Robert Half International Inc.
Q4 2011 Earnings Call Transcript

Published: 27 Jan 2012

[Operator:]

Hello, and welcome to the Robert Half International Fourth Quarter 2011 Conference Call. Our hosts for today's call are Mr. Max Messmer, Chairman and CEO of Robert Half International; and Mr. Keith Waddell, Vice Chairman, President and Chief Financial Officer. Mr. Messmer, you may begin.

[Harold M. Messmer:]

Hello, everyone, and thank you for joining us today. Before we get started, I would like to remind everyone that some of the comments made on today's call contain predictions, estimates and other forward-looking statements. These statements represent our current judgment of what the future holds and include words such as forecast, estimate, project, expect, believe, guidance and similar expressions. We believe these remarks to be reasonable but would remind you that they are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. We've described some of these risks and uncertainties in today's press release and in our SEC filings, including our 10-Ks, 10-Qs and today's 8-K. We assume no obligation to update the statements made on this call. Now let's discuss the fourth quarter. Global revenues for the fourth quarter were $973 million, up 14% from 1 year ago. Income per share was $0.30, up 78% from the $0.17 per share reported in the fourth quarter of 2010. Cash flow from operations was $96 million, and capital expenditures were $15 million during the quarter. We paid our stockholders a cash dividend of $0.14 during the quarter at a cost of $20 million. We also repurchased 300,000 RHI shares for a total of $7.5 million. There remain approximately 6.1 million shares under our board approved stock repurchase plan. Our specialized Staffing divisions and Protiviti reported solid results in the fourth quarter. This does mark the sixth consecutive quarter of double-digit year-over-year revenue growth for the company. Additionally, growth rates and net income and earnings per share have significantly exceeded revenue growth rates during this period. This reflects the ongoing strong demand for skilled talent, particularly in the technology and accounting sectors. Keith Waddell will now provide you with a closer look at our fourth quarter results.

[M. Keith Waddell:]

