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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello and welcome to the Robert Half Fourth Quarter 2019 Conference Call. Our hosts for today’s call are Mr. Keith Waddell, Chief Executive Officer of Robert Half and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.
Hello everyone, thank you for joining today’s call. Before we begin, I’d like to remind you that the comments made on today’s call contain forward-looking statements including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today’s press release and in our most recent 10-K, 10-Q filed with the SEC. We assume no obligation to update the statements made on today’s call.
During this presentation we may mention some non-GAAP financial measures and references these features as adjusted reconciliations and explanations of these measures are included in a supplemental schedule to our earnings press release. For your convenience, our prepared remarks for today’s call are available in the Investor Center of our website at roberthalf.com. From the home page, click on the Investor Center link at the bottom left of the page.
Before we go over our fourth quarter results, I’d like to say a few works about Max Messmer who transitioned to Executive Chairman at the end of last year after 33 years as CEO. Max set a very high standard in leading Robert Half to where it is today and we’re very grateful for everything he’s done. Max and I worked together over this entire time period and I hope to continue his standard of excellence as we move forward. We are fortunate to have Max stay as Executive Chairman and remain involved in the growth and strategy of the company.
Joining me now in our quarterly calls is our newly appointed CFO, Michael Buckley. Mike is a 24-year veteran of Robert Half, originally from public accounting. Mike has served Robert Half in various roles including Controller, Vice President of Finance and most recently Chief Administrative Officer. He has led the finance and accounting function at Robert Half for many years.
Now let’s review Robert Half fourth quarter 2019 financial results. Company-wide revenues were $1.537 billion up 4% from the fourth quarter of 2008 teamed on both a reported and as adjusted basis. Fourth quarter 2019 net income per share was $0.98 compared to $0.95 in the fourth quarter one year ago. This is a 4% increase year-over-year. Cash flow from operations was $81 million in the fourth quarter and capital expenditures were $14 million. In December, we distributed a $0.31 per share cash dividend to our shareholders of record for a total cash outlay of $36 million.
We also repurchased approximately 1 million Robert Half shares during the quarter for $59 million. We have 2.5 million shares available for repurchase under our board approved stock repurchase plan. We ended 2019 with continued strength in the US job market and solid demand for our professional staffing and consulting service. We were particularly pleased with how Protiviti performed during the quarter. A Robert Half technology and Robert Half management resources divisions also turned in solid results largely due to the ongoing talent shortages in the professional disciplines they serve. Return on invested capital for the company was 40% in the fourth quarter.
Now I’ll turn the call over to Mike Buckley.
Thank you, Keith and hello, everyone. I’m very pleased to join you on the call today. Let’s start with a closer look at revenues for the fourth quarter. As Keith had noted global revenues for $1.537 billion for the quarter this is up 4% in the fourth quarter one year ago on both reported and as adjusted basis. Also on an as adjusted basis, fourth quarter staffing revenues were up 2% year-over-year. US staffing revenues were $962 million up 3% on as adjusted basis. Non-US staffing revenues were $271 million down 1% year-over-year on an as adjusted basis.
We have 326 staffing locations worldwide including 87 locations in 17 countries outside the United States. In the fourth quarter, there were 61.7 billing days unchanged from the same quarter one year ago. The current first quarter had 63.1 billing days versus 62.2 days in the first quarter one year ago. Currency exchange rate movements during the fourth quarter had the effective decreasing reported year-over-year staffing revenues by $6 million [ph]. This decreased our year-over-year reported staffing revenue growth rate by one half of one percentage point.
Now let’s take a look at results for Protiviti. Global revenues in the fourth quarter were $304 million. $239 million off that is from business within the United States and $65 million is from operations outside the United States. On an as adjusted basis global fourth quarter Protiviti revenues were up 14% versus the year ago period. With US Protiviti revenues up 17% from the prior year. Non-US revenues were up 3% on an as adjusted basis. Exchange rates had the effective decreasing year-over-year Protiviti revenues by $1 million and decreasing the year-over-year reported growth rate by 0.3 percentage points. Protiviti and its independently owned member firms serve client through a network of 36 locations in 27 countries.
