羅致恆富 (RHI) 2009 Q1 法說會逐字稿

Welcome to the Robert Half International conference call to discuss first quarter 2009 financial 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 hello, everyone. We appreciate your being with us today. Before we begin, we want to remind you 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 such 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 the press release we issued today and in our SEC filings. We assume no obligation to update the statements made in this conference call.

Now let's review our first quarter results. Revenues in the first quarter were $823 million, down 33% from the first quarter of 2008. On a constant currency basis the decline was 29% year-over-year. Income per share was $0.06, down 87% from the first quarter of 2008. Cash flow from operations was $48 million during the first quarter with capital expenditures of $14 million. We paid a quarterly cash dividend to stockholders of $0.12 per share for a total of $18 million. During the first quarter, we also repurchased 506,000 shares at a total cost of $9 million. There are approximately 9.3 million shares available for repurchase under the Company's board approved stock repurchase plan. The labor markets in the United States and around the globe were extremely weak during the first quarter with the US unemployment rate reaching a 25-year high of 8.5% in March. Our experienced field and corporate management teams did an excellent job of aggressively managing costs in response to the challenging environment.

Robert Half International remains in solid financial condition with virtually with no debt, and we are confident in the abilities of our field management team. We also believe the Company is in a good position to grow market share as some of our competitors contract their operations. Keith will now provide you with a more detailed look at our first quarter financial results, and we'll leave time for your questions after our prepared remarks.

Thank you, Max. We'll start with Company-wide revenues . As Max noted, first quarter revenues were $823 million, a 33% decrease from the first quarter of last year. This is a decline of 17% sequentially. On a constant currency basis, these rates were negative 29% year-over-year and negative 16% sequentially. There were 62 billing days in the first quarter versus 63 billing days for the first quarter of 2008. There were 62 billing days in the fourth quarter of 2008. First quarter revenues for Accountemps are $329 million, down 30% from the first quarter of last year and down 12% sequentially. Accountemps as our largest staffing division accounts for 40% of Company revenues. There are 372 Accountemps locations world wide.

First quarter revenues for Office Team were $145 million, down 34% from the first quarter of last year and down 19% sequentially. Office Team is our high end administrative staffing division with 329 locations worldwide. This division was introduced in 1991 and represents 18% of Company revenues. Robert Half Management Resources had first quarter revenues of $114 million, down 33% from the first quarter of 2008 and down 15% sequentially. This division places senior level accounting and finance professionals on a project basis. It was introduced in 1997, has 149 locations worldwide and makes up 14% of Company revenues.

First quarter revenues for Robert Half Technology were $84 million, down 25% from the first quarter of last year and down 17% sequentially. Robert Half Technology was introduced in 1994 and places information technology professionals on a consulting and full-time basis. This business operates at 109 locations worldwide and accounts for 10% of Company revenues. Our permanent placement division, Robert Half Finance and Accounting had revenues of $50 million in the first quarter. This is a decline of 57% from the first quarter of last year and a decline of 34% sequentially. This business was established in 1948 and operates in 372 locations worldwide. It accounted for 6% of Company-wide revenues during the quarter. Our international staffing operations reported first quarter revenues of $205 million, a decline of 31% from the first quarter of 2008 and a decline of 15% sequentially. On a constant currency basis, revenues for international staffing operations were down 14% compared to the first quarter of last year and down 13% sequentially. We have staffing operations in 110 locations in 20 countries outside the US.

International staffing operations represent 28% of total staffing revenues. Protiviti had first quarter revenues of $101 million. This is down 29% from last year's first quarter and down 19% sequentially. Formed in 2002, Protiviti is a global business consulting and internal audit firm composed of experts specializing in risk, advisory and transaction services. It has 62 locations in 17 countries and accounts for 12% of total RHI revenues. Protiviti's international operations represent 30% of total Protiviti revenues.

