Resources Connection Inc (RGP) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Resources Global Professional's Q1 2009 conference call. Today's call is being record. At this time, I'd like to turn thing over to Kate Duchene, Executive Vice President and Chief Legal Officer.

Thank you, operator. Good afternoon, and thank you for participating with us today. Joining me on this call are Don Murray, our Chairman and Chief Executive Officer; Tony Cherbak, President and COO; and Nate Franke our Chief Financial Officer.

During this call we may be providing you with comments on our results for the first quarter of fiscal 2010. 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 Tony I'd like to read an important announcement about certain statements that we may make during this call.

Specifically we may make forward-looking statements. In other words, statements regarding future events or future financial performance of the Company. We wish to caution that you 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 30, 2009, 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'll now turn the call over to Tony our President and Chief Operating Officer.

Thanks, Kate. Good afternoon, and welcome to Resources Global first quarter conference call. Let me begin by giving you was brief overview of our first quarter operating results. Total revenue for the first quarter of 2010 was $118.3 million, a quench actual decline of $13.7 million from our fourth quarter revenue of $132 million or 10.4%. For the quarter we recorded a net loss of $7.2 million or $0.16 per share, which included a pretax charge of $7 million or $0.09 per share on an after tax basis for severance and stock option costs related to two executive officers who left the Company during the quarter. Since there are no plans to higher additional senior management we will realize SG&A savings from these two positions going forward.

First quarter gross margin was 38.2% which was consistent with our fiscal 2009 fourth quarter gross margin of 80 basis points lower than the comparable quarter a year ago. The 80 basis point decrease in gross margin is primarily due to the deleveraging of certain consultant benefit costs over a lower revenue base. During the first quarter we continue to make progress in reducing our SG&A costs excluding the previously mentioned $7 million severance charge, our SG&A costs have declined $11.9 million or 21% quarter over quarter to $44.6 million. Our operating loss for the quarter exclusive of severance costs was $2.1 million. Nate will provide more details on each of these areas a little bit later in the call.

Now I'd like to talk a little bit about our revenue trends. As we previously reported our revenues for the first four weeks of the first quarter ranged in a tight band between $9.6 million and $9.8 million a welcome sign of increasing stability versus third and fourth quarters of fiscal 2009. Historically we experienced a decrease in revenues of between 5 to 8% in July and August compared to June as a result of the summer vacation season. This year that decrease was on the high side of the range as the final eight weeks of the quarter averaged approximately $8.9 million per week, an 8% decrease from the $9.7 million per week that we averaged through the first four weeks of the quarter. As expected we are starting to see an uptick in revenues as the summer vacation season has ended and we enter our second fiscal quarter. Nate again, will update you on the details of our Q2 revenue in a few moments.

As we head into the second quarter and the balance of fiscal 2010 we are very encouraged by several things that we see in our business. First and foremost our people are weathering the challenges of the economic recession well and have retained their passion and enthusiasm for our business. Although it would be naive to think that everything is perfect the morale of our people is generally very good and we are exceptionally proud of how they have performed given the difficult business environment of the last 15 months. We have recently spent time with our leader from North America, Europe and Asia and there is one theme that has resonated consistently with that group.

There is a general consensus among our leaders that the business outlook is becoming more optimistic as we approach the calendar year end and many companies look for help with year end requirements. To be certain companies are still being cautious about their spending but we are currently seeing more tangible service opportunities resulting from our business discussions with our clients than we have at any time over the last six months. Additional opportunities should come as Company's establish new budgets that will go into effect on January 1, to fund corporate projects previously deferred as a result of cost containment initiatives during a volatile 2009.

The current increase in M&A activity should also help our business. For example, in our Asia Pacific region we were recently awarded an assignment which required 12 of our consultants to help the subsidiary of a Fortune 1000 company form a comprehensive review of their financial statements of an acquired company. This review and its findings will help our client determine the appropriate purchase accounting for the acquisition as well as assist our client in determining the appropriate method of revenue recognition on a go forward basis. We are also seeing new opportunities arise as a result of how certain of our competitors have dealt with their own cost structure in response to the recession. We were recently asked to provide risk and compliance support to a financial services company who have not been a client in the past. In our discussions with management we were told that this opportunity came about because the client service managers from the professional services firms used historically for the risk and compliance work had been laid off and therefore the continuity with those firms was lost.

Supporting the increasingly positive discussions we are having with our clients is a more positive business media which suggests the global economy is coming out of recession and is on the road to recovery. We believe that the recovery will be gradual as global unemployment rates will be a drag on consumer spending and GDP growth at least in the near term. That said most data suggestions the economy is headed in the right direction. We expect to see our business pick up gradually throughout the remainder of 2010 as we convert these client meetings and discussions over their business initiatives with actionable projects resulting in revenue. With that, I will now turn over the call over to Nate for a retailed review of our financial statements.

