Resources Connection Inc (RGP) 2005 Q1 法說會逐字稿

Good day everyone and welcome to the Resources Connection first quarter fiscal year 2005 earning results conference call. This call is being recorded.

With us today from the Company are Ms. Kate Duchene, Chief Legal Officer, Mr. Steve Giusto, Chief Financial Officer, and Mr. Don Murray, Chief Executive Officer. At this time I would like to turn the call over to Ms. Kate Duchene.

Thank you operator. Good afternoon everyone and thank you for participating with us today. Joining me as you know are Don Murray, our Chairman and Chief Executive Officer, and Steve Giusto, our CFO. During the call we will be providing you with comments on our results for the first quarter of fiscal year 2005. By now you should have a copy of today's press release in front of you. If you need a copy and are unable to access the copy on our website, please call Margaret Porter, she can be reached at (714)430-6363, and she will be happy to fax a copy to you.

Before turning the call over to Mr. Murray, I would like to 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 10(K) report for the year ended May 31, 2004, 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 operation and financial conditions to differ materially from results of operation 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.

Thanks, Kate. Welcome to our conference call for the first quarter of fiscal 2005. Resources Connection is a professional services firm originally founded within the Big Five accounting industry, now the Big Four.

In the United States and the Asia Pacific region, we were originally part of Deloitte and Touche. And in Europe, part of Ernst & Young . We provide accounting and finance, human capital and information technology professionals to serve companies internal consulting needs on a project-by-project basis. Through our subsidiary, Resource Audit Solutions, which we refer to as RAS, we serve our clients at risk compliance and consulting, internal audit services, including outsourcing and cold sourcing. We deliver supply chain management services through our division, resources connection supply chain management.

We provide our services to clients through more than 60 offices worldwide. We have been best known for accounting and finance services and have added additional service offerings to meet our clients needs. Our business has trended upwards for several quarters, and the positive trend has continued in fiscal 2005.

Let me summarize our operating results in the first quarter of fiscal 2005. As indicated in our press release today, revenues for the quarter were $115.4 million. This revenue is higher than the first quarter of a year ago by 94%, and is sequentially higher by 8%. These revenue results reflect the continued strong demand we discussed in recent quarters. Our domestic practices continue to grow through the quarter and this trend has continued into the second quarter. Our domestic strength offset the summer slowdown in Europe.

In dollar terms our U.K. practice revenues were 133% greater than the prior year's comparable quarter, and lower sequentially by 22%. Also as expected our Dutch practice revenue was slower during the summer months and down sequentially by 18%. Revenue from our Asia Pacific region was up 47% sequentially, and 159% year over year. Steve will provide additional details of revenue trends in his review of operations later in the call. Previously we have discussed the four key components of our growth strategy.

We believe our results from the first quarter continue to demonstrate our progress against these long-term goals. First, we have enjoyed enhanced visibility of our services to large clients that has accompanied our engagement to assist companies complying with section 404 of Sarbanes. We believe we are now building new relationships in new areas within our existing expanded client base. Revenues from our 50 largest clients represented 43% of total revenues during the quarter with our largest client in the quarter at about three percent of revenue. Our client retention among our largest clients continues to be excellent.

Second, we continue to add new clients with significant revenue potential. During the first quarter we began working with more than 150 new clients including a number of Fortune 500 companies. Many of our new clients have been referred by the current audit firm or by existing clients, primarily to assist these companies internally with their risk management. Some of these companies were already targets, and the current regulatory needs have allowed us to demonstrate our value proposition to them.

Third, we continued our geographic expansion that has enabled us to become more relevant and useful to major multinational clients. Our recently announced Swedish acquisition, although not material to our operations, is consistent with our Big Four heritage and our opportunistic strategy to develop in Europe. We also added capabilities in south Florida as our domestic footprint continues to expand.

