Computer Task Group Inc (CTG) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CTG second-quarter earnings conference call. 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. (Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to our host, Chief Executive Officer James Boldt. Please go ahead.

Linda, this is Debbie Pawlowski, Investor Relations for CTG. Let me start with welcoming everybody on the call today. We do have Chief Executive Officer Jim Boldt and Brendan Harrington, Senior Vice President and Chief Financial Officer.

Jim and Brendan are going to review the results for the second quarter of 2009 and update you on the Company's strategy and outlook. We will follow with an opportunity for questions and answers. If you don't have the news release discussing our financial results, you can access it at the Company's website at www.CTG.com.

Before we begin I do want to mention that statements in the course of this conference call that state the Company's or management's intentions, hopes, beliefs, expectations, and predictions for the future are forward-looking statements, and it's 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 forward-looking statements is contained in our earnings release as well as in the Company's SEC filings. You can find these at our website or at the SEC's website, www.SEC.gov. So please review our forward-looking statements in conjunction with these precautionary factors.

With that I would like to turn it over to Jim to begin the discussion. Jim?

Thanks, Debbie, and good morning, everyone. This is Jim Boldt. I want to thank you for joining us this morning for our second-quarter earnings conference call.

As you saw in our earnings release, while we were at the low-end of our guidance for revenue, we were pleased that once again we were at the high end of our guidance for earnings per share. Expanded margins from new Solutions projects combined with quick and aggressive cost management to mitigate the current economic environment's impact on our earnings.

I am going to talk more about our business and what we see for the rest of the year, but first I am going to ask Brendan to start us off with the review of our financial results. Brendan?

Thanks, Jim. Good morning, everyone. For the second quarter of 2009 CTG's revenue was down 29% to $66.6 million, a decrease of $27.5 million compared with the second quarter of 2008. Operating income was $2.4 million, a decrease of $1.6 million or 39%. Operating margin decreased to 3.6% of revenue, a 60 basis points decline from last year's 4.2% which was our highest operating margin in almost 10 years.

Net income was $1.4 million in the quarter, a decline of 32% from $2.1 million in the second quarter of 2008. On a per diluted share basis net income was $0.09 for the quarter, a 31% decrease over last year.

Solutions revenue in the second quarter of 2009 was 35% of total revenue or $23.1 million. This represents a 28% decline from last year's second quarter. Jim will provide more detail on this item in his remarks.

Staffing revenue was down 30% to $43.5 million of total revenue. Second-quarter revenue from IBM, our largest staffing customer, was $17.1 million compared with $29.3 million in the second quarter of 2008. As a percentage of total revenue IBM was down to 25.7% in the 2009 second quarter compared with 31.2% of total revenue in the second quarter of last year.

Revenue from our European operations was $15.1 million, a 30% decrease from the $21.4 million recorded in last year's second quarter. Excluding foreign exchange fluctuations, European revenue in the quarter would have decreased by 19% over last year. Direct costs as a percentage of revenue were 77.6% in the second quarter compared with 77% in the second quarter of 2008 and 77.6% in the first quarter of 2009. Both 2009 and 2008's second quarter's results include equity compensation expense of approximately $0.01 per diluted share net of tax.

The tax rate for the 2009 second quarter was 42% compared with 48% in the 2008 second quarter. We expect the tax rate for the full year 2009 to continue to be between 41% and 43%. We had approximately 2,700 employees at the end of the second quarter 2009, of which approximately 88% are billable resources.

On the balance sheet our days sales outstanding was 58 days compared with 58 days at the end of the first quarter of 2009 and with 59 days at the end of the second quarter of 2008. Our cash provided by operations in the second quarter was approximately $6.8 million as compared with cash used in operations of $0.3 million in the second quarter of 2008. We had $692,000 in capital expenditures in the quarter focused mostly on Solutions development, and we reported depreciation expense of $420,000 in the quarter.

