羅致恆富 (RHI) 2011 Q1 法說會逐字稿

Hello and welcome to the Robert Half International first quarter 2011 conference call. 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. Thank you for joining us on our call this afternoon. As is our custom, 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 include words such as forecast, estimate, project, expect, believe, guidance and similar expressions. We believe these remarks to be reasonable but would remind you that they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We have described some of these risks and uncertainties in today's press release and in our SEC filings, including our 10-Ks, 10-Qs and today's 8-K. We assume no obligation to update the statements made on this call.

Now let's review our first quarter results. Revenues for the first quarter were $881 million, up 19% from the first quarter of last year. Income per share for the first quarter was $0.18, up 248% from one year ago. Cash flow from operations was $19 million in the first quarter, and capital expenditures were $15 million. We raised our quarterly cash dividend to $0.14 per share, paying a total of $20 million to stockholders during the quarter. We also repurchased 1 million RHI shares during the quarter at a cost of $30 million. Approximately 10.4 million shares remain available for repurchase under our board-approved stock repurchase plan.

We saw continued strong demand for our professional staffing services during the first quarter, particularly in our Robert Half Technology and Robert Half Finance & Accounting divisions. We also saw an improving pricing environment, indicative of further strengthening in our underlying labor market.

Now, I will turn the call over to Keith Waddell. Keith will provide a more detailed review of our first-quarter results.

Thank you, Max. Companywide revenues were $881 million in the first quarter, an increase of 19% from the first quarter of last year and an increase of 3% sequentially. There were 63 billing days in the first quarter of 2011 compared with 62 billing days in the first quarter one year ago and 62 days in the fourth quarter of 2010. There are 63 billing days in the current second quarter.

Revenues for Accountemps were $331 million. On a same-day basis, this is up 13% from a year ago and up 1% sequentially. Accountemps is our largest staffing division with 353 offices worldwide and accounts for 37% of companywide revenues.

Revenues for OfficeTeam were $176 million in the first quarter. On a same-day basis, this is an increase of 23% from the first quarter of 2010 and a decrease of 1% from the fourth quarter of last year. OfficeTeam is our high-end administrative staffing division. It was established in 1991 and represents 20% of companywide revenues. There are 317 OfficeTeam locations worldwide.

Robert Half Management Resources had first quarter revenues of $111 million. On a same-day basis, this is up 18% from last year's first quarter and up 6% sequentially. Robert Half Management Resources was introduced in 1997 and places senior-level accounting and finance professionals on a project basis. It has 154 locations worldwide and makes up 13% of companywide revenues.

Revenues for Robert Half Technology were $97 million in the first quarter. On a same-day basis, this is up 27% from the first quarter of 2010 and up 3% sequentially. Robert Half Technology was introduced in 1994 and places information technology professionals on a project and full-time basis. This business operates in 115 locations worldwide and accounts for 11% of companywide revenues.

Our permanent placement division, Robert Half Finance & Accounting, had revenues of $68 million in the first quarter. On a same-day basis this is a 37% increase from the first quarter of 2010 and an increase of 12% sequentially. Our permanent placement services were established in 1948 and are in 353 locations worldwide. This business accounts for 8% of companywide revenues.

International staffing operations had first quarter revenues of $242 million. On a same-day basis this is an increase of 25% from the first quarter of 2010 and an increase of 7% sequentially. On a constant-currency same-day basis, these growth rates were 22% versus one year ago and up 6% sequentially. We have staffing operations in 102 locations in 19 countries outside the US. International staffing operations represent 31% of total staffing revenues.

Protiviti revenues were $99 million in the first quarter, up 10% from a year ago and down 5% sequentially. Formed in 2002, Protiviti is a global business consulting and internal audit firm providing risk, advisory and transaction services. Protiviti and its member firms serve member clients through a network of 70 locations in 23 countries. Protiviti's international operations represent 28% of total Protiviti revenues.

Now let's review gross margin. First-quarter gross margin in our temporary and consulting staffing operations was $246 million, or 34.4% of applicable revenues. This compares with 33.6% of revenues for the first quarter of last year and 34.5% of revenues for the fourth quarter of 2010. Sequentially, higher pay/bill spreads substantially offset the combination of higher state unemployment rates, the absence of prior quarter workers' compensation credits, and slightly lower conversion revenues during the quarter. Year-over-year, gross margins widened with higher pay/bill spreads and higher conversion revenues more than offsetting higher state unemployment taxes.

