Hello, and welcome to the Robert Half First Quarter 2020 Conference Call. Our hosts for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Keith sorry, Mr. Michael Buckley, Chief Financial Officer.

Mr. Waddell, you may begin.

M. Keith Waddell - 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're subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Reconciliations and explanations of these measures are included in a supplemental schedule to our earnings press release. For your convenience, our prepared remarks for today's call are available in the investor center of our website at roberthalf.com.

Before we review our first quarter financial results, I'd like to take a moment to talk about Robert Half's response to the COVID-19 pandemic. We've been working for many weeks now to ensure the health and welfare of our employees, while also maintaining our service commitments to customers. The safety of our employees remains our first priority. Early on, we gave all staff the unconditional right to work from home, and this will remain so. We also agreed that time taken off due to illness or the care of loved ones who are sick would not be charged to employees. As we navigate through this crisis, preserving the long-term intrinsic value of Robert half is our guiding principle. The key focus is retaining our best people, who've proven time and again their ability to grow and sustain the organization. They are critical to maintaining the culture that's been an essential part of our success. Given the magnitude of the COVID-19 impact on our business, we fully understand that we must also adjust our cost structure in all other areas.

To reinforce that we're all in this together, I've cut my base pay by 100% until the end of the year and the other executive officers across the enterprise have also taken substantial pay cuts.Our previous cloud and other infrastructure investments positioned us extremely well to seamlessly transition our employees to work-from-home status with access to all essential technology tools and communication options. Virtually all employees across the globe are currently working remotely. We've weathered many downturns over Robert Half's 70-plus year history, owing to our strong balance sheet and cash flow, unparalleled brands, professionally focused business model and what we believe is the most driven and tenured workforce in the industry. We are confident that we will emerge from this too with the ability to compete effectively and win in the post-COVID-19 world, maintaining and enhancing our industry-leading brand.

Now let's take a look at first quarter 2020 financial results. Company-wide revenues were $1.507 billion, up 3% from last year's first quarter on a reported basis, and up 2% on an as-adjusted basis. Net income per share for the quarter was $0.79 compared to $0.93 in the first quarter one year ago. Cash flow from operations during the quarter was $125 million and capital expenditures were $14 million. In February, we raised our quarterly cash dividend to shareholders from $0.31 to $0.34 per share. We paid the dividend in March for a total cash outlay of $40 million. We also repurchased approximately one million Robert Half shares during the quarter for $51 million. We have 1.5 million shares available for repurchase under our Board-approved stock repurchase plan. While results through the first half of March were strong and above plan, the second half of March began to reflect the COVID-19 impact on our business, particularly our staffing operations.

Our Robert Half Technology and Robert Half Management Resources divisions turned in solid results, notwithstanding this. Protiviti had another very strong quarter, posting double-digit, year-on-year revenue gains for the eighth consecutive quarter. It saw broad strength across its diversified service offerings, including internal audit, technology consulting and regulatory compliance consulting as well as services provided jointly with staffing. Return on invested capital for the company was 32% in the first 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 $1.507 billion in the first quarter. This is an increase of 3% from the first quarter one year ago on a reported basis and an increase of 2% on an as-adjusted basis. Also on an as-adjusted basis, first quarter staffing revenues were down 1% year-over-year. U.S. staffing revenues were $944 million, down 0.2% from the prior year. Non-U.S. staffing revenues were $269 million, down 4% year-over-year on an as-adjusted basis. We have 327 staffing locations worldwide, including 88 locations in 17 countries outside the United States. In the first quarter, there were 63.1 billing days compared to 62.2 billing days in the same quarter one year ago. The current second quarter has 63.4 billing days, unchanged from the second quarter one year ago.

Currency exchange rate movements during the first quarter had the effect of decreasing reported year-over-year staffing revenues by $9 million. This decreased our year-over-year reported staffing revenue growth rate by 0.7 percentage points. Now let's take a closer look at results for Protiviti. Global revenues in the first quarter were $294 million, $233 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 first quarter Protiviti revenues were up 15% versus the year ago period. The U.S. with U.S. Protiviti revenues up 20%. Non-U.S. revenues were up 2% on an as-adjusted basis. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $2 million and decreasing its year-over-year reported growth rate by 0.6 percentage points. Protiviti and its independently owned Member Firms serve clients through a network of 86 locations in 27 countries.

Turning now to gross margin. In our temporary and consulting staffing operations, first quarter gross margin was 37.8% of applicable revenues compared to 38.0% of applicable revenues in the first quarter one year ago. Our permanent placement revenues in the first quarter were 9.9% of consolidated staffing revenues versus 10.8% of consolidated staffing revenues in the same quarter one year ago. When combined with temporary and consulting gross margin, overall staffing gross margin decreased 70 basis points compared to the year ago first quarter, to 44%. For Protiviti, gross margin was $78 million in the first quarter or 26.3% of Protiviti revenues. One year ago, gross margin for Protiviti was $64 million or 25.3% of Protiviti revenues. Company-wide SG&A costs were 31.8% of global revenues in the first quarter compared to 31.4% in the same quarter one year ago. Staffing SG&A costs were 35.3% of staffing revenues in the first quarter versus 34.2% in the first quarter of 2019. The increase in staffing SG&A as a percentage of revenue was significantly impacted by negative leverage as revenues decreased in response to the pandemic.

