羅致恆富 (RHI) 2005 Q1 法說會逐字稿

Good afternoon and welcome to the Robert Half International conference call to discuss first-quarter 2005 financial results. Please note that this call is being recorded. At this time, I'd like to introduce your host for today's call, Max Messmer, Chairman and CEO of Robert Half International. Go ahead, sir.

Thank you and hello everyone. We appreciate your time today. With me is Keith Waddell, our Vice Chairman, President and Chief Financial Officer. As you know on today's call, we will be reviewing Robert Half International's first-quarter 2005 financial results. You can obtain a copy of today's press release on our website at rhi.com.

Before we get started, I am required to remind everyone that the comments on today's call contain predictions, estimates and other forward-looking statements representing our current judgment of what the future holds. Among these statements are words such as forecast, estimate, project, expect, believe, guidance and similar expressions. Of course we believe these remarks to be reasonable but they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Some of these risks and uncertainties are described in today's press release and in our filings with the SEC. We do not assume the obligation to update the statements made on the conference call.

Now let's discuss the first quarter. After our opening remarks, Keith and I will be happy to respond your questions. Revenues for the quarter were $770 million, an increase of 35% from the first quarter of 2004. Income per share was $0.29 compared to $0.09 for the first quarter of 2004, an increase of 232%. Revenues and earnings for the quarter reached their highest levels in the Company's history.

Cash flow from operations for the quarter was $73 million before capital expenditures of $13 million. We ended the quarter with $453 million in cash and marketable securities after paying a $12 million cash dividend to shareholders and after repurchasing approximately 1.6 million RHI shares in the open market.

We were pleased with the record revenue and earnings results achieved this quarter revenues. Revenues in our staffing operations grew year-over-year and sequentially. We were particularly pleased with the strong performance of our Robert Half Finance and Accounting Division and our Accountemps Division, which reflected continued strength in the demand for accounting and finance professionals.

Protiviti also had a solid first quarter with the strong demand for its full suite of internal audit, Sarbanes-Oxley Act and business and technology risk consulting services. Revenues more than doubled versus the year-ago quarter and moderated somewhat from the very robust fourth-quarter levels. As Keith will explained later, we were quite pleased with Protiviti's ability to maintain its gross margin during this period. Protiviti's cumulative earnings since inception have now more than funded RHI's total investment in this business, a significant milestone achieved less than three years after the business was formed (technical difficulty) 2002. We estimate that 14 to 17% of RHI's consolidate revenues during the quarter were directly related to Sarbanes-Oxley compliance work. The balance of our revenues reflected organic growth of more than 20% on a year-over-year basis. This continues the broad-based momentum that began in mid-2003. At this time, I will turn the call over to Keith.

Thank you, Max. Overall revenues for the Company were 770 million. This is an increase of 35% from the first quarter of 2004 and 2% sequentially. There were 63 building days in the quarter, the same as the prior year's first quarter and up one day sequentially. Accountant revenues were 285 million, an increase of 25% from the prior year's first quarter and an increase of 7% sequentially. Accountemps is our largest staffing division with 335 locations worldwide, it accounts for 37% of total revenues.

OfficeTeam revenues for the first quarter were 156 million, up 19% from the prior year's first quarter and up 2% sequentially. OfficeTeam is our high-end administrative staffing division. It began operations in 1991 in the 306 offices worldwide. This division represents 20% of total revenues. Robert Half Management Resources had first quarter revenues of 105 million, up 48% from the prior year's first quarter and up 2% sequentially. Robert Half Management Resources places senior level accounting and finance professionals on a project basis. It was introduced in 1997, operates in 113 offices worldwide and accounts for 14% of revenues.

Robert Half Technology revenues were 67 million for the quarter, up 13% from Q1 2004 and down 5% sequentially. This division places IT professionals on a consulting and full-time basis, it was launched 11 years ago and represents 9% of revenues. There were 108 Robert Half Technology locations worldwide.

Our Permanent Placement division, Robert Half Finance and Accounting, had particularly strong revenues of 46 million in the first quarter, up 60% from the first quarter of 2004 and up 25% sequentially. This business was established in 1948 and operates in 335 offices worldwide, it accounts for 6% of total revenues.

International revenues for RHI Staffing operations were 131 million for the first quarter, up 25% from last year and up 5% sequentially. On a constant currency basis, these growth rates were 19% year-over-year and up 3% sequentially. Our professional staffing divisions operate in 72 locations in 10 countries outside the U.S. International staffing operations account for 20% of total staffing revenues.

