羅致恆富 (RHI) 2011 Q2 法說會逐字稿

Hello, and welcome to the Robert Half International Second 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 good afternoon. We appreciate you joining us today.

Before we review our second quarter results I would like to remind everyone that comments made in 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've 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 conference call.

Now let's discuss the second quarter. Second-quarter revenues were $938 million, up 22% from one year ago. Second-quarter income per share, up $0.25, is triple that of the year-ago period. Cash flow from operations in the second quarter was $69 million and capital expenditures were $14 million. We paid a cash dividend of $0.14 per share to stockholders during the second quarter for a total of $20 million. We also repurchased 2 million RHI shares during the quarter, spending a total of $56 million for this purpose. Approximately 8.4 million shares remain available under our Board-approved stock repurchase plan.

This is the fifth consecutive quarter we have reported accelerating year-over-year growth rates for our consolidated revenues. We once again saw broad-based improving demand for our professional staffing services and Protiviti during the second quarter, both in North America and abroad. Our permanent placement and technology staffing divisions were particularly strong. The pricing environment also continued to improve during the quarter, which contributed to higher gross margins.

Our CFO, Keith Waddell, will now provide you with a more detailed look at second-quarter results.

Thank you, Max. As noted, Company-wide revenues were $938 million in the second quarter. This is up 22% from one year ago and up 6% sequentially. The second quarter had 63 billing days, the same as in both the prior year and the prior quarter. The current quarter has 64 billing days.

Accountemps had revenues of $345 million in the second quarter, an increase of 17% compared to the second quarter of last year, and an increase of 5% sequentially. Accountemps is our largest staffing division, with 354 offices worldwide. It accounts for 37% of Company revenues.

OfficeTeam revenues were $189 million, an increase of 25% from the second quarter of 2010, and an increase of 7% from the first quarter of this year. OfficeTeam, which was established 20 years ago, is our high-end administrative staffing division. It represents 20% of Company-wide revenues. There are 317 OfficeTeam locations worldwide.

Second-quarter revenue for Robert Half Management Resources was $113 million. This is an increase of 22% from a year ago and an increase of 2% sequentially. Robert Half Management Resources places senior-level accounting and finance professionals on a project basis. It was introduced in 1997 and has 153 locations worldwide. This division makes up 12% of Company-wide revenues.

Second-quarter revenues for Robert Half Technology were $105 million, up 29% from the second quarter of 2010 and up 9% sequentially. Robert Half Technology was introduced in 1994 and places information technology professionals on a project and full-time basis. This business operates in 114 locations worldwide, and accounts for 11% of Company-wide revenues.

Robert Half Finance & Accounting, which is our permanent placement division, had another very strong quarter. Second-quarter revenues were $81 million, a 44% increase from the second quarter of 2010, and an increase of 19% sequentially. Our permanent placement services were established in 1948 and are in 354 locations worldwide. This business accounts for 9% of Company-wide revenues.

Second-quarter revenues for our international staffing operations were $258 million. This is an increase of 37% from last year, and an increase of 6% from the first quarter. On a constant currency basis, these growth rates were 23% versus one year ago and 2% sequentially. We have staffing operations in 104 locations in 19 countries outside the U.S. International staffing operations represent 31% of total staffing revenues.

Protiviti revenues were $105 million in the second quarter, up 13% from one year ago and up 6% sequentially. Formed in 2002, Protiviti is a global business consulting and an internal audit firm providing risk, advisory and transaction services. Protiviti, including its independently owned member firms, serves clients through a network of 71 locations in 23 countries. Protiviti's international operations represent 28% of total Protiviti revenues.

Now let's review gross margin. Second-quarter gross margin in our temporary and consulting staffing operations was $263 million, or 35% of applicable revenues. This compares with 34.1% of revenues for the second quarter of last year and 34.4% of revenues for the first quarter of 2011. The year-over-year and sequential improvements are due to the combination of higher pay/bill spreads and higher conversion revenues, which were partially offset by higher state unemployment taxes. In addition, workers' compensation actuarial reviews resulted in credits of $1.3 million for both the second quarter of this year and last year.

