羅致恆富 (RHI) 2015 Q1 法說會逐字稿

Hello, and welcome to the Robert Half first quarter 2015 conference call. Our hosts for today's call are Mr. Max Messmer, Chairman and CEO of Robert Half, and Mr. Keith Waddell, Vice Chairman, President, and Chief Financial Officer. Mr. Messmer, you may begin.

Thank you, and hello everyone. We appreciate your time today. Before we begin, I would like to point out that some of the comments that we will make on today's call contain predictions, estimates, and other forward-looking statements. These statements represent our current judgement of what the future holds, and include such as forecasts, estimate, project, expect, believe, guidance, and similar expressions. We believe these remarks to be reasonable. However, they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements, some of these risks and uncertainties are described in today's press release, and in our SEC filings, including our 10-K, 10-Q, and today's 8-K. We assume no obligation to update statements made on today's call.

For your convenience, our prepared remarks are available now on our website at www.RobertHalf.com. Click on Investor Center, then the quarterly conference call link. Now let's review our first quarter results. First quarter 2015 revenues were $1.21 billion, this is an 11% increase from the year-ago first quarter. Income per share was $0.58, up 28% from last year. Cash flow from operations was $84 million in the first quarter, and capital expenditures were $13 million. It has been our long standing practice to return cash to stock owners to open market repurchases and cash dividend payments. In February, we increased the quarterly cash dividend from $0.18 to $0.20 per share. This was the 10th consecutive year we have raised the dividend amount for our stock holders.

We paid the dividend on March 13 at a cost of $27 million. We also repurchased 500,000 Robert Half shares during the quarter at a cost of $29 million. There are approximately 4.3 million shares available for repurchase under our Board approved stock purchase plan. Led by Protiviti and Robert Half technology, all of our divisions contributed to a solid first quarter, we saw broad based revenue gains and higher service demand in every line of business. First quarter revenues from our staffing operations were up 10% from the year-ago first quarter, Protiviti revenues for the quarter were up 22%. Growth rates remain the strongest in our US operations, but currency adjusted revenues outside of the United States grew nicely also. This was Robert Half's 20th straight quarter of double-digit net income and earnings per share percentage growth on a year-over-year basis. Our unlevered return on equity was 32%. At this point, I'll turn the call over to Keith for a closer look at our first quarter results.

Thank you, Max. Consolidated revenues were $1.21 billion in the first quarter, this is up 11% from the first quarter of 2014 on a reported basis, and up 16% on a same-day currency adjusted basis. First quarter global staffing revenues were up 14%, on a same-day currency adjusted basis. US staffing revenues were $827 million in the first quarter, up 16% on a same-day basis. Non-US staffing revenues were $215 million, up 10% on a same-day currency-adjusted basis. We have 336 staffing locations worldwide, including 94 locations in 17 countries outside of the US. The first quarter had 62 billing days, compared to 62.4 days in the first quarter a year ago. This negatively impacted year-over-year growth rates by 1%. The current quarter has 63.2 billing days, which is the same as the second quarter of last year. Currency exchange rates had the effect of decreasing year-over-year staffing revenues by $35 million in the first quarter, exchange rates also decreased year-over-year reported staffing growth rates by 4%.

Each quarter we include a supplemental schedule, with our earnings release, that shows year-over-year revenue growth rates for our various staffing lines of business on a reported basis, as well as a same-day currency adjusted basis. The schedule further segments the data by US and non-US operations, you can find the schedule in today's press release, and the Investor Center of our website. This is a non-GAAP financial measure that provides information on certain revenue trends in our staffing operations.

Global revenues for Protiviti were $164 million in the first quarter, with $136 million in revenues from the United States, and $28 million in revenues outside the US. Worldwide Protiviti revenues were up 27% on a same-day currency-adjusted basis, US revenues were up 28%, and non-US revenues were up 21% from the prior year. Exchange rates had the effect of decreasing year-over-year Protiviti revenues by $4 million in the first quarter, and decreasing year-over-year reported growth rates by 3%. Protiviti and its independently owned member firms serve clients through a network of 73 locations in 24 countries. Gross margin in our temporary and consulting staffing operations in the first quarter was 37% of applicable revenues, this is up 90 basis points from the same period a year ago. The improvement includes higher pay bill spreads, and higher attempt to higher conversion fees.