I would now like to turn to gross margin. Gross margin in our temporary and consulting staffing operations during the first quarter was $233 million or 34.7% of applicable revenues. This compares with 36.7% of revenues for the first quarter of 2008 and 37% of revenues for the fourth quarter of 2008. The lower gross margins was the result of record low conversion revenues, modestly compressed pay bill spreads and the absence of prior quarter payroll tax and workers compensation credits. Overall staffing gross margin was $283 million for the first quarter or 39.2% of staffing revenues. This compares to 43.5% of revenues in the first quarter of last year and 42.5% of revenues in Q4 2008. Overall staffing gross margins declined more than temporary in consulting gross margins due to a lower mix of permanent placement revenues. Protiviti gross margin in the first quarter was $11 million or 10.4% of Protiviti revenues. This compares to 28.2% of Protiviti revenues in the first quarter of last year and 27.6% of revenues in the fourth quarter. The first quarter decline is due to lower staff utilization levels resulting from lower revenues as well as an $8 million charge related to staff reductions.

Turning to SG&A costs, staffing SG&A costs for the first quarter were $247 million or 34.3% of staffing revenues. This compares to $355 million or 32.7% of revenues for the first quarter of 2008 and $302 million or 34.9% of revenues for the fourth quarter of 2008. Staffing SG&A costs for the quarter were down $108 million versus one year ago and down $55 million sequentially, or 30% and 18%, respectively. Protiviti's SG&A costs were $30 million in the first quarter or 29.2% of revenues. This compares to $40 million or 27.8% of revenues for the first quarter one year ago and $33 million or 26.4% of revenues for the fourth quarter sequentially. Protiviti SG&A costs for the quarter reduced by $10 million versus one year ago and $3 million versus last quarter or 25% and 10%, respectively.

First quarter operating income from our staffing divisions was $36 million or 4.9% of staffing revenues. The temporary and consulting divisions contributed $40 million of this amount or 5.9% of applicable revenues. Our permanent placement division lost $4 million dollars in the first quarter, which was consistent with previously communicated expectations. The operating loss for Protiviti was $18.9 million in the quarter including the aforementioned $8 million charge related to staff reductions. Initiatives implemented during the first quarter by Protiviti are expected to yield $7 million in second quarter operating cost reductions and an additional $3 million in cost reductions for the third quarter for a total of $10 million per quarter. In addition, the second quarter charges related to staff reductions are not expected to be significant. Protiviti losses in the first quarter exceeded our expectations due to a greater than expected velocity of revenue declines as clients focused intently on reducing their costs. This happened around the globe including in some parts of the world, particularly Asia, that had heretofore had been less impacted. Protiviti continues to compete effectively in the marketplace, internal audit and compliance renewals remain strong, and consulting assignments are solid in the areas of supply chain, working capital management, IT audit and security and corporate restructurings. Turning to accounts receivable at the end of the first quarter, accounts receivable were $412 million with implied days outstanding or DSO of 45.5 days compared to 46.2 days at the end of last year's first quarter.

Now let's turn to guidance. We'll first share with you some of the trends we observed in our business during the first quarter and first weeks of April. On a same-day sequential basis, revenues from our temporary and consulting divisions declined each month during the quarter although revenues did flatten out during the weeks within March. With respect to permanent placement, revenues were down in January, up in February and down in March, but remained within a fairly tight range throughout the quarter. During the first two weeks of April, revenues from our temporary and consulting businesses were down 34% compared to the same period last year. For the first three weeks of April, revenues from our permanent placement division were down 69% compared to the same period last year, last year being -- having the toughest comparisons in the second quarter of the entire year 2008. As in the past, we would caution it is difficult to assess revenue trends over short periods of time. In light of these trends and continued economic uncertainty , we offer the following second quarter guidance. Revenues, $730 million to $780 million. Income per share, $0.01 to $0.06.

We limit our guidance to one quarter. As we've done for the past few quarters, we broadened our guidance EPS range to reflect the present uncertain economic conditions. The estimates we're providing on this call are subject to the risks mentioned in today's press release. Now I'll turn the call back over

Thank you, Keith. Economic and labor market conditions around the globe clearly are presenting challenges to our business operations, all of our staffing divisions have been affected by these weaker labor markets. Our permanent placement operations have historically been the most sensitive to downturns in the economy, and this recession is no different. Global economic conditions remain unsettled, but we believe we have effective assets to employ in meeting future challenges. We are market leaders in the professional disciplines we serve and we have the resources needed to strengthen our position, particularly against smaller, less established competitors. Our balance sheet is solid. We remain essentially debt free. Most important, we have an experienced field management team that has very successfully navigated through past economic downturns.

