Robert Half Q1 2023 Earnings Call Transcript

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Provided by Quartr
April 26, 2023

Key Takeaways

  • Company-wide revenues in Q1 were $1.716 billion, down 5% on a reported basis and 6% on an adjusted basis, with net income per share of $1.14 versus $1.52 a year ago.
  • Contract Talent Solutions revenues declined 9% year-over-year (11% in the U.S., 3% outside the U.S.) despite a 6.9% increase in billing rates.
  • Protiviti achieved its 22nd consecutive quarter of year-over-year revenue growth, up 4% in Q1, and is expected to grow 2–5% in Q2.
  • The company returned capital via a $0.48 per share dividend (up 11.6% year-over-year) and repurchased ~500,000 shares for $38 million, with $13.3 million shares still available under its repurchase plan.
  • Q2 guidance projects revenues of $1.655–1.735 billion (down 7–11% adjusted), EPS of $1.09–$1.19, and overall segment income margins of 8–11%.
AI Generated. May Contain Errors.
Earnings Conference Call
Robert Half Q1 2023
00:00 / 00:00

There are 11 speakers on the call.

Operator

Hello, and welcome to the Robert Half First 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.

Operator

Mr. Waddell, you may begin.

Speaker 1

Thank you. Hello, everyone. We appreciate your time today. Our next question comes from the line of Robert Half. Please go ahead.

Speaker 1

Thanks, 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 ks 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 the 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.

Speaker 1

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. 1st quarter results were largely in line with expectations. Protiviti led the way with its 22nd consecutive quarter of year over year revenue growth.

Speaker 1

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 For the Q1 of 2023, company wide revenues were $1,716,000,000 down 5% from last year's Q1 on a reported basis and down 6% on an as adjusted basis. Net income per share in the Q1 was $1.14 compared to $1.52 in the Q1 1 year ago. Cash flow from operations during the quarter was $66,000,000 In March, we distributed a $0.48 Per share cash dividend to our shareholders of record for a total cash outlay of 54,000,000 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.

Speaker 1

We also acquired approximately 500,000 Robert Half shares during the quarter for $38,000,000 We have 13,300,000 shares available for repurchase under our Board approved stock repurchase plan. Return on invested capital for the company was 31% in the Q1. Now I'll turn it over to our CFO, Mike Buckley.

Speaker 2

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1,716,000,000 in the Q1. On an as adjusted basis, 1st quarter Talent Solutions revenues were down 9% year over year. U. S.

Speaker 2

Talent Solutions revenues were $944,000,000 down 11% from the prior year. Non U. S. Talent Solutions revenues were $278,000,000 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.

Speaker 2

In the first quarter, There were 63.3 billing days compared to 62.4 billing days in the same quarter 1 year ago. The Q2 of 2023 has 63.3 billing days compared to 63.4 billing days during the Q2 of 2022. Currency exchange rate movements during the Q1 had the effect of decreasing recorded year over year total revenues by $21,000,000 $15,000,000 for Talent Solutions and $6,000,000 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 1 year ago, The rate for the Q4 was 7.8%.

Speaker 2

Now let's take a closer look at the results for Protiviti. Global revenues in the Q1 were $494,000,000 $397,000,000 of that is from business within the United States and $97,000,000 is from operations outside of the United States. On an as adjusted basis, Global first quarter productivity revenues were up 4% versus the year ago period, With U. S. Protiviti revenues up 6%, while non U.

Speaker 2

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, 1st quarter gross margin was 39.8% Conversion revenues or contract to hire were 3.7% of revenues in the quarter compared to 4% of revenues in the quarter 1 year ago.

Speaker 2

Our permanent placement revenues in the quarter were 12.8% of consolidated talent solutions revenues versus 13.9% in the same quarter 1 year ago. When combined with Contract Talent Solutions gross margin, Overall gross margin for Talent Solutions was 47.5% compared to 48.3 For Protiviti, gross margin was 22.2 percent of Protiviti revenues compared to 26.2 percent of Protiviti revenues 1 year ago. Adjusted for deferred compensation related classification impacts, Gross margin for Protiviti was 23.2 percent for the quarter just ended compared to 25.3% 1 year ago. Enterprise selling, general and administrative costs or SG and A were 32.2% of global revenues in the 1st quarter compared to 28.3% in the same quarter 1 year ago. Adjusted for deferred compensation related classification impact, Enterprise SG and A costs were 30.9 percent for the quarter just ended compared to 29.8 percent 1 year ago.

