Earnings Call Transcript - RHI Q1 2023

Keith Waddell, President and Chief Executive Officer

Thank you. 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 the 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 explanation of these measures are included in a supplemental schedule to our earnings press release. Our presentation of revenues and the related growth rates for each of our contract functional specializations includes intersegment revenues from services provided to Protiviti in connection with the company's blended talent solutions and consulting operations. This is how we measure and manage these businesses internally. The combined amount of intersegment revenues with Protiviti is also separately disclosed. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com. First quarter results were largely in line with expectations. Protiviti led the way with its 22nd consecutive quarter of year-over-year revenue growth. Talent solutions performed well against a backdrop of client hiring caution and tight labor markets. We remain very optimistic about our ability to navigate the uncertain global macroeconomic environment and are well-positioned to benefit as the macro landscape improves. For the first quarter of 2023, company-wide revenues were $1.716 billion, down 5% from last year's first quarter on a reported basis and down 6% on an as adjusted basis. Net income per share in the first quarter was $1.14 compared to $1.52 in the first quarter one year ago. Cash flow from operations during the quarter was $66 million in March. We distributed a $0.48 per share cash dividend to our shareholders of record for a total cash outlay of $54 million. Our per share dividend growth was 11.7% annually since its inception in 2004. The March 2023 dividend was 11.6% higher than in 2022. We also acquired approximately 500,000 Robert Half shares during the quarter for $38 million. We have $13.3 million shares available for repurchase under our Board approved stock repurchase plan. Return on invested capital for the company was 31% in the first quarter. Now I'll turn it over to our CFO, Mike Buckley.

