羅致恆富 (RHI) 2009 Q3 法說會逐字稿

Welcome to the Robert Half International conference call to discuss third quarter 2009 financial results. Our host 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 joining us today. Before we discuss our financial results for the third quarter, I want to remind those of you listening that our comments do 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 our 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 call.

Now let's review our third quarter financial results. Third quarter revenues were $726 million, down 37% from the third quarter of 2008 and down 3% from the second quarter of 2009. Income per share was $0.06 compared to $0.42 last year and compared to $0.03 in the second quarter of this year. Cash flow from operations was $67 million during the third quarter, and capital expenditures were $7 million.

We paid a cash dividend to stockholders of $0.12 per share, for a total of $18 million. We also repurchased 1.2 million shares of Robert Half stock during the third quarter at a total cost of $32 million. Approximately 7.1 million shares remain available for repurchase under our Company's Board-approved stock repurchase plan.

While the global business environment during the third quarter remained challenging, year-over-year revenue declines in our staffing operations continued to moderate and, on a sequential basis, we saw some improvement in revenues in September and early October. Our risk consulting subsidiary, Protiviti, reported an 8% sequential increase in third-quarter revenues compared to the second quarter and reported significantly improved operating results.

We remain confident that our teams are well-positioned to take advantage of a recovering economy in North America and abroad.

Now I will turn the call over to the Keith to provide additional commentary on our third quarter financial results.

Thank you, Max. As Max stated, Company-wide revenues during the third quarter were $726 million, down 37% from the prior year's third quarter. Sequentially, revenues declined 3% from the second quarter. On a constant-currency basis, these rates were negative 36% year-over-year and negative 5% sequentially. There were 64 billing days in the third quarter versus 64 billing days in the third quarter of last year, and there were 63 billing days in the second quarter of '09.

Third quarter revenues for Accountemps, our largest staffing division, were $287 million, down 34% from the third quarter of last year and down 8% sequentially. Accountemps has 368 locations worldwide and makes up 40% of Company-wide revenues.

Revenues for OfficeTeam were $134 million in the third quarter, down 36% from the third quarter of last year and down 1% sequentially. OfficeTeam was introduced in 1991. It's our high-end administrative staffing division. It has 325 locations worldwide and represents 19% of Company revenues.

Third quarter revenues for Robert Half Management Resources were $90 million, a decline of 42% from last year and a decline of 4% sequentially. This division was introduced in 1997 to place senior-level accounting and finance professionals on a project basis. Robert Half Management Resources operates in 147 locations worldwide and makes up 12% of Company-wide revenues.

Robert Half Technology, our IT staffing division, had revenues of $75 million during the third quarter, down 34% from the third quarter of last year and down 1% sequentially. Robert Half Technology was introduced in 1994. It operates 109 locations worldwide and accounts for 10% of Company revenues.

Our permanent placement division, Robert Half Finance and Accounting, had third-quarter revenues of $43 million, a decline of 60% from the third quarter of 2008 but only 1% sequentially. This business was established in 1948 and operates in 368 locations worldwide. It accounted for 6% of Company-wide revenues during the third quarter.

Third quarter revenues for our international staffing operations were $184 million, down 39% year-over-year and up 1% sequentially. On a constant-currency basis, revenues for international staffing operations were down 35% compared to the third quarter of last year and were down 5% sequentially. We have staffing operations in 110 locations in 20 countries outside the US. International staffing operations represent 29% of total staffing revenues.

Revenues for Protiviti were $97 million in the third quarter, a decline of 30% year-over-year but an increase of 8% sequentially. Protiviti, which was formed in 2002, is a global business consulting and internal audit firm providing risk, advisory and transaction services. It has 62 locations in 17 countries and accounts for 13% of total RHI revenues. Protiviti's international operations represent 29% of total Protiviti revenues.

Turning to gross margin, gross margin in our temporary and consulting staffing operations during the third quarter was $196 million or 33.5% of applicable revenues. This compares to 36.7% of revenues for the third quarter of 2008 and the same 33.5% of revenues for the second quarter of this year. Pay bill spreads and conversions in the third quarter were little changed from second-quarter levels.

