Resources Connection Inc (RGP) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Resources Global Professionals' fourth-quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions for audio questions will be given at that time. (Operator Instructions). As a reminder this conference may be recorded.

And now I'd like to turn the conference over to our speaker, Kate Duchene, Chief Legal Officer. Please go ahead.

Thank you, Operator. Good afternoon, everyone, 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 Chief Operating Officer; and Nate Franke, our Chief Financial Officer. Tony is dialing in from London, where he's visiting our office and our clients.

During this call, we will be providing you with comments on our results for the fourth 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'll 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 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 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.

Now I'll turn the call over to Tony Cherbak, our President and Chief Operating Officer.

Thanks, Kate. Good afternoon and welcome to the Resources Global fourth-quarter conference call. Let me begin by giving you a brief overview of our fourth-quarter operating results.

Total revenue for the fourth quarter of fiscal 2010 was $133.9 million, a sequential improvement of 6.9% over our third-quarter revenue of $125.3 million and a 1.4% increase over the comparable quarter a year ago. Included in our fourth-quarter result is revenue of $8 million attributable to our acquisition of the Sitrick Brincko Group.

Fourth-quarter gross margin was 41.4%, an improvement of 280 basis points sequentially and 320 basis points over the comparable quarter last year. During the fourth quarter, our SG&A costs were $43 million, a sequential decrease of $1.1 million from third-quarter SG&A and a $4.3 million decrease from the comparable quarter last year, after excluding prior-year restructuring costs.

During the fourth quarter, we generated cash flow from operations in an adjusted EBITDA of $6.8 million and $14.8 million, respectively. For the quarter, our pretax income was $8 million, which included a non-cash expense of $1.2 million or $0.02 per share related to an increase in the estimated fair value of the Sitrick Brincko contingent consideration, and an estimate of the employee portion of the Sitrick Brincko contingent consideration earned during the quarter. We also recorded a charge of $250,000 for early lease termination costs associated with combining the Sitrick Brincko and Resources office in New York City.

Our tax provision includes a charge of $778,000 or $0.01 per share of newly-established tax valuation allowances, as well as other items that distort our effective tax rate. Included in the aforementioned items, our GAAP net income was $2.3 million or $0.05 per share. Nate will provide more detail in each of these items a little bit later in the call.

Now to talk a little bit about revenue trends. As we reported in March, weekly revenues during the first month of the fourth quarter ranged between $10.5 million and $10.7 million. During April, weekly revenues ranged from $9.5 million during the Easter week to $10.7 million, averaging $10.2 million per week. Coinciding with the escalating reports of the European debt crisis, which reduced the value of the euro and concerns of slowing US economic growth, our average weekly revenues during May declined to $10.1 million per week.

A portion of the decrease in average weekly revenue in April versus May stem from exchange rates. Because of the natural hedge that exists in our business, our fourth-quarter operating profit was not significantly impacted by exchange rate changes.

As we look forward to the remainder of the calendar year, excluding the seasonal impact of summer vacations during our first quarter, we believe that we will continue to see gradual improvement in our business. That said, the present business climate remains similar to what we described to you in March. Non-holiday weekly revenues through the first six weeks of fiscal 2011 have averaged $9.7 million, as we enter the summer vacation season.

Our clients also remain cautious with their spend on outside consultants, managing projects very closely from a budget perspective. Our view is consistent with a recent CEO survey conducted by the Business Roundtable, which concluded that businesses are not expanding as fast as expected at this stage of the recovery.

Despite the cautious environment, we are encouraged by several events that occurred during our fourth quarter. First, our fourth quarter results reflect the significant leverageability of our business model. Over the past several months, we have said that we believe a substantial portion of the gross margin associated with incremental revenue will flow to our operating income. Indeed, the sequential revenue growth of 6.9% experienced in the fourth quarter helped us grow our operating margin and cash flow margins by 222% and 100%, respectively, from the third quarter.

Second, our acquisition of the Sitrick Brincko Group has allowed Resources to expand our service capability throughout the world. For example, in Europe, Resources recently entered into an agreement to provide advisory services to Ireland's National Asset Management Agency known as NAMA. NAMA was formed by the Irish government to manage troubled loans purchased from Irish banks.

Additionally, during the fourth quarter, the Sitrick Brincko Group was awarded an initial engagement to perform loan collateral reviews for a bank headquartered in California. These engagements, as well as others, will utilize Resources' consultants, thereby leveraging the joint capability of Sitrick Brincko and Resources.

We are also excited by the potential of some new customer relationships established during the fourth quarter. In North America, we were granted preferred provider status by two Fortune 100 companies we did not previously serve. Preferred provider status is an important first step to selling services into certain large organizations, as it designates Resources as a company approved and qualified provider of professional services. Functional area buyers, such as those in finance and accounting, information and technology, and human capital among others, are increasingly being urged by internal procurement departments to utilize preferred providers when service needs arise.

In Europe, we were also granted preferred provider status by one of Europe's largest energy conglomerates, a company with over $100 billion in revenue. In each case, these companies told us that they were looking for alternatives [for] accounting firms and branded consulting firms that meet their professional services needs. These wins further demonstrate the relevance of Resources' business model and the value proposition in the current global economic environment, where companies are reassessing how they will efficiently achieve their human capital requirements on an on-demand basis.