Speaker 2

Talent Solutions SG and A costs were 39 percent of Talent Solutions revenue in the Q1 versus 33.6% in the Q1 of 2022. Adjusted for deferred compensation related classification impacts, Talent Solutions SG and A costs were 37.1 percent for the quarter just ended compared to 35.6 percent 1 year ago. The lower mix of permanent placement revenues this quarter versus 1 year ago had the effect of decreasing the quarter's adjusted SG and A ratio by 0.6 percentage points. The increase in Talent Solutions SG and A as a percent of revenues in the current period was driven primarily by internal staff compensation costs. 1st quarter SG and 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.

Speaker 2

Operating income for the quarter was 138,000,000 Adjusted for deferred compensation related classification impacts, combined segment income was $165,000,000 in the 1st quarter. Combined segment margin was 9.6%. 1st quarter segment income from our Talent Solutions divisions was 126,000,000 with a segment margin of 10.3%. Segment income for Protiviti in the Q1 was $39,000,000 with a segment margin of 7 Our first quarter tax rate was 28%, up from 26% for the same quarter 1 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.

Speaker 2

At the end of the Q1, accounts receivable were $1,009,000,000 and Before we move to 2nd quarter guidance, let's review some of the monthly revenue trends we saw in the Q1 and so far in April, all adjusted for currency and billing days. Contract Talent Solutions exited the Q1 with March revenues down 9% versus the prior year compared to an 8% decrease for the full quarter. Revenues for the 1st 2 weeks of April were down 11% compared to the same period 1 year ago. Permanent placement revenues in March were down 17% versus March of 2022. This compares to a 16% decrease for the full quarter.

Speaker 2

For the 1st 3 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 Q1 and into April. But as you know, these are very brief time periods. We caution I guess reading too much into them. With that in mind, we offer the following 2nd quarter guidance.

Speaker 2

Revenues, $1,655,000,000 to $1,735,000,000 income per share $1.09 to $1.19 Midpoint revenues of $1,695,000,000 are 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, 39% to 41% Protiviti 24% to 26% Overall, 40% to 42%.

Speaker 2

SG and A as a percentage of revenues, excluding deferred compensation classification Thanks. Talent Solutions, 37% to 39% Protiviti, 14% to 16% Overall, 30% to 32%. For segment income, Talent Solutions, 8% to 11%, Protiviti 9% to 12%, overall 8% to 11%. For the tax rate, 28% to 29%, shares outstanding 106,000,000 to 107,000,000 2023 capital expenditures and capitalized computing costs $90,000,000 to 100,000,000 with $20,000,000 to $25,000,000 in the 2nd quarter. We limit our guidance to 1 quarter.

Speaker 2

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.

Speaker 1

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.

Speaker 1

The National Federation of Independent Businesses, NFIB, recently reported that 90% of small business owners hiring or Trying to hire 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 part of the marketplace.

Speaker 1

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-nineteen downturn. We also benefit from Tivity'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 Q1.

Speaker 1

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 Diversity just yesterday. Now Mike and I'd be happy to answer your questions.

Operator

Question comes from the line of Andrew Steinerman with JPMorgan.

Speaker 3

Hi, Steve. So when you guide 2nd quarter productivity revenues to be up 2% to 5%. It's about the same as the Q1 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?

Speaker 1

Well, I'd say first of all, Protiviti is still growing. 1st quarter, frankly, it had a normal seasonal quarter. We had expected a somewhat better than normal seasonal quarter. For the 2nd quarter, The expectation in part because they were a little light in the Q1. For the Q2, the expectation is a little below Trend.

Speaker 1

So whereas first quarter expectation was a little above trend, second quarter expectation a little below trend. I'd say, if you look across its solution areas, regulatory risk and compliance is going extremely well. If anything, they're more talent constrained than they are demand constrained. Technology consulting also going well. Internal audit was clearly the most impacted yet still growing, but clients Are a bit slower to sign contracts.

Speaker 1

They're delaying some projects. There was a very small impact from regional banks. For information, About 10% to 12% of Protiviti's FSI practice is with regional banks and FSI is about 40% 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 very large project that downsized quite abruptly that impacted their rates. The good news is they almost immediately replaced that with a project of an even larger size, which should be good for Q2.