Overall staffing gross margin was $344 million in the second quarter, or 41.3% of staffing revenues. This compares to 39.6% of revenues in Q2 2010, and 40% of revenues last quarter. The mix of permanent placement revenues directly impacts overall gross margin, and represents 9.7% of this quarter's staffing revenues, compared to 8.3% and 8.6% of revenues for Q2 2010, and Q1 2011, respectively.

Second-quarter gross margin for Protiviti was $28 million, or 26.9% of Protiviti revenues, as compared to $22 million, or 24% of Protiviti revenues in Q2 2010. Protiviti gross margin grew 26% year-over-year, and 14% sequentially, owing to higher utilization rates and firming billing rates.

Turning to SG&A costs, staffing SG&A costs for the second quarter were $284 million, or 34.1% of staffing revenues. This compares to $238 million, or 35.3% of revenues, for the second quarter one year ago, and $267 million, or 34.2% of revenues, for the first quarter of 2011. Higher SG&A costs were due primarily to increased payroll costs, including higher head counts and incentive compensation payouts. Second quarter SG&A costs for Protiviti were $27 million, or 26% of Protiviti revenues. This compares to $29 million, or 31.2% of revenues, for the second quarter a year ago and $26 million, or 26.7% of revenues, for the first quarter of 2011. The prior-year second quarter included $2.4 million in legal settlement costs which did not re-occur.

Operating income from our staffing divisions was $60 million during the second quarter, or 7.2% of staffing revenues. The temporary and consulting divisions contributed $46 million of this amount, or 6.1% of applicable revenues. Second-quarter operating income for our permanent placement division was $14 million, or 17.2% of applicable revenues. Operating income for Protiviti was $1 million in the second quarter, or 0.9% of revenues. This compares to an operating loss of $6.8 million in the second quarter one year ago.

Accounts receivable were $495 million at the end of the second quarter, with implied days outstanding of 48.1 days, compared to 45.5 days at the end of the second quarter one year ago.

Now let's turn to guidance. We saw the following trends in the second quarter and the first few weeks of July. On a same-day sequential basis, temporary and consulting revenues were up in April, up in May, up again in June. On a same-day basis, permanent placement revenues were down in April, up in May, and up again in June. During the first two weeks of July revenues from our temporary and consulting businesses were up 19% compared to the same period last year. For the first three weeks of July revenues from our permanent placement division were up 27% compared to the same period last year. That said, we'd remind you that permanent placement trends are difficult to assess over short periods of time.

Taking into account these trends, we offer the following third-quarter guidance. Revenues, $940 million to $990 million; income per share, $0.24 to $0.29. It is our policy to limit guidance to one quarter. Any estimates we provide on this call are subject to the risks mentioned in today's press release. Consistent with past quarters, our guidance does not include any amounts for the possible settlement of outstanding legal claims.

Now I'll turn the call back to Max.

Thank you, Keith. We continue to see broad-based revenue growth and improving demand within our professional staffing operations and Protiviti during the second quarter. Our permanent placement operations reported a very strong quarter, with revenues at their highest levels since the third quarter of 2008. We credit our outstanding field team for these results.

As I noted on our last conference call, this has been among the fastest post-downturn recoveries we have seen in our business. This last recession was deeper than past ones in our history, but revenues have grown faster than in periods following other downturns. Notwithstanding the disappointing jobs report for June, we saw higher demand for our professional staffing services in the United States throughout the second quarter.

Our staffing operations in Continental Europe also performed particularly well. Revenues from non-U.S. staffing operations have expanded from 11% of the staffing total in 2000 to more than 30% today.

We were pleased also to see higher demand for Protiviti's consulting and internal audit services. Demand was strongest for information technology-related services, as well as consulting solutions offered to the financial services industry. We believe one of the bright spots in the economy has been technology-related spending across companies of all sizes.

We're witnessing this in Protiviti's information technology consulting practice and in our staffing operations. We have discussed in the past our investment in hiring technology recruiters to take advantage of the demand for skilled IT workers. We are pleased with the early returns in this investment as indicated by the current quarter revenues for Robert Half Technology, which were 29% higher than one year ago and 9% higher than the first quarter of 2011.

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

Your first question comes from the line of Tim McHugh from William Blair & Company.

Yes, thanks, guys. First I wanted to ask Keith, can you give us a little more color on the bill/pay spreads? You had talked last quarter about how you saw improvement towards the end of the quarter. Can you give us the numbers and a little more color around that?

