羅致恆富 (RHI) 2007 Q4 法說會逐字稿

Welcome to the Robert Half International conference call to discuss fourth quarter 2007 finance results. Our hosts for today's call are: Mr. Max Messmer, Chairman and CEO of Robert Half International, and Mr. Keith Waddell, Vice Chairman, President and Chief Financial Officer. Mr. Messmer, you may begin

Thank you. And good afternoon, everyone. Thank you for joining us. We would like to begin by reminding everyone that comments made on this call contain predictions, estimates and other forward-looking statements. These statements represent 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 those 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 the 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 review the fourth quarter. Revenues for the fourth quarter were $1.22 billion, an increase of 15% from the fourth quarter of 2006. Income per share was $0.50, compared with $0.45 in the fourth quarter of 2006. This is a 11% increase over the prior year. Cash flow from operations during the fourth quarter was $101 million, and capital expenditures were $20 million. We also paid a quarterly dividend to stockholder of $0.10 per share, or $16 million in total. Last October, our Board of Directors authorized a repurchase of up to an additional 10 million shares of RHI common stock, and during the fourth quarter, we repurchased three million RHI shares at a cost of $82 million. We have approximately 9.2 million shares remaining for repurchase under the Board approved stock repurchase plan.

The fourth quarter of 2007 saw a continuation of the double-digit year-over-year revenue growth we have seen for 16 consecutive quarters. Our international operations reported particularly impressive financial results. Despite mixed economic reports, we continued to see strong demand for our services, during the quarter. 2007 capped a very successful five-year period for RHI as indicated by the following statistics. Revenues grew from $2 billion to $4.6 billion, a compound annual growth rate of 20%, nearly all of this growth was organic. Return on equity averaged 22% per year, with 2007 at 29%. Cash flow from operations was $1.4 billion, which funded $1.2 billion in RHI stock repurchases, and $200 million in dividends paid during this five-year period. Our balance sheet at the end of 2007 contained $1.5 billion in assets, with virtually no long-term debt, and $310 million of cash.

At this time, I'll turn the call over to Keith for a more detailed look at the fourth quarter financial results.

Thank you, Max. Excuse me. Let's look first at our company wide revenues. Fourth quarter revenues were $1.22 billion, an increase of 15% from the fourth quarter of last year, and an increase of 3% sequentially. There were 61 billing days in the fourth quarter of 2007, the same as the fourth quarter of last year, and down two days sequentially from the third quarter of 2007. Accountemps revenues were $453 million. This is up 16% from the fourth quarter of last year, and up 5% sequentially on a same day basis. Accountemps was our largest staffing division, with 367 offices worldwide, it accounts for 37% of company revenues.

Office Team, our high end administrative staffing division, had revenues of $222 million in the fourth quarter, this is an increase of 10% from the fourth quarter of last year, and an increase of 6% sequentially on the same day basis. Office Team has 315 locations worldwide, and represents 18% of company revenues. This division was introduced in 1991. Fourth quarter revenues for Robert Half Management Resources were $165 million, up 21% from the fourth quarter of 2006, and up 8% sequentially on a same day basis. This division was introduced in 1997, and places senior level accounting financial professionals on a project basis. It has 145 locations worldwide, and makes up 14% of company revenues.

Revenues for Robert Half Technology were $111 million in the fourth quarter, up 17% from the fourth quarter of last year, and up 3% sequentially on a same-day basis. Robert Half Technology was introduced in 1994, and places information technology professionals in a consulting and full-time basis. This business operates at 112 locations worldwide, and accounts for 9% of company revenues. Robert Half Finance & Accounting, permanent placement division, had revenues of $118 million in the fourth quarter. Revenues were up 36% from the fourth quarter of 2006, and up 7% on a sequential same-day basis. This business was established in 1948, and operates in 367 locations worldwide, it accounts for 10% of company wide revenues. Fourth quarter revenues for our international staffing operations, were $282 million, up 43% from the fourth quarter of 2006, and up 13% sequentially on a same-day basis. On a constant currency basis, these growth rates were 27% compared to the fourth quarter of last year and 8% sequentially. We have staffing operations in 102 locations, in 18 countries outside the U.S., international staffing operations represent 26% of total staffing revenues.

