Persol Holdings Co Ltd

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Hello, and welcome to the Robert Half Fourth Quarter 2024 Conference Call. Today's conference call is being recorded. [Operator Instructions] Our host for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that the comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they 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. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com.

For the fourth quarter of 2024, global enterprise revenues were $1.382 billion, down 6% from last year's fourth quarter on an as-reported basis and down 7% on an as-adjusted basis. Net income per share in the fourth quarter was $0.53 compared to $0.83 in the fourth quarter one year ago. Revenues and earnings for the fourth quarter were largely in line with our expectations, led by Protiviti, which reported year-on-year revenue growth for the second straight quarter.

Contract revenues remained stable throughout the quarter, sustaining early third quarter levels for 23 consecutive weeks prior to the holidays. As we move into the new year, we're very encouraged by the significant rise in U.S. business confidence that followed the recent elections. We're very well positioned to capitalize on emerging opportunities and support our clients' talent and consulting needs through the strength of our industry-leading brand, people, technology, and unique business model that includes both professional staffing and business consulting services.

Cash flow from operations during the quarter was $155 million. In December, we distributed a $0.53 per share cash dividend to our shareholders of record for a total cash outlay of $54 million. Our per share dividend has grown 11.2% annually since its inception in 2004. The December 2024 dividend was 10.4% higher than the prior year. We also acquired approximately 1 million Robert Half shares during the quarter for $77 million. We have 7.3 million shares available for repurchase under our Board-approved stock repurchase plan. Return on invested capital for the company was 15% in the fourth quarter.

Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith. Hello, everyone. As Keith noted, global revenues were $1.382 billion in the fourth quarter. On an as-adjusted basis, fourth quarter talent solutions revenues were down 12% year-over-year. U.S. talent solutions revenues were $686 million, down 11% from the prior year's fourth quarter. Non-U.S. talent solutions revenues were $208 million, down 14% year-over-year. We conduct talent solutions operations through opposites in the United States and 17 other countries.

In the fourth quarter, there were 61.6 billing days compared to 61.1 billing days in the same quarter one year ago. The first quarter of 2025 had 61.9 billing days compared to 62.8 billing days during the first quarter of 2024. Billing days for the remaining three quarters of 2025 will be 63.2 million, 64.2 million and 61.4 million for a total of 250.7 billing days for the year.

Currency exchange rate movements during the fourth quarter had the effect of decreasing reported year-over-year total revenues by $4 million, and that's $4 million for talent solutions and a negligible amount for Protiviti. Sequential quarter currency fluctuations reduced revenues by $7 million, $5 million for talent solutions and $2 million for Protiviti. Contract talent solutions dual rates for the fourth quarter increased 3.4% compared to one year ago, adjusted for changes in the mix of revenues by functional specialization, currency and country. This rate for the third quarter was 3.2%.

Now let's take a closer look at results for Protiviti. Global revenues in the fourth quarter were $488 million, $396 million of that is from the United States and $92 million is from outside of the United States. On an as-adjusted basis, global fourth quarter Protiviti revenues were up 5% and versus the year ago period. U.S. Protiviti revenues were up 6%, while non-U.S. Protiviti revenues were flat compared to 1 year ago. Protiviti and its independently owned member firms serve clients through locations in the United States and 29 other countries.

Turning now to gross margin. In contract talent solutions, Fourth quarter gross margin was 39.1% of applicable revenues versus 39.7% in the fourth quarter one year ago. Conversion revenues were contract to hire or 3.2% of revenues in the quarter compared to 3.4% of revenues in the quarter one year ago. Our permanent placement revenues were 12.1% of consolidated talent solutions revenues in both the current quarter and the fourth quarter of 2023. When combined with contract talent solutions gross margins, overall gross margin for talent solutions was 46.4% compared to 46.9% of applicable revenues in the fourth quarter one year ago.

