Resources Connection Inc (RGP) 2008 Q4 法說會逐字稿

Good day, and welcome everyone to the Resources Global Professionals fourth quarter fiscal year 2008 earnings results conference call. Today's call is being recorded. At this time for opening remarks, I would like to turn the call over to Kate Duchene, Chief Legal Officer. Please go ahead.

Thank you, Operator. Good afternoon everyone, and thank you for participating with us today. Joining me are Don Murray, our Executive Chairman, Tom Christopoul, our Chief Executive Officer, Tony Cherbak, our Executive Vice President of Operations, and our Chief Financial Officer, Nate Franke. Tom will speak first about the quarters results, followed by Nate who will discuss the financial details and then Tony will conclude the prepared remarks for our call. During this call we will be providing you with comments on our results for the fourth quarter and fiscal year 2008. By now you should have a copy of today's press release. If you need a copy and are unable to access a copy via our website, please call Patricia Marquez at 714-430-6314 and she will fax a copy to you.

Before introducing Tom, I'd 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, 2007, for a discussion of some of the risks, uncertainties, and other factors, such as seasonal and economic conditions that might cause our business, results of operations, and financial condition to differ materially from results of our operations and financial conditions expressed or implied by forward-looking statements made during this call. I'll now turn the call over to Tom Christopoul , our Chief Executive Officer to give an overview of the fourth

Thanks, Kate. Good afternoon, everyone and welcome to the Resources Global fourth quarter conference call. We'll discuss our financial and operational performance of the business here today, but before Tony, Nate and I do that, I'd like to take a moment to acknowledge Don Murray, our Executive Chairman, who is sitting next to me. Our CEO transition has really just started, but it's important to note that Don's vision and his guidance of the Company has really provided me the opportunity to assume leadership of an enterprise that I'm very happy has tremendous growth prospects and is in excellent condition. CEO transitions can often signal underlying concern or challenge in a business and in this case, nothing could be further from the truth. Don has and will continue to provide guidance and counsel to me and to Resources and as you will hear during this call, that's nothing but good news. I've begun to work closely with the Executive Management team, and collectively, we are executing our strategy over the long term. Recognizing the value this leadership team brings to the Company, we are in the process of modifying or entering into employment agreements with this group, which we will disclose today.

So turning to our results, total revenues for the fourth quarter of fiscal 2008 were the highest quarterly revenues in the company's history at $236.7 million, that's up 18% over the fourth quarter a year ago, and 17% on a sequential basis. As we have previously noted, our fourth quarter was comprised of 14 versus the typical 13 weeks. Average weekly revenue for the quarter totaled $16.9 million, compared to $15.4 million in the prior year, which is an increase of 10%. Over the course of the quarter, 26 offices hit new weekly revenue highs. That was split evenly between domestic and international with 13 each. We finished fiscal 2008 with with total revenue of $840 million which is an increase of 14% over fiscal 2007. If we adjust for the extra week of revenue in this fiscal year of '08 just finished, our apples-to-apples growth rate would approximate 12%. Nate will provide additional details of recent revenue trends in his review of our financial information later on in this call.

As fiscal 2008 comes to a close and we head into 2009, I'd like to speak to the strength of our business from my perspective as the new CEO of Resources. We are often categorized by analysts and investors as a staffing firm but we are far from it. Resources helps its clients by providing intellectual capital on demand to accomplish a variety of client driven internal initiatives, and these initiatives can range in complexity from reconciling unbalanced intercompany accounts to applying fair value accounting to a portfolio of complex derivative instruments. A recent client satisfaction survey for work that we performed for our global Fortune 10 energy company, we were rated 18% higher than our closest competitor on our ability to transfer knowledge and project data to the client. What this says is we are obviously able to help clients get things done, while we ensure their ability to carry on after our work is completed. We're really proud of the client relationships we have built over the first 12 years that we've been in business. We served 84% of the Fortune 100, almost 70% of the Fortune 500 and almost 60% of the Fortune 1000. It's great news that we do business with 570 of the Fortune 1000 but it's even better news there are several other hundred companies in that category that we have yet to work with.

We would not be able to claim such an impressive list of clients if it were not for our talented employees and associates. Don has spoken about the Resources circle of quality in the past, which begins with our client service personnel identifying great clients with service needs to work for, and will present professionally stimulating and challenging work for our associates to do. Our associates come to us from a worldwide community of professionals with wide ranging skills and experience. They've developed that while working for some of the biggest companies around the globe. Our associates are intellectual capital, and they allow us to become what our clients need us to.

In 2004 and 2005, we led our clients through the complex maze of SOX 404 implementation. We did not hire internal auditors to lead this important initiative. Rather, accounting and financial professionals who had great judgment from their many years of previous experience at the Big Four or in consulting or private sector firms. As SOX became institutionalized, these are the same associates who were redeployed on other projects within our various service lines, and who have generated post-SOX growth for us, even in light of the current economic trends. Our associates, more than 40% of whom have advanced degrees, average 18 to 20 years of experience. More than 45% have CPA certificates and more than 20% have licenses or certifications other than CPAs. This experience and pedigree gives us the ability to make an immediate difference on client's project work or on initiatives that they pursue and obviously that response from our clients has been overwhelmingly positive as is demonstrated in our results.