Protiviti revenues were $151 million in the fourth quarter, down 1% from one year ago, but up 7% sequentially. Protiviti continued to transition from Sarbanes-Oxley related services, to internal audit and other consulting services. Notable areas of success during the quarter included: consulting engagements, and IT asset management, forensics investigations, and finance function effectiveness. Protiviti has 60 locations in 15 countries, it was established in May of 2002, and accounts for 12% of total RHI revenues. Protiviti's international operations represent 27% of total Protiviti revenues.

Now, let's review gross margin. Fourth quarter gross margin in our temporary consulting staffing operations was $357 million, or 37.6% of applicable revenues. This compares with 37.2% of revenues for the fourth quarter of last year, and 37.3% of revenues for the third quarter of 2007. The fourth quarter increase is primarily the result of lower workers compensation accruals which were adjusted pursuant to an independent actuarial review. Overall staffing gross margin was $475 million for the fourth quarter, or 44.4% of staffing revenues. This compares to 43.2% of revenues in Q4 last year, and 44.1% of revenues in Q3, 2007. The fourth quarter improvement is due to the higher temporary and consulting gross margins just noted.

Fourth quarter gross margin for Protiviti was $49 million, or 32.2% of Protiviti revenues. This compares to 38.8% of revenues in Q4, 2006, and 30.2% of revenues in the third quarter of 2007. The fourth quarter sequential increase is due primarily to higher utilization rates, both in the United States and abroad.

Turning to selling general and administrative costs, staffing SG&A costs for the fourth quarter were $354 million, or 33.1% of staffing revenues. This compares to 32.3% of revenues for the fourth quarter of last year, and 33.0% of revenues for the third quarter of 2007. The year-over-year increase relates primarily to higher staff compensation costs. We ended the year with 12,100 full-time employees in our staffing divisions, up 14% from last year. Fourth quarter SG&A costs for Protiviti were $40 million, or 26.3% of revenues, this compares to $38 million or 27.4% of revenues in the third quarter of 2007. The lower SG&A percentage results from the leveraging of fixed operating cost. We ended the year with 3,300 full-time Protiviti employees, up 16% compared to last year.

Operating income from our staffing divisions was $121 million during the fourth quarter, or 11.3% of staffing revenues. Temporary and consulting divisions contributed $99 million of this amount, or 10.4% of applicable revenues. Fourth quarter operating income for our permanent placement division was $22 million, or 18.6% of applicable revenues. Operating income for Protiviti was $9 million in the fourth quarter, or 5.9% of revenues, this compares to $4 million in the third quarter of 2007, or 2.8% of revenue.

Turning to accounts receivable at the end of the fourth quarter, accounts receivable were $593 million, with implied days outstanding or DSO of 44.2 days, compared to 48.5 days at the end of the third quarter. The improvement follows the typical seasonal pattern of prior years. Now, let's turn to guidance. We saw the following business trends during the fourth quarter of the first weeks of January. On the same day sequential basis, temporary and consulting revenues were up in October, up in November, and down in December. On a same-day sequential basis, permanent placement revenues were down in October, up in November, and down in December. For the first three weeks of January, revenues from our temporary consulting businesses were up 13% compared to the same period last year.

For the first four weeks of January, revenues from our permanent placement division were also up 13%, compared to the same period last year. As we've said before, perm trends are hard to measure over such short periods of time, especially the holiday-impacted weeks in January. Taking this information into account, we offer the following first quarter guidance: revenues $1.210 billion to $1.250 billion; earnings per share, $0.44 to $0.47. As you know, these estimates are subject to the risks mentioned in today's press release, we limit our guidance to one quarter. At this time, I'll turn the call back over to Max.

Thank you, Keith. We finished the year with another solid quarter for our staffing operations and for Protiviti. Looking specifically at our staffing operations, we saw continued year-over-year and sequential growth in all lines of business, particularly accounting and finance. As Keith noted, our permanent placement operations were up 36% year-over-year, and up 7% from the third quarter. We also were pleased with Protiviti's results, particularly the sequential growth. We continue to extend our range of services for Protiviti, we believe our international footprint is largely built out, and focus now will be primarily on expanding within our existing framework.