Third-quarter gross margin for overall staffing operations was $239 million, or 38.1% of staffing revenues. This compares to 43.4% of revenues in the third quarter of last year and 37.9% of revenues in the second quarter of this year. Overall staffing gross margins increased slightly on a sequential basis due to a higher mix of permanent placement revenues.

Third-quarter gross margin for Protiviti was $27 million or 27.8% of Protiviti revenues. This compares to 29.2% of Protiviti revenues in the third quarter of last year and 16.5% of revenues in the second quarter of this year. Gross margins improved sequentially from this year's second quarter as staff utilization rates rose both in the United States and abroad. Protiviti's direct costs for the quarter were down $29 million versus a year ago and down $5 million sequentially, or 29% and 7%, respectively.

Staffing SG&A costs for the quarter were $223 million or 35.4% of staffing revenues. This compares to $337 million or 33.1% of revenues in the third quarter of 2008 and $227 million or 34.4% of revenues for the second quarter of this year. Staffing SG&A costs for the quarter were down $114 million versus a year ago and down $4 million sequentially, or 34% and 2%, respectively.

Third quarter SG&A costs for Protiviti were $26 million or 26.8% of revenues. This compares to $37 million or 26.4% of revenues in the third quarter of 2008 and $28 million or 31.2% of revenues for the second quarter of this year. Protiviti SG&A costs for the quarter reduced $11 million versus a year ago and $2 million versus last quarter, or 29% and 8%, respectively.

Operating income from our staffing divisions in the third quarter was $16 million, or 2.6% of staffing revenues. The temporary and consulting divisions contributed $17 million, or 2.9% of applicable revenues. Our perm placement division had an operating loss of $1 million in the third quarter.

Operating income for Protiviti was $1 million in the third quarter, a $14 million improvement from the second quarter. The improvement was the combined result of higher revenues and lower cost. US operations and non-US operations contributed equally to the improvement in operating income. Protiviti's revenue gains were achieved from internal controls reviews, corporate restructuring engagements and credit risk assessments. Cost savings of an additional $4 million are expected in the fourth quarter as compared to actual third-quarter cost for Protiviti.

Now let's look at accounts receivable. At the end of the third quarter, accounts receivable were $365 million with implied days outstanding of 45.7 days, which compares to 46 days at the end of the third quarter of last year.

Now let's move to guidance. First I'll share with you trends we saw during the third quarter and the first weeks of October. On a same-day sequential basis revenues from our temporary and consulting divisions were down in July, down in August, but up in September. Perm placement revenues were down in July, up in August and up again in September. During the first two weeks of October, revenues from our temporary and consulting businesses were down 32% compared to the same period last year. However, on a sequential basis average daily revenues in the first two weeks of October exceeded those of September, which in turn were higher than August. For the first three weeks of October, revenues from our perm placement division were down 51% compared to the same period last year, but up sequentially from the same period last quarter. We would caution, however, it's difficult to gauge perm trends over short periods of time.

We would also note that the coming fourth quarter is expected to have at least 2.5 fewer effective billing days than the third quarter due to the holidays, which may have an even larger impact this year to the extent clients continue to control their cost.

In light of these trends, we offer the following fourth-quarter guidance -- revenues, $675 million to $725 million; earnings per share, $0.01 to $0.06 per share. We limit our guidance to one quarter. The estimates we're providing on this call are subject to the risk mentioned in today's release.

Thank you, Keith. We were encouraged to note an increase from August to September and average daily revenues for our temporary and consulting divisions. And as Keith noted, average daily revenues so far in October are higher than September. Clearly, we'd like to see more strength in the labor markets. The unemployment rate in the United States did climb at 9.8% in September, and many economists expect that it will climb higher before coming down. And yet, companies can only cut so deeply before it starts to adversely affect their ability to conduct business. As the economy recovers, we anticipate opportunities to work with our clients to rebuild their teams. Outside the United States, hiring demand is already returning in some markets.

