羅致恆富 (RHI) 2007 Q2 法說會逐字稿

Welcome to the Robert Half International conference call to discuss second quarter 2007 financial results. Our host for today's call is Mr. Max Messmer, Chairman and CEO of Robert Half International. Mr. Messmer, you may begin.

Thank you, and hello, everyone. Thank you for joining us today. I'm here with Keith Waddell, our Company's Vice Chairman, President and CFO.

Before we begin, I'd like to remind listeners that remarks made on today's call may contain predictions, estimates and other forward-looking statements. These statements reflect our current judgment of what the future holds and they include words such as "forecast," "estimate," "project," "expect," "believe," "guidance" and similar expressions. 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 assume no obligation to update the statements made in this conference call.

Now let's take a look at the second quarter. Second quarter revenues were $1.15 billion, an increase of 17% from the second quarter of 2006. Income per share was $0.44 compared with $0.39 in the second quarter of 2006. This is a 12% increase over the prior year. Cash flow from operations was $120 million during the quarter and capital expenditures were $22 million. We ended the quarter with $390 million in cash and cash equivalents after paying a quarterly dividend to stockholders of $0.10 per share or $16 million in total and after repurchasing 3.6 million RHI shares in the open market at a cost of $125 million. We have approximately 5.7 million shares still available for repurchase under our board-approved stock repurchase plan.

Year-over-year and sequential revenue growth rates accelerated in each of our staffing divisions during the second quarter, led by our international operations. Our permanent placement business, Robert Half Finance and Accounting, continued to perform well with revenues increasing 34% for the second quarter of 2006.

Keith will provide more detail on our international results as well as second quarter results for Protiviti. First, let's take a closer look at the overall financial results for the second quarter. Keith, I'll turn the call over to you.

Thank you, Max. We'll begin with Company-wide revenues. Second quarter revenues for the Company were $1.15 billion, an increase of 17% from the second quarter of last year, and an increase of 5% sequentially. There were 63 billing days in the quarter versus 63 days in the second quarter of last year and 64 days in the first quarter of this year. Revenues for Accountemps were $432 million, an increase of 19% from the second quarter of last year and an increase of 4% sequentially on a same-day basis. With 360 offices worldwide, Accountemps is our largest staffing division. It makes up 38% of Company revenues.

Revenues for OfficeTeam, our high end administrative staffing division, were $216 million in the second quarter. This is up 12% from the second quarter of last year and up 5% sequentially on a same-day basis. OfficeTeam began operations in 1991 and has 305 locations worldwide. It represents 19% of Company revenues.

Second quarter revenues for Robert Half Management Resources were $151 million, up 21% from the second quarter of '06 and up 4% sequentially on a same-day basis. This division, which was introduced in '97, places senior level accounting and finance professionals on a project basis. It has 146 locations worldwide and makes up 13% of Company revenues.

Robert Half Technology revenues were $105 million in the second quarter. This is an increase of 20% from the second quarter of last year and an increase of 7% sequentially on a same-day basis. Robert Half Technology was introduced in 1994 and places information technology professionals on a consulting and full-time basis. Robert Half Technology operates in 111 locations and accounts for 9% of Company revenues.

Our permanent placement division, Robert Half Finance and Accounting, had revenues of $115 million in the second quarter. Revenues were up 35% from the second quarter of last year and up 17% on a same-day sequential basis. This business was established in 1948 and operates in 360 locations worldwide. It accounts for 10% of Company-wide revenues.

Our international staffing operations reported second quarter revenues of $234 million, up 38% from the second quarter of last year and up 8% sequentially on a same-day basis. On a constant currency basis, these growth rates were 30% compared to the second quarter of last year and 4% sequentially. We have staffing operations in 100 locations in 18 countries outside the U.S. International staffing operations represent 23% of total staffing revenues.

Revenues for Protiviti were $130 million in the second quarter, up 2% from one year ago and flat sequentially. SOX revenues continued to decline as clients focussed on reducing their compliance cost while revenues from Protiviti's suite of other risk consulting services continued to expand. Notable wins during the quarter included engagements related to IT application controls, financial process effectiveness, and private equity services. Now in its sixth year of operation, Protiviti has 60 locations in 15 countries. Protiviti accounts for 11% of total RHI revenues. Protiviti's international operations represent 28% of total Protiviti revenues.

