Hello, and welcome to the Robert Half Fourth Quarter 2023 Conference Call. Today's conference call is being recorded. Our hosts for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half, and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, 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're subject to the risks and uncertainties that could cause actual results to differ materially from forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 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 reference these figures as adjusted. Reconciliations and further 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, roberthalf.com. We delivered above-consensus top and bottom-line results for the fourth quarter with Protiviti leading the way. Global labor demand continues to be resilient and talent shortages persist, although both are modestly below their peaks. Ongoing economic uncertainty continues to impact client and candidate confidence, as well as hiring activity and project starts. Nevertheless, we're encouraged by our improving weekly revenue trends that began in the third quarter and continued into the fourth quarter, approaching a positive inflection point. We entered 2024 confident in our ability to navigate the current climate and optimistic about our growth prospects built on our industry-leading brand, people, technology, and unique business model that includes both professional staffing and business consulting services. For the fourth quarter of 2023, company-wide revenues were $1.473 billion, down 15% from last year's fourth quarter on both a reported and as adjusted basis. Net income per share in the fourth quarter was $0.83 compared to $1.37 in the fourth quarter one year ago. Cash flow from operations during the quarter was $115 million. In December, we distributed a $0.48 per share cash dividend to our shareholders of record for a total cash outlay of $51 million. Our per-share dividend has grown 11.2% annually since its inception in 2004. The December 2023 dividend was 11.6% higher than the prior year. We also acquired approximately 685,000 Robert Half shares during the quarter for $56 million. We have 10.8 million shares available for repurchase under our board-approved stock repurchase plan. Return on invested capital for the company was 22% in the fourth quarter. Now, I'll turn the call to our CFO, Mike Buckley.