Michael Buckley, Chief Financial Officer

Thank you, Keith, and hello everyone. As Keith noted, global revenues were $1.716 billion in the first quarter. On an as adjusted basis, first quarter talent solutions revenues were down 9% year-over-year. U.S. talent solutions revenues were $944 million, down 11% from the prior year. Non-U.S. talent solutions revenues were $278 million, down 3% year-over-year on an as adjusted basis. We have 317 talent solutions locations worldwide, including 86 locations in 18 countries outside of the United States. In the first quarter, there were 63.3 billing days compared to 62.4 billing days in the same quarter one year ago. The second quarter of 2023 has 63.3 billing days compared to 63.4 billing days during the second quarter of 2022. Currency exchange rate movements during the first quarter had the effect of decreasing reported year-over-year total revenues by $21 million — $15 million for talent solutions and $6 million for Protiviti. This negatively impacted our year-over-year overall revenue growth rate by 1.2 percentage points, 1.1 percentage points for talent solutions, and 1.3 percentage points for Protiviti. Contract talent solutions bill rates for the quarter increased 6.9% compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency, and country. The rate for the fourth quarter was 7.8%. Now, let's take a closer look at the results for Protiviti. Global revenues in the first quarter were $494 million, $397 million of that is from business within the United States, and $97 million is from operations outside of the United States. On an as adjusted basis, global first quarter Protiviti revenues were up 4% versus a year-ago period, with U.S. Protiviti revenues up 6%, while non-U.S. Protiviti revenues were down 1%. 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, first quarter gross margin was 39.8% of applicable revenues compared to 40% of applicable revenues in the first quarter one year ago. Conversion revenues or contract to hire were 3.7% of revenues in the quarter compared to 4% of revenues in the quarter one year ago. Our permanent placement revenues in the quarter were 12.8% of consolidated talent solutions revenues versus 13.9% in the same quarter one year ago. When combined with contract talent solutions gross margin, overall gross margin for talent solutions was 47.5% compared to 48.3% of applicable revenues in the first quarter one year ago. For Protiviti, gross margin was 22.2% of Protiviti revenues compared to 26.2% of Protiviti revenues one year ago. Adjusted for deferred compensation related classification impacts, gross margin for Protiviti was 23.2% for the quarter just ended compared to 25.3% one year ago. Enterprise selling general and administrative costs, or SG&A, were 32.2% of global revenues in the first quarter compared to 28.3% in the same quarter one year ago. Adjusted for deferred compensation related classification impacts, enterprise SG&A costs were 30.9% for the quarter just ended compared to 29.8% one year ago. Talent solutions SG&A costs were 39% of talent solutions revenue in the first quarter versus 33.6% in the first quarter of 2022. Adjusted for deferred compensation related classification impacts, talent solutions’ SG&A costs were 37.1% for the quarter just ended compared to 35.6% one year ago. The lower mix of permanent placement revenues this quarter versus one year ago had the effect of decreasing the quarter's adjusted SG&A ratio by 0.6 percentage points. The increase in talent solutions SG&A as a percent of revenues in the current period was driven primarily by internal staff compensation costs. First quarter SG&A costs for Protiviti were 15.3% of Protiviti revenues compared to 13.3% of revenues in the year-ago period as operating expenditures returned to more normal pre-pandemic levels. Operating income for the quarter was $138 million. Adjusted for deferred compensation related classification impacts, combined segment income was $165 million in the first quarter. Combined segment margin was 9.6%. First quarter segment income from our talent solutions divisions was $126 million with a segment margin of 10.3%. Segment income for Protiviti in the first quarter was $39 million with a segment margin of 7.9%. Our first quarter tax rate was 28%, up from 26% for the same quarter one year ago. The higher tax rate for 2023 can be primarily attributed to lower tax credits as well as lower stock compensation deductions due to the company's stock price. At the end of the first quarter, accounts receivable were $1.009 billion dollars and implied day sales outstanding, or DSO, was 52.9 days. Before we move to second quarter guidance, let's review some of the monthly revenue trends we saw in the first quarter and so far in April — all adjusted for currency and billing days. Contract talent solutions exited the first quarter with March revenues down 9% versus the prior year compared to an 8% decrease for the full quarter. Revenues for the first two weeks of April were down 11% compared to the same period one year ago. Permanent placement revenues in March were down 17% versus March of 2022. This compares to a 16% decrease for the full quarter. For the first three weeks of April, permanent placement revenues were down 13% compared to the same period in 2022. We provide this information so that you have insight into some of the trends we saw during the first quarter and into April. But as you know, these are very brief time periods, and we caution against reading too much into them. With that in mind, we offer the following second quarter guidance: Revenues of $1.655 billion to $1.735 billion. Income per share of $1.09 to $1.19, with midpoint revenues of $1.695 billion being 9% lower than the same period in 2022 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 11% to down 16%, Protiviti up 2% to up 5%. Overall, down 7% to down 11%. Gross margin percentage for contract talent should be in the range of 39% to 41%. Protiviti should be between 24% to 26% overall 40% to 42%. SG&A as a percentage of revenues, excluding deferred compensation classification impacts, should be talent solutions at 37% to 39%, Protiviti at 14% to 16%, and overall at 30% to 32%. For segment income, talent solutions at 8% to 11%, Protiviti at 9% to 12%, overall at 8% to 11%. For the tax rate, 28% to 29%, shares outstanding at $106 million to $107 million. Capital expenditures for 2023 are estimated to be $90 million to $100 million with $20 million to $25 million in the second quarter. We limit our guidance to one quarter; all estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings. Now, I'll turn the call back over to Keith.

Keith Waddell, President and Chief Executive Officer

Thank you, Mike. Global labor markets remain tight, and clients continue to hire, albeit at a more measured pace; many are more selective and have added steps to their hiring processes, which impacts their decision timeframes and lengthens our sales cycle. Talent shortages continue, while modestly off their peaks. Job openings and quit rates in the United States remain well above historical levels, and the unemployment rate stands at 3.5%, a 50-year low. The National Federation of Independent Businesses recently reported that 90% of small business owners looking to hire have had few or no qualified applicants, and 43% of all small business owners had job openings that cannot be filled. Protiviti achieved another solid quarter of revenue growth led by the regulatory risk and compliance practice as well as technology consulting. Protiviti continues to have a very strong pipeline across an increasingly diverse offering of solutions. We continue to invest in the tools we need to secure top talent for our clients by combining the power of our proven artificial intelligence-based technologies with the skills, judgment, and expertise of our specialized recruiting professionals. It is our unique and powerful combination of both that sets us apart in the marketplace. We've weathered many economic cycles in the past, each time emerging to achieve higher peaks. The most recent includes the fastest recovery in our company's history following the COVID-19 downturn. We also benefit from Protiviti's greater resiliency stemming from its diversified solutions offerings. We remain committed to our time-tested corporate purpose to connect people to meaningful and exciting work and to provide clients with the talent and consulting expertise they need to confidently compete and grow. Our employees across the globe made possible a number of accolades in the first quarter; we are proud to have earned three prestigious awards from Fortune: the Inaugural America's Most Innovative Companies, the 100 Best Companies to Work For, and for the 26th consecutive year, The Most Admired Companies. We were also recognized by Forbes as a Best Employer for Diversity just yesterday. Now Mike and I would be happy to answer your questions. Please ask just one question with a single follow-up as needed. If there's time, we'll come back to you for additional questions.

