CRA International Inc (CRAI) 2009 Q1 法說會逐字稿

Good day and welcome everyone to CRA International's first quarter fiscal 2009 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 releases posted on the site for those of you who did not receive it by e-mail. With us today are CRA's President and Chief Executive Officer, Mr. Jim Burrows, Chief Operating Officer, Mr. Paul Maleh 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 you may now begin.

Thank you, Chris.

Statements made during this conference call concerning the future business, operating results, estimated cost savings and financial condition of the Company and statements made 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 managements 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 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 are included in the Company's filings with the Securities and Exchange Commission and 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. Let me remind everyone that CRA's fiscal year typically operates on a 13 week, on 13 week cycles, producing unequal quarters in terms of length, Q1, Q2, and Q4 are typically 12 weeks in length with Q3 being a 16 week quarter.

Jim?

Thanks, Wayne. And thanks, everyone for joining us today. To start as a result of the charges we took in the first quarter, I encourage everyone to refer to today's release for a full reconciliation of GAAP revenue, net income, earnings per share, gross profit, and operating margin to the comparable non-GAAP measures. Our non-GAAP results exclude restructuring charges and the consolidation of the results of our NeuCo subsidiary for which CRA became a controlling owner again in Q4.

Total GAAP revenue for the first quarter of 2009 was $65.8 million, a decline of $20.3 million from the first quarter of 2008. As I will detail later, about $11.7 million of this decline was a result of our exit from certain practices in geography, exchange rate movements and a decline in reimbursement expenses. The balance of about $10.1 million excluding a $1.5 million contribution for our NeuCo subsidiary was the result of the difficult economic environment which impacted certain of our practices. In the current environment, we continue to see clients on the litigation side putting cases on hold and on the consulting side, clients continue to freeze or slow down projects. While we continue to be retained in new engagements, in some cases we are not seeing the normal ramp up in billings that would occur after retention. As a result, practice areas such as competition, global industrial consulting, and finance, all experienced year-over-year declines in the first quarter. As I mentioned in our Q4 call, the silver lining for CRA is that the majority of the litigation cases that have gotten involved have been settled and most of the consulting projects are also delayed not canceled.

As we outlined in today's release, much of the year-over-year revenue decline was a result of three special circumstances. First, due to the lines of business we divested and offices we closed in fiscal 2008, revenues in Q1 were $3.9 million lower than the year earlier period. Second, the continuing strengthening of the US dollar reduced our foreign currency denominated revenue by $4.2 million when using exchange rates from a year earlier. Third, the year-over-year decline in client reimbursables which are essentially pass-through expenses that carry little or no margin was approximately $3.6 million. In total, these three factors accounted for $11.7 million or 54% of our revenue decline from Q1 '08.

Our utilization rate for Q1 '09 was 68% slightly below Q4's rate of 69% and the 70% we recorded in Q1 '08. Since the start of the fiscal year we have taken additional steps to streamline our operations and right size our consulting staff. We have implemented a work force reduction in both the supporting consulting groups. Some of this reduction occurred at the end of Q1 and certain international locations.

In Q2 we have reduced support head count by 22 individuals and consultant head count by 34 individuals. These consultant and support staff were situated across our practice areas and not concentrated in any particular geography. We expect this restructuring activities to result in a second quarter charge of approximately $1.8 million. In total we expect our actions in the first two quarters of FY '09 to generate annualized cost reduction of approximately $8.6 million. This is in addition to the $22 million in annualized savings we projected for the restructuring activities and divestitures completed in fiscal 2008.

While we continue to take actions to improve our profitability, and return our utilization to more historical level, our margin results for the first quarter demonstrate that our aggressive cost cutting initiatives are working. On a GAAP basis our gross profit margin in the first quarter was 34.6% and was comparable to the same period last year.

Looking at Q1 on a non-GAAP basis our gross profit margin was 35.3% was comparable with the first quarter of fiscal 2008. On a GAAP basis our operating margin in the first quarter was 5.4% as compared to 6.8% for the same period last year. Our non-GAAP operating margin was essentially flat at 7.6% in Q1 compared with 7.5% a year earlier. We have been able to maintain margins in part as a result of a 25% reduction in SG&A expenses, for a combination of head count reductions divesting practices, office down sizing and reductions in variable spending across the organization.