First quarter SG&A costs for Protiviti were 17.3% of Protiviti revenues compared to 17.9% of revenues in the year ago period. Moving on to operating income. Company-wide operating income was $131 million in the first quarter. Operating margin was 8.7%. First quarter operating income for our staffing divisions was $105 million with an operating margin of 8.6%. Operating income for Protiviti in the first quarter was $26 million, with an operating margin of 9%. Our first quarter tax rate was very high at 32% compared to 26% a year ago. The primary driver was the lower-than-expected tax deduction for the annual vesting of stock compensation, which was valued after recent stock price declines.

At the end of the first quarter, accounts receivable was $854 million, and implied day sales outstanding, DSO, was 51 days.Given the uncertainty caused by the COVID-19 pandemic and its impact on global economies, we are not offering overall guidance this quarter. We will, however, review with you some of the monthly revenue trends we saw in the first quarter and so far in April, all adjusted for currency and billing days. Our temporary and consulting staffing divisions exited the first quarter with March revenues down 6% versus the prior year compared to being flat for the full quarter. Revenues for the first three weeks of April were down 25% compared to the same period one year ago. Permanent placement revenues in March were down 33.3% versus March of 2019. This compares to a 9% decrease for the full quarter. For the first three weeks of April, permanent placement revenues were down 63% compared to the same period in 2019.

Protiviti's pipeline remains strong, particularly for technology and regulatory compliance engagements. Protiviti expects second quarter revenues to be in the range of flat to down 10% versus the prior year. As a result of these staffing trends and the continuing social distancing lockdowns across the globe, we took actions in March and early April to reduce our operating costs by approximately 20% compared to the first quarter of 2020. Also, we are currently taking further action to reduce SG&A costs by an additional 10%. These actions have been focused on eliminating all nonessential costs, such as travel and events, as well as laying off our less-experienced and lower-performing staff. Impacted corporate staff were furloughed with paid benefits, awaiting a return to higher activity levels.

Given the timing of these reductions and certain severance costs, reported results in the second quarter will only reflect savings of approximately 25% versus the first quarter of 2020. We entered this period with a very strong balance sheet. At the end of the quarter, we had $250 million in cash and $854 million in receivables, both of which will be a significant source of ongoing liquidity and financial resilience.

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

M. Keith Waddell - President and Chief Executive Officer

Thank you, Mike. As noted earlier, the COVID-19 pandemic is having a significant impact on global economies as a result of stay-at-home orders and business closures to stop the spread of the virus. Our staffing clients, most of which are small and midsized businesses, are feeling the crisis most acutely, and the downstream effect is a much tougher business climate for Robert Half. I'm extremely proud of how our teams have been responding to this pandemic. Even in the current environment, we see opportunity. We're aggressively pursuing significant opportunities in financial services, government and public education and outsourced reshoring many times jointly with Protiviti. We're already seeing many successes in these areas. Protiviti has also successfully transitioned its existing and new client work to a remote delivery model, which makes it even more possible to bring the most relevant deep-subject-matter experts to the table for its client.

We believe the factors that drive typical recovery patterns are still very much in place. Companies get lean and defer projects during downturns, particularly nimble, small and midsized businesses, Because they start lean, employers need help as business picks up and they resume projects that were put on hold. Variable cost labor models are ideal in the early stages of a recovery until the business stabilizes. As the recovery accelerates, there is typically pent-up demand, especially for specialized skills. The quality of the available labor pool is never better than in the early part of a recovery. Many people who lost their jobs during the downturn did so because of business conditions, not performance. Some companies will tap into this talent pool by hiring full-time as their business picks up. Others will upgrade existing staff, and some will tap into the high-quality temporary and contractor pool because they're reluctant to hire full-time. Either way, Robert Half gets a lift in permanent placement and temporary and contact revenues. What's particularly good news this time is that employers have seen that remote work can be effective.

With fewer geographical constraints, we can find an even better fit on the candidate side, which effectively raises the quality of the candidate pool that much further. We're already seeing examples of this. In short, as business picks up, demand for our services also picks up because clients start with lean staffs. Likewise, the quality of the candidate supply benefits from high unemployment and fewer geographic limitations, which provides further incentive for our clients. During early periods of recovery, clients particularly need our help to avoid becoming overwhelmed with the massive volume of candidate responses to their open positions. They're ill equipped to handle the interviewing, vetting, follow-up and consummation of their employment requirements.