Irrespective of what happens in the global economy during our fiscal 2011, we will continue to make revenue a priority -- a top priority. Our fiscal 2010 results reflect effective management of our gross margin and cost structure, and the leveraging of cash generation and earnings capability in our business model. We are aggressively pursuing every service opportunity with clients and prospects alike, and we are winning our fair share of new engagements, a few which I mentioned earlier.

Our ability to grow in 2011 will be predicated on our ability to add new consultant projects faster than projects are being completed. And I believe our people are up for this challenge.

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

Thank you, Tony. As mentioned, revenues for the quarter were $133.9 million versus $125.3 million in the third quarter of fiscal 2010, an increase of 6.9% sequentially and an increase of 1.4% on a quarter-over-quarter basis. On a constant currency basis, the sequential and quarter-over-quarter increase was 7.8% and 0.2%, respectively.

For the 2010 fiscal year, revenues were $499 million versus $685.6 million in fiscal 2009 -- a 27.2% decrease. As we reported during our third-quarter conference call, the fourth quarter began with weekly revenues ranging from $10.5 million to $10.7 million during the first four weeks of the quarter. Weekly revenues averaged $10.2 million during the month of April, which included the Easter holiday.

Average weekly revenues during May declined to $10.1 million per week, coinciding with the weakening euro as the sovereign debt fears in Europe gained global attention. Average weekly revenues of the Sitrick Brincko Group were $615,000 compared to a non-holiday weekly average of $433,000 last quarter. It is important to remember that Sitrick Brincko's revenue can vary significantly week to week, due to the episodic nature of a portion of their work.

Now let me discuss some highlights of our revenues geographically. For the fourth quarter, revenues in the US were $103.3 million, up 8.9% sequentially and an increase of 7.4% quarter-over-quarter. For the fourth quarter, total revenues internationally were $30.6 million versus $30.4 million in the third quarter, an increase of 0.7% sequentially, but a decline of 14.8% quarter-over-quarter.

International revenue accounted for approximately 23% of total revenues for the quarter versus 24% last quarter. Europe's fourth quarter revenue decreased 6.4% sequentially and 24% quarter-over-quarter, while the Asia-Pacific region saw fourth-quarter revenues increase 13.6% sequentially and 1.5% quarter-over-quarter. Economic news in Europe continues to drive a difficult business environment in that region.

On a constant currency basis, total international revenue increased 4.6% sequentially, but declined 19.2% quarter-over-quarter. On a sequential quarterly basis, the US dollar strengthened against the major currencies in Europe, while it was slightly stronger against currencies in Asia-Pacific. As a result, on a sequential constant currency basis, Europe's revenue decline would have narrowed to 0.9% and Asia-Pacific's revenue would have been about the same.

In summary, using fiscal 2010 third-quarter exchange rates for our fourth quarter, our revenue would have been $135.1 million. On a quarter-over-quarter basis, Europe's revenue decrease would have been 26.2% and Asia-Pacific's would have been 4.5%.

Following is some additional revenue detail related to certain markets. Total revenues in the Netherlands' practice in the fourth quarter were $8.1 million, down 15.6% sequentially. On a constant currency basis, the Netherlands experienced a sequential decrease of 8.3%. UK revenues were down 11.4% sequentially and 5.7% on a constant currency basis.

Let me now discuss early revenue trends for the first quarter of fiscal 2011. Weekly revenues for the first six weeks of the first quarter, which included the Memorial and Fourth of July holidays, were $8.4 million; $9.9 million; $9.7 million; $9.7 million; $9.3 million; and $8.1 million during the Fourth of July holiday week. Included in these amounts are weekly revenues of the Sitrick Brincko Group, which averaged $400,000 per week.

In thinking about the first quarter, it is important to remember that first-quarter revenues are impacted by vacations taken by our consultants in the US and Europe during the July and August timeframe.

Moving on to gross margins. Gross margin for the fourth quarter was 41.4%, a 280 basis point improvement from 38.6% in the third quarter and 320 basis points higher than a year ago. The sequential gross margin improvement stems primarily from an approximate 100 basis point improvement resulting from no significant holidays occurring in the fourth quarter, as well as improved leverage of healthcare cost and improved bill versus pay spreads.

Excluding reimbursable expenses, our fourth-quarter gross margin was 42.3%, which compares to 38.9% in the fourth quarter a year ago. The average billing rate for the quarter was approximately $132, a decrease from (technical difficulty) [$133] in the third quarter and an increase from $128 a year ago. The average pay rate for the fourth quarter was approximately $63 versus $65 in the third quarter and one year ago.

The increase in the average billing rate is attributable to the Sitrick Brincko Group. Please remember these hourly rates are derived based upon prevailing exchange rates during each period. In thinking about gross margin in the first quarter of fiscal 2011, we would expect an approximate 250 basis points negative impact, given that our first quarter includes both the Memorial Day and Fourth of July holidays, as well as reduced leverage of healthcare costs due to the seasonal revenue impact.

For the fourth quarter, gross margin in the US was 43.5%, and our international gross margin was 34.1%. Our consolidated gross margin for fiscal 2010 was 39.1% versus 38.4% in fiscal 2009.

Now to headcount. For the fourth quarter, the average consultant FTE count was 2,057. This compares to 1,968 in the previous quarter and 2,104 in the year-ago quarter. Quarter-end consultant headcount was 2,067 versus 2,065 a year ago. Total headcount of the Company was 2,783 at quarter-end.