CTG's financial position remains very strong. At the end of the quarter we had approximately $14.7 million of cash on the balance sheet and no debt outstanding on our $35 million revolving credit agreement, which is in place through April 2011. During the second quarter of 2009 while adhering to SEC-imposed volume limitations, we repurchased approximately 213,000 shares of CTG common stock. During this most recent self-imposed blackout period prior to releasing earnings, we repurchased shares under our 10b5-1 plan.

As of July 3, 2009, our repurchase authorization is for approximately 900,000 shares. We believe CTG's shares remain undervalued at recent prices and we intend to continue our repurchase program through the remainder of 2009. Jim?

Thanks, Brendan. In aggregate, our solutions business declined by 28% in the second quarter of 2009. As we have reported on previous calls, the tight credit markets have negatively impacted demand for our Solutions business, particularly demand from the healthcare provider market.

Not-for-profit hospitals finance a significant portion of their needs through the issuance of tax exempt bonds. Due to the credit crunch and rating downgrades these hospitals are not currently able to access the tax-exempt markets for capital. Without the needed capital, they have been deferring many of their IT capital projects. These referrals have clearly impacted our business.

The good news is that we are starting to see a change in that trend. In the last 30 days we have started up a couple of new electronic medical record projects and our pipeline for electronic medical record engagements continues to grow. Particularly encouraging is the fact that we are beginning to see some credit markets open up for the financing of electronic medical record projects.

As you know, financing is a critical component to starting new electronic medical record projects, because under the stimulus package government reimbursement does not begin until the electronic medical record applications are in use.

We currently have three new solutions for the healthcare market that are now in beta testing and scheduled to be released for commercial use in the second half of the year. The first offering is for a technology-driven medical care management model that improves patient's outcome while lowering costs. The second offering is for an actuarial tool for the more accurate underwriting of group medical plans resulting in more equitable pricing across our healthcare system.

And the third is for the detection of fraud, waste, and abuse which is estimated to account for 3% to 10% of all healthcare expenditures annually. All of the new offerings appear promising and initial marketing to prospective customers is already underway.

Turning to our staffing business that declined by 30% in the second quarter 2009. The global recession began to give an impact in our staffing business in the fourth quarter of 2008 and it continued to decline through April of 2009. Starting in May, however, our US staffing business bottomed out and as a result our total headcount remained relatively constant during the second quarter.

You can tell from our income statement during the period from October 1, 2008, through March 31, 2009, we were very aggressive in reducing our costs ahead of the expected revenue decline. In aggregate the total cost reductions during that period in our direct costs and selling, general, and administrative expenses were $71 million or 21% of total expenses on an annualized basis. Disciplined cost management is one of the key reasons that our 2009 projection is for an operating margin of approximately 3.4%.

We only made minor cost reductions in the second quarter of 2009 as demand for our staffing business has stabilized and because we are seeing increasing opportunities in our Healthcare Solutions business. Actually, in the last few weeks we have added about 5% more recruiters to our staff so that we can be prepared for new business opportunities.

Before we go over the guidance, let me once again review the assumptions that we are using for 2009. First, as for the economy overall, we are using the average assumptions from a Wall Street Journal survey of economists. Those assumptions indicate that the economy has slowed further in the first half of 2009, will bottom out in the third quarter of the year as the economic stimulus packages start to take effect, and then begin to moderately grow in the fourth quarter of the year.

I think the fact that our US staffing business bottomed out in May was an indication of the fact that the US economy is starting to turn around.

Second, that our new offerings will be commercial in the second half of 2009 and begin to benefit our revenue and profitability in the latter part of the year. Third, we are assuming that as a result of the Federal financial stimulus package hospitals will begin to have access in the credit markets again in the third quarter of 2009. As I mentioned before, recently we have started to see some lenders begin to finance electronic medical record projects.

Clearly, our largest opportunity is in the $19 billion included in the stimulus package in the United States for healthcare IT which should significantly advance our business. We are basing this assumption on the fact that CTG is currently one of the largest providers of IT services for electronic medical records and one of a small number of companies that are working on projects to install electronic medical record systems for an entire community.