We did continue to see improvements. So year-over-year, our prices were up 5.6% in the second quarter, and that compares to 2.5% for the first quarter, so that was better. Sequentially, on top of very strong sequential pricing in the first quarter, we were up another 1.7% in the second quarter. We're very pleased with pricing. The supply on the temporary side continues to tighten modestly, which is a backdrop that allows for a better pricing environment for us.

And yet are -the pay rates going up, or are those flat? What are you seeing there?

The pay rates are up across the board, but they're not up as much as the bill rates, but up virtually in every division.

Okay. The other question is, you've talked the last couple quarters, or not just talked, but you have invested -- reinvested back in the business, particularly technology and some of the other areas. And you've said before that if you saw success with that, you'd probably continue or even accelerate the pace of those investments. You know, a couple quarters out now since you kind of ramped up that spending. What should we be thinking going forward here? Have you seen enough that you're going to continue to spend, or will you slow it down or accelerate it? How should we think about that?

Well, in the guidance we gave, we actually contemplate actually dialing that up some, not only in technology, but pretty broad-based across the other divisions, given the success we've had. Our head count investments have been concentrated in technology for the past few quarters. We'll continue to invest in technology in the third quarter, but in addition to that, we're also going to invest in head count in some of our other divisions, particularly permanent placement, given that success.

And is that in the U.S. or is that more internationally? The perm piece?

Both. As you know, about half of our perm business is outside the US, and so we will add to head count not only in the U.S., but outside the U.S. as well. It's not that we're going to go crazy, but the incremental margins we're looking for in the third quarter, while a little lower than the incremental margins that we saw in the quarter just ended, they're still quite healthy margins.

Okay, great. Thank you.

Tim, all I would add to that is that, as you know since you followed us for a while, you have to be something of a surgeon deciding when to cut and when to add, and based on our experience and what we see and feel and hear from our field people, we think this is a time to be adding.

Okay. Thanks, Max.

Your next question comes from the line of Kelly Flynn from Credit Suisse.

Thanks. A couple of questions. First of all, is it possible for you to give us the revenue growth for June for year-over-year for both temp and perm?

Well, Kelly, as you know, we've got a consistent practice of not breaking the months out, but I did say within the quarter that trends in temp are that we grew sequentially every single month during the quarter. And if you'll look at the post-quarter growth rate, it's close to what the rate was for the full year, notwithstanding the fact that it contains the July 4th holiday, which adds a little noise to the comparison, but I think it's safe to say that the trends during the quarter were very firm, which continued into the current quarter.

Okay. That's helpful. So I know you guys aren't economists, but as you pointed out, your results are a lot stronger than the June labor report was. So I'm wondering if you might give us some theories on this. Do you feel like the June labor report or some of the broader labor data points are understating the strength of the broader labor market, or do you think we're seeing the temp secular shift, or is there something else going on to explain the inconsistency there?

I guess a couple of observations. First of all, if you look at that June labor report, the brightest portion of that report was ProfessionalServices, Accounting, and IT. I think that was a bit of an outlier relative to the overall report, for starters. Then I'd also say that in our perm placement practice, which is even stronger than temp and stronger than it would have been relative to prior cycles at this point, we're certainly seeing a fair amount of turnover in our clients that's also creating demand. I'm sure you're familiar with this BLS JOLTS survey that actually shows labor turnover. If you look at the professional segments of that, you'll see that the voluntary quits year-over-year is actually up, I think it's over 20%. So not only is there demand from clients that are restoring their workforce from the very low levels they cut to, you're also seeing more voluntary quits that require replacement. There are several studies out there. Mercer has a recent one, Deloitte has a recent one that talks about there being a fair amount of frustration and unrest with the current employee base relative to coming through this long downturn, such that there's a willingness to entertain a new job. But again, we're seeing demand in perm placement not only from replacing prior cuts, but increased turnover as well.

Okay, great. That's helpful. Then lastly, could you review quickly that actuarial benefit that you mentioned helping gross margin in the quarter, and confirm whether or not there's any visibility on that happening again in the third quarter or later this year?