What happens when your focus is bringing uncompromising quality to your clients? Since inception 12 years ago, this practice has grown from zero to over $840 million in revenue. Over the last five years, our revenue has increased over 250%, yielding a CAGR of 33%. We look forward to our continued growth opportunities in fiscal '09 and beyond, and let me leave you with with this thought before I turn the call over to our CFO: Resources Global is obviously a very unique human capital enterprise. We are not about staffing. We are not about search. We are not about strategy. We are about solutions. That distinction originates in our associates, resonates with our clients, and translates into our exceptional growth rates and margin.

Now, I'll hand the call over to Nate, who will go through a more detailed analysis of our financial results for the quarter.

Thank you, Tom. Revenues for the quarter grew 18% to $236.7 million versus $200.5 million in the comparable quarter a year ago and 17% sequentially from $202.8 million in the third quarter of fiscal 2008. For the 2008 fiscal year, revenues were $840.3 million versus $735.9 million in fiscal 2007, representing growth of 14%. As we have previously discussed, our fiscal 2008 fourth quarter and year consisted of 14 weeks and 53 weeks respectively, while our fiscal 2007 fourth quarter and year consisted of 13 weeks and 52 weeks respectively. Revenues during the 14th week of our fourth quarter, which included the Memorial Day Holiday in the US were approximately $15.1 million split 64% in the U.S. and 36% internationally.

Now let me discuss revenues geographically. For the fourth quarter, revenues in the US were up 10% quarter-over-quarter and 15% on a sequential basis. For the year, U.S. revenues were $612.4 million, increasing 9% from fiscal 2007. For the fourth quarter, total revenues internationally were $68.2 million versus $47.8 million a year ago and $55.8 million in the third quarter of fiscal 2008, up 43% year-over-year and up 22% sequentially. International revenue accounted for 29% of total revenues for the quarter, versus 28% last quarter. For fiscal 2008, international revenue accounted for 27% of total revenues.

Europe's fourth quarter revenue were up 44% quarter-over-quarter, and 19% sequentially, while the Asia Pacific region saw fourth quarter revenues up 35% quarter-over-quarter, and up 42% sequentially. For fiscal 2008, Europe and Asia Pacific revenues were up 31 and 22% respectively from fiscal 2007 levels. Total revenues for the Netherlands practice in the fourth quarter, excluding Domenica were $20.4 million, up 19% quarter-over-quarter and 11% sequentially. UK revenues were up 33% quarter-over-quarter and 33% sequentially. Domenica's revenue during the quarter were $5.7 million. On a constant currency basis, international revenues would have been lower by about $6.3 million in the fourth quarter using comparable fiscal 2007 conversion rates. On a constant currency basis, and excluding acquired businesses, revenue during the quarter, international revenue grew 15% quarter-over-quarter.

Let me now give you some information about revenue trends for the first quarter of fiscal 2009. Average weekly revenue for the first four weeks of the first quarter was $17 million, and for the fifth week, which included the July 4th holiday, revenue was $14.1 million. Using the average run rate for the first four weeks of the quarter, and factoring in expected vacations, we would expect to achieve first quarter revenues between 209 to $211 million. Please remember that all fiscal 2009 quarters consist of 13 weeks.

Now let me discuss gross margins. Gross margin for the fourth quarter was 39.4%, a 210 basis point improvement from our third quarter of fiscal 2008. Gross margin was 39.5% in the fourth quarter of fiscal 2007. Excluding reimbursable expenses, our fourth quarter gross margin was 40.4%, equivalent to the fourth quarter a year ago. The sequential quarter improvement stems in part from improved leverage of certain benefits earned by associates over a greater revenue base and improvement in bill versus pay ratios. The average billing rate for the fourth quarter was approximately $134, which is similar to the third quarter rate and represents an 8% increase from the $124 a year ago. The average pay rate for the fourth quarter was approximately $68, which is slightly below the $69 rate experienced in the third quarter and a 7% increase from $64 a year ago. Gross margin in the US was 40.5% and our international gross margin was 36.5%. For fiscal 2008, our consolidated gross margin was 38.3% versus 39.2 in fiscal 2007. We would anticipate first quarter 2009 consolidated gross margin to be down sequentially from the fourth quarter due to a decrease in leverage of associate benefits as we enter the traditional summer vacation season.

Now to headcount. For the fourth quarter, average associate FTE count was 3220. This compares to 3183 in the previous quarter, and 3180 in the year ago quarter. Quarter end associate headcount was 3490 versus 3276 a year ago. The total headcount of the Company was 4366 at quarter end.

Now to the other components of our fourth quarter financial results. Total selling, general and administrative expenses including stock compensation for the fourth quarter were $61.8 million or 26.1% of revenue, an improvement from the 28.4% of revenue in the third quarter of fiscal 2008, and last year's fourth quarter total SG&A expenses were $51.6 million representing 25.7% of revenue. Total SG&A expenses were $57.5 million in the third quarter of fiscal 2008. As a percentage of revenue, our SG&A expense leverage improved 230 basis points sequentially. This improvement stems primarily from spreading our SG&A expenses over an increased revenue base as well as a decrease in stock compensation expense and a reduction in non-essential business expenses during the fourth quarter. Stock compensation expense was $5.1 million or 2.1% of total revenue, versus $6.1 million or 3% of total revenue in the third quarter of fiscal 2008.

At the end of the fourth quarter we opened an office in Raleigh, North care, North Cairo the market is home to 10 of the 26 Fortune 1000 companies that are headquartered in North Carolina, including BF Corporation, Martin Marietta, RH Donnelley and Hanes Brands. As we reported at the end of the third quarter, we closed our office in Grand Rapids, Michigan early in the fourth quarter so our office count remains at 89, 56 domestic and 33 in international locations. We have no current plans for new offices in the first quarter but continue to assess new markets we believe are important to our long term growth objectives.

