羅致恆富 (RHI) 2012 Q4 法說會逐字稿

Hello, and welcome to the Robert Half International fourth quarter 2012 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, everyone. As is our custom, we would like to start today's call with a reminder that comments made on the 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 so forth.

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 discuss the fourth quarter. Global revenues for the fourth quarter were $1.03 billion. This is up 5% year-over-year on a same-day constant currency basis. Income per share was $0.42, an increase of 40% from the fourth quarter of 2011. Cash flow from operations during the fourth quarter was $98 million. Capital expenditures were $14 million. We have paid our stockholders a cash dividend of $0.15 per share at a cost of $21 million. We also repurchased 1.2 million RHI shares during the fourth quarter at a cost of $34 million. There are approximately 11.4 million shares still available under our Board-approved stock repurchase plan.

We were pleased with the fourth quarter financial results for Robert Half. Global operating income was up 35% as a result of continued gross margin expansion, lower selling, general and administrative expense ratios, and a solid fourth quarter for Protiviti. This is 11th consecutive quarter in which net income and earnings per share have grown 20% or more on a year-over-year basis. Revenue growth in our staffing operations reflects ongoing demand for skilled talent on an interim and full-time basis, most notably in the United States. Now I will turn the call over to Keith Waddell for a more detailed review of our fourth quarter results.

Thank you, Max. As you noted fourth quarter revenues for the Company were $1.03 billion, a reported increase of 6% over last year. On a same-day constant currency basis, global staffing revenues increased 4% year-over-year with the US growing 8%, and international locations declining 4% on this basis. US staffing revenues were $677 million in the fourth quarter, while international staffing revenues were $237 million. We have 349 locations worldwide, including 102 locations in 19 counties outside the US. We calculated 62 billing days in the fourth quarter, compared to 61 days in last year's fourth quarter, the effect of which was a 1.7% increase in reported year-over-year staffing growth rates in the fourth quarter. The current quarter has 62.2 days.

Currency exchange rates increased fourth quarter 2012, sequential staffing revenues by $5 million, and reduced fourth quarter year-over-year staffing revenues by $3 million. This had the effect of reducing year-over-year reported staffing growth rates by 0.3% in the fourth quarter. A supplemental schedule accompanying our earnings release today shows year-over-year revenue growth rates for each of our staffing lines of business on a reported basis, as well as a same-day constant currency basis. This schedule further divides the data between US and non-US operations.

This is a non-GAAP financial measure that provides additional information on certain revenue trends in our staffing operations. You can find this schedule in today's press release, and in the Investor Center on our website. Fourth quarter global revenues for Protiviti were $120 million, including $93 million in the United States, and $27 million outside the US. Year-over-year growth rates were 10% globally, with US revenue up 15% and non-US revenue down 5%. Protiviti and its independently-owned member firms serve clients through a network of 73 locations in 23 counties.

Now let's review gross margin. Fourth quarter gross margin in our temporary and consulting staffing operations was 36.4% of applicable revenues. This was a 60 basis point increase over the fourth quarter of last year. The improvements reflect continued strength in pay bill spreads, and higher temp-to-hire conversion fees. The fourth quarters of 2012 and 2011 also included workers' compensation and other payroll-related credits of $2 million and $1.5 million, respectively.

Permanent placement revenue was 8.8% of overall staffing revenue for the quarter, slightly higher than the 8.7% of revenue reported one year ago. Together with the higher temporary and consulting gross margins, overall staffing gross margin expanded by 70 basis points versus one year ago. Protiviti's fourth quarter gross margin was $32 million or 26.9% of Protiviti revenues, compared to $30 million or 27.6% revenues a year ago.

Turning to selling, general and administrative costs. In the fourth quarter, our staffing SG&A costs were 32% of staffing revenues, down 130 basis points from the 33.3% reported a year ago. We ended 2012 with 9,500 full-time employees in our staffing divisions, up 6% from the prior year. Fourth quarter SG&A costs for Protiviti were 22.4% of revenues. This is a 300 basis point improvement from the 25.4% level reported last year. We ended 2012 with 2,900 full-time Protiviti employees and contractors, up 8% from the prior year.

