羅致恆富 (RHI) 2008 Q2 法說會逐字稿

Welcome to the Robert Half International conference call to discuss second quarter 2008 financial results. Our host for today's call are Mr. Max Messmer, Chairman and CEO of Robert Half International and Keith Waddell, Vice Chairman, President and Chief Financial Officer. Mr. Messmer, you may now begin.

Thank you. Good afternoon, and thank you for joining us today. Before we begin, I would like to remind 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 these remarks to be reasonable but they are subject to risks and uncertainties that could cause the actual results to differ materially from the forward-looking statements. Some of these risks and uncertainties are described in the press release we issued today and in our SEC filings. We assume no obligation to update the statements made in the conference call today.

Now, let's review the second quarter results. Second quarter revenues were $1.22 billion, up 7% from the second quarter of last year. Income per share was $0.48, an increase of 9% from the prior year's second quarter. Cash flow from operations was $119 million, and capital expenditures were $22 million during the second quarter. We paid a quarterly cash dividend to stockholders of $0.11 per share, for a total of $17 million. We also repurchased 3.5 million RHI shares during the quarter, at a cost of $85 million. Approximately 4.7 million shares remain available for repurchase under our board-approved stock repurchase plan. We were pleased with the business performance during the second quarter. Revenues for our staffing and operations remained at near record levels due in part to continued robust growth in our international operations. Our permanent placement operations had a particularly good quarter, with revenues and earnings reaching all-time high levels. Our return on equity was 29% for the quarter and has averaged 25% for the last five years.

Now, I'll turn the call over to Keith to provide a more detailed analysis of our second quarter financial results. We will have time for questions after our prepared remarks.

Thank you, Max. We'll look first at companywide revenues. Second quarter revenues were 1.22 billion, an increase of 7% from the second quarter of last year, and flat sequentially. There were 64 billing days in the second quarter of this year, compared with 63 billing days for both the second quarter of last year, and the first quarter of 2008. Accountemps revenues were 459 million, up 6% from the second quarter of last year, and down 3% sequentially on a same day basis. Accountemps is our largest staffing division with 373 offices worldwide. It accounts for 38% of company revenues. OfficeTeam, which is our high end administrative staffing division, had revenues of 219 million for the second quarter. This is an increase of 1% from the second quarter of last year and a decrease of 2% sequentially on a same day basis. OfficeTeam, which was introduced in 1991, has 327 locations worldwide, and represents 18% of company revenues.

Second quarter revenues for Robert Half Management Resources were 165 million, up 9% from the second quarter of 2007, and down 4% sequentially on a same day basis. This division was introduced in 1997, and places senior level accounting and finance professionals on a project basis. It has 152 locations worldwide, and makes up 13% of company revenues. Revenues for Robert Half Technology were 113 million in the second quarter, up 7%, from the second quarter of last year, and flat 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. This business operates in 114 locations worldwide, and accounts for 9% of company revenues.

Robert Half Finance & Accounting our permanent placement division, had revenues of 128 million in the second quarter, up 11% from the second quarter of 2007, and up 9% on a same day sequential basis. This business was established in 1948, and operates in 373 locations worldwide. It accounts for 10% of company-wide revenues.

Second quarter revenues for our international staffing operations were 318 million, up 36% from the second quarter of 2007, and up 6% sequentially on a same day basis. On a constant currency basis, these growth rates were 24%, compared to the second quarter of last year, and 4% sequentially. We have staffing operations in 108 locations in 18 countries outside the United States. International staffing operations represent 29% of total staffing revenues.

Protiviti revenues were 141 million in the second quarter, up 8% from one year ago, and down 1% sequentially. Formed in 2002, Protiviti is a global consulting and internal audit firm composed of experts in risk and advisory services. It has 61 locations in 16 countries, and accounts for 12% of total RHI revenues. Protiviti's international operations represent 31% of total Protiviti revenues.