Turning to gross margin, second quarter gross margin in our temporary and consulting staffing operations was $336 million or 37.1% of applicable revenues. This compares with 37.2% of revenues for the second quarter of last year and 36.9% of revenues for the first quarter of 2007. The sequential percentage increase relates primarily to strengthening temp-to-hire conversion revenues.

Overall staffing gross staffing margin was $451 million for the second quarter or 44.2% of staffing revenues. This compares to 43.5% of revenues Q2 last year and 43.3% of revenues Q1 2007. The sequentially higher mix of permanent placement revenues added to the higher temporary and consulting margins just noted.

Second quarter gross margin for Protiviti was $42 million or 32.3% of Protiviti revenues. This compares to 36.4% of Protiviti revenues Q2 last year and 31.9% of revenues in the first quarter of this year. The lower year-over-year gross margin percentage relates primarily to lower staff utilization rates.

Turning to SG&A cost, staffing SG&A cost for the second quarter were $336 million or 33% of staffing revenues. This compares to 32.2% of revenues for the second quarter of last year and 32.2% of revenues for the first quarter. SG&A levels remained relatively high during this quarter due to the higher mix of permanent placement activities, as well as continued additions to internal staff.

Second quarter SG&A costs for Protiviti were $38 million or 29.5% of revenues. This compares to 26.3% of revenues in the second quarter of '06 and 28.5% of revenues in the first quarter of '07. The higher costs are primarily due to international expansion and infrastructure expenses.

Operating income from our staffing divisions was $114 million during the second quarter or 11.2% of staffing revenues. The temp and consulting divisions contributed 90 of this amount or 10% of applicable revenues. Second quarter operating income for our permanent placement division was $24 million, or 21% of applicable revenues. Operating income for Protiviti was $4 million in the second quarter, or 3% of revenues.

At the end of the second quarter, accounts receivable were $592 million with implied day sales outstanding or DSO of 46.8 days which compares to 46.5 days at the end of the first quarter.

Now let's talk about guidance. Some of the business trends we saw during the second quarter and the first weeks of July included the following. On a same-day sequential basis, temporary and consulting revenues were up in April, flat in May, and up again in June. On a same-day sequential basis, perm placement revenues were down in April, up in May and up again in June. During the first two weeks of July, revenues from our temp and consulting businesses were up 16% compared to the same period last year. For the first three weeks of July, revenues from our perm placement division were up 22% compared to the same period last year. We would remind you, however, that it is difficult to assess perm trends over short periods of time.

With respect to the third quarter, we offer the following guidance: Revenues $1.150 billion to $1.200 billion, earnings per share $0.44 to $0.47. I would remind you that these estimates are subject to the risks mentioned in today's press release. We limit our guidance to one quarter. At this time, I'm turn it back over to Max.

Thank you, Keith. The market for experienced talent remains strong as evidenced by the continuation of the broad-based revenue growth we have seen for several quarters in our professional staffing divisions. The unemployment rate in the United States is 4.5%, and the labor markets in many of the countries where we have operations are also very strong. We have been pleased with the growth trends we have seen internationally, particularly in Europe.

We talked about some of the reasons for our optimism about the business on last quarter's call and I think a few of these points bear repeating. Economic and demographic trends are placing a premium on skilled labor in our specialty areas. The anticipated skill shortages resulting from the exodus of the baby boomer work force are expected to continue to have a global impact. The demand for accounting and finance professionals is further strengthened by the continued emphasis by public and private companies on internal controls and corporate governance. This, too, is a global phenomenon.

The demand for accounting and finance professionals also is benefiting our Protiviti business. We are pleased with Protiviti's ability to not only expand its roster of new clients, but also its ability to extend its consulting relationships with existing clients. Earlier this month, Forrester Research recognized Protiviti as a leader and at second quarter 2007, Forrester weighed a report on risk consulting services. Forrester used a variety of criteria ranging from breadth of services and expertise to thought leadership. Protiviti was ranked at the top for its organization and process design services while earning strong ratings as well for risk strategy and technology implementation services. We think Protiviti is a very good business and we are optimistic about its growth potential. We also continue to be optimistic about the long term prospects for the staffing business for all the reasons we've noted today and on prior conference calls.

At this time, Keith and I will be happy to respond to your questions. We would ask that you please try to 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) Our first question comes from Andrew Steinerman with Bear Stearns. Go ahead, please.

Evening, gentlemen. Could you give us the same type of April, May, June, July analysis for Protiviti that you did for the other divisions?

