羅致恆富 (RHI) 2011 Q3 法說會逐字稿

Hello, and welcome to the Robert Half International third-quarter 2011 conference call. 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.

Hello everyone and thank you for joining us on the call today. Before we review our third-quarter results I would like to remind you that comments made on this call contain predictions, estimates and other forward-looking statements. These statements represent our current judgment of what the future holds and 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 8-K. We assume no obligation to update the statements made on this conference call.

Now let's discuss the third quarter. Companywide revenues were $985 million, a 20% increase from the third quarter of 2010. Income per share was $0.31, up 121% from last year's third quarter's amount of $0.14 per share. Cash flow from operations in the third quarter was $72 million. Capital expenditures were $13 million.

We paid our stockholders a cash dividend of $0.14 per share during the quarter at a cost of $20 million. We also repurchased 2.1 million RHI shares during the third quarter at a total cost of $48 million. Approximately 6.4 million shares remain available under our Board approved stock repurchase plan.

We saw broad-based demand for our professional services throughout the third quarter, resulting in double-digit year-over-year revenue growth rates for the fifth consecutive quarter. All of our divisions performed well, led by our technology staffing division.

In addition, we were particularly pleased with the continuing expansion of our gross margins across our temporary staffing divisions. Keith Waddell will now provide you with a closer look at our third-quarter financial results.

Thank you, Max. As you noted, third-quarter revenues for the Company were $985 million, an increase of 20% from a year ago, and an increase of 4% sequentially on a same-day basis. There were 64 billing days in the third quarter, the same as last year's third quarter, and up 1 day sequentially. The current quarter has 61 billing days.

Accountemps had third-quarter revenues of $367 million, up 17% from a year ago, and up 5% sequentially on a same-day basis. Accountemps is our largest staffing division and has 352 offices worldwide. It accounts for 37% of Company revenues.

Third-quarter revenues for OfficeTeam were $196 million, up 20% from the third quarter of last year, and up 3% from the second quarter of this year on a same-day basis. Established in 1991, OfficeTeam is our high-end administrative staffing division. It has 315 locations worldwide and represents 20% of Companywide revenues.

Robert Half Management Resources had revenues of $118 million in the third quarter, up 20% from a year ago, and up 3% sequentially on a same-day basis. Robert Half Management Resources, which was introduced in 1997, places senior-level accounting and finance professionals on a project basis. It has 151 locations worldwide and makes up 12% of Companywide revenues.

Third-quarter revenues for Robert Half Technology were $114 million, up 30% from the third quarter of last year and up 7% sequentially on a same-day basis. Robert Half Technology was introduced in 1994, and places information technology professionals on a project and full-time basis. This business operates in 113 locations worldwide, and accounts for 12% of Companywide revenues.

Third-quarter revenues for Robert Half Finance & Accounting, our permanent placement division, were $79 million, up 38% from last year's third quarter, and down 3% sequentially on a same-day basis. Our perm placement business was established in 1948. It has 352 locations worldwide. This business accounts for 8% of Companywide revenues.

Third-quarter revenues for our International Staffing operations were $264 million. This is an increase of 29% from last year and an increase of 1% sequentially on a same-day basis. On a constant currency basis, the growth rates were 19% versus one year ago and 2% sequentially on a same-day basis. We have staffing operations in 104 locations and 19 countries outside the US. International Staffing operations represent 30% of total staffing revenues.

Third-quarter revenues for Protiviti were $111 million. This is 12% higher than the third quarter one year ago and 6% higher sequentially on a same-day basis. Protiviti was formed in 2002 as a global business consulting and internal audit firm providing risk, advisory and transaction services. Protiviti and its independently-owned member firms serve clients through a network of 72 locations in 23 countries. Protiviti's international operations represent 24% of Protiviti's revenues.

Now let's look at gross margin. Third-quarter gross margin in our temporary and consulting staffing operations was $283 million or 35.5% of applicable revenues. This compares to 34.1% of revenues in the third quarter of last year, and 35.0% of revenues in the second quarter of 2011.

The quarter-over-quarter improvement is primarily the result of higher pay/bill spreads. Temp to hire conversions remain constant as a percentage of revenue on a sequential basis.

Overall staffing gross margin was $362 million in the third quarter or 41.4% of staffing revenues. This compares to 39.3% of revenues in last year's third quarter and 41.3% of revenues in this year's second quarter.