Thank you, Keith. Hello, everyone. As Keith just noted, global revenues were $1.473 billion in the fourth quarter. On an as adjusted basis, fourth quarter talent solutions revenues were down 18% year-over-year. US talent solutions revenues were $764 million, down 21% from the prior year's fourth quarter. Non-US talent solutions revenues were $245 million, down 10% year-over-year. We have 313 talent solutions locations worldwide, including 89 locations in 18 countries outside of the United States. In the fourth quarter, there were 61.1 billing days compared to 61.2 billing days in the same quarter one year ago. The first quarter of 2024 has 62.8 billing days compared to 63.3 billing days during the first quarter of 2023. Billing days for the remaining three quarters of 2024 will be 63.5, 64.1, and 61.6 for a total of 252 billing days in the year. Currency exchange rate fluctuations during the fourth quarter had the effect of increasing reported year-over-year total revenues by $11 million, $8 million for talent solutions and $3 million for Protiviti. Contract talent solutions bill rates for the fourth quarter increased by 3.7 compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. This rate for the third quarter was 4.6%. Now let's take a closer look at the results for Protiviti. Global revenues in the fourth quarter were $464 million. $372 million of that is from the United States and $92 million is from outside of the United States. On an as adjusted basis, global fourth quarter Protiviti revenues were down 8% versus the year-ago period. US Protiviti revenues were down 7%, while non-US Protiviti revenues were down 9%. Protiviti and its independently owned member firms serve clients through a network of 89 locations in 29 countries. Turning now to gross margin. In contract talent solutions, fourth quarter gross margin was 39.7% of applicable revenues versus 39.9% in the fourth quarter one year ago. Conversion revenues or contract to hire were 3.4% of revenues in the quarter compared to 3.7% of revenues in the quarter one year ago. Our permanent placement revenues in the fourth quarter were 12% of consolidated talent solutions revenues versus 12.7% in the same quarter one year ago. When combined with contract talent solutions’ gross margin, overall gross margin for talent solutions was 46.9% compared to 47.5% of applicable revenues in the fourth quarter last year. For Protiviti, gross margin was 23.9% of Protiviti revenues compared to 27.2% of Protiviti revenues one year ago. Adjusted for deferred compensation-related classification impacts, gross margin for Protiviti was 25.9% for the quarter just ended compared to 28% last year. We ended 2023 with 10,500 full-time Protiviti employees and contractors, down 9.6% from the prior year. Moving on to selling, general and administrative costs. Enterprise SG&A costs were 35.1% of global revenues in the fourth quarter compared to 31.6% in the same quarter one year ago. Adjusted for deferred compensation-related classification impacts, Enterprise SG&A costs were 32.5% for the quarter just ended compared to 30.4% last year. Talent solutions’ SG&A costs were 44.6% of talent solutions revenues in the fourth quarter versus 38.9% in the fourth quarter of 2023. Adjusted for deferred compensation-related classification impacts, talent solutions’ SG&A costs were 40.8% in the quarter just ended compared to 37.2% last year. The lower mix of permanent placement revenues this quarter versus one year ago had the effect of decreasing the quarter's adjusted SG&A ratios by 0.4 percentage points. We ended 2023 with 8,000 full-time internal employees in our talent solutions divisions, down 13.8% from the prior year. Fourth quarter SG&A costs for Protiviti were 13.5% of Protiviti revenues compared to 13.6% of revenues last year. Operating income for the fourth quarter was $67 million. Adjusted for deferred compensation-related classification impacts, combined segment income was $114 million in the fourth quarter. Combined segment margin was 7.8%. Fourth quarter segment income from our talent solutions divisions was $61 million with a segment margin of 6.1%. Segment income for Protiviti in the fourth quarter was $53 million with a segment margin of 11.4%. Our fourth quarter tax rate was 27%, the same as one year ago. At the end of the fourth quarter, accounts receivable were $861 million and implied days sales outstanding or DSO was 52.6 days. Before we move on to first quarter guidance, let's review some of the monthly revenue trends we saw in the fourth quarter and so far in January, all adjusted for currency and billing days. Contract talent solutions exited the fourth quarter with December revenues down 17% versus the prior year compared to an 18% decrease for the full quarter. Revenues for the first three weeks of January were down 17% compared to the same period last year. On a week-on-week sequential basis, the rates of decline continued to narrow during the quarter, a pattern that began last quarter. Permanent placement revenues in December were down 22% versus December 2022. This compares to a 23% decrease for the full quarter. For the first four weeks of January, permanent placement revenues were down 25% compared to the same period in 2023. We provide this information so you have insight into some of the trends we saw during the fourth quarter and into January. But as you know, these are very brief time periods, so we caution against reading too much into them. With that in mind, we offer the following first quarter guidance: revenues, $1.44 billion to $1.54 billion; income per share, $0.54 to $0.68; midpoint revenues of $1.49 billion or 13% lower than in the same period in 2023 on an as adjusted basis. The major financial assumptions underlying the midpoint of these estimates are as follows: revenue growth year-over-year on an as adjusted basis; talent solutions down 14% to 19%, Protiviti down 3% to 6%, overall down 10% to 15%; gross margin percentage for contract talent 38% to 41%, Protiviti 20% to 22%, overall 37% to 39%; SG&A as a percentage of revenues, excluding deferred compensation classification impacts, talent solutions 40% to 42%, Protiviti 15% to 17%; overall 32% to 34%; segment income for talent solutions 4% to 7%, Protiviti 4% to 7%; overall 4% to 7%; tax rate 29% to 30%; shares $104 million to $105 million; 2024 capital expenditures and capitalized cloud computing costs, $90 million to $110 million with $15 million to $20 million in the first quarter. Protiviti's first-quarter segment income guidance includes the seasonal impact of annual staff promotions and compensation increases, all of which become fully effective on January 1st. This produces a sequential decline in midpoint estimated segment margin of 6 percentage points, which is consistent with the 4 to 7 point decline experienced in most of the last 10 years. We limit our guidance to one quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings.