Protiviti reported sequential improvement in revenues as well as lower costs, and we were pleased with these results. Protiviti enjoys a good reputation among its consulting and internal audit clients. We believe that broader business trends will benefit both Protiviti and our staffing operations. Among these trends are regulatory efforts by countries all over the world to try and prevent the kind of recent financial crisis from ever happening again. We also anticipate that the exodus of baby boomers from the workforce may in the coming years create staffing shortages that could result in higher demand for our staffing and recruitment services.

In response to the tough economic climate, companies are trying to be as productive as they can with the fewest resources possible. At the first sign of a pickup in business, however, we believe these same companies are going to need staffing support. We have been a stable and reliable resource for our clients who need both temporary and permanent staffing expertise during difficult times, and we hope to play an even greater role as business conditions improve.

Before we take your questions, I would like to acknowledge the great work of our associates in our field offices in managing the business so well during the recession. We remain in strong financial condition. Our branch network remains substantially intact, which means we have an outstanding team in place to take advantage of opportunities to grow our business.

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

(Operator instructions) Andrew Steinerman, JP Morgan.

Obviously, Protiviti has a real shine here, and I was wondering how you couch Protiviti within your guidance. The things that drove the incremental revenue in the third quarter -- are those that type of drivers that could drive sequential growth for Protiviti in the fourth quarter, given that your overall guidance is calling for flat to down revenues sequentially?

Well, the big driver of the big increase in the third quarter just ended was more internal audit, internal controls and SOX work. That -- typically, in the fourth quarter it remains the seasonally strong although there is some thinking that, as companies mature in their ability to comply with SOX that it becomes more of a third-quarter than a fourth-quarter matter.

But the bigger point we would make about the fourth quarter is that it's a shorter quarter than the third quarter. It's a shorter by about 4% I'd say, but for the shorter quarter, our guidance clearly at the top end would show some sequential growth. We were encouraged by the September and the early October trends not only in Protiviti but in staffing. And, but for the fact that there's at least 2.5 fewer billing days, we would clearly give higher guidance at the top end.

Right. And, just to clarify, you said $4 million of cost improvement expected in the fourth quarter. So SG&A will be $4 million lower for Protiviti, fourth versus third?

Direct cost plus SG&A combined will be $4 million less.

Jeff Silber, BMO Capital Markets.

In your prepared remarks, Max, you talked about your clients or companies only being able to cut so deeply before affecting their business. Does that also apply to your business as well? Have we seen the end of the cost cutting, or will there be more?

First of all, on our clients, we talked about that last time, and my personal view has been that the typical CEO has cut quickly and deeply this time, so that I don't think there's a lot of room left to run the ship very well if they don't add staff, once there's even a slight pickup in demand.

I think, In our own case, we've cut through attrition and otherwise. We've kept our office network intact. Our revenues don't appear to require significant further cuts, and so I'd say we are in good shape. If we had to make other cuts, we have a variable cost structure. There are adjustments we could make through compensation and so forth. But I'd like to think that we are in a position where we don't need to think too much about further cuts.

Okay, that's fair, I appreciate that. Moving onto your staffing business, and not to nitpick, but in some of the areas we saw the year-over-year declines worsening a bit, or you can actually say on a sequential basis you saw business dropped a little bit. But was there anything in particular going on, specifically in Accountemps unit?

Yes. So, Jeff, if you compare Accountemps to the rest, what's a bit different -- we talked last quarter about this mortgage refinancing demand that we had. As a matter of keeping more people employed and understanding that it's lower-margin business, we had decided to take on some of that, nonetheless.

Well, during the quarter just ended, the margins got even more challenged for some of that business, and we decided to step away from it. And therefore, if you look at Accountemps' sequential performance relative to some of the others, on its face appears worse. But again, that's principally our decision that as the retail or the other part of our -- the traditional part of our business -- began to firm up and as the pricing got even more competitive in the mortgage refinance area, we throttled back from some of that.