They also need our help persuading fully employed candidates to make a job change at a time when they value the security of their existing jobs and to get access to candidates who are only known to us confidentially.In the past two downturns, once the trough was reached, our revenue growth was very robust for the next three to five years, with permanent placement outpacing temporary and consulting. Much of the current unprecedented monetary and physical policy response to this crisis, including this week's $484 billion extension, is targeted at our client base. This gives us cause for optimism. We're confident that Robert Half will participate fully in any recovery as business conditions improve.

Now Mike and I would be happy to answer your questions. [Operator Instructions] If there's time, we'll come back to you for additional questions.

Question & Answers

Operator

[Operator Instructions] Your first question comes from Mark Marcon from Baird. Your line is open. Please go ahead.

Mark Marcon - Baird - Analyst

Good afternoon, Keith and Mike,, I hope you guys are both well and as well as your families. I'm wondering, can you talk a little bit about the weekly trends that you ended up seeing in terms of going through late March and through April, just in terms of whether you've seen any signs that perhaps what we're seeing in April is kind of close to a bottom? Or are things continuing to deteriorate? And could you discuss that with a little bit of granularity between the different subsegments, if you could? And then I have a follow-up.

M. Keith Waddell - President and Chief Executive Officer

Okay, happy to. And yes, Mike and I are well, as are our families. So trends, as we said, through mid-March, we were strong and above plan, now we're talking temp. The last two weeks of March showed the biggest drops as the shutdown spread. After that, the rate of decline has progressively slowed to a small single-digit percentage. To be clear, that means April week three was only a small single-digit percentage less than April week two. Also, the number of new assignments that we're getting on the temp side has actually flattened out, which we're encouraged by. Office team is the most impacted, as admin support is more discretionary and they took longer to transition to work from home. Management Resources, Robert Half Technology were the least impacted, they're higher level, longer duration projects, and they move to remote work more easily. Most of our temps and contractors are working remotely, either using client laptops, Robert Half-provided laptops. We have thousands in inventory that we send to them, plus we have a cloud solution that quickly converts a candidate's personal device to a virtual secure desktop, and we can do that in a matter of minutes.

Before I talk about perm, I'll also talk that on the temp side, our conversations with clients are getting more positive. We're seeing significant traction and wins many times jointly with Protiviti. Hot areas include mortgage refinancing and forbearance; credit and collections, particularly in consumer lending; loan processors, particularly as it relates to the stimulus loans; we've got assignments with some states, helping them to process their unemployment claims; we have tech support assignments for organizations that are new to working remotely; some companies found that had outsourced certain of their processes, particularly to India, learned that those outsourcers were not well set up for work from home or remote work, and are now reshoring those back to the United States. Those are perfect assignments for a joint Protiviti staffing, managed business solution, managed technology solution. As it relates to perm placement, perm placement was also solid through mid-March, and frankly, through mid-March, we were probably on pace to have the best first quarter we've had in quite a while.

However, the last two weeks of March for perm, interestingly, flattened out, didn't go down, but that's a time period in years past where there's a significant jump or lift, which didn't happen this year. Then the first two weeks of April, there was a significant drop in perm. The good news is, our job orders, the new job orders in perm, the last three weeks are flat. So we're cautiously optimistic based on everything I've just said that we're close to, if not at the bottom, because it certainly appears that the trends are flattening out.

Mark Marcon - Baird - Analyst

That's terrific. And I'm wondering, you gave some guidance for Protiviti, which seems fantastic. I'm wondering if you can talk to how sustainable you think that is, particularly in light of some of the things that you mentioned in terms of the opportunities that you're seeing in financial services, government reshoring and some of the projects that they're doing there.

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

Protiviti had a fantastic first quarter. Our operating income was up 42% year-on-year. We couldn't be happier. It was broad-based, as we've talked in the past, led by technology consulting, which was cyber, which is privacy, which was cloud; FSI regulatory, which is anti-money laundering, which was consumer lending; as well as the joint engagements with staffing. The pipeline in tech, the pipeline in FSI regulatory remains very strong, they remain very bullish on that. Internal audit is seeing some impact, fewer pre-IPO engagements. Certain portions of their internal audit their clients' internal audit budgets are discretionary, which are being reduced. Protiviti has some, but not an outsized, some exposure to energy, to transportation and to hospitality, and all those clients have cut back their internal audit budgets. But by and large, particularly for tech and FSI, Protiviti has a very strong pipeline and feel very good at least through the second quarter, and frankly, beyond as it relates to those two.

