Computer Task Group Inc (CTG) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the CTG second quarter earnings conference call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS.) As a reminder, today's conference is being recorded. I would now like to turn the conference over to your first speaker, Jim Culligan. Please go ahead.

Thank you, Ryan, and good morning, everyone. We certainly appreciate your time and your interest in CTG. On the call today we have CTG's 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 2010 and update you on the Company's strategy and outlook. We'll follow with an opportunity for Q&A. If you don't have the news release discussing our financial results, you can access it at the Company's website, CTG.com.

Before we begin, I 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. 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 those at our website or the SEC's website at SEC.gov. So please review the forward-looking statements in conjunction with these precautionary factors.

With that, I'd like to turn it over to Jim to begin the discussion.

Thanks, Jim, 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, in the second quarter 2010, we are near the high end of our revenue guidance and we are at the midpoint of our guidance for earnings per share. In the second quarter, we added 100 people, or a 3% increase to our staff, bringing our total headcount to 3,200.

We continue to see strong demand for our services, the majority of which is coming from electronic medical record projects and our US staffing business.

I'm going to talk more about our results and what we see for the third quarter and the full year, but first I'm going to ask Brendan to start us off with a review of our financial results. Brendan?

Thanks, Jim. Good morning, everyone. For the second quarter of 2010, CTG's revenue was $81.1 million, an increase of $14.6 million, or 22%, from the second quarter of 2009. On a sequential basis, revenue increased 3.4% compared with the trailing first quarter of 2010.

Solutions revenue in the second quarter of 2010 was $26.3 million--$3.2 million, or 13.8%, higher than last year's second quarter. As a percentage of total revenue, solutions revenue was 32% compared with 35% a year ago. Driven by strong demand in the quarter, staffing revenue increased $11.4 million, or 26.2%, to $54.8 million.

Second quarter revenue from IBM, our largest customer, was $25.6 million compared with $17.1 million in the same period last year. As a percent of total revenue, IBM increased to 31.5% in the 2010 second quarter compared with 25.7% of total revenue in the second quarter of last year.

Revenue from our European operations was $14.4 million, a 4% decrease from the $15 million recorded in last year's second quarter. Despite the fact that the recovery in Europe continues to lag that of the US, excluding the foreign exchange fluctuations, our European revenue in the quarter would have increased 2.7% from last year.

The effect of the fluctuations in the US dollar during the second quarter of 2010 decreased our revenue by approximately $1 million, or 1.3% as compared with the second quarter of 2009.

Second quarter operating income expanded at a greater rate than revenue and was $3.5 million, up almost $1.1 million, or 44%, year over year. Compared with the trailing first quarter of 2010, second quarter operating income also increased by $400,000, or 12.9%. Operating margin in the second quarter expanded to 4.3% of revenue, a 70-basis-point improvement from last year's 3.6%. Our operating margin benefited from an increase in the profitability of solutions projects and the additional operating leverage associated with the higher revenue.

Net income was $1.9 million in the quarter, an increase of 36.6% from $1.4 million in the second quarter of 2009. On a per diluted share basis, net income was $0.12 for the quarter, a 33% increase from second quarter 2009 and a 9% increase from the 2010 first quarter.

SG&A expenses as a percentage of revenue decreased to 17.6% from 18.8% in the second quarter of 2009 and from 17.7% in the trailing first quarter of 2010. The significant improvement from last year reflects the operating leverage from higher revenue and continued discipline in controlling costs. Direct costs as a percentage of revenue were 78.1% in the second quarter compared with 77.5% in the second quarter of 2009 and 78.3% in the trailing first quarter of 2010.

The 2010 second quarter results include equity compensation expense of approximately $0.02 per diluted share net of tax, while the second quarter of 2009 results included approximately $0.01 per diluted share net of tax. The tax rate for the 2010 second quarter was 44.3% compared with 41.8% in the 2009 second quarter.

During the second quarter of 2010, the Company incurred severance expense related to downsizing one of its foreign subsidiaries. We determined that the realizability of the tax benefit of the losses incurred by that subsidiary in 2010 is uncertain. As a result of the uncertainty, we've recorded the full valuation allowance against this taxable loss.

In addition, in 2010, the US federal government has not extended the US federal research and development credit, which had in previous years reduced the Company's effective tax rate. These two factors were the primary reasons that the 2010 second quarter tax rate was above our normal range. We expect the tax rate for the full year 2010 to be between 39% and 41%.