Andrew, we traditionally haven't got that granular with Protiviti. I can certainly say that Protiviti ended the quarter stronger than it began the quarter, but to date, we haven't gone month by month with Protiviti.

Okay, and within the third quarter guidance you provided, what would be your assumption of on Protiviti?

As we've talked about in the past, we would expect an uptick in Protiviti for the third and fourth quarter. If you look at the last couple of years, the sequential progress has been revenue growth of 10% or 11%. I guess our range built into our guidance would kind of be on the low end, kind of mid-single-digit growth sequentially and at our high guidance, it would be sequential growth consistent within the past, which would be 10% or 11%.

Right, and margins would lift with that type of revenue growth at Protiviti.

That's correct.

Thanks for the color.

Thank you. Our next question comes from the site of Jeff Silber with BMO Capital Markets. Go ahead, please.

Thanks so much. You got that great quarter in the temp and the perm business but unfortunately, my first question is going to be on Protiviti as well. I asked this last quarter. I am going to ask it again. Is the Company looking at all particularly at rationalizing headcount of your full-time staff in Protiviti?

Again, there is no--there is no decision to overall rationize staff. As you know, Jeff, there is an annual promotion cycle that happens every year that Protiviti is going through as we speak, and to some extent that process itself has an impact on your staffing levels. But other than that process, there's no thought to have kind of an across-the-board reduction in Protiviti staff. Again, we remain optimistic about Protiviti's long-term prospects. Clearly there is a headwind created by SOX the last couple of quarters which continued as we expected in the quarter just ended. But that said, we still believe that Protiviti is a good business long-term and it would be short-sighted and unwise to rationalize the staff at this moment.

Okay. That's fair. And you mentioned in your comments that SG&A in Protiviti went up specifically because of the international expansion. Are you in all the markets that you plan on being in? Are there any new markets we should be looking for Protiviti to expand to?

We're in all the markets we have to be to service our existing global clients. There are other markets where we are looking as we speak and so I wouldn't be surprised if over time, we trickle into a few other markets but it's not going to be at the same pace that we've entered new markets in the past.

Okay, thanks. I'll let somebody else jump on.

Thank you. Our next question comes from Mark Marcon with R.W. Baird. Go ahead, please.

Good afternoon. One question just on Protiviti or RHI in general, last quarter you gave us kind of the general percentage of your revenue from SAR-BOX? Do you have an update on that?

It's still less than 10% of the total. It is less than it was last quarter as well. Protiviti's SOX revenues as a percent of their revenues declined during the quarter. On the staffing side, in Management Resources as an example, it actually ticked up just a little bit as the non-accelerated filers began to address compliance at the end of this year. Nothing significant, though when you put it all together on a consolidated basis, the portion of revenues represented by SOX went down.

Okay. And you're basically not assuming that much margin assumption, are you, Keith, in terms of this guidance that you're giving us for the third quarter in the Protiviti division?

Well, we're certainly, given the last couple of quarters, are being somewhat cautious, but that said, if you wanted to dream, there could be some leverage of their fixed cost, but we would rather talk about that once it's done than predict it today.

Okay. That's fair. And then on the temp business, can you talk a little bit--you've been experiencing very strong growth on the international side. What are the implications for margins as your international business continues to grow, and I'm talking about outside of Protiviti?

Right, and our international growth is highest on the continent in Europe, and we get much better margins on the continent than we do--than we get in the U.K., which has traditionally been our largest international location. So while they're modestly lower than they are in the States on the continent, they're not near as low as they were in the U.K. so might there be a modest margin impact from hyper growth on the continent? Yes, but it is not a huge factor.

Okay. Great. Thanks.

Thank you. Our next question comes from Tim McHugh with William Blair and Company. Go ahead, please.

Yes, I wanted to touch on, you said you continued to add staff this quarter. I was wondering if you could provide any color relating to if that's in any particular segment, or as well as perm versus temp?

I would say it is a continuation of the last few quarters. We've been more aggressive with perm than with temp because of market conditions, which remain strong based on the numbers we just gave out. But we have also continued to add staff on the temp side, just not as aggressively, as we have on the perm side so frankly, there isn't much change at the rate at which we're adding during the second quarter versus what we did in the first quarter.

Okay, and then in terms of the office locations, you -- actually I wanted to ask about the technology practice. The office network that hasn't grown very much although the revenue is up nicely there. Is that a business you expect to expand the office footprint over time or are you comfortable with where you're at and just hope to leverage those?

