Resources Connection Inc (RGP) 2002 Q4 法說會逐字稿

Please stand by. The conference is about to begin.

Good day, everyone, and welcome to this Resources Connection fourth quarter 2002 earnings conference call. Today's call is being recorded.

At this time for opening comments and introductions, I'd like to turn the call over to the Chief Legal Officer, Ms. Kate Duchene. Please go ahead.

Thank you, operator.

Good afternoon, everyone, and thank you for participating today. Joining me are Don Murray, Chairman and Chief Executive Officer of Resources Connection, and Steve Giusto, our Executive Vice President of Corporate Development and Chief Financial Officer.

During this call, we will be providing you with comments on our fourth quarter results for fiscal 2002 as well as a discussion of our operations for the year as a whole. By now you should have a copy of the company's press release that was issued today. If you need a copy and are unable to access copy on our Web site, please call at 714-430-6301 and she will be happy to fax a copy to you.

Before introducing Mr. Murray, I will read an important announcement about certain statements that we may make during this call. Specifically, we may make forward-looking statements; in other words, statements regarding future events or future financial performance of the company. We wish to caution you that such statements are just predictions, and actual events or results may differ materially.

We refer you to our filings on Form S-1, including amendments thereto, and our 10-Q reports for the periods ended August 31, 2001, November 30, 2001, and February 28, 2002 for a discussion of some of the risks, uncertainties, and other factors such as seasonal and economic conditions that may cause our business, results of operations, and financial condition to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call.

I'll now turn the call over to Don Murray, our Chairman and CEO, to give an overview of the quarter and fiscal year to date.

Thanks, Kate. Welcome to our conference call for the final quarter of our fiscal 2002. For those of you new to our company, Resources Connection is a professional services firm that provides accounting and finance, human capital and information technology professionals to serve companies' internal consulting needs on a project by project basis.

We serve our clients through 43 domestic offices, and four international offices. Accounting and finance services represent the majority of our services, though our newer service lines are growing. Resources capitalizes on the increasing demand by companies for help on internal projects that require expertise that is not feasibly available from the company's internal staff. As the pace of change in the business world has accelerated, and the complexity of demands on corporate staff increases, Resources Connection has capitalized on our Big Five heritage to build a company whose client service model helps companies achieve their goals and complete their projects effectively, at costs substantially different than many alternatives.

The quality of the professionals available through Resources, coupled with our cost-effective business model, has helped us develop a unique niche in the professional services industry. Today we will discuss the operating results in our final quarter of fiscal 2002, and for the entire fiscal 2002 year. We'll also give you our thoughts on the trends we see in our business, specifically, as well as those trends and events impacting the greater professional services industry.

As indicated in our press release earlier today, revenues for the quarter were 43.3 million. This revenue is sequentially slightly higher than the previous quarter, but it was less than the fourth quarter, prior year's fourth quarter, by about 23 percent. We are pleased that the three quarter trend of sequential revenue declines has ended, but we're guarded about the strength of the rebound. During the year, we experienced positive growth in revenue at many major clients. However, the number of middle market companies we served declined this year.

This reflects the economic weakness in several sectors dominated by fast-growing middle market companies. Thus, it has been difficult to get substantial traction. Many clients are still facing budget challenges and may not have cash flow to pay for necessary projects. The economic conditions described after our second and third quarters continued to impede growth as the year drew to a close. Steve will provide some additional detail of revenue trends through the quarter in his review of the operations later in the call.

Despite the continued growth challenges, we did not hesitate to make investments in new service lines, to strengthen our business model and take advantage of trends in the marketplace. Steve will also describe these investments in greater detail later in the call. However, the impact of the investments was to increase our G&A. However, improvements in our gross margin percent offset the G&A investments, and our net earnings and earnings per share were virtually the same as the third quarter. Net income for the quarter was 2.7 million versus 5.1 million in the year ago quarter.

