Good day ladies and gentlemen, and welcome to Administaff third quarter 2009 earnings conference call. My name is [Tawanda] and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. Joining us on the conference today is Mr. Richard Rawson, President; Mr. Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and Mr. Douglas Sharp, Chief Financial Officer. I would now like to turn the presentation over to Mr. Douglas Sharp, Chief Financial Officer. You may proceed sir.

Thank you. We appreciate you joining us this morning. Before we begin I would like to remind you that any statements made by Mr. Sarvadi, Mr. Rawson or myself that are not historical facts are considered to be forward-looking statements within the meanings of the Federal Securities laws. Words such as expects, intends, projects, believes, likely, probably, goal, objective, outlook, guidance, appears, targets and similar expressions are used to identify such forward-looking statements and involve a number of risks and uncertainties that have been described in detail in the company’s filings with the SEC. These risks and uncertainties may cause actual results to differ materially from those stated in such forward-looking statements. Now let me take a minute to outline our plan for this morning’s call. First I’m going to discuss the details of our third quarter 2009 financial results. Richard will then discuss expected trends in our directed costs including benefits, workers compensation and payroll taxes, and the impact of such trends on our pricing. Paul will then add his comments about the quarter and our ongoing strategy in the current macro environment. I will provide our financial guidance for the fourth quarter. We will then end the call with a question-and-answer session. Now let me begin today’s call by discussing our third quarter results. Today we reported third quarter earnings per share of $0.23, which was slightly above the mid point of the EPS range implied in our key metrics guidance. As for our key metrics, the number of paid worksite employees averaged 107,625 and as expected remained relatively flat throughout the quarter. Gross profit for worksite employee per month averaged $220, within our expected range of $218 to $222. And effective operating expense management produced $1 million in savings from the mid point of our Q3 forecast.…

Thank you Doug. This morning I’m going to give you the details of our third quarter gross profit results and then I will update everyone on the current pricing and direct cost trends and how they will affect gross profit per worksite employee per month for the fourth quarter. I will then wrap up my remarks by commenting on factors affecting our 2010 gross profit plan. As you know our gross profit comes from the service fee component of our mark up combined with the surplus that is generated when the direct cost pricing allocation components of our mark up exceed the corresponding direct costs. Doug just reported that our gross profit per worksite employee per month was $220 for this quarter, which was in the mid point of our expected range. These results came from achieving $195 per worksite employee per month of service fees and generating a surplus of $25 per worksite employee per month or 2.5% of our total direct cost allocations. The pricing of our service fee for new accounts sold this quarter was $194 per worksite employee per month. The pricing on our renewed business remained the same as Q3 of last year. The service fee on our entire book of business is relatively flat compared to last quarter as we have continued to be sensitive to our clients needs while we all manage our way through these difficult times. These are great results and we continue to be very pleased with our relative pricing strength. Now let’s review the details surrounding the $25 of gross profit per worksite employee per month surplus that was earned. We had an $11 per worksite employee per month larger than expected surplus in the workers compensation cost center, offset by a combination of a $9 per worksite employee…

Thank you Richard. Today I will comment on three primary topics to provide some color on recent results and our outlook going forward. First I’ll discuss sales retention and employment metrics among our small business and mid market clients reflected in our third quarter results. Second I will cover our fall campaign selling and retention efforts underway and the climate we are facing in the marketplace, including the specific impact of healthcare reform. And I’ll complete my remarks with a description of our approach to 2010 from a very high level, considering the backdrop of the economic and political environment. During the third quarter our key unit growth metric stabilized at expected levels from the decline we had experienced since October of last year. Layoffs and new hires in the client base continued at a very low level, similar to last quarter, and worksite employees paid from sales offset client attrition results. Client retention at 98.3% was just slightly lower than historical norms of 98.5%, which I believe is exceptional considering the economic climate. These results reflect the hard work and dedication of our organization, supporting our clients in very meaningful ways through the recession. New sales during the quarter were below expectations at 70% of forecasts, similar to Q2, reflecting a foxhole mentality among small business and mid market prospects. This mentality was reflected in the employment statistics from actual data within our system and from our most recent survey results. Business leaders continue to hold the line on compensation, including base pay and overtime. Regular pay was flat on a year-over-year basis and overtime was 7% of base pay, which is at a historically low level. One sign of recovery in the actual data from Q3 was the first increase in commissions paid to the sales staff of…