Overall staffing gross margin was $313 million in the first quarter, or 40% of staffing revenues. This compares to 38.6% of revenues in Q1 2010 and 39.7% of revenues in Q4 2010. The mix of permanent placement revenues directly impacts overall gross margin and represents 8.6%, 7.5% and 7.9% of revenues for Q1 2011, Q1 2010 and Q4 2010, respectively.

First-quarter gross margin for Protiviti was $25 million, or 25.2% of Protiviti revenues, as compared to $18 million, or 20.6% of revenues in Q1 2010. The year-over-year improvement is the combination of higher utilization rates and more cost flexibility as a result of using more variable cost labor. Sequentially, gross margins declined from 28.8% of revenues in the fourth quarter due to seasonally lower utilization rates. However, the utilization decline was less than in years past because of the more flexible cost structure just discussed. In addition, Protiviti also saw firming of its bill rates during the quarter.

Turning to selling, general and administrative cost, staffing SG&A costs for the quarter were $267 million, or 34.2% of staffing revenues. This compares to $230 million, or 35.5% of revenues for the first quarter one year ago and $257 million, or 34.4% of revenues, for the fourth quarter of 2010. During the quarter we continued to invest in additional headcount, particularly in our Robert Half Technology division.

First-quarter SG&A costs for Protiviti were $27 million, or 26.7% of Protiviti revenues. This compares to $26 million, or 29% of revenues, for the first quarter a year ago and the same $27 million, or 25.6% of revenues, for the fourth quarter of 2010. Protiviti SG&A costs are essentially flat for all periods presented.

Operating income from our staffing divisions was $46 million during the first quarter, or 5.9% of staffing revenues. The temporary and consulting divisions contributed $38 million of this amount, or 5.3% of applicable revenues. First-quarter operating income for our permanent placement division was $8 million, or 11.6% of applicable revenues. The operating loss for Protiviti was $1.5 million in the first quarter, or 1.6% of revenues. This compares to an operating loss of $7.6 million in the first quarter a year ago, or 8.5% of revenues.

Turning to accounts receivable at the end of the first quarter, accounts receivable were $467 million, with implied days sales outstanding of 48.2 days, compared to 46.1 days at the end of the first quarter a year ago. The increase reflects the strong revenue growth at the back end of this year's first quarter.

Now, let's turn to second-quarter guidance. We saw the following trends in the first quarter and the first few weeks of April. On a same-day sequential basis, temporary and consulting revenues were down in January, up in February and up again in March. On a same-day basis, perm placement revenues were also down in January, up in February and up again in March. During the first two weeks of April, revenues from our temporary and consulting businesses were up 20% compared to the same period last year. For the first three weeks of April, revenues from our permanent placement division were up 41% compared to the same period last year. That said, we would remind you that permanent placement trends are difficult to assess over such short time periods.

Taking into account these trends, we offer the following second-quarter guidance -- revenues, $880 million to $930 million; income per share, $0.18 to $0.23. As you know, we limit our guidance to one quarter. Consistent with prior quarters, our guidance does not include any amounts for the possible settlement of outstanding legal claims. The estimates we provided on this call are subject to the risk mentioned in today's press release. Now I'll turn it back over to Max.

Thank you, Keith. During the first quarter we continued to see positive revenue trends on both a year-over-year and sequential basis in nearly all of our lines of business. This would seem consistent with past recovery patterns, in which demand for professional positions has historically recovered later in the cycle. Our permanent placement operations also had another strong quarter. From our perspective, this has been among the fastest post-downturn recoveries we have seen in our business. We feel Robert Half is well positioned to take advantage of improving economic conditions, should this trend continue. We are optimistic for several reasons. Demand for our professional services has been growing stronger for several quarters now. We hope to see wider adoption of flexible staffing models by employers -- including the use of temporary and project professionals at higher skill levels --become a legacy of the recession. We are confident in Protiviti's near- and long-term growth prospects. Protiviti's information technology practice has successfully expanded its consulting services in areas such as IT security and privacy, IT application controls and IT infrastructure management. In addition, the global financial crisis has triggered a new round of financial regulatory oversight, and Protiviti's financial services industry practice is well positioned to assist clients in complying with new reform legislation. I would add that our staffing divisions also stand to benefit from these developments as well.