Fourth quarter operating income from our staffing divisions was $92 million, or 10% of staffing revenues. Temporary and consulting divisions reported $80 million in operating income for the quarter, or 9.6% of applicable revenues. Fourth quarter operating income for our permanent placement division was $12 million, or 14.4% of applicable revenues. Protiviti's operating profit was $5 million in the fourth quarter of 2012, or 4.5% of revenue, compared to $2 million in the fourth quarter one year ago, which was 2.2% of revenue. Accounts receivable were $513 million at the end of the fourth quarter, with implied days outstanding, DSO, of 45.1 days, compared to 46.1 days at the end of the fourth quarter of 2011.

Now let's turn to guidance. We saw the following trends in the fourth quarter, and so far in January. In the US, year-over-year growth rates for our temporary and consulting divisions decelerated throughout the quarter. However, we did see sequential growth in every US line of business during the quarter. Also in the US, year-over-year growth rates for our permanent placement divisions decelerated in October, accelerated in November, and then decelerated again in December while still maintaining double-digit growth rates for the month of December versus the prior year.

Outside the US, year-over-year growth rates remain negative, and weakened throughout the quarter. However, the sequential declines in the fourth quarter were lower or better than the prior two sequential quarters. For the first three weeks of January, revenues for our temporary and consulting operations were up 2% on a same-day constant currency basis, compared to the same period last year, with US temporary and consulting revenues up 5%, and non-US temporary and consulting revenues down 7%. For the first four weeks of January, permanent placement revenues were down 5% on a same-day constant currency basis, compared to the same period last year, with US perm revenues up 10%, and non-US revenues down 28%.

We would caution, however, it is very difficult to evaluate trends over such short time periods. Taking this information into account, we offer the following first quarter guidance. Revenues, $1.01 billion to $1.06 billion. Income per share, $0.38 to $0.43. It is our policy to limit guidance to one quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release. Now I will turn the call back over to Max.

Thank you, Keith. We finished the fourth quarter with broad-based year-over-year and sequential revenue growth in our US staffing operations and Protiviti. Non-US operations remained affected by weaker economies in several counties, most notably, in Europe. As previously discussed, our US staffing branches as well as select non-US locations are seeing rising demand for professional staffing and consulting services, particularly in the technology and accounting sectors.

Protiviti had a solid fourth quarter with double-digit revenue growth year-over-year. Protiviti continues to diversify its consulting solutions, and we are pleased with their results. We announced in December that Protiviti had purchased the assets of SusQtech, a leading provider of Microsoft SharePoint implementation, design, and integration services. In doing so, we gained an experienced team of technical talent and consulting professionals. We anticipate opportunities for joint go-to-market solutions with Protiviti and our staffing business around these, and other Microsoft technology-based initiatives.

As we continue into 2013, we do feel Robert Half is well-positioned based on certain economic trends that could work in our favor, as well as what we believe are unique strengths of our Company. First, the demand for skilled talent has persisted even with relatively high overall unemployment rates. Skill shortages exist in certain specialties, particularly in the fields we serve. In the fourth quarter, for example, the US unemployment rate was just 1.5% for database administrators, and 1.9% for financial analysts. Our industry is growing. The BLS reports that employment services will be among the 20 industries adding the most jobs between 2010 and 2020. Annual global revenues for the staffing industry are estimated at approximately $400 billion.

Small and mid-sized companies are hiring. The latest ADP national employment reports showed that nearly 60% of the private sector jobs gained in December were added by small and mid-sized companies. Because smaller firms often lack their own HR departments, they value the personalized service and insight a specialized recruiter can provide, including proprietary testing processes, direct interaction with the people we place, and most important, direct client feedback. There is ongoing demand for flexible staffing. The percentage of temporary jobs created in the US in this cycle is double that of the prior one,13.2% versus 6.5%.