Andrew Steinerman, Analyst

Hi, Keith. So when you guide second quarter Protiviti revenues to be up 2% to 5%, it's about the same as the first quarter that we just saw at 4%. My question is what's holding back higher growth at Protiviti? Would you consider the economy weighing on Protiviti's growth here?

Keith Waddell, President and Chief Executive Officer

Well, I'd say, first of all, Protiviti is still growing. First quarter, frankly, it had a normal seasonal quarter; we had expected a somewhat better-than-normal seasonal quarter. For the second quarter, the expectation, in part because they were a little light in the first quarter, is a little below trend. So, whereas first quarter expectation was a little above trend, second quarter expectation is a little below trend. I'd say if you look across its solution areas, regulatory risk and compliance is doing extremely well. If anything, they're more talent constrained than they are demand constrained; technology consulting is also going well. Internal audit was clearly the most impacted yet still growing, but clients are a bit slower to sign contracts. There's a very small impact from regional banks; for information, about 10% to 12% of Protiviti's financial services practice is with regional banks, and financial services is about 40% of Protiviti's total, so translated, only 4% or 5% of Protiviti revenues relate to regional banks, but there was a little softness there. And further in Europe, there was a large project that downsized abruptly, which impacted their rates. The good news is they almost immediately replaced that with a project of even larger size, which should be good for Q2. So, Q2 guidance, I think, is a bit more conservative for Protiviti than was Q1 guidance. Internal audit is seeing some impacts from client’s slowness and delays. That said, there's still an expectation that both grow sequentially and year-on-year, and that in regulatory compliance and in technology consulting, the growth be even stronger. So overall, we feel good about Protiviti's pipeline; we feel good about where it is, the fact that it's growing notwithstanding the environment. And hopefully, Q2 guidance will end up being more conservative.

Andrew Steinerman, Analyst

That sounds good. Thank you.

Mark Marcon, Analyst

Hey, good afternoon, Keith and Mike. Wondering if you can talk a little bit more about Protiviti regarding the margin profile. Revenue was just slightly changed in Q1 relative to Q4 of last year. But the gross margin ended up declining sequentially, as did the operating margin. I'm wondering, to what extent was that just because you had bench strength and potentially some impacts from that European client that you mentioned. How should we think about the margins on a go-forward basis, not just for the second quarter, which you've given us guidance for, but just thinking about it if the economy gets materially worse? And I fully recognize Protiviti grew during all of the COVID downturn, but if things get a little bit worse than expected, how should we think about the decremental margins as you continue to invest for the long term?

Keith Waddell, President and Chief Executive Officer

Okay. So let's separate typical seasonal margin impacts. Seasonally, Q1 margins are always compressed to some degree because they've given annual raises January 1st, and it takes some period of time to recover that. Seasonally, revenues and internal audit and surveys are always lower because, to some degree, they're crowded out by clients working on their external audits with their external auditors. So, some seasonal compression is always the case on a sequential basis. It was a little larger this time because of staff utilization with revenues and internal audit being a bit softer than the aggressive forecast that had a utilization impact. Further, their staff attrition is running at about one-half of their normal levels and that also pressures utilization. So the two together impacted gross margin, which in turn fell down to operating or segment income. Looking forward, we do expect just in the second quarter over 200 basis points of improvement on a sequential basis. They will adjust their contractor employee mix to help utilization; they will adjust the hiring rate for experienced hires because of the lower attrition. And from those, they'll get better utilization. It still won't quite be what it was a year ago, but it will be 200 basis points plus what it was in the first quarter, and we expect they will continue to make progress on utilization/profitability for the rest of the year. As for economic sensitivity, the good news is that regulatory risk and compliance has little to no economic sensitivity. If anything, the current banking environment would tell you that there will be more rather than less regulation as we move forward. So, I would argue the future is even brighter for that. Technology consulting, cyber data analytics, the future is still bright. Internal audit will still be — the growth will still be impacted by the discretion that clients have with respect to internal audit, including the ability to use some of their own staff rather than co-source to firms like Protiviti. But the expectation is that even internal audit will continue to grow; it will just be at a slower pace. So net/net, we're very pleased with Protiviti. As we said, we've almost had six years now of uninterrupted year-on-year revenue growth, and we're very optimistic about the future; their pipeline is very good. It's just that the velocity of that pipeline has slowed a bit as clients take longer to decide and take longer to start projects. But again, it's slowing growth rather than creating negative growth.