There are additional reasons for our confidence. Our staffing clients require flexibility right now in how they manage their human resources. We can provide them with skilled talent when it is needed and for as long as it is needed, increasing their efficiency and often saving them money. We feel good about Protiviti's long term prospects. Despite a difficult first quarter, Protiviti has been successful in expanding its suite of non-compliance related services, including consulting engagements that address cost controls, IT security, bankruptcy and restructuring and other solutions. The global financial crisis itself creates certain business opportunities. Government officials have gust begun to address regulatory reform of financial institutions and markets. These remediation efforts may create further demand by companies large and small for compliance assistance. We can provide experienced staff with the talent and skills necessary to help firms meet the requirements of new regulations. Other financial reform measures may offer additional sources of potential revenue. These include the proposed global conversions, international financial reporting standards and Sarbanes-Oxley compliance requirements for smaller public companies. Businesses large and small have been laying off staff and deferring hiring to people they need in an effort to reduce costs in the face of a tough recession. It is entirely possible that many have already cut too deeply and will need help at the first sign of a pickup in their businesses.

We are uniquely qualified in our specialty areas to provide quality assistance on a very rapid basis. Finally ,when the economy does eventually recover, those baby boomers who delayed retirement will start leaving the work force in greater numbers. Their exit could lead to shortages of experienced talent in the industries we serve. This demographic segment also will be a source of consulting talent for us as retirees look to supplement their retirement incomes on a part time basis. We will no doubt continue to face economic uncertainty, but we believe our strong financial and competitive position, as well as the skills experience and dedication of our employees will, as they have historically, help us emerge from this period a much stronger Company. At this time, Keith and I will be happy to respond to questions. We would ask, as usual, that you 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. Thank you.

Thank you. (Operator Instructions). And it appears our first question comes from Mark Marcon with Robert W Baird, go ahead, please.

Good afternoon. I wanted to ask about the pricing on the temp side. You mentioned that the primary reason for the contraction in the temp gross margins was essentially lower conversion rates. Could you tell us what the pay bill spreads were and in addition to that, Manpower the other day said they were seeing increased pricing pressure on the SMB side. Do you see that? And would you pursue that yourself on an active basis just in order to gain share?

Well, so first of all, the -- our bill rates for the quarter declined 2.4% year-over-year and they were down by 1.3% sequentially. Our pay rates were down just a little bit less than that, which is why I said there was some modest compression. As you referred to, the largest reason for the decline in gross margins was the conversions, which are at the lowest as a percentage of revenue we have ever experienced. Back to the pricing, it's probably the most competitive pricing environment we've ever seen. Not so much just because our competitors are trying to undercut us, but it's every company, large and small feels some sense of entitlement that because of the economic conditions, they're entitled to a price discount. So clearly, we've had clients come back to us in a way they never have before, even the smaller ones to say, hey, times are tough, it's tough out there. We need a 10%, we need a 15%, we need a price reduction for same services, for same hours, et cetera. And the higher the bill rate, i.e. management resources being higher than Accountemps, the more the concession they wanted. Same is true for Protiviti, which has our highest bill rates. Clearly, our clients were very, very, very intensely focused on cutting their costs this quarter, and that directly reflected itself in our bill rates, staffing and Protiviti. All of that said, the big issue with gross margins in the quarter was conversions.

How are you responding to those requests? Because at 2.9% decline year-over-year on the bill rates given the environment isn't overly dramatic, and it's certainly not consistent with folding to a 10% to 15%, request for a bill rate decline.

That's right. So clearly overall, we're not having to do it everywhere. And having year-over-year bill rate declines of that magnitude, frankly, is very consistent so far with downturns in the past. But your first order of protection of your margins is you pay your temporary employees less. And we've -- as we've done in previous downturns, we continue to do as well this time. We first turn to our temporary employees and say times are tough, we know we paid you X on your last assignment. The market has changed, we pay you -- we're willing to pay you X minus $1 or $2 on this coming assignment, and -- because that just reflects market reality. So clearly, you don't have the margin -- the spread impact that you do on the gross billing impact, because some of it you recapture from lower pay rates.

