Resources Connection Inc (RGP) 2007 Q4 法說會逐字稿

Good day and welcome everyone to the Resources Global Professionals fourth quarter fiscal year 2007 earnings results conference. Today's call is being recorded. With us from the Company is Ms. Kate Duchene, Chief Legal Officer; Mr. Steve Giusto, Chief Financial Officer; and Mr. Don Murray, Chief Executive Officer.

At this time for opening remarks and introductions, I would like to turn the program over to Ms. Duchene. Please go ahead, ma'am.

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

During the call we will be providing you with comments on our results for the fourth quarter of fiscal 2007. By now you should have a copy of today's press release with you. If you need a copy and are unable to access it on our website, please call Margaret Porter at 714-430-6363, and she will be happy to fax a copy to you.

Before turning the call 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, 2006 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 conditions to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call.

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

Good afternoon and welcome to our year-end conference call. This has been a successful year, and we finished fiscal 2007 on an upswing. The final quarter of the year was our best ever, with revenues exceeding $200 million in the quarter, and earnings at an all-time high. Our revenues in the quarter were up 21% year-over-year and 7% sequentially. And earnings per share of $0.40, computed before stock compensation on a basis comparable to the prior year, was better by about 30% versus the comparable figure a year ago.

On a full year basis revenues grew by 16% over the prior year to $736 million, and earnings per share before stock compensation was $1.39. Steve will provide additional details on our revenues and earnings in his discussion of operating results.

Our growth strategy is to grow our client base, build on our relationships with existing clients, develop and expand complementary professional services, and expand geographically. This has been an active quarter and year, particularly in terms of expanding our service capabilities in our geographic reach. Let me give you some of the highlights.

After the end of the fiscal year we completed the acquisition of Compliance Solutions, a UK-based firm that provides regulatory compliance services to the financial services industry. Not only does Compliance Solutions have an excellent business in the UK, but it also provides a platform for us to expand capabilities in this attractive service area to other global financial [senders]. Steve will cover the financial terms during his report on operations.

The acquisition is part of the services component of our growth strategy. We offer services in six professional areas, and all but the RAS service area -- all grew during the quarter. We experienced demand across all of our service areas other than RAS. As has been discussed before, the SOX component of our RAS work continues to generate revenue, but at a slower pace than in the past few years. This makes sense as in the first two years SOX compliance was a must-do fire drill. Now companies have built SOX compliance into their processes and thus are more efficient than in the past.

RAS revenue's as a percent of total were 15% in the fourth quarter compared to 23% of total revenue a year ago. RAS revenues for the year were 20% of total revenues compared to 29% in fiscal 2006. We estimate that RAS will be fairly flat sequentially in quarter one, but could see some acceleration in quarter two and quarter three.

During the quarter we continued our international expansion with the addition of practices in Milan, Mexico City and Dusseldorf. As has been our practice, we have hired experienced leaders in those markets. In Germany, because of the diverse economy, we will need to open a number of additional offices. We anticipate pursuing this expansion opportunistically in the coming year.

In the U.S. we are in the process of opening a Tulsa office to serve our oil and gas clients. In New York we recently hired another well network executive to lead our Tri-State practice. Coleen Cunningham was most recently the CEO of the Financial Executives Institute. Before that she was CFO of the U.S. operations of Havas, the advertising agency, and before that Chief Accountant at AT&T. She brings deep technical knowledge, coupled with a diverse contact list with C level executives at major companies that will help us continue growing in what is currently our largest practice.

Our geographical and services strategy support the client-focused components of our growth strategy. While investing in the initiatives that I just mentioned, we continued to serve clients well, as evidenced by the growth in total number of clients we served this year, and the number of companies that individually generate significant revenue.

During fiscal 2007 we served over 2,200 clients. Of that number, 110 represented 50% of our revenue. We served 300 clients that generated $500,000 of revenue or more, the highest total in that category ever. In that group of 300, there were 146 clients with revenue over $1 million. 71 of those had revenue over $2 million, and 17 were over $5 million. Our top 50 clients represented 35% of total revenues, but our largest client was less than 3% of revenue.

We believe that these client statistics demonstrate that our client service model is continuing to win us new clients, while helping us build long-term relationships with those companies with them we already work. This has been a well-balanced year. We have invested in many initiatives that are not expected to result in immediate returns. We were able to grow revenue slightly faster than the growth in our overall costs, including those investments, and our margins were near the high end of our 15 to 16% operating margin guideline.

As we enter fiscal 2008, we are focused on growing the Company consistent with our longer-term target of 20% revenue growth, while maintaining strong gross margins and operating margins. And this is the balanced approach we have taken since inception.

Before I turn the call over to Steve, I will touch on our capital structure. We spent the first decade of the Company building a strong operating foundation. Because our operating model efficiently generates cash, the result of our operating focus has been the evolution of a very well capitalized Company that has the ability to continue growing rapidly without significant need for additional outside capital.