In Q1, we also benefited by a favorable dollar exchange impact on foreign denominated costs. Our consultant head count at the end of Q1 was 595 compared with 610 as of Q4 2008 and 772 at the end of Q1 2008. Our current break down is 187 junior employee consultants and 408 senior employee consultants. After taking into account the Q2 employee work force reduction, that I previously mentioned, we anticipate that our Q2 employee consultant head count will be reduced by 34 personnel from 595 to 561. Our average net revenue realization rate per build hour for the first quarter increased about 3% when compared to Q1 of last year after adjusting for a significant 2008 exchange rate changes in the pound, sterling and Euro currency. The increase primarily reflects the affect of our annual rate increase which we have instituted during Q1.

Earnings for the performance within our practice areas, the decline in the pound, sterling, dollar exchange rate, the exit from certain lines of business and geographies, and decline in reimburse all had an adverse effect on our large core practices. Competition, intellectual properties, energy and global industrial consulting, each declined on a GAAP basis in the mid 20% range year-over-year consistent with our overall Company performance.

Our finance practice declined approximately 35% from the same period a year ago. Adversely our life sciences practice increased approximately 30% from Q1 '08. After adjusting for divestitures, foreign exchange rate, and reimbursement expenses which significantly affected the revenue of certain of our core practices, the competition practice revenue was only down about 5% compared to last year and global industrial consulting revenues flat compared to Q1 '08.

Now I will turn the call over to Paul to continue our review of the practices.

Thanks. I'd like to begin by providing an overview of two major initiatives the firm is focusing on to drive top line growth across all of our practices. These initiatives include recruiting new rain makers and expanding our marketing and business development efforts. Over the last several months, CRA has added a number of high potential rain makers. Our global industrial consulting practices has recently expanded its revenue generating capabilities with the addition of three new hires.

Gregory Bean joined CRA from Cambridge Energy Associates. Greg will help drive new business in North America by continuing his practice of assisting Senior Oil and Gas Executives to develop innovative business and capital investment strategies.

Lionel Marquie, was at Orga prior to joining CRA, based in Hamburg, Germany, Lionel has been charged with broadening and deepening our European client relationship in the chemicals, utilities and manufacturing sectors.

Renee Miller-Mizia joined CRA from Chemical Market Associates Inc. Renee's legal and engineer background allows her to effectively bridge our chemical, oil, and gas industry verticals in litigation practices to actively sale these combined services to clients. In her first six weeks at the firm, Renee secured a new litigation engagement which has already generated significant revenues. We are very optimistic about this model of selling and we plan to expand it to other industry sectors across CRA.

Our Life Sciences practice has also invested in the new business development consultant, Max Senechal recently rejoined CRA, an expert in strategy development, performance improvement and transaction support, Max will drive new business on the Management Consulting side of the Life Science practice, North America and in Europe.

Our Transfer Pricing practice added depth to our New York City office through the addition of John Brown who joined CRA from KPMG. His addition as part of the practice broader strategy to expand its geographic footprints.

Our competition practice, recently enhanced our rest close presence and added considerable depth to our stable of experts with the addition of Dr. Robert Harris. Bob is a professor emeritus in the Haas School of Business at the University of California Berkeley, and was a founder of the law and economic consulting group, LECG. He recently joined CRA as a senior consultant and is assisting us as we continue to expand our litigation and telecommunication client base. We continue to actively recruit across all of our service offerings.

While our refound experts have historically been sought after to speak at leading legal and industry conferences, over the last several months we have been more strategic in securing speaking engagements at the most prestigious promising conferences. I will provide you with a few examples. Several consultants from the competition practice will be presenting at the American Bar Associations 57th Antitrust Law Spring Meeting. Our IP practice has a number of upcoming speaking engagements at the American Bar Association Section of the Litigation Annual Conference. The Licensing Executives Associate Spring Meeting and the 2009 IP Business Congress Conference.

Steven Grundman, Leader of Aerospace and Defense practice will be featured speaker at the Speed Use Seventh Annual Aerospace and Defense Industry Suppliers Conference. Steven will be speaking on President Obama and National Security, a primary for participants in the US Defense industry.