Year over year earnings per share declined from a pro forma $0.24 to $0.12, and revenue for the year ended May, 2002 was 181.7 million, a decline of about 5 percent from a year ago. Fiscal year earnings were 13.3 million, or $0.58 per share, compared to the 15.6 million on a pro forma basis for the goodwill charge of $0.80 per share when we had a lower base of outstanding shares.

Although we planned revenue and results for the last quarter to be better, other metrics we use to gauge the business continue to lead us to conclude that clients are satisfied that we are doing the right thing. For instance, revenues from our 50 largest clients represented 39 percent of total revenues year to date, and grew by 11 percent over the prior year. Eighty-five clients contributed 50 percent of revenue during the quarter, and our largest client was just under 5 percent of revenue. While we continue to experience clients not extending projects as often as they seem to do in the economic expansion, there appears to be a reasonably robust pipeline of new work at large clients. The pipeline has not resulted in the seasonal up tick in revenues as we have experienced in previous years yet.

Associate headcount at the end of the year was 1,060, compared to 1,003 at the end of the third quarter of this year, and 1,283 a year ago. This year we'll refocus our management time to help existing offices during the slowdown. We invested our time trying to turn around lagging markets especially hard hit by the recession. Thus we did not open as many offices as we had initially planned. We expanded into three geographies during the past fiscal year, the most significant of which was London, but we opened in Jacksonville during the fourth quarter.

We remain committed to the development of our new offices, domestically and internationally. Planned new offices in the U.S. will be in middle-market cities, we will have a nominal effect on operations in fiscal 2003. We continue to look opportunistically at domestic expansion, with a target of four U.S. offices this year. More importantly, as we have previously predicted, our London practice is off to a good start, and is generating enough revenue to be marginally profitable already.

While opening in a new country, in a difficult economy has its challenges, the recent growth in the U.K. begins to validate our beliefs that there is a substantial business to be built internationally. We plan to continue to look internationally for new office opportunities. During the quarter we had our first client where we were simultaneously providing services on three continents. We believe this is a harbinger of the future. Now here is Steve with additional information on the results.

Thanks Don. In a continued effort to provide enough information for investors to understand how our revenues are trending, we will once again provide intra-quarter revenue levels. Before doing that, let me explain the impact of a recent accounting pronouncement.

We are implementing EITF 01-14 which requires that client reimbursements of out of pocket expenses be included in revenues. We had previously accounted for these as a contra expense. The impact of this new pronouncement is the increased revenues and cost of services, and therefore decreased gross margin percent and net margin percent. There is no impact on net earnings. The EITF requires that all previous financial results be restated to reflect this new pronouncement. All our filings and press releases will reflect the new accounting.

The impact of the EITF on our financials is not significant for the quarter. It increases revenues by $398,000 and reduces gross margin percent by .4 percent and net margin percent by .1 percent. For the year it increases revenues by $1.7 million and reduces gross margin percent by .3 percent, and net margin percent by .1 percent. Prior year impacts are similarly small. All discussions on this call about revenues reflect the new pronouncement, however, because the impact is small, implementation does not affect the weekly revenue trends I will now discuss.

Revenues during the third quarter were essentially flat with the second quarter after adjusting for the negative impact of the holidays. Revenue during the fourth quarter continued in a similar narrow range. We reported at the end of last quarter that the trend in revenues for the first four weeks of the fourth quarter were between 3.2 and $3.4 million per week. This range of revenues characterizes the remaining weeks of the year, with only a few positive exceptions, offset by the marginally lower revenues during the weeks including Good Friday and Easter.

Our lowest week during the quarter was just short of $3.2 million, and our highest week was above $3.6 million. Further, conversion fees continued at extremely low levels. Revenue in the first six weeks of Q1 have been between 3.3 and 3.6 million, excluding the effect of the Memorial Day and Fourth of July holidays. And the trends during this period have been to slightly higher revenues.