Once the economy is fully on its feet, demographic trends may present growth opportunities. This includes the exodus of baby boomers from the job market and the potential labor shortages that could result. We believe confidence levels are improving among small and mid-sized companies, which represent the majority of our staffing clients. We are optimistic about the opportunities we see in technology staffing as well as the growth potential in the accounting and finance segment, where we are the recognized leaders.

At this time, Keith and I will be happy to answer questions. Please limit yourself, as usual, to one question and a single follow-up as needed. If time permits we will certainly try to return to you later in the call if you have additional questions.

(Operator instructions) Your first question comes from the line of Mark Marcon from R.W. Baird.

Congratulations on nice results. I was wondering if you could talk a little bit about what you're seeing in the technology areas. Just in terms of -- you have broadcasted that you are ramping in that area; we are clearly seeing that. Just wondering if you could characterize what inning we are in, how many people did you end up adding? It doesn't look like you added much in the way of offices sequentially. How should we think about that part of the business?

Well, Mark, as we said, we've been investing in technology now for several quarters. We are very happy with the results we are getting from that. We did add to headcount in existing branches, and we see the growth coming more from more headcount in existing branches than we do in new branches. So you don't see it in the branch count.

As far as what inning we are in, it's a big market. Technology is strong throughout. We've added a lot of recruiters to the tech development side. The programmer analysts are growing more quickly than the tech-support side because that's where we are investing the higher number of resources, but we are optimistic. We are going to continue to invest internally. We like organic growth; we think we get the highest returns from that. And we are optimistic.

Can you just discuss what you're seeing in terms of or how you are changing your go-to-market strategy just in terms of -- is the target at all different?

The target client is still a middle-market client, not a Fortune 1000 client. Might it be a little larger than what we have traditionally done in Accounting & Finance? Yes, but it's not a lot larger. And further, not only do we focus on middle-market end-users, we also focus on integrators that, in turn, focus on middle-market end users. And we are having nice success on both fronts.

Great, thank you.

Tim McHugh, William Blair & Co.

Yes, Keith, first, I wanted to ask you about the revenue guidance. Maybe if you could give us some high-level color, you mentioned exiting the quarter on a very strong rate and the April trends were very good. But the year-over-year growth rate implies a little bit of a slowdown versus the Q1 overall results. So just what you are seeing out there that results in your guidance?

Well, on the low end of the range our guidance essentially says we stayed flat in the second quarter versus what we just reported. In the high end of the range, we basically take March's growth rates, which continued into early April, and extrapolate for the full quarter. And if you adjust everything for billing days, at the high end of the range the temp year-over-year growth actually accelerates, not decelerates. Perm is a little bit less, but not significantly less. If you look at the quarter just ended, January was a pretty tough quarter, a tough month, partly for weather, partly for holidays, partly because in January it's tough getting started again. We had a tough January, but we did better in February and we did a lot better in March, and March continued into early April, and the high end of our range assumes a continuation of March and early April.

Okay, and where are you guys at in terms of the hiring plans you talked about really accelerating last quarter? Is that still a multi-quarter process that you are just starting on? Do you feel you've done most of the additional hiring you'd like to do at the start the cycle? Where do you sit right now?

We have two distinct types of hiring. One is productivity based, which says as long as your productivity statistics in a given branch are above minimum levels you can add people consistent with that. With the other, we heavy up in certain areas, and technology is the area we have been heavying up in the most. And given the success we're having in technology, given the continuing demand we see in technology, we will continue to add to headcount in addition to what productivity levels would dictate.

So should we expect a similar pace of growth in the SG&A over the next couple quarters? Is that the way to take that?

Well, clearly, we look at incremental margins every quarter, as does everyone else, and clearly, the incremental margins for the first quarter just reported are impacted by the additional hiring that we've done. We think that's a good investment, and we think the results of the last three or four quarters confirm that. So we continue to plan to invest, as I just stated. Now, might the SG&A ease off a little? Maybe, but again we are committed to technology, and we are committed to add headcount there.

