CRA International Inc (CRAI) 2003 Q3 法說會逐字稿

Good day and welcome, everyone, to the Charles River Associates third quarter fiscal 2003 conference call. Today's call is being recorded and will be replayed beginning today at 2 PM Eastern Time and will be available through Wednesday, October 8th that midnight Eastern time. The rebroadcast dial in number is 719-457-0820, and you will be asked for the confirmation code that is 735-137. Again, the number is 719-457-0820 with the confirmation code of 735-137. You may also listen to the webcast at CRA's website located at www.CRAI.com. In addition today's news releases is posted on the site for those of you who did not receive it by e-mail or fax. With us today is CRA's President and Chief Executive Officer, Mr. James Burrows, and Executive Vice President and Chief Financial Officer, Mr. Phil Cooper. At this time for opening remarks I'd like to turn the call over to Mr. Cooper.

Thank you, Joseph. Statements in this conference call concerning the future business, operating results and financial condition of the Company are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based upon management's current expectations as of today, October 2, 2003, and are subject to a number of factors and uncertainties. Information contained in these forward-looking statements is inherently uncertain and actual performance and results may differ materially due to many important factors. Such factors that could cause actual results to differ materially from any forward-looking statements made by the Company include, among others, dependence upon key personnel, attracting and retaining qualified consultants, dependence upon outside experts, intense competition and professional liability. Further information on potential factors that could affect the Company's financial results is included in recent filings with the SEC.

Thanks, Phil. Turning to our third-quarter results, revenue rose 17.6 percent to 49.4 million from $42 million in the third-quarter of 2002, representing our 22nd quarter of year-over-year revenue growth. In addition, this is the first complete period the staff we acquired from the former Arthur D. Little Corporation is included in both the reported and comparable prior year quarters. Net income of $3.4 million represents year-over-year growth of 31.5 percent. Q3, 2003 EPS was 34 cents, up 21 percent from 28 cents in Q3, 2002. EPS increased significantly, even though there was an increase in fully diluted shares of 7 percent between Q2 and Q3 as the result of the sale of about 510,000 primary shares, the exercise of options, and the effect of the higher CRAI stock price and the calculation of fully diluted shares on the treasury (indiscernible).

Previous calls -- CRA's ability to achieve continued revenue growth in the face of challenging economic and political (technical difficulty) reflects the diversification of our business. With a number of practices spread across various vertical industries and areas of functional expertise, we generally are insulated from the effects of cyclicality in any single area. During the third-quarter we saw this clearly in the performance of our major practice areas where strong results from our competition (technical difficulty) practices more than offset a decline in Middle East originated business as a result of military action in Iraq and the ensuing instability in the region. We expect the business in this area to recover in the coming months as the pipeline of new opportunities builds and amateurs.

Our litigation practice has continued their strong performance. Total litigation related revenues increased between 15 and 20 percent year-over-year for both Q3 and on a year-to-date basis. All the practice areas shared in this growth with continued strong revenue generation in our (indiscernible) core practices. Our competition practice is being fueled by significant growth in M&A related work and continued strength in general corporate litigation and antitrust litigation, and our finance practice continues to be strong as a result of continued security (technical difficulty) activity. One of the public involvements in our litigation practice during the quarter was our continuing work for retailers in litigation against MasterCard and Visa in connection with a tying of debit cards to credit cards. A number of the plaintiffs agreed to a settlement of about $3 billion. We are continuing to work with other parties in ongoing related litigation.

Merger-related revenues in the competition practice more than doubled from FY '02 levels for both the quarter and for the year-to-date period. And there continues to the signs of resurgence in this business. In one involvement we worked with GE's medical system subsidiary in connection with this acquisition of Instrumentarium. Our intellectual property practice continues to be very active. We completed the patent damages analysis for IBM and two the codependents concerning a patented technology allegedly containing a range of widely sold microprocessors. CRA's analysis was cited as an important factor (technical difficulty).