It is more leveraging the footprint we have by having additional headcount. We probably singled out a half dozen or so markets in the technology area, where we're adding disproportionately to their staff so that's more a leverage of an existing location more than it is new locations. But that said, we do think there is a fair amount of upside just in getting better penetration in the locations where we already are.

Okay. Thank you.

Thank you. Our next question comes from Brandt Sakakeeny with Deutsche Bank. Go ahead, please.

Thanks. I just have a couple quick (inaudible) questions which I hope to throw under one question. First on the DSO, Keith, I'm a little surprised that despite the increase in the international that DSO has stayed constant. Is there anything particular that you're doing to keep that down?

Well, we've always paid a lot of attention to DSO, and I think we have a very good partnership between our credit staff on the one hand and our field sales staff on the other hand and it just continues to be a focus. It has always been a focus. Cash flow is what it is all about and so I would say this quarter is a continuation of that.

So as international sales continue to ramp, we shouldn't expect an increase in the DSO here, sounds like?

Again, might there be modest increases? Yes, but nothing dramatic.

Okay. Great. Do you have the share count at the end of the quarter?

Share count at the end of the quarter. I don't have that on the top of my head. What I can say is that there is 1.3 million share impact from this quarter's purchases that rolls over into next quarter.

Great. That's what I was looking for. And finally, just the option expense number in the quarter?

The option expense number was 2.5 million, 2 million temp, 0.5 million perm, Protiviti de minimus.

Great. Thank you.

Thank you. Our next question comes from Tobey Sommer with Suntrust Robinson Humphrey. Go ahead, please.

Thank you. I was wondering in the sequential growth that you've discussed for Protiviti, at the low end and at the high end, how much of that would be derived from the typical seasonal uptick that you would expect from 404 and other Sarbanes-Oxley work?

Well, some of it's that uptick which we've seen certainly the last couple of years. That, to some extent, gets moderated as companies continue to focus on reducing their SOX cost and, hence, the range that we talked about. Further, some of it is bill rate increases. Protiviti is on a June year-end for internal compensation purposes, and therefore staff raises occur July 1st. The plan is to pass those staff raises through with bill rate increases, so you get some bill rate increases, you get some higher utilization, more hours, from the SOX ramp-up that hopefully is as robust as it has been in the past, but again our guidance gave a range on that.

Right. Thank you. And speaking of bill rate increases, I was wondering if you could comment generally about the bill rate and wage inflation you're seeing on the pay rate side, sort of across your different business segments and maybe you could rank them as where you're seeing the greatest and/or the least rates of increase? Thanks.

Yes, and our traditional policy there is to kind of give overall rates and on a year-over-year basis for the quarter, bill and pay rates are up right at 6.5%, little less than 6.5%. And on a sequential basis, it's a little bit north of 1.5% so those rates are pretty consistent with the last few quarters.

Is that consistent with what you expect for Protiviti as it enters in the back half of the year?

Well, Protiviti is a different deal. I would say that kind of mid-single-digit raises are pretty typical this year for them and maybe that's down a touch from it has been in the past. But it is still quite competitive for their profile, their staff base, and therefore there is still upward pressure on what they're paid.

Thank you very much.

Thank you. Our next question comes from Jim Janesky with Stifel Nicolaus. Go ahead, please.

Yes, thank you. I would like to touch upon the perm area. When you look at the strength of perm this quarter which was actually up over the last quarter in terms of a growth rate, are you finding that it is more due or--I guess I should just ask the question. Is it due to a shortage of professionals in the finance and accounting area, or because companies continue to grow their employee base?

Jim, we would say it would be more of the latter. As our small to mid-sized businesses, which is our client base, themselves expand, particularly their volume sensitive positions, staff accountants, accounts payable, accounts receivable, payroll, those areas is where we're seeing most of the strength in our business.

Okay. And do you still think that there's room for upside to operating margins in the perm segment, right?

Well, we've clearly had higher perm operating margins in the past. It's all a function of how aggressively are you adding to headcount, and then how quickly do those people get up to average productivity, and as we've been aggressive for several quarters in a row, we have a somewhat disproportionate number of people that haven't quite gotten up the growth curve and therefore, there is some pressure on margins relative to historical highs. That said, having north of 20% operating margins in perm is a high-class problem to have.