Mark, I would add that when a client asks for a reduction in price, you don't just roll over and agree to it. You can make them very unhappy by doing so. You stress all the reasons why you think you're entitled to the price you asked and you negotiate and so forth. So the fact that they ask for 10 or 15 doesn't mean you're going to agree with it. At the end of the day, the client wants value. You can scare them to death if your price is too low. So it is a negotiating process.

That is what I was asking. It seems like some other companies are just rolling over and feel particularly with large clients that they don't have a choice. It sounds like, particularly with the smaller companies, I would imagine you have some pretty good -- at least some avenues for negotiation.

Well, as you know from prior calls, we don't have the client concentration that some of our competitors do and so in that sense, we probably are in a stronger negotiating position, and we feel like we put a lot of effort into screening people and so forth, so we're not really planning to give it away. But it is a negotiating process.

Thank you.

And our next question comes from Andrew Steinerman from JPMorgan. Go ahead, please.

Hi, gentlemen. You talked about the severance charge, the $8 million being in Protiviti's gross margin, was that all the severance charge, it was all in Protiviti's gross margin, nothing in SG&A and nothing in perm?

So that was essentially all of Protiviti's charge. Staffing/perm had charges as well. They were less than a penny a share and therefore, it was much less material to staffing, which is why we didn't break it out. But it is just under a penny a share which a couple of million dollars, Andrew.

Right, and was the action at Protiviti enough to bring Protiviti back towards break-even, profitable? What is assumed in your second quarter guidance for Protiviti overall operating margin?

So, let's do the math together. So we lost $19 million for the quarter. $8 million of which was a charge for staff reduction costs, leaving $11 million. The actions we took during the quarter reduced our quarterly operating costs by $10 million, $7 million of which will show up in the second quarter, $3 million of which won't show up until the third quarter. And so the issue becomes what's the -- what we feel comfortable with is what we've done with the actions we've taken, and those actions were intended to get us very close to break-even at current revenue levels. Traditionally, the second quarter and the first quarter revenues at Protiviti are flattish. In this environment, whether that will be the case or not remains to be seen. We're hopeful, but again, as you know, we're in a very uncertain environment. But the point is the cost reductions that have been implement get Protiviti close to break-even at current revenue levels. If revenue levels continue to drift downward, we will continue to adjust our costs in line with that .

Right. Could you make a comment on Protiviti, Europe versus Protiviti US profitability?

Protiviti non-US profitability would be lower than US. The actions taken this quarter, more of the delayed effect happens outside of the US and particularly in Europe than is the case in the US. So whereas the expectation is Protiviti US returns to profitability much more quickly, Protiviti non-US takes some time. As you know, we had some challenges, particularly in the UK and France last year. The good news is the fourth quarter of last year, we had Protiviti non-US to the break-even point. But given the rapid decline in revenues we saw this quarter, some of which was seasonal, some of which was not, were below the break-even point outside the US, and it's going to take a quarter or two longer to get outside the US where we think we'll be in the US.

Okay Keith, that's helpful. And just one quick last thing. You said very quickly about temp being stable in March, sort of weeks being stable. Could you just repeat it and explain what you meant about those comments of stability in March as it pertains to temp?

Sure. So let's be real clear on these trends. So on a monthly basis, during the three months of the quarter, temp was successively lower each month. But if you just examine the month of March and then the first week of April thereafter, so those five weeks, those five weeks are essentially flat. If you then go to within wiser guidance, what your guidance is, remember that in accounting and finance seasonally the second quarter is typically a little lighter. You don't have 10-Ks being filed, SEC work being done, taxes being filed. So there's naturally some seasonal drifting of revenues in the second quarter versus the first, but it's just factual that for the five weeks prior to Easter, our revenues on the temp side were essentially flat. If you then turn to the perm side, it's actually a little better story ironically in that if you look at the three months during the quarter, they were essentially flat each month one to the other. We gave you precisely what the trends were, but the swings were very minor, and one could conclude that they were essentially flat for the quarter.

