Resources Connection Inc (RGP) 2009 Q4 法說會逐字稿

Good day and welcome, everyone, to the Resources Global Professionals fourth quarter fiscal year 2009 earnings results conference call. Today's call is being recorded. At this time, for opening remarks and introductions I would like to turn the conference over to the Chief Legal Officer, Ms. Kate Duchene. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for participating with us today. During this call we will be providing you with comments on our results for the fourth 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 one 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 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, President and Chief Executive Officer.

Thanks, Kate. Good afternoon and welcome to the Resources Global fourth-quarter conference call. Joining me today on the call are Don Murray and members of our senior leadership team, Nate Franke, Kate, who you just heard from, Tony and Karen Ferguson.

Let me begin by giving you a brief overview of our fourth quarter operating results. Total revenues for the fourth quarter of fiscal 2009 were $132 million, a sequential decline of $24 million from our third quarter revenues of $156 million, or 15.4%. For the quarter we reported a GAAP net loss of $6.3 million or $0.14 per share, which includes a pre-tax charge of $3.6 million for office consolidation and severance costs, which we discussed with you on our last call, and a non-cash charge of $3.5 million related to deferred tax assets of certain of our foreign subsidiaries.

In aggregate, these charges totaled $5.6 million on an after-tax basis, or $0.13 per share. Without these charges, we were essentially break-even for the quarter with income from operations totaling $539,000.

Fourth-quarter gross margin was 38.2% compared to 39.4% a year ago. The 120-basis-point decrease in gross margin is primarily due to the deleveraging of certain consultant benefit costs over a lower revenue base. Excluding the $3.6 million charge for office consolidation and severance costs, our SG&A cost declined $3.5 million or 6.9% sequentially to $47.3 million for the quarter. Nate will provide more details on each of these areas later in the call.

I'd like to take a moment now to discuss recent revenue trends. The significant rate of weekly revenue deceleration experienced in our third quarter where we saw revenues go from $14.4 million at the beginning of the third quarter to $11.2 million at the end, moderated during the fourth quarter. As we previously discussed, revenue during the first five weeks of the fourth quarter averaged around $11 million. For the remainder of the quarter, non-holiday weekly revenue averaged approximately $10 million, falling in a tighter band of $9.6 million to $10.4 million per week.

Revenue trends for the first five weeks of the first fiscal quarter of this fiscal year, 2010, continued to stabilize as weekly revenues have ranged from $9.6 million to $9.8 million per week, excluding the holiday week of July 4. Based on recent discussions with our clients, we believe the continued thawing of the credit markets and stabilization of global equity markets are beginning to allow corporate executives to focus on business initiatives other than maintaining liquidity or pursuing cost reduction efforts.

Additionally, while many analysts describe recent economic data such as unemployment as less bad, other forward-looking economic data such as certain manufacturing indices and Purchasing Managers Index correlate to the improving tone of the discussions we are having with our clients. While these discussions are encouraging, they have not yet resulted in improved weekly revenue. However, we believe that over time our clients will begin to execute against these internal initiatives currently being deferred, as the business climate becomes more certain.

Until then, we will continue to focus virtually all of our efforts on business development. We have found our clients and prospects very willing to meet with us, regardless of whether they have immediate needs, as they are anxious to hear what we are seeing in the marketplace and get our thoughts on their business issues. We continue to push the concept of shift share, that is, shifting a greater share of our clients' overall consulting spend to resources.

We believe our value proposition, which combines superior consulting talent with a lower bill rate structure, provides a compelling incentive to companies with critical initiatives to shift consulting spend from higher-cost service providers to resources. Against the backdrop of lower overall consulting spend, we continue to see progress in this area.

Let me share a couple of recent examples with you. In June we were engaged by a global financial services company to assist them with their business transformation efforts. Initial projects, including improving and streamlining their global financial reporting process and the development of stand-alone carve-out financial statements of certain subsidiaries; consultants from offices in the US, Europe and Asia are participating in these projects.

Also in June we were engaged by a handful of companies to begin early-stage IFRS implementation projects. While each of these projects are small, they reflect the fact that CFOs at these companies are beginning to think about these new standards and the potential impact they will have on their business and their financial statements.

We also recently won an engagement with a large US federal government entity to assist with their efforts to comply with Sarbanes-Oxley. This project is exciting for us, as it represents our first large-scale project with a US government organization. In winning these new engagements, our clients told us that our global footprint and our ability to deploy very experienced, high-quality consultants at competitive hourly rates were critical decision-making factors in winning the work. We continue to believe that these attributes will be key drivers for our future success as the global economy improves.