Putting it differently, Jim, obviously we're doing everything we can to get our new hires as productive as rapidly as we can through our training and other programs and obviously the goal is to see them become productive very rapidly.

How about on the temp to perm side? Any reason why this particular quarter you saw a jump there?

It's like a 20 basis point jump and so if we look back four quarters, we've had 20 basis point jumps two of the last four quarters so I don't think there is anything particularly noteworthy about it. Obviously we would rather see a jump in the good direction than in the opposite direction, so we're happy about that, but it is not that big a deal.

And it is not like it is particularly high relative to our history.

No, it is still in the middle of the traditional range.

Right. And you didn't make any comment this quarter about workers' compensation or state unemployment taxes. Did that-- ?

It had a small positive impact, but not enough that it's noteworthy.

Okay. All right. That's helpful. Thank you.

Thank you. Our next question comes from Mike Fox with JPMorgan. Go ahead, please.

Good afternoon, guys. I had two quick questions. Can you talk about the availability of workers in both the temp and perm side? And then also I was wondering if given the subprime--what is going on in subprime, if you guys should see any business in Protiviti or just in general finance and accounting as a result of any of that?

Well, as far as supply of labor, we didn't see major changes during the quarter. I think we've said for several quarters it is tightening, but other than this one tranche of three to five year big-four types, it is not growth limiting. So there is no--there's no big change there. As to subprime, clearly it didn't have a large impact on our business negatively during the quarter and frankly, we don't see any major upside in the near term as far as consulting to subprime companies, either. Maybe there's an opportunity there that we need to scratch our heads more over.

On the availability of workers, I would just say that we're fairly aggressive, at least by industry standards in terms of our recruitment-oriented advertising. And as a result of that and the general conditions in the market, we have not had a particular problem with supply.

Okay. Great. Thanks a lot.

Thank you. Our next question comes from Michel Morin with Merrill Lynch. Go ahead, please.

Yes. Hi, guys. Two quick ones, if I may. First, can I -- I just wanted to double-check the Penta acquisition. Am I correct in estimating that that might have added close to 5% to the Protiviti revenues in terms of the year-on-year growth rate?

You're way high there. We didn't disclose the numbers.

Okay.

But that's not the number.

Okay, and then secondly, in terms of the international business, could you update us a bit on the mix, where that is coming from in terms of the primary countries or currencies or which ever way you want to break it out?

Well, are we talking staffing or Protiviti?

Yes, staffing.

All right. Staffing it is principally continental Europe from a dollars perspective that are all Euro denominated. We have many young Asian-based operations, but the dollars aren't anywhere near--anywhere near have the impact that is the case in continental Europe. And also we have a decent sized business in Canada and there was actually a fair amount of currency swing between the Canadian dollar and U.S. dollar this past quarter.

And would it be possible to be -- maybe give us some ballpark figures of how you break those out -- Europe, Continental Europe, Great Britain and Canada?

That is not something we have typically done and again, currency hasn't traditionally had that large an impact and we've actually given you precisely what the impact is when we give you growth rates both ways.

All right. Okay. Thank you.

Thank you. Our next question comes from Chris Gutek with Morgan Stanley. Go ahead, please.

Thanks. Good evening, guys. I guess, Max, in your prepared comments, you talked about some of the macro and longer-term secular drivers that were stimulating strong demand. But in particular, with the modest acceleration in year-over-year growth you've seen in Q2 versus Q1 for the core staffing business, do you think that is primarily the reflection of a better macro environment in Q2 versus Q1 or conversely, do you think it might be primarily a benefit of some of the heavy investments and hiring of full time staff you guys have been pursuing in the last few quarters?

I would say both. You used the word modest. I thought it was a little better than modest growth but I think it would be both of those factors.

I think the acceleration -- I think it was 17% versus 16% or maybe I've got the numbers confused -- modest acceleration. And then to follow up on a prior question about the internal hiring plans, and maybe taking a little bit of a longer-term view, is the general intention to continue to hire relatively aggressively because you're bullish on the long term or conversely recognizing the cyclicality of the business, would you hire aggressively for maybe another year or two but at some point before you see demand soften, maybe back off on the hiring and let the margins peak a cycle?

Our traditional posture has been we continue to hire as long as we see strong underlying market conditions. To the extent and only to the extent we see those weakening, do we right-size our staff, principally on the staffing side.