And, fourth, our services strategy is developing well. The percentage of our total revenues derived from accounting and finance is decreasing as we diversify our revenue base across our five services, and expand our services to clients in a variety of professional areas. Accounting and finance is still our largest service line and is growing at a nice pace.

Further much of the work we are doing in our RAS subsidiary, would previously have been classified in the accounting and finance, or the information management sector, had we not separately branded and developed RAS. These are the four components of our strategy we laid out when we started resources, and later went public. We continue to look for ways to improve our client service and become more useful to our clients. We can do this without the burden of independence necessary for a Big Four audit firm.

During our last call, we said that gross margins would likely decline sequentially, due to the higher number of holidays in the summer quarter. The decline we experienced was less than we had anticipated. Gross margins for the first quarter were about 40% domestically and 35.5% internationally. In overall gross margin for the quarter was 39.4%, and is higher than our stated target of 39%. Gross margin was reduced by low conversion fees compared to pre-recession levels and again less than one percent of revenues. And high reimbursable costs. Neither of these factors affects our pricing and overall pricing remains fine.

All our service lines continue to grow. Accounting and finance services continued as our largest revenue service line. Of our other services, RAS which was formed in June, 2002, continued its rapid growth. It represents approximately 33 percent of revenues for the quarter. Not all of the revenue in RAS is related to Sarbanes, though. We continue to experience strong demand from engagements dealing with Sarbanes-Oxley compliance. We are currently working hard to address the very strong ongoing demand from clients who need assistance in meeting the deadlines for complying with various sections of Sarbanes-Oxley. Strength in this area was the primary reason that we were able to overcome the typical summer slow down.

Many of our clients are discovering that the time and effort required to comply with section 404 is substantially more than expected. While we hope all of our clients comply on time, it seems likely that there will be many companies who will need more time than anticipated to complete the 404 compliance process, and this extra effort may extend beyond the year end deadline. There is speculation in the media that many companies may not receive a positive certification from their independent auditors this year. It is anticipated that large remediation projects will be needed to correct deficiencies. We have only limited experience with client demand after initial Sarbanes compliance, with some of our largest Sarbanes clients have already engaged to us follow on work, and many are talking to us about their compliance and internal audit needs in the coming year.

We expect that many clients who engage us for Sarbanes work will engage our services in other areas where we they need help. We are now discussing with clients the scheduling of ongoing annual work and updating this initial work and testing the remediation needed to meet the future years compliance. Many companies may need help in complying with section 409 of the act, which mandates much shorter deadlines for financial and regulatory filings. And other regulatory changes may also increase demands, such as the New York Stock Exchange mandate requiring internal audit department. Now here is Steve with additional information on the results of the first quarter.

Thanks, Don. Revenues totaled $115.4 million for the quarter versus $59.5 million in the comparable year ago quarter, and $107 million in the previous quarter. These results represent year over year growth of over 90% and a sequential improvement of 8% despite the summer holidays. Revenues trends on a consolidated basis were positive through the quarter, with the exception of weeks that have a holiday. The average weekly revenue in the first quarter was approximately a $8.9 million per week. This is a sequential improvement of about $650,000 per week. Revenues in the last week of the quarter were about $9.7 million.

Now let me discuss revenues geographically. Results in the U.S. were strong. The U.S. practice averaged $7.5 million per week versus $6.6 million in the previous quarter. The domestic business improved through the quarter and into the early weeks of Q2. International revenues were impacted by summer slowing in Europe. Results in the Netherlands and the U.K. for the first quarter were expected to be seasonally lower, and that expectation did play out. Revenues for the quarter on a local currency basis were down sequentially by 18% in the Netherlands, and by 23% in the U.K.

Because we only owned the Dutch practice for half of the first quarter a year ago, year over year comparisons are not meaningful. Besides the effects of the holiday season, our colleagues have not yet benefited in any meaningful way from either a European recovery or a regulatory demand driver analogous to Sarbanes-Oxley, that has helped in the U.S. We believe the Dutch economy is stable, and that our Dutch practice is weathering a difficult market for professional services there is somewhat better than it's direct competitors but we expect revenue growth there will still be slower than the rest of the Company for the next few quarters.