Timothy Wilson, our Vice President in our Life Sciences practice in London will be speaking at the 18th annual EU Pharmaceutical Law Forum. Energy Practice Leader, Robert Stoddard will be presenting at the ISO COO panel at the Fourth Annual North East Power Market Forum. Internationally, Hong Kong based Vice President Mike Thomas will be speaking at the 12th Annual Asia Power and Energies Congress in Singapore.

The firm has also strengthened its sought leadership position by utilizing its electronic alerts to keep clients apprized of timely topics. Our client response has been very favorable. A few examples include CRA securities flash that provides a listing of all new securities class action filings, and preliminary analysis for each case filed. This weekly alert has resulted in numerous increase from clients and has opened the door for on going discussions and new are retentions. Our insight series on the credit crisis has also been very well received. Recent features, recent issues featured a question-and-answer with well-known academics and former chief economist at the Office of Controller of the Currency and the Securities and Exchange Commission. Other insight publication topics have covered areas in competition, intellectual property, energy and environment and aerospace and defense.

In addition to focusing on generating new business opportunities, and expanding relationships, we continue to deliver out standing results from our clients. Within competition, antitrust consulting remains strong and merger-related work was also fairly strong in spite of the lower volume of in merger activity in the market as a whole. Two examples of our competition in the quarter include an analysis of the Federal Trade Commission of the competitive effects of the proposed merger between CCC Information Services, and Mitchell International, the merger was successfully [bought.]

Advice to a number of European Governments on the notification to the European Commission of certain bank rescue and Government, and Government guarantee programs under state aide rules. Our intellectual property practice was involved in a complex patent infringement matter involving 16 patents asserted by both parties, asserted by both parties and more than $6 billion of alleged sales infringements.

Our finance practice is actively engaged on projects assisting client, litigation and arbitration settings, with damage assessments and solvency related accounting issue, estate and merger evaluations, settlement distribution plans and breech of contract analysis. The services in the financial services sector have resulted in several new engagements. Life Sciences grew strongly during the quarter as Jim has mentioned. The practice's performance was buoyed by work for clients by several new project launches and contracting strategies. The practice is also been engaged in a number of litigation matters relating to pharmaceutical pricing. The Obama Administration's emphasis on renewable power has begun to increase demand for CRA services in our energy and climate sustainability practices. Regulatory work and contract litigation continued at a steady pace. The Energy practice was adversely affected by a postponement of revenue from some major clients in the Middle East, but those revenues are anticipated to be recognized during the remainder of the year.

Global Industrial Consulting had a difficult first quarter in North America as several major client engagements concurrently ended and expected follow on work was delayed due to the impact on the economic crisis on the chemicals industry. Conversely we saw continuing improvement in several overseas markets. We have been selected for significant new contracts in Bahrain, Jordan and Saudi Arabia and beginning to see the impact of the start-up of these new projects.

In Europe and the Middle East, client have asked us to access our extensive network of sovereign wealth or industrial investment funds at sources of capital for projects that otherwise would not proceed. Several smaller entrepreneurial practices have been making great stride and generated solid revenue for the firm during the first quarter. For the fifth consecutive quarter our labor and employment practice generated revenue growth. The practice continues to be actively engaged in a wide variety of matters including employment, equal employment opportunities and wage and hour litigation. The passage of the Lily Ledbetter Fair Pay Act is expected to continue to fuel an increase in business in this area.

CRA's auction practice was retained by first energy of higher utilities to design and conduct a successful RFP bidding process to procure electricity supplies for their customers. We also continue to work on on going auction assignments for Fonterra, RWE and others. Revenue for our financial economics practice in North America are substantially higher as compared to a levels from a year ago. Our experts are skilled in quantitative modeling and econometrics and particularly as applied to issues in credit and compliance risks in primary and secondary mortgage markets. The Financial Economic Group has taken on additional litigation matters and grown its regulatory practice in the past year with several new and expanded engagements for financial institutions.

With that I will turn the call over to Wayne for the financial review. Wayne?

Thanks, Paul. Briefly recapping our results, Q1 GAAP revenue declined approximately 24% to $65.8 million compared with $86.1 million for the first quarter of fiscal '08. Reconciliation of the NeuCo or the reconsolidation of NeuCo contributed approximately $1.5 million to our Q1 '09 GAAP revenue. Besides the difficult economic environment, there were three factors Jim mentioned that impacted our year-over-year revenue performance including $3.9 million related to divested businesses in geographies we exited, $4.2 million related to the strengthening of the US dollar and lastly, $3.6 million related to a decline in reimbursements, client reimbursables.