We talked about this on the last call, also, and we have to be something in the nature of a surgeon and we talk to people in the field on a regular basis, and it's hardly a scientific process, but at the end of the day, we make a decision as to whether we think the demand is there and obviously, as you have surmised, we've concluded the demand is there and so we continue to hire.

But stated differently, Chris, we wouldn't carry a full complement of staff through the bottom of a down cycle.

Understood. Great. That's helpful. Thank you.

Thank you. Our next question comes from Gary Bisbee with Lehman Brothers. Go ahead, please.

Hi, guys. A couple questions on international. Can -- how much are the growth that you're seeing there, the strong growth in international, do you think is coming from sort of infrastructure investments you've made in hiring versus just what's been a number of very strong employment and labor markets in continental Europe?

Again, we would answer that as some of both. Because of the underlying strength in many of those markets, we've added to our internal headcount and infrastructure. And therefore, as a result of both factors, we're seeing very strong growth there.

Yes, we're clearly stronger and better organized in our international operations today than in the past, but as you note, we're also benefiting from a very strong environment.

And you say you're stronger and better organized. Is there some sense of how much infrastructure is in place to be able to continue to grow at this pace or I guess assuming the market stays stronger, are you expecting to continue to put up very rapid growth internationally and take that mix of the business much higher over the next 18 or 24 months?

Well, because many of those countries are at much earlier stages with temporary help generally, and because you're talking about numbers that are much smaller from a base standpoint, we would expect international to continue to significantly outgrow the U.S. That said, the U.S. isn't chopped liver, it is growing pretty nicely as well.

And is the mix of business internationally--last question--similar in terms of perm and temp or is there a different weighting? Thanks a lot.

It is modestly more perm-oriented and definitely more accounting and finance oriented than it is in the States.

Okay. Thank you.

Thank you. Our next question comes from Andrew Fones with UBS. Go ahead, please.

Thanks. Looking back at past cycles, perm as a percent of your total staffing reached I think about 16% of revenue back in 1990, and was about 10% of revenue in 2000. It is currently back to 11%. Do you have any targets there or how should we think about where that could go?

We don't set mix of revenue targets. We're trying to grow each side of our business as strongly, as quickly as we can, and we invest in headcount accordingly. So again, we hope temp growth is such that it makes it very difficult for perm growth as a percentage of the total to grow, but that said, clearly perm has been stronger for many quarters now and we expect that to continue into the foreseeable future. But we don't sit back and say, oh, we only want perm to be X percent of revenue.

You said that perm was a slightly larger mix of revenue internationally than in the U.S. and I think that if I'm correct, that might be because you lead me back there. Do you think that perm could be a greater mix of your revenue internationally than you currently see it here in the U.S. over time?

We do. We do. And, I mean, it is somewhat by design. In some of the countries that are somewhat margin-challenged on the temp side, one way to deal with that is to be more perm-oriented.

Okay. Thank you.

Thank you. Our next question comes from T.C. Robillard with Banc of America Securities. Go ahead, please.

Great. Thank you. Keith, I just wanted to go back to the margin question earlier, and the -- on your perm business, obviously great sequential growth and you've made some comments about continuing to need ramp-up time, continuing to add headcount, but given the small increase in terms of the profit sequentially, is it fair to assume that you accelerated headcount hiring in the second quarter relative to the first quarter in that business?

I wouldn't say we accelerated it. I would say we continued a pattern of aggressive hiring, but it is a cumulative thing, in that if you look at the number of people that have been with you less than a year, that is more than just this past quarter's hiring. And because we've been aggressive for at least the last year, we've got a somewhat higher percentage of people in the less than one year category than we typically would.

Okay. So one year is kind of the average, I guess, kind of cross-over point in terms of full productivity?

Nine months to a year, generally.

Okay. And then just real quick secondly, could you give us some color around the -- in Protiviti, the non-SOX business in terms of if you could quantify any growth or just any other color you could give us there in the quarter?

Well, clearly SOX is declining in absolute terms and obviously as a percent of revenue for Protiviti, which means if they're flat overall or up just a little, that means by definition everything else is growing much more significantly. We called out a few services in our prepared remarks -- IT application controls, IT security, financial process effectiveness. We've had some good success with the private equity firms and their portfolio companies and getting them ready to go public or whatever type of liquidity event they're going to have for them. So there are many non-SOX wins that we're getting with Protiviti, but the fact that you're having to offset what is otherwise a reducing revenue stream from SOX itself, it somewhat masks that success.