Protiviti's third-quarter gross margin was $30 million or 27.5% of Protiviti revenues. It compares to $27 million or 27% of Protiviti revenues in Q3 2010. Protiviti gross margin grew 14% year-over-year and 8% sequentially, owing primarily to higher US utilization rates.

Turning to selling, general and administrative costs, in the third quarter our staffing SG&A costs were $293 million or 33.5% of staffing revenues. In last year's third quarter these costs were $245 million or 34.2% of revenues. And in the second quarter of this year they were $284 million or 34.1% of revenue.

Third-quarter SG&A costs for Protiviti were $27 million or 24.6% of Protiviti revenues. This compares to $27 million or 26.9% of revenues in the third quarter a year ago and $27 million or 26% of revenues for the second quarter of 2011.

Third-quarter operating income for our staffing divisions was $69 million or 7.9% of staffing revenues. The temporary and consulting divisions contributed $61 million of this amount or 7.7% of applicable revenues. Third-quarter operating income for our permanent placement divisions was $8 million or 9.8% of applicable revenues.

Protiviti operating income was $3 million in the third quarter or 2.9% of revenues, compared to just 0.1% of revenues in last year's third quarter.

Accounts Receivable were $516 million at the end of the third quarter, with implied days outstanding, DSO, of 47.7 days, which compares to 47.6 days at the end of last year's third quarter.

Now let's turn to fourth-quarter guidance. We saw the following trends in the third quarter and the first few weeks of October. On a same-day sequential basis, temporary and consulting revenues were up in July, up in August, and up again in September. On a same-day sequential basis perm placement revenues were down in July, down in August, but up again in September.

During the first two weeks of October revenues from our temporary and consulting businesses were up 15% compared to the same period last year. For the first three weeks of October revenues from our permanent placement division were up 66% compared to the same period last year. As we have said before, perm trends are difficult to evaluate over these short of time periods.

Taking into account these trends we offer the following fourth-quarter guidance -- revenues, $950 million to $1 billion; income per share, $0.28 to $0.33. It is our policy to limit guidance to one quarter. Any estimates we provide on the 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 will turn the call back to Max.

Thank you, Keith. We had another strong quarter with double-digit revenue growth rates across all lines of business on a year-over-year basis. Technology staffing continued to perform well and we also saw nice year-over-year and sequential growth in our other temporary and consulting staffing divisions during the quarter.

Our permanent placement business saw some seasonal sequential flattening, but remained very strong overall. Revenues for Robert Half Finance & Accounting were up 38% year-over-year in the third quarter. This continues to be among the fastest post-downturn recoveries we have seen in our business. Companywide revenues have grown faster following the last recession than in periods following other downturns.

In our staffing divisions there has been a tightening labor supply in some specialties, particularly for information technology positions. Within the professional disciplines we serve the unemployment rate is much lower than the overall US rate, and this has contributed to a stronger pricing environment.

Our internal headcount investments in technology staffing services have been productive, which is demonstrated by our third-quarter revenue for Robert Half Technology, as well as its performance over the last several quarters. We see continued opportunities, both in the near and long term in technology staffing and in our core accounting and finance staffing businesses.

We were pleased to also see higher demand for Protiviti's consulting and internal audit services during the quarter, particularly in the United States. The need was most pronounced for information technology related services, as well as consulting solutions offered to the financial services industry.

At this time, Keith and I are happy to respond to your 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. Thank you.

(Operator Instructions). Mark Marcon, Robert W. Baird.

Good afternoon and congratulations on the strong results. I was wondering if you could talk about two things. First, can you just give us a little bit of a fill-in with regards to the guidance just in terms of how you would assume gross margins and SG&A leverage is going to progress?

Then, secondly, I am wondering if you can talk a little bit more about the strong progress that you have achieved in Robert Half Technology. And specifically what are you seeing there in terms of how quickly you can ramp your people up? Obviously, it was a strong performance, but just how quickly can you ramp the folks up, how much runway? And is there any constraint that you are seeing from a supply side that would limit the growth?

So let's first talk about guidance. First let's remember that in our guidance -- our revenue guidance the fourth quarter has 3 fewer billing days than the quarter just ended. Protiviti has 5 fewer billing days because of the holiday impact. At the high end of our range we are assuming the per billing day revenues get a traditional seasonal lift in the fourth quarter, which we see in accounting with budgets in year-end, which we see in OfficeTeam with holiday, customer service and fill-in demand.