Our gross margin percent for the quarter returns to levels above 40 percent, consistent with our expectations. Gross margin for the quarter was 40.8 percent, compared with 41.1 percent in the year-ago quarter. Gross margin for the year was 40.2 percent versus 41.2 percent a year ago. The vast majority of the difference in gross margin is attributable to lower conversion fees this year.

We continue to enjoy bill rate improvement quarter over quarter.

We continue to spend money carefully and we believe wisely. For the quarter, our spending levels were somewhat above the previous two quarters due primarily to strategic spending in the marketing area. During the last call, we confirmed that there would be additional marketing expense in the fourth quarter. While we anticipated that some spending would be reallocated from other marketing efforts, there was a net increase in national marketing costs during the quarter of $400,000.

Given the changes going on in the professional services industry, we believe it is important for us to make these types of investments now, and we expect to continue spending to improve our brand to begin capitalizing on new opportunities. However, it's not clear when these investments will pay off.

SG&A for the quarter was $13.2 million, less than the year-ago quarter by about $900,000. SG&A expenses for the year were $50.7 million, compared to $50 million in the prior year. SG&A as a percent of revenue was 30.4 percent for the quarter and 27.9 percent year-to-date, reflecting the effect of reduced revenue levels coupled with investments.

Depreciation and amortization were $352,000 for the current quarter and $1.3 million for the year, down from $3.1 million primarily because of the change in accounting caused by adopting SFAS 142.

Interest income was 327,000 for the quarter and million year-to-date. Invested cash earned 2.5 percent during the quarter. We have had no interest expense this year. Interest income was negatively affected by the very low interest rates available and current market conditions. Last year we incurred interest expense through the December 2000 public offering. interest expense was $2.0 million a year ago. Our pre-tax margin for the quarter was 10.3 percent and 12.2 percent year-to-date.

Now let me turn to our balance sheet, which continues to be phenomenally well capitalized. Once again, we generated positive net cash flow in the quarter. Cash investments at quarter-end was almost $56 million. Our net increase in cash during this extremely challenging year is over $20 million.

Receivables at quarter-end were $20 million reflecting good collection experience. Days sales outstanding at quarter-end were 44 days compared to 40 days a year ago. Much of the increase in DSO is due to higher receivables and revenue a year ago, so if you were to use the most recent quarter results, DSOs would be a few days lower. Therefore, while we're never content with DSOs above 40, I believe our performance on that measure is outstanding.

Now let me return the call to Don for some final comments.

Thanks, Steve.

Well, starting July of last year, we have experienced a period of difficult operating results, yet during this period, we have added millions of dollars of cash to our balance sheet and have remained very profitable. The slowdown in the economy has taught us what fundamentals work well in a recession and validated that our business model is able to generate earnings and cash flows despite the economic challenges.

We continue to look for new ways to improve our business while sticking to our core principals of client service, superior talent, and extraordinary value that our clients demand. Let's discuss the changes in the accounting profession, and how we see them affecting our business.

With the numerous accounting scandals, there was increased emphasis on accounting controls, risk management, and the auditors' scope of services. We believe these trends towards auditors' independence will help us and lead to new business and service lines. To address the changing role, we are adding to our already strong capabilities in internal audit services and in human capital consulting. , an alumnus of the internal audit group and the Cardinal Group internal audit practice is the leader of our Minneapolis office.

She has now assumed the national leadership responsibilities for internal audit services. We have formed Resources Audit Solutions, a new subsidiary, to focus on these opportunities. We are already winning work at prestigious clients, and we have a significant number of additional opportunities. Our business model is exceptionally suited to providing management with insights on risk and internal control, as we use experienced business and accounting professionals, with auditing experience, to perform the fieldwork, rather than younger professionals with only audit experience provided by the Big Five type firms.