Internal audit, some softness for reasons I just explained. I think importantly, many of you are now looking at us today versus the last downturn, and I think the differences in Protiviti are the most striking going into the last downturn, over 70% of Protiviti's revenues were Sarbanes-Oxley compliance. So during the downturn, they had not only to deal with downturn discretionary spending reductions, but they also had to deal with clients rationalizing their Sarbanes-Oxley, the initial Sarbanes-Oxley compliance cost. Now Sarbanes-Oxley compliance is less than 15% of revenue. They've diversified very nicely. So I think you're going to see a very different Protiviti performance this time than last, and that's already being demonstrated by what you're seeing so far.

Mark Marcon - Baird - Analyst

Fantastic. Thank you.

Operator

Your next question comes from Andrew Steinerman from JPMorgan. Your line is open. Please go ahead.

Andrew Steinerman - JPMorgan. - Analyst

Hi Keith, one of the big segments are really the focus of your clients in small and medium-sized businesses. I know it's also small order sizes, but I just wanted to get a sense of small- and medium-sized businesses, like is the PPP helping them? And when you guys say small- and medium-sized businesses, is that like companies of 500 employees or less? Just give us a sense of how you think of small- and medium-sized businesses.

M. Keith Waddell - President and Chief Executive Officer

Okay. So let's profile our client base a bit on the staffing side. So about 80% of our revenue we would describe as small- and middle-sized businesses, SMBs. The other 20%, we call strategic accounts, and strategic accounts, you would probably call mid-cap companies. And so our SMBs, the median would be between 50 and 100 employees with accountants and office team tending more toward the 50, and Robert Half Management Resources, Robert Half Technology tending toward the 100. Again, that's 80% of our staffing business. The balance is strategic accounts. Now strategic accounts, while their margins are modestly lower than what we get from SMBs, they are light years higher than what the large general staffing firms get from those types of clients.

The median size of our strategic account clients would be in the $4 billion to $6 billion in revenue, which I would call a mid-cap company. As to PPE, it was interesting. NFIB released a couple of days ago that 75% of its constituents had applied for a PPP loan, but that only 20% had received any money to date. I can tell you we have many engagements where we're helping our clients prepare for the application related to PPE as well as the employee retention credit that they can qualify for. So I'd say there's a lot of activity there. I'm not sure a lot of actual cash has yet flowed to our client base in that way. There's another point I would make that I found of interest. There was a study by one of the larger Wall Street firms that studied the performance of SMBs during downturns, and I had some notes I'm trying to find.

They compared the recovery after the 1982 recession to the recovery after the 2008 recession, and they believe the recessions were similar in size and in nature, and they concluded that the SMB recovery post-'82 was much stronger than the SMB recovery post-2008 because of the policy focus was principally on SMB. So we're very encouraged that much of the current policy focus, including hopefully today's extension, is focused on those SMBs.

Andrew Steinerman - JPMorgan. - Analyst

Great. Thank you.

Operator

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

Jeff Silber - BMO Capital Markets - Analyst

Thank you so much. Keith, you talked about a little bit about how Protiviti is different this downturn. I'm just wondering if you could give us some color on the rest of your businesses and maybe what you learned coming out of last downturn that you might have changed or you might think you'd be different positioned in temporary and consulting staffing and perm.

M. Keith Waddell - President and Chief Executive Officer

Well, I guess, without talking about what's different, let me first talk generally. I first would observe that we have a very experienced management team at both corporate and in the field. Most of us have managed through the downturn of the early 2000s as well as '08, '09. The declines we've seen so far, we've seen before, it's just that they're happening much quicker. We've learned over those years that once it's clear, there's going to be a sharp downturn that we act quickly to reduce inexperienced and underperforming staff as well as reduce discretionary costs. To the extent these staffs struggled during good times, it's unlikely they'd perform any better during a tougher market. This benefits our best performers as the ongoing revenues are spread over fewer people. We believe in targeted reductions rather than across-the-board ones.

Every office, every market, every person is different. We have very detailed performance data that drives these decisions. As Mike mentioned, we've already taken the actions to reduce our SG&A cost by 30%. However, given our intent to protect our best people, we have to have their back. They have to know we've got their back. It will be much harder to get significant additional savings because they got to primarily come from nonpayroll areas. The playbook is not about just cutting costs, it's also about mobilizing quickly to pursue those pockets of demand where labor resources are needed. I've talked about those earlier. We're confident that this strategy, which has worked before, will work again, which is what we're executing on.Now from the standpoint of how is staffing different, forget Protiviti, I'd say it isn't dramatically different.

The fact that staffing has Protiviti to go-to-market with, give staffing more opportunities than it would have on its own or which it had in the last downturn/recovery. So many of the opportunities I described earlier were are at companies that are larger than staffing's traditional client base, more akin to the strategic account base that I talked about, but there's no question in my mind that staffing, whether it gets reported as Protiviti or reported as staffing doesn't matter. There's no question. Staffing will do better. Staffing is already doing better because it has Protiviti to go-to-market with that it didn't have in the last downturn. And that's significant.