Now let’s take a look at gross margins. In our temporary and consulting staffing operations gross margin was 38% of applicable revenues in the fourth quarter compared to 38% of applicable revenues in the fourth quarter one year ago. Our permanent placement revenues in the fourth quarter were 10.2% of consolidated staffing revenues versus 10.3% of consolidated staffing revenues in the fourth quarter one year ago. When combined with temporary and consulting gross margin overall staffing gross margin decreased 10 basis points compared to the year ago fourth quarter to 44.3%.
For Protiviti gross margin was $93 million in the fourth quarter or 30.4% of Protiviti revenues. One year ago, gross margin for Protiviti was $80 million or 30.2% of Protiviti revenues. Company-wide SG&A cost were 31.6% of global revenues in the fourth quarter compared to 31.5% in the fourth quarter one year ago. Staffing SG&A costs were 35.2% of staffing revenues in the fourth quarter versus 34.5% in Q4, 2018.
The increase of staffing SG&A as percentage of revenue is a continuation of what we saw last quarter and is primarily the result of negative leverage from our non-US staffing operations. We ended 2019 with 11,500 full time internal staff in our staffing divisions up 3% from the prior year. Fourth quarter SG&A for Protiviti were 17.1% of Protiviti revenues compared to 17.3% of revenues in the year ago period. We ended 2019 with 5,500 full time Protiviti employees and contractors up 17% from the prior year.
Company-wide operating income was $153 million in the fourth quarter. Operating margin was 10%. Fourth quarter operating income for our staffing divisions was $113 million with an operating margin of 9.1%. Operating income for Protiviti in the fourth quarter $40 million with an operating margin of 13.3%. At the end of the fourth quarter, accounts receivable were $833 million and implied day sales outstanding or DSO of 48.7 days.
Before we move on to first quarter guidance. Let’s review some of the monthly revenue trends we saw in the fourth quarter of 2019 and thus far in January 2020 all adjusted for currency and billing days. Our temporary and consulting staffing divisions exited the fourth quarter with December revenues up 2.1% versus the prior year compared to a 2.2% increase for the full quarter. Revenue for the first three weeks of January 2020 were up 3.2% compared to the same period one year ago.
Permanent placement revenues in December were down 3.7% compared to December 2018. This compares to a 0.9% increase for the fourth quarter. For the first four weeks in January permanent placement revenues were up 4% compared to the same period in 2019. As Keith has noted on prior calls, we provide this information so that you can insight into some of trends we saw during the fourth quarter and into January. But as you know these are very brief time periods, we caution against reading too much into that.
With that in mind, we offer the following first quarter guidance. Revenues $1,515 billion to $1,580 billion. Income per share $0.90 to $0.96. The midpoint of our guidance implies year-over-year revenue growth of 4% on an as adjusted basis including Protiviti. We limited 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 Keith.
Thank you, Mike. As Discussed at the start of the call Protiviti had a very strong fourth quarter. Robert Half Technology and Robert Half Management Resources also performed well largely because of intensifying labor shortages and technology disciplines and highly scaled accounting and finance specialties we serve.
On the last call, we talked about how the shortage of IT talent is negatively impacting companies trying to make technology enhancement particularly in digital space. This is also resulting in higher demand for our IT staffing solutions. In December, the US unemployment rate held at 3.5% until the last half of 2019 unemployment had not been that low in 50 years. [Indiscernible] skilled shortages remain a problem for employers. The US economy added 145,000 jobs in December. The Vistage CEO Confidence Index also improved in the fourth quarter moving from 85 in the prior quarter to 91.5. 63% of CEO’s said they plan to expand their workforce in the year ahead up six points from the third quarter.
Our Protiviti teams are also reporting higher demand across all of their practice areas which run the gamut from internal audit to a wide range of business and technology consulting solutions. The collaboration between Protiviti and our staffing operations has become a key differentiator for us. Our unique ability to provide businesses with a full spectrum of staffing and consulting solutions under one roof makes us an attractive alternative to working with multiple service providers.