Our gross margins, as we discussed a bit during our formal remarks, were quite good in the third quarter. We expect that momentum to continue into the fourth quarter.

On the SG&A front, we do plan to continue to hire, albeit at somewhat lower rates. On the temp side we added low-single digits in terms of number of heads during the third quarter. We plan to continue that into the fourth.

On the perm side, we added in the high-single digit rates, and we will probably bring that back into the low-single digits. From the guidance for Protiviti our fourth-quarter guidance assumes in the US we continue very strong. We were quite pleased with our performance in Protiviti in the third quarter. We think that rolls into the fourth, adjusted for 5 fewer billing days.

In the non-US we assume that is going to be down modest sequentially. We continue to be challenged, particularly in Japan and a couple of the EU countries. In Protiviti we would expect operating income to be down modestly versus the third quarter and versus last year, a year ago.

But, generally speaking, overall we have got fewer billing days to overcome, which is not new for the fourth quarter. We have got the December perm uncertainty, which is not new for the fourth quarter. But given those parameters, we feel pretty good about where we are, and our guidance reflects that.

On the second part of your question, Robert Half Technology had 30% year-over-year growth. We have seen a nice payback on the investment hiring we have done so far. As to how much runway and whether there are supply limitations in our growth, clearly technology is the area that is the tightest in supply, as it relates to the candidate side of the business.

That said, we remain very optimistic that we can continue to have outsized growth rates in technology, both on the technology development side as well as on the administrative or the production side of technology.

Great. Then you always say you're not macroeconomists, but I am wondering what you're seeing out in the field. Your guidance is relatively clear, but are there any signs that you are seeing anywhere in terms of softening from your perspective?

Well, let me answer the question this way. Let's talk about our start for the quarter versus the quarter just ended. So perm, we started the quarter up 66%, which at face sounds wonderful. We would caution a bit that the comps a year ago were on the easier side. While we had a really good start it wasn't quite that good.

On the temp side, 15% out of the gate versus 20% we just reported. 3 points of that difference, frankly, is currency. The differential isn't as great as it might otherwise look. And we remain optimistic there.

In the United States pretty much across the board, divisions and geographies, we feel very good about how we started the quarter. Outside the United States, it is a little more uneven. We are quite strong in Germany and France. We are not quite as strong in Belgium and in the UK. Plus we've got some places like Australia that are coming up against monster comps that make their year-over-year growth rate look lower, but they are still doing quite well.

Great, thank you for the color.

Tim McHugh, William Blair & Co.

I just want to drill down on your comment about the gross margin in temp, and how you expect it to improve further, or the momentum to continue into the fourth quarter. Can you give us some of the details around the bill/pay or the actual growth rates in the bill and pay rates? Are you expecting gross margin to be up further in the fourth quarter?

So, first of all, the statistics are our bill rates were up 7.2% year-over-year for the quarter, and they were up 1.1% sequentially. Our pay rates were up less than that. Our field team did an excellent job with pricing, with being very disciplined on the gross margin side.

Our guidance assumes we continue the third-quarter rates into the fourth quarter. We hope that is conservative. We know of no reason that they would go down, but our guidance doesn't necessarily assume they would rise either.

But we feel great about gross margins. To me it was one of the absolute bright spots for the quarter. And our people did just an outstanding job with the discipline on pricing.

Okay, and then on Protiviti there seems to be a growing divergence between the US performance and international. Can you give us a sense? How profitable are you in the US, or what is the delta between the profitability between the two and then what you can do to, I guess, bring that closer together or boost the overall Protiviti margins?

You are correct. We had an excellent quarter in the US. It was quite profitable. We were slightly unprofitable outside the US, led by Japan. Japan has been quite challenged since the earthquake/tsunami. We are working hard to improve that. We don't expect that to turn around overnight.

But we feel wonderful about the US. We feel we are making progress outside the US. We are also making progress converting some of our non-US operations from owned to member firm or franchised as well, which would also take some pressure off the P&L.

Will it take time, is it fair to assume, for some of those things to have an impact?

Well, they won't happen overnight, but we are not talking years either. We hope to quarter-by-quarter chip away at both the profitability or lack thereof in some of the non-US operations, as well as in the conversion from owned to member firm.

Okay, thanks, guys.

We don't have the critical mass in many of the non-US locations, which shows itself most prominently in it doesn't have the diversification of revenue sources that we have in the US. In the US financial services and technology have led the day. In some/many of our non-US operations, we don't have that kind of revenue diversification and that is what we are working on.

