Resources Connection Inc (RGP) 2003 Q2 法說會逐字稿

Please stand by. We are about to begin. Good day and welcome to the Resources Connection second quarter 2003 earnings conference call. This call is being recorded. At this time for opening comments and interests conducts introductions I would turn the call over to the Chief Legal Officer, Ms. Kate Duchene.

Good afternoon, everyone. Thanks for participating today with us. Joining me are Don Murray, our Chairman and CEO of Resources, and Steve Giusto, our Executive Vice President of Corporate Development and Chief Financial Officer. We will be providing you with comments on our results earnings results for 2003. By now, you should have a copy of today's press release in front of you. If you need a keep and are unable to access that on our Web site, call Cassandra Edwards at 7144306301 and she will be happy to fax a copy to you. Before introducing Don Murray I would like to read an important announcement about certain statements that we may make during this call. Specifically may make forward-looking statements, in other words statements regarding future events or future financial performance of the company. As always we want to caution you such statements are just predictions and actual results may differ materially. We refer you to our 10-K report for the year ended May 31, 2002 for a discussion of some of the risks and uncertainties and other factors such as seasonal 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 the call. I will now turn the call over to Don Murray, our Chairman and CEO to give an overview of the quarter

Thank you, Kate. Welcome to the conference call for the second quarter fiscal 2003. Resources is a professional services firm, formerly part of the big five. We provide accounting, finance, capital and IT professionals to serve company’s internal consulting needs on a project by project basis and internal audit outsourcing and [inaudible] management consulting and compensation consulting through our wholly owned subsidiaries. We serve our clients in 47 domestic offices and five International offices. We are best known for accounting and finance services but our numerous service lines continue to grow at a faster pace. This has been an eventful few months for Resources and we have a number of initiatives to update you on today.

Let me summarize the operating results for the fiscal quarter 2003. As indicated in our press release earlier today, revenues for the quarter were $50.2 million. This revenue is sequentially higher by 15% than the previous quarter and is higher than the second quarter of a year ago by 9%. Included in our revenue is approximately $1.6 million from our new subsidiary, the procurement center that was acquired during the most recent quarter. While this revenue result for the quarter is encouraging, our business needs to show continued rapid revenue growth in the final two quarters of the year to meet our internal targets. There were many contributors to our revenue results. We continue to see strong revenues in our United Kingdom practice, in our IT practice, in our new internal audit subsidiary. The domestic accounting and finance product business also began expanding for the first time in a number of quarters. We continue to experience strong demand from larger clients than from the middle market. This validates our strategy of focus marketing on larger companies. Steve will provide additional details of revenue trends during the quarter in his review of operations later on.

Gross margins during the quarter were slightly above the targeted 40%. Gross margins were 40.4 percent for the quarter, compared to 39.9 percent in the year ago quarter. Last year's second quarter included the events of September 11 which negatively impacted the gross margins during that period.

During the second quarter we continued to make significant investments in our business. In addition to the ongoing investments in our newer services NRR brand (ph), we consumated the purchase of our procurement center during the quarter. As disclosed in a press release earlier in the quarter, this acquisition was made with $7 million in cash and the remainder in Resources Connection stock. Strategically this acquisition allows us to expand our professional suite of services across the company in the future while also generating immediately accretive revenue and earnings. Although not significant at this point to our consolidated revenues we are enthusiastic about the prospects for delivering services in the procurement area. Initially across the existing TPC’s existing Texas market area and across the national and International client base Resources audit solutions which provides comprehensive risk managemeen and internal audit solutions to our clients and Resources Consulting group, which expands on our ability to provide human capital and compensation advice; both continued to grow during the quarter. The combined run rate of the three newest services is $15 million Our marketing efforts continued during the quarter as well highlighted by being named one of Forbes best 200 small companies of 2002. We estimate that our investment in the new service lines, the marketing and the new offices had a P&L impact during the second quarter of approximately $700,000 or two cents per share. We firmly believe in an expansion in an investment in this economic environment to secure the future growth opportunities.

