Information Services Group Inc (III) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to the Information Services Group third quarter 2008 earnings results conference call. Today's call is being recorded. For opening remarks, I'd like to turn the conference over to Mr. Barry Holt. Please go ahead, sir.

Hello. My name is Barry Holt. I lead communications for Information Services Group. I'd like to wish you all a good afternoon and welcome everyone to I.S.G.'s third quarter and year-to-date 2008 earnings conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Frank Martell, Executive Vice President and Chief Financial Officer. Before we begin I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements, which represent the current expectations and beliefs of the management of I.S.G. concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated.

For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our form 8(K) filed yesterday, November 10th, and the risk factor section in I.S.G.'s Form 10(Q) covering third quarter results, which will be filed Thursday, November 13th. You should also read the I.S.G. annual report on Form 10(K) for the fiscal year ending December 31, 2007, and any other relevant documents, including any amendments or supplements to these documents which have been filed with the SEC when they become available. You will be able to obtain free copies of any, of I.S.G.'s SEC filings on the SEC website, www.sec.gov. I.S.G. undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances.

For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please use our current report on form 8(K) filed yesterday, November 10th. You'll have an opportunity at the end of the presentation to ask questions. Now I would like to turn the call over to Michael Connors, who will be followed by Frank Martell. Mike?

Thank you, Barry, and good afternoon to everyone. Today Frank Martell and I will recap I.S.G.'s third quarter and year-to-date 2008 results and outline the important progress from both a business and a financial perspective that I.S.G. has made during the first nine months of this year. It goes without saying that the United States and increasingly the rest of the world is experiencing one of the most dramatic economic downshifts in at least two generations. This situation is unprecedented and still rapidly unfolding with recessionary pressures cascading across geographic borders and into almost every industry vertical. As we discussed on our previous two earnings calls this year, we have been monitoring the potential impacts of the unfolding turmoil in our businesses. We will continue to do so in the days and the months ahead.

Importantly, we remain focused on profitable revenue growth in our core businesses, reinvesting in new products and services, and achieving cost productivity and best in class operating metrics. These efforts are central to achieving our longer term strategic plan. And we are making great progress. Most companies in this environment are looking to reduce costs and improve their bottom-line. I.S.G. and our sourcing information and expertise is in the sweet spot of companies today. We have a solid pipeline and a lot of strategy and assessment work ongoing. But decision making in the United States to pull the trigger to go to the next step, a major sourcing transaction, has been slowed. But we believe many of those decisions will in fact be made because the ROI is compelling. I.S.G. delivered higher margins and outstanding liquidity levels during the quarter.

Strong international revenue growth, aggressive management of our costs and an intense focus on our operating productivity funded continued significant investments in new products and services, including the newly announced T.P.I. Momentum business units and T.P.I. governance services, which we announced just a few weeks ago. These new service offerings, as well as continued investments in geographic expansion in our existing core business, will support sustainable organic growth and further our margin improvements. We believe that I.S.G.'s global leadership and our geographic footprint have positioned us to manage through the current economic downturn and support our client needs to drive improvements in their key technology and business operations. For the nine months of this year we achieved record levels of revenues, operating income and EBITDA, as we continue to help our clients become more efficient and competitive.

Compared to prior year revenues in the first nine months of 2008 were up 6%. Third quarter revenues contracted 6%, as an 11% jump in international revenues partially offset a contraction in the Americas as many current and perspective clients paused their sourcing decisions in the face of economic uncertainty. Our year-to-date and third quarter EBITDA rose 44% and 1% respectively. I.S.G.'s operating income increased 82% for the first nine months and 3% in the third quarter. Year-to-date diluted cash earnings per share has jumped almost threefold. As I have stated to you previously, our vision is to build a world class industry leading information based services Company. A key to achieving our vision is sustained best in class margins. We committed to you to improve on the 2007 EBITDA margins of just under 12% and we are delivering. We are focusing and rewarding the organization on profitable, higher margin business that we believe the premium T.P.I. brand can support.