As Jim noted, our headcount has been increasing. We had approximately 3,200 employees at the end of Q2 2010, of which 90% were billable resources, and that's up slightly from 89% last quarter.

On the balance sheet, our days sales outstanding was 57 days at the end of the second quarter of 2010 compared with 58 days at the end of the second quarter of 2009. Our cash generated from operations in the second quarter 2010 was approximately $6.7 million as compared with cash generated from operations of approximately $6.8 million in the second quarter of 2009. We had $538,000 in capital expenditures, approximately half of which focused on solutions development, and we recorded depreciation expense of $406,000 in the quarter.

CTG's financial position remains very strong. At the end of the second quarter of 2010, we had no debt outstanding and $8.6 million of cash on the balance sheet. During the second quarter of 2010, we repurchased approximately 100,000 shares of CTG common stock. During this most recent blackout period prior to releasing our earnings, we repurchased approximately 36,000 shares under our 10b5-1 plan. As of July 27, 2010, a repurchase authorization for approximately 281,000 remaining shares. Because it remains accretive to our earnings and we believe it is a good investment of our cash, we intend to continue our repurchase program during 2010. Jim?

Thanks, Brendan. In aggregate, our solutions business increased by 14% in the second quarter. As we reported on previous calls, the tight credit markets that had negatively impacted demand for our solutions business, particularly in the healthcare provider market, are beginning to show signs of improvement.

In the second quarter of 2010, we received RFPs for four electronic medical record projects, and we've been notified that we've won three of those projects. We expect to hear the outcome of the fourth project that we bid on in the second quarter shortly.

While we should see a little revenue from these projects in the third quarter of 2010, we'll record more revenue from them in the fourth quarter of the year, when the projects have been fully staffed. In the second quarter of 2010, electronic medical record projects accounted for 13% of our total revenue. We've been told by several of our other hospital clients that they expect to issue RFPs for EMR projects in the second half of 2010. As such, we expect to start up more EMR projects as the year progresses.

As we discussed on the last conference call, during the second quarter of 2010, the State of Texas notified us that we had been selected to perform statewide planning for their health information exchanges. This award is funded by the American Recovery and Reinvestment Act of 2009, or ARRA, through the Office of the National Coordinator for Health Information Technology.

We believe it is the first time some of the $19 billion in the stimulus package has been spent. As this first engagement is for planning, it won't have a significant impact on our financials; however, after the planning has been completed, we expect larger implementation projects would follow. That would likely happen starting in the fourth quarter of 2010.

We have three new solutions for the healthcare market that employ data analytics to identify ways to improve the quality and efficiency of healthcare delivery. The first offering is a medical care management model that improves patients' outcomes while lowering cost. We had our first sale of this offering in the first quarter of 2010 and are pursuing additional business.

The second offering is for an actuarial tool for the more accurate underwriting of group medical plans, helping insurers to more equitably price premiums. We made our first sale of this offering in June of 2010 and we're building our sales pipeline for this offering.

The third offering is for the detection of fraud, waste, and abuse, which is estimated to account for 3% to 10% of all healthcare expenditures annually. As the time required to verify results for this offering is significant, we had anticipated this offering would be the last of the three offerings to be sold. We're working with several potential customers for this offering and expect to make the first sale in the second half of 2010. Because the offerings are being sold as software as a service, we'll recognize revenue as we deliver those services to customers over the term of the contracts.

I talked about our healthcare vertical, and before I talk about our staffing business, I'd like to give you a brief update on demand in the other three vertical markets we are focused on. Demand from the technology service provider market has been very strong during the first six months of 2010, and right now we expect that demand will remain strong for the rest of the year.

We would depict our financial services business as stable, and we're not expecting it to continue for the rest of the year. As to our energy business, demand was weak during in the second quarter of the year, and we suspect that trend will continue throughout 2010.

Turning to our staffing business, it increased by 26% in the second quarter of 2010 compared with the second quarter of 2009. We expect we'll continue to see strong demand for staffing throughout 2010.

So you can tell from our income statement, we are still being very disciplined about our spending in 2010, as one of our objectives is to increase our operating margins from the 3.6% return on revenue that we saw in 2009 to the 4.1% return that we're using as the midpoint of our current guidance. We'll continue that strict financial discipline to support further margin improvement throughout the year.