However, based upon previous government initiatives, we believe it will take some time before IT services companies can be engaged for those projects. We also know that following selection to run a large project you first have to create a vision of the end result and then build a detailed project plan of all the tasks to be completed before we can fully staff up an engagement.

That means that while we expect to see some of the benefit from the healthcare IT stimulus projects in the fourth quarter of 2009, a significant increase in our revenue from the stimulus package will not likely occur until 2010.

Using these assumptions we are forecasting revenue in the third quarter of 2009 to be in the range of $66 million to $68 million and the third quarter of 2009 will have 64 billing days versus 63 billing days in the second quarter of 2009 and in the third quarter of 2008. As is typical in the summer months, we will experience a decline in the hours billed as our billable staff takes more vacation in the third quarter than in any quarter of the year.

Given that revenue forecast, we are forecasting earnings per share in the third quarter of 2009 to be in the range of $0.07 to $0.09 per diluted share. For the full year we currently believe that CTG's 2009 revenues will be in the range of $275 million to $285 million. Due to our strict financial discipline, we continue to expect that net income per diluted share in 2009 will be in the range of $0.30 to $0.40.

We know that is a wide range for guidance at this point in the year. The largest variable impacting our ability to narrowly forecast is the amount of credit that will be available in the third and fourth quarters to providers to finance their electronic medical record projects.

To sum it up, both our Staffing and Solutions businesses have been affected by the global recession. We expect that our business will begin to grow again starting in the fourth quarter of the year as the economic stimulus package begins to improve the general economy, as our new solutions become commercial, as hospitals regain access to the credit markets, and as the $19 billion in the stimulus package aimed directly at IT for healthcare benefits our business.

Even though we expect our profits to decline this year when compared to 2008, our current estimate is that 2009 will be the second-best year for earnings that we have had in a decade.

With that I would like to open the call for questions, if there are any. Operator, would you please manage our question-and-answer period?

(Operator Instructions) Bill DiTullio, Boenning & Scattergood.

Good morning. Thanks for taking my question, guys. I just wanted to start with -- for the quarter, I know there was three less billing days from the last quarter, but even on a revenue per day basis it was kind of down from the last quarter and substantially down from a year ago. I was just wondering if you could provide some color as to why that was the case.

Sure. During the first quarter of the year we were still reducing our billable staff, particularly on the Staffing side of the business. So while -- if you eliminate a position for us -- that somebody is billing rather for the months of January and February, you have two months at least worth of revenue in that quarter. So the decline that had started in the fourth quarter on the staffing side of the business continued during the first quarter.

On the Solutions side of the business, the fact that hospitals can't finance projects has been a problem for us up until recently. We had projects that were ending, but we didn't have any new projects starting, so it, too, declined in the second quarter. We think, though, that we pretty much have stabilized. We are starting to see things turn around a little bit on the Solutions side of the business and that the Staffing side of the business will at least remain flat for a period of time.

So do think it's safe to assume that Q2 was probably, maybe at the trough for as far as revenues go for the year?

Yes, yes. Which actually is what we were projecting that the second and third quarters would be kind of flat and then we would start to grow in the fourth quarter.

Okay, great. Then just turning to cash, that was up substantially this quarter as well and with down revenues. I see that accounts receivable came down a little bit, but what was mostly the reason for that being up?

Well, we actually ended the quarter, this quarter in between payroll periods. And when we look at balance sheet at a year ago, we actually ended on a payroll period in the US and that is about $8 million or so.

So this will kind of reverse itself next quarter?

Right, it would flip next quarter. So we will end on a payroll period and we would expect the cash balance to be down at the end of the third quarter.

Okay. And then just also looking at gross margin for the quarter, that was down about 60 bps from a year ago. Can you just give us the components as to what was the main decrease for that?

There are probably a couple of things. We were still laying off people in our European operation during the second quarter, and because of the statutory laws over in Europe European billable staff get more severance than you might expect if you were working in the United States. So that is part of it.