Customers demand more from companies today than ever before. Our investments in technology including enhancements to our website. Personalized job and candidate recommendation and our own mobile app allowed us to meet their changing expectations by offering more choice in how and when they work with us. These innovations paired with the expertise of our local staffing specialist are making it easier and faster to hire or be hired through Robert Half where the customers engage with us online or in person.
We feel very good about how the company has positioned right now. Our brand is the best recognized in the industry. Supported by over $1 billion in advertising over the last 25 years. Our business model continues to focus on professional level engagements at small and middle market companies’ attractive areas of the market. Our people are among the most driven and tenured in the industry. Our senior field leaders average more than 20 years with Robert Half. Our technology tools are state-of-the-art and we continue to invest in digital transformation and finally Protiviti is performing well not only in its traditional consulting and solutions areas. But also as it goes to market together with our staffing professionals.
Now Mike and I’d be happy to answer your questions. Please ask just one question and a single follow-up, if needed. If there’s time we’ll come back to you for additional questions.
[Operator Instructions] your first question comes from the line of Mark Marcon from Baird. Your line is open. Please go ahead.
Good afternoon, Keith, Mike and Max if you’re listening. I was wondering if you can talk a little bit more about the strong growth that you’re seeing domestically in Protiviti and to what extent the momentum can be continued because it certainly seems like you went up against a pretty tough comp in the year ago period and still delivered the 16% total growth and clearly the blended workforce solutions is helpful. But it looks like you’re expanding the number of areas of solutions that you’re providing. So I’m just wondering if you can give some context there and then I have a follow-up. Thank you.
Sure. Protiviti is performing very well. It’s at seven straight quarters of double-digit growth. It achieved an 11.3% operating margin for the year so we had double-digit growth and double-digit margins which we belong to talked about is the standard we’ve set for Protiviti. Their growth and their strength is broad based, internal audit where IT audit is particularly strong. Technology consulting or cyber security and cloud, privacy or strong. FSI regulatory we’ve long talked about anti-money laundering but they’re also getting nice traction and consumer lending as well and then our joint solution which we call management business solutions and managed technology solutions. Where we combine such better expertise from Protiviti, scalable resources from staffing and that continues to do well. In fact the growth there has accelerated for several quarters at a row. The pipeline is strong they feel good going into 2020. The normal Q1 seasonality we expect to be pretty much like it’s been in the past such that year-on-year when you look at our guidance, we pretty much see Protiviti staying at the same growth rates you saw in the fourth quarter, which is strong.
It’s fantastic and can you talk a little bit about what you’re seeing in the international markets. If we look at firm and Protiviti, listening to some other professional services firms that are based in Europe it’s not as surprised. But just wondering what you’re seeing there and what we should think about with regards to some of the leveraging that you mentioned earlier in terms of how that’s going to impact the near term.
So we have built into our guidance for the last few quarters and we continue for the coming quarter that would see some moderation of growth rates that has been the case. I say on the good news front Germany which is our largest non-US market their growth rates are still positive, low single-digit but positive. They held in the fourth quarter versus the third and the expectation is, they hold again in the first quarter so we’re very pleased with how Germany is doing. The other strong spot outside the US would be Australia and that’s on both the staffing and the Protiviti side. We do have negative growth in France, the UK, Belgium, Canada pretty much all of the other countries. But I would observe we’re faring better than most of the industry is in that way, a large part because we’re not near as exposed to manufacturing as is most to the industry.
Keith would you say that France in the UK were somewhat episodic either from the French pension strikes of the UK election?
It’s hard to put causation precisely on what you describe – it clearly contributes to it. But hopefully those clear as the quarters progress particularly as Brexit hopefully the major disruption and uncertainty around that is behind us, but we’ll see.
Great. I appreciate the color. Thank you.
So our next question comes from Andrew Steinerman from JP Morgan. Please go ahead. Your line is open.
My question is about the 3.2% growth rate in early January for temp and consulting reps. Just remind everybody I believe it’s even though you say consulting that’s without Protiviti. My question is really that’s on a global basis, could you give us a sense of how the US did in January in temp revenues?