Thank you, Tony. As mentioned revenues for the quarter were $118.3 million versus $132 million in the fourth quarter of fiscal 2009; a decrease of 10.4% sequentially and 42.9% on a quarter over quarter basis. On a constant currency basis, the sequential quarterly decrease was 11.8% and the quarter over quarter decrease was 41.6%.

As we reported to you during our fourth quarter conference call in mid July, the first quarter began with weekly revenues ranging from $9.6 million to $9.8 million during the first four weeks of the quarter. As expected following the 4th of July holiday the impact of summer vacations set in reducing average weekly revenues to approximately $8.9 million during the last eight weeks of the quarter. During the last three weeks of the quarter we experienced weekly revenues increasing from $8.6 million to $9.4 million. Now let me discuss some highlights of our revenues geographically.

For the first quarter revenues in the U.S. were $88 million, a decrease of 8.5% sequentially and 39.8% quarter over quarter. For the first quarter, total revenues internationally were $30.3 million, versus $35.9 million in the fourth quarter, a decrease of 15.6% sequentially and 50.4% quarter over quarter. International revenue accounted for approximately 26% of total revenues for the quarter versus 27% last quarter.

Europe's first quarter revenue decreased 20.7% sequentially and 52.7% quarter over quarter, while the Asia Pacific region saw first quarter revenues decrease 1.5% sequentially and 45.4% quarter over quarter. On a constant currency basis total international revenue decreased 20.9% sequentially and 45.8% quarter over quarter. On a sequential quarterly basis the U.S. dollar weakened against the major currencies in Europe and Asia Pacific. As a result on a sequential constant currency basis Europe and Asia Pacifics revenue decrease would have been 26.2% and 4.5% respectively.

On a quarter over quarter basis Europe's revenue decrease would have been 46.8% and Asia Pacifics would have been 47.9%, again on a constant currency basis. Following is some additional revenue detail related to certain markets. Total revenues for the Netherlands practice in the first quarter were $11 million, down 24.1% sequentially. On a constant currency basis, the sequential decrease was 26.2%. U.K. revenues were down 7.3% sequentially on a constant currency basis, the sequential decrease was 17.1%.

Let me now discuss early revenue trends for the second quarter of fiscal 2010. Weekly revenues for the first four weeks of the second quarter were $9 million, $8.2 million, $9.5 million and $9.6 million. Consistent with prior years, revenues during the second week of the quarter were impacted by the Labor Day holiday. Additionally it is important to remember that Thanksgiving week falls into our second quarter and we typically lose 1.5 days of revenue that week.

I'll now discuss gross margins. Gross margin for the first quarter was 38.2%, consistent with the fourth quarter of fiscal 2009, but 80 basis points lower than a year ago. Excluding reimbursable expenses our first quarter gross margin was 38.8% which compares to 40% in the first quarter a year ago. The primary driver of the gross margin decrease from a year ago is the deleveraging of certain consultant benefit costs. The average billing rate for the first quarter was approximately $128 per hour, equivalent to that of the fourth quarter but a 7.2% decrease from approximately $138 an hour a year ago. The average pay rate for the first quarter was approximately $65, also equivalent to that of the fourth quarter, but a 7.1% decrease from approximately $70 a year ago. Please remember the hourly rates are derived based upon prevailing exchange rate, exchange rates during each given quarter.

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 our current revenue base as well as moderate short term price concessions we may grant as competitive pressures dictate. For the first quarter gross margins in the U.S. was 40.1% and our international gross margin was 32.7%.

Now to headcount. For the first quarter, the average consultant FTE count was 1,911. This compares to 2,104 in the previous quarter and 3,087 in the year ago quarter. Quarter end consultant headcount was 1,945 versus 3,166 a year ago. The total headcount of the Company was 2,702 at quarter end. In comparison to the first quarter a year ago, nonconsultant headcount has decreased by approximately 13.6%.

Now to the other components of our first quarter financial results. Excluding a charge of $7 million relating to severance, selling, general, and administrative expenses for the first quarter were $44.6 million or 37.7% of revenue, a sequential reduction of $2.7 million when compared to recurring SG&A costs of $47.3 million in the fourth quarter of fiscal 2009. SG&A was $56.5 million or 27.3% of revenue in the first quarter of fiscal 2009. The sequential improvement in SG&A stems primarily from actions taken during the fourth quarter of fiscal 2009 and our continued expense reduction efforts across all areas of the Company. As mentioned the severance charges aggregated $7 million on a pretax basis or $0.09 per share on an after tax basis. These charges are comprised of a cash amount totaling $4.8 million and a non-cash amount of $2.2 million related to stock option vesting.

