CRA International Inc (CRAI) 2008 Q3 法說會逐字稿

Good day and welcome everyone to CRA International's third quarter fiscal 2008 conference call. Today's call is being recorded. You may listen to the webcast on CRA's web site located at www.crai.com. In addition, today's news release is posted on the site for those of you who did not receive it by e-mail. Later we will be conducting a question-and-answer session. At that time (OPERATOR INSTRUCTIONS). With us today are CRA's President and Chief Executive Officer, Mr. Jim Burrows and Executive Vice President and Chief Financial Officer, Mr. Wayne Mackie.

At this time for opening remarks and introductions, I would like to turn the call to Mr. Mackie. Please go ahead, sir.

Thank you, Claudia. Statements made during this conference call concerning the future business, operating results, estimated cost savings and financial condition of the company, statements using the terms anticipates, believes, expects, should or similar expressions are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to a number of factors and uncertainties. Information contained in these forward-looking statements is inherently uncertain and actual performance results may differ materially due to many important factors. Those factors that could cause actual results to differ materially from any forward-looking statements made by the company are included in the company's filing with the Securities and Exchange Commission in today's news release which is posted on the company's web site. The company cannot guarantee any future results, levels of activity, performance or achievement. The company undertakes no obligation to update any of its forward-looking statements after the date of this call. Jim?

Thanks, Wayne, and thank you everyone for joining us today.

First, I would encourage everyone to refer to today's news release for a full reconciliation of GAAP net income and earnings per share to non-GAAP net income and earnings per share. As outlined in today's news release, all the revenues for the fiscal third quarter of 2008, the 16 week period ended August 29, 2008 was $111.2 million, a decline of 11% in the third quarter 2007. After what was a promising second quarter during which we rebounded from a slow start to the year, we were very disappointed with the results. The year-over-year decline in revenue resulted in several factors including the effects of discontinuing (inaudible) business in Australia and New Zealand that we announced in Q2. The revenues in Q3 of '07 of these lines of business were approximately $4.6 million. Revenue for the General Industrial Consulting practice, formally of Chemicals and Petroleum, declined by approximately $1.8 million as a result of the ongoing effect of the decline in revenues from our large Saudi Arabian contracts that occurred during Q1. In addition to these factors, we experienced revenue declines in the US finance litigation as a result of the completion of some large projects and a significant slowing of activities of some of our largest cases as clients tried to conserve costs during this current period of economic uncertainty. In the latter case, the revenues are likely postponed, not lost. We expect that the continuing turmoil in the financial markets will leave a significant demand for our services in the coming years. Our utilization for the quarter was 71% which is down from Q2. Looking at our consultant headcount, we ended the quarter with 692 consultants compared with 682 at the end of Q2 2008. Our current breakdown is 246 junior employee consultants and 446 senior employee consultants compared to the Q2 breakdown of 208 junior employee consultants and 474 senior employee consultants. The shifts of higher ratio of junior staff is reflected in summer seasonality within our junior ranks as it is the prime hiring season following the academic year..

Turning to our performance on platforms, our Litigation and Applied Economics platform revenue was down more than 10% for the quarter. For the year-to-date period, revenue was up nearly 5%. More than half of the decline in Q3 revenue was attributed to the divestiture of our underperforming competition practice in Australia that we reported last quarter. Other factors that adversely affected LAE was a drop off in business in North America and a couple of large matters, for example, the effects of the XM-Sirius and Miller/Coors merger projects came to a close earlier in the quarter and were not replaced during the summer vacation cycle. Our IP practice had a mixed quarter. Realization increased slightly, but head count was down. In FY 2008, a group of patent infringement cases peaked in Q2 and then settled in Q3 following a short term drop off in revenue. We are currently experiencing a second wave of applications that are expected to go to trial in 2009 as f they do not settle. The Transfer Pricing practice had a good quarter driven by significant work in the industrial pharmaceuticals technology sectors including several major restructuring and planning projects. In addition, we are supporting several active litigations and a number of negotiations such as advanced pricing agreements. The Labor and Employment practice continues to exceed revenue expectations through its work on a variety of wage and hour collective actions and traditional EEO litigations. In addition, the practice has expanded its offerings through agreements with consultants from leading academic institutions.