The pace of temporary staffing growth in the current recovery also has been faster. 792,000 temporary jobs were created in the 39 months ended December 2012. In the prior recovery, it took 56 months to add 513,000 temporary jobs. As of the end of 2012, the temp penetration rate in the United States was 1.9% of total US non-farm employment, which is close to the high point in the last cycle. This percentage is approaching the record high of just over 2% in 2000. There is opportunity we believe, for the temp penetration rate to expand further, based on the secular demand for staffing flexibility we have been discussing.

Technology staffing continues to present a market opportunity for our Company. The IT staffing market is more than four times the size of the accounting staffing market. Technology is advancing faster than the supply of skilled workers, which is fueling demand for experienced IT professionals on a project and full-time basis. We are optimistic about the possibilities within the technology staffing sector. Other business trends could benefit our Protiviti and staffing operations. These trends include ongoing regulatory changes in the financial services industry, an increase in technology spending by companies, and implementation of the President's new healthcare legislation.

Our business is performing well. US staffing revenues are recovering at rates roughly consistent with the previous cycle, notwithstanding the higher unemployment rates in this cycle. We also have seen broad-based improvement in gross margins and operating income throughout 2012 in our staffing operations and Protiviti. We are particularly optimistic about the combined service offerings of staffing and Protiviti. We are able to offer our clients a full complement of staffing, project and consulting solutions for their businesses at competitive prices.

We are also confident in the experienced leadership in our staffing operations in Protiviti, leaving us well-positioned, we believe, as we head into 2013. And we are in a strong financial position. We had positive operating cash flow of $289 million in 2012, which helped to fund approximately $133 million in RHI stock repurchases, $50 million in capital expenditures and the payment of $84 million in dividends to stockholders.

At this time, Keith and I will be happy to respond to questions. Please limit yourself to one question as usual, 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)

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

One question and one follow-up. The first question has to do with the US. Specifically, there has been an increasing level of investor dialogue regarding the potential ramifications of the Affordable Care Act, and how it could potentially influence the penetration rate on a go-forward basis. Keith, I know you have done a lot of work on this. There has obviously been a lot of dialogue between the regulatory agencies regarding a look-back period. I am wondering if you could give us your latest sense for what the potential impact would be?

I think you have to look at two sides of it. One is the potential revenue opportunity, and the other is the potential internal cost. On the potential revenue opportunity, clearly, firms that have 50 or fewer employees that do not presently offer coverage to their employees will be particularly interested in the Health Care Act, which requires those with over 50 to comply. We are already getting inquiries from our client base for companies in and around 50, asking us to help them understand this legislation, and to inquire as to how we might be helpful.

Our response is that we can legally help them remain under 50, since we are the employer of record for the temporaries we provide to them, and that we have every intention of ourselves legally complying with the Act on a go-forward basis. As you have talked about, as to the costs of the equation, for our temporary employees there is a 12-month period after we first hire them, where they essentially audition to be full time followed by a 12-month period, if once qualified, we have to for coverage or pay a penalty. It is our intention to offer coverage to those qualifying temporaries. We have done a fair amount of work as to what those costs might be.

They require us to estimate the percentage that will qualify as full-time, the percentage that will accept and decline coverage, what the cost of that coverage might be, as well as the number of months during that second 12-month period where they would remain an employee. It is our estimate at this early time, that the increase to our cost would be a small single-digit percentage increase to the overall pay rates we provide. So we believe based on what we know today -- and clearly it's somewhat early, and subject to those assumptions, we think the cost side will be manageable.

Back to the revenue side. We certainly see it as an opportunity. We are in somewhat of an investigation stage by many of our clients. We are getting inquiries, and we do expect it to add to the demand. It is very difficult to project what that added demand would be. It is estimated that there are 130,000 firms with 50 or fewer employees, and that over 50% of them do not provide coverage to their employees. The good part of the new health care legislation would be those employees will have a new place to go, called the state exchange to provide coverage for themselves. But again, long story short, an opportunity, hard to quantify at this point on the cost side. We believe it manageable, based on our current estimates.

Great. And you think the 12-month look-back is solid?

So the way the regs have currently been written, is that we can rely on the regulations that include this 12-month period, and that any changes that might come out in further clarifications would be prospective only, and would only apply after 2015 at the earliest. I don't think there is any question, at least through 2014, this measurement or look-back period and 12-month stability period are solid.

