Computer Task Group Inc (CTG) 2004 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the CTG third quarter 2004 earning's conference call. (OPERATOR INSTRUCTIONS). At this time, all participants are in a listen only mode. Later we will conduct a question and answer session, instructions will be given at that time. If you should require assistance during the call today, press star and then zero. As a reminder today's conference is being recorded. I would now like to turn the Conference over to your host for today's conference Mr. Jim Boldt.

Good morning everyone, this is Jim Boldt. I want to thank you for joining us this morning for our third quarter 2004 earnings conference call. Joining me is our CFO Greg Dearlove. As to the format of the call this morning, Greg's going to begin with a review of our financial results. After his review I'll talk about the trends we saw in the third quarter as well as what we anticipate in the fourth quarter of 2004, then open the call for questions. Greg could you start us off please?

Thank you Jim and good morning to all. Before I begin I want to mention that statements made in the course of this conference call that state the Company's or management's intentions, hopes, beliefs, expectations and predictions in the future are forwarding looking statements. It is important to note that the Company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ from those in the forwarding looking statements is contained in our press releases, and from time to time in the Company's SEC filings.

For the third quarter of 2004 CTG's revenues from continuing operations were $57.9 million. Net income from continuing operations was $600,000 and net income from diluted shares was $0.04. Our third quarter revenues from continuing operations were on the high end of our expectations. Our net income from continuing operations and diluted earnings per share slightly exceeded our expectations because of favorable tax adjustments resulting from European tax law changes and improved operating results in Europe. Our direct profit percentage decreased to 26.4 percent in the third quarter, down about 8/10 of a percentage point from the third quarter last year and our operating profit percentage decreased from 2.6 percent last year to 1.2 percent in the third quarter of this year.

Excluding the impact of our accounting change in 2002, this is the 13th consecutive quarter that the Company has reported profitability from continuing operations. SG&A decreased by over $312,000 in the third quarter versus the same quarter last year and approximated 25.2 percent of revenue, a slight increase over last year's 25 percent.

Revenues from IBM were $12.6 million in the third quarter 2004 as compared to $12.7 million in the third quarter of 2003. Quarterly revenues from our European operations were $10.8 million in 2004 as compared to $8 million in last year's third quarter. On the balance sheet our day sales outstanding and receivables increased to 74 days from 68 days in the second quarter of 2004 and from 67 in the third quarter of 2003. Total debt was approximately $4.5 million at quarter end, down from $6.6 million at the end of the second quarter and $6.9 million at the end of the third quarter of 2003. Our cash flows reflected cash generated from operations during the quarter of approximately $5.7 million after recording depreciation expense of $688,000. We also made $460,000 of capital acquisitions during the quarter. Total employment during the third quarter was 2,500, of which approximately 85 percent are billable employees. And Jim, that concludes my summary of the Company's financial results for the third quarter of 2004.

Thanks Greg. As you know our third quarter revenues were at the high end of our guidance. As we mentioned on our second quarter conference call a large outsourcing engagement in our financial services vertical was scheduled to end in July. The customer was in liquidation, decided to insource its IT department as it shuts down its operations. While we lost the approximately 100 person billable staff associated with that engagement during the quarter, we're pleased that our staffing demand remained strong. This allowed us to add approximately 100 people to staffing engagements during the quarter which kept our aggregate head count at the same level.

As we also mentioned on the last call, we believe that after years of relatively weak demand the staffing demand for our US business has returned to a more normal level in the second quarter of 2004, and it continued to improve in the third quarter of this year. While we added approximately 25 percent to the number of strategic staffing recruiters in the third quarter we still do not have enough recruiters. We plan to continue to add to recruiters and enhance our recruiting process to meet the still rising demand.

As we expected, our healthcare group did benefit from the two new implementation engagements and we continue to be optimistic that those multi-year projects will require additional staff. It looks like our healthcare will have another good year. Our life sciences vertical continues to perform extremely well. Revenues from our financial services vertical declined during the quarter due to the multi-year projects that ended this year.

The new offerings that we're introducing into our financial services vertical are being well received and we expect to begin to show results late in 2004 or early in 2005. As you know we sold our Netherlands operating company earlier this year. Now that the Dutch operations have been divested our European region is growing and profitable again. We see a lot of opportunity in the European market over the next 12 months. We're also seeing results from the investments we made in our information security practice earlier this year, particularly from our Sarbanes-Oxley offering.