We talk frequently about the benefits of our business model, in which approximately 70% of our cash costs are variable, which in turn self-regulate the cost of our revenue even when revenue levels become volatile. The resiliency of our business model has allowed us to build cash in each quarter of fiscal 2009, even though total revenues declined 16.9% from fiscal 2008. In fact, we have generated approximately $66.3 million in cash from operations for fiscal 2009 and ended the year with approximately $163.7 million of cash and short-term investments with no debt on our balance sheet.

Our ability to build cash in what has been the most challenging year in our Company's history not only insulates us from the vagaries of the capital markets but allows us the flexibility to return cash to shareholders through our stock repurchase program as well as considering other strategic investments as they present themselves. As an example, in the fourth quarter we purchased the consulting business of Experian's in Cincinnati. While this was a relatively small transaction, it afforded us the opportunity to expand our service presence in the Ohio Valley marketplace.

In addition, we continued our stock repurchase program with the purchase of 72,300 of our shares in the open market. We will continue to build and deploy capital in the best interests of our shareholders.

With that, I will now turn the call over to Nate for a detailed review of the financial results.

Thank you, Tom. As Tom mentioned, revenues for the quarter were $132 million versus $236.7 million in the fourth quarter a year ago. As you recall, our fiscal 2008 fourth quarter consisted of 14 weeks, while our 2009 fourth quarter consisted of 13 weeks. Revenue during this extra week in fiscal '08 was $15.1 million, split 64% in the US and 36% internationally. After adjusting for the extra week, the quarter-over-quarter revenue decrease was 40.4%.

On a sequential basis, fourth-quarter revenue declined 15.4%. On a constant currency basis, the quarter-over-quarter decrease was 37.4%, and the sequential quarterly decrease was 15.3%. For the 2009 fiscal year, revenues were $685.6 million versus $840.3 million in fiscal '08, representing a decrease of 16.9% after adjusting for the extra week in fiscal 2008.

While Tony will discuss our international operations in depth, let me discuss some highlights of our revenues geographically. For the fourth quarter, revenues in the US were $96.2 million, a decrease of 39.5% quarter over quarter after adjusting for the extra week in the fourth quarter of fiscal '08. On a sequential basis, US revenue decreased 13.9%.

For the fourth quarter, total revenues internationally were $35.8 million versus $68.2 million a year ago, a decrease of 43% after adjusting for the extra week in the prior-year fourth-quarter. On a sequential basis, international revenues decreased 19.2%. International revenue accounted for approximately 27% of total revenues for the quarter versus 28% last quarter.

After adjusting for the extra week in the prior year's fourth quarter, Europe's fourth-quarter revenue decreased 42% quarter over quarter and 18.6% sequentially, while the Asia-Pacific region saw fourth-quarter revenues decrease 45% quarter over quarter and 16.5% sequentially. As you are aware, during the fourth quarter of 2009 the US dollar remained volatile against several foreign currencies but strengthened during the latter portion of the fourth quarter. On a constant currency basis the quarter-over-quarter percentage decrease in international revenues was 32.1%.

Let me now discuss early revenue trends for the first quarter of fiscal 2010. Weekly revenues for the first four weeks of the first quarter were $9.7 million, $9.8 million, $9.7 million and $9.6 million; and for the fifth week, which included the July 4 holiday in the US, revenue was $8.4 million. In light of the weekly revenue volatility we have experienced over the past two quarters, we will not extrapolate these weekly amounts to the quarter as a whole. Please remember, our first quarter is typically impacted by vacations taken by consultants in the US and Europe, typically beginning in July.

Now let me discuss gross margins. Gross margin for the fourth quarter was 38.2% compared to 39.4% a year ago and 37.2% in our third quarter. Excluding reimbursable expenses, our fourth-quarter gross margin was 38.9%, which compares to 40.4% in the fourth quarter a year ago. The primary driver of the gross margin decrease from a year ago is the deleveraging of certain consultant benefit costs, primarily health care costs, over the lower Q4 revenue. The average billing rate for the fourth quarter was approximately $128 per hour and represents a 4.5% decrease from approximately $134 a year ago. The average pay rate for the fourth quarter was approximately $65, which represents a 4.4% decrease from approximately $68 a year ago. Please remember, these hourly rates are derived based upon prevailing exchange rates during each given period.

We remain focused on working to maintain our gross margin at 40%, excluding the impact of reimbursable expenses. However, our gross margins in the near term may continue to be impacted by reduced leverage of certain benefit costs in light of the current revenue base.

For the fourth quarter, gross margin in the US was 39.9%, and our international gross margin was 33.9%. Our consolidated gross margin for fiscal 2009 was 38.4% versus 38.3% in fiscal '08.

Now to headcount -- for the fourth quarter, the average consultant FTE count was 2104. This compares to 2513 in the previous quarter and 3220 in the year-ago quarter. Quarter-end consultant headcount was 2065 versus 3490 a year ago. The total headcount of the Company was 2852 at quarter end. In comparison to the fourth quarter a year ago, non-consultant headcount has decreased by approximately 10%.