Now, let's review gross margins. Second quarter gross margin in our temporary and consulting staffing operations was 349 million, or 36.5% of applicable revenues. This compares with 37.1% of revenues for the second quarter of last year, and 36.7% of revenues for the first quarter of 2008. The small percentage decline is due primarily to lower conversion revenues. Overall staffing gross margin was 477 million for the second quarter, or 44% of staffing revenues. This compares to 44.2% of revenues in Q2 2007, and 43.5% of revenues in Q1 2008. The higher mix of permanent placement revenues offset the slight sequential decline in temporary and consulting gross margins just mentioned. Second quarter gross margin for Protiviti was 40 million, or 28% of Protiviti revenues. This compares to 32.3% of revenues in Q2 2007, and 28.2% of revenues for the first quarter of 2008. The year-over-year margin decline is due to the higher mix of non-US revenues, and investments in staff during the past year to drive the expansion of Protiviti's solutions practices.

Turning to selling, general and administrative costs, staffing SG&A costs for the second quarter were 355 million, or 32.8% of staffing revenues. This compares to 33% of revenues for the second quarter of 2007, and 32.7% of revenues for the first quarter of 2008. SG&A costs as a percentage of revenue declined this quarter for both our permanent placement and temporary and consulting divisions. Second quarter SG&A costs for Protiviti were 38 million, or 27.1% of revenues. These costs were 1.3 million lower than the first quarter of 2008, when the percentage of revenues was 27.8%.

Looking at operating income, operating income from our staffing divisions was 122 million during the second quarter, or 11.3% of staffing revenues. Temporary and consulting divisions contributed 97 million of this amount, or 10.1% of applicable revenues. Second quarter operating income for our permanent placement division was 25 million, or 19.9% of applicable revenues.

Overall staffing operating margins at the 11.3% level are among the highest we've reported in the last nine years. This quarter benefited not only from strong permanent placement revenues but also sequentially lower SG&A percentages in both our permanent placement and temporary and consulting divisions. Operating income for Protiviti was 1.3 million in the second quarter, or 0.9% of revenues. This compares to 0.5 million in the first quarter, or 0.4% of revenues. Protiviti increased its operating income modestly during the quarter, despite slightly lower revenues seasonally, through the SG&A reductions just mentioned. Turning to accounts receivable at the end of the second quarter, accounts receivable were 631 million, with implied days outstanding or DSO of 46.9 days compared to 46.8 days at the end of the second quarter a year ago.

Now let's turn to guidance. We saw the following trends during the second quarter and the first few weeks of July. On a same day sequential basis, temporary and consulting revenues were down in April, down in May, and down again in June. On a same day sequential basis, permanent placement revenues were down in April, up in May, and up again in June. During the first two weeks of July, revenues from our temporary and consulting businesses were up 1% compared to the same period last year. For the first three weeks of July, revenues from our permanent placement division were flat relative to the same period last year. As we've said many, many times before, it is very difficult to assess perm trends over such a short period of time. Taking into account these trends, we offer the following third quarter guidance. Revenues, 1.160 billion to 1.200 billion. Earnings per share, $0.42 to $0.45.

As you know, we limit our guidance to one quarter. The estimated we provided on this call are subject to the risks mentioned in today's press release. Now, I will turn the call back over to Max.

Thank you, Keith. As previously noted, we were pleased with the company's performance during the second quarter, particularly in light of economic conditions in the United States. We reported year-over-year revenue gains in both our temporary and permanent placement operations, and our permanent placement business grew sequentially as well. While this is partly a result of strong international markets, it also reflects the continued US demand we are seeing for our services. This was a record quarter for our Robert Half Finance & Accounting business. International operations are now close to 30% of our business. And during the second quarter, we saw strong staffing growth in continental Europe, the Asia-Pacific region, and Brazil. We are aware that the US economy could see continued slowing and that this could affect other countries in the future. Our team has experience managing successfully in these environments and we believe we are well positioned. As we noted on last quarter's call, our business is free of customer or industry concentrations, which does afford us some flexibility.

Our typical staffing clients are small and medium sized businesses and no single account amounts to a significant percentage of our revenue. Protiviti further enhances our suite of services. We are helping organizations solve problems in finance, operations, technology, litigation and compliance and we remain a leader in internal audit. We have demonstrated strong cash flow capability in weak and strong economies and we have what we believe is the most experienced field management team in the industry.