First quarter revenues for our permanent placement operations were 9.4% of consolidated staffing revenues, compared to 9.7% of consolidated staffing revenues in the first quarter of 2014. Together with temporary and consulting gross margin, overall staffing gross margin improved 60 basis points versus a year ago to 42.9%. First quarter gross margin for Protiviti was $47 million, or 28.8% of Protiviti revenues. Gross margin one year ago for Protiviti was $37 million, or 27.4% of Protiviti revenues. Staffing SG&A costs were 32.2% of staffing revenues in the first quarter, versus 32.3% in last year's first quarter. SG&A costs for Protiviti were 18.8% of Protiviti revenues in the first quarter, compared to 21.9% of Protiviti revenues in the year-ago period.

Operating income from our staffing divisions was $112 million in the first quarter, up 18% from the prior year. Operating margin was 10.7%. Our temporary and consulting staffing divisions reported $93 million in operating income, an increase of 20% over the prior year. This resulted in an operating margin of 9.8%. Operating income for our permanent placement division was $19 million in the first quarter, up 10% from the prior year, and producing an operating margin of 19.3%. First quarter operating profit for Protiviti was $16 million, an increase of 121% from the prior year this produced an operating margin of 9.9%. At the end of the first quarter, Accounts Receivable were $661 million, implied day sales outstanding, DSO was 49.9 days.

Before we move to second quarter guidance, let's review the monthly trends we saw during the first quarter, and so far in April. In the US, year-over-year growth rates for our temporary and consulting divisions accelerated in January, slowed somewhat in February, and held steady in March. Also in the US, year-over-year growth rates for our permanent placement, accelerated in January, decelerated in February, and held steady in March. Outside the US year-over-year temporary and consulting staffing growth rates accelerated in January, decelerated in February, and then decelerated again in March. Permanent placement growth rates outside of the US accelerated in January, lost a little momentum in February, and held steady in March. For the first two weeks of April, revenues for our temp and consulting operations were up 13% on a same-day currency-adjusted basis compared to the same period last year, with US temporary and consulting revenues up 13%, and non-US temporary and consulting revenues up 11%.

For the first three weeks of April, permanent placement revenues were up 9% on a same-day currency adjusted basis, compared to the same period last year, with US perm revenues up 12%, and non-US perm revenues up 2%. This information is designed to give you additional into trends we saw during the first quarter, and so far in April, but as you know, it's difficult to read a great deal into these numbers, given the short time periods they represent. With that said, we offer the following second quarter guidance. Revenues $1.245 billion to $1.295 billion, income per share $0.63 to $0.68. We limit our guidance to one quarter. All estimates we provide on the call are subject to the risks mentioned in today's press release, and in our SEC filings. Now I'll turn it back over to Max.

Thank you Keith. As noted earlier, all areas of the business contributed to a solid first quarter for the Company. The labor market in the United States is stronger than it has been in more than a decade. Initial jobless claims, based on the four-week moving average are at their lowest level in nearly 15 years, and skill shortages persist in many occupations. Technology staffing is the most supply constrained area of staffing, but demand extends to our other specialties as well. The US Bureau of Labor Statistics reports unemployment rates for specific occupations on a quarterly basis. Many of the specialized fields we serve have rates that are less than half of the overall US rate of unemployment. This includes many technology and accounting positions, as well as creative and marketing roles, particularly those that are web related. We are seeing similar trends outside of the United States. As labor markets tighten, clients place a premium on recruiting hard-to-find candidates, which is our strong suit. Of particular significance for our business, the demand for temporary workers has also risen. Today flexible staffing has become a key way for employers to manage work flow and control labor costs.

Protiviti again reported impressive growth rates during the first quarter. We're very pleased with how this business is performing right now, demand is strong in all three of its principle service areas. Internal audit, Financial Services risk and compliance, and IT controls and security. The collaboration between our staffing divisions at Protiviti is also resulting in new business. We offer clients a full spectrum of services, ranging from staff augmentation to full-service consulting and project-based deliverables. At this time we'll be happy to answer questions. We'd request that you please limit yourself 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). Your first question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.

