羅致恆富 (RHI) 2002 Q3 法說會逐字稿

Good afternoon and welcome to the Robert Half International conference call. All participants will be able to listen only until the question and answer session of the call. To ask a question, please press star, 1, on your touchtone phone. Today's conference is being recorded at the request of Robert Half International. If anyone has any objections, please disconnect at this time.

I would like to introduce your speaker for today's call, Mr. Max Messmer, Chairman and Chief Executive Officer. Mr. Messmer, you may begin.

Thank you. Hello, everyone. Thank you for joining us. With me today is Keith Waddell, our Vice Chairman and Chief Financial Officer. On today's call Keith and I will review our third quarter 2002 financial results and offer some general guidance for the fourth quarter. Immediately following our remarks we will be happy to answer your questions.

Pursuant to Regulation FD, I would like to remind everyone that our presentation does contain predictions, estimates and other forward-looking statements that represent our current judgment of what the future holds. These include words such as forecast, estimate, project, expect, believe and similar expressions. While we believe these remarks to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We described some of these risks and uncertainties in the press release issued earlier today and in our Form 10-K and other filings with the SEC. We do not undertake the obligation to update the statements made in this conference call.

Now let's turn to the third quarter financial results. Revenues for the third quarter were $485 million, down 16 percent from the third quarter of last year and up two percent on a sequential basis. As we discussed in today's press release, the economy remained uncertain during the third quarter and this impacted labor markets. However, we were encouraged by the sequential growth in our staffing business.

After tax cash flow from operations was $26 million for the quarter. We ended the third quarter with $302 million in cash after the repurchase of 4.2 million shares of RHI common stock. We have the authority to repurchase up to 1.9 million additional shares under our previously approved stock repurchase program.

Earnings per share for the third quarter were negative two cents compared with 13 cents for the third quarter of 2001 and two cents for the second quarter of 2002. Our staffing operations had earnings of four cents per share for the quarter, while our new Protiviti subsidiary had negative earnings of six cents per share - these results all within the range of the guidance we provided you last quarter.

Keith will now provide a more detailed overview of our third quarter results.

Thank you, Max.

Just a reminder - a breakdown of our divisional revenues and other information is available in the supplemental data sheet that accompanied our earnings release earlier today. You can view this at RHI.com.

Turning first to revenues, as Max indicated, total revenues were 485 million for the quarter - down 16 percent from last year. There were 64 billing days in the quarter - up one day from Q3 last year and the same sequentially as Q2 2002.

Our largest staffing division, Accountemps, reported revenues for the quarter of 211 million - down 18 percent from last year and up one percent sequentially. Accountemps has 326 offices worldwide and represents 44 percent of total revenues.

OfficeTeam, which is our high-end administrative staffing division, had third quarter revenues of 123 million - down 14 percent from last year and up two percent sequentially. OfficeTeam began operations in '91 and has 311 offices worldwide. It accounts for 25 percent of total revenues.

Robert Half Technology, our staffing division formerly known as RHI Consulting, had revenues of 55 million for the quarter - down 23 percent from 2001 and down two percent sequentially. This division, which comprises 11 percent of revenues, was launched in 1994 and has 103 locations worldwide. We changed the name during the quarter to emphasize the highly regarded Robert Half name and to better reflect this division's focus on the placement of IT professionals on both a consulting and full-time basis.

Our Robert Half Management Resources Division had third quarter revenues of 53 million - down 13 percent form last year and down two percent sequentially. This division, which accounts for 11 percent of revenues, specializes in placing senior level accounting and finance professionals on a project basis. It was introduced in 1997 and operates in 91 offices worldwide. As is the case with our Technology Division, we shifted the brand a bit from RHI to Robert Half to better emphasize the Robert Half name, which is the industry's most well known and highly regarded name in accounting and financial recruitment.

Robert Half Finance and Accounting, our permanent placement division, reported revenues for the quarter of 25 million - down 38 percent from last year and down five percent sequentially. This business was established in 1948 and operates in 326 offices worldwide. It accounts for five percent of total revenues. You'll note that we added the descriptor "Finance and Accounting" to distinguish the division from our other Robert Half brands - Robert Half Technology - Robert Half Management Resources. This is part of an overall strategy to maximize the brand awareness and quality reputation of the Robert Half name.

Revenues for our new subsidiary were 18 million for the quarter. was established in May of 2002, and has 26 locations, including a new office in Paris, France. It accounts for 4 percent of total revenues. focuses on internal audit consulting services, and offers businesses full outsourcing, co-sourcing and consulting services in these critical areas.

International revenues were 84 million for the quarter, down 7 percent from last year, and up 1 percent sequentially. We now operate in 55 offices in 10 countries outside the U.S. International operations account for 17 percent of revenue.

Turning now to gross margin, Temporary and Consulting staffing gross margins were 156 million for the quarter, representing 35.3 percent of applicable revenues. This compares to 35.7 percent of revenues for Q3 2001, and 36.2 percent of revenues for Q2 2002. The sequential decline in gross margins is the result of lower temp-to-perm conversion fees, higher fringe benefit costs, and slightly more aggressive pricing during the quarter.

Overall staffing gross margins were 181 million for the quarter, and 38.7 percent of staffing revenues. This compares to 40.1 percent of revenues in Q3 2001, and 39.7 percent of revenues in Q2 2002. The sequential decline in overall staffing gross margins reflects the lower Temporary and Consulting gross margins just discussed, as well as a slightly lower mix of Permanent Placement revenues.