For Protiviti, gross margin was 24.9% of Protiviti revenues compared to 23.9% of Protiviti revenues one year ago. Adjusted for the amount of deferred compensation that is completely offset by investment income related to employee deferred compensation trusts for the deferred compensation investment income offset, gross margin for Protiviti was 25.1% for the quarter just ended compared to 25.9% last year. We ended 2024 with 11,000 full-time Protiviti employees and contractors, up 4.8% from the prior year.

Moving on to SG&A. Enterprise SG&A costs were 34.1% of global revenues in the fourth quarter compared to 35.1% in the same quarter one year ago. Adjusted for the deferred compensation investment income offset, enterprise SG&A costs were 33.8% for the quarter just ended compared to 32.5% one year ago. Talent solutions SG&A costs were 44.4% of talent solutions revenues in the fourth quarter versus 44.6% in the fourth quarter of 2023. Adjusted for the deferred compensation investment income offset, talent solutions SG&A costs were 43.9% for the quarter just ended compared to 40.8% last year. We ended 2024 with 7,600 full-time internal employees in our talent solutions division, down 5.2% from the prior year.

Fourth quarter SG&A costs for productivity were 15.2% of Protiviti revenues compared to 14.5% of revenues for the same quarter one year ago. Operating income for the quarter was $65 million. Adjusted for the deferred compensation investment income offset, combined segment income was $71 million in the fourth quarter. Combined segment margin was 5.1%. Fourth quarter segment income from our talent solutions divisions was $23 million, with a segment margin of 2.5%. Segment income for Protiviti in the fourth quarter was $48 million, with a segment margin of 9.9%.

Our fourth quarter 2024 income statement includes $6 million as income from investments held in employee deferred compensation trusts. This is completely offset by an equal amount of additional employee deferred compensation costs, which are reflected in SG&A expenses and direct costs. As such, it has no effect on our reported net income. Our fourth quarter tax rate was 28%, and this compares to 27% one year ago. At the end of the fourth quarter, accounts receivable were $772 million, and implied days sales outstanding, or DSO, was 50.5 days.

Before we move to first quarter guidance, let's review some of the monthly revenue trends we saw in the fourth quarter and so far in January, all adjusted for currency and billing days. contract talent solutions exited the fourth quarter with December revenues down 11% versus the prior year compared to a 12% decrease for the full quarter. Revenues for the first three weeks of January were down 14% compared to the same period last year.

Permanent placement revenues in December were down 6% versus December 2023. This compares to an 11% decrease for the full quarter. For the first 4 weeks in January, permanent placement revenues were down 3% compared to the same period in 2024. We provide this information so that you have insight into some of the trends we saw during the fourth quarter and into January. But as you know, these are very brief time periods, and we caution reading too much into that.

With that in mind, we offer the following first quarter guidance: revenues, $1.35 billion to $1.45 billion; income per share, $0.31 to $0.41. Midpoint revenues of $1.4 billion are 3% lower than the same period in 2024 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 7% to 10%; Protiviti, up 8% to 10%; overall, down 1% to down 4%.

Contract margin percentages for contract talent, 38% to 40%; Protiviti, as adjusted for the deferred compensation investment income offset, 20% to 22%; overall, 36% to 39%. SG&A as a percentage of revenues, adjusted for the deferred compensation investment income offsets: talent solutions, 43% to 45%; Protiviti, 15% to 16%; overall, 33% to 35%.

Segment income for talent solutions, 1% to 4%; Protiviti, 4% to 7%; overall, 2% to 5%. Our tax rate, a range of 31% to 35%; shares, 101 million to 102 million. 2025 capital expenditures and capitalized cloud computing costs $75 million to $95 million, with $20 million to $25 million in the first quarter.

Protiviti's first quarter segment income guidance includes the seasonal impact of annual staff promotions and compensation increase, all of which become fully effective on January 1. This produces a sequential decline in midpoint-estimated segment margin of 4.4 percentage points, which is consistent with the 4- to 7-point decline experienced in most of the last 10 years.

On a year-over-year basis, at the midpoint, Protiviti's first quarter revenues and earnings are expected to grow by 9% and 20%, respectively. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings.

Now I'll turn the call back over to Keith.

