Resources Connection Inc (RGP) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Resources Global Professionals Q1 fiscal year 2012 earnings conference call.

Currently all participants are in a listen-only mode. Later we will conduct a question and answer period session, and instructions for questions will be given at that time. (Operator Instructions). As a reminder, this conference may be recorded.

And now I will turn the program over to Ms. Kate Duchene, Chief Legal Officer. The floor is yours.

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.

During this call, we will be providing you with comments on our results for the first quarter of fiscal 2012. 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 involving 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 Form 10-K report for the year ended May 28, 2011, for a discussion of some of the risks, uncertainties and other factors such as seasonal and economic conditions that may cause our business, results of operations and financial condition to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call.

I will now turn the call over to Tony Cherbak, President and Chief Operating Officer.

Thanks, Kate. Good afternoon everyone and welcome to the Resources Global first-quarter conference call.

I'm going to start by giving you a brief overview of our first-quarter operating results. Total revenue for the first quarter of fiscal 2012 was $138 million, an 11.6% increase over the comparable period a year ago and a decrease of 5.3% over our fourth-quarter revenue of $145.7 million. All of our geographies contributed to our first-quarter revenue growth.

First-quarter gross margin was 37.8%, representing a sequential decrease of 30 basis points, slightly improving bill pay spreads and lower healthcare costs to partially offset the impact of two national holidays in the US during the quarter.

During the first quarter, SG&A costs were $42.6 million, a sequential decrease of $1.1 million or 2.5%. In Q1 we generated adjusted EBITDA and cash flow from operations of $11.5 million and $1.6 million respectively. For the quarter, our pretax income was $6.9 million. Our GAAP net income was $2.6 million or $0.06 per share. Our GAAP net income reflects an effective tax rate of 62%, while our cash tax rate remains at approximately 42% and the impact of $0.03 per share. Nate will provide more details on each of these items later in the call.

During the first quarter, we returned $18.4 million to shareholders in the form of a stock buyback of 1,461,000 shares and our regular quarterly dividend. In addition, our Board approved a 25% increase on our quarterly dividend of $0.05 a share.

I'll talk now a little bit about the revenue trends that we saw during the first quarter. As we reported in July, weekly revenues during the first six months of the first quarter averaged $10.4 million, but included two national holidays in the US.

During the following seven weeks, weekly revenues ranged from $10.6 million to $11.1 million, averaging $10.7 million per week. We experienced a similar pattern of vacation usage by our consultants as in prior years. Despite economic uncertainty in many world geographies, our global clients continue to engage us on projects throughout the world. Asia-Pacific and Europe experienced quarter-over-quarter growth of 48.6% and 30.9% respectively, while US revenues increased 5%.

I recently visited some of our large financial services clients in New York, and while they are cautious about the global economic climate, they continue to seek assistance with projects spanning their compliance needs, information management initiatives and finance and accounting requirements. We believe that many of our large clients are reluctant to hire full-time employees in light of the uncertain economic landscape and are turning to us as a variable solution to their intellectual capital needs.

We remain focused on growing our business worldwide and are very encouraged by the early trends of the second quarter. While the first and second weeks of the quarter were impacted by hurricane Irene in the Northeast and the Labor Day holiday, average revenue through the first four weeks of the quarter is trending 9.3% above the comparable period a year ago.

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

Thank you, Tony. As mentioned, revenues for the quarter were $138 million versus $123.7 million in the first quarter of fiscal 2011, a quarter-over-quarter increase of 11.6% for the sequential decrease of 5.3%. As anticipated, our first-quarter revenues were impacted by summer vacations both in the US and Europe. On a constant currency basis, the quarter-over-quarter increase was 8.4%, and the sequential decrease was 5.5%.

For the first quarter, revenues in the US were $100.3 million, up 5% quarter over quarter, but down sequentially by 3.5%. For the first quarter, total revenues internationally were $37.8 million versus $28.2 million in the first quarter a year ago, an increase of 34% quarter over quarter and a decrease of 9.6% sequentially. The sequential revenue decreases in the US and internationally stem from the impact of summer vacations.