As to the fourth quarter of 2004, we're forecasting revenues in the range of $57.5 to $59.5 million. As you know we had 63 billable days in the third quarter of this year and 66 billable days in the fourth quarter of last year. One billable day equates to about $900,000 of revenue. We will most likely have 62 billable days in the fourth quarter of this year. The reason for the uncertainty about the number of billable days in the fourth quarter of the year is that New Year's Day falls on Saturday this year, and we still have customers who have not decided whether the holiday will be separated on the last Friday of this year or the first Monday of next year. While the billable days in the fourth quarter will be less, if you look at the daily revenues the mid-point of our revenue guidance represents improvement in our average daily revenue from continuing operations compared to both the third quarter of this year and the fourth quarter of 2003. Given the revenue forecast we believe earnings will be in the $0.02 to $0.04 per share range in the fourth quarter of this year.

In general we continue to be more optimistic about market conditions in our business. Staffing demand has significantly increased this year, and as mentioned is back to a more normal level. We continue to add recruiters and expect to see very favorable results in our staffing business over the next 12 months. Over the last 3 years we've repositioned the Company to faster growth verticals such as healthcare and offerings with higher demand such as information security. We're seeing the benefit from that repositioning in the new healthcare and Sarbanes-Oxley projects.

We remain comfortable that our business has turned the corner and that we'll continue on the road to recovery. With that I would like to open the call for questions if there are any. Doug if you would please manage our question and answer period.

(OPERATOR INSTRUCTIONS). Bill Sutherland (ph), Boenning & Scattergood.

DSO's at 74 days, any comments and directional thoughts on that?

Well Bill, the AMO that Jim mentioned which ended in towards the end of the second quarter into the early part of the third quarter was a prepaid engagement, and was fairly significant so it by itself added about almost 5 days to the DSO's. Other than that we were impacted just slightly from a couple of the staffing contract customers in the second quarter and into the third quarter.

A decent cash flow quarter anyway, I guess, because payables are up.

Yes, we were at the midpoint of our billing cycle -- or payroll cycle, I mean.

You were going pretty fast through the cash flow data, it was operating cash flow of $5.7 million?

$5.7 million from operations, $688,000 of depreciation and $460,000 from capital acquisitions.

And that's all just for Q3?

That's Q3.

The debt, is that down because of just timing issues or is there a real movement here towards being debt free?

Well, the debt over the last couple of years on a quarter-over-quarter basis has continued to come down as we generate more cash inflow, so I think it's just a general trend as to cash coming, although we will go in and out of debt as Jim's talked about in our previous calls.

It's hard to do at a point in time, on average we seem to be running about $3 million less in debt than we did last year.

Okay. The growth in recruiters seems to be a cycle that the staffing revenue that comes out of the growth in recruiters, I'm just wondering about the marginal profitability. And you talked about your approach to recruiting, I think, being something you focused on. I guess I'm getting at the issue of efficiency and just return on expense there.

There's a couple of things really. One is we're totally redoing our recruiting process -- it was a project that started I think it was around July 1, and it will be fully implemented -- it's partially implemented right now -- sometime in the first quarter of next year. And we believe that it had been awhile since we'd redone the recruiting processes and the new recruiting (tool), etcetera, so we think we're going to see some significant efficiencies out of that. The recruiters that we added in the third quarter we really didn't get any benefit out of. It usually takes about 60 days for a recruiter to become efficient. They have to learn our systems, which I don't think that's too bad, but more importantly they have to learn the peculiarities of the customer. They've got to learn what their new customers like and don't like about candidates and that usually takes them a couple of months, so we may have gotten some benefit from the ones that we hired in July, but very little.

Is there a point where you really get leverage on this recruiter base? You see what I'm saying, it seems like there's a --

When we come up to a balance, when we have the right number of recruiters for demand then it should be in balance at the normal margin. That hasn't happened yet.

But demand is always growing Jim, isn't it?

Yes, it's always growing but not as significantly as it's growing right now. I don't -- it's quite possible that we need another 25 to one-third more recruiters in the strategic staffing group, but while that's great because the business is growing, I doubt that every quarter we're going to need that many more recruiters. Historically it's just been a few percent a quarter, not that large.

In a nutshell what does revamped recruiter process do for you?

Because it's highly automated it should improve, I guess one could look at it and say, you could reduce the number of recruiters. Actually what we're trying to do is increase the number of placements per recruiter. It's a much more efficient system than the one that we're currently using.

What kind of dimension of increase would you get on placements per recruiter?

We don't know, but we're kind of shooting for a 25 to 50 percent improvement.