Twice a year we have a third party look at our workers' comp accruals. Last year and this year in the second quarter it was virtually the same amount, $1.3 million. They won't look at those again until the fourth quarter. So there will be nothing in the third. When we did our guidance for the third quarter, we also assumed a slight reduction in our temp gross margins because we won't have those workers' comp credits that we had in the second quarter.

Okay, great. What was the credit in the fourth quarter of last year?

On the top of my head I don't know. We disclosed it, I believe, in our call.

Okay, we can pull it up. Thanks a lot. I appreciate it.

Your next question comes from the line of Andrew Steinerman from JPMorgan.

I wanted to jump in regarding any color about Accountemps. As you know, Keith, Accountemps is sometimes actually flat to down. In the second quarter it was up strongly, and if you could give us any color other than just general activity at small, medium-sized businesses that would be great, and the thought about Accountemps within the guidance into third quarter.

Well, the big change in Accountemps between the first and the second quarter is in what we call our accounting operations positions, which are the more transactional, accounts payable, accounts receivable, payroll, general ledger, and that grew about as quickly as did what we call the finance positions within Accountemps. A little less mortgage drag in the second quarter than there was in the first that we've talked about in the past, but a broader skill level participation in the second quarter than the first within Accountemps.

You're looking overall for 0% to 5.5% sequential growth for overall revs. Do you think Accountemps will be in that area for third quarter?

Again, the summer months for Accountemps, seasonally, are never their best, but we do expect the momentum to continue, adjusted for the seasonal comments I just made. But essentially the high end of our guidance at the revenue line says the year-over-year growth we've just experienced pretty much continues into the third quarter, and for the low end we back off of that. At the margin line, for reasons I just talked about, we expect lower temp gross margins for the workers' comp. We expect slightly higher SG&A because of the discretionary investment hiring. We think it's prudent to do at this time, and therefore, the incremental margins are a little lower. The other comment I would make about the guidance is that while we do expect Protiviti profitability to improve in the third quarter, you can't use the prior year as a judge, because in the prior year there was a huge utilization lift between the second and third quarters of the last year. Given the starting point with Protiviti, the utilization is much higher. You're not going to get as much incremental lift in the third quarter of this year as you did last. That said, as I started, we do expect further growth in Protiviti profitability in the third quarter.

Super. Okay, thanks, Keith.

Your next question comes from the line of Mark Marcon from R.W. Baird.

Good afternoon, nice quarter. I was wondering if you could talk a little bit about where you are in terms of capacity in the United States across your flex divisions, and as you're bringing people on, how quickly are they ramping up now, relative to prior cycles in term of becoming productive?

Relative to capacity because we've concentrated our additional hires in technology the past few quarters, we feel like we need to invest in our other divisions more heavily in this quarter and possibly into the fourth. From a capacity standpoint, it's certainly gotten tighter in our flex divisions, like technology, which is why we made the comments earlier. As far as how quickly they're ramping up, I'm not sure there's a notable difference. Are you hiring experienced people from the industry? Are you hiring people from the functional area that you're placing where you're having to teach them our business from scratch?

In terms of the ramp-up that you have had in technology, can you talk a little bit about how you do have a slightly different target that you're going after there, relative to Accountemps. Can you talk about how quickly you're able to identify those clients and how quickly you're able to get the people up and productive within tech?

The first thing I would say is the target client isn't that different than what we're doing in Accountemps. Our focus is in small to middle-sized businesses and technology, not the Fortune 1000. So identifying who the clients are isn't that difficult a thing. We've talked about how traditionally, technology has been focused on large firms that did custom software development. And that's certainly gravitated down towards smaller firms with the web, with mobile apps, that tend to buy applications that need to be configured, rather than wanting from-scratch development. So it's a different type of requirement, but the hottest areas for us in technology are programmer analysts, web developers, desktop support, network administration. It's those things that principally smaller to middle-sized businesses need.

Great, and how quickly are your folks getting productive in that particular sub-segment?

The numbers don't lie and you see our tech numbers, and we certainly had 29% year-over-year growth, so we're pleased. That said, on average tech is not as productive as our other divisions, so that their SG&A is relatively higher during this period of higher investment. So there is operating margin upside as we move forward, and they get up to average or better productivity.

