Kelly Services Inc (KELYB) 2010 Q3 法說會逐字稿

Good morning, and welcome to Kelly Services third quarter earnings conference call. All parties will be in a listen only mode until the question and answer portion of the presentation. Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Carl Camden, President and CEO. Sir, you may begin.

Thank you, Kent. Good morning and welcome to Kelly Services 2010 third quarter conference call. Joining me for today's call on the Q&A to follow is Patricia Little, our CFO. Any comments made during the call including the Q&A may include forward-looking statements about our expectations for future performance, actual results could differ materially from those suggested by our comments. Please refer to our 10-K for a description of the risk factors that could influence the company's actual future performance.

We're very pleased this morning to report solid, improved third quarter results. From our perspective, global economic growth continues and temporary staffing is an early beneficiary. The confidence we expressed during our last quarterly call appears to have been well-founded. We're now seeing all of the classic patterns of a genuine, sustainable staffing recovery take hold. As is customary in the temporary staffing business, light industrial is leading the way. And now the recovery is broadening with demand for office clerical staffing beginning to accelerate, as well as improvements within the professional and technical disciplines. In fact, at the conclusion of the third quarter, the US temp penetration rate was up for the 13th consecutive month.

Year-over-year, temporary help's October gain was 23%, another month of respectable growth. Since reaching its low in September of 2009, temporary staffing has grown an impressive 26%, adding more than 450,000 temp jobs. And I should add that even though the rate of sequential growth is beginning to moderate, it remains robust by historical standards. However, with the unemployment rate in the US persistently hovering around 9.6%, we have not seen meaningful job creation outside of temporary staffing. So far, this has been a job light recovery.

Employers remain wary of adding workers and yet our customers don't anticipate further cutbacks. The current situation is translating well for the temporary staffing industry. The growth we're experiencing reflects the secular trend toward employers adopting more flexible employment models. We believe Kelly can disproportionately benefit during this period of economic recovery and improvement across all of our regions, and operations bears that out. As I mentioned, demand for light industrial staffing increased for the majority of the quarter. But it seems to have flattened out a bit as we moved into the fourth quarter. After remaining stable for some time, we're pleased that office clerical has begun to accelerate. And professional and technical continues to improve nicely across all geographic regions.

On the other hand, while up nicely year-over-year, fees for the second quarter were essentially -- fees for the third quarter were essentially flat with the second quarter and remain at lower levels as companies remain cautious about expanding their permanent work force too quickly. Overall, these business trends translated into a solid third quarter for Kelly with notable improvements over our second quarter results. Our third quarter revenue was up by 6% sequentially. Expenses remained very much in line with our expectations. Our GP rate was up 30 basis points in the second quarter primarily due to higher act credits. But absence those, remain relatively stable over the last few quarters. We likely will continue to experience pressure on gross margins until our fees improve and we see a shift to more highly skilled staffing disciplines.

Most notably, Kelly earned $0.26 per share in the quarter. More than doubling our second quarter earnings. And a significant improvement over last year's third quarter loss of $0.43 per share. This quarter, we took a restructuring charge related to a severance agreement. Net of that restructuring, we earned $0.31 per share. Patricia will talk more about the financial performance a bit later.

But the single, clear message for today is this. We're encouraged by the improvements we're seeing in our business and with that, I'll now begin to turn to a review of our operating results by business segment starting with our largest, America's Commercial. Revenue in America's Commercial in the third quarter increased 36% year-over-year; an improvement from the 27% increase in the second quarter.

On a sequential basis, revenue was up 5% for the quarter. Within the commercial segment, light industrial staffing and electronic assembly continue to experience large sustained sequential and year-over-year growth. And after trending flat for the last four quarters, office, clerical, staffing volume trended up in the third quarter, increasing 7% year-over-year. Placement fees increased 17% year-over-year for the quarter. On a sequential basis, placement fees were down 1% for the third quarter compared with the second.