Thanks Paul. Now before we open up the call for questions I’d like to comment on our financial guidance for the fourth quarter of 2009. In general we continue to expect worksite employee levels to remain relatively flat over the remainder of the year, particularly if minimal hiring and layoffs in our client base continue to offset each other. We are lowering our gross profit per worksite employee forecast, primarily as a result of hire than anticipated 2009 healthcare cost trends. And we expect a similar level of Q4 operating expenses as we had previously forecasted. So as for our fourth quarter key metrics guidance, we are forecasting Q4 average paid worksite employees in a range of 107,250 to 107,750. Based upon Richard’s earlier comments, we expect gross profit per worksite employee per month to be in a range of $220 to $222 for the quarter. As for operating expenses we are forecasting a range of $65 to $65.5 million for the quarter or a year-over-year decline of approximately 11% from Q4 of 2008. The sequential increase of approximately $4 million from Q3 of 2009 is primarily attributable to additional business promotion and advertising costs focused around our fall sales campaign. We are forecasting Q4 net interest income between $200,000 and $400,000 which is relatively the same as Q3 results. And we are forecasting a Q4 effective tax rate of 41%. As for average outstanding shares, we are forecasting 25.2 million for Q4. Now as Paul just mentioned, normally at this time of the year we would provide our guidance for 2010. However, as you are aware, there’s a high level of uncertainties around the current macro environment, including the viability of an economic and labor market recovery and the impact of government regulation including healthcare reform and potential tax increases. Therefore, we will follow a similar approach as last year. We will finalize our 2010 operating plan as we approach year end and have more clarity on the macro issues. We will also incorporate the results of our 2009 fall sales campaign and year end client renewal period. Detailed 2010 guidance will be provided during the next quarter’s conference call to be held in early February. So at this time I’d like to open up the call for questions.

(Operator Instructions) Your first question comes from Tobey Sommer - Suntrust Robinson Humphrey.

I was wondering if you could give us a sense for what your experience was in terms of worksite employee growth or sales and pricing in the middle of that experience you had in Massachusetts. Just maybe that could serve as an example for how things could play out as the healthcare reform emerges.

Sure. Thank you. The Massachusetts situation you know was a good dry run for us to go through. It allowed us to develop you know quickly response to the legislation and provide a package to our clients and prospects about what the requirements were and what had to be done. It reminded me a lot of you know cottage industries that are established through legislation like COBRA, back when it took place, and even immigration reform when you have to figure out what to do and how to go about it. So you know the first thing we saw was there was a high value in just helping people figure it out, something that we could possibly leverage in the marketplace in the event that there’s a mandate to all employers. There’s even the potential for a new product. Relative to worksite employee growth and pricing you know we are not that large in the part of the country but net marketplace we did just fine. And you know we didn’t do what I would plan to do for healthcare reform. We didn’t you know market heavily around it and you know build a sales campaign around it, which we would do for a broader reform if that gets passed. So we didn’t really leverage that to any great length but we certainly you know saw sales and pricing operate normally through that period.

I was wondering if you could speak to whatever discrete items we already know about that will either flow you know flow out of the P&L in terms of expenses, perhaps those COBRA expenses you’ve been carrying now for a few quarters, or you know 401(k) contributions increasing. Anything that you know of already that’ll likely kind of change in 2010 to the extent that you can comment on it.