Hi. Henry Chien calling in for Jeff. Thanks for taking my questions. Just looking at Protiviti. Looks like you had a pretty strong year-over-year operating margin, improvement. And seeing some nice leverage in SG&A. Can you comment on when you expect that trend to continue moving forward? Thanks.

So you're correct. Protiviti did have a particularly strong quarter, not only in the United States, but outside the United States as well. Our expectation is in the second quarter, there would be some sequential improvement versus the first. But given the strength of the first quarter, the magnitude of the sequential improvement wouldn't be quite what it is in the past. But on a year-over-year basis. I think you'd be very pleased with what's embedded in our guidance for Protiviti in the second quarter.

Got it. Thank you. Just a follow-up on international revenue. It sounds like there could be I guess re-acceleration for second quarter? Could you comment on maybe what markets that you're seeing improving? Thanks.

Well, I'm not sure where the re-acceleration comment comes from. But we had a very solid second quarter outside of the US, not only in staffing, but in Protiviti as well. Our guidance for the second quarter outside the US, is that it doesn't change dramatically from a currency-adjusted growth rate standpoint versus what we saw in the first quarter. We certainly saw strength in France. We saw strength in Belgium. UK remains solid. Germany was solid. Quite frankly we were pretty pleased across the board in our top six non-US markets in staffing, which make up the bulk of our international operations in staffing. On the Protiviti side we had a particularly good quarter in Asia, which is the first time in many, many quarters I can say that. Clearly that was a meaningful portion of the operating margin improvement, not to say that the US didn't improve nicely as well, led by financial services risk and compliance.

Got it. Thanks so much for the color.

Your next question comes from the line of Mark Marcon with Robert W. Baird. Your line is open.

Good afternoon. You had a really strong acceleration with regards to RH technology, and last call you had mentioned you weren't really investing much above and beyond your normal method of investing. So I'm wondering what drove the strength there? And how should we think about the forward outlook for RH technology?

Well, Mark, in prior quarters, we had made outsized investments in Robert Half technology recruiters, and that began to pay off. Further typically at a calendar year-end, there would be a fair number of project ends, that you take some time to replenish in the new year. That didn't happen as much this year, a couple of reasons, A, the nature of the things we're working on, mobility, cloud, security, app development, web development, were stickier than some of the projects we had done in the past. And further, with the candidate shortage, many clients didn't want to give up their candidates, because they felt like, correctly, if they gave them up, they might not get them back. So the sequential improvement we got in the first quarter was quite different than what we've seen in most years in the past, where you saw some sequential decline. That candidate tightness, the nature of what we're working on.

Okay. You did over-invest a year ago, and a number of quarters ago. But my recollection was the last six months, is there some element in terms of the productivity just across the board? In other words, did you pick up, have you increased the pace of hiring again in technology?

So the first half of last year was very technology-centric in our internal hiring.

Right.

Second half of last year was much broader based, where in addition to technology, we hired in the other divisions management resources notably, to some extent perm placement and Accountemps. Because of the outsized hiring in the first half of the year, it took those people some time to get up to speed, and that began to pay off toward the latter part of end of the first quarter. So we did benefit from the hiring we had done previously. I would say as we look forward into the second quarter and into the third, the hiring we will do will continue to be aggressive, but more in line with our top line across the board, than ahead of our top line.

Got it. And then with regards to the international staffing operations, in your prepared remarks you actually noted that on a monthly basis, there was some deceleration. Was that across the board? And you just said you would expect things to basically stay steady in the second quarter, relative to the first. So I was just wondering is that relative to the exit rate, or just relative to the average, or was there anything that was occurring that was driving that deceleration?

It's a little bit country by country. I'd say that our comments as to guidance were that our second quarter average rate would be close to our first quarter average rate, notwithstanding the trend lines that we talked about.

Okay. Was there anything that was aberrational about those trend lines, or that you would say generally speaking we think things are actually getting a little bit better?