But that was not in any of your other business units; correct?

That's correct, not to a significant degree.

Tim McHugh, William Blair & Co.

I know you said the bill pay rate spread hadn't changed significantly. I was wondering if you could just give us what bill and pay rates were. And then also, if you could comment, are you guys just finding that you are able to pass along any additional pressure on billing rates here, or would you say that, I guess, there's no incremental pricing pressure or any big change in that environment?

Well, so the pricing sequentially was down 1.1%, which was an improvement of pricing from last quarter, which was down 1.6% sequentially. So we were happy to see that improvement. Year-over-year, pricing was down 6.1%. And I'd say that the reason the pay-bill spreads were about the same is that we were able to reduce our pay rates at about the same level that, sequentially, we reduced -- our bill rates were reduced. So we were pretty much in lockstep.

Okay. And then, on the cost structure here, you mentioned Protiviti would be down. Is there any carryover effect into Q4 from some of the cost-cutting you've done already this year for the staffing cut?

There's some carryover benefit, but it's not a material amount. And as Max said, we've certainly reduced our focus on cost reduction and, particularly, capacity-related adjustments as it relates to people, etc. So I wouldn't count on the kind of cost reduction benefit in the fourth quarter you've seen in quarters past, as we begin to focus on making sure we retain as much capacity as possible, rather than keeping the cost down as much as the revenues are falling away.

Mark Marcon, Robert W. Baird.

I was wondering if you could talk a little bit -- now that it sounds like SG&A has stabilized, I'm wondering if you can talk a little bit about how much excess capacity you think you have in the system and how we should think about incremental margins, if we do have a recovery. And what are you hearing from the field and from some of your clients in terms of how you think this upturn may end up playing out from a demand perspective?

Well, so there were a lot of questions there.

I'm trying to keep it to one.

As far as what we hear from the field, clearly tone is better, job order flow is better, new starts are up, more client visits, activity levels, about any way you would measure them, are up. And therefore, our people in the field are encouraged by that.

As to the velocity of the upturn versus the past, still way too early to tell. As to incremental margins, if you look back historically it's not unusual to see 20% incremental margins in our temp business, 30% incremental margins in our perm business.

There's a lot of discussion about how our current operations relate to prior peak and whether those are realistic assumptions as we move forward. And let me make a few comments about that.

So we did $1.81 in 2007, which was the prior peak annual earnings. At that time temp margins were 10%, perm margins were 20%. Perm margins had been as high as 25% in the past. And importantly, at that time, Protiviti's margins were only 3%-3.5%. And so we're quite comfortable that those are very attainable operating margin percentages by division. And in fact I hope you would agree, when we've seen as high as 22% operating margins in Protiviti, that 3% to 4% shouldn't be a problem, and we'd be disappointed if it wasn't double-digit.

Further, I would hasten to add, if you are comparing last peak and looking or thinking through, can we get there again, we have 16 million fewer shares outstanding today than we did in 2007, which is about a 10% pop. And then further, I would say that during the course of this downturn we've actually reduced our fixed cost and administrative comp charges, so we feel like we are very well positioned to return to the kind of profitability that we've seen in the past, as measured by the prior peak. And hopefully, we could do even better.

That's terrific color, Keith. Can you give a little bit more detail with regards to the reduced fixed costs and administrative cost?

Well, on the one hand, as our leases have renewed, we might have taken less square footage. We've got better rates, kind of up and down the line as we've focused on costs. We've taken cost out from a fixed standpoint. On the administrative side we've gotten more efficient with the number of people we need from an administrative point of view. So, again, up and down the line we feel pretty good about how we are positioned. And the unknown is the velocity of the revenue increase.

And all I can say is that, given where the revenues were at the last peak, can we achieve those kind of margins? I think we are extremely well-positioned to do so. As I said, we think there's major upside in Protiviti. We think there is upside in the share count versus then, and all the reasons I just mentioned.