Thank you, Mike. While job opening demand continues to be above historical levels and candidate supply remains tight, the velocity of hiring remains impacted and there is less churn in the labor force. The great resignation following COVID has given way to the great stay, and employee attrition is down significantly across the globe. That said, the tone of client discussions has improved in the last 90 days due to a combination of lower inflation, a more favorable interest rate policy, fewer predictions of a pending recession, and newly approved staffing levels resulting from the annual budget cycle. These factors contribute to a more positive backdrop heading into 2024 than we saw a year ago. We're optimistic about our opportunities for the year ahead, starting with the reacceleration in the velocity of hiring and the more normalized labor churn that typically follows when client and candidate confidence improves. We're also encouraged by the growth and margin prospects from our continued focus on services related to higher-skilled talent, both in talent solutions and Protiviti. Our investments in higher-skilled services carry many advantages: higher bill rates and gross margins, longer assignment lengths, increased client openness to remote work, more full-time engagement professionals, and less economic sensitivity. This investment has already provided significant benefit in the current cycle, as our cumulative sequential revenue declines during the last six quarters are about half of what they were compared to peak-to-trough declines of the dot-com and financial crisis downturns. We expect this positive mix shift to continue. We continue to invest in technology and innovation, including AI. Major focus areas include providing a world-class digital experience for our clients and candidates that is seamlessly connected to our specialized professional recruiters. Also, we continue to leverage our proprietary data assets to enhance the AI tools our recruiters use to discover, assess, and select talent for our clients and the AI tools our recruiters use to effectively target leads for additional revenue. We're pleased with Protiviti's results for the quarter, led again by the regulatory risk and compliance practice. Other solutions areas were again modestly impacted by client budget measures. Protiviti's pipeline continues to grow, although economic conditions continue to impact the average deal size and the time it takes to close contracts and begin new engagements. Protiviti continues to compete very effectively in the marketplace, benefiting from its focused and nimble solutions offerings and its differentiated breadth and depth of resources, including priority access to scalable contract talent at all skill levels through our talent solutions practices. Protiviti now represents 34% of our annual segment income, which is expected to increase as it expands its small but growing market share in the growing global consulting industry. We've weathered many economic cycles in the past, each time emerging to achieve higher peaks. Aging workforce demographics and clients' desire for flexible resources and variable costs are structural tailwinds that are expected to continue for many years to come. We began the new year energized by our time-tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent and consulting expertise they need to confidently compete and grow. We'd also like to thank our people across the globe whose commitment to success made possible a number of new accolades in 2023. Fourth quarter recognition included being named one of the best workplaces for parents by Great Places to Work, one of America's most responsible companies by Newsweek, and a Best Managed Company of 2023 by The Wall Street Journal. Now, Mike and I would be happy to answer your questions. Please ask just one question and a single follow-up as needed. If there's time, we'll come back to you for additional questions.

Our first question comes from Mark Macon with Baird.

I wanted to focus on Protiviti. It looks like at the midpoint of your guidance, you're basically assuming a positive inflection with regards to the revenue trends, obviously, and not necessarily against an easier comp. So I'm wondering about the level of visibility; are the comments you've made about improving weekly trends consistent there? And what areas or practice areas or geographies are seeing the strongest growth within Protiviti?

Well, the facts are that, let's first look at our first-quarter guidance. It assumes above trend. If you look at the last 10 years of what happens sequentially for Protiviti, it assumes above trend growth, which is a good thing. As to level of visibility, Protiviti certainly has more backlog than is the case for talent solutions. They know what percent of their forecast is already scheduled in their resource system, and that is strong. And so as we look at Q4 into Q1, Q4, as we projected, was very similar to Q3 on a same-day basis, slightly better, beat forecast. And as we move into Q1, as I said before, slightly above traditional sequential trend, which is good for Protiviti. We feel good about where Protiviti is. The first quarter sequentially or seasonally is always a tougher quarter for Protiviti. They, on the one hand, on the revenue side, internal audit, utilization declines modestly because clients focus on getting their external audits done, which crowds out their work on internal audit; that's something that's happened for years and years. And further, they've got their promotions and raises that happened all at once on January 1 firm-wide globally. And their client contract cycle usually begins in the first quarter, and so they begin to recover those higher costs over the course of the year. You don't have to look very far; look at 2023. Look at the gross margin progress they made from the first quarter to the fourth quarter. We would expect, they expect, to see that kind of progress again as we look across 2024. So we feel good about Protiviti. If anything, business conditions are the same or a little better, and we would say the same thing in talent solutions, saying a little better.