In human capital consulting, is our leader, and is a well-known expert in executive compensation in the United States. Again, independence issues are forcing more companies to separate their auditors from their consultants for compensation and benefits programs. This evens the field of competition and provides us an opportunity to expand our human capital consulting practice and feed our project business.

gives us access to C-level executives and thus helps build the relationships where we can introduce our other service lines. These new service lines should provide us with some base for assignments that repeat annually. We identified over 100 employees, management and associates, with internal audit experience, including IT internal audit. Thus, we already have a base to deliver this service. We has also have a few acquisition opportunities, that if consummated will expand our scope of services and geographic reach.

One of these is in the fast-growing area of supply chain management. We started a print advertising campaign in publications geared towards our buyer-influencer group. In the last quarter, we have had ads in the Financial Times, CFO Magazine, CIO Magazine, and Corporate Board Magazine. These ads emphasize the issues related to auditor independence, and how Resources Connection can help with these issues.

We plan to continue this level of marketing to increase influencer awareness of Resources Connection and our ability to help these companies. We believe our coming year will see us return to sequential revenue growth. Given the challenging operating environment, we are cautious about the magnitude of growth, but think growth is likely. We will have difficult year over year comparisons for a few more quarters. Therefore, we are focused on the current week to week growth trends. During the first six weeks of our new fiscal year, we have seen modest upward movement in revenues, though not enough to allow us to predict the growth percentage with any certainty, seeing revenues trending slightly up is a nice change from the last few quarters.

I think it is fair to provide guidance on our growth expectations for this coming year. We are planning, internally, on 15 percent growth, notwithstanding any more calamitous economic events. I believe our company is performing relatively well. I believe that Resources is well positioned to capitalize on opportunities as they present themselves. We are, and we will continue, to invest in opportunities for future growth. We believe that Resources has the opportunity and the talent to continue delivering strong operating results and strong returns for our investors.

So we appreciate the support of our investor base. We are intent on executing well in the months to come. We would be glad to answer any of your questions, now.

And our question and answer period will be conducted electronically. If you'd like to ask a question, simply press the star key, followed by the digit one on your touchtone phone. Again that is star one to ask a question, and we'll go first to with Credit Suisse First Boston.

Thanks. Hi guys, it's and . I wanted to, first question, just a clarification Don, was that 15 percent you were talking about, I'm assuming that was top line?

Yes.

OK. That's what I thought. Just a couple questions here. I just, first off, if you could just kind of talk about by what magnitude, if you can, did the, did the number of middle-market clients that you talked about actually decline sort of, I don't know, throughout the quarter or year? And did it actually improve or deteriorate through the quarter? You mentioned that was an area that was particularly difficult.

I think during the year we served about 300 less clients, predominantly all middle-market clients. And while at the same time serving less of these clients, and a lot of those, you can imagine, were the technology companies. At the same time that was occurring we actually increased our revenue that we got from our largest clients by 11 percent. So even though it was a very tough environment for big companies, we're, you know, you read about the AT&Ts and the Enrons and et cetera, we still were able to increase the work we do at our largest clients, but we did serve about 300 less clients.

OK.

Is that right John?

Yes.

Yes.

OK. And then just in terms of the pipeline that you talked about as well, can you just help us understand how the, you know, how the pipeline's developed over the, over the, I guess the year and the quarter? And are you basically saying, you know, that there's, it sounds like you're saying there's more activity out there, maybe even considerably more, but it just, you know, it hasn't translated into signed business yet, or revenues.

And you mentioned the accounting scandals and some of the issues that certainly we've been dealing with. Can you actually, you know, can you tie into, you know, the activity into, you know, to that, I guess to that area, because of some of the issues we've had to deal with? Are you actually seeing a pickup in activity because of that in certain areas?

Well, there's a few questions, now let me see if I can remember them. The first question was the pipeline, and I would say we're, this is probably the highest level we've had of large projects, that we're seeing, and that we're actually getting signed work for. However, what we said is, as last year we probably still did a high number of these middle-market companies, which, you know, are not buying services or not around, so we are seeing a heightened level of big projects in most places in our marketplace. Not in all, but most places. Number one.