And then finally, currency impact?

It was probably about 13 percent or so that, if you look at the European operations compared to last year in the third quarter, they're up about 35 percent, 13 percent was currency and about 22 percent was real growth.

Just a quick comment on that real growth. What's kicking that up?

There's a couple of things that are kicking that up. We introduced our healthcare practice into the UK really at the end of the second quarter of the year, and that's certainly having a significant impact. Our Belgium and Luxembourg operations though are seeing a lot of increase, particularly in our testing and life sciences areas.

Okay, that's good thanks.

(OPERATOR INSTRUCTIONS) Rick D'Auteuil, Columbia Management.

Hi guys, I have a number of questions also. Last quarter you mentioned some issues pricing pressure and turnover as it relates to particularly one customer, I think. Can you give us an update on that?

We haven't seen any additional pricing pressure nor have we seen any relief. The turnover which was severe in second quarter and the first month of the third quarter went back to a more normal level. The people who wanted to leave, left, basically, so we -- we're back to what we consider to be more normal turnover for that group.

Okay. Has there been any pushback on, I think that was related to a price cut to you, of maybe 5 percent. Has -- I'm hearing from other sources that they have seen that turnover in spades across other suppliers to them and have been rethinking recently that move. Have you heard that?

It doesn't surprise me at all. Clearly the demand is picking up and we think that their move put them below the market and it's causing every supplier a problem being to fulfill to them, so we at the time said that we thought that was going to be a problem for them from an operational standpoint. We still think that and if it is I think that at some point they're going to have to adjust.

How about the solutions business just in general. You've talked about the staffing business being better for the better part of the last two years, the solutions business typically follows the staffing, and I think you make some reference to when the budgets get better we'll get better, but others are out there kind of starting to say they're seeing it. Is you pipeline looking a little more full, or what? Do you expect any -- I guess is there any opportunity going into year end on budget flush or --?

That's always hard to predict, because every customer acts a little bit differently at the end of the year. We are seeing for instance in some of the verticals like healthcare huge new projects starting up, so that obviously has been favorable. For awhile we used to kid that a long term project for some of our customers hit a heavy return in the third month of the current quarter, and for awhile that was almost the thinking and certainly no customer was willing to do anything that he didn't get a return in his current fiscal year. That seems to be changing. We're starting now to engage with customers on longer-term projects, projects that might go multiple years before they actually get a return. So we're clearly -- we've started to see a change, but even in the clients where we've seen the change they're only in the planning stages, you're not going to see significant dollars until they commit to actually do the project.

We think that it's in the very early stages of turning around. If you look at the staffing business two years ago, in 2002, in the middle of 2002, we said that we were starting to see that come back. For whatever reasons it came back with a vengeance in the last two quarters, probably because the unemployment rate of technical workers has dropped in the US and it's harder for our customers to find staff. We think the solutions business will probably come back, probably not over two years like the staffing business, but it's not going to come back in one quarter, we've started to see a trickle and we think it will just slowly start to increase from here.

Thanks. My next question I guess is a follow-up to Bill's prior question, and I scratch my head. You know, you're talking about the solutions business being-I'm sorry, the staffing business being back to sort of a more normalized level of demand. Historically we've looked at that business as a 5 percent operating business, and we've look at the solution side of the business as a 10 percent operating, historically, closer to a 50/50 mix, and maybe with staffing growing quicker, more rapidly short-term it becomes a bigger piece of the mix, but just, I guess, separating the two pieces-is there any reason to believe that 5 percent staffing, operating margin doesn't, for whatever reason, isn't attainable this time around? Because if we're kind of back to the more normalized revenue levels on the staffing side, it sure doesn't feel like we're approaching that 5 percent margin, which is the low end of your mix anytime soon. Maybe this, I guess I'm trying to figure out why the margins aren't improving.

Okay, I think I can explain that. And there was a couple of questions in there, I think. From everything that we see, we still believe that our staffing business will go up to a 5 percent operating margin, that there's nothing that we've seen so far that doesn't indicate that, while customers definitely have over the last couple of years particularly lowered some of the rates. Wages have fallen by the same amount so the DP [ph] is the same, and we've done some things in our overhead to make it more efficient. So we still believe a 5 percent target is doable. We're not there yet however, and one of the issues at the moment is the growth. When we add 25 percent more recruiters, we're also adding account managers, etcetera to that in a quarter, and the recruiters aren't effective really for 60 days at least. You end up with expense but no revenue associated with them. And what we're saying is, not that the business is back to normal but the demand is back to normal, and now we have to add people kind of continuously for 4 or 5 quarters probably before we get back, and we're close to the 5 percent that we're looking for on the staffing side of the business.