First quarter revenues for Protiviti were 111 million and comprised 14% of RHI revenues. Established in May 2002, Protiviti has 40 locations in North America, Europe, Asia and Australia. Revenues for Protiviti were up 106% year-over-year and down 11% sequentially. The sequential decline was due to a combination of factors. As expected, Sarbanes-Oxley demand from calendar year end filers moderated during the quarter, particularly in January and early February as many clients turned their attention to the annual financial close and year-end controls testing performed by their external auditors. 2004 was the first time for mandated year-end external audit controls testing.

In addition, the expected ramp-up and SOA demand from nonaccelerated filers moderated in early March when the SEC deferred the effective compliance deadline by one year. The newly expanded timeframe can be a net benefit to feature quarters as clients have the opportunity to be more selective in choosing their Sarbanes-Oxley service provider and Protiviti can better manage its capacity to meet this demand.

Finally, revenue capacity during the quarter for Protiviti was reduced because of vacation taken by employees as well as time devoted to staff training, both of which have been deferred from 2004 as a result of the very high activity levels in the second half of the year.

Turning to gross margin, temporary and consulting staffing gross margin was 223 million for the quarter. This represents 36.3% of applicable revenues compared with 35% of revenues for the prior year's first quarter and 36.6% of revenues for Q4 2004. The sequential percentage decline relates primarily to state unemployment and workers compensation costs which were partially offset by higher conversion revenues. Overall staffing gross margin was 269 million for the quarter, or 40.8% of staffing revenues. This compares to 38.6% of revenues in Q1 2004 and 40.3% of revenues in Q4 2004. The percentage improvement is due to the higher mix of Perm placement revenues which more than offset the slight decline in temporary consulting margins just mentioned. Gross margin for our Protiviti subsidiary was 45 million for the quarter and 40.8% of Protiviti revenues. This compares to 29.8% of revenues in Q1 2004 and 39.8% of Protiviti revenues in Q4 2004. Protiviti was able to maintain its gross margin percentage on lower the sequential revenues due to the variable cost elements of its business model, namely the use of RHI independent contractors and the variable portion of its incentive compensation plans.

Staffing, selling and general and administrative cost for the quarter were 270 million, or 31.4% of staffing revenues. This compares to 34.4% of revenues for Q1 2004 and 31.8% of revenues for Q4 2004. The sequential percentage decrease is the result of better productivity from recently hired sales staff, the cost of which had placed pressure on prior quarters' SG&A. Our SG&A percentage for the quarter was again lower than the SG&A percentage in 2001 at similar levels of revenue. Protiviti SG&A costs were 23 million for the quarter, representing 21% of revenues. This compares to 23.8% of revenues in Q1 2004 and 17.6% in Q4 2004. The sequential percentage increase reflects higher travel and training cost and reduced leverage of fixed operating costs.

Operating income from our staffing divisions was 62 million for the quarter. This is up 184% from Q1 2004 and represented 90.4% of staffing revenues. The temporary and consulting divisions contributed 52 million of this amount, or 8.5% of applicable revenues while the Perm placement division had an operating income of 10 million or 20.6% of placement revenues. Operating income for Protiviti was 22 million for the quarter. This is up 579% from Q1 2004 and represented 19.8% of revenues for this business unit.

Our financial position is solid. We ended the quarter with cash and marketable securities of 453 million. This was after funding 13 million in capital expenditures, paying a cash dividend to shareholders of 12 million. In addition, the Company repurchased approximately 1.6 million shares in the open market for $43.3 million. There remain approximately 5.4 million shares available under our Board approved stock repurchase program.

Accounts receivable were 417 million at the end of the first quarter but implied days outstanding of 49 days. This compares with 47 days at the end of the fourth quarter of 2004. The increase is due to a higher mix of Permanent Placement and Protiviti receivables which have longer collection cycles.

Now let's turn to guidance. Following are the business trends we witnessed during the first quarter and through the first two weeks of April. On a same-day sequential basis, temporary and consulting revenues were up in January, up in February and up again in March. Perm placement revenues were also up sequentially all three months of the quarter. During the first week of April, revenues from our temporary and consulting businesses were up 24% versus the same period last year. For the first two weeks of April, revenues from our Perm placement division were up 29% versus last year. As we have noted many times, it's not possible to gauge Perm trends over such short periods.