Now to the other components of our fourth-quarter financial results. Selling, general and administrative expenses for the fourth quarter were $43 million or 32.1% of revenue, a sequential improvement of $1.1 million when compared to SG&A cost of $44.1 million in the third quarter of fiscal 2010. Recurring SG&A was $47.3 million or 35.9% of revenue in the fourth quarter of fiscal 2009. Our fiscal 2010 fourth-quarter SG&A includes lease termination costs of $250,000 related to combining our New York offices with those of Sitrick Brincko.

The sequential improvement in SG&A stems primarily from reductions in total employee compensation. While we will continue to invest in our business as means and opportunities dictate, we continue to believe our existing infrastructure can support revenue growth in the 20% to 30% range. Consequently, and consistent with our experience in the fourth quarter of fiscal 2010, we believe a substantial portion of the gross margin associated with incremental revenue growth will accrete to our operating income. We believe SG&A expenses in the first quarter of fiscal 2011 will be roughly comparable to that of the fourth quarter.

Stock compensation expense associated with active employees was $2.9 million or 2.2% of total revenue versus $3.2 million or 2.6% of total revenue in the third quarter, and $4 million or 3% of total revenue in the fourth quarter of fiscal 2009. We would anticipate quarterly stock compensation expense in the upcoming quarters to approximate the amount recorded in the fourth quarter.

At the end of the fourth quarter, our office count was 82 -- 53 domestic and 29 international. The three-office reduction stems from consolidating offices from prior acquisitions.

Related to other components of our financial statements, depreciation and amortization was $3.3 million for the quarter compared to $3.5 million last quarter. We would expect depreciation and amortization expense for the upcoming quarters to approximate $3.5 million per quarter.

Additionally, during the fourth quarter, we recorded a non-cash expense of $704,000, or approximately $0.01 per share, related to the increase in the estimated fair value of the contingent consideration stemming from the Sitrick Brincko acquisition. The expense stems from recording the time value of money or interest component of the estimated fair value of the contingent consideration.

We also recorded $500,000, or $0.01 per share, relating to our estimate of the employee portion of the Sitrick Brincko contingent consideration earned during the quarter. Our acquisition agreements with Mike Sitrick and John Brincko stipulate that a portion of the purchase price, otherwise payable to the selling shareholders, will be allocated to Sitrick Brincko Group employees, based upon the achievement of EBITDA levels during the four-year contingent consideration measurement period. Under US GAAP, the estimated employee portion of the contingent consideration is recorded as expense during the service period. As it is deemed probable, the specific performance conditions will be met.

Interest income decreased by about 45% to $132,000 in the fourth quarter versus $239,000 a year ago. Interest income decreased primarily due to lower average interest rates earned on our invested cash in the fourth quarter of fiscal 2010.

Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation and contingent consideration adjustments, was 11% for the fourth quarter compared to 5.9% in the third quarter of fiscal 2010, and 2.6% a year go. For fiscal 2010, our adjusted EBITDA percentage was 5.5% versus 10% in fiscal 2009.

Our pretax income was $8 million for the quarter. During the fourth quarter, we recorded a provision for income taxes of $5.7 million, representing an effective tax rate of 71%. In the fourth quarter, the nontax after-tax charge for continuing stock compensation was $0.05 per share versus $0.06 per share in the comparable quarter a year ago.

Our tax expense of $5.7 million during the quarter reflects a $4.9 million provision for taxes in the US and other tax jurisdictions in which we were profitable, and a non-cash charge of $778,000 or $0.01 per share for a newly-established deferred tax asset evaluation allowance. Excluding the impact of the tax valuation allowance, our effective tax rate was 61.2%. Our effective tax rate is impacted by our current inability to offset income and tax jurisdictions in which we are profitable, with losses in certain tax jurisdictions in which we are not profitable.

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. For tax purposes, in the vast majority of the tax jurisdictions in which we have recorded a valuation allowance, NOLs may be carried forward indefinitely and can be used to offset future taxable income.

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 US and foreign locations, each of which are taxed or benefited at different statutory rates and the number of incentive stock options exercised each quarter.

In summary, our per share income of $0.05 during the quarter includes a negative $0.03 per share impact associated with adjustments to the selling shareholders and employee portions of contingent consideration for the Sitrick Brincko acquisition and the establishment of a new tax valuation allowance. For fiscal 2010, our per share loss was $0.26, which includes $0.22 per share impact of executive severance costs, tax valuation allowances, and the contingent consideration adjustments recorded during the year.

Now let me turn to our balance sheet. Cash and investments at the end of the fourth quarter were $140.9 million, a $22.8 million decrease from the end of fiscal 2009. The decrease in the 12-month period stems primarily from the use of $28.6 million for the acquisition of Sitrick Brincko and $9 million of share repurchases, offset by cash generated from operations, and the proceeds from employee stock options, and our employee stock purchase plan of $8 million and $9.8 million, respectively, during the year.

During the fourth quarter, we generated cash flow from operations of $6.8 million. Also, during the fourth quarter, we repurchased approximately 187,000 shares of our common stock at an aggregate cost of $3.2 million or $17.06 per share. For the fiscal year, we repurchased approximately 496,000 shares at an aggregate cost of $9 million, or $18.23 per share.

Our current Board authorization for our stock buyback program has approximately $26.6 million remaining. We will continue to return cash to shareholders while maintaining a balance between the capital requirements of growing our business and fiscal prudence. Our shares outstanding at the end of the fourth quarter were approximately 46.3 million, about even with the shares at the end of last quarter.