Kelly's gross profit rate for the current quarter was 14.6%, or 20 basis points higher than the same period last year. Sequentially, the gross profit rate was 30 basis points higher than the second quarter. Year-over-year, SUTA continues to be a headwind with Hire Act and SUTA recovery being a benefit. As I've said before, the high volume of [lift], typical at this stage of the recovery reduces our GP margin. Sequentially, the third quarter is negatively affected by normal seasonality.

Spending in the Americas Commercial segment increased by roughly 5% compared to last year, excluding restructuring costs. Sequentially, spending was 2% higher than the second quarter due to increased performance-based compensation. Commercial's earnings were $23 million in the third quarter compared to a loss of $600,000 last year. We're very pleased with the improvement in earnings we've achieved in the America's Commercial segment.

Now, on to the America's Professional and Technical segment. PT revenue improved in the third quarter, increasing 22% compared to the 13% growth in the second quarter year-over-year. On a sequential basis, PT revenue was up 6% for the quarter. Taking a closer look at the PT segment for the third quarter, we saw year-over-year and sequential growth across most business lines with our Engineering and IT businesses both improving more than 30% year-over-year. Combined temp to perm and direct placement fees for Professional and Technical were basically flat in the quarter, both year-over-year and sequentially.

For the entire segment, our gross profit rate was 15.9%, up 50 basis points from the same period last year. The year-over-year increase was attributable to the Hire Act benefit offset by higher payroll taxes. As we saw in our Commercial segment, the same year-over-year margin issues related to SUTA and the Hire Act affected our PT margins. For the quarter, expenses decreased by 5% or $1.1 million, year-over-year. Sequentially, spending increased 3% from the second quarter due to increased performance based compensation. PT earnings were $13.7 million, up $9 million compared to the prior year due to revenue growth, increased margin and success in controlling expenses.

I'll now turn to our operations outside the Americas, beginning with our EMEA region. We are continuing to see improvements in market conditions in all countries. Growth started with light industrial, followed by increases in clerical and technical staffing during the third quarter. Reported revenue in EMEA commercial was flat in the third quarter compared to last year, but on a constant currency basis, revenue was up 5%, or up over 7% excluding the impact of closed operations. Sequentially, third quarter increased by 6% on a constant currency basis versus the second quarter. For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency.

Looking at the region, the most impressive improvement was again seen in Eastern Europe, increasing over 60% year-over-year and 9% compared to the second quarter, primarily due to the performance in Russia. Western Europe was up 12% year-over-year and up 6% sequentially from the second quarter, which was primarily attributable to our operations in Portugal and Switzerland. Turning to fees, we remain encouraged by the improvements we saw during the quarter. Revenue from fees for the quarter was up 28% year-over-year; on a sequential basis fees were down about 15% compared to the second quarter due to normal seasonality. The quarterly GP rate was 16.3%, up 140 basis points compared to last year and sequentially stable with the second quarter. The improvement was due primarily to business and customer mix.

At constant currency, expenses were down 14%, excluding restructuring year-over-year, but up 5% compared to the second quarter due to increases in performance-based compensation. EMEA Commercial reported an operating profit of nearly $5 million for the third quarter. That's an increase of more than $10 million compared to the same period last year and a $3.4 million sequential improvement over Q2. Revenue in EMEA Professional and Technical increased by 9% during the third quarter year-over-year.

Sequentially, revenue increased 5% compared to the second quarter, the strongest growth was seen in Switzerland. Fees in the quarter were down 6% compared to last year; on a sequential basis fees were down 10% compared with the second quarter. The gross profit rate in the segment decreased to 26% for the quarter compared to 27% for the same period last year. The decline was attributable to perm fees. PT expenses declined by more than 2% compared to a year ago on a constant currency basis.