Normally, we would forecast that revenue in our third quarter of a year will decline from the revenue recorded in the second quarter of the year. The decline is caused by the fact that there are normally 63 billing days in the third quarter versus 64 billing days in the second quarter. The one-day reduction in billable sales equates to a loss of about $1.3 million of revenue.

In addition, as our billable staff takes more vacation in the third quarter of the year than in the second, our revenue generally declines by approximately 3% as those vacation days are taken. However, given the strong demand for staffing in EMR projects, this year we're forecasting a modest sequential increase in revenue in the third quarter when compared to the second quarter.

Currently, we're forecasting revenue in the third quarter of 2010 to be in the range of $81 million to $83 million, or an increase in the midpoint of our guidance over last year's third quarter of 23%. We're forecasting earnings per share in the third quarter of 2010 to be in the range of $0.11 to $0.13 per diluted share, or an increase in the midpoint of our guidance of 20% over the third quarter of last year.

Looking at the full year based upon the strong demand in our staffing and healthcare businesses, we have increased our expected 2010 revenue range to $320 million to $328 million, or an increase in the midpoint of our guidance of 18% over 2009.

As was mentioned in the earnings release, our 2010 earnings guidance has been affected by the reduction in demand we're experiencing from a large client served by our energy practice. But we increased our revenue guidance primarily as a result of an increase in demand for our lower-margin staffing business. The energy reductions are for our higher-margin solutions business. Based upon these changes, we now expect that income per diluted share in 2010 will be in the range of $0.45 to $0.51, or a 26% increase from 2009 at the midpoint of our guidance.

Despite the slowdown in our energy vertical, when you compare CTG to companies in and outside of our industry, all indications are that CTG is going to have a very good year in 2010, with a return to double-digit growth in revenue and profit and a further expansion of our operating margins. Importantly, well beyond this year, we have established ourselves as IT solution experts for the healthcare industry, and we believe the solutions that we've introduced will have a lasting effect on our future growth.

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

Sorry. I had my mute button on. (OPERATOR INSTRUCTIONS.) Our first question comes from the line of Rick D'Auteuil with Columbia Management. Please go ahead.

Hi, Jim and Brendan.

Good morning, Rick.

Good morning, Rick.

Just, I want to go through a couple of things. So a quarter ago, it sounded like you thought the RFP potential pipeline was comparable to what you had already signed, something like eight. You talked about four in this quarter, three wins and one still pending, right?

Yes.

What happened to the other four? And then maybe if you can update us on the pipeline?

The hospitals are just coming out with them slower than we had anticipated. We had clients telling us that they were getting ready for an RFP because a lot of people in the hospitals have to sign off on it, particularly in this area. The Chief Medical Officer, obviously, has to sign off on it because it's his area that we're impacting. The CIO, obviously, does. And in the current market, the CFO does, because he's got to finance it.

We got four in the second quarter. We actually received one about the first week of July, so we got one in the month of July. And we still have those same clients telling us that they're getting ready to issue an RFP. They just haven't come out yet.

Okay, so the other three or four are still pending?

Yes.

Okay. And is it building? Are there others that are going into the potential RFP phase?

We think so. A couple of things have happened. One, of course, the quarter markets are getting better, and that's encouraging. The other thing that happened on July 13, the federal government had a press conference and discussed what the final meaningful use criterions were really going to be. So a lot of the CIOs were holding behind, "I don't want to get started, because I don't know what we have to do." We've kind of lost that, and I think they're getting pressures to begin.

We actually think--we, from the very beginning, said that 2010, we'd expect to get some RFPs, but it wasn't going to be our best year in terms of electronic medical records. We thought that probably 2011, it really would pick up, probably 12, 13, or 14 of them would be the peak of the work.

We right now think that we'll probably see a meaningful change in demand starting in the fourth quarter of this year through maybe the end of the second quarter of next year. But we're getting to the tipping point where there just aren't many reasons for people not to start anymore.

And the resources for staffing that are pretty much fully deployed, so you'd need to go out and train and hire from there?

We think so. Right now, on the projects that we're starting up, it looks like we're going to be able to get resources to be able to do it with experience. But that pool of resources is drying up every month, and we believe certainly by next year we're going to get to the point where if we don't train them up, we're not going to have enough people to start up an engagement.

We have done a little of that this year. We did 20 for one particular project. But we think we're going to do a lot more of that next year.