Thank you, Max. As you noted, fourth-quarter revenues for the company were $973 million, an increase of 14% from a year ago and a decrease of 1% sequentially, before any adjustment for billing days and currency fluctuations. There were 61 billing days in the fourth quarter compared to 62 billing days in the fourth quarter a year ago and compared to 64 days in the third quarter of 2011. The current quarter has 64 billing days. Volatile currency markets impacted revenue trends during the quarter. On a sequential basis, fourth quarter 2000 (sic) revenues were reduced by $12 million due to currency fluctuations, whereas fourth quarter 2010 sequential revenues increased $11 million due to currency fluctuations. Also on a year-over-year basis, fourth quarter 2011 revenues were reduced by $1 million due to currency fluctuation, while third quarter 2011 revenues were increased by $22 million due to currency fluctuations. Using constant currency rates and the same number of billing days, global revenues grew 16% year-over-year in the fourth quarter of 2011 versus 17% in the third quarter of 2011. Sequentially, global revenues grew 6% in the fourth quarter of 2011 versus 4% in the third quarter of 2011. Fourth quarter revenues for Accountemps were $364 million, up 14% from the fourth quarter of 2010 and up 4% sequentially on a same-day basis. Accountemps is our largest staffing division, with 352 offices worldwide. It accounts for 37% of company revenues. OfficeTeam revenues were $196 million in the fourth quarter, up 12% from the fourth quarter a year ago and up 5% from the third quarter of 2011 on a same-day basis. Established in 1991, OfficeTeam is our high-end Administrative Staffing division. It has 316 locations worldwide and represents 20% of company-wide revenues. Fourth quarter revenues for Robert Half Management Resources were $116 million, up 13% from a year ago and up 4% sequentially on a same-day basis. Robert Half Management Resources was introduced in 1997 and places senior-level accounting finance professionals on a project basis. This division has 152 locations worldwide and makes up 12% of company-wide revenues. Fourth quarter revenues for Robert Half Technology were $113 million, up 23% from the fourth quarter of 2010 and up 4% on a sequential 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 115 locations worldwide and accounts for 12% of company-wide revenues. Fourth quarter revenues for Robert Half Finance & Accounting, our Permanent Placement division, were $75 million, up 26% from the fourth quarter of 2010 and down 1% sequentially on a same-day basis. Our Permanent Placement division -- business was established in 1948 and is in 352 locations worldwide. This business accounts for 8% of company-wide revenues. Fourth quarter revenues for all U.S. staffing operations were $618 million. This is an increase of 19% year-over-year and 6% sequentially on a same-day basis. Our U.S. Temporary and Consulting divisions grew 17% year-over-year and 7% sequentially on a same-day basis during the quarter. Our U.S. Permanent Placement operations grew 37% year-over-year and 3% sequentially on a same-day basis during the quarter. Fourth quarter revenues for our International Staffing operations were $246 million. This is an increase of 14% from a year ago and an increase of 2% sequentially on a same day and constant currency basis. Our International Temporary and Consulting divisions grew 13% year-over-year and 3% sequentially on a same-day and constant currency basis during the quarter. Our International Permanent Placement operations grew 19% year-over-year and were down 0.3% on a same-day constant currency basis. We have staffing operations in 104 locations in 19 countries outside the U.S. International Staffing operations represent 29% of total staffing revenues. Fourth quarter revenues for Protiviti were $109 million. This is 6% higher than the fourth quarter of 2010 and 7% higher sequentially on a same-day basis. Protiviti was formed in 2002. It's 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 26% of total Protiviti revenues. Now let's look at gross margin. Fourth quarter gross margin in our Temporary and Consulting Staffing operations was $282 million or 35.8% of applicable revenues. This compares with 34.5% of revenues in the fourth quarter of 2010 and 35.5% of revenues in the third quarter of 2011. The fourth quarters of 2011 and 2010 included workers' compensation and other payroll-related credits of $2.5 million and $1.5 million, respectively. Temp-to-hire conversions declined slightly during the quarter while pay bill spreads continued to expand. Our staffing gross margin was $357 million in the fourth quarter or 41.3% of staffing revenues. This compares to 39.7% of revenues in the fourth quarter a year ago and 41.4% of revenues in the third quarter of 2011. Protiviti's fourth quarter gross margin was $30 million or 27.6% of Protiviti revenues compared to $30 million or 28.8% of Protiviti revenues in Q4 2010. In the fourth quarter, our staffing SG&A costs were $287 million or 33.3% of staffing revenues. In the fourth quarter of 2010, these costs were $257 million or 34.4% of revenues, and in the third quarter of 2011, they were $293 million or 33.5% of revenues. We ended 2011 with 9,000 full-time employees in our Staffing divisions, up 10% from the prior year. Fourth quarter SG&A costs for Protiviti were $28 million or 25.4% of revenues. This compares to $27 million or 25.6% of revenues for the fourth quarter a year ago and $27 million or 24.6% of revenues for the third quarter of 2011. We ended the year with 2,700 full-time Protiviti employees and contractors, up 4% from the prior year. Fourth quarter operating income from our Staffing divisions was $70 million or 8% of staffing revenues. The Temporary and Consulting divisions contributed $64 million of this amount or 8.1% of applicable revenues. Fourth quarter operating income for our Permanent Placement division was $6 million or 7.9% of applicable revenues. Protiviti operating income was $2 million in the fourth quarter or 2.2% of revenue. Our fourth quarter 2011 income tax rate was 40.9% comparing to 38.8% in the third quarter of this year. The resulting $1.5 million negative impact was due primarily to lower utilization of foreign tax credits. Accounts receivable were $493 million at the end of the fourth quarter, with implied days outstanding or DSO of 46.1 days, which compares to 45.2 days at the end of the fourth quarter of 2010. Now let's turn to guidance. We saw the following trends in the fourth quarter and the first few weeks of January. On a same-day sequential basis, Temporary and Consulting revenues were up in October, up in November and up again in December. On a same-day sequential basis, Permanent Placement revenues were down in October, down in November and down again in December. For the first 2 weeks of January, revenues from our Temporary and Consulting businesses were up 17% compared to the same period last year. For the first 3 weeks of January, revenues from our Permanent Placement division were up 38% compared to the same period last year. We caution, however, it's difficult to evaluate revenue trends over such short time periods. Taking into account these factors, we offer the following first quarter guidance