The carrying finance metrics we used to gauge the business continue to indicate to us that our clients are satisfied. For instance, revenues from our 50 largest clients represented 42 percent of total revenues year to date. Sixty-four clients contributed 50 percent of the revenue during the quarter and our largest client was about 4 percent of revenue. Of our top 50 clients for the previous fiscal year, 49 remained clients at the end of the second quarter. Demand for accounting and finance services showed improvement during the quarter. We hope that as companies deal with the recession issues, this demand will continue and drive growth over the balance of the year. At this time we have a reasonably robust pipeline of new work going into the new calendar year. Of course, this holiday season always causes a break in momentum that we then expect to rebuild after the new year. Now, here is Steve with additional information on the results of the second quarter.

Thanks, Don. Revenues totaled $50.2 million for the quarter versus $46.1 million in the year ago quarter and $43.5 million in the first quarter of this fiscal year. These results represent year-over-year growth of 9% and sequential growth of 15%. This is our third straight quarter of sequential growth and the first year-over-year growth since the first quarter of fiscal 2002 when we initially felt the impact of the recession. Average weekly revenue during the most recent quarter was $3.9 million, above the range we estimated during our last conference call. Earnings for the quarter were $3.3 million or 15 cents per share versus $3.6 million and 16 cents per share a year ago. As Don mentioned we have been making investments in our company that we expect to pay off in the future, but these investments do have an effect on current results.

Our gross margin percentage for the quarter returned to levels above the 40 percent minimum target consistent with our expectations. Gross margin for the quarter was 40.4% compared with 39.9 percent in the year ago quarter. The primary negative forces that impacy growth margin are lower conversion fees and holidays. While conversion fees remained low, under 1% of revenues, there is only one significant holiday during the quarter and average bill rates improved versus last year. Associate head count at the end of the quarter was 1,221 compared to 1,134 a year ago and a 1,060 at the end of the 2002 fiscal year.

Before discussing the other components of our P&L, let me spend a moment discussing revenue prospects for the coming quarter. Revenues per week during Q2 ranged between 3.3 and $4.1 million. And we ended the quarter at the highest weekly levels we have seen in over a year. $4.1 million of weekly revenue implies an annual run rate of over $200 million. This level of revenue may appear to put us in great shape to exceed analyst consensus for the third quarter. However, this is an unusual third quarter for us. Because Thanksgiving fell late in November and our quarter ended officially November 23, this quarter includes three major midweek holidays, each of which will detract from revenues and will cut into gross margins. It is difficult to know at this stage the actual impact but it's likely we will lose between six and eight business days in the quarter with lost potential revenue from those days totaling five to $7 million. That suggests a revenue run rate of $4.1 million per week during the non-holiday weeks would be needed to achieve analyst revenue consensus. In the weeks immediately after Thanksgiving revenue totaled 4.0 and $4.1 million respectively. At that level, and using conservative estimates for the holidays, revenue would total between 45 and $48 million. Whether we meet, miss or exceed that range will depend primarily on the trend in revenues immediately after the new year and into the end of the third quarter.

To meet our internal growth for the year we must average about $4.5 million per week for the remainder of the year during non-holiday weeks. Gross margins will be affected during the holiday period as associates take paid time off without revenues to cover those costs. This impact is expected to be reasonably consistent with our experience last winter. We expect gross margins in the latter part of the fiscal year and for the year as a whole to meet or exceed our 40% threshold.

Now to the other components of our second quarter financial results. For the quarter, our spending levels were above the previous two quarters due primarily to continued strategic spending in the marketing areas, investment in our newest services, incremental costs from the procurement center, increases in costs that are directly related to revenue, and to strategic hiring. During the last few conference calls we confirmed that there would be additional marketing expense that would continue for some time. The net increase in marketing costs year-over-year was approximately $200,000 during the second quarter. Given the changes going on in the professional services industry, we believe it is important for us to continue these types of investments now and we expect this spending to improve our brand and to capitalize on new opportunities. We also added a total of 17 professionals in our newly acquired subsidiary TPC, in the new service lines and in new offices. SG&A for the quarter was $14.5 million. This was $2.2 million more than a year ago quarter. SG&A as a percentage of revenue was 29% for the quarter, down from the previous quarter reflecting the net effect of improved revenue levels offset by growth investments. Our board is supportive of investing for future growth in new service lines and new offices Depreciation and amortization were $438,00 for the quarter compared to $318,000 a year ago. Interest income was $270,000 for the quarter versus $309,000. Invested cash earned 1.9% during the quarter. We have had no interest expense this year and interest income was negatively affected by the low interest rates available in the current market conditions.