Depreciation and amortization was $2.9 million for the quarter, up about $800,000 over last year's fourth quarter as the result of our increased asset base. Interest income decreased by $2.1 million to $500,000 in the fourth quarter versus $2.6 million a year ago. Interest income decreased primarily due to a lower balance of cash available for investment after the dividend payment , stock repurchases, our two acquisitions, and lower average interest rates earned on our invested cash. Based upon current interest rates, interest income is expected to remain at this level for at least the near term. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation expense, was 15.4% in the fourth quarter compared to 11.9% in the third quarter of fiscal 2008 and 16.6% in the fourth quarter a year ago. For fiscal 2008, our cash flow margin was 13.9% versus 15.9% in fiscal 2007.

Earnings for the quarter including stock compensation expense were $15.9 million or $0.35 on a diluted per share basis versus $16.1 million or $0.32 per share a year ago. For fiscal 2008, earnings were $42.2 million or $1.03 per share versus $54.8 million or $1.08 per share in fiscal 2007. As I previously mentioned, in the fourth quarter, the non- cash pre-tax charge for stock compensation was $5.1 million or about $0.09 per share versus $5.7 million or $0.08 per share in the comparable quarter a year ago. As we have discussed previously, the tax treatment of our incentive stock options under FASB 123 R will likely cause continued volatility in our GAAP tax expense. The tax benefit for incentive stock option gets allocated to the balance sheet as paid in capital or to the income statement as the ISOs are exercised and sold depending upon the date the ISO vested. Therefore we receive no income statement benefit for a portion of the ISOs exercised in any given period.

During the fourth quarter, we continue to experience a decline in the number of ISOs exercised; therefore decreasing the tax benefit related to ISOs for which we recorded compensation expense of $2.1 million. As a result, our GAAP tax rate was 45.1% for the quarter versus 42.8% in the comparable quarter a year ago. On a cash basis, we will get a real tax deduction for all ISO s when they're exercised and ultimately sold. Our tax rate before the impact of stock compensation expense was approximately 41.4% for the fourth quarter and 40.5% for fiscal 2008. We would expect our pre-tax or our pre-stock compensation tax rate to approximate our fiscal 2008 tax rate during the upcoming quarters.

Now let me turn to our balance sheet. Cash and investments at fiscal year end were about $107 million. During the fourth quarter, we used $21 million to buy back approximately 1.1 million shares of our common stock. To date we have utilized about $102.1 million of the $150 million authorized by our Board of Directors in July 2007. Our shares outstanding at the end of the fiscal year were approximately $44.7 million. Receivables at quarter end were $127 million, up by about $7 million from the previous quarter. Days of revenue outstanding were approximately 50 days, up one day from the prior year's comparable quarter but two days lower than the third quarter of fiscal 2008.

Now let me turn the call over to Tony for some additional

Thanks, Nate. I'd first like to talk a little bit about our return of capital to shareholders during this fiscal year. As Nate mentioned, during our Fourth Quarter, we purchased another 1.1 million shares of our Common Stock. For fiscal 2008 we purchased a total of 4.8 million shares of our common stock for $102 million. Including the special dividend that we paid at the beginning of the year, we returned approximately $163 million to shareholders throughout the course of fiscal 2008. As we enter fiscal 2009 we will continue to evaluate the most efficient and effective methods of returning capital to our shareholders, which while considering the other capital requirements of growing our business. Our capacity to return capital to our shareholders and take advantage of market opportunities as they present themselves is driven by our ability to generate cash from our operations.

Our adjusted EBITDA, which is EBITDA before stock compensation expense was approximately $116 million in fiscal 2008 and has averaged over $111 million per year over the last three fiscal years. Cash flow from operations totaled $57 million in fiscal 2008 and has exceeded our net income by an average of 32% over the last three years. We believe these statistics are important in understanding the efficiency of our business model and the cash flow that it generates. Remember, approximately 70% of our cash costs are variable, which serves us well when the economy is booming and mitigates our exposure when things are tougher.

Now, I'd like to touch on the equity compensation within our employee benefit program. Our equity compensation within our employee benefit program. Our business model is very simple. It's the execution that differentiates from our competitors. To attract and retain the talent needed to consistently execute our business model, we have from inception provided equity incentives in the form of stock options to our employees as one of the key elements of their compensation package. One of the goals of our equity incentive plan is to more closely align our employee's interest with those of all shareholders and drive teamwork throughout our organization which is needed to serve clients around the globe. All shareholders benefit from the value created by these employees.

We are currently in the process of evaluating the future design of our equity incentive plan, including the methodology behind individual award grants, the form of future equity grants which may include stock options, restricted stock, or other equity instruments, and participant levels for each category of award. This design evaluation will take into account our need to properly incentivize our employees while appropriately managing dilution to existing shareholders. It is our goal to reduce our equity plan burn rate while still providing compelling equity incentives to our employees. We hope our investors can appreciate the importance of equity based compensation to our employees and will be supportive of its continuance.