Our trade practice continued to be actively involved on behalf of the (indiscernible) steel industry and the Steel 201, or steel safeguard dispute. In connection with this work, CRA released two studies (technical difficulty) economic welfare effects to the economy and the President's steel remedy, and analyzing the EU's retaliation claims. Our finance practice continued to be extremely busy. Most of our work is highly confidential. But in one case in which our involvement has become public we worked with Citibank in connection with litigation with a wealthy investor seeking damages as a result of his trading of OTC (ph) swaps and options with Citibank (indiscernible) Solomon. The case was settled very favorably with Citibank before the trial.

Our business consulting revenues also increased year-over-year for both Q3 and on the year-to-date basis. Energy and environment and metals and minerals were particularly strong. Chemicals and petroleum revenues declined during Q3 on a year-over-year basis, mostly as a result of a decline in Middle East revenues. There was approximately a six month interruption in the flow of new business from the Middle East. The pipeline of opportunities has been improving and we anticipate that business in this area will be returning to normal in the coming months as opportunities are converted to contracts. For example, during the quarter one of the national energy companies in the region awarded us an umbrella agreement totalling $5.5 million under which we already have work orders to date of $3.2 million. In this and hemisphere during the quarter we were awarded a $4.8 million contract by a national energy company for services to be provided over an 18 month period.

The energy and environment practice continued to have strong revenues and to book significantly business. For example, during the quarter we were retained by Morant (ph) for financial restructuring work. We are retained to work on litigation in connection with three major long-term power purchase agreement. This work stems from the financial restructuring of the industry caused by the California experience and the failure of Enron and other trading companies. We assisted a large industrial user of electricity and gas to develop and implement a procurement strategy which incorporates risk management for electricity and gas, and (indiscernible) mid western utility in the proposed purchase of another mid western power company.

Within our smaller practices, we experienced a similar portfolio (technical difficulty) effect as in our larger practices as some experienced growth and some did not. Taken as a whole, our group of smaller practices experienced growth in the third-quarter. Geographically, revenue from our international offices was 14 percent of total revenues compared with 15 percent of revenue in the sequential second-quarter, and 14 percent in the third-quarter of fiscal 2002. The small decline is almost exclusively related to the Middle East revenue booked through our London office. Revenue (indiscernible) by our Mexico office was strong in the third-quarter, and the large project in Mexico, its start date we said last time was (indiscernible) Q2 to Q3, it did in fact commence during the quarter. We expect our Mexico office to produce solid results in the fourth quarter.

Turning to NeuCo, revenues of $1.5 million more than doubled the $713,000 reported in the third-quarter of fiscal 2002, leading to a small operating profit. NeuCo did not receive any revenue in Q3 from the Department of Energy contract we had mentioned on previous calls. Although we have reached -- although we believe we have reached agreement on all the major items, we do not expect the contract to be finalized until sometime later in the calendar year. During FY '03 to date, NeuCo has already booked new contracts totaling significantly more revenues than the expected full year's revenues, which should indicate that NeuCo will end up with good momentum for FY '04. Based on this contract backlog and pipeline, and assuming no revenues from DOE, we expect NeuCo to continue operating at revenue rates experienced during Q3 or better for the balance of this year and the first half of next year and to become more profitable.

Lastly, during the quarter we completed a public offering of approximately 2.4 million shares, including over allotments. This offering enables (indiscernible) employee shareholders, including directors and executive officers, to sell a portion of shares owned before our IPO in April, 1998. Following the close of the offering on August 15th, these (indiscernible) shareholders continue to own approximately 24 percent of the outstanding CRA shares and the directors and executives (technical difficulty). The fact that about one quarter of all outstanding shares is still owned by employees and directors clearly demonstrates the continued confidence and commitment of our employees, officers and directors. CRA sold about 510,000 new shares in the offering netting the Company approximately $15 million in cash and providing us with additional financing flexibility to pursue growth opportunities, including acquisitions. With that I'll now turn the call over to Phil Cooper who will discuss our financials in greater detail.