Stock compensation expense associated with active employees were $3.7 million or 3.1% of total revenue versus $5 million or 2.4% of total revenue in the first quarter of fiscal 2009. We would anticipate quarterly stock compensation expense to approximate $3.7 million in the upcoming quarters. At the end of the first 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 $2.7 million over last years first 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 65% to $179,000 in the first quarter, versus $516,000 a year ago. Interest income decreased due to lower average interest rates earned on our invested cash in the first quarter of fiscal 2010. Our adjusted EBITDA margin or cash flow margin which we define as EBITDA before stock compensation expense was negative 0.5% in the first quarter compared to 14.1% a year ago and 2.6% in the fourth quarter of fiscal 2009. The loss for the quarter was $7.2 million or $0.16 per share versus earnings of $12.5 million or $0.27 per share a year ago.

In the first quarter the non-cash after tax charge for continuing stock option expense was $0.07 per share versus $0.08 per share in the comparable quarter a year ago. Our GAAP tax benefit rate for the first quarter was 19.4%. Our tax benefit rate during the quarter reflects tax losses in certain foreign jurisdictions for which tax rates are significantly lower than the U.S. or in which no benefit is recorded, as well as the continuing impact of incentive stock options for which no tax deduction could be recorded during our first quarter.

Our GAAP tax rate for each of the upcoming quarters is difficult to predict and could be volatile as the rate will be dependent on several factors including the operating results of our U.S. and foreign locations each of which are taxed or benefited at different statutory rates and a number of incentive stock options exercised. Additionally in accordance with U.S. GAAP requirements we will continue to assess deferred tax assets in certain foreign jurisdictions.

Our to our balance sheet cash and investment at the end of the first quarter were $156.8 million, a $6.9 million decrease from the end of fiscal 2009. The decrease systems primarily from the payment of certain compensation paid annually in July and severance. As a result of our extended no trading period during the first quarter we did not repurchase shares during the quarter. Our current Board authorization for our stock buy back program has approximately $35.6 million remaining. We will continue to assess additional share repurchases maintaining a balance between the capital requirements of 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 first quarter were approximately $45.3 million.

Receivables at quarter end were approximately $61.9 million, down buy about $6.3 million from the previous quarter. Days of revenue outstanding were approximately 55 days, up 5 days from the prior years comparable quarter and 3 days higher than the fourth quarter of fiscal 2009. Now I'd like to turn the call over to Don for some additional thoughts.

Thanks, Nate and Tony. When I returned to the role of CEO many of our investors and our employees asked what changes I was going to make and I responded by saying that we were going back to basics. That is, getting our consultants busy on projects and returning resources to profitability. We have recently met with our practice leader from around the world to reemphasize the need for all of our people to concentrate their efforts on our clients and new client prospects. Even if such efforts do not result in immediate revenue opportunities resources will be first in mind as needs arise.

We continue to serve a very loyal client base many of whom are Fortune 1000 companies. We have retained our major clients during the economic downturn. However, they are just spending less due to their own cost containment initiatives. Recent meetings and discussions with several of our clients continue to confirm the satisfaction with our services and revealed anticipated needs as budget dollars become available. As we work to grow revenues we will also continue to focus on our cost structure.

As Tony mentioned over the past 12 months we have reduced our recurring SG&A cost structure by approximately 21%. We are continuing to look for ways to reduce costs without impacting our ability to take advantage of growth opportunities as the economies recover. Over the long-term we remain focused on working to achieve our operating goals of 40% gross margin before reimbursable expenses and the 15% adjusted EBITDA margin. However, recognizing that in the current demand constrained environment attempting to achieve these metrics solely through cost reductions would have long-term negative repercussions to our Company. We will continue to monitor the business environment and take necessary steps to ensure we are good long-term stewards of the business. I continue to believe our efforts to preserve our client service infrastructure will pay dividends as the business climate improves.

By focusing on the basics I am convinced we will continue to provide value to our three constituencies, our clients, our employees and our investors. I believe our success in the past as well as in the future is based on our efforts to balance our three constituencies. With respect to these constituencies I am quite optimistic about the future. Improving visibility in global economies should begin to allow corporate executives to begin implementing the initiatives required to be successful and now was being referred as the reset economy. The depth of skills and experience of our consultants place us in a great position to assist companies with these initiatives.

Because we strive to maintain our client source platform we believe our existing cost structure can support significant future growth with limited incremental SG&A costs. Additionally our balance sheet strength will allow to us take advantage of opportunities to make long-term strategic investments to grow our business in addition to continuing our practice of returning capital to our shareholders. The clients, let's shift the discussion to our clients.