EMEA PT reported a profit of $300,000 for the quarter and an improvement of more than $400,000 compared to last year. We're also seeing signs of improvement across our APAC region in both our Commercial and Professional and Technical segments. Combined revenue for the region grew by 25% year-over-year, or up 16% on a constant currency basis. That's consistent with the 15% constant currency increase in the second quarter. Excluding the impact of exiting staffing operations in Japan, constant currency revenue was up 25%.

Sequentially, revenue was up by more than $5 million compared to the second quarter. Fees continue to improve in the region and were up 76%. 64% on a constant currency basis for the quarter, an acceleration over second quarter fee growth. Our GP rate for the region increased by 80 basis points as a result of improvements in fee-based income particularly within PT. Expenses for the quarter were up 14%, or 7% on a constant currency basis. This reflected our continued investment in that region, particularly in PT. We earned $500,000 for the quarter, a nice improvement from the $1.5 million loss in the prior year. We're continuing to make selective investments and markets across Asia to better leverage our staffing operations.

Our final segment is our Outsourcing and Consulting Group, OCG. OCG revenue was up over 21% in the third quarter compared to last year, and up sequentially over 6% from the second quarter. All three of our regions within OCG had positive revenue growth for this quarter compared to last year. In general, our OCG results continue to reflect the more gradual recovery we're seeing, but we made significant progress during the quarter. Our payroll process outsourcing practice continues to show strong revenue growth year-over-year with a 36% increase over the same period last year.

Also very pleased with our RPO results across all three regions. Globally, RPO revenue was up $3.3 million or 119% versus a year ago. Q3 marked the fourth consecutive quarter of sequential RPO revenue growth across all regions. Our CWO practice making up nearly $6 million in revenue is showing early signs of improving as we begin to see revenue returns from our investment in the Americas. America's CWO fee revenue was up 2% year-over-year.

Our executive placement practice and APAC continue to grow during the quarter. Turning in 18% growth year-over-year and 6% sequential growth from Q2. At Ayers, our outplacement group, revenue continues to be down significantly against last year, giving those lower pace of corporate restructuring activities. The OCG gross profit rate decreased by 210 basis points from a year ago. This decline was primarily due to the continued strong growth in our lower margin PPO practice as compared to other practice areas. As we experienced last quarter, the decline was mitigated somewhat from our higher margin, RPO and executive placement revenue this quarter.

Expenses were up by $2.2 million year-over-year in OCG. Increase in expenses is primarily the result of implementation and support costs associated with new customer programs. On a combined basis, OCG had a loss of $4.2 million in the quarter, compared to the $3.7 million lost a year ago and $5.8 million in the second quarter. While we're still experiencing losses in OCG, these losses are narrowing sequentially and we expect that trend to continue in the fourth quarter. We remain confident that the investments we're making enable us to leverage our infrastructure as customer volume and program roll-outs continue to expand in tandem with increased economic and labor market growth. Now, I'll turn the call over to Patricia who will cover our quarterly results for the entire company.

Thank you, Carl. Revenue totaled $1.3 billion, an increase of 22% compared to the third quarter last year. This compares to the second quarter when revenue increased 18% compared to the prior year. During the quarter, we saw revenue increases in all of our business segments. On a sequential basis, revenue increased 6% compared to the second quarter.

Worldwide, our fees were up 21%. On a sequential basis, our fees were up slightly compared to the second quarter. Our gross profit rate was 16.1%, an increase of 30 basis points compared to last year. The increase was caused primarily by improvements of our temporary margin, primarily within our Americas and EMEA regions. On SG&A expenses for the third quarter, our expenses were essentially flat on a reported basis year-over-year. On a sequential basis, SG&A was up 7% or $11.9 million dollars compared to the second quarter. $6.3 million of the increase was the result of restructuring and litigation costs. Most of the remainder is related to incentive-based compensation. So, on a structural basis, we're holding our costs flat, despite our higher volume.