International revenue accounted for approximately 27% of total revenues for the quarter down from 29% last quarter. Europe's first-quarter revenues increased 30.9% quarter over quarter and declined 14.3% sequentially, while the Asia-Pacific region saw first-quarter revenues increase 48.6% quarter over quarter and 3.9% sequentially.

Sitrick Brincko's first-quarter revenue was $4.9 million, down 21% from a year ago. On a constant currency basis, total international revenue increased 19.9% quarter over quarter and decreased 10.3% sequentially. On a sequential quarterly basis, the US dollar was mixed against the major currencies in Europe, while it was weaker against currency in Asia-Pacific. As a result, on a sequential currency basis, Europe's revenue decline would have been 14.7%, and Asia-Pacific's sequential revenue increase would have been 1%. On a quarter-over-quarter basis, Europe's revenue increase would have been 15.2%, and Asia-Pacific's increase would have been 36.1%.

Let me now discuss early revenue trends for the second quarter of fiscal 2012. Weekly revenues for the first four weeks of the second quarter were $11 million, $10.1 million which occurred during Labor Day week, $11.5 million and $11.5 million. In thinking about the second quarter, it is important to remember that in addition to Labor Day we will lose about two days of revenue in the US due to the Thanksgiving holiday in November.

Now let me discuss gross margins. Gross margin for this first quarter was 37.8% versus 39.8% in the year ago quarter and 38.1% in the fourth quarter of fiscal 2011. The sequential decrease in gross margin was slightly better than our expectations. The anticipated impact from two holidays occurring in the first quarter was offset in part by a slight improvement in bill pay spreads, lower costs incurred within our self-insured health plans, and a reduction in FICO taxes.

Excluding reimbursable expenses, our first-quarter gross margin was 38.8%, which compares to 40.7% in the first quarter a year ago. The average billing rate for the quarter was approximately $129 per hour compared to $131 in the first quarter and $128 a year ago. The average pay rate for the first quarter was approximately $65 per hour versus $66 in the fourth quarter and $62 one year ago.

Please remember these hourly rates are derived based upon prevailing exchange rates during each given period. The sequential decline in the bill rate stems primarily from sequentially lower Sitrick Brincko revenues and the decrease in the percentage of international revenue to total revenue in the first quarter. In thinking about gross margin in the second quarter of fiscal 2012, we expect a 20 to 30 basis point improvement from the first quarter.

For the first quarter, gross margin in the US was 39.1%, and our international gross margin was 34.3%.

Now to headcount. For the first quarter, the average consultant full-time equivalent count was 2232. This compares to 2222 in the previous quarter and 2025 in the year ago quarter. Quarter-end consultant headcount was 2297 versus 2072 a year ago. Total headcount of the Company was 3017 at quarter-end.

Selling, general and administrative expenses for the first quarter were $42.6 million or 30.9% of revenue versus $43.7 million in the fourth quarter of fiscal 2011. SG&A was $40.9 million or 33% of revenue in the first quarter of 2011. The sequential improvement in SG&A stems primarily from reduced compensation expense due to the impact of summer vacations and reduced marketing expenditures. Resulting from the commencement of our fiscal 2012 branding initiatives, we anticipate SG&A expenses in the second quarter of fiscal 2012 will increase approximately $1 million from the first quarter.

Stock compensation was $1.9 million or 1.4% of total revenues versus $2 million or 1.4% of total revenue in the fourth quarter last year and $2.7 million or 2.2% of total revenue in the first quarter of fiscal 2011. We would anticipate quarterly stock compensation expense in the upcoming quarters to approximate the amount recorded in the first quarter.

At the end of the first quarter, our office count remained at 80, 51 domestic and 29 international.

Related to the other components of our financial statements, depreciation and amortization was $2.8 million for the quarter compared to $3 million last quarter. We would expect depreciation and amortization expense for the upcoming quarters to approximate $2.8 million per quarter.