We are certainly aware that there is been turbulence in the financial markets recently. Like you, we read the various economic reports, which have been mixed. As we've said many times before, our business afford us with limited visibility in the future business trends. Therefore, it is too early to judge what current economic trends may or may not portend. If the hiring environment becomes more cautious, as some are predicting, we do believe we are well positioned to minimize the effect of any slow downs.

The business turned 60 this year, and we have managed through 11 recessions during that time. We've emerged from each one a stronger company, we are in excellent financial condition with strong cash flow capability and an outstanding long-term track record. We have the industry's best balance sheet, a strong rate of internal growth, and what we believe are the most respected brand names in our industry. We also have an experienced field management team that has successfully managed through many economic cycles. We feel we have opportunities to grow market share, domestically and internationally. There are many businesses both in North America and abroad that have still never used a professional level temporary, and we have a chance to educate them on the benefits of using highly skilled interim professions. We are also optimistic about the opportunities for Protiviti to expand its service offerings and its reach.

At this time, Keith and I will happy to answer questions. We would ask as usual 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) Our first question comes from Andrew Steinerman with Bear Stearns. Go ahead please.

Hi, there, gentlemen. When you look at the operating margin for perm in fourth quarter, obviously, there's been some improvement, but it surely is below its potential. What's going on there? Is it just that you've hired so many people and they are not efficient yet, or you've hired so many people and it's made for kind of a larger base of business, or perhaps perm searches are taking a longer period of time?

So, Andrew, the two principal reasons that margins weren't higher are, one, our comp plants on its perm side pay on a graduated scale, and there for, later in the year they are more likely to get paid a higher pay-out. Further, the international nonU.S. perm placement operations were particularly strong, and they are not quite as profitability as we are in the United States.

Okay. And just to finish off the point, and the search trends, how long it's taking to complete a search, how is that going?

Search trends, we would say, clearly just looking at the numbers, we had a very solid fourth quarter. The start we had the first part of January, we would describe as a slow start. That said, we would remind everyone that if you look just one year ago, we also had a very slow start in January. A year ago, we had grown 43% in the fourth quarter, coming out of the gate in January, the first three or four week, we grew 15%, but for the full first quarter we grew 31%. So no question, we have another slow start coming out of the holidays. Like I said, it's not like that hasn't happened before. That said, our field people would tell you that clients are taking a little longer to make a decision, they are being a little more selective with the candidates that they are offering. That said, demand still remains very solid, it clearly hasn't fallen off a cliff, and it's nowhere near what it would feel like if a recession were imminent.

Thanks a lot. Thanks for all that color.

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

Yes. I want to ask about international growth. You said it was particularly strong in perm. Was that isolated perm or was it pretty consistent across perm and temp, as well as by region internationally?

It was consistent perm and temp. Continental Europe was the strongest, the UK was solid, but places like Germany, Belgium, France, the Netherlands, all had particularly good quarters perm and temp.

Okay. And then on Protiviti, I wanted to ask about you outlook for -- as we look out to 2008 for that business. You mentioned some forensic accounting in the quarter, as you diversify that business, I know you've expanded into restructuring and now with forensic accounting. Do you see opportunities there that are sufficient to offset the decline in Sar-Ox work that we could see growth?

Well clearly in the last few quarters, the success we've had in the nonSOX area has been masked as Sarbanes-Oxley trailed off. And the good news about the first quarter of '08 is it's the first time you anniversary the quarters where we had challenges in SOX. So with a little luck, we'll have positive year-over-year revenue growth with Protiviti in the first quarter of '08. Now keep in mind, it's still a seasonally slow quarter for Protiviti. A year ago, we were down 11% or 12% sequentially. The year before that, we were down roughly half of that, and so our hope is that this year, we won't be down as much as we were last year, and somewhere maybe in between where we are were last year, and where we were the year before. So again, still a seasonally slower period, but as we diversify away from SOX, clearly, these other businesses don't have the seasonal patterns as do internal audit and SOX. And during the quarter, we have some success with financial reinstatement, reconciliation investigations, order management, and invoicing process improvement, IT asset management. We had a couple of nice litigation support projects, application controls, particularly regarding SAP. So again, those are all very different things than SOX or pure internal audit.

Okay. Thank you very much.