Perfect. And then what is your confidence level with regards to being able to pass along the price increase? Pass along the additional costs?

Well, because we believe the additional cost to be a small single-digit percentage, we are confident that with a little time, we can pass it on.

Great. And how about the administrative costs?

The administrative costs we currently plan to essentially outsource to a third-party. We already have a health care plan offered to our temporary employees, and totally at their cost, and we have a third-party administrator that administers that plan. Our plan is that we would stay with them. They are used to having to administer that number of employees. So we are reasonably confident that we can continue to outsource that function in the future.

Terrific. Thank you.

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

Thank you. First, more specifically on Europe, but also in the US, I think last quarter there is a growing sentiment at least I felt that you are feeling a bottom in Europe in terms of the demand trend. Can you update us on how you think about that as the quarter progressed in terms of growth rates starting to get better here in the next couple of quarters?

Well, on Europe, while the year-on-year growth rates are even more negative, I think more relevant would be the sequential growth rates. And as I mentioned in our prepared remarks, the rate of decline sequentially has lessened the last three quarters, such that for the fourth quarter on a same-day constant currency basis, our international operations were down 1% sequentially. And that compares to down 2% and 3% sequentially for the prior two quarters. So those numbers are generally consistent with what we expected.

Our guidance, on a sequential basis in the quarter that we are in, would be to continue that trend to down a little bit to even flat sequentially. So I think as we have discussed before, the numbers, the data would show that our European operations are bottoming if you look at a sequential basis. Because of the comps from a year ago, the year-over-year growth rates don't look as good. The post-quarter starts, the perm number was particularly negative.

I would invite everybody to go back through time and look at how we started a quarter in perm, versus how we reported the entire quarter. And what you are going to see loud and clear is that our start in a quarter as we report on these calls isn't very indicative of how we end up for the full quarter. So I wouldn't be overly spooked by the post-quarter non-US perm number.

Okay. As we look forward at the gross margin, excluding the credits you got in the quarter, the gross margin would still be 36.2% for the temp business? Can you talk through with us, what you are assuming going forward, on underlying bill and pay rate trends? Is there any sign that, that is changing, that you could see pressure, or do you think you will be able to continue to expand that number?

Well, the short answer is, in our guidance we have clearly taken away the credit we got during the fourth quarter for workers comp and other credits, which are roughly 25 to 30 basis points. But absent that, I would say the pay bill spreads are stable. They are constant. Will we expand them to the extent we did in 2012? Maybe not. But we do think they are stable, and maybe there is a little bit of upside there. But particularly for the first quarter, you've got to model out the credits we got during the fourth quarter, which is consistent with what has happened in prior first quarters.

Okay. Thank you.

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

Thanks so much. I was particularly impressed with the incremental margin expansion you got in the perm business. Can you give us a little bit more color on how that happened and do you think that could continue?

Well, in the perm business and to some extent in temp as well, we have contained our cost quite successfully as we have talked about for a few calls in a row. Our non-US operations have been particularly vigilant with their cost. The perm business has been more impacted than the temp business non-US. And, therefore, their costs have been more impacted accordingly. We do continue to expect to contain our cost as we go forward. So our modeling for the quarter that we are in assume continued SG&A costs, in line with what we have seen the last few quarters.

Okay. Great. And then just some numbers questions. Just for modeling purposes for 2013, what should we be using for capital spending, depreciation, amortization, and the tax rate?

Capital spending will be up a little bit in 2013 because some of what we were planning to spend in '12 got rolled over. So let's call it, $60 million, plus or minus $5 million. Let's see, the depreciation, flat to down slightly versus 2012. Tax rate, let's talk about a bit, because for the first quarter of 2013 and for a full 2013, we do expect a lower tax rate. So for the first quarter of 2013, we expect something between 37%, 38% -- take a midpoint if you would like. We did some non-US structuring during 2012 that will benefit 2013 starting in the first quarter, but then continuing throughout. So we do expect the benefit of a lower tax rate in 2013 than '12.