During the first quarter, we recorded no change in the estimated fair value of the Sitrick Brincko contingent consideration; however, we anticipate the estimated fair value of contingent consideration will change in future reporting periods, and future changes could materially impact our operating results.

Interest income was $88,000 in the first quarter versus $107,000 last quarter and $128,000 a year ago. Quarter over quarter, interest income has declined, primarily due to lower interest rates. Our adjusted EBITDA or cash flow margin, which we defined as EBITDA before stock compensation and contingent consideration adjustments, was 8.3% in the first quarter compared to 9% a year ago and 9.4% in the fourth quarter of fiscal 2011. Our pretax income was $6.9 million for the quarter. During the first quarter, we recorded a provision for income tax of $4.3 million, representing an effective tax rate of approximately 62%. Our effective tax rate is impacted by our current inability to offset income and tax jurisdictions in which we are profitable with losses in several tax jurisdictions in which we are not profitable.

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 offset of the tax benefit of foreign losses in certain locations by valuation allowances. Our cash -- on a cash basis, our tax rate was about 42%, and we expect that rate to continue over the next couple of quarters.

In summary, our GAAP per share income was $0.06 per share during the first quarter. On a non-GAAP basis but consistent with many analyst models, which utilized a cash tax rate of 42%, our per share income would have been $0.09 for the quarter.

Let me turn to the balance sheet. Cash and investments at the end of the first quarter were $129.8 million, a [$15] million decrease from the end of fiscal 2011. The decrease stems primarily from shareholder purchases and dividends totaling approximately $18.4 million during the quarter, offset by cash generated from operations of $1.6 million.

As Tony mentioned, during the first quarter, we repurchased 1,461,000 shares of our common stock at an aggregate cost of $16.6 million or $11.38 per share. Our current Board authorization for our stock buyback program has approximately $135.5 million remaining. We will continue to return cash to shareholders through our dividend and share repurchases while maintaining a balance between the capital requirements of growing our business and fiscal prudence.

Our shares outstanding at the end of the first quarter were approximately 44.2 million.

Receivables at the quarter end were approximately $85.6 million compared to $87.2 million at the end of the fourth quarter. Days of revenue outstanding were approximately 52 days compared to 54 days in the fourth quarter of fiscal 2011.

Now I would like to turn the call over to Don for some closing thoughts.

Thanks, Nate. We remain focused on growing our business and continuing to improve our operating metrics. As Tony mentioned, despite pessimistic global economic sentiment, we grew revenues almost 12% from a year ago.

In contrasting the economic environment today versus that in late 2008, early 2009, our clients tell us that liquidity is one significant difference that stands out. The freeze-up of short-term financing vehicles beginning in 2008 caused a survival mode mentality in many companies. While our clients remain cautious about the global economy, survival is not in question, therefore creating a much different operating environment today versus the 2008/2009 timeframe.

Today our client's focus continues to be on executing strategies to improve efficiencies within the organizations and to help them grow their business despite economic headwinds. We see clients investing in several types of initiatives, including expansion of shared service centers, technology enhancements and logistic improvements, and we remain well-positioned to assist our clients with these endeavors.

Now let me share some additional statistics, which we believe reflect the health and strength of our business. Total continuity remains outstanding. During our first quarter, we served all of our top 50 clients from fiscal 2011 and 2010. We increased the number of clients for whom we provide services exceeding $500,000 in fees. In fiscal 2012 we had 229 clients for whom we provided services exceeding $500,000 in fees on a run rate basis contrasted to 221 in 2011.

In addition, our top 50 clients represented 39.5% of total revenues, while 50% of our total revenues came from 85 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 2.3% of revenues.

Through the first quarter, 96% of our top 50 clients have used more than one service line, and 70% of those top 50 clients have used three or more service lines. And this service line penetration reflects the diversity of relationships we have within our client's organization.

So this concludes our prepared remarks, and we would be happy to answer your questions at this time. Thank you.