[Harold M. Messmer:]

Thank you, Keith. We finished the year strongly with double-digit revenue growth rates on a year-over-year basis. We were pleased to see continued strength in Technology Staffing during the quarter as well as year-over-year and sequential revenue gains in our other Temporary and Consulting Staffing divisions. As we end one year and begin a new one, it's time to reflect not only where we've been in the past 12 months, but also what we believe are business opportunities ahead. We do feel the company is well positioned for several reasons. The unemployment rate among college-degreed workers is half that of the overall U.S. rate, which underscores the demand for professional level talent. The unemployment rate also is low in many of the occupations in which we specialize. The unemployment rate for Web developers, for example, is 3.6%, and for accountants and auditors, it is 4.9%. All of this has contributed to a stronger pricing environment for us. The U.S. economy added more than 1.6 million jobs last year, 400,000 more than the year before. There's been an increase in hiring by small and midsized businesses, which make up the largest percentage of our client base, as you know. This was reflected in the strong performance of our Permanent Placement division through the year 2011. We believe the revenue growth in our Temporary and Consulting divisions has been partly the result of more companies using variable cost labor as a component of their overall human resources strategy. In the coming years, we hope to see even wider adoption by employers of flexible staffing models, including the use of temporary and project professionals. Our headcount investments last year are benefiting us most notably in our Information Technology staffing division. We are optimistic about the possibilities within this technology sector. We also were encouraged by the growth potential of the accounting and finance segment, where we have long been the recognized leader. We were also pleased to see higher demand for Protiviti's Consulting and Internal Audit Services in 2011, particularly in the United States. Demand was strongest for Information Technology related services, as well as consulting solutions offered to the financial services industry. Our blended service model that combined skilled interim professionals from our Staffing divisions with the consulting expertise of Protiviti is creating a good business opportunity for us. We are delivering a full range of staffing and consulting services to our clients at what we believe is a very competitive price. We have solid leadership in our staffing operations in Protiviti. And I am confident in their abilities as we head into 2012. Finally, we are in a strong financial position. We had positive operating cash flow of $256 million in 2011, which helped us to fund approximately $142 million in RHI stock repurchases, $57 million in capital expenditures and the payment of $80 million in dividends to stockholders. At this time, Keith and I will be happy to respond to questions. Please limit yourselves as customary to one question and a single follow-up. If time permits, we'll certainly return to you later in the call, if you have additional questions. Thank you.

[Operator:]

[Operator Instructions] Your first question comes from the line of Tim McHugh with William Blair & Co.

[Timothy McHugh:]

I guess, Keith or Max, I'll direct it to either one of you. But you gave some helpful numbers on the U.S. versus kind of international growth rates. I guess, just if you can provide some more color or commentary on what you saw out of Europe, I guess as the quarter progressed and how that influences kind of what you're expecting going forward.

[M. Keith Waddell:]

Well, so we did see some slowing in Europe during the quarter. Part of that's because of really tough comparisons, and part of that's obviously related to the deleveraging that's taking place over there. If you look at the month-by-month trend lines, I -- probably the biggest difference of U.S. versus non-U.S. would be December, and U.S. December Perm was actually up and non-U.S. December Perm was down. So that was the biggest divergence. That said, frankly, coming out of the gate the first 3 weeks of this year, Europe Perm has been solid. So our out-of-the-gate numbers this quarter Temp are actually better than what we reported fourth quarter. Our out-of-the-gate Perm, the same.