And then can you talk a little bit about what you're seeing in terms of competition or pricing? There have been some reports in terms of the big four about potentially having some excess capacity and perhaps discounting a little more than they usually have. Are you seeing that? And to what degree have you offset that with regards to a reduction in the number of contractors and professionals within Protiviti in terms of the cost base?

So as we talked last quarter, the big four have gotten aggressive in certain locations based on their own utilization levels, and price competition has been tough for a couple of quarters. But that's not something that's new, and it's something that's well built into the guidance we've given. As to Protiviti's own cost control measures, they have made a significant reduction. And in fact, the reduction we talked about in the prepared remarks is virtually all contractors year-on-year, and it's certainly a nice variable cost lever they have from a cost standpoint that helps as they deal with this environment versus more normal environments.

Your next question comes from the line of Andrew Steinerman with JPMorgan.

What do you think has led to the improved tone of client discussions in the last 90 days, and does that apply to both talent solutions and Protiviti?

Well, as we mentioned, it's the combination of less inflation, there's really no fears of more rate increases, and in fact, hopes for rate decreases, fewer economists are calling for a recession. So it's a cumulative effect of all of those. There's less concern by our clients that we're going into a recession than there were a year ago, and it sets a slightly more positive tone. I'd say that's true on both the talent solutions and Protiviti side. I mean, it isn't huge, don't get me wrong. The environment is turning better on the talent solutions side and a little better on the Protiviti side, but that's better than what we've been saying for several quarters where it's been declining somewhat.

Your next question comes from the line of Heather Balsky with Bank of America.

I just had a question on your CapEx spend. And if you can help us, just kind of what are the investments for 2024, kind of what might be driving the increase? And I guess, how much of that could be variable in nature depending on how the environment goes?

So first of all, we continue our commitment to technology innovation, AI, as we have for several years in a row. So there's very little change in the piece of that that relates to technology innovation, AI. The increase is almost entirely attributed to Corporate Services in Menlo Park and Pleasanton, San Ramon; we are significantly downsizing our space. In San Ramon, we're actually moving, and that requires tenant improvements, furniture, and fixtures. But that investment, orders of magnitude, which is $20 million, in turn results in rent savings of about $5 million a year. So you can see that pays for itself quickly, and in terms of San Ramon, the lease is 11 years. For savings of $5 million for 11 years, you spend $20 million. So we're going to reduce our footprint by about two-thirds.

And just as a quick follow-up to that. If we take $20 million out of your CapEx, is that the way to think about run rate in future years?

Sure. If you look at our CapEx spending over a 10-year period, it averages about 1.3% of revenue. But for this corporate services move downsize, that's where we would be again in 2024. But as you can see, the $20 million is money well spent because it's essentially driving cost savings.

Your next question comes from the line of Trevor Romeo with William Blair.

First one, I just wanted to kind of follow up on your commentary about approaching a positive inflection point. I think clearly, it does seem like year-over-year declines have leveled off. I guess two questions on this. One, do you see this more a factor of comps becoming easier or the underlying demand improvement getting slightly better? And then two, I guess, could you just define exactly what you mean by positive inflection, whether that's weekly revenue starting to grow again?

And so we're not talking about year-on-year comps getting easier. As we talked about in prior quarters, in this environment, we think it's much more important to look at sequential trends. And within that, weekly sequential trends. So we talked last quarter about from beginning to end of the quarter our weekly sequential revenue trends were about negative 3% from the beginning to the end. If you compare that same statistic through mid-December before the holidays impacted that number, it was about 1%. And so 13 weeks prior to mid-December, the beginning to endpoint only changed by 1%. And so getting that to 1% is getting very close to weekly sequential results going from negative to positive. And that's what we mean by inflection point. It's got nothing to do with year-on-year, and it's got nothing to do with comps being easier or harder, year-on-year. It's saying, if you look at weekly trends for the 13 weeks, which is about a quarter ending mid-December, which doesn't include holiday impacts, beginning to end, we were only down 1%. That's better than the 13 weeks in the third quarter, which was better than the 13 weeks in the second quarter. So we've got a couple of quarters where the weekly sequential trends have improved. And rather than talking about narrowing declines, which is what we've talked about for the last couple of quarters, we're very close to going even, if you will, to the point of having positive weekly trends.