Based on a careful assessment by our management and our Board, the Company -- of the Company's operating strategy, we believe that we can prudently return capital to our shareholders while retaining adequate operating flexibility and balance sheet strength to accomplish any reasonable strategic initiative.

Therefore during this past quarter we bought back approximately 1.5 million shares, which completed the previously authorized buy back program approved by the Board. We announced today that our Board of Directors has authorized the repurchase of up to $150 million worth of shares, and a special cash dividend of $1.25 per share. Steve will provide further financial information on these actions in his portion of the call.

From a management's perspective, we have considerable faith and enthusiasm for the market opportunity we're addressing. We are well positioned to continue building a much larger and more valuable Company. We want to do that while balancing the needs of all of our significant consistencies, including our external and our employee shareholders. The action we have announced today regarding our capital structure are positive for all our shareholders, and reinforce our confidence in the prospects for resources in our second decade and beyond.

Now I will turn it over to Steve for a more detailed review of the financial results for the Company.

Revenues for the quarter were $200.5 million versus $165.9 million in the comparable quarter a year ago, and $187.5 million in the third quarter of fiscal 2007. This represents year-over-year growth of 21% and sequential growth 7%. For the year revenues were $735.9 million versus $633.8 million in fiscal 2006, representing growth within the 15 to 18% range we discussed earlier in the year.

We are pleased with this result as it represents the fifth consecutive year of revenue growth. During that five-year period our compound average growth rate has been 38%, well above our stated goal of 20 to 30%. Since we began the business in 1996, revenues have grown 10 out of 11 years. Let me give you additional details about the revenue trends during the quarter.

We experienced strong results early in the quarter, as reported in our last conference call. After a slight slow down around Easter, revenues accelerated, and by the end of April we were at a weekly runrate of approximately $16 million. The last four quarters of the quarter were not quite as strong. Although there were no major U.S. holidays, the impact of national holidays in Europe and Asia had a more significant effect that has been the case in prior years. Revenue per week in the last month of the year averaged $15.5 million per week, and the last week of the year was about $15.6 million.

From a geographic standpoint, revenues in the U.S. were strong through the fourth quarter. Revenues internationally were impacted, as I mentioned, by holidays and fell off towards the end of the quarter. Revenues for the Dutch practice in the quarter were $17.2 million, and were $68.7 million for the year. This represents year-over-year growth of 9.2%.

Elsewhere in Europe we had strong results in the Nordic region, saw better results in the UK, and we're getting some traction in newer European practices such as France, Belgium and Norway. In Asia-Pac we completed a very successful year with the revenues up 108% for Q4, and full year revenues up 78% from fiscal 2006. International revenues represented 24% of total revenue in the quarter, about the same as last quarter. International revenues for the year represented 23.6% of total revenue.

The dollar continued to be week against most currencies, creating a revenue benefit of $3.6 million in the quarter versus the fourth quarter a year ago. Now let me give you an update on revenues early in our new fiscal year.

We have had uneven revenue results in the first few weeks of fiscal 2008. The first week of the year was a four-day week -- work week in the U.S., and revenues were down ratably. We rebounded from Memorial Day to $15.8 million per week in the second week of the quarter. The third week of the quarter was below that at about $15.3 million. Although we then rebounded to $15.8 million the week before last, the most recent week included the July 4 holiday in the United States, which this year fell on Wednesday, the worst day of the week from a revenue standpoint.

The average weekly revenue in the first five non-holiday weeks of the year is $15.6 million. It appears that vacations are starting a little earlier than a year ago. The vacation effect is not surprising, as we're heading into a seasonally weak month an a half during the summer. In particular we expect a significant vacation effect in Europe over the remainder of the summer.

Our people report a continued strong demand for services despite the summer slowdown. And we estimate that the strength of demand for our services, offset by seasonal weakness, should result in Q1 revenues down slightly on a sequential basis.

In the coming year our goal is 20% or higher revenue growth. We will get the benefit of a 53 week year, and our fourth quarter will include 14 weeks of revenue. It is much too early in the year to assess the likelihood of achieving that goal, but our people are optimistic about the opportunities that we see in expanding our revenue base.

Now let me discuss gross margins. Gross margin for the quarter was 39.5%, 60 basis points lower than the year ago fourth quarter. The primary cause of this decrease was an increase in the percent of revenues from client reimbursements that have a 0% gross margin effect. Excluding the effect of client reimbursements, gross margin exceeded our 40% target. As is typically the case, gross margins in the U.S. were higher than internationally. Our international gross margins were 36% during the quarter.

At the beginning of fiscal 2008 we have improved our benefits for associates by increasing their paid time off by a week. While we believe we will be able to pass this through to our clients, it will not happen immediately and it may impact our Q1 gross margin percentage.

Now let me discuss headcount. We grew headcount during the quarter. At the end of the quarter we have 3,275 associates and a total headcount of 4,100. At the end of last quarter we had 3,142 associates and a total headcount of 3,930. Our average associate FTE count during the quarter was 3,180 versus 3,119 in the immediate proceeding quarter, and 2,724 in the quarter a year ago. While recruiting is challenging, we're adding adequate talent to meet the demand we see in our markets around the world.