(Operator Instructions) Kevin McVeigh, Macquarie & Co.

Thank you. Thanks for the comments on the macro environment overall. Tony, I wonder -- or Don -- can you give us a sense of the types of projects -- kind of out of 100%, what is the percentage there or pro-growth versus expense management across the different verticals if you would?

Yes, I don't know that I can break it down by percentage, Kevin, but, in essence, if you took our top 10 clients for example, there are three major groups of projects that we see them doing, and we are assisting in all three. One is on the technology front, again, we see software implementations up and down the spectrum of our clients. We also see continued supply chain management projects either on the cost reduction side or helping them set up procurement centers, and then we also see a lot of compliance work whether it's internal audits, helping them train internal staff or working on their SOX work.

I would say in addition to that, on [A&F], we are still doing an awful lot of financial reporting. We are also helping clients, many clients continue with their shared services center projects. That's kind of the spectrum of our projects, but those three, those big three that I mentioned first, we see in virtually every large client.

Got it. Then just real quick, on that Thanksgiving week, what should we expect in terms of kind of a run rate on the revenue? If it is $11 million, would you expect somewhere around $6 million during that week or just to try to get a sense of how the revenue settles?

Kevin, historically during that week of Thanksgiving, we tend to lose about two days of US revenue. So, in the last couple of weeks as we reported, we were at about $11.5 million per week, and, you know, about 75% -- I am using round numbers -- is in the US, and then that factor by another 60% for losing two days would probably give you an estimate of the revenue in that Thanksgiving week.

Great. Thank you.

Andrew Steinerman, JPMorgan.

Gentlemen, could you just go over with us why your international business is doing so much better than your US business right now? And it has been for a while, and when do you think those regions could even out and do more similarly, or don't you expect that to happen any time over the next few quarters?

Andrew, let me address this. This is Don. I would say that a lot of our international revenue is driven by Asia. Asia has not experienced the economic turmoil and uncertainties that the US has or Europe has us up to this date. European revenues are growing faster because they dropped more, and we had a really precipitous drop in 2008 in European revenues. As everybody tightened up, we could even get clients to return phone calls in 2008. So the Europeans aren't hiring. They have a very negative employment environment, and, so as they are having to get projects done and do things, they are turning to outsiders like ourselves to help them. So those are the two reasons. When we would see the US start to grow, I've no idea.

Right, right. Don, could you go over just the trends in bill rates right now? They were down sequentially just a bit. But I think in the same kind of mouthful the Company thinks bill rates are improving. Just give a little more commentary around the bill rate environment, and particularly do you feel like the Big Four has been effective in getting the price increases that they've been asking for through?

I would say the bill rates for our business is a mixture of our work. Our higher priced bill rates typically are in the restructuring business and the communications business around changes and change management. That business has become softer. There hasn't been as much restructuring as we anticipated, so that would bring some of those bill rates down.

So bill rate in our core resources business is reflective of the mix of business. I would say the Big Four -- I am not aware that we're seeing any crazy pricing in the last quarter. I would say they probably have rationalized their staffs. I know that in our instance we negotiate very closely with our audit firm so that they don't get big rate increases. I'm sure most clients are doing that. But we don't see them in the marketplace I don't think in the last quarter making crazy investments.

I think that is truly the trend line because in talking to some of our former partners, audit committees throughout the United States are trying to ratchet down the audit fees.

I would tell you over in Japan we are seeing -- that is probably one place where we do run into a little bit of pricing pressure right now because they have just did -- they've just completed kind of a downsizing in some of the Big Four staff over there. So they're trying to deploy their people at whatever rates that they can get to offset any of their fixed costs.

Tim McHugh, William Blair.

Yes, I wanted to ask if you could give a little more commentary and you mentioned seeing some of the financial services companies in New York last week. Just if you can talk a little bit about specifically how they're behaving. Then also do you have any read on the European financial services client, how big is that for you, and what are you seeing lately from those clients?