Thank you. Our next question comes from Kelly Flynn with Credit Suisse. Go ahead, please.

Thanks. Question, I know you aren't economists, and I know you say that every time, but the perm was so strong this quarter, it accelerated so nicely. Do you have any insights on what was driving that, perhaps, and also what you're seeing or hearing from your clients that could diverge so blatantly from kind of what economic prognosticators are saying. Any insight there in the U.S. and Europe?

Kelly, I'm usually the one who comments that we are not macroeconomists and I purposefully did not say that this time, it's perfectly evident. Again, because we aren't of -- macroeconomists, and because we don't think we have a special insight into the economy, I'm not sure we can answer the question totally. I said in prior calls and I guess I would repeat now, that I still do think there's something of a disconnect between the problems on Wall Street and what's going on Main Street. Our typical client, as you know, is a small to midsized firm, even though we do business with a lot of larger firm. The bulk are small to midsize, and they have still had a lot of demand, as our numbers represent. And so I'm not quite sure what to make of that. We -- it doesn't feel like other downturns in the economy, but as I noted in my earlier remarks, we don't have great visibility into the future, and so we watch all these economic reports with concern. But so far -- so far so good.

And then, icing on the cake, as I talked about earlier, was how well we did internationally. And as we've said on prior calls, perm placement and management resources have a larger nonU.S. mix than the other divisions. So overall, nonU.S. is 26%, or even higher than that as it relates to management resources and perm, and clearly, those economies are doing better as we speak.

Actually, anymore qualitative color on Europe? Because, again, folks are seeming to get more concerned about Europe now. Your trend suggests something else is going on. Are you picking up any on the margin caution from clients in Europe relative to the economy?

We actually just spent last week with our top eight or 10 leaders from Europe, and to a person, they were optimistic. Clearly, we're doing better on the continent, as I said earlier, than we were in the UK, but in the UK, we're doing very well.

Great, and just the follow-up on -- you alluded to it a second ago, but can you tell us now what percentage of international is perm?

Let's see, total revenues 26% is international. As I said earlier, it's even more than that is perm and MR, but it's still less than half.

All right. Great.

So at least that brackets it for you.

Absolutely. Thanks a lot.

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

Good afternoon, and congratulations on the great results for the quarter and the year. I was wondering with regards to the gross margins on the temp site, can you give us a feel for what happened with regards to pay rates and bill rates during the quarter?

Sure. Year-over-year pay and bill rates were up about 8%, sequentially, about 2%. That's up a tick on the year-over-year basis from last quarter. So again, we would point to that as yet another indication that the labor markets, particularly as it relates to accounting finance, remain quite strong.

And they were both up about 8%?

That's correct.

Great. And then, one question I keep getting from a lot of clients, and just, there's some concern out there, obviously in terms of what's going on in the financial services vertical, can you give us any sense of quantification in terms of what your exposure is to that vertical?

Remember that on the staffing side, our typical client is a small-to-middle sized business. For that reason, our exposure to financial services is a low-single digit number. It's, frankly, a nonevent.

If you think about is, Mark, anybody with an accounting department or operation of any size is a potential client of ours.

Yes.

I think because we are the dominant player in accounting and finance, that people assume that somehow the financial services industry is a much bigger client than it is. But as Keith noted, our typical client is small-to-mid size, we don't have any one client, as we said many times, that amounts to a significant percentage of our work. As a matter of fact, they are less than 1%, less than a fraction of a percent, so I would say we are very broad based, and that's one of the things we have always liked about the business.

Does that hold true for perm as well?

I would further say, Protiviti has much more exposure to financial services as does staffing, but I'm happy to report even in Protiviti, we had both year-over-year and sequential growth in financial services. And here again, a lot of our work relates to internal audit, it relates to things they have to do due to regulatory drivers, and those aren't necessarily discretionary projects that they cut in these kinds of times. So year-over-year and sequential growth in financial services, even in Protiviti.

Fantastic. Last question. You mentioned in your prepared remarks that you're not economists, we don't know -- there's a lot of uncertainty in terms of the economic environment, but you also mentioned if we do go into a downturn that you would plan to minimize the impact of that downturn. Can you give us a feel for how you think that could play out, vis-a-vis the last down turn. My sense is that if we go into a downturn, it's not going to be as bad for you as the last one was from an earnings perspective, but I would love to hear your perspective on that.