Our pre-tax margin for the second quarter was 11.2% compared to 13.1% in the year ago quarter. Decrease was due to the investments we have previously discussed.

Now let me turn to the balance sheet. Cash and investment investments at quarter end was $56.1 million. We used $7 million to purchase the procurement center. Our level of cash and investments at the end of the quarter is not much less than the $57 million in the balance sheet after the quarter as operating cash flows were strong. Receivables at quarter end were $23.8 million, reflecting good collection experience. Day's sales outstanding at quarter endwere 46 days compared to 47 days at the end of Q1. While I'm pleased that DSOs dropped, our goal is to slice a few more days from that measure. Overall we are pleased with the strength and balance of our balance sheet. Let me return the call to Don for final comments.

Thank you, Steve. We enjoyed good revenue growth in the quarter just ended. While encouraging the difficult economic environment we have been operating in for the last 18 months still exists. Therefore we continue to focus on the fundamentals of our business. Client service, our great people and value proposition that we believe is superior to traditional alternatives. Investments we have made in newer services and new geographies are beginning to pay off. We see strength in accounting and financing services. We believe the company is well positioned to capitalize on the evolving changes in the professional service industry. Because of the difficult economic environment we continue to operate in, we remain cautious about the near term results. From a fundamental standpoint we believe the improvements we made to the business during the recession, coupled with the changes in the final four have positioned us well. This is supported by recent revenue results. As Steve mentioned in the first full 2 weeks of our quarter not counting Thanksgiving week, weekly revenue continues to exceed $4 million. We continue to be opportunistic in expanding our scope of services while sticking to our core principles of client service, superior talent and extraordinary value that our clients demand. We will be glad to answer your questions.

If you would like to ask a question, press the star followed by the digit one on the touchtone phone. Press the star key followed by the digit one. We go first to Adam Waldo, Lehman Brothers

Good afternoon, Don and Steve. How are you? Congratulations on improving your transparency and your M.D. and A. I have a few clean up issues. Don, you opened 5 offices in the quarter, more than we expected. Would you tell us where you opened them and your office opening plans for the balance of the year?

The majority of the offices we opened this year in the quarter are offices that support major metropolitan areas. So we basically opened the Sacramento office, which is part of our northern California office. We opened an office in Rochester, Syracuse, New York area, basically supported by the tri-state practice. We opened an office in Birmingham in the United Kingdom, which is near one of our largest clients and the second largest commercial center in the UK. So that's sort of a brand new marketplace for us. We opened Columbus, Ohio, which is part of our Midwest region region. And one of our newer offices would have been the acquisition of the procurement center which is in Houston where we have two other offices. It is a separate office.

Okay, great. Did you pick up around 70 billable associates, Don, in that acquisition, somewhere in that vicinity.

At the time we acquired it, about 70.

Steve, a couple questions, if I may. The ADA reserve at the end of the quarter, where did that stand?

We didn't change it too much, Adam.

Okay.

It was $2.4 million at the end of the quarter. I think that's about what it was at the end of the first quarter.

Looks like you added a little bit to it. On the internal audit business, can you give us more specificity on where that business stands in terms of revenue booked in the quarter, billable head count, what your expectations are for the ramp of that business in terms of head count over the balance of the fiscal year?

We are not going to be too specific about it right now. It's a fledgling business. In the way we have managed this business, Adam, we have added internal big four comparable management people into the subsidiary and when we need field people to actually do the work, we draw on the resources connected to offices for the best qualified people. So the only ramp up as far as internal, I would guess traditional looking staff would be in the subsidiary and I would guess by the end of the year we will probably have ten total people in that subsidiary. But the majority of the work is done by the resources, associates in the fields

So would it be fair to conclude, then, that of the maybe thousand or so billable head count you might be running in the accounting and finance practice these days, all of it is being fulfilled out of the associate base rather than a separate associate base? Understandably the internal audit would have a separate practice management?