Demographic trends also benefit us as we have discussed before on these calls. The anticipated exodus of the baby boomer work force in the coming years places added pressure on the need for skilled workers. In addition, we believe the market for highly specialized interim workers will continue to expand globally. Complementing regular staff with highly skilled project professionals offers companies a cost effective way to bring together the specialized skills they need at precisely the times they need them most. At this time, Keith and I will be 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. Thank you.

(OPERATOR INSTRUCTIONS) We will take our first question from the site of Andrew Steinerman of JPMorgan. Go ahead, please.

Hi, gentlemen. The performance at Protiviti is couched by the slow seasonality of any second quarter. Could you give us some feeling within your kind of third quarter guidance how you expect Protiviti to do, both on kind of a revenue, but more importantly, on a margin basis?

So Andrew, you correctly surmised that the second quarter was still seasonally slow. We would expect seasonal pickup in revenues in the third quarter because of the cost reduction efforts we've accomplished during this quarter. That revenue increase will largely fall to the bottom line. So we feel good about where we are heading into the seasonally stronger second half of the year.

Right. Typically, third quarter is your strongest seasonal quarter for Protiviti, right? Sequentially?

Well, actually, the fourth quarter -- third and fourth are strong. Typically, in the third quarter, some of your revenue increase offsets staff increases, staff raises that happen July 1.

Oh, right.

Because of the cost-cutting efforts during the quarter just ended, we feel like for the most part, we've completed those increases. We still gave increases to be competitive, but those will be offset by the savings such that we should get a much better margin picture in the third quarter, assuming we get the seasonal revenue pickup we traditionally see.

Sounds good. Thanks for the clarification.

Thank you. We will take our next question from the site of Mark Marcon of Robert W Baird. Go ahead, please.

Good afternoon. And terrific job in a tough environment. I was wondering, can you talk a little bit about perm and what percentage of that is international and what sort of differences you're seeing in the perm side between the international versus the US markets?

Well, clearly, there is the tale of two cities economically between what we see in the US and what see outside the US. In the US, we saw gradual slowing, perm and temp, that occurred throughout the quarter, but the good news in the US is we were fairly aggressive in our cost-cutting efforts and notwithstanding the lower revenues, we maintained our margins. Outside the US, which is again as we spoke on prior calls, it is more perm oriented than is the case in the US, we performed quite well during the quarter. If you look at the profile of our non-US business, in orders of magnitude, it is about 40% from Europe, 25% from the UK, and 25% from Canada, and 10% from Asia-Pacific. Continental Europe did particularly well during the quarter, as did Asia-Pacific, which is smaller. The UK showed some slowing, nothing dramatic, but there was gradual slowing during the quarter in the UK, and the Canada tracked more like the US than it did Europe.

Great. And then it looked like you did just a terrific job in terms of managing the SG&A. I'm assuming that that was primarily in the US, and is that a trend that should continue, going into the third quarter?

That is primarily the US. Again, as we talked about on the last call, we said that our head count would be down at the end of the second quarter versus the first. We did not replace a lot of the attrition that we had during the quarter. Plus selectively, we made some reductions, such that our SG&A for the second quarter in the United States actually came down nicely. We will continue to monitor revenue trends in the United States, and we will adjust our costs accordingly.

Excellent. Thank you.

Thank you. We will take our next question from the site of Jeff Silber of BMO capital markets. Go ahead, please.

Thanks so much. Just wanted to shift the discussion to the perm side. You talked about the intra-quarter growth on a same day sequential basis. What do you attribute that to? Is it more of the focus internationally? Was it improved productivity? If you can give us some color on that, that would be great.

Well, over the course of the quarter, in perm, we improved sequentially in the second two months, and clearly, we've made a bigger investment from a head count standpoint, in perm relative to temp so we would expect relative strength one to the other. Further, many of the companies -- countries outside the United States, in their early years, are first perm placement only, later perm placement and Management Resources, so you've got an outsized contribution from the newer countries of perm.

You mentioned in your remarks some investments in the Protiviti solutions business. If you could give us some color on that as well. Thanks.