So you’re correct the 3.2% is staffing only, it does not include anything for Protiviti. It is global. US is stronger. There is continuation of some negative growth outside the US. So if anything, if you look at the fourth quarter November was particularly strong. December was not as strong in part because there was a bigger holiday impact and we typically see. So we see January getting closer to what we have seen in November and I must say that the reentry points we saw, once we got past January 6, our field people are quite energetic and enthused about.
Right. Maybe just add to the question, why Keith? Why do you feel like US temp revenue growth picked up in January from December?
One factor is the comps get a little easier. That’s not the total message. But there was clearly some holiday impact to December more so than we typically see. We talked about the Wednesday holidays on the last call. But we saw a broad based strong reentry point in January in US temp staffing which we’re very pleased with.
Okay, thank you.
Your next question comes from the line of Kevin McVeigh from Credit Suisse. Your line is open. Please go ahead.
Let me add my congratulations to Max. Keith [indiscernible] place of legend but if anybody is going to do, it’s you. In terms of just really nice trends of Protiviti. I just wanted you to remind if we could be impact on management resources and just what percentage of that business is tied into Protiviti today and kind of and just how that’s trended over I guess 2019, if you could.
Well first of all, the numbers you see externally for management resources include zero as it relates to Protiviti because all of the people management resources place on Protiviti engagements are reported as Protiviti, not management resources and in fact, if you look at Protiviti overall, 25%, 28% of their staff hours come from the staffing divisions collectively not just management resources and that’s up versus with was a year ago, but that revenue gets reported as Protiviti. But in orders of magnitude about the quarter of the staff level resources in Protiviti come from staffing and we’re delighted with that.
That brings a lot of flexibility and just real quick Keith. If you said it, I apologize. Just the tax rate in the first quarter and then what we should model for 2020.
So the tax rate that we expect in Q1 would be in the 26% to 27% range for the full year 2019, the tax rate was 27%. We expect the full year 2020 to be in a similar range say 27% to 28%.
Great. Thank you.
Your next question comes from the line of Jeff Silber from BMO Capital Markets. Your line is open. Please go ahead.
When you typically give your outlook for earnings per share, you typically give us a little bit of color on what kind of modules we should expect. So I just want to dig about through that right now. Thanks.
Sure, so let me provide context to that, a little bit from some commentary on the fourth quarter and then I’ll segue into guidance from that. So in the fourth quarter on the temp side, it was pretty much as we expected with office team being a little lighter as opened enrollment didn’t get to seasonal lift, we’ve gotten in years past and we exited some low margin accounts. Our project divisions management resources and technology did very well and understand that’s as much supply as it is demand because management resources and technology have access to career consultants, a broader talent ecosystem than do accounts temps and office team which pretty much deal with the traditional people between full time engagements. But once the holidays had a little more of an impact as I said earlier, Europe modestly continues encouraged that Germany appears to be bottoming.
Perm, demand remain strong. Holiday’s even more impact to perm as both clients and candidates were not around to close deals. Biggest issue for perm, is we continue to lose candidates to counter offers from existing employers from multiple offers from outside, but demand there remains strong and that’s continued into the first quarter and then getting to the first quarter 2020 guidance says, overall revenue is up 4%, consistent with Q4. Staffing would be 2% consistent with Q4. US strong. Europe continuing to decline modestly. Remain Germany strong as they offset. Protiviti growth rate stay pretty close to where they were in Q4 which was a strong double-digit, 14%.
Gross margin, year-over-year flat with last year plus or minus 10 to 20 basis points as we continue to pass through wage increases and our bill rate increased 5.2% in the fourth quarter versus a year ago and we would expect to see that trend into the first quarter. Protiviti still going back to guidance again Protiviti gross margins would be up 100 basis points plus or minus 20 as they get more leveraged from their outsized revenue growth. Staffing SG&A up 80 basis points, again relative to last year plus or minus 10 to 20 basis points.
We talked about – negative leverage, the tech spending that we ramped up starting a couple years ago. We’re continuing at those levels. Protiviti SG&A versus the year ago up 50 basis points plus or minus 10 to 20 principally training and marketing as they add more people to support their growth which means that overall operating income, the percentage versus revenues would be down 80 basis points plus or minus so say in 10 to 20 range that we’ve been talking about.