Speaker 1

So Q2 guidance, I think is a bit more conservative with Protiviti than was Q1 guidance, internal audit is seeing some impact from client slownessdelays. That said, There's still an expectation that it grows both sequentially and year on year and that in Regulatory Compliance and 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.

Speaker 4

Okay. That sounds good. Thank you.

Operator

Your next question comes from the line of Mark Marcon with Baird.

Speaker 4

Hey, good afternoon, Keith and Mike. Wondering if you can talk a little bit more about Protiviti with regards So 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 Q2, 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 Been expected, how should we think about the decremental margins there as you continue to invest for long term?

Speaker 1

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. It takes some period of time to recover that. Seasonally revenues in internal audit and Sarbanes Oxley compliance Are always lower because to some degree they're crowded out by clients working on their external audits with their external auditors.

Speaker 1

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 in internal audit being a bit softer than the aggressive forecast That had a utilization impact. Further, their staff attrition is running at about 1 half of their normal levels and that also pressures utilization. So the 2 together impacted Gross margin, which in turn fell down to operating or segment income. Looking forward, we do expect Just in the Q2, over 200 basis points of improvement on a sequential basis, They will adjust their contractor employee mix to help utilization.

Speaker 1

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 Q1 and they expect they will continue to make progress on utilizationprofitability for the rest of the year. Now as to economic sensitivity, The good news is that regulatory risk and compliance has little to no economic sensitivity. And 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, future still bright.

Speaker 1

Internal audit We'll still be the growth will still be impacted by the discretion that clients have with 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 internal 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 6 years now of uninterrupted year on year revenue growth And we're very optimistic about the future. Their pipeline is very good.

Speaker 1

It's just that the velocity of that pipeline has slowed a bit As clients take longer to decide, take longer to start projects, But again, it's slowing growth rather than creating negative growth.

Speaker 4

That's great. And then can you talk a little bit about 2 dynamics that are occurring in the market? One, just implications with regards to generative AI and these large language modules. To what extent do you have an opportunity To take your location, 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 and Y provide?

Speaker 1

Okay. So on generative AI, so 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 of manual to spreadsheets. We can think about the payroll processing software, The accounting software that came to be, then there was RPA, then there was blockchain. And in each case, There was no net reduction in the number of jobs in the accounting.

Speaker 1

So notwithstanding what you read in the press and in fact today's press Had a story, today's Wall Street Journal, World Economic Forum said that while there might be 85,000,000 jobs lost due to generative AI, There'll be another 97,000,000 new ones, which reinforces that. And while generative AI might Streamline the automation of routine accounting task. Virtually all companies already have some kind of automated accounting, which might lessen the upside from it. And while we're very optimistic about the potential for our generative AI, Including potential consulting services that you referenced, it's very early days. And while Chatt GPT and others Right very persuasively, they're often confidently wrong.

Speaker 1

And in accounting, The output has to be accurate, trustworthy, ultimately subject to audit. And so that also will impact The impact that generative AI has on accounting. So that's kind of dealing with the potential downside of generative AI. On the upside, as you say, There clearly will be skills and consulting opportunities with Protiviti clients Use of generative AI, I'd say who heard about prompt engineers as an example, as a skill set Even a year ago, that's talked about pretty routinely now. But clearly, there's some skill involved even today in how you use The consumer friendly prompt that Chat GVT produces.

Speaker 1

As to Ernst and Young, We talked before about if it went through, they don't have Their strongest external audit practice has never been financial services and it would have been more concerning had they Then been freed up by this separation to compete more in consulting, but they already compete in consulting Because they don't have that extensive financial services external audit practice, But since it didn't happen and because even while they thought it was going to happen, we already had interest From partners there that weren't necessarily pleased with how they thought they were going to end up, where they were going to end up Or just the uncertainty of it. So I think there are some talent opportunities that we will have because it appears that it's not going to happen. But as you know, many Protiviti people are Arthur Andersen alums. They firsthand went through the Anderson Consulting Accenture, audit separation. So they knew from the beginning That there was some heavy lifting to be done and there wasn't an easy thing to do.

Speaker 5

Perfect. Thank you.

Operator

Your next question comes from the line of Tobey Sommer with Truist.