We have experienced an uptick in revenue in the Netherlands and the U.K. in the first few weeks of the second quarter as the summer season drew to a close. Total revenues for the Dutch practice in Q1 were $10.9 million, and total international revenues were $18.5 million. As we entered the second quarter, revenue per week on a consolidated basis grew slightly. There have been four weeks since the end of the first quarter, and revenues have improved to a run rate slightly above $10 million per week. This quarter includes Labor Day and the Thanksgiving week, so given our run rate our current estimate is that revenues for the second quarter could be about 3% higher than Q1.

Now let me discuss our gross margin. I will first discuss domestic gross margins on a basis comparable with prior disclosures, and then margins in newer international operations. Domestic gross margins were 40.1% for the quarter. This is slightly above our 40% gross margin target domestically. Conversion fees which have a disproportionate impact on gross margins, were still less than 1% of revenues during the quarter, similar to last year.

Client reimbursement revenue, which is just a pass through of out of pocket costs to our clients and reduces overall gross margin, was about 3% of revenue during the quarter. Our international practices have historically maintained lower gross margins. Gross margins for these practices were 35.5% during the quarter, as we have previously stated, the reasons for a lower gross margin internationally include a different employment model to fit the laws and customs of several of the countries, and they also experience lower gross margins during the seasonally slower summer months.

Consolidated gross margins for the quarter were 39.4%, slightly higher than the blended 39% rate we had planned. Associate headcount at the end of the quarter was 2,370, compared to 1,468 a year ago, and 2,086 last quarter.

Now to the other components of our first quarter financial results. SG&A expenses for the quarter were $25.2 million, or 21.8 percent of revenues. In the year ago quarter SG&A was 28.9 percent of revenues, and in the most recent previous quarter SG&A was 22.3 percent of revenues. We have mentioned in the past that in periods of rapid revenue growth, we expect to leverage our infrastructure, but that we will continue to make appropriate investments to support our long-term growth. SG&A levels in the first quarter reflect sequential dollar increases to support growth and a slight improvement sequentially on a percentage basis. Increases in the dollars of SG&A are primarily the result of internal headcount additions. SG&A was $17.2 million in Q1 a year ago and was $23.9 million in Q4 of fiscal 2004.

Depreciation and amortization were just under $1 million for the current quarter, versus $690,000 a year ago. Interest income was $304,000 for the quarter, versus $172,000 a year ago. Invested cash earned 1.7% during the quarter. Interest income continues to be negatively affected by the very low interest rates available in current market conditions.

Our operating margin for the first quarter was 17.6%, compared to 10.5% in the year ago quarter. This increase is attributable to the rapid improvement in revenue during the quarter and the resulting operating leverage. Earnings for the quarter were $11.6 million, or 46 cents per share, versus $3.4 million and 15 cents per share a year ago. We have been adding headcount in critical areas where we are experiencing high demand and we have more to do. As this is accomplished, we expect operating margins to decline to a planned level of 14 to 15%. Our operating margin target continues to be 15%, which we believe balances current profitability with our long-term growth initiatives.

Now let me turn to our balance sheet. Cash and investments at quarter end were $70 million. The improvement in revenues that accelerated soon after the beginning of this calendar year is now resulting in strong cash flows. Cash is up slightly from year end, despite payment of year end bonuses and estimated tax payments, as well as cash paid for the Swedish practice. Receivables at quarter end were $65 million, up 9% from year end. Days sales outstanding were 47 days, the same as at year end. DSOs may start to trend towards lower levels, as cash flows begin to catch up to revenue growth. We are generally quite pleased with the strength and soundness of our balance sheet. Now let me return the call to Don for some final comments.