Yes. A few comments. First of all, our people would definitely tell that you clients have been more disciplined in their hiring in this up cycle than they were in the last, and by no means have the labor markets overheated in the way they did last time. Logic would tell you, therefore, that they shouldn't follow off as much, but that said, we don't know any better than anybody else. The other thing that strikes us that's fairly different, back in 2000, 11% of our revenues came outside the U.S. Today, that number is 26%. The most cyclical part of the business is perm, and as we just described, that's even a larger portion of our business outside the U.S. than it was then. So the point is we're fairly significantly more geographically diversified today than we were in 2000. And even further, we have Protiviti today with critical mass that we were only beginning with in 2002.

Terrific, thank you.

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

Thanks. Hi, Keith. If we just sort of eyeball the revenue guidance from the earnings guidance, it looks like you are expecting margins to slip. Is that the conservatism of the perform assumption based on the first couple of weeks?

Well, so a few things, first of all, as we reported, we had a workers comp accrual adjustment pursuant to an actuary review, so you had, excuse me, a little over $0.01 per share in the quarter from that. So you take that out, so that won't repeat.

But doesn't that -- isn't that a perm --

That's a starter, that clearly doesn't, doesn't explain the whole difference.

Yes

Second of all, Protiviti seasonally is softer in the first quarter. Last year, we were down double digits at the revenue line, and even more at the operating margin in Protiviti. We expect to be down at the revenue line and operating margin line, but hopefully, not to the same degree that we were last year. And so again, less Protiviti, we've been more conservative with perm, those two things even on same revenue dollars, because there's more operating leverage in perm and Protiviti, which say you'd have less earnings. I would remind everybody that a year ago between the fourth quarter and the first quarter sequentially, we were down $0.03. The high end of our guidance we just gave versus what we reported is down the same $0.03. So it's not that unusual relative to the past.

Yes, yes. Is there one pure billing day in the first quarter relative to last year?

Relative to last year -- relative to the quarter we're just in, we have one and a half more billing days, relative to last year, it's actually 7/10 of a day which I guess rounds up to a day fewer year-over-year.

Great, and just one technical question. Do you have the quarter ended share count?

It is 157 million, the repurchases we did during the quarter, two million didn't show up in the quarter average. So you've got a two million share cushion going into the first quarter.

Great. And if I recall, you had 2.2 million maybe shares remaining on the authorization? Is that right?

No, no. That's over nine million.

I'm sorry, okay.

I believe it's 9.2 million, if I remember the number.

Okay. So that's still plenty of room on that.

That's correct.

Perfect. Great, thank you.

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

Thanks so much. You both gave a little bit of color about the financial services vertical. I was wondering if we could get anymore color on any specifically vertical that were either stronger than expected or weaker than expected.

And again, Jeff, because in staffing we are so diverse, there is certainly no vertical that screams at you positively or negatively. In the first quarter that we're coming into as we speak, tax typically drives a fair amount of demand, but again, that's a seasonal thing.

All right, and then just a couple of numbers questions for a follow-up. You mentioned the worker's comp accrual, about $0.01 per share. What was the impact on gross margins roughly in terms of basis points?

Boy, let's see. I need to convert it. It was what, 30 basis points?

Okay. That's fine. I just need a rough estimate, and what was stock-based comp in the quarter?

Stock-based comp was $1.8 million, $1.5 million, of which was temp and $300,000 which was perm

Alright. And then what tax rate are you using for your first-quarter guidance?

40%.

Alright. One more quick one, I know I should just have two. But, from a capital spending perspective, what are you budgeting for next year?

Somewhere between $80 million and $90 million. We actually spent $83 million or $84 million this year, which was less than we forecast. We've dragged our feet a little bit on the people soft upgrade, as to which modules we do, how we are going to do it, etc. So we are trying to stretch that as long as we can, but sometime we're going to have to do it, and that probably means sometime starting in 2008.

Okay. Appreciate the color. Thanks.

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

Yes. Hi. Thanks. I was wondering if you could help me understand the head count growth that you gave, I think you said you added about 1,500 staff and employees and 500 Protiviti. What locations were they? Perhaps a break out between the U.S. and international, if you could? Thanks.