In fiscal 2009 we had 293 clients for whom we provided services exceeding $500,000 in fees. In our first quarter of 2010, on a run rate basis we have served 220 clients at this level. Our top 50 clients represented 41% of total revenues while 50% of our revenues came from 85 clients. Our largest client for the quarter was less than 3% of all revenues. Client continuity continues to be outstanding. During our first quarter we served all but 1 of our top 50 clients from each of fiscal year 2009 and 2008. Our loyal client following is reflective of our client service approach and quality of work performed by our consultants. Through the first quarter 86% of our top 50 clients have used more than one service line and 60% of those top 50 clients have used three or more service lines. In this service line penetration reflects the diversity of relationships we have within our client organizations. This concludes our prepared remarks and we will be happy to answer your questions at this time. Thanks.

(Operator Instructions). First, Tim McHugh, William Blair.

Yes, Don, you said one of your focuses in addition to focus on clients is you're going to simplify and revisit the cost structure here. As we look at SG&A at this point have you taken some of those actions or is there more to do and how should we think about the SG&A overhead spending going forward over the next few quarters here?

I think we've taken the significant amounts out over the last six to nine months. There are still a few areas we are looking at to bring the cost down or redirect the personnel into revenue producing rolls. So, but it's probably not going to be a significant amount of SG&A reduction from those actions. We are also continuing to revisit real estate where we have too much space and negotiate into smaller space to bring our costs down.

Then given the -- that it feels like your comments at the market are stabilizing a little bit I understand you were blacked out from using the cash a little bit this summer but could you update us on share repurchases and thoughts about use of cash at this point and why wouldn't you be I guess aggressively buying stock at this point if it does seem like the business is stabilizing?

We probably will be buying stock this quarter. We are also looking at some opportunities to expand our service capabilities with potential acquisitions which would use some of our cash. So as I think we've said we are really looking for the best opportunities to utilize the cash to create net worth for all of us.

Okay. And then lastly, Nate, can you touch on the, if we wanted to look at the tax affected impact of the severance charges, how did that influence that tax rate in the quarter?

Well, I think as we mentioned on the EPS there was about $0.09 but the other impact that it did is it obviously brought income in the U.S. down and so when you look at, take the ISOs, for example, or you look at other permanent type differences from GAAP and tax, it tends to magnify the effects of those. So, therefore, the benefit rate was much lower than you would have had on what I would say a more normalized basis. As I commented in the prepared remarks, I think we could continue to see a certain amount of volatility in that tax rate in the future. Again, dependent on the levels of ISOs that are exercised in comparison to income levels in the U.S. versus the 20 or so different foreign tax jurisdictions that we operate in, each of which have different statutory rates. I would just tell you something very difficult to project out over the coming quarters.

Okay. Thank you.

Next up we have Sara Gubins, Banc of America Merrill Lynch.

Hi, thanks, good afternoon. Could you talk a little bit more about potential pricing concessions?

I would say that we are giving concessions. I don't think they are globally significant. Probably what impacts our rate more is that companies are postponing what I would call some of the higher level strategic projects that they were doing or put on hold. And so some of the work that we are doing now is not as high a level as we would have been doing in a good economy but I've authorized all of our regional people to make pricing concessions to keep our people busy at our best clients. So we see that, it's a very aggressive marketplace out there. The Big Four firms are very aggressive as long as they are over staffed. I'm not sure it's a -- so that's a significant issue as far as our profitability goes.

I think if you looked in this quarter our gross margins held up pretty well, 38.2%. If you look geographically at where some of the most highly competitive pricing is being had is in both Europe and Asia Pacific where it is our experience that the Big Four there in certain cases is pricing work below what their cost is. So we didn't have to respond to the market but we are still very prudent about watching where our margins come out.

Okay. Thanks. Could you talk a bit about capacity in your operations? And to the extent that you could give us some color around incremental operating margins on new revenues that would be helpful?

Well, I'd say that our capacity is greater than where our revenue stream is now and what we are trying to do with our capacity is basically keep our client service people visiting these major clients and making sure that we are always in front of them. Because we haven't lost our major clients. That's one of the good things in this is we are still doing work t these 50 large clients even from two years ago. So our key for our people is don't sit in your office worrying about putting people out. Get out there to the clients, visit clients, talk to clients, and keep generating ideas for the clients on how to fix the issues. We are trying to use that capacity to really plant the seed that these major clients that we are still here, we are still strong, we are still here to support you. At the same time, networking to new larger opportunity. So our capacity is being used to hopefully generate revenue in the next six months.

And, Sara, just to continue on, I would also say that we could greatly expand our revenue base without significant incremental SG&A cost. As you know our folks are not commission based. So if you look if we were to maintain our gross margin level pretty much that gross margin absent of probably a few percentage points would fall down to the operating line.