Okay. Great. Just a quick one. Are there any billing day issues, the rest of the year? If you could give us the billing days for the rest of the year by quarter, that would be great?

Okay. Billing days, obviously, we don't have leap year again in 2013. We have 62.2, quarter one; 63.5 quarter two; 64.0, quarter three; 61.9, quarter four. So we end the year at 251.6.

All right.

It was down a day, because of leap year.

Got it. Thank you so much, Keith and Max.

Your next question comes from the line of Paul Ginocchio with Deutsche Bank. And Paul, your line is open.

Just two quick questions. One, any way to give us an idea of what SharePoint is in the first quarter roughly? And then, it sounds like there is more go on the SG&A. So would we expect as you talked about perm a little bit, that there is still more or better incremental margins going forward, as you take some costs out of Europe?

Okay. On the SharePoint acquisition, which we are very pleased about both for staffing and for Protiviti, it is a small acquisition. We did not disclose the financial impact. We said it had just under 60 employees. So it is not going to have a material impact on our numbers.

As to SG&A as I talked earlier, we do plan to continue to contain our SG&A for those areas that are growing, and we are still growing in the US. We do have pockets outside of the US, notably, Germany where we are growing, and those areas will add to heads. In the other areas, we will keep them the same. Or if there is a decline, we will try to manage them accordingly. So our hope is, just as we have had very good success managing SG&A the last four quarters, we expect that to continue into the first quarter.

Thank you.

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

You made a point about first quarter guidance. If you could comment on Accountemps, that usually has a seasonally strong quarter? If you could comment on Protiviti, which usually has a seasonally weak quarter? And if you could comment on international, which still has somewhat of a difficult comp year-over-year? What is included in the guidance?

Sure. Andrew, if you look at Accountemps on a same-day constant currency basis, historically you get a little lift in the first quarter. But it is not a huge number. I think last year it was 1.6% on a same-day constant currency basis.

Okay.

That is offset by, traditionally, OfficeTeam, which doesn't have the holiday lift in the first quarter. Robert Half Technology, it takes longer to get its new projects started. So that if you look back in time on a same-day basis, as an example for the last three years, our temp business has grown sequentially 0.8%, 1.1%, 0.8% as you look back three years. So, frankly, the first quarter on a same-day basis sequentially is up a little bit. Our guidance, that same kind of assumption would be in the middle of our low and high guidance.

As to Protiviti, Protiviti seasonally is always weaker in the first quarter. Typically, it's down 6% to 10% on a sequential basis. Our guidance would include those kinds of assumptions, again for the first quarter. Note that, notwithstanding that sequential decline, they would still be up high single- to low double-digits on a year-over-year basis. At the operating income line for Protiviti, last year we lost a little money. This year we are hoping to be around breakeven.

For the international zone, we do believe we are in the process of bottoming as we talked about a little earlier, on a sequential basis. You see that more noticeably than you do on a year-over-year basis, because the comps come into play, as you noted.

Okay. But what type of year-over-year declines are in international in the guidance?

Well, I am not sure we have ever gotten that granular. I will say this, that we certainly don't expect the full quarter declines on a year-over-year basis that we had in the first few weeks that we did disclose. I think the first few weeks we said, down 7% temp, down 28% perm.

Okay.

We think we will do better than that in the guidance. But it is overall baked into the numbers that we talked about. So on a year-over-year basis, they will appear weak. On a sequential basis, it will be consistent with the last couple or three quarters.

Got it. Thank you very much.

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

Thanks. A couple quick ones. On the billing days, I just want to clarify you are down about a 1.5 day year-over-year in the first quarter, is that right?

That's correct.

Okay. Great. And then can you guide to gross margin for the staffing business for Q1?

Well, we basically said, we are going to lose 25 to 30 basis points from the absence of the credits we had in the fourth quarter. So all things being equal, sequentially, your gross margin is going to be down 25 to 30 basis points. On a year-over-year basis, you are still going to be up 50 basis points, 60 basis points year-over-year.