Right. And would you say the five weeks were essentially flat, you mean that the dollars of revenues each week, week-to-week sequentially, were essentially the same? You're not talking about year-over-year changes?

That is correct. I'm looking at the dollar of billings per day for those five weeks are essentially the same one to the other. I didn't -- I didn't try to confuse things by comparing it to the prior year.

Okay. All right. Thanks for all the help.

Our next question comes from Tim McHugh with William Blair & Company, go ahead, please.

Oh, yes, just if we could follow up on that last question. Could you talk at all about the different segments and what you saw kind of as the quarter progressed. Was the stabilization that even though it was only five weeks, any more pronounced in one area than the other?

Well, I guess we would say generally the divisions that have the highest bill rates seem to have the largest impact for reasons I described earlier. But within that, there aren't dramatic differences in the five weeks division by division. I guess the other thing I would observe a little different than the relative bill rates, office team historically, which continues this time, is a little more cyclical than accounting and finance.

Okay. And can you talk at all about the Sarbanes-Oxley registration for small companies? Are you starting to have conversations with your clients about that, and what does that opportunity look like as the year progresses here?

So we have a very disciplined joint effort where Protiviti and management resources has targeted specific companies to talk to. They're going to visiting some, they're calling others. So there is a very rigorous marketing effort, a very organized marketing effort taking place as we speak. That said, we would observe it's still early and given economic conditions, at least so far, not a lot of hard buying yet, but a lot of activity. And so we're hopeful that that will convert later in the year to hard projects, but so far, it's a lot of sales activity, but not much booked revenue.

Do you feel like you need to maintain a certain level of bench? Obviously, there is a lot of capacity right there. But is there so much capacity it is not a concern at this point?

We're not concerned about capacity. I would say the other -- the long term learning about Protiviti -- if you look at the Protiviti's revenue performance versus staffing, so far in this downturn, it is about the same. So Protiviti's revenues aren't more impacted as staffing, but Protiviti's cost structure is more fixed, and it takes longer to adjust. So if there is a long term learning from this downturn, it's Protiviti must have a more variable cost structure. And the way it is going to have a more variable cost structure is it is going to have a larger contractor component than it's historically had. So if we were to have a capacity problem, what we would do would not be to add to the bench per se, but instead, we would tap into management resources which, oh, by the way, has the highest quality talent pool it's ever had.

Okay. Thank you.

Our next question comes from Kevin McVeigh with Credit Suisse, your line is open.

Great, thank you. Keith, not trill too much on Protiviti, but I wonder if you could give us a sense of -- obviously, it sounds like a lot of the discretionary work is running off. Is the revenue in the first quarter relative to fourth quarter came down? The charge is what type of run rate are you positioned for going forward in the business? It sounds like that you'll be leveraging more management resources, but as you position the Company going forward within Protiviti.

I guess currently we have a cost structure that needs about $100 million in revenue to breakeven which is where we are. And I'd say that anecdotally our managing directors in Protiviti would say versus 60 to 90 days ago, where many clients were in panic cost reduction mode, things feel better as we stand today, but there is certainly no assurances that they're going to be better. But we've sized the cost structure for $100 million in revenue. If the view of the anecdotal evidence is that that's about what the revenues are going to be in the near term, we're fine. If the revenues continue to drift down, then we'll have to take actions accordingly, which we're committed to do.

Great. And then as you think about the buy back, obviously you scaled back the buy back in the first quarter relative to Q4. Any thoughts on that over the near term?

Well, clearly we were somewhat cautious during the quarter, given economic conditions. We -- between dividends and repurchases, we spent a good part of the cash flow we generated during the quarter. We've said every quarter we're going to participate to some degree, up and to the amount of our cash flow. Obviously, looking where the stock prices today versus where it was during the quarter, we wish we would have bought more.

Thank you.

Our next question comes from Tobey Sommer with SunTrust Robinson Humphrey. Please go ahead, please.

Thank you. I was wondering if you could comment on the trends in Europe, both in the quarter and in across the business lines? Thanks.

Well, Europe is obviously different. It was -- the growth rates, particularly on a constant currency basis, were better. We did best in Belgium, next best would have been Germany, then France. And so those are our big three in Europe. They are not as impacted as the States. We have very good teams there, as we've talked about before. But particularly, converted to dollars, the dollar performance of Europe wasn't that different than the United States.