Right. So as Protiviti diversifies its revenue base, it needs particularly higher level people to drive those practices, so we're seeing success in things like, in consulting engagements, with controls remediation, life cycle asset management, IT security, IT privacy, business continuity, each of which needs leaders. And the point as to margin, the leaders are the top of the pyramid, and this is more expensive than the rest of the pyramid, and where as we rationalized our costs nicely in Protiviti overall, it has been more weighted to the bottom of the pyramid, because we've had to invest in leaders for these consulting practices at the top of the pyramid.

Okay. Great. If I could sneak in a quick numbers question. What was stock-based comp in the quarter?

Options was 1.1 million; restricted stock was 16.2 million.

Great. Thanks so much.

Thank you. We will take our next question from the site of Tim McHugh of William Blair & Company. Go ahead, please.

Yes, wanted to ask on Protiviti, you mentioned the cost-cutting efforts there. Was that mainly cutting out underperformers or did you -- were you more aggressive than that, or was anything else implied by the statement?

Well, there has been this ongoing rebalancing of Protiviti's resource base and Protiviti's demand base, which is skewing more and more towards these consulting services. So as we look at that rebalancing, some people fit better than others. And that's the principal driver of how we determined our head count levels.

Okay. And then the -- I know you've always given the caveat you're not economists, but as we've moved further through this cycle, I was wondering if you could give us updated thoughts just on how this compares maybe to what you're seeing in the field relative to past economic cycles.

Well, clearly so far, it has been much more gradual in the United States. We've gradually slowed now for a few quarters in the US, non-US is still growing nicely as we've talked about. But clearly, it is more gradual. So far, relative to prior downturns. When you look at our guidance for the third quarter, at the low end, we assume that our July start, which frankly was a little bit slow, continues and actually moderates even a little more for the course of the quarter. Where as on the high end, we assume we do a little bit better for the quarter than our July start. Keep in mind our July start does include the Fourth of July, and the holidays tend to make for unpredictable outcomes for the days before and after.

Tim, the only thing I would add to that is that if we are in a recession currently, it certainly is a lot different than the ones we've experienced in the past. We would have normally expected the perm business to be much more greatly impacted. We wouldn't be expecting to set new record numbers, as is the case currently.

Thank you.

Thank you. We will take our next question from the site of David Feinberg of Goldman Sachs. Go ahead, please.

Good evening. You mentioned in your earlier comments that one of the ways you're cutting costs in the US was by not replacing attrition. Perhaps you can give us some insight of what attrition rates are and if that is tracking in line with what they've been historically.

While we don't talk about attrition rates, I can tell that you in the staffing division, the head count reductions we did were in the mid single-digit percentage levels, and on the Protiviti side, it was the mid to high single-digit percentage-wise.

And that's inclusive of attrition as well as --

That's for everything. That's total head count, quarter two versus quarter one.

Okay. And then maybe a quick numbers question. You talked about cap ex in the past, 80 to 90 million, tracking a little light. Is that the right number to keep using?

It was heavier this quarter at 22 million than last, so from 16 to 22 million . So yes, we're sticking with that. The big project we have going on is the upgrade of our PeopleSoft systems which is 10 years old. But there is no new news on

And all of that spending flows through the capital line, is that right? The PeopleSoft?

That's right.

And is there a benchmark you can give us for how far along you are and how long you can expect to continue?

We dragged our feet forever. We're a third of the way, 25% of the way, something like that.

Great. Thank you very much.

Thank you. We will take our next question from the site of Brandt Sakakeeny from Deutsche Bank.

A couple of questions. First on Protiviti, would you expect with the investments that you might see a reacceleration in growth in Protiviti in the back half, or are these investments really just designed to sort of maintain flat sequential growth rates?

We certainly hope for sequential growth in the second half consistent with what we've had in the past. That would be our hope. Further, it is our hope that we have positive operating income comparisons for the first time in a long time, in the third quarter, which would be absolutely wonderful. We feel really good about the way that Protiviti management has addressed their cost structure, not only in the United States, but outside the United States as well. So we feel like we're very well positioned. We just need a little love at the revenue line, and we will -- you will see the kind of margins we're more accustomed to.

And then on the perm side, obviously on the business, there is some lag effect, as folks generated business or produce business in the second quarter, so would you sort of assume that these are peak margins for this year in perm and that they would moderate somewhat as we progress seasonally through the back half?