Looking at reimbursables on a percentage basis, of non-GAAP revenue, they were down at 13.8% of revenue compared to 14.5% of revenue in Q1 of '08. In total, CRA Q1 international business represented 21% of total revenue. This compares with 22% for Q1 of last year. As we outlined in this mornings release, our Q1 GAAP resulted included $779,000 associated with an employee work force reduction designed to reduce the Company's operating expenses and improve its utilization rate as well as $394,000 in foreign currency exchange laws related to the liquidation of the Company's Australian base entities and a $237,000 loss from NeuCo.

First quarter gross margin percentage on a GAAP basis was 34.6%, level with last year. Q1 gross margin percentage on a non-GAAP basis was 35.3% which was comparable with the first quarter of last year, of 2008. The gross margin percentage for the first quarter was benefited by about one percentage point due to $3.6 million lower reimbursement expenses as compared to the first quarter of 2008. We are pleased to have kept our gross margin percentage relatively in tact, given the more than $21.8 million drop in non-GAAP revenue year-over-year.

First quarter GAAP SG&A expenses were $19.2 million or 29.1% of GAAP revenue. On a non-GAAP basis, excluding the restructuring items and the effects of NeuCo, SG&A expenses were $17.8 million or 27.7% of revenue in Q1 compared with $23.9 million or 27.8% of revenue on a non-GAAP basis in first quarter of 2008. This represents a 25% reduction in SG&A costs. Again, we believe maintaining our SG&A percentage in light of the revenue decline reflects the aggressive cost cutting measures we have adopted during fiscal 2008. We lowered SG&A by more than $6 million through initiatives that drove across the board reductions in areas such as labor costs, travel, recruiting, rent, depreciation, and commissions to non-employee experts.

Since entering the new year, we have continued to apply expense controls and will continue to pursue additional savings within SG&A, particularly outside North America. On a GAAP basis, operating income was $3.6 million for the first quarter, or 5.4% of revenue. Non-GAAP operating income in Q1 was $4.9 million or 7.6% of revenue. This compares with GAAP operating income of $5.8 million or 6.8% of revenue and non-GAAP operating income of $6.4 million or 7.5% of revenue in Q1 of '08.

The first quarter non-GAAP revenue reduction of $21.8 million was offset by cost reductions of $20.2 million in cost of services and SG&A areas. The cost savings overall reflects staff reductions, restructuring efforts, higher operating efficiencies and other cost control initiatives, we previously discussed today. We also benefited by favorable dollar exchange impact on foreign denominated costs. GAAP net interest and other expense was $606,000 in Q1. Non-GAAP net interest and other expense was $183,000 for the first quarter reflecting a $390,000 foreign currency exchange loss related to liquidation of the Company's Australian entities and a $33,000 interest expense related to NeuCo. This compares to total net interest and other income of $569,000 in the first quarter of fiscal 2008.

The year-over-year decline primarily reflects the change in the interest rate environment and resulted in interest income declining to $157,000 in the first quarter of fiscal 2009, from approximately $1.2 million in the first quarter of fiscal 2008. With the on going financial market turmoil, CRA has elected to keep its cash and equivalents in the safest forms of investment such as treasury bills. Our overall yield on a cash investments is suffering in the short-term, we believe this remains the prudent course of action until the markets settle down.

Our GAAP tax provision for the quarter was $2.4 million or an unusually high Q1 tax rate of 81%. Our non-GAAP tax provision for the quarter was $2.5 million on pretax income of $4.7 million resulting in an effective tax rate of 54%. This compares with a GAAP tax provision in Q1 of '08 with $3.2 million on pretax income of $6.4 million, that resulted in an effective tax rate of 50.8% and a non-GAAP tax provision of $3.2 million on pretax income of $7 million that resulted in effective tax rate of 46.3% in Q1 of 2008. The unusually high Q1 tax rate reflected losses in certain of our overseas locations that provides no tax benefit, a reduced level of taxable income in North America and a nonrecurring discreate item related to liquidation of our Australian entities.