Then, can you talk a little bit on the international side, where you had an acceleration in terms of constant currency revenue growth on a same-day basis in the second quarter. Where are you seeing the strength, and are there any pockets of weakness, particularly in Europe?

Clearly the strength is in continental Europe. Our big three are Belgium, Germany and France. To the extent there's a weakness, it's in the U.K.. That's exacerbated as we try to manage our account base, where we've got some accounts that have lower margins that we're trying to manage out as we move forward, but strength in continental Europe, the U.K. is a little soft.

Great. Thanks for the color.

Your next question comes from the line of Jeff Silber from BMO Capital Markets.

Thank you so much. I get this question from investors all the time, so I'm going to pass it along to you. I'm just curious if you're seeing any impact on your business from LinkedIn and some of the other social networks, both from a competitive perspective, and as an internal research tool?

Sure. We're asked that a lot, too, Jeff. I'd say first of all, let's understand that passive candidates, people who already have a job who are on LinkedIn, are not good candidates for temp jobs. So frankly, LinkedIn is much more relevant to our perm business than it is our temp business. Our perm recruiters do use LinkedIn as one of many sources for candidates. It still takes a lot of time and effort to convert a passive candidate to a hired employee, and our small business clients essentially outsource that function to us. You still have to contact, engage, interview, screen, test, check references, check backgrounds, do a culture fit and do a soft-skills fit. So there's still a lot that has to happen even after you identify a candidate, all of which our clients pay us to do. Net/net on the perm side, it's another useful place for our recruiters to go to recruit candidates.

I appreciate the color and it sounds like you have been asked this before. Just a couple of numbers questions dealing with the guidance. I'm wondering what share count and tax rate is embedded in the guidance, and what we should be budgeting for capital spending for 2011? Thanks.

So share count, because of the 2 million shares we bought this quarter, about 1 million of those roll over into next quarter. So you should take it down 1 million. The tax rate should be roughly the same, give or take a few basis points. CapEx, we've been saying $50 million to $55 million. I might alter that a bit to $55 million to $60 million. The timing of some of the things we're doing is a little faster than we thought, plus we've got a few other new initiatives. So our current CapEx number would be $55 million to $60 million.

Great. Thanks so much.

Your next question comes from the line of Sara Gubins from Bank of America.

Hi. Thank you. Turning to Protiviti, could you give us some more detail about bill rate trends there, and maybe talk about longer-term growth potential and margin potential?

Sure. If anything, the rates trends are actually a little better year-over-year in Protiviti than they are in staffing. We think that's consistent with what we hear and see with the Big Four generally. For long-term growth, we do think it's a growth business at the moment. We're focused more on profitability than we are top-line growth. I think the more relevant growth statistic for Protiviti is at the gross margin line rather than at the revenue line. You'll notice that Protiviti's gross margin year-over-year grew 26% this quarter, which was double its rate of growth at the revenue line. On the profitability side, we were pleased that Protiviti was profitable this quarter, as compared to a pretty sizable loss a year ago. We said many times our expectation is that we can get to low double-digit operating margins in the United States. For the third quarter there is an August impact in Europe not only in staffing, but that's also true in Protiviti as well. Therefore, your reported margins for the third quarter in Protiviti will be impacted, as they always are, by essentially Europe going on holiday during the month of August.

Okay, thank you. Within temporary staffing, are you seeing much variation in demand by type of client, meaning smaller versus larger clients?

I think we're so weighted toward small to middle-sized clients I'm not sure we've got a great basis to do that comparison, but we do have some larger clients. Again I'm not sure given our data -- it's not a meaningful comparison. What we do know is that the data for the small-to-middle-sized businesses is pretty darn good.

The only color I would add to that is that we've talked before about more people adopting flexible staffing models given the economic uncertainty over the last couple of years, and I think there's at least a fair amount of anecdotal evidence that that is happening with our small-to-middle-sized clients. They're much more willing to use temporary help than before.

Thank you.

Your next question comes from the line of Gary Bisbee from Barclays Capital.

Hi, guys. Congratulations on the quarter. I guess the question's on Protiviti. Can you give us a sense of exactly where the utilization rate of the full-time employees is, and if you're not willing to give a number, can you give a sense directionally of how much that's improved and how much more the opportunity you think there is over the next couple of years?

