Robert Half International Inc (RHI) Q1 2023 Earnings Call Transcript

Robert Half International Inc (NYSE: RHI) Q1 2023 earnings call dated Apr. 26, 2023

Corporate Participants:

Keith Waddell — Vice Chairman, President and Chief Executive Officer

Michael Buckley — Executive Vice President and Chief Financial Officer

Analysts:

Andrew Steinerman — J.P. Morgan — Analyst

Mark Marcon — Baird — Analyst

Jasper Bibb — Truist Securities — Analyst

Heather Balsky — Bank of America — Analyst

George Tong — Goldman Sachs — Analyst

Manav Patnaik — Barclays — Analyst

Stephanie Moore — Jefferies — Analyst

Kevin McVeigh — Credit Suisse — Analyst

Jeff Silber — BMO Capital Markets — Analyst

Presentation:

Operator

Hello, and welcome to the Robert Half First Quarter 2023 Conference Call. Today’s conference call is being recorded. [Operator Instructions]

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.

Keith Waddell — Vice Chairman, President & Chief Executive Officer

Thank you. Hello, everyone. We appreciate your time today.

Before we get started, I would like to remind you that the comments made on today’s call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to 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 as adjusted. Reconciliations and further explanations 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, companywide 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 the call over to our CFO, Mike Buckley.

Michael Buckley — Executive Vice President & 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 the United States. On an as adjusted basis, global first quarter Protiviti revenues were up 4% versus the 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 quarter — 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 revenues 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, and implied days 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 a 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. We caution against reading too much into them.

With that in mind, we offer the following second quarter guidance. Revenues, $1.655 billion to $1.735 billion; income per share, $1.09 to $1.19. Midpoint revenues of $1.695 billion 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, 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%.

SG&A as percent of revenues, excluding deferred compensation classification impacts, talent solutions, 37% to 39%; Protiviti, 14% to 16%; Overall, 30% to 32%. 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 million to 107 million. 2023 capital expenditures and capitalized computing costs, $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 — Vice Chairman, President & 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 time frames 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 Business, 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 could not 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. This most recently 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 of Diversity just yesterday.

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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Andrew Steinerman with J.P. Morgan.

Andrew Steinerman — J.P. Morgan — 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 — Vice Chairman, President & 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 par because they were a little light in the first quarter. For the second quarter, the expectation is a little below trend. So whereas first quarter expectation was a little above trend, second quarter expectation a little below trend. I’d say, if you look across at 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. They are 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% of Protiviti’s total, so translated only 4% or 5% of Protiviti revenues related to regional banks. But there was a little softness there.

And further, in Europe, there was a very large project that downsized quite broadly 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. So, Q2 guidance, I think is a bit more conservative with Protiviti than was Q1 guidance. Internal audit, you’re seeing some impact from clients slowness/delays. That said, there’s still an expectation that it grows both 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 — J.P. Morgan — Analyst

Got it. That sounds good. Thank you.

Operator

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

Mark Marcon — Baird — Analyst

Hey, good afternoon, Keith and Mike. Wondering if you can talk a little bit more about Protiviti with regards to 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 picked 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, you know, 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 there as you continue to invest for the long-term?

Keith Waddell — Vice Chairman, President & 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. It takes some while — some period of time to recover that. Seasonally, revenues and internal audit and Sarbanes-Oxley compliance are always lower because to some degree they are 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 will get better utilization. It still will quite be what it was a year ago, but it will be 200 basis points plus what it was in the first quarter and they expect they will continue to make progress on utilization/profitability 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 that future is even brighter for that. Technology consulting, cyber, data analytics, 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 the co-source to firms 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 six years now uninterrupted year-on-year revenue growth and we’re very — 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, take longer to start projects. But again, it’s slowing growth rather than creating negative growth.

Mark Marcon — Baird — Analyst

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, 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 — Vice Chairman, President & Chief Executive Officer

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 carriers, 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. 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, well, there might be 85 million jobs lost due to generative AI, there’ll be another 97 million 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 ChatGPT and others write very persuasively, they’re often confidently wrong. 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 [Phonetic] 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 is some skill involved even today and how you use the consumer — consumer-friendly prompt that ChatGPT produces.

As to Ernst & Young, we talked before about if it went through, they don’t have — their strongest external audit practice has never been a financial services. And it would have been more concerned, 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 alarms [Phonetic], they firsthand went through the Andersen Consulting Accenture audit separation. So they knew from the beginning that there were some heavy-lifting to be done and they wasn’t an easy thing to do.

Mark Marcon — Baird — Analyst

Perfect. Thank you.

Operator

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

Jasper Bibb — Truist Securities — 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 if finance and accounting or IT, which of the sub-segments are trending more positively or maybe a bit weaker in the second quarter?

Keith Waddell — Vice Chairman, President & 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, 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 first quarter from [Indecipherable]. 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 to hire skilled levels there, positive growth. We expect that to continue into the second quarter.

Our more staff level or operational positions in both F&A and in technology were more challenged during the first quarter, 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 have also assumed that that continues. So pretty much what you saw in the first quarter translated to the second, maybe a little softer, because the macro has softened a little bit, but not dramatically.

Jasper Bibb — Truist Securities — Analyst

Thanks. And I was just hoping 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?

Keith Waddell — Vice Chairman, President & Chief Executive Officer

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 second quarter of last year, we’ve already taken actions primarily headcount-related that reduce our SG&A spend by $40 million per quarter, again on an individual performance basis. Our expectation would be, we would continue that strategy into the third quarter. There is always a bit of a lag taking that approach. There’s probably a couple of pennies that we did not report in the first quarter, applicable to the reductions I just talked about that would inure to the benefit of the second quarter. That said, we also have a higher tax rate in the second quarter that pretty much offsets that.