Jeff Silber - BMO Capital Markets - Analyst

Okay. That's helpful. I appreciate that. My second question was to focus on perm. There's probably not a lot of full-time hiring these days, yet you're still getting some business. Who are the type of clients or what are the type of positions that are using your perm recruiters to hire full-time?

M. Keith Waddell - President and Chief Executive Officer

Well, remember now that in our perm business, our clients typically will only pay a fee for us to find for them someone who's fully employed. And so the ranks of those who are currently unemployed don't really impact the pool of people that are or if anything, they shrink the pool of people that are currently employed. So to some degree, it makes it even harder for our recruiters, given that, but there are many there were many searches in place when this happened, clients understand how tough it was to get great people, you don't forget that in four weeks. I know even ourselves internally, we've had certain positions, particularly in IT, that we've struggled to get really good people.

And I can assure you, we're now looking to hire full-time in those areas because we may now have that opportunity. But in accounting and finance, many of those types of positions are considered essential. Cash flow, budgeting, liquidity, all of those things are top of mind for companies of every size. And we have people right in that sweet spot for which there's continuing demand for. As I said, as we look at our new job orders in perm, the last three weeks, they've been flat. I mean flat at a low level, I'll give you that, but they're not continuing to decline.

Jeff Silber - BMO Capital Markets - Analyst

Okay. That's very helpful. Thanks so much.

Operator

Your next question comes from Kevin McVeigh from Credit Suisse. Your line is open. Please go ahead.

Kevin McVeigh - Credit Suisse - Analyst

Great. Thanks, Keith. Keith there's been a couple of downturns. The severity and kind of the quickness of this is really unprecedented, and you talked a lot about kind of the bottoming. Any sense of what you look for in terms of the bottoming to come back out, appreciating that the duration of the downturn could be a lot quicker. Just I guess anything you're kind of looking to key in on as things stabilize and start to recover.

M. Keith Waddell - President and Chief Executive Officer

Well, we're we primarily are looking very closely at all our internal metrics, our starts and ends on the temp side, the job orders, to client visits, there's all type of activity metrics we look at. And then we have weekly hours build, weekly number of people on assignment, weekly dollars build. So we have many types of data that we look at, but it's principally week-by-week. The nature of the business is such that you never have a huge amount of visibility forward. And so instead, you've got to be very attentive to weekly trends. And as I described earlier, the good news is the rate of decline week versus week has slowed significantly to a very small single-digit amount.

Kevin McVeigh - Credit Suisse - Analyst

That's helpful. And then just how are you thinking about capital allocation in terms of dividend versus buyback in the near term?

M. Keith Waddell - President and Chief Executive Officer

So for this quarter, kind of given the severity of the impact, we're going to take a pause on buybacks. However, it is our plan to continue the dividend, because the cash flow that we'll generate plus that which gets generated from the receivables as your revenues decline, we think we believe will be more than adequate to continue to pay the dividend. If you look at what we've distributed to shareholders over time, it's been about 2/3 buybacks, 1/3 dividends. So by pausing this quarter on the buybacks, you've cut 2/3, if you will, which in part justifies paying the other 1/3, which is dividends. I would also hasten to add that, over the last 15 years, we bought in about 1/3 of our outstanding and the average price paid was in the mid-30s. So even by today's standards, that's not bad.

Kevin McVeigh - Credit Suisse - Analyst

Stay safe. Thank you.

Operator

Your next question comes from Tobey Sommer from SunTrust. Your line is open. Please go ahead.

Jasper Bibb - SunTrust. - Analyst

Hey good afternoon. This is Jasper Bibb on for Tobey. I wanted to ask how performance has trended in some of the larger European markets, given the stimulus measures that have been put in place there.

M. Keith Waddell - President and Chief Executive Officer

Well, it's kind of interesting. For the first quarter, we actually had positive growth in Germany, which I found to be incredible, and it stood out positively in that way. But if you look at the post-quarter periods, it's interesting as well that the year-on-year declines across our major countries outside the U.S. are very similar to what we're seeing in the United States. So it's all mid-20-ish. I guess France probably stands out as being the worst, but the rest of them cluster pretty close to mid-20s, which is similar to what we're seeing in the United States.

Jasper Bibb - SunTrust. - Analyst

Thanks. And then I was wondering how much of an impact social costs have on gross margin in the last recession and whether you're expecting a difference there this time around.

M. Keith Waddell - President and Chief Executive Officer

Well, in the last downturn, I think we lost 300 basis points in gross margin peak-to-trough. About half of that was conversions, which are related to perm placement. They're just converting temp to perm. So we would certainly expect to see an impact from that. Some of that, you get some margin compression as some clients demand lower pricing, which we, for the most part, avoid. But there's some of that. Some of that's higher unemployment cost. What's interesting about what's going on now is that the unemployment benefits being paid out by the states currently can't be charged back to individual companies like they have been in times past, if they're taking the additional federal amount for the benefit of their constituencies. And I think virtually every state is doing so. So it will be interesting to see, coming out in a recovery, what happens to individual company unemployment rates given that, unlike in the past, these claims aren't going to be charged back to us individually as a company.