Thanks, Steve. In summary, this was not a normal summer slow down in our first quarter. Instead the U.S. business continued its growth, offsetting the slow European summer, and leading to improving revenues and earnings strength. Even with this operating strength we are focused on how we can continue to capitalize on the long-term trends that make an alternative professional services firm more valuable to our clients. Our employees are proud of what they are accomplishing.

All of us look forward to the growth challenges ahead. We believe we have positioned resources to capitalize on the potential increase in demand for professional services and the independence issues that affected the Big Four. It's important to recognize that our continued success is subject to significant ongoing business, economic and political risks. We live in an uncertain world. We are building a business with the goal of adding value for our clients, our employees and our shareholders. And the business model is continuing to evolve into a true multinational and multi-services line.

Our long-term growth targets continues to be 20 to 30% in revenue growth per year with similar growth in earnings. And during better demand environments, like those we are currently experiencing, we tends to grow faster, and during portions of an economic downturn, we will be below our target. We are building a business with sustainable long-term value, and not just focused on the quarterly results. Our plans include continuing to rationally build out our infrastructure to support our long-term growth strategies.

We have made a lot of progress in both our geographic and services strategies during the recession, and we have been adding people to address recent demand, but we still have much to do. Currently we are hiring for several important positions throughout the Company. These include local RAS directors and leaders in newly established supply chain management positions. We are considering at least four new offices in North America, and one new office in a major European city. We have also launched a fledgling new service line, legal services. As we make these investments our operating margin should be lower than the last two quarters. As Steve mentioned, our operating margin target is 15%.

Our business is helping clients with change, and we believe clients have only so much budgeted for accounting and systems projects and change. A disproportionate amount may be going to regulatory compliance, and part of this may be a permanent cost of being public and should create repeatable projects. We are already planning the Sarbanes-Oxley update work and testing at some clients for next year. We expect clients will continually have other needs that we can help with and they will have budgets to deal with those needs.

I believe the company continues to make excellent progress and that the Sarbanes projects bring us new client relationships and better relationships with the senior management. We are able to prove our worth. We can be seen as a better value professional services provider for internal projects. To build on this progress, we will continue to be opportunistic to expand geographically in diversified services. This expansion may be from appropriate acquisitions or through organic efforts, and we continue to believe there are services being performed internationally by divisions of the Big Four that may no longer be viable or appropriate for them, as they are precluded from working for their audit clients. We continue to see unprecedented change in the professional services marketplace and this creates opportunity. Now we will be glad to answer your questions. Operator, we're ready for questions whenever you are.

Thank you sir. [Caller Instructions] We'll take our first question from Randy Mehl with Robert W. Baird.

Good afternoon and congratulations, outstanding results again. I wanted to pursue a couple of comments you made, Don. Has there been a change in the order pattern of your clients? In other words, are they asking you for resources? Are they giving you more time between when you actually deliver to people, or when they ask and when you deliver to people? In other words is your visibility maybe getting a little bit better with some of your large clients?

I think the clients where we've proven ourselves to them, we've always had, I think, a good order relationship with them, where we can actually sit and talk to them about how to solve an issue, and then decide sort of an internal solution for them. In some of our newer clients it's more help, we need help right away, get out here, et cetera. Some of our clients that we've gotten have used other resource providers, and other, even parts of the Big Four, that have not been able to get the job done, so we've gotten actually some work recently from those types of companies, and it's a good opportunity for to us make ourselves known to them.

Okay. Just one follow up to that. Steve, 3% sequential growth in the November quarter, particularly coming off a seasonally slower, what should be a seasonally slower quarter seems very low, especially if you factor in additional Sarbanes work, which I would imagine you're anticipating. Is there a constraint that you're running into on the supply side at this point?

Let me first answer the first part of your question about the expectations. We continue to try to be conservative in terms of estimating what our future prospects might be and we hope that what we have provided today is a conservative estimate of what we will be able to do in the next quarter. As you can see from the numbers in our headcount, despite a really challenging market for talent, we added a pretty significant number of people to our Company during the year, or excuse me, during the quarter. So while I would suggest that in some of the fastest growing markets, it's difficult to find all the talent that you want. It's not currently a constraint on our ability to grow.