Okay, thank you.

Jeff Silber, BMO Capital Markets.

Max, at the beginning of your remarks you talked about an improving pricing environment. I was wondering if you could give us a little bit more color, either by your specific segments or by geographic region.

Go ahead, Keith. Keith is getting ready to respond, so go ahead. I'll add comments at the end.

As everybody in the industry knows, we had a new state unemployment tax increase effective January 1. We were extremely pleased at our ability to essentially offset that additional cost with pricing. There's no question recruiting is becoming a more important part of the equation in getting people placed on both the perm and the temp side. For the first time in a long time we are seeing candidates get multiple offers. We are seeing candidates getting counteroffers from their existing employer when they announce they are leaving. We see temp candidates leaving the assignment mid-assignment to take full-time positions, all of which indicate a firming on the candidate side. We are seeing higher pay rates in every single division sequentially, and we are passing on those pay rates with more markup as well.

If you look at our pricing, on a sequential basis, our prices this quarter are up 3.4%, and that compares to 0.8% last quarter. Year-over-year, our prices are up 2.4%. That compares with negative 2.4% last quarter. So clearly, the candidate side of the market is firming up. We see it with all of the metrics I just talked about, and that typically is a precursor for good things to come in staffing.

Last week we had our annual awards event for our top performers from around the world, and Keith covered the details very, very well. I would just say to you that I think there has been a sea change in what's happened in the last few months in terms of attitudes. As Keith said, the market is tightening and our people have seen it, and it's a different environment. So we are pleased with the pricing, but we are not surprised based on what our troops are telling us.

That's great to hear, and just a couple of numbers questions -- I'm just wondering in terms of your second-quarter guidance what share count and tax rate is embedded there and what are you budgeting for capital spending for 2011?

Well, the share count might drift down a little bit; it won't change much. The tax rate has been drifting down. This quarter was a little less than last quarter. Next quarter ought to be the same or a little less again, not significantly different. CapEx, we said last quarter it would be 50 to 55 for the year, and we are sticking with that. We might be tracking it more toward the high end of that than the low end of that.

All right, great, I appreciate the color

Andrew Steinerman, JPMorgan.

Could you give me a sense of where you think Protiviti is in the cycle? I realize that the losses were less than expected in the first quarter, the revenues did a touch better, but do you feel like we are now looking into the second quarter with seasonal uplift, profitability, etc.?

As far as where Protiviti is in the cycle, it's hard to know. I think consulting services are generally viewed as a later cycle than staffing. That said, Protiviti has clearly seen a firming of its demand. The second quarter seasonally is typically a lot like the first, maybe a little better. So our thinking is the profitability would be the same or a little bit better, not significantly different. The U.S. did particularly well. Outside the U.S. we didn't do as well during the quarter. Japan is about 5% of Protiviti operations. Japan obviously had its issues, which impacted the quarter. But we are very pleased with Protiviti from the standpoint of it being able to effect higher bill rates similar to staffing. And, in fact the bill rates are actually a little firmer in Protiviti than they are in staffing. Protiviti is using more and more variable labor. I think, for the quarter, almost 20% of its workforce came from contractors sourced primarily through our staffing divisions, and that cost flexibility certainly helped the margin line. We have gotten more and more joint wins between Protiviti and staffing, and we are feeling good.

Okay, thank you so much, Keith.

Sara Gubins, Bank of America.

Could you talk a bit about what you expect for margins over time in the technology area that you are building up?

Because we are focused primarily on middle-market firms, the margin structure for technology isn't that different than it is for Accounting & Finance. Currently, they carry a higher SG&A load because we are adding to headcount at the SG&A line, but at the gross margin line we actually have higher than company average gross margins from technology. Not only is it not a drag, it adds slightly. And because the client focus is not Fortune 1000, we feel pretty good about what the margins can look like over time with technology.

Okay, great, and then just as a follow-up, the temporary staffing gross margins had a nice year-over-year improvement. Is that sustainable? Could we see it expand year-over-year even further than that?