And are you running--you talked at last quarter, I think a little bit about bench time, just preparing for these projects that you're winning. What is the current bench?

It isn't too bad, but it is running a little bit more than they normally would. If we find a resource out there that we think is good, we absolutely hire them right now. We put them on the bench because we know in a couple of months they'll be utilized.

Okay. On the Texas project, how do you expect that to ramp, and you were one of several that was selected, right?

No, we were the only one selected to do that work. I think there were 40 different companies that had submitted bids for it, but we're the only company at the moment that's doing the planning for the HIEs in Texas.

What will happen is, there's a series already of HIEs in Texas, so this is the state doing planning , kind of getting, "This is how the State's going to handle certain aspects." There's the sustainability model, governance model, things like that. Once that's been established, then we think that most likely the State will allocate the rest of the money that they received from the federal government directly to the HIEs, and then the HIEs would be able to engage companies to help them do their EMR work. We think that will probably happen in the fourth quarter. We'll be done with the planning stage by certainly the end of September.

Will you be the only outsource firm for the implementation phase, too?

No. The HIEs will make up their decision separately, so each one of them will select from the dealer. But because we're the only firm working with them now on what the governance should be, et cetera, we think that that puts us in a very good position to win some of the implementation.

Okay. On the actuarial win that you got this quarter, how is that being priced? And is that an SAS model, too, or how is that, how is revenue being recognized there?

It is definitely an SAS model, so it will be recognized over the term of the contracts, which are generally terms of years with the payers. It's really being priced based upon the value it adds for the payer. This is typical of the whole software industry. You sell the first one, you've got the full amortization. You're not going to make a lot of money. Once we get beyond the first one, though, the rest of them have very high direct profit margins.

And is there a pipeline or--?

Yes, absolutely.

You said you're staffing up the selling staff for that?

Yes. We have staffed it up, but we're going to increase the staff, I think, in that particular area because at the moment the demand is pretty significant.

Okay. Can you give me any sense? Are these six figures or seven-figure kind of deals?

No, they would be three-figure kind of deals. Most of them will probably be between $250,000 probably, at the low end, and maybe $1 million at the high end.

Okay, so that's not three figures, but, so it's hundreds of thousands to $1 million?

That's correct.

Okay. I thought you were talking three figures, hundreds of dollars, and I thought, "Uh-oh." And the fraud, waste, and abuse--is there a pipeline there of opportunity? I know it's a longer sales cycle.

Yes, absolutely. There's definitely a pipeline, and we're actually running betas with a few customers to show them what the results would be.

Okay. I'll step back and let others in now, and I'll chime back in.

Okay. Thanks, Rick.

The next question comes from the line of Bill Sutherland with Boenning and Scattergood. Please go ahead.

Good morning.

Hi.

Hi, Jim, thanks. Can you give us a little color on Europe, directionally, on what you think is going to be happening there for you?

Yes. The main countries that we're in in Europe are Belgium, Luxembourg, and the UK. That's where we derive most of our revenues from. Belgium by far is the largest of those three. We are definitely starting to see an increase in demand in Belgium. It seems to have recovered more than the other two countries. Part of the reason for that is Belgium is the new headquarters for the European Union, so government, and they're opening new ministries. And therefore, there's a demand being caused just by the EU's new presence and the new ministries that they're establishing.

Luxembourg is predominantly a banking and government business. It's certainly leveled out, and it's getting a little bit better, not as good as Belgium. And we think the UK market will probably be pretty flat for a while until their economic and political issues there are solved.

Is UK principally healthcare? It was in the past, but--.

Yes, there is quite a bit of, if you look at it as a percent of their total, of healthcare in the UK, it was actually much larger when the [unit test] project was starting. Unfortunately, their project has slowed down immensely, and now the government is talking about totally changing the way that the NHS is even funded. They're doing away with the centralized command system and going to letting the trusts make much more decisions.

That would actually be very good for us, because we have relationships with some of those trusts, and that would help us a lot.

So for now, there's just (inaudible)?

No.

Okay. In the staffing and technology services area, are you--you had a 26% quarter. Can you speak to the pace as you look forward, and to as great (inaudible) your largest client that's driving it, et cetera?