And, for instance, what we've seen in the marketplace which we are trying to avoid is we just got an engagement with a major company that had selected one of the other big professional services firms and they came to us because all of the people working on their engagement had been let go from this big professional services company so they had no continuity, they had known who knew their business. So our strategy is to keep our people in these major company's keeping us top of mind so that when they know that we know about the business, we care about the business and they will use us as their dollars free up.

Thank you. Then just a last question on the weekly revenue trends that you talked about. It does look like you saw a slight uptick at least in the last two quarters of the month. Given your comments about what you are seeing out in the marketplace, would you expect to see continued increases throughout the quarter? I know that's difficult to tell. But just based on what you're seeing now would it be reasonable to think that that would continue to March upwards or was there anything unusual about that movement up?

I don't think there was anything unusual about the movement up and I would kind of keep with the comment that we made in our prepared remarks that we expect our business to increase gradually. We don't see a huge hockey stick recovery with the economy. We think it's going to be gradual just because of the unemployment rate drag on GDP growth and just the available money that our clients will have for their own business initiatives. So I would say that it would be more gradual but we do expect it to increase.

Thanks so much.

Moving on now to Andrew Steinerman at JPMorgan.

Hey, let me jump on the comment again of we expect our business to gradually increase from here. Do you mean each of the next couple of quarters? Do you mean sequentially? What do you mean by gradually increase and what time frame did you have in mind?

Well, again, I would tell you that we can't predict with any certainty what's going to happen over the balance of the year but where we sit today our expectation is that we will see gradual improvements in our business as the economy starts to heat back up a little bit. We realize that there is nothing that is so compelling out there that is going to create a real steep increase. So we kind of, our expectation is that we will gradually increase. And I will give you an example. As we come back off the summer vacation we are starting to see Europe heat up. Europe as we mentioned last quarter we thought would be pretty stale relative to the first quarter because of all the vacations. But when you look at some of our key markets over there we are starting to see gradual improvement. The U.K. is a good example. They were probably one of the hardest hit during the recession and starting to see good signs of life and good optimism from that market. Same thing in China. China is starting to pick up a little bit and we are seeing more project opportunities. That's basically all we can say, we can tell you what we see today and kind of what the feeling is relative to all of our discussions with our regional managing directors around the world.

Right, the last quarter, the quarter we just saw, the August quarter, it wasn't so out of mark from a seasonal standpoint, you pointed out that it was down 8% from the June level which would be kind of the high-end of seasonal. My question to you is do you expect a normal seasonal uptick right now in the busy season or would you expect it to be not quite a normal busy season?

I would say that we expects a kind of normalized uptick in our business in the fall through the busy season. That's based on just our feelings of our people in the field that our clients are in areas where they have to make some solutions, find solutions. They have to get some projects done as they get to year end and there is some more money being freed up. We've seen a few upticks over the last few weeks. And it coincides with our expectation that we are going to see gradual improvement in our weekly revenue over the fall, notwithstanding the holidays.

Okay. And when you put that all together, Nate, gradual improvement in the quarter, ex the holidays, what would that do for the gross margin line in the current quarter versus sequentially versus the August quarter?

Well, I think again if we do see some gradual improvement we should obviously start seeing some improving leveraging on these benefit costs. And so I would think we could see a slight improvement in the gross margin. I think you also have to remember in the quarter we do have two paid holidays that could counteract a little bit of that improvement on the leverage.

Okay. Thank you very much.

You bet.

We have a question now from Jim Janesky of Stifel Nicolaus.

Hi, how are you? When you talk about taking the market share from the professional services company, Don, was that a Big Four or was it one of your other competitors other than the Big Four?

It was basically three of the Big Four companies that had in essence had layoffs whereby their accountant relationship people had gone away and the client had no further continuity. This is relatively systematic of what occurs when we have big dips in the economy and you've got professional services firms with fixed benches. They generally solve their issues through layoffs and that creates issues with their client continuity.

Okay. And, again, just to bead a dead horse on the revenues looking out over the next couple of weeks, last year between August and November quarter obviously there was some major exogenous events going on with the economy that were out of your control and you saw a pretty big decline sequentially between August and November of '08, although that isn't the case normally as some other having pointed out. What gives you the better feeling now? Is it project in hand that you already have that you know the time frame that they are going to go on for? I guess, what would cause the revenues to either accelerate from the current expect stations or accelerate if we can look at those two scenarios?

I think you have a couple of concepts in there and I think one thing that you have to be careful of is comparing what's going to happen over the next quarter to what has happened historically can potentially be a little bit dangerous because this is truly an extraordinary events this last recession that occurred over the last 12 to 15 months. What the best we can tell you relative to our revenues is just what we've seen through the first four weeks of the new quarter. This is very consistent with what we expected to happen. Really, the feel that we get for the fact that we will continue to see gradual increases in our business comes from just being very close to our regional managing directors, they are very close to what is going on in all of their offices and this is all over the world and there is just a much more optimistic tone. A more optimistic tone than we've had in the last six months.