We don't give that level of detail. I can certainly say that the nonU.S. growth was significantly greater than U.S. growth, which is consistent with the revenue trends. That's particularly true in Protiviti. But staffing and Protiviti, most of the head count growth came outside the U.S.

Okay. Thanks. And then kind of given the guidance, perhaps a little bit of a cautious start to January, but, or the first quarter, but as you noted, you saw things pick up last year. How are you looking at hiring trends for the quarter? And then perhaps your thoughts for the year given the macro environment as well? Thanks.

So our plan is to continue to add to staff, maybe in a little more measured way, given that there's productivity upside from the people we already have. I'd say to some degree, we're being less patient with underperformers, and that helps our overall comp ratios. We will continue to be the most aggressive outside the United States, but net-net continuing to hire, just not quite as robust a pace as we have in other quarters.

Okay. Thanks.

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

Thank you very much. I was wondering if you could come specifically on Robert Half Technology, and what areas are kind of driving the demand in the skill sets that are seeing the most demand recently? Thank you.

As we called out the prior quarter of the help desk, network support, those types of positions seem to be the most in demand. As we also talked about last quarter, we've allocated a little bit disproportionately our internal head count to technology, and so we are getting some return from that as well.

Would -- is there any difference or any way you could parse out what the exposure and demand has looked like from financial services for technology, to the extent you have data on that?

We don't have that on the top of our tongues, but here again, our technology practice is focused on middle-market clients, as is the rest of our practice. Therefore, our exposure in technology to financial services is not very large.

Right, and one last detail question. I think you mentioned that FTs were 12,100, and you gave a growth rate. Could you repeat that for me?

It was 14%.

Thank you so much.

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

Hi, guys. Good afternoon. Wondered if you could tell us what the benefit -- currency benefit was to both revenues and profits in the quarter?

Let's see -- as we said on the call., we gave the growth rates both on the reported and constant currency basis. So let me find that here. Let's see, the nominal growth was 43% year-over-year, and 13% sequentially, and on a constant currency basis, it was 27% year-on-year, and 8% sequentially. I believe for the quarter, sequentially, there was $12 million in revenues from currency.

Okay. Great. And any sense as to what the profit impact was?

It's certainly, given that we're not as profitability in the United States as we are in the states, not a significant number.

You mean internationally.

Excuse me. Yes

And then, to the Protiviti international revenue, if you just look at the trend, I guess in dollars over the last year, the growth rate was down slightly this quarter, I think, and it decelerated dramatically. Is there anything going on there? I know you said last quarter that you'd lost a couple of clients that got taken private, but is there anything else going on with the Protiviti international business? And is there any sense that might, given what you are hearing from clients about demand, ramp back up at some point in '08?

Clearly, as we talked about last quarter, we are challenged with some SOX clients that dropped off, there was a big financial services client we had where we were on the wrong side of a merger. The -- we did better this quarter than last internationally, and in Europe. We did particularly better in Asia, where we've been traditionally pretty strong, but we have got challenges in Europe, we told everybody we had challenges last quarter. I'm happy to report we did make some progress in this quarter, and we are forecasting to make further and significant progress the next two quarters. But clearly, that's impacting the nonU.S. Protiviti growth rates as you described.

Okay. And then just lastly, any update on the JSOX initiative, where that's at, how you're positioned?

We are positioned well with JSOX. I think the only semi-disappointing news from a regulatory standpoint is that there appears to be more tolerance in Japan for your outside audit firm to do some of the top SOX testing work than there was in the United States where that was viewed as being a conflict. So we -- the demand has been moderated a little bit, not significantly, in Japan for that reason alone, but for that, JSOX is rolling along and it's doing fine, and the issue in Japan is more availability of people than it is demand, quite frankly.

Thank you.

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

Thank you. Good afternoon. Just want to follow back on an earlier question about the shares outstanding at the end of the quarter. Keith, did you hear you correctly, you said two million of the three million that you bought weren't done in the quarter?

Didn't show up in the average, so when we computed average shares for the quarter, only one million of the three million we bought back actually impacted the average, so that says there's two million that we bought that haven't yet been reflected and become a cushion for this quarter we're now in.