Thanks. And could you talk a little bit about tech and what you're seeing there that's working and maybe any differences or nuances,any comments on bill rates and pay rates there?

In tech, so we did -- our tech did in the fourth quarter, tech did better than the other divisions in part because there were projects in process that clients wanted to complete, and so our tech development team had strong demand. But I guess what we found during the first quarter is as those projects ended, clients didn't reup, and further on the pricing front, because those bill rates are higher than the bill rates we find in some of the other divisions, there was more pressure on those bill rates. So some of the project demand ended, plus we got disproportionate pressure on pricing and again, disproportionate to us means more than a couple percentage points. So I think we need to put that into context.

Thanks. And you may have said this in the other Q&A earlier, but in aggregate, what was the bill rate change in the quarter so we could just aggregate volume versus price?

So year-over-year it was like 2.4%, and quarter-over-quarter, sequentially it was 1.3%, both negative.

Thank you very much.

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

Yes, hi Keith. Can you give us an idea of first within temp, how the trends were early in the quarter. Did they -- was there a panic mode despite the fact that the first quarter is a pretty decent quarter on the temp side, especially in Accountemps for seasonal reasons? And then, what types of perm revenues -- why you think maybe February was up? Was it pent-up demand from the end of the year in perm?

Well, your first question, the month of January was a fairly dramatic drop down from the month of December, and the month of December is typically a soft month anyway because of the holidays. So there's no question we felt the pain pretty early in January, the first part of the quarter, and we trended down a little bit on the temp side from there. On the perm side, I wouldn't get too hung up on whether February was a little better than January and a little worse than March. As I said earlier, frankly, it was flattish over that period of time, and I guess what we're finding is where there is perm demand, it's where clients are upgrading their staff, and we've been fairly successful proactively going to clients saying we have the best candidate pool we've ever had. So if you have had any questions about your existing staff,or you were thinking about unfilled positions, you'll never have a higher quality pool of people to choose from than you have right now. And so we were actually pretty surprised positively that perm was pretty flat throughout the quarter.

The -- I guess the other thing I'd say trend-wise, and we talked about this a bit on the last call, we're tracking pretty closely how this downturn has played out relative to the downturn in 2001, 2002. And so three quarters into the '01, '02 downturn, perm revenues cumulatively were down a little over 50% and perm revenues cumulatively three quarters into this downturn are down over 60%. So clearly, we've gotten to a lower level more quickly, but interesting to me anyway, is that in both temp and perm, when you look at the last down turn versus now, you had three quarters of either the same or accelerating declines, and then the fourth quarter, the declines began to reduce. Even at the low revenue number in our guidance, the same thing would be happening in this downturn in that the negative revenue growth rate, even at our low revenue guidance number, would be less than the negative sequential revenues we've seen for three quarters straight, both in perm and temp. So the point I'm trying to make is in the last downturn, there were three tough quarters sequentially where the negative sequential rates stayed the same or got worse, and then they just -- they started to moderate. And, again, if our revenue guidance is -- provides or ultimately turns out to be accurate, it will be this fourth sequential quarter where the negative growth rates will again start to subside.

What three -- could you remind what three quarters you were referring to in the last downturn?

Sure. Q2 '01, Q3 '01.

Okay. And as a follow-up, how do you feel about, then, the headcount that you have within perm? Are you going to pretty much operate where it is right now unless there is a change one way or the other?

We're always monitor revenue levels. We always try to match revenue levels with headcount level. Don't underestimate the impact of the variable portion of our comp plans, which is also a significant component of our cost reductions. It's not just reducing heads, it's the variable portion of our plans pays less, formulaically just because of how the plans are structured.

Okay, thank you.

And our next question comes from Gary Bisbee with Barclays Capital. Go ahead, please.

Hi, good afternoon. What -- you've talked in the past about gaining share in downturns and that being an opportunity here. Is there anything proactive that you do, or is it much more just that from your smaller competitors fall apart and by default then people come to you? What are you doing to try to do that right now?