It's true that the majority, very, very high majority of that work is done by the associate base. In the internal audit group, because of the nature of the work that is being done, it is more of a traditional professional services. So it is reviewed and approved and signed off of by the management of the resources audit solution company.

Okay.

Therefore, they are billable.

Got it.

It's not a high proportion of the total resource hours.

Does the leverage ratio look any different than with traditional business between billable associates and area directors?

The leverage will probably improve over time.

Thanks a lot.

We go next to Randy Mehl, Robert W Baird. .

Good afternoon, Don and Steve and congratulations on the nice progress. I want to talk a little bit about TPC. It seems like you expected about $10 million in contribution on a next 12 month basis. It looks like in the quarter it annualized about $12 million. Is there? Seasonality to take into consideration there?

No. I would say we are conservative in our expectations.

So is it fair to say that you are happy with the early progress of TPC at this point?

We are very pleased with TPC and very pleased with our focus. Our goal in the first year of the acquisition is really not to push them to expand, but to push them to basically maintain the base business that we have before we start growing it. Because in any acquisition, people can lose focus. As they worry about the internal changes. We probably have done a lot to avoid the TPC group losing their focus. We have opened a second office in Texas and Dallas. And our goal is for them to stabilize and grow off their base business before we try to expand it into other marketplaces around the country.

That sounds like a good plan. Then it seems like a lot of your growth in your core or traditional business is coming from larger clients. I guess two questions there. What is that same client growth if you have a metric for it? And then are we still seeing run off of smaller clients? Should we continue to expect that run off of smaller clients? Or are we finished with that?

Well, we are actually, I believe in this quarter we actually increased the number of clients that we served compared to last year. So we have actually improved that ratio. So I think the run off of clients has actually ceased and in fact we are starting to grow the number of clients we have again. But the majority of our growth does come from major companies. And I don't have that metric in front of me. I can, I do off the top of my head head -- we landed one very large new client during the quarter that we think will substantially grow over the year, too.

I would say also the percentage of revenue from our top 50 clients improved just a little bit and that's another indication of where we are making progress.

Okay. One last question and I'll turn it over here. Steve, you mentioned bill rate increases in the quarter. Could you quantify that?

We haven't historically tried to quantify that. It's just a metric that, because of the transparency of our business we have avoided for competitive reasons.

Would you expect to see an increase in the next quarter, then?

Well, we have been fortunate to have a long string of quarters where overall bill rates have improved. And you know, it will depend in some measure on the mix of business during the quarter whether or not we continue that path. We are hopeful we will continue to see improvement in that measure.

Thank you very much. I appreciate it.

We go next to Andrew Steinerman, Bear Stearns.

Could you be a little more specific about the types of projects that are driving the sequential growth here? You mentioned one large new client in the quarter. Is a lot of your growth coming from new clients or existing clients? What types of projects might you be doing now that you haven’t been seeing in the past?

Well, if I can address your question, the majority of our growth does come from our existing clients. So I would say that's always been true of the business ever since we started. You are always going to get the best growth from clients that know you and trust you. And where we changed our focus is that we changed our focus to try to bring in our pipeline more major companies which over the years should grow into large sustainable clients for us. So I think as we mentioned earlier, the majority of our revenue does come from a small number of our clients. Those are major fortune 100 type companies. That's continued. The type of work has changed. We are doing a lot more work in very, very large troubled companies. You know, where in 1999 or 2000 we are doing work in much more positive environment where people are doing acquisitions and trying to integrate the acquisitions, putting in an SAP, E.R P systems, et cetera. We are getting involved in a lot different type of work. The premise is the same. We are helping them solve their problems. We believe we take pain away from an organization and solve their problems. The large company that I mentioned we picked up during the quarter which will be a substantial client for us for this year is a very troubled major company.

Thanks so much, Don.

Thank you.

We go next to Brandt Sakakeeny with Deutsche Banc.