In the third quarter, our GAAP earnings from operations were $14.3 million, compared with a loss of $28 million in 2009. Excluding restructuring charges, we had an operating profit of $17.1 million in 2010 compared to an operating loss of $23.4 million in 2009, a $40.5 million improvement. Income tax expense in the third quarter was $3.2 million, or about 25%. Year-to-date, our rate is 31% and we expect that the full year rate will be closer to 35%. Diluted earnings per share from continuing operations for the third quarter of 2010 totaled $0.26 per share, compared to a loss of $0.43 in 2009. Again, excluding restructuring charges from both periods, we earned $0.31 in 2010, compared to a loss of $0.32 in 2009.

Before I turn to the balance sheet, let me look forward to the remainder of 2010. Although the economy is recovering slowly, we are seeing the impact of leverage in our business. Our priority is to maintain our lower break even point while growing our higher margin business. I expect that volume will continue to improve both sequentially and on a year-over-year basis. Although the year-over-year improvement will be mitigated for us by the fact that we had our extra week in 2009. So, we will be comparing a 13-week quarter in 2010 with a 14-week quarter in 2009. I expect that margin will continue to be relatively stable for the remainder of the year, and that OCG results will improve. However, operating improvements should be offset by a higher fourth quarter tax rate and SG&A will increase due to variable compensation.

Turning to the balance sheet, I'll make a few comments. Cash totaled $87 million, down $2 million compared to the $89 million we held at 2009 year-end. Accounts receivable totaled $831 million, and increased $113 million compared to year end 2009. For the quarter, our global DSO was 52 days, unchanged compared to last year. Accounts payable and accrued payroll and related taxes totaled $441 million and increased $50 million compared to year end. Debt of $121 million is down $16 million compared to 2009 year end. At the end of the third quarter, debt to total capital was 17%.

Turning to our cash flow, net cash from operating activities was essentially break even. Compared to cash provided of $23 million last year. The change primarily reflects the increased working capital needs in 2010 as our business continues to pick up. Offset by the better operating performance. During the first nine months, we repaid $20 million of debt, compared to $35 million in the prior year. I'll remind you that in the second quarter, we sold $1.6 million shares to Temp Holdings for $24 million. I would like to point out that we feel very comfortable with our cash, debt and capital structure. We were able to grow receivables by over $100 million without growing our debt. I'm confident that we have the necessary resources to fund our business as the economy recovers. I'll turn it back over to Carl for his concluding thoughts.

Thank you, Patricia. I'll conclude by sharing some thoughts on where I think we're headed as we close out this year and our 2011. There is little doubt that the nature of this recovery will remain a matter of debate for some time but regardless, it is a solid recovery and we're making steady progress.

It's possible we could see some continued volatility and select economic data in the near term, but the overall trend remains positive. If not exactly buoyant, we are certainly hopeful that the positive trends we're seeing in the staffing industry will continue. What I've said before bears repeating. The restructuring Kelly completed has positioned us very well to drive higher peak-to-peak operating margins this cycle. It is our goal to bring our operating margins in line with our competitors. Our restructured expense base is holding. We're not only retaining profitable accounts, we're winning new ones. We're growing higher margin services, such as our Professional and Technical disciplines and our Outsourcing and Consulting solutions.

To better serve our global customers and promise in geographies, we're building consultative relationships and alliances to deliver global work force solutions through select staffing partners. By aligning with select market leaders with exceptional reputations, we have access to broader complementary product offerings without maintaining a costly network of offices. And it is also certainly worth revisiting Kelly's three-pronged strategy that guides our efforts.

Going forward, our decisions and actions will be measured against the course we've set, to reaffirm, our commitment to increase profitability by leveraging our excellent reputation to win and strengthen profitable relationships and maintain a lower cost of service model. To deliver customer focused work force solutions, through an entire continuum of services, but with greater emphasis on Professional and Technical staffing and high margin OCG offerings such as CWO and RPO. And to attract and retain top talent from internal employees to free agents and suppliers. We believe that employees who execute Kelly strategy with excellence, free agents who contribute to our customer's success, and a robust global network of suppliers who complement Kelly's work force solutions will differentiate us from our competitors. We're now in a much stronger position to apply our work force expertise on behalf of our customers. They're turning to us to provide them with flexibility to manage their work force.