Okay, thanks.

Andrew Steinerman, JPMorgan.

When you talk about the hiring in perm that you will continue in the fourth quarter, but at a less rapid rate, do you feel like operating margins will remain at these sort of sub 10% levels or should revenue growth push operating margins higher, comparing third-quarter to the fourth-quarter guided?

We expect a little revenue growth sequentially in the fourth quarter. And from that we do expect some expansion of our operating margins in perm. Having said that, we did do a lot of hiring in the third quarter. Those people aren't totally up to speed. We're going to add to that, albeit at a smaller rate, so the margins still will be depressed relative to midcycle margins, but they should be better than the third quarter just reported.

And how about a quick comment on conversions? I heard you say steady percentage year-over-year in the third quarter. How far are we away from kind of normal percentage of conversions?

We are still a long way away. The normal range is 3% to 5% of revenue. In this downcycle, we went below 3%, and frankly, we are back up to 3%. So we returned to the low end of the traditional range, which to us says there is a lot of upside there.

Yes, it does. Thank you so much.

Paul Ginocchio, Deutsche Bank.

This is actually Ato Garrett in for Paul. My first question, it relates to the growth -- drivers of growth for Accountemps. As we think about the growth coming from price versus new clients versus existing clients taking on more temps, can you talk about how those three factors have contributed and how [they] might have changed over the last few quarters?

And my second question relates to larger clients. As you think of some of the clients that may have walked away due to pricing increases, has scarcity forced them or caused them to invite you guys back to bid for work? Thanks.

As to drivers of growth, we gave you that pricing was up 7.2% year-over-year, the rest being units. And that is split between the addition of new clients as well as growth in existing accounts. We have always focused in both places, and I would say there is a nice mix of that this quarter as well.

As to larger clients coming back because they walked away due to pricing, frankly, that is not something that was meaningfully experienced during this past downturn. As you know, the majority of our clients are small to middle-sized businesses, and we have -- during the downturn -- we attempted very much to be competitive. Our pricing did go down during the downturn, but it is coming back. The market is clearly stronger. And candidate supply is certainly tightening, and for those reasons we are doing a better job with our pricing.

I thought it was interesting in this most recent JOLTS report, put out by the BLS, that reports job openings by industry. And professional and business services has the single largest number of job openings of any category reported, which is yet another indication of the strength of professional and business services relative to the market overall.

I am glad you referred to that, Keith. I was going to mention it. The other observation I would make on pricing is you have to remember what is expensive is hiring the wrong person. And so to the extent you're doing a good job and have a good reputation for quality, these are really nominal costs to the client.

Thank you.

Giri Krishnan, Credit Suisse.

I think you guys addressed the capacity in tech. Could you address that within some of the other temp segments? Does your comment apply to all of the segments or primarily temp?

Well, we said that last quarter we began to hire more broadly across our temp divisions. We, in fact, did that because of the sequential growth that we posted and the further sequential growth that we expect. We largely absorbed those numbers, and it didn't impact margins much at all.

Because we remain bullish, particularly in the United States, we're going to continue to add to headcount in a low single-digit way. And we think that is appropriate given our expectations for future growth.

Okay. And with respect to your gross margins in Q4, should we expect the workers' comp accruals to be similar to last year?

Well, you're referring to the twice-a-year actuarial reviews we have with our workers' comp, and for many years running now we have received credits and reduced our accruals. I think the outlook, if anything, is for some lift in the fourth quarter for that reason. We did not bake any of that in.

I think last year the lift was $1.5 million, which was less than $0.01 a share. So nice to have, but not terribly significant.

Okay, so it is not baked in, just to clarify, in your guidance?

We did not bake it in.

Okay, thank you.

Jeff Silber, BMO Capital Markets.

Max, I believe it was you in your prepared remarks talking about revenue growth being fairly strong at this point in the economic expansion relative to prior cycles. I was wondering if you can tell us how recruiter productivity compares to prior cycles at this point? Thanks.

On the growth front the numbers speak for themselves about how we are doing this time versus prior recessions, and you have been around a long time so you have seen it. I would say the recruiter productivity is quite good.

Obviously with new hires, it takes a while to get them completely up to speed, as Keith just mentioned, in terms of our Robert Half hiring, but I think technology has been a major plus for us, and we work hard to use all the tools that technology provides. So I feel good about recruiter productivity, and we are working hard to continually improve that productivity.