Based on these observations, we offer the following second-quarter guidance -- revenues 707 to 800 million for the quarter; earnings-per-share $0.28 to $0.30 for the quarter. This guidance implies second-quarter year-over-year revenue growth of 20% to 25% and earnings-per-share growth of 55% to 67%. As you know, these estimate are subject to the risk mentioned in today's release. It's our policy to limit guidance to one quarter. Now I will turn the call back over to Max.

Thank you Keith. As noted earlier on the call, we were pleased with our first quarter results. We achieve the highest revenues and earnings in the Company's history. This is now our eighth straight quarter of sequential revenue growth in our staffing operations.

The labor markets strengthened during the quarter although at a moderate pace. Employers, particularly larger ones, appear to still be relatively cautious in their hiring strategies. The small-business optimism index from the National Federation of Independent Business remains strong, although down somewhat from very strong February numbers. Nationwide, one-fourth of small businesses are planning to higher compared with only 5% that expect cutbacks according to the March survey. As we have mentioned on prior calls, we read this small-business survey with interest because the majority of our clients and our staffing operations fit this profile.

RHI has historically performed well following recession and we see opportunities for growth domestically and internationally. We believe the increased focus on internal controls and compliance matters should continue to elevate the demand for skilled accountants, placing a premium on the services of those who are able to identify and recruit talent. RHI enjoys an excellent reputation in this arena based on 57 years of experience.

Longer-term, there are demographic forces at work that we believe will increase the demand for professional staffing services. For example, we may see shortfalls in skilled talent as baby boomers leave the workforce and fewer experienced workers are available to take their place. Until very recently, enrollment in college accounting programs had been on a decline. Interest in accounting as a career has increased recently, but it will be at least a few years before we see more graduates enter the field, which means shortages of entry in midlevel professionals may lie ahead. We expect our business to benefit from this trend because of our long-standing reputation for and experience in identifying talent with hard to find skill sets.

With respect to Protiviti, this business was started less than three years ago and has already shown it is an important part of RHI's future. Protiviti has produced outstanding operating results while demonstrating its ability to compete very effectively with the big four internal audit and risk consulting engagements. Protiviti professionals have relationships with senior executives and boards of directors of major corporations around the world. As anticipated, the first quarter showed some slowing in demand for Sarbanes-Oxley related work, but less than some on Wall Street had anticipated. We continue to work with calendar year-end followers on the remediation of identified control witnesses, as well as year-two testing to support ongoing Sarbanes-Oxley compliance.

Also, we're helping them to institutionalize long-term compliance best practices. Also as Keith noted earlier, we believe we will benefit from new demand from nonaccelerated filers, including small cap and foreign private issuers now that the compliance deadline for these companies has been extended. These businesses now have the opportunity to be more selective in choosing their Sarbanes-Oxley service providers and we believe many will select Protiviti.

And finally, we expect continued demand from accelerated filers with a non-calendar fiscal year end. Beyond Sarbanes-Oxley, Protiviti is building its practice areas in internal audit co-sourcing and outsourcing, information technology security, business continuity, information technology audit, forensic investigations, litigation consulting and enterprise-wide risk management. We're particularly pleased with the way in which Protiviti has worked with our staffing divisions. We believe that combining Protiviti's consulting and hire-in services with our staffing capabilities has produced a stronger, more competitive business model. We've always managed the business for the long-term and we're confident about our future prospects. We're in excellent financial condition with virtually no debt and a strong cash position and we continue to benefit from our respective brand names and proven track record of success.

Keith and I will now be happy to answer your questions. To allow as many callers as possible to participate, we ask that you please limit yourself to one question and a single follow-up as needed. If you have additional questions, we will certainly try to return to you later in the call.

(Operator Instructions) Andrew Steinerman, Bear Stearns.

Hi. In your guidance of 0 to 4% sequential growth falls well within a normal second-quarter of 3% gross would be the long-term median. Are you suggesting that the economic backdrop continues to be conducive to your business and there isn't really any sort of soft spot calculated in your second-quarter guidance?

I would say yes, Andrew. Our second-quarter guidance reflects how we see the business today. And to the extent the sequential trends are the numbers that they are, it's more seasonal influences than it is any anticipated soft patch in the economy, which frankly we don't see based on our numbers.