I would say the financial services clients in New York have been -- it has been a great source of business for us. Again, as I pointed out, the three major areas of projects that we see are kind of on the technology side, the supply chain management side, and then on compliance.

Relative to Europe, I would say that the financial institutions, including the banks, are doing fine. The insurance companies over there are having a little bit rougher go of it. So I would say that our business on the financial institution side is more relative to banks than insurance companies in Europe. Kind of the same thing in Asia.

Our banks as large a part of the business outside the US as inside the US? Is there any disproportional weighting, I guess -- (multiple speakers)

Much more significant inside the US.

Okay. And then lastly, Nate, did you say the share count at the end of the quarter was 44.2 million. So is that something we can use kind of for the next quarter going forward for a diluted share count?

Yes, that is the correct number, Tim. We will probably be in the market, but that is probably what I would use for modeling purposes.

I guess one follow-up to that is just you have been more aggressive with returning capital to shareholders through the dividend and the buyback. Can you give us updated thoughts on acquisitions and what you see out there right now, how attractive or unattractive the opportunities are at this point?

I would tell you that we continue to see different things being brought to us. So you know we are always looking for things that we think could augment our business. As you know from tracking us, we tend to be pretty selective, but you know that is something that I would say on a continual basis we are always looking at different opportunities.

Sarah Gubins, Bank of America/Merrill Lynch.

Hi, thank you. Could you talk about trends that you are seeing around the length of assignment? Has that been either increasing or decreasing recently?

I would, Sara, it's pretty consistent with what we've seen the last couple of quarters. You know, we do see from -- depending on the client -- and this is probably more towards our larger clients -- seeing a little bit more repeatability of our consultants, and by that I mean they will go out and do one project. That project might complete, and we're seeing a little bit more opportunities to get those consultants redeployed at those clients again. And I would say that that is -- we primarily see that probably at our top 10 clients. So I would say if anything a little bit of an improving trend, but not yet ready to say the environment is changing on a wholesale basis.

And it may vary too much, but can you talk about how long assignments typically are?

Again, it runs the gamut depending upon on the particular project. If I had to pick a midpoint, I would say maybe eight weeks?

Okay. And then when you spoke about the kinds of projects that you have, a lot of them are clearly cost cutting kind of internal management and compliance initiatives. Where do you think your clients are in the lifecycle of those types of projects?

I think a lot of clients are initiating a lot of systems changes to, one, to deal with the global economy that they're all operating in and, two, to try to become more efficient.

So there's a lot of those projects. A lot of major companies are implementing the latest version of SAP or Oracle, which means they are implementing a piece of software. That usually [brings] work-offs for us, and they are typically worldwide implementations. So we get involved a lot of times in the finance and the accounting part of that implementation.

So the lifecycle is -- we see a lot of big companies are, I think, initiating this type of spending right now globally. So we are probably just beginning this round. I think that's why Accenture probably has seen a pickup in their backlog.

Gary Bisbee, Barclays Capital.

Hi, guys. Good afternoon. You know, you made the comment -- I think it was you, Don -- that you're hearing from clients that the liquidity situation is better than a couple of years ago, and I guess the point in saying that was maybe that even if we have seen a weak economy, things won't get as bad as it did last time. But let me be a little more pointed on that.

Last quarter you said you thought the demand environment amongst the biggest multinational companies was getting better. Is that still a fair statement today, or are we seeing signs of companies pulling back a little bit? I guess just any more color on maybe what you're hearing from clients? And I say it from the context of both in the US but particularly Europe the business confidence surveys have shown solid ongoing outlook on today, but the future expectation has tended terribly in those surveys. So any color?

Yes, I would say that -- Tony is the one that in his comments mentioned the liquidity factor, but the trends that are helping us, which was reflective in that we increased the number of clients in the first quarter, at that 500,000 plus fee level. So that shows that I would say that our larger clients are spending more money because we have increased the number of clients.