They want access to the best talent and solutions that can adapt to their growing needs and that's exactly what Kelly offers. We see ourselves as the premiere provider of comprehensive work force solutions and the ideal partner for our customers. I'll conclude by simply repeating this was a very good quarter. I'm thankful to Kelly's team around the world for their hard work and commitment to executing our strategy. Patricia and I will now be happy to answer your questions.

Great. Thank you very much. (Operator Instructions) Our first question this morning comes from the line of T.C. Robillard with Signal Hill. Please go ahead.

Hi, T.C.

Thank you. Good morning, Carl. Good morning, Patricia. I just had -- Patricia, I just wanted to circle back on your comments about SG&A trends going into the fourth quarter. Where you said they were going to be up. Were you talking in an absolute basis quarter-to-quarter or year-on-year?

I was speaking of sequentially.

Okay.

And again, fee related primarily to compensation related things as well as Carl mentioned, there are areas where we're making some investments to continue to make sure we participate in the PT market, especially in Asia.

Okay. And any further litigation costs or restructuring costs, like you saw sequentially in the third quarter?

I don't have any anticipated ones, restructuring I feel like we would know by now and done with that -- litigation, we never quite know what the plaintiff (Inaudible) is going to serve us with. But we don't have anything that we're seeing right now.

Okay. And the restructuring charge, where was that? Or what was that for?

That was related to some severance on executive who departed.

Okay. Thank you. And then Carl, any chance I can get you to put some numbers around your comment of your long-term goal for margins to be in line with your competitors? It is kind of a wide field of competitors and a wide field of margins. Should we be thinking 4%, 5% or is it more like a 3%, 4% and I'm thinking particularly just operating margin.

I know you're thinking operating margin. It'd be a God awful world if that was GP margin. We're looking to come out in the beginning of next year with those goals, more precisely laid out. We will do so then.

Okay. Fair enough. Thought I would try.

Oh, excellent.

And then just -- the last one for me, and I'll hop into the queue. On OCG, in terms of profitability, or the losses narrowing, going forward over the next couple of quarters. What's the driver there? Is that going to be a mix of revenues? Is it just going to be a function of absolute revenues, kind of going over that fixed cost base? Just trying to get a sense as to what's going to drive that improvement.

We've had revenue for accounts turning on. You go through a period of time where you're implementing the accounts and you're waiting for the revenue to come. So, that's been occurring. So, that revenue is coming online and beginning its normal ramp up. There also is seasonal trends for us that are beneficial in Q4, as you would expect, there's ramp-ups and activities around holiday seasons and year end activities. And while modest, you are beginning to see pickup in firm hiring taking place. And some of the RPO businesses you're already seeing as beneficiaries of that around the world.

Okay, great. Great quarter, guys. Keep up the good work. That's all I have.

Thank you.

Thanks. Our next question comes from the line of Ashwin Shirvaikar with Citi. Please go ahead.

Hi, Ashwin.

Hey, Carl and Patricia. Good quarter. So, my first question is, if you can quantify the benefit from restructuring costs. I guess in terms of both timing and magnitude.

You know, where I would direct you to, is our fourth -- our 10-K, which I think laid out quite well, the structural costs that we took out in terms of people. We haven't had a lot yet this year. I'd call it more finalizing the program that we started last year, and this quarter just sort of the last small piece of that.

Okay. So, this was not incremental. This was part of the same effort.

Yes.

Okay. The second question I have is, when you look at -- sort of the HIRE Act, the benefit potentially running out here in the quarter, but SUTA continues to be a headwind, I would think potentially, even a bigger headwind next year. How do you -- I mean first of all, do you agree with what I just said? And then secondly, how do you think of margins in the near term? I can see how you can get to higher margins beyond the near term. But can you talk about the near term impact of those two things?