Receivables at quarter-end were approximately $73.9 million compared to $72.8 million at the end of the third quarter. Days of revenues outstanding were approximately 52 days, even with the prior year's comparable quarter and four days lower than the third quarter of fiscal 2010. Our days of revenue outstanding can be impacted by Sitrick Brincko, as they historically have had longer repayment trends.

Now I'd like to turn the call over to Don for some additional thoughts.

Thanks, Nate. Undoubtedly, the global economic conditions over the past two years have tested most service businesses. While the demand profile of our clients remains constrained, I believe the results of our fourth-quarter demonstrate the leverageability of our business and the Company's cash generation capability, despite a very soft economy.

This has been an incredible year of change. Since I returned as CEO in August 2009, the Company has accomplished a lot that gets overshadowed by the continuing difficult economy and ever-changing accounting standards. We have increased our operating cash margin in every quarter of fiscal 2010 from a negative 0.5% in Q1 to 11% in Q4. We achieved these results in a slow growth environment without any economic-induced layoffs.

Our year-end cash balance is over $140 million. We reduced our 2010 SG&A spend by $29.7 million while still investing in new markets of China and Germany. We retained our core group of the best clients, semi-professionals and recruiters in our offices, so we are positioned to benefit from any economic recovery.

We improved our operating income from the prior-year quarter by a multiple of more than 14 times, excluding those fourth-quarter 2009 special charges. So even with significant bankruptcies, we incurred no significant receivable losses.

We completed the Sitrick Brincko acquisition as part of our strategy to become a major player in crisis management and corporate turnarounds. We ended the year in a stronger position than the beginning, and we were able to return cash on a regular basis to shareholders through our share repurchase program and the quarterly dividend we announced today.

We retained all of our top 50 clients from fiscal 2009 and 49 of our top 50 clients from 2008. In fiscal 2010, we had 202 clients for whom we provided services exceeding $500,000 in fees. Our top 50 clients represented 40.8% of total revenues, while 50% of our revenues came from 87 clients. Our loyal client following is reflective of our client service approach and the quality of the work performed by our consultants.

Our largest client for the quarter was approximately 4.2% of revenue. During the fourth quarter, 96% of our top 50 clients have used more than one service line, and 78% of those top 50 clients have used three or more service lines. This service line penetration reflects the diversity of relationships we have within our clients' organizations. Now our clients continue to be a tremendous asset of Resources, and this client base will benefit us as the global economy improves.

As Tony discussed, we have and will continue to focus on efforts towards growing the business by expanding the work we do with our current clients, winning new clients, and by making diligent investments to expand our service capabilities and geographic penetration as appropriate opportunities present themselves. We are committed to finding different ways to be successful in achieving growth in this challenging economy.

We believe the strength and liquidity provided by our balance sheet is a significant competitive advantage and we remain committed to maintaining that strength. Additionally, we remain committed to returning capital to our shareholders.

After reviewing with our Board of Directors the capital requirements of continuing to grow the Resources business, our future expectations of cash generated by our business and our current liquidity, I am pleased to report the Resources Board has approved a quarterly dividend of $0.04 per share, payable on September 15, 2010, to shareholders of our record on August 18, 2010. On an annualized basis, at a recent stock price of $13 [for the] share, this dividend amount represents an annualized dividend yield of approximately 1.2%. Based upon our current shares outstanding of approximately 46.3 million, an annual cash usage of approximately $7.4 million.

Our Board of Directors intends this approval to be the inception of a regular quarterly dividend, but the Board will review and approve the dividend on a quarterly basis. We believe this dividend level leaves the Company ample opportunity to continue to invest in our business and continue our practice of share repurchases.

That concludes our prepared remarks, and we'll be happy to answer your questions at this time.

(Operator Instructions). Tim McHugh, William Blair & Company.

Yes. First, I want to talk a little bit -- or ask a little bit about the weekly revenue trends you described, and specifically, the slightly lower trends in May and June. Can you talk a little bit about what you're seeing US versus Europe? Are you seeing -- you mentioned the currency impact, I guess, underlying in a constant currency basis -- a little more color on it -- did you see the US weekly revenue run rate slow down as well? And what you're hearing from those clients.

Tim, it's Nate. I guess what I would tell you is most of the impact seems to be coming from Europe. As I commented in the prepared remarks, that decline in the latter part of the quarter was primarily from exchange rates. And I think what you're starting to see as you get into June is the impact of the holidays and I think a difficult -- a little bit more of a difficult business environment in Europe.

We do see some things in the US that give us optimism. But again, as Tony commented in his remarks, our clients, while they continue to talk about new projects, we have new projects starting all the time, it still remains a cautious environment. But as we look out over the remainder of the calendar year and kind of excluding the impact of the vacations, I think we remain fairly optimistic that we will continue to see growth. Again, we're always impacted by the impact of the summer vacations.

Okay. And then on Sitrick, it was a higher revenue number than I would've thought for the quarter, and then your weekly revenue run rate suggests it pulled back. Which ones the -- I know there's volatility in their numbers from a week-to-week basis, but was there abnormally strong revenue trends in this past quarter? And the most recent trends are more reflective of the normal? Or would you say they're at a bit of a lull right now? How should we think about the base run rate of that business?

Well, again, it's difficult to predict it, as you mentioned. They had -- I think there were a couple of sizable projects. One did come to closure, which I think is what brought off that major portion of the falloff as you get into June.

As Tony mentioned, there's a project with the Irish Bank that we expect to get -- to see that kicking off in the foreseeable future. I think we will continue to see volatility as so much of that work is very episodic. But I think, currently, it's at a little bit of a lull than what we would normally expect. So probably somewhere in between.