But those two million, I'm assuming then were bought very late December?

That's correct, late in the quarter.

Okay. And have you guys bought any stock year-to-date?

We have a quiet period that starts January 1st and runs through two days from today, during which we can and don't buy.

Okay. That's -- thank you. And then I just wanted to talk a little bit on the Protiviti sequential margin improvement. You had made the comment that you guys saw strong fixed costs leverage. Based on fixed cost base you have now, can you get gross margins back to levels that we saw last year, without making anymore incremental investments, or have you scaled back some of the fixed costs there as the revenue was challenging through '07?

Well, when you say last year, that implies -- '07.

I'm sorry. I meant '06.

A resounding yes to that question. I presume you meant 2006.

That's correct.

Where we're talking 36% gross margins, and again, that's certainly possible. I have more concern about that with respect to the international impact on the total than I do whether U.S. can get back to those margins. Clearly, Protiviti has significantly more capacity from a head count standpoint, from a pyramid from a plant capacity standpoint than they have revenues, so incremental revenues ought to be significantly more profitable. And you saw some of that in this quarter. The issue we have as we spoke to earlier is that seasonally, quarters one and quarter two are usually lighter.

Yes, understood. There was very helpful. Thank you.

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

Yes. Thank you. You provided some color around what the field is telling you in the perm segment, that the sales process might be taking a little longer, and it's more selective, and you provided some color also in the technology. Can you go through the friends that you are hearing within Accountemps, Office Team and Management Resources? Is there any type of caution or is there still pretty expectations for pretty strong growth as you move throughout the quarter?

And so for Accountemps and Management Resources that are in the middle of company closing delivering books, right in the middle of individual tax season, seasonally, it's a very strong period and the expectations are that it will continue strong this quarter. And Robert Half Technology, typically a lot of those assignments naturally end with the end of the calendar year. Typically, it's somewhat challenging getting those restarted in the following calendar year. So the first quarter is never a strong quarter for Technology, at least on a sequential basis, and Office Team is typically somewhere in the middle, but generally speaking, first quarter seasonally isn't a great quarter for Office Team. But in accounting finance, be it perm or temp, if you talk to our field people, they would say a little tougher, a little harder, maybe a little slowing, but certainly hasn't fallen off a cliff, and demand remains solid.

Okay. Within international perm, which as you indicated is very strong and stronger than the U.S., can you give us an idea of what is driving that growth? Is it that you have introduced the product there fairly recently, and it's starting to take hold? Does it have to do with the supply/demand and balance of accounting and financial professionals similar to the trends in the U.S.? If you could just give us some idea of what's driving that growth so much stronger in the U.S.

We made a conscious decision 12 to 18 months ago that, to get our international margins closer to the United States, we needed more berm placement mix. And therefore, beginning about 18 months ago, we have hired internally disproportionately to perm that we have to temp. So those internal investments have paid off with the back drop of very robust economies as we've talked earlier. So the combination of the two, we've been very successful in perm outside the U.S., which clearly shows itself in the four quarter, which typically is a weaker quarter seasonally for perm, but this fourth quarter, we did quite well.

I will just add, Jim, we sent a couple of what we couple top operating people on the perm side of the business to Europe, and I think they have had an impact as well on the training and hiring and so forth. So the people overall are doing a very good job.

Okay. And just to clear it up, would you say that the -- seasonally, it was -- the strength in the U.S. surprised you as well as Europe, or international? Or was it mostly Europe and the U.S. was a little bit weaker?

U.S., I would say, was a little bit stronger than we would have expected. December held up better in the United States than it has many Decembers. But clearly, the driver was the nonU.S. perm growth.

Okay. Thank you.

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

Hi, guys. Good afternoon. Just on Protiviti, I was wondering if you can you talk a bit about the bill rates and what's happening there? And then specifically on -- again on Protiviti gross margin, you were down about 500 basis points in 2007. How hopeful are you that you'll be able to claw back some of that in '08?

The gross margin point as we just described clearly we've got more plant capacity with our current staff levels than our current level of revenues, so we are confidence that each incremental revenue dollar will add to the gross margin percentage nicely. What was the other part of his question?

It was the bill rates, what's happening in Protiviti?