And then just maybe one on Protiviti. I was just wondering if you could maybe give us an update on utilization trends in the quarter, kind of how you're thinking about the balance of headcount versus utilization and within that balance of contractors versus full-time headcount?

Well, utilization was what we expected it to be in the fourth quarter. Generally, Protiviti performed slightly better than we expected, led by our risk and compliance, as we've talked about. In the first quarter guidance, as always, because of the internal audit dynamics I talked about earlier, there's always a modest decline in utilization for the first quarter; that's a seasonal thing. But that seasonal impact, again, is about what we traditionally see and what we expect. So we would argue that sequentially, seasonally, however you want to think about it, Protiviti's first quarter is about what we would expect on a sequential basis. Year-on-year, because you've had three quarters that have been sequentially softer than in the past, year-on-year is still impacted by that. But if you just focus on current results, forecasted first quarter results, sequential impacts are about what we expect. Protiviti at the top line is actually projecting above trend first quarter relative to the last several years.

Your next question comes from the line of Stephanie Moore with Jefferies.

I just wanted to follow up. I think you've clearly explained what you're seeing on a week-over-week basis. So my question is, have you started to maybe adjust the ramping of recruiters or preparing for a potential inflection or improvement in the market? Or what would you need to see to maybe — if you haven't done so, what would you need to see from a sequential or trend standpoint to start making those adjustments?

Well, because we have reduced our recruiter headcount commensurate with revenue declines, we do have dry powder capacity as business conditions improve. So we would not look to immediately begin to add to headcount. But the more continued weekly sequential improvement we see, the more likely it would be that we would begin to add headcount. So we have some capacity, as we speak, which is by design. We haven't been looking to optimize to margins; we've been looking to have dry powder as things get better. We have that, and we can rely on that probably for a quarter or two depending on how quickly things get better. Then we would begin to add to headcount. And I can assure you there is plenty of pent-up demand out in our branch offices for us to add to headcount. That's the understatement of everything I've said so far today.

Your next question comes from the line of George Tong with Goldman Sachs.

At the midpoint, you're guiding to about a 200 basis point step down in EBIT margins from fourth quarter to first quarter. Can you elaborate on what's driving the step down in margins?

Well, I think you're talking about a sequential step down, and that sequential step down is virtually all Protiviti. And that's that typical seasonal impact of less utilization at the revenue line for internal audit, external audit crowding out that I talked about. And then at the cost line, you've got all those raises and the impact of promotions that get recovered on a lag basis over the course of the year. Again, very typical seasonal impact and something that we reverse over the course of the year just as we did during 2023 and in prior years.

And sticking with Protiviti, you mentioned that economic conditions are continuing to impact the average deal size and the time it takes to close contracts. Can you elaborate on some of those developments in terms of maybe providing some metrics and how much deal sizes have changed and how long sales cycles may have elongated?

Well, we haven't gotten that granular. As clients focus on cost, they're conservative, they're more tentative. And to the extent they have demand, they take longer to decide when to pull the trigger. And then once they decide, it takes longer to get the contract and then get the project started. But that's an environment Protiviti has been seeing for the last two or three quarters at a minimum. The good news is the aggregate pipeline continues to grow. However, because it takes longer to convert those to contracts and then longer still to convert those to actual project starts, their revenues are impacted. But the overall pipeline continues to grow, which we're very pleased and we're very optimistic about. It's not new; it's something they've been dealing with for the last at least two or three quarters. And it's not just Protiviti; it's pretty much a consulting industry-wide phenomenon.

Your next question comes from the line of Manav Patnaik with Barclays.