Gross margins of our subsidiary were negative 5.5 million for the quarter, reflecting fixed payroll costs that were not totally covered by revenues. These results are in line with our expectations during this initial ramp-up period, as communicated last quarter.

Turning now to selling, general administrative costs, staffing SG&A costs for the quarter were 170 million, representing 36.3 percent of staffing revenues. This compares to 33.8 percent of revenues for Q3 2001, and 37.5 percent of revenues for Q2 2002. The 5.5 million sequential decrease in staffing SG&A is primarily the result of accounts receivable adjustments recorded during the second quarter that did not repeat in the current quarter. Depreciation expense is also down 2.1 million sequentially, reflecting lower capital expenditures over the last few quarters. SG&A costs were 9 million for the period, and consist primarily of expenses for payroll, advertising and rent. We continue to make excellent progress in providing with its back office and technology infrastructure requirements. These include such functions as payroll and benefits, field and corporate accounting, real estate and technology. Marketing and promotional costs, again included major advertising campaigns with the Wall Street Journal and the NewsHour with Jim Lehrer.

Operating income from our Staffing divisions for the quarter was 11 million, an increase of 10 percent sequentially from Q2. Our Temporary and Consulting divisions contributed 13 million of this amount, yielding an operating margin of 3 percent. Perm Placement had negative operating income of $2 million. had negative operating income of 15 million for the quarter, after allocation of two and a half million in RHI overhead.

In addition, intangibles amortization of 2.7 million was recorded for the quarter. As we discussed on the last call, this is the result of using an 18 month amortization period for substantially all of the payments to Anderson of approximately 16 million. These payments were allocated to intangible assets that consist primarily of the releases of employees from their former non-compete covenants.

Cash and equivalents were 302 million at the end of the quarter, after funding 16 million in capital expenditures, and expending 79 million for the repurchase of RHI common stock.

While 4.2 million shares were repurchased during the quarter, the Q3 weighted average EPS calculation was only impacted to the extent of 1.9 million shares. The balance will impact Q4 and beyond.

Our balance sheet remains quite solid, with a strong cash position, and a lack of financial leverage.

Accounts receivable were 239 million at the end of the quarter, with implied days outstanding, or DSO, of 45 days. This compares to 53 days at the end of Q3 last year, and 47 days at the end of Q2, 2002. The two day sequential reduction includes continued improvement in the average collection cycle, plus the positive impact of the calendar they quarter in, which fell on a Monday.

Turning now to guidance in accordance with regulation , at this time we will offer general guidance for the fourth quarter. As you know, we do not assist analysts with their detailed models.

Our guidance is based on the following business trends: on a same day sequential basis during the quarter, temporary and consulting revenues were essentially flat in July and August, and increased sequentially in September.

placement revenues increased on a sequential basis in July and August, then decreased in September. For the first week of October, 2002, revenues from our temporary consulting businesses were essentially flat, versus September, which we just mentioned were previously, as compared to the prior two months.

For the first two weeks of October, our placement division was up 22 percent sequentially, versus the first two weeks of September.

While these most recent results are encouraging, and the accounting sector is typically seasonally strong in the fourth quarter, many clients have indicated that more holiday time off for employees will either be mandated, or strongly encouraged this year. In addition, two fewer billing days are anticipated in the fourth quarter on a sequential basis, even with the normal holiday schedule.

Accordingly, our guidance for Q4 is similar to our Q3 guidance as follows: staffing revenues, a range of 450 to 470 million for the quarter; revenues, a range of 16 million to 20 million for the quarter; staffing earnings per share, three to five cents; earnings per share, negative four to negative six cents.

As you know, these estimates are subject to the risk issued in today's release.

Now I'll turn the call back over to Max for additional comments.

Thank you, Keith. As we noted in today's press release, our business continued to be impacted by the uncertain economy. When you're in the midst of a difficult recession, it is sometimes easy to lose sight of the big picture. I would like to take a few moments to tell you why we are optimistic about our business and, to some extent, the industry in general. Despite the current recession, we believe the long-term outlook for the staffing industry as a whole is solid. Employers understand that it makes excellent economic sense to use qualified temporary or contract workers for any position that does not truly require a full-time employee. The temporary services industry is less developed in the United States than it is in many European countries and the professional segments of the industry, in which RHI is the recognized leader, are less developed than the general temporary services industry as a whole, in both the U.S. and in Europe. We feel this presents an opportunity for significant growth in the future. We also believe we have an excellent opportunity to grow our international operations which already contribute approximately 17 percent of our total revenues. We also believe that RHI has the best field management team in the industry. Our people are highly qualified and have considerable experience leading during both good and bad economic times. They are supported by strong marketing and public relations programs and they benefit from a solid brand equity we have built over more than 54 years as the leader in specialized staffing services.

In 1991, during another difficult recession, we launched our Office Team division, focusing on specialized administrative personnel. Some viewed Office Team as a departure from our specialized approach, but we felt that concentrating on high-end, high skilled administrative assignments where quality and service were key would actually complement our business model. Office Team has experienced solid growth over the past 10 years and now represents 25 percent of our revenues.