I think as we've discussed on other calls about five to six months ago we started having a little bit more increased charter within the system, a lot more discussions with our clients whereas before that they had been in a lock down mode. What we are seeing now is much more of a willingness to talk about projects that they have, projects that they need to get done before year end and we are starting to see project opportunities that we are actually going out and scoping. Again, this activity is better than what we've seen over the last six months. But our best gauge for this is what we've seen in these revenues these first four weeks and our expectation is that's going to continue but it's going to continue on a gradual basis.

Okay. And do you at all get a sense for, do you have a sense for what your client needs might be to close the books year end quite yet? Are they, there's been a lot of layoffs obviously in finance and accounting.

I would say we don't have a specific sense. We believe it's going to create need for us because just from some of the visits we know some of our clients have lost people in key areas, that they are going to have to replace those skill sets so that's a different type of work. Usually it's a lower bill rate than say a higher project type work. But we do think there's quite a bit of work like that. What we've seen which gives us the feeling that we are going to see increases in our revenue on a week by week basis is in the last few weeks a lot of our major offices are reporting that their new assignments and the people going out on new assignments have been greater than the people rolling off assignments that have ended.

So we are constantly even through this recession getting new projects. It's just that these bigger companies have been as the projects end they don't replace the project with a new project like they have in the past. So what gives us some optimism is that we now, in some of our larger offices around the world are seeing our new projects starting greater than the number of people rolling off the projects that have ended. That's where some of our optimism comes from.

Okay. Thank you.

We will go to Oppenheimer' Scott Schneeberger.

Thanks very much. Curious on something you guys mentioned earlier, the acquisition pipeline, it sounds like you are really warming up there. Could you give us an idea of what you are looking at, how robust the pipeline is and perhaps how you feel about the multiples right now and the (inaudible) of sellers?

Nate, told me I can't say much so I have got to be careful. But we have a good robust pipeline I'd have to say but we've always been very cautious of what we are closing and we are careful. We think the multiples for these companies are strong for us, not as strong for the seller. So we like the idea of a strategic acquisition. We are working on one or two all the time and we have two, as I said earlier on other calls we have two I would call break out strategies that we are looking at in how to really implement those.

The first one is to get into a higher level the prices restructuring type business. We've always done a lot of work with companies that are restructuring that are turnaround areas but we've never done a lot of work at the highest level so we are looking at how we can do that. And the second one we are looking at is government contracting in the U.S. So in those areas is where we are primarily looking at how we could acquire the right company, the right platform to help us grow.

Thanks. That's helpful. Any indication of size you can share?

Nate?

No, I would say as Don pointed out we continue to look at a variety of things. As you probably know from following the Company we are not a debt to Company type of management team so the things we look at are obviously not what I would say not huge, but, again, we stick to pretty strict criteria which causes us to look at far more things than obviously we actually pull the trigger on.

Okay. Thanks. Taking it back to current offerings could you, I believe, (inaudible) mentioned legal or sellers last quarter, on a relative basis could you speak a bit to that, just kind of go across the board?

Can you repeat that one more time? I think he's asking about our service lines.

Service offerings going across the spectrum where you are seeing more strength, more weakness on a relative basis?

Okay, very good. I would tell you that it's pretty, it was fairly consistent across the board. We did see a little bit of a sequential tick up in our RAS business. It's not huge. RAS is still -- it's only about 12% of our revenues right now. We did see a little bit of a sequential pick up in RAS, quarter over quarter it was down significantly 50% but on a sequential basis it was up a little bit. Relative to other services lines I would say that they were relatively all consistent. No stand outs and no service lines that were having more trouble than the others on a sequential basis.

Okay. Thanks. And then finally, Nate, with regard to the tax rate while everyone is on, any level that you are (inaudible) with as far as models going forward, I know you said it was going to be tough to model but perhaps for some consistency what number you would be willing to put out there?

I wouldn't feel comfortable trying to put out a number. Again, just because of the volatility, again, at these income levels if you look at just the deduction we do or don't get on ISOs depending on how many get exercised during the quarter can have a very magnified effect and that's just coming that's just completely out of our hands.

To manage the business, we have to ignore certain jack principles that have no connection to what our real results are because what we look at is how are we doing cash wise, are we making money cash wise, et cetera, and being a CPA and an ex Big Four partner some of these rules, like tax rules, just they amaze me in their complexities, and the fact that they are not related to our reality. So I feel for you guys trying to model this stuff.

I think what Don is referring to there is our cash tax rate approximates 41.5% or so, it's the GAAP tax rate that's affected by the deducibility or nondeductibility or being able to get a benefit or not being able to get a benefit out of some of the losses in the foreign subsidiaries as well as what Nat'es mentioned relative to our ISOs and the deducibility thereof.

