Resources Connection Inc (RGP) 2009 Q1 法說會逐字稿

Good day everyone, and welcome to the Resources Global Professionals first quarter fiscal year 2009 earnings results conference call. This conference is being recorded.

At this time for opening remarks and introductions, I will turn the conference over to Ms. Kate Duchene. Please go ahead, ma'am.

Good afternoon everyone, and thank you for participating with us today. Joining me are Tom Christopoul, our Chief Executive Officer; Tony Cherbak, our Executive Vice President of Operations; and Nate Franke, our Chief Financial Officer.

Tom will speak first about the quarter's results, followed by Nate, who will discuss the financial details. And then Tony will conclude the call.

During this call we will be providing you with comments on our results for the first quarter of fiscal year 2009. By now you should have a copy of today's press release. If you need a copy and are unable to access it via our website, please call Patricia Marquez at 714-430-6314, and she will be happy to fax a copy to you.

Before introducing Tom, 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 the actual events or results may differ materially.

We refer you to our 10-K report for the year ended May 31, 2008 for a discussion of some of the risks, uncertainties and other factors, such as seasonal and economic conditions, that may cause our business, results of operations and financial condition to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call.

I will now turn the call over to Tom Christopoul, our Chief Executive Officer, to give an overview of the first quarter.

Good afternoon and welcome to our first quarter conference call, where we will obviously address results from that period. Before we begin, let me just address the fact that Don Murray is not joining us on this call today. Don is recovering from a medical procedure he had last week. He is quite fine and recovering well, and he will actually be home here in Southern California with us tomorrow.

Now on to the quarter. Total revenues for the first quarter of fiscal 2009 were $207 million, up 7% over the first quarter a year ago. Net earnings were $12.5 million, or $0.27 per share, a 17% improvement over the $0.23 per share we reported a year ago.

Fiscal 2009 began like a continuation of our strong fourth quarter of 2008, with revenue averaging $16.5 million per week through the first six weeks of this quarter. However, over the last half of the quarter revenues decelerated to an average of $15.3 million per week, as the summer vacation season for our clients and consultants kicked into gear.

Over the course of the quarter 15 new offices hit new weekly revenue highs, nine internationally, and six domestically. As you know, historically our first quarter is our seasonally weakest due primarily to summer vacations in both US and Europe, and to a lesser extent in Asia. Vacation hours in our first quarter increased approximately 10% over the comparable period last year.

First quarter gross margin increased 110 basis points to 39% compared to 37.9% a year ago. This margin improvement offset the impact of the revenue shortfall on our earnings for the quarter.

Last year we told investors that improving gross margins was one of our most important operational initiatives, and that all of our managing directors and client service personnel are focused on it. Throughout fiscal 2008 we worked hard to secure reasonable bill rate increases from our clients on existing projects, and negotiate fees commensurate with the value we were delivering on new projects. These efforts obviously have paid off. And we're very pleased to see gross margins in our first quarter much more closely resemble those we have enjoyed historically.

We have also worked very hard over the last several quarters to reduce non-essential SG&A. We're happy to report that SG&A for our first fiscal quarter of 2009 was lower than our third and fourth quarters of fiscal 2008, and also consistent with our plan to tightly control SG&A spend, especially in this current environment.

Nate will give you more details on gross margin and SG&A in his financial report in a few moments.

As we head into our second quarter, and obviously the balance of fiscal 2009, it appears we, like everyone else, will continue to encounter a very challenging economic environment with exceptional volatility in world financial markets.

Obviously, 18 months ago it would be impossible to predict the failure of Bear Stearns and Lehman Brothers, the sale of Merrill Lynch, or the federal bailout of Fannie or Freddie. The toll of the credit crisis in the US, along with the recent economic contraction in Europe and Asia, has caused many global companies to rethink their capital budgets, and obviously plan more conservatively.

We're not immune to the effects of this cautionary approach in the current operations, as post Labor Day revenues have not rebounded as well as we would have liked. Revenues for the first four weeks of our second quarter, this current quarter, which included the Labor Day holiday, totaled about $60 million. Down about 2.5% from the first four weeks of the comparable period a year ago.

We expect that over the balance of this fiscal year and beyond, many of our clients will need help in navigating the new regulations and multiple industry consolidations that are likely to come in response to the credit crisis, and that we will be able to help many of those clients restructure and reorganize their businesses.

While we believe the enormous change taking place in the global Capital Markets will present many new opportunities for us going forward, the timing of those opportunities is much less certain, as these companies and our clients try to determine their way forward in this tumultuous business environment.

In any event, as you know, our business model, which is designed such that approximately 70% of our cash costs are variable, will allow us to navigate profitably even in this incredibly tough business climate.

In addition to our continued focus on gross margin and SG&A spend, we are fine-tuning other aspects of our business, like how we position our services within our clients, improving operations and markets that have greater potential than what is currently being recognized. And importantly, developing our readiness for emerging business opportunities like regulatory compliance and the establishment and promulgation of IFRS.

In short, we will continue to focus on our clients and consultants, those things that we can control, and not be distracted by the events that are occurring in the global economy.

After my first four months as CEO, I have had the opportunity to spend time with many of our offices, domestically and internationally, our employees and executives, and importantly our consultants. And I'm actually more encouraged today, even given the global environment, than I was when I was here on day one.

We clearly have the right business model and the right talent for continued growth in this market.

I will now turn the call over to Nate for a detailed review of our financial information.

Revenues for the quarter grew 7% to $207.3 million versus $194.1 million in the comparable quarter a year ago. Generally we will not provide sequential comparisons today, as the fourth quarter of fiscal 2008 included 14 weeks versus the 13 weeks that will comprise each quarter of fiscal 2009, thus making sequential comparisons to Q4 of limited use.

Now let me discuss revenues geographically. For the first quarter revenues in the US were essentially flat quarter over quarter. For the first quarter total revenues internationally were $61.1 million versus $48.3 million a year ago, up 26.5% year over year. International revenue accounted for almost 30% of total revenues for the quarter versus 29% last quarter.

Europe's first quarter revenues were up 27% quarter over quarter, while the Asia-Pacific region saw first quarter revenues up 31% quarter over quarter.

Total revenues for the Netherlands practice in Q1, excluding Domenica, were $17.9 million, up 9% quarter over quarter. UK revenues, including Resources Solutions, were flat quarter over quarter. Domenica's revenues during the first quarter were $5.3 million.

As you are aware, during our first quarter of 2009 the US dollar strengthened against several foreign currencies. However, on a quarter over quarter basis the US dollar weakened, and as a result on a constant currency basis, international revenues would have been lower by about $4.4 million in the first quarter, using the comparable fiscal 2008 conversion rates.