Thank you, Mike. Global labor markets remain resilient, with U.S. job openings significantly above historical averages, a clear indicator of substantial pent-up demand for talents. While we've seen a slight easing in the tightness of the labor supply, the overall unemployment rate in the United States stands at only 4.1%, with even lower rates for college graduates and those with in-demand accounting, finance and IT skills.

The NFIB's Small Business Optimism Index recently posted the largest 2-month increase in its 39-year history, reaching levels not seen in more than 6 years. The percent of owners expecting the economy to improve also rose to 52%, the highest since 1983. Rising business confidence is conducive to better hiring urgency, accelerated project demand and reprioritization of deferred growth initiatives.

This, in turn, creates pressure on client resources and generate significant hiring and consulting demand, conditions that have historically set the stage for robust gains in the early stages of growth cycles. We are encouraged by the current combination of elevated job openings, low unemployment and strong business confidence, each of which is even more favorable than similar metrics from the early recovery periods following the dot-com and great financial crisis downturns.

Protiviti once again reported very strong results for the quarter achieving year-over-year revenue growth for the second quarter in a row. This strength is broad-based and includes each of its major solution areas, with the regulatory risk and compliance solution, again, a standout performer. A significant contributor to Protiviti's success has been the expanded use of contract professionals sourced through talent solutions, a key component of our enterprise-wide competitive advantage.

Protiviti's prospects and pipeline remain very strong, and we expect continued year-on-year revenue growth in the first quarter. Protiviti was recently recognized on Glassdoor's Best Places to Work list for a second consecutive year and honored by Seramount as a Top Company for Executive Women. We've weathered many economic cycles in the past, each time emerging to achieve higher peaks. Aging workforce demographics and clients' desire for flexible resources and variable costs are structural tailwinds that are expected to propel us forward in the years to come.

We begin 2025 energized by our time-tested corporate purpose: to connect people to meaningful and exciting work, and provide clients with the talent and consulting expertise they need to confidently compete and grow. Finally, we'd like to extend our gratitude to our global workforce for making possible a number of new accolades. Just today, Robert Half was honored by Fortune as one of the World's Most Admired Companies for the 28th consecutive year. We're proud of our unique position as the only company in our industry to be awarded this distinction for nearly 3 decades. We were also recently named one of Fortune's Best Workplaces for Parents and chosen by Newsweek as one of America's Most Responsible Companies.

Now Mike and I'd 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.

[Operator Instructions] And our first question today comes from Mark Marcon with Baird.

I wanted to ask about Protiviti to start. We did have a slight deceleration with regards to the revenue growth in the fourth quarter. Clearly, FX and the timing of the holidays probably ended up having some impact, and that probably ended up impacting the margins a little bit. But for the first quarter, you're basically guiding to a midpoint around 9%, which is a significant pickup. And I'm just wondering, what are you seeing? How visible is that? Because that's a nice reacceleration.

So on the fourth quarter, it is true that the holidays had an impact. They had a larger-than-expected impact from client soft closes. Their staff took more holiday than they had expected. And further, the holidays and the logistics of the holidays impacted their ability to get contracts signed for revenue recognition before the end of the quarter. That said, their solution growth was strong. It was broad, and that momentum is expected to continue into the first quarter.

Whereas, on a sequential basis, they always have their first quarter crowd out of internal audit, with clients focused on external audit and the cost pressures of their annual compensation increases and promotions. So a very strong pipeline, very good momentum, led by risk and consulting. A big piece of that, anti-money laundering, as we've talked before, Protiviti feels very good about where they are, feels good about that guidance. And the fourth quarter, there was noise from the holidays, which clearly doesn't impact the first quarter like it did the fourth.

And then, Keith, we've both been through many cycles before. Historically, the NFIB picking up as much as it has is a great precursor to small business hiring picking up. I'm wondering what do you think could potentially be a little bit different? Obviously, AI gets a lot of a lot of attention in terms of news and people talk about potential displacement. I'm not sure that's going to happen with small businesses, but the noise is still out there.