Okay. Thanks.

A question now from Gary Bisbee at Barclays.

Yes, hi, guys, just, you mentioned seeing some need for help around your end and also some signs that budget in some places could loosen up a bit on January 1 when companies move to the new year. Can you give us any more color? How broadly are you hearing this? Is it just one or two positive signs out of an awful lot of clients or is this becoming an increasingly prevalent set of comments you are hearing from customers?

Well, as I said one of trends that we follow is how many new consultants are going on new projects compared to the number that are ending and rolling off projects. And for the last few weeks, our sense is that a lot of our large offices, and it's fairly widespread as far as the offices, are getting more people on to new projects than projects are ending. That's the best indication. Having clients tell that you they are going to need people is nice but they still have to pull the trigger and get the contracts approved by whoever is the gate keeper in their company. So for us the positive trends in the last few weeks, seeing this trends of more people going out on assignments than are ending assignments and that's the best indication for us.

Let me challenge that a little bit. You said in the first -- early last quarter you were sort of upper $9 million weekly revenue and over the last few I think you said you are sort of mid $9 million, so it's down from where it was a quarter ago. So are we talking that you got more people going out on projects than coming off versus several weeks ago or is this a trend that looking better versus the last couple of quarters? Because obviously that trends continues, the revenue should start growing. We are just talking about--?

We are talking about primarily after Labor Day because before Labor Day for us there is so much vacation time and our clients are on vacation, Europe shuts down for a month in different places for sometimes July, sometimes August. Asia is on vacation. So it's hard to look at the number of people out and say what the real trend is compared to after Labor Day when the vacations drop quite a bit and people start gearing up to really go to work again. So we are talking about primarily after Labor Day.

And I can give you just another like small piece of color on that. We spent, in the latter part of September we spent a couple of weeks in Asia Pacific and probably had close to 20 clients meetings. And it's been very consistent with what we've described to you today, the clients extremely satisfied with our work, we are continuing to do work with some of these bigger companies. It's just not as much as we've done in the past. One particular example is in the first quarter of last year we had a very large financial institutions company that we did about $5 million of work with in the quarter. We still have them as a client but this quarter we did about $3 million. Again, they are very happy with our service. They plan to use us on a continuous basis but there is just less of a budget. But what we heard from these client visits are certain current opportunities that they have which we went back and scoped and actually filled some of their current requirements and we heard about as they get to January 1, and they have new budgets, as they get to year end if they have needs that they are going to come to us because they are very satisfied with us. I don't know if that helps or not but that's kind of a real live example coming from 20 or so client visits on a recent trip.

Okay. Great. Given the cash flow despite what's been an obviously challenging time has remained so steady. Have you given any thought to initiating an ongoing consistent dividend? I know you've done special dividends once in the past. But is that something that you'd think about?

It's something that we would discuss at the Board level and will continue to discuss and probably get thoughts from some of our larger investors what their thought is around it. So, yes, we've considered it and we will continue to consider it. So I can't tell you when we would do it but it's something that certainly with our strong cash flow is a strong possibility for us.

Okay. hen just one last question. Don, on the call about the management change recently one of the things you said was that you saw some areas where the Company was spending on infrastructure that just wasn't necessary in your view given eye guess where the revenue base is today. How do we tie that comment in with your comment earlier today that you don't see a whole lot of incremental SG&A cost cutting opportunities other than real estate?

Well, I'll give you some examples. We had two or three projects going internally with outside consulting firms in soft areas and the first week I cancelled those and got rid of those consulting firms. We were going to one of our largest offices had -- that was very close to signing a lease that was going to be incrementally more expensive, much more expensive. And so I terminated that lease negotiation and started to go back and look at more cost-effective space. We pushed our offices to rent out, to divide their office so that they could sublease part of the office to another professional services firm and start reducing our costs in those areas. So we've taken a lot of steps already in the first month or two to cut down those expenditures and to pull back in these areas. We are still not done with them. But a lot of the actions have already been taken.

That's very helpful. Thank you.

Next we have Paul Ginocchio at Deutsche Bank.

Thanks for taking my question. Just a quick on IT and finance. I know you had said that you didn't see much change in the disciplines. I guess looking forward in talking to clients do you see one of those two disciplines having a better outlook in the next two to three quarters? Thanks.

I'd say that accounting and finance has always been one of our strongest suits. It's what we always lead with especially when we open new offices so I think that will always continue to be strong. One of the things as we look across the North America landscape and even in parts of Europe, I think on the IT side you are seeing a little bit more right now in terms of companies looking at their ERP systems and either revising them, adding to them or having wholesale change outs. You didn't see any of that nine months ago. In particular in China right now SAP is, SAP experience for consultants is in high demand and we recently had a project in which we were asked to look into the skill sets of our consultants and see if we could come up with a fair amount of people to help one particular client with SAP. I think both of those service lines to me are going to be, they are going to continued to well for us.