Let me now discuss the other components of our financial results. Selling, general and administrative expenses before stock compensation for the fourth quarter were $45.8 million, or 22.9% of revenues, and for the year were 23.3% of revenues. This compares to 24.4% in last year's fourth quarter, and 23.6% for all of last year.

When we started this year we said our goal was to grow SG&A at the same rate as revenue. We did slightly better than that, with SG&A pre-stock comp up 14.5% for the year versus revenue growing just over 16%. For the quarter, operating margins before stock compensation were 16.6% versus 15.7% a year ago. For the year they were 15.9% versus 15.7% last year.

We implemented the new stock compensation rule, FASB 123R, at the beginning of fiscal 2007. This is the last quarter where our GAAP earnings are not comparable to the prior year. In the fourth quarter the non-cash pretax charge for stock compensation was $5.7 million or about $0.08 per share. For the year our non-cash pretax stock compensation expense was $20.1 million or $0.31 per share. Based on the stock comp charge included in our fourth quarter operating results, we expect stock compensation in the coming year to be approximately $23 million on a pretax basis.

The other area where the new stock accounting has an impact is in our tax rate. As we have previously reported, it is impossible to predict our GAAP tax rate with any precision because it depends on the number of incentive stock options exercised and sold during the period.

In the fourth quarter we had a lower percent of incentive stock options exercised, and we were thus able to report a higher tax benefit in the quarter. This contributed to reducing our GAAP tax rate to 43% for the quarter from 44% in Q3. Still it was $1.8 million of stock compensation expense that did not generate an associated tax benefit. As time goes on it is logical to presume that the remaining number of ISOs outstanding will fall and our tax rate will revert to levels similar to those before FAS 123R was implemented. However, for the coming year it would be reasonable to use this year's tax rate as an estimate.

Before stock compensation, our tax rate also improved a little to 39.6% for the year. Therefore our pre-stock comp tax rate during the fourth quarter was 38.7%. For the coming year we estimate a pre-stock comp tax rate of 40%.

Depreciation and amortization totaled $2.1 million for the quarter and $7.6 million for the year. In fiscal 2006 fourth quarter depreciation and amortization was $1.5 million and it was $4.7 million for the year. The increase is due to a higher asset base.

Interest income was $2.6 million in the quarter and $8.9 million for the year. We expect interest income somewhat lower in fiscal 2008 as we continue to return capital to shareholders.

Our earnings per share for the quarter was $0.40 per share pre-stock comp. On a comparable basis we improved earnings per share in the quarter by 30% versus last year's fourth quarter. Our earnings per share for the year was $1.39 pre-stock compensation. This represents improvement of 19% on a comparable basis.

GAAP earnings were $0.32 per share in the quarter and $1.08 per share for the year. GAAP earnings are not comparable to the prior year due to the inclusion of stock compensation expense in this year's results. Stock compensation is a non-cash charge to earnings.

Now let me give you some additional information on the acquisition Don mentioned. The acquisition of Compliance Solutions is important to our services strategy, but is not currently material to our operating results or our balance sheet. We are purchasing Compliance Solutions using a combination of cash and stock. Total purchase price for Compliance Solutions was $8.2 million, of which approximately 75% was in cash and one-quarter in stock. The stock vests over two years. And a portion of the cash price has been deferred for contingencies. We paid a multiple of EBITDA lower than our current EBITDA multiple, and we therefore expect this transaction to be modestly accretive in year one. The results of our regulatory compliance services will be included in our RAS service line.

Now let me discuss our balance sheet and expand on Don's discussion of our capital structure. At the end of the year we had $223 million of cash and investments, exactly the same as at the end of the third quarter. During the fourth quarter we returned approximately $46 million to shareholders by completing the purchase of the entire remaining 1.5 million shares available under our Board approved buy back at an average purchase price of $31.46 per share. Because the majority of the buy back activity happened late in the year, most of the impact on share count will be in the coming fiscal year. To date we have returned $82 million to shareholders through our buyback program at an average price of $27.72.

We have announced today Board approval for an additional share buyback not to exceed $150 million. We are coupling this with a special cash dividends of $1.25 per share payable August 21 to holders of record on August 8. The special dividend will return approximately $61 million to shareholders based on the current number of outstanding shares.

We will continue to use the strong cash flow characteristics of our business model to be opportunistic in investing in new services, geographies and people, while also committing to further return capital to our shareholders when prudent. Our goal is to create balanced growth and profitability, coupled with strong and improving return on capital.

After the buy back activity this past quarter, the acquisition of Compliance Solutions, and giving pro forma effect to the special dividend, we will have approximately $150 million of cash remaining and consolidated equity of approximately $300 million on a completely unleveraged balance sheet.

Our receivables improved markedly in the fourth quarter, with DSOs down three days, and the net balance in receivables down to $105 million from $108 million at the end of last quarter, even with revenue growing.

We normally have negative operating cash flows in Q1 when we pay out bonuses, a 401(k) match, and estimated taxes, but for the coming fiscal year we expect operating and cash flows in excess of our net income.