Now to the other components of our fourth-quarter financial results. Excluding a charge of $3.6 million related to lease abandonment and severance costs, total selling, general and administrative expenses including stock compensation for the fourth quarter were $47.3 million or 35.8% of revenue, a sequential reduction of $3.5 million when compared to SG&A costs of $50.8 million or 32.6% of revenue in the third quarter of fiscal 2009. SG&A was $61.8 million or 26.1% of revenue in the fourth quarter of fiscal 2008.

The sequential improvement in SG&A stems from reductions in all expense categories.

Stock compensation expense was $4 million or 3% of total revenue versus $5.1 million or 2.1% of total revenue in the fourth quarter of fiscal 2008. We would anticipate quarterly stock compensation expense to approximate $4 million in the upcoming quarters.

As we previously discussed, during the fourth quarter we consolidated seven of our offices into nearby larger-market practices. In conjunction with this activity and other personnel actions, we recorded a charge during the fourth quarter of approximately $3.6 million or $0.05 per share on an after-tax basis. We expect we expect these actions, combined with those undertaken in the third quarter, will reduce SG&A costs on an annualized basis by approximately $12 million, approximately $1.5 million of which was realized in our fourth quarter.

At the end of the fourth quarter, our office count was 82; 52 domestic and 30 international.

Related to other components of our financial statements, depreciation and amortization was $2.6 million for the quarter, down slightly from $2.9 million over last year's fourth quarter. Based upon our current asset base, we would expect similar levels of depreciation and amortization expense in the upcoming quarters.

Interest income decreased by about 50% to $239,000 in the fourth quarter versus $480,000 a year ago. Interest income decreased due to lower average interest rates earned on our invested cash in the fourth quarter of fiscal 2009.

As Tom discussed earlier, during the fourth quarter we recorded tax charges aggregating $3.5 million. Accounting standards related to income taxes generally require valuation allowances to be recorded against deferred tax assets in tax jurisdictions in which three years of cumulative losses have been experienced. Consequently, during the fourth quarter we recorded a valuation allowance totaling $2.4 million against deferred tax assets associated with our operations in Belgium, Ireland and Singapore. For tax purposes, each of these tax jurisdictions allows these deferred tax assets to be carried forward indefinitely.

Additionally, to meet corporate capitalization requirements in France in a cash-efficient manner, intercompany debt to our French subsidiary was forgiven. This debt forgiveness reduced our tax loss carryforwards in France, resulting in a tax charge of $1.1 million.

Despite our GAAP loss, we generated $18.7 million in operating cash flow during the quarter, and our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation, was 2.6% in the fourth quarter compared to 15.4% a year ago and 7.3% in the third quarter of fiscal '09.

For fiscal 2009 our cash flow margin was 9.8% versus 13.9% in fiscal 2008. The GAAP loss for the quarter was $6.3 million or $0.14 per share versus earnings of $15.9 million or $0.35 per diluted share a year ago. In the fourth quarter the non-cash after-tax charge for stock compensation was $0.06 per share versus $0.09 per share in the comparable quarter a year ago.

Additionally, the after-tax per-share impact of the Q4 restructuring activities was $0.05 per share, and the deferred tax asset charge was $0.08 per share. For fiscal 2009 earnings were $17.8 million or $0.39 per share versus $49.2 million or $1.03 per share in fiscal 2008.

As a result of recording the valuation allowance, the French intercompany debt forgiveness and, to a lesser extent, the impact of incentive stock options and other permanent differences, our GAAP tax rate was 120% for the quarter versus 45.1% in the comparable quarter a year ago. We estimate our tax rate before the impact of stock compensation will approximate 41.5% for fiscal 2010. This rate reflects foreign taxes and the relative impact of non-deductible expenses on lower pre-tax earnings.

Now let me turn to our balance sheet. Cash and investments at the end of the fourth quarter were about $163.7 million, a $56.9 million increase from the end of fiscal 2008. During fiscal 2009 we generated approximately $66.3 million in cash flow from operations. During fiscal 2009 we purchased about 785,000 shares of our stock for approximately $12.3 million or an average price of $15.73 per share. Our current board authorization for our stock buyback program has approximately $35.6 million remaining. We will continue to assess additional share repurchases, maintaining a balance between the capital requirements of growing our business and fiscal prudence. We believe the strength of our balance sheet offers a significant competitive advantage.

Our shares outstanding at the end of the fourth quarter were approximately 45.1 million.