Revenue for the Finance Platform was down more than 30% in Q3 of a year ago, adversely effected by the conclusion or reduction in scale at a number of major projects during Q3. We continue to work on major security litigation projects, assisting clients with daily assessments, valuation and solvency analysis, and advising clients on fair lending/compliance and credit risk management. In several of our largest matters, the clients are putting work on hold and attempting to control costs during a very uncertain economic climate. This may result in an increase in revenues in later quarters as the work will eventually have to be done unless the cases are settled. Our forensic practice in London was also down this quarter. Several large assignments concluded and new projects were slow in starting. The pipeline of work in this area is very promising currently, and we expect revenues to increase in the coming quarters. We have been hired in a number of new cases involving warranty claims in acquisitions. Our presence in the international arbitration market remains strong with some notable new appointments. Within Business Consulting, we experienced modest year-over-year growth in Q3 led by Life Sciences as well as some of our smaller practices including Metals. Our revenue in the Energy and Environment practice was flat. Net revenue of the General Industrial Consulting practice or GIC were below the year earlier period by $1.8 million as a result of the decline in business in the Middle East. GIC revenues in the Middle East and Europe continue to recover from the low level in Q1 that resulted from the interruption in revenues from our Saudi Industrialization work. We have been encouraged by the return to growth in the Middle East which has been driven since Q1 by new clients. The pipeline has been increasing. We have a number of sizeable proposals to the Saudi client, and we feel we are well positioned to receive new contracts that would allow us to start generating significant new revenues by Q1 of next year. In addition, we have recently won some major industrial consulting assignments in Europe.

In a significant development, we announced in our press release today that we have signed two new contracts with the Federal Electricity and Water Authority of the United Arab Emirates. The contract value is expected to total more than $9 million, and we anticipate the work will be performed over the next 18 months. This work is a follow-on assignment related to the work that was initiated with FEWA late last year. Our Life Sciences practice continues to show an increase in performance from involvement in at least five ongoing new product launches, global interest and new pricing paradigms for pharmaceutical products and US based work on the challenges posed by specialty pharmaceuticals. With respect to litigation assignments, the practice is engaged in numerous national and global matters regarding pharmaceutical pricing, off label prescribing and development agreement disputes. CRA international business for the quarter represented 21% of total revenue. This is down from 26% from Q3 of '07 and 23% from Q2 of this year. This increase is expected based on the impact from its divestitures we are starting do during the second quarter as well as the exit from certain forensic practices during the first quarter.

Turning to our bottom-line results, as we highlighted in today's news release, our ongoing strategic cost cutting business has been effective, cushioning some of the impact from our weaker revenue performance. Given all of the variables we encountered this quarter, we are encouraged by the results of our expense initiatives. They were designed the lower SG&A and better balance the size of our work force and resources with the demands of the markets in which we operate. We reported net income for the third quarter of fiscal '08 of $4.2 million or $0.39 per diluted share. GAAP net income in third quarter fiscal '08 included a $672,000 foreign currency exchange case related to the substantial liquidation of the company's New Zealand based operations. Excluding the foreign currency exchange gain, non-GAAP net income for the third quarter of fiscal 2008 was $3.5 million or $0.32 per diluted share. This compared with net income in Q3 2007 of $8.6 million or an EPS of $0.72. We will continue to pursue cost reduction initiatives and closely monitor the profitability of our various lines of business. Before turning the call over to Wayne, I would like to talk about some of the work we did for clients in Q3.