Okay, thank you, guys.

Gary Bisbee, Barclays.

This is [Mac Lotti] on behalf of Gary Bisbee. A few questions, actually. Have you noticed any change in regards to expiring projects remaining more challenging to replace? I guess, ultimately, do you have more consultants coming on than exiting?

And secondly, has there been any change in customer demand for cost savings projects over growth-related projects? Thank you.

Yes, this is Don. I'll start off. We are seeing projects and probably after end dates versus being extended as was customary before this recession. So, we're -- I guess, our experience right now is that clients are sticking to their budgets very carefully.

We have to recruit new people all the time because clients are also more specific on the skill sets and experience they want, and they don't give much leeway if they don't find exactly the right skill set. So we're constantly recruiting; constantly looking for the skill sets the clients require; and we're constantly selling new work that basically replaces some of the expiring projects.

So that demand environment, as Tony said, it's a much more cautious environment by the clients. The majority of the projects, I would say, of nature are more in cost saving-type projects; not very much in growth-oriented projects. We don't find a lot of clients investing really yet in growth-oriented projects.

Great. And then one follow-up. Is there any activity or avenues along the lines of M&A restructuring or government work that you've kind of alluded to in the past, that are positioned to provide some incremental revenue looking forward in the near-term?

The restructuring environment, we think we've really strengthened our capabilities and are poised to get growth in that area if there's more bankruptcies. I would say that our experience in talking to the different law firms involved, the bankruptcy activity is not nearly as high as they thought it would be. They still believe there's going to be quite a few bankruptcies and restructurings, but banks are holding off.

So we're very, I think, well-poised for that type of work. From the government standpoint, especially the federal government, it's probably the only growth area in the country, we're not as well-suited for. We keep trying to position ourselves in a better position. We're getting assignments to help primary contractors with their work. The government is very -- the work is very clique-ish; you have to really have a network into each government agency that you're trying to sell to.

So we constantly are looking for ways to increase our presence in the government and we are winning some assignments, but it's not going to be probably a primary growth area of ours unless we find the right acquisition.

Okay. And a final question, actually. I'm just curious, how long is the duration of typical IFRS transition work? With the deadline approximately in 2014, when do you think that sort of work will become more topical? Thank you.

Yes, no problem. Yes, we've had a handful of engagements currently helping clients do kind of what I would call initial impact analysis. I would tell you there's another handful of discussions going on with some very large companies that are starting to dedicate resources towards the process.

I still think it's very early. I think that will be a great opportunity for us, but I think that it's still a ways out and that it's really our -- probably our largest clients that are really thinking about it, as we speak now.

The projects' duration probably will be years. So they're not going to be short-term projects. These will be several-year projects to get themselves in a position to use IFRS. And I would say right now our longest duration projects are with Japanese companies, who are going to adopt it much faster than, say, in the United States.

Great. Thanks again.

Paul Ginocchio, Deutsche Bank.

The last couple of years, your July/August revenues have been about 9% below your June average. Do you think anything's going to be different this year than in the previous years? -- sorry, 8% or 9% below the June average.

No, Paul, I think that's probably consistent with what our thoughts would be. I don't see why it would be tremendously different this year as we look at that vacation impact.

Okay. And then second, just quickly on the share repurchases, I just would have thought with the strength of your balance sheet and the share price, that it's odd for a company to be below its March '09 cyclical lows, that you might find the shares pretty attractive right now. Just trying to get your view on that, whether you would -- if you're going to get more aggressive. I know you can't say too much, but just maybe an overall view on the share repurchase activity going forward.

Yes, we continue to want to be active in the market. There's several restraints about repurchasing our shares. One of the restraints, from a practical standpoint is, there's not a lot of float in our stock. So there's not a lot of big hunks of shares outstanding -- that are available for us to purchase. We try to be careful not to move the stock artificially by purchasing.

So we do plan to be active. Since the stock has dropped, we've really been more of a quiet (multiple speakers) -- so we couldn't buy any while the stock dropped, though we would have loved to have bought some. So we continue to look at that as one of our key strategies.

Andrew Steinerman, JPMorgan.

Could you give us a sense of the gross margins for Sitrick? So, basically Sitrick versus legacy Resources' gross margin in the fourth quarter.

Yes, Andy, what I would tell you is their margins are kind of consistent. If you go back to the 8-K, there's really nothing that has changed in their business, so they're in that same range. Over time, as we blend more and more of the Resources' consultants onto those projects, we will see more movement than that. But that's what I would tell you.

So, wait -- the Sitrick range -- it looks like it bounced around a little bit. Is 65% about a gross margin -- a normal gross margin for Sitrick?

That's right.

Okay. And then as you gave the guidance for -- maybe a suggestion for first-quarter gross margins, is there anything different about Sitrick's seasonality than core legacy? So I'm thinking about how to model gross margin by the two pieces of the business into the August quarter.

I would say Sitrick doesn't have that same type of seasonality; his is more crisis. So he doesn't have the luxury of people going on vacation at a certain period of time when a client's got a fire that needs to be put out. So I would say he doesn't have that same seasonality.

On the other hand, some of the law firms might be on vacation and some of the clients might be on vacation, but he's out there trying to sell, and his people are trying to sell every day through the summer as well as the winter, so.

Right. And what was the other reason you said besides holidays for the reason why gross margins goes down in August?

Just the leverage on the benefit costs, primarily the healthcare costs.

Okay. Alright, thank you very much.