Speaker 5

Hey, good afternoon. This is Jasper Bibbon for Toby. I was just hoping you could give some additional color on the guidance for Contract Talent Solutions from a This group standpoint, I'm curious if finance or accounting or IT, which of the sub segments are Trending more positively or maybe a bit weaker in the Q2?

Speaker 1

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 and then we deploy on a contract basis. Our clients love the continuity. The clients love that we've sourced them from the full time employment pool. We have very, very strong double digit Growth in the Q1 from we shortcut to FTEP and our guidance for Q2 assumes that that continues. We also had a very solid first quarter with management resources on the accounting finance side, the higher Skills levels there, positive growth.

Speaker 1

We expect that to continue into the second quarter. Our more staff level or operational positions in both F and A and in technology We're more challenged during the Q1 and we would expect that to continue into the second. As we've talked on prior calls, The administrative and customer support function is the most impacted by economic conditions and our guidance would also assume that that continues. So pretty much what you saw in the Q1 translated to the second, maybe a little softer Because the macro has softened a little bit, but not dramatically.

Speaker 5

Thanks. And then, so something you could 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?

Speaker 1

Well, as to internal capacity, we've talked many times about 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 Q2 of last year, we've already taken actions Primarily headcount related that reduced our SG and A spend by $40,000,000 per quarter, Again, on an individual performance basis, our expectation would be we would continue that strategy Into the Q3, there's always a bit of a lag taking that approach. There's probably a couple of pennies That we did not report in the Q1 applicable to the reductions I just talked about That would adhere to the benefit of the Q2. That said, we also have a higher tax rate in the Q2 that pretty much offsets that.

Speaker 1

So capacity management very similar to the past done individually, done very quietly in the background based on individual performance. As to where are we investing, it's the same places I just referred to. Our full time engagement professionals, management resources All the hottest things we got going.

Speaker 5

Got it. Thanks for taking the questions.

Operator

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

Speaker 6

Hi, thanks for taking my question. I was hoping you could touch on your public sector work And how that's trending right now. In a tougher macro, is there potential to kind of 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 sort of your revenue for the quarter, was there a material shift between the segments that may have played into Protiviti's sales growth? Thanks.

Speaker 1

So it's a bit ironic that We announced last quarter that we were no longer going to break out public sector. Well, so lo and behold, we had the first Sequential growth in public sector in several quarters this quarter and that happened both in Protiviti and in Talent Solutions and there wasn't a big shift one to the other, but we were very encouraged That it appears we bottomed out the end of last year and we've now sequentially we had mid single digit sequential growth Both in Protiviti and in Talent Solutions and Public Sector.

Speaker 6

That's really helpful. Thank you.

Operator

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

Speaker 7

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?

Speaker 1

Well, I'd say that the thing that's most different is the labor market's Stronger in the early part of if we're in a cycle, the early part of this cycle. And so we certainly hadn't seen the kind of revenue impacts we would see If we were in a recession proper and as you know every day that continues to be debated, National Association of Business Economists still less than 50% call for a recession in the next 12 months. So We certainly haven't seen full on recession revenue impacts so far And many believes we're not going to based on their forecast, but the jury's out on that. So I guess what is similar is that to the extent there is an impact, perm placement is always about double on a year on year basis, The impact that you see for the contracts side of the business and that companies get more cautious sooner On permanent hiring than they do on contract hiring and there's some shift that happens there and we're seeing that as well. We saw that in the Q1.

Speaker 1

Our guidance for the Q2 assumes the same.

Speaker 7

Got it. That's helpful. And then in the past, you talked about taking out costs and there being a 1 to 2 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 rightsize based on the trends, on the revenue trends that you're seeing today.

Speaker 1

Well, and so on the lag side, There was a couple of pennies of additional benefit not recorded in the Q1 because of that lag that would otherwise Fall into the Q2. But as I just said, that's somewhat offset by we've got a higher second quarter tax rate As well as to calling out number of FTEs, we manage FTEs on an individual performance basis and we don't have Overall goals or targets as to headcounts, but we instead manage it just as I described. By and large, our headcounts tend to track pretty closely to top line. And so whatever your top line assumptions Maybe with a bit of a lag, our headcounts typically follow relatively closely.

Speaker 2

Got it. Thank you.