I would also point out that I don't think Europe is a very friendly hiring environment now. So, like in the US, a lot of multinationals are not -- they are kind of afraid to hire more employees. So that's why we are getting involved with financial reporting and other things. In Europe it is, I would say, even more drastic. So while the economy is not the most positive, the hiring environment is even more negative, which means that the companies need more help, and our bread-and-butter has been Fortune 500 type companies, and that's why I think we are able to do as well as we are doing right now.

I think one thing I would add to that is, in our A&F business, which had not grown in double digits for a few quarters. We are up a little over 10% in A&F this quarter, and a lot of that was related to the fact that we are helping more and more companies with financial reporting, technical research and analysis and whatnot. As a result of some of the significant layoffs that they have had, they just don't have the manpower. So, from our business perspective, that is a positive.

That's really interesting. Is that at a similar margin level to the rest of your business, or is that --

Absolutely.

Okay. And I missed it. Did you give the revenue number or the weekly average revenue number for the Sitrick Brincko business?

It was $4.9 million for the quarter.

And then I appreciate the acceleration in buybacks and raising the dividend. I guess I still look at the Company and say, you guys sound reasonably positive all things considered, and yet the stock is down almost 50% year-to-date, and you're sitting on 30% of your market cap in cash. What is the hesitation to potentially being more aggressive with that net cash balance? If you think you can continue to grow the business, it would seem to me that this would be an ideal time to be a lot more aggressive, even then you have been and I say that respectful of the fact that you've accelerated it the last six months but with buybacks. Any thoughts on that?

Let me just address the buybacks for a second because there are limitations as to how many shares that we can buy back on a daily basis, on a weekly basis, on a monthly basis. So we have been buying back as much as we can on a daily basis up to our window.

So the amount of shares that we bought back doesn't reflect what our appetite was for buying back shares. It reflects what we were legally able to buy back on a daily basis. There's also limitations about when we can buy shares versus not. So we can't buy shares when the stock is on a downturn. We can only buy shares on an uptick. So we are trying actually to buy more shares.

The second thing is we are looking at other uses of our cash to enhance our business globally. So, you know, we are exploring other ways to expand our business model to expand our business to help accelerate our growth. And that would take some of our cash away.

Great. Thanks. That is helpful color.

Scott Schneeberger, Oppenheimer & Co.

Thanks. I just wanted to follow up on the comments about how Europe is a really tough hiring environment, and they are looking to you for services. Is this something new in the quarter? Had you seen this building, and what type of legs do you think this may have?

I think Europe has always been a tough employment environment for employers. And we've experienced it ourselves internally, if you have employee who is not performing, it probably takes three times as long and three times the cost to exit that employee than it would in the United States.

So I would say that environment has been there; it's just that in this type of economy it's kind of a scary proposition for employers. So I don't think it's going to change because I don't think most of the countries are going to relax their labor laws. The only country who has changed in the last, say, five or six years has been Germany, and they have changed to become more competitive. So Germany, whose economy is doing the best of any of the developed countries, part of that is, I think, reflective the changes that Merkel made.

So I don't think it is going to change in Europe. I think it is still going to be a difficult environment for employers, and I think, if the economy doesn't really get a lot stronger in Europe, people are hesitant on hiring.

And do you think that will translate into continued strong growth rates in that region for you?

We hope so, yes. The only big uncertainty out there, as you well know, and I just returned from Europe and this is on the minds of all the media and every business person you talk to over there is just the debt crisis going on and what is going to happen with Greece. And, you know, if Greece has a much bigger issue than they have today, does that mean that you are going to have other countries kind of follow suit. So that's kind of uppermost on everyone's mind over there and how that is going to impact all their own businesses.

Okay. Thanks. You mentioned pretty strong with clients over $500,000. I know you guys do very well with your existing client base. Are you seeing new clients approaching you? Are you pursuing them? Just an update there, please?

Absolutely. In fact, we had several clients, several clients that were new to the Company in fiscal 2011 that were $1 million plus clients. So we are always on the hunt. That's one of the main focuses of our growth strategy is getting new clients in addition to selling more work to our existing client base, which we view as a huge asset to the Company.