CRA continued to participate in a number of significant engagements and noteworthy projects. In terms of notable Q3 projects in competition, CRA was retained by Sirius and XM in connection with their merger; the National Football League, its member clubs and NFL properties to perform economic analysis of the antitrust lawsuit brought by American Needle against the NFL and its co-defendant, Reebok International; the Department of Justice in its lawsuit against the National Association of Realtors, challenging a set of NAR policies tha hindered competition among brokers. In Europe, CRA advised Pernod Ricard, a French wine and spirits company in its acquisition of a Swedish alcohol producer; Hexion Specialty Chemicals in its acquisition of Huntsman Corporation and Proctor and Gamble in its defense of allegations of anti-competitive behavior in the supply of a drug that's used to treat Colitis and Crohn's disease. With respect to IP litigation activity in Q3, CRA was retained by Sit Up, Limited, a UK interactive video content distributer in litigation against IAC/Interactive and Home Shopping Network for breach of contract and unfair competition and the misappropriation of a new televised auction format. InterDigital Communication in a trial at the US International Trade Commission against Samsung concerning the interpretation of fair, reasonable and non-discriminatory royalties. Turning to our Business Consulting platform, Energy and Environment work in Q3 consisted of a diverse mix of projects including consulting for a number of companies that are investing in new electric transmission lines, such as New York Regional Interconnect, Wyoming, Colorado Intertie and Trans-ElectTexas and Kelson Texas. Providing similar consulting support to confidential investors looking to develop transmission in conjunction with offshore wind development and for a European entity looking to enter these same markets in the United States; designing and conducting successful auctions for the Trans-Elect Development Company RWE and New Zealand's Fonterra Co-operative Group Limited; supporting Shaw Communications in bidding on and winning spectrum licenses at favorable prices in Canada's Advanced Wireless Service spectrum auction; working with the New York City economic development corporation to develop a master energy infrastructure plan and advising energy companies in connection with the financial implications of climate change policies on operations.

In Asia, E&E's business in Q3 continued to grow with new projects and ongoing work in Singapore, Hong Kong, the Philippines and Malaysia. Looking ahead to Q4, E&E is working a new project in Korea and Thailand. Our Global Industrial Consulting practice had several significant ongoing corporate strategy and associated implementation engagements. We leveraged our investments in performance with group and staff capabilities with several assignments related to technology strategy, post-merger integration, strategic sourcing and asset network optimization. In EME, we continued to make steady progress with a reward of several major engagements including advising a client of various aspects of their proposed coal to liquids plant. With respect to finance projects this quarter, CRA's work included an assignment for a client in southeast Asia calculating damages and lost profits relating to the termination of the distribution agreement with a US manufacturer and an assignment to develop and implement a plan to distribute payments to millions of effected shareholders resulting from the settlement of an SEC security matter. With that, I will turn the call over to Wayne for his financial review. Wayne?

Thank, Jim. Let me remind everyone that CRA's fiscal year typically operates on 13 four week cycles producing unequal quarters in terms of length. Q1, Q2 and Q4 are typically 12 weeks in length while the third quarter we just completed is a 16 week quarter. Recently recapping our Q3 resulting, revenue declined 11% to $111.2 million compared to $124.3 million for the third quarter of fiscal '07. For a true apples-to-apples comparison, I should point out that the divest in assets in our CRA Australia and New Zealand practices which took place in Q2 of this year, count for approximately $4.6 million of revenue in the third quarter of fiscal 2007. And that reversable expenses, which generally have no margin, declined $3.5 million from the year-over-year period. On percentage basis, reimbursables dropped 12.1% of revenue compared to 13.7% of revenue in Q3 '07. Third quarter gross margin was 33. 8%. This compares with a gross margin of 37.9% in the third quarter of 2007. This increase in gross margin percentage is attributable to the $13 million decline in revenue and includes the effect of $4.2 million of incentive bonus that was approved as an additional retention incentive for our key employee results. The additional pool is the direct result of the long Middle East, Europe, and to a lesser degree, our Asia Pacific region and was necessary to offset some of the effects on the bonus pool for consultants in profitable areas of the company, specifically our North American consultants. We are, in effect, making a major investment in Europe and the Middle East which we continue to believe will return substantial benefits to shareholders in future years. SG&A expenses of $27.4 million were 24.6% of revenue in Q3 compared to $32.1 million or 25.8% of revenue in the third quarter of 2007.