With our strong balance sheet and cash flows, we believe we have the necessary firepower to pursue any relevance strategic opportunity we may see. Now let me turn the call back to Don for some final comments.

Our financial results are directed by a clear strategy that we aim to execute effectively to address a growing and evolving market opportunity. And core to our success is attracting and retaining talent at all levels in the Company, but it is particularly important that our associates continue to provide our clients with a differentiated and preferable experience. In the current market environment there are no individual demand drivers [like Fox], yet we believe our business has good potential to continue expanding.

We believe this is partly the result of the different client experience we provide, but also due to the broad worldwide demand for professional service delivered in a non-traditional way. To put this in perspective, when we went public in 2000, the economy was expanding rapidly, and there were many capital raising transactions that drove demand for our services, which were then only offered in the U.S. When that activity slowed after 9/11, and during the weak economy of 2001 and 2002, some were convinced our business could not grow. But we evolved the Company to serve troubled clients, while also continuing to invest in new markets, including international.

Then as the U.S. economy recovered, some investors expressed concern that we would not be able to replace work with the troubled bankrupt Company. There was also a period of significant scandals at Enron, MTI, Arthur Andersen, and [Rudolf Hirsch]. Well we have worked through those melt downs, and also began assisting with the regulatory requirements spawned by those scandals. Now we have, for the most part, moved past the intense regulatory effort, and have once again transitioned into a more broad based demand for professional services, including developing markets.

Based on our history we believe it is difficult to predict with accuracy the scale and type of services our clients will demand. But if you build a company, as we have, that can immediately react to the ever-changing needs of major companies in the fast changing world, we believe our future is bright.

About six weeks ago we gathered the entire global management team in Chicago for our annual management meeting. The energy at this meeting is infectious. Enthusiasm for our Company we are building is great to see it and to feel it. I'm very proud of the people at Resources and the effort they are making to achieve the potential we see in expanding our business.

And for our investors our actions with regard to the capital structure of the Company, we reward you for your faith in our people and their ability to execute our -- Resources' vision and strategy.

We aim to keep executing, and keep rewarding our shareholders, our employees, and ultimately our clients by the quality of the services we provide. Our people are proud of the progress we made in fiscal 2007. We're looking forward to doing more in fiscal 2008. We at this time would be glad to answer your questions.

(OPERATOR INSTRUCTIONS). Brandt Sakakeeny, Deutsche Bank.

Congratulations on a nice quarter and a solid outlook. I guess my questions are really on the margin framework first. Fourth quarter saw very good margin expansion. As we look out toward '08, given your comments about the extra week associated with the associates, do you plan to recoup that on the SG&A line, or would you think margins should be flattish this year versus last year? Could you just give us I guess a little more color there?

We plan to recoup it over time from the gross margin line. But for the coming year, Steve, you want to -- I think you touched on it.

I would say that the likelihood is pretty good that our operating margins will be in line with this year. We have had a little bit of operating leverage in fiscal '07. We might -- if we have a really solid year and strong revenue growth see a little bit of incremental operating margin, but I wouldn't estimate it that way. I think that our operating margins pre-stock comp were towards the high end of the range that we have set. And we continue to make investments in the business, that as Tom mentioned, don't have immediate margin effect. So modeling the operating margin percentage flat is probably a pretty good idea.

Just to drill down a little bit on this extra week, was this more a -- I guess would you characterize that as a reactive move or a proactive move?

That is just a calendar. I mean, every --.

No, I'm sorry, Steve, not the extra week in the year. I mean the associates -- giving the associates [other] paid off time.

What we do is we do an associate survey every year, and we try to address their top issues. And as our longer-term associates have chosen not (inaudible) career employee -- employer, they indicated last year that they really wanted more time off. So we tried to implement additional time off, another week, etc. So it is really proactive, reacting to what their needs are. And every year we have addressed whatever their top issues are.

Can you talk about bill rate and pay rate spreads, I guess broadly, and also may be highlight a couple of geographies within the European or Asian-Pac regions that are particularly strong?

The bill rate expanded nicely. The pay rate expanded just a little bit more than the bill rate, so that is something that we're going to keep an eye on. And as I mentioned, particularly with the incremental costs of this new benefit, we will had to keep an eye on it. Our people are relatively enthusiastic about the opportunity to pass that through to clients, but you can't change the bill rate on existing engagements. So there might be some incremental pressure initially, but we're pretty confident that we will get it through over time.

In terms of geographies, broadly Asia-Pac, as I mentioned, was very strong, and the margins there are quite good. Margins are not quite as strong in Europe. And that is something that we are aiming to improve.

Andrew Steinerman, Bear Stearns.

I just want to revisit pretty much the same question you were answering about operating margins being relatively flat in the fiscal '08 year as an assumption. I just hear a lot of kind of investment spending just thematically opening up offices, hiring people. And I am thinking that gross margins might be down if international keeps growing faster than the U.S. What basically will be keeping operating margins flat to slightly up if all those things are the case?