And I know you said January, February and March up each sequential month. Were they up a healthy amount, or when you actually look at the magnitude, is there anything to kind of extrapolate?

Again Andrew, we gave you the sequential progression during the quarter and we gave you the information after the end of the quarter. We feel pretty good about where we are on the staffing side as we enter this second quarter.

Fair enough, thank you.

Jeff Silber, Harris Nesbitt.

Thanks a lot. Just a follow-up on the intra-quarter staffing trends. Were there any major differences by your major staffing business lines?

Well, I would say that typically there are some differences that reoccurred. Typically, first quarter is not seasonally a great quarter for OfficeTeam and then typically for your consulting divisions, there's always this transition time from those projects that end concurrent with the end of the prior year and those that start up the next year. So I would say there's always first quarter differences among divisions for those seasonal reasons, but adjusted for that, the answer would be no.

Great. And then just switching over to Protiviti, can you share with us any rough measures on turnover and utilization rates? Have things changed over the past quarter or so?

I would say that utilization rates of our full-time staff were high throughout the first quarter as they were through the fourth quarter as is obvious by the fact that we maintained our margins. We used fewer contractors in the first quarter than we did in the fourth quarter, but the utilization rates and the turnover rates of our full-time staff were as good or better as they were in the fourth quarter.

Kelly Flynn, UBS.

Just a follow-up question on Protiviti. Could you give us any color on revenue volumes you're expecting in Q2 on that front? And just around that, maybe speak to whether or not you think you are seeing a pause in demand right now, and do you have any expectations that you might see kind of a re-ramp in Q3 if you are seeing a pause? And if so, kind of what are the priorities do you think in your clients size outside of Sarb-Ox on the internal audit front?

There's a lot questions, Kelly. Let me see if I can respond. Our second quarter guidance for Protiviti is flattish, and when I say flattish, that means maybe it's down a couple of 3 percentage points, maybe it's up a couple of 3 percentage points, but it's roughly flat. Do we see a pause in demand? Not really. Clearly, there is a transition from your large calendar year-end companies that had to comply by March 15 to your non-calendar year accelerated filers to your non-accelerated filers that we talk about earlier. And so I would say it is more a transition from one set of clients to another to some degree.

In addition, you're just now beginning to circle back to your larger calendar year filers to do remediation work, start planning for year-two testing. Quite frankly after the end of the first compliance deadline for your calendar clients, your clients were tired and our people were tired. As we mentioned, our people took time off, the clients took time off. Quite frankly, they did not want to see us once they complied. And so to some extent, there's a transition to kind of get back there and deal with their deficiencies list, as well as start dealing with year two.

So again, we see quarter two being flatfish with quarter one where we're working on first-year work for non-calendars, first-year work for non-accelerated filers and then we're circling back to calendar accelerated filers for remediation in year-two work.

In addition to that, let's not forget we do have other things besides Sarbanes-Oxley. We have some nice internal audit engagements that have nothing to do with Sarbanes-Oxley. In fact, the pipeline the last several weeks has been quite strong. As I look down that list, I see internal audit co-sourcing, I see IT security penetration testing, I see business continuity engagements, I see borrower risk concentration engagements, identity management, retail store audits. So there's a lot of non-Sarbanes-Oxley general internal audit related as well as technology risk consulting work that we're doing as well. As we said at the last call, we are very optimistic about the short and long-term prospects for Protiviti and we remain so.

Thanks so much.

Leone Young, Smith Barney.

Hi it's (indiscernible) for Leon. Any feeling for how operating margin trends might progress throughout the year?

On the staffing side, there will be a mix factor. When I say that, I mean Perm placement versus staffing. Generally Perm placement has better margins. We have nice traction this quarter from the hiring we started last summer in Perm placement that shows up in their 20% margins. To the extent Perm demand outstrips temp demand for the next few quarters, that will be a positive influence on overall staffing margins. From a Protiviti standpoint to the extent that we are flat as we forecast, the margin should not change that much.

So the 20 for the Perm should sort of also trend out for the rest of the year as well?

Perm will be somewhat volatile as a function of how aggressive we continue to add to our staff levels. But clearly as we now started to get traction from that first batch of hires from last year, that funds some of the additional hires. So net the margins will be better than they have been in the last couple of quarters, but they may or may not stay at 20.

Great, thank you.

Michel Morin, Merrill Lynch.