This year we launched Protiviti, our risk consulting and internal audit business. We feel Protiviti is very well qualified to meet the needs of companies seeking a truly independent source for internal audit and business and technology risk consulting services. In particular, we believe Protiviti is well-positioned to help businesses meet the executive certification requirements set forth by the legislation enacted this summer and to assist businesses in meeting the new corporate governance standards emanating from the stock exchanges and the Securities and Exchange Commission. We are excited about the long-term prospects for Protiviti and feel the business is a strong complement to our professional staffing services.

Over our 54 year history we have been through nine recessions and we have emerged from each and every one as a stronger, more successful company. Robert Half International is in excellent financial condition with a strong cash position and has demonstrated its ability to generate strong cash flow in both good and bad economic conditions. We believe our Company is well-situated to benefit from improvements in the macroeconomic environment.

At this point, Keith and I will be happy to answer your questions. To allow as may people to participate as possible, we do ask that you please limit yourself to one question and a single follow-up, if needed. If you have additional questions, we'll certainly try to return to you later in the call.

Thank you. At this time, we are ready to begin the question and answer session. If you would like to ask a question, please press star, 1. You will be announced prior to asking your question. To withdraw your question, press star, 2. Once again, to ask a question, please press star, 1. One moment, please.

Andrew with Bear Stearns. You may ask your question.

Hi. My question has to do with gross margins. You obviously were very specific about the reasons lower temp-to-perm, which everybody understands, and higher fringe benefits, which I was hoping you'd be a little more specific about. But my most important question is about pricing pressure. How slight was it? And what about working the pay rate side?

The - , the slight - we're talking pennies per hour. Each of the items contributed. There wasn't a major pricing impact, but we're talking in some cases - in some divisions less than a nickel to no more than, like, eight or nine cents an hour. So, again, they were small numbers.

The fringe benefit cost, again, are small numbers, but they relate primarily to workers' comp, which isn't a huge issue in professional services. It's typically slips and falls - back injuries - that type of thing. But I think it's well documented through many downturns that people tend to have more of those and more time off that relates to those. That's more a function of the economic condition than it is their physical condition.

So, a kind of combination of the three did put some pressure on gross margins, but again, none of them just overwhelmingly contributed versus the other two.

Is that - is temp-to-perm conversion now below one percent of staffing revenues?

No.

OK. And looking into the fourth quarter, what would you think about gross margins?

I guess our guidance would be that based on what we know today that the fourth quarter were to look a lot like the third quarter and that, from both a revenue, gross margin, and cost standpoint, that the traditional uptick that we see could be offset by the fewer days that we have for the reasons that we mentioned.

Right. And any comment on the pay rate side - could you work that down?

Well, I mean again, we're always balancing what's an appropriate pay rate for our temporary employees against what's an appropriate bill rate. And our people are actually incented - directly incented to maximize that spread. So, believe me, they're always working with that in mind.

Mr. of Robert W. Baird, you may ask your question.

Yes, good afternoon, Max and Keith.

Just a couple quick questions here - first of all, assumptions behind the Q4 guidance - typically you mentioned fewer days, Keith, but wouldn't you typically have some positive effects from seasonality here as we head toward the end of the year particularly in September, I mean, and October and the first few weeks in November?

No question, and we referenced that in our prepared comments.

And in fact, if you look back over a ten-year period and don't talk - and don't include the recessions, I think on average Accountemps particularly went up about five or six percent sequentially in the fourth quarter. So, clearly there is some seasonal strength there that we referenced.

However, there's no question that our people in the field are encountering discussions with their client more so than they have in the past around there's going to be a more extended retracted holiday period this year.

Is - and when you say a holiday period, you're talking about companies it sounds like closing down. Because it seems like there might be a potential benefit to you if, you know, vacation, for example, is encouraged toward the end of the year just in terms of the back-filling ...

Well, to the extent that economic conditions are such that there is less transaction work to do generally, to the extent they encourage their own employees to take their time off, that typically is not necessarily a good thing for temporary usage.

Okay, understood, and a question on , could you quantify a run-rate for us, and how do the contracts that you have now in place differ from what they looked like at ?

Well the run-rate, we disclosed for the quarter, what the revenues were, we gave you a range for Q4, and so I don't know what else to add from a run-rate point of view there. The--as to the contracts, as with , there were internal audit contracts, there were consulting services contracts, and the nature of those contracts with us are very similar to the nature of the ones before.

So where there was an outsource, the fully outsourced deal, you signed a fully outsourced deal, and where there was a co-sourcing relationship, you signed a co-sourcing?

And we have--our current contracts run the gamut; we have co-sourcing arrangements, we have full outsourcing arrangements, we have project arrangements.

Okay, thank you very much.

Mr. of Deutsche Bank, you may ask your question.

Thanks, good afternoon. Could you give us the office count by segment?

We attempted to do that in our remarks, let's see if I can quickly recap that. Accountemps Robert Half was 326, OfficeTeam was 311, Technology was 103, Management Resources was 91.

Okay, great, and in terms of the head count, can you just comment what your view is in either adding head count or subtracting head count, what you're sort of doing right now?

It's kind of status quo and stable. The headcount during the quarter didn't change much, and in fact, if you look at Perm profitability, virtually all of the difference in revenue, quarter 2 to quarter 3, also showed up in operating income, meaning our costs were virtually the same, which is another way to say we held our staff the same.