I'll talk a little. So, currently, the company is not planning with the HIRE Act being extended; on the other hand, we still think there's a good shot it will be, just as an aside. We the industry, and many other people are engaged in lobbying on that side. But setting that aside, on a go-forward basis, then the thoughts are correct. Proceeding forward without SUTA. And with going -- proceeding forward without the HIRE Act, and with increased headwinds from SUTA, we and the rest of the industry have been pretty aggressive at sorting out how to recover those increased SUTA costs.

We've been -- fairly successful as has again, the rest of the industry. But there is always a gap. Both the timing gap and an absolute gap in how much you get back. This year, that was offset by the HIRE Act, and next year, the question will be is the acceleration and higher margin businesses enough to offset the headwind that you get from -- that you get from SUTA. I can imagine models where it is. I can imagine models where it isn't.

So, not particularly giving you guidance. But those will be the two big variables. How fast does PT and office clerical come up? When do the fees accelerate? And does it produce enough net impact to offset the rising environment on unemployment cost and the lag in our ability to raise rates to recover those unemployment costs?

Great. And you guys have quantified the benefit of the HIRE Act this quarter. Can you sort of remind me what it was on a year-to-date basis?

Ashwin, we just -- just to make it simple, we put the numbers in the Q. Because it is different for PT and Commercial.

Great.

But if you want to, you can find them there.

Okay. Got it. And my last question is sort of to follow up on the previous caller's question here. You did get to reasonably good margins last time around, in the Americas. So, when you talk of getting to similar margins in a companywide, maybe it implies that you get to similar scale in International markets. Is that part of the thinking or are you just basically making a broad statement that is based on taking out costs? Was that statement more related to getting bigger and getting more scale in other markets?

All we've said so far is that in aggregate, we want to have operating margins competitive to the industry. We've already made, if you look at the direction of our restructuring, we've made explicit decisions not to engage in a scale war in the staffing space in several countries. You can be very profitable in the niches that we operate, be very profitable in the countries that we've chosen to remain with the scale, with the scales that we've achieved. Over time, you'll have to look at Kelly's ability to deliver enhanced operating margin, both with new services and the mix of business that we provide. So, it is not a particular statement about any individual geographic region. It is a statement about management's commitment to deliver competitive returns, the cycle in aggregate.

Okay. Thank you. See you next week.

See you.

Thank you. Our next question comes from the line of Tobey Sommer with SunTrust. Please go ahead.

Hello, Tobey.

Hello, thanks. I just had a question about your comment about being able to restore operating margin up to competitors. Can you just remind us who you consider to be your competitors, because there's a wide range of staffing companies out there?

Of course, nobody is our competitor. No. Toby, I think that if you look at -- if you look at large players in that -- in the tier of size that we are and again, we'll talk much more about this next year as we sort it out, but you typically see operating margins in the 3.5 to 4 point ranges, a competitive zone for midsize staffing firms.

Okay. Thank you. I had a question for you about fee-based income, which has already started to show some growth. Are customers internal hiring capabilities diminished following the recession, so that a more modest perm hiring environment could kind of disproportionately benefit staffing firms?

It is a hypothesis that I've been hopeful about, but not one yet that I know. Was their internal ability to hire damaged? Sure, everybody from staffing firms to the companies around the world, laid off recruiters. Now, that staffing firms are recovering, they're hiring recruiters. But as I watched the world out there, companies are slower to hire those at this point. I think that when you finally do see job creation, not just speaking of the US, but begins to hit the 200,000 plus side, you could begin to see disproportionate benefit to our industry. That's just a hypothesis. History will show. Events will show us how this plays out.

Thank you. Two more questions. One, love to get your perspective on what the outlook could be for temp penetration this cycle. And I know that's still evolving. But then secondly, could you describe any early signs of wage inflation, compensation, particularly on the professional side or whether customers are having to work around established rate cards in this environment? Thanks.