The other part is basically a mix shift. The provider side of the business, because hospitals can't borrow or haven't been able to borrow, declined even as a percentage of our total healthcare business in the second quarter of the year and the payers side, for instance, increased, but the providers side has the highest gross profit margins. So there was an adverse mix change in Solutions that hurt us as well.

Okay, great. Kind of turning to the EMR initiative and the work that is going on there. Approximately for this year what do you expect as a percentage of revenue EMR to represent?

I don't know. Last year electronic medical records was 7% of our total revenue and at the moment that number is probably off slightly. It's probably close to 7%.

The biggest variable, the thing we are having the most difficulty in forecasting is the credit markets, how many of our clients will get credit by the fourth quarter. We have a lot of clients that are ready to do electronic medical record implementations and they are just waiting to see how they can get the credit to do it. Fortunately for us, our practice tends to focus in on kind of the thousand-bed hospitals; it would be about $1 billion in revenue.

The way we look at the market there is the very large hospital chain; Kaiser Permanente being the biggest one. We don't really market directly that much to that client, to Kaiser, because when Kaiser runs an implementation it will be a couple of billion dollars. It's unlikely they are going to pick us to do that.

The middle tier market, which is the one we focus on; it's 500 beds to maybe 2,500 beds. And then there is a small market, in our minds below 500 beds. The middle tier market has a better opportunity to get credit in the current environment and also many of them still have foundations.

While they got hit rather severely as the equity markets declined, the equities are coming back as you know and they have to do these projects. So it's quite possible that they may dip into their own money to get the electronic medical record projects done. We have seen that actually in a couple of projects that we are just starting up now.

So you are seeing more demand this year than last year as far as hospitals or healthcare centers that want to implement EMRs, but the big problem is that they just can't get the financing. So you are not capturing all that demand so far?

Yes, that is right. Though we are seeing some credit people come into the market. In our client base I got to believe that electronic medical records has risen to be the number one project that everyone in the hospitals and physicians' practices that we deal with want to do at the moment. Because if they don't do it and they are not up by 2011, they are not going to get the maximum amount of reimbursement.

Sure. But can they still -- within implementation times do you think that most of them can still, if the credit markets do ease up by the end of this year, can still make that 2011?

Well, it's possible. For a 1,000-bed hospital, our rule of thumb is that there is usually a physician's practice associated with that, so maybe 250 to 750 physicians as well as the hospital itself. Usually we think that is a three-year project. By doing it on an accelerated basis, by putting more staff on, we probably can do that in a 24-month period.

Part of it's going to depend on how lenient the government is in terms of their definition of what substantially using the system is. We have actually seen the government kind of back off on some of the things that they want. When they originally came up with what the substantial use definition -- that is not final yet -- they said that the physician's practice or the hospital would have to have CPOE, a computerized physician order entry, which was a surprise to lots of people because you don't need to have that up in order to do electronic medical records.

And in the original version, as I recall, they said it had to be 90% of CPOE. They came out with a revision of that not too long ago and they dropped it to 10% CPOE, so it seems like the government is realizing that it's a tough timetable. And we are hoping that they are somewhat lenient as to what substantial use is in 2011.

Okay, good. Great. Well, those were the questions I had, guys. Thanks so much.

Rick D'Auteuil, Columbia Management.

Maybe you mentioned some of the things you had in queue that are being developed and being tested by customers -- fraud, waste, and abuse. Can you bring us up on the timing of those being in the market? I thought at one point that those were third quarter kind of releases.

Actually, it's possible. It's possible that some of them may have their first engagements in the third quarter, that is still possible. It's either third or fourth quarter.

We have gotten kind of -- we are towards the end of the beta testing, so on all three of them we now actually can produce the results. It's a matter of how quickly the hospitals or payers are going to take the data that we are giving them, analyze it, and decide that they want to use that for their business. But it is possible.

I kind of hedged -- the electronic medical records, we talked about the fourth quarter. When I actually was talking about the three new offerings, I basically said that they are going to be available in the second half.

Okay. So where do they fall on the priorities of the potential users?