Yeah.

We talked last call about as we feel like we're bumping along the bottom, it's not a time that we were being aggressive with headcount reductions.

Okay. Final question is, can you just add some color to the share count calculation for the fourth quarter that you are using to arrive at these?

Yeah, it's--there's some accounting here, but when you have a overall net loss ...

Right, you have to use the .

Exactly. And therefore, the number of shares is lower than it would otherwise be, which actually hurts you rather than help you ...

Right.

Counter-intuitively.

Okay. So, I mean, so basically, should we subtract about 4 million--about 4 million shares from the 170 in the second--in the third quarter?

You see--well, the--had we done it, included the impacts of fully-diluted--typically, there's another 4 million shares, that we would have shown, but we didn't get--we didn't get to consider those 4 million shares because of the loss.

Okay, oh okay, got it, got it, thanks.

So that's kind of the unofficial, pro-forma as to shares.

Mr. Jeff with Gerard Klauer, you may ask your question.

Good afternoon. Keith, I think you had mentioned something when you were talking about the difference in SG&A regarding an accounts receivable adjustment that you had in the second quarter that didn't repeat. I was wondering if you can give us a little color on that.

Yes. As we talked about in this last quarter, we had a fair number of write-offs through bankruptcies that we recorded. And this quarter, while higher than a typical quarter, was no where near as high as it was last quarter. So, there was kind of a lump in our SG&A, if you will, in Q2 that, for the most part, flattened itself back out in Q3.

OK. Great. And as long as we're talking about accounts receivables -- you guys have done a great job in terms of bringing down DSOs. What do you think the long-term goal for DSOs are for the company?

Fewer is better. And it's never low enough. And it's something -- as we talked about before, we have a very large number of small accounts that are -- kind of lend themselves to a very disciplined, systematic approach to collection, and that's what we use.

Now, we also had mentioned that -- this might sound trivial to some -- but you had 14 Mondays in the third quarter, and you typically only have 13 Mondays. So, don't be surprise that we lose a couple of days next quarter.

Great. You saved me some work on checking the calendar. Thanks.

of William Company, you may ask your question.

lipton|Matt|Lipton||William Bear Company|m?: Yes, hi.

I was wondering if you could give us an update on your goals and expectations for profitability and productivity as we move into next year.

Well, Matt, clearly we've given you our expectations for the fourth quarter, and for the most part, we've limited our specific guidance for one quarter. That said, we certainly expect to see more traction and improvement in in 2003 than the current run rate would suggest.

Q4 is a time, as many consulting firms have talked about, where companies to the extent they're involved with consulting projects either run out or get low on budget that gets replenished at the first of the year. And for the kind of non-internal audit piece of , there's some of that, as well, here.

But, again, our long-term prospects of are as bullish as they've ever been. We're particularly excited -- as Max mentioned -- about Sarbanes-Oxley, and the internal controls and disclosure control elements of Sarbanes-Oxley, which couldn't be closer to our sweet spot. We literally have engagements in progress as we speak that deal directly with those components of Sarbanes-Oxley. So, from a regulatory point of view, there couldn't be a better backdrop to be in the internal audit risk consulting business.

I think you mentioned a 22 percent increase in placement revenue in the first two weeks of this month. You also mentioned the previous month had been down. So, in your view, is this recent strength enough? Is it significant enough for us to get excited about?

You know we used to say in the thing -- in our remarks formally. We took it out that placement is lumpy, and that you can't extrapolate short periods of time, whether it's good news or bad news. So, it is what it is. It happened to be up, and that's better than being down. But, I certainly wouldn't extrapolate much from it.

OK. Thanks.

, Banc of America Securities, you may ask your question.

nichols|Marta|Nichols||Banc of America Securities|f?: Hi. . Thanks.

I'm wondering if you can talk a little bit about the comments you made on the overseas market. I think Max mentioned opportunities that you see international revenue. And obviously, in an environment like this, you're not aggressively growing -- and in some cases, maybe contracting your in the U.S. Can you talk about what your strategy is right now for overseas? Are you actually trying to grow that or do you have plans to? Say in early 2003.

Well, I would argue that we've had an incremental approach to growing overseas for some time. We're certainly not retracting. We just added Protiviti in Paris with a couple of former Andersen partners that have become our managing directors so that--I think the points were in the context of we still believe there's a large opportunity there. We still think that our presence is underdeveloped there and, therefore, we're optimistic. But I don't think the comments were intended to mean that we're going to overweight our emphasis there relative to our emphasis in the United States, which we continue to be quite bullish about.

Right.

I would have said, , that we--you know, a couple of years ago we revisited our management group in Europe and we've done a lot of work on the back office infrastructure. We feel like a lot of progress has been made and that the team is well-positioned to continue expanding. And so we're optimistic about the future. But again, as Keith said, it wasn't intended to mean that there's some eminent plan to do something dramatic. It'll still be our incremental approach, but we feel like we're in much better position in terms of our infrastructure and back office arrangements to support that growth going forward.

Right. And this is in a related question. You mentioned and, I think, highlighted the success of Office Team in the start up division. Beyond, you know, the incremental approach to increasing your international presence, are there opportunities for new divisions within the United States beyond Protiviti that you would see yourselves pursuing in the near term? Or is Protiviti really where you want to concentrate your efforts in terms of a new platform area right now?