[Timothy McHugh:]

Okay, and then just, I guess, relating that to the guidance, then. Are you assuming a, I guess, you're assuming a slower growth rate than what you've seen early in the quarter. Or is there a big currency hit as we get later into the quarter? How are you going to -- any more color around what to expect in the guidance? And then I guess, just specifically around the tax rate in the guidance.

[M. Keith Waddell:]

Okay, so let's talk guidance, generally, let's talk currency and let's talk tax rate. First of all, currency, understand at the income line, at the earnings per share line, currency has very, very little impact. The only reason we gave currency-adjusted figures is so you could better understand the revenue trends, particularly when you've got the kind of swings that we've had the last few quarters. So at the income line, currency is noise. At the revenue line, it helps you understand trends. Tax rate, one of the biggest differences between our expectations and what actually happened in Q4

[Operator:]

Your next question comes from the line of Mark Marcon with RW Baird.

[Mark S. Marcon:]

Wondering if you could talk a little bit about what you're seeing in terms of the receptivity to increasing the bill rates at the clients. You did mentioned the bill rate, the bill pay spread did improve. Do you think there's more room for that? Do you think you can offset the SUTA pretty quickly? How should we think about that?

[M. Keith Waddell:]

Well, first of all, let's quantify. So year-over-year bill rates are up 4.6% in the first -- excuse me, fourth quarter. Sequentially, they were down 1.5%. But if you dissect that further, they're up in the U.S. and they're down in the non-U.S. Reacting more specifically to your question, we are cautiously optimistic that we will continue to expand our gross margins, that we will ultimately pass on all of the extra SUTA increase. It may take more than 1 quarter, however.

[Mark S. Marcon:]

Great. And then can you talk a little bit more about the longer-term opportunity on the IT side? Clearly, that's the area of strongest growth. Is it primarily small and medium-sized businesses? Is it -- are there any verticals, any geographies? How -- what inning are we in?

[Harold M. Messmer:]

Mark, it's Max. Keith will comment in a second. If you saw the Journal this morning, they had a very interesting article about the demand for Information Technology personnel and assistance in small to midsized businesses, which they tended to define as 500 employees or fewer. They could have said anybody below the FORTUNE 1000 in general is struggling to get enough help. So as far as what inning we're in, I'm not sure the game has started. It's very early, I would argue, in the sector that we're seeking to develop. So I feel the market opportunity is huge. The biggest challenge, I think, as Keith alluded to a moment ago, will continue to be getting qualified candidates, because the demand is very strong. Want to comment on it, Keith?

[M. Keith Waddell:]

Yes, with the FORTUNE 1000 firms, technology is 3x to 4x as large as accounting. And we typically haven't played in that in a major way. So the question is, with small to middle sized firms, what's the opportunity for technology? Do we think it will be 3x to 4x accounting? Maybe not. But do we think it can be as large as accounting? Absolutely. And so the question is, over what period of time can we get there? But you can observe looking at our numbers, we've had several quarters in a row now where our technology growth rates have been significantly faster than our accountant rates, not that our accounting rates were bad.

[Mark S. Marcon:]

Absolutely. And then last question, just on the international side, particularly U.K. How quickly would you be able to make the adjustments on the headcount? I'm assuming that's the primary, it's the internationals, what drove the Perm EBIT margin.

[M. Keith Waddell:]

It's precisely correct. And their answer is, we can adjust that headcount in the first quarter of 2012.

[Mark S. Marcon:]

Okay. And so what would you hope the margins could be on the Perm side?

[M. Keith Waddell:]

Well, again, the -- my guidance comments were, "be conservative and assume they stay at third and fourth quarter levels." Hopefully, there's some upside to that, but given that Perm wasn't quite what we hoped it to be in the fourth quarter, it's not exactly leading us to be overly aggressive for the first quarter. Notwithstanding, we had a pretty solid start to the first 3 weeks in Perm, including non-U.S.