I think -- I would think that they would be relatively high because all three of them increase their profitability. The actuarial application, for instance, would let them better and more accurately assess risk. So they would obviously have more income as a consequence of that. If they were using it and one of their competitors didn't use it, for instance.

The fraud, waste, and abuse clearly is you are going to get money back out of it. And the same with the medical model, that if you implement it you will actually incur less medical costs because you have implemented it. So the paybacks on all three of those we think are very high. In some cases clearly less than a year payback. And as hospitals and payers struggle with the current economic environment, if you can invest in something and get a payback in less than a year that is certainly attractive.

I also think -- we talk about the hospital market having trouble getting access to the credit markets. Payers essentially are large insurance companies so they have reserves and lots of cash on their balance sheet. They tend not to be borrowers. So they actually have the capability to buy things quicker, perhaps, at the moment than the hospitals.

Is the pricing determined on the products, on all of them?

No, it hasn't been determined. We are still waiting on many of them to see exactly the savings from the application, and then we are going to price based upon the value the customers are seeing.

Okay. And you have access to -- clearly they are not incentivized to show you how much they are saving, if that is going to enter into your pricing. But that is something you will have access to?

Yes, we certainly will be able to tell from other customers. With the customers we are working with now, because they want to make sure that they are going to save money, they actually are giving us their data. We are running it through the application and then we are giving them the data back as to how much money they are going to save.

Okay. Then I know this is I guess a quarterly question, but anything going on in the UK? And then even if there isn't, what about Europe in general on healthcare? I know Europe was supposed to follow the UK, but there was still lots of need there. Are they taking the lead or is that likely delayed too?

I think it's more likely delayed. The NHS project is stalled. NHS has actually given the individual hospitals and trusts more ability to purchase services directly. They still haven't announced that they have been successful in getting a provider for the southern region. And it seems like the centralized control, which for the couple of years it existed local hospitals couldn't spend any money without going through the centralized system, is kind of evaporating and the local hospitals now are starting to spend money to do things again.

In terms of the continent, we still think that eventually the continent will follow once someone has proven the savings from electronic medical records. So originally we thought there would be England first because the federal government has put up so much money. We suspect that maybe the US has instances where they can demonstrate by putting electronic medical records in for an entire community that the savings are substantial.

Actually, quite frankly, at the moment I am glad that the UK is stalled -- I know that is hard to believe -- and also that Europe is waiting, because the US federal government believes it will take about 212,000 people to put up electronic metal records in the United States working for 10 years. And if you add up all the consultants working in -- IT consultants working in every hospital in the US today doing everything, there is only about 10,000. So there is going to be a huge shortage in the United States.

We would be much better to have trained a lot of people in the United States to help start projects over in UK.

Okay. That is all I have for now. Thanks.

Frank Sparacino, First Analysis.

Just wanted to go back to -- I was a little surprised at the comment, Jim, around EMR being close to 7% year-to-date. I would have thought it would have been a much lower number. So I am not sure if you can just provide any detail in terms of comparing maybe the number of projects or the projects maybe this year are larger in scope than what you have done in the prior year?

Well, most of our electronic medical record projects are multi-year. So the projects that we are working on now, by and large, were probably started in 2008 or 2007, maybe even a few in 2006. Actually electronic medical records is before the stimulus package obviously. We started doing them about six years ago.

It was 1% of our total business in 2005, it grew to 5% of our total business in 2007, and then last year it was 7% of our total business. So we are really getting a carry on of projects that were started by people who were doing it because they knew it was the right thing to do, not so much because of the stimulus package.

The US federal government estimates under their definition of an acceptable electronic medical record system that 8% of all hospitals in the United States already have electronic medical record systems and 17% of all doctors. So we are really working on the projects that started before the stimulus package now, other than a couple that we just started up in the last 30 days.

And would you say that the ones that have just started in the last 30 days you would directly attribute to the stimulus package in terms of their willingness to move forward right now?

