Good day and welcome, ladies and gentlemen, to the first quarter 2007 earnings conference call. My name is Audrey and I will be your conference coordinator for today. (Operator Instructions) On today’s call, we have Mr. Richard Rawson, President of the company; Mr. Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and lastly, Mr. Douglas Sharp, Chief Financial Officer. Mr. Sharp, 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 meaning of the Federal Securities laws. Words such as expects, intends, projects, believes, likely, probably, goal, objective, outlook, guidance, appears, target, 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 our first quarter financial results. Richard will discuss trends in our direct costs, including benefits, workers’ compensation and payroll taxes, and the impact of such trends on our pricing. Then Paul will add his comments about the quarter and our outlook for the remainder of the year. I will return to provide financial guidance for the second quarter and the remainder of 2007. We will then end the call with a question-and-answer session. Now let me begin by summarizing the first quarter financial results, which are consistent with that provided in our release from last week. We reported first quarter earnings of $8.4 million or $0.30 per share. This was below our expectation, primarily as a result of higher than expected healthcare costs. These higher healthcare costs contributed to an average gross profit per worksite employee per month of $216 for the quarter, below our forecasted range of $224 to $230. The average number of worksite employees paid increased 9% for the quarter, slightly less than our forecasted growth…

Thank you, Doug. This morning I am going to discuss the details of our first quarter gross profit results. Then I will explain how our pricing strategy and direct cost trends should shape our gross profit per worksite employee per month for the second quarter and beyond. Let me remind you that our gross profit comes from the markup on our HR services, combined with the surplus that is generated when our direct cost pricing allocations exceed the corresponding direct costs. For this quarter, as Doug just reported, our gross profit per worksite employee per month was $216 and below our forecasted range. These results came from achieving our targeted average markup for the quarter of $200 per worksite employee per month and generating a surplus of $16 per worksite employee per month. This surplus came from contributions in payroll tax and workers’ compensation direct cost centers, offset by higher than expected costs in the benefits cost center. Here are the details. The surplus in the payroll tax cost center came from better-than-expected state unemployment tax rates that we received near the end of the quarter compared to our pricing allocations that we adjusted for last fall. This surplus was higher than what we had forecasted last quarter. Our second contributor to the surplus in this quarter came from our workers’ compensation program. As Doug reported a few minutes ago, our workers’ compensation expense was reduced primarily by a $6 million reduction to our reserves for claims. We have been seeing a $2.5 million to $3 million reduction to our reserves each quarter for the last couple of years. These better-than-expected results continue to come from our people being able to settle workers’ compensation claims for amounts lower than expected. The other factors that affect a lower-than-expected cost are the…

Thank you, Richard. In my part of the call today I will discuss three topics of importance to Administaff and investors. First, I will comment on each of the drivers to our unit growth in the first quarter, sales of new accounts, client attrition, and the net affect of new hires and layoffs within the client base. I will also provide details surrounding systemic improvements that are underway to reinvigorate each of our growth contributors. Then I will conclude with our outlook for growth in both the near and long- term. Our announcement last week included the average number of paid worksite employees for the quarter and the actual number paid in March. As you can tell from these numbers, we experienced two weak months in unit growth and then finished the quarter with a nice increase in worksite employees in March. Several factors combined to produce these results. First, the total number of worksite employees lost from attrition of current clients was slightly higher than historical numbers in the first two months of the quarter. As I mentioned last quarter, the number of accounts terminating has actually been below historical levels. However, the average number of worksite employees associated with terminating clients has been higher than historical levels due to mid market terminations. The net affect has been a slightly higher total number of worksite employees from terminating clients coming out of the employee count. Our typical monthly attrition rates are 6% to 7% of worksite employees in January, 2.5% to 3% for February and approximately 1.5% for March through the balance of the year. This year, we were above our range at 8% for January, at the high end of our range of 3% for February, and then right on our historical numbers for March at 1.5%. Secondly,…