Tax rate is like [indiscernible] will be up [indiscernible] versus a year ago, we’ll have fewer grandfathered non-deductible cost which drives up the rate and then the share counts in $114 million. All in all, we’re pretty pleased with the US environment. How we’re performing in the US environment and we’re hopeful that things are going to bottom out in Europe and after that, now for the fourth time we’re particularly encourage with Germany.
All right, well. It sounds like you were prepared for that question. I really appreciate that. I’m sorry to ask this one. I just want to nitpick a little bit, but did you change the way that you calculate your full time internal staff. You finished 2019 with 11,500. I had my notes that you had something like 14,900 last year maybe I had the wrong number. But was there a different way of calculating at this year.
So yes, we did make a change and the change relates to the number of people that we have full time that are out on engagement and bill to clients. It’s long been the case outside the United States and in some cases it’s mandatory starting with Germany that the people you place on engagements are your full time employees. As you know in the technology staffing sector its long been the case that many of those consultants are full time to the staffing company and then they’re put on their engagements from there. And so what we’ve done is we’ve taken from the full time number those that are actually billable on engagements and we’ve reported an internal number, so whereas the prior distinction was full time versus temporary. The distinction we’re now making is internal versus on engagement, which is a subtly different distinction. But the reason being that one of the strategies we have to deal with the candidate shortage as that we’re beginning to put a single digit number of the people we have on billing on our full time payroll and then putting them on engagements because we believe our scale allows to do that and keep them highly utilized and further, we get to access the same pool of people for account temp, office team etc. that we are already getting to access for management resources in Robert Half Technology because that’s a common way of doing business in those sectors.
So it’s a long winded way of saying, yes we made a change and we made a change because it reflects that some of the people we have on billing are in fact our full time employees which has long been the case outside the United States, which has long been the case for a portion of our technology staffing and is more recently the case in accounting and finance.
Got it and the important thing is that on a like for like basis, it was up 3% year-over-year.
Correct the percentages are definitely more like for like basis.
All right, thank you so much for the clarity.
Your next question comes from the line of Manav Patnaik from Barclays. Your line is open. Please go ahead.
Just a question on, you kept the growth rate in temp. You’re saying that it should be kind of similar to the fourth quarter. You’re obviously getting pricing the comps are easing a little bit, is that an element of conservatism or are there, is the volume slipping a little bit more maybe you can help for exact gap?
Well we hope we’re being conservative. We understand that our guidance is at the same growth rates at Q4 with easier compares, but understand the compares are easiest outside of the United States where there is more uncertainty as to how the quarter will play out, but we hope we have upside. We began the quarter strong than we exited the fourth quarter on top of that, we have easier comps, so hopefully we have some upside relative to what we forecast.
Got it, thanks and then just on Protiviti. Like you mentioned in the last call, there were some kind of big contracts in the mix of the fourth quarter, maybe you can give some comment on how those progressed and I guess just generally the pipeline of Protiviti.
Well the pipeline is very strong and we feel great about that. As we talked last quarter, if you look at Protiviti international the growth went from 9% to 3% between quarters three and four and that’s the deceleration, we talked about because they lost a couple big contracts that had [indiscernible] anniversary, so that was consistent with expectation. The good news is, we had more than enough acceleration in the US to more than cover that. But pipeline Protiviti very good and what’s incredible about it, it’s virtually every one of their solution areas and then the go to market with staffing is just gravy on top of that.
Got it. Thank you.
Your next question comes from the line of Gary Bisbee from Bank of America Securities. Your line is open. Please go ahead.
So I guess, it’s interesting when we look at your international. Obviously, you’ve seen deceleration as one would expect, but the deceleration has been significantly after sort of the typical temp data in a lot of these countries outside the US turned down and I caught the comment last manufacturing and understand you have a very different mix. As part of the timing of the deceleration just that higher skilled professional tends to lag low skill and it gets to the extent that part of why things are weakening now, would it be reasonable to expect that reacceleration might lag sort of the reacceleration seen in some of those market at some point in the future. Thank you.