Okay, great. And then just a couple of quick numbers questions more looking at the fourth quarter. What should we be using for tax rates, share count and capital spending? Thanks.

Tax rate was a little lower this quarter as we have more income. You cover better your non-deductibles. To the extent we grow fourth quarter sequentially we would actually expect the tax rate to come down a bit, let's call, it 38%-ish.

Share count, we bought 2 million shares during the quarter. You didn't see the full benefit of that. To the extent we buy more in the fourth, my guess is you can take your share count down 0.5 million to 1 million in that category.

CapEx, we spent $13 million, $14 million in the quarter. We pretty much have been on that pace for the last few. We're probably talking $15 million, plus or minus $2 million or $3 million.

All right, great, thanks so much.

Jim Janesky, Avondale Partners.

My question is about perm. I am wondering what you are seeing that gives you the confidence to continue to hire there? And did those hiring plans change as the quarter progressed? So, for example, are you hearing from your clients that maybe there was a pause in July and August as they were worried about the overall economic environment, but expect that to pick up again? Have orders increased going into the fourth quarter?

In perm the good news is that the order flow is still very good, very strong. The flip side is the sell cycle has gotten a little longer. Clients are asking to see more candidates before making their decision. Clients are raising the bar as to the profile they will hire. Candidates are little more willing to accept a counteroffer from their existing employer, all of which extend the sell cycle a bit. What we are not seeing is any significant disruption of the order flow.

As far as did anything change with our hiring plans during the quarter, I would say in the US, absolutely not. Non-US, with all the discussion of European credit and sovereign debt issues, we throttled back a little bit in non-US, particularly in Europe, but again not in a major, major way.

As a follow-up, can you give us an idea of the relative growth rates in perm between US and international? And remind us is about half of your business internationally perm versus a much smaller percent in the US, Keith?

Right, it is about 50-50. And during the quarter we had very strong growth rates in the US and outside the US.

Okay, thank you.

Tobey Sommer, SunTrust.

On a percentage basis, what is the change in same-day billings -- billing days available sequentially from a third quarter to fourth quarter in aggregate?

The fourth quarter is 61 days. The third quarter was 64 days. This is staffing, so you lose 3 days due to the holidays. You've got Thanksgiving, Christmas, New Year's Eve.

Okay. And is it 4 days on the Protiviti side?

It is actually 5 days on the Protiviti side. Many of Protiviti's clients do not work the week between Christmas and New Year. Many Protiviti employees take advantage of that time and also don't work that week, and therefore, Protiviti's revenue capacity is reduced because of what we call choice time-off that occurs that week.

Sure, I was wondering if you could provide some color on the information technology front. Are the trends in the perm business, as well as when you look at bill/pay spreads for information technology are those trends exceeding the Company averages?

IT perm is around 15% of total perm. It is outperforming finance and accounting perm. Technology pricing is a bit firmer year-over-year. That is also the case in accounting and finance. So pretty much across the board, with temp/perm pricing hours tech is stronger than accounting and finance, which is strong in its own right.

Thank you, very much.

Gary Bisbee, Barclays Capital.

If we do see some continued weak economic trends and there is some deceleration of the topline, -- and this is a hypothetical, so I will say it upfront -- how would we think about what level of revenue growth moderation from the recent trends could happen and still achieve the types of incremental operating margins that you have talked about in the first few years of the recovery. I think it was 20%, 25% in temp and 30%, 35% in perm. If revenues slowed from this pace is that still achievable?

Well, understand that our margins are impacted as we speak, because of the hiring we do in anticipation of even more growth. If things slow down modestly, we could dial back the SG&A costs somewhat as a buffer for that. So you wouldn't see the negative impact you might otherwise think.

Having said that, if kind of leveraging our fixed cost, our administrative compensation cost that provides a lot of the operating leverage, and the absence of that would certainly impact operating income.

Okay, and then the follow-up. Did you say something with Protiviti about moving to a model where the international are partner firms instead of you owning them? Can you clarify that?

So, we have spoken for several quarters now that we have been in the process for several of our non-US locations to convert them from owned to member firm. In many countries, there are actually tax reasons, tax advantages structurally for those countries to be member firms rather than part of our global corporation. But that is not something that is new. We have already done that in certain countries, and we will continue to do that in others.