Thanks, Jim. As always, I'd like to start my comments by reminding you that CRA's fiscal year operates on 13 four-week cycles, producing quarters unequal in length. Q3 is a 16 week quarter while our first and second are typically 12 weeks each. As Jim mentioned, Q3 revenue increased 17.6 percent to $49.4 million compared with $42 million in the third-quarter of fiscal 2002. For the first time, both in the current and comparable prior year quarter include the full contribution of the staff we acquired from the then Arthur D. Little Corp. late in our fiscal 2002 second-quarter, and is now integrated into our existing chemicals and petroleum practice. For the third-quarter NeuCo posted revenues of $1.5 million, more than doubling the 713,000 we recorded in the year ago period. NeuCo's results were also better than the guidance we provided at the end of the second-quarter which suggested NeuCo revenue of approximately $1.3 million. For the third-quarter, NeuCo's operating profits were small, but this is the third consecutive quarter of breakeven results for NeuCo.

Third-quarter gross margin was 39.2 percent, essentially flat with Q3 of fiscal 2002, plus 200 basis points higher than the 37.2 percent reported in the second-quarter of this year. The sequential increase in gross margin is primarily the result of lower reimbursables and labor expense in the vacation intensive third-quarter, which offset slightly lower consultant utilization. Changes in revenue mix account for the remainder of the variance. Total consultant utilization for the third-quarter was 72 percent, down slightly from 73.5 percent in Q2 of this year, but up from 71 percent of the comparable period in fiscal 2002. The sequential decrease in utilization is a result of summer holiday and vacation seasons. Our goal remains a full year average utilization rate of 72 to 74 percent in fiscal 2003, and we are evaluating ways to ensure that we reach our target. We did lose one to two days of billing in our DC office to Hurricane Isabel early in the fourth quarter, so we will be monitoring utilization carefully in light of that occurrence.

SG&A for the third-quarter was $13.3 million or 27 percent of total revenue. This represents a full percentage point decrease from the comparable quarter in fiscal 2002, but it's higher than the 25.7 percent we reported in the second-quarter of this year. The sequential increase stems from higher performance payments, that is commissions, to outside consultants. We continue to expect SG&A to stay in the mid-20s as a percentage of revenue going forward. Third-quarter operating income increased to $6 million compared with $4.7 million in the third-quarter of fiscal 2002.

Operating margin was 12.2 percent compared with 11.1 percent in the third-quarter of fiscal 2002 and 11.5 percent in the second-quarter of this year. Net income grew 31.5 percent year-over-year to $3.4 million or 34 cents per share in the third-quarter compared with $2.6 million or 28 cents per share in Q3 of fiscal 2002. The net margin increased to 6.9 percent year-over-year from 6.2 percent in the third-quarter of fiscal 2002. Weighted average fully diluted shares outstanding for the third-quarter of fiscal 2003 were 10 million compared with 9.3 million in the third-quarter of fiscal 2002. Note that our net income growth percentage exceeded our EPS growth percentage due to the 7.5 percent increase in share dilution.

Professional headcount stood at 348 at the third-quarter, flat with both the first and second-quarters. Our current junior to senior staff breakdown is 11 junior consultants and 237 senior consultants compared with 99 junior and 249 seniors in the second-quarter of this year. Looking at the balance sheet, billed and unbilled receivables decreased sequentially to $45.9 million at the end of Q3 from 47.5 million at the end of Q2. Current liabilities increased to 36.5 million at the end of Q3 from 31.8 million in the end of Q2. Day Sales Outstanding were 100 days in Q3, up from 95 days at the end of the second-quarter. This breaks down into 37 days of unbilled and 63 days of billed in Q3 compared with 30 days of unbilled and 65 days of billed in the sequential quarter. The sequential increase in DSOs is related to fewer retainer base engagements in the third-quarter. Our target for DSOs remains in the 95 to 100 day range.