Receivables at quarter end were approximately $68.2 million, down about $15.9 million from the previous quarter. Days of revenue outstanding were approximately 52 days, up five days from the prior year's comparable and two days higher than the fourth quarter of -- third quarter of fiscal '09. We believe increase from Q3 stems from the Memorial Day holiday falling during the last week of the fourth quarter.

Now Tony will add some additional comments about our international operations and significant clients.

I'd like to take a moment and provide a bit of more detail on our international operations. Please remember both at all comparable period amounts are adjusted for the 14th week of Q4 of 2008.

Total revenues for the Netherlands practice in Q4 were $14.5 million, down 40% quarter over quarter and 18% sequentially. On a constant currency basis the quarter-over-quarter decrease was 30%.

UK revenues were down 61% quarter over quarter and 16% sequentially. On a constant currency basis the quarter-over-quarter decrease was 48%.

Revenue in our Asia Pacific region declined 45% over the comparable quarter last year and 17% sequentially. On a constant currency basis the quarter-over-quarter decline was 48%. The last half of fiscal 2009 has been exceptionally tough for our international businesses. For the year, our international revenues declined by 11.4% in aggregate or 10.3% on a constant currency basis. Europe and Asia-Pacific did not feel the effects of the worldwide recession as early as we did in the United States but have clearly felt the impact of severe cost containment activities of our US-based multinational companies operating in their respective geographies over the last six months. In addition, weakness in the euro, pound and Nordic currencies against the dollar throughout fiscal 2009 contributed to the overall revenue decline in our international operations.

As Nate mentioned earlier, in our fourth quarter we recorded a $3.5 million non-cash charge related to the deferred tax assets of our businesses in Belgium, Ireland, Singapore and France. The non-cash tax charges required by Generally Accepted Accounting Principles in no way reflect any lack of confidence or commitment to those businesses over the long term. Our international footprint is integral to our ability to offer our multinational clients seamless professional services anywhere they do business and is a strategic advantage when competing for large and complex projects around the world. We believe we currently have the right managing directors in place to build our businesses in those geographies.

Let me shift the discussion for a moment to our clients. In fiscal 2009 we had 293 clients for whom we provided services exceeding $500,000 in fees, down 13.8% from 340 clients at that fee level in 2008. A total of 133 of those clients had fees in excess of $1 million for the year. Our top 50 clients represented 36% of our total revenues, while 50% of our revenues came from 113 clients.

Our business with financial services companies decreased 23% year-over-year. While demand for these clients has decreased from a year ago, we continue to enjoy significant client relationships in the financial services sector, 34 of which exceeded $1 million in revenue for the year.

Our largest client for the quarter was approximately 3% of revenues. Our client continuity continues to be outstanding. During fiscal 2009 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 the quality of the work performed by our consultants.

Through the fourth quarter, all of our top 50 clients have used more than one service line, and 80% 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.

I would like to now turn the call back to Tom.

Thanks, Tony. That concludes our prepared remarks, and we are happy to answer any questions you have at this time.

(Operator instructions) Jim Janesky, Stifel Nicolaus.

When you look at historic patterns of activity with respect to vacations, so, for example, between the third -- I'm sorry, the fourth and the fifth week of the quarter, which included July 4, revenues dropped on an order of magnitude of about 12%. What percent continues throughout the rest of the quarter due to vacations, by your experience?

Jim, I would say probably on average, and this goes back a period of years, that can range anywhere from 5% to maybe 8%. Obviously, during July 4 week, you actually have a holiday, so that makes that number a little greater. But that percentage can vary week to week and also change country by country. But I think that's a reasonable range.

And, Tony, on the international arena, as you pointed out, the international declines or eventual increases somewhat lag the US. Do you think that we should expect that the international markets will continue to be weaker than the US markets, at least for the next three to six months?

I'd say, at least for the next quarter I would say that you're going to continue to see some weakness. I think that in talking to our folks in Europe, they believe that they will start to see some pickup in the fall. But clearly, during their prime holiday season, which Nate mentioned was July and August, we will continue to see some weakness. But again, we expect better results as we get into the fall months.

You and other companies have talked over the last three months or so about having more conversations with clients. But that's really not translating into revenues yet. In fact, revenues continued to decline almost on an accelerating basis in a lot of different places, especially companies with international exposure. Do you think that the engagements with the clients and the conversations are to keep you for when the business does pick back up, or are these conversations that you would expect to turn into revenues in the near-term in any meaningful way?

Very hard to perfect, but I would say the answer to that is both. We were talking this morning about reminding ourselves that we are still halfway through or just a little bit more than halfway through our calendar year, right, in which none of our clients really had a lot of visibility at all into their budgeting or planning process. So the conversations that we have today with our clients are about everything ranging from project backlog that has been put on hold, that they expect to be able to do potentially at some point in the future, to, as summer turns to fall, some more, I think, substantive discussions with those clients about what they expect to be pursuing in project work for their fiscal and calendar 2010, which is, as we've remarked, kind of the first calendar year in a little while here that our clients have had some visibility into what at least a reasonably stable market might be.