On a constant currency basis, and excluding acquired businesses revenue in the quarter, international revenue grew 6.4% quarter over quarter.

Let me now give you some information about revenue trends for the first quarter of fiscal 2009. The first week of fiscal 2009 included the Labor Day holiday, and revenue totaled $13.4 million. Weekly revenues for the next three weeks of the quarter were $15.5 million, $15.1 million and $15.8 million.

Using the most recent weekly runrate over the remaining weeks of the first quarter, and adjusting for the Thanksgiving holidays and certain other international holidays, we would achieve second quarter revenues of approximately $197 million. Consistent with our historical practice, this computation is purely mathematical and does not consider increases or decreases in weekly runrates over the balance of the quarter.

Historically our weekly runrates in the second quarter have increased over the latter part of the quarter due to increased demand from many of our clients as they approach their fiscal year end in December.

Now let me discuss gross margins. Gross margin for the first quarter was 39% compared to 37.9% a year ago, a 110 basis point improvement. Excluding reimbursable expenses, our first quarter gross margin was 40%, which compares to 38.7% in the first quarter a year ago.

The quarter over quarter improvement stems primarily from the continued improvement in bill versus pay ratios. The average billing rate for the first quarter was approximately $138, and represents a 10.4% increase from approximately $125 a year ago. The average pay rate for the first quarter was approximately $70 per hour, which represents a 9.4% increase from approximately $64 a year ago.

On a sequential basis, our first quarter gross margin was slightly less than the 39.4% experienced in the fourth quarter of fiscal 2008 due to the diminished leverage of certain benefits earned by the consultant over the lower revenue base experienced in Q1, which was offset in part by the improved bill pay rate spread.

Gross margin in the US was 40.6%, and our international gross margin was 36.7%.

Now to headcount. For the first quarter average consultant FTE count was 3,087. This compares to 3,220 in the previous quarter and 3,110 in the year ago quarter. Quarter end consultant headcount was 3,166 versus 3,206 a year ago. The total headcount of the Company was 4,042 at quarter end.

Now to the other components of our first quarter results. Total selling and general administration expenses, including stock compensation, for the first quarter were $56.5 million, or 27.3% of revenue, the same percentage as the first quarter of fiscal 2008. In last year's first quarter total SG&A expenses were $53 million. Total SG&A expenses were $61.8 million in the fourth quarter of fiscal 2008, or 26.1% of revenue.

As a percentage of revenue, our SG&A expense leverage was less than that achieved during the fourth quarter of fiscal '08, primarily due to the loss of leverage provided by the extra week in Q4.

In comparison to our third quarter of fiscal '08, which provides a better comparison, our SG&A leverage improved 100 basis point. 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 certain non-essential business expenses during the quarter.

Stock compensation expense was $5 million, or 2.4% of revenue, versus $6 million, or 3.1% of revenue, in the first quarter of fiscal 2008.

At the end of the first quarter our office count remains at 89, 56 domestic and 33 international.

Depreciation and amortization was $2.7 million for the quarter, up about [$2.1 million] over last year's first quarter as the result of our increased asset base. Based upon our current asset base, we would expect similar levels of depreciation and amortization in the upcoming quarters.

Interest income decreased by about $2 million to $516,000 in the first quarter, versus $2.5 million a year ago. Interest income decreased primarily due to a lower cash available for investment after the dividend payment, stock repurchases, and our two acquisitions in fiscal '08, as well as lower average interest rates earned on our invested cash in the first quarter of fiscal '09.

We would expect interest income to decline in the current quarter in light of the current interest rates associated with short-term U.S. Treasury instruments.

Our adjusted EBITDA, or cash flow margin, which we define as EBITDA before stock compensation expense, was 14.1% in the first quarter, compared to 13.6% a year ago, and to 15.4% in the fourth quarter of fiscal 2008.

Earnings for the quarter, including stock compensation expense, were $12.5 million, or $0.27 on a diluted per share basis, versus $11.6 million, or $0.23 per share a year ago.

In the first quarter the non-cash pretax charge for stock compensation was $5 million, or about $0.08 per share, versus $6 million, or $0.08 per share, in the comparable quarter a year ago.

As we have discussed, the cash treatment of our incentive stock options under FASB Statement 123R will likely cause continued volatility in our GAAP tax expense. The tax benefit for incentive stock options gets allocated to the balance sheet as paid in capital or to the income statement as ISOs are exercised and sold on the date the ISO vested. Therefore, we receive no income statement benefit for a portion of the ISOs exercised in any date given period.

During our first quarter we experienced a slight increase in the number of ISOs exercised, thereby increasing the tax benefit related to ISOs for which we recorded compensation expense of $1.3 million. As a result, our GAAP tax rate was 43.5% for the quarter versus 44.5% in the comparable quarter a year ago.

On a cash basis we will get a real tax deduction for all ISOs when they are exercised and ultimately sold. Our tax rate before the impact of stock compensation expense was approximately 40.5% for the first quarter.

Now let me turn to our balance sheet. Cash and investments at the end of the first quarter were about $121.7 million, a $14.9 million increase from fiscal 2008 year end. As Tony will discuss further, we did not repurchase shares during the quarter.

During the first quarter we generated $10.1 million in cash flow from operations. Our shares outstanding at the end of the first quarter were approximately 45.2 million.

Receivables at quarter end were $117 million, down by about $9.7 million from the previous quarter. Days of revenue outstanding were approximately 49 days, up 1 day from the prior year's comparable quarter, but 1 day lower than the fourth quarter of fiscal 2008.

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

I would like to start out with a quick update on International Financial Reporting Standards, or IFRS. As you have all read by now, on August 27, 2008 the Securities and Exchange Commission published a roadmap that could lead to the use of International Financial Reporting Standards by US public companies beginning in 2014. Under the proposal certain of the largest publicly traded companies will be eligible to adopt IFRS in their 2010 filings.

The SEC has proposed a multiyear plan with several milestones that it will ultimately allow them to decide in 2011 whether adoption of IFRS is in the public interest and would benefit investors.

Proponents of IFRS adoption believe that it will better position U.S.-based companies to access capital in the global marketplace, and provide for consistency and financial reporting for the benefit of investors, credit rating agencies and others around the globe.

We believe the adoption of IFRS in the US will impact many aspects of our clients' business. Clearly, accounting, tax, financial reporting will be the most significant areas of emphasis. But IT systems and SOX documentation and compliance will demand incremental bandwidth during the implementation phase of IFRS and provide us with the opportunity to assist our clients through this process.