Thanks, Paul. At this time, I'd like to provide financial guidance for the second quarter and an update to our full-year forecast. As for worksite employees, we expect to average 107,250 to 107,750 for the second quarter, and add an average of 1,100 to 1,300 each month for the latter half of the year. As Paul just mentioned, client attrition is expected to return to historical levels over the balance of the year and sales are expected to ramp up from our spring sales campaign. This expected net monthly growth results in a forecasted range of 109,000 to 110,000 for the full year. As Richard mentioned, we now expect full-year guidance for gross profit per worksite employee per month to be in a range of $223 to $228. This is a combination of an expected average markup on our HR services of $201 and a surplus on our direct cost programs in the range of $22 to $27. As for the second quarter, we expect gross profit per worksite employee per month to be between $221 and $225, which includes the impact of a $3.3 million reduction in administrative costs negotiated under the new United Healthcare contract. When forecasting this metric over the remainder of the year, we would expect Q3 to be relatively consistent with Q2, and a 5% sequential increase in Q4 over Q3, as payroll tax costs decline and price increases continue to roll in through the remainder of the year. As for operating expenses, we now expect to be in a range of $237 million to $239 million for the full year, with the high-end of the range including additional incentive compensation tied to achieving higher unit growth and gross profit goals. Cost savings from our previous guidance include a reduction in salaries and wages of…

(Operator Instructions) Our first question will come from the line of Tobey Sommer with SunTrust Robinson Humphrey. Please proceed.

Thank you. I wanted to ask you a question about the spring marketing campaign, and if you have any plans to do anything different this go-around. I know it is probably at least partially underway and under your belt, but any changes you can describe would be useful. Thank you.

Sure. Thank you, Tobey. We actually really refined our spring campaign program last year and had a very strong campaign, so we have pretty much mirrored what we did last year. Our advertising is up and running and generating the leads that we want to. So things are going fine in that respect. We did have our sales convention during the first quarter. It was very successful and attitudes are good and with the advertising, et cetera, we are boosting activity to the levels that should produce the results we are looking for. We are always changing a few things and working out some things. We actually came up with a contest where we actually are providing capital to a small business that qualifies in the contest. One of the things they have to do is actually watch the seven-minute video about our service online, and that has been very successful in the first -- once we launched it in terms of how many folks we are getting through that process and how often that turns into a first-call opportunity. We are always tweaking things but we have done a great job in that area and are expecting good results from the spring campaign.

Could you walk us through some of the metrics that you typically describe in terms of the sales funnel? I apologize if you have already gone through some of those productivity measures, but if you could repeat them, that would be terrific.

We generally quote somewhere between 45% and 50% of the accounts that we make first calls on, and then we close anywhere from 20% to 23% of the accounts that we have an opportunity to bid. Obviously those numbers are affected somewhat by the growth in the sales staff and the tenure of our trained sales reps. As I mentioned on this call, we really are doing a great job on the hiring and training of our reps, and our turnover rate, which peaked at a little over 40% last year, is down over the last half of last year and into the first-half of the first quarter of this year down to 30%. We are really feeling good about that and of course, in that respect the number of trained reps that have over 18 months experience has risen to 47%. So we expect to see good results on those key sales metrics of the number of first calls and how they convert into bids and then how those convert into sales. That should affect our sales efficiency number.

I will ask one more question and then get back in the queue; could you refresh us on the number of trained sales reps and hired now, and maybe what your target is as you enter the fall campaign? Thanks.

We are at 251 average for the first quarter, and of course that is ramping up. We are actively hiring and having training classes and so forth. It is an exciting time in that respect. We should ramp up somewhere between 280 to 300 as we get into the latter part of this year. Then we will be in great shape for ’08 growth.

And the number of hired that you have already?

I believe it is around 280 or so.

Thank you very much.

Our next question will come from the line of Jim Macdonald with First Analysis. Please proceed.

I wanted to dig into the healthcare a little more. Are you going to raise prices in general faster or maybe cull out some higher cost accounts or anything else, other than the ChoicePlus stuff you talked about?

Jim, the answer to your question, the first one is yes, we already started back last fall, as we observed the cost of this particular plan. With the change that we made at the beginning of the year, we see that the migration of those customers coming out of that plan, because to a certain extent, they will seek a lower cost plan with a higher deductible. And we are continuing to increase pricing for that particular plan, as well as nominal increases in the rest of our program because trend is -- I mean, healthcare inflation is alive and well and we have been historically, for many, many years, a lot lower on the trend side of costs than the market at large. So with the pricing strategy we have, we should be able to continue to select the right kind of customers and give them a great benefit at the same time.