Well, as smaller competitors go out of business, it's pretty typical that many of the candidates they had placed at clients come register with us if they haven't already. That then becomes a source of intelligence as to who their clients were. And we very proactively call those clients, because of their prior service provider is no longer in business. So it's not just a passive. Because there are fewer people standing, we benefit. We literally actively go after the very clients which we typically find out about if we didn't already, through that process.

I'd add that while there is obviously a tough recession in process, we're continuing to advertise. Not to the extent we did in the past, but we're still spending a fair amount of money advertising. We're pretty well known, and so it's pretty easy to know where to find us. I would also say that a lot of clients, maybe even particularly some of the smaller clients, worry about the stability of their staffing providers in a downturn. It can be disruptive, to put it mildly, if the firm you're working with goes out of business. I don't think anybody has any doubts that we're rock solid financially and so forth. So, again, all those things tend to favor us.

Okay. And have you seen it yet in this cycle, where some of these smaller regional players are going under? Is that something that could take a couple more orders of paying to really start happening?

I think you'd find there are a lot of smaller firms that have already gone out of business. There are many other firms closing offices, both regional firms as well as small firms and a few nationals, and a check with the local industry association in your neighborhood would probably provide you a lot more data about that. But I'd expect a lot more of that to occur as we go forward.

Okay, and then just one cleanup question. Can you tell us the total number on a pretax basis of charges was in the quarter? You said $8 million at Protiviti, and then did you say $2 million in --

Right, $10 million total, $2 million of which is staffing, $8 million of which is Protiviti.

Thank you. Our next question comes from [Paul Condrat] with BMO Capital Markets. Go ahead, please.

Great, thank you. My first question is can you give us your stock compensation for the quarter?

I believe it was $14.7 million. Let me just verify that . Excuse me, 14.-- yes, $14.7 million. It's almost all restricted stock now. The options we last issued in 2004, I believe, which means all of the amortization was gone by the end of '08. So there's only a de minimus number for options left, and it is virtually all restricted stock which vest over four

Okay. Do you expect that -- how do you expect that to look going forward, or just in the second quarter?

It will be in that same ballpark.

Okay. Thanks. And then also I just wondered about CapEx, if you could talk about how that will look in the second quarter as well?

So CapEx we said for the year would be $50 million. We would front end that to the first half of the year. We spent 13 or 14 in the first quarter, and it wouldn't surprise me to spend that or a little more in the second.

Thanks. And then my other question was with your tax rate, it looks like it was unexpectedly high from the first quarter, and I wondered if there is a reason for that or if that is going to come back down for the rest of the year?

Well so as your income goes down, unfortunately your permanent items in your tax provision become more significant, which even though the dollars aren't a big number, the effect on your rate is a big number. So I think to be safe, I would assume a 48% to 50% tax rate. Some of that's foreign losses where you can't benefit the losses in your current provision. So again to be safe, and the dollar impact isn't near as large as their percentage would lead you to believe. To be safe, use 48% or 50%.

Okay, thank you. And then one last question. With the Protiviti staff reductions, can you give us a size of that reduction in terms of headcount?

Well, I guess for competitive reasons, we don't want to say precisely. I'll just say across staffing and Protiviti, we reduced our headcount levels in double-digit percentages during the quarter. And the reason why the charges were so much higher in Protiviti is that we had to reduce the number of managing directors and directors as well, which is the top of the food chain in Protiviti, and they had larger staff reduction charges.

Okay, great. Thank you. That's all.

Our next question comes from Sara Gubins with Banc of America Securities. Go ahead, please.

Yes, this is [David Ritherlane] for Sara. Just one question on the SG&A trends that you'll be seeing next quarter. There will be some flow-through benefit from actions taken in the first quarter, but given the stability that you've seen in the last couple of weeks, are you taking additional actions? Are you planning additional actions in the second quarter on the SG&A front?

David, we're going to take some actions. We try not to get too far ahead of the revenues with our actions so that they don't become self-fulfilling. I also think as you take the revenues down, the fixed cost you get negative leverage from, and further, with the variable compensation savings being a large part of the savings so far, there's diminishing savings from that as the variable pay or bonuses get smaller to our field staff. Long story short, my guess is you're going to see 100 to 200 basis point increase in your SG&A if the revenues are at the levels we gave in our range. It's just less coverage of fixed cost, plus the bonuses are smaller and smaller, and so therefore the savings from smaller bonuses get even smaller again.