So I think it's both -- existing opportunities to, as we say, shift share where there is consulting spend against a context where that spend across almost all of our clients is down, and longer-term opportunities as those clients consider gearing back up with respect to those -- work that's been deferred over the course of the calendar year of 2009, even reaching back into the end of 2008.

Sara Gubins, Banc of America.

(technical difficulty) -- a reasonable run rate?

I apologize; we clipped your beginning of your question. Could you please repeat it for us?

In terms of SG&A, I'm wondering if we are now at a reasonable run rate excluding the charges in the fourth quarter, or if we should expect more cuts in SG&A.

I wouldn't say that you should, Sara. I think that what we've seen and what we've reported is revenue deceleration through the back half of our fiscal 2009. But we also reported that our, let's call it, weekly revenue ranges have tightened and have flattened over the last several weeks. So right now we think that that's -- again, not falling is better than falling. So that stabilization, we think, is a good outcome. I'm not so sure I would call it a trend at the moment, but it's a good outcome.

Relative to our infrastructure, as Nate reported, our spending is down in all categories. And with regard to the consolidations and other cost-containment actions we've taken, we feel that we have not given up any of what we would call our strategic infrastructure. But we also remark that we are very happy right now with our global footprint for a lot of reasons, including the fact that it is today and will remain a very important strategic asset for us. We absolutely have to be ready when our clients ask us to do work with them, to deploy on a global basis, because those are the types of projects that they need us for.

So, again, we are invested here at the Company for the long-term and we expect to be able to deliver against those opportunities when they come up, irrespective of whether they come up this quarter, next quarter or into the future.

Do you expect continued pressure on bill rates? And would you plan to continue to pass those on to consultants?

So you saw that we reported declining bill and pay rates. And as we've discussed and remarked before, we actively manage those on an engagement-by-engagement basis. Whether we expect to continue to see rate pressure I think, for us, changes and is different geography to geography, meaning there are certain market characteristics that are different in, say, some of our Asia-Pac practices, from our European practices and the US practice.

It's not, Sara, a robust rate environment. Right? So we would not expect to see sequential increases in rate. But I'm not so sure that I would say at the moment we are contemplating or planning for a substantial or sequential decreases in rate, although I obviously qualify that comment by telling you, we've always actively managed that gap and we'll continue to do so.

Scott Schneeberger, Oppenheimer.

Thanks, good afternoon. Could you speak a little bit more specifically to the financial services customers? You mentioned conversations. That sounded like it was broadly across verticals. Specifically, to those, might we see something sooner there versus other verticals? Just any further color.

Again, as we mentioned in our prepared remarks, our financial services business is down by a fairly significant percentage year-over-year and quarter over quarter. And that results, as you can imagine, from a lot of the big-name financial services clients that have either gone out of business or have had consolidation of their own. It continues to be a very important market for us. We service them across all of our practice areas, and we will continue to do so. So it's still a rather significant piece of our business, and we look to continue working with those clients in the future.

You mentioned practice areas. Are you engaged in hiring currently? What are some of the areas that are doing, I guess, less bad? I assume none are thriving at the moment. If you could just speak across the practice areas?

In terms of the practice areas, I would say the two more resilient practice areas for us have been supply chain management and legal services. Legal services is a relatively small piece of our business; but, if I had to pick out two, those would be the most resilient. We continue to -- we always do a pretty strong business in our accounting and finance. I would say maybe, to a lesser extent, right now, with some of the pricing pressure, you would be looking at information management and human capital services.

And on the closed offices, you had mentioned before probably a $12 million annual benefit. Now that you are further along, any change to that? Is that -- and now we are in full quarters, correct, of impact on that?

Yes. I think what we had mentioned during the prepared remarks is that that amount on an annual basis of $12 million is correct. That breaks down, obviously, to about $3 million per quarter. However, I would remind you that in the fourth quarter we realized, because of the timing of those cuts and certain actions that were taken in our third quarter, that we realized probably $1.5 million of that $3 million in the fourth quarter.

So sequentially, all else being equal, from the fourth quarter to the first quarter I think another -- we would realize the other $1.5 million.

Finally, on those closed offices, any lost revenue that's material? I know you were talking consolidation on the last quarter's call would be -- wouldn't have much impact. But have you found that to be the case?

No. In fact, everything has been pretty successfully integrated, so I would say no lost revenue.

Andrew Steinerman, JP Morgan.