We're 3 or 4 quarters away from that still, or?

Well, if demand keeps going like it is, and we have to keep adding overhead to respond to that, I think it will take a few quarters before we actually get back to 5 percent. The percent will improve every quarter, but because you've got more people working, more recruiters back in balance, but-in any quarter where we have to add 25-30 percent to the overhead, and most of them aren't effective for another quarter, you're going to get some drag, it's not going to come back up to 5 percent right away. We added about 100 people in the staffing side of the business in the third quarter of the year and I think that's probably a reasonable number for us to hit and the average certainly over the next four quarters.

Over the next four quarters?

Yeah. The fourth quarter is always a little problematic because around the 15th of November people don't want to take on additional staff, but they've got staff leaving, so the first quarter, if we come up short, the first quarter is always really good because people have new projects, and they start new projects.

Just to clarify that, when you say over the four quarters, each quarter you're expecting to add 100.

That's right. That would be a reasonable goal for us.

Okay, and it becomes less and less diluted as-

Every quarter.

Okay. How about the ultimate-the 10 percent margins on solutions?

We need more volume. The solution side of the business needs to come back for us to get back up to 10 percent, but in some of the areas where the demand has come back, healthcare, for instance, that isn't a problem. So we still believe that we can get to a 10 percent average on the solution side of the business. The one thing that we're going to have to do, and we don't know when the solutions business will start to come back to more normal demand, but we're above 50/50 at the moment. I think the last time we announced we were 55 percent staffing, because staffing demand was better, and 45 percent solutions. Currently they may even be approaching 60 percent because the staffing side of the business is so good. So the other thing that we've got to do is re-balance the business and get it back to a 50/50 mix-that's really our goal is to be at 50 percent staffing and 50 percent solutions.

I mean, to the extent you're not leaving the staffing opportunities on the side, you're going after them by hiring additional recruiters.

Right.

You're exacerbating that issue. You're not walking away from staffing business to keep the mix rich.

No, we're not, no. And we're not planning on doing that either.

Right. So you're basically saying, we'd like to get it to 50/50 but that's all dependent on the outsourcing getting better.

Yes. And as long as we can see getting to a 5 percent on the staffing, we don't see any reason to give any of it up.

Is there anything specific to the fourth quarter margins and earnings per share that-is there any expenses in the fourth quarter that we should be aware of that-it seems to me like the guidance is even slightly up from where we are-just wherein yet you're kind of-the EPS is $0.02-$0.04, not $0.04-$0.06. That doesn't imply we're getting the leverage, every quarter we should get better, see better margins on the staffing side, it implies lower margins. So is there something else in there in Q4 as it relates to expenses that would make you be that conservative on the EPS guidance?

Yes, there's really two things and it goes back to the staffing business. As I've said, we've seen a significant increase in staffing, right now we're thinking about getting 25 to a third more recruiters perhaps, in the quarter. It could even be more than that. If the demand keeps going up we're going to add as many people as we need to, so that we're sure that we've got a full complement by the first quarter of next year, and that's a drag, quite frankly, on the EPS. We think at the moment that the SG&A could go up by half a million dollars between the third and the fourth quarter. But you're not getting the full impact of the revenue because it takes a while to hire people and the recruiters, obviously it's going to take them a while. The other thing that very well could happen and is happening to some extent is the staffing business is increasing, people are reaching their incentive thresholds and that requires us to (inaudible) more. It's really though a function of the staffing business being so good and us anticipating that we're going to have to add-up until now, and given everything that's going on in the industry for the last 4 years I think you can understand it. What we've been doing is looking at our staffing demand and staffing up to the number of recruiters we need at that point in time. And it causes us, like in the third quarter to be short on recruiters-so now what we're doing is trying to figure out what our recruiting demand will be in the first quarter, getting enough resources in order to compensate for it and really go after the business.

You're confident that the-I think Bill mentioned, the incremental margins don't feel like they're getting there and you're saying it's because we're adding overhead faster that's unproductive, and when that slows down all of a sudden we should see a pretty good leap in the margins, because, I mean, it's-you're just spending it all at this point, it feels like, and the SG&A leverage isn't there at all right now.

That's right.

Okay. And then, you had made-put out a press release last week related I think to the healthcare side of the business. I didn't really understand that, can you walk me through that?