Now let me focus on some information regarding our clients. In fiscal 2008 we had over 340 clients for each of whom we provided services exceeding $500,000 in fees, an increase of 14% over the number of clients we served at this fee level in fiscal 2007. Of these 340 clients, five exceeded $10 million in fees, 18 exceeded $5 million in fees, and 176 exceeded $1 million in fees. In Fiscal 2008, revenues from our top 50 clients represented 34% of total revenues while 50% of our revenues came from 122 clients. This is consistent with our past experience, and validates our strategy to target large companies with whom we can develop sustainable repeatable client relationships. Our business with financial services companies grew 18% year-over-year, even with the adverse effects on such companies as a result of the credit crisis. Our largest client for the year was just over 2% of revenues.

Client continuity continues to be solid. During Fiscal 2008 we served all of our top 50 clients from fiscal year 2007 and 2006. Our loyal client following is reflective of our client service approach, and our basic principle of always doing the right thing for our clients. In fiscal 2008, all of our top 50 clients have used more than one service line and 86% of those top 50 clients have used three or more service lines. This service line penetration reflects the diversity of the relationships that we have within our clients organizations. In fiscal 2008 we served 10% more clients than we did in 2007.

Finally a service line update. RAZ revenues grew 7% quarter-over-quarter and accounted for approximately 14% of total revenues in the fourth quarter of fiscal 2008 compared to 15% a year ago. The RAZ revenue increased approximately 18% sequentially due in part to the 14 week Fourth Quarter and a large RAZ project at a Fortune 50 client. Non-RAZ service lines in aggregate grew 20% quarter-over-quarter.

That concludes our prepared remarks and we would be happy to answer any of your questions at this time.

Thank you. (OPERATOR INSTRUCTIONS). We'll go first to Kevin McVeigh with Credit Suisse.

Hi, everyone. Great job on the quarter. I want to talk a little bit about the margins and the strength of the margins, to understand what drove that little bit in the quarter, particularly given I'd imagine conversion fees were pretty low but if you could give us some color around that?

Hi, Kevin. It's Tom.

Hi.

We appreciate it. I'd like to say at an eye level that it came directly from the focus that the team had on addressing that really important element of our profitability and our margin. I'll let Nate speak specifically to this in a second, and ask Tony to talk a little bit more, but I think the take away here is that this is a result of some very close attention and management to the cost side of our business, and making sure that we manage our leverage in an appropriate fashion.

Kevin, just to answer a couple of things, with regard to the conversion fees, they remained relatively consistent with the past at about 0.5% of revenue, so that was not really what I would call any significant impact and I think as Tom pointed out, this is really the results of what we've been talking about since the first quarter of the fiscal year of really focusing on the bill and the pay rates to get our margins back to what we believe are the appropriate levels. That said, clearly, and in certain respects, we were helped by the 14th week during the quarter, and the improved leverage that that revenue offered.

Just finally I'd add that our work on gross margin is far from done. This is going to be a focal point going forward into fiscal 2009 and beyond and is at the forefront of the minds of all of our managing directors across all of our companywide offices.

I wonder if you could, because there's been so much kind of talk about the current macro environment, it seems like there's a lot of success in passing through bill rates, kind of what clients appetite was the bill rate increase and just kind of the current macro environment overall, if it has been impacting the business.

You know, I would tell you and again, really just echoing what Tom has said, with we are, we believe we offer tremendous value to our clients and when you go back to the experience and qualification levels that Tom mentioned at the beginning of the call, I think when you compare us, when our clients compare us to many of the alternatives, they see the value and it's just a matter of us having the discipline to approach the clients appropriately, and again, a lot of this was working to claw back the costs associated to the extra week of vacation that we granted at the very beginning of the fiscal year.

Kevin, it's Tom. I mean, I think our optimism with respect to the positive leverage between bill and pay is tempered a little bit, right, by the fact that this last 12 month period that we're reporting for is perhaps the most challenging economic environment that most of us in the room and on the phone have seen in the last 15 years, so I would say that we're always focused on bill rate. We always want that to go in the right direction. Our clients have a natural economic orientation for it to go in the opposite direction, but what we're talking about here is a value proposition, right? So we've got to manage all through that. I would say we like to be as assertive as we can around bill rate and we're very happy that we can offer the value proposition we can to the clients but we're also sensitive to the fact that in this economic environment, price is something that is always something that's viewed, so I would say it's kind of a balanced view there.

Great. Thank you very much.

You're welcome.

We'll go next to Jim Janesky with Stifel Nicolaus.

Yes, thank you. A couple of questions. First, when you look at the environment and in terms of your revenue generation, would you say that you're growing because you're taking share, possibly because companies are cutting back on permanent hiring and are more focused on the use of outside professional providers such as yourself or do you feel that overall, the market is growing and that the weaker economy is not having a significant effect as expected?

Well, Jim, I'll let you evaluate the competitive question with respect to our competitors based on their reporting of their earnings. Whether or not we're taking share from them I couldn't tell you. We certainly don't look at growing the business and the clients that we have as anything other than generating additional momentum for our associates and our business proposition, we don't tend to look at other projects that other competitors are doing in order to poach them. So relative to share, I can't really comment. Relative to our competitors again I'd direct you to their disclosure.

What I would say is that we are seeing benefit of what I believe is a real initiative based sort of selling of our services and service lines across our clients, and that may originate as an example in a RAZ project and ultimately mean that we get invited into work on IT or other lines of businesses, so I would say we're seeing good traction in that. We're not nearly done with that, but again, I would say that that's tempered by the fact that many of our clients, especially in the financial services business are obviously dealing with challenges in the marketplace that they haven't seen before. So to the extent that any factor, internal or external is driving the need for our clients to manage change in the organization across whatever line of business or function that is, that represents an additional opportunity for us.