Well, there are a few things going on. Our pay/bill spreads have widened to cover the state unemployment costs, but conversions have begun to come back. Keep in mind that conversions traditionally are 3% to 5% of temp revenues. They went well below 3%. They are approaching 3% again, but they are still below the traditional low end of the range. So we certainly think there's more upside there. With the temp pay/bill spread improvements we saw this quarter, we are certainly more optimistic than we were a quarter ago that we can continue to make progress with those spreads. And the tightening of the candidate market certainly bodes well in that regard.

Okay, thank you.

Kelly Flynn, Credit Suisse.

Thanks, I have questions related to gross margin then pricing -- first of all, on your Q2 guidance, Keith, sometimes you will tell us what the implied gross profit margin range is there. Can you give us that?

Our thinking is that the temp gross margins for the second quarter are the same or slightly better than the first. Again, if you look over the course of the quarter, our gross margins in March were better than they were in January. And so we have carried some of that over into our guidance for the second quarter -- not all of it, but some of it. But clearly, if anything, better.

Okay, and then where do you think your gross profit margin can get to, eventually, given your current mix of business?

I don't see mix playing a big differentiating role as we go forward. If you look at our temp margins today, which are 5%-ish, versus double digits, a couple things have to happen. You need about 300 basis points in gross margin. If you look at that 300 basis points, about half of that is in conversions. And with the firming of the full-time hiring market, you have to feel pretty good that we can get those 150 basis points back for conversions. The other 150 basis points is pay/bill spreads. And again, with the firming candidate side of the market, we feel better about that. The remaining 200 basis points is SG&A coverage, which is more of the leveraging in fixed cost, back-office cost, headquarters cost, IT cost than it is what we pay our producers. So that's how you take your temp operating margins from 5% to 10% over time.

Okay, so it sounds like, from what you're saying, it's not unreasonable to think you could get there in short order because it's not really pricing that's -- it's not only pricing that's driving it?

We think we can get there. Short order means different things to different people. We are going to get there as quickly as we can. Whether you will conclude that's short order or not, I guess time will tell.

Okay, all right, thanks a lot.

Kevin McVeigh, Macquarie Research.

Keith, I wonder if you could give us a sense of how of Management Resources and Accountemps are sourced to Protiviti now? And I guess as a percentage of their business, how much is servicing Protiviti?

I guess, without giving percentages, all we will say is that Protiviti is one of the top three clients of our staffing divisions and growing. And frankly, it should be, and we think that will just grow over time. But it's clearly very significant to staffing.

Okay, and just real quick, on the sequential guidance from the first quarter, you were thinking gross margins were going to be down about 50 to 75 basis points. Obviously, you came in a lot better than that. Where was the upside? Was it in the pricing or just where did it come in better than expected?

The pricing was clearly better than expected. We made a concerted effort. We were conservative in our estimates of how successful that would be, so clearly the difference versus our guidance is that the pricing came in stronger than we expected.

Great, thank you.

Paul Ginocchio, Deutsche Bank.

Just another question on Management Resources. I'm wondering if that business at all competes with the big four. Others have said the big four have been a little bit more difficult on pricing. Certainly, you're not seeing that. What's your take on the big four?

Clearly, MR competes to some degree with the big four. Protiviti competes more with the big four. But just as the big four are Robert Half auditors, I can tell you, when they came back to us this year for their audit fee, they expected an increase. They didn't get the increase they were hoping for, but they got an increase.

So I would say our experience would be that there's firming across the big four and there's a halo effect from that for Protiviti and for Management Resources. So our experience would be a little different than what others have said.

Great, thank you.

Jim Janesky, Avondale Partners.

When, Keith and Max, you look at the perm segment, about 11.5% operating margins -- can you give us an idea of where you are in terms of headcount investments in that segment and where you expect margins to go sequentially?

Well, the 20% margins are quite achievable in the perm side, if you look back through history. And if we are at 11% now, the question is how do you get to 20%. And while recruiter leverage is a piece of that equation, a bigger piece of the equation is leveraging your fixed back-office and management cost, you know, field management cost. Notwithstanding, perm has had a nice bounce off its bottom, the facts are it's still just over half of what the peak is. So there's a whole lot of revenue growth for perm just to get back to where it was. And with that revenue growth, there's a very large leveraging of your operating cost. And it's that leveraging that gets your perm margins from 10% or 11% to 20%.