Just back on the margins. I mean, I understand sequentially this is what you see, I guess, every year. But is there something else this year? It just feels a little bit lower than I think we all thought, and perhaps there’s a bigger catch-up for the rest of the year, if you could help us with the cadence there?

Well, the sequential decline is in line as we talked about. I think the issue is you're starting from a lower fourth quarter when you apply that sequential decline to it to get to first quarter than you have in years past. But as far as the sequential impact of the seasonality that I've talked about, it's no greater than before. And in fact, we talked about how at the segment income or operating income level, sequentially, Protiviti is down about 6 percentage points. If you look at the last 10 years, the range of that has been 4 to 7. So while maybe it's a little bit at the higher end of that range, last year, that same sequential decline was 6.5 percentage points. So if anything, it's an improvement relative to a year ago. So no, there is nothing else; there's not something else.

And then just in terms of the—can you just talk about the cross-sell and kind of the success rate you're seeing again between Protiviti and staffing, and if there's anything in particular to call out there?

We continue to compete effectively by having resources from talent solutions and Protiviti available to our clients under one roof with one sales and delivery team. Some of the optimism, some of the reason why we're above trend over first-quarter guidance is we've had a couple of wins recently that are pretty significant that are, in fact, combined wins where talent solutions and Protiviti went to market together. So we're encouraged by that. If you look at Protiviti's revenues, about 25% of their revenues for 2023 were with resources, staff from talent solutions, which peaked at about 30% just post-COVID when due to the nature of some of those public sector engagements they were more contractor-heavy. But we're about 25% of Protiviti's revenues — come from resources that are sourced from talent solutions, but we think that's wonderful. I mean, the hours would be even larger than that, because the average hourly rate for contractors is less than it is for their full-time employees at Protiviti. But 25% of revenues from Protiviti comes from contractor resources, showing it works. We think that will grow over time, and it's a competitive advantage. Nobody else has a business model that includes professional level, contractors together with big-four level consulting resources.

Your next question comes from the line of Kevin McVeigh with UBS.

The Protiviti headcount adjustments and the employee headcount, is that a function of just the deleveraging in the business, or is that some of the technological efficiencies you're starting to see around Gen AI, things like that? Or is that just purely the step function in the revenue?

Well, it started with revenue impacts. Protiviti's revenues, taking 2023 on an annual basis, were only down a couple of single-digit percentage points; not a lot. That said, they had anticipated higher revenues, and when they were recruiting 12 months in advance of that, so they had full-time employees coming on board that they had to adjust for given the flattening of revenues. And the good news is by and large, all of those adjustment reductions came from contractors, and by and large, they protected their full-time employees. But it's not some AI technology-driven impact on the Protiviti side; it's more they're matching their cost to revenues using this tranche of variable cost they have that, frankly, in their prior lives as a big four firm, they didn't have that lever and nor do any other big four firms have that variable lever either. So what a wonderful thing that they have that tranche of variable cost that they can use when they need to, which they have in the last 12 months.

I just want to go back because I want to make sure I'm clear on the margins, because I understand the seasonal step function. But when I look at the absolute dollar of revenue you're guiding to relative to the EPS, like it just seems I'm missing something. I mean, is there any maybe workers' comp accrual, something else? Because I know levels vary, but if I go back to even 2021 and look at $1.4 billion of revenue, you priced at $0.98. And can we reconcile that? And then is there any way — I know you typically don't give annual guidance, but is there a way to think about if you start the year at the midpoint, how does that kind of scale over the course of the year? Just — and again, I think you've been clear, I'm just missing it.