Does that have any impact on because I know in some countries you have had success leading with Protiviti and then bringing in the core Robert Half brands, temp and perm, once that is established. Is that still the case, and would this have any impact on the ability to continue to do that?

Staffing has entered virtually every market at this point, where Protiviti first had a presence. So to the extent we accelerated the early development of staffing because Protiviti was already here, that has pretty much run its course.

Great, thanks.

James Samford, Citigroup.

Just a quick question on the competitive environment. We have heard a few competitors talk about getting more aggressive in the middle-market arena. Are you seeing any signs of that, or where would we see that either in the form of pressure on bill rates or is it on contract renewals?

Well, I think given the gross margin expansion you have just seen, which was an upside even to our own expectations, I think that speaks volumes that the competitive environment hasn't gotten worse, because if so, you would have seen that kind of performance. So the short answer is we have not seen a meaningful change in the competitive environment.

Understand that most of our competitors are small-to-middle-sized staffing firms as well. They are not household names. They are not national/global staffing firms that you might recognize. And so it has always been fractured, and frankly very competitive, ourselves to other specialists that tend to be smaller market-by-market.

Fair enough. Thanks.

I would add to that, that as long as we have been in the business, we have had questions such as you just asked. Our margins and financial performance overall are no secret, obviously, since we are public. So many people have decided that is a great area to enter. I would just say that it is more difficult than it looks. There are a lot of things that go into being very successful with small-to-mid-sized markets. It is very different than operating an office that focuses on larger contracts and so forth. And you have to develop a good reputation. And we have a bit of a head start. So, again, as Keith said, we feel like we are doing well. We take everybody seriously, but I would argue that we are in pretty good shape.

Perfect, thanks.

Kevin McVeigh, Macquarie Research.

Keith, I wonder, given the trends you have seen so far on the temp margin side, clearly some runway to go on temp to perm conversions, if you think about a higher kind of peak temp margin in this next up cycle and directionally any thoughts around that?

Well, I believe that there is play, as you call it. I do think we have a history of recapturing lost temp margins from downturn as we move through a cycle. We're optimistic, and frankly, given the last couple of quarters, we're even more optimistic.

There is clearly a dichotomy, particularly in the United States, between professional and nonprofessional as to what the employment rates are. For college graduate professional people, as we talked about earlier, the supply is much tighter. And it is a much better environment for pricing and for us to get the margins that we have traditionally enjoyed on the temp side. The trajectory is good.

That said, we do expect further unemployment costs increases in 2012, and we are planning for that as we speak. But here again, that is not a phenomena new to this cycle. There are always higher unemployment costs in the early years of recovery following a downturn..

And then just real quick. On the perm hiring, Keith, can you help us directionally where is it in terms of IT versus F&A? And just a quick refresher -- I don't know if you will disclose -- of the perm how much is IT now versus F&A and the other businesses?

Sure. As we said a little earlier, IT is about 15% of our perm business. And while (technical difficulty) there relative to F&A it isn't meaningfully outsized. So when we talk about hiring in perm for the most part we are talking about F&A.

Super, thank you.

Sara Gubins, Merrill Lynch.

Keith, just to follow-up on your comment that you expect unemployment cost increases in 2012. Is there any way to quantify that or is it too early at this point?

Well, we have some guesstimates that they will be approximately the same as they were in 2011. There are a few things going on. One, the states are beginning to charge interest on the loans they got from the federal government that for the longest time they weren't being charged interest on.

Further, the federal government is starting to provide for reserves against states that aren't paying them back for the loans they took out for unemployment costs. So all of those things put some pressure on 2012 unemployment rates. We think there will be about the same to a little bit larger in 2012 versus 2011 as compared to the prior year. But, again, something we think that is manageable.

Okay, great. Then on a somewhat -- well, separate topic, Management Resources had been growing more rapidly than Accountemps, but it really seemed this quarter like Accountemps gained a lot of traction. So, I am wondering if you give some more detail about how demand is varying by price point?

Well, the really strong parts of Accountemps were the accounting operations positions -- that is accounts payable, accounts receivable, payroll, general ledger. It is the more transactionally-oriented positions; they were quite strong in the third quarter. We saw strength beginning to form in the second quarter. But the big story for Accountemps in Q3, other than the gross margin expansion, was the strength in accounting operations.

Okay, thanks a lot.

There are no further questions. I will now turn the call back over to Mr. Mesmer.

Thank you, operator, and we appreciate everyone's time today. Thank you for being with us. That will conclude today's conference.

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.