I just wanted to jump into the theme of stabilization that we talked about. Obviously, the first four weeks of the quarter were in that range of 9.6 to 9.8. Did that stabilization start earlier than that? Like, if you look at the end of the fourth quarter, were we at that level for a while? And my question is, why do you think that we started the quarter at $11 million a week. Why do you think that the quarter ended at a lower weekly revenue than where it began? Do you feel like that's all the economy got worse during the quarter?

I don't know if it has to do with the economy getting worse during the quarter. It's just, as we reported to you on the last call, first five weeks or so of the fourth quarter were at $11 million. We were hearing an awful lot of what we would consider positive chatter in the marketplace relative to opportunities, client projects, having good discussions with our clients. But unfortunately, they did not turn into immediate revenue. You had -- and as the quarter went on, we saw a little bit of a slide in those first five weeks where we came down to average right around $10 million.

You asked, when did we start to see the trend in that 9.6 to 9.8 range. I would say, in the latter part of the fourth quarter we were right around that range. We were in the 9.6, 9.8, 9.9 weekly revenues. So we've now had several weeks in a row within that band. We would hope at this point we are at revenue stabilization, but we will see as we go through the balance of the first quarter.

As Nate mentioned, there is going to be a little bit of an effect relative to the summer holidays, both in the US, Europe and Asia.

Right. Could you just clarify that point? Before I was asked earlier about vacation impacting 5%. I didn't quite understand. It was the first question.

So I think the question was on a -- when you look back on a historical basis, as the summer vacation season kind of begins in July and carries on into August, what is the percentage decrease that we see impacted by the vacation? And as I said, if you go back a period of years, there's a range. And I would tell you that that's probably in that 5% to 8% range that would take you through, really, to the Labor Day type period. Again, as I mentioned, it varies by geography a little bit.

And that's versus June run rate; right?

Yes.

Kevin McVeigh, Credit Suisse.

Just to follow up a little bit on the revenue trends, is it the 13-week or 14-week fourth quarter?

13.

(multiple speakers) quarter, rather? 13. So if you assume the midpoint of the 9.7, and obviously it seems like it will be a little lower than that, that would be $126 million and seasonally a weaker quarter; how should we think about gross margins relative to that? Because it sounds like there's a deleveraging effect that you saw in the fourth quarter in terms of a range on gross margins. How should we think about that in the first quarter?

I think that what you say is probably correct. We are seeing a -- while I think we're doing a great job on the pay versus bill rate, I expect, because of the revenue rate, because of the impact of the vacations, that we will see a certain amount of compression because of the benefits. And again, I think there's within a range. But my guesstimate could be that that could be 50 basis points, give or take a handful. It really depends on, ultimately, the revenue base.

And, Nate, that's 50. So [32] would go to somewhere -- it would be 50 off the fourth-quarter run rate?

Correct.

And then just real quick, on the buyback, I kind of looked at the trend and the stock price, it looks like it might have been somewhere around late April/early May. How should we think about the buyback relative to trends you are seeing in the business at the time? (multiple speakers).

I would say completely unrelated, Kevin, meaning the stock buyback proceeds on what we consider to be a market opportunistic basis. But it's in no way mapped to or connected to weekly revenue in terms of either the way the board authorizes the buyback or the way we execute it.

Paul Ginocchio, Deutsche Bank.

Just with the DSO's, have you made up those lost five days now that the Memorial Day holiday is over?

Yes, if you actually -- by the time you got to about the second week in June, we saw basically back to where we were on more of a historical basis.

And if you look back to, I guess, to '01-'02 and look at the July-August period, was it also that 5% or 8% below the June revenue trends, or do companies typically -- or people take more holidays when there's no work to do?

Well, I don't know if I'd draw a complete comparison in terms of what ultimately will transpire. I think -- well, I think a number of our consultants are going to take their vacations; I think that will be very true in all geographies. There is a potential, just because of the revenue base and a certain amount of down time that consultants experience that they may forego certain vacation time in the summer and save that time for later on. But I don't know that I'd say back in that '01-'02 time frame, that I would really draw on that as a comparison.

What I think I gave you is just what were broader trends over the last several years.

And 61 business days in the US in the August quarter? Is that right?

That is correct.

Gary Bisbee, Barclays Capital.

Nate, just one quick -- can you repeat what you said about the tax rate? You made a comment about what we should expect in fiscal '10.

So, absent of what I would call our cash tax rate, we would anticipate at about 41.5%. As you know, we have a certain amount of volatility in that tax rate because of the ISO incentive stock options that we have to take a GAAP charge through the P&L, but we aren't able to take that deduction for taxes. And depending -- until the option is exercised.

So, depending on the volume of ISO exercises, there can and will be volatility in that rate. If you look back at the quarters prior to Q4, that rate has been 45%, 46%. But again, from a cash rate absent of the ISO's, about 41.5%.