Cash and equivalents, as well as short and long-term (technical difficulty) stood at $62.5 million at the end of the third-quarter, up substantially from Q2. The increase in cash and equivalents is due to the following three factors. First, $15 million in net proceeds from CRA's public offerings completed in August. Second, $10 million in proceeds from the exercise of in the money stock options. And three, cash from operating activities up $10.7 million offset by capital expenditures of approximately $1.5 million. Please note that in the (technical difficulty) third-quarter the high cash flow is partly related to there being minimal bonuses paid within the quarter.

Turning briefly to CRA's year-to-date results, total revenue was $124.4 million, up 32 percent from $94.2 million in the comparable period in fiscal 2002. Again, the first three quarters of 2003 include the full contribution from the North American and the UK part of the chemicals and energy practice from ADL, which we acquired on April 29, 2002 and May, 2002 respectively, late in CRA's second-quarter of last year. Operating income of $14.5 million is 46.6 percent higher than the $9.9 million recorded in 2002. Net income of $8.4 million is up 37 percent from $6.2 million in fiscal 2002. Earnings per diluted shares in the first three quarters of fiscal 2003 totaled 88 cents compared with 66 cents in the same period of fiscal 2002. Overall, it was a good quarter for us from a financial perspective, and with that I'll turn the call back over to Jim.

A brief look forward before we go to your questions. Our third-quarter performance extended our track record of strong growth, which we expect to continue in the fourth quarter. Our pipeline is healthy as we continue to be one of the names called upon most to weigh in on the economic, financial and strategic issues influencing the corporate and government landscapes. We are working to rebuild our backlog and our chemicals and petroleum process and see encouraging early signs. Looking at the remainder of fiscal 2003, we expect full year revenue growth to be near the midpoint of our stated range of 20 to 25 percent. We expect full year EPS growth towards the high end of our 25 to 30 percent range.

Keep in mind that we expect to achieve our percentage growth projections, despite having an extra week of operations in fiscal 2002 and approximately 10 percent additional share dilution in the fourth quarter this year relative to the third-quarter, and about an estimated 6.5 percent additional share dilution for the whole fiscal year 2003 relative to fiscal 2002. The share dilution is a result of the primary share component of CRA's follow-on offering this past August, the exercise of options by employees, and the higher share price leading to more in the money options entering the treasury method of dilution calculation.

We are currently completing our business plan for FY '04. We continue to believe that there's good momentum in our business. We currently expect organic revenue growth to be (technical difficulty) which should result in EPS growth of 20 percent or better, taking into account the fact that our current share prices of the fully diluted share count will be about 10.5 percent higher in FY '04 than in FY '03. Our current hiring plans anticipate increasing average consultant headcount by up to 10 percent, and we are projecting an average billing rate increase of about 5 percent. We are targeting utilization in the mid 70 percent range for the year. With that, I will ask the operator to poll for questions.

(OPERATOR INSTRUCTIONS) Matt Litfin of William Blair.

Congratulations on the results -- question I have on consultant turnover, could you comment on what that's looked like recently during the four-month quarter there, as well as how that compares to your historical experience?

Well they continue to be low. You'll notice that the total has remained constant. The junior consultants have gone up a bit, the senior down a bit, but that's mostly because -- almost entirely because of individuals going back to graduate school. And some of our junior consultants in their last year are categorized in the senior consultant category. So basically there has not been unusually high turnover.

Another question I had was -- following up on the guidance you just gave, Jim, I think I heard you say that for this year '03 you were looking for total revenue growth to be in the midpoint of your 20 to 25 percent goal range. It looks to me as if you had flat year-over-year revenue in the fourth quarter you'd be right in the middle of that range. So I wondered if you could comment, maybe is it strength in the prior year in terms of revenue, or is there anything else that's factoring into the (indiscernible) that fourth quarter guidance?