To try and read into that, so IT, the same looking forward, no difference or IT was better?

No, I would say, I would say that there probably pretty much on par on a go forward basis but both of them relatively consistent, over this last quarter and I think relatively consistent going forward. I would just tell you that accounting and finance because it is such a big component of our revenues that's always been kind of like our anchor, it's our anchor service line.

Understood. Thanks very much.

Next up is Kevin McVeigh at Credit Suisse.

Great, thanks. Tony or Don, I wonder if you could give a sense, given the dislocation amongst the Big Four now how do you think about the opportunity coming out of this? It seems like this has always been the toughest down cycle and they responded with a lot of cut backs, things like that, what kind of opportunity does that provide for you in terms of taking incremental market share relative to the last cycle?

Well, I would say in the short term the Big Four whenever they are over staffed their answer is to put people out at very incremental low rates until they get their staffing realigned. In the last, Tuesday and Wednesday both days I had actually lunches with partners from one of the Big Four firms and another partner from one of the big consulting firms who have both been kind of downsized out. So I get a feel for what's going on there. What we do, our core competency, is much different than their core competency. So what happens is they try to shift into our area over the last nine months. When they have over staffed people. That will start drying up again. We don't want to do their core competency. We don't want to do independent audits. We don't want to do independent tax returns. We don't want to do independent consulting. We want to do what we call the internal partnering with our clients on fixing the problem.

I would say that we think we will continue to get that market share back from the Big Four as they right size their staff and as their staff becomes busier now on year end audits. So that should be another area where we see less competition. On the other hand you got these people leaving the Big Four who are all trying to figure out how to make a living and some of them want to align with us. We may have opportunities to hire some of these people, we're not sure, we are certainly like I said looking into the government contracting area in a big way. So we think there's opportunities with this downsizing going on and we just have to be real aggressive and selective in looking for the right people.

Got it. Then just real quick and not to belabor the revenue trends but when was the last time you saw more consultants come on to engagements versus coming off? And obviously it's been a more recent trend. Was that back in 2003 kind of the first quarter into the second quarter or when did you see that inflection point last?

Again, I haven't gone back and actually looked but my guess is we were doing fine as we were growing, maybe not at the same pace as we would like to grow but probably up to the second quarter of last year. So the second quarter of last year is where kind of the roof caved in on the financial services industry and that's where we have a lot of projects starting to get cancelled and we couldn't keep the people rolling fast enough on to new engagements. So it's probably been a year.

Then, Nate, share count for the rest of the year? And then just I want to confirm, there's 13 weeks in this upcoming November quarter?

13 weeks with obviously the Thanksgiving and the Labor Day.

Then share count?

45.3 million.

Thanks.

We have a question now from Mark Marcon at Robert W. Baird.

Good afternoon I missed part of that so I apologize if this was asked already but, can you talk just a little bit about what's been -- a normal seasonal uptick would be in the last couple of the months of the quarter relative to the last two weeks and how much of that is typically due to RAS, or at least what you've seen in the past from RAS and how much would you expect from RAS this time around as that kind of (inaudible) in terms of the software? Thank you.

Better let Nate answer that.

Mark, your question was somewhat choppy but I think what I heard you ask was as we look in the, look forward in the upcoming quarter what are our thoughts around our RAS practice, is that right?

Yes.

Okay. Yes, I think obviously as company's hit their year end reporting requirements we will continued to RAS work, again, I think as you, as we've been experiencing the last couple of years that is an area that every year a company does it they get better. The rules have somewhat been watered down over the last couple of years so obviously on a total revenue basis we've seen a decline. I expect we'll see an uptick in that just as we approach year end.

Okay. But would you typically see much of an uptick or would it be fairly light?

Well, if you look at, if you look at past fiscal years as you approach the last three or four months of the calendar year, we've had, we've seen an uptick in the volume of that? Again, I would expect that again this year, however, I think it's going to be a little bit subdued as companies in some cases try to, in terms of the cost savings initiatives say we are going to just do it internally, or they, again, have, we become more and more efficient at it and it just takes less hours.

Then, can you talk about the SG&A, are we going to get a savings from the two reductions that we just had?

So if you look at it on a sequential basis, last year I think our compensation in the proxy for those two people was over $2 million. And so this year there won't be compensation for those two people.

Okay. Great. Thank you very much.

(Operator Instructions). It looks like there are no other questions holding.

Okay. I'd like to thank everyone for their interest in and their support in our Company and we look forward to more positive results and updates in January for our second quarter. Thanks.

Thank you, again, for joining us everyone. That will conclude today's conference call. Again, have a good day.