Congratulations on a good quarter. Can you just comment on some of the geographic strength, particularly the San Francisco, tri-state and Boston offices? They have been troublesome. Did they turn or did you see strength elsewhere?

Tri-state never has been really troubled. I would say tri-state didn't grow the way it had been growing. But tri-state always has been one of our anchors . Boston has not recovered yet. It is the softest market. San Francisco, northern California is on an upward trend, doing well. It has picked up some of the lost business from '99 and 2000. They are on a very good trend for us.

Good.

Southern California is doing very well. Chicago is doing well. We are doing well in some of the big marketplaces.

Can you discuss on the competitive landscape, Don, any changes? Getting harder? Easier? Are you guys still competing against the big four?

Yeah, we don't worry too much about competition. It's -- you know, when I first came to California, I used to go to all the UCLA basketball games. The coach used to say that you worry about what you do, play your best game. You don't worry too much about the competition. We really don't spend a lot of time analyzing them. I would say across the country, the competition varies depending on the type of service we are working with. The big RPs that I have seen and been involved with, some of those actually have gone out to make presentation with our people on have all been against the big four, or the big four type of spin off, some of the big consulting firms

Okay.

So the competition seems to be, I guess, bigger companies trying to get as much work as they can and maybe trying to do the type of work we do. When you look at resources solutions, we’re doing the work that they used to do. There is more of a convergence.

Steve, I think you said the revenue imoact of the procurement centerwas 1.6, do you have the EPS impact on the quarter?

They were accretive half a penny.

Great. Your guidance for the fiscal third quarter, I think you said 45 to $48 million. What would bring you at the low end? What would bring to you the high end? Typically when do you see in January the business re-accelerate.

I would say the only reason we would be at the low end is if the impact of the holiday is worse than we expect. We have as I mentioned in the prepared comments a difficult third quarter when it comes to the calendar because of all three of the major holidays fall in that period and because Christmas and New Year's are on Wednesday we are somewhat nervous those weeks could be tougher than they have been in the past. If that happens, that could slow down the momentum. Generally in the past in good years we have seen traction almost immediately after the new year. And if we were to see a protracted slow down during the holidays and not see that sort of quick pickup after the beginning of the year, that also would put some pressure on revenues. But we have, you know, we are trying to, I think portray a fairly cautious picture right now because of the holidays. That said, our people seem to be relatively optimistic about the early part of the year

Okay.

The difference is, I think, Brandt, last year we were fighting the downward momentum of September 11, the economy, et cetera. And right now we seem to be working with a very positive internal momentum in the company.

Great. One final. I notice in the release I think it says quarter ended November 30, '02. That just just -- that I guess is not technically a misprint. It really did end November 23, correct?

Every quarter end we use a convenience date, which is the end of the month in which the quarter ends. But technically there are 13 weeks in this quarter ended November 23. So it is really a convenience date that we use historically.

Got it. Thank you very much.

Once again, to ask a question please press a star key followed by the digit one. We go next to Greg Capelli, Credit Suisse First Boston

Hi, Don, Steve. One quick question. Steve, if I missed this, I apologize, in the audit solutions just to put more color around it for us. I know you mentioned, I think it was in the August quarter you had about 20 engagements. Can you give us an idea of where that stands? Then when you look at the run rate that you are talking about on a weekly basis going forward, is that playing certainly a more meaningful role in your guidance from maybe the more positive unexpected results you saw in the quarter on that base?

I would say that the last time I looked at -- and I have been on the road actually. I think we have 35 plus clients in that service line.

Okay.

The results from that service line are not meaningful yet to us from the standpoint of giving us a big boost on growth. It helps. It is helping, just one of the different things we are doing. But that service line, we expect a lot of great things from it in the future. So it is not really the driver today, but it is a place where we are doing a lot of investment in money, people, in effort. And it is paying off for us because some of our new internal audit clients or R A S clients have not been clients of resources before, too. It's helping us get into new companies as well. We are doing a lot of positive momentum things, and this is just one of them.

Greg, just to repeat one of the things we said in the prepared points is that the combined revenue run rate of the three newest service lines which are the audit solutions, the Resources Consulting group and TPC is about $15 million. So it continues to be not terribly meaningful, but it is certainly hoping helping out.