Tobey, this is Richard. I would say that you know we talked about this increase in the COBRA and we talked about the participant enrollment increasing. And now those have kind of flattened out. We kind of feel like that we’ve got a pretty good handle on what the costs are going to be as we go into the next year. What we don’t have yet though is the fact that we are going to be able to do an automatic step up in the billing for COBRA participants effective January the first of 2010. And that will hopefully by the end of the first quarter pretty much shut off the squeeze that we’ve experienced in Q2 and Q3 and that we’ll again experience in Q4. And so that certainly will be a positive that we didn’t have this year. Outside of that, you know if you talk about trends in healthcare, you know we’re hearing stuff on the Street that the large marketplace, large business marketplace, will probably be in the [net] trends in the 9% to 13%. And we heard some information on Friday that it looked like maybe small businesses might have an increase as much as 15%. That’s big dollars. That’s huge. And so we think we can you know fare well as a result of that. But you know we’re sure not ready to start predicting it yet.

Well in any event our costs will be significantly lower than what small businesses will see in their increases. And in fact if you look back at our ten year history, or 11 I guess now that it’s a public company, average increase for large companies on healthcare has been 8.5% while ours has been 6.5%. So we’ll be working hard to beat that 9% to 11% or 12% number that most big companies will have.

I was wondering if you could comment about early sales force activity here in the fall selling season in terms of you know appointments being set and how the response has been here to date.

There’s no question like I mentioned in my remarks about the mentality out there, you know harder to get in the door, but we’re doing it. People are just working harder to get the job done. We’re just having to create more opportunities. You know we’re having to try and figure out what the mindset of that customer is as we go in to you know see how to position our service more effectively for what their needs are at the time. And we are building up a pipeline that we hope to convert. But it’s like you know at this time of year every year, it’s too hard to predict. You know fortunately I think the retention has been continuing to operate at a very effective level. So you know we’ll see how we do. But so far so good.

Your next question comes from Jim MacDonald - First Analysis Corporation.

Just following up on that, would you hazard a guess as to whether you can maintain your employee base over the December 31, January 1 timeframe or will be see a decrease?

That is a great question. We don’t know. You know we’re still hoping for an increase. You know I mean like I said in my remarks we’re working and hoping for the very best results, but we’re ready for any eventuality. We know that the year end has you know a significant number of client attrition, but that’s why we have a fall campaign to help offset that. Both of those areas are going you know as expected at this time, but it’s just not possible to tell which way things will go.

Can you comment on the economy and your Southwestern region, which is a big part of your business, and whether that’s different from the rest of the country. And you know maybe went into the recession later.

Yes. Very interesting. You know obviously the economic downturn did start later here, but it doesn’t seem to have been as severe in the Southwest, mainly in Texas. But I will say that it seems to me that the broader economic and political issues that are on the table have to have pretty much had an across the board impact on small business owners. You know every day they’re saying that you know the potential over the long run for them to pay much higher taxes and have more government intrusion into their operation, it’s putting quite a pause into their mindset. You know when a business owner sits there and decides do I need to hire someone new or do I need to invest in new equipment or do I need to you know move my business forward? Or do I need to just kind of hunker down because I don’t know what’s coming? It makes that equation a tough one right now for them. But they are starting to see a little bit of light at the end of the tunnel and they’re just hoping it’s not a train about to run them over.

And a quick technical question, the interest income was you know popped up slightly and then you’re forecasting it going back down. Was there an anomaly this quarter?

Well the interest income we’re given fourth quarter guidance is similar to that in the third quarter. So I don’t think there’s a material difference between the two quarters.

Your next question comes from Jeff Martin - Roth Capital Partners LLC.

I believe last quarter on the call you said that you were planning to implement about $1 a month increase in the service fee component of the model. As I understand it as you speak about it today, that’s on hold until things kind of turn around. Is that correct?

Yes.

And so you know that maybe, let me take a stab at it, middle of next year or just kind of playing it quarter by quarter, month by month? How are you going about the decision on that?

It’s really all about as we see you know some of the metrics that Paul talked about from the survey of our small business customers, as we see the overtime pay start to increase; as we see commission pay of the employees at our clients who get a commission, as we see that continue to increase; as we see the growth in the existing client base start to increase; those will all be indicators for us that things are moving in the right direction. And it’ll be easy to start increasing the allocations. Easier, let me put it that way.

And then on the client base, are you seeing any change in receptivity from the middle market? You know you haven’t really spoken to that yet on the call. Maybe you can just touch on that.