Okay. So, trying to be conservative and at this point it's harder but you're still finding, you're still able to fill orders basically?

Right.

Yep.

Okay. Thank you. I appreciate that.

We'll take our next question from Brandt Sakakeeny from Deutsche Banc.

This is Dave sitting in for Brandt. I was wondering if you can comment on what you're seeing amongst the competition. I know you commented just a bit before, on what you are seeing with the Big Four, but I'm wondering if you are seeing any competition at your size level and the like.

I've been in several markets recently and for the most part competition is not something we typically deal with, especially for some of these larger clients that we have. We have had instances where the Big Four firms have been in trying to do some of the Sarbanes work for other than their audit clients, and have not been able to do it because they don't have the resources, and they have referred that work to us. On some of those instances there were companies that we had not been involved with before, and frankly when the Big Four brought us in, it sort of helps us with the credibility gap right away, so they know we are going to give them good service. So I would say from across the country we really I don't think regularly run into any competition that we sit around talking about.

Okay. Great. Just one follow-up question. The recently opened Florida office, wondering if you can give an update on how that's coming along.

Sure. We just opened it and we had great timing so we opened it right before the first hurricane. And he's actually sold some work. When you open a brand new office, you don't expect to get results for awhile because you have to start mining the area and going to clients, potential clients, etc. He looks like he's off to a great start, and it's an individual who we have confidence in because he has worked for us before, so in a lot of ways we didn't need start up training and start-up time involved if we had started with somebody who didn't know resources.

Any expectations as to when it starts to generate revenue?

Well, typically we've said in the past it takes anywhere from 12 months to 18 months for an office to break even, on average.

Okay. Great.

So that's what we look for.

Thanks very much.

We'll take our next question from Andrew Steinerman with Bear Stearns.

Good afternoon, gentlemen. My question is about the gross margin trends sequentially. I believe that international gross margins came up almost 90 basis points sequentially during, as we said, a seasonally slow time. That happy surprise was somewhat unexpected by me. Could you sort of dive into what drove international gross margins up sequentially, but U.S. gross margins came down sequentially.

Well, as you know Andrew, we suggested at the end of the last quarter that it was likely that sequentially gross margins would be down in the majority of our business, because of the different timing of holidays and things through the summer quarters. So the result domestically was actually somewhat better than we expected, even though down sequentially. The results internationally reflects slightly better pricing I guess, and the practices outside the continent internationally are having better gross margin than we probably expected.

Okay. Right. But Dutch gross margins did they improve sequentially or were are they down sequentially?

We haven't discussed gross margins on a specific country basis.

Do you feel like the placing in Holland also has some firmness to it, or was that a more general comment when you said better placing internationally?

The growth margin in Holland has improved through specific actions that they have taken. So they have taken specific actions to, with their mix of associates to get their gross margin up.

Okay. And last point, what would you have anticipations for gross margins going into the next quarter?

I think our target continues to be the same at about 39%. This quarter is impacted by the Labor Day and Thanksgiving holidays, and whenever we have a slightly greater number of holidays, it tends to bring gross margins down a little bit. But that's a broad expectation, and we will just have to see how business does. As we mentioned, business so far in the early part of the quarter has been quite strong.

Super. Thanks Don and Steve.

We will take our next question from Greg Capelli with Credit Suisse First Boston.

Hi, guys. Greg and Josh. I would like to go back to the Sarbanes, I guess the RAS business, a big portion of which we know is Sarbanes. Could you guys give us some more concrete or specific examples of clients or numbers of clients that came to you and started out, hired you for Sarbanes work and have since rehired you for something else?