Just wondering, is there anything that you think would be different this time around relative to that big pickup in terms of NFIB confidence? And how is that influencing what you're doing in terms of internal staff? And how much you're willing to retain the internal staff and driving margins a little bit lower in the short term but making up for it longer term?

Well, and so what's different, as we referenced, first, if you look across job openings that are currently at $8 million, if you look at early recovery. dot-com and great financial crisis, they were $2.5 million and $4 million. So openings more than double what they were as those recoveries began. Unemployment rate currently at 4.1%. If you look at dot-com, 5.7%. If you look at great financial crisis, 9.5%.

So labor, much tighter, making it much harder for clients to find talent on their own than they did in prior cycles. So we're encouraged by that. And then as you mentioned, SMB optimism. NFIB, currently 105%. Following great financial crisis, it was 88%. Following dot-com, it was 99%. And so on all 3 measures, we're in a better place than we were coming out of those two downturns.

As to impact of AI, we've talked before, we're not seeing any meaningful impact as we speak on our business, with SMBs or otherwise. And as to impact on internal staff, we've essentially held the line. But for performance management for several quarters now, and we would plan to continue that. Our margins are very consistent with trough margins of dot-com and great financial crisis. And those margins recovered significantly thereafter, which we would expect to happen again.

And the next question will come from Andrew Steinerman with JPMorgan.

Keith, 2 questions. So yes, obviously, I'm intrigued by the NFIB figures picking up. But I just wanted to be clear, especially as you talked about kind of January contract revenues being down, have new orders for Robert Half contract business picked up yet? Or do you expect there to be some delay from the NFIB business confidence?

And let me just ask my second question, too. When looking at contract revenues, Robert Half tech business was down a lot less than F&A or others. Do you think that the trajectory of revenue recovery within IT contract will be a different growth trajectory? Again, when business confidence picks up, then F&A or your overall contract revenues for Robert Half.

And so early January, the first two were very noisy with holiday impacts as well as the Jimmy Carter holiday. The third week in January picked back up to what we would have expected, which is good. And while the tone of client conversations are definitely better, clients are taking more of our calls, more of our request for meetings. They're -- in addition to talking about their must-have requirements, they're also talking about their backlog projects and talking about their like-to-have needs. Sentiment is clearly better, but it's still too early for an uptick in actual starts and placements.

Our guidance for the first quarter assumes that we stay at that flat level that we did during the fourth quarter. Hopefully, we're being conservative there. But there is no question that the tone is better, consistent with the rise in the confidence that we just talked about. And I'll also say this, Andrew, about our first quarter guidance, there's about a $40 million revenue impact from the fewer number of days and FX or currency impacts relative to the prior year. And so when you look at our guidance, but for -- had we had the same number of days and had currency not changed, our revenue guidance would have been $40 million higher.

On the tech side, it is true that tech has performed better lately, principally in the data area, be it analytics, be it governance, be it hygiene; and then in ERP platform modernization, be it SAP, Oracle, Workday, Microsoft. All of those have been positive, both on the talent solutions side and on the Protiviti side, and sometimes working together. And so it wouldn't surprise me if tech outperforms F&A a bit over the next cycle. That said, we're very optimistic about F&A as well.

Our next question will come from Trevor Romeo with William Blair.

First one I had was just on the, I guess, international business, I think, again, kind of softer across the board compared with the U.S. business. I'm thinking a lot of political uncertainty in Europe. Could you kind of just talk about the demand environment for your international business for both talent solutions and Protiviti? And kind of what you'd expect in the next few quarters there?

I'd say, it's modestly softer, not dramatically softer, both in talent solutions and in Protiviti. It wouldn't surprise us that, that continue for a few quarters. But again, nothing dramatic. Many of the changes that you see on these growth rates are just as much impacted by comps as they are actual current economic performance. But we certainly don't see a dramatic or drastic falloff in our international results, notwithstanding everything you hear and read.