Currently we're working on a handful of projects for our clients that generally involve an assessment of what the adoption of IFRS means to their financial results. Although we believe that there will be ultimately be significant client demand for systems in implementing IFRS, it is likely that the bulk of the work is at least a year or more away.

In the meantime, we will continue to provide IFRS training to our people, and consult with our clients about what to expect, and how to prepare for the implementation process.

I would like to spend a couple of moments on capital allocation. During our first quarter we did not buy back any of our shares, so our current Board authorization for stock buyback program remains at $48 million. With the turmoil in the financial markets over the last few months, we thought it prudent to take a break from buying back our shares and build our cash position. Throughout the balance of fiscal 2009 we will consider share repurchases in connection with other capital requirements of growing our business.

In our last call we talked about the important role that equity compensation plays in allowing us to attract and retain the talent needed to consistently execute our business model. We have recently filed our proxy statement, which among other things, asks our shareholders to approve an amendment to increase the number of shares of the Company's common stock for issuance under the 2004 performance incentive plan by 2 million shares.

ISS Government Services, a business unit of RiskMetrics, has reviewed our proxy and recommended a vote in favor of the amendment. We hope that our investors appreciate the importance of equity-based compensation to our employees and vote in favor of this proposal.

Now a word about service lines. RAS revenue was flat quarter over quarter, and accounted for approximately 15% of total revenues in the first quarter of fiscal 2009 compared to 16% a year ago. Non-RAS service lines in aggregate grew 8% quarter over quarter.

Now let me focus on some information regarding our clients. In fiscal 2008 we had 340 clients, for each of whom we provided services exceeding $500,000 in fees. Through the end of the first quarter on a runrate basis we served 2% more clients at this level than at the end of the first quarter a year ago.

Revenues from our top 50 clients represented 37% of total revenue, while 50% of our revenues came from 109 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 6% year over year. Although our growth rate in the first quarter has slowed in comparison to fiscal 2008, we continue to enjoy significant client relationships in the financial services sector, 13 of which exceeded $1 million in revenue for the quarter. Our largest client for the quarter was just under 4% of revenues.

Client continuity continues to be solid. Through our first quarter we served all of our top 50 clients from fiscal years 2008 and 2007. Our loyal client following is reflective of our client service approach and our basic principle of always doing the right thing for our clients.

Through the first quarter 47 of our top 50 clients have used more than one service line, and 74% of those top 50 clients have used three or more service lines. This service line penetration reflects the diversity of relationships we have within our clients' organizations.

That concludes our prepared remarks, and we would now be happy to answer any of the questions that you may have.

(Operator Instructions). Mark Marcon, Robert W. Baird.

Congratulations on the strong gross margin improvement. It was nice to see.

I am curious about -- what are you hearing from your clients over the last couple of weeks? Clearly the economic environment has gotten a lot choppier just in the last few weeks. Are you hearing any signs from any of your clients about potentially cutting back?

Have you been impacted at all in the last few weeks by all of the various transactions that we have seen in the financial services area?

It is Tom. First of all, I appreciate it. It is always gratifying to see that management focus yields the results that you expect it to. We will obviously have to give you some qualitative commentary here with respect to what we are seeing and hearing from our clients. Bit it is a great question, and it is obviously something we spend a lot of time working with them on and listening to them about.

So I don't need to emphasize in any way for anyone on this call the amount of uncertainty that the global market is feeling, and specifically financial services sector is feeling. I would make my comments, I think, and put them into three buckets.

First, [in services] what we're hearing from clients is they are not sure what is going to happen in the short term. On the positive side we haven't had any cancellations of projects from any clients. We haven't had any need to lay off or reduce staffing -- our staffing of our consultants on projects that we have been working on with these clients.

On the other hand, it would be impossible not to describe their circumstances as, in the best case, uncertain, and in the worst case, dire. Here is what we have heard from them. They obviously have very little visibility into what kind of work they're going to be doing. And whether that work is going to be focused on being integrated into another institution, being consolidated onto another platform, or being spun off as a separate perhaps entity, where they maybe in a division today.

Here's what they have said to us though, and this is actually relatively real-time. We have heard this over the last 14 days from more than a handful of clients that we serve in insurance and banking and financial services.

They have said that they absolutely expect there to be work for us to do, and to please standby. So we have actually gotten those inbound calls on the expectation that there is going to be presumably a lot of job and position displacement at these companies. And presumably that there will be lots of consolidation work and integration work to do in the financial area and in the systems area specifically.

But for the moment that has not translated into any significant demand for us. And we wouldn't expect it to translate into significant demand until there is a little bit more certainty and visibility by those clients into what exactly they're going to be operating -- what sort of economic parameters they're going to be operating under and what sort of structural initiatives they're going to be required to carry out.

So guarded is how I would describe our view there. And obviously we are keeping our ear to the ground and keeping close to our clients, so that when they need as we are there for them.

With respect -- and as you know, we're not overly concentrated in that sector, so we operate in many other industry categories around the world -- manufacturing, pharma, many, many others. In those sectors we are seeing, let's call it, less intense uncertainty, but we would describe the overall environment with our clients as cautious and conservative.

How that translates for us is that many of our clients, again while not telling us they're not going -- that we need to stop working on existing projects -- they are telling us that their capital budgets and the extent to which they're going to move forward with certain projects is unclear at the moment. That is driven in many cases obviously by the overall uncertainty.

That doesn't apply uniformly across our Company, and it doesn't apply uniformly across our geography or our practice areas. We have seen, and we expect to continue to see, growth in regions around the world and in our practice areas with clients who need to get work done.

So while obviously the note here that I am striking is cautious, I would say that it is cautiously optimistic. And we certainly haven't seen a wholesale stoppage or a wholesale fear across our clients. It is more I am sure what all of you, and all of the companies that you follow, are experiencing.

I appreciate that. I was wondering if I could just add one follow up which is, is it possible to quantify what your exposure is to all of the large financial services companies that we have all seen in the headlines that are undergoing some form of transition in them? I'm speaking of from IndyMac to WaMu to Wachovia to Merrill to Lehman to Bear, etc., Fannie and Freddie?

I would say, Mark, the way that I would couch it is that we have certainly done work with many of those companies. Relative to a go forward basis there will be transactions that we will be able to work on in terms of merger integration for some of those clients.

Other clients have gone completely away. Obviously, we won't repeat the amount of revenues that we have in the past, unless we get a special project helping them try to unwind their business.