Protiviti, it's a little noisier to figure out because of mix shifts, so you have got this migration away from SOX into consulting. When you bundle everything together our bill rates are up mid-single digits, in part reflecting the somewhat softening in the SOX market. But they are still up, but they are not up as dramatically as we are in staffing, principally due to the SOX impact.

Okay. And has that been -- when say up mid-single digits, has that been pretty consistent throughout the year, or has it picked up at all during the year?

It's been fairly consistent. There's nothing dramatic in there. Again, with SOX rates, with SOX revenues trending down, which they continued this quarter, you replace those larger projects, more leverage projects, with the consulting projects which has a bill rate impact.

Right. Okay. And then, Max, you mentioned in your opening remarks that the company just turned 60 and you've faced 11 recessions. We have only seen data on two of those. Is there anything that you would observe from some of the prior recessions that might be applicable to the current environment that you might care to share with us?

Well, first, just by way of information, you referred to 11, we're going all the way back to the franchisee days, and we had all the franchisee records. Obviously, we've been around since 1986, so we weren't here for all 11 of those, but we've been around for the ones you are referring to. As I said earlier, Michel, we are not macroeconomists, we don't have great visibility into the future, as you know, and so all we can tell you is that, where we sit today, it just doesn't feel like the prior recessions we've been through. That doesn't mean there isn't one coming, and we certainly see on the news reports, but frankly, the attitude and the feel, the levels of activity, and of course, the results through the last quarter, obviously, certainly don't remind us very much of prior downturns. We do have play books we've used in the past for downturns, and we realize we have to be in the nature of surgeons to watch the business very carefully, if in fact, a downturn looks like it's setting in, but you just heard Keith saying that we continue to hire, we continue to look forward to more growth.

We are very oriented operationally right now to gaining market share, because frankly, every time there's been turbulence in the past, a lot of our smaller and regional competitors run into difficulties. This is an easy business to get into and not an easy business to manage in a downturn, so we would like to take advantage of that as we feel we have in the past. So, again, other than comments in that nature, there's not a lot I can say in response to your question. We feel pretty good about where we are right now. We watch the future with cautious optimism. But again we are tuned on the markets, just like you are. While we feel good about things, as I said, we don't have great visibility, so we have to watch it carefully.

Great. Thanks very much.

Thank you.

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

Good afternoon, gentlemen. Question, following up on one of the comments earlier with regard to how your business is performed during a recession. You mentioned that perm placement is your most sensitive, but also that during the last downturn, Protiviti was really just starting to get off the ground. Should '08 prove to be a recession, what is your impression in terms of the book of business of Protiviti, and what would prove to be the most economically sensitive?

Well, the view of our Protiviti team would be, the good news is that internal audit continues, that SOX compliance doesn't go away, that more than likely clients will choose to do more of that in-house than they have done recently. Some clients will have across the board cost savings programs, for which Protiviti would be included. So on the one hand the view is the demand won't dry up, on the other hand the view is there might be some pricing pressure. Those projects that are probably most at risk would be the discretionary consulting projects, the proactive, the process reengineering, whether it's good or bad to date, we don't have a huge exposure to that. Frankly, we are trying to get more, but we don't have a large exposure to that today. So the thought is there would be some impact from a downturn, but that impact would be muted because the nature of the services that Protiviti provides for the most part, would still be required.

And to go back to some of the earlier comments about acting more like a surgeon, you've invested in this business and you've continued to hire. Is it safe to assume that should we go into a recession, you would have to cut here as well, as with your other, more traditional staffing businesses?

We would like at it market-by-market and product line-by-product line, but we wouldn't do it with our heads in the sand. Clearly, we'll look at the staffing levels, our pyramid shapes, and do what's right. But I think it's reasonable to expect if there were a significant top line impact at Protiviti, we would rethink our staffing levels to some degree.

Great. Thank you very much.

That's all we have time for today. I do want to thank everyone again for your time.

This concludes today's teleconference. A taped recording of this call will be available for replay later this evening through 8:00 PM eastern on February 5th. The dial-in number for the replay is 800-283-4641, or outside the United States, 1-402-220-0851. This conference call also will be archived in audio format in the investor's center at www.rhi.com. We appreciate your participation. Have a great day.