If you recall, in the last year and a half or so we have opened a number of new practices that are not at scale yet. As they get to scale, they have an obvious leveraging effect in that their operating costs are relatively fixed in the short-term. So if they increase revenues, most of that gross margin flows to the bottom line. So our approach to this whole investment thesis is you continually invest, but you're investing at a pace that allows you to recoup certain investments that are made a year or two ago while you're making the newest investments. So it does depend on our newer markets continuing to make progress.

Just to get to add a little bit, the international margins are the lowest in Europe, and especially in the more mature companies countries that aren't growing. But our margins in Asia-Pac, which are the newer offices that we expect hopefully a lot of growth over the next five years, are higher than even in the U.S. (multiple speakers).

Is that true also on the gross margin basis?

Yes.

Great.

Yes. We have very strong operating results in Asia itself.

That's great. Since you bring up Asia, can I throw out a question? Where do we stand with JSOX? When do companies in Japan have to be compliant on that?

We're getting work from JSOX already. The compliance date is still a year and a half out. But as with the SOX initiatives here, you have to start relatively early. So we are already getting some significant size engagements. And I would expect that there is going to be a huge surge that will continue over the next year in a half.

Christina Woo, Morgan Stanley.

I was hoping that you could talk to hiring trends. You have commented in previous quarters that has been a tough labor market, particularly for the white-collar professionals. Are you seeing that is loosening up a bit, given you have been able to expand in the international market, or are you still struggling to find talent?

I would say struggling is probably not the word we would use, but working hard to find talent. It has always been -- one of our core strengths is getting the right talent for the client. It is not just trying to find a CPA or somebody with supply chain, it is somebody who actually has the exact experience that the client needs to finish their project or lead their project.

Yes, it is something we work really hard at. In the United States it is harder in the West Coast and in the East Coast, as we said. The middle of the country seems to be softer. But it is something we work really hard at. We've got a national recruiting center that sort of marshals resources from around the country to get them to the opportunities. But I think it is something that we do really well. It is one of our core competencies. It is not easy to recruit the right people.

Right. Was the fourth quarter any better than the third quarter?

I don't think so. I just think that we're continuing to make progress. The fact that we are continuing to add headcount more or less in line with our revenue growth is consistent with our business model. And I think that you should infer from our actions with regards to this new benefit we talked about, that one of our recruiting goals is not recruiting, it is retention. We want to keep our people longer and longer, and key providing them a foundation on which they can build a career in project-based service.

Right. Switching gears slightly. You have changed your organizational structure a bit, Karen moving to Presidential. Where do we go from here? Are there any other changes that we might see in the senior organizational structure?

We will continue to evolve our organizational structure as our people develop, given more and more responsibility. For Karen it was just a natural progression, as she has been a real leader of our practice, and it is to recognize her leadership and even making more effective for the U.S. At this point in time we do not have any more major changes planned.

One last quick question following up on a question Brandt posed. How long do engagements tend to last? You had said there's going to be some flexibility in passing along the costs of the extra week to clients, but you can't do that with existing engagements.

Our typical engagement is about six to nine months. So that doesn't mean that there isn't a constant turnover of engagements, but if you started one a month ago, and it is going for six months, you probably don't have an immediate chance to change the rates. Having said that, we anticipated this move for some time, so we gave our people about a six-month head start on getting the rates in place.

Mike Fox, JP Morgan.

Congratulations on a strong quarter. In the prepared remarks I think you said that you expect the RAS business to begin to stabilize in the second to third quarter. Can you talk about what gives you confidence in that? Is it seasonality, or is it more work from JSOX or whatnot?

I think it is a combination of things. It is certainly that we would expect the work that exists in the U.S. with regards to SOX to increase during the second and third fiscal quarters. As we mentioned, we do also expect some incremental work in JSOX work, as you mentioned. And then there are other initiatives that we have been putting in place that we expect this to gain ground as well, coupled with the small increment from our new regulatory compliance practice.

All those things together should make RAS somewhat stable. But I think the more important thing to note is that the strength of growth in all of our other service lines continues to be very attractive. And one of the ways that we've handled the change in RAS growth is to take people who used to be working on RAS engagements and put them on engagements in other areas. So while RAS gets more air time perhaps than others, perhaps it shouldn't because the strength of business across the remainder of our service lines has been very good.

Then can you give me gross margin broken out by U.S. and international?

The U.S. in the fourth quarter was 41.1%, and I think I mentioned the international was 36%.

Jim Janesky, Stifel Nicolaus.

When you are looking at the revenue trends coming into the first fiscal quarter, and assumptions as we go throughout the quarter, do you believe that the vacation trends, especially within Europe, will accelerate throughout the quarter, and that the weekly average will come down to around $15 million for the quarter?

Let me answer the first part of that question. Yes, we expect the European vacations to accelerate through July and into August. However, it has been a trend in the U.S. that Augusts tends to trend up. I think that our expectation is that revenue for the quarter will be slightly below what it was for this quarter, which suggests an average rate higher than what you just suggested.