Well, traditionally, the second quarter is the best quarter of the year for perm. So even last year, we did a little less in the third quarter than the second sequentially. The summer months are never quite -- they're just vacations and other reasons why Europe takes August off, that it is not as strong. I don't think you should expect huge improvements in margins. That said, we're still very committed, particularly in the United States, to continuing to look at our head counts and our payroll cost investments relative to the revenues.

Okay. Great. If I could squeak one more in, just in terms of Fourth of July and Europe, obviously they don't really celebrate it, can you just give us a sense for maybe how those markets performed in July specifically, outside of the US markets that were affected by the holiday?

Well, weekly reporting outside the United States is not a science, quite frankly. And so what we gave you included those results, but there is a lag, particularly in permanent placements between when they write up their orders, when all of the paperwork makes it all the way back here. So I'm not terribly confident that we're precisely correct on a weekly basis outside the US, I mean it is in the ballpark. But we do a much better job on a monthly and obviously quarterly basis there. But again, overall, we said we were off to a bit of a slow start in the third quarter, post the Fourth of July, principally in the United States. And outside of the United States, I wouldn't read much one way or the other into the little data that we have there. I guess the reality is, as international gets larger, as a percentage of the total, we will have to start paying more attention to their weekly reporting.

That's very helpful. Thank you.

Thank you. We will take our next question from the site of Kelly Flynn of Credit Suisse. Go ahead, please.

Sorry. My headset was off. Thanks. A couple of questions. Sorry to go back to Europe, but you guys did so well in continental Europe, where as the headlines are obviously quite weak. I know you don't want to give a lot of quantitative color, but could you give more qualitative color on just kind of what you saw as the quarter progressed and are you getting any sense that the bigger slowdown is imminent? Or are you feeling like things are just business as usual? And then the second one, more simple, just on share count, what should we use for the third quarter?

The second one is easy. The 2 million shares that we bought in the second quarter didn't benefit the second quarter. It benefits the third quarter. As to Europe, first of all, understand our country mix is quite different than the continental European country mix of the other staffing firms, in that Belgium by far is our largest continental European country, seconded by Germany, and then France is number three. And so therefore, the trends in Belgium and Germany are a bit different than what you see in France. I would say generally speaking, our team in Europe, continental Europe particularly, remains very optimistic. Our guidance quite frankly hedges that a little bit, and are our efforts to attempt to be conservative. But we talked to them as late as yesterday, and they still feel pretty good about life.

Okay. Thank you very much. That was really helpful.

Thank you. We will take our next question from the site of TC Robillard of Banc of America Securities. Go ahead, please.

Great, thank you. Good afternoon, guys. Just wanted to drill down a little bit more on the SG&A leverage. I mean, clearly, very strong in the quarter. Much better than even where you were guiding. I'm just surprised, if I just quickly back into your guidance, you're looking for at least on a net profit basis, for margin contraction, sequentially, I'm just wondering, is this a revenue mix issue, which is what you're guiding to? Is this just being conservative, given some of the trends that you've been seeing and kind of what you're reading in the headlines? I'm just trying to reconcile the really strong leverage with the cost controls in the second quarter without really seeing similar types of benefits in the third quarter?

A, our attempt is to be conservative with our guidance. B, our guidance has lower sequential revenues in temp and perm. And therefore contemplates a little bit of negative SG&A leverage. And C, as we just talked about, perm traditionally, even during very strong years, is a little softer in the third quarter than the second, because of summer vacations, et cetera, which also puts a little pressure on margin. So for a combination of all of those factors, margins are -- our margin estimates are a little bit lower in the third quarter, not dramatically lower, but a little bit lower than what we just reported.

And so then as we're looking specifically on the SG&A line, as a percent of revenue then we should see that tick up a bit quarter-to-quarter?

Our guidance contemplates a small tick-up quarter-to-quarter.

Okay. Great. Thanks for the color.

Thank you. We will take our next question from the site of Andrew Fones of UBS Security. Go ahead, please.