Yes, I'd say the other piece is we are seeing our fair share of proposals and we certainly believe that we are winning our share so there is a fair amount of activity even though it's still fairly difficult economic conditions.

Okay. And shifting gears a bit to the equity compensation plan that's under review, and could you just clarify that a little bit? I missed your point about whether you feel that that will have, that will increase the amount of equity that you give to your associates and executives or do you think over time that will decrease the amount and there for, the amount that you have to amortize over time for stock based compensation?

Well what I indicated in my remarks were that we were looking to reduce the burn rate within our equity plans so that we would look to issue less in terms of shares but we still view the equity incentive plan as a primary component of our employees' pay packages and it's very important to us and what I indicated at the end is that we, because we view this as such an important piece, we really look to our investors to support this when we come out with our proposals and our proxy.

Okay. Fair enough, and then last question is you mentioned about share count at the end of the quarter 44.7 million. Was that diluted?

No, that was just actual share count. The diluted shares at the end of May were, that were used for the earnings per share computation were about 46.1 million shares.

Right, right, that was in your release but you did, did you buyback your shares more towards the end of the quarter so we would expect diluted shares to go down sequentially?

You know, I think they were really bought back probably during I would say evenly through the first eight weeks.

Okay. Thank you.

We'll go next to Brandt Sakakeeny with Deutsche Bank.

Thanks. Curious if you saw in the fourth quarter any demand from IFRS activity.

Brant, we have had a number of what I would call seminars that we have put on in various cities and those have been extremely well attended and I think we have probably our initial engagements at a small number of clients that have just recently begun.

Okay, great. And then Nate, I think you said sequentially, the gross margin would be down which we would imagine but year-over-year they should be up, correct, ex the adjustment for pass throughs?

Yes. Brad, I think that's right. I think we won't see the level of the decline that we saw from Q4 '07 to Q1 '08. You know, my sense is that if we look at somewhere in between the margins between Q1 and Q2 of 08.

Okay. But if you look at the Q4 change, so Q4 '07 to Q4 '08, they were down 10 bips on an absolute basis, right, but up on an adjusted basis for --

Right.

The pass through, so this Q1 '09 they should be somewhat similar, right? Because you would expect to get a little more retracement of that pay rate bill rate issue again?

That's correct.

Okay, great. And then I'm sorry, you went through too quickly the constant currency adjusted 13 week growth rate for the Netherlands and international. Could you give us that again?

Sure. I think what I had said was that on a constant currency basis, international revenues would have been lower by about $6.3 million in the fourth quarter using the comparable fiscal 2007 conversion rates, and then on a constant currency basis, and excluding the acquired business revenue, acquired businesses revenue during the quarter, international revenue grew at 15% quarter-over-quarter.

Okay. Does that include the extra week or no?

Yes.

Okay, so but I'm sorry so the $6.3 million contraction, does that include or exclude the extra week?

The extra week is in that.

Okay. So anything in particular on the international side I guess that was driving that performance?

We had, Brandt, we had a very strong performance in the UK that was not affected by currency because there wasn't much movement between the pound and the dollar, so they were up 33%. The Netherlands because the currency is the Euro was a little bit more affected by the currency but still they were up, so we saw nice growth really across all of our international businesses, both in Europe and in Asia. Japan and Hong Kong were up nicely as well.

Okay, and then as you look out to annual FY '09, any reason why you wouldn't see a renewal of margin expansion? So if '08 was an investment year where you saw the EBITDA contract and fall, I mean is your expectation that you should grow EBITDA and by that I mean sort of adjusted EBITDA in excess of revenue or in line with revenue?

You know, my sense is that it might grow slightly better than the revenue base, just based on some improved leverage in certain areas that I think it's early in the year and obviously, we're real focused on our operating margins, but we haven't really made what I would call any long term forecasts.

But absent the vagaries of the economy --

It's obviously, I'm sorry to interrupt, I assume what you meant is you want a comment on where the economy is going but who knows.

Right. Absent that I'm interested specifically corporate initiatives either positively or negatively that could affect the margin one way or the other to the policy of the bill rate/pay rate, i'm sorry of the vacation policy.

No, no, I would say nothing exogenous with respect to anything positive or negative and so our view is we would like to continue to manage the trends in the direction they're going clearly.

Right. Thank you.

Thank you. We'll go next to Michel Morin with Merrill Lynch.

Yes, hi, good afternoon. Couple questions. First I just wanted to clarify on the RAZ client you picked up in the fourth quarter is that an ongoing project and was that in the US or international?

It was in the US And it is an ongoing project. And it was picked up prior to the fourth quarter.

Okay. Great. And then you talked about the bill rates in an earlier question. They are flat sequentially. Is that a function of maybe mix or is there just maybe a little bit less momentum there relative to what we had seen in the last couple of quarters?

Yes, I think what we said is it remained flat to sequentially, again it's up slightly but it rounds to the same number and I think some of it is mix but I think clearly as Tom pointed out, we're seeking the rate increases , we've made headway, but on a rounded basis, Michel, it did round to flat, but it's actually up

Okay, great. And in terms of the extra week, did that help you at all on the margin side?

From a gross margin?

Either, or operating.

Yes, I think in both cases, it helped. There are certain of the associate benefits we achieved a little bit of extra leverage from that, and then clearly, while a majority of our expenses are compensation in which there isn't leverage, things like occupancy costs and the other and items like that, we are able to, we're able to leverage the extra week.