No. I'd say one of the biggest issues with staffing outside of the US, is we have not made the headcount investments there that we've made in the US, because from a macro standpoint, they've lagged. So you're going to see over the next few quarters, we are going to begin to make more headcount investments outside of the US, particularly in permanent placement. And if you look at non-US permanent placement growth rates, you'll see they're among the lowest we've had, and that's also where we've made the fewest headcount advancements in the last 12 to 18 months, and that's what we're going to begin to change.

Got it. Perfect. Thank you.

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

Thanks. On the gross margin I guess qualitatively you said bill pay spreads and conversion rates. Can you quantify how much was each? And I guess in particular is the conversion fees, feel like stepping up here, where I guess this is a sustainable improvement in gross margin, and perhaps even room for further improvement?

We were particularly pleased with our gross margin performance during the quarter. Our bill rate increases were 4.1%, as that's currency adjusted, compared to 3.5% a quarter ago. As we've talked about in the past, the environment that allows us to raise bill rates also allows us to expand our bill pay spreads. So of that 90 basis point improvement, it was not quite half-and-half, but it was close. I think the conversions improved 40 basis points year-over-year. They improved 20 basis points sequentially. You're still at 3.3% of revenues. So in that 3% to 5% range, we're still relatively low in that range. And quite optimistic that we can continue to move up that range, that we've talked about for quite some time. So from our standpoint one of the highlights of the quarter was the progress we made with the gross margins, not only with our pay bill spreads, but also with our conversions.

Okay. And then, sorry. Go ahead.

No. Go ahead.

Okay. On the PERM side you just talked about it a little bit. Can you talk about it a little bit more? If there's a part of the business that at this point in the cycle I guess, I might have thought there would be a little faster growth maybe. It's the perm side. Is it the mix of the international business in there, and as you described the lack of investment? Can you talk about more broadly what you're seeing and how that's trending relative to what you were expecting at this point?

Sure. Permanent placement has the largest non-US mix of any of our lines of business. So clearly the fact that we haven't invested in headcount, because it's lagged from a macro standpoint, impacts our global permanent placement growth rates as well. But even in the US, you saw some deceleration there. Our recruiters had really good years in 2014. It took more time off in early 2015. That's part of it. You're seeing candidate shortage, you're seeing more counteroffers being made to candidates, existing employer, that slows down the placement process a little bit. But none of those things are a huge concern. But it's principally non-US mix that we're only beginning now to invest more in. And we're optimistic that perm will still participate nicely in the remainder of what this cycle, which we think is significant.

Okay. Great. Thank you.

Your next question comes from the line of Sara Gubins with Bank of America. Please go ahead.

Thanks. Good afternoon. Have you heard any anecdotal impact from the decline in oil prices, either particular regions or clients that are in the oil and gas-related industries?

Well, Sara, if you could see our faces, you'd see us smiling. We were just with a lot of our people last week, and this was a topic. First of all, we don't have a huge exposure to oil and gas, whether it be Texas, whether it be Calgary, whether it be Oklahoma City. If our Houston team were sitting here, they would tell you that there is a Petro chemical boom going on in Houston, and in east Houston particularly. And that the ethylene market is on fire. So net, while we do have exposure to oil and gas, it isn't a significant exposure. Clearly the growth rates we're seeing from Texas generally are moderating, but we're fairly diversified even in those markets, and it's not a huge concern.

Okay. Great. And then separately, you were mentioning candidate shortage on the perm side. I'm wondering if you're starting to have more difficulty recruiting on the temp side as well, given how low the unemployment rate is for college-educated workers?

I'd say yes. We're finding it more difficult. It depends on the functional role. It depends on the line of business. It's been tight for quite some time in technology, particularly for technology developers. There are certain roles in accounting finance that are also getting tighter, financial analysts and above. But we believe that we can manage through the candidate tightness as we see it, with technology we're exposed to more candidates than we ever have been in our history. So hopefully we will benefit from that as the markets tighten.

Thank you.

Your next question comes from the line of Anj Singh with Credit Suisse. Your line is open.