Right now I would tell you that generally, if we looked at first quarter revenues from those institutions that you have read a lot about, they have generally reflected kind of on a pro rata basis flat revenues when you compared it to the prior year in aggregate.

So if I did aggregate revenues from those companies divided by 4, I would get pretty close to what our first quarter revenues with those companies.

Since you went through that calculation, would you had an idea of what percentage of your total revenue stems from those companies?

Not as a percentage. I would just tell you from financial institutions in aggregate, as we have disclosed in the past, may represent approximately 20% of our revenues.

Andrew Steinerman, JP Morgan.

Could you go over the prospects in the current quarter in terms of gross margin margins, and if there is the ability to keep the bill rate, pay rate gap open?

I think we're very pleased with the headway that we have continued to make. My sense would be, obviously a lot depends on the revenue outlook and the corresponding leverage that we get from the associate benefits that they get paid.

We would be optimistic that the Q1 margin is a reasonable reflection, probably at the lower revenue base. We might see say a 40 to 50 basis point reduction. But again, I think that is really going to be dependent upon what the next nine weeks hold from a revenue standpoint.

But it you geared towards the $197 million, meaning no change, do you think it would be 40 to 50 basis points difference year-over-year or sequentially?

Sequentially.

Could you give some qualitative comment on the second point, the bill rate, pay rate environment?

I think that, as we have shown during the past 12 months, that we continue to be very focused on pricing our engagements to achieve that margin. Clearly the economic environment makes for certain tougher discussions. But again, it becomes something that we continue to be focused on. And our goal is to really work to maintain our gross margin levels.

It is Tom. You've obviously get two factors going on here at a very, very high macro level. Certainly clients in this environment want to continue to see value. So putting aside our value proposition, you would assume that that would exert downward pressure on rate -- sorry, bill rate.

But the opposite is true on the labor side, where you would expect the -- let's call it uncertainty to create some opportunity to make that differential work in an appropriate leverage fashion.

But you shouldn't take from my comments -- you should not conclude from my comments that we're struggling right now with maintaining our bill rate or we're struggling right now with maintaining the appropriate ratio. It is just -- it is just really hard to say where that might go, given what we're dealing with. But at the moment it is not something that we are seeing erode.

So you're hopeful that you could keep the positive gap in place?

I'm hopeful, and that is our management -- let's call it -- that is our management strategy, and obviously the way we manage. And I would tell you that I have not heard anything qualitatively from any of our managing directors that would suggest that that is a problem as we sit here today.

Gary Bisbee, Barclays Capital.

I guess the first question, it seems like things have slowed pretty dramatically in Europe over the last few months. Can you give us some sense of that more challenging revenue runrate quarter to date, how that looked in the US versus Europe? Did the US turn negative as Europe slowed dramatically?

I would tell you, and this just echoes some of the comments that Nate has made, if you looked at our US business, we were relatively flat in terms of our revenue growth. If you looked at Europe, we're up about 27%, and that was on some strength that we found across various different offices, including France, Sweden. Our Germany start up has done very, very well for us, as well as Ireland.

I would tell you that the UK, which is one of our bigger businesses over there, is relatively flat. They're facing an awful lot of difficult economic headwinds at this point, like everyone knows. In terms of Asia, we're up about 31% for the quarter on the strength of Japan and Hong Kong.

Going forward we would -- we don't see anything at this point that would cause us to look at those businesses too much differently than what has occurred in the first quarter.

I guess I was referring more to the first month of this next quarter where, if I heard you right, your revenue runrate was about down 2.5% year over year. So clearly the US has turned negative. Has Europe as well?

I know the currency comparison gets tougher by the day here. But I guess I'm trying to understand is the US down double digits to make that down 2.5%, and international still growing, or are they both down? Just any color you can give on that last month.

Building on what Tony said, I think -- and it varies in the various international geographies -- we have certain geographies that are continuing to grow. On an overall basis I would say that decline is probably spread relatively evenly between the US and Europe.

Then I think Tony commented about Asia. And I think what we saw in Q1 is consistent with what we are seeing here in the first part of Q2.

Obviously the math makes it somewhat clear that 70% of our revenues are coming from the North American business unit. So obviously 70% of the variability in that is mathematical.

But I guess to give you -- try to give you some color, we don't see anything disproportional about the current quarter's performance geographically, that would differ from what we saw directionally in Q1.

But I don't know how to characterize what might happen in terms of -- where does an Asian market go, or how does the Japanese market respond, and what that could do to our Japanese practice disproportionately. It is just too early to tell.

But it is safe to say that Europe is clearly seeing some slowdown in addition to the US?

I think that is fair. I think, just to repeat what Tony said, that is probably disproportionately true in the UK. But given what we -- given the way we have developed our business footprint in Europe, we have offices that wouldn't necessarily -- you would conclude that was the case.

We will move on to another line of questioning. Obviously with all the turmoil in the financial industry, and I suspect and growing in a lot of other industries, given the lack of credit in the market, how much are your associates -- do they have the skill set to really get in and handle restructuring type stuff?

Obviously we hear a lot about the handful of restructuring consulting companies that have done terrifically well. Is that really a different or special skill set, or are a lot of your people positioned to compete for some of these more turnaround or financing type engagements?

First of all, I would break it down into two different pieces. We do not specialize necessarily in being the firm that is going to bring in the Chief Restructuring Officer or the Chief Executive Officer of a turnaround situation.

What we do do though is we get involved a lot of the blocking and tackling that goes on behind the scenes, given the stringent reporting requirements of entities that are in turnaround situations. I would give you as an example, in the past we worked on some of the biggest restructurings in US history, including Enron and MCI, Adelphi, Delta. Those are just an example of some that we have done over the years.

Relative to the skill sets, again, we have -- one of the great advantages of our Company is we have an incredible consultant base with varied skill sets that can help a company value complex derivatives instruments as easy as they can working in other parts of the finance organization.

So we have every confidence in the world that we've got the talent. And it is just a matter of getting the at bat for the opportunity to deploy our associates to help those companies in that situation.

We do have those skill sets in our Company. But as Tony points out, we're not competing for the Chief Restructuring Officer opportunity. We're not a bankruptcy or turnaround or restructuring firm.

But you would assume, and it would be a correct assumption, that based on both the tenure and experience level, as well as the technical capability, especially in finance and accounting, of our professionals around the world that we can and will play a role in these restructurings as they come out, not only here and work through the process that they will have to go through here in the United States, but also globally.

I think what I would add to that is that as good stewards of the business you would expect us to be working hard at creating the types of partnerships that would allow us to play a role in that space. And we're doing that.

