RHI
#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 have had with our field management teams, those are the calls we have made.
I would say as to missing the midpoint of revenue guidance, we have 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, have been 1% or 2% misses.
So I think for context, we need to talk about the extent of the misses.
But further I would say we call it like it is.
And we are not sand baggers.
We're not back slappers and so we try to call it like it is.
And we are close.
We are usually within 1% or 2% of the revenues and we are usually at or above the EPS.
But where I grew up, coming within 98% or 99% of a $1 billion or more revenue estimate for the quarter is not bad.
Particularly when there is not exactly a big backlog to take a look at.
I think that is fair.
I would say Management Resources is more project-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 have added these additional non-Accountemps services.
To some degree, there is a little more volatility because they are more project-driven.
But Accountemps itself ---+ I do not think it has gotten any more variable or volatile.
And the classic split between how accounting operations performs within Accountemps versus how the more staff accounting or financial positions perform within Accountemps ---+ they are all pretty consistent.
And I might add that in 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 rates somewhat.
Well given how anemic GDP growth has been, it does not 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 do not believe that we have 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 did not 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 has not performed and we are essentially back to prior peaks in perm, I think is totally understandable.
So bill rates were up 3.5% year-over-year.
That was down a little bit from the 4.8% that we saw last quarter.
That was pretty much down versus last quarter in all of our verticals.
It is consistent with all of the commentary we have given already about overall business conditions.
Does that get at your question or was there some other question.
My outlook.
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 upward.
With client cautiousness, with client's less sense 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've extrapolated that trend and considered it in the guidance we have given for the fourth quarter.
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.
Well they are cloud-based.
We do not have the hosted infrastructure to have to maintain.
They are intensely mobile-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, this enables that to happen in a way that it could not 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 have always offered, you also have to have digital offerings that are complementary to the traditional offerings you have always had.
Clearly, our start in perm was better than Q3 and the trends.
But as we have said many times, it is 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 did not finish the quarter anything like that.
So, quite frankly, perm is volatile.
It is more volatile than temp.
The start over a three-week period of time does not mean much.
That said, I would 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 is all about ultimately full-time hiring, the environment for full-time hiring, one follows the other.
Clearly temp-to-hire in this cycle has been somewhat anemic as has perm, generally.
But that was also the case in the Q3 just ended.
I would say 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 we had a very good quarter internationally, both Protiviti and staffing.
Germany continued to do 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 are 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.
The trends would have to turn more negative.
We are 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 are seeing.
And here again, if the world believes we are going to get 2% plus GDP in 2017, we would see that as an improvement not a decline.
I would say, yes, we do see more investment needed.
They should not be to the extent that we have had the last two years where we have 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 are our innovation initiatives.
That will continue but it is not the lion's 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 are well down that path.
We are using artificial intelligence.
We are using machine learning.
We have client-facing and candidate-facing functionality we have never had before.
I think that will only get better as we go forward in time.
It will take some investment but it won't be as much an outsized investment as we have had the last couple of years.
We think rev rec 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 are probably more excited 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 rec is 2018.
They are both helpful.
We do not think either of them are going to be major movers of the needle, but we will take all that we can get.
I would say as to the overtime regs, we are dealing with that by changing the salary levels to the extent needed to, which is not a huge impact.
We're also restructuring some of our comp plans otherwise to more or less pay for that.
I would 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 will have to figure out precisely what that will be.
We will talk to you about that next quarter.
But I think there is going to be a lot more volatility in our tax rate and companies generally because effectively the impact of your stock price at the day equity vests versus the stock price at the day equity was issued ---+ the tax effect of that differential you're going to run through P&L for the first time.
Okay.
That was our last question.
We would like to thank everyone again for joining us on today's call.