Sure. I mentioned last quarter that we had gone through another revision in our sales and marketing efforts on the mid market organization. And you know we’ve got a lot of very positive things happening on that front, some of them a little longer term. But our pipeline, you know even as we said here today for mid market clients, even for year end, it looks pretty good. But it’s hard to tell until you reel those in, you know but like I said I’m very happy with the size of the pipeline, especially on the backdrop of this economic climate.

On the unemployment taxes side, New York, could you give us a little bit of background how that progressed? Was it unexpected? How far in advance did you see that coming? What other in general the aggregate other states? I mean what could go positively or negatively from here?

That was not an unemployment tax. That was a healthcare premium tax that the legislature in New York state had retroactively put in place. Actually it went all the way back to last October. And we just heard about it recently. And the reason was because they’ve had a premium tax in that state but they had never had one for employers who had worksite employees in that state but their policy wasn’t resident in that state. And so this tax kind of came out of the clear blue to us. And of course we booked the accrual. I think it was about $550,000 that went into effect for us on April of 2009. And so you know we’ve taken care of that and of course it’ll be in the normal run rate. On the unemployment tax side, I don’t expect anything favorable. All the funds are way underwater and I expect some pretty significant increases from every state in their unemployment tax rates for 2010.

And we are building in the New York premium tax increase on the going forward basis, because we have it right in our contract, whether it’s unemployment tax or premium tax. Any tax that our client would have been impacted with before any statutory change that would have impacted their cost is passed on through. This one that had the nature of going backwards we decided not to go back and collect from our clients.

How do you look at the risk in terms of the trend to try and stay ahead of the state unemployment tax situation?

Well in unemployment tax it’s a little bit easier for us because you know within our system, when the new rates come in, we’re able to load them in immediately and it passes it through on the next payroll. So it’s not like there’s a lag or we have to go back and do some more pricing. It’s just not that hard. So that part works well.

Your next question comes from Mark Marcon - Robert W. Baird.

I was wondering if you could talk a little bit about just for the prior quarter and as you think about the fourth quarter, what sort of sales efficiency rates are you expecting?

Well you know we have been running at about 70% of budget, even though the budget goes up as the year goes along. So we’ve been selling a little more but still at that same level of budget. You know the fourth quarter always has the element of you know clients trying to improve their operation next year. That’s why we hold the fall campaign to begin with. So I’m still expecting you know better results in the fourth quarter than earlier in the year. That’s happened every year. Even last year in the middle of the crisis it was still our best quarter of the year last year with the fourth quarter in sales. So you know but I think it’s wise for us to you know plan as if there’s no major change in percentage of total budget. So we’re hoping to do much better than that but I’m not going to plan for that or build the expectation at some kind of increase.

Normal budget wouldn’t normally be the 1.2 per?

Well you know we’ve had fall campaigns as high as 1.5. You know 1.2 to 1.5 is the normal range. So you know we end up at 70% of that number then that’s what you’d look at.

How are you thinking about the pricing environment? Obviously you’re not planning on passing through a service mark up in the near term. But can you talk a little bit about the competitive environment? Has it eased up at all or how should we think about that?

Keep in mind that our pricing for this year has really not been affected much by competitive pricing. What we’ve done this year is we’ve actually had some increase on the renewal pricing, year-over-year on renewing accounts, $2 or $3. We’ve had basically sales of new accounts, pricing on new accounts for the year has been about on par with last year. But the reason our price on entire book did not go up this year was because we went back to clients during the term of their contract, customers that were having difficulties, and we made some adjustments where we could to help them get through this period. And I think that’s been part of helping us you know sustain our renewing rates and so forth. So we’ve really been able to roll up our sleeves and stand shoulder to shoulder with the customer, not just on pricing but on the actual services we’re providing them and how we’re helping to impact their businesses. So that’s the part that I see waning already. You know we may have a little bit of a price increase at year end. It’s just hard to predict because you know you have the influx of you know the new ones coming in. It depends on which ones leave and which ones stay. So there’s a mix change that’s another factor in pricing at year end. And that’s why we’re not budgeting for an increase although we’re out there you know working to see that move that way you know because we think we can move that up a little bit in the not very distant future. But it depends on how that mix change happens at year end.