Okay. Maybe you can -- obviously you gave some overview, but what continues to be the biggest challenge right now? Obviously you guys are having some more success than obviously in previous quarters and running that weekly revenue rate up. But what is the biggest challenge at this point in getting new clients or existing clients to sign up for more business? Is it just just --

Okay, Greg. When we -- from the time we went out on the road show and started the business, we have described the, our opinion in how the business would react in a recession by saying that we thought the business would flatten out and take a dip when a recession started because a lot of clients are going to do negative things. They are going to freeze hiring, freeze any use of outside consultants and then they are going to lay people off in their companies. When they are doing those activities, they are not going to bring in to any extent people in to help them. We believe that our value proposition is, we fix problems in a company. We take away pain. After they have done that that, the business needs are going to rise up to the surface and have to be fixed again. The business pain becomes greater. So that as we keep working with the existing clients that we have or had, that we will get that work back. So that's what we think is happening. We think the business model is reacting the way we described it, even on the road show. However, the biggest hurdle to growing the business is the fact that companies are not trying to spend money. Companies are trying to horde their resources, horde their dollars and so it's not a positive environment where people are really wanting to spend money because they are doing positive things. It is one where they are trying to hold back and save money You know, I look at the individuals on the telephone and I look at the companies you work for and they have all been significant clients of ours. But they have all been downsizing and we have had trouble getting back to the same level of business. It's not because they don't need us. They are all under cost pressure.

On that note, p Don, are your clients generally talking to you about '03 at this point?

We believe we have a very strong pipeline going into calendar year '03.

Great. One final one, Steve. I think I heard you bring up on the investment, two cents a share? I wanted to clarify what that number was.

That is the combined impact of the increase in marketing costs, the net investment in our newest service lines and our investment in newer offices.

Okay. So the 200,000 that you brought up in the additional marketing expense, it sounds like we can continue to see you at that, you know, that next quarter in terms of continuing to spend at the higher level?

Yes, we continue to spend at the higher level in marketing.

Thanks a lot.

We go next to Adam Waldo with Lehman Brothers.

A couple of clean ups, if I may. Don, if you had to characterize the proportion of your finance and accounting practice from revenue stream coming from activities that are ttypically tied to bull new issuance market ,M and A markets and so on, as compared with those recurring tax projects with internal audit projects, project finance activities now, roughly what mix would you be seeing in your business at present versus one or two years ago?

Well, Adam, I would say the percentage of our business coming from bull market activities like new issuances probably is less than 10%. There doesn't seem to be a lot of bull activity going on.

Yeah, don't we know it.

The majority of our work is coming from bearish activity. As I described our business earlier, this is what we have seen happen. Some of our largest client right now is one of the largest telecommunications companies. We are helping them in a lot of different places. When they went through the first series of layoffs and things, our work with them dropped. Our people stayed in contact with the client, stayed out there. It has continued to work with them, help them fix their problems. Really, the problems rise up in a bear market because you don't have the resources to take care of them and the companies have actually ignored them for awhile because they were doing all the negative internal things. So the majority of our work is coming from bearish activities. The new business lines, as Steve said totaled $15 million for the r quarter. Is that right? $15 million. That includes the consulting group, the TPC, resources audit solutions and some of the other things. I would say the majority of the work is coming from helping our clients, the majority of those are troubled

You largely completed a makeshift away from where you were a year and a half, two years ago. And your billable associate head count is largely at this point focused towards those activities. How much of it is fungible and how much external recruitment would you have to do to shift that mix back more towards an overweight bull market position over a several quarter period of time?

Well, the core associates that have been with us who have been with us since we started each office, they still are the same people. They still have the skill sets the clients need to help them. From the standpoint of the skill sets and the people providing the work, we haven't had to go to recruit turn around specialists because the needs the clients have internally to fix an accounting issue or systems issue. They are basically the same skills you need in bear or bull market to do the fixes. So the recruiting process is not really an issue. If anything, the recruiting process for the most part is a lot easier today.