Yes, thanks. Staffing SG&A was about flat sequentially in Q2 from Q1. It looks like you opened up about four offices in the quarter. And if I can imply from you a comment about attrition, we may have seen head count and therefore compensation followed by mid single-digits. Were those two the only offsetting impacts there to cause the flat sequential SG&A? Or was there anything else we should be aware of? And was there kind of any timing impact there that will play through into Q3? Thanks.

So the principal factor is payroll costs, which is head count, the new offices were a very slight offset to that. Clearly, there is some carry-over into third quarter benefit. We didn't have a full quarter benefit in second quarter from the reductions that we made. But our view at the moment, that becomes our little cushion for the third quarter.

Okay. Thanks. And then can you perhaps help us understand what you plans are in terms of future office opening? I see you opened just one office in the US and three internationally.

And the offices we opened internationally, one in Canada, one in Australia, one in Brazil, so we will continue to open a small number of locations outside the United States, given the market conditions in the United States, I don't think you should expect to see any significant number of new offices, at least for the near-term.

Okay. Thanks. And if I can just sneak one other in, Protiviti, I was wondering if you could give me an approximate size for the bankruptcy and restructuring group within that division? Thanks.

We don't break out the size of our practice or solutions areas. Bankruptcy and restructuring is something we're very excited about. It is something that is doing quite well, as we speak. We made a little acquisition over a year ago, as you might remember, and we're very pleased with how it is performing.

Okay. Thanks.

Thank you. We will take our next question from the site of Tobey Sommer of SunTrust Robinson Humphrey. Go ahead, please.

Thank you. I was wondering if you could comment on the relative contribution between staffing volumes, and bill rate increases in terms of the contribution to revenue growth.

So bill rates and staffing, year-over-year, are up about 8%. Sequentially, they're up 1.5%. And particularly sequentially, that is up a little less than it was last quarter. And consistent with -- you've got a somewhat slowing market in the United States.

And in terms of the volume growth on the staffing side, that would imply some lower volumes in the US in 2Q and still showing pretty resilient growth on the international side? Is there much in terms of bill rate increases that are different internationally versus the US or does that 8% kind of hold true for both domestic and international bill rates?

Well, clearly, it is more robust outside the US than inside the US and as you play through a slowing environment in the US, what happens is as you get pressured by clients on the bill rate side, you turn right around to your candidates and say, I understand I paid you $25 an hour for the last assignment, but the market changed, and this assignment, I can only pay you $24 an hour. And therefore, you protect your margins in a slowing environment with lower pay rates. Notwithstanding the fact that you have lower bill rates.

Right. Can you refresh my memory as to what the sequential change was in bill rates in 1Q? Because you did mention some deceleration in the rate of growth.

It was around 2%. I think precisely it was 1.8.

Thank you very much.

Thank you. We will take our next question from the site of Gary Bisbee of Lehman Brothers. Go ahead, please.

Hi, guys. Good afternoon. Can you tell us, did the perm business in the US, is that actually up year-over-year, or was it down in international, all of the --

Perm business was down by a single-digit percentage year-over-year.

Okay.

But there as well, we rationalized our cost structure, such that our margins were not negatively impacted.

And is that something, if that continues to be the trend, continue to trim people, as we move forward, or was this more of a one-time -- a lot of it is head count and cost reductions did in the quarter?

We will continue to look at our revenue trends. We will continue to look at our head counts. And make appropriate adjustments as we see that are appropriate. Clearly, a large portion of the decline was not replacing attrition. And so you typically have that option as a way to manage costs in this business, particularly in perm. So I would not consider it a one-time thing, but it is something we're going to monitor quarter to quarter.

Okay. And then given the continued strong cash flow, and challenges facing the industry overall, do you have any interest in increasing your appetite for M&A in a more challenging environment like this? Or do you remain pretty confident that organic is the way to go?

Well, we're always interested in very good, particularly small acquisitions where there is a new service offering, a new functional area, something that we can expand throughout our network. But as indicated by the fact that we spent virtually all of our cash flow this quarter with the combination of stock buybacks and dividends, we like buying Robert Half as an acquisition.

Okay. Are there any sort of areas that you see as real fruitful right now for pursuing a new business lines, or anything?

Well, we're always looking at the market. And we never have much to say about it until we actually do it.

Okay. All right. Thanks for the color.