I was wondering, on the last call, you talked about ex-Andersen people had been approaching you with interest in joining Protiviti. I think you used the expression, they want to come home. Is this still happening? And also, could you update us on the number of professionals and what you would call partners at Protiviti and how that number has been changing? Thank you.

There is still a significant amount of interest from former Andersen partners and non-partners as well as other big four firms. We continue to have dialogue. The numbers of our full-time staff as well as partners has increased during the quarter (technical difficulty) figures we give out, other than on an annual basis, but I can say they were higher at the end of the quarter than they were at the end of the prior year end.

Could you also talk about any plans to open in any additional offices?

We are in discussions, particularly in some international locations, to increase our footprint. And at such time that we actually close those or open those, we will make those announcements.

Okay, thank you.

Chris Gutek, Morgan Stanley.

A couple of questions. Protiviti, first of all, have you as taken a stab at estimating what the deferral of the first-year implementation rules would be for the foreign companies and small companies in terms of what the reduction to your current quarter revenue and maybe current year revenue would be?

It's hard to quantify that, Chris. Clearly, we had some clients say to us well now we have more time, let's stretch this thing out or now that we have more time, let's not do testing this early. Let's wait until later to do testing. So clearly, it had a direct impact to some in-process engagements and it also had an impact on engagements that were scheduled to be started.

I also would not overlook the fact that we did a lot of training internally this quarter and that had a not insignificant impact on our revenue capacity for the quarter. And quite frankly, we expect the coming second quarter to also have a heavy amount of internal staff training as well.

One of the things you guys have talked about in the past relative to Protiviti was the issue of how much your customers will be using internal staff to do those Sarbanes-Oxley projects as opposed to bringing in the external consultants. Keith, has your thinking on that question changed at all in the last quarter?

Well actually, and let me ramble here a second, as you have read in the last few days, there was this April 13 round table of the SEC which was basically a chance for many companies, interested parties etc., to comment on how it went in year one. And the very abbreviated kind of summary of what came from that was there was a view that too much work got done, particularly by the external auditors, and that too much work came in two forms. First of all, they did not apply materiality standard to what they did and they treated small items just as materially as bigger items. And second and kind of to your point, they did not rely enough on the work of others, particularly internal audit, in setting of their scopes and in fact duplicated much of that work.

So there's a belief that a possible outcome of this next round of fine-tuning of Sarbanes-Oxley is there's going to be an insistence that the external auditors rely more where internal audit work has been done, particularly if that internal audit work was done by an outside independent consulting firm. So that would clearly be a factor in a company's deciding whether to staff something with their own internal employees versus using a consulting firm. I hope all of that tied together.

That makes sense. Thanks.

I would like to say that from a CEO standpoint, in the current environment, which is to be described as guilty until proven innocent, it is comforting to have an outsider helping you with your internal audit.

Makes sense. One more quick one, if I could. I think it's interesting to use the Accountemps revenue, I think you guys have stressed it as being surprisingly strong in the quarter. At least versus our forecast, Protiviti was in little but light. I'm wondering is this a situation where in the last couple of quarters, there was very strong hiring to be at a very senior level to work on these Sarbanes-Oxley projects, and that meant some neglect with the lower level accounting staff and some of that neglect (technical difficulty) hiring at the lower level. Is that the correct way to think about it, and therefore, are you guys raising your internal budgets for the Accountemps revenue for the next few quarters?

Remember that traditionally, first quarter is a seasonally strong quarter for Accountemps. And what you see there is a lot of participation in year-end close work. You have individual tax work that we participate in through those services. So I would actually cage it as kind of a return to the seasonal strength you are used to seeing in the Accountemps division which ironically kind of plays against Protiviti and Management Resources where to the extent you are in, our companies are in working on their year-end audit, they are now real inclined to be focused on internal audit. And so there is some crowd-out during the first quarter of internal audit as they work on their external audit. And our -- the trend at Anderson before we got involved and our prediction going forward is that for Protiviti, the first quarter will be a seasonally weaker quarter because of the external audit crowd-out phenomenon.

That makes sense. Thank you.

Mark Marcon, Robert W. Baird.

Good afternoon. I thought it was particularly impressive in terms of what you did with the gross margins over at Protiviti. And I'm wondering if you could discuss a little bit how much more could revenues decline where you could maintain those margins? Do you start running into a completely Perm unit at a certain point, or do you still have a lot of flexibility in terms of more temporary contractors?