[Operator:]

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

[Andrew C. Steinerman:]

My question is about Accountemps. Seasonally speaking, going into the first quarter, this is by far the strongest quarter for Accountemps on a historical basis. If you actually go back over the decades, it's twice as much as other quarters in terms of sequential increases. Are you expecting to have a normal seasonal pattern to Accountemps, given the strong start overall to staffing?

[M. Keith Waddell:]

Well, Andrew if --

[Andrew C. Steinerman:]

I'm talking about first quarter.

[M. Keith Waddell:]

If you break out that sequential lift, a very large portion of that is the additional number of days. And clearly, we're going to have the days lift that we always have, and that's significant. If you then further look at U.S. and non-U.S., non-U.S. is actually even a little stronger sequentially in the first quarter than is the U.S. And so we're a little cautious on that given the environment. But net-net, our high end guidance says year-over-year, our growth rates sustained themselves from the fourth quarter. And as we told you, our start out-of-the-gate, we actually accelerated our temp year-on-year growth.

[Andrew C. Steinerman:]

And in particular, including Accountemps, right?

[Harold M. Messmer:]

Correct. Accountemps accelerated year-over-year in the first 2 weeks versus its year-over-year growth rate in the fourth quarter.

[Operator:]

Your next question comes from the line of Thomas Allen with Morgan Stanley.

[Thomas Allen:]

You talked about turning some Protiviti international operations into franchisees. How's that going? It didn't seem like there was any impact to numbers this quarter or in guidance. So how is that progressing?

[Harold M. Messmer:]

We've been in discussions for some time with the conversion of some of the Protiviti franchisees. The financing environment in Europe at the moment isn't the best. But we're cautiously optimistic that we'll get it done. But we're not giving them away, which means that the other side has to finance that conversion. And financing in Europe, as you know, is a little stressed at the moment.

[Thomas Allen:]

And then there's been talk in the European papers about the possibility of larger scale staffing acquisitions. I know you've been conservative in the past about only really doing smaller deals, but if there was an opportunity where you could greatly expand your international presence at an attractive price, would you consider it?

[Harold M. Messmer:]

Well it's certainly our focus for 25 years has been primarily organic growth. We never say never. There are cultural issues as well as financial issues that have to be considered. The Robert Half way is typically very different from an operations standpoint than most other staffing firms, which would also have to be considered. So we never say never, but clearly, our focus are organic growth rates, which we think drive higher rates of returns.

[Operator:]

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

[Jeffrey M. Silber:]

I just wanted to focus on a couple other divisions, specifically OfficeTeam and Management Resources. If I look at the year-over-year growth in the fourth quarter, which was very good, it did slow somewhat from what we've been seeing over the past few quarters. Was there anything specifically going on in either of those 2 units?

[M. Keith Waddell:]

Well, clearly, the non-U.S. portion of those growth rates declined somewhat, consistent with what we've talked about. But on an absolute basis, they were solid, and they were in the range of our expectations for the quarter.

[Jeffrey M. Silber:]

Nothing out of the ordinary in either of those divisions.

[M. Keith Waddell:]

No. No, we were pleased with both.

[Jeffrey M. Silber:]

Okay, good. And in terms of -- just clarifying some of the guidance, and specifically for 2012 for the year. The tax rate guidance you gave, should we apply that for the whole year?

[M. Keith Waddell:]

Oh, boy. The tax rate is a Rubik's cube, Jeff. Our hope is with some legal structuring, we'll be able to better utilize some unutilized tax credits, foreign tax credits, during 2012. But clearly, there's a pretax income component of that, that there's uncertainty around. So what I want to tell you is that the tax rate for all of 2012 should go down and should be 40% or lower. But sitting here having been somewhat burned by what we thought the fourth quarter tax rate was going to be versus what it was, I'm a little cautious.