Andrew Fones, UBS.

I was wondering if you could give us a sense of the new order or new assignment growth, since you mentioned it, that you are seeing; and perhaps also if you could give us the average assignment plan by staffing division? That would be really helpful. Thanks.

You know, Andrew, we don't get that granular on these calls. I would just say, as I said earlier, that virtually every activity metric we capture and report is up incrementally, sequentially, starting in September, which has continued into October. And it's not just one division, it's every single division. It's not just one region, it's pretty broad spread across the country. It's not just the United States, it's also particularly in the UK, Belgium, Germany, Australia. In Protiviti, China had a particularly good quarter, and that continues.

So the tone is certainly better globally by division, by geography. Now, we are talking fairly small single-digit percentage sequential increases. But again, it's nice to see an inflection point where they are headed north rather than flat to down, which they have been lately.

No doubt. And then, if you could just give us some thoughts around offices and whether you feel satisfied with the current office count, whether you may start to look to add offices again and when that might occur?

We haven't changed our footprint much in this downturn, and I would say particularly coming out of this downturn in the early parts of an up cycle, I wouldn't see any major expansion of our footprint. Over time, incrementally, might we add some to it? But again, footprint expansion per se hasn't been a big part of our growth story.

Sara Gubins, Banc of America.

A question about temporary gross margin. I'm wondering what the direction would look like going into the fourth quarter. Typically, I believe that gross margins tend to be up in the fourth quarter on a sequential basis, and I'm wondering if you would expect that, in spite of the 2.5 day shorter number of days this year, and also just wondering what you are expecting in terms of temp gross margins into 2010, if you would expect continued pressure.

Well, a couple of things. One of the reasons why the fourth quarter has had or a couple of reasons why they have had stronger gross margins have been, A, we do a semiannual review of our workers comp accruals. For the last several years those have resulted in credits. We wouldn't expect those kind of credits to occur this fourth quarter. We haven't gotten credits now for a year or so, in part due to economic conditions.

Further, traditional fourth-quarter gross margins are a little bit higher because you've estimated your payroll taxes all year long, and you typically true up in the fourth quarter. We are typically very conservative early, which means we have a few credits left late. I'm not sure there's that much left there, either.

So the traditional reasons for Q4 temp margins being higher aren't necessarily in place; but, again, they are more accrual accounting-related than they are pay-bill spread, hard-core margin related.

As to looking out into 2010, no structural changes based on the present. To the extent we see bill rates continuing to decline, we will continue to work hard to pass those through, and lower pay rates. But again, no major structural differences.

We've certainly learned from cycles past that your unemployment [insurance] -- tax rates tend to go up in an up cycle, and we would expect that as well. But traditionally, we've been able to pass that through either to the candidate or to the client.

Okay, great. And then just a follow-up in terms of pricing. As we do get into an improving cycle to some extent, what would you expect to happen on the pricing front? Do you think that you'd be able to get it back to prior levels? And if so, how long does that typically take?

It's pure supply and demand and perception thereof. And to the extent clients view even sectors of the labor market as being tight, they will understand and they will pay up. It's purely supply and demand; we've been through several of these. And just like today, there is this perception that there are a multitude of candidates and you don't need to pay up. That can change quickly. And to the extent people have over-cut and began to add to their staff, the supply and demand equation begins to slowly to change and then turn around.

Kevin McVeigh, Credit Suisse.

Keith and Max, I wonder if you could give us your thoughts on, as the recovery takes hold, temp versus perm and if we'll see similar cycle in terms of pickup, lagged effect on the perm side. Or do you think temp will be elongated, just overall?

I guess I would observe that perm has held in there better the last few quarters than many had expected. And there's been a lot of upgrade hiring, for lack of a better term, that has maintained our perm businesses at a pretty constant level. And so I'd probably be more bullish about the timing of when perm participates than maybe has been the case in prior cycles. That said, it's early. We don't know.