All right, that's helpful and then finally just in terms of the revenue run rate, I'm just a little bit curious as to kind of how you came to the 209 to 211. Considering, I realize the summer months tend to be slower, but if you go back to the last couple of years, it does look like you still manage to generate some growth in the back half of the quarter, if you will, relative to the first few weeks of the quarter, and it seems from the numbers you've provided us that that's not your assumption for this year. Am I understanding that correctly?

Well, Michel, I think what you have to remember is this is really just a mathematical calculation. It does not factor in a growth estimate and so what we have done is taken the actual revenues that we had for the first five weeks but because of the July 4 holiday, we took the average of the first four weeks and made an estimate of vacation time to be taken and used that to calculate the 209 to - 211. There's not a growth rate assumption in that range of 209 to 211. It's really just based on actual revenue during the first few weeks of the quarter.

Great. Okay, thanks very much.

We'll go next to Andrew Steinerman with JPMorgan.

Hi, gentlemen. You've talked a little bit about SG&A staying levered because of the revenue growth. Was there anything happening within the SG&A line let's say before the stock comp expense and specifically in the May quarter versus the February quarter in terms of expense management and more importantly, as we look into the next quarter, do you feel like that we could keep this level of efficiency at 24% of revenues or because of seasonality, does the SG&A percent just go back up?

Andrew, I think that again, here is probably what I would look at is you're looking in kind of Q1. I don't think we will see the same leverage that we experienced in Q4 mainly because of that extra week, and as I pointed out, there are certain elements of our expense structure that gain from that extra week of leverage. I think if you look back to probably the the SG&A spend back in Q3, we are actively focused on managing SG&A but from an absolute dollar standpoint, I think Q3 would provide a rough approximation of what we might be trying to manage to, but some of that will depend upon our revenue levels.

And I'd just throw in one more thing, Andrew, just to remind you that roughly 66% of our SG&A is made up of people costs, so really some of the opportunity that we have been focused on is just trying to cut non-essential business expenses where we can, try to to absorb some of the attrition that we normal attrition that we might see in terms of our people cost, but our focus is going to be on trying to keep that absolute dollar spend like Nate says, roughly in the third quarter spend in SG&A or if you just converted the 14th week out of the fourth quarter we try to keep the absolute dollar spend on SG&A pretty constant.

Right. When you say constant, you mean the August quarter versus May quarter, right?

Constant dollars.

The $57 million before stock comp?

Right. That's the goal.

Okay. Sounds good. Thank you so much.

You bet.

We'll go next to Gary Bisbee with Lehman Brothers.

Hi, guys. Good job on the quarter. I wondered, people have asked around the impact of the extra week on margins but I wondered if you quantify it for us both on the gross margin and the operating margin what the benefit was.

We did not go to that level. You'd have to make assumptions between each expense category, so we didn't go to that effort.

Okay.

Gary, what question, so we're trying to be respondent. That's not something we would say is meaningful.

Obviously I'm going in the same line as the last couple of questioners in trying to understand okay, great leverage, but my guess is a material piece of that was the extra revenue, and so trying to understand how that would or how that margin is going to look over the next quarter or two without the 15 million of extra revenue I guess is the question.

Yes, I guess, again, we did not go through and try to dissect each element of expense but I think Tony commented that roughly 67, 68% of our expenses are people costs which whether there's 13 or 14 weeks, those are in the P & L. It's the remainder of the expenses, some of those are, if you looked at them, there would be 14 weeks of expenses but then there are other things like rent that is basically paid on a monthly basis that you would get some leverage on. So that would give you, probably some ballpark estimates that remaining 32% of expenses, not all of that is leverage but at some portion and to be honest with you, we just didn't quantify it.

Okay.

I think that it would be somewhat based on a whole bunch of different assumptions.

Let me try to ask a similar question on the gross margin. You did mention that there were some employee benefits that you would get a bit of leverage. Obviously that's got to be a much smaller piece impact on that line. Do you have any sense what those benefit costs are in relation to total people costs, in other words, was it a material impact on the gross margin or are we talking 10 or 20 basis points?

I think maybe a better way to look at the gross margin was just in terms of Nate's earlier comments where we are looking at the go forward gross margin at somewhere, it's going to be greater than it was last year because we don't have the additional holiday but it's somewhat less than the fourth quarter because we don't have 14 weeks of revenue to over leverage those gross margin expenses.

All right, okay. Let me move on to another area. I understand you're giving us more detail on your proxy on the stock comp. Is it a reasonable place for us to be in the near term having that expense line be similar to what you reported in the May quarter or would it maybe bounce back up to the $6 million range where it had been?

If you look at each of the quarters in fiscal '08, I think the average was about $5.6 million. My guess is that if you look out, we would be probably $400,000 less than that, average somewhere around 5.2 to 5.3. Again, that can vary quarter to quarter, but I think that would be a range.

Okay. And I know you sort of passed on the question about the economy, but -- I'm going to take another crack at it. Can you give us any sense of demand trends you're seeing by the various geographies and how they've changed? I think in past calls you've commented that some of the markets on the coast have been stronger in the US and some of the areas that might have had more manufacturing or parts of the economy that were weaker in the Midwest and South might have been a bit weaker, any updated commentary there and also specifically would love any comments like that that you'd give on Europe relative to the US.