Hi. Thanks for taking my questions. I think on Protiviti you had originally anticipated to slow a bit in Q1 on comps and some large projects that were winding down. Could you help us understand what drove the Protiviti performance above your expectations in the quarter?

I'd say two things. I'd say in the risk of compliance area, we got a couple of those projects extended, that did better than we expected. We also started a few new projects in the FSI risk and compliance area. And further, as I mentioned earlier, Protiviti Asia performed much better than we expected. The Japanese economy has clearly improved. And further we've diversified our revenue sources nicely, principally more financial services in Japan, which is also helping.

Okay. Thank you. And then we continue to have some severe weather in parts of the country in Q1. I'm wondering if you can size up what impact weather may have had in your Q1 results?

Sure. So we believe it negatively impacted our growth rates by about a 0.5%. And that compares to a year ago, where it negatively impacted our growth rates by a full percentage point. So the differential year-over-year is about a half of a percentage point.

Got it.

It came later this quarter than it did a year ago's first quarter. But still I gave you the orders of magnitude of the impact.

Okay. Appreciate it. Thank you.

Your next question comes from the line of [Lewis Cavia] with JPMorgan. Your line is open.

Hi. It's Andrew. I wanted to ask you, Keith, about IT flex. It seems like this might be an area where some vendors are struggling, especially it sort of puzzles me since everyone cites this such a tight market. Just give us a sense how you are doing on IT flex and is it sort of directionally the same as the lift that you've seen overall in your flex gross margins?

I'd say generally our flex gross margins did very well in the quarter. Conversions did very well in the quarter. Not only the number of conversions, but the fee we get for a conversion has firmed. And that is also true in IT, if not more so, than it is in the other business. I mean, the more candidates are in demand, the more clients will pay to convert them full time. So the strength we saw generally, we also saw in tech. But we saw strength broadly, both in conversions and in pay bill spreads.

Great. Can I throw just one more in? After flex margins of 37% in the first quarter, what's assumed in the guidance second quarter for flex gross margins?

So I'll answer that. But let me talk a little more generally about our guidance.

Okay. Please.

On the top line our guidance assumes that due to tougher comps, the same-day and reported growth rates will come down 2 or 3 percentage points. Currency will reduce revenues in the $50 million range year-over-year, and the $13 million to $15 million range sequentially, which would be a drag of 4.5 percentage to 5 percentage points. Temp gross margins where our mid point assumes flat sequential temp gross margins, which still gives you 50 to 60 basis points lift on a year-over-year basis. From the SG&A standpoint, the hiring we will do will be more normalized relative to the revenue growth we expect, which means we do expect to get some SG&A leverage as a percent of revenue. Our incremental operating income will still be nicely double digit. Our tax rate is going to rise a bit. Rather than being 39-ish percent, we think it's going to be around 40%. And that rise is going to cost us a penny. And we dialed into the guidance, the loss of a penny from a higher tax rate.

So helpful. Thank you.

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

Great. Thank you. Keith, you came in at the top end of your guidance in the fourth quarter. And this quarter I think even adding back to weather, you'd be a little bit below the mid-point. Is that because of perm, or is there something else? Then second, if you could just the April growth rates you talked about. Are those similar to what you saw in March or were they a little bit better? Finally, just on the tax rate you just mentioned, is that 40% going forward or just for the quarter? Thanks.

So clearly with Protiviti having a much stronger quarter than expected, incrementally that helped dramatically to getting us past the mid-point. I would say the single largest factor in why we were above mid-point was the strength in our temp gross margins, for reasons that we've talked about here already. April growth rates versus March, I would say they're not significantly different. The first quarter is always back loaded to March, but that was also true the March a year ago. So I'm not sure there's a huge story in the April growth rates versus the March growth rates. And the tax rate, the tax rate is a little elusive, kind of plus or minus one or two points, because it's the mix of your US/non-US, and it's not only that, but it's within the non-US, which countries, which tax rates, which credits. So it moves around a bit on us. But our view is that it's going to be a bit higher next quarter. And I think we gave guidance earlier that the full-year rate would be in the 39 range. Whether it's 39 or 40, that's probably about as close as we can peg it.