In addition over the past nine months, we have been successfully introducing leverage into our workforce and reducing underutilized advisors. We have reviewed our pricing practices and are realizing a higher percentage of our targeted billing rates so far in 2008. Finally, we continue to drive productivity in our sales, general and administrative costs, which are falling as a percentage of our revenue. Over the past nine months I.S.G. has continued to expand our industry vertical penetration and expertise. We invested in a dedicated industry vertical sales and service team in the U.S. this year and plan to expand this approach into Europe during 2009. Globally we recorded increased revenues year-to-date in manufacturing, media, telecom, healthcare, the public sector, consumer and business services. Year-to-date revenues have declined in the Financial Services vertical compared to the same period last year.

From a geographic perspective our Europe, Middle East and Africa, or EMEA region, and Asia Pacific had outstanding growth in the third quarter and the first nine months of this year. The sourcing market in these regions has been strong and our global market leadership allows us to capitalize on this strong client demand. Over the past nine months we expanded our geographic reach by penetrating deeper into southeast Asia and continued our push into Europe to take advantage of the organic growth opportunities. For the first nine months, these regions grew 22% year on year and contributed 45% of I.S.G.'s total revenues up from 39% in 2007. We continue to be the strong market leader in Europe. We have been involved in the most significant client ITO engagements in the region over the past nine months. Most recently we secured very significant engagements with the Bank of Ireland, Deutsche Post, Zurich Insurance, British Petroleum, S.A.B. Miller, the Morley Fund and Volkswagen, to name just a few.

I.S.G. continues to see strong demand for IT and BPO advisory services in the U.K., Germany and the Nordic countries, where we are very strong. In Asia Pacific we secured the largest engagement in the region's history, with the Australia Tax Office to provide ITO assessment and sourcing advisory services. We also secured important new business in the quarter in southeast Asia and Japan. In the Americas region revenues eased 4% during the first nine months of '08. In the third quarter revenues were down 18% compared with 2007 levels. Companies in the U.S. have been tending to defer sourcing decisions over the past few months, as they assessed the macroeconomic conditions and its related implications. In 2008 we have made important progress in diversifying our revenue streams beyond our traditional strength in manufacturing and Financial Services into additional industry verticals where demand for sourcing is emerging.

We also have developed and launched new products and services. In late September, we formally launched T.P.I. Momentum, a new distinct business unit dedicated to providing information and insights to outsourcing and offshoring service providers to help them provide enhanced services to their sourcing clients. Initial indications of interest from the service providers have been very encouraging. In addition, as we discussed on our last earnings call, we continue to expand the scope of our new governance services business, which is focused on helping our clients to mediate cost leakage and achieve the quality and performance service levels contemplated under their service provider agreements. With over 2700 active sourcing arrangements around the globe, post code contract management and governance for T.P.I. is expected to be an area of predictable revenue growth as we move into next year and beyond.

The T.P.I. index continues to be the authoritative voice on the sourcing industries key developments and trends. Our data shows that the industry slowed in the third quarter after a very strong run from the fourth quarter of 2007 through the second quarter of 2008. Based on the results of our third quarter T.P.I. index, there were 128 commercial contract awards valued at $25 million or greater during this quarter. That was an 11% drop from the third quarter of a year ago. The total contract value, or T.C.V. associated with awards closed during the quarter was $14.4 billion down 7%. The T.C.V. associated with sourcing deals closed, however, in the first nine months totaled almost $66 billion. That was up 20% from last year, which translates to an A.C.V. of approximately $13 billion. In summary, I.S.G. remains focused on delivering profitable growth and expanding our margins. In the face of extremely challenging and volatile economic times, we have diversified our revenues into a greater number of industrial verticals.

We have launched two important new service offerings. We are growing our international operations in double digits. We are expanding our margins and we have achieved record levels of liquidity. We continue to execute against our 2008 business plan, as well as our longer range strategic plan. We believe that we are well-positioned to provide our clients with must have advisory and data services to help them improve their operations and navigate through this current economic cycle. As we move forward we will continue to watch the global uncertainty and client decision making, but we have a global footprint and we are taking advantage of the growth opportunities that are at hand while managing through this environment. I will now turn the call over to my partner, Frank Martell, who will summarize I.S.G.'s financial results for the third quarter and the first half of '08.