The $4.7 million reduction -- the $4.7 million overall reduction in SG&A costs represents real progress, especially in the SG&A costs this quarter, contained approximately $500,000 in support staff reduction costs. Our SG&A numbers demonstrate our cost cutting initiatives in SG&A are having an effect. We achieved substantial reduction in areas such as travel, multi consultants, performance payments to non-employee experts and recruiting. We also had a slight decline in our rent depreciation line items that reflect savings from our London and Palo Alto office consolidations, which was partially offset by the increase costs associated with the lease renewal for our Boston headquarters and our Chicago office move. We are continuing to work on reducing the levels of our SG&A costs. Operating income in Q3 was $10.2 million or 9.1% of revenue. This compares with $15.0 million or 12.1% of revenue in Q3 of '07. Interest income was $786,000 for Q3 2008 compared to $1.5 million for Q3 a year ago as a result of a decrease in our cash balances due to share repurchases, as well as lower interest rate environment we are operating in.

During the third quarter, we did not repurchase any shares under the share repurchase program. CRA has approximately 216,000 shares of remaining capacity under it existing share repurchase program. We incurred a foreign currency exchange gain for this quarter of $664,000 as compared to a $226,000 loss for Q3 of 2007. The gain this quarter was largely attributable to the substantial liquidation of the company's New Zealand based operations. In general, we manage our foreign currency exposure through frequent settling of intercompany account balances and by self-hedging movements in exchange rates between the value of the dollar and foreign currencies. A tax provision for the quarter was $6.5 million on pretax income of $10.6 million, resulting in an effective tax rate of 60.9%. This compares with a tax provision in Q3 2007 of $6.5 million on pretax income of $15.3 million which resulted in an effective tax rate of 42.6% in Q3 of 2007. The higher Q3 2008 tax rate was due to continued trapped losses overseas that were benefited a tax rate lower than the statutory US rate that provided no tax benefit at all, and reduced level of taxable income in North America. Third quarter fiscal 2008 net income was $4.2 million or 39% per diluted share compared with net income of $8.6 million or $0.72 per diluted share for the same period of 2007. The calculated Q3 '08 net income per share using 10.8 million weighted diluted shares outstanding compared to 12.0 million diluted shares outstanding in Q3 of '07. Reduction in diluted shares outstanding is the direct result of our share repurchase plan and our reduced share price which decreased the number of common stock equivalent.

Turning to the balance sheet, billed and non-billed receivables in Q3 were $101.5 million compared to $111.1 million at the end of Q2. Current liabilities were $91.7 million at the end of Q3 compared to $84.1 million at Q2. Total DSO, days sales outstanding was 100 days. This consists of 36 days of unbilled and 64 days of billed versus 96 days in Q2, which consisted of 37 days of billed, 59 days of unbilled -- of billed. Consists of 37 days of unbilled and 59 days of billed. Cash and equivalents stood at $113.5 at the end of Q3 up from $93.9 million at the end of Q2. Net cash provided by operating activities contributed $26.9 million toward the increase in cash in Q3 as compared to $19.5 million for Q3 2007. Recent turmoil in financial markets -- with the recent turmoil in financial markets, CRA moved its cash and equivalents briefly and very conservatively liquid portfolio into safer ones of investments such as treasury bills. Our overall yield on our cash investments may suffer the short term, but we feel this is prudent action until the markets settle down. Our capital expenditures totaled $4.2-million for the quarter compared today $5.2 million in Q3 of fiscal '07. Depreciation and amortization expense was approximately $2.6 million in Q3 compared to approximately $3.2 million for Q3 last year. Now back to Jim.

Thank you, Wayne. We stated in our press release and briefly outlined, while we were disappointed with our Q3 results, the underlying long term demand for CRA's brand of expert services remains intact. There continue to be sizeable long term opportunities for CRA and we are encouraged by the pipeline of activity across a number of our project areas. Our Middle East business continues to rebound as evidenced by our announcement of two new recently signed contracts with the Federal Electricity and Water Authorities in United Arab Emirates. The contract values are expected to total more than $9 million, and we anticipate the work will be performed over the next 18 months. Overall, our project lead and proposal stream is very active. We also believe that the recent turmoil in the financial services sector can potentially lead to increased securities litigation work and opportunities in the areas of valuation, damage and risk management assessments, all of which play to CRA's strengths in the long term. On the other hand, we are very focused with increasing margin revenues for the short run, and we will continue to work hard on driving revenue growth in a profitable core businesses in the company and on aggressively reducing costs. With that, I'll ask the operator to open the call to questions. Operator?