Okay, so that's not an area where you are investing in internal headcount?

Well, it is an area where we are investing. It's an area where we are primarily investing based on productivity. We might be getting a little bit ahead of the game, but the revenue gains we are seeing in and of themselves support more hiring just from a productivity standpoint.

Sure, okay.

We are obviously optimistic. We are barely at half of our peak levels, as Keith said, and we have been growing at a pretty good pace. So I would say, as we sit here today, we feel optimistic about the permanent job business.

Okay, but when you look at overall hiring within your company that is non-productivity based, such as the example you gave in your technology segment, when do you think those investments will stop and then the hiring internally will just be productivity based?

Well, there's a side of me that hopes that's a long time out, because as long as we are adding disproportionally, that says we are continuously very optimistic about the growth prospects for that division. That said, progressively the percentage of outside investments should get smaller as the crowd you hired in the past comes up to speed. So, even if you continue to heavy-up on the hiring in tech, you ought to get some leverage on those you hired in the early phases of the heavy-ups.

Okay, thank you.

Gary Bisbee, Barclays Capital.

Within the international staffing businesses, a couple of questions -- does it have a similar midmarket focus to the U.S. business? And now that we are starting to see firming in a lot of places and better growth there, how should we think about, I don't know, a three- to five-year growth strategy internationally? Do you have aspirations and plans to open a lot more offices and really try and ramp the growth of that business at some point?

Again, we would see more growth from increasing the size of existing locations than we would from adding locations. But, that said, we will clearly be adding more locations outside the U.S. than we will inside the U.S.. As far as the profile of their typical client, I would say it's modestly larger than what we see in the United States. But it's certainly not Fortune 1000.

As to future growth, 10 years ago international was roughly 10% of staffing revenues. Now it's 31% of staffing revenues. So we certainly expect to grow at a good pace internationally.

It's just obviously very subscale relative to the scale of your business here. So I don't know if -- I'm just trying to understand if there's a plan to really accelerate that or, I guess, steady as she goes, continue to grow it; it sounds like that's how you're thinking about it now.

I guess my follow-up question is, competitively, I know you are clearly the dominant professional staffing company. Are you seeing any difference or hearing a difference from clients as Manpower and Adecco are doing their rebranding and really trying to focus in on portions of the professional business, or is it not anything at all anything you've noticed to date?

I think, logically, their professional is focused primarily on their Fortune 1000 clients, where they have a very large penetration, and not necessarily on our middle-market clients. So I think it's not mutually exclusive that you could see them grow their Fortune 1000 professional business and see us grow our middle-market professional business, and one not necessarily at the expense of the other.

Okay, thanks.

Frank Atkins, SunTrust.

I wanted to ask a question about the improvement that you've seen in the pricing environment. That seems to indicate some confidence and momentum going forward. What would be the next signs from your customers that would potentially build another layer of momentum or confidence in the cycle as we move forward?

I think you would see a further tightening on the candidate side. Clearly, the overall unemployment rate in this country is still very high, and so it's not like we've run out of candidates. But, that said, there's clearly firming for the better candidates. And we haven't seen anywhere near the kind of candidate tightness that we would see at mid-cycle or even late cycle in a recovery. But it's certainly nice to see it firming up, beginning to firm up, which has a direct impact on what we have to pay our candidates and what we can bill our clients.

Right, and we're kind of a year and a half or a little bit more into this turn. I'm wondering what your perspective is on why perm turned sequentially higher coincident with temp. That's not usually the case, so I'm wondering, now that we're several quarters into it whether -- what your explanation is for that at this stage.

Well, I guess we could quibble whether we are several quarters into it. I guess there's one point of view that we had a lower bottom in this cycle than we typically have, and we have now bounced off that bottom to what a typical bottom would be, and now we are just getting started in the cycle. So that would say we are not 18 months into recovery, but we are 18 months of expansion, or 18 months of a bounce off a bottom. But exactly where we were in a cycle is, to some degree, anybody's guess.