Jasper Bibb - SunTrust. - Analyst

I appreciate the detail there. Thanks for taking the questions.

Operator

Your next question comes from Gary Bisbee from Bank of America. Your line is open. Please go ahead.

Gary Bisbee - Bank of America - Analyst

Thank you. So you referenced a lot of the temp business is not just Protiviti having transitioned to workers working remotely. Can you provide a little more color on that? How broad-based is that? Has that been broadly received well and adopted by clients? And is there any change in sort of contract structure or how it works in terms of billing what you're billing, what you're paying, and any of that as you have those people working from home?

M. Keith Waddell - President and Chief Executive Officer

So I think your question is on the temp side, not Protiviti, some more color on our temporary and contractors and their working remotely. And the facts are, most of those that we have on assignment today, as we speak, are working remotely. And they're either using client-provided laptops with VPN connections back to the client. Robert Half provided laptops, which have been imaged by us to provide a secure environment that can be connected to our clients. Or as I said earlier, we have this cloud solution where we can virtually stand up a secure desktop for our candidates, and we can do that in a matter of minutes. And all of that positions us very well to have our candidate pool remote-ready pretty much at a moment's notice.

Gary Bisbee - Bank of America - Analyst

And you've seen clients broadly adopting that and…

M. Keith Waddell - President and Chief Executive Officer

Absolutely. As I said, the business we have today, now given it's down 20%, but that 75% that we still have is still largely working remotely. And I'm talking about temporaries and contractors. Our internal staff are 100% remote. Protiviti staff is 100% remote. But I'm talking our temporaries and contractors, they're largely working remote.

Gary Bisbee - Bank of America - Analyst

Okay. Great. And then the follow-up, I just wanted to clarify the cost reduction efforts that you're undertaking. You said 20% of operating costs and another 10% of SG&A. Was that operating costs also focused in SG&A, so roughly 30% of the Q1 SG&A? Or are there costs within…

M. Keith Waddell - President and Chief Executive Officer

That's precisely correct. So if you take Q1 SG&A dollars, which is about $480 million, I believe. So because we acted quickly, the first 20% reduction, you're going to get a full quarter's benefit of, and that next 10%, bringing the total to 30%, you're going to get about half of that benefit in the second quarter.

Gary Bisbee - Bank of America - Analyst

Great. Thank you.

Operator

Your next question is from Hamzah Mazari from Jefferies. Your line is open. Please go ahead.

Mario Cortellacci - Jefferies - Analyst

Hi. This is Mario Cortellacci filling in to Hamzah. I know you guys pointed to working capital as a source of cash. And I just I believe you've done that in the past and other downturns. I just kind of want to see if you can give us a sense of how much of a benefit that could be. And then given the fact that your client base, obviously, is the small- and medium-sized businesses and they're under stress, in other sectors, we're seeing customers asking for deferral of payment or delayed payment. Or are you seeing anything like that in staffing as well?

M. Keith Waddell - President and Chief Executive Officer

And so the answer to how much a benefit is a direct function of your revenue assumption. So clearly, the more severe the drop in revenue, the more severe the drop in receivables, which is actually cash positive. Interestingly, in the last downturn, our DSO didn't go up by a single day. Now in the last downturn, there weren't shutdowns either like they are this time. So do we expect that DSO won't change by a single day? No. But as of yesterday, the cash collections are pretty normal relative to what we would expect given revenues. And while we expect there will be some DSO impact during this particular downturn, we still believe receivable reductions will be a significant source of cash.

Mario Cortellacci - Jefferies - Analyst

Great, and then, obviously, I know you're an economist, and I was not expecting you to predict the future. But I just want to get a sense for what you're hearing from some customers and clients about what their temp hiring plans are, how much visibility you have. I think kind of the assumption is maybe we started seeing some kind of return to normalcy, maybe in June-ish, July. And I just didn't know, I guess, what's the time frame that you think your customers are expecting for the economy to kind of open back up and things get to a little more normal? Not saying that we'll be operating like we were last year in July, but I guess, what's kind of the cadence of reopening and your customer expectations?

M. Keith Waddell - President and Chief Executive Officer

Well, we have very little visibility. But as we said earlier, our clients are very nimble and get very lean, and given initial unemployment claims the last four weeks, I think it's safe to assume they've gotten very lean very quickly. And so at the first moment that things pick up, they're going to need help, which is very consistent with past cycles, which is the point we tried to make earlier. We don't know the time frame. We don't know whether this is V-shaped, U-shaped, what the shape is. As we've said, we've ran the playbook that has stood us well in prior downturns. We feel good about the actions we've taken. We feel good about the capacity we have with our best people to participate the second things get better.