But generally speaking, we think perm has held in there pretty well. As to whether temp is elongated, again, we don't know the velocity of the uptick. But we are seeing a little bit of an uptick now, and that's a good sign.

I think all I would add is that, on the perm side, we have had a marketing program for sometime in which we've been stressing to clients that they can hire people who are unusually well-qualified and who, frankly, they may not have been able to attract otherwise, in a different economy. Perhaps that's had some success to help account for the perm numbers.

But, as Keith has said, perm has done somewhat better than before. I don't think anyone knows for certain exactly where we are in the economy. There are a lot of encouraging signs right now, so we'll just have to wait and see.

That's helpful. And Keith, just one quick point on Accountemps. It sounded like in the mortgage business that pricing was a little more aggressive. Can you reconcile that to the comments on other parts of the business picking up a little bit, what drove the more aggressive pricing, if other things are picking up that enabled you to shed some of that lower-margin business?

Well, we certainly -- the pricing of our traditional business isn't near as aggressive as the pricing of the mortgage refinance business. And as we saw more volume growth, as we began to see volume growth in our traditional business, that was a factor in our deciding to step away from some of the mortgage refinancing business, which pricing got even more competitive. So there were a couple of reasons, therefore, that we decided to back away from some of the mortgage refi business.

Tobey Sommer, SunTrust.

I was wondering if you could give a little bit of color on specifically the IT segment and in terms of bill rates, pricing orders, etc. And maybe if you could just quantify in terms of the 2.5 days fewer billing sequentially -- does that equate to about the 4% sequential decline in revenue at the midpoint? Am I doing my math right there?

So the 2.5 days is on a base of 64.3 days, so it's almost exactly 4%. So you've got a 4% shorter quarter.

As to IT generally, I would say we saw some strength in tech support, whereas the last quarter we saw more relative strength in the tech development or programming side. We saw some support strength this quarter. The whole Windows 7 conversion, if and when it happens, we think, will be a good thing, particularly for our tech support business. But the tone in IT generally is a little stronger than the other parts of our business, and we would be more bullish about them as we go forward.

Gary Bisbee, Barclays Capital.

I guess the question's on Protiviti. Now that you have right-sized the business and returned to profitability and got a little bit of growth, I guess I'm trying to understand exactly what the business looks like today and what your strategy is for growing it, as it relates specifically to percent of the associates who are full-time folks versus part-time. And are you planning to grow mostly with part-time going forward, or is full-time still a substantial part of the plans for this business?

Well, Protiviti has come a long way, and we are very pleased that they were profitable again this quarter. We were, within that, very pleased that we made significant progress outside of the United States, both from a revenue and cost side, as we did in the US.

As we move forward from an operating model standpoint, it still will have a large portion of full-time fixed cost people. That said, we certainly plan to have a larger tranche of variable-cost labor, much, if not most of which, will come from our Robert Half Management Resources side. But there's no question everybody has learned the hard way through this down cycle that more variable costs are a good thing. And with cyclical top-line impacts you need a more variable cost structure. I think we are uniquely situated with our Management Resources division to provide that internally. They get that, and that's what we are going to be about as things get better at Protiviti.

It's always going to be a blend. It's never going to be all variable. It's never going to get to that degree, but clearly we can have a more variable structure than we had in this last downturn.

So is like 50-50 a reasonable target, or are you not -- ?

50-50 is too high. It's not going to be 50% variable. 80-20 -- I even hate to throw out percentages (multiple speakers). We'd like for it to be as variable as possible. That said, clients like continuity. There is methodology training, tools training. There's things you can do for your full-time people that you can't necessarily do, to the same degree, for contractors. So there's always going to be a blend. And even having, let's call it, a 20% buffer, that's 20% more than you had this time, and that's meaningful.

Sure, okay. And then just, given that it seems like we're seeing some signs of stabilization on the revenue front, does that change your appetite to consider M&A, if you can pick something off near the bottom? Or, are you still in the same place you've been?

And then, I guess the second part of that -- obviously, you could grow the international business a lot more. Is there any desire to maybe try to get closer to a 50-50 US-international balance in the near-term? Or, is that not something you're really worried about?