Then just one last question, if I could. You have done a nice job slowing the growth of SG&A spend. And I guess relative to the initiatives you told us about a quarter go to work towards that, did that largely happen in Q1, or is there some more to go in terms of executing some of those strategies to reduce the amount of spending? I am asking trying to get a sense for what the runrate might be going forward.

I think where we were in Q1 is probably a reasonable indicator of the future. We do have quarter to quarter changes that can occur due to timing of some of our national advertising and that type of thing, that we believe is still very important to continue on. But I think we're feeling pretty good about where we are. But it is something we will always be looking at based on changes in the business climate.

I would agree. Nate is correct, it is a good indication. And you know this, this is one of the luxuries that we enjoy in this Company because of our business model. We can adapt and respond much more quickly to the types of events that we are seeing without having to take aggressive, let's call it, regressive action in the infrastructure of our Company.

So I would say the approach is absolutely to continue a sharp focus on this. But I think, again my comment here is, we're not -- at this point we're not required, nor what we seek, to take aggressive action in cost-cutting in our Company. We're going to grow. We will grow through this.

We're not exactly sure how long "this" will last, but we will grow through this cycle. And we need to invest in the long-term health of this business. Because of the way the model works, we have that luxury. So while you shouldn't expect to see us being adding SG&A disproportionately, we're not going to be burning the furniture. And, again, we don't have to. So we will continue to invest in our business appropriately, although obviously conservatively in the market.

That is very consistent with the message that everybody in the field has, which is let's concentrate on the things that you can control. And what those things are is let's watch the gross margins, minimize SG&A as best we can, and look to grow revenue in whenever account that we can.

Michel Morin, Merrill Lynch.

I think you mentioned in your prepared remarks that the non-RAS segments were up about 8%. Was anything in particular that was just -- that stood out for us?

I would say finance and accounting obviously continues to be very strong, as well as IM. Maybe a little bit less so in terms of human capital. But when you look at our biggest businesses, which again are accounting and finance, RAS and IM, RAS obviously flat. The other two real large ones are still good growth.

The flat RAS number, I think in terms of dollars spend, it looks like it has been fairly steady now for about the year. Have we reached a steady-state environment for that segment? Is that a fair way to think about it?

I don't know. The way we think about it is we would like to see growth in it. Obviously we understand why the comparisons have gone the other direction as the rest of our service lines have grown.

We will continue to be opportunistic with clients in this area. The real -- I think the real growth obviously is going to come in connection with regulatory change, and IFRS is a good proxy for that.

Still some lack of visibility on when exactly and how of IFRS, but we don't see this declining disproportionately from this point. But again, we don't -- and you have heard this from us quarter after quarter -- we don't manage these lines of business as practices, we manage them in connection with client needs.

So client need could tick this up. Or displacement into another area or service line could tick it down, and that wouldn't necessarily mean that we're doing better or worse.

As we have seen in the past, related to any time that there is significant regulatory change, and we anticipate that that will occur given the catastrophic events within the marketplace, we tend to benefit from that because we try to help our kinds navigate those new regulations. So to the extent that this occurs, which we believe it will, I believe that we will continue to sell work within the RAS service line.

Just finally, you mentioned you could be involved in merger integration type of projects. You mentioned specifically financial services. Are you at the stage where there is already some RFPs out there that you have been bidding on, or how early in the game is this?

Certainly with regard to the last say 30 days worth of activity, I think people are still sorting out who's doing what and who is reporting to who, and what assets they have actually in some cases purchased or otherwise inherited.

So, no, I would say the answer to a formal response on some of this work is not what we have seen. Rather what we have seen is, from the people that we have talked to in some of these clients that are impacted, the indication that I gave you earlier, which is probably there is going to be a lot of work here. So standby. We will let you know exactly what is going on.

I do think, by the way, there probably will be some more formalized approach to that work. And we play in that space and compete with all the usual sort of folks in that category. We feel like our value proposition will take the appropriate share of that when it presents itself in a more formal opportunity.

T.C. Robillard, Banc of America Securities.

I just wanted to follow up on the margin side. To Gary's question about the SG&A level, you guys said that first quarter levels are a reasonable indicator of future levels. Were you talking on absolute dollar basis, were were you talking on a percentage of revenue basis?

I think we're talking about on a dollar -- aggregate dollar basis. If you looked at the dollar spend in Q1 as an indicator for Q2.

Should we think -- if you are expecting gross margin -- if you guys hit your revenue expectation, if you are expecting gross margins down 50 or 60 bips, is that a reasonable assumption to also look for toward the operating line as well?

Again, there would be -- depending on what your assumptions are, you have to work through the leverage of where that SG&A estimate is, depending on the overall revenue. But obviously there would be a downward trend in terms of the operating margin percentage.

Just given your expectations for a stable SG&A dollar spend throughout the rest of the year, is it fair to assume that you guys are not planning to open any new offices through the rest of fiscal '09?

I don't think that is a fair assumption, because again we're going to be opportunistic relative to what might come about relative to client needs.

We have often talked a little bit about wanting to establish a presence in Switzerland as one option, and possibly another presence in Germany. I will tell you that right now we do not have anything on tap. But it just depends what we see as we go through the next 10 to 12 weeks, and how the revenues start shaping up. So I don't want to completely discount it, but I will tell you that there are no current plans.

That's good color. Just lastly, I just want to pose the question in terms of your revenue guidance. I'm just trying to get a sense -- the last week that you guys saw so far in the quarter was the highest weekly revenue. And that is what you have used to trend out your guidance, obviously adjusting for some holidays.

I'm trying to get a sense as to what your comfort is considering that the revenues, per your comments, haven't bounced as much as you would have expected. What gives you the confidence to kind of use the highest weekly runrate that you have seen in the first month of the quarter to tend it out for the rest of your second quarter.

Again, I think as we had commented, it is really just a mathematical computation based on that most recent week. And it is not really meant to give a -- as we have said, is not really trying to give a view of any increases or decreases that may occur.

It is not a forecast. It is merely a mathematical tool to help give a datapoint in what is a reasonable -- it seems to me, something that you would be recently interested in -- we're recently interested in -- which is where we might be.

But because of the way our business model works, you could pick the middle week and do it. You could pick the first week and do it. I am not sure that datapoint would be irrelevant. I'm certainly not sure it would be any more relevant than choosing the one that we did.

My view is you shouldn't try to read into that and conclude anything. I suspect that as this quarter, this current quarter, continues we may see -- we will probably see weekly revenue in excess of that figure and below that figure. The question is how and when. And that is going to be driven by the fundamentals of what we execute on and our clients. That is what you would expect us to be focused on and not on forecasting.