Certainly, a lot of the demand is coming from IBM, our largest client. There's no doubt about that. We continue to see strong demand at the moment from all the technology service providers. Right now, we're still expecting that we'll probably add about 100 people a quarter for the next couple of quarters, the third quarter and the fourth quarter of the year. And most of that's coming out of the staffing business, particularly technology service providers and the EMR implementation.

Okay. One little number question on days. Q4 has got 62 again this year?

Yes, it is 62.

Okay. So I noticed that using midpoint for the full year, it looks like it's in line with--we're at the half on Q3--so I guess that just speaks to the momentum you're seeing?

Yes, it does.

Okay. On Texas, so once we get past the planning phase, do they move into implementation? Can you give us a sense of the scope of that and what you all might be involved with?

At the moment, it's pretty undefined, but there already are at least six HIEs that are established in the state of Texas that are already legal entities and exist and are doing something. It's quite possible, based upon the study, that more HIEs are going to be required. We haven't reached that point yet.

If the Texas state government allocates the rest of the money they got from the ARRA funding, each one of those HIEs would begin to work on their own projects. Often, the HIEs--and New York is probably the most mature model that's in the country. So in New York you have things like community-wide electronic prescriptions, some of them farther advanced, particularly the one that we're dealing with already has EMR capabilities. They're working on putting, for the smaller physicians' practices, EMR capabilities in where they're the software-as-a-service provider. So you'd expect to start to see those kind of projects.

The biggest thing that has to happen first, because there is no definition of what a medical record should look like, you have to get the entire community to agree on, "This is what the record's going to look like when it's transferred." That might seem easy, but since all the hospitals probably have defined theirs differently, you've got to get people to change what they're doing. And, of course, everyone thinks that their definition is the best.

So it does take a tremendous amount of consulting time to do that. And in New York, we did quite a bit of that to get communities to say, "Okay, this is what the record's going to look like when it's transferred." That would probably be one of the first initiatives that we would bid on, because we've got a lot of experience in that area, and as I said, it does take a lot of time.

That would not be issued at the HIE level, though, right? That would be at the state?

It could be at the state. No state has done that yet. Under the current model, it's done at a community level. So even when you go to New York State, each community that's working on EMRs has a different definition.

So can you use New York as a template for the possibilities here in Texas for you?

It's possible. Of course, it depends largely on how many of the individual HIEs we actually win. For the entire EMR of, let's say, 1 million population city, because it does vary totally, you're probably looking at upwards of $40 million to $50 million in total.

What the HIE does--first, the HIE doesn't actually control the definitions. The HIE is usually the entity that is most involved in creating, "What is the definition going to be?" In many of the communities in New York, the HIE enters, functions really as kind of the center hub. Everybody transmits their data into the HIE's network, and it disperses it to the hospitals as needed.

This is not, it's not a one-year project. It does start from zero, and to get finished, it's probably at least three to four years. The HIE that we've been working on, for instance, in New York State has been working on it for two years, and they've still got a ways to go before they're going to be completed.

But at least there, they've already hooked up to a larger hospital, so they're starting to transfer some of their data between them.

I don't want to draw this out too long on a call like this, but are the HIEs pressed in any way, any way that the hospitals have reimbursement and penalty looming?

No, they're not, but they have a different problem. There is not one universal HIE sustainability model that's out there. At the moment, a New York State HIE has benefited from the fact that in April in 2008, New York granted $100 million to the HIEs in New York so they could start their project. And because New York has a HEAL grant process, many of the HIEs have received HEAL grants on top of that.

But the question is, what is going to be the funding source long term for the HIEs? One possibility is the states will support them. That's possible, but as you know, many of the states are in financial crisis and that might be a little bit difficult to get through. Another one that I think has a lot of viability is that you charge a transaction fee, that entities transferring data, or probably the one receiving the data, would actually pay a very small fee per transaction on everything that they received.

If you think about it, ultimately, the payer or Medicaid or Medicare will probably pay for most of this. But if you think about it, if the federal government's right and by having community-wide electronic medical record, the implications, you really can save $200 billion to $300 billion a year, mostly in eliminating the duplication of testing. If you're a receiving hospital or the payer who has to pay for it, and because you pay a few cents to get the X-ray from another hospital instead of rerunning the test, you'd be glad to pay that.

Sure. Last one. Any other states that you're expecting to respond to as far as another planning opportunity?