Thank you. (OPERATOR INSTRUCTIONS). Our first question is from Jim Janesky with Stifel Nicolaus. Please state your question.

Thank you. Jim and Wayne, your prepared from my end were difficult to hear. So if I repeat some of the questions, I apologize, that you have already answered. First, what did consultant head count end at at the end of the quarter?

Hold on, Jim. We have that in the script. I'm sorry that you could not hear.

Yes, I still -- I apologize, Wayne. I mean, maybe you need to go closer to the speaker phone, but I really can't hear you very well.

Jim?

Yes, that's better.

Okay. We ended the quarter with 692 consultants compared with 682 at Q2.

Okay.

And the current rate is 246 junior consultants with 446 senior compared to the Q2 of 208 junior, 474 senior.

Okay. How should we look at that going forward? You put out some announcements on some senior level hires, but overall, where do you expect head count trends as we exit -- go into the end of the year and into 2009?

I would not expect much of any increase. We are not recruiting for body count. Obviously, we are always looking for people that can help the company grow, but I think gradually ,we will find that the ratio of senior to junior will increase as we hire the senior people.

Okay. Fair enough. When you look at the message I got is that clients are somewhat frozen; right? They're not -- they're holding back on assignments, or they're ending early. Is this -- is that accurate, first of all? And then number two, is this associated with any one industry or vertical that you serve?

Well, what I think it is happening in some of the big cases, and I think it is more likely to be happening in the financial services sector for obvious reasons.

sure.

So we are involved in some potential blockbuster disputes involving names you see on the front page of the Wall Street Journal. But, one or the other side of that litigation may be in financial trouble, so they're holding back.

Okay. So they are holding back. And are cases ending early because folks are running out of funds or are unsure about the future?

No, I don't think there's any trend in that direction. It is just -- and this is happened, I have seen it before, recessions, the beginning of a recession, clients are just trying to control costs. The cases are still there, and they're going to go forward. It is just a question of when the work is done.

Okay. And would el you expect that sequentially, utilization would be flat or what do you think it is going be in the near term, directionally? Obviously, long term, you would expect it to go up and could be up substantially because of the ongoing cases or expectation of case, but where would you expect it to go in the near term?

Well, we're obviously pushing very hard to increase it. I'm not going to forecast an increase, but we are going to do everything possible to get utilization up to the more acceptable levels.

Okay. Thank you.

Your next question is coming from Andrew Fones with UBS. Please state your question.

Yes. Thank you. I also struggled to hear the opening remarks. So again, I apologize if this is a repeat. Can you talk about how business trended through the quarter, perhaps revenue per week or something along those lines, and was it a very weak finish to the quarter and how did September look? Thanks.

Well, revenue has probably trended down, but that's also effected heavily by vacations, which tend to happen mostly in August, a little bit in July. So, the third quarter is always a tricky quarter to manage because of heavy vacation schedules, not just by our employees, but also by our clients.

Okay. But can you just talk briefly on how September looked, and what you think was the impact of seasonality and vacations versus just kind of weakness in demand? Thanks.

Well, as I said, I think we hit some softness in some of our big cases. That's continuing in some cases. It is too early to tell what's going to happen in the fourth quarter, because as time goes on, new cases come in. So it is just way premature to say anything about the fourth quarter.

Okay. In terms of the drop off in Q3, how much of that was in North America versus international? Your revenue missed my estimate by about $17 million. Last year, I think it was about $32 million internationally. So clearly, I guess some of these had to be North America as well.

The Fitus litigation part was North America, and I believe also there was a drop off in the forensic accounting in London which was part of our finance platform. So it was an across the board thing in that case. And actually, looking out to the future, as we said in the earlier part of the meeting, the London based work I think will be helped by the number of new engagements that just come in in the last three weeks. The chemical petroleum consulting work has been gradually improving in Europe and the Middle East, but it is still way below where it was a year ago.