The short answer is, we still have a lot of flexibility not only with that tranche of workers that are RHI independent contractors, but also the compensation plans that we have particularly for the managing directors and to a lesser extent but still there with the rest of the staff, there is that variable element of that that also flexes nicely as the business flexes. So we were particularly pleased as well at how our business model performed at Protiviti for the quarter at the margin line.

Terrific. In terms of the 14% to 1&% of Sarb-Ox work that you're currently doing, where do you think that kind of bottoms out this year before picking up again towards the back end? Any idea?

You know Mark, we haven't really forecast a consolidated Sarb-Ox exposure concentration percentage. We kind of look at it by division. We have told you for the second quarter we see Protiviti being flattish. More than half of Protiviti's revenues in the quarter were Sarb-Ox related and we would expect that again in the second quarter.

And then the last question, bill rates at Protiviti, would you expect that they're going to stay relatively constant throughout the year, or how do you see that playing out?

The market for the people Protiviti's recruiting is still one that's perceived to be candidate-short. You're still having to pay up for those candidates. Our bill rates will increase to the extent we pay more. We will pass those through to clients. We did not go crazy with will bill rate increases during the last several quarters. And therefore, we expect our clients to receive the news of we're paying more, therefore we have to bill more because again, I think they understand that that it's a candidate-short marketplace.

Great, thank you.

Jim Janesky, Ryan Beck & Co.

Thank you. My questions are focused on the Perm side, Max and Keith. Obviously you cannot maintain a significant growth rate forever as you move throughout the year. But do you see April as we move into April although it's up about 30% that seasonally that picks up throughout the quarter? I know it's always lumpy, but to the extent you could see any consistency, that picks up throughout the June quarter as people move around after they help their company through the year-end audit?

Jim, I guess a couple of comments. First of all, our people internally still see very strong demand on the Perm side and are very bullish about it, even for the coming quarter. I think if you look at the year-over-year growth rates, a factor to consider is that the year-ago period, there was a really large jump between first and second quarter. So the comparison is much more difficult that I would argue is driving that year-over growth rate more than what we're doing right now.

But the short answer is, we're still very bullish on Perm. As you know, we added people in the summer of last year, we added another tranche in the fourth quarter of last year, we have added yet another tranche in this quarter. And so that ought to be the fuel for future growth and it was dialed into the forecast that we gave.

Okay, that was part of my follow-up question. So you did continue to invest in people during the first quarter, but you were still able to turn in margins that were higher than 20%?

Yes, they were right at 20%.

Okay. To the extent that you still see increased demand as we move throughout 2005 on the Perm side, you will keep hiring. Is that correct?

That is correct.

Thank you.

Matt Litfin, William Blair & Co.

Good afternoon, Max and Keith. Where do you guys think we are in the process of looking at Permanent Placement as a percent of staffing revenue? And maybe you could look back at the last cycle to give us your thoughts there.

Currently like 6% of the total. I think if you look back to 2000, it was more like 10%. If you look on an absolute basis, we are still 30% below peak Perm revenues that we saw back in 2000, 2001. So we see that as there's a lot of upside there just to get back to where we were and kind of superimposed above that is the kind of demographic trends that Max talked about. We're very bullish about Perm and what its mix can be as a total of our business.

One quick follow-up on that. You mentioned back in 2000 that I think you had a little over 250 million of revenue there. Ignoring the demand side for a minute, is there any reason why the supply of people that you have or something like that would not allow you to get to that level? Or is that -- do you have the capacity to get to that level at this point?

Clearly, getting people has become more difficult, but relative to the accounting/finance market in this country, our revenues are a drop in the bucket. And so I hope with blocking and tackling that we can kind of find the people we need to sustain our growth. And I personally believe we could more than get back to old levels from the supply standpoint.

The only thing I would add to that is that if you think back to the last time the labor markets were extremely tight, I would argue that Robert Half fared very well overall in that environment. There's a premium in terms of your brand names, your recognition. If the market's really tight, who's going to have the best opportunity to recruit people? It's usually the firms that are best-known and have the best reputations. So I think we fared very well against our competitors and I would expect the same thing to happen again. So as far as supply constraints and so forth, I don't lose any sleep thinking about that.

I think too the fact that our Web sites are a major part of our recruiting strategy and we can reach a broader pool of candidates with that than we could 10 years ago also plays into the supply question.