Okay. You said though, in your comments you were hoping to keep the bill pay spread flat, maybe pick up a little bit. Can we take that 50 basis points to 60 basis points through the year in your view? Or is there some caution you would give, as we look to the out quarters?

Well, given that, A, our gross margins are the highest in the industry; B, our gross margins have probably recovered better than anybody in the industry, I would tend to be conservative as we project out for 2013. Which would mean on a year-over-year basis, the basis points improvement might moderate. But again, I think you have to take that into context of how we have done relative to everybody else so far.

Okay. Great. And then on the tax rate, you talked about Q1. I think you said 37%, 38%. I got the impression you might have had different comments for the out quarters. Is that a good rate for the year, or are there any changes that will occur later in the year?

Most of the benefits to the first quarter remain for the remaining quarters. So 37%, 38% is not a bad range as we sit here today. As we have talked about on prior calls, there are a lot of moving parts to the tax rate. So don't hold me to basis points. But the thought is it should be down, and it should be on the order of magnitude of 37%, 38%.

Okay. Great. A last one on the health care, Obamacare issue. What portion of the temporary employees do you currently pay benefits to?

Well, the direct answer to your question would be fewer than 10% of our current temporaries choose health care benefits, for which they have to pay themselves all of the cost. That is not necessarily the same situation that we are talking about going forward. We could further say, that about 25% of our current temporaries on a full-time equivalency basis would qualify as full-time based on the 30 hours per week. However, that entire number wouldn't work all of the second 12 months, which is the period for which you are actually either offering or paying penalties.

So the calculation as I alluded to earlier, is what percentage become full-time as defined. Historically, that would be 25%. What percentage actually accept the coverage versus decline it -- I don't think you can rely on historical percentages because the economics change so much. It is clearly going to be more than 10%. It will be a lot less than 100%, however. And then we look at what is the cost of the coverage? We have worked with our underwriters. We have some estimates of that.

And then also as I said, how many of the temporaries remain employed the second 12 months after they have qualified the first 12 months. And, clearly, not all of that 25% are going to work all of the second 12 months. So we dialed all of those assumptions in, too, and we believe that the cost will result in a small single-digit increase to our overall pay rates.

Okay. Great. Thank you very much.

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

Thank you. Just to clarify your comments about who would qualify as an FTE. When you say 25% of current temps would qualify as FTE, just to make sure I understand that what you meant was they work more than 30 hours a week and they work for more than 12 consecutive months? Is that correct?

Well, over the course of a year, as we disclose in our 10-K -- I believe for 2012, it's going to be in the US approximately 160,000 temporaries. However, on a given day we don't have 160,000 temporaries out working. We have between 40,000 and 45,000 out working. So I am saying of that 40,000 to 45,000 that were out working every day, 25% of those or 10,000 or 12,000, actually got the 30 hours per week, or more specifically, 1,560 hours over a 12-month period. So it starts with, frankly, for 2012, you had 10,000 or 12,000 people that made it to 1,560 hours.

We believe if we offered all 10,000 or 12,000 of them coverage, many of them would decline it, because they have it through other sources. They don't need it from us. They get a better deal somewhere. There are tons of reasons why once we offer it, it doesn't necessarily mean they are going to accept it. But when we say 25%, we say of the temporaries out working on any given day, about 25% of those would qualify as full-time as defined under the Health Care Act.

Got it. That's helpful. Thank you. I am wondering if you could give any incremental commentary around bill rate trends that you saw in the quarter?

Okay. For bill rate trends, the year-over-year were up 2.3%, and sequentially were up 0.5%. So flat to a little better on a sequential basis, up 2 percentage points year-over-year.

Is that US specifically, or does that include international?

That's global. It is clearly better in the US

Okay. And then just last quick question. Could you give us any update on demand trends within IT staffing? It showed a pretty good sequential slow down in the growth rate in the quarter, and I am wondering what you are seeing there in terms of client demand? Thanks very much.

Well, I would say in IT somewhat similar to our other divisions, we saw steady demand. It wasn't great. It wasn't bad. Further, in the IT business you always have project ends, that many times happen around year-end. And we did have project ends again this year. So the net effect of this, was that sequentially, as you described, the IT perm business was a little more solid than the IT temp and consulting business.