Is there anything -- you mentioned the word uneven revenues in your prepared remarks for certain parts of the quarter -- and the fourth quarter and the first quarter. Is there any hesitation on clients' part to pull the trigger on new project because of any concerns about the economy at all -- are you hearing that at all?

Not that I am aware of.

No, I think Steve said that the feedback we're getting and that we see is that the demand is still strong. We're still getting requests. And every day we get e-mails about the new types of projects that we're trying to fill and the skill sets we need. I think it -- we think it is the vacation pattern -- vacation patterns and also the July fourth being in the middle of the week.

Scott Schneeberger, CIBC World Markets.

First question, I guess looking organic growth versus acquisition, how does the acquisition pipeline look internationally? Is it just smaller opportunities and hence the cash back to shareholders? Can you just discuss those two components of that please?

Our acquisition philosophy has always been to try to acquire something we don't have, which would be either a new geography or maybe a new service line. It has never been acquisition to acquire more sales and more revenue. So for the most part we don't find typically larger acquisition candidates that fit our culture. And we probably look at -- right now we probably are looking at five or six different types of things every month that people bring to us or we find.

So we did look at one larger acquisition in Germany. Culturally it didn't work out. It wasn't a good fit at all for us culturally. So we have nothing large on the horizon. Almost all of our growth that you see this year is internal organic growth. The majority of our investments in the last few years have been new offices that we open ourselves. So that has been our strategy. Currently we do not have any plans to make an acquisition just to gain more size or gain more revenue.

That's helpful. I guess for FY '07 your goal was I think 6 to 10 new offices, predominately international. Should we think about that for FY '08 as well?

I don't know if I would put it that way. I think our approach is opportunistic. We have tended in the past just to give a number to give some broad idea, but for instance had we accomplished this acquisition in Germany we would have opened --.

Or we would have acquired.

We would have acquired 14 or 15 offices, which would have added to our office count very rabidly, and it will be a longer term process to open them -- excuse me, city by city in Germany, which is something we intend to do. How rabidly that happens depends on finding the right leadership in those practices.

Part of our acquisition strategy is to build upon -- not acquisition, our new office strategy is to build upon our investments. So in China we opened Beijing first. We're hiring people for Shanghai. Once we have those open, we will probably look in another area, Shenzhen. But we're not going to hire people for Shenzhen until we have Shanghai up to a certain level. In Germany, the same thing. We're looking for leaders in different areas of Germany. So part of the -- we don't plan to stop opening offices, but it is somewhat contingent on the current investments we are already making in that geographic area.

(technical difficulty) in the recent past that you had a lot of Indian associates that you were looking to move across the globe. How is that progressing (inaudible)?

We actually haven't had a lot of Indian associates that we have moved across the world. We have had some. And our plan is to try to increase that sort of supply of associates. And we have -- our internal legal people are working on visas, and every country is different. But that is still one of our strategies, and especially to deploy them in Asia.

Gary Bisbee, Lehman Brothers.

My congratulations on the quarter. You had a press release a few weeks ago about hiring a few people to add to or maybe jump start the legal practice in a couple of new cities. And I think it said you had 30 total people. Obviously pretty small in the grand scheme of 3,000 plus associates. But how do you -- was that just opportunistic, or is there some sense that you may be thinking about accelerating investment in that end market? And I guess how do you think about the size of that versus finance and accounting or some of the other areas you're in?

We do plan to continue to expand legal services into new markets, especially major metropolitan markets. We do have to work to make sure that we -- that what ever structure we use coincides with the Bar Association's guidelines for those states, because it varies state by state. As far as the potential, Kate Duchene is sitting to my left, and she is the one that launched the legal practice. I will let her answer her idea around potential.

Well, we're excited about the potential for legal services, as I think we have said before. We're excited about the hires. We have just moved into the Chicago market, as you know, with the hiring of Luke Palese. And we have added another person in our Tri-State practice.

I think the legal market is slower to nontraditional ways of getting their legal needs met. And so it is a constant market education process for us now, but the needs are tremendous within legal departments of our existing client base.

I would say we don't start a service line unless we think it has the potential to reach at least $100 million of revenue in the future.

Great. Thanks. What is the business model on the acquired business? I take that it is probably full-time consultants as opposed to your normal temporary and --?

Yes. There is a group of salaried professionals who are virtually 100% utilized, so it has potential to grow, just as we do, through growth in headcount. But it is generally working at capacity most of the time. They are a very busy group. But it is a small component of the business, but it is a modestly different business model, which happens to have very good operating margins.

If I could just -- we don't view our associates as temporary, so we don't have a temporary model. You would be shocked at how many of our associates have been with us for years. I just was in Los Angeles where we had an award for one of our associates that has there since the month we started eleven years ago. So they are not temporary workers. But they are variable pay workers based on the productivity, which they like. They like being paid for every hour they work, and therefore no one can take advantage of them. So there are some strength to a salaried model because you're not paying for every hour, but there is some strength to our model, which is a more variable pay model.