Are you hearing anywhere from clients that they may have cut back too far in their, say, finance departments and there might be a need as they get whatever it is, their fiscal year end, getting the books closer whatever, with some sort of more basic stuff because they've cut too much? Or, is that not in what you're hearing?

I would tell you, absolutely -- I would refer to a discussion up in the Pacific Northwest with a client that, talking with a functional director we were basically told that there was no way that he would be able to complete the work that needed to get done prior to year end, based on the cuts that were made. So I think it goes without saying in our mind that, given how quickly many of these global corporations reduced headcount, that it probably wasn't done as thoughtfully or planned as it would have done if it was completed over an extended time period. And I do think, and based on our discussions with clients, that that will create demand for services over the foreseeable future.

Tony, I think in your comments, you mentioned that the international subsidiaries of US companies have cut way back on costs. I guess I've never really asked the question in the past, how successful have you guys been over time selling into foreign companies as opposed to the US arms of -- or, I'm sorry -- the international arms of US companies? And is that experience any different, and can you just enlighten me as to how much of the international revenue that is?

Sure. I think, number one, as we have established our international subsidiaries or offices over time, we generally have established them based upon client needs. One of the basics of setting up the Company was that we wanted to be multinational, have a good geographic footprint so that we could serve our multinational clients wherever they did business.

So probably the first line of defense is clients from US multinationals doing business in Europe and Asia. And it can be vice versa, too; it can be multinational companies in Asia doing business in Europe or the United States. There are specific operations that we have in Europe that probably focus little bit more on homegrown companies than US multinationals, and you'll generally see that like in Sweden or in Norway. But generally, a lot of the base of our business is US multinationals doing business in Europe and Asia and, to a lesser extent, building out the local businesses. But we obviously encourage our offices to focus significantly on both areas.

Mark Marcon, RW Baird.

I'm wondering if you can talk a little more about the areas that your clients are saying that they are expecting to do something in. Can you talk about the specific types of projects that they are talking about? And, are you hearing this directly, or is this basically coming up the chain to you? And, is it possible that in some cases it's -- hopefully, they are going to do something as opposed to, they definitely will do something?

If your question is, are we getting upward polished information from our field practice organization, I would say the answer to that is no. It's not a cultural reality here. But the real answer to your question is both, meaning all of us -- Don, myself, Tony, Nate, Kate -- all of us are frequently engaged in discussions directly with clients. That's where we try to spend a fair amount of our time.

We mentioned earlier that all of our activities are aimed right now at business development. So we hear that directly, but obviously we also hear it through and we expect to hear it through the people that are most close to our clients, who are field practice representatives.

So the answer to the first part of your question is that it's a range. It's as much of a range of opportunity as it's always been, meaning a deferred IT project, a potential SAP or Oracle implementation or one that's gone wrong that they'd like our help with fixing. In the example that we gave with respect to the US government organization, it's a new opportunity with respect to Sarbanes-Oxley compliance work where we were able to win that work from some of our more traditional competitors. And in other cases, some that we've given other examples here on this call and in others, it's just opportunity to shift share to a more cost-effective model for our clients.

I think it's important to remember, and this is the tone of the conversation that we have and all of our client service directors have with our clients, we want to let them know that our unique business model is very important for them solving their problems. And we can solve them in a different and better way, in many cases, than anyone else in the marketplace. And it's continuing to remind them of that, both in general and then with respect to specific opportunities, that I would say characterize most of the client conversations that we have.

But I wouldn't --

I would add to it, Tom, and just say some of the specific examples, as you can imagine, are around cost containment with our clients. And a lot of project examples around shared services, a lot of people looking at shared service centers, how do they take costs out of their own infrastructure, their back-office infrastructure, as well as how do they take costs out of their supply chain. So those would be some of the additional popular themed discussions that we're having with clients that have resulted in real projects for us.

Some of it is -- or other of it is the same work by a different name. We've been involved in opportunities to assist large global clients with what they refer to now as finance, as an example, finance organization transformation. And that's a pretty wide-ranging title. The work that results from something like that could range from financial system consolidation to actual process transformation and improvement in things like the closing process.

Super. And in terms of your individual offices, in past conference calls we've had a lot of discussion about what are you seeing on the coast relative to some of your offices that are newer, in the middle of the country? What are you seeing in some of your more mature offices internationally versus the less mature ones?

Part of the reason for my question is that it sounds like you are saying we're pretty happy with the platform and the footprint as it currently stands and we're probably not going to make any adjustments in the near-term to it. Is that a correct interpretation?

I think it's in the near-term, or in the long-term. As we've commented on, it's taken a tremendous amount of time and effort to successfully build out the global footprint. That doesn't mean that we can't and that we don't actively manage our expense categories or where, in the past, where we've said we can consolidate a facility into one that's close by. But you shouldn't take from our comments that we are prepared to sacrifice the global footprint at all. We are not contemplating that sort of trade-off is going to be required.