Okay. That's helpful. And then a follow-up on Protiviti, specifically on the operating margins for Protiviti. I know, in Q1, you do have that seasonal impact with the salary increases. I think you typically recapture some of that throughout the year. So kind of thinking about full year 2025 with the demand pipeline seemingly pretty strong there. Could you kind of talk about how you're thinking about margins for Protiviti beyond the next quarter? Is it possible we could get back to that double-digit range on kind of a full year basis here?

The expectation is that Protiviti's full year operating margins would increase versus the prior year, not just stay flat. And their stated goal would be to have a double, double, where they increase their revenue growth by double digits and they have a double-digit operating margin. And we like double, doubles.

The next question will come from Manav Patnaik with Barclays.

First, Keith, just on Protiviti, just given the improved growth outlook there, I guess. The -- I think they are the largest user of your staffing, your temp staffing, at least. Can you just remind us of kind of the usage there and how you see that -- is that a leading indicator? How should we think about that kind of correlation?

Whether it's a leading indicator, I can't speak to. I would say the collaboration, go-to-market, Protiviti's use of contractors from talent solutions. For the fourth quarter just ended, Protiviti's overall revenues grew, call it, 4.5%. Their revenues from generated by contractors sourced through talent solutions were up 18%.

So that clearly indicates that their usage is rising, not following. It's still well above 40% of the hours worked on Protiviti. So the collaboration with Protiviti and talent solutions has never been better and is growing. And clearly, an enterprise competitive advantage, particularly relative to the big 4 from which Protiviti continues to take share.

Got it. And I think I understand the business confidence, optimism index being kind of generally positive for you guys. But in the past, you talked about how a lot of the reason why your clients didn't really engage as much as because of high inflation, high interest rates, those kinds of dynamics. It sounds like those will be sticking around for longer. So I was just wondering if there is still a tug of war in that discussion? Or has that been factored into this optimism index?

So I think the expectation of pro-growth policy initiatives includes the umbrella of tax rates, regulation, tariffs, immigration. I think it's one big package. And net-net, inclusive of everything I just mentioned, the confidence has surged in a way not seen in decades. And so clearly, all of those factors are on the table. But when you net them all out, you get what you get, which is very positive.

And I said, our people on the ground, talking to their clients every day, things have changed. There's more activity. Clients are more willing to talk to them. It just hasn't yet converted to starts and placements. We expect that it will. But our guidance conservatively is that we stay flat per day for the first quarter. Hopefully, that's conservative. But things clearly are different. Tone is clearly better.

And we'll take a question from Stephanie Moore with Jefferies.

This is Harold Antor on for Stephanie Moore. So I just want to make sure. Earlier, I understand, I know you said you held the line on hiring right now. But you also said it's a bit too early to receive new orders. So I guess, as you expect to receive those incremental orders from -- as from when optimism starts to come in, would you then anticipate, I guess, incrementally hiring recruiters? Or I guess, just as you start to ramp up, as you start to see orders ramp up, I guess, would you then be hiring recruiters?

On paper, as we've said in prior quarters, our productivity today per person is 20% to 30% lower than it has been. On paper, we could, therefore, grow by that amount without adding heads. That said, the more confident we get about increasing starts and placements, we would likely get ahead of that rather than wait for the whole thing to catch up. And so while we might not immediately begin to add the heads, as it picked up steam and we got more confident, we would. But we know, based on how much we've done per person in the past, we could do more with the same workforce.

I guess I know you've spoken to clients, but I guess on the candidate side, when your crews are speaking with clients, are clients -- do they have the same high degree of willingness to change jobs? Are they requesting hybrid or remote work? And I guess, how does that impact pricing as you expect for all this to start coming in? Any comments around that would be helpful.

We would observe that typically candidate caution reduces as macro improves. There's no question, there is pent-up turnover from candidates that are somewhat frustrated in their current positions, particularly as it relates to hybrid/remote, which some employers are -- eliminated in favor of 5 days in the office.