Well, we're certainly focused on Protiviti at the current time, but, as we've said in these calls in the past, we have what amounts to an R&D effort that's always looking for either extensions of existing service lines or, possibly, new service lines and, at the current time, we are working on a couple of initiatives. It's too early to talk about what we might do or how successful they might be, but we clearly see the opportunity for further growth. And so, the short answer is we have our R&D effort underway, but we're not ready to announce anything. But we're working on it.

Great. Thanks.

Thank you.

Mr. of Wachovia Securities. You may ask your question.

Good afternoon. I'd like to focus on Protiviti. Can you--you gave us the monthly trends for the other divisions and found out Protiviti lends itself to that, but can you kind of give us a flavor in terms of how things tracked through the quarter and building off of last quarter?

Well, again, I think we'll get some newness and with--in our minds, the exhaustive disclosure we're making of Protiviti, I guess I would ask that you indulge in--indulge us a bit. I mean, it certainly ended the quarter at a higher level than it began the quarter, but we're not prepared to get into a kind of month-by-month trend analysis ...

Yes.

... Protiviti.

I just wanted to get a sense in terms of did it end at a higher level and it sounds like it did.

In terms of--can you talk a little bit about retention and, you know, when we take a look at the gross costs--those kind of a gross cost--what you'd think of going forward?

Well, the payroll costs certainly are, so the above the line costs are certainly go forward costs. There are below the line costs for marketing, advertising, brand creation, that probably long-term don't repeat to the extent that we're spending at the moment, but for the short-term, we're going to. And with Sarbanes-Oxley particularly, we're going to be fairly aggressive over the next several months with some advertising materials.

Can you talk a little - can you mention again how much you spent on advertising for Protiviti this past quarter?

That's not something that we've broken out. It's - I can that in advertising generally for staffing, we spent more in the - in the third quarter than we did in the second. And in Protivity, we certainly spent a lot more in the third than we did in the period or in the second.

What was the total spent?

Again, we've talked generally in the past that we spend, you know, up to three percent of revenues - that in recessionary periods, we don't have to spend that much because we don't have to advertise for candidates like we do during other periods. But that's kind of our long-standing policy around disclosure of that.

OK. And is there - Keith, is there any sort of seasonality as it relates to Protiviti that we should think about in terms of either Q4 or Q1?

Well, I mean clearly we're - what? - four months into the program now.

Sure.

It's not like we've got a big personal experience. I guess my sense is at the moment that clearly there's some impact in Q4 with kind of the budget season for clients running down and needing to be replenished. But we'll see. We don't have enough track record yet to answer that question.

OK. I mean that you haven't asked the managing partners, you know, what the typical seasonality ...

Well, we've certainly looked at Andersen records as part of our due diligence ...

Sure.

... back a few years, but with the events that have happened to Andersen and kind of the period thereafter, I'm not sure anything's normal at the moment.

OK. And then, one last question - in terms of, you know, the share buyback, you bought back quite a bit, you've got a little bit left. Any thoughts about going back to the board and increasing the authorization?

Well, we've said many times that we thought our board would be receptive to the idea of increasing the authority to buy-in stock, and so that's certainly something that we'll be talking to the board about if and as we need additional share authority.

Great.

We realize that we only have a small number of shares left in our authorization.

Terrific. Thank you.

with UBS Warburg, you may ask your question.

Thanks. Protiviti, did you - if you did, I apologize - but can you tell us what the partner count was at the end of the quarter versus last quarter, and then also a employee count if you would?

Well, we haven't give total employee count by quarter. I can say that we added five or six - seven partners during the - during the course of the quarter.

OK. And then kind of a follow-up to that is in your guidance is sort of flat, but if you added partners, I would have thought maybe you would have got it a little bit up given that you should have the wind at your back a little bit there. Could you just give color on that? I mean are you just trying to be cautious or are your clients being even more cautious on that side than they are in the rest of the business?

I'll tell you - one, we're trying to be cautious; two, we don't have a long-term experience with what's the fourth quarter seasonal/holiday impact. And so, given all those factors, our thought is, "Let's be cautious." But it's certainly not intended to mean, "Let's be pessimistic."

OK. Nothing wrong with that.

with Morgan Stanley, you may ask your question.

Hi, this is calling for .

talked about Protiviti in great detail. I just thought maybe one more question from a different angle on SG&A. It seems, just doing the calculation on the back of the envelope, you spent about 9.2 million in SG&A; about how much of that would you say is related to more one-time integration costs, as opposed to costs that you expect to be more persistent going forward?

Well that's kind of a derivative of how much is--of the SG&A is advertising. Clearly there is some integration and costs that won't long-term reoccur, but for the next quarter or two, those costs more than likely will reoccur, and therefore you should continue to model that they will--will exist.

Okay, in terms of the integration, you've talked about it a little bit, could you talk a little bit more about giving some color about relation to integrating the people--the technology and the office space? You talked a little bit about it the last quarter, but maybe you can give us an update there.

Sure, the--I think all but one location, they are physically going to move out of their prior space at , the one exception is a place where we had a full floor in an office building before, and can continue that full floor after. In every other case, they are moving out and they are in various stages of--they've either gone to an interim executive suite awaiting their final home, or they've already gotten there, but in each case, it's separate space from the Robert Half space, even if we have Robert Half space nearby in that city. It's totally separate.