I don't know if the planning will come, but we have one other state. We targeted, really, the largest five states, let's say, and then later dwindled it to three. It's really a capacity issue. There aren't that many people that we think are qualified that we can employ in order to work on the states. And obviously, the larger states in terms of population will do more of this work. So we targeted the five largest states. We targeted three of the states, and we're still in the solicitation phase, but we're well along with the third state.

Okay. Thanks, Jim.

Thank you.

We do have a follow-up question that comes from the line of Rick D'Auteuil, Columbia Management. Please go ahead.

Yes, just a few more. So in your guidance, if you were to look at the midpoint for the year, what's the implied operating margin? 4.5% or so?

No, it's 4.1%.

Oh, only 4.1%. And that's due to mix, Jim?

It is definitely due to mix.

Okay. So are you thinking that the end of the year, we will not see an increase in solution, might even see a decrease in the solution mix?

We think, our best estimate at the moment is that 69% of our revenue this year will come from the staffing business and 31% from the solutions business. And it's not that the solutions business isn't growing, it's that the staffing business, because they're catching up, they're replacing the people that they eliminated last year because of the global recession, it's so strong this year. Next year, in 2011, we think it will flip, and then the solutions business will be growing at a faster rate than staffing.

In your written language in the release, you say staffing is expected to level off in 2011. I don't think you mean zero percent growth, but what growth rate do you expect?

We're thinking that next year the staffing business is probably going to grow maybe 8% to 10%, so it won't grow double digit. But we think with the solutions business growing, that we have a good shot at growing double digit, though, next year in total.

In the provider market, that's where it's pretty clear that's where you're seeing the most success so far in the healthcare area, and less so on the payer side. Are the large medical practices, are you seeing a pipeline of RFPs there, too? Or they are slower to go out to seek a solution?

They're definitely slower. The hospitals, we think, will come first. We are doing 12 projects, and that doesn't include the three we're just about to start up, but one of those is a large physicians' practice. But they are slower.

Part of that is the amount of time that it takes to implement, we think, because a physicians' practice, a 500-person physicians' practice, which is a relatively large practice, can probably do EMR in 18 months, where a 1,000-bed hospital, you're looking at two years to maybe three years to do it.

Okay. And then you mentioned in the release the reason for some of the reduction in earnings, even though the guidance in revenues is higher, was related to an energy company. And I went back through your release and found some of the companies you did business with in a prior presentation, and there's--obviously, BP is in the press lately. And I know you can't speak specifically to it, but is there an opportunity that you think that down the road that business comes back and maybe, are you still doing business with that customer, or what can you say about that specifically?

I can't identify who the customer is, for obvious reasons. BP is actually the largest customer in our energy practice. The reason for the cutback has absolutely nothing to do with CTG. They told us they had, it's a business problem the company has which is temporarily causing them to reduce their spend on IT capital and even some other areas. And at some point, we think that they'll go back to more normal, which is what we were experiencing in the first quarter. We just don't know when that will happen.

All right. How about the opportunity to redeploy the talent there?

We are working on that. The assumption at the moment that we have is that we're going to only be able to redeploy a certain percentage of the people that we have, but the other companies in energy are not cutting back, and we have good people--very good people--and usually if you have a very good person, you can place them somewhere else.

So in your remarks on the various niches of, or verticals in your solution side of the business, you mentioned energy is weak. That really just pertains to this one customer?

Yes, it's just the one customer that's been--.

Okay. Okay. Okay, thank you.

Thank you.

At this time, we have no further questions in queue.

And thank you. Looking forward, we expect the strong demand that we saw in the last four quarters for our staffing business in the US will continue in the second half of 2010 as many businesses continue to outsource their needs rather than hire internally, given the uncertainty of the global economy.

On the solutions side of the business, clearly the largest opportunity for us over the next several years will be in electronic medical record work. With the US federal government beginning to spend some of the $19 billion in the stimulus package for EMRs and with the credit market slowly improving, we expect our EMR business will build as time goes on.

Given the magnitude of creating electronic medical records for everyone in the US, we believe the electronic medical record work will most likely drive our solutions business for the next three to five years. Couple the EMR work with the additional profitability from our new offerings, and you can see why we're very excited about the future for CTG. We believe our strategy and our ability to execute it well provides us with strong growth prospects for the foreseeable future.

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

And ladies and gentlemen, that does conclude our conference for today. I want to thank you for your participation and for using the AT&T executive teleconference. You may now disconnect.