Matt, this is Phil. If we simply extrapolate, adjusting for the difference in length of quarters, based upon our Q3 to Q4 experience, if we just extrapolate that running rate, that leads to a -- just beyond the midpoint in terms of the growth rate in a year-over-year calculation. In other words, all we've done is just put a ruler on where we were and extrapolate it to the end in coming up with that guidance.

Maybe one more question if I might, and then I'll jump out of the queue here. I wondered if I could just get you guys to comment generally on the acquisition pipeline as you see it and comment on it relative to what it's looked like over the last year or so.

Well, our acquisition pipeline is I think much fuller than we have seen in -- certainly in my 3.5 years in the company. We have a number of opportunities. I think those have arisen in good part due to the company's recent success and the improvement in its stock price and so on. We have small companies and large companies. But I want to be very careful in saying that there is no term sheet that is in imminent -- imminently going to be signed. There are lots of discussions right from first initiation, right down to thinking about valuation. But there's no definitive letter, there's no initial term sheets or whatever at this moment. But we're comfortable that we have some prospects that -- let's just say we ought to be able to reach a deal with them.

Great, thank you. And again, congratulations.

Thank you, Matt.

Jim Janesky of Janney Montgomery Scott.

Yes, good morning. When you look at next year, fiscal 2004, did I hear correctly, Jim, that you said roughly 15 percent top (technical difficulty), 20 percent bottom-line growth?

The words I used were 15 percent or better and 20 percent or better.

Okay, great.

And the bottom line was EPS.

EPS, okay good thank you for -- and as you looked --.

That was EPS despite the increase in share count.

Right, right, so your net income will actually grow. When you look at that, is that based upon just a history of operating your business at this point in the cycle? For example, where I'm kind of heading with this question is really twofold. The first is, you've made a number or a couple of new hires recently at very senior levels that I would imagine in time, before they really start generating utilization rates at or above the company average, and I'm just wondering what expectations do you have now to hit that 20 percent with respect to new hires and, of course, the M&A market rebounding?

Okay, what we're doing is going through our planning for next year at a practice by practice level. And the projection for next year is based on a combination of our current specific buying plans at the practice level of detail, along with the projections that our practice is (indiscernible) of what I think our business will be. I can say that really almost across the board our practice management people are feeling pretty good about the momentum for next year, are quite optimistic about growth. We're not, just to avoid getting out in front of our headlights we're basically saying okay, if we're expecting to hire ex number of people and the practices think they can keep them busy, and we can get a modest uptick in utilization and (indiscernible) rates is about where we come out. Does that give you a better understanding of how we come up with the number?

Yes, so you are expecting the contribution of these new hires to ramp up over the next year. Is that accurate?

Yes, absolutely.

And --.

By the way, I should also say that in the guidance I just gave there's no allowance in there for acquisitions.

That was my next question. So there's no allowance for acquisitions. What about the DOE contract with NeuCo? Is that included in your 20 percent?

No.

No, it is not.

No, because given that we think we've reached agreement with DOE. You might recall this whole process started I think six months ago. And this is the government, our tax dollars at work, and who knows. We think we've reached agreement, but they are saying they'll get us signed in the fourth quarter which is sort of overlaps between our fourth quarter and Q1 next year. But we're not counting on that.

Okay.

And to paraphrase an old Orson Wells wine commercial, there will be no government contract before it's time.

Fair enough. Following up on Matt's question about acquisitions, can you kind of -- just kind of go over what your rough parameters for what you're going to pay for acquisitions? I think you paid somewhere around five times trailing for Arthur D. Little. Is that correct?

We --.

When you eventually included the accounts receivable?

Well, you're talking about the ADL staff acquisition?

Yes.