Thanks, Mike, and good afternoon, everyone. I.S.G. completed the acquisition of T.P.I. on November 16, 2007. For the periods prior to the acquisition of T.P.I., I.S.G. was a special purpose acquisition Company and therefore had no operations. To facilitate a full analysis of our financial performance I.S.G. has presented GAAP financial results, as well as certain non-GAAP financial information in our earnings release. To ensure appropriate comparability between 2008 and 2007, pro forma results have been prepared for the third quarter and first nine months of 2007 on the basis that the acquisition of T.P.I. had occurred on January 1, 2007. I will focus primarily on I.S.G.'s pro forma results this afternoon. As Mike mentioned, I.S.G. has not been immune from the unprecedented financial and economic turmoil that has gripped the U.S. since the latter half of 2007.

After a relatively strong growth in the first quarter, 7%, revenue trends in our Americas region have been progressively easing over the past six months. Partially offsetting this trend in the Americas, we have continued to grow at double-digit rates in our Europe, Middle East, Africa and Asia Pacific regions, buoyed by underlying strong market demand for our advisory services. Importantly we've been able to significantly increase profitability levels during 2008 through an aggressive drive for operating efficiencies. We've improved price realization, enhanced utilization and the leverage of our billable resources and we've carefully managed our SG&A spending levels. This has allowed to us generate record profitabilities and cash flow. Increased profitability has also allowed us to continue to reinvest significantly in the core business and we believe this will generate significant future profitable revenue growth.

I.S.G. reported revenues of $41.1 million during the third quarter of 2008. This total was $2.8 million lower than the $43.9 million revenues we reported in the third quarter of last year. Fee revenues for the quarter, or revenues before client reimbursable expenses, decreased 5.8% year on year to $37.9 million. Revenues from international operations were up 11.4% during the third quarter fueled by demand for IT strategy and assessments and contract negotiations services in western Europe and Asia Pacific. Third quarter 2008 revenues in the Americas were down 18.2% year on year, primarily due to current and prospective clients deferring sourcing decisions in the face of difficult macroeconomic outlooks. I.S.G.'s reported revenues of $137.4 million during the first nine months of 2008 compared with $129.5 million in 2007, this was an increase of $7.9 million or 6.1%. Fee revenues increased 6.5% year on year to $126.4 million.

The increase in I.S.G.'s top-line during the first nine months of 2008 were primarily attributable to a 22% jump in revenues from international operations driven by strong client demand across all the Company's major geographies and industry verticals. After growing 3.2% during the first six months of 2008, first nine months revenues in the Americas was down 4% compared with the same prior year period, due primarily to current and prospective clients deferring sourcing decisions during the third quarter of this year. I.S.G. ended the third quarter with 227 active client engagements, up 18% from 192 for the same prior year period. Year-to-date I.S.G.'s worked with a total -- worked on a total of 549 client engagements, up 17% from last year. Consistent with past years, approximately 77% of our year-to-date engagements are coming from existing or former clients demonstrating the continued high level of client satisfaction and loyalty with T.P.I. services.

In terms of profitability and margin rates, the third quarter and first nine months of this year I.S.G. increased EBITDA and operating income at rates significantly in excess of revenue growth as we drive for our stated goal of best in class economics. For the third quarter of 2008, earnings before interest, taxes, depreciation, amortization or EBITDA, which is a non-GAAP measure, totaled $6.4 million, an increase of approximately 1% from the third quarter of 2007. EBITDA margins, when expressed as a percentage of fee revenues, increased 108 basis points to 16.9% in the third quarter of 2008 from 2007 pro forma levels. EBITDA for the first nine months of 2008 totaled $21.5 million, an increase of 44% or $6.6 million from pro forma nine months 2007 EBITDA of $14.9 million. Year-to-date EBITDA margins increased 445 basis points to 17% from 12.5% in 2007.