Keith, I'm sorry. Maybe I'm calculating it wrong. I think on the revenue side, I should have made it more clear, you came in slightly below on the mid-point? Why?

Sure. Sure. Right. Absolutely. So we expected currency to be about $30 million year-over-year, about $10 million sequential. It came in $10 million more than that. So the single biggest reason the revenue is below the mid-point is currency impacts. Now at the bottom line, the currency only impacted us a penny total. So relative to expectation, there isn't much difference at the EPS line due to currency. But at the revenue line, the biggest single reason we were below mid-point is currency. Other than that perm was a little light, that we talked about earlier. But overall we were pleased. But single largest reconciling item is currency.

Thank you very much.

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

The adjusted bill rate growth continues to make nice progress. Do you still think that the old barometers of where that bill rate gross has hit in the past are relevant as we look out over the next couple of years?

We do. We do. Clearly we talked about mid-single digits is what you would typically see mid-cycle for two, three years straight. We've moved up from 2% to 4% over the last four quarters. So we're certainly getting close to the sweet spot. We would typically see in a fairly conducive macro environment. And with those higher bill rates implicit in there as some margin expansion, which we're already beginning to see, that we're very happy about.

Would the temp to perm conversions drift toward the higher end of the historical range typically, in that two to three-year period, where the bill rates are growing at mid-single digits?

So we have long said the range is 3% to 5%. We talked earlier that we're at 3.3% so we're still near the bottom. What we've talked about for some time now is if we could just get to the mid-point, which would be 4%, all right. There's 70 basis points of margin improvement versus where we are today. So in our minds, anything above 4% would be gravy. But even getting to that point, there's 70 basis points of margin improvement, which would put our temp margins at all-time highs.

Thank you for your help.

(Operator Instructions). Your next question comes from the line of George Tong with Piper Jaffray. Your line is open.

Hi. Thanks. The technology vertical is performing particularly well on the temp side. In light of the trends that you're seeing in March and April, are there other verticals that are beginning to show a positive inflection in growth?

Well, we've had revenue acceleration for multiple quarters in a row now. I would say management resources is also particularly strong. They've partnered well with Protiviti on some larger projects, that have been quite successful. We're optimistic about management resources. It is more project-driven. It is a little lumpier than our other temp divisions. I'm not sure talking inflection points captures where we are, given that our growth rates have accelerated for several quarters in a row. That we feel good about. And we feel good about the momentum that we have going into the second quarter.

I guess are there specific verticals where you see outsized acceleration then in growth, that might put the verticals on par with technology growth?

Well, Protiviti has outgrown every division we've had, including technology for several quarters. And is expected to for the foreseeable future as well. Protiviti is doing very well across its line of business, be it internal audit, be it financial services risk and compliance, be it IT consulting, be it what we call enterprise solutions, where it teams with our staffing division and goes to market together. So I would say across our lines of business, it is true now, and it has been true for the last couple of years quite frankly, Protiviti has been the strongest line of business that we've had.

Right. And how much of this growth would you say is coming from market share gains, and how would you describe the competitive environment for Protiviti?

Well, it's hard to be precise about that answer. Clearly the risk and compliance market overall is growing. There is no question with the regulation of the financial services industry. There are many opportunities for everybody that serves that market. Protiviti's largest competitors are the big four accounting firms. At a minimum we're holding our own. The last time I checked they weren't growing at the rates we're growing. But whether you slice and dice their revenues were precisely the same services that we're offering. I'm not sure that's even available. But what's clear is we're certainly not losing any market share.

Great. Thank you.

Your next question comes from the line of Gary Bisbee with RBC Capital. Your line is open.

Hi, good afternoon. I'll ask one on Protiviti as well. Is there any more color you can give on just the demand drivers? I know you have talked about all of the major practice areas doing well. But what's driving just the massive acceleration you've had in the last two years, and is there any way to have a sense about like runway left in terms of these demand? Are there any big pockets that, you see the potential for them to slow, or to do you feel like you're really in the sweet spot, and there's quite a bit more to go, in terms of the strong growth you have had? Thanks.