Right. And I did see that you closed about one or two offices. Are you planning further office closures or consolidations?

Yes, those were small satellite offices. Might there be a handful of smaller offices, sure. But it's not going to be a major impact. And as we talked about on the last call, the bigger impact is on early renegotiation of leases, trimming square footage where we stay in a space, trying to get rate reductions. It's -- there will be more dollar savings from those activities than in actual closing branches.

All right. Thank you very much.

And our next question comes from Vance Edelson from Morgan Stanley, your line is open.

Hi, thanks. So just following up on the last question, beyond trimming internal staff and the variable component of the comp plans that you mentioned, any other leverage you can pull? You shut a couple locations. Any other overhead moves you can take? Maybe just give us a feel.

Well, you try to across the board less travel, less meals, fewer conferences. It's pretty much every line item you look at, with the view toward, how much costs can you cut? And it's not something that's unique to this downturn, it's something we've done every time. But the large dollars are in payroll cost by leaps and bounds. Two-thirds of our SG&A are payroll costs. So the large dollars are payroll costs. You have normal attrition, you have the savings on the variable pay. You were taking more vacation time in and around holidays. There is a whole host of things. You have flex time. There is a whole host of things you do to try to keep as many people as you can while at the same time, you've got to reduce your costs.

So then is it safe to say that as the demand seems to stabilize on the temp side during that five week period that the costs, which also, to a large degree, automodulate did that, so the cost cutting slowed a little bit during that period. Is that essentially how it worked?

We certainly take a look at our headcount plan at least monthly during these times. And we clearly saw what happened there, but again, as I said earlier, we haven't declared victory for the quarter because we had five flat weeks, because seasonally, typically May and June you would drift downward somewhat because of it's accounting finance and your post busy season.

Okay, that's helpful. Thanks.

And our final question comes Ashwin Shirvaikar with Citigroup, go ahead, please.

Hi, this is [Phil Silver] on for Ashwin. Just asking about the cash flow from operations. It was relatively low compared to what you guys historically do. Was there anything unusual in the quarter? Was the severance a large cash charge in the period?

What was probably most unusual, the receivables performed beautifully. We got the cash from the receivable (inaudible). What was different is traditionally, you pay a lot of annual incentive pay in the first quarter for the year then ended. So if you look at the change in payables and accruals, we paid more in cash than we charged at earnings for timing purposes. So it's not unusual relative to first quarters in years past, but it's a little unusual relative to the other quarters, because it's a heavier variable comp month for our field staff.

Can you talk about your -- the bad debt performance in the period, too?

Bad debt performance, actually, we've been pleasantly surprised. We added some on a discretionary basis to our accruals last quarter, not this past quarter. So far, so good, and we've been pretty pleased with, A, the how our agings of receivables have held up and, B, how we haven't had to write off disproportionately so far. I think clearly one of the nice things about our receivables portfolio is that a gazillion small companies that have small balance, and for the most part, they have held up very well so far, like they have held up in the past.

And lastly, just on the acquisition front, are you guys -- has your appetite for acquisitions changed at all? Are you seeing more opportunities there?

I'm not sure our appetite has changed. We're very watchful. There is certainly some deal flow as we have talked about in the past. It needs to fill some functional void or geographic void. It needs -- we've got margin criteria that we look heavily at. But that said, there is some deal flow which we look at. We evaluate everything relative to buying Robert Half our own stock, all of which continues. We do that every quarter. I'm not sure anything has changed, but it is something we do in the ordinary course all the time.

Okay, thanks, guys.

And thank you, that's all we have time for today. We appreciate your time.

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 h April 29. The dial in number for the replay is 800-283-8217, or for outside the United States , country code plus 1-402-220 -0868. Once again, those numbers are for inside the US, 800-283-8217 or for outside the US, country code plus 1-402-220-0868. This conference call will also be archived in audio format in the investor center at www.rhi.com. Thank you for your participation. You may disconnect at any