Trailing 12 months EBITDA at September 30, 2008, totaled $26.8 million, including non-cash stock-based compensation of $1.8 million. Operating income for the third quarter of 2008 was up 3% from 2007 levels, and operating income for the first nine months of 2008 was $13.3 million, a $6 million or 82% jump from 2007 levels which equaled $7.3 million. I.S.G. increased both operating income and EBITDA during the third quarter of this year on the strength of double-digit international revenue growth, higher gross margins and selling and general administrative expense productivity, which collectively offset the impact of lower revenues in the Americas, the introduction of non-cash based stock compensation in 2008, which had no 2007 counterpart, as well as higher public Company related expenses.

Diluted cash earnings per share for the third quarter totaled $0.13 compared with $0.08 for the third quarter of 2007. This 69% increase was principally attributable to higher international revenues, improved profit margins, and the impact of I.S.G.'s ongoing share repurchase program offset partially by lower revenues in the Americas and higher income taxes. Diluted EPS for the first nine months of 2008 aggregated $0.45 compared with pro forma diluted cash EPS of $0.16 for the comparable 2007 period. The almost threefold increase in year-to-date diluted cash EPS was principally due to higher revenues and gross margins, as well as the favorable impact of I.S.G.'s share repurchase program, partially offset by higher public Company costs and income taxes. Trailing 12 month diluted cash earnings per share at September 30, 2008, totaled $0.51.

Pro forma cash earnings, which are defined as net income plus non-cash amortization of intangible assets and stock based compensation, is a non-GAAP measure, which I.S.G. believes provides useful information to our investors by excluding certain non-cash expenses, which are not indicative of I.S.G.'s core operations. Finally, I.S.G. continued to improve its already strong liquidity position in the support of our strategic plan. I.S.G.'s cash and cash equivalents aggregated $57 million at September 30, 2008, an increase of $8.5 million from June 30, and $9.8 million from year-end 2007. These increases were principally attributable to improved operating results partially offset by capital expenditures, onetime V.C. P. related severance, term loan interest and principal repayments, and the repurchases of I.S.G. securities. I.S.G.'s total outstanding debt at September 30, 2008, totaled $94.3 million.

For the first nine months of this year I.S.G. repurchased almost 2.6 million warrants and 158,000 common shares for $2.3 million as part of its ongoing share repurchase program. As Mike mentioned earlier, I.S.G. remains focused on investing in profitable future revenue growth and on transforming our cost base into a more flexible and leveraged model with higher utilization rates, enhanced price realization and tight management of SG&A spending. Over the past 12 months we've implemented a strong and cohesive management structure and launched several important new products and services. We proactively and aggressively drove higher cost efficiency and productivity into the business and have substantially improved our cash and liquidity levels. The continuing execution of our strategic business plan remains our number one priority. Thanks for your time today. I'll now turn the podium back over to Mike, who will share some concluding remarks before we go to questions and answers.

Thank you, Frank. I.S.G. delivered solid revenue growth with record margins for the first nine months of this year. And despite a pause in the third quarter, the overall sourcing market has grown at a pretty strong pace over the past number of quarters, particularly in Europe. Our global market leadership and geographic footprint, we believe, have positioned us to support our clients needs to drive efficiencies in their key technology and business processes in the face of this economic turmoil. Our business model has been reshaped in just three full quarters as a public Company. We are focused on profitable growth. Our EBITDA margins are up over four percentage points. Our reported EBITDA has exceeded all of last year in only nine months. We remain the market leader and we are getting stronger. When companies are considering sourcing strategies, we are there.

We remain on track to reach our objective of building a high growth industry leading information based services Company. Our focus will remain on profitable revenue growth and achieving our best in class performance levels, yielding significant margin improvements, and continuing to support an increased level of investments in new products and services, which we believe will underpin our continued organic growth and the achievement of our business plan goals. Thanks very much for calling in this afternoon, and now let me turn the session over to the operator for any questions that you may have for Frank or I.

(OPERATOR INSTRUCTIONS) We will take our first question from Tim Fox with Deutsche Bank.

Hi, thank you. Good afternoon, guys. How are you?

Good, good afternoon, Tim.

Mike, I was wondering if we could just talk a little bit about the Americas. Obviously you guys did a very nice job executing on margins and EPS growth here despite the pause and the significant slowdown, I guess, that we are seeing here in the Americas. Was there anything from a vertical perspective that stood out outside of say Financial Services that caused the slowdown? Any particular vertical that was weaker than others?

