U.S. Markets open in 7 hrs 13 mins

Robert Half International Inc (RHI) Q1 2019 Earnings Call Transcript

Motley Fool Transcribers, The Motley Fool
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Robert Half International Inc  (NYSE: RHI)
Q1 2019 Earnings Call
April 23, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Robert Half First Quarter 2019 Conference Call. Our hosts for today's call are Mr. Max Messmer, Chairman and CEO of Robert Half; and Mr. Keith Waddell, Vice Chairman, President and Chief Financial Officer.

Mr. Messmer, you may begin.

Harold M. Messmer, Jr. -- Chairman of the Board and Chief Executive Officer

Thank you and hello everyone. Before we get started, I would like to remind everyone that comments made on today's call contain predictions, estimates and other forward-looking statements. These statements represent our current judgment of what the future holds and include words such as forecast, estimate, project, expect, believe, guidance and similar such expressions. We consider these remarks to be reasonable, however, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Some of these risks and uncertainties are described in today's press release and in our SEC filings, including our 10-Ks, 10-Qs and today's 8-K. We assume no obligation to update the statements made on today's call. For your convenience, we've made our prepared remarks available on the Investor Center of our website at roberthalf.com. From the homepage, click on the Investor Center link at the bottom left of the page.

Now, I'd like to go over Robert Half's financial results for the first quarter. Companywide revenues were $1.469 billion, this is up 5% from last year's first quarter on a reported basis and up 9% on a same-day constant-currency basis. Net income per share for the quarter was $0.93 compared to $0.78 in the first quarter of 2018, an increase of 19%. Cash flow from operations was $127 million and capital expenditures were $13 million in the first quarter.

In February of this year, we increased our quarterly cash dividend from $0.28 to $0.31 per share, and in March, we distributed that dividend to shareholders for a total cash outlay of $38 million. We also repurchased roughly 800,000 Robert Half shares during the quarter for $52 million, we have 5.9 million shares available for repurchase under our Board approved stock repurchase plan.

We saw solid revenue growth in our staffing and Protiviti operations during the quarter, both in our US and non-US operations. Persistent tight labor markets globally continue to result in heightened demand for our professional staffing services. During the first quarter, return on invested capital for the Company was 41%.

I'll turn the call over to Keith now for a more detailed discussion of our results.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Thank you, Max. As just noted, global revenues in the first quarter were $1.469 billion, this is up 5% from the prior year's first quarter on a reported basis and up 9% on a same-day constant-currency basis from the year-ago period. Accompanying our earnings release today is a supplemental schedule showing year-over-year revenue growth rates on both the reported and an as-adjusted basis. These figures are further broken out by US and non-US operations. The term as-adjusted reflects the removal of the impact of billing days, currency fluctuations and certain intercompany adjustments in our international operations. This is a non-GAAP financial measure designed to give you insight into certain revenue trends in our operations.

For our staffing business, first quarter revenues were up 7% year-over-year on an as-adjusted basis. US staffing revenues were $931 million, up 6% on a same-day basis and non-US staffing revenues were $285 million, up 11% year-over-year on an as-adjusted basis. We have 325 staffing locations worldwide, including 86 locations in 17 countries outside the United States.

The first quarter had 62.2 billing days compared to 63 days in the first quarter of 2018. The shorter 2019 first quarter reduced our reported year-over-year staffing revenue growth rate by 1.4 percentage points. The current second quarter has 63.4 billing days compared to 63.5 days in the second quarter one year ago. Currency exchange rate movements versus the prior year had the effect of decreasing reported year-over-year staffing revenues by $22 million in the first quarter, which reduced our year-over-year reported staffing revenue growth rate by 1.9 percentage points.

For Protiviti, first quarter global revenues were $252 million with $192 million coming from business within the United States and $600 million -- excuse me, $60 million from operations outside the United States. Protiviti revenues were up 17% year-over-year on an as-adjusted basis. On a same-day basis, US Protiviti revenues were up 17% year-over-year in the first quarter, while non-US revenues were up 19% on an as-adjusted basis. Exchange rates had the effects of decreasing year-over-year Protiviti revenues by $4 million in the first quarter and decreasing the year-over-year reported growth rate by 1.7 percentage points. Protiviti and its independently owned Member Firms serve clients through a network of 85 locations in 27 countries.

Now, let's turn to gross margin in the first quarter. In our temporary and consulting staffing operations, gross margin was 38% of applicable revenues compared to 37.2% of applicable revenues in the same period one year ago. Expanding bill/pay spreads and higher temp-to-hire conversion fees were the largest contributors to the increase. First quarter revenues for our permanent placement operations were 10.8% of consolidated staffing revenues versus 10.2% of consolidated staffing revenues in the first quarter of 2018. When combined with temporary and consulting gross margin, the overall staffing gross margin increased 110 basis points versus one year ago to 44.7%. For Protiviti, gross margin in the first quarter was $64 million or 25.3% of Protiviti revenues. One year ago, gross margin for Protiviti was $55 million or 26.4% of Protiviti revenues.

First quarter staffing SG&A costs were 34.2% of staffing revenues compared to 33.5% one year ago. The higher mix of permanent placement revenues this quarter versus a year ago added 30 basis points to the quarter's SG&A ratio. SG&A costs for Protiviti were 17.9% of Protiviti revenues in the first quarter compared to 19.1% of Protiviti revenues in the year-ago period.

First quarter operating income from our staffing divisions was $128 million, up 7% from the first quarter of 2018. Operating margin was 10.5%. Our temporary and consulting staffing divisions reported $106 million in operating income, an increase of 10% from the first quarter of last year. This resulted in an operating margin of 9.8%. In the first quarter, operating income for our permanent placement division was $22 million, this was down 4% from the prior year and produced an operating margin of 16.4%. Operating profit for Protiviti was $18 million in the first quarter, an increase of 22% from the year-ago period. This produced an operating margin of 7.4%. At the end of the first quarter, accounts receivable were $826 million and implied days sales outstanding, DSO, was 50.5 days.

Before we move to second quarter guidance, let's review some of the monthly revenue trends we saw in the first quarter of '19 and thus far in April, all adjusted for currency and billing days. Our temporary and consulting staffing divisions exited the first quarter with March revenues up 4.7% versus the prior year compared to 6.2% increase for the full quarter. Revenues for the first two weeks of April were up 3.7% compared to the same period in April of 2018. March revenues for our permanent placement division were up 16.1% versus 2018 compared to 12.3% increase for the full quarter. For the first three weeks in April, permanent placement revenues were up 6.3% compared to the same period last year. This information provides a look into some of the trends we saw during the first quarter and thus far in April, but as you know, it represent brief periods of time and we caution against reading too much into them.

With that in mind, we offer the following second quarter guidance. Revenues, $1.485 billion to $1.550 billion. Income per share, $0.95 to $1.01. The midpoint of our first quarter guidance implies year-over-year revenue growth of 5.5% on a same-day as-adjusted basis, including Protiviti and EPS growth of 10%. We lowered our guidance to one quarter, all estimates we provide on the call are subject to the risk mentioned in today's press release and in our SEC filings.

Now, I'll turn it back over to Max.

Harold M. Messmer, Jr. -- Chairman of the Board and Chief Executive Officer

Thank you, Keith. We ended the quarter with solid revenue growth throughout our staffing operations and Protiviti. Current trends leave us optimistic about where the Company is positioned. Last year, the economy produced 2.7 million new jobs. The March 2019 BLS report showed job gains of nearly 200,000, exceeding economists' estimates. Our key staffing client base of small and mid-sized businesses is feeling the pinch. The NFIB's March jobs report showed that 60% of small and medium-sized business owners are either hiring or trying to hire and their biggest business problem is a lack of available skilled talent. Increasingly, they are turning to Robert Half for help.

We are also seeing wage increases start to materialize, as more employers recognize that they need to pay more to get the candidates they want. Wage inflation trends are now more typical of those we've seen in past tight labor markets. Our brands are among the staffing and consulting world's most recognized and respected. Our financial position is strong and we have the most experienced field and corporate management teams in the industry. The combination of technology and personal service we bring to market is key and all our people and technology investments are designed to offer an optimal mix of high-tech and high-touch. We are convinced that you can't have one without the other and still provide clients with the type of hiring assistance they need.

With respect to Protiviti, we believe their leadership and talent have made them a formidable competitor in consulting. Suite of consulting offerings now includes risk and compliance, data and analytics, and performance improvement among others. Protiviti is also putting more focus on technology consulting with additional emphasis on cybersecurity, cloud computing and digital transformation.

As noted on prior calls, we are actively marketing our full suite of staffing and Protiviti capabilities in a managed solutions model. We believe our ability as a single provider to offer clients project oversight and deliverables, deep subject matter expertise and a scalable network of experienced interim staff is unique in our industry.

Now, Keith and I would be happy to respond to questions. We ask that you please limit yourself, as usual, to one question and a single follow-up, as needed. If time permits, we'll certainly return to you, if you have additional questions. Thank you.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Mark Marcon from R.W. Baird. Your line is open, please go ahead.

Mark Marcon -- R.W. Baird -- Analyst

Good afternoon, Max and Keith. I was wondering, if you could discuss a little bit about the trends that we saw through the quarter and specifically the exit rate relative to the quarterly average. And then obviously the first couple of weeks is a fairly short time period. Wondering, how you would view that in context to the uncertainty that we ended up seeing toward the end of the fourth quarter and kind of the behavior that you're seeing among your clients? And specifically, are you -- are those revenue trends reflective of what you're seeing in terms of order and fill rates over the last, say six, seven weeks and how you would think about that unfolding?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So Mark, there's a lot going on here. And so first of all as you know, the comps certainly got tougher as we progressed through the quarter. Further in Europe, we saw macro slowing in Germany, Belgium, France, a little beyond what we had expected. In the United States, particularly for our accountants and office team, we saw clients get more selective, either because they were replacing attrition and were looking for people to essentially hire on a full-time basis ultimately, which made them more spec-driven than they might otherwise have been and we further saw their demand being more measured as we progressed through the quarter. That said, we had double-digit growth in perm, in management resources and in tech that were all quite strong throughout the quarter. As to the first couple of weeks and relative to the exit, so first of all for perm post quarter, if you look a year ago, we had monster comps during that same short period, where we grew 25% year-on-year, so I would discount the post quarter perm for that reason. If you looked at post quarter temp, just in the United States, it actually accelerated versus the exit rate in the first quarter in the US. It's non-US that caused the overall reduction in the post quarter growth rate versus the prior quarter and the exit rate, and again, that was principally Europe. But again to put everything in context, for the quarter just ended, we did grow 9% year-on-year notwithstanding tougher comps, we did grow EPS 19%. For the guidance we've given for the second quarter, we still expect 5% or 6% at midpoint revenue growth and double-digit EPS growth, which in this environment isn't bad.

Mark Marcon -- R.W. Baird -- Analyst

No, it certainly isn't. And I fully appreciate that and appreciate the comps. With regards to -- in the last quarter, we talked about the headcount additions, particularly on perm and Protiviti. I'm wondering, how we should think about headcount additions going forward and what the impact -- how we should think about the margin progression in perm and Protiviti as the hires mature and gain experience in productivity?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

And so the headcount strategy hasn't changed. It's to roughly stay in line with top line growth. You'll note that perm margins were slightly lower year-on-year in Q1. That's because it's quite typical that our field people would somewhat front-end their hiring for the year, so we expect as the year progresses that perm margins would expand as well, which is embedded in our second quarter guidance. So headcount in line with top line growth, we've got some of our divisions growing nicely at double-digit rates. Those we will continue to feed with additional headcount, those that are growing less will get less headcount. Protiviti is our fastest grower and the largest contributor Protiviti's growth are these joint solutions with staffing. As Max talked about, we have this unique offering where, for Protiviti, you get project oversight, you get deep subject matter expertise, you get deliverables and then from staffing you get scalable experienced staff that's the largest portion of Protiviti's growth, it continues to get traction, we're very excited about that. While 75% to 80% of the staff come from the staffing divisions, a 100% of the revenues get reported by Protiviti because it has the contract with the client. But again, it's a joint effort, we're getting more traction and it's the largest single contributor to Protiviti's growth during the quarter, which we're quite pleased with. Not that it was our only source of growth and in fact if you just look at Protiviti, it remains very balanced between internal audit, technology consulting and financial services risk and compliance consulting.

Mark Marcon -- R.W. Baird -- Analyst

Great. And the margin is typical, I mean, we should see the expansion toward the back half of the year?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

That's correct. In Protiviti, seasonally Q1 is always down versus Q4 as internal audit gets crowded out at clients as they focus on external audit. Their margins are doubly impacted in that for their entire firm, they do salary increases and promotions as of January 1. It takes them some time to recover that and bill rates. So Q1 margins are always trough, but year-on-year, Protiviti margins were as good as they were a year ago, but our expectation and our guidance considers that those margins improve as we move throughout 2019.

Mark Marcon -- R.W. Baird -- Analyst

Great, thank you.

Operator

Our next question comes from Dan Dolev from Nomura. Your line is open, please go ahead.

Dan Dolev -- Nomura -- Analyst

Hey. Thank you for taking my question. Can you maybe quickly give us the global hours and the bill rates for the quarter?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So bill rates were up 5.7% year-on-year. That's an increase from last quarter when they were up 5.2% year-on-year. Back into the hours, hours are pressured because, A, it's -- it takes longer to recruit candidates in this market. Further, they leave assignments more quickly as they receive full-time jobs and we have to replace them. So it's not unusual in a tight labor market that the hours get strained from the reasons I just mentioned.

Dan Dolev -- Nomura -- Analyst

Got it. So there were about, say, 50 basis points of growth in the hours, is that fair?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, the combination of hours conversions, I mean, there's more than just hours there, but hours have been flattish to slightly down for a few quarters.

Dan Dolev -- Nomura -- Analyst

Got it. And if you kind of think about, you said the US versus Europe. So all as equal, if you adjust -- if you basically didn't have the -- that European business, you would say that your outlook would have been more bullish about the overall Company or is that just the European issue or if do you see something more broad-based both in Europe and in the US? Thank you.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So, Europe's growth rates declined more than the US, but they still in absolute terms were higher than US. But clearly, the trends in Europe are not as optimistic as they are in the US and we were happy to see that our temp post quarter start was better than our US temp quarter one exit.

Dan Dolev -- Nomura -- Analyst

That makes a lot of sense. I appreciate it.

Operator

Our next question comes from Jeff Silber from BMO Capital Markets. Your line is open, please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. Keith, in your earlier remarks, you talked about the sequential change in gross margin in Protiviti. I'm just curious on a year-over-year basis, what drove the year-over-year decline in gross margins at Protiviti?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Again, quite common that they do their raises and promotions firmwide on January 1st. It takes a quarter or two to recover that. So if there's gross margin compression early, that picks up steam as you progress during the year. They offset that in Q1 with operating leverage on the SG&A line, such that their operating margins year-over-year were flat on a percentage basis.

Jeff Silber -- BMO Capital Markets -- Analyst

But were the bonuses relatively higher than a year ago? Is that maybe because you're doing more demand solutions offering? Again, I'm just looking at the 26.4% last year and the 25.3% this year.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Right. So it's base pay increases and promotions, both happen all at once and you don't pass those through all at once. In the tight labor market we're in, Protiviti is having to give increasingly larger raises and they're giving promotions a little sooner than they had in the past, both of which pressure costs. But again, they've totally offset that with operating leverage, such that their operating margins came in same as last year, which is a good thing.

Jeff Silber -- BMO Capital Markets -- Analyst

I got it, thanks so much. And then just a quick follow up on office, I know it's one of your smaller division. But same-day constant-currency growth took a turn for the worse in the quarter. Is there anything specifically going on there different from some of the other divisions?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

The only thing we would observe is that office team for the last two or three years has been the beneficiary of a lot of activities on the part of clients with respect to changes to their healthcare plans in and around open enrollment. And for the most part, most companies that made those changes have totally digested them and that source of demand has essentially dried up. So the only thing that's really that specific to office team is this open enrollment health insurance administration plan changing that settled down after a period, where they had two or three years lift from that.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. Great. Thank you so much for the color.

Operator

Our next question comes from Andrew Steinerman from JPMorgan. Your line is open, please go ahead.

Andrew Steinerman -- JPMorgan -- Analyst

Keith, could just make a quick comment about Protiviti in the second quarter from a revenue growth standpoint?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So, second quarter guidance for Protiviti has double-digit growth rates embedded and that's notwithstanding monster comps. If you look a year ago, the growth rate jumped 10 percentage points between Q1 and Q2. So notwithstanding those monster comps, we still expect they'll grow by double-digits in Q2, again for all the reasons we talked earlier, the balanced solutions plus the joint activities with staffing.

Andrew Steinerman -- JPMorgan -- Analyst

Any comment about Protiviti in Europe?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Protiviti Europe, again, done quite well. The Germany, Italy were both strong, again the comps there are very high. If you look a year ago, first quarter grew 22%. So it, quote, slowed to 19% this year, but I'll take 19% on top of 22% any day.

Andrew Steinerman -- JPMorgan -- Analyst

Sounds good. Thank you.

Operator

Our next question comes from Gary Bisbee from Bank of America Merrill Lynch. Your line is open, please go ahead.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Yeah. Thank you. So, as I just look at the trends over the last couple of years, it's sort of surprising that your international staffing businesses have continued to outpace the US, despite -- in Europe at least broadly slower economic growth and just what seems like less tight labor markets in general. And it sounds like that's slowing now, at least exiting the quarter. But how should we think about the potential for the international business to continue to put up good growth and also do you feel like there's potential for the US businesses to accelerate further, given the markets that we've got here?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, we have had very strong growth from non-US operations. Germany has been a standout. Belgium has consistently been solid for years on end. UK, Brexit notwithstanding, has been solid for us. And then Canada as part of non-US, Canada has been strong, Australia has been good. So country-by-country, we've done well. We've invested a lot in Germany for a long period of time, that's continued to pay off. So as we spoken from a trend standpoint, we had the most slowing in Europe, but slowing to a level that still exceeds growth in the US. From a US standpoint, we've seen some slowing of late in our Accountemps and OfficeTeam operations, not so much our Management Resources, perm and technology. So we have seen some macro uncertainty in the US. The external reports we've seen of late are mixed. NFIB solid, but off highs, weekly unemployment claims quite low, quite good, jolts mostly good, although openings were down a bit. PMI services that came out last week were negative. So the economic external metrics, if you will, are more mixed than they've been in the last several quarters. And so given that, we were more conservative in our US guidance, notwithstanding the fact that at least out of the gate, we accelerated versus exit. If you talk to our top people in the field, they would tell you their order rates have increased of late, but those order rates haven't yet shown themselves as revenue.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Okay. Great. And then -- so it sounds like some softening and potentially some conservatism, also much more difficult comps for the business overall. Would it be right to say that those two factors are in the same sort of zip code in terms of the impact on the deceleration here or is there -- the comps are much bigger factors than just the softening you're seeing? I don't know if you can ballpark that?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, the comps are different by line of business, tech has the toughest comps for the quarter versus the first. Protiviti, as I said earlier, has a monster comp to compete with. Notwithstanding that, they still think because their pipeline is strong, they can double-digit grow away from that. So I'd say, while maybe in the same zip code, we anticipate more non-US slowing than we do US.

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Operator

Our next question comes from Kevin McVeigh from Credit Suisse. Your line is open, please go ahead.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thanks. Keith, Protiviti feels like it's a lot more synchronized at this point in the cycle than it was last time and just thinking about the peak in Sarbanes-Oxley in that kind of coming off in the temp business continued to grow. Is that kind of still the case and would you expect the outsized growth in Protiviti as a benefit from kind of the seed within Management Resources, if you would?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, it is clear that Protiviti has a much more balanced revenue stream today they did in prior cycles. There was a time when Sarbanes-Oxley was 75% to 80% of their revenue today, it's less than 20%. Further, you've got this growth engine going to market together with staffing that essentially didn't exist to any material degree in prior cycles. So there is no question that structurally Protiviti is in a better place than it was in prior cycles, no question.

Kevin McVeigh -- Credit Suisse -- Analyst

And then just the temp data overall relative to the BLS was kind of negative the first three months of the year, was that more kind of the December effect or kind of inability to fill or just any thoughts around that or is that just again the general macro uncertainty that you've been talking about for kind of the first 30 minutes of the call here?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, there's a lot of things you could point to and it's hard to pinpoint. There was a Fed scare in the market last fall, there was delayed impact from, the weather wasn't great particularly in February. The government shutdown was a little bit of a negative overhang. So there was a lot of little pieces, but no one of those by themselves explains anything. But there is no question we saw our clients get more measured during the quarter, which made them more selective, which slows down our sales cycle. Particularly in the transaction level people that we place, accounting operations and Accountemps and in OfficeTeam. Our project businesses, Management Resources, Robert Half Technology, Protiviti, they have strong pipelines and they're growing well.

Kevin McVeigh -- Credit Suisse -- Analyst

Makes sense. Thank you.

Operator

Our next question comes from Tobey Sommer from SunTrust. Your line is open, please go ahead.

Joseph Thompson -- SunTrust -- Analyst

Hi. This is Joseph Thompson on the line for Tobey Sommer this evening. Digging in on the European business a bit, what do conversations with clients in the region look like? And in your opinion, does -- do these conversations and the macro data pretend a soft patch or more of a significant slowdown? Thank you.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, soft patch versus more of a slowdown, I don't think anybody would disagree that our European staffing businesses have outperformed the industry for several quarters consecutively. While they are slowing from those levels, they're still solid. And so, would we prefer that they not be slowing? Of course. But they're still solid to the point. We're going to support them to the extent their growth supports that. So we feel very good about the progress and the performance that our European businesses have had for several quarters, particularly Germany, particularly Belgium. The UK, given its circumstances, I think you'd be pleasantly surprised if we broke those numbers out individually. So our European operations have been stellar for several quarters relative to the market, but they're not totally immune from the market and they're seeing some slowing.

Joseph Thompson -- SunTrust -- Analyst

Great. Thank you.

Operator

Our next question is from Tim McHugh from William Blair. Your line is open, please go ahead.

Tim McHugh -- William Blair -- Analyst

Yeah. Thanks. Just want to follow up on international, I guess. Do you still think -- I guess in 2Q at least, do you expect that to still grow faster than the US in the staffing part of the business? Trying to understand the magnitude of the slowdown you're seeing there versus I guess what you've said.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So permanent placement is getting close already. Europe temp still has quite the margin over US temp, but they're converging. So we're within a quarter of -- or two them getting close. We just described more fully the conditions as we see them in Europe.

Tim McHugh -- William Blair -- Analyst

Okay, that's helpful. I just wanted to put some numbers behind it. And then I want to circle back to the comment you made, which -- the last couple of quarters, the volume essentially has been flattish, even slightly down. And I understand, it's a tight labor market, the people are moving jobs more often. I guess -- but how unusual is that to you versus history and do you think that's the norm, is that just something we should expect at this point or I guess how do you view that metric and think about that more medium-term?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

And so given the low level of unemployment relative to history, it's not a surprise and it's consistent generally with what we've seen in the past, it takes longer to recruit fee eligible candidates. And once you get them on assignment because many of them want full-time employment, they find full-time employment more quickly than they do at other points in the cycle, which means we're then obliged to backfill for them. This quarter as I spoke to earlier, at that same time as clients have gotten more selective, it just puts more pressure on that and to the extent client attrition is driving temp demand, they are more selective yet again when they're looking to replace full-time the attrition that they're seeing more of because of the tight labor market. So it's not a surprise that volumes are pressured as the labor market tightens and that's very consistent with the past. And one could argue that the labor market has never been tighter than it is as we speak. So that when you do have a fee eligible candidate and when you place them, you charge more for them. That's why our bill rates are accelerating into a range more typical of what we see in a tight labor market.

Tim McHugh -- William Blair -- Analyst

Okay, that's helpful. Thank you.

Operator

Our next question comes from Manav Patnaik from Barclays. Your line is open, please go ahead.

Ryan Leonard -- Barclays -- Analyst

Hi. This is Ryan Leonard for Manav. Just a question on Protiviti, you talked about on the last call how you're the -- in the early innings of some of these hybrid offerings, but also this quarter, it seems to be the biggest driver of growth. I guess, what inning are we in this kind of hybrid push? And I think you had mentioned you're rolling it out to some cities last time, can you just help us maybe contextualize that offering over the longer-term and you guys are obviously excited about it, so just curious what inning we're at and where that can go from here?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

It's hard to ascribe an inning number, it's certainly a one or a two or a three, it's nothing beyond that. But also understand that many of these projects are sold by people from our staffing divisions, where we have more distribution because of the number of locations and the number of people. When there is a client need for a temporary, there is often a root cause, which results in a project, if you're thinking that way. And now with the capability to whistle Protiviti on the field with their subject matter experts, our staffing people are starting to think through, gee whiz, this order for one person is really symptomatic of a larger project opportunity. And therefore, Protiviti comes in and jointly they handle it. So the point is, it's not like this is totally handled by a dedicated sales force that we're adding location-by-location-by-location, not at all. What it is, is educating our existing staff to be more mindful of project opportunities that they ultimately benefit from themselves because they participate in the project revenue to a greater extent than they would, had they just placed that one temporary on assignment.

Ryan Leonard -- Barclays -- Analyst

Got it. And then maybe -- I guess, could you give some reasons why the clients are being a little bit more hesitant? And just on the labor supply side, obviously, we're seeing unemployment rates, particularly in finance and accounting roles at pretty low levels. Can you just talk about maybe the candidate supply that you see today and how challenging that is?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

I'd say, we said our clients are more measured, A, because attrition is driving part of the demand. We also said there is macro uncertainty. We talked about various external factors you can look to, I think, services PMI, which came out last week. You can read yourself, which also was reflective of that. On the supply side, supply has been tight for quite some time. We've made a lot of investments in technology, I think more than any other area, the payback we're getting from our technology investments has been in the recruiting of candidates. Now, we use AI in our discovery of candidates, we use AI in our outreach to candidates, we use AI in our matching candidates to orders. So I believe we're getting the most with what we have in large part because of our technology investments, which have been significant, but that doesn't change that it's a tight labor market. And while on the one hand, we're trying to sell talent to a client, many clients are buying specific skills. And when you don't have those specific skills, you sell overall talent that can acquire those skills on the job and hit some friction.

Ryan Leonard -- Barclays -- Analyst

Got it. Thank you.

Operator

Our next question comes from George Tong from Goldman Sachs. Your line is open, please go ahead.

Blake Johnson -- Goldman Sachs -- Analyst

Hi. Good afternoon. This is Blake Johnson on for George Tong. You mentioned bill -- rising bill/pay spreads continue to drive gross margin expansion in the quarter. How the dynamics in international labor market is affecting bill/pay spreads in your non-US businesses, particularly Germany, Belgium and the UK?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So we clearly do not see the same rate of expansion in non-US, which is correlated with the macro comments we made earlier. We are seeing some expansion, but not to the same degree we're seeing it in the US, where we're seeing significant expansion. As I said before, in a labor short market, once you have a fee eligible candidate in hand, the market says you should get paid for them, which we are.

Blake Johnson -- Goldman Sachs -- Analyst

Great. That's helpful. Can you give us some detail on the kind of economic environment your guidance is assuming? Are you assuming no change from the prior quarter, slower US growth, any improvements in Europe?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, we don't see a huge change in the trend line based on what we're talking and we're only talking guidance for one quarter. As we said, we're encouraged by our US temp start is better than our exit. We're practical as it comes to reality, as it relates to Europe. So we've continued those trends. So we hope we're being conservative. If you look at our guidance overall, notwithstanding 2 points of tougher comps, we're still going to grow 5 percentage points, but we have assumed that the trends where our US AT/OT clients stay more measured and selective, but that our Management Resources, technology, permanent placement and Protiviti businesses, all continue to grow nicely in double-digits, that our margins -- our operating margins actually expand on the staffing side 20 basis points to 40 basis points. On the Protiviti side, 10 basis points to 30 basis points. Now, our tax rate for the second quarter jumps up to 28%, 28.5%. We lose some of the stock deductions you get in the first quarter because that's when our stock vests. Further, there are some expenses that become non-deductible with the new Tax Act, both of which give you a higher tax rate, 20% to 28.5%, which is up pretty significantly, at least sequentially, and up 100 basis points versus a year ago. So when you put the package together, profitability actually improves year-on-year and sequentially and growth notwithstanding tougher comps is mid-singles.

Blake Johnson -- Goldman Sachs -- Analyst

Great. That's really helpful. I appreciate it.

Operator

Our next question comes from Hamzah Mazari from Macquarie. Your line is open, please go ahead.

Mario Cortellacci -- Macquarie -- Analyst

Hi. This is Mario Cortellacci filling in for Hamzah. You guys have talked a lot about the international business, but I was just curious to see if you can comment on if you're seeing anything from a labor reform or regulatory perspective in the international market that could have any impact on the business?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

There's nothing that moves the needle. I mean, there are some UK regulations being discussed that aren't -- certainly not final that could have an impact, but there's nothing, there's nothing that moves the needle, nothing overly dramatic to the point where it's on our radar screen in a major way.

Mario Cortellacci -- Macquarie -- Analyst

Got you. And I guess, maybe you can comment on whether you're seeing any changes in the competitive environment in terms of, say, competition from non-traditional staffing companies, for example like the online players? And if you see any changes in candidate behavior or preference outside of, again, what you've said, given the tight labor market and how they've been switching pretty quickly?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

So, I'd say the competitive environment from non-traditional players, we don't think, is having a significant impact. So first of all, most of them are focused on permanent placement rather than temp and consulting and permanent placement is one of our strongest businesses as we speak and frankly the biggest challenge there is what we call closing candidates, where you're trying to get a candidate to take the position in discussion rather than to hold out for yet a better position. And as labor consultants because that's what our people do all day, they have a much better perspective on the market than any one person can have. And many times, it's that consulting our people do with candidates that gets them over the hump and that activity doesn't happen with the online perm competitors. The -- as far as impact on candidates, again, while there are platforms they can go to, they need to be convinced, they need to be nudged further with our clients, many of them are not household names. So part of what value our people add is they sell these non-household names, they sell those opportunities in ways that the client themselves couldn't do. So they add value there as well. So we don't see an outflow of candidates to platforms having a major impact on supply. And in fact, as I said earlier, if anything, we see our own technology initiatives benefiting supply and frankly disproportionately so at least to our traditional competitors and we don't see much leakage to non-traditional competitors in that way.