We don't disclose precise utilization rates. They've improved dramatically in the United States. They have not improved as dramatically outside the United States, which we're still working on. We said on the prior call there are three levers to Protiviti profitability. There's utilization, there's bill rates and there's the leverage model, the ratio of managing directors to others. We've made great strides, particularly in the US, with utilization. We've made great strides with the bill rates. So most of the upside as we move forward comes from improving the leverage model, which means hiring more young people at the low end of the pyramid, and/or using more contractors from the staffing operations at the lower end of the pyramid.

Well, you just hired my cousin. When I heard what he was billing out at, it sounds like that leverage may be working. The last question for me is continental Europe. Can you give any more color? I know the three big markets there. Are you hearing from any clients any less optimism around, what seems like declining business confidence, data, and similar factors that I've always thought of as a good leading indicator for this industry?

We've had discussions with our top continental European leaders as recently as a few days ago, and they're quite bullish, quite optimistic. They're certainly not seeing anything near the soft patch that's been described in the press.

Thank you.

Your next question comes from the line of Kevin McVeigh from Macquarie.

Great, thanks. Keith, you beat $0.02 to the upside relative to the high end of the range. What came in much better than you're expecting when you gave the initial guidance?

First, our perm business was clearly stronger than we expected. Conversions were stronger than what we expected, which are a derivative of perm. Having said that, they're still only 3% of revenue, which is still low relative to our traditional range. So perm business was stronger, conversions were stronger, and then just the volumes across the board were a touch stronger than we had forecast. We said on the last call when we did our forecast that we hoped we were being conservative, but those would stand out.

As you think about Protiviti, and I know you really don't quantify the mix shift towards Accountemps versus Management Resources, but are you at a sustainable level where you want to be, or does that mix continue to increase as we move forward here?

If the question is the use of staffing professionals on Protiviti engagements, we definitely think the current level is sustainable, and our hope is we can take it higher. We certainly don't think it goes lower or that we're at a unsustainably high level. We think there's more upside there.

Super. Okay, thank you.

Your next question comes from the line of Jim Janesky from Avondale partners.

Thank you. Keith and Max, would you continue to invest into the fourth quarter in headcount or do you think that the third quarter should be winding down the investments?

Jim, we make that decision every quarter, and it will depend on in part what we've seen during the third quarter, what we feel the pulse of the business is in the early part of the fourth quarter, and our point of view. It's a good thing when we feel positive enough about business trends that we want to invest in more headcount.

Most of the hiring is productivity-based, as Keith has said in prior calls. As we see production increasing significantly on a per-desk basis, we obviously add that data to our mental computers about how many people to add.

Was the spending back-end loaded in the second quarter? Meaning, you felt more and more comfortable as the quarter progressed to add headcount?

We don't tend to look at head counts in real time. We set a bogey for the quarter early on that was heavily technology-focused, and everyone knows we revisit that at least quarterly. So as I've said earlier, the thinking is we're going to on a more broad-based basis increased head counts in this quarter.

All right, okay. When you gave your guidance for the second quarter, what were your foreign exchange assumptions or outlook?

When we gave guidance for the quarter just ended, we didn't expect any big foreign currency changes. While we've already disclosed to you the impact on revenues, the impact on earnings per share is much, much smaller. If you'll look on a sequential basis and convert everything to constant currency, it's $0.004. If you look on a year-over-year basis, while the revenue impact is high, the earnings per share impact is $0.008. So it has a nominal impact on earnings per share.

Okay, thank you.

Your next question come from the line of James Samford from Citigroup.

Thank you. Not much left to hit on here but I wanted to touch briefly on the incremental margins on the temp side. I guess they pulled back slightly here. Historically, I think you've talked about getting to the low 20%s in a recovery situation. Is that still in the cards, or is this protracted recovery sort of dampening that incremental margin opportunity?

Let's be clear. When we talk incremental margins, we're talking sequentially quarter-to-quarter. Given that our temp incremental margins this quarter were almost 22%, and that's how we measure it, that compares to last quarter when those incremental margins were only 8%. The way we do incremental margin, we had a nice acceleration last quarter to this quarter. In our perm business, by the way, those incremental margins were 46%, which are tracking with the high end of the range relative to the past. What we've said for our third-quarter guidance, again using incremental margins on a sequential basis, they won't be quite as high in quarter three as what I just said for quarter two, for the investment reasons I talked about, and as also because we won't have the workers' comp credits.