I guess the potential if they are carefully utilized would be for that business to potentially have higher margins if you are able to scale it?

And also to add our associates with financial services experience into their business, so that we can take the excess demand as they are developing it and use our term associate base to serve those clients.

Could you give us a little more sense of maybe what an example of a type of project this business would be doing for one of the financial services customers?

Let's take a financial advisory company or a mutual fund. They have to have regulatory audits, examinations. So one of our projects would be to go in and do a mock examination and get them ready for it, and help them correct any deficiencies they see before they get the examination. It is actually a very large market in all the financial services centers around the world, including New York, so that is a typical project.

Great. Then the last question for Steve. In the last two quarters you were able to grow your SG&A a fair amount slower than revenues. And when I look at August and November '07 quarters it looks like the comparison, at least as a percentage of revenue for SG&A in the year ago period is a lot higher. It seems to me that you might actually be able to get some decent SG&A leverage in fiscal '08. I guess I'm wondering with likely 20% revenue growth, or a target of that versus 16 in this past year, what kind of things would lead you to accelerate the growth of SG&A? Is it anything beyond just the normal continue to invest in the business so that the growth is sustainable?

It is nothing more than that. Obviously if we can get leverage we will get it. We just would caution people to wait for it to happen before anticipating it.

Mark Marcon, Robert W. Baird.

Good afternoon and great year, and nice move on the capital structure. I am just wondering with regards to the associates that you were talking about earlier, Don, and those that are sticking around, do you have any metrics that we should think of in terms of how long the average associate typically ends up staying with you? And have you gone through the exercise in terms of thinking about how much more productive or profitable the enterprise can be over time if you were able to lengthen the term -- the number of assignments that an associate takes?

We know intuitively an A plus associate for us is very valuable and the year-over-year they are the best resource we have. So to lose them and have to replace them is a lot of energy and effort to stay in the same place. We wouldn't be growing if we weren't keeping our A plus associate, at least that is my analysis.

We have attempted to analyze or develop metrics, but it is really hard because some of our associates that come in, their skill sets are so narrow that they can only maybe work on one project or two. Other areas we have associates that come to us that we know are basically in transit -- transition and looking to get the right CFO job, etc. And we may take them on as associates for specific needs that we have, knowing that their goal is to take a permanent role. But we are keeping the majority of our A plus associates, otherwise we wouldn't be growing.

On the other hand, we evaluate our associates after each engagement. And the ones that we don't think have skill or not right for project work, we help them transition into something different. So our statistics aren't really comparable to say what we had when we were in the Big 4.

In terms of the U.S., obviously you are achieving nice growth despite the fall off in Sarbox and the seasonally slow period. What are the areas where you're seeing the strongest growth and in which regions are you seeing the strongest growth?

Asia-Pacific has been very strong for us. Beijing is growing and is profitable. Tokyo has done very well for us. Even a small offices in Taiwan is growing and has been very profitable for us. So that area of the world is strong. One, because I think our business model is unique. We think that the multinational companies there need multinational capabilities, world-class standards of accounting and finance, etc. So that is something we can help them with. I think Asia-Pac or Asia itself is where we see a lot of, hopefully, future growth.

Within the U.S. you're growing quite nicely as well despite the fall off in Sarbox. What practice areas have you seen the strongest growth in the U.S., and what regions of the U.S. are you seeing the strongest growth?

Our strongest practices have been in Southern California, Northern California, Tri-State and Chicago. Big surprise, our biggest cities. Those have been our strongest growth areas, as well as our strongest financial areas. And then we are looking to -- we have a number of offices that are in large metropolitan areas that we are looking to strengthen the operations in the United States in those markets too.

Great. And then a housekeeping question. In terms of the share count, given the lateness in the quarter in terms of when you bought that the shares, any guesstimate in terms of how we should think about the share count for the first quarter? Let's just leave it to the first quarter.

I think we're using 50.5 million as an estimate for fully diluted for the first quarter.

T.C. Robillard, Banc of America Securities.

Just a real quick question on the RAS business. I know you guys don't like to overly focus on it, but considering it is the only real division that we get a lot of detail on, I wanted to talk to you a little bit about both the internal audit, just kind of an update there. But also if you strip out all of the Sarbanes-Oxley work, can you give us just some sense as to how the other practices within RAS are doing and growing?

You are right, the we're tired of talking about RAS because it is becoming a smaller part of our business. The other areas outside of RAS that continue to evolve are primarily internal audit-related services. So that can be a variety of different things. But I would tell you that describing that in detail is like asking us what the detail is in accounting and finance. We had very diverse sets of skills that we provide. It had happened to be in the RAS area focused on internal audit. So you could have any number of different sorts of internal audit projects that are different based on the facts and circumstances relevant to each client.

So I guess I would say that if you asked me that same question for any of our service lines, I probably wouldn't be able to give you any more detail than that, just because of the diversity of the services that we provide.