Mark Marcon, Analyst

That's great. And then can you talk a little bit about two dynamics that are occurring in the market? One, just implications with regards to Generative AI and these large language models. To what extent do you have an opportunity to take your location and what you've already done on AI and build that out in a practice from a consulting perspective within Protiviti? And then what sort of opportunities does some of the dislocations that are occurring at E&Y provide?

Keith Waddell, President and Chief Executive Officer

Okay. So on Generative AI, let's first deal with a lot of what you read in the press. Accounting jobs have been called out numerous times in the past for disruption. During our careers, we can think about the period from manual processes to spreadsheets. We can think about payroll processing software, the accounting software that came to be; then there was RPA, followed by blockchain. In each case, there was no net reduction in the number of jobs in accounting, so notwithstanding what you read in the press. In fact, today’s press had a story from the World Economic Forum, stating that while there might be 85 million jobs lost due to Generative AI, there will be another 97 million new ones, which reinforces that. While Generative AI might streamline the automation of routine accounting tasks, virtually all companies already have some kind of automated accounting, which might lessen the upside from it. While we're very optimistic about the potential for our Generative AI, including potential consulting services that you referenced, it's early days. While ChatGPT and others write very persuasively, they're often confidently wrong. And in accounting, the output has to be accurate, trustworthy, and ultimately subject to audit, which also affects what impact Generative AI has on accounting. So that's kind of dealing with the potential downside of Generative AI. On the upside, we have skills and consulting opportunities with our Protiviti clients' uses of Generative AI. I'd say, who heard about prompt engineering as a skill set even a year ago? That's talked about quite routinely now. But clearly, there’s skill involved even today in how you use consumer-friendly prompts that ChatGPT produces. Regarding Ernst and Young, we have discussed previously that if it went through, they don't have their strongest external audit practice, which has never been financial services. If they had been freed up by this separation to compete more in consulting, it would have been more concerning, but they already compete in consulting because they don't have that extensive financial services external audit practice. Since that didn't happen, and even while they thought it was going to happen, we already had interest from partners there who weren't necessarily pleased with how they thought they were going to end up. So, I think there are some talent opportunities that we will have because it appears that the separation isn't going to happen. Many Protiviti people are Arthur Andersen alums; they experienced firsthand the Andersen Consulting-Accenture audit separation. So they knew from the beginning that there was some heavy lifting to be done, and it wasn't an easy task.

Mark Marcon, Analyst

Perfect. Thank you.

Jasper Bibb, Analyst

Hey. Good afternoon. This is Jasper Bibb, on for Tobey. I was just hoping you could give some additional color on the guidance for contract talent solutions from a practice group standpoint. I’m curious, finance of accounting or IT, which of the sub-segments are trending more positively or maybe a bit weaker in the second quarter?

Keith Waddell, President and Chief Executive Officer

Well, from a trend standpoint, the absolute strongest thing we have going are what we call our full-time engagement professionals, where we employ full-time staff and then deploy them on a contract basis. Our clients love the continuity; they love that we've sourced them from the full-time employment pool. We had very strong double-digit growth in the first quarter from what we shorthand to FTEP, and our guidance for Q2 assumes that continues. We also had a very solid first quarter with management resources on the accounting and finance side, and positive growth there is expected to continue into the second quarter. Our more staff-level or operational positions in both finance and accounting and in technology were more challenged during the first quarter, and we would expect that to continue into the second. As we've discussed on prior calls, the administrative and customer support function is the most impacted by economic conditions, and our guidance would also assume that continues. So pretty much what you saw in the first quarter will translate to the second, maybe a little softer because the macro has softened a little bit, but not dramatically.

Jasper Bibb, Analyst

Thanks. And could you comment on how you're intending to manage internal capacity in light of what you're seeing on the demand side? Are there areas where you might be reducing staff levels today, and where are you investing most aggressively in internal growth?