No, I think, Tim, what we saw certainly Financial Services a bit and certainly in this quarter, I think what we are seeing is our strategy and assessment work, which is normally what we come in to do initially to layout a business case, to understand the financials, to understand what type of ROI they might do if they were to proceed to either a shared service arrangement or some combination of outsourcing or offshoring. What we are seeing is that there was, with all the turmoil in September, late August, September and now kind of early into October, I think many clients were kind of freezing in the headlights and trying to hold off trying to decide whether to go to the next step, which normally is the transaction step. And I think our belief is the business cases are pretty strong. It delivers increased earnings per share for these clients.

So it's not a matter, from our sense, that they will decide or not decide to proceed. I think it's a matter of when they will proceed, because any time you do so you add a little bit of risk because you go through a major transformation, but you get all the goodies on the earnings per share at the other side of it. I would say that was the underlying theme, more so than a specific vertical other than Financial Services, Tim.

And just to follow-up on that. Has there been any, any change at all in behavior in the first six weeks of this quarter that you can speak to, whether it be continuing deer in the headlight or maybe some slight improvement at least in the trajectory of those decisions?

Tim, this is Frank. I think we have actually we've seen some activity level pick up. I think it's early days, but clearly the last kind of four to six weeks have been more active than the August, September, early October timeframe.

Okay. And just one last on the macro, we heard that you delivered again nicely in EMEA. Just wondering if the spill-over from the Americas has started to bleed over into any parts of your areas of strength outside the U.S. at this point as the contagion, as it were, spread a little bit.

Tim, we don't see it at the moment. We are very cautious. Clearly the U.K. is in a recession. The economies are not thrilling over there. But one of the things we are seeing is that the adaption, the adoption rate of sourcing strategies continues to pick up steam in the international markets, especially in Europe. So we are clearly watching it, but we've seen no signs of let up. But we are cautious with recessionary times, people may take a little longer to make decisions or they want you to spend more time doing the assessment, those kind of thing. Though we haven't seen it, we are certainly cognizant of it and sensitive to it, but we haven't seen it yet.

Okay, great. I will jump out and hop back in queue.

Okay, Tim. Thanks very much.

(OPERATOR INSTRUCTIONS) We will go next to Brandon Dobell with William Blair.

Hi, guys, thanks. A couple of quick ones for you. Any difference in behavior from your, let's call it existing customers, those you've had longer standing relationships with compared to new prospects or is it just pretty much deer in the headlights across the customer base.

I don't think we would differentiate between the two. About 77% of our business this year has been from existing clients or referrals. And the new clients that we are bringing on board, again, I don't think there would be much difference between the two, Brandon.

Okay. I was going to ask you if you saw kind of continued malaise in decision making through Q4 and Q1, how that would impact your thought process in the cost structure, but it sounds like that may not be the most appropriate question. But, I guess, I will still going to ask it in a different way, which is do you think you got -- obviously there is always kind of room to tweak around the edges, but do you think for the current business environment you got is the right level of customer facing professionals. Do you think there's a lot you can do on the cost structure side if we take kind of the downside scenario where things A, are kind of fits and starts for three or six months, how do we think about your philosophy currently relative to the cost structure and how willing you are to protect the margin in the face of what could be over cost cutting if the market starts to turn around for you.

Good question. Let me tell you kind of our view here and let Frank jump in as well. We were going to continue to invest. We think that continuing to expand our industry vertical expertise is smart. We put that sales and service team in place this year in the U.S. We are going to expand it. And in fact we are in the hiring mode to do so.

Okay.

We are also going to expand that over into Europe in 2009, which will be new. We think the model is working. We think that our expertise and the nuances associated with certain industry segments, it makes a lot of sense to do that. We are putting continued investment into governance services, which is that post contract kind of management services which we think is a big idea. It will evolve over time, but we are off to, we think, a decent start there and certainly we've launched our new T.P.I. Momentum. We are looking to continue to invest and put the bets down, if you will, in the areas that we think we are going to expand and grow. But I think Frank would say also, as we are doing that we are also very cognizant of our cost structure and will be continuing looking at that cost structure as the months unfold here.