Number two, can we tie some of these economic woes to signed business, yes. One of our largest clients currently right now, is one of the largest bankrupt companies, and I would say in February we were probably doing little work at that company, and because we were able to work with the new management, it's become one of our largest clients, because they are in trouble, we can help them.

Second, this week we started our first large internal audit project for a Fortune 1,000 type company. That's work that we wouldn't have been doing in prior years, because we're actually doing the internal audit assessment around the world for them. Next week we're starting another large internal audit project at a retailer, so I would say yes, we are seeing that translate into work. It's going to be a slow process building that practice, so it's not like a waterfall, it's going to be, you know, a building process as we build that practice client by client. But yes, it's a new type of work - new type of relationships for us.

Just one quick final question on the SG&A line, Steve, that you mentioned - a little bit higher than we were expecting, and I think I understand the advertising that you're doing there, as well. But just wanted to get your thoughts on if you're planning on keeping up that level of advertising going forward.

, I would suggest that at least for the next quarter, our SG&A percent will be at - you know, within 100 basis points one way or the other of what we reported in the fourth quarter, and then we plan for it to decrease as a percentage of revenues throughout the remainder of the year, obviously dependent on seeing the types of revenue increases that we expect to see.

So, you know, the short answer is, "Yes, we expect to continue to do the marketing that we've - that we've planned to do." We think it's important to do that. And within the context of that, we still believe we will have a manageable level of .

OK. Thanks a lot. Appreciate it.

And we'll take our next question from Brandt Sakakeeny with Deutsche Banc.

Thanks. Hi, Steve and Don.

A couple questions for you - one, can you just talk about billing rates? And second question, I guess, is going to be a little more clarification on the guidance.

Billing rates continue to moderate upward, so although you would think in a tough economic environment we would be seeing something other than that, we continue to see modest increases in bill rates quarter over quarter. And we plan to see continued growth in bill rates for this year.

OK. Now, respect to the guidance, last year you saw a fairly steep drop-off from your strong May quarter to the historically weak August quarter. It sounds like by what your weekly trends are that that's that does not appear to be happening again this year. Is that right?

Well, I don't know if our August quarter is historically weak. It's - we have holidays in that quarter, but our revenue last year stayed strong through the month of June and then dropped on July - the week after July 4. You know, and that's when we first saw the recession. And we were actually - I think at that time, issued a sort of a press release about that that we couldn't count on the same type of growth in August that we normally had. So historically, our summer quarter really wasn't a weak quarter other than the holidays. So, we seeing a drop-off right now. We're - except for the holiday, you know, we've seen moderate growth each week.

And post-July 4, you've seen - and, obviously, there's only a week's worth of data, but you've seen that business at least pick up to pre-holiday levels.

No, July 4 was last week, wasn't it?

Yes, we - Brandt, the latest data we have is through the week of July 4 and obviously that's not a representative week. The weeks prior to that during the quarter have been infinitely higher one after the other and incrementally higher than the quarter ago, so, you know, we're - unless something changes, we're pretty comfortable that we are on track for another quarter of sequential growth.

OK, great. And then, I guess the final question - again, Don, I think I heard you say that's 15 percent revenue growth for - that's for the full year?

Right. That's our internal plan.

OK. Thank you.

And our next question comes from Andrew Steinerman with Bear Stearns.

Hi, guys. It's Andrew.

I know it's a difficult process, and I definitely appreciate you giving us a vision to 15 percent revenue growth, but could you give us a little bit of analysis of how we came up with the 15 percent number going into your budgeting and just, you know, how could we get sort of comfortable with your internal budgets?

Well, I don't know if you can get comfortable. I mean what we do is we build the budget from the bottom up. We ask each office to submit their revenue plans, challenge that revenue plan. Once we're satisfied that they -- it's a regional revenue plan, they then discount it for some probability factor, and then we submit the plan to our board, and our board then approves it.

Right.

And so, you know, does it get challenged? Yes, but it is a plan and a projection of the future.