Jim, I’d like to add to that that also at renewal, we do look at each individual account and it is part of our normal process and we use an approach that we call a partial pooling approach where certainly everyone gets the benefit of being a part of a much larger group but you do not ignore each entity’s contribution to the total, and so those who had higher incidence of large claims will see higher rates, so that is all part of our normal process.

Just a follow-up; were you caught up at all -- it sounds like United Healthcare had some or were surprised themselves. Were you getting good information from United Healthcare or was their guidance maybe also a surprise to you in terms of properly pricing plans?

Jim, that’s a good question, actually. After hearing United Healthcare’s conference call, what they were talking about that was a surprise to them was they have a fairly large book of business in the small business market segment that the employees and clients are enrolled in the high deductible health plan. And so that was the part that was kind of different for them because that deductible expires at the end of the year, and so according to their, according to what they said on their call, that part of their small business book was a surprise and therefore that is why they increased their reserve I think $170 million or whatever. Now for us, the customers that we have in the high deductible health plan, we have -- and I am going to be pushing the envelope, maybe 1.5% of our base is in a high deductible health plan. That really wasn’t a specific area that drove our costs. The data and information that we get from United is certainly -- we do annual audits of our plan with United and their rate of quality in paying claims and reporting claims accurately is very close to 100% in most cases, and so that is not an issue of us just getting paid late. It is a matter of, in our case, having claims that were incurred in a prior period that just took a long time to get paid and that is the nature of -- unfortunately, that’s a little bit of the nature of healthcare. That’s why we have to each period look at what’s called our incurred but not reported claims and come up with an estimate of what that amount is. It was just more than what we were expecting.

Just one more and I will finish here. Paul, you mentioned that the sales in Q1 was below plan. Can you say how much below plan?

It was actually below our budget but it was still higher than last year on a comparable basis. It is nothing for us to be excited about. In fact, it is probably just enough for us to be able to really beat the drum and get everybody really focused properly on getting back on target, not just for a second quarter budget but making up for where we were in the first quarter. So nothing to be concerned about there, but a little ahead of last year, although we are ahead of last year in number of trained reps, so it should be more than last year. But things are going fine there, but I do expect things to ramp up even more now with the spring campaign.

Thanks very much.

Our next question will come from the line of Mark Marcon with Robert W. Baird. Please proceed. Mark Marcon - Robert W. Baird & Co.: Good morning. I’m just wondering if you could give us just a little more color just in terms of what you are seeing with the mid market. Obviously that was an area that was a little bit softer during the fourth quarter and I’m just wondering to what extent that carried over into the first quarter. You had mentioned that there were a number of accounts that there was still no decision on. I’m wondering how those panned out.

I sure can. First of all, of course, I announced that we were going to take a deep dive into the sales service and our service infrastructure for those accounts. When you do that, you do have some suspension or put some things in abeyance on how you are moving forward with specific accounts. So it is pretty much on an account-by-account basis. As we dug into it, we have found what I believe will be some very effective improvements in each of the components -- how we sell, how we serve, and what the under girding infrastructure is for meeting the expectations of those accounts. We didn’t sell very much in the mid-market in the first quarter. That is also part of being below budget, because we didn’t take it out of the budget just because we were going to reengineer the processes. But I think it is not unusual to expect that when you are doing that, you are not going to have a -- I had a lot of the sales staff in working on these changes and the service team working on these changes, so we have been in the foxhole together working out the next strategy, so that is kind of understandable. But we are ready to start to deploy these new things. There are several things that will take the second quarter to put in place and then we will start actually using the new processes in the third quarter, which we are trying to ramp all this to be effective in the latter half of the year, as you are going to have a lot of customers renewing and a lot of new accounts making decisions. Mark Marcon - Robert W. Baird & Co.: When we take a look at the January and February performance relative to budget, to what extent was that due to mid market as opposed to your traditional client base?

It was about half and half. Mark Marcon - Robert W. Baird & Co.: Half and half. Okay, and then can you talk a little bit about regional differences, and specifically in the west, what are you seeing there in terms of that west region and growth prospects going forward? Anything that may have impacted growth during this last quarter?