As for technology, just to kind of back off, there's infrastructure part of technology, which we are providing and leveraging what we have here at Robert Half. There's also the technology tools and intellectual property tools that Protiviti has that it provides and uses with its clients that we inherited from as part of our arrangement, which we have continued. And in fact, I would point out that if you would go to knowledgeleader.com. which is different than protiviti.com but knowledgeleader.com is a subscription-based website where a lot of our internal audit tools, plans, work programs, approaches, are showcased and made available to many clients that use those tools, as another example of the kind of technology requirements Protiviti had--has that we've delivered for them.

Thank you very much.

Mr. Fred , Thomas Weisel Partners, you may ask your question.

Keith and Max, a question also to follow up on Protiviti, if you could talk a little bit about the split between organic revenues and new business that's being brought in right now, how much partners brought with them, and how much of what we saw this quarter actually came from new business, and how you see that in Q4?

Well clearly we have a combination of both, but t hat's not something we're comfortable disclosing at this time.

Understood. And other thoughts for Europe in terms of expansion, outside of the one that you mentioned on the call?

Well there are many geographic locations in which we don't currently have offices. There are many offices we have in cities that are, we feel very underdeveloped, and with opportunity for satellites and other extension offices, so again, it was a general comment meant to note that it's a big market. We feel like we have critical mass there; we feel like we have a very good management team in place; we feel like we have the back office in the best shape we've really ever had it, and so we feel like there are opportunities that will permit us to seek future growth, both in new locations and existing locations. There is also another element of growth in that we don't have all of our divisions in all of the offices. In some cases, we only have one or two divisions, and obviously we'll look to move into those geographic locations with additional service offerings.

All right. That's good. In terms of specifically, offshore, would you anticipate any further expansion to be lead organically, or through, perhaps, another supporting acquisition?

I think our bias would be to do it organically. And in fact, we have discussions at a handful of locations around the world as we speak. But, it's not something that's super major in terms of magnitude. But, a handful of countries we think would be important to add to capabilities, and we have discussions as we speak.

Great. Thank you.

Mr. of Lehman Brothers, you may ask your question.

Hi. Good afternoon, Max and Keith. Thanks for taking my questions.

This downturn has clearly been more challenging than the one you operated through in 1990 and '91, and many are comparing it to the '81-'83 downturn. Have you updated your thinking with respect to corporate development initiatives that might help you more aggressively develop counter-cyclical revenue streams, or a higher proportion of high-variable contribution margin recurring revenue streams?

We've certainly given this thought, . I guess the first point I would make is that let's first talk about the rapid recovery that we experience in staffing, after even the early '90s recession. And in fact, if you look at the period '93 to '97, we, on a compound revenue basis, grew revenues 42 percent a year, and we grew earnings 75 percent a year.

So, I understand the kind of direction you're heading that it'd be nice to smooth out the valleys. The issue, though, is once you've kind of gone through the valley, there's a lot of upside going back to where you were. And we're quite bullish long-term, because a) we saw how we came out of the early '90s. To the extent this has been more severe; one might make the case that there's even more upside now than there was then.

Now, that said, we certainly looked at various other staffing and business service-related industries, and to date, we haven't been happy with the economics, the business model -- or for whatever reason -- with the opportunity pricing valuations of the opportunities that were presented us.

It's good to be disciplined with your capital and your targets potentially.

Last question would be on 2003 guidance. The current Street consensus expectation is essentially low to mid-20s top line growth next year, and about 50 cents of EPS. In light of current operating conditions, is that an outlook that you can endorse?

Our official policy is that our guidance extends one quarter out under these economic conditions, which includes Q4. As to next year, we don't have published guidance. But, again, the point we were trying to make is if you look back in the early 90s, once this started recovering, it recovered quickly.

But, Max and Keith, you all were recovering from a 250 million or so revenue business, not a, you know, $2 billion revenue business. Is it really fair to assume that the recovery this time can be of the velocity that you saw last time?

Well, given that you started at a higher point, it seems to me intellectually feasible that you can get back to that same point, since you've already been there anyway.

OK. Thank you.

I'd just add one thing to that, Keith. You know, we're a far better organized company today than we were in the last recessions. We still had a lot of franchises that we had only recently acquired. We had others we had not acquired. We did not have our operating systems in as good a shape as we feel they are today. We didn't have the veteran operating team we do today. We didn't have the trained and skilled work force operating out of our offices that we do today. So there are a lot of intangibles that I feel would benefit us this time around that weren't there the last time. I think it's anybody's guess as to how well we can do on an upswing in the macroeconomy, but obviously, I tend to agree with Keith and I'm somewhat more optimistic. I think we've been there before and we can get there again and we're better organized and more capable of doing it this time than we were last. But we'll see.

Thank you.

Mr. Jim of Janney Montgomery Scott. You may ask your question.

HI. Yes, good afternoon. As you look into the fourth quarter and the guidance that you gave that you, you know, essentially said that it would look very much like the third quarter, are you hearing anything from your clients that, you know, with just the uncertainty of the economy in the market--up four days, down, you know, down one, you know, just like a roller coaster--that they're just not as comfortable making any decisions with respect to hiring and whether that is bringing people back permanently, of course, or even bringing back temps--that's affecting their decision making and could that, you know, be pushed out into, you know, at least the first or second quarter of next year?