And so traditionally, part of upcycle also means candidates more confident in changing positions because they're not as fearful they'll be the last one in, first one out. But there seems to be unusually high frustration, and therefore, potentially pent-up turnover from a candidate point of view, given the special circumstances over the last couple of 3 years, particularly as it relates to remote work.

Got it. And then, I guess, just on the pricing point and bill growth -- bill rate growth. Any, I guess, how should we be thinking about that?

It's been in the low 3s now for a few quarters. That pretty much mirrors pay rate increases. And so we don't see any big change in the near future. So low to mid-3s feels reasonable, which is where we've been for a few quarters now.

And the next question will come from George Tong with Goldman Sachs.

Based on your exit rates in the quarter, it appears that perm placement revenues are narrowing in the rate of decline, but temp staffing revenues are widening in the rate of decline. Can you discuss what could be causing this separation in performance? What's specifically weighing on temp staffing more so than perm placement?

Well, I think, technically, the December exit rate for perm and contract were both less than the full quarter. It's the post-quarter where the differential widened more significantly. And a perm is more volatile than contract day-to-day, week to week. We're talking about a very short period of time. I'd say, too, perm was less holiday impacted as contract has been.

We talked earlier about, for the first two weeks in contract, there was a lot of holiday noise. By the third week, that holiday noise has gone our way, and it was back to where we would have expected. And so had we shown third-week-only results, we should get a very different picture than seeing all 3 of those weeks. But we feel good about contract where it is, our conversations with clients.

And the contract versus perm numbers you saw 1 month versus a quarter, 3 weeks versus a month, those differences tend to be amplified because it's such a short period of time. And I think if you do an analysis over a long period of time, you would see that post-quarter perm is even less predictive of the coming full quarter than post-quarter contract. But when post-quarter periods include multiple holidays, they're even less predictive.

Got it. That's helpful. And then a bigger question. We've seen pretty solid economic growth. The labor market is doing quite well, and yet it sounds like contract revenues are flat over the past 23 consecutive weeks. So can you talk about what could be causing or keeping contract revenues flat rather than growing when the broader economy is growing and when the labor markets are relatively healthy.

Well, that same statement could be said about the last 10 quarters. And so the past 23 weeks are no different than the past 10 quarters. And there's been plenty of discussion around a lot of the labor market growth has been concentrated in 3 industries: government, health care, leisure hospitality that are big sectors for Robert Half that aren't big sectors for the staffing industry generally. So you take that away from the overall labor market, you get a very different picture.

Further, the churn -- the labor churn has reduced significantly over that period of time, the middle of which had COVID. So what we saw in the last 23 weeks was an improvement, And what we had been seeing over the last 10 quarters, where we had been slowly drifting down, and so I would argue, the last 23 weeks are better than we had been seeing. And certainly, the tone has improved yet again since then because of the election and small business expectations because of that.

And moving on to Kevin McVeigh with UBS.

I think it sounds like there's a lot of optimism. But I guess, and I think they've been asked a couple of ways, but what do you think is the client hesitancy? Because it seems like the indicators are at all-time highs, and it seems like they're still not engaging. So just any thoughts around that just at a higher level? And what's the trigger that's going to get them to kind of pull the trigger?

Well, the hesitancy is everybody is a little bit in a show-me state. Clearly, the environment, everybody is more optimistic. We're having more discussions with our clients. Presumably, they're having more discussions with their clients. But everybody wants to see it rather than just talk about it. And that's not unusual for particularly small businesses to have a show-me attitude toward their own staffing decisions.

And so as we've said, looking back into the past, these elevated levels of activity of interactions with our clients typically lead to more starts and placements. It doesn't happen overnight. It hasn't happened yet as to starts and placements, but clearly, the tone is better.

Helpful. And then just it looks like the tax rate is a little bit higher in the Q1 guidance. Just in terms of -- relative to Q4, anything that's driving that?

Yes. So the -- our restricted stock incentive shares vest annually. And because of our lower share price, the tax deduction we'll get for that vesting will be below our book expense and, therefore, a higher tax rate. That tax rate results in about a $0.02 charge on an EPS basis relative to the tax rate a year ago.