Keith Waddell, President and Chief Executive Officer

As to internal capacity, we've talked many times about how we manage headcount on an individual performance basis. We've continued to do that, and we do that quietly in the background. That said, relative to the second quarter of last year, we've already taken actions, primarily headcount-related, that reduced our SG&A spend by $40 million per quarter on an individual performance basis. Our expectation would be we would continue that strategy into the third quarter. There's always a bit of a lag in taking that approach. There are probably a couple of pennies that we did not report in the first quarter applicable to the reductions I just talked about that would appear in the second quarter. That said, we also have a higher tax rate in the second quarter that pretty much offsets that. So capacity management is very similar to the past, done individually, done quietly in the background based on individual performance. As to where are we investing, it is the same places I just referred to; our full-time engagement professionals and management resources are the strongest areas we have.

Heather Balsky, Analyst

Hi. Thanks for taking my question. I was hoping to touch on your public sector tech work and how that's trending right now. In a tougher macro, is there a potential benefit from that environment in that business? And I know you're pretty agnostic as to where those revenues come from, whether it's the staffing side of the business or the consulting. But I'm curious, when you look at your revenue for their quarter, you know, was there a material shift between the segments that may have played into Protiviti's sales growth? Thanks.

Keith Waddell, President and Chief Executive Officer

It's a bit ironic. We announced last quarter that we were no longer going to break out public sector. What's more, we had the first sequential growth in public sector in several quarters this quarter, and that happened both in Protiviti and in talent solutions. There wasn't a big shift from one to the other, but we were encouraged that it appears we bottomed out at the end of last year and we now have sequentially mid-single-digit growth in both Protiviti and in talent solutions in the public sector.

George Tong, Analyst

Hi, thanks. Good afternoon. You mentioned that client hiring is moderating and sales cycles are elongating. Can you compare how this cycle is playing out compared to other cycles in Robert Half's history? What are some of the similarities and differences that you're seeing?

Keith Waddell, President and Chief Executive Officer

Well, I'd say that the thing that's most different is the labor market is stronger in the early part of — if we're in a cycle, the early part of this cycle. We certainly haven't seen the kind of revenue impacts we would see if we were in a proper recession. And as you know, every day that continues to be debated; the National Association of Business Economists still has less than 50% calling for a recession in the next 12 months. So we certainly haven't seen full-on recession revenue impacts so far, and many believe we're not going to based on their forecast, but the jury is out on that. I guess what is similar is that to the extent there is an impact, our permanent placement is always about double on a year-on-year basis the impact that you see for the contract side of the business. Companies get more cautious sooner on permanent hiring than they do on contract hiring, and there's a shift that happens there. We're seeing that as well. We saw that in the first quarter. Our guidance for the second quarter assumes the same.

George Tong, Analyst

Got it. That's helpful. And then in the past, you've talked about taking out costs and there being a one- to two-quarter lag before the cost takeout can accurately reflect top-line trends and flow through to margins. Where are you in your journey of cost takeout, and how many additional heads or FTEs do you expect to right-size based on the trends on the revenue trends that you're seeing today?

Keith Waddell, President and Chief Executive Officer

Well, on the lag side, there were a couple of pennies of additional benefit not recorded in the first quarter because of that lag that would otherwise fall into the second quarter. But as I just said, that's somewhat offset by our higher second-quarter tax rate as well. Regarding the number of FTEs, we manage our FTEs on an individual performance basis; we don't have overall goals or targets for headcounts, but we manage it as I described. By and large, our headcounts tend to track closely to top line. Whatever your top line assumptions are, maybe with a bit of a lag, our headcounts typically follow relatively closely.

Manav Patnaik, Analyst

Thank you. Keith, I just wanted to follow-up. Do you have any bank, regional bank exposure outside of Protiviti? And since you were pretty much close to ground zero there, I was just wondering if you could provide insights in terms of, you know, the impacts there. I know there's been press around small businesses potentially finding it harder to get access to loans, and I know that your customer base is seeing that. So I'm just hoping you could give us some insights there.

Keith Waddell, President and Chief Executive Officer

Yes. I talked earlier about Protiviti's regional banking exposure; it's about 5% of revenues, pretty insignificant. I'd say even less so on the talent solution side, not material at all. As for impacts, I'd say rather than being specifically impacted by the regional banking crisis, it's just one more thing that clients worry about, which adds to their overall level of macro uncertainty.

Manav Patnaik, Analyst

Okay. And regarding your comments on being a bit more conservative, I think that was specific to Protiviti, but could you provide some color on how you're thinking about the rest of the businesses relative to maybe the last quarter that you gave guidance on?