Right, and when you look into this fiscal year, you know, assuming we do get that 15 percent growth number, is it probably that we would return to normal operating margins, or, you know, given the SG&A spend here, will it be sort of an abnormal fiscal year.

I think it's probable we'll return to our normal operating margins. We consciously made the decision to kick off this marketing campaign and also hold a national meeting to get everybody together to -- for these new -- these new business lines that we're launching. So we wanted to make sure that we continued the investment and that we kicked off the new marketing and program, and that goes for about at least another three months.

And it's basically in a lot of influencer type magazines. So we made the decision to do that and we consciously, but we do believe and plan for normal operating margins.

Just one last question, Don. We came into a pattern here of sequential growth. Do you think that it's merely brute strength, you know, pushing through our pipeline, or do you feel like the economy might be providing even a slight bit of help here, or is it still an uphill economic battle for you?

I think it's, as you put it, brute strength of our people and our marketing programs and focusing on fortune 1000 companies. You know, in my phone conversations and visits, I don't see the economy helping us yet.

OK. Thanks for the comments.

Hello?

And we'll go next to with .

Yes, good afternoon, Don and Steve. First of all, Don, you have mentioned an 11 percent growth, I think of the 50 largest clients. That's sort of the same client growth number year over year.

Right.

OK. Just wanted to get clarification. And then in terms of the internal audit opportunity, what is the opportunity, maybe you an quantify it for fiscal '03. You know, how much of that revenue target is that and then is there -- will there be salaried associates here? And then, I don't know if you can quantify the investment that you expect to have to make, but it sounds like, you know, you've thought through how you can make do with what you have already?

It's not make do with what we have, it's that we already have the skill sets internally. We've been providing internal audit assistance to Big Five firms that do internal audits as well as internal audit divisions of big companies. So we are already doing the work. This is sort of an extension now, and a formalization of, the service lines, because I think all of the Big Five -- or Big Four, whatever's left -- have basically publicly stated that they will not do internal services for their existing audit clients.

So that means for a major company, they've only got three Big Four firms they could go to, and there might be conflicts with some of those Big Four firms.

So the field has narrowed quite a bit as to choices. That means that there are other opportunities if you have the quality and can convince the clients of the quality of outsourcing their big, their internal audit departments, that you can compete more effectively. And this is a much bigger market for us. So that's what we've done. We've basically taken the capabilities we've been providing already through our normal services, and formalized it and put it into our own business unit.

I don't have the actual number on the investment, it's, from a G&A standpoint it's not a big investment for the year, because we anticipate this being immediately accretive profitably. We've already signed up our first engagements, and so we really haven't looked at it that way, other than maybe the marketing and advertising, which would be a few hundred thousand dollars over the next year.

And would you expect the engagements that you've signed on to be recurring in nature, maybe on an annual basis?

We're trying to develop the business model like the Big Five, where they would be recurring. Since these are our first engagements, we're going to have to prove ourselves to our clients, and our clients are going to have to decide they want to keep outsourcing it. But yes, we are planning that these become recurring services.

OK. And what percentage of the practice, or just of this type of business over time would you expect to utilize salaried associates?

We're not expecting to utilize salaried associates for the fieldwork.

OK.

We are, we would be using some of our management people to become chargeable, the ones that have internal audit experience that would manage the relationships with the clients, and oversee it. That's probably the only really difference.

OK. And this is probably, last question, this is probably a tough one to answer, but what kind of, based on what you experienced over the last two quarters, relative to plan, you know, what kind of variance could we expect around the 15 percent one way or the other? I mean, is this, obviously visibility remains low, is this something that you think could be, you know, ten to 20, or is it even broader than that?

I think this is an easy question for the CFO to answer.

Well I think that clearly there's a wide variety of results that we could come to, which could be very close to 15 percent, or way off from that one way or the other. We will know early enough in the year that we would be able to provide additional guidance as we go through the quarters as to how we're tracking towards that. And we're off to decent start, because we're starting to see some amount of modest growth sequentially, and obviously that's where it starts to get the year over year growth.