Okay.

The other factor is the fact that the discontinued operations, which were entirely international, New Zealand, Australia and portions of UK, all of which were discontinued in Q1 and Q2. And maybe another factor I should point out is there was a drop in reimbursables, $2.8 million, something like that.

The drop was $3.5 million.

$3.5 million. That's revenue which we don't make a profit, and that drops considerably in Q3. So it affects the top line, but still wouldn't affect the bottom line.

Understood. And just, if I can two others. First, on kind of your head count. Expectations, are you -- with utilization down at 71%, are you looking to cut head count here, or do you seem to be the new projects could improve that utilization back toward the target range? And then, the final question was on the Saudi contract, when do you expect that to start up and what could the impact be there? Thanks.

Well, utilization (inaudible) we will be watching that very carefully. We are not recruiting in general, other than senior level recruiting, and just attrition alone will result in a drop in head count. So I would not expect head count to be increasing over the next couple of quarters. We will just have to keep a very careful eye on that. As far as -- and we do, we are operating at below our cover zone on utilization today, or as of the end of the quarter. On the Middle East product, we anticipate, although we don't actually have the contracts yet, that there will be a pick up in the Saudi line of work that will be hitting perhaps later this quarter, but more likely in Q1 of next year. There is every indication that the spending rate will be back to where it was before. The contracts are competitive, so there's no guarantee we will get them, but we think we are well positioned. That's fairly imminent.

Sorry. Can you give us a rough sense of what the potential size of that contract would be? Thanks.

Well, the total spend rate of this line of business by the Saudis is probably going to be in $15 million or $20 million range, but the uncertainty is how much of that we will get.

Okay. Thank you.

I should hasten to point out that since early in Q1, our Middle East revenues have been mostly new clients or non- Saudi clients, so we actually have been increasing our backlog and increasing the revenues since the drop in Q1 from -- without much, if any, of the work from what was most of the revenues last year. So, if those revenues come back in any real substantial way, it is going create probably an overload situation for us.

Okay. Thanks.

Thank you. Our next question is comes from Tim McHugh with William Blair. Please state your question.

Yes, first I wanted to ask about -- you mentioned some of the deferral of work within Financial Services. Was that primarily in Financial Services or did it extend to any of your other business lines such as Energy or Life Sciences?

I don't think it was any significant effect. The effect was really in terms of the larger blockbuster cases which are heavily concentrated in Finance.

Okay. And then internationally, it seems as though top margins weakened there, sequentially. You had mentioned some additional bonuses for international. Beyond that, would profit margins have improved or weakened further beyond that fact?

I'm not sure I -- could you repeat the question? Were -- if we excluded -- I had trouble hearing earlier, but I thought you had said you gave some incremental bonuses for your international -- to remain some international staff. If we excluded that impact, would profit margins internationally have improved this quarter, or have they weakened again after seeing improvement last quarter? Let me clarify what happened. We -- with the international losses, we had accrued a bonus pool that we determined was going to be inadequate to stay in market, but the added -- the bonus pool was not added for international, it was added for the employees who are performing well, which will be heavily concentrated in the United States. So basically, it was needed because we couldn't have a situation where the North American employees who were performing well will be held to low bonuses because of the poor international performance. So, it is basically -- it is not the case that this basically came out of -- out of (inaudible) losses.

Okay. Then the international office, what was the main factor there, the forensic accounting in London, or was it something else? And then, as you answer that, perhaps what does -- does that make you think at all about whether you need to re-evaluate additional steps to improve the margins internationally?

There's some interference and it is not coming from here. I'm not sure what's happening. I apologize. The -- Could you put your phone on mute? I think we are getting a lot of interference from your end. The poor performance internationally is concentrated in two areas, one is forensic accounting in London during the quarter, and the other was continued losses in the GIC or General Investment Consulting. The General Investment Consulting has been steadily improving and is looking at a fair number of possible wins in the next two quarters. And similarly, with the forensic accounting, there have been a number of new cases that are coming in during during the last two to four weeks. So the overall international results have been improving significantly in Q2 and Q3. We expect that, or at least hope that trend to continue.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). Our next question is coming from Matt McGeary with Sentinal Funds. Please state your question.