We’ve been around over 30 years and at least the first half of that period there was clearly a theory out there that manufacturing led and that ultimately that made its way to the back office and then the back office is impacted later. I no longer buy into that theory. A; manufacturing is not near as larger percentage of the total as it once was and I don’t think there’s any empirical data that would support in today’s digital world and very intertwined supply chain. I think it happened much more quickly and pretty much coincidentally than it did 15 years ago and longer. So I believe that’s more coincident. I don’t think the principal reason why we were impacted later is because of the traditional manufacturing back office lag. I think it’s impart which countries we’re in, it’s which markets, which disciplines within those countries, what investments have we made particularly in headcount, what’s the quality of leadership which was quite good. I think it’s way more company specific and specific in granular market exposures than it is the old general theme of back office lags manufacturing.
Okay thanks for that color and then, do you have on hand what you expect the number of work days and staffing to be for all for quarters of this year?
Yes, Mike will give you that.
Yes, so by quarter 63.1, quarter two, 63.4. Third quarter, 64.3. And in the fourth quarter, 6.17 for a total of 252.5 billing days for the year.
Thank you.
Your next question comes from Tobey Sommer from SunTrust. Your line is open. Please go ahead.
This is Jasper Bibb on for Toby. I was wondering what you’re seeing with respect to pricing for Protiviti and also how you’re thinking about high [indiscernible] in that segment?
So, the second part cut out, the high, what?
Hiring in Protiviti.
Okay, hiring. And so Protiviti clearly is having to pay its new staff more and it’s impacted by wage inflation which it is successfully passing through as we talked earlier in the call. We’re expecting 100 basis points improvement in gross margin year-over-year, so that’s a good thing as to hiring two sources as I talked earlier about a quarter of their staff resources, they’re sourcing from staffing on adjusting time basis and beyond that, they are very aggressive on campus. They have been forever that’s how the big four grow their staff and Protiviti is right there with them and they’ve got a very aggressive hiring program for 2020 in fact even more so than it was in 2019.
Thanks. Historically it seems there have been demand pauses due to election and tax uncertainty. So it’s kind of – we’re approaching new primary season, what extent do you think that might become a predominant factor in customer decision making again?
It’s hard, it’s hard to comment on political and tax uncertainty. I don’t think it’s risen to every day conversation yet at this point.
Appreciated. Thanks guys.
Your next question comes from the line of Seth Weber from RBC Capital Markets. Your line is open. Please go ahead.
This is [indiscernible] for Seth tonight. I’m sorry, if I missed it, but did you talk about Protiviti seems a little bit better than we expected in the fourth quarter, was staff utilization better or did something else drive that?
It’s a combination of utilization inclusive of using contractors’ source through staffing and I’d say the biggest piece of upside is probably related to the number of people sourced through staffing which by definition have a 100% utilization which helps their margins.
Okay, can you just talk about your CapEx expectations this year and any spend on technology and digital strategy?
So we finished 2019 with CapEx, $90 million for 2020 we’re expecting a range of $100 million to $110 million with Q1 coming in the $20 million to $25 million. The increase in CapEx is largely the result of ongoing investments in technology and specifically new project to implement Workday financials globally. Our legacy financial system is 17 years old and off support and there’s no [indiscernible] bring our financial systems up to date and out of the data center and into the cloud. In addition, we’ve already transitioned to Workday HCM on global basis and this implementation will result in a full integration between these systems.
And then talking more generally digital transformation and technology strategy. We’ve talked several quarters in a row, we’re about providing a world class personalized digital experience for clients and candidates as focused on our websites that’s focused on our mobile app, we continue to refine and improve our AI for our matching engines, we macro target recommendations to clients and candidates, we prioritize leads for our staff. The good news is, we’re now starting to see quantifiable benefits. We’ve seen a significant increase in traffic to our sites both in terms of candidate applications and client leads.