In terms of the sales force, how are they feeling you know? As the quarter went along and as October came in, was there any change relative to what you ended up seeing in say July and August in terms of receptivity among potential clients, the head poking out a little bit more out of the foxhole? Or is it still about the same?

No, we did see some difference and even more recently. You know the big difference this year in our fall campaign over last year is we were able to have a kick off meeting. You’ll remember last year in the fall campaign we had the hurricane come through Houston and it completely wiped out our fall campaign kick off meeting. So this year we were able to bring our entire sales force together and the rest of our company for that matter to different places and we were able to you know have an effective kick off and make sure everybody’s focused on you know what the goals are, but also what the obstacles are and how to overcome them. And you know we’ve got a lot of good activity there, but also the attitudes are very good. You know it’s been a tough year for people but we were able to get them all together and look them in the eye and say hey, look, we don’t care what happened so far this year. None of that matters anymore. That’s all behind us. You know it’s time to focus on a recovery that’s coming and you know it’s time to go and help make our recovery happen first. So people are very focused and they’re encouraged, but they are working very hard to get it done. It’s just that’s the nature of the beast out there today.

And then the mid market, how big is that as a percentage of revenue at this point? And what’s the read out out of those clients?

It’s about 10% of the base. It hasn’t moved much over the course of the year. And you know mid market customers, they have a lot of difficulty in this type of climate because they’re not so big as large companies that can just cut a whole layer of fat in their organizations. They really don’t have that. And they’re not as agile as small businesses in being able to be responsive. So you know they’ve had the toughest time I think in trying to deal with the economic climate. But frankly that’s where we did quite a bit of the pricing adjustments to try to help these customers make it through. But they are now you know planning into next year differently than they were last year. Even though these numbers don’t look like a great labor market recovery, they sure aren’t planning a bunch of layoffs like they were last year at this time. We were you know planning layoffs. We were helping to communicate compensation freezes or reductions, and those activities are not happening. So I think the mid market is showing some recovery as well.

Your next question comes from Michael Baker - Raymond James.

I was wondering if you could give us a sense for you know based on some of the proposals that are out there, the elimination of pre-existing condition limitations and you know the rate bans, you know kind of your expectation if you know some of that type of legislation came through as to what you would anticipate in terms of your underlying loss ratios.

Well I tell you, that’s a great question, Michael. And it’s absolutely, I mean we’ve spent a lot of time you know analyzing what’s going on up there. We’re communicating with our own government affairs people almost on a daily basis. We’re having dialogs with United Healthcare, with our outside benefits consultants, and the fact of the matter is nobody can tell you what it’s going to look like yet.

I was just wondering more broadly you know what we’ve heard kind of as part of the debate some of the solutions to affordability, we’ve never really kind of heard the PEO model highlighted. I was wondering if you could give some perspective there and whether or not you’re beginning to see a shift in some of the lobby efforts at the federal level to the states, given the fact that under some of the proposals the states may still have discretion and it might be a solution to push forth to them.

I can tell you that the insurance reform component of the healthcare legislation has never been an issue for us. We already don’t eliminate for you know pre-existing conditions, etc. So you know we already operate a big company plan that doesn’t have those types of insurance reform limitations. So you know maybe we haven’t been real clear about that, but that’s never been a worry on our plate because you know we already bring that advantage into the small to medium size business community.

And every change we get we try to talk about the PEO model as a solution. But we’ve been talking about that now since 1995 in Washington and I guess we’re just not big enough as an industry, Michael.

And at this time there are no further questions in the queue. I would now like to turn the call over to Mr. Paul Sarvadi for closing remarks.

Okay. Well we’d like to thank everyone for participating today and look forward to getting with your after our year end transition when we have a little bit better picture about what 2010 might look like. Thank you very much.

Thank you for joining today’s conference. That concludes your presentation. You may now disconnect and have a wonderful day.