[Jeffrey M. Silber:]

Okay. I understand. And maybe something with a little bit more certainty in terms of your guidance for capital spending for this year.

[M. Keith Waddell:]

All right. So I think we ended 2011 at $57 million. We're thinking we'll ramp that up, so let's give a range of $60 million to $70 million and we'll tighten that up as we go through the year.

[Operator:]

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

[Kevin D. McVeigh:]

Keith, could you remind us, just as you think about the Europe overall, what percentage is Germany, France versus Belgium in the U.K.? Just the revenue contribution.

[M. Keith Waddell:]

So if you look at non-U.S., it's about 1/2 Europe, 15% U.K., so let's call it 2/3 of non-U.S. are Greater Europe. And so that's about 20% of total revenue. We've always said the big 3 are Belgium, Germany, France, in that order. We've never specifically broken them out. Clearly, Belgium remains the largest, but Germany is coming on fast in a good way.

[Kevin D. McVeigh:]

And is that a function of just kind of Perm trends or the Protiviti aspect of it? Or just a macro?

[M. Keith Waddell:]

Well, I think from a macro standpoint, there's no question that Germany's the big winner in Europe and our numbers reflect that. While their -- Germany's year-over-year growth rate slowed during the quarter, it was from an enormous growth rate to a slightly less enormous growth rate. Germany did very well during the quarter.

[Kevin D. McVeigh:]

Super. And then just real quick on the buyback. Not as significant as it's been. Is it a function of how strong it was earlier in the year? Or how should we think about that going forward?

[Harold M. Messmer:]

So we've talked about -- we spend our free cash flow for dividends, repurchases. We've gotten ahead of that a little bit for the first 3 quarters. We'd spent more than our free cash flow for the first 3 quarters. So we throttled back a little bit during the fourth quarter. Still for the year, I believe our free cash flow was around $200 million and we spent $220 million on dividends and repurchases. So consistent with our long-term commitment that to the extent we don't do acquisitions, we returned our free cash flow to shareholders, we did that again in 2011. We got a little ahead of the game the first 3 quarters. We caught up a little bit in the fourth quarter.

[Operator:]

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

[Tobey Sommer:]

I was hoping you could give us some more detail specifically on IT and tech staffing versus your overall book of business, kind of in terms of bill rate increases, bill pay spread, the duration it's taking to fill the jobs, kind of additional color comparing and contrasting IT over the rest of the business.

[M. Keith Waddell:]

What -- generally speaking, IT is a bit stronger across all the metrics that you talk about. The growth rates are better, the bill rate trends are better, the spreads are better. Clearly, it's a more candidate-driven market than is accounting. It's a firmer market somewhat than is accounting. But for all the reasons we've talked about already, we feel great about tech, we feel great about the trends in tech. We continue to invest in an outsized way in tech. We're going to reallocate some Perm heads from the European operations into tech during the quarter. So we're certainly bought into tech.

[Tobey Sommer:]

Are there any influences that you saw in 2011 on that demand that you don't anticipate being present in 2012? And kind of conversely, are there any new catalysts that you're aware of that weren't present last year, that might be this year?

[M. Keith Waddell:]

Nothing comes to mind. You've got all of the technology, driving down -- technology demand driving down to smaller sized companies. The Journal article this morning Max talked about is a perfect example of that. You've got Web, you've got social, you've got cloud, you've got mobile. I mean, all the things that drove demand in 2011 will drive demand again in 2012.

[Operator:]

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

[James Samford:]

I just wanted to -- at a high level, wondering if you're getting any feedback from your small and medium-size business customers as to their concerns about no longer being decoupled with Europe. Obviously, the results show that they're still decoupled here, but any feedback from the demand side and domestically on impact from Europe?