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

Jasper Bibb — Truist Securities — Analyst

Got it. Thanks for taking the questions.

Operator

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

Heather Balsky — Bank of America — Analyst

Hi. Thanks for taking my question. I was hoping to touch on your public sector work and how that’s trending right now? In a tougher macro, is there a potential to kind of benefit from that environment [Indecipherable]? 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 sales growth? Thanks.

Keith Waddell — Vice Chairman, President & Chief Executive Officer

So, it’s a bit ironic that we announced last quarter that we were no longer going to break out public sector. What’s the lo and behold, we had the first sequential growth in public sector and several others [Phonetic] 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 at the end of last year and we’ve now sequentially — we had mid single-digit sequential growth both in Protiviti and in talent solutions in public sector.

Heather Balsky — Bank of America — Analyst

That’s really helpful. Thank you.

Operator

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

George Tong — Goldman Sachs — 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 — Vice Chairman, President & 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. 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 recession in the next 12 months. So we certainly haven’t seen follow on recession revenue impacts so far and many believes — believe we’re not going to based on their forecast, but the jury is 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 first quarter, our guidance for the second quarter assumes the same.

George Tong — Goldman Sachs — Analyst

Got it. That’s helpful. And then in the past, you talked about taking out costs, and there being one quarter to two quarter lag before the cost takeout can accurately reflect topline 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? Well — and so on the lag side, there was 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 somewhat offset, but 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 head counts, but we instead manage it just as I described. By and large, our head counts tend to track pretty closely to topline. And so whatever your topline assumptions are, maybe with a bit of a lag our head counts typically follow relatively closer. Got it. Thank you.

Michael Buckley — Executive Vice President & Chief Financial Officer

I also just said that — also just said that we’ve taken $40 million out of our cost on a base of $490 million for talent solutions if you compare to the second quarter of last year.

George Tong — Goldman Sachs — Analyst

Very helpful. Thank you.

Operator

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

Manav Patnaik — Barclays — Analyst

Thank you. Keith, I just wanted to follow-up, do you have any bank — regional bank exposure outside of Protiviti, and in a sense you were pretty much close to ground zero there. I was just wondering if you had any insights in terms of the impacts there? I know there has been press around small businesses maybe finding it harder to get access to loans and I don’t know if any of your customer base has seen that? Just hoping you give us some insights there?

Keith Waddell — Vice Chairman, President & Chief Executive Officer

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 solutions side, not material at all. And as far as impacts, I would say rather than being impacted specifically, the regional banking crisis to me, it’s 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 talent solutions, but it just generally adds to the overall level of macro uncertainty.

Manav Patnaik — Barclays — Analyst

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?

Keith Waddell — Vice Chairman, President & Chief Executive Officer

Well, 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 second quarter to first quarter on the talent solutions 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 and that doesn’t surprise me. But relative to trend, we’ve applied similar discounts this quarter to what we did last quarter.

Manav Patnaik — Barclays — Analyst

Got it. Thank you very much, Keith.

Operator

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

Stephanie Moore — Jefferies — 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. Can you talk a little about maybe what markets or verticals or areas of your business where you’re seeing the most strength?

Keith Waddell — Vice Chairman, President & Chief Executive Officer

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. Europe generally was more solid than the United States, on the talent solutions side, on the Protiviti side. It 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. UK also had a good quarter.

Stephanie Moore — Jefferies — Analyst

Great. Thank you. And then just I wanted to touch a bit on bill rates. I think for the quarter, they came in a little bit lower than what we’ve seen in the last — the last several quarters or so. So, could you maybe talk a little bit about, at what level should the company be able to kind of 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 — Vice Chairman, President & Chief Executive Officer

And so, as the growth in bill rates declines, where currently we’ve come from 9-ish to high 6-ish 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% is pretty much a pass through.

Stephanie Moore — Jefferies — Analyst

Okay. Understood. Thanks so much.

Operator

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

Kevin McVeigh — Credit Suisse — Analyst

Great. Thank you. Hey, Keith, can you just — to follow-up to that, what’s been quite bill rate in the Q2 guidance percentage?

Keith Waddell — Vice Chairman, President & Chief Executive Officer

Not sure there is a specific number, I would argue that embedded in that. We’re probably something, a little less than what we saw in the first quarter, kind of along the trend-line from the 9-ish we had two or three quarters ago. But again, not much impact to margin. And I would argue, and if you looked at our range for the first quarter 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 had held up beautifully in part because these full-time engagement professionals are actually a margin accretive relative to core because we’ve got a higher mix of higher skill and 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 that’s expected to continue into Q2, but we are very pleased about our margin.

Stephanie Moore — Jefferies — Analyst

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

Keith Waddell — Vice Chairman, President & Chief Executive Officer

Well, fixed versus [Indecipherable] versus all time, they’re in the 40-ish-percent range of hours worked 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 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. But still strong, 40% still a good number, 30% will 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, and that’s a great thing.

Kevin McVeigh — Credit Suisse — Analyst

Yes. Understood. Thank you.

Operator

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

Jeff Silber — BMO Capital Markets — 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 — Vice Chairman, President & Chief Executive Officer

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 are particularly for the smaller size 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.

Jeff Silber — BMO Capital Markets — Analyst

All right, that’s helpful. Thanks so much.

Keith Waddell — Vice Chairman, President & Chief Executive Officer

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

Operator

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 into the conference call replay. Details are contained in the company’s press release issued earlier today.