Okay. In the latest quarter did you serve materially more than the 1400clients you reported in your fiscal '02 10-K?

The 1400, That's a year-to-date number at the end of the year and generally the number much clients we serve increases over the course of a year because we do have some clients that we serve once or twice during a year and then they go away and we replace them with others. At this point we have not served that many clients this year

Are the client counts up year-over-year.

I believe they are.

Is that the first time in awhile, given some of your client losses?

I think it is. I think it's the first time in probably, probably since the recession started for us, which was in July of 2001.

It's a good sign, Adam. I think as we've tried to focus on where we get the majority of our revenue, what we like is the repeatable, sustainable work that we are getting from our biggest clients and the fact that on the other hand we are beginning to get traction back with some of the clients that are not as big, is a nice sign. Where we focus the energies is on the major companies that are the source of our biggest component of profit.

Okay. Thanks a lot.

Once again, to ask a question please press the star key followed by the digit one. We go to David Gold, Sidoti and Company.

Good afternoon. At the time of the last conference call you spoke a little bit to Sarbanes-Oxley and how things were a little slower ramping up than we would have hoped. Can you give us a little bit of an update on what you're seeing with regard to Sarbaines a few months later?

We see the momentum picking up. Sarbanes-Oxley is a wave that started in China and it is going to hit California. And frankly I see a lot of the big, the final four players still resisting parts of it. And we constantly are talking to them to see if there's any pieces of the business that won't fit the ongoing environment that I think the public and the regulators want the big four to operate in. But we haven't seen a lot of movement yet. We believe Sarbanes-Oxley is one of the trends that will help us in the future. It will help our internal audit practice. For instance, one of the, one of the issues with Sarbanes-Oxley is that if you are doing the external audit for a client, you can't do the internal audit.

Uh-huh.

If you are a public company and you use, you know, one of the big four as your auditor and you use another one for your internal auditor, you've got one less competitor that you can change to. So as they try to do work at the other company's audit clients, they are going to be reducing the amount of competitiveness there is in the audit marketplace. And I don't think that's going to be acceptable to the regulators. So we think that, you know, for the vast majority of public companies that there has to be alternatives for them to go to for internal audit as well as some of the other services so that there is some competitiveness left when you need to choose an auditor. So just the other day one of our friends who is a partner in one of the firms just picked up a good sized public company that was having issues with their big four firm. Well, he happens to be the best expert in that industry. If his firm had to do the internal audit, they couldn't have chosen him. That's the type of momentum and trend we think is going to help our business. But I say, we don't see the big four rushing to embrace it yet.

Let me add one thing on that, David.

Great.

We are going through the process ourselves as a public company. I can tell you there is a lack of clarity with regard to how these rules are going to be implemented and interpreted. All of our clients are going through the same process of trying to figure it out. It's not as timely as you might think. This is a process that will be ongoing for some time and we believe that we are very well positioned to address the needs of clients who are working on Sarbanes-Oxley and on the various other services that Don described that might come out of that. It's not an overnight event.

Do you think as we get closer to year end and all that kind of fun stuff, that may help to give things a push?

Well, I think we are seeing as we mentioned in the prepared remarks some decent traction in revenues in the latest quarter. We hope to see that through the early parts of the calendar year. And this certainly can be part of the impetus for it. Also just the fundamental things that companies are going through in terms of addressing the issues that have come up during the recession are the primary driver of demand, I think.

We look for the R A S to be for us really a recurring base of business that we will be doing the same types of projects every year, updating their risk management profiles, their plans and helping them or out-sourcing their internal audit itself. So that would be a recurring project year after year that would give us a little bit more visibility every year as that builds.

Great, thanks a lot. Congratulations.

Thank you.

We go next to Susan McGary, investment management.

How many weeks did you have the procurement center in the quarter?

Eight weeks.

Okay, thank you.

There are no further questions at this time. I would like to turn the call back over to you for additional closing comments.

Again, I just want to thank everybody for their continuing interest in Resources. We appreciate the support of the investment communities and the shareholders. We look forward to chatting with you at the end of the third quarter. Thank you very much.

That concludes today's conference call. You may now disconnect. Thank you for your participation.