Our tech nature of services skews largely to infrastructure and operations rather than software and applications, and they tend to be a little more impacted than is the case with software and applications.
Mark Marcon: And then the sequential gross margin?
Keith Waddell: Sequential gross margin, the fourth quarter, we got a lift as we trued up estimates to actual for workers’ comp and for state and federal employment. We got some credits. Those credits don’t repeat. And so frankly, most of the sequential difference Q4 to Q1 is the absence of those true-up credits. Pay bill spreads continue solid. Conversions were a little lighter in Q4 consistent with perm and that same kind of level is what’s embedded in the Q1 guide.
Mark Marcon: Perfect. Thanks very much Keith.
Operator: Your next question comes from the line of Andrew Steinerman with JPMorgan. Please go ahead.
Andrew Steinerman: Hi, Keith. I know you guide for talent solutions, which is your contract business and our perm business together. When thinking about the midpoint for the first quarter margins for talent solutions of 9.5%. Could you just give us a sense of how that might break down between perm and temp? I know you just gave us a little sense of why the contract gross margin will be down. It just still feels like a kind of a sequential conservatism when you’re trying to model €“ when I’m trying to model the contract operating margin in the first quarter even past the gross margin comment that you just made.
Keith Waddell: Well, contract versus perm, we don’t split out our guidance. I think it would be safe to assume based on the Q4 trends, the early post-quarter trends that our perm assumption is lower than our contract assumption for the first quarter. From a contract operating margin standpoint, since our stance toward headcount adjusting has always been never to anticipate, but pretty much to just coincident with what we see at the topline, there’s always going to be a one or two-quarter lag between the actions we take on our cost, particularly headcount and how they show up in the P&L. And so you’ll see a little bit of negative leverage in contract operating margins in Q1 for that reason, which adjusts, autocorrects, shows up, if you will, in Qs two and three.
Andrew Steinerman: And then lastly, when you say you’re optimistic about 2023 and you use that where we enter 2023 optimistically, do you mean like Robert Half is ready for whatever scenario the economy brings? Or are you saying you’re optimistic that the economy will hold up?
Keith Waddell: It’s more of the former. We’ve been through many downturns of different intensities and durations. We’ve emerged from every single one of them to make new highs. We’re the most nimble we’ve ever been with our cost structure. We manage our headcounts on an individual basis relative to how they stand, relative to a standard given their tenure. And so we just feel really good about where we are with our cost structure, where we are with the capability to take advantage of what business is there. We have some businesses growing quite nicely, quite double-digit. We talked about Protiviti before, but in talent solutions, management resources, higher-level F&A, still growing nicely double-digit. Full-time engagement professionals growing at really high double-digit levels.
And so we’ve been particularly pleased with the way that has held up, and we’ll add to staff there. So our optimism is whatever hand we are dealt, we’ll deal with it. And we believe we’ll emerge on the other side, whatever the other side is higher than ever.
Andrew Steinerman: Excellent. Well said. Thank you so much Keith.
Operator: Ms. Balsky, your line is open, please go ahead.