Sure. First of all, relative to the Northeast has been very strong for us all year long and as we indicated earlier, our business with financial institutions which I think a lot of people questioned earlier in the year, relative to its strengthen light of the credit crisis has been good and those financial institutions are mostly clustered up in the Northeast corner so that's been a very strong region for us all year long. I'd also say that our central region has been better this year than it has in the past, and I'd say that the West Coast has been a little bit flatter; however there are certain pockets of the West Coast in which we've had very significant client activity. If you move to our international operations i think that we said earlier in the call that the UK was very strong. They've done a really nice job this year of repositioning their practice and have seen the growth reward. Throughout the balance of Europe, we're still very strong in the Scandinavian states and then if we move over to Asia, we had a great performance again in the fourth quarter from Japan which always seems to be strong for us as well as Hong Kong. So that's kind of a look across the landscape relative to the strength of our regions.

And then just one last question. Any updates on where you're thinking about new opportunities for new practice areas or are you pretty comfortable with the areas you've been talking about over the last couple of years? Thanks a lot.

We're very comfortable with our footprint. And I would repeat what Nate said. We're not planning to open any specific offices. We don't have a team out there looking at any cities for new office space and I would say that we're likely, we're just as likely to be brought into a new location, new practice location by a client need as we are about some strategic view about how much a specific area of the world might be of interest to us. Having said that, I would say probably at this time next year, we'll be reporting that our net office count has gone up, not down, but by no more than a handful of offices and I would say that those offices are disproportionately going to be outside of the United States, or let me rephrase that, outside of North America, but that's not to say that it wouldn't happen. Where our clients footprints are, and where their initiatives take us, we go.

Okay, thank you for all of the color.

We'll go next to Mark Marcon with Robert W. Baird.

Hi, good afternoon. You mentioned Financial Services is up. Is that something that you would anticipate would continue to improve or how are you thinking about that?

We've always had a very strong Financial Services practice. If I look across the universe for Financial Services clients , we have multiple initiatives at very big companies, so I would anticipate it to be continued contributor to our

Mark, having said that, our Top 10 clients at the end of the year, we would categorize and they would probably categorize themselves, three of them, in the Financial Services business, so while we're seeing, we're seeing probably decent growth that I would probably say is client oriented and it's certainly not secular to the industry, across at least our business, right? But you could sort of make your own conclusions around where it might go.

Okay. But your general sense is that that should continue to grow and is that roughly about 20% of your business is Financial Services companies?

That's what we have disclosed in the past.

Yes. That's great. And then RAZ, that picked up. Did that pick up exclusive of the extra week?

No. Everything that Mark, everything that we have disclosed relative to financial performance in our comments today is including the 14th week, so certainly a piece of the RAZ growth was the 14th week, but a piece of it was also a very large project that we are doing for one of the Fortune 50 clients.

Except where Nate's comments in the earlier prepared remarks excepted that week you can throw everything into that bucket.

Okay, so essentially, RAZ was flat year-over-year, if we're look hading at it on a daily adjusted basis, which is still good progress because that had been declining. Is that correct?

That's correct.

Okay. That's good. And is it your sense that that's stabilized at this point or was it just because of that one specific project but other outside of that, it's still declining but probably at a lower rate?

Well, you know, again, we get requests from various different clients via the RFP process to help them with their RAZ work. It's something that our people are trying to proactively sell, but as we've talked about in the past, we don't necessarily view declines necessarily in the RAZ business to predict the health of our business, because we redeploy our associates when they aren't working on RAZ projects, they can be redeployed on to accounting, finance, IT, and the like so in essence, we're basically attacking whatever our clients needs are, whether it's RAZ, accounting and finance, Supply Chain Management, human capital, any of our other service lines.

Okay, and then your comments about the gross margins basically pulling back to somewhere between the levels that you experienced between Q1 and Q2. Is that inclusive of the discussion about, and Tom, you'd mentioned this at the front end, just kind of the new Management compensation agreements. Is that inclusive of that?

No, no, no, no, Mark, no need to adjust your models for that. All we've done is we've taken the current compensation arrangements for the existing Executive Vice Presidents of the Company. Those are the four individuals who report to me directly, and we've memorialized them into three year term employment agreements, and that's merely to demonstrate the committment that that group has to the organization and the organization's committment to that group. One of the things that I was asked a lot of was what might this mean, what might this CEO transition mean to the executive team here, and all I'm doing and all the Compensation Committee of the Board is doing is demonstrating that we're putting our money where our mouth is with respect to the retention of these executives. There's nothing there to model.

Okay, so there's no, so basically, the comment that I made earlier about gross margin basically going to between the level of Q1 and Q2 of '08, that holds firm and then when we're looking at SG&A, it seemed like the way you were phrasing it was that that would probably go to the same level as a percentage of revenue that you experienced during Q3 of '08. Was that correct?

No, Mark, I think what we were directing you to is the dollar spend in Q3. Not on a percentage basis but that dollar spend.

Did you have all of Domenica in Q3 of '08?

We had it all but like three weeks.

Okay. Great. And then CapEx, what are the plans there?

You know, I would expect that for the course of fiscal '09 , probably around $12 million, that will vary by quarter a little bit, but I think that's kind of the

And then when we just look at the kind of the year-over-year comparisons, do you benefit in Q1 of '09 relative to Q1 of /08 just in terms of the timing of the holidays and which quarters they fell into?

Yes, there will be a very slight benefit because Memorial Day was in Q4 of fiscal '08 versus Q1 in the prior fiscal year.

Got it. And then the timing of July 4th, that was a little bit more beneficial as well.

A little bit more beneficial but again, I think you have to keep in mind, a higher number of associates have a third week of vacation, so there's probably a little bit of an offsetting impact.