I think I mentioned last go-round that over the past year-and-a-half or two, we really had to rework the whole San Francisco market all the way up to not only the district managers but a regional manager change, and so pretty much a whole sale change out. We have been through that and in fine fashion, they are doing fine up there now. I think you will start to see those numbers come around some, but we are all excited about the West region. We will open a couple of other new offices out there. We are going to open up another Phoenix office. We are going to open up another L.A. office, so we are doing fine out there in terms of the demand is strong. Mark Marcon - Robert W. Baird & Co.: No change in competitive environment?

No, none that we’ve seen to hurt our game plan. However, we do I think -- we have really made a move to be more aware of other options. You may have seen the announcement last fall of adding a new senior person on our team to help us on the strategy side. In fact, formerly in the research business, Mark Allen, who is now our VP of Strategic Planning, he is helping us keep good tabs on what is happening in the competitive environment from the big picture, but we also have quite a bit of activity just making sure that our sales staff are fully equipped to point out the differences when we are in a competitive bid situation, which is still not that often but you want to make sure people are prepared that when that happens, we can really come out on top. Mark Marcon - Robert W. Baird & Co.: Okay, great, and then last question just on the healthcare, just to be clear, it sounds like the healthcare costs, the primary reason for the higher healthcare cost this quarter was primarily the spillover effect from the prior quarter, where things were a little bit higher. In terms of looking ahead, and then of course there is this adjustment with regard to the low deductible plan, in terms of spilling over into this quarter, should we see any of those, the effects from the first quarter spill over into the second quarter? I am talking about specifically the above $50,000 type claims?

No, Mark, we should not. We saw this phase out over the first quarter and when we look at our large lost claims that were in excess of $50,000, they were almost, I mean almost to the number in line with growth of our business from the third quarter of 2006 to the first quarter of 2007, just implying a normal growth. The dollar amount was up compared to the third quarter of 2006. The claim amount was up compared to the third quarter of 2006 but they were certainly a lot lower than what we had experienced in the fourth quarter. We are in the safe zone again. We don’t expect to see any spike in that, in the large loss claims. They do happen and it’s stuff that you just can’t -- you just can’t know that it’s going to take place but based on where we are right now, we don’t see that. Mark Marcon - Robert W. Baird & Co.: Thank you.

Our next question will come from the line of Tom Giovine with Giovine Capital Group. Sir, you may proceed.

With regard to share count, buy-back and sort of the capital plan, and I guess I find it a little frustrating why we are not being a little bit more aggressive with the buy-back. I understand that there are buy-back rules and you have put in a -- what is it, a 10B5, 12B5 plan, but why has not the board maybe been a little bit more aggressive about considering a Dutch tender? I have not historically been a big proponent there, but with a stock like yours where you have a relatively short window because of material information, it seems like you could tender for 2 million, 3 million shares and still have plenty of capital to execute your strategic plans as contemplated and allow shareholders to benefit from reducing the shareholder base here at a relatively depressed level.

Tom, you bring up a good point and obviously we have been trying to execute a buy-back game plan, obviously with the limitations. Unfortunately, the relatively thin trading on our shares does make the limitations quite restrictive. We actually did fairly well during our open period and then put a 10B51 plan in place for our quiet period, but not much was able to be executed during that game plan. We are going to revisit that. We have our Board meeting tomorrow. We are going to talk more about that. As you know, even from putting that plan in place, we have designated a significant dollar amount to be utilized to buy back our own shares because we believe this is a tremendous value. Of course, our window will open back up again shortly, so we should be able to be active again like we were. But we will revisit that tomorrow and I am not sure where we will land on it but we were not happy with being able to acquire so few number of shares over the last quarter.

Great to hear. Thanks.

Ladies and gentlemen, this does conclude our Q&A session. I would now like to turn the call over to Mr. Paul Sarvadi, Chairman and CEO. Sir, please proceed.

Thank you very much and once again, thank you everyone for participating on the call today. We look forward to better results in the second quarter. Thank you.

Ladies and gentlemen, at this time the call has concluded. You all may disconnect and enjoy the rest of your day.