[M. Keith Waddell:]

Each quarter, we spend a fair amount of time with all our geography leaders. Europe, U.S. as well as line of business leaders. And to a person in the U.S., our people felt same or better than they did 90 days ago. They were very upbeat to the extent that there was any moderation in their enthusiasm, it was a bit in Perm placement. And there's this, this kind of double -- clients and candidates getting more selective at the same time. It's a little bit of an unusual situation that gave everybody a little pause on Perm as we go forward. But on the temp side particularly, in the U.S., notwithstanding whatever's happening in Europe and whatever impact it may ultimately have, our people were bullish on the Temp side.

[Operator:]

Your next question comes from the line of Giri Krishnan with Crédit Suisse.

[Giridhar Krishnan:]

I just had a couple of questions. First was involving Protiviti where we've had some, in the past, disruption from Japan. Has that largely dissipated? Or do you still expect some moderate impact on margins?

[Harold M. Messmer:]

So Protiviti Japan clearly did have a disruption with the earthquake tsunami. I'd say, generally speaking in the fourth quarter, all Protiviti non-U.S. operations, virtually all improved sequentially versus the third, including Japan. That said, on an absolute basis, Japan is still challenged. It's something we're working on, we're trying to help them with the diversification of their revenue sources, we're trying to get more tech, we trying to get more financial services in Japan, which frankly has been the driver in Protiviti U.S. that picked up the gap created by SOX some number of years ago. So Protiviti Japan still challenged, getting better, not there yet. And we're providing resources from the United States to help round out their revenue sources.

[Giridhar Krishnan:]

Okay. And then one other question. I don't know if you made a comment on your Temp to Perm conversions. Can you just talk about how much potential there is for upside in 2012? I know you're historical range is around 3% 5% of revenue. Could you make a comment on that, please?

[M. Keith Waddell:]

You're correct, 3% to 5% is the range. We went below the 3% in this cycle. We climbed back to 3%. We backed up just a touch during the fourth quarter. But we're still optimistic we can at least get back to 4%; 5% would be wonderful. But back to 4% would be a full point of margin improvement.

[Operator:]

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

[Sara Gubins:]

Just looking at the sequential decline in SG&A in the fourth quarter versus the third quarter. Was there any cost cutting initiatives in the fourth quarter?

[M. Keith Waddell:]

Well, first of all, you've got to understand that just like currency reduced revenues, currency reduced SG&A by a substantial amount as well. So adjusted for that, the absolute dollars don't look as down as they otherwise might. But did we have major cost cutting in the fourth quarter? No. I mean, the fourth quarter is always the time when to the extent you've estimated accruals, field compensation, et cetera for the first 3 quarters, you true all that up during the fourth quarter. We're always a little bit conservative as we go through the year, and therefore you get a little bit of adjustment in the fourth quarter. But the currency and a little bit of that is really what drove the fact that it was down.

[Sara Gubins:]

Okay. And I'm wondering if there's -- if you're seeing much difference in accounting staffing demand at the higher end versus lower end.

[M. Keith Waddell:]

Well, seasonally, the fourth quarter, you start getting tax-related, income tax-related demand. And that's more at the accounting operations side than at the higher side. So we saw some typical seasonal tax-related demand in the fourth quarter which continues into the first. But that certainly swings in the favor of accounting operations versus the higher-level accounting demand.

[Sara Gubins:]

Okay, but nothing as opposed to typical seasonality.

[Harold M. Messmer:]

For that, no.

[Operator:]

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

[James J. Janesky:]

On Perm Placement, I know it's a short period of time in the first quarter, only the first 3 weeks. But out in the field, I mean, what are the folks saying about why it was up so strong? Was it pent-up demand from the cautiousness going into the end of the fourth quarter? Or was it growth?