Okay. Thank you.

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

Yes. I would like to just follow up on that last point, and maybe more broadly. What are you hearing from businesses? Was there any putting off of projects or retrenchment around the fiscal cliff issues and tax uncertainty? And has that changed with the tax deal, or are you hearing that maybe that remains a headwind until they make progress on deficit reduction, or has that not really been an issue at all?

I would say, generally, our clients were and remain cautious. And whether it is election uncertainty, election certainty, fiscal cliff, debt ceiling uncertainty, there are many reasons. But there clearly, remains some cautiousness, and our guidance reflects that cautiousness. That said, it is steady. Job order flow is consistent. It is not great. It is not bad.

Okay. And did you see any impact from Hurricane Sandy in the quarter that was meaningful now?

Yes, we saw an impact. It was relatively small, in the scheme of things. We don't tend to invoke weather or other related events unless they have a material impact. But it had a small impact.

Okay. Great. Thank you.

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

Thank you. I wanted to ask a follow-up question about IT and the bill rates. Is there a discernible difference in the bill rates in the IT business versus the finance and accounting business?

Well, discernible? I think they are all within a general range. I don't think there are huge differences among divisions. Our client base is all non-Fortune 1000. The clients in our IT business are modestly larger, than our client size in the accounting and finance business. But it is not hugely larger. And for that reason, the bill and pay rate trends tend to be somewhat similar.

And how are the bill rates across your businesses mapping against your salary surveys -- what are predicted at this point?

Well, the salary surveys for certain positions map very nicely, and for other positions don't map so nicely. So I don't think I would get overly analytic trying to overall correlate one to the other.

Your next question comes from the line of James Samford with CitiGroup.

Great. Thank you. I just wanted to touch on the mix shift potential from temp to perm, assuming there are some of these new secular trends arising either from the Affordable Care Act, or even just potentially people planning towards a changing environment macro-wise. How should we think about the margin, peak margins relative to historicals? And are some of the bill rate pay spreads and the cost-cutting efforts going to offset some of the mix shift impacts that might occur?

Well, I would say that one of the things we are most proud of, to this point in this cycle, whereas the overall unemployment rates have remained high, our margin recovery looks pretty good. So we are very pleased with where our operating margins are, temp and perm, at this point in the cycle. And we are cautiously optimistic that within the divisions, we can take margins to higher levels. You might have a little mix offset over time, depending on how temp grows versus perm. But quite frankly, perm is holding up pretty well. And so far in this recovery, perm has acted at least as good as it has in the past, and it has held its own from a mix standpoint. So as we sit here today, I don't see any major mix dilution from significantly less perm as temp outgrows it.

Great.

So long answer short, we feel good about our margins so far, and we feel good about our margins, in respect to our ability to continue to expand them as we work forward.

Follow-on high-level questions here. People are talking certainly about a lot of press about new manufacturing renaissance, et cetera. Are you planning for a more mixed shift, or at least is there demand increasing on the manufacturing side? And is that an area that you are looking at as potential growth opportunities?

I think from an industry standpoint, we are very diversified. Manufacturing is not a huge portion of our client base. That said, we are well represented there. And with expected lower energy costs in the US, many do expect manufacturing to have a resurgence. We have nice participation across all major markets in the US. And if manufacturing rebounds as you indicate, I think we will participate accordingly.

Great. Thank you.

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

Hello, Keith, it looks like the EPS guidance is essentially identical to Q4 on revenue. It is a little lighter, in terms of the low end of the range. Is one factor there, the lower tax rate? Or with payroll tax reset, things like this, is it better bill rates that are driving the same EPS? If you could just help us understand that?

Okay. So the revenue range is exactly the same as it was the revenue range for the past quarter. And the EPS range is the exactly the same. At 50,000 feet, one way to look at our guidance would be -- on the one hand, Protiviti has a seasonally slower quarter in the first quarter. And therefore, there is a margin impact from that.