Well, on the talent solutions side, you've got some negative leverage because we haven't cut our headcount commensurate with top-line declines. As I talked about earlier, we haven't tried to optimize trough margins. But instead, we've kept capacity for when things get better. So you've got some negative leverage there. And then on the Protiviti side, we've now talked about many times that you've got the beginning of year promotions, beginning of year salary increases, and you've got the beginning of year utilization contraction for seasonal reasons in internal audit. But if you look over the course of a year, Protiviti last year, as an example, started the first quarter, its operating margin or segment margin was 7.9%, then went to 8.9% and went to 10.9%, and it went to 11.4% between the first quarter and the fourth quarter. And so that's recovering at the top line with contracts, with higher bill rates, that's also better managing the contractor-full-time employee mix. Virtually every year, they improve their margins over the course of the year, and our expectation would be that's true in 2024 as well. But there's no missing piece. Sure, you've got some negative leverage on the talent solutions side, as I just said, and you've got Protiviti out of the gate with smaller margins, but that's always true in the first quarter.

Your next question comes from the line of Kartik Mehta with Northcoast Research.

Keith, I wanted to ask, you talked a little bit about the big four being aggressive and some pricing and some geographies. And I'm wondering with that as a backdrop, maybe your ability to recover some of the cost increases you're seeing because of raises and promotions, and maybe how those dynamics would play out throughout the year.

Protiviti's gross margins are a function of several factors. One is bill rate increases; one are the raises/promotions; one is the mix of contractors versus full-time; one is the shape of the pyramid, meaning the ratio of the higher-level managing directors to the lower-level consultant-level ones and the contractors. There are multiple levers that can be adjusted to manage gross margin. To the extent that you might not get as much as an example from bill rate increases, you can tweak your employee versus contractor mix in part to deal with that. Protiviti well knows each of those levers and has actively managed them, did a very good job during 2023 managing the blend of those levers to bring their margins up significantly from beginning to end of the year. They had 11.4% segment income margins in the fourth quarter, which is fantastic.

And just a question on bank spending. You've talked about, obviously, the need for banks on risk and compliance spending. I'm wondering, has Protiviti seen any pressure from maybe consulting on the technology part or any other part on the banking side?

I'd say on the regulatory compliance and remediation, banks — those things have to happen, and in many cases, the regulators require a third-party consultant at the table. And so that's been very resilient. In 2023, Protiviti had double-digit revenue growth primarily from big banks and financial institutions. So that piece of big banks grew nicely. The internal audit piece of big banks, however, was pressured somewhat as their cost measures put them in a position to convert some of the work that was done by third parties to internal staff, and that was at the expense of all consulting firms, Protiviti included. But when you put the package together, the financial services industry for Protiviti, that includes regulatory risk and compliance as well as internal audit, it still grew single digits. But there were two different pieces of that; one grew nicely, and one was impacted by big bank cost measures.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

This is Ryan on for Jeff. Just can you talk about your bill rates or placements or fee assumptions for 2024?

As you've seen now for many quarters, as wage inflation has come down, there's been a smaller pass-through of that on our side, so the bill rates have come down as well. We would expect over the course of 2024 that wage rate increases would continue to moderate. Therefore, our bill rates would moderate accordingly, but our gross margin spread or the percentage gross margin should remain intact. Frankly, the biggest swing factor, just like we look year-on-year in the fourth quarter, the biggest swing factor was conversions — converting contractors to full-time. Those were down about 30 basis points year-on-year, and that's pretty much the change in gross margins year-on-year. So we would expect some moderation but at the top line — but our gross margin percentage shouldn't be impacted because whatever less our bill rates are, our pay rates would be down accordingly.

And then just related to the prior question. Can you give us a breakdown on some of those underlying Protiviti businesses between the internal audit and the tech consulting and risk and compliance?

Well, strongest was regulatory risk and compliance, where they grew nicely at double-digit rates for the year. Technology consulting, I would say, is flattish, and internal audit would be down mid-single digits. Business process improvement, which includes things like IPO, M&A, to some extent, public sector, that was down by double-digit rates as expected. The good news is, if you just focus on that public sector piece, as state and local governments are understaffed, as local education is understaffed, they're seeing some nice wins, and some of that first-quarter above-trend optimism relates to public sector engagements, which is a wonderful thing.

Thank you.

Okay. So that was our last question. Thank you very much for joining us.

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 roberthalf.com. You can also log in to the conference call replay. Details are contained in the company's press release issued earlier today.