Well, in some ways that was looked at because there were no interval accounts to be perfectly comparable, and although we did put some pro formas together we've never really commented on them and they were very pro forma. But we paid gross about $10 million for $20 million of annualized revenue, and immediately within a couple months received $3 million of that back. I would do those deals every day in the week if we have opportunities to do that. We happen to believe that we're much happier, obviously focused on EBITDA when there is a reasonable basis for being able to estimate it because that's ultimately what's going to convince us whether a deal is accretive or not. And we believe a lot more in the 5.5 times EBITDA range than let's say multiples that we've seen recently.

Okay. Thanks very much.

Sandra Notardonato of Adams, Harkness & Hill.

Just a couple of questions. First, news on this sector, what kind of impact do you think the acquisition of Lexicon is going to have on the competitive environment? And why the big difference in operating margins -- the pro forma operating margins? It seems that the acquirer of Lexicon talked about in comparison to yours?

First of all, Lexicon is already out there (technical difficulty) under new ownership.

Right. What do you think that new ownership does?

I'm not sure it does a lot because the buyer is not in this business, so basically we -- Lexicon was there before us, they're now. Obviously FTI (ph) may become more (technical difficulty) in the acquisition, so it may have some effect on the acquisition market. But in terms of our operating businesses, we competed with Lexicon before, we'll compete with them in the future. So I'm not sure I see any big change there.

And we have trouble, let's say, from our standpoint -- and this is our opinion only -- understanding all of the synergy that has been asserted.

Now in terms of those statements about margins, I'm not sure we're in a position to really know exactly how they're coming with those numbers. Lexicon has been a lower virtually no growth operation, but it's been pretty successful generating cash.

Okay. The next question has to do a little bit more with the guidance for 2004. You made mention that the Middle Eastern business, you are expecting that to come back. Is an improvement in what's happening in the Middle East in your numbers or your guidance for 2004?

Yes.

Okay. And can you elaborate a little bit on that, Phil, what percentage of revenue you expect from that area in 2004, or is that too granular at this point?

That's a wee bit too granular. But I would comment that basically on a sequential quarter basis our Middle East originated revenue dropped $1000. That wasn't in a -- and that was with Q3 being four weeks longer than Q2. So you can see that the run rate in terms of loss would be a little bit larger. And we understand that, and that we expect obviously to be able to make that back.

The work orders that you mentioned in the prepared remarks, will we be seeing them in this quarter here? Is that a beginning of 2004 --?

No, some of that work started late in Q3, and it's continuing in Q4 at a higher rate.

Okay, so if there were to be any impact let's say from Hurricane Isabel, would that help to offset it, or could we potentially see Hurricane Isabel having an impact on overall utilization in the quarter?

I'm not expecting that the hurricane will show materially for the quarter. It obviously effected one week. As it affects --.

It affected one week in one office.

It affected one week in an office -- (indiscernible) less than 20 percent of our headcount. So obviously if that week was affected, but over the whole quarter, those kinds of events develop something like that in a quarter.

Okay, okay. Just a couple more questions. One of the other points you made on the call was that the growth grossed margin improved because of a favorable revenue mix. What are the more profitable practice areas?

Well again, I would say that was a residual part of the variance. The biggest part was the (technical difficulty) dropped from -- previously from about 16.5 percent of our revenues to about 15 percent, and as you know, there's zero margin on the reimbursables. So it's just pass-through, so that's one reason that accounts for a good part of the 200 basis point increase. The second reason is that there's essentially movement between the balance sheet and the income statement in terms of labor expense because we let the cost of sales reflect the actual lower number of hours on an equal -- let's say on a weekly basis because of (indiscernible) in this third quarter. And I think those are the two major factors. Certainly the increase in -- the continuing increase in activity in our finance practice, which is highly profitable, also can lead to those margins, but that is -- I wouldn't attribute a lot to that.

The percentage of revenue in the quarter that came from outside experts?

I don't have that number right with me right now. Let me dig through some papers, and if you have another question, I can try to come back to that.

My last question has to do with the number of junior people to senior people. What is the target there?