We have said in prior calls that one reason that bottom may have been so low is that if you just think back to the panic, which is really what it was, in late 2008, every CFO and CEO we knew was cutting first and asking questions later. So I think they actually cut way too deeply, and they've had to add back staff at a faster pace. Notwithstanding that, as Keith notes, as you could argue we are really just getting started with a normal recovery as far as the perm business goes.

But it has certainly always been the case, when the market for full-time hiring is strong, the market for temp hiring is also strong.

Thank you very much.

Dan Rutter, Paragon Investments.

I'm wondering if you could make any colorful comments perhaps regarding European pay/bill spreads, if they're any different from the U.S.

We don't typically get that granular. I would say, as we have seen firming in the U.S., they have seen at least as much firming outside of the U.S., particularly on the continent. Germany and France were quite strong during the quarter and just as strong, and frankly stronger, than what we saw in the U.S.

And in terms of your staffing plans, are you adding at a significantly different rate over there from what you are doing domestically?

If their growth rates from a productivity standpoint would support adding at a more rapid clip than we see in the states, which is happening as we speak.

So that is your intent?

Yes.

Wonderful, okay, thank you very much.

Mark Marcon, R.W. Baird.

I have a follow-up with regards to Protiviti. In terms of the trajectory for the margin, how should we think about that now that you've got more flexibility that has been built into the system? And it sounds like your office count is going to be relatively stable. Should we start getting back to what we saw in Q4 in terms of profitability levels near term? And what do you think the trajectory looks like there?

I guess, Mark, when we think of Protiviti profitability, the big three are utilization or chargeability, bill rates and leverage. In the last 12 months chargeability has improved dramatically, bill rates have improved dramatically, leverage hasn't changed much as we have kept our higher-level partners and managing directors, and more of the attrition has been at the bottom of the pyramids. So going from here, the profitability gains come more from rebuilding out the staff levels at Protiviti, were you get more leverage than you get at the M.D. level of Protiviti. But we have been very pleased, particularly this quarter, with the margins. We were actually profitable this quarter in Protiviti in the United States. But we are optimistic going forward, and the focus going forward, as I just said, would be rebuilding out the staff levels at Protiviti because we have done a fairly good job retaining the higher levels of Protiviti during the downturn.

Got it, and then can you -- do you have any speculation as to why you might be seeing some different things than some of the other people that have reported over the last couple of months? Is it just that you're going after different types of projects, your positioning is different?

Well, again, I guess we are seeing it across our Finance & Accounting segments. We are seeing it in Protiviti. We are seeing it from our big four service providers. So the outlier is what some of the other firms have reported, frankly, rather than what we are seeing consistently everywhere else.

Got it. And then, going back to perm, it sounds like we should be getting some pretty decent leverage over the near-term. It doesn't sound like you're going to be heavy in terms of the investments there, so that's going on based on productivity. Is that correct?

That's correct. Maybe we are a little ahead of productivity, not a lot. But as revenues grow in perm, you're going to leverage that fixed cost base, and your incremental margin should reflect that. So I think our incremental margins this quarter in perm were 49%, which is not a bad start.

Pretty darn good, thank you.

Paul Ginocchio, Deutsche Bank.

First, did you open nine offices for Protiviti in the first quarter? And if so, where was it located -- where were those? Was it added early or late in the quarter? And do you add those typically to existing office locations where you have the other brands, or are those separate offices?

And finally, just your favorite one on share repurchases -- what should we be thinking about when it comes to repurchases now that we are certainly in the middle part of the cycle and it's still early for you guys? When do you think you would start using up some of that strong balance sheet?

Okay, so for Protiviti offices, this was the first time we combined Protiviti-owned offices with Protiviti member firm offices to report their entire network. So Protiviti has eight member firm offices that are split between South America and the Middle East. So we don't own those, we get a royalty from them. Those are member firms; you might consider them like franchisees. It's a very typical structure within the big four world. So that's more a different way in how we communicate how large Protiviti is than any opening of new offices.

As to share repurchases, we bought 1 million shares during the past quarter at $30, and relative to my comments before, if all you think that has happened so far is we've bounced off our low bottom and that the cycle is just now getting started in earnest for, quote, later-cycle finance and accounting, that would say one thing about what we do with share repurchases as we go forward. I think history would say we participate virtually every quarter in repurchasing shares. Some quarters it's heavier than others.

Thank you.

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

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