And oh, by the way, we have all these particular opportunities that are focused on current circumstances, particularly with financial services institutions, as I talked about. So time frame, I don't know. Visibility, we don't have much of. History says, our clients get really lean, which puts them in a spot to have a lot of requirements when things get better. We think they've acted just as I've acted in the past, if anything, more so, and have gotten even more lean, and whether the source of cash is their PPP loan or it's because their business picks up, we like how we're positioned.

Operator

Your next question comes from Seth Weber from RBC Capital Markets. Your line is open. Please go ahead.

Seth Weber - RBC Capital Markets - Analyst

Hi. Good afternoon, everybody. I wanted to go back to Gary's question, just about the cost reductions. Is there any chance that through technology or any of your corporate initiatives that some of those costs may not come back with revenue once revenue comes back? Or do you think that those are I guess the question is, are any of those cost cuts permanent? Or do you think they all kind of come back with volume?

M. Keith Waddell - President and Chief Executive Officer

I think it's a really good question, and I think it's a really good opportunity for us to kind of stretch the limits of what kind of benefits can we get with technology. We've made significant investments in AI and other things that we've talked about many times on these calls. But we're actually cautiously optimistic that the productivity of the workforce coming out of this will be better than the productivity of the workforce we've had more recently, and there's upside there.

Seth Weber - RBC Capital Markets - Analyst

Right. Okay. Yes. That's what I was getting at, just with all your investments and stuff. I guess just my quick follow-up. On the Protiviti business, with revenue kind of earmarked flat to down a little bit, do you think that margin can still be up year-over-year in that type of revenue cadence?

M. Keith Waddell - President and Chief Executive Officer

I think with flat to down revenue for Protiviti, that means they're going to be they're going to have less utilization, lower chargeability, so that says that their gross margin would be down more than their revenue, which would stress their margins a bit. So I would expect their margins to take a bigger hit than their revenue. Now they do have this tranche of variable labor when they're using contractors and temporaries from us, and they will swap them out for their own full-time staff. But because the cost of their own full-time staff is higher than the cost of the contractors, that's actually margin compressing as well. So I think you're going to see a little more margin compression, then you're going to see revenue decline on Protiviti. That said, given the circumstances, I think their performance is outstanding.

Seth Weber - RBC Capital Markets - Analyst

Sure. Okay. That's very helpful. Thank you very much guys. Stay well.

Operator

Your next question comes from Ryan Leonard from Barclays. Your line is open. Please go ahead.

Ryan Leonard - Barclays - Analyst

Yeah. Hey, guys. When you were talking about some of the April trends, particularly in temp, I think you mentioned some onshoring. I just wasn't clear if you were talking about Protiviti temp kind of joint projects. Or specifically have temp trends in April kind of flatlined?

M. Keith Waddell - President and Chief Executive Officer

And so when I talk temp trends, I was talking pure temp staffing that had nothing to do with Protiviti. Pure temp, where the rate of decline has slowed to a low single-digit percentage. Nothing to do with Protiviti. When I talked about many of the opportunities we have that we're excited about, many of those opportunities are joint opportunities with Protiviti. But that's more about from today forward rather than the periods of time I talked about with regard to trends.

Ryan Leonard - Barclays - Analyst

Got it. And would you say not providing guidance is more a reflection of the uncertainty today? Even though you think things are stabilizing, you just don't want to commit to anything at this point given the uncertainty?

M. Keith Waddell - President and Chief Executive Officer

I think given the uncertainty, we don't know when everybody is going back to work. We don't know whether it's going to be phased. We don't know whether it's county by county, city by city, state by state, country by country. There's just too much we don't know. And while we have a nice six-week period where we can judge trends, who knows whether those six weeks are representative of the next six weeks. We feel good about the trends as we see them for the reason we've talked about. But there's just too much uncertainty about how representative that is of what we're getting ready to see.

Ryan Leonard - Barclays - Analyst

Got it. And if I could sneak in one more, just this is such a unique circumstance, but part of the government response has really been to offer these PPP loans to hold up payrolls. As things start to come back, I mean, do you envision any trade-off there, where there's a lot of people on the sideline who may be hired back first as a result or maybe who are able to be used quicker than temp just because of the uniqueness of the fiscal response?

M. Keith Waddell - President and Chief Executive Officer

Well, most of those PPP loans have to be spent 75% on payroll, meaning you retained the payroll. And therefore, to the extent what you retained isn't enough, you're going to need help. And might there be a little bit of a pause as you catch up on those that you furloughed if you didn't seek a PPP loan or received a PPP loan. But I think the overarching comment that our clients get lean because they're nimble, I don't think, at a high level, that's changed because of PPP loans. And at least so far, they haven't even received their PPP loans.

Ryan Leonard - Barclays - Analyst

Thank you.

Operator

Your next question comes from David Silver from CL King. Your line is open. Please go ahead.