Well, clearly clients are cautious, but again, I think if you'll look at most recent results, look at the month of September, they kind of got confirmed with run rates in early October. Actually they're a little more positive than they had been.

OK.

And it's anybody's guess. I mean, small to midsize businesses are troubled by everything from Iraq to the market swings to volatility and so forth, but they've also been putting off hiring plans for quite a long period of time. In some cases the dam is going to break and they're going to have to get help of one sort or another. But, again, your question largely goes to the macroeconomy and, unfortunately, we're not macroeconomists.

Sure.

Overall, I guess our tendency is to be somewhat more optimistic about the attitude of our typical client going forward. There's the typical anecdotal data that people are working on their hiring plans, but there's no question a lot of reticence on their part and they like to defer the decision as long as they can.

OK. And, just as a follow-up on Protiviti, what--could you give us some sense as to, you know, what--why, you know, when you gave guidance, you know, why we didn't get to the upper end of guidance? Was it any one reason in the quarter because you've done, you know, your operating numbers have shown that you've done a very good job at integrating it. Where do you think, you know, was there any one specific reason why we didn't get to, let's say, the 20 million type of run rate?

Being that--when we gave that guidance--we closed this transaction on May 23rd, so we had kind of the month of June as a reference level. And so the fact that we came in right dead in the middle in the guidance that we gave I actually thought was fairly decent given how new this thing is. So, there are more uncertainties with a new business than there are with a long-term established business and we came in at the middle of our range.

OK, thanks very much.

, CIBC World Markets. You may ask your question.

Good afternoon, guys.

Hi, .

The application of a Robert Half brand name that some of your other businesses--obviously great name recognition. How much do you think that cost in the third quarter - just changing everything over and marketing it under the new name?

I don't think it's very significant in the scheme of things, Thatcher. That's something we had planned on doing for some time or at least had thought about doing for some time with our marketing people. We didn't make the decision until later, but we didn't accompany with some sort of a formal announcement. We don't think the brand name and presentation looks a lot different that it did before, and so we rolled it out in the normal course and there wasn't some 21-gun salute to kick it off, so I don't, again, think it was significant.

Yes, significantly less than a penny a share, ...

All right.

... which is my we didn't really highlight the financial impact.

You guys have mentioned that you're a bigger, more well oiled machine in this recovery than you were in the last recovery - more experienced, more tools. Have you - have you changed at all with all the investment that you've made in tools, have you changed at all how you'll compensate employees in this next hopefully 10-year run - what you'll incent them to do - what sort of metrics you're going to watch ?

I think if you compare how we compensated coming out of this downturn with how we compensated 10 years ago, clearly we have much more line of sight. Our people have a piece of the action - skin in the game. They have a direct cut of the net - of gross margin on the assignments that they place so that I would argue that they're much more objectively incentivized to day that they were 10 years ago where the franchisees tended to compensate subjectively.

OK.

And I think that's a plus.

How about any changes just in the last 18 to 24 months in how you compensate people?

Well, annually we look at all our comp plans and we kind of tweak thresholds and participation rates, et cetera. But other than that, there's been no huge structural change.

OK. Sounds good. Thanks, guys.

Mr. of Credit Suisse First Boston, you may ask your question.

Thanks . Hi, Keith and Max. One quick question on the infrastructure overall for the company - you know, obviously everybody's talked about potential for an upturn or maybe a downturn here going forward. Where would you say you're positioned from an infrastructure standpoint for an upturn?

Secondly, can you take more cost out of the - out of the company if - without too much risk if we continue to deteriorate?

Well, from an infrastructure standpoint, we feel real good. We've capped our physical location infrastructure intact during this downturn. We've continued to make the technology infrastructure investments and in fact at by the end of the fourth quarter, we'll have begun our pilot that integrates the front office technology project that we've been working on for the last couple of years. We've tried very hard to keep our best people during this downturn so if you look at physical infrastructure, you look at technology infrastructure, you look at the quality of the people assets that we have, we feel pretty good.

OK. And then just as a quick follow-up on the cap ex front, you know, you mentioned the front and the backups, where would you say the majority of the cap ex is being spent right now and perhaps going into '03?

Well, there's a combination of - we're kind of on the five-year line with this technology - this front office technology project that we're still spending on. In addition to that, there are - there are requirements in Protiviti to build out their offices, their phone system, their data networks, etc., so going into 2003, I'd say it becomes a little more routine, kind of IT maintenance, some more Protiviti growth, but nowhere near the cap ex commitment that we've had the last couple of years, and in fact, during this quarter, we got less depreciation because we've ramped down cap ex over the last three or four quarters.

Okay, I understand. I guess just one final question on--I'm guessing, because you mentioned it, on the pricing discussion, that you haven't seen a whole lot of change on the competitive front during the last quarter, but I'd like to just--want to get your thoughts on it.

Right, that's fair, again, the pricing change during the quarter wasn't a significant change, but we thought it fair to--it was a factor in why Temp gross margins were lower.

Okay, thanks a lot.

Once again, to ask a question, please press star one. of , you may ask your question.

Thanks, I appreciate it. Could you talk about a bit about have you seen any strength in any specific geographical areas internationally? Any pockets of strength in certain countries versus others?

Well, I'd say that we had sequential growth in the third quarter in the UK, and in Belgium. Canada was probably not as strong as those were.