Our Q1 2009 GAAP net income was $700,000 or $0.07 per diluted share compared with GAAP net income of $3.1 million or $0.28 per diluted share for the same period in 2008. GAAP net income in the first quarter of fiscal 2009 included the previously mentioned pre-tax restructuring expense of $0.8 million and $0.4 million foreign currency exchange loss and a $0.2 million loss from NeuCo. GAAP net income for the first quarter of fiscal 2008 included costs of $0.6 million associated with the restructuring. Excluding these item, non-GAAP net income for Q1 of 2009 was $2.2 million or $0.20 per diluted share compared with Q1 2008 non-GAAP net income of $3.8 million or $0.33 per diluted share. We calculated Q1 '09 GAAP and non-GAAP EPS using 10.7 million shares and 11 million shares in Q1 of '08. The reduction in diluted shares outstanding is the direct result of the share repurchase plan as well as our reduced share price which decreased the number of common stock equivalents.

Turning to the balance sheet, billed and unbilled receivables in Q1 were $82.2 million compared to $101.2 million at the end of Q4. Current liabilities at the end of Q1 were $111.5 million compared to $110.0 million at the end of Q4. Total DSOs in Q1 was 100 days. This consists of 35 days of unbilled and 65 days of billed compared with the 98 days reported in Q4 which consisted of 36 days of unbilled and 62 days of billed. Our goal is to keep our DSO below 100 days. Cash and equivalents stood at $142.2 million at the end of the first quarter, up from $119.3 million at the end of Q4. Net cash provided by operating activities contributed $24.3 million in Q1 compared to $1.3 million for Q1 of 2008.

Most of our annual bonus payments will be made in the second quarter of fiscal 2009. By comparison, in fiscal 2008, a majority of bonus payments were made in the first quarter. Our capital expenditures totaled $300,000 for the first quarter compared with $1.5 million for Q1 of '08. Depreciation and amortization expense was approximately $2 million for Q1 compared to $2.4 million for Q1 of last year.

Due to significant turmoil in the financial markets and continued weakening of macro economic conditions globally and the resulting volatile stock market, many companies have evaluated or written down goodwill and other intangible assets or closely monitoring the fair value of their intangible assets. Over the years we have recorded intangible assets including goodwill on our balance sheet attributed to our acquisitions. Accounting guidelines require us to evaluate the recover ability of these intangibles assets at least annually or when ever events indicate that impairment may have occurred. Among the factors that would trigger impairment review is a decline in the value of CRA below its net book value, that is sever or considered to be other than temporary.

For this purpose, CRA uses market capitalization plus a control premium factor as a proxy for the Company's fair value. If an impairment review were required it would involve an analysis of our market capitalization and the expected future discounted cash flows to be generated by our assets. At November 29, 2008 our year-end, we completed our annual evaluation and concluded there was no indication of impairment. We will continue to monitor the financial markets, our business, and our stock price, in order to timely identify any potential impairment.

With that I will turn it back over to Jim.

Thanks, Wayne. In terms of our outlook we remain cautiously optimistic particularly when we adopt a broader view of where we are today. Our Q1 performance was certainly below our expectations as the recession continued to weigh on many areas of our business. However, we still see positive business trends in a number of our target markets and in certain geographic areas such as the Middle East. In the near-term, we are continuing to concentrate our resources on our core businesses particularly where we see opportunities. And as I mentioned earlier in the call, much of the work now in hold, both litigation and consulting projects is likely to restart or scale up at some point in the future. We continue to believe that the global economic and financial crisis will ultimately lead to substantial litigation work for CRA. We have already been retained by clients on a number of these matters.

Looking ahead from an expense perspective, we have taken a tremendous amount of fixed and variable expense out of our business including the latest restructuring. These reductions put CRA on a SG&A run rate essentially equivalent to fiscal 2005. Although, we plan to remain very conservative in our hiring throughout the remainder of the year, we will still be open to adding consultants in the areas where we see a need of opportunities at the senior hires who bring business with them or have promise of bringing business. We will also be very cautious in replacing the normal late summer turnover we experience at the junior level when 30 to 40 of our associates typically return to school. By not replacing normal turnover unless utilization turns up, we will be able to tailor the size of our consulting staff to the business we have. Over time, we continue to target an improvement utilization to our long-term target in the mid to high 70s.