Thank you. We will take our next question from the site of Jim Janesky of Stifel Nicolaus & Company. Go ahead, please.

When you consider the out-sized growth in perm internationally, Keith, can you give us an idea of what currency effect you had this quarter?

Sure. In our prepared remarks, we gave you constant currency revenue growth rates. Let me just pull that back up. So the 36% nominal growth became 24% constant currency growth year-over-year. And if my recollection is correct, that is an acceleration of the constant currency growth rate just a quarter ago.

Right. And if you take currency out, you had an acceleration of growth outside the United States?

Right.

And do you know what that was on -- what currency affected earnings per share positively? Do you have that estimate?

The earnings per share impact of currency is roughly a penny a share.

Okay. Thanks. When you look at the temp business, by segment, as we moved into the third quarter, can you just -- I know you don't give guidance by segment, but can you just give us an idea of versus the second quarter, where there might be -- where there was some changes in the temporary units that was much different, either on the positive or negative side for the temp divisions?

Seasonally, OfficeTeam is typically a little bit lighter in the third quarter versus second as there are a bunch of college grads or college students on the market during the summer. To some extent, that crowds out a little bit of your office team business, so seasonally it is typically a little softer. But frankly, there really is no seasonal trend in the third quarter that screams at you. As I said earlier, the guidance we gave on the low side assumed the slow July start continued and actually got a little bit worse. The high guidance we gave said that the slow July start was a little bit of a head fake, and that the quarter would be better than that.

Okay. And what about just specifically within perm, both US and international, if I could just ask, can you comment on the sales cycle? You did say that your folks in internationally were still pretty excited about the international business but what about sales cycle times? Have they extended at all as we move throughout the quarter?

Outside the US, no. Inside the US, probably yes. In addition, to clients being more selective, taking more time to pull the trigger, you've got the further challenge of it being tougher to dislodge a candidate from their existing position because they don't feel as frothy about the market. And so that also adds a bit to your US challenges in perm. But that said, as I said earlier, our perm business was only down a single digit number year-over-year, so particularly relative to our expectation in guidance, we did much better in the US in perm.

Okay. Thank you.

Thank you. We will take our next question from the site of Vance Edelson of Morgan Stanley. Go ahead, please.

Thanks. Just two follow-up questions on the uses of excess cash. First, on the acquisition front, are you seeing valuations for prospective companies to acquire as any more attractive now given the economic slowdown?

Well, I would say that a lot of the things that are out there are out there at a more attractive valuation. But the businesses you would be most interested in are not on the market because they know the market is depressed. And so traditionally, during downturns past, we haven't seen a huge uptick in the number of deals that we actually do. Clearly, there is a lot out there because it has to be, which isn't necessarily what we want to acquire.

Okay. That makes sense. And then also, you bought the 2 million shares during the quarter, 4.7 million shares available for repurchase now. Could you just remind us what are the prospects for renewing or accelerating the buyback, given the strong cash flow?

Just so we're clear, we bought 3.5 million shares during the quarter. I think Keith commented earlier that the impact of 2 million of those shares will be felt in this quarter, rather than the prior quarter. So we actually bought 3.5, As Keith said. As to the second part of your question, we do have confidence in our business, and therefore, we think our stock represents a good investment, and we would expect, with our board's approval, to continue buying in stock.

Okay. That's helpful. Thanks.

Thank you.

We will take our next question from the site of Michel Moran of Merrill Lynch. Go ahead, please.

Good afternoon. Keith, I was wondering if you could remind us, give us some ballpark of the breakdown of your SG&A, in terms of how you would think about it, either variable versus fixed or in terms of the key components?

Well, we've long said that over two-thirds of our SG&A are payroll costs. So that is the number one, two, and three thing to focus on. The fixed versus variable is a little tricky, Michel, because it is relative to your time horizon. In the short-term, about 75 to 80% of the compensation we pay on the temporary side is fixed. In the short-term, on the perm side, it is more 50 to 60% fixed. But given the opportunity to adjust head counts, that fixed cost becomes variable. So again, fixed versus variable is not exactly a science.