Keith Waddell, President and Chief Executive Officer

I'd say relative to trend, and we look at the last several years' trends by quarter, our guidance is pretty consistent from the second quarter to the first quarter on the talent solution side. As is usually the case, our people in the field are more optimistic than that. We were a little above midpoint last quarter, and so we over discounted; that doesn't surprise me. But relative to trend, we've applied similar discounts this quarter to what we did last quarter.

Stephanie Moore, Analyst

Hi. Good afternoon. Thank you. You know, it looks like your international business is a bit stronger than what you're seeing in the U.S. Could you talk about maybe what markets, verticals, or areas of your business where you're seeing the most strength?

Keith Waddell, President and Chief Executive Officer

Sure. The standout country, which has been the case for many quarters now, is Germany. Germany did very well and is projected to continue to do well. Europe, generally, was more solid than the United States on the talent solution side. On the Protiviti side, there was that one major project I talked about that’s already been replaced. Generally speaking, Europe is a little stronger across the board, particularly in Germany; the UK also had a good quarter.

Stephanie Moore, Analyst

Great. Thank you. And then I wanted to touch a bit on bill rates. You know, I think for the quarter, they came in a little bit lower than what we've seen in the last several quarters or so. So could you maybe talk a little bit about at what level should the company be able to take an incremental spread on those bill rates as they ease, or how you're thinking about the market dynamics and your ability to do so? Thanks so much.

Keith Waddell, President and Chief Executive Officer

As the growth in bill rates declines, we're currently coming from 9% to high 6%. It would not surprise us for that to go to the 3%, 4%, or 5% range. Frankly, we don't see that being a margin accretive trend; it's pretty much been a pass-through. Given macro conditions, I wouldn't expect, so let's say it goes to 3%. I wouldn't expect that to be more margin accretive than the current 6.8% or 7%. This is pretty much a pass-through.

Kevin McVeigh, Analyst

Great. Thank you. Hey, Keith, can you just follow-up to that? What's the implied bill rate in the Q2 guidance percentage?

Keith Waddell, President and Chief Executive Officer

I'm not sure if there's a specific number. I would argue that embedded in that, we’re probably be something a little less than what we saw in the first quarter; kind of along the trend line from the 9% that we had two or three quarters ago. But again, not much impact on margins. I would argue if you looked at our range for the first quarter just ended, our margins did very well, and our margins are doing very well. One of the strongest things about what's going on now, which would also differ in part from previous downturns, is that our margins have held up beautifully in part because these full-time engagement professionals are margin accretive relative to the core, due to our higher mix of higher-skilled management resources, which are also accretive to Core. So margins are a good story; margins are a strong story, and that was true for Q1 and is expected to continue into Q2. But we are very pleased with our margin.

Kevin McVeigh, Analyst

On that point, can you just remind us to what's the mix of Protiviti today, kind of fixed net versus variable?

Keith Waddell, President and Chief Executive Officer

Well, fixed versus the contract versus full-time, they're in the 40%-ish range of hours worked done by contractors versus full-time employees. That's very much driven by the nature of their projects; some projects are more susceptible to the use of contractors, public sector being one of them. It also relates to how they're trying to manage their utilization levels. We would expect that 40% to come down somewhat as Protiviti tries to bring their utilization higher in part because of their lower attrition in part because internal audit is growing at a slightly smaller rate than they had projected. However, 40% is still a good number; 30% would be a good number relative to our early expectations, but it's a very effective way for them to manage their utilization and, therefore, their profitability. They do expect to be back to double-digit segment income in the second quarter. That's a great thing.

Jeff Silber, Analyst

Thanks so much. I know it's late. I'll just ask one. You talked a little bit about the regional bank crisis. I'm just curious, from a potentially positive perspective, are you seeing any more interest in some of your risk consulting work because of what's been happening, even beyond what you do in your financial services practice?

Keith Waddell, President and Chief Executive Officer

We do have new opportunities that relate to that crisis. We never talk about specific clients, but there are new opportunities. I think the regulatory environment in financial services, particularly for the smaller-sized banks, if anything, is going to get tougher, not easier. I think that will also be a new opportunity, and it's not all negative as it relates to regional banks. Protiviti's exposure to that was relatively limited to start with. So operator, we were told that was the last question. So thanks everyone for joining us today. Thank you very much.

Operator, Operator

This concludes today's teleconference. If you missed any or 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 contained in the company's press release issued earlier today.