David Silver - CL King - Analyst

Okay, thank you very much. Keith and Mike, thanks very much for all the great detail. I have kind of a small-bore question and then a bigger question. Firstly, it would have to do with the costs associated with the 30% reduction in your base level of SG&A. So Keith, one feature, I think, of your reported results is it's extremely rare when you call out an item as like a restructuring cost or a onetime item that analysts like us adjust for when we're projecting your earnings per share. So I'm interested, the costs that were involved in achieving the 20% first phase reduction and the 10% second phase reduction in your SG&A, do you intend to call that out as a separate line item? And then secondly, if you could just ballpark that cost, that would be very helpful.

M. Keith Waddell - President and Chief Executive Officer

Well, orders of magnitude, the first round of reductions, we had severance of about $5 million and that was recorded in the first quarter. For the second round of reductions, notice we said we've cut the cost by 30%, and only 25% of that gets reflected in the second quarter. So there's a 5% there that doesn't. If you take that 5%, you can kind of split it in half between how much relates to severance and how much relates to timing and that you don't get a full quarter's benefit. So I think you'll find that the severance is orders of magnitude, $10 million for the second round. And the reason it's more than the first round. The first round was geared more toward inexperienced people. The second round was geared more toward lower-performing people that have been here longer than the inexperienced people.

David Silver - CL King - Analyst

Okay. And I'm assuming that won't be called out separately then?

M. Keith Waddell - President and Chief Executive Officer

It's not our style that I just did, obviously.

David Silver - CL King - Analyst

Correct. No, no. Just for forecasting. Second question is more of a big picture item. But there's you've commented on different angles of what's different this time around versus the past couple of downturns. I'm going to just throw one out at you. But one thing that I expect and many other people expect to be different is the role of China within the world economy, that there will be a significant reorientation or repositioning of global supply chains away from China and back, I'm assuming, to the western economies broadly who had been offshoring or outsourcing, I guess, a lot of their production and distribution and service operations. I know it's extremely early days, but does that seem like a viable kind of incremental source of growth? Is that something that maybe some of your more sophisticated clients have started to ask you about? And do you have any thoughts on that? And what parts of your business may be the most sensitive to kind of bringing global supply chains back into domestic markets and the economies where your you have operations?

M. Keith Waddell - President and Chief Executive Officer

Well, I'm not sure supply chain repositioning impacts us that much directly, I think, related but different would be to the extent our mid-cap clients have outsourced certain of their processes to India and Ireland and other places that proved they weren't very well positioned to work remotely when they were shut down. And so I know we are already seeing opportunities where companies are bringing those processes back, which is an opportunity for us, either to consult, to provide labor or even to outsource to ourselves with our joint offerings. That's clearly already having an impact and it's expected to have an impact. So it's a similar theme, but it's not China supply chain specifically.

David Silver - CL King - Analyst

Okay. Yes. No. I thought it might be analogous, but I hadn't heard you mention China specifically in your comments. So thank you for that. So I appreciate it.

Operator

Your next question comes from George Tong from Goldman Sachs. Your line is open. Please go ahead.

George Tong - Goldman Sachs - Analyst

Hi. Thanks. Good afternoon. You mentioned that temp declines have begun to stabilize over the past six weeks. Given the broad-based nature of the shutdowns already, based on what you're seeing, what factors could potentially cause trends to begin worsening again?

M. Keith Waddell - President and Chief Executive Officer

Well, I'd say, clearly, that's not the trend we're seeing. If there would be new outbreaks of significance that would extend, worsen the shutdowns, clearly, that would have an impact. But as I said, relative to the shutdowns that have occurred so far, we had a significant drop for a couple of weeks, the last two weeks of March. But for but beyond that, we have seen a path towards stabilization. But I would say, what would take it lower would start with science and health reasons more than anything else.

George Tong - Goldman Sachs - Analyst

Makes sense. On the cost side, you're reducing operating costs by 30%, like you said, by 2Q. How much of those cost reductions involve the elimination of recruiter headcount? And how quickly are you able to restaff recruiters when business trends do improve?

M. Keith Waddell - President and Chief Executive Officer

Well, we haven't and don't plan to break out the reductions by nature. But I think it's safe to say given that payroll is roughly 2/3 of our SG&A, payroll has got to be the lion's share of the reductions. And as far as how quickly can we restaff, we're in the recruiting business. That's our day job. And to the extent we need to recruit for ourselves, that's something we're well positioned to do. And hopefully, because the labor market when we go to hire those people will be less tight than the labor market when we hire the people we just let go, potentially, we get people that can have higher productivity, which would be a good thing.

George Tong - Goldman Sachs - Analyst

Got it. Thank you.

M. Keith Waddell - President and Chief Executive Officer

Okay. Operator, I think that was our last question.

Operator

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Q1 2020

Earnings Transcript

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