T.C. Robillard, Signal Hill.

I just -- Nate, can you expand on a comment earlier to one of the earlier questions, where you said in the US, you're seeing some things that are giving you some optimism. Can you expand upon that a little bit, please?

Yes, I think it's just -- and I think Don had commented, you're starting to see a continuation of some of the trends that we talked a little bit about last quarter, where companies are loosening up -- the belt tightening a little bit, but it's now starting these projects that are all around, making some of the cost reductions more prominent.

And so we're seeing kind of an active pipeline, so to speak. But again, there's still a degree of cautiousness with these projects. But the level of activity over the last several weeks, in terms of the discussions with the clients, as Don mentioned, our recruiters are busy trying to match up the right talent.

So, yes, it's just kind of a continuation of what we've said. Again, I always want to caution against the backdrop that I think a number of companies still have a little bit of uncertainty about the future global economy.

One of our strengths which we comment on is that we have an outstanding client base. We haven't lost our clients. So if you look at our client base, we have 85 of the Fortune 100; we have 300 of the Fortune 500, et cetera. So, since we're keeping those relationships and we're constantly going out to visit with them, and we've actually increased that level of activity to visit those companies, we're getting projects, movement we see from those companies as they have needs.

So, for instance, our oil and gas people have been working very hard with companies that have been affected by the oil spill to see how we can help them. We have several opportunities with some of those companies because we are continuing our relationships with them. So I think those are the types of movements that we are experiencing.

Okay, thank you. And Don or Nate, how should we think about average project duration for cost-cutting, cost-containment type of projects versus revenue-driven projects that your clients would typically give you?

T.C., that's a hard question to answer. Yes, each one of these projects, as we've commented on in the past, they typically have what I would call a very formal project plan. I give you an example -- in a financial services client, we just started, in the last week, a project in this category. And it is -- each week, the client has mapped out what needs to be accomplished and which consultant is going to do it. And there's a project end date that's out 13 weeks.

Now, we'll measure as we go, right, can all this get accomplished? But that gives you, I think, a pretty candid assessment of how clients are managing these projects on very tight to budget.

Now my guess is, as you look at this project plan, it touches on many different aspects of the Company's financial reporting process. And I would think the project would grow. But you have a CFO and others that are going to monitor, and I think constantly kind of look at the ROI of expanding. So, time will tell. The good news in all of that is the CFO said, let's start.

Okay. And then as you look -- as you're sitting now looking at your weekly revenue trends, how are they right now versus where you would have thought back six, seven, eight months ago, in terms of -- and under this framework of kind of this gradual improvement?

Would you guys say this is where you would expect it? Given where the volatility is, it almost seems like it's a little bit behind where you might have hoped or thought. I'm just trying to get a little bit of sense as to how the last couple of quarters have unfolded versus where your expectations were after you bottomed out kind of the end of August, September last year, in terms of a weekly revenue trend.

Well, I have -- this is Don -- I expected the economy to bounce a little bit better than it has. And I don't think our experience is much different than some of the consulting firms that we're talking to, when we talk to their partners about what they're experiencing.

So I would say, personally, I'm disappointed with the economic balance of the economy and its subsequent effect on us. My discussions with some partners in some of the accounting firms is the only area that seems to be really doing well is government consulting -- federal government consulting. And what they're spending the money on, I don't really know for sure, but that seems to be the growing area.

There was an article not very long ago about the labor market, and the only labor market that was really strong in the United States was Washington, D.C., because of all the employment needs and around government initiatives. So, I think we're disappointed with the economic activity and the non-real bounce that we've had.

Notwithstanding that, right now we're pretty optimistic about what we see with some of the projects and some of the initiatives that we're just starting to help clients with. So we just -- we're trying to figure out how we can continue to grow without an economic bounce, because we think we have a real value proposition and we need to get that across better, because the economy should not keep us from growing.

And if we get an economic bounce, that's like winds in our sail; but otherwise, we're figuring out and we're working really hard with our regional managing directors on growing through this bad economy.

Okay. And then just two housekeeping things and I'll get back in the queue. Just revs -- as a percent of revs in the quarter and then Capex in the quarter?

Revs, I think were about 9% and the Capex was about $1.3 million. And I think if you look out in the upcoming year, I would expect about $800,000 a quarter. Pretty much that's what we have [bridged] in each quarter of fiscal 2010. And I think that trend will probably continue pretty close in the upcoming year.

Oh, great. Thanks for taking my questions.

Kelly Flynn, Credit Suisse.

I have a bunch of questions. First of all, on the gross profit rate, I mean, that 250 basis point delta that you referenced for the first quarter, is that versus the fourth quarter or versus year-over-year?

Sequential.

Okay, great.

So, against the fourth quarter.

Okay, great. And then if your revenues are flat in fiscal '11, how much higher do you think your gross profit margin would be on a percentage? I mean, should we be thinking in the low 40s or --?

Well, I mean, our long-term goal has always been to achieve a 40% margin. We continue to strive towards that. I think, again, with the leverage, as you saw in the fourth quarter, you'd see periods that it's above and with seasonal impacts, it could be below. But I think on a longer-term basis, that 40% is a reasonable long-term goal for us.

But you don't think on flat revenue it's realistic? I was more getting at whether or not the acquisition, the Sitrick acquisition, would lead that margin to be higher in fiscal '11, even with a flat revenue number.

Yes, I mean, as we do more business on that Sitrick Brincko side, it would be obviously accretive to our margin. Again, I guess I was -- when you were saying if we were flat revenue 2010 to 2011, but if that Sitrick Brincko revenue continues to grow, as we think it well, that would clearly be accretive to the margin.