Maybe Greg was a little closer to that, maybe he can-

It's CTG Healthcare Solutions Announces Formation, okay.

Yeah, we announced the formation of a partnership to executive sales people, really to help partner in creating, I'll call it higher margined opportunities in the healthcare consulting arena.

Is this executive search?

No, it's really who we partner with as to, getting to C level type individuals in hospitals primarily, just to help in the sales process.

Let me just explain a little more. Essentially it's generally high level people from large hospital systems that are well-known in the industry, they're all CIOs and up. They-for whatever reasons-maybe they've reached their mid-fifties and they've decided that they want to try something else in life, and we partner with them and because of their position in the industry they have entrees into people that it might be difficult for us to get to.

Is-let me I guess, change the page quickly and-during this quarter I think 2 or 3 insiders, I think it was actually 3, purchased stock as high as in the low $3s, $3.20 or something. As a large shareholder here we feel this stock is undervalued and continues to be pressured by the supply and demand factors of the stock. Do you have any thoughts on that at this point?

Well, I was 1 of the 3, and I actually think I paid, like, $3.40 for it so I was even a little higher. We feel that the stock is undervalued, I mean, you look at us versus any of our competition, we certainly think that our stock is undervalued. The other thing that we believe has finally happened is the industry, after 4 years is starting to improve, and you're well aware of this industry, if you can get revenue growth, you might have a problem as you're ramping up, not fully being able to get your margins, but we believe we can control the SG&A, get a decent direct profit margin and go back to much higher operating margins going forward. And I think it was two of our directors and myself I think that bought stock in the quarter and we all talked about it, and we all agreed to it.

Yes. Just on the SG&A side of things I noticed today that Keen (ph) reported, and I know it's not apples to apples, given their mix of business, but their SG&A as a percent of revenues is under 22 percent, 21.7 percent I think, and it was 100 basis points better than the prior year. It would be nice to get that kind of leverage in this model. Because that's a big swing factor to the bottom line and we'd like to see it I guess.

Actually that's our target, between 21-22 percent. And when we had more revenue, when we were larger, we were down at that percentage. We think it's doable to do it again.

It's be better from our standpoint. Thank you.

(OPERATOR INSTRUCTIONS) Michael Keller (ph), Key Bank Capital Markets.

Boy a lot of my questions have been wiped clean off the board, but just one quick one. I think you've said your tax rate assumption for the full year hit that 25 percent last time, any modification there? And/or what should we look at as far as the fourth quarter?

We've adjusted that, Mike, in the third quarter and we're looking out to the fourth quarter to be around 16 percent. As profitability in Europe has improved, it's allowed us to take on some, or reverse some valuation reserves, which drove the effective rate down. But we think it's about 16 percent right now.

And for the full year that would get you to--?

That would be the full year's effective rate.

You had mention, Jim, you had mentioned the sustainability of 100 adds per quarter as far as billables, that's a net number?

Yes, it is.

And is that sort of level baked into what you're looking at as far as fourth quarter guidance?

It could happen in the fourth quarter. As I mentioned, you constantly have people coming off of engagements. Most customers don't like to take people on once Thanksgiving comes, so the month of December has never been a good month to net hire people actually it's usually a negative. If we don't hit the 100, I think it's quite possible we'll hit 100 in the fourth quarter. If we don't hit it in the fourth quarter though, given what our customers have told us about budgets for next year, etcetera, we think that we'd make it up in the first quarter, we'd have 200 in the first quarter if we don't hit 100 in the fourth quarter. But I think it's doable, I think it's quite possible we might hit the 100 mark in the fourth quarter too.

Finally then, just in the healthcare vertical, I wonder if you could talk a little bit about the pipeline and the D&I side of things, with the large engagements started-where does the pipeline stand now, and I have a particular interest in sort of the clinical transformation, some of these other areas where the wheels seem to be turning as far as the impetus for those things to be picking up. I just wonder if any of that is accruing to you yet, at least in terms of qualified opportunities.

Well, we clearly saw a pickup in the second quarter of the year, we had 2 relatively large projects that started up and they're just enormous projects, and they probably, one of them in particular probably won't reach its maximum staffing for at least another year, year and a half. So, we think that there's just tremendous opportunity in the healthcare space next year, and it's not just in the United States, as you know, in the UK, the national healthcare system is putting in essentially US software in all of their hospitals, and they're actually creating for the first time in their entire country, an electronic medical record. The European countries are all looking at that because they also have socialized medicine and the cost is just going up astronomically and the government has to deal with it. So we believe going forward that some of the European countries who currently essentially use legacy type systems, by and large, are probably going to look to put in the US software, and that too will just be a tremendous opportunity for us going forward. Because there's really not anybody in Europe who essentially uses these systems now, and therefore they need the expertise and project management from the US to put them in.