On the other hand, the first quarter you don't have the credits in gross margin that you had in the fourth quarter. On the other hand and offsetting those, are the expected lower tax rate in the first quarter versus what we had in the fourth quarter. So a little sequential growth in the staffing business. A somewhat lower seasonally adjusted gross margins. The impact to Protiviti offset by lower taxes.

Super. And then the only other comment. It looks like you scaled up the buyback in Q4. Was that just a function of getting to annual targets? Or how should we think about the buyback in 2013?

So if you look at our operating cash flow for the full year of 2013, between buybacks, dividends, capital expenditures and the small acquisitions that we did, we spent 100% of our cash flow, which is what we have been saying for many years, is our plan.

Okay. Thank you.

Your next question comes from the line of Randy Reece with Avondale Partners.

Gentlemen. I was wondering if you looked at your permanent placement personnel capacity versus the demand levels, how closely are you managing headcount to activity?

While we are managing it closely to activity, we are leaving a capacity buffer there. So just as you look at all of 2012 revenues versus headcount, you will see our headcount growth lagged by a few percentage points of revenue growth. I would think that for 2013 a similar pattern would repeat, i.e. while we will closely manage it, we do have some capacity to grow revenues a little more than headcount.

Okay. What was the stock comp number in the quarter?

Stock comp was $10.6 million.

So that means that -- if I take depreciation and stock comp out of SG&A, everything else that is left grew 2% year-over-year when you managed much stronger growth in revenue and gross profit. That is really powerful leverage. But you say, you still have some capacity. You are not really running totally lean?

Well, as to capacity, it is not only with our field staffing professionals. It is with our field administrative professionals, branch managers and above, as well as our back office and headquarters costs. And so we believe, that we can continue to leverage our field administrative infrastructure, as well as our corporate and back office infrastructure, such that we will get leverage from them separate and apart from the leverage we get from our staffing professionals that sell and recruit.

Okay. Do you have the working capital change number for the fourth quarter or for the year? Either one would help.

Yes, I don't have it off the top of my head, Randy. We, clearly, will have our full balance sheet soon with the K. I gave you some of the working capital elements in the detailed supplemental schedule in the press release.

Yes. All right. I will just wing it. Thank you very much.

Okay.

We are nearing the top of the hour, and have time for just one more question. Our last question comes from the line of John Healy with Northcoast Research.

Thank you. I just wanted to ask a bigger picture question. Earlier in the call, you talked about your exposure in the tech vertical, and as large as that vertical is for the market and how big it is relative to you. There is clearly an opportunity there. I know, historically, you have built your business internally and focused on the culture of Robert Half. But I was curious to know if you are more willing, more open to maybe an acquisition to beef up your presence on the IT side? Is that something that you have on the table, or not necessary on the table, but is that something you are interested, or would look at maybe in 2013?

Well, I think the fact that we just did a small acquisition in the IT space in the SharePoint area would in part answer the question that, yes, we are more willing to increase our exposure through acquisition. But it is more likely to be a series of smaller deals where we are more comfortable that we can integrate the cultures, than it would be a larger deal where that would be more difficult.

And that would also be on the temp side of things, not necessarily just to build it through the Protiviti consulting side of things, correct?

That's right. And to be clear, the acquisition we did will benefit both the staffing side and Protiviti, where we are active in SharePoint, on both sides.

That's helpful. And just one housekeeping question. With the year coming to a close, is there a way you could give us just some color on the mix of your business today, in terms of -- if you looked at small customers and mid-sized customers of 50 to 200 employees, and then Fortune 500 customers, what percentage of your business do you put in each of those buckets?

Well, while we have never disclosed precise percentages, the overwhelming majority of our business remains with non-Fortune1000 firms. We have talked about our sweet spot being 75 to100 employees. That remains our sweet spot. We do business with larger firms below the Fortune 1000. But that said, we continue to be primarily focused and our revenues are primarily generated from non-Fortune 1000 firms, sweet spot 75 to100 employees.

Okay. Thanks again.

That was our last question. Keith and I would like to thank everyone again for joining us on today's call.

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. Dialing details and conference ID are contained in the Company's press release issued earlier today.