Okay, great. And then on G&A, a similar question to the gross profit one. I think you said in your prepared remarks you expected it to be flattish. Is that -- again, is that on a sequential basis? And is that on an absolute basis or a percentage basis?

I would tell you roughly on an absolute basis, sequentially. If, as we've said in the past, if revenues, depending on what happens with revenue, we'd have a small amount of SG&A impact with some of the incentive compensation. But I think the Q4 is a good indicator for Q1 with what we see.

Okay, great. And then on the revenue for the first quarter, in answering Paul's question, you said you thought it made sense that July and August might be kind of 8%, 9% below the June trends. If you do the math on that, you come out with sort of a similar -- basically a similar seasonality this year to what you saw last year. Is that the right way to think about it? Or should we be getting a little bit of a lift from the cycle here?

Well, I would say that's the way, conservatively, we weren't thinking about it. There's all types of conditions that you find in Europe, the economy doesn't seem to be having any boost. And even if your consultants aren't on vacation, a lot of times the clients close. So you can't even work there. So I would say that's the way that we're looking at it, for this year.

Okay, great. And then one last question. In terms of the new business commentary, I mean, last quarter, you really kind of called that out as a new positive. You've eluded to it, and I think you got in the question a bit in the Q&A, but I mean, can you just compare your sentiment on new business momentum now versus one quarter ago? Are you bit more concerned or less bullish? Or am I just reading into your comments?

No, we're -- I would say we're very pleased at the types of new assignments we're getting; the types of high-level RFPs that we're getting. What hasn't -- what basically keeps hurting us is that clients are very strict on their deadlines; where in the past, the deadlines would be movable because the clients were very happy with the projects, and they want to keep extending them and extending them. It's not happening yet.

And when we were in public accounting, we experienced the same thing. When the economy was good, our projects in public accounting would keep getting expanded. But now everything we hear is everybody is under very tight deadline and they stick to those deadlines.

So that's how the economy hurts us. However, we are getting a lot of new flow, a lot of new contracts and a lot of new business, and primarily, from our existing clients.

Okay. So, I mean (multiple speakers) --

So we are bullish on that. We're bullish on our new business work.

But is -- so is that sort of the same sentiment that you expressed last quarter? Or --?

Yes, I would say so.

Alright, great.

Yes, we're very happy with some of these big projects.

Okay, thanks for taking all my questions. I appreciate it.

Sara Gubins, Bank of America.

Just following up on that, is there any sense that the average duration of a project is actually tightening? Are clients buying shorter projects?

I would say, for two years, the average duration has shortened quite a bit. And for all the things that we've said is that clients have much smaller budgets, much tighter budgets, so we're constantly reselling to replace that work. So yes, the average duration has certainly shortened, oh, since, let's say, beginning of 2008.

Okay. And has it remained fairly steady recently? Or has it gotten incrementally shorter?

No, it's about the same. I mean, they get a budget and they're sticking to it. And the budget is usually -- says we've got to get this done in this much time. Where before, we would roll our associates, our consultants, we'd roll them onto projects throughout these companies because the client was so happy with the work they were doing. Now they don't have the budget to do that.

Okay. And then could you talk a bit about demand trends that you're seeing by vertical or by end markets? Are there any areas that are clearly getting stronger or areas in particular that are still lagging?

Yes, Sara, what I would say is, when you look at our different service lines, I think we're seeing demand in all of them; I am. We're seeing some pickup in the information management supply chain, as we've talked about in the past, continues to be strong. And as we've also commented, while it's a small base, the legal services line continues to get good traction, as several of our clients are looking at alternatives for certain of their legal work that they would normally farm out to the branded law firms.

Okay, thank you.

Jeff Silber, BMO Capital Markets.

I just wanted to focus on the supply side for a second. I know demand is still somewhat constrained. Are you seeing any kind of constraints now on the supply side? Are you having any type of difficulty finding consultants for certain assignments? And if so, where are they?

I would say on the supply side, we don't -- generally there's not a constraint; but we have to spend more effort to find the exact skill sets the client wants. And that's one of our real core competencies, is our ability to recruit. But we do have really great people available in almost every major market other than Washington, D.C. area. So we have a supply of really great consultants that are -- and that supply number, we're managing, trying to get it down, but we do -- we don't have a constraint over the consultants right now.

And are you finding that you have to pay up a little bit for those consultants with those highly desirable skills?

Not yet, no.

Okay, great. And just a couple of quick numbers questions. Nate, in your remarks, you talked about Europe and Asia-Pacific, I think it was down 24% year-over-year, and Asia-Pacific down 1.5 percentage points. Is that in constant currency?

I think I gave both. Let me just go back to those --

I can circle back with you offline.

Okay.

One thing, though, I'm not sure if you mentioned, did you mention the tax impact of the ISO's this quarter?

It was not a significant amount.

Okay, great. Alright, I'll follow up with you on the other information. Thanks.

Sounds great.

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

I was wondering if you could talk a little bit about pricing trends exclusive of Sitrick? What are you seeing in the core Resources connection, both domestically as well as in international markets?

I would say domestically, our ability to price depends on who the competition is. And where a major company has brought in a vendor management firm and they try to pitch our people against a staffing company, we will do anything we can to get that work if it's our type of work, and we'll take less margin for it. But when we're pitched against the big four firms and the big consulting firms, then our margins and the experience of our people help us in that area and we don't take much margin hit at all, if any.