Good morning. Regarding utilization, what specific things can you do, if anything, to improve utilization? We've heard this has been an issue for a while now. We've heard you say that you are watching it closely, and you are taking steps. I'm just sort of curious, what are some specific steps you can take if the markets are soft to try to improve that?

Well, obviously, what we mostly want to do is move staff to where we have work and increase the work, but we also have to keep the staff head count in line with the demand for our business.

So are you seeing opportunities to do that? Are you doing that? What's the outlook for that? If you make the assumption, let's assume that the economy globally remains sort of weakish, how capable are you to move staff around and make that happen?

Well, we'll have to make it happen. We have to have our staff appropriate for the size of work we have. So either, ideally, increase the amount of work, but we also have to make sure that the head count is consistent with the work we have.

In the Middle East, what are your -- I guess it's the work in Saudi that has come off a little bit. What are you hearing in there? Clearly, the economies there are pretty good. Any reason for the delay? Is there any concern on their -- you have to keep staff there obviously, and they have to know that's impacting you negatively. So what are you hearing there? From those people?

I think we even said way back in the Q1 earnings call, that because of the way business is done there, once they had decided to fund through a new vehicle, that the likelihood would be that there would be not much in the way of new contracts until Q4. That's pretty much panning out. So I don't think there's a question -- obviously, it's not a question of availability of funds. It is not a question of a lack of interest. It is just simply the way things work over there.

So do you feel pretty confident about that work coming back in your 4Q?

We feel fairly confident we will be getting increasing revenues. Whether it will get back to where it was is another question.

Okay. Thanks.

For that particular client.

Okay. And when are you allowed to get back in the market and purchase stock, if that's something you choose to do?

I think I -- this is Wayne. As I said, I think we have 216,000 shares left on our previous approval and our board has expressed a willingness to increase that as appropriate. So, we will see. We certain have the cash resources to do that, but no decision has been made to do that or not do that at this point.

And what, do you have a blackout for a few days before you can get back in the market?

Yes, we would not be able to buy based on our internal policies until beginning next Monday.

Thanks.

Our next question is coming from Jim with Stifel Nicolaus. Please state your question.

Yes. Wayne, can you explain why again, why the interest income/expense line went negative this quarter? I can understand putting money into T bills, so was that pretty much the reason that your interest income was lower than your, what you are paying out on the convertible?

I don't think that's what happened, Jim. Maybe I misstated it.

Az I mentioned I couldn't understand barely any of your presentation. So I apologize.

I'm sorry. Back specifically -- Let me see if I can find it in the script what I said there, but most recently, as I'm sure you're familiar, interest rates are very low on things like t-bills and other short term cash instruments because so many people are focused on, frankly, safety principle, at least until markets and things going on in Washington sort out. Frankly, we did the same thing. That was quite recent. That was actually after the quarter ended. So our, here it is. Our interest income was $786,000 for Q3 of 2008, down from $1.5 million at Q3 a year ago. But as I went on to say, that's a result of the decrease balances due to the share repurchases which we did a fair amount of, and of course, interest rates are down from what they were a year ago.

Okay. Maybe I wasn't clear. You reported, if you exclude the $672,000 currency gain, right?

Yes.

You reported interest expense of $212,000.

Right.

Okay. Why was there an interest expense in the quarter versus interest income when you do have, when your cash balance went sequentially?

The bonds would have been the principal factor, but the other factor, as I said, were the repurchase of the shares and the interest rates. That would be the two factors.

Okay. Thanks.

Sure.

(OPERATOR INSTRUCTIONS). At this time, we have reached the end of the Q&A session. I would now like to turn the call back over to Mr. Jim Burrows for any closing or additional comments.

Thanks, everyone. We look forward to speaking with you on our fourth quarter and year fiscal 2008 conference call. This concludes today's call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. We thank you for your participation.