And from an M&A perspective, if you could characterize how different the conversations have been recently with let's say six months ago, has there been a significant change in either willingness of people to talk or they are actually taking around the evaluation or do they think that, kind of like you guys do, we are in a pause here and things are going to be okay in six or nine months. They haven't backed down too much in the valuation expectations.

Good questions. So on the M&A, I think our M&A activity level is increasing. We have received some inbound calls as well as our own proactive efforts. Nothing to report clearly at this stage, but we think that the pipeline is there. I think still it goes to value on what our willingness is to pay versus the seller. I think there's kind of two modes of view there. One is the sellers who think it's a good idea to get into something broader, better and they buy into our strategy and direction. And there's another group who would like to do that but may not have come to grips yet with how the multiples have changed and they will either sit out or they will come to a realization that values have changed and we will consider something. Those would be the two streams that we are seeing, Brandon.

Okay. And then finally for you, Frank, if you could remind us kind of where you are in terms of the warrants that are outstanding, how that structure all looks? I want to make sure I have got the right what the remainder is out that you guys haven't repurchased so far.

Yes, Brandon, there's, of the public warrants, there's approximately 36 million outstanding as of the moment.

Okay. Thanks.

Thanks, Brandon .

(OPERATOR INSTRUCTIONS) We will go next to John Rolfe with Argand Capital.

Hi, guys , a couple of questions for you. First, just with regards to your comments about T.P.I. Momentum and governance services and sort of their assistance in helping you guys drive organic growth. My first question is if you look at those two sort of services and you look out one year and you look out three years, can you give kind of any sense as to what you think the revenue potential might be for those businesses?

I think the way, we are not going to separate out, John, the specific revenue for each of them, but I will put it into this context is that as part of our strategic plan I think what we've stated to you is that we would like to get 20% to 25% of our revenue mix with annuity revenue streams. Both T.P.I. Momentum and governance services are annuity streams. So as we look out over the next couple of years that is the target that we are going after and they will be a, I think, a big contributor to that.

Okay. And not to box you in here but again with the comments that those two services will help you drive organic growth going forward, is it fair to extrapolate from that that sort of as you sit here today, and I'm sure visibility is limited, but that would you still expect to be growing the top-line 2009 over 2008?

Yes, I think, John, this is Frank, I think we are certainly developing a plan that would deliver year-over-year growth across really all the Company, components of the Company.

Okay. Great. And then my last just a follow up on the final question that Brandon asked on in terms of the warrants, you said 36 million public warrants. Are there also management warrants and if so can you give me the total warrant count?

That is the total warrant count, public warrant count that has a $6.00 strike price. There are two additional sets of warrants. One is the 5 million warrants that were issue at the sellers, which has a much higher strike price and then there's a unit purchase option, which has got a much higher strike price.

Okay. Great. Thanks very much, guys, nice quarter.

Thanks, John.

(OPERATOR INSTRUCTIONS) We will go next to Tim Fox with Deutsche Bank.

Thanks, guys , a couple follow-ups. You've been doing a very nice job, obviously, on expending those EBITDA margins and I was just wondering at this point if you can talk a little bit about utilization rates, where are they today, if you care to disclose them, and how much room do you think you have on that one measure?

Tim, this is Frank. I think we talked on the last call, we really, because of the quarterly timing element, we look at internally kind of a rolling 12 months utilization figure and that figure at the end of the third quarter was about 71%, just a tick under 71%. Which is more or less where we've kind of been slightly down from the end of June, but basically you are going to come in the same vicinity. We would like to see that and we believe that that percentage should move up into the mid-70% range without too much heroics over the next kind of 12 to 18 months.

Second housekeeping was around tax rates. I think we were modeling, we came in a little bit higher than you had, actually we were a bit lower than you came in. What should we look for for fourth quarter or full year tax rate?

Yes, I would say we are still looking at kind of a little bit higher than a 40% tax rate.

Okay.

We have, we have been aggressively repatriating cash to the U.S., which is at a bit of an impact, plus there are certain ratios of where the income is being recognized. But, so we will look to progressively reduce that, but this year we will run a little north of 40%.