One more piece of color on those weekly revenue runrates that we gave you. I believe the third week that Nate quoted was $15.1 million. There was approximately $400,000 to $500,000 of revenue lost that week as a result of the hurricane down in Texas. So it is something that you might find interesting. And I think we are, at this point in time, based upon this week's runrate of revenue, we seem to be back to full operations in Houston.

Paul Ginocchio, Deutsche Bank.

It is Adrienne for Paul. I was wondering if you could comment if the current environment has changed anything from a talent or a recruiting prospective? Either positive that there is more talent available or maybe negative that candidates are seeking more permanent type positions and they want a little bit more security?

On the latter the answer is no. Again, the reason for that has a lot more to do with the nature and the tenure and the character of our consultant, who has made a choice to partner with us because of who they are and what kind of work experience they want. So, no, the answer on the latter is no.

One answer on the former is -- again on balance we were asked this question last quarter -- does the type of economic environment play more to our model. And the answer is probably yes. But it is very much on the margin fund.

Again, remember when we recruit, we're recruiting to specific project work. And so if the pool of talent for that particular project is marginally better, sure, that makes it marginally easier. But it is not as if this environment is going to create the opportunity for us to start replacing consultants with much more highly talented and much more experienced ones. I think on the margin it is helpful. And on last part of your question it is not meaningful.

I was wanting to -- it sounds like in Europe you are still seeing some strong growth, I guess, in some of the European offices where you actually do have a bench model. I'm just wondering what it would take for you to consider headcount reductions there, if you really need to see some serious negative trends or if that is something you are considering ahead of the downturn?

Bear in mind our operating model in Europe tends to be a little bit of a hybrid combination of a little bit of a bench, but a significant amount of people that are contractors. The majority of those practices are variable. So if you had to take people out of the practice because there wasn't work, it would be done at the variable level.

I guess the answer to your question is, in order for us to begin to impact the more dedicated full-time bench, so to speak, of some of those business units we would have to see significant reductions in client activity. And I mean by like half.

And we don't expect that and we're not -- nothing in the market suggest that anything like that is likely. Although -- I am not necessarily a betting person in this marketplace. At least for us, we seem to be insulated in that regard for -- to some extent.

Then one last question. Could you give some examples, just a little bit more detail of what types of consolidation or integration type work you might be asked to do by either insurance or financial services companies, just to provide us a little bit more illustration?

Our understanding from reading the popular press is that they're having some issues determining valuation of certain derivative instruments on their balance sheet because there is a lack of a marketability of those instruments, and because there has been a decline in value of some of the underlying derivative assets. Presumably they could use some help in that regard.

And in the situation where they might be consolidating, one would expect that they might need some perhaps even further help with respect to consolidating both of those sets of asset values on the consolidated balance sheets. That is one theoretical example.

A more traditional example would be the typical integration work that occurs when Barclays, as an example, buys the asset management business of a Lehman, and needs to do all of the, let's call it, financial and accounting consolidations and reforecasting of revenue, as well as all the infrastructure aspects of a traditional integration activity, like systems and other types of business processes.

There's lots of other things that people need to do in those circumstances. There's lots of activities in the legal area with respect to parent subsidiary cleanup and filing lots of different documentation around the world. Then there is obviously the human capital aspect of change management, which we address with our human capital practice.

Kevin McVeigh, Credit Suisse.

A quick question. If you think about under the current environment relative to the times of Enron where you were able to pretty quickly reallocate resources into special projects, things like that, in terms of timing do you think it would be similar or do you think there would be more of a lag?

I think our ability to redeploy would be very similar to the event. I think there's a different question embedded in there maybe, which is do I have a view, or do we have a view about how that event -- and the timing of that event would result in project work -- or order, let's call it, to do project work at that client. And that is what we have no visibility into.

But our ability to deploy or potentially -- not redeploy, but deploy other consultants with whom we have worked in those types of areas remains as -- that capability remains as, let's call it, liquid as it has always been with us.

If you were to think about maybe that 20% of financial services -- what percentage of that 20% do you think is still in disarray, things in transition, where you wouldn't have an opportunity to transition anyone over within the next quarter or two? And what percentage would you have an ability to do some special project work?

I don't think that you can break it down into percentages. I think that what you're seeing in the market right now is one of shock with the financial services companies. When this happens, as Tom mentioned in his remarks, you're going to see a much more cautionary approach being taken.

But another month down the road, hopefully the bill that is currently in front of the House gets passed to bring a little bit of stability to the markets. People are going to have to get back to work and reconcile their bank accounts. They are going to have to look at their internal controls. They're going to have to look at all their risk management policies.

There is going to be a lot of business. And we think that we are well-prepared at this point to take advantage of that. But right now the biggest question is really timing. How quickly does that process occur?

Let me give you -- let me see if I can maybe help you here with an example from our backyard, like in New York City. If we were to get a call today to deploy 20 consultants in a specific, let's say, F&A area, we would have no problem deploying against that opportunity. Utilizing our network of existing consultants, in my view very easily.

If it was a call for 200 people around the world, because of the way our business model works, I would say that we wouldn't just wave a magic wand to do that, but we would be quite comfortable being able to do that.

If it were a significant amount, 70, 80 people within a specific geographic area like Manhattan, I think we would have a bit of a tougher time. But candidly because of the displacement that has occurred and will occur in this sector, we probably feel more confident about doing something even like that than we would have in an environment where there wasn't that kind of displacement and uncertainty.

To some extent we can make an opportunity out of what is a real challenge for our clients by redeploying those people. You know this already. We have talked about this. In these types of circumstances our clients do, and often will, rely on us as a mechanism for putting some of the people that may have been in their companies, if they're laying off a significant amount of staff, back to work.

That's helpful. If you said this already, I apologize, but what is the total number of clients you had in the quarter versus the prior quarter in absolute number?

We didn't say, but it varies when you look at it only on the end of the quarter. I would couch it like this, on an annualized basis we generally do work for about 2,400 clients.

In the first quarter it is obviously going to be less than that because you still have the balance of the year in which a client that you had a relationship with last year, they might not have a project right now, but they will in Q2, Q3 or Q4. So about 2,400 on an annual basis.

Then just one last one. What would be a good tax rate to use, a GAAP tax rate to use for the rest of the year?

As I had mentioned, the tax rate tends to fluctuate depending on the volume of ISO stock options that are exercised in any given period.

In the first quarter, I think because of the stock price trending upward, we had obviously some people exercising options. We are then able to take that benefit through our provision, lowering it. So it is really something that we can't forecast because it is really dependent on the level of those ISO exercises.