The target of the time is to substantially increase that number, but we are being pretty careful about the hiring activity, so we're pretty much trying to higher to need. As utilization gets tight -- and we've had tightness of staffing in certain offices, including our Boston office, we'll hire more people. But I don't have a specific quantified target in mind. But we -- I think our sweet spot would be for a pretty significant increase in that ratio set.

Okay. Actually I just realized, I don't think you gave the bill rate, the average bill rate in the quarter. Did you give that on the call?

No, I don't have that computed right now. Sandy, the percentage of revenue in this quarter coming from the outside consultants is in the neighborhood of 6 percent.

Say that again, 50?

Six.

Thank you very much. Nice quarter.

(OPERATOR INSTRUCTIONS) Matt Litfin of William Blair.

Jim, you had mentioned in your commentary that you guys have seen a resurgence in M&A in recent weeks or months or maybe the last quarter or two. Can you just maybe go over what some of those signs are as you see them, and how does the M&A resurgence, as you put it, factor in to your 15 percent revenue growth guidance for '04?

Well, the most obvious thing is that our billings having been going up pretty steadily going back into last year on into the present, and we are just simply getting more nibbles and calls and statements from lawyers that they've got something in the works. So we continue to think that that will continue to increase. In terms of how it effects our guidance, we have basically been reacting to that by just simply working people harder as opposed to going on increasing headcount. So there's not a huge amount of headcount projected for the litigation group, and we don't -- when we hire people because their fungible cost lines of business they're not hired as merger specific people necessarily. So, I don't think that we actually have a specific assumption there, it's just part of the context that makes us feel that litigation will have another good growth year next year.

Okay, thanks. That's helpful.

Tom Sinwood (ph) of (indiscernible) Capital.

Given the mix of junior versus senior, is it reasonable to assume that the billing rate for the quarter went down a little bit?

Actually, I think -- and again, this is not a metric that we focus on per se -- but the number is about $310, at least it was when we were on the roadshow this summer, and I think it stayed the same. For one thing, what we have is that as there are promotions and so on, the flow rate (ph) associated with certain individuals increases. So I think the 310 is still a good estimate.

And when you talk about a 5 percent increase you expect next year, that's kind of 5 percent for the junior and 5 percent for the seniors and a mix shift could cause that to vary? Or are you saying that you feel that the average billing rate will be up 5 percent?

Well, actually the way we're thinking about it is for fixed proportions 5 percent, and by the way, we don't -- we set billing rates by person, we don't just start handing out the same adjustment across the whole company. So I don't think there's going to be a big proportional shift in junior to senior next year, so I think the 5 percent will be reasonably accurate on a weighted basis.

And what was the dollar number on the reimbursables?

We're looking that up.

Thank you.

About 7.4 million.

How much?

7.4.

I thought you said it was down relative to the recent quarter?

(inaudible) is a 16 week quarter, and what I said was it was down in terms of the proportion of revenue.

So am I looking at the right number, 3.35 in the second-quarter?

Why don't we just circle around your -- I'm wrestling too many sheets and I will come back to you on that.

I'm wondering if that's a year-to-date number. Thank you very much.

We'll work on that and get back to your, take some other questions (technical difficulty).

(OPERATOR INSTRUCTIONS) And there are no further questions at this time.

Hold on for a second.

We're still trying to be the right numbers on the reimbursables.

We do have a question from Sandra Notardonato:

I just thought maybe I'd help out. In my model I have reimbursable expenses in the May quarter of 6.7 million.

Yes, that's correct.

And in the quarter before that it was 5.2 million. So 15 percent of revenue in February, 17 percent of revenue in May.

Right, right. And I think the $7.4 million is just about the right number. Obviously we'll firm all that up when we publish our Q.

And no further questions.

Operator, I think we're done with that question.

At this time there are no further questions. Do you have any closing comments?

I want to thank everybody for participating and we look forward to speaking with you next quarter. This concludes today's call.

Thank you.

Thank you for your participation, at this time you may disconnect.