Right. Okay. And then just on that -- on the personnel question, or head count question, could you give a us little bit of an idea, if you were to benchmark your current staffing levels at the branch level, personnel per branch, if you will, relative to the low point that you reached in the downturn, in other words what would -- if things were to get really bad, in the economy, how much flexibility do you have on the head count front relative to what you accomplished in the last downturn.

Well, because our revenues are so much higher, and even with the exact same percentage impact as last time, which many dispute will happen, the head counts would still be much higher than they were at the low point. Again, as I said earlier, we're committed to try to marry our head counts to our revenue levels. And I think this past quarter, we certainly demonstrated that, so far, that's just what we're doing. But to compare to this hard, hard number, or finite number, meaning the number that we bottomed at in the last downturn, it seems a little problematic to me, given our size now relative to then.

Makes sense. I just wanted to go back to an earlier question regarding Protiviti's margins. You said if you see the seasonal uptick, you usually see in Q3 and the second half, a lot of that would fall to the bottom line. Should we think about that in terms of an improvement at the gross margin line or are you really anticipating more SG&A leverage or both?

We're hoping for both.

Okay.

In fact, in the United States, for the quarter just ended, sequentially, we reduced our direct costs and we reduced our SG&A costs, and that didn't get the full benefit of the actions that were taken.

Great. Thanks very much.

Thank you. Our final question comes from the site of Mark Marcon of Robert W Baird & Company.

A couple of follow-up questions. On the international side, there are all sorts of headlines coming out of the UK. Are you seeing any sort of slowdown at all in the UK?

Mark, we're seeing a little bit of slowing. It is nothing dramatic. Nothing alarming. Even for the quarter just ended, the growth rates we reported in the UK are nothing like the growth rates we reported on the continent. But again, as of yesterday, they said, "Are things slowing a little bit? Yes. But it is nothing alarming."

Great. And then workers comp accrual reversals, did you benefit from that at all this quarter? You typically do during the second and fourth quarters.

Well, we did have our actuarial review again, as we do twice a year and I guess I'm unhappy to report that we had a small debit this time. We've taken those accruals down twice a year for some number of years, but we have essentially kind of flattened out and we had a small debit. It wasn't huge. But we certainly didn't have a credit.

Okay. So I mean really, when we just take a look at the year-over-year change on the temp gross margin, that would be just the conversions, and maybe just a little bit of mix with Management Resources being a little bit --

Primarily conversions. As the US perm market softens a bit, it is not unusual to see conversions soften.

Great. And then on the Protiviti side, it sounds from your comments, you didn't say it directly, but during the last call, you mentioned three markets, of which two seemed like they were somewhat problematic, did you address those two markets? Is that already starting to come through?

We are addressing all of our international markets with Protiviti. We had nice traction in the UK, which grew sequentially in revenues, as well as reduced its costs. We had nice traction in France, where it had sequential revenue growth and its costs were a little lighter. In Australia, we certainly made progress with the cost side of the equation. We didn't make as much progress on the revenue side of the equation. But again, we felt pretty good about how our team addressed our issues outside of the US for the quarter, and we hope that continues into the second half of the year.

Great. And then it sounds -- I mean it looks like you were decelerating all through last year on Protiviti on the top line. And then in the first quarter, you had a pickup, and then again this -- in this quarter, again, you're staying in the high single-digits. Has the Sarb-Ox run-off, has that kind of stabilized and now maybe we're even looking forward to IFRS starting to even pick up a little bit?

Well --

I know it is early, but --

We're very pleased with the success Protiviti has had diversifying its revenue base, and I gave you examples earlier.

Yes.

As to IFRS, or some people call it "iffers", there is a lot of discussion about it in the marketplace, a lot of talk, a lot of literature. Our outside auditor sent me a book that I swear is 1,000 pages. So there is a lot of motion around it. There is not much revenue yet.

Great. Motion always comes before the revenue. Thank you.

Thank you. That's all the time we have today for questions. We appreciate your interest.

This concludes today's teleconference. A taped recording of this call will be available for replay later this evening through 8:00 p.m. Eastern on July 30. The dial-in number for the replay is 1-800-283-8217. And it is 1-402-220-0868 outside of the United States. This conference call will also be archived in audio format in the investor center at www.RHI .com. Thank you, and have a great evening.