Absolutely. One of them, for instance, the client even in the initial RFP said he had to get this done in 24 months. It has got to be up and running so we can get the maximum stimulus.

And in terms of the prospects you have been talking to who perhaps are delaying decisions at hospitals, do you think it's a function of the credit environment and financing, or how much of a factor is it that you still don't have meaningful use in some of the key criteria established out of DC yet? Is that a factor in the discussions yet or was it purely just a financial issue?

I think most of our clients it's more financial. If you are going to put up an electronic medical record system -- and our clients tend to be the 1,000-plus-bed hospitals -- and it will all be in use in 2011, you had better get going on it now. You just can't put something like that up in a year for a 1,000-bed hospital and a 500-person physician practice.

There definitely was some hesitancy. CHIME, which is an organization of hospitals, had a meeting in April and most of the, probably all the CIOs of all the large hospitals attended it. Their last session was on electronic medical records, and almost every one of these CIOs stayed for that session. There was a five-person panel made up -- one of the people on the panel was a doctor from the Obama administration.

And the panel came right out and said look, guys, I know people are waiting until all the rules are out, etc., but within six months all of the people who are qualified to put up electronic medical records are going to be committed. So unless you start your projects pretty soon and get a commitment as to the people that are going to run it, if you wait six months or a year from now you are going to have to explain to your CIO why you have got to wait until someone else's project is done so you can start yours up.

Okay. Maybe just last question, on the financing side I am curious as to why some of the lenders are willing to step up at this stage. What has changed? Is there anything new as to why maybe the credit markets are certain to loosen up a little bit?

From what I read the credit markets in general are maybe loosening up a little bit from what they were six months to a year ago. The people that we are seeing tended to be entities that have lent for technology projects in the past anyway. I think that they took a hiatus and now they are looking at some of the credits and saying, okay, maybe all not-for-profit hospitals are a risk.

And certainly the smaller ones are riskier than the large ones. But when you look at this hospital, which is 1,000-beds, $1 billion in revenue, and it has got this the foundation attached to it it's not actually a big credit risk. So I think the credit markets are just starting to wake up and realize this is a large opportunity for them.

And the same with physicians practices. You get 450 doctors in a physicians practice that is a huge amount of revenue and future cash flow that you can lend against. And I think that is what they are looking at, the cash flows that larger hospitals and larger physicians practices yield.

Thank you.

[Jason Harris], [Kendall Square Capital].

Just had a couple quick questions. I was reading through your 10-K and the IBM business, you mentioned it was $17.1 million this quarter.

Yes.

And it says in the 10-K you expect it to go to kind of a $36 million annual run rate. Is that right?

I am not sure what you are reading, but I don't ever remember us saying $36 million. We had told people that we expect that to be about 25% of our revenues this year. And obviously 25% of close to $300 million is a lot more than $36 million.

Okay, but there (multiple speakers). They are not making a conscious decision to reduce?

IBM clearly reduced their headcount in the fourth quarter and first quarter of the year. In the second quarter, while we are seeing the impact of losing billable staff that we had billing in the first quarter, really our headcount with IBM remains relatively constant in the second quarter of the year. I think the reductions that they were going to do, they have already made.

So you don't see it going lower than here?

No, I would think 25% to 26% of total revenues is the rate that we are going to have in 2009.

Okay. And then just on the healthcare revenues, can you tell us just sort of what those did sequentially or year-over-year? Were they kind of down with the rest of the business?

Yes, the healthcare revenue in the current quarter was off 30% in total and year-to-date it's off 22%.-

Okay, great. Thank you.

This is Debbie Pawlowski. I will just clarify for Jason on that $36 million, what we are talking about in there is that the amount of billable staff reduced was approximately $36 million in annualized revenue.

Operator, you can go on to the next question.

Rick D'Auteuil, Columbia Management.

So on the electronic medical record side, you go to conferences, you are listening to panels, what do you think the competitors are doing? Obviously 10,000 people out there -- IBM I think is the biggest player -- that can provide these services or this service, and there is this wave coming.