I would tell you that we will need to have the growth early in the year, because at the end of the year there just won't be enough room on the counter to get it, so you'll know within the first six months whether or not we're on track to get that. And we'll be able to give you additional guidance on how close we think we'll come to it.

OK. And just final question, again final question. Bill rates up, were they up sequentially? I know you said they were up modestly year over year.

Yes.

OK, great. Thank you very much. I appreciate it.

And we'll remind everyone, if you do have a question press the star key, followed by the digit one on your touchtone phone. That is star one to ask a question. We'll go now to with and Company.

Hey Steve and Don. Just a quick one - Steve, can you speak a little bit towards I guess the 57 associates you guys added in the quarter? If you can give us a sense how much of that from the couple of new locations - you know, whether Jacksonville, and how - and how many of those were hired to fill needs, so to speak?

That growth in the associate base is just across the board. It's not identifiable to any geography, and it is just the normal course of our business of adding capacity as we see demand.

OK, great. Thanks.

And we'll take our next question from with CIBC World Markets.

Good afternoon, Don and Steve.

A couple of questions - I guess a Steve question and a Don question. Steve, you first. The equity balance grew quite a bit during the fourth quarter from almost 106 million at the end of the third quarter to about a hundred-and-thirteen-and-a-half million at the end of the fourth quarter. Net income only contributed about 2.7 million of that. What caused the delta? Is it stock option exercise or the E&Y acquisition? Or what explains that?

It's the tax benefit of the impact of the stock options the primary difference.

Tax benefit of stock options.

Esentially if you have a non-qualifying disposition, you get benefit in your equity section for that. And when our employees exercise some of their options during the quarter, a number of those were non-qualifying dispostions, and we get tax benefit for it.

OK. All right. Good.

And how much did the E&Y deal contribute? I know it was done midway through the quarter. How much did it contribute from a revenue point of view?

Is that to me or to Don?

To you.

The impact of the E&Y practice is going to be difficult for us to break out just because we consolidated with our London practice. Our London practice is doing quite well and essentially performing consistent with our expectations. So the practice is on track to perform as we - as we expected when we bought the company.

OK. What kind of run rate was that business doing when you did buy it?

We haven't disclosed that. And we - and the reason that we haven't is it's not material.

OK. And then, Don, you know, I know that the real issue right now is a - is a demand issue and getting some of these projects going again. But what do you see has changed on the supply side with the Big Five going through what it's gone through, the level of talent and the interest in your organization and getting out of some of those organizations?

I would say the level of talent that we're seeing is more from the experienced people that have been working in companies outside the Big Five. You know, they've had their Big Five experience now. They've been . It's almost a waterfall of how many people keep coming to us and applying. It's growing, which tells me the economy is not getting better.

OK.

I think, again, and Steve and I have been holding talks with various representatives of the remaining Big Four that most of them feel they've gotten more work than people, you know, from this and not all the, say, people from Arthur Andersen may have gotten picked up and so they're also running very tight. So we think that might create some work for us, too. But the supply side is definitely not a problem.

OK.

It's not a problem. I mean yesterday I had three people come in to visit me all looking for jobs.

OK, great. Thanks, guys.

And we'll go next to with Lehman Brothers.

Hi, guys. Just a couple quick questions. The first one is, just directionally speaking, how are your human capital consulting practices and your IT practice doing versus your core of finance and accounting practice?

They're doing better.

They're doing better, OK. And just a second item. What were the number of bill-able days in the fourth quarter?

I don't know.

Sixty-five sound about right?

Yes, it's about right, but ...

OK, that's it. Thank you.

And we will remind everyone one more time, if you do have a question, press star, one, on your touch tone phone. We at this time have a follow up question from with Deutsche Bank.