I will give you two examples. It's not something we are keeping track of per se, but I've been out to many clients recently, and I talked to the, our client, the CFO, or the chief financial reporting or the chief of risk management, whatever it is, and I find consistently at a lot of these clients we are continually doing work.

Last year our second largest client for the year was a Sarbanes client. We had previously done work with them on some restatement issues they had, and then we got involved in Sarbanes and actually took over most of the project for them. And in the first quarter there again, a very large client and about 50% of our revenue now, are new projects, not Sarbanes projects.

Another company that was one of our first successful Sarbanes implementations, very large financial client, we have continually done work for them after Sarbanes is over. They basically are, we are helping them with new projects, and they've actually referred us to another very large financial institution, as a preferred provider to help them with their risk management issues. So we know that when we build our relationship with our clients, improve our value proposition to them, these companies constantly have change they have to deal with, they constantly have issues, constantly have new systems projects, acquisitions, companies are divesting, et cetera. So we think our client service model will help us continue with these clients beyond Sarbanes. So I know two very large concrete examples, I was at a large oil company two weeks ago, again, they are using us for a lot of different projects after Sarbanes.

I just assume it's more than a few, we are talking about just in totality a good number of clients, is it in excess of ten maybe that have done outside work or could you give us some idea there?

I would guess the majority of our clients that are Sarbanes clients, we have done other work for them and are doing other work.

I would look at our top 50 clients and there's not more than two or three that I can think of where exclusively the work is related to Sarbanes. It's almost always a mix of business.

Okay. Got it. That's very helpful. Final thing is I wanted to ask you on the length of a typical client that comes in for Sarbanes work, the length of that assignment versus maybe something more traditional, is it very much?

I don't know what you mean by something more traditional.

I guess something outside of, Sarbanes, I know the lines are a little bit blurred.

They are very blurred. A lot of our projects you couldn't draw a line through and say now that's Sarbanes related, and now it's stopped and now it's something else. We keep moving in companies because as Sarbanes identifies some areas that they could improve on, then they want to do a project to improve on that when they are done with Sarbanes, and we can move our teams over there. I would say the longest Sarbanes project was probably nine to ten months, and then we have others where we may only be involved for a month or so. So probably the length of the projects is similar to the, when you deal with a multinational, is the projects we have always done for.

I think Greg, in the past we have also said our typical way into a client is with a project that a client thinks will only take a certain amount of time and then it extends, and in that regard Sarbanes is definitely typical because, as we mentioned in our prepared remarks, just about every company we are dealing with, the time required to complete their Sarbanes work is more than they had originally anticipated.

Okay. Got it. One quick final thing. You gave color on the associates, on the hirings and whatnot, what about bill rate/pay rate, how is that trending right now?

It's I think because our gross margins are doing better than we expected the bill rate pay rate is trending fine for us.

This quarter bill rates will be up slightly more than pay rates.

Okay. Thanks, guys, great job.

We'll take our next question from Randy Reese with Waddell and Reed.

Good afternoon. I was wondering if you could break out the U.S. versus international associates at the end of the quarter?

Hi Randy. We don't have the associate count. We gave during the prepared comments the breakout by dollar amount, and I think it's fair to presume that it's pretty rateable.

Just trying to isolate down here the growth going on. The growth numbers you cited for Asia is pretty big numbers. How much of that, what's going on there this quarter that would cause such a big number in Asia?

Our Tokyo office was a new office we started. We started it as a start up in February. We had our grand opening in May. They are just building, they are building traction and adding revenue. So that office we would hope, would continue to push growth in Asia. Our Hong Kong office is actually doing very well, and has benefited from a lot of the corporate governance issues in the U.S. And our [Stering] office has done very well. That's primarily the three markets. But the percentage growth of course when you start from zero, like we did in Tokyo, is going to help the percentages.

Why would there be no benefit from what's going on in the United States in Europe, if it shows up prominently in Asia? Is it a difference for whom you are doing work, or what kind of work you are doing?