And then it looked like you had good success in terms of recruiting additional associates. Is there any concern among associates in terms of just the economic environment, and did I need to find a place that is permanent, or is the flexibility still attractive?

Yes. Well first of all, we never take it for granted, so I would never say that it's something that we just assume we're going to be able to do. I don't think, I mean, I can't speculate on the minds of our associates. I'll tell you that while I think that our business model appeals to individuals who fit our category, of who we recruit, and in this kind of an environment, we may very well be an excellent choice for people in that category as they look at the uncertainty in the marketplace because they know that we work hard on their behalf to find them assignments not just with the client that they're currently assigned to but to other, many of our other clients around the world so that's a big benefit from their standpoint relative to working with us.

And do the current challenges that are out there, do those actually create some opportunities in terms of people that you're potentially seeing that you may not have seen before?

Yes. I mean, I wouldn't say that we have a recruiting strategy designed to take advantage of the market such as it is, but I think it definitely plays to the conversation that we have with the potential associate when it comes to the value proposition that we can provide them.

Great. Thank you.

(OPERATOR INSTRUCTIONS). We'll go next to Scott Schneeberger with Oppenheimer.

Thanks. Good afternoon, guys. Curious about the duration of some of the contracts that you have. You mentioned winning a big project recently and that being ongoing. Could you talk a little bit about to what the visibility is into your business, what type of average length duration across the segments you see?

Scott, you know, we've talked in the past and we've gotten a lot of questions about what's the average length of your contract, and our contract, we had to throw an average on it I'd say it's maybe some where between three and six months but the facts of the matter are is sometimes we might go out to a client for a two week engagement and it ends up being 24 months, so it really depends on getting inside the clients organization which I think that we do pretty well, and diversifying our relationships within that organization and trying to help them with whatever their burning internal initiatives are.

I give you a case in point. We have one client in the Midwest right now in which we have 74 associates on this particular project, on this particular client, and that's across probably 12 different projects, and that's not even our largest client. So what I'm trying to say is that you never know once you get into the client what the ultimate duration is going to be because a lot of times, the clients love our associates and they tend to keep us on going from project to project to project.

Yes, Scott, let me dimensionalize it. I don't know if it's relevant, well certainly it is relevant but I guess what my comment is though, the length of let's call it the engagement contract or whatever documentation supports that, would not in any way be able to predict our client continuity, right? So while an engagement might be a 90 to 180 day project, you have to bear in mind that we continue to keep great client continuity with our top clients, so we may have different types of associates deployed on different types of projects, but the same client that Tony is talking about is likely to be a client for us three years from now, although clearly the project under which our associates work will have been over by that period of time. Does that make any sense to you conceptually?

Yes, great. Fair enough, thanks. I guess going in another direction, the Domenica run rate, is that consistent with with what we've seen? That looks like it's working out favorably. Should we continue to look for this quarterly run?

Yes, I think that's an accurate assessment.

Okay, and then building off that, I think you mentioned that we maybe not immediately, not in this first quarter but over this fiscal year we'll see more offices than less offices. Organic builds and it seems like you're looking internationally.

Yes.

Is there an active pipeline right now that you're looking at acquisition wise?

Well, I think part of your question I'd answer by saying probably both, you know, we're obviously continuing to look opportunistically at acquisitions although as this group has told you and Don has mentioned many times we're far from having an appetite for a bet the firm type of an acquisition. We'll look across geographies, we'll look across service lines and we'll look across professional skill sets to see where those opportunities are and they will tend to be smaller, typical bolt on types of acquisitions that we've seen in the past. So the answer is there's an active pipeline but it's not as if we've got 50 people deployed on diligence around the globe, so I would say our growth story continues to be primarily a organic one that's augmented by acquisition growth, where we think it makes sense geographically and where the culture of that acquisition can fit into the Resources model, which as you guys know, we take pretty seriously as an asset of the Company.

Thanks and then what type of cash balance do you look to maintain? Is that something, still a sizeable authorization out there for your repurchase. How low are you comfortable going on what you hold? Thanks.

I don't think we have is a set amount, as I think Tom mentioned, it depends on the opportunity at hand, so we don't really have a fixed amount but we have keyed in on that we need to maintain on the balance sheet. That said, we take a lot of pride in the strength in our balance sheet, so -- I only add that having a target for cash on the balance sheet would be too static of a goal to have for us, right? I mean we've got to do what every Company should do, which is balance the cash needs of the business with investment opportunities. We've always been conservative. We expect that we will continue to be but we always look at balancing return of capital to shareholders as an important goal of what we do with the cash we generate so whether that's in continued buyback of stock, which obviously is a tax efficient mechanism for the reduction of dilution or through evaluating dividends that's something, it's not, it's not a one shot deal. We look at that relative to where we are, where we expect to be in the marketplace and candidly where the marketplace is which as you all know has been somewhat the uncertain over the last little while.

Thanks very much.

That concludes our question and answer session. I'd like to turn the conference back to Thomas Christopoul for any closing remarks.

Well, look, I just want to say thanks for attending the call. We are obviously very pleased to be able to report these results, again, especially in light of the economic environment. You've got an organization here that you're invested in and that you follow that is obviously very committed to growth and has got a great track record and again I just want to thank Don for his support and let you all know that we hope that this is a good example of how you should expect this transition to go in the future. We remain quite confident about our business so thanks and we'll talk to you next quarter.

Thank you. That does conclude today's conference. You may now disconnect.