Thanks, hi. . One other question, Steve for you, just going back to the guidance again, and I'm just trying to reconcile that with what I know is historically a pretty conservative budgeting process. Have you, and can you talk to any sort of large deals that you all have found that give you, again, increased comfort on this guidance level for the revenue number?

Not specifically. I mean, we -- as Don mentioned, we're seeing an increased volume of general interest in projects that are larger, but we have always declined to discuss specific client engagements other than pretty peripherally. And I said to , I think that as we move through the remainder of this quarter and into the second quarter, we'll have a much better idea of how accurate that initial prediction has been, and we'll be able to update you on it.

OK, thank you.

And we have another follow up, now, from , with Credit Suisse.

Hi, thanks. Just real quickly, just to follow up on one of questions. Guys, do you think that in, you know, the internal audit business, you know, are you planning on getting, you know, a large sort of cross-sell from your existing client base, or do you think that, as Don you mentioned, you sign up your first client, are these brand-new first time customers to the firm?

I think the clients that we've signed up are people that we have relationships with that we've done work for in the past. And that's, you know, for us the easiest sell that we're a quality service provider is somebody that's already used us. And so that will be where we're increasing our marketing efforts to market the service line.

Hello?

OK, thanks a lot, Don, I appreciate that.

OK, and there are no further questions in our queue at this time. We will offer everyone one last opportunity. If you do have a question, press star, one, on your touch tone phone. We'll pause just one moment. And we have a follow up from .

Steve, on the deferred tax asset, do you have a specific number there that was generated from the sale of the options?

About 4.6 million.

And that will, I presume, be able to shelter future income taxes by that amount.

It should be used this year, .

OK, oh, in fiscal '02 or fiscal '03?

Fiscal '02.

OK, great, thank you.

And we'll pause just one moment. Please stand by, ladies and gentlemen, one moment. OK, we'll take our next question from with Colonial Management Company.

Good afternoon, gentlemen. I think one of the things that people seem to be struggling with on the call is that your current weekly run rate whether it is -- I haven't counted the exact number of weeks, but whether there's 12 or 13 in the quarter, you're arriving at somewhere around $43 or $44 million for August at your current rate. And if you do something like that for the August quarter then you need to average somewhere around 50 to 55 million in the next three, so there's the pick up of almost a million a week. So I think people are wondering how you see the possibility of 15 percent growth when there doesn't appear at this point to be a million of incremental revenues per week that you can add?

Secondly, could you talk about what sort of expense adjustments you would make in the event that revenue levels don't pick up and whether or not we would therefore have seen the trough in your earnings per share?

Let me answer with regards to revenue first, you know, our plan anticipates that we will see sequential growth throughout this year, through each of the four quarters with certainly a somewhat more substantial amount of that growth coming towards the back end of the year, which has tended to be where the revenue has been year over year. From an expense standpoint, were we, were we tracking at a revenue level that was less than what we expected, you know, we have, we have constant discussions about whether or not our expense levels are correct and we have a number of alternatives to lower our expenses if necessary to improve earnings. But, you know, that kind of awaits what we see in terms of revenue.

Well still is there, how much flexibility do you have in adjusting your operating expenses, should the revenues not materialize?

I mean, a primary component of our expenses are salaries and occupancy, so, you know, that's where there would be the most flexibilities that the remaining costs we think we control pretty damn well every quarter, so, you know, we have not anticipated across the board changes in our infrastructure, but we have plans to do that if we need to.

But we could always choose not to continue our marketing program if we didn't see the results from it, so there are expenses we look at all the time, and in the fourth quarter we increased those expenses and we launched a new program because we think it's going to pay off for us. If it doesn't pay off, we won't continue doing it.

There are no further questions in our queue at this time. I will turn the call back to our speakers for any closing remarks they may have.

We'd just like to thank everybody for your time today, and your continuing interest in Resources. We look forward to talking to you again after the conclusion of our next quarter. Thanks.

And this does conclude our conference for today. We appreciate your participation. You may disconnect at this time.