So we've been surprised at how strong our margin's been in this environment. It's stronger than I had predicted, but I thought already it would also grow faster, too. So the margin's not been an issue for us and we don't anticipate it being an issue.

And what about internationally?

Europe is soft. Europe is -- except for two country areas that we're doing very well in that are growing, Europe is the same as the US was, say, nine months ago, 10 months ago, where major companies weren't even returning phone calls. So we'd like to have more work in any margin there. And we're trying to get it.

But Europe, I would say the pricing could be very tough, but we haven't lost work much because of pricing by itself. It's just that the level of activity is down.

And just staying on Europe, obviously, it's been in the news a lot in terms of all the -- what the impact of the -- on the crisis is going to be. Are you getting a sense that things are stabilizing over there, in terms of clients starting to feel a little bit like, okay, we kind of know how things are going to be? Or do they feel like things are still pretty uncertain?

We look at Europe and we talk about Europe as if it's one country. It really isn't. So, we think that we can continue to grow and grow profitably in Germany. Germany is the largest market there. In contrast to, say, the Netherlands and France, Germany has never had a very large project management type of culture. They've really relied on their own people to do things.

So, Germany, the culture is changing where companies are trying to become more efficient, more productive. And it works in the same direction as our business model. So Germany -- and Germany is also much more conservative. They have really taken the steps to reduce their social costs and bring them in line so that they're more productive and more competitive.

And then right next to it is France, who's trying to figure out how to do what Germany did. So we would anticipate Germany will continue to expand for us and be profitable growth. France, we've gotten some -- I think we mentioned it in the speech, where we did get a very, very good contract with one of the largest utility companies in the world, because they're trying to become more productive. But France's economy is a lot different than Germany's.

The Netherlands is overrun with professional services firms. And so that's always going to be a tough economy for professional services firms. The good thing is a lot of smaller ones are going away. So that's a different issue.

In the UK, the UK is very financially services-oriented. So Tony is over actually in the UK, and we have one of our financial services people from New York over there now, because we're trying to figure out how we can build up our capabilities in financial services in the UK.

So each country is a little bit different. Scandinavia is doing very well for us and they seem to have a really good handle on their economy. They have really good relationships with the major companies, so we don't worry about Scandinavia. So Europe is kind of a mixed bag because every country is a little bit different.

It sounds like the Netherlands and France still pretty challenging; Germany, good; Scandinavia good, and the UK stable.

The UK has probably been our worst performer based on our expectations and so we're over there trying to make changes.

Got it. And can you go back to the point that you mentioned about the domestic competition? How often are you actually running into competing on a vendor management program with some of the (multiple speakers) --?

How often? Mark, not that much, but you do see it where maybe some of the staffing firms are trying to take projects that might be upstream a little bit. And so you get thrown into that mix. So you do see it, but it's not a significant portion of our business at all.

Okay, great. And then can you talk a little bit about managing the bench, in terms of when you have some associates that are coming off of assignments, if they're shorter in duration, how often are you able to re-utilize some of those people as they come off?

Well, we're almost -- from a percentage standpoint, we have a high percentage of reusing the people and keeping them going from project to project. So that's sort of our standard business model. We just have more people right now that are sitting on the bench for longer than we would want, because their skill sets aren't exactly like the new projects coming in and we have to go find the exact skill set the client wants.

So, a lot of times, we're really confident that our consultants could do the project. In fact, we know that they could do the project. And the clients are being much more cautious on the people they bring in. So we're -- again, the majority of the people get reassigned; otherwise we wouldn't be in business. And the majority of our clients are major companies that we have really good relationships with that trust us. But it is -- it's a tighter demand curve than we've ever experienced.

Great. Thanks for the color.

Thank you. We have time for one final question, and it comes from Scott Schneeberger with Oppenheimer. Your line is now open.

This is actually Jim for Scott. You mentioned two engagements that Sitrick Brincko (inaudible) Irish government and a California bank that you can leverage RCN consultants. Can you give us any specifics as to, I guess, one, are these higher than average duration jobs and -- or lower? And if you can tell us, quantify how many consultants you expect in total to actually engage?

Sure, Jim. The -- what I'd tell you is it's -- I was certain completely at the one engagement, which was the banking engagement. We're hoping that turns into what I would call somewhat of a -- we wouldn't be out there constantly year-round; we would help them assess collateral values for different loans so that they basically have support for their loan recovery analysis.

So that the goal would be is that you'd do that on a continual periodic basis for the company. And depending on the size of the different loan portfolios, again, the number of consultants would range. And, again, it's just an example of bringing the two different skill sets of Sitrick Brincko with our consultant capability.

The Irish, the NAMA projects -- again, it's uncertain. That is something that is very recent that we were awarded and signed the contract. So they are -- have not awarded or assigned engagements yet, but we believe that forthcoming in the very near-term. Again, that will be dependent on the nature of the assignments as it relates to the loan portfolio that the Irish government is taking on from the Irish banks.

Okay, thank you. And one quick one. Conversion fees -- did you earn any this quarter? And if yes, can you quantify?

Yes, it was not consequential to the quarter.

Okay, thank you.

Thank you. That does conclude our Q&A session. I'd like to turn the program over to Don Murray for any final remarks.

I just want to thank all of our investors and you for your continued supporting of Resources. And we look forward to our next update in October for the first quarter of 2011. Thanks.

Thank you, sir. Ladies and gentlemen, this does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect.