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Robert Half International Inc (NYSE:RHI)
Q3 2020 Earnings Call
Oct 22, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Robert Half Third Quarter 2020 Conference Call. 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.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

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 forward-looking statements. These risks and uncertainties are described in today's press release and 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. In addition, we have modified our presentation of revenues and the related growth rates for Accountemps, OfficeTeam, Robert Half Technology and Robert Half Management Resources to include their intersegment revenues from services provided to Protiviti in connection with the company's blended staffing and consulting solutions. This is how we measure and manage these divisions internally and from now on, it's how we will report them externally. The combined amount of divisional 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 at roberthalf.com.

We are very pleased that third quarter and early October results reflect consistent weekly and monthly sequential gains across our divisions. Protiviti had another outstanding quarter reporting its 12th consecutive quarter of year-on-year revenue gains, leveraging a strong pipeline of diversified service offerings, including particularly robust growth with the blended solutions with our staffing operations. We're also pleased with the quarter-on-quarter growth in our staffing divisions, led by our permanent placement and OfficeTeam divisions.

2020 continues to be an unprecedented year. I'm extremely proud of the resourcefulness and commitment exhibited by all of our employees as we maintain high levels of service to our clients and candidates.

Companywide revenues were $1.19 billion in the third quarter of 2020, down 23% from last year's third quarter on a reported basis and down 24% on an as-adjusted basis. Net income per share in the third quarter was $0.67 compared to $1.01 in the third quarter a year ago.

Cash flow from operations during the quarter was $139 million and capital expenditures were $7 million. In September, we distributed a $0.34 per share cash dividend to our shareholders of record, for a total cash outlay of $38 million. We also acquired approximately 450,000 shares during the quarter for $24 million. We have 1 million shares available for repurchase under our Board-approved stock repurchase plan. Return on invested capital for the company was 25.8% in the third quarter.

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

Michael C. Buckley -- Executive Vice President, Chief Financial Officer

Thank you, Keith, and hello, everyone. Let's start with revenues. As Keith noted, global revenues were $1.190 billion in the third quarter. This is a decrease of 23% from the third quarter one year ago on a reported basis and a decrease of 24% on an as-adjusted basis.

Also on an as-adjusted basis, third quarter staffing revenues were down 31% year-over-year. U.S. Staffing revenues were $666 million, down 32% from the prior year. Non-U.S. Staffing revenues were $203 million, down 29% year-over-year on an as-adjusted basis. We have 326 staffing locations worldwide, including 88 locations in 17 countries outside the United States.

In the third quarter, there were 64.3 billing days compared to 64.1 billing days in the third quarter one year ago. The current fourth quarter has 61.7 billing days equivalent to the fourth quarter of one year ago.

Currency exchange rate movements during the third quarter had the effect of increasing reported year-over-year staffing revenues by $4 million. This increased our year-over-year reported staffing revenue growth rate by 0.3 percentage points.

Now, let's take a closer look at the results for Protiviti. Global revenues in the third quarter were $321 million. $260 million of that is from business within the United States, and $61 million is from operations outside the United States. On an as-adjusted basis, global third quarter Protiviti revenues were up 6% versus the year-ago period, with U.S. Protiviti revenues up 10%. Non-U.S. revenues were down 8% on an as-adjusted basis.

Exchange rates had the effect of increasing year-over-year Protiviti revenues by $2 million and increasing its year-over-year reported growth rate by 0.7 percentage points. Protiviti and its independently owned member firms serve clients through a network of 86 locations in 28 countries.

During the quarter, we changed our presentation of sales and general -- of SG&A expenses to exclude gains and losses on investments held to fund our obligations under employee deferred compensation plans. Under these plans, employees direct the investments of their account balances, and the company makes cash deposits into an investment trust consistent with these directions. As realized and unrealized investment gains and losses occur, the company's deferred compensation obligation to employees changes accordingly. However, the value of the related investment trust assets also changes by an equal and offsetting amount, leaving no net cost to the company.

Going forward, changes in the company's deferred compensation obligations noted above will continue to be included in SG&A or, in the case of Protiviti, direct cost. However, the offsetting changes in the investment trust assets will be presented separately, below SG&A and outside of operating income. This does not change the reported level of pre-tax or after-tax income or cash flows provided -- previously provided. Going forward, we will replace the discussion of consolidated operating income with the non-GAAP measure of combined segment income. This will be calculated as consolidated income before income taxes adjusted for interest income and amortization of intangible assets.

Turning now to gross margin. In our temporary and consultant staffing operations, third quarter gross margin was 37.5% of applicable revenues compared to 37.9% of applicable revenues in the third quarter one year ago. The year-over-year decline in gross margin percentage is primarily due to lower conversion revenues.

Our permanent placement revenues in the third quarter were 10% of consolidated staffing revenues versus 10.7% of consolidated staffing revenues in the same quarter one year ago. When combined with temporary and consultant gross margin, overall staffing gross margin decreased 80 basis points compared to the year-ago third period to 43.8%.

For Protiviti, gross margin was $87 million in the third quarter or 27.1% of Protiviti revenues. This includes $3.4 million or 1.1% of Protiviti revenues of deferred compensation expense related to increases in the underlying trust investment accounts. One year ago, gross margin for Protiviti was $88 million or 29.4% of Protiviti revenues, including $200,000 of deferred compensation expense related to investment trust activities.

Companywide SG&A costs were 32.8% of global revenues in the third quarter compared to 31.2% in the same quarter one year ago. Deferred compensation expenses related to increases in underlying trust investments had the impact of increasing SG&A as a percentage of revenue by 1.9% in the current third quarter and 0.1% in the same quarter one year ago.

Staffing SG&A costs were 40.2% of staffing revenues in the third quarter versus 34.8% in third quarter of 2019. Included in staffing SG&A costs was deferred compensation expense related to increases in the underlying trust investment assets of 2.6% and 0.1% respectively. The increase in staffing SG&A as a percentage of revenues is primarily the result of continued negative leverage resulting from the decline in revenues. Third quarter SG&A costs for Protiviti were 13% of Protiviti revenues compared to 16.2% of revenues in the year-ago period.

Operating income for the quarter was $77 million. This includes $26 million of deferred compensation expense related to increases in the underlying investment trust assets. Combined segment income was therefore $103 million in the third quarter. Combined segment margin was 8.6%. Third quarter segment income from our staffing divisions was $54 million, with a segment margin of 6.2%. Segment income for Protiviti in the third quarter was $49 million with a segment margin of 15.2%.

Our third quarter tax rate was 26% compared to 28% a year ago. The lower third quarter tax rate is primarily due to annual adjustments made to reconcile our tax accounts to prior year's tax returns as actually filed. Our nine-month year-over-year tax rate of 28% is in line with what we expect for the full year.

Moving on to accounts receivable, at the end of the third quarter, accounts receivable were $690 million and implied days sales outstanding or DSO was 52.3 days.

Before we move to fourth quarter guidance, let's review some of the monthly revenue trends we saw in the third quarter and so far in October, all adjusted for currency and billing days. Our temporary and consultant staffing divisions exited the third quarter with September revenues down 29.3% versus the prior year compared to a 30.7% decrease for the full quarter. Revenues in the first two weeks of October were down 27% compared to the same period one year ago.

Permanent placement revenues in September were down 30.1% versus September of 2019. This compares to a 35.7% decrease for the full quarter. For the first three weeks in October, permanent placement revenues were down 31% compared to the same period in 2019. We provide this information so that you have insight into some of the trends we saw during the third quarter and into October. 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 fourth quarter guidance. Revenues of $1.155 billion to $1.255 billion; income per share $0.55 to $0.75. The midpoint of our guidance implies a year-over-year revenue decline of 22% on an as-adjusted basis inclusive of Protiviti. The major financial assumptions underlying the midpoint of these estimates are as follows. Revenue growth on a year on year basis, staffing down 27% to 30%; Protiviti up 5% to 7%; overall down 21% to 23%.

On the gross margin percentages, Temporary and Consultant Staffing 37% to 38%; Protiviti 27% to 29%; overall 39% to 40%.

SG&A as percentage of revenues, excluding deferred compensation investment impacts, staffing 36% to 38%; Protiviti 14% to 16%; overall 30% to 32%. Segment income, Staffing 6% to 8%; Protiviti 12% to 15%; overall 8% to 10%. We expect our tax rate to be between 27% and 29% and shares to be 113 million. 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 the SEC filings.

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

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

So thank you, Mike. As is evidenced in the growth of our newly reported inter-segment revenues. The partnership between Protiviti and our staffing operations continues to be an accelerating source of growth for our enterprise. We have also seen particular strength in our services to the public sector and financial services clients. In addition, we've experienced increased demand for services and solutions in cloud technology, online security, data privacy and digital transformation as enterprise client companies have continued to strategically invest in these areas.

The significant reductions we made to our cost structure in the second quarter have also benefited the third quarter and will continue to benefit future quarters. Remote and hybrid working models will continue long after the pandemic ceases to require them. Access to talent is no longer limited to time zones or geographies. With our global network of talent and world-class technology tools, we can provide the right match for clients and candidates regardless of location. While uncertainty remains in the overall economic environment as the pandemic continues, there is much to be optimistic about. As the fourth quarter progresses, the nature, timing and amount of any additional fiscal stimulus should be known. Medical solutions to the COVID-19 virus move ever closer to reality, and the NFIB continues to report improving trends in the small business community. A recent study showed that more than half of small businesses are hiring or trying to hire, with the vast majority reporting few or no qualified applicants. We continue to believe in our positioning for future growth with the unique strengths of our brands, people, technology and professional business model.

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.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions]. Your first question comes from the line of Andrew Steinerman from JPMorgan. Please go ahead.

Andrew Steinerman -- JPMorgan -- Analyst

Hi, Keith. It's a big picture question about small businesses, and surely, I follow NFIB just like you've suggested the -- these favorable trends reported there. Kind of going through this recession, I was worried about Robert Half's dependence on small and medium-sized businesses. And maybe it's about the types of small and medium-sized businesses that you serve, I assume you're not serving a lot of restaurants. My question is do you agree with the trends that NFIB are suggesting that they've really kind of made it through this recession favorably? Do you think it's really dependent on more stimulus for them and how are your small and medium-sized business customers feeling?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

So we would definitely agree that the trends are improving. But as you started, it's also true that SMB clients are more nimble than mid and large-cap companies. They've cut more and they've added back more conservatively. That's very apparent in our own numbers. We've talked in the past that about 80% of our business is SMB, which we define by the way, 50 to 100 employees on average, and 20% is mid-cap, mid to large, mostly mid. That has actually changed during the post-pandemic period such that the mid-cap number is almost 30%. Clearly, our mid-cap and larger clients have been more resilient than have been our SMB clients, but we are encouraged.

If you look at our weekly trends beginning in early June, they've consistently improved. In fact, we've seen accelerating monthly sequential growth during the quarter. We expect that to carry over into Q4 with one big caveat. It's been widely reported that most companies' employees have not taken their paid time off so far this year. That's true at Robert Half. That's true at many of our client companies. We, therefore, think December will be more holiday-impacted, holiday/paid time off-impacted. We'll have less plant capacity as our employees take that time off. Our clients will have less plant capacity to close deals. So we're expecting a bigger than normal December impact. But that said, adjusted for that, we do feel good about the progression of our SMB clients, which is now 70% of the total. And history shows that once they do get comfortable, which we would define as probably closer to the post-pandemic period, that we'll participate in an outsized way going forward. And yes, we do think the stimulus would be helpful. And hopefully that gets resolved pre- or post-election.

Andrew Steinerman -- JPMorgan -- Analyst

Perfect. And just to make sure I got the point right, the December holiday effect, that is already included in the midpoint of your fourth quarter guide, right?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

That's correct.

Andrew Steinerman -- JPMorgan -- Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Mark Marcon from Robert W. Baird & Company. Please go ahead.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Good afternoon, Keith, and Mike. I was wondering if you could talk a little bit about the differences that you're seeing with regards to the needs for finance and accounting professionals between what you're seeing on the Accountemps side versus Protiviti. We've had some discussions with some investors who are concerned that maybe accounting isn't going to come back as strongly. Obviously, on the Protiviti side, you're clearly doing very, very well there. But I'm wondering if you could compare and contrast and how should we -- how we should think about it as we start coming out of this downturn when we eventually do have a vaccine?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

And so at a high level, Finance & Accounting particularly at the Accountemps level has staff accounting positions that are very transactional or volume driven. And as our clients' volume levels and transaction levels are down, so is that business. That's no different than every downturn we've been through. And as you know, I've been here over 30 years. So we fully expect as transaction volumes to improve. Accountemps will participate nicely there. I'll also say that what transaction volume there is, generally speaking, those type of positions are less conducive to remote work than the project-driven positions, which also impacts Accountemps negatively relative to Protiviti and/or Management Resources.

Protiviti has been doing great. As we've talked about, it has multiple service offerings due to its diversification efforts. For the first time ever, technology consulting within Protiviti is the largest practice area, which I think is incredible. So they've done well in their technology consulting. They've done well with risk and compliance, particularly in financial services. We've talked about anti-money laundering. We've talked about credit risk enforcement actions that they're involved with certain of their clients. And then while internal audit at Protiviti is somewhat impacted, it's not as impacted as the transaction-driven Accountemps-type positions. So we're very optimistic about how Accountemps will participate when things get more back to normal from a COVID standpoint.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

That's terrific. And can you talk a little bit about your stance with regards to how much excess capacity you have currently and how you're thinking about potential additions or subtractions with regards to internal personnel? There is some chatter going on with regards to what your internal hiring profile is like. And so I'm wondering if you could clarify that.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Sure. And so, first of all, I'd say, if you compared the first quarter, so let's call that pre-pandemic, with the third quarter, our revenues are down 21% and our income is down 21%. It's a quite frankly -- I think it's pretty incredible that given the type of impacts COVID had that we effectively got through that with no net negative leverage, principally because we aggressively cut our cost. We're cautiously optimistic that when we get that 20% revenue back that we'll do better and we'll actually leverage in a positive way. Our current workforce is more tenured, because our less tenured workforce is the piece of the workforce that we had to part ways with. We are very focused on the productivity levels of our internal staff. We have better data to measure that. We have very consistent buy-in internally across the organization. Frankly, our people internally make more money, as we let their productivities rise versus adding more people such that you got you're spreading your revenues over more people. They're more profitable if you spread it over fewer. So we have very good internal alignment that we're going to let our productivity levels drive up, which will be good for their individual profitability and will be good for our corporate profitability. But we're optimistic we're going to do better of the next new percent up than we did on the 20% down. Having said that, again, we are super pleased that 20% down at the top line no more than 20% down at the bottom line.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

That was impressive. Thank you.

Operator

Thank you. Our next question comes from the line of Jeff Silber from BMO Capital Markets. Please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. Just a follow-up on that answer to Mark's last question. Are you starting to ramp up internal hiring on a net basis? And if not, what do you need to see to start doing that?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, because we're talking staffing now.

Jeff Silber -- BMO Capital Markets -- Analyst

Yes.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Because we think we have a lot of unused capacity with this -- the more tenured staff that we currently have, we don't think we need to do much hiring in the short term. We've got to replace turnover. And by and large, we've done that largely with furloughs, but that's pretty much all behind us now. So if you're looking at our job postings online as some indication as to our level of confidence in the future, I would say don't, because we're happy with the staffing levels we have and we're happy that there is inherent upside in their productivity levels, particularly tenure-adjusted, which is the best it's ever been.

Jeff Silber -- BMO Capital Markets -- Analyst

All right. That's helpful. I appreciate that. And this question, the second question might be for Mike. Regarding the change in the SG&A presentation, I'm just curious why now? Is it because of the volatility that you might have seen in these trust assets? And if you can give us some color on that, I'd appreciate it. Thanks.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

And so let me talk at 50,000 feet and then Mike can be more practical. So, first of all, understand we've had these plans for over 10 years. Understand, we've got over 2,300 participants. As we said earlier, as Mike said earlier, it doesn't impact earnings, doesn't impact cash flow. We've disclosed these numbers on our footnotes. We've got no net cost. There is no net economic costs from doing this. And the simple answer for why now is because the SEC believes it's more appropriate that we take the -- take one side of the equation out of SG&A and make it its own line item. But simply putting those two line items together, you have the same SG&A that you typically had or it used to have. I mean, one over-simplified way of thinking about is, is that we have to mark-to-market every quarter our obligation to employees under these plans. And we also have to mark-to-market the underlying assets and the mark-to-market adjustment for both of those is exactly the same thing in opposite amounts -- in opposite directions the same amount. So economically, it's 0 and we've had this forever, 10-plus years. And the short answer again, the SEC has asked us going forward to take what we had put in our footnotes, and instead, put it on the face of the income statement. And I was [Speech Overlap]

Jeff Silber -- BMO Capital Markets -- Analyst

So just I understand -- I'm sorry, go ahead.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

It has been disclosed in the footnotes. And so it's really just the geography movement.

Jeff Silber -- BMO Capital Markets -- Analyst

Got it. And so the presentation that we see in this quarter's press release is the same presentation we're going to be seeing going forward, is that correct or is there something different?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

It's just what you're seeing, and we'll do our best to help you get back to -- do our best to help you not have to change your model, because if you look on the face of the income statement that's attached to the press release, there is two rows right next to each other, and if you put those two together, you will have exactly the same SG&A you would have gotten historically. We can't tell you to do that, but we could suggest if you did that, that the combination of two rows would be exactly the same as the SG&A you've had traditionally in your model.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. I appreciate the suggestion. Thanks so much.

Operator

Thank you. Your next question comes from the line of Manav Patnaik from Barclays. Please go ahead.

Manav Patnaik -- Barclays Capital -- Analyst

Yeah. Hi. Good evening. Keith, my first question was just, you talked about the work from home, virtual world, your talents and go beyond, I guess, where they're geographically located. And I agree with that high level and I would think that the flexibility with the larger firms probably benefits from that, but I was just curious with your SMB clients, are you seeing that? Like is the smaller 50 to 100 person shop willing to hire someone across the country?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, and so there's -- suddenly, there is two different questions here. One is remote versus on-site and the remote could be in the same geography. It's not just in the office. And then there is remote as in a different geography altogether. And I'd say, clearly SMB has shown that they're willing to have not on-premise, but largely in the same local geography or as bigger businesses not only are amenable to that. They're also amenable to particularly for project work going outside the local market. But we've been very pleased that depending on line of business that you're talking, sometimes 70%, 80% of the people we have on assignment are not working in the client's premises. They're working remotely, either in the same geography or in a distant geography.

Manav Patnaik -- Barclays Capital -- Analyst

Got it. And maybe just on Protiviti, can you give us a flavor of kind of where the engagements are the strongest, like in which areas are you seeing the growth and maybe which areas are either idle or declining right now?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, the area where they are the strongest and frankly, the area that we're probably really proud is the joint success Protiviti and Staffing are having in the public sector. We've got joint pursuit teams selling the work. By and large, the resources get provided by Staffing, but Protiviti manages them. If you think about it, process management, process optimization is right in Protiviti's wheelhouse. In fact, it's the wheelhouse of their wheelhouse. If you look at states, they're overwhelmed with volumes on unemployment claims, eligibility for unemployment payments processing. They're dealing with housing assistance claims. Their call-in volumes are off the charts. And additionally, you've got school districts that can't keep up with the technical support requirements of all the virtual learning models. So the public sector has made a meaningful difference to both Staffing and Protiviti this quarter.

You will notice in schedules attached to the press release for the first time ever, we've actually shown you how much revenue is billed by Staffing to Protiviti. We've shown you the growth rates. And we're pleased to report that for this quarter, Staffing revenues from Protiviti grew by 28% year-on-year and public sector activities were a big piece of that. That said, that's not the total picture. The strongest part of activity at the moment is technology consulting, it's cyber, it's cloud, it's transformation, but also risk and compliance, anti-money laundering, the retail operational risk, all those are strong as well. So Protiviti very well, very good. The internal audit has been a little impacted. More discretion in client budgets. There is some fee pressure there. It's down 8% or 10% while everything up is up even more than that to get to where you see it overall.

And as I said last quarter, remember Protiviti's fees are actually up more than their revenues, because they've got less reimbursable expenses because they're not traveling. And if you looked at a fee level versus a revenue level, you can add another 4 percentage points to that. So Protiviti doing very well and Protiviti together with Staffing doing very well as well. And we actually show you that both in numbers and in growth rate percentages in the schedules that we attached to the press release.

Manav Patnaik -- Barclays Capital -- Analyst

Got it. Thanks, Keith.

Operator

Thank you. Our next question comes from the line of Hamzah Mazari from Jefferies. Please go ahead.

Mario Cortellacci -- Jefferies LLC -- Analyst

Hi. This is Mario Cortellacci filling in for Hamzah. Could you just give us a quick update on what the bill-pay spread was in the quarter? And maybe you can even give us a sense how that trended throughout the quarter and into the first few weeks of October.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, so, adjusted for mix to get apples and apples, the bill rates were up 3%. And that's versus 5% a quarter ago and 6% the quarter before that. So not surprisingly, given the overall environment, there is some pressure on our bill rates, but we're still increasing them. And as you know, this all starts with the pay rates we have to attract the right talent to a given client's assignment.

Mario Cortellacci -- Jefferies LLC -- Analyst

Great, thanks. And then on, I guess, historically perm has improved faster than temps. And I guess you're starting to see that now already, but I'm just curious to know, I mean, because of how extreme and unique the situation is, do you see anything different about this cycle that it could cause maybe the temps portion of that rebound to lag a little more? I know that we've had obviously an early V-shaped recovery. But since June, if you like, the economy has had a slower pace of improvement. So I didn't know if given the dynamic you're seeing with SMBs and your mid-cap customers, and then also, this, like I said, this V-shape followed by slower pace could maybe drag out the temp portion of the rebound longer than it normally would in a regular recession.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

And the short answer would be we don't think so. It's true perm has recovered well off the trough. Not unusual. Many of our clients cut too deep and as they need staff, they come to us. They're upgrading staff, including out-of-market remote resources that they haven't done before. But also remember, they're coming off a lower trough. That is the case for temp. All of which is normal. So I would say based on everything we've seen so far, the relationship of temp versus perm, there is very little surprises us. OfficeTeam actually rebounded nicely off their trough, because they're actually participating disproportionally in this public sector work that I talked about earlier and call centers are a big part of the demand from the states, from the reasons that I talked about.

Mario Cortellacci -- Jefferies LLC -- Analyst

Great. Thank you so much.

Operator

Thank you. Your next question comes from the line of Kevin McVeigh from Credit Suisse. Please go ahead.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thanks. Hey, Keith, you talked about furloughs a little bit, but any sense of how that dynamic has been playing out in this recovery, whether it's internal Robert Half or just as your clients are maneuvering through the furlough process as opposed to perm? Because it seems like the perm is coming a little bit stronger than what you would have expected, given how aggressive firms are with furloughs this cycle?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, A, I think furloughs have largely played their way out in a major way, given we're several months from when those people were furloughed. And I'd also say if you look to peak to trough, perm fell a little less than it would traditionally. So there is no evidence that furloughs impacted that. And further from the trough, perm is coming back nicely as you observed. And so as we talked about extensively on the last call, I don't think furloughs are having any meaningful negative effect on the demand for our services.

Kevin McVeigh -- Credit Suisse -- Analyst

Got it. And then just to follow up on the wage, Keith, is any of that -- is it just the environment we're in or is any of that maybe just to sourcing the candidates from a wider spread geographically than you would historically see? I guess, said another way, if you're going to maybe more cost-efficient regions, is that pressed in the wage rate at all?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

I would say, generally speaking, we started this disruption period with tighter unemployment than ever. And so you started from a very strong place. And further, because it's event-driven, I think, by and large, clients see the end of the tunnel more clearly than they typically would. And the fact that it happened more quickly than in prior downturns where there's like water tortured over 18 months, this happened over a few. I think all of those are relevant to this business about what happens to pay rates and what happens to bill rates. But the pay rates are not up as much as they were, but they're still up. Bill rates are not up as much as they were, but they're still up. While it might be impacted a little bit by the remote work phenomenon, by and large, I don't think that's the driver.

Kevin McVeigh -- Credit Suisse -- Analyst

Very helpful. Thank you.

Operator

Thank you. Your next question comes from the line of Gary Bisbee from Bank of America. Please go ahead.

Gary Bisbee -- Bank of America -- Analyst

Hey, good afternoon. Thanks. So I just wanted to ask within the temp staffing business, when we look at the sub-segments, the Technology and Management Resources obviously the growth rate curating from last quarter, is that just sort of the lag typically we see with professional, maybe longer engagements took a while to roll off? Or is there anything else you'd point to? And is it fair to say that those two businesses have also seen the trend of week-to-week revenue improvement that you discussed earlier?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

And so as you observe, the facts are that assignment links are longer in Management Resources and Tech and so they had in-flight assignments that they rode longer than our other divisions it hit. Meaning, they were impacted later. Happy to report that once they got to that period, they have begun to improve week to week, although it was a bit later than early June. They have had several weeks of consistent growth as well. The other thing that I talked about earlier was that because they're focused more on project work and transactional work, project work is more remote-friendly than transactional work. So that if you look cumulatively at kind of peak to trough during pandemic of our Accountemps office team, and you compare that to Management Resources Tech, there is less impact to Management Resources Tech than there is to the former, because of the project and it seems to be more resilient than the transactional or partly because it's more remote-friendly.

Gary Bisbee -- Bank of America -- Analyst

Okay. That makes sense. And then within the cost reductions that you've delivered, particularly at the SG&A level, it's interesting to me that Protiviti, which is doing -- holding up better and continuing to grow, has seen pretty similar, in fact, it looks like more larger percentage than a temp reduction in SG&A. Was there anything in particular to the quarter and I guess, how should we think about that trending? I know you commented on next quarter a bit, but trending over the next few quarters or anything you'd point out there. Thank you.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, first of all, remember that Protiviti's principal payroll cost are in direct costs, not in SG&A. But for those costs that are in SG&A, I think they've certainly been -- because there is less travel overall, including non-billable travel, that's a factor. They've reduced their marketing cost just because of the impacts primarily to their internal audit practice during the year. Having said that, if you notice for the fourth quarter, we are calling for their SG&A costs to increase and that's driven by the same reasons. They're going to turn the marketing spigot back on, and they've got some training cost attached to all the people that they've added. But Protiviti's profitability for 2020, calendar 2020 will be the largest it's been in many, many years, which in and of itself is also incredible. So they're growing the fastest and are the most profitable of any of our lines of business, which is a really good place to be.

Gary Bisbee -- Bank of America -- Analyst

Yeah, for sure. Thanks.

Operator

Thank you. Your next question comes from the line of Tobey Sommer from Truist Securities. Please go ahead.

Jasper Bibb -- Truist Securities -- Analyst

Hey, good afternoon. This is Jasper Bibb filling in for Tobey. I was hoping you could speak to what you've been hearing from customers kind of regarding reshoring or onshoring of outsourced labor and what that might mean for your business? Thanks.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

We hear a little bit of it, primarily on the Protiviti side. I wouldn't say it's a major theme or trend, but clearly some companies aren't happy to have a heavily reliance on their supply chain offshore and their bringing some of that back. And so again, we have a few engagements. But it's not moving the needle.

Jasper Bibb -- Truist Securities -- Analyst

Thanks. And then as volume is kind of coming back here, I was hoping you could speak to what you're hearing from clients on kind of the split between flexible and perm labor needs and whether that dynamic might vary from what you've seen in kind of the early stages of prior cycles.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, which is always the case, and in prior cycles, most of our very nimble SMB clients get really lean during the downturn. And at the first hint of optimism and more transaction volume, they need help. And frankly, if you look for the last couple of downturns and recoveries thereafter, temp and perm have recovered pretty much together, because perm has a deeper trough. It typically has higher growth rates coming out of that trough. But by and large, just economic incentives to keep your costs variable are just as true at the beginning of a recovery as they are any other time. On the other hand, to the extent they over-cut or got extra lean and want to take advantage of one of the best labor markets they're going to see, because it's early in a recovery. Many of them choose to tap into that market and upgrade their talent. So frankly, we don't see anything different in impact of downturn, early stages of recovery, that different than in the past other than it was condensed into a much smaller time frame.

Jasper Bibb -- Truist Securities -- Analyst

I appreciate it. Thanks for taking the questions, Keith.

Operator

Thank you. Your next question comes from the line of George Tong from Goldman Sachs. Please go ahead.

George Tong -- Goldman Sachs -- Analyst

Hi, thanks. Good afternoon. Temp staffing gross margins contracted 40 bps year-over-year due to lower conversion revenues for the most part. Can you talk about how you expect the recent slowdown in temp wage growth that impact temp bill pay spreads?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, first of all, I'm glad you mentioned temp gross margins, because frankly it's one of the things we're most proud of and how we've managed during the pandemic period. Typically, peak to trough during a downturn, we'd be down 300 basis points in our temp gross margins. And as we stand here out now, we are significantly less than that. Meaning, we've done significantly better. As to slowing temp wage growth, that's not going to have much impact on our spread, because we're going to take to the extent there are lower temp wages in an absolute way. We're going to take that amount and apply the same margin to it that we would otherwise. So compression with wage growth doesn't mean compression in margin.

George Tong -- Goldman Sachs -- Analyst

Got it. That's helpful. And then I wanted to dive in into your assumptions around your 4Q guide. Can you elaborate on what you're assuming with COVID infection rate and lockdowns in your outlook?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, the assumption is that just like has been the case in the last few months, there are going to be ebbs and flows. There are going to be hotspots. There is going to be partial lockdowns, partial restrictions. It's just all part of the calculus and that that's a reason why we only have modest sequential growth in the midpoint of our guide. So it doesn't assume a major country complete shutdown and does assume that there will continue to be ebbs and flows. Got it. Very helpful. Thank you.

Operator

Thank you. Your next question comes from the line of Mark Marcon from Baird. Please go ahead.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

I just had one quick follow-up. Keith and Mike, you've talked about the public sector and I was wondering if you could talk about to what extent your -- that has plateaued or if you're seeing continued growth and how long do you think those projects are going to go on for? It certainly seems like if -- given how far behind the public sector is that it would continue for a while, but love to hear your perspective.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, clearly some of the current demand is bulge demand, because of unemployment rates, because of need for housing assistance. There is no question that there is a bulge component to it. But we believe we're building relationships for the first time ever that are going to have lags as we go forward. And as I said earlier, Protiviti loves to show up when process optimization is the objective. And for many of these state and local governments, their processes could use some optimization. And we believe that lives past this bulge period. But the bulge period certainly is nice to have as we bridge ourselves to the other side of COVID.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Would you use initial unemployment claims as kind of a proxy for that bulge period and this tracking that? Or how are you thinking about how long the bulge period lasts?

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Well, if our penetration rates among the states, we're only dealing with a handful of states. And so, if we were dealing with every single state and this surge related primarily to their surge, I would say, yes. But the fact that we're continuing to go to new states and referencing the states where we already are, that itself as a source of growth such that we're growing share, if you will, in addition to just the surge on unemployment and housing assistance claims.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Great, thank you.

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Okay. That was our last question. Thank you very much for joining us.

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: 54 minutes

Call participants:

M. Keith Waddell -- Vice Chairman, President and Chief Executive Officer

Michael C. Buckley -- Executive Vice President, Chief Financial Officer

Andrew Steinerman -- JPMorgan -- Analyst

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Manav Patnaik -- Barclays Capital -- Analyst

Mario Cortellacci -- Jefferies LLC -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Gary Bisbee -- Bank of America -- Analyst

Jasper Bibb -- Truist Securities -- Analyst

George Tong -- Goldman Sachs -- Analyst

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