Well, the international-US split -- we're certainly committed to have a global footprint in Protiviti as necessary to support our global clients, and we think we've got most of those bases covered. To the extent we extend that footprint, we'll only do so when we think we can do so profitably, and not just for footprint's sake.

That said, we clearly want to grow all pieces of our business. But we don't have some top-down predetermined we want the US/non-US mix to be X. Now it's roughly 70-30. Over time, ought that to skew more toward the non-US? Probably, given where we are in those markets. But again, it's not like we are back saying, it needs to be 50-50. What it needed to be is large enough to support our global clients, is there. Everything we do beyond here is a judgment call and an opportunity call, not a necessity call.

Keith, I would add, and you can see if you agree, we are always focused at least primarily on being that we are growing organically and that we have the right approach to our own business to grow significantly as economic conditions permit. That having been said, we are always interested in meeting good people with whom we share a common vision and culture and so forth. And so, to the extent there are opportunities that present themselves, whether for Protiviti or staffing divisions, we are certainly interested in taking a look.

(Operator instructions) Jim Janesky, Stifel Nicolaus.

First question is on perm expectations, both on the top line and the profitability line for the fourth quarter. I know you've mentioned about less billing days. I don't really think about perm on a billing day basis; it's the number of orders and, you know, what you can fill. I know December has always been a wild card for you in any year, no matter what time. So what are your expectations for the fourth quarter in terms of perm? Are you assuming that companies are going to be more hesitant to hire this year, maybe pent-up demand will make them more likely to hire? And then profitability as well.

Well, for reasons you've stated, the fourth quarter is typically a harder-to-predict quarter in perm than the others. Some companies run out of hiring budget in the fourth quarter that then gets deferred into the first. The December holiday impact some years is greater than others. So there's clearly -- there's always more uncertainty, particularly for the month of December, than there is the other months.

That said, anecdotally, as we talk to our people they are pretty bullish about perm. There were no major, major concerns that perm was going to fall off a cliff in December, and therefore our guidance for perm wasn't that different than it was overall. But, that said, as you know and as we know from many, many, many years, perm can be more volatile.

And as a follow-up question, you pointed out that -- and you folks have done a great job at controlling costs, you know, removing some positions that are more or less going to be permanent as we move forward, and then have lowered your cost structure, in some cases, in some areas, permanently. We've heard that from a lot of different companies, both in service and non-service industries.

As you think through that, how do you think that can affect any trajectory of revenue recovery as we move forward?

I would say the permanent reductions are more administrative positions than revenue-producing positions. I view the revenue-producing cost as mostly variable, given our comp structures. So when I talk about permanent reductions in fixed cost and administrative cost, I wasn't talking about revenue producers. I was talking non-revenue producers.

Okay. So is your point that the more along the spectrum that the jobs you'd fill are in, quote, revenue-producing jobs, the better the growth opportunities could be? I don't want to put words in your mouth; I'm just asking.

No; I was trying to say we haven't permanently reduced our capacity to produce revenues with the cost cuts we've made this time. Clearly, we have a smaller work force today than we did two years ago but that said, we have a long history of adding to that work for on an as-needed basis, as business conditions improve. I was trying to make an admin cost point, not a direct cost point.

Keith, really, the question comes from your clients. As they make the same cost reductions, how do you think that that will affect the velocity of your recovery coming into the next cycle?

Well, I think we believe our clients have been very aggressive in cutting their costs. And even on the temp side, some of the activity metrics we talked about earlier are a larger percentage of our temp orders, as we speak, are temp-to-hire orders, which says underlying that is demand for full-time people. And therefore, I think a strong case can be made that, if anything, clients have over-cut. And therefore, when there's demand, they will need to hire.

I think the fact that Protiviti did as much internal controls and SOX work this quarter was some testament to its clients had cut its internal staff back significantly and needed help.

Okay, that makes sense, thank you.