Are they ramping? Can you tell what they are doing? Are they sucking up all the talent that is out there? What are those -- if you are number seven or eight, what are one through five or one through six doing?

In electronic medical records we are probably lower than eight. Now there is no listing, but I suspect we are certainly in the top five. In terms of what the competition is doing, we have heard some of our -- one of our competitors only has begun to train new college graduates, which is something that we are actually in the process of ramping up ourselves.

IBM announced that it would -- IBM Finance would finance $2 billion of electronic medical record projects. So we know exactly what they are doing. Now that includes the hardware obviously, the total projects. I suspect they are doing what we are doing, talking to our customers and lining them up. We are trying to help them get financing.

You are creating -- and I understand maybe the government's number of 200,000 isn't a right number. But even if you cut it in half at 100,000, and I have seen that in your presentations, once the first 10,000 are absorbed with projects that are underway and that on an expedited basis you are looking at 24 months, there is a big void. And college kids are not going to be managing or college grads or recent college grads are not going to be managing the projects going forward. Maybe they will be worker bees for a while, but --.

So I guess something has got to give, either that those deadlines have to give or there has to be an influx. So how do you think it plays out? If people aren't training thousands -- if the competitors or the industry isn't training thousands of people right now, how does it play out then?

At the moment we seem to be able to get as many people as we need. There doesn't seem to be a shortage in the market today, but that is because not many of the projects have started up. In our existing implementations, all of the people are experienced healthcare people so most of them have at least 10 years in the healthcare space of our existing staff.

When we helped to put up eight or nine hospitals in the UK what we did was we flew -- tended to fly a project manager at least and one high-end consultant over per hospital, put the them in the UK for a year or so, and trained people who maybe had been in a hospital environment but hadn't done package implementation. And the more senior people helped and guided junior people through the implementation. That is the first thing that you are going to see.

I think right now people will suck up the resources that are out there, but within six months we think people CHIMEs is right, there won't be -- people like CTG we have trained people to do this for our whole career. We will be training lower level people and probably change our model. Well, not probably, we will definitely change it so that we have less very senior people on an engagement and a broader variety of junior people.

I suspect, though, that the world will reach a point where no one has got enough senior people to be able to start new projects. And those hospitals are going to have to wait. I also suspect that they are going to be the smaller hospitals. That the larger hospitals will be able to get the resources because they will be able to get their funding up quicker.

I saw -- and this was in a government study, I can't remember the name of the study. But it was a US government prediction and even they were predicting that only 70% of hospitals and, I think, 90% of physicians by 2019 would have electronic medical records. So they are also assuming, I guess, the smaller hospitals aren't going to be able to do it.

Okay. And then last year your margins were helped, as I think this piece -- Solutions in general, but probably healthcare was the main driver, became a bigger piece of the pie. I would think that you are anticipating very good margins on these scarce resources.

Yes. And in our industry whenever resources are scarce the margins go up.

Okay. And no reason as you are filling the early assignments to discount that, because you know the wave is coming, right?

That is correct.

Okay. All right, appreciate it. Thanks.

There are no further questions in queue. Please continue.

Since the recession began in the latter half of 2007, CTG has performed significantly better than many companies in and outside of our sector. We have proven ourselves in the past to be very adept at managing our business and our costs in economic downturns. For us the good news in these difficult times is that we have new offerings that we expect will begin adding to our profitability in the second half of the year.

In addition, we are extremely well-positioned to directly benefit from the $19 billion in US federal stimulus package for healthcare IT, which we strongly believe will drive our revenue growth in 2010 and beyond. I am truly looking forward to the fourth quarter of 2009 when we expect that our results will begin to demonstrate the factors that I have discussed and we can again talk about sequential growth in revenue.

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

Ladies and gentlemen, this conference will be available for replay after 11:30 a.m. Eastern today until August 2 at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701 and entering the access code 978257. International participants may dial 1-320-365-3844.

Again, those numbers are 1-800-475-6701. International participants may dial 1-320-365-3844. The access code is 978257.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.