labor markets stayed very strong. Supply and demand on the labor side is clearly still tied from a labor point of view. So, our willingness to continue to invest in headcount is because we're in a very strong labor economy.

And we can all debate interest rates, tariffs China, the Fed all of those are interesting discussion points, but the point is we're in a candidate-short market not only in the United States, but globally. And that benefits our business and that's what we're investing in..

Great. Thank you so much..

And your last question comes from Gary Bisbee from Bank of America, Merrill Lynch. Your line is open..

Hi. Just one quick follow-on and maybe you just answered it with that last statement, but the -- you commented on the strength in overseas. I think the macro forecast for GDP especially in Europe is for some real slowing. And historically, your business has followed that trend.

Is there anything unique today in the professional staffing areas overseas that for the core staffing business are driving the strength that are different if you will? Or is it just that candidate shortages in some of your key areas remain in place outside the U.S. in addition here? Thank you..

And to be clear we have said that we have seen some slowing in Europe, but it's slowing off very high growth rates that's settling in and growth rates that are still double-digit and that are still higher than the United States because as you just alluded to we still have candidate shortages. You mentioned Germany or somebody mentioned Germany.

There are still candidate shortages in Germany. There are still candidate shortages in Europe generally. So notwithstanding Brexit, notwithstanding German exports to China, there's still candidate issues that are more relevant to our business..

Okay. That's helpful. Thank you..

That was our last question. Thank you very much for your time and for joining us today..

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..