As importantly we’ve also seen an improvement in the quality of those candidates because in many cases, they were pre-matched before we invited them to apply. Also I’m very pleased with our field adoption of our technology tools and in fact, we’re told by salesforce we’re one of the top 10 users in the world of their software which is pretty impressive because we’re certainly not one of the top 10 largest companies in the world. Our mobile app has gotten nice traction. It’s currently 4.8 in the Apple app store. We’ve gotten over 100,000 applications since we launched it in July and further we’ve launched Robert Half Direct earlier last year it’s our online hiring platform where our clients have direct access to a shortlist of candidates, it leverages our technology, it leverages our candidate database that’s maintained by live recruiters around the world, we piloted that in a dozen offices, it extends traditionally our full service offerings to the sales service market. So we’re upbeat about that as well. But the bottom-line is and the thing that’s most encouraging to me, is that we’re beginning to see quantifiable benefits of significance from the investments we’ve made so far and we continue to make those investments.
That’s great. Thanks for all the detail.
[Operator Instructions] your next question comes from George Tong from Goldman Sachs. Your line is open. Please go ahead.
You mentioned you’re still seeing negative growth in France, UK, Belgium and Canada. Can you elaborate on client sentiment and sale cycles in those countries?
Sentiment and sales cycle. I’d say sentiment hasn’t changed much, it’s guarded, it’s cautious, it’s measured and it’s been that way for a while and we’ve included that in the guidance that we’ve given. On the flipside we’ve talked about what appears to be a stabilization in Germany which is our largest non-US operation. But not a lot of change George from what we saw in the fourth quarter, if anything some stabilization in Germany.
Got it, that’s helpful. This cycle has been previously characterized as on that’s relatively supply constraint from a talent perspective. What evidence might you be seeing that suggest that there might be some give with demand as well?
Well as we’ve talked about a couple of times on the call, demand is good. Unless if you ask me, what needs to happen for our growth rates to improve particularly in the United States. The first thing I would say is, we need more fee eligible candidates. If a client needs a person with 10 years’ experience to the extent we have more people with 10 years’ experience, our revenues are going to grow and in a nuanced way or our clients could have more urgency and that when we present a seven-year person to their 10-year requirement, they take the seven-year person. So, the combination of more fee eligible supply and or more client urgency would help us grow our revenues as I just talked about clearly our technology investments are helping less supply.
As we talked earlier, our approach to hire full time some of the people we put out on engagement should also help with supply. But to this point, we are not seeing particularly in the United States any moderation in demand, demand is strong. If we had more fee eligible candidates, we’d report more revenue full stop.
Got it, very helpful. Thank you.
Our next question comes from the line of Hamzah Mazari from Jeffries. Your line is open. Please go ahead.
This is Mario [indiscernible] filling in for Hamzah. This was actually one of the comments on the management team. Congratulations to both of you. But I also had a question about that as well. I just wanted to know, if you’re thinking about any type of change in strategy or if you guys have discussed how you guys are approaching the business. And if you guys have done business almost the same way with slight changes to it over the past eight decade or so. That you just didn’t know if there is a change in thought process or discussion that you guys have had about that?
The fact that I’ve been here 33 years and Mike’s been here 24 years and we’ve both been very involved in the strategy and the execution of that for those periods of time. I don’t think you can any expect any material changes because of the management’s team.
That’s what I figured, I just wanted to ask. And then, on Protiviti. I just wanted to see if you can kind of frame for us, what the competitive environment looks like there and maybe share with us, whether or not you think you’re gaining share?
Well Protiviti’s principal competitors of the big four accounting firms and that’s been true since day one in 2002. Gaining share, I don’t think there is any question that our joint go-to-market with staffing is unique, differentiated and growing more quickly than the big four generally and the consulting market specifically because the big four doesn’t break out their like for like solution similar to Protiviti’s. It’s hard to say, per se whether we’re gaining share. But I can say overall the big four aren’t growing at the same rates of Protiviti and I suspect that we’re gaining share.
We’ve always majored in internal audit and are known as such, more so than even the big four and we’ve gotten tremendous traction in FSI regulatory consulting as I said earlier, we’re extending the base of anti-money laundering into consumer lending where we’ve gotten some very good engagements off late. Technology, security, privacy is a hot area where we are able to attract people into those practices’ success. Breath success, we get all types of awards as an organization. We were just named for the 23rd straight year to Fortune’s Most Admired list. We made Forbes Best Employers for Diversity. We made Bloomberg’s Gender and Equality Index. We made the Human Rights Foundation for best places for LGBTQ equality that’s just in the last couple of months. So, all of those help Protiviti attract and Robert Half generally to attract of the best and brightest which then propels their client satisfaction engagement growth.