And can you talk a little bit about the differences in the dynamics in some of your --

Yes. I would just tell you, Mark, it's -- look, at $132 million for the fourth quarter, business is pretty tough all over. Again, I'll speak to Europe and Asia-Pac, specifically. Our biggest practices there, being the Dutch practice, the UK practice, the Swedish practice, probably the Swedish practice, up in the Nordic region, is the most resilient of the three. Netherlands has struggled, the UK has struggled. If you look at Ireland, they are close to negative 15% GDP, and their unemployment rate is 12% plus and climbing.

So the European continent is certainly suffering. We are seeing a little bit of resiliency out of our practice in Japan, which means, again -- Tom alluded to it earlier -- some of these trends are less bad than others. But again, relative to our global footprint, it's integral to being able to serve big clients. When we go to a big financial conglomerate in New York, if we didn't have operations in Japan or in China or in some of the key cities in Europe, it would be much harder to convince them to utilize us on a global project.

So I could pick out one or two or three offices that have maybe been a little bit more resilient in the US, but clearly our most significant practice is certainly in tri-state. They continue to do a great job, and they continue to sell new work each day. It's just not quite as robust as it was last year at this time. So I don't know if that answers your question, but that's kind of the flavor.

I guess as we look at your overall margin, I guess I was just trying to back into or just think about how many of your offices are still making money versus how many are losing. And what I was thinking about was, what's happening with some of the offices around the US? Is there any commentary you can give there just in terms of morale? Are they all that critical mass? Is there any other closings that might be contemplated? How are you thinking about that?

Mark, I would tell you that at the present time we don't have any plans from a consolidation standpoint. I would tell you in the US, we have a handful, and it literally is a very small number, of some of our smaller practices who are -- who, in the last couple of quarters with the revenue fall-off, their operating margins are probably close to break-even or moderate, very slightly negative. Again, that's on a contribution margin level.

Again, the variable model, when you look at an office-by-office basis in these smaller markets, they are staffed by a much smaller number of people. So you are able to adjust to a certain extent. So that should give you a little bit of color. But again, it does vary city by city. And when you look at the local economies, the degree of diversification in a particular city, and then you overlay what's happening; and again, I'm speaking to the US and the US economy where you have certain areas that are more diversified, you have more places to go if you are a smaller city in the Midwest, it obviously in this environment can be a little more difficult.

(Operator instructions) Tim McHugh, William Blair & Co.

I think Andrew was asking around this, and you may have answered it and I just didn't understand it. But the improved chatter that you are describing from your customers right now -- you had said also on this call that you'd heard improving chatter around our last call, and then the revenue run rate kind of ended the quarter at a lower rate.

Is there any flavor you can add that may be difference in what you're hearing now versus a couple months ago that might make you feel better, other than just the general term about improving chatter?

Tim, I guess I would tell you, and I was in a couple of our larger practices over the last few weeks -- what I would tell you is probably one of the biggest changes in actually other CFOs that I would talk with in the Southern California area is that I think there's a lot less concern around what I would say liquidity and survival. If you turn the clocks back three or four months in some of the critical issues companies were facing around bank covenant violations and those types of things, my sense is that for a number of companies the view around buttoning down the hatches and going into survival mode -- we are in a transformation stage where I think people are starting to feel a little bit better. That doesn't mean that their own revenues are kicking up in the pocketbooks or opening to spending. But I think people are now starting to plan a little bit more for the future and starting to recognize that, if their business enterprise indeed is going to survive, that they need to start thinking about the future a little bit more.

And, given the headcount reductions that so many of these companies have made, I think the demand environment should improve as we get especially towards the end of the calendar year.

Paul Ginocchio, Deutsche Bank.

Just looking at the US over the last two quarters, February and May, it looks like it was down on a same-day organic around 24%, based on my calculations. Is that further degradation in the weekly run rate -- is that coming out of the US, or is that more an international degradation versus the May quarter?

I'd say it's coming a little bit more out of international. Again, as we mentioned, international lagged in. But if you looked at their fourth quarter, quarter-over-quarter run rates, I think we've been hurt a little bit more on the international side over the last two quarters versus the first two quarters, which were more US versus international.

So the US has been, say, a little bit more stable over the last couple of quarters, but going forward it looks a little bit more stable than the rest, but not much has changed?

That's correct.

And at this time there appear to be no further questions. I'd like to turn the conference back over to management for any additional or closing comments.

Thank you for your participation and your continued support of Resources. We look forward to talking to you at the conclusion of our next fiscal quarter.

And that does conclude today's conference call. Again, we do thank you for your participation.