No, we are benefiting in Europe, too. I mean a lot of our projects in Europe, especially in the U.K., have had to do with risk management and helping multinational companies. So we are benefiting in Europe, too.

This isn't pretty normal seasonality.

It's just that everybody is on vacation.

Yes. Thank you very much.

Star one for questions. Again, that is star one for questions. We will take our next question from Mike Cutler with ING Investment Management.

Good evening. I missed the break out for the revenue of international versus domestic, I was wondering if you could break that out again.

Sure. The revenue from the Dutch was 10.9 million, and the revenue internationally in total was 18.5 million.

Thank you. One other question. You commented that one of your large clients in when you finished the Sarbanes-Oxley you are now doing follow up business with them. Could you just comment on what your revenue level is, because there's talk that Sarbanes-Oxley is also costing a lot more than anticipated. So what kind of run rate happens after that work ends?

The one client I mentioned which was our largest Sarbanes client last year, turned out to be our second largest client for the whole year. And currently now that we have moved into doing other work for them they are now our largest client, for the quarter. So the level of work is actually still very high for that client. I would say that everything I have read and in talking to clients, when I visit for the most part, Sarbanes is more expensive and costing more than they expected. Some of them are also surprised at some of the results.

I think one thing that we should just remind everybody, is our revenue has tended to grow in stair step fashion, and we are now kind of taking a big step upwards, but it has tended also then to move upwards for some time and then plateau for a little bit while we kind of consolidate that revenue strength. And that's what we've been trying to continue to communicate to investors, is that while this Sarbanes opportunity has given us a big step forward, at some future point it will likely moderate in terms of strength, but that it's given us an opportunity to move to a higher level that we would not otherwise have been at.

Right. One other question, the revenue growth of 3% can you split that out, domestic versus international?

No.

Oh. Okay. Thank you.

We'll take our next question from Evan Marwell with Criterion.

Good afternoon guys. Great job on the quarter. One quick question. Could you elaborate a little on what you mean by risk management work, that you are doing for a lot of these companies as your follow up to some of the Sarbanes stuff?

Sure. I mean I was out at a company, a technology company that is going public. They hired a Chief Internal Auditor. And we sat with him. He doesn't want to try to hire an audit staff because a company of their size would not get a lot of quality internal auditors. So we helped him with his intra-audit program and when he needs projects done in Europe or someplace else, we put a team of people in to do the project for him. So we will outsource or co-source his internal audit work.

Another client, we helped him put together a controllers manual, that they didn't have. They had a number of subsidiaries internationally that were on different accounting systems, that basically had their own type of controls, and we helped the company standardize its controller manual, so they would have the same closing procedures and the same internal controls across the whole company. So there's just a myriad of the different types of projects that fall under risk management.

Okay. So it's all sort of audit, internal audit and controls related stuff?

Yeah, for the most part. Yes.

Terrific. Thank you.

Star one on your touch tone telephones to ask a question, star one for questions. We'll take our next question from Andrew Gossy with OSS Capital.

It's actually Adam Lightses. You may have already mentioned these numbers, but what was your organic growth rate in the quarter, and also what was the percentage of revenue for the audit solutions division a year ago?

The organic growth rate is about 87% versus 94% for the whole business. The only difference between organic and total is that for the first month and a half of the quarter we didn't own the Dutch business. In terms of -- I'm sorry, what was the second question?

The percentage of revenues for the audit solutions business in the quarter a year ago?

It was considerably smaller, about 8%. You need to remember that it was really soon after the end of the calendar year that we saw the very rapid improvement in revenues that was driven significantly by our RAS practice. A year ago RAS was really still a start up.

Thanks.

And Ms. Duchene, there appears to be no further questions. At this time I would like to turn the call back over to you for additional comments or closing remarks.

Thank you. Don, if you don't have any more comments, we would like to thank everyone for being a part of the call today. We look forward to talking to you at the end of our second quarter. Thank you.

This does conclude today's conference call. At this time you may disconnect.