How about any specific end markets?

Oh, you know, nothing stands out.

Okay. Also, another question came up as related to acquisitions, are there currently acquisitions you're viewing in certain end markets?

You know, we look at acquisitions on a fairly regular basis, because an awful lot of things cross our desks; they either come in directly from small to mid-sized business owners, or in many cases, we're presented proposals by outside business brokers or investment banks. We have a couple of people here that spend most of their time looking at transactions. As everyone knows, we do tend to be fairly selective. We--but to answer your question, we see a lot of things, and we're seeing a lot of things right now, because there are a lot of companies that frankly are struggling, and are--would like to merge or be acquired. Beyond that, there's not a lot I can say.

Okay. One last question, if I can. You know, I always like companies that I--that I own buying back stock with a great balance sheet, but I have to ask the question; it seems as if you pay--it looks like you pay about $18.90 this past quarter for stock. It seems like ...

Well, actually, let me clarify that a little bit, because the cash flow number includes payment at the beginning of the quarter for shares repurchased in the prior quarter, and there's also a carry-over into the next quarter, shares we bought at the end of the quarter, that we won't pay for until next quarter, so the math isn't quite as straightforward as you tried to apply it there, and I can tell you the average price we paid is less than what you just quoted.

Okay, so it's--yeah, I just, yeah, I just used the 79 million you said you spent, and divided by ...

Right ... million is the cash that we paid, but some of that related to shares we repurchased at the end of the prior quarter.

Got it. Okay, even so, if you're paying high teens, even lower than that, my question is, it's not accretive clearly to this year's numbers, and it's not going to be accretive likely to next year's numbers. It certainly should be accretive on 2004's numbers, but if you could earn anywhere from .80 to $1.00 in 2004, you're still paying a pretty high multiple for it. My question is, I guess, will you continue to--at this price, it may pay to buy back stock, but do you look at accretion as it relates to buying back stock in terms of the use of cash?

Well, you certainly look at accretion, and you also look at what are the alternative uses of that cash, and currently you get less than two percent on your money in money market funds, which is what we do with our excess cash. So, I think you have to look at the alternatives when you make the calculation. And I think it ultimately boils to how bullish are you? And long-term, as we've said many times on this call, we're quite bullish long-term.

I realize that people have different views, but at the end of the day, Keith and I feel strongly that this is a very good business. We also feel strongly that, quite frankly, there aren't that many really good businesses out there, and that this is a business we know well, and we're optimistic. Time will tell if we're right.

We did much the same thing in the last recession. We actually borrowed heavily to buy in securities. That proved to be a good decision. We believe that what we've been doing will benefit our stockholders long-term. But, only the future will tell if we're right or not. But, obviously, we think it's a good business, and we're optimistic that we're on the right track.

Thank you. Best of luck.

Thank you.

of Wachovia Securities, you may ask your question.

A couple of quick follow-ups on . Did you say that we've got 16 million that we're amortizing over 18 months? Is that correct?

Right.

OK. And then, in terms of the office moves, what's the timing, Keith?

The timing is -- most of them will be done, I would say, by the end of the first quarter next year. But, again, it depends on how quickly we can get into a new sublease situation, which is what most of them are, given the facts and circumstances of what the first lessee -- what their situation is.

Do you think that's gonna have any impact on the revenues at all, just in terms of disruptions or anything?

Well, I mean, there's -- it's hard to quantify. I mean, clearly going into the old Anderson space isn't a very motivating experience at the moment. And in going into executive suite, space is kind of viewed as a band-aid, at best. So, you would hope that you feel a little better about yourself when you go into decent space everyday, but how do you quantify that?

Yup. OK. And then, one last question. You know, certainly in the last quarterly call season, all sorts of questions about options. Just wondering, you know, sounds like the clamor has died down a little bit, but any more refinement in terms of you thoughts about the options programs going forward?

You know, I commented in the last conference call about the fact that we've made heavy use of options throughout our history. And if we were not the first company in America, we were certainly the first in our industry to have a plan that included all employees. So, we always break down questions about options into two questions. One, what do we need to do to properly , motivate, retain, and reward employees? Obviously, we feel that options have been a valuable tool in doing that, and we would hope that we would continue to provide appropriate incentives without regard to the specific accounting treatment.

We are well aware of the accounting issues, and we certainly are in favor of transparency and whatever makes it easy -- or easiest for investors to understand financial statements. I think, as I said the last time, that there's a very legitimate debate about exactly whether expensing options on any of the various methods that and others are proposing either helps or hurts that cause.

We set forth in our financial statement footnotes, as you know, that dilution and so forth are attributable options. We don't have any plans at this time to change our policies, either in terms of granting incentives for compensation purposes or the accounting for them, but we're obviously following the discussion with as it goes forward and I would say that we'll be discussing with our Board on a regular basis. But, at the current time, we don't plan to change our policies either in terms of compensation or accounting.

OK, great. Thank you.

Thank you.

Our last question comes from Mr. , First Manhattan. Sir, you may ask your question.

Mr. , please check your mute button.

He may have given up on us.

At this time we have no further questions.

Alright. Thank you again for your time today. This does conclude the teleconference. A taped recording of the call will be available for replay later today. The dial-in number is 800-239-4499. The replay will be available until 8 p.m. Eastern Daylight Time on Tuesday, October 22nd. Thank you.