Then I guess maybe -- I know what was -- Andrew brought it up earlier in terms of the JSOX. Do you guys have a sense as to the magnitude of that relative to say the implementation that went on in the U.S.? Are we talking kind of a fraction of that? Just some rough -- obviously we're not going to be able to hold you guys to anything with that, but I was just trying to get some of your insights with respect to the opportunity there.

My understanding of JSOX is that it doesn't have the same regulatory ramifications as our SOX does. So that I would guess that the magnitude per company won't be anywhere near what has been in the U.S. In the first two years in the United States, it really was a fire drill, whereas now it is built into our clients' processes, and so there's no longer a fire drill for the majority of the public companies that had been complying with SOX. I would say JSOX is not going to be as much of a fire drill, so it is going to be less effort by each major company, but probably hopefully, it also will give us some recurring work as SOX has too.

Michel Morin, Merrill Lynch.

Just maybe preempting the 10-K, Steve, I think last year you had disclosed how fast the F&A business had grown. I don't know if you can give us any additional color on growth in the other segments?

I would tell you that growth in the F&A business was excellent. I'm not going to provide a percentage at this point, but it is still significantly our largest practice. Growth in the other areas, outside RAS, was even better than that. The growth percentage for our non-accounting and finance segments was anywhere from 45 to 75% during the year. So just extraordinarily good. So it just continues I think to support our services strategy, which is to have a broad base of skills that we can provide to our clients.

You have talked a lot about Asia. Would it be possible to quantify how big you are now in Asia? Out of that other international segment, which is now running about $100 million, how significant is Asia in that $100 million?

We have not quantified it, but obviously it is getting to be more significant because it is growing faster than any other segment.

Is it possible to say if it is more than half of the amount or ballpark?

If you look at our largest practice, it is the Netherlands -- I think that you did disclose, right?

Right.

Asia is just -- they are all new offices, so hopefully in five years we will have to disclose how big Shanghai is and how big Beijing is and how big Tokyo is.

Okay.

That is one of our goals is to have to disclose that.

Perfect. What about if you were to look at revenue growth for offices that have been open for a year or more. How has that been trending?

We have never done a same-store sales sort of analysis, so I don't have that number in front of me.

In terms of the buy back, Steve, is there any timeline that you are thinking about? Is there a goal to try to get this done this year, or is it as the market permits?

There is no definitive end to that buy back period. And I would tell you that our expectation is we will continue to be aggressive about returning capital, but also opportunistic as well, and so there's no timetable for when we will complete that entire amount.

Just finally, Don, you mentioned I think in response to an earlier comment that the employees are not temporary in nature. Can you talk about how broadly stock ownership is in the employee base?

All the associates are eligible for the employee stock ownership plan. And I don't have that figure with me as to who participates. It also varies by country, because some countries it is very onerous to allow them to participate because of their tax laws. But we do encourage all of our employees to have -- and it is a beneficial price that they get for the employee stock ownership plan.

We have records on all those employees who own options, and we have a record obviously of those people that precipitated in the employee stock purchase plan. We don't have records of those employees who are just straight shareholders, just because that is not available to us. But we think that it is a fairly high percentage.

Joshua Pollard, Goldman Sachs.

I just wanted to congratulate you again on a great quarter. Most of my questions have been answered, but I do have a question on Compliance Solutions. Are you guys able to outline any of the operating metrics there, whether it be revenue or EBITDA on an historical basis?

It is relatively small from a revenue standpoint, so it is not material to our results, and therefore we haven't disclosed the historical revenues. I think that you can guess a little bit based on what normal multiples might be for an acquisition and what we paid for it, what the revenues might be. And then from an EBITDA standpoint, it's got EBITDA margins slightly better than ours.

On the six offices that you guys opened in the first half of the year, could you outline how many of those are actually booking revenue, and how many of those that are booking revenue are actually profitable?

Well, I know that during the year we had four international practices that were not profitable, out of all of the international practices that we opened. I would say that is pretty good progress.

The ones that we opened, I think in the first half of the year --?

I've got Montreal, Tijuana, [Anapoli], Chicago, [Legoria] and Edinburgh.

Yes, I think they all have revenue.

There is no international market that has no revenue. There are --.

Except the newest ones.

Yes, and then there is a very small number that are not yet to profitability. And those that are profitable are not necessarily at optimal profit yet.

Last just a cleanup question. How many ISOs do you guys still have outstanding, if you have that number available?

I don't have it available. I think you should presume that it will be reducing each year. I don't know what the life of the remaining ISOs is going to be. And as I have mentioned, it is a very hard analysis for us, because we really just don't know what each individual employee is going to do with their ISOs, so how quickly they run off is a pure guess, and I am not really willing to make that guess at this time.

When do they expire?

They are ten year options.

So they don't expire for --.

No, there is some --.

Another six years.

Right.

Thanks guys. Congratulations again.

That would include our question-and-answer session. At this time I would like to turn the program back to our speakers for any additional or closing comments.

I want to thank all of you for your continued support and for your interest in Resources. And we look forward to our next update after the end of the first quarter of fiscal 2008. Thank you.

Thank you everyone for your participation on today's conference call. You may disconnect at this time.