I think you can look back at the quarterly rates over the past few quarters, and probably come up with an estimate with where we were currently in the current quarter. If you go back to Q4 and Q3 of last year, I think we were in the 44% to 45% range.

Jim Janesky, Stifel Nicolaus.

I'm still trying to get a better understanding of why we wouldn't expect revenues per week to decelerate, and in some cases maybe dramatically decelerate as we move throughout the rest of this quarter and even into early next year.

My understanding is that spending on professional services, including finance and accounting and other areas over the last several years, has been driven by both secular trends of a shortage of professionals and cyclical trends of a good economy.

One of those, with the cyclical trends could be getting much worse. And on a secular basis, even in this merger and acquisition activity or restructuring area, there's a lot of people available within companies, even if they have to use them before they lay them off, to do the work.

Do you folks expect that there is going to have to be use of outside providers at some point in time just to maintain some level of objectivity? Could that help out -- support revenues over the next couple of quarters?

I'm not sure it is objectivity that is the core, let's call it, fulcrum of the value proposition. But there is no question that the work that we do for most of our clients occurs over a project period that can be as short as four to six weeks and as long as 12 to 18 months. Part of why they come to us is because we give them a skill set that they can use on a variable basis, presumably.

Although I'm not going to disagree with your commentary on professional services. Clearly that is always an area where clients, especially in contracting economic environments, look to try to develop, let's call it, a better value proposition or reduce costs.

Again that is not -- we're not immune to that. But because of the way we work, because of the way our model works, and because of the relative, let's call it, price value differential that already exists for us with respect to our professional services competitors, we're just a little bit better positioned.

But I am not going to -- none of us is going to sit here today and tell you that we have the most optimistic view about where we're going to be over the course of our fiscal year and the remainder of the calendar year. Because I, probably like every other public company CEO, don't have a lot of visibility into what is going to happen in the marketplace.

Again, our main point of value is created at the client level. So that is where we do our work. That is where we take advantage of our opportunities. I wouldn't say that anything about that has changed. Although for us to suggest, or for me to suggest, that the overall economic environment hasn't changed the tonality of what is going on in our clients, would be just wrong.

That is very helpful. While 20% of your business, which is in significant turmoil, if we could call it that, with the financial services industry, you still have 80% of your business that is outside of that. Right?

Are either one of those two buckets more cautious than others in terms of freezing spending or holding off on projects, or is it too early to tell?

I would just respond to that by saying that obviously the majority of the turmoil is within financial services. But that being said, I think the entire economy of the world is watching how we respond to this, and how we work our way out of it.

That is what I tried to mention when I said people are in a little bit of shock right now. The shock is going to wear off, and the work is still going to have to get done. And that is what our opportunity is going to be to help our clients get through this whole process.

We can sit here for hours and talk about all the elements of uncertainty. You've got other secular macroeconomic aspects of the US economy which are not in particularly good shape, or going in the direction that we would like them to go either. Housing and employment being two, just off the top of my head. Add to that you've got a ton of uncertainty, right, in an election year. There is tax rate uncertainty. Pick your area, and I'm happy to respond.

But my two cents is worth as much as yours. You started your question by asking what would lead you to believe that our revenues aren't going to drop off more significantly. The answer is, I don't know, except perhaps 12 years of demonstrated capability to work through good economic times and bad. And maybe not grow sequentially every single quarter, but grow over a longer period of time quite nicely.

Good point. A follow-up on the bill to pay spread. 10% bill rate increases I think might be an aggressive assumption over the next quarter or so. And can certainly appreciate that there could be pay rate impression that generally lags bill rate compression.

Do you think that you would just allow that to work through the system? Would you walk away from some business in the near term, or would you take the margin compression in the near term to maintain longer-term client relationships?

I think it is -- we really look at that on a case-by-case basis. As you suggested, it is any given client at any given point in time. I think that I certainly wouldn't state that over the upcoming 12 months that we would expect to see another 10% increase.

That said, what we do hear from our clients, and we hear in competitive situations is that we're still a very good value when we go up against some of the other very large professional services firms that we tend to compete with in the marketplace.

Again, we're focused on working -- on maintaining that margin. But again, that doesn't mean that we might look at a particular client or a particular opportunity and perhaps invest in it. But on an overall basis I think we feel very strongly that we continue to offer a very good value proposition. And we're looking at maintaining our margin.

We're quite disciplined, but we're not rigid. And qualitatively that is where the judgment enters into. So we do walk away from business routinely, and we will continue to, that pushes us in a direction that is not consistent with our value proposition, whether that is rate or type of work, or what have you. But we are also not rigid.

And, again, in this economic environment and if we have a high-quality consultant who has worth with us for years and has done great work at dozen clients, and in a particular example that individual consultant with maybe a team four others need to be deployed at less than we would like, but consistent with our overall kind of gross margin orientation, we would do it for all the appropriate reasons you would expect us to.

And somehow just to maybe make this a little more real for you, some of the techniques that we sometimes employ in those circumstances would be the following. We might, as an example, agree for a limited period of time in connection with a project, say 90 days or 60 days, to charge a rate that might be 10% below what we would otherwise charge, with the option then of converting that consultant bill rate to the appropriate level.

And that demonstrates both good business and good partnership. And again if we are reasonably confident, and we generally are, because we know our consultants well, that the work is going to get done in an appropriate fashion, we're willing to take that risk. And we're willing to bet on our consultant's ability to demonstrate that value manyfold when they get to the client to do the work.

Scott Schneeberger, Oppenheimer.

Just two quick ones from me. One, could you give us just a progress report on the more recently opened offices?

And then two, no share repurchases in the quarterly due to uncertainty. I assume that is the MO going forward. And you mentioned you're probably not going to open any new offices. You mentioned a few European geographies.

But are you thinking anything on the acquisition front, any types of business you would like to enter looking at this new environment we're entering?

Let me just take the share repurchases. We will kind of ham and egg the rest of your question, it is sort of three parts there.

We thought we have exercised good judgment in the most recent quarter with respect to share buybacks. But everyone on this call knows, and has heard us say before, that we are committed to appropriate balance return of capital to shareholders. The market will do what the market will do. But we, even though I think we take an obviously conservative view, we would be opportunistic purchasers of our stock on an appropriate accretive basis.

If this market, let's call it, sort of time -- or this time in the market creates an opportunity for us to pursue that more aggressively, because it is more accretive, we would do it. And I think that we would.