Speaker 1

I also just said that we've taken $40,000,000 out of our cost On a base of $490,000,000 for Talent Solutions, if you compare to the Q2 of last year.

Operator

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

Speaker 8

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 0 there, I was just wondering if you Add any insights in terms of the impacts there. I know there's been press around small businesses maybe finding it harder to get access to loans.

Speaker 8

And I don't know And if your customer base is seeing that, so I'm just hoping you'd give us some insights there.

Speaker 1

Yes. I talked about earlier Protiviti regional banking exposure about 5% of the revenues pretty insignificant. I'd say even less so on the talent solution side, Not material at all. And as far as impacts, I would say rather than being impacted Specifically, the regional banking crisis to me is just one more thing that clients worry about it's just one more level of uncertainty on top of the cumulative other uncertainties That have been out there now for many, many months. So I wouldn't say it specifically has impacted Either Protiviti or Talend Solutions, but it just generally adds to the overall level of macro uncertainty.

Speaker 8

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

Speaker 1

I'd say relative to trend and we look at the last several years trends by quarter, I'd say relative to trend, our guidance is pretty consistent, 2nd quarter to 1st 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 as and that doesn't surprise me. But relative to trend, we've applied similar discounts this quarter to what we did last quarter.

Operator

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

Speaker 9

Hi, good afternoon. Thank you. It looks like your international business is a bit stronger What you're seeing in the U. S, could you talk about maybe what markets or verticals or areas of your business where you're seeing the most strength?

Speaker 1

People, please go ahead. Sure. The standout country, which has been the case for many, many quarters now is Germany. Germany did very well. Germany is projecting to continue to do well.

Speaker 1

Europe generally Was more solid than the United States. On the Talent Solutions side, on the Protiviti side, there was that one major project I talked about that's already been replaced. But generally speaking, Europe a little stronger across the board, particularly in Germany. U. K.

Speaker 1

Also had a good quarter.

Speaker 9

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

Speaker 9

Thanks so much.

Speaker 1

And so as the growth in bill rates declines, We're currently we've come from 9 ish to high 6s. Would not Surprise us for that to go to the 3%, 4%, 5% range. Frankly, we don't see that being a Margin accretive trend, it's pretty much been passed through and given macro conditions, I wouldn't expect, so let's say it goes to 3%. I wouldn't expect that 3% that to be more margin accretive than the current 6.8% or 7%. It's pretty much a pass through.

Speaker 9

Okay, understood. Thanks so much.

Operator

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

Speaker 3

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

Speaker 1

I'm not sure there's a specific number. I would argue that Embedded in that would probably be something a little less than what we saw in the Q1, kind of along the trend line From the 9 ish we had 2 or 3 quarters ago, but again not much impact to margin. And I would argue and if you looked at our range for the Q1 just ended, our margins did very well and Our margins are doing very well. And one of the strongest things about what's going on now, which would also differ in part Going back to the prior question about comparing it to prior downturns, our margins have held up beautifully In part because these full time engagement professionals are actually a margin accretive relative to core, in part We've got a higher mix of higher skilled management resources, which are also accretive to core. So margins are a good story.

Speaker 1

Margins are a strong story. And that was true for Q1 and that's expected to continue into Q2, but we are very pleased about our margin.

Speaker 3

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

Speaker 1

Well, fixed versus their contractor versus full time, they're in the 40 ish percent range of hours Work are done by contractors versus full time. That's very much driven by the nature of their projects. Some projects are more susceptible to use of contractors, public sector being one of them. It also looks To how they're trying to manage their utilization levels, we would expect that 40% to come down somewhat as Protiviti tries to Operator 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, but still strong, 40% still a good number, 30% would be a good number relative to our early expectations, but it's a very In the second quarter, that's a great thing.

Speaker 3

Understood. Thank you.

Operator

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

Speaker 10

Thanks so much. I know it's late. I'll just ask one. You talked a little bit about the regional bank A 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?

Speaker 1

Well, 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 FSI, Particularly for the smaller sized banks, if anything, it's going to get tougher, not easier. I think that will also be a new opportunity. And so it's not all negative as it relates to regional banks and Protiviti's exposure to that was relatively limited to start with.

Speaker 1

So operator, we're told that was the last question. So thank everyone for joining us today. Thank you very much.

Operator

This concludes today's teleconference. If you missed any or part of the call, it will be archived in audio format in the Investors 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.

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