Maybe just -- I'm going to push you here a little bit, if I may. But if we were looking at non-SOX, just kind of year-on-year, so completely stripping out the SOX business, are you seeing that growth north of 10% on a year-on-year basis for those revenues?

Again, we haven't given specific SOX and non-SOX revenues in growth rates, but I think you can assume that non-SOX is growing by a meaningful percentage.

Okay. Fair enough. Thanks for the color. I appreciate it.

Thank you. Our next question comes from David Feinberg with Goldman Sachs. Go ahead, please.

Good evening, gentlemen.

Good evening.

Question about your U.S. temp and perm business changing gears a little bit. Have you seen any evidence that the slowdown that we've seen in U.S. clerical and light industrial and temp markets has been spreading to any of your end markets? Maybe you can discuss that either by your business types or even if it is just a change in client hiring practices, things like are the sales cycle lengthening or are you seeing any shorter duration of assignments? Anything on the edge?

I think our numbers speak for themselves. We gave you intra-quarter trends, we gave you post-quarter growth rates that are as recent as last night, and so, I mean, it is what it is. We grew, what, 18% year-over-year on the temp business for the quarter. We grew 16% year-over-year for the first two weeks thereafter, so roughly in the same ballpark. So I think our numbers would say that so far we haven't seen that.

Okay. Thank you very much.

Thank you. Our next question is a follow-up from Jeff Silber with BMO Capital Markets. Go ahead, please.

Thanks. I just have a few numbers questions. I was wondering why your amortization expense was a little bit higher than normal. Is that something we should be considering going forward?

Well, you're talking depreciation? Depreciation is a little higher because of higher CapEx. The options amount's about the same. Restricted stock amortization is up a little bit due to new grants in the ordinary cores.

Sorry -- I was referring to the amortization of intangible on your income.

Oh, okay. And then that, that we made a few small acquisitions in the last few quarters, a small portion of which goes to amortizable intangibles.

So is this the kind of level we should model on a quarterly basis going forward?

Yes, I think that is fair.

Okay, great. What are your CapEx plans for the remainder of the year?

Consistent with the last couple of quarters, no big change there. Notice that the tax rate was a bit higher this quarter. We didn't get some of the credits we had gotten in the past. Some of our state tax planning has run out of gas to some degree and so the tax rate will probably stay a little higher for the rest of the year.

You just pre-empted my last question. Thanks.

Thank you. Our final question comes from Mark Marcon with R.W. Baird. Go ahead, please.

I wanted to do a follow-up with regards to the perm and temp margins. As you continue to grow faster in those markets, in international, that's obviously having an impact with regards to the margins given that they're lower. If we were to strip out international and just look at U.S. margins, would your U.S. margins actually be--well, I mean they obviously would be higher than what we're seeing. But how would they look on a year-over-year basis? Is there any way that you can give us a feel for that or give us a feel for how much you have to pay for account managers and recruiters now and how we should look at that?

There hasn't been much margin change, in part because the leverage of the fixed cost that you're otherwise achieving is being offset by the fact that you're having to pay your people more because of the competitive market conditions. Understand that many of our account managers, salespeople on the accounting side of our temp business, themselves are former accountants or current accountants, and therefore to the extent those markets are tight, and companies are paying up, we similarly have to pay up to them, as well.

Sure. I'm just looking, Keith, at the perm business, and if we take a look at this last quarter, for example, on a year-over-year basis just for perm, we basically ended up seeing a 330 basis point decline, and I was just trying to get to -- it sounds to me like what you're saying is that in the U.S., we're probably not seeing anywhere near as close to that level of decline even though you continue to add staff.

Well, there is a decline even in the U.S. because of the comp pressures I just described. But clearly that's exacerbated when you roll in the impact of international. But again, it's a business that just grew 35% year-over-year, so we think the people investments we've made, particularly in perm, have paid off nicely and the fact that the operating margins are only 22%, as I said earlier, I think it is a high-class problem to have. I wish all our divisions had a 22% operating margin.

We look forward to that. Thanks.

Thank you. That's all the time we have for today. We appreciate your joining us. We look forward to talking to you next quarter. Thank you.

This concludes today's teleconference. A taped recording of this call will be available for replay later today through 8:00 p.m. eastern time on July 31st. The dial in number for the replay is 877-856-8966 or for outside the United States, 402-220-1610. The conference call also will be archived in audio format on the Company's website at www.rhi.com.