Thank you very much.
Your next question comes from David Silver from CL King. Your line is open. Please go ahead.
So, I’m going to ask a question or two I think have been answered in part, but first thing I was going to ask was maybe about your staffing intent, your internal staffing needs for maybe the first quarter and the full year. But you talked about an aggressive plan to staff up the Protiviti. In the past, I guess your first quarter EPS has been affected by additional hiring and the time it takes to absorb that incremental overhead. How should we think about that maybe for your first quarter and the full year’s the staffing as well as Protiviti? Thank you.
By and large, we try to match internal headcounts to top line growth and we just reported for the full year that was the case, 3% on the staffing side and double-digit on the Protiviti side and that would be our plan as we move forward. The principal issue sequentially for the first quarter is that Protiviti has a seasonality impact from your post Sarbanes Oxley compliance and post internal audit ramp up for year end which happens in the fourth quarter, so the following first quarter always is lower by 5% to 7% and I think our guidance has something similar to that for this year. so with that seasonal pattern, inclusive of all of their raises are effective Jan 1 which then take some time to absorb as well, the combination of those sequentially because of that seasonality we backup somewhat at the EPS line, but if you look year-on-year which effectively negates that, Protiviti is growing nicely and double-digit. But that seasonal impact we’ve had for every year for 17 years we’ve had Protiviti. It’s very unexpected and very well managed and the fact that, 25% of their workforce hours come from staffing, makes their cost even more variable.
Okay, thanks. And then I have a question about the CapEx budget and there’s a couple of parts to it, so I hope I get this out in an organized fashion. So, Mike highlighted and increase in budgeted CapEx for this year and if I understand his description correctly, it was focused on I guess improving the back-office reporting and administration side of your business. So, first question there would be, do you anticipate a year-over-year efficiency gain or cost reduction from updating what you said was a fairly outdated or older system. Second thing I would say, I wanted to know about CapEx, you mentioned a couple years ago the major IT investment you made, Keith about effusive as I’ve ever heard you on this call today discussing the revenue generation potential of that two to three-year old investment.
So, what’s the opportunity or what’s the possibility Keith that you might be contemplating a step change in your digital capabilities and maybe kind of stage two development on the IT side to further enhance the efficiencies and opportunities that you first stage front office I’ll call it, IT effort has generated. Thank you.
So, on the Workday financials front, I mean typically changing financial systems is efficiency/cost reduction driven endeavour although I will say, we will be going from on premise to cloud and that should drive some cost reduction and some efficiency. But it’s basically a new financial system, accounts payable, accounts receivable so it’s accounting infrastructure if you will.
On the second point, as I look at our IT initiatives as we sit here today. Its more additional refinement of our AI, it’s additional refinement of our recommendations, marketing, it’s additional refinements of how we help the field generate and prioritize leads, thematically there’s no one big thing that’s going to be new to what we’re already doing. But don’t discount the benefit of the refinements we’re talking because we’re pretty much first generation of everything we’ve already done. But again, the candidate sourcing benefits we’re already seeing are very encouraging and, in the future, make us less dependent on third party sources for candidate for which we spend significant sums that would be plans in years following, we now continue to spend at those amounts.
All right, thanks for that appreciated.
And the last question comes from the line of Mark Marcon from Baird. Your line is open. Please go ahead.
Just a quick question with regards to AB5. Are you seeing any sort of impact?
Well clearly Mark, AB5 for California which is independent contractors versus employee and other states have their own versions of it. Many clients throw their hands up and say, I don’t understand it, I don’t want to understand it. The easiest to way to deal with it, is to only use employees and not use independent contracts. It’s early. There are a lot of exceptions already in that, there’s a lot of flux about whether they’re going to be valid initiative that change it. So, I would say, it’s early. We haven’t seen significant movement but we clearly have seen particularly with larger clients that rather than try to figure it out, they just say let’s make this easy, we will not allow independent contractors which would be good for staffing firms generally enough specifically.
Terrific, thank you.
Okay, so that was our last question. Thank you 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.