Okay. Let me try to parse all that out. If I miss one of the pieces, somebody here or you will remind me. So, you have a secular trend running against the penetration rate. One of the things is that manufacturing tends to be high users of temporary employment. And as manufacturing activity has been slow to recover, slow to advance. While it has been benefiting light industrial here in the short run, in the long run, as manufacturing employment continues to be a smaller part of the American employment base, that will be a secular trend against the temp penetration rate. Overall, I think that we'll probably exceed the last cycle's high.

Overall, I think that if you believe the rhetoric of our customers, which is they're looking for far more flexibility in their labor cost than they had before. That will be a very important secular trend in favor of increasing the penetration rate. Plus, as the Boomers continue to retire from permanent employment, they're staying engaged longer and in more numbers inside the temporary employment industry. So, I think good reasons to believe we'll exceed the last high. Possibilities of getting up to 3%. We'll see.

Sometimes client rhetoric doesn't necessarily match client outcomes when you get deeper into the cycle. There are beginning to be pockets of scarcity for professional and technical workers, both for those looking for permanent jobs, and those looking for temporary employment. That scarcity will translate into increased wage inflation. And wage inflation is beginning to creep up inside the professional and technical ranks. Lower than historical trends, but still beginning to appear.

Thank you very much.

Thanks. (Operator Instructions) We're going to go to the line of Ty Govatos with C. L. King.

How are you?

I'm well. Yourself?

Okay. Two questions. Can you flush out the fourth quarter guidance a little bit more on total volume? Do you expect another sequential increase in the fourth Q?

Yes. That's what I was trying to say. I'm sorry if I wasn't clear enough. But yes, we would expect a sequential increase.

Patricia was just noting you have that kind of, you have --

on the year-over-year piece, it is a little --

that I understand, yes.

We still expect it to be up year-over-year. It will just --

Not as much.

Won't be up quite as much as it would have been if you would have had even periods. And sequentially, we would also expect it to be up.

Okay. Safe to assume a modest type increase?

Yes.

Okay. Tax rate, Patricia, fourth quarter. Back to the mid-30s?

Yes. Approaching 35%. It's a little depressed this quarter because of some opportunity credits, as well as the way we handle our deferred compensation gains, I'd expect that to reverse in the fourth quarter.

Okay.

So, I'm sorry. Were you asking year-to-date?

No. No. Fourth Q.

So, full year will approach 35% in total.

Okay. You've answered all of my questions. Terrific quarter.

Thank you.

Hey, as long as I'm on, Mike Debs is next to me. And Ashwin, he reminded me that I was speaking of -- we detailed out the HIRE Act for the quarter alone. Year-to-date, it's worth about 27 basis points for the total company. So if you're still on Ashwin, sorry about that, that I sent you to the queue in error.

Great. Thank you. And we're showing a follow-up from the line of Tobey Sommer with SunTrust.

Thank you. Patricia, I was hoping -- I think I missed your color on billing days in the fourth quarter, and that comparison. And how it'll impact fourth quarter GAAP results. Could you just refresh me? Thank you.

I was just pointing out that every five years, or we have an extra week in the quarter, that was last year. So, this year is a normal year. But when you're doing the year-over-year comparisons, it'll affect those comparisons, by we generally think about 5%. For the quarter, 1% for the full year. So, we still expect to see growth, sequentially, we expect to see growth year-over-year. But you just can't -- you just sort of -- I wanted to remind people to be conscious of the 2009 effect. This year is a very standard year for us.

And on a sequential basis, is it about a 5% impact from three to five -- excuse me, from the third quarter to the fourth?

Last year it was. But this year, you have 13-week quarters, each quarter of the year.

Okay. Thank you very much.

Thank you. (Operator Instructions) At this time, then, I'm show nothing further questions in queue.

Thank you, Kent. Thank you, all.

Great, thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. And for using AT&T's executive teleconference. You may now disconnect.