Looking ahead, our priorities will be to continue to improve our margin, increase utilization, manage head count and generate new business in our core segments. In order to drive top line growth, we continue to recruit rain makers, expand our marketing and business development efforts, add allocated staff to the most promising revenue generating opportunities. Even at our current staffing levels, we have ample capacity to increase revenue and raise utilization as business opportunities improve within our target markets. We have a very strong capital position which will provide stability as we ride out the recession. Our significant cash balance combined with a significantly reduced and tightly managed cost structure and an active pipeline of potential engagements, positions us to emerge as a stronger competitor that can rapidly grow profits as revenue growth returns. With more than 40 years experience CRA remains a go to provider at the most recognized brands in our respective fields. And with that, I will ask the operator to open the call to questions. Chris?

(Operator Instructions). One moment please while we poll for questions. Our first question comes from the line of Jim Janesky with Stifel Nicolaus. Please proceed with your question. Your microphone is now live.

Yes. Good morning. Do you, Jim or Wayne you gave a lot of statistics including and excluding a variety of factors. Can you give us an idea of what, apples to apples what organic growth or organic declines were in the first quarter, just a range even would help.

Well, I think we have mentioned, of the, I don't have the numbers in front of me, but we mentioned the roughly $20 million in revenue decline, about 12 million was special factors such as exchange rate movements and changes in reimbursables.

Okay.

So the balance of 8 million would be everything else. Now some of that was probably also related to some of our restructurings, not captured through revenue accounting practices and options.

Okay.

So some number up to $8 million.

Okay. And shifting to the Middle East a bit, what, what gives you confidence that the delay in the start up of projects over there will be recognized throughout the year. Have they started yet? Have any of them started yet?

Yes. We are working on actually working on a number of contracts in the Middle East. The office is quite busy and is using people from around the Company. We have recently been selective officially for several large new engagements that are in the very final stages of contracting right now. And we have a significant work going on restructuring area that we are confident will lead to increased revenues as the year goes on.

And what portion of your revenues would you estimate on a run rate will be international?

I don't have an estimate for that here. I think it has been running in the 21% range. It might inch up a little bit over the course of the year given the trends. But I can't, I can't project the exchange rate movements to have a big effect on us. The very significant drop in the dollar and the Euro have led to declines in, in our foreign operations when expressed in dollars. So, obviously the answer will depend on what happens to the exchange rate going forward.

Okay. Thank, Jim.

Our next question comes from the line of Tim McHugh with William Blair & Company. Please proceed with your question. Your microphone is now live.

Yes. First I wanted to ask about the litigation-driven businesses. It sounds like you're still seeing an active pipeline there, but they're not yet converting to work here, even in the second quarter. Can you just give a little more color on what you are seeing in that market?

Well, we have definitely seen a pick up in new leads and new projects. That's been occurring over the last month and a half or so. And some of these or many of these engagements could be very substantial. So we have, I think we do have an active pipeline. It has actually gotten better over the past, where it was three or four months ago. So, the, I think the general mood in that area of our company is fairly positive. But not, it just hasn't shown up in billings as of the end of Q1. But we do think that the, there's certainly indications of improved demand for our services.

And it sounds like though it hasn't shown up in billings, at least what the commentary you are giving even here for Q2. How do you think about the timing of that, there has been signs of improvement this in that business for a while and it has been delayed.

It has actually been some improvement in the momentum the last month or two. So it doesn't, it doesn't show very visibly if you look at the Q1 numbers in total. But underneath those numbers there has been a positive trend.

Okay. And then as you think about the cash building up here, I understand Wayne's comments about putting it in treasuries right now, but as you think about with the stock price where it is also and as well with acquisition opportunities out there, the uses of cash.

Well, we are can definitely continuing to look at acquisition opportunities. There are some modest ones in the pipeline. So we are always looking at opportunities. I think we will be very careful about how they're strucken and the pricing but there's some good opportunities out there for us.

Okay. And Wayne, the tax rate you mentioned there's a discreate item that's not recurring in there this quarter. Can you give us some numbers on that as well as any sort of thoughts going forward here.

Well, as you know we are not giving guidance but let me help you out in this way, Tim. If you look at the non-GAAP schedule that we put out with the press release this morning, the GAAP is at 81% rate in it. The non-GAAP rate is much, much more modest. The discreate item basically is factored out as you go from the GAAP to the non-GAAP. So that might be a proxy or approach to think about in terms of trying to look at a rate.

So the 54% tax rate does not include or that is not impacted by the discreate item?