Mario Cortellacci -- Macquarie -- Analyst

Thank you very much.

Operator

Our next question is Seth Weber, RBC Capital Markets. Your line is open, please go ahead.

Seth Weber -- RBC Capital Markets -- Analyst

Hi. Thanks for taking my question. Keith, I just wanted to clarify your response to some of the Protiviti gross margin questions. Are you comfortable thinking that gross margin will be up year-over-year by the end of 2019? Is that what we -- is that what I heard or is it just, I think, trends will just get better sequentially?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

It's our hope that by the end of the year, they'll be up year over -- year-on-year, but it will take us some time to capture the additional cost that I talked about earlier, which is an annual thing. There are many ways they manage their gross margin, one is what they call the shape of the pyramid, which is the ratio of higher level people to lower level people. That's something they manage. Utilization or chargeability, how many hours is a person on an account versus not chargeable, they manage that. Further, do they choose a staffing contractor or did they choose one of their own staff that's already on the payroll? That's another way they manage their gross margin. So there's a lot of levers there that they have to deal with, they're quite astute in managing those levers and how they impact their gross margin. They're also very astute and they understand they can look at year-on-year sequential gross margin just like you and I do. And so the plan is by the end of the year that year-on-year they have higher gross margins.

Seth Weber -- RBC Capital Markets -- Analyst

Okay. That's very helpful. Thank you. And then just maybe on the tech business, the growth was really strong again, double-digits. Like you said, the comps do get harder here. Do you think that that can continue to grow double-digits here through -- in the second and third quarters?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Well, I certainly hope so. Prudence says to me I would probably give you a range of high-singles to low-doubles just to hedge a bit. But the point is that business is strong. Full stack cloud, cyber, digital transformation, Windows 10, machine learning, IT apps, IT ops, it's all pretty good and we're optimistic, but common sense says when you've got the comps getting tougher by, let's see, 6 points.

Seth Weber -- RBC Capital Markets -- Analyst

Yeah.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

That's a big increase in comps. So it would seem to me prudent for a man to kind of consider that when he's doing his estimating.

Seth Weber -- RBC Capital Markets -- Analyst

Okay, fair enough. I appreciate it, thank you very much.

Operator

Our last question is a follow up from Jeff Silber with BMO Capital Markets. Your line is open, please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much for -- I'm sorry, thanks so much for squeezing me in. Just a quick numbers question. Keith, you mentioned the tax rate guidance for the second quarter, should that be the number we use for the rest of the year as well?

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

No, no. The rest of the year will come back down somewhat and so we're probably talking 26%, 27% for the rest of the year.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. Thanks so much for clarifying that.

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Yeah.

Harold M. Messmer, Jr. -- Chairman of the Board and Chief Executive Officer

Thank you. That was our last question. We appreciate you joining us today.

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 www.roberthalf.com. You can also dial the conference call replay. Dial-in details and the conference ID are contained in the Company's press release issued earlier today.

Duration: 57 minutes

Call participants:

Harold M. Messmer, Jr. -- Chairman of the Board and Chief Executive Officer

M. Keith Waddell -- Vice Chairman of the Board, President and Chief Financial Officer

Mark Marcon -- R.W. Baird -- Analyst

Dan Dolev -- Nomura -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Andrew Steinerman -- JPMorgan -- Analyst

Gary Bisbee -- Bank of America Merrill Lynch -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Joseph Thompson -- SunTrust -- Analyst

Tim McHugh -- William Blair -- Analyst

Ryan Leonard -- Barclays -- Analyst

Blake Johnson -- Goldman Sachs -- Analyst

Mario Cortellacci -- Macquarie -- Analyst

Seth Weber -- RBC Capital Markets -- Analyst

More RHI analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

More From The Motley Fool

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool recommends Robert Half International. The Motley Fool has a disclosure policy.