And when Hillary's president we'll have the same thing here in the States! All right, thanks a lot.

(OPERATOR INSTRUCTIONS) Bill Sutherland (ph), Boenning and Scattergood, please go ahead.

Two things I was wondering about, are if there's a way to get at an effective tax rate for next year? Just a guesstimate.

Bill, we would think we're going to head back to a more normal 40 percent range next year. That's what-if I was going to do a model that's what I would use for 2005.

Okay, and where do we stand with-are there any restricted stock awards that are in the planning-or not the planning, but to be distributed?

No, we do have a plan that would allow us to issue restricted stock, I don't think we've used it since '98 though. So there's none in the system whatsoever.

So it's just the options.

Yes.

Okay, thanks.

(OPERATOR INSTRUCTIONS). Benny Lorenzo (ph), please go ahead.

Thank you. Just a couple of housekeeping items. In terms of your-can you give us your utilization rate whether it's by staffing, solutions or total?

We don't generally give those out. We do, actually even internally we don't use the aggregate one because it's kind of meaningless that the staffing side of the business often is a 90 percent or better kind of rate. The pure solution side of the business, for instance the development and integration side of the business can run 70-75 percent because the people sit on a bench between large projects often. So the aggregate is just this number that we've never, internally even, been able to use. I think that I would say though that our utilization is back to where it was really, not so much in the late '90s, but certainly in the early '09s. It's kind of a high 80s (percent) in total utilization and we're not running at the moment with a lot of bench other than some very unique skill sets.

Okay. And the international piece, Europe, how big is that? What percentage of your total revenue is that?

Well in the current quarter the European revenues were 18.7 percent. So about $11 million.

And in terms of cash needs, you have, on your balance sheet you show about $3 million in cash, and $4.4 million in debt and quite a bit of accounts receivables. And it seems like you'd need more money to run the company. Do you have any plans to raise money? Or how do you plan to address it, what's your thought on that?

Well, this industry has always thrown off a tremendous amount of cash. If you look at us 3 years ago we hit $40 million of debt on the balance sheet, and although the last 3 years haven't been particularly good for the entire industry, we managed to pay the debt down from $40 million to $4 million. So right now we really believe that unless we do something, either we go out and do an acquisition or we buy back our own stock to any large extent that our cash flows will be more than sufficient to finance the company.

Okay, that really helps, thank you very much.

(OPERATOR INSTRUCTIONS) Jerry Chambers (ph), Courier Capital Corporation (ph).

I'm thinking about your customers and they being aware that there's a shift going on. Are they making any efforts to sort of lock you in and make contracts that are difficult to improve upon, or extend the duration of them, anything like that so that you really can't improve your revenue stream?

Not on the staffing side of the business, no. I don't think we've seen anything like that.

And does the standard contract have any clauses in it that would hold you back as demand rises. And also how long are these contracts?

It varies pretty much. The staffing contracts, for instance, will run from a year to maybe 3 years, but the reality is, pretty much they probably could terminate them, or we could terminate them if we needed to. The solutions, our development and integration project will generally run a year or two. Actually we have some out 5 years at the moment, and then on the (implementation) management outsourcing side, contracts are almost always from 3 to 5 years, but that's a dedicated group of people and you want them to commit to that period of time. We really have not seen any change in the customers' behavior, I think the customers are probably now just waking up to the fact that the world has changed. A lot of the old timers, people like me, probably remember that this was not unusual even in the mid-nineties before the Y2K run up. And you've got some people out there who are trying to figure out what's going on, who maybe got into the business a little later.

Now, did I hear somewhere in there that you're like 85 percent, or you have a bench of 15 percent.

No, no. No.

(multiple speakers) bench really.

The bench is relatively small at the moment. I mean, it's isn't even worth disclosing. The staffing side of the business has no bench, and the solution side has a bench to the extent that you have in some of the areas like healthcare, development and integration people who are required. But even there, the business was so good in the third quarter that we didn't run very much of a bench at all. The 15 percent is generally what you think of as the corporate staff which are the recruiters and finance and MIS people.

All right, that makes more sense. Thank you very much.

(OPERATOR INSTRUCTIONS). There are no further questions in queue, please continue.

I'd like to thank you for your continued support and for joining us this morning. Have a great day.

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