That's correct.

Okay. And then given that tax rate I'm assuming that reflects operating losses internationally. You mentioned seeing improving demand in some new contract wins in the Middle East. That plus the head count reductions do you think you can get back to profitability internationally over the next few quarters this year?

We do. Let me clarify one point. What I didn't say is that I think 54% is a rate we are going to have for the balance of the year. I am actually hopeful it might be better than that. But the second maybe the more important point is we absolutely think we can be profitable outside of the US and we are driving towards that.

Okay. Thank you.

Our next question comes from the line of Mr. Andrew Fones with UBS Global Asset Management. Please proceed with your question. Your microphone is now live.

Yes. Thank you. I was wondering if you can talk about your decision to cut people here given, the positive ramp you said you have seen in new wins. How should we think about your decision to be cutting people here?

Well, we have significant capacity for doing more work with the people we have. We also believe in this market it would not be difficult to hire good people if we needed. So, the other thing pointed out in the actions we have taken we haven't really impacted our ability to develop or win business. So we haven't been, other than lines of business we decided to cut, but obviously the businesses we have eliminated in the last year were the low margin businesses. So, the whole purpose of this was to have the Company focus on the high margin core businesses of the Company and we have done nothing to impact our ability to grow revenue in those business.

The 34 consultants you expected to cut in the second quarter. Can I ask if you have cut those already and whether they're more senior or junior personal?

Yes, those head count reduction have already occurred and it is across all geographic areas, all practices and levels in the Company. It is widespread not large numbers in any one place.

Okay. And then obviously the impacts of the markets in September had a significant impact on your business. If you could think about, how business has trended since then in terms of the, the winning of new contracts, would you say that since that low shortly after September, that there has actually been a pick up overall, outside of just kind of the litigation and the, the Middle East businesses that you highlighted?

Well, litigation in the Middle East is a pretty large percentage of our business right there. I don't, I haven't monitoring any counts by practice. But the general observation is that there has been an improving trend for the last four to eight weeks.

Okay. And the other point you made in terms of projects ramping up or being kind of delayed in terms of the winning of the contract versus the starting of the work, can you say whether or not those projects that you saw being delayed in the fourth quarter are continuing to be delayed or whether any kind of significant proportion of those is actually kind of started to ramp up here by the early second quarter? Thanks.

No. There has been some relaxation and some increased billings on some of the existing projects.

Okay. Thanks. And then just a couple of other kind of smaller questions, if I could. What was the average increase in your rate card if you don't mind?

I didn't hear that.

The increase in rates. The increase in rates, if you express them in the local currencies were in excess of 5% as an average for the Company. The actual experienced increase in Q1 per consulting hour was about 3%. But part of that is because of the exchange rate differences.

Yes. Okay. Thanks. And then also the anticipated impact to the cuts on utilization if you could. I'm not sure if you can give us any thoughts about that for the same quarter here.

We are trying, we are focusing on restoring utilization in the mid to high 70s, which is really the range of our business model is built around. And we believe that the actions taken should be able to get us there over time. We have the additional buffer that we have decided not to put out offers to replace the bulk of the associates that might be going back to graduate school. We have put out some offers in the areas where we had specific needs but in terms of the overall personnel count, we have been very conservative on that. And that's an area where, if we see utilization not picking up as much as we want, we just simply will are let attrition reduce the head down. And on the other hand, if utilization is starting to pick up very nicely, we can always go out and hire. This is one year there shouldn't be any trouble hiring good, good entry level consultants really at any point in time during the next 12 months.

Thanks. Wayne, do you have depreciation, amortization in CapEx in Q1? Thanks.

Yes. Let me dig it out here. I think I mentioned it. Give me a minute, Andrew. I will dig it out.

That was all I had. Thanks.

I will repeat it before the call ends.

(Operator Instructions). Our next question comes from the line of Sean Jackson with Avondale Partners. Please proceed with your question. Your microphone is now live.

Good morning, guys. What do you look at as far as a catalyst for some of these cases to start to gain traction? I know most of the general economic environment is one, but even more specific than that, is it the mood of law firms, is it regulatory issues out there? What, again is a leading indicator, you think that you are looking at that will progress these case?