That's really helpful. Thank you. I will let it go there. Thanks.

Your next question comes from the line of Paul Ginocchio from Deutsche Bank.

Thank you. Just a question about the ramp in perm business. You talked about hiring perm here into the third quarter. Remind me how long it takes to fully ramp up a permanent recruiter. And are you hiring because of the utilization rates of your existing recruiters, or are you just feeling better about the cycle and where we are in the cycle, and this is the time to hire perm? Thanks.

Again, the ramp-up period is a function of the experience level of who you hire, so that could be three months to a year, based on their experience level. Are we hiring because of the need based on productivity, or based on if are we feeling better? I would say it's both. Clearly we've stretched the rubber band pretty tight given the results of our perm business that have grown 40%-some now for a few quarters, and therefore the productivity per person is high, plus we do continue to feel bullish, notwithstanding the headlines you read every day about the outlook.

Is this a real step change in your hiring that you called out, or is it just a little bit more typical of the ramp?

I would say the latter more than the former. We don't want to make too big of deal out of this. On virtually all the hiring, if you listen to our people internally, it's like, "Tech's getting everything, what about me?" So all we're saying this quarter is it's going to be more broad-based.

Thank you very much.

Your next question comes from the line of Tobey Sommer from SunTrust.

Thank you. Most of my questions have been asked. I wanted to delve in a little bit more in technology. Have you seen the bill rates specifically in technology? Has that growth outstripped the Company average?

Frankly, it isn't that different. The absolute number, the absolute bill rates, are a bit higher in technology to start with, so to get the same percentage on a higher number gets a better result. But they're not outsized growth rates relative to the rest.

Thank you very much.

Your next question come from the line of John Nelson from the State of Wisconsin Investment Board.

Hi, great quarter. Could you give us all a little bit more flavor on what's going on in the Asian markets and investments there?

We don't have a huge exposure to Asia, particularly in staffing. We do have a permanent placement operation in Tokyo. Protiviti has a larger operation in Tokyo. It clearly hasn't been negatively impacted the last couple of quarters by the earthquake and tsunami. If you broaden the question to Asia-Pacific, which would then include Australia, we're doing great in Australia, not only on the staffing side, but Protiviti as well. But their mineral-rich economy is doing quite well, and we're participating in that.

Okay. Are there any long term plans for entering the additional developing markets in Asia?

We do have plans. In fact, let's talk mainland China for starters. We have four Protiviti locations, where we've been there for quite some time. We're just beginning to add temporary services in mainland China. We've been in Hong Kong for some time. So it is something we're beginning to address. It's small as we speak, but it's planting seeds for the future.

Thanks very much.

Your last question comes from the line of Mark Marcon from R.W. Baird.

Just wondering if you could give us a general feel for what sort of percentage increase you've had in terms of your internal head count, and whether that's more skewed towards the recruiting or the account side?

We disclose headcount numbers once a year. We've generally said that absent special circumstances and investments our head count growth pretty much mirrors our revenue growth, and we haven't gotten hugely away from that. As to whether they are recruiters or account managers, our operating model is a little different than many in the industry, and our people tend to do some of each. So segregating one versus the other is not as meaningful for us.

Got it. So basically the model continues in terms of following the revenue growth and we should still continue to get leverage, though, because it is going to lag behind the revenue growth?

I've said this many times. I think people over-study leverage on our recruiters and account managers because what we spend as a percent of revenue in good times or bad doesn't vary that much, because we have such a large variable incentive compensation component. Right now we're paying much higher bonuses to our people because formulaically they're entitled to those based on their production, and therefore, the percentage of revenue we're spending on direct compensation frankly isn't that different. Where the operating leverage comes is on the administrative staff, it's on the back office costs, it's on the IT costs. It's more indirect overhead than what we pay our recruiters and account managers.

That's helpful. Thank you.

Thank you everyone for your interest. That's all we have time for today.

This concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investor Center of Robert Half International's website at www.rhi.com. You can also dial the conference call replay. Dial-in details and the conference ID are contained in the Company's press release issued earlier today.