Maybe one more for Michael, you actually delivered fairly strong ITO results in the quarter and that was one area that the T.P.I. index folks talked about as being extremely weak. It may have been a manifestation of some very big contracts in the first couple of quarters of this year. Just wondering if you could comment on the mix between ITO and BPO. And if you are seeing any behavioral changes between them.

The ITO is still, I think is the, from a dollar standpoint in the marketplace, still the majority of the dollars are being spent by clients. On the BPO side I would say our human resource area is very strong. I would say the F&A area, or finance and accounting, is much weaker both from an industry standpoint and even our kind of assessment period or strategy and assessment. So there seems to be more emphasis at the client level right now on HR and IT than there is on kind of corporate finance and accounting areas, but that's an area that we continue to believe is ripe for opportunity but that's what we are seeing so far.

Great. Thanks again for your help.

Okay, Tim, thank you.

We will go next to Paul Farrell with Mayborn Partners.

Hi, Mike and Frank.

Hi, Paul.

How are you? Just wondering, it looks like you have about $13 million left under the buyback and just wondering the level of commitment and enthusiasm for that. Obviously at current stock and warrant prices you can make a significant dent in both.

Hi, Paul, it's Frank. Yes, we are, we have been buying a fair amount of warrant, in particular in the third quarter and I think that we believe that both the warrant pricing and the share pricing are attractive and so we will continue with the program. Because of the liquidity levels, particularly on the warrant side, it's a little bit trickier to go in and execute without disrupting the market flow. But we are in the market from time to time and we will continue to, or we anticipate being in the market much more.

Terrific. Thanks.

Thanks, Paul.

We will go next to Lance Marks, Wells Capital Management.

Hello?

Your line is open, sir.

Good afternoon, guys.

Good afternoon, Lance.

How are you? I guess two questions. One, the pick up, you kind of incrementally mentioned over the last handful of weeks. Would you put that more in the, in new clients doing strategy assessment and thinking about making decisions? Or would you put it more in, more in the hands of actual transactions that had previously been postponed or delayed? And then, Mike, as you sort of look to, I would assume, most of your clients are sort of working on their '09 budgets, how important is making that transaction decision that maybe has been, they have been sitting on for a little while before year-end.

Good questions, let me start with the first one. I think we are seeing more of the strategy in assessment work. We are getting called in even from some of the Financial Services firms who had been a little bit more dormant, but with all of the noise level around, some of those that are receiving funding I think there's an increased urgency there and that normally starts with the strategy and assessment. So we are seeing that as the level of pick up that we are seeing, number one. I think, two, I think your point about as everyone is building their 2009 budgets, clearly utilizing sourcing strategies can be a very large element in terms of increasing their earnings per share overtime. So whether they proceed to that level or not and in which quarter they do that I think is still a question. But I do believe that a lot of clients, both here and internationally, are continuing to look at the sourcing strategies as a way to help them through these very difficult times to help them on a cost restructuring scenario.

But, Mike, I guess along those lines, historically to -- if I wanted to implement for '09 or for the beginning or for first quarter of a calendar year, is it too late to have made that decision? Or people don't or they are not thinking as much about the calendar year and are just trying to make, decide if they are going to make that decision or not?

I think it depends, Lance, I think if and we have a few clients that have called us in and they want to get work done by the end of the year, so that they are in a position next year to execute.

Okay.

And then we also have some that want to get something done by the end of first quarter so they can execute during 2009. So I would say it's still, still kind of a moving target, but, yes, we are seeing an increased level of urgency and if that turns into a transaction, then clearly they are going to reap those benefits by the end of 2009.

Okay. Great. Thanks very much.

Thank you, Lance.

(OPERATOR INSTRUCTIONS) It appears we have no further questions. I would like to turn the conference back to Mr. Mike Connors for any additional or closing remarks.

Thank you very much. Look, we continue, we believe, to deliver very strong results in our first nine months as an operating Company. And I'd like to close by thanking our more than 460 professionals around the world for their dedication to delivering what we think is the highest possible value to our clients. And also to all of our investors for your continued trust and confidence in our team. We are excited about the future and we appreciate your confidence. Thank you all for calling in today and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may disconnect at this time