Okay, great. Thank you very much.

Brandt Sakakeeny, Deutsche Bank.

Good afternoon, Max and Keith. One question outside of the sort of accounting and finance segments is, can you give us some color with respect to how OfficeTeam and RHI technology did as the quarter progressed?

Yes. I would say that both started pretty slow, particularly Robert Half Technology. And probably in March on Technology, we started to see some pretty good traction that continued into the new quarter. OfficeTeam was not down as much in January, but again as I said earlier, the first quarter has never been a terribly strong quarter for OfficeTeam.

And how did it progress through the quarter and the first couple of weeks in April?

Again, it was in improving trend after a somewhat slow start.

It was? Okay, great. That's all I had. Thank you.

Thatcher Thompson, CIBC World Markets.

Good afternoon guys, great quarter. With regard to Permanent Placement, Max, can you talk a little bit about productivity there, how you measure it and why maybe in this cycle you could have even better productivity than you saw in the '99-2000 timeframe?

I'm not sure we have time on this call to adequately respond to this Thatcher, but Keith has talked many times in prior calls about the technology tools we've provided our staff. I'm not sure we will ever be able to measure how completely effective those tools are. But certainly there are not the same limits on productivity that might have existed some years ago.

The next issue is of course training -- how quickly can you get new staff up to running speed? We devote a lot of money to something called RHI University, part of the purpose of which is to try to accelerate the learning curve and improve performance more rapidly. Keith referred to some of the success we have had to date with recent hires. We certainly think there's an awful lot of a room left for further improvement.

It's difficult to measure how effective people can be. We certainly have a long history in the business and we have many, many examples of producers with numbers that are dramatically above those being achieved right now with exceptions of course. So again, I guess our thought would be that given the training which is much better today than it was a decade ago or five years ago even, given the technical tools and given the reach we now have, we would like to think that productivity could increase significantly. You will have to stay tuned to see how successful we are in achieving those. But I don't see a limit to what we can achieve right now.

Okay, and Keith, can you comment on the Permanent headcount with Protiviti at the end of the quarter?

It was up from the end of the year. But as I said earlier, those are hard figures we give every year annually.

Thank you.

Tobey Sommer, Suntrust Robinson Humphrey. (technical difficulty). Craig Peckham, Jeffries & Co.

Good afternoon. You had discussed the sequential revenue trend in Management Resources as about 2%. That's I think one of the slowest rates of sequential growth we have seen there in the last few quarters. Can you talk about the extent to which that has been influenced by some of the trends you described in Protiviti, specifically on the Sarbanes-Oxley side? And also, I wondered if you could give us an answer to how much revenue in that segment you think it may be tied to such assignments?

Clearly Management Resources' sequential performance was influenced by Sarbanes-Oxley. We don't give Sarbanes-Oxley percentage by division. We gave it overall and it went down from 17 to 20 last quarter to 14 to 17% this quarter. And Management Resources was clearly a part of that. If you compare Management Resources' sequential performance with Protiviti's sequential performance, Management Resources actually did better because Management Resources did participate in the year end closed the books get through the audit that Protiviti with its internal audit focus doesn't participate in.

Okay. Thanks for elaborating on that. I guess just a follow-on question would be, as the mix of business at Management Resources changes on the back of some of the changing demand for Sarbanes-Oxley work, is there any reason to think that gross margins would see any variability?

We've actually managed our gross margins from a gross margin percentage standpoint at a level that hasn't changed that much during the Sarbanes-Oxley process. So just as we haven't taken advantage in a major way by increasing our gross margin percentages because of Sarbanes-Oxley, we wouldn't expect any significant decline as it moderates somewhat.

Thank you.

Vlad Artemah (ph), Greenlight Capital.

Hi, guys. Quick question -- what was the number for the headcount of Protiviti?

We said that we added to our full-time headcount during the quarter for Protiviti. We actually give out the specific numbers on an annual basis.

All right, thanks.

Tobey Sommer, Suntrust Robinson Humphrey.

Good afternoon. Sorry about that, I lost the call. I was interested on the Technology side if you could describe what demand and supply looked like in terms of candidates and whether the ramp in terms of demand was typical to historical patterns as we exited the holidays? Thank you.