And the next question comes from Jeff Silber with BMO Capital Markets.

I know there's been a lot of concern in the investment community regarding some of Trump's policies, specifically on DOGE, the Department of Government Efficiency. Can you remind us, do you have any exposure either directly or indirectly to federal government-driven revenues?

Well, our exposure to federal government is very low. In our public sector work, to the extent we do government work at all, it's substantially local -- state and local, not federal. And so while we don't have zero exposure, it's a very small number.

And would that state and local work, for instance, include like Medicare work, where the moneys come from the federal government, but it's state and local driven?

No. We don't have a large amount of Medicare work. Maybe during the fourth quarter, as part of open enrollment, there are Medicare, Medicaid interdependencies with open enrollment. But other than that, no.

Okay. Appreciate that. And just a quick question on the tax rate. should the 1Q tax rate something we'd be using for the rest of the year? Or would it come down to where it was last year?

No, no, no. It would definitely come down. Our vesting is pretty much a first quarter event. And you've got pieces of the last 4 years' grants that are valued according to those grant dates that all vest. Again, a first quarter event. It should come back down.

Our next question comes from Kartik Mehta with Northcoast Research.

Keith, just on the Protiviti capacity. Obviously, you want to be prepared for as business confidence grows and the business grows. But as you stand today, how would you measure capacity in terms of the people that are on staff?

Well, I think there's clearly utilization capacity for their full-time staff. But one of their competitive advantages is how quickly they can scale by using contractors sourced through talent solutions that can be scaled very quickly. And so the combination of the two, I'm very optimistic about. And that's one of the beauties of having this just-in-time capacity that they can whistle onto the field via talent solutions.

And then, Mike, just to understand, obviously, fewer days and FX playing a part in the first quarter. Does that get -- outside of FX, does that get made up in the second quarter? And if so, what's the impact outside of FX?

So it does not get made up. And the impact to days -- so one day billings is $22.5 million. And depending on what type of margin assumption you're going to have because you're talking incremental margins and on average margins, I mean, it works out up to several pennies a share.

No, thanks, that's helpful. So it's a pretty big impact for you guys.

Yes. For the industry generally, it's essentially a full day.

And the next question comes from Tobey Sommer with Truist Securities.

Of the expected changes contributing to improved small business optimism, what do you think is the most important for the new administration to deliver on to catalyze that optimism into hiring action improved KPIs at Robert Half?

It'd be some combination of less regulation, more M&A friendliness as part of that, and then at least a continuation of current tax rates, if not lower ones. I think those are the...

Would you rank them in that order?

Hard to say. I think they're both significant drivers of what is perceived to be a pro-business administration.

Okay. That makes sense. And then on kind of double-clicking into one of those topics with respect to capital markets and M&A, what are you seeing in Protiviti? And maybe even in the staffing segment, to the extent they have any exposure, and maybe a comment about the financial services vertical for Protiviti also.

Well, I'd say Protiviti is the most directly impacted by M&A/IPO, and they've seen a little bit of an uptick, not a lot. But clearly, if M&A were to improve, like some believe they will, Protiviti will be a big beneficiary of that. Private equity exits via an IPO or M&A create a lot of work as to internal controls, as to integration. That's where Protiviti has enjoyed in times past that they've had very little of for the last 2 or 3 years. So it would be a very positive development if, in fact, M&A picks up and private equity exits, IPO or M&A pick up.

At the financial services vertical, doing very well across Protiviti solutions. So it's not only anti-money laundering, but it's also as well internal audit at financial institutions, where, frankly, they don't have enough internal staff to do the work they have to do. And even internal audit, to some degree, is regulated by the regulators because they demand that they actually get completed, which is not necessarily the case in the commercial space, where, many times, if you didn't complete part of your internal audit in a given year, you just roll them over to the next year. So I would say, the financial services market generally is very strong. Protiviti, it's 40% of their revenues, by leaps and bounds, as their largest industry focus and things look good.

Okay. So that was our last question, and thank you for joining us today. So long.

Thank you. And 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.