Well, the good news is that the demand drivers are diverse. It's internal audit. You have got the PCAOB leaning on the outside accounting firms, that companies aren't doing enough to document their control environment, test their control environment. That's trickled down to internal audit departments, which is Protiviti's sweet spot. Further, in the risk and compliance area you've got anti-money laundering, which is a huge compliance issue for most banks and large financial institutions. You've got consent decrees in the consumer lending area. We're doing a lot of portfolio, consumer lending portfolio analysis, as part of that practice. In IT, you've got security. You've got privacy. You've got ERP control reviews. So all three of those areas have grown significantly in the last couple of years. Led by financial services risk and compliance, and quite frankly we certainly don't see any near-term end to the regulation of financial institutions. And further, there's Tier 2 financial institutions beyond the Tier 1s that we're working with currently, that would further give you some runway, that you don't have with the Tier 1s.

Okay. And then how impactful has this concept of going to market Protiviti with staffing been, and what's the sales pitch to a customer, is that the flexible labor component allows them to do this more cost efficiently, or is it more about the skills you're bringing to the table?

Well, it's some of each. Every client has a different sense of how much they want to manage a project, versus how much they want to outsource the management of that project. Some clients simply need supplement staff. Some clients need full outsourcing. And when Protiviti and staffing go to market together, that continuum, they can move the slider to any point in that continuum to match what the client needs. And typically by blending in our staffing contractors, as part of the team, sometime which is a significant component of the team, the average labor cost of the package is typically lower than the average cost they would see from our competitors, which is usually the Big Four.

Okay. Great. And then just one cleanup one. Do you happen to have the number of days you expect in the back half of the year?

Sure. Just a second. In quarter three we're expecting 64.2 days. In quarter four, 62.3, which gives you 251.7 for the year.

Thank you.

Your final question comes from the line of Randy Reece with Avondale Partners. Your line is open.

Good afternoon. Have your views changed at all as to the timing of recovery of international business in any particular market? Just over the past three months?

Have our views changed generally or by any particular market, I would say not really. I think grants has been stronger of late than we had expected, or that had been performing. That's not a huge part of our business. But it clearly for the quarter just ended, it had the best year-over-year growth rate of any of our non-US operations, in part because the comparisons were a little easier. I would say our views haven't changed dramatically. We certainly see broad-based improvement in Europe. Our big operations there being Belgium, Germany, France, I just talked about. So we're optimistic as we talked earlier. We're going to start investing more in perm placement. That will be focused in the UK and in Germany. But we feel good about non-US operations.

And you're setting up some really difficult comparisons for Protiviti. I just was wondering if you could give me any help in trying to avoid making the mistake of growing that too fast, when we start comping over these numbers. They're huge numbers. Do you have any kind of conservatism take that I should be incorporating when forecasting beyond the next couple of quarters?

Well, clearly as you anniversary very tough numbers, it gets harder to maintain growth rates. Further, part of the margin lift they've gotten has been to get lower utilization or chargeability levels up to standard, sustainable chargeability levels. Once you get at those sustainable levels, you're not going to have as much lift there after, because your utilization rates are about what they're going to continue at. So I would caution you to go crazy from a margin improvement standpoint, particularly as you look at the progress we've had the last couple of years. You can't layer on similar progress as we move forward. That said, we've always talked about double digit, full-year operating margins in Protiviti. The first quarter is usually our most challenged profitability quarter for Protiviti. And we were at 9.9%.

So we were almost there in the most challenged profitability quarter of the year. So we were extremely pleased with the quarter we had at Protiviti. They had their highest variable cost element ever by using contractors from our staffing operations on their assignments. They had their most success ever with higher bill rates year-on-year which were mid-single digits. The combination of the better rates, the combination of the more variable cost structure, when seasonally it's their slowest season of the year, produced what were very good margins, in what is typically their lowest margin quarter of the year. That said, the last thing we want you to do is dial up your expectations that everything rises in a straight line. But the facts are Protiviti is doing very well. The demand drivers that have driven it the last four quarters are still very much intact.

Thank you very much.

There are no further questions. I'll will turn call back to Mr. Messmer for closing remarks.

Thanks to all of you. That was our last question. We appreciate your time in joining us on today's call. Thank you.

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