I guess we would describe that the quarter started more slowly than would typically be the case but clearly began to ramp up in March, not necessarily so in February. The ramp-up was very what we call tech support as opposed to tech development, which is programming. It's heavily IT security and network oriented, so those were the drivers. But clearly a slower start to the quarter than we typically see but we got some pretty nice traction in March.

And regarding the opportunity for follow-on work following Sarbanes-Oxley, is that still an opportunity that you see developing in 2005?

We do indeed, and in fact every Sarbanes-Oxley client is an excellent prospect for ongoing internal audit work. Remember that internal audit existed years if not centuries before Sarbanes-Oxley was ever dreamed up and traditionally, internal audit had an operational focus as well as a financial controls focus and a regulatory focus. There's clearly deferred maintenance with the operational focus in internal audit and so you can rest assured that we are very actively pursuing our Sarbanes-Oxley clients that aren't already internal audit clients to convert them to just that and we have already had some success in that regard.

Thank you very much.

Jeff Silber, Harris Nesbitt.

Thanks. I got cut off as well, but don't worry, I'm not going to ask about Protiviti headcount.

Well, we can give it to you as of the last conference call if you're interested.

No problem. Did you happen to mention what bill rate increases and wage inflation was in the staffing business during the quarter?

Yes. Sequentially, less than 1%, which was down a little bit and year-over-year, it was like 7-ish percent -- 6 or 7% -- which again was down a little bit.

And that's the bill rate. How about wage inflation?

Wage inflation, I'm not sure there's a lot of change there.

Okay. And you had mentioned earlier that your Perm revenues are down roughly about 30% from the peak. Can you tell us roughly your recruiting workforce, how that compares to where it was at the peak?

The proportion is not terribly -- let me state it differently -- the proportion of staff isn't that different than the proportion of revenues.

Okay, great, and then one more. I just want to -- I could go back to my notes, but I'm not sure. In the first quarter last year, did you disclose what your Sarbanes-Oxley revenue was as a percentage of total?

I don't think so. I think we started that second quarter as I recall.

Would you mind disclosing that now?

You know it Jeff, I don't have it in front of me.

Alright, I will get it from you off-line.

We're not giving anything off-line that we don't do as part of the call. As a good student of regulation of FD.

I thought I would try -- good to hear. Alright, thanks.

Mark Marcon, Robert D. Baird.

A couple of quick follow-up questions. Could you tell us how International trended for you and what you're seeing from a macro perspective in your International markets? And then I have a follow-up.

I guess if we look at it during the quarter, we had a solid quarter from our international operations. I would say the strengths were in Canada and the UK. The other countries kind of held their own, but nothing screamed at you. So from a macro perspective, we've continued to invest internationally, particularly in the UK and France. We don't see any change to that strategy.

Great. So you saw sequential increases similar to what you saw in the U.S. in terms of --?

It was in the UK.

Okay, great. And then Keith and Max, you historically have been quite conservative. Normally in Accountemps when you go from Q1 to Q2, you kind of cycled through that end of closing the books kind of deal. So frequently, you've had sequential declines in Accountemps. Management Resources and Protiviti both have a fair degree of exposure to Sarb-Ox, which might trend down -- potentially could trend down a little bit in Q2. Does your overall revenue guidance, should we assume that your overall revenue guidance would project a pretty good increase in the Perm placement area as well as OfficeTeam and RH Technology when we think about the overall guidance?

Remember too Mark with the overall guidance that the second quarter has one more billing day than the first. So that helps. And therefore, I would say as to your specific Perm question, we haven't forecast any outside participation in Perm for the second quarter versus the first.

All I would add to that is we've said so many times in the past that I've tried to stop saying it, but we're obviously not macroeconomists. That having been said, as Keith said in his opening remarks, as we look at our business which we've been running for a long time, we just don't see some of the doom and gloom that I've been reading about. And so we feel relatively optimistic looking forward and we are attempting to be the conservative people you described us as, but this is our best judgment about what to expect in the next quarter.

And stated simply, we're not looking for a home run from Perm just to make the second quarter.

Right.

Got it, thank you.

Thank you again for your time this afternoon. This will conclude today's teleconference. Thank you for joining us.

This conference call will be archived in audio formats at www.RHI.com. A tape recording of this call also will be available for replay immediately following this call and ending at 8:00 PM Eastern on April 28. The dial-in number for the replay is 888-225-1540. If you're dialing from outside of the United States, it is available at 402-220-4973.