I'm not sure there's any single indicator. A number of factors at play. First, the clients in some of the big meltdown cases tend be, tend to often be large financial institutions. Our core clients for the major league projects we do in finance have been firms like the full-bracket investment banks to the extent they still exist. Money center commercial banks, the big four auto firms, and some of these organizations have been under severe financial pressure for they may not even exist anymore. And they have been in turn reluctant to be spending large amounts of money on consulting services. So I don't anticipate that's going to change rapidly, within the next few months.

On the other hand, if the financial environment starts to improve, there may be less anxiety at that level about starting, underwriting the expenses litigations. Those defenses will probably eventually have to be done anyway. At the law firm level, many major law firms are cutting back themselves, and there's been a, I think some tendency for law firms to try to pull in-house some areas of work that might normally be done by consultants. There's a gray zone of work that can be done by either the law firm or consultants. In good time, we would tend to do the kinds of things we are good at. In bad time, like this, some of the law firms will try to do some of that kind of work in-house. There's a limit to how much they can do because ultimately the outside witness has to be in charge of the work; but ut there's always a gray zone of tasks that can be done by either the law firm or people like us. I don't anticipate it will be any single event that will change that. It will just be a question of as the economy improves that is will tend to go away.

Okay. Thanks. That was helpful. You also talked about an active pipeline, maybe the environment is getting a tad, a little better in the last couple of months. Is there kind of quantifiable measure that you can share with us on that, whether it be leads, or something to that nature?

There's really not reliable measures, we do track leads and we track obviously new projects or assignments. But the quantitative values of these are difficult to pin down. So, one lead you might generate $50,000 (inaudible) hired and the other one might generate 20 million it is often difficult to know before the fact which it is going to be. So, I am reluctant to start disclosing those kinds of data publicly just simply not reliable other than getting a general assessment.

Okay. And also, as far as the, in the last couple of months, some of the upward trends, is it more of the litigation business or is it more in the advisory type business?

No. I'd say there has been some improvement in both areas. In the area, our major clients include for example in the chemical sector, those firms got hit very hard at the end of last year, but they're starting to see their orders improve. Similarly, the oil companies have been a little bit more willing to spend money to do a lot of work for pharma that continues right on through. The Aerospace and Defense was also starting to pick up a bit. So there's some indications, across the board, nothing that I would want to make any firm predictions about. The things that seem slightly better now than two months ago.

And the expense reductions and the cuts is that going be more reflected going forward and cost of sales or on the operating expense sides?

Well, it will show up in both places. We continue to target improving our SG&A and we, in fact, made very good progress on that front; however, the revenue drop was sort of kept up with it. So, but we have been able to maintain at least reasonable profit margin in the face of a large profit of revenue. So as revenue starts to increase we shall see the efficiency gain showing up in our margins and we will continue to work on those.

Okay. And lastly, what is your expectation of cash levels at the end of the second quarter, given the bonus payments and seasonality involved?

What was the question?

What will the cash balance be?At the end of quarter or even direction?

We, the cash is at $142 million at this point. We will, we continue to generate cash from operations. We will be paying the bonuses here in Q2, the annual bonus related to '08, so I anticipate the cash will go down somewhat in Q2, but for the year I think we will continue to build cash.

Okay. All right. Thank you very much.

Great. One question was asked earlier on the depreciation and amortization. The amount for the quarter of depreciation and amortization is 2.15 million, on capital expenditures, which capital expenditures for the quarter were $307,000.

Our last and final question comes from the line of Jim Janesky with Stifel Nicolaus. Please proceed with your question. Your microphone is now live.

As a follow up to the bonus, Wayne I show that you accrued about $48.5 million for as of November of 2008, that is the amount that will be paid out in the next couple of months; is that correct?

Approximately right, yes.

Okay. Do you, did you change that accrual in this quarter?

Well, it would have increased from the amounts accrued for Q1, yes.

Okay. Can you give us that figure?

We haven't disclosed that historically, Jim. And off the top of my head I'm not sure exactly what it is.

Okay. All right. Thanks.

At this time we have reached the end of the question-and-answer session. I will now turn the conference back over to Mr. Jim Burrows for closing or additional remarks he may have.

Thank, everyone. We look forward to speaking with you in our second quarter fiscal '09 conference call. This concludes today's call.

Ladies and gentlemen, this does conclude our conference call. Thank you for joining us today. You may disconnect your lines at this time. Have a wonderful day.