I might add, by the way, that you should expect me personally to be a buyer of our stock is that same point holds and makes sense, then I will do that. And you should expect to see that.

With respect to our newer offices, I will let Tony or Nate address the question specifically. We will come back to your third part later.

Just to give you a view on some of the offices we have opened recently, our Raleigh office in the United States is already profitable in less than a year of operation. Richmond and Tulsa are progressing well along our normal pattern of profitability in 18 to 24 months.

We are exceptionally pleased with our progress in Germany. I would say the progress that we have had in Germany is beyond our expectations. And that is why would like that market so much.

And then Shanghai, we're very, very pleased with that office as well and the progress that they are making. And we certainly look to China as being a market for growth for us in the future.

Then just any fields of business you would like to be in? And that's all for me. I bet you are not in a hurry.

Fields of business that we would like to be in, we have always -- we have looked at the turnaround business, the restructuring business to kind of complement more of the capabilities of our associates. So maybe getting in a little bit deeper into that business. As we have discussed in the past with you, we would like to be a little bit deeper in the government business. Probably expand our capabilities in regulatory consulting.

Those are some just right off the top of my head. And those are things that I think that we can either do that organically or if we find a nice little boutique acquisition platform that comes along that makes economic sense to us, and the cultural fit is appropriate, those would also be a couple of mechanisms to get deeper into those businesses.

While, again, we're not signaling any aggressive orientation towards acquisitions, there are opportunities in this marketplace. And there are any number of quality companies who would look to, and do seek to, talk to us about potentially partnering with a company like Resources who has the global footprint that we have, the business model that we have, and the strong balance sheet that we have. So we do continue to have those conversations.

My own personal view is that the market and its uncertainty will create opportunities in regard to that for us. But you should not interpret that as some signal that we're going to be announcing significant activity in the area. We will do what we will always do, which is we will be opportunistic, but I will tell you that we still are having discussions.

Mark Marcon, Robert W. Baird.

A couple of quick follow-up questions. First, do you happen to have the constant currency organic revenue growth rate for Europe?

I think what we gave you was on an overall international basis. For Europe on a stand-alone basis for that region it was 3.4%.

That fourth week of the current quarter, how close is that historically has that been do the median for the quarter? Do you have any sense?

We don't really measure the rates relative to the median. I suppose that we could figure that out. But I would say if you compared it to last year, the runrate for the fourth week of the second quarter last year was 16 -- I think it was something like $16.3 million or so. Something in that range. But don't know relatives to the median.

With regards to the variability with regards to SG&A, at the one hand 70% of your expenses, which I think have to do with compensation expenses, if I'm correct, would be variable. But you also mentioned that it is likely that the absolute amount is probably -- we're probably looking at sequentially a flat sequential trend.

Can you give a little bit of color on that in terms of like how we -- obviously there's uncertainty for everybody. So nobody really knows how revenue is going to trend over the next couple of quarters. But we're just trying to figure out what would naturally flex, if you weren't going to --?

I think the way to look at it is -- and I think you are right when you think about the variability being compensation. And where the compensation comes through our income statement is in two places. One is in the cost of revenue, which is the salaries, hourly rates that are paid to our associates when they are working.

I totally understand that.

Then the salaries in all the other cost of running the businesses in our field offices are in SG&A. The variability comes from the cost of revenue line item. And primarily a majority of the SG&A is fixed, because it is the fixed salaries of our office personnel, the field office, corporate office, as well as occupancy costs and the like.

So absent of making a change in headcount at the office level, which I think Tom mentioned we have no plans to do, the SG&A will probably tend to stay more constant at the current dollar spent rate.

I wasn't trying to be dense, but just to the extent that we were talking about -- and I know it is purely a mathematical -- this wasn't a forecast, but if we go from $207 million in revenue to $197 million in revenue, and we have has a $10 million revenue decline, would there not be some SG&A expense that would naturally come up? Or are there some other offsetting investments that you are making that would make up for that?

If I heard you right, you are saying if revenue trended higher than that mathematical computation, what would happen with SG&A? It would come up moderately just because of certain of the variable comp programs. But not necessarily by a significant amount.

Actually what I was asking is since -- and again it is not a forecast -- but if your revenue was to -- it sounded like you are saying, well, mathematically our revenue might end up at $197 million. Nobody really knows. But if that were the case, it also sounded like it is likely the SG&A level would stay constant.

And I guess what I was wondering is, we're looking at potentially roughly a $10 million decline sequentially in revenue. Would there not be some SG&A that declined naturally or is there some offset?

I think as I mentioned to one of the earlier questions, there would be a certain amount of decline that would occur. But then I think I commented we are doing some national advertising that has kind of been part of a continuous program that is going to occur in the second quarter.

I think the other thing that you weight into this whole process is that the majority of our SG&A cost, about two-thirds of our SG&A cost is made up of salaries. We have never been a firm that in tougher times looks at our people and our field offices and say, we're going to take out 10% of those people.

If you look across the big four today, they're doing just that with their people. That takes five to six years to cycle through your office. It impacts productivity. It impacts morale. We have spent 12 years building up this Company. We've got great talent. In the short-term if we've got to take a little bit of extra pain to keep those people, we're going to do it. Because when IFRS hits, everybody is going to be swamped.

When regulatory consulting as a result of the response to the credit crisis, when that hits, we are going to need all the people that we can get to take advantage of those revenue opportunities.

While it might be a traditional practice for some companies to whack a bunch of their staff during tough times like this, that is has just never been the model of the Company. And I think that even given our practice, we have still been able to operate very profitably, and we expect to continue to do so.

I don't disagreed all. Then it sounds like obviously from a GAAP perspective it is difficult to say what the tax rate would be because of the ISOs. But in terms of -- if we were just running flat line for the rest of the year on a year-over-year basis, it sounds like everything else should probably run -- if that were the case, then there is no reason why the rest -- the margins overall shouldn't flat line here as well.

Again, when you talk about the various margins, a lot of that will be dependent on the revenue level. And we have talked a lot about the cost structure. But, yes, all else being equal, we have said -- and currently obviously these are different economic times, but we clearly tried to manage to that 40% gross margin. And our goal is a 15% EBITDA margin. Clearly in the current environment that will be difficult, but that is long-term what we hope to manage to.

You have no further questions in queue at this time. I will turn the conference back over to our speakers for additional or closing remarks.

All right. Everyone, thanks for tuning in. Obviously we will look forward to talking to you at the conclusion of our next quarter. And we will hopefully all have better economic news to be responding to at that point. Goodbye.

That concludes today's conference. You may disconnect at this time. We do appreciate your participation.