[M. Keith Waddell:]

Jim, you've also got the holidays right in the middle that, right? So there are multiple theories of why it was a little weaker than we expected in the fourth quarter and how it's all coming back in the first quarter. But the facts are over those short of time periods, there's -- you can't say anything definitive. But the point is, we did start the quarter on solid footing, and that's not because the year-agos were easy, by the way. And it's not because of some currency lift either. In fact, if anything, currency's continuing to go the wrong way still. So no definitive trend that we would call out, but it's better to start out solidly than not.

[James J. Janesky:]

And just overall, is the Perm growth throughout the current cycle coming more from churn or from growth? So churn, like turnover of...

[Harold M. Messmer:]

I would say both have been a meaningful part of demand to this point. And if you look at that Department of Labor JOLTS report, I think they call it separations. And I think business and professional services has the highest number of separations of any category. So in your words, churn.

[James J. Janesky:]

Okay. And then can you give us depreciation and amortization for the quarter including stock comp?

[M. Keith Waddell:]

So let's see. In the -- in our press release, we disclosed depreciation at $12.8 million. CapEx, $14.8 million, and then stock comp, just a second, $12.7 million.

[Operator:]

Your next question comes from the line of Ato Garrett with Deutsche Bank.

[Ato Garrett:]

I have 2 questions on Permanent Placement. First, what percent of European revenues are from Perm? And second, what are the 3 biggest countries in Europe for permanent placement?

[M. Keith Waddell:]

Okay. The Perm is roughly 1/2 of our European revenues. Our 3 biggest countries are Belgium, Germany, France.

[Ato Garrett:]

Okay. Great. And then also comparing your European clients to U.S. clients, is there any difference in size between those 2 groups?

[M. Keith Waddell:]

I'd say, generally, European clients skew a little bit larger than is the case in the U.S. But it's certainly not FORTUNE 1000 larger.

[Operator:]

Our final question comes from the line of Gary Bisbee with Barclays Capital.

[Gary E. Bisbee:]

Last month, you published your CFO hiring -- quarterly CFO hiring survey which showed, I think it was like the best hiring expectations in a decade or something; years certainly. I guess, did you glean anything from those survey results that would -- that's interesting in terms of demand other than the high level drivers you've been talking about over the last few quarters?

[M. Keith Waddell:]

We're...

[Harold M. Messmer:]

That was limited to the U.S. only. Isn't that correct, Gary?

[Gary E. Bisbee:]

Yes, yes. Exactly. It looked like a big bump in terms of, from the last few quarters and in the absolute number of net firms looking to hire versus get rid -- downsize was like significantly better than it's been in a long time. And so obviously, your results are strong, but I wondered if there were any drivers you could point to or anything. And maybe another question, as I think about it, how well has that done historically in terms of predicting what actually happened when you look back on that survey result?

[Harold M. Messmer:]

Well, so the answer to your second part answers your first part. So I think if you did a regression analysis historically, there isn't a huge correlation. But directionally, there's a correlation. We're very encouraged that it was as positive as it was. That said, we don't tend to do our guidance based on that. But we obviously noted, it was very optimistic. And we hope it's true.

[Gary E. Bisbee:]

Okay, thanks. And then a follow-up question. Within the financial services business, you've talked in the past about some of the regulatory changes in Dodd-Frank and this stuff driving demand. Or at least being a big potential opportunity. Has that really begun to kick in yet? Or is this more something, you think, could help later in 2012 or 2013?

[Harold M. Messmer:]

I think a lot of the regulations are still unfinalized. And there hasn't been a huge amount of present demand but everybody remains optimistic that it will be a demand driver as we go forward.

[Gary E. Bisbee:]

Okay. And then just the last clean up one. I heard you say the bill rate changed, but did you give us the pay rate? Or if you did, could you please repeat that, the change year-over-year versus last quarter?

[M. Keith Waddell:]

And so we don't disclose specifically the pay rate changes, but the fact that our spreads widened said that they were less than the bill rate changes.

[Harold M. Messmer:]

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

[Operator:]

This concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investors 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.