I'm probably being redundant because I know I've said it in a couple of our calls. But I really think it's hard not to recall how panicked the typical company was as recently as six months ago. And there was a lot of firing first and asking questions later. Most CEOs I know did not wait to make cuts this time; they were very aggressive. So I repeat what I said before. I think, if anything, there's been probably cuts that were deeper than they had to be, perhaps. And as soon as there's any pick-up in demand, there will be a staffing demand.

We've been around a long time. We have a good reputation. We have a very seasoned group of managers in the field. We meet with them regularly. They're really very good. They've been through recessions before. The office network is intact.

So our game plan, of course, is going to be to grow. So we'll see how this all plays out, but we are cautiously optimistic.

Ashwin Shirvaikar, Citigroup.

I wanted to come back to Protiviti. Obviously, a very good turnaround in that business, and 4Q promises to be, I guess -- you guys talked about normal seasonal trends, so it's going to be, probably, strong. But what about beyond 4Q? If you could spend some time to talk about demand drivers beyond 4Q as the business has changed and become more international, if you could help me with that.

So let's be clear. The fourth quarter, for all our businesses, including Protiviti, because it's going to be a shorter quarter, the midpoint of our guidance would say, revenues will be down. At the top end of our guidance you need sequential growth in billings per day to offset the fewer days.

As we move into the first quarter, traditionally for Protiviti seasonally it's a weaker quarter as companies focus on their external audit and getting their financials and K's and Q's out, rather than focusing on internal audit and SOX. And it's not until mid to latter part of the following year on a seasonal basis that things pick up.

That said, clearly there's strong underlying demand for internal audit, for internal controls. We talked about restructuring, we talked about credit risk. We could talk about application controls effectiveness. We just got a really nice assignment where we went hand-in-hand with a large integrator to do a big SAP implementation. They're, the integrator, we are the controls expert. There are a lot of consulting services related to internal controls that we feel good about.

One housekeeping question, if I may, on the tax rate. Do you think it trends down to the upper 30s range, here in the next couple of quarters? Or it's going to be -- ?

No, no; we've never had a tax rate that low. It's been between 40% and 46% or so. It's higher now because your nondeductible charges and some of your non-US losses are a bigger piece of the pie, and therefore your tax rate goes up. But you shouldn't take anything down into the 30s. Again, it's mid-40s for the near-term.

I was looking at 2006 and 2007, right here, at 39.5%, 40%, that kind of --

Right, close to 40.

Jeff Silber, BMO Capital Markets.

I just wanted to clarify, on the billing days, can you give us the exact number 3Q '09, 4Q '09? I don't know if you have different numbers between staffing and Protiviti, just to help us model that, would be great.

Okay, so -- and this is going to sound real precise, so I'll explain. So for quarter three, 64.3 days; for quarter four, 61.8 days. And so what we do, we have a long history where we track effective billing days. So, as an example, we will look at on average the day before Christmas, what percentage of a full day is that, typically? The day after Christmas, what percentage of a full day is that? And we've got a long track record of those kinds of statistics.

And therefore, that's why you've got these decimal points, because we're looking back in history to say, what day does Christmas fall on, how is that going to impact the day before, the day before that, etc.? So, based on that, Q4 2.5 days shorter, which is about 4%. Protiviti is a different calculation, and Protiviti is very capacity driven. We look at how much time our people take off either due to the holidays or because they take more vacation or time off, and we look at from a capacity standpoint how many effective days of capacity do we have. And if you make those calculations for Protiviti, they lose about three days during the quarter, rather than 2.5. But that was -- I wasn't going to go there, unless you asked.

I appreciate you going there. That's actually very helpful. Thanks so much.

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

This concludes today's teleconference. A taped recording of this call will be available for replay later this evening through 8 P.M. Eastern on October 28. The dial-in number for the replay is 800-374-0934. Or, for outside the United States, country code +1-402-220-0680. (Operator instructions). This conference call will also be archived in audio format in the investor center at www.RHI.com. Thanks for your participation.