Just a couple. I will throw them all at once, some housekeeping. Could you give a mix of RAS overall? Actually I will go one at a time.

When you say mix of RAS, what do you mean?

Percent of revenue at the Company?

RAS was about 8% during the first quarter of total revenue. (multiple speakers). It kind of hovered around 8% to 9% actually the last several quarters.

And then just an update on IFRS, and I'll ask the last one now to buyback authorization remainder.

There's about $135 million on the buyback authorization left. In terms of IFRS, the SEC, I think, continues to look at that. They are looking at a couple of different strategies, and one would be a convergence of the two standards. The other one would be just an adoption of IFRS. I think that's still being debated, and time will tell. We continue to watch that very closely. I think it is something many of our large clients continue to watch closely, and I think our sense continues to be it is a matter of time.

Mark Marcon, Robert W. Baird.

Good afternoon. I was wondering if you could talk about what you're seeing from the Big Four in terms of the consulting fields. You know, they exited and now they've gotten back into it. It has been a topic of conversation over the last few quarters in terms of how they are behaving and what are you seeing?

I would tell you that from our perspective I think that as we look at the rebuild of three of the firm's consulting practices, we see them blurring the lines of independence. That is that it seems like as times are tougher they're getting a little bit more aggressive selling services to their audit clients than they were several years ago.

Now interesting contrast -- and you might have seen this in the Financial Times -- coming out of Belgium last week was a proposal that would suggest that they would like to see in the European Union at least the Big Four shed their consulting practices. I doubt if that's going to ultimately get passed, but I have no idea. At least it's interesting to see a push for that, so there is this maybe renewed focus on independence in the European Union.

I think from the SEC's perspective, there will be a renewed focus on some of these non-audit services being provided after they can -- after the SEC kind of gets over some of their own internal issues that they are experiencing right now.

And I appreciate the color in terms of the potential legislative environment, but what are you seeing in terms of the way -- in terms of them blurring their lines of independence, are you generally getting a sense that they are being more competitive and particularly as it relates to pricing? (multiple speakers)

Yes, they are definitely being more competitive, and what I said blurring the lines of independence mean competing for projects that they ordinarily would not have done a few years ago when there was a lot of focus on independence. So yes, they are being more aggressive, they are being competitive, and that's just the environment in which we deal today. Nothing has happened over the last six months to make the environment less competitive. It is still competitive, but we are fighting for our share of business.

Are they doing anything that is still -- a few quarters ago you said they were doing some are irrational things and basically giving the service -- (multiple speakers)

I would tell you, you know, we commented in July that during the fourth quarter we really had not seen an event of irrational pricing, and I would say that same comment is true today with respect to irrational pricing in the first quarter as well. I think as Tony mentioned, obviously it's a competitive environment out there, but that irrational pricing pressure we really haven't seen in the last six months.

Great. And what was the -- I am sorry. I didn't catch it quite -- the gross margins for US and international this past quarter were?

So the US gross margin was 39.1%, and the international gross margin was 34.3%, and that international gross margin, that is up about a 120 basis points from Q4.

And then in terms of the guidance that you gave for the second quarter, I missed that as well as it relates to gross margin.

I think what we said is we currently believe that the second-quarter margin would improve 20 to 30 basis points from the first-quarter level.

Would you expect that split to be relatively even in terms of international versus US -- in other words, 20 to 30 basis points of improvement on both sides or --?

I think that is on a consolidated basis. (multiple speakers) Probably it would probably -- we would expect to see improvement on both sides.

And the key driver would be just the improvement that we've recently seen in the bill rates or better bill pay rate managements or any other factors?

I think it's better bill pay rate management. We've made an emphasis with our leadership about that, and I think they're working on that themselves in the various regions. We're doing a better job of managing that and pushing back at times.

And then what is the typical lead time in terms of orders to actually placing somebody and generating revenue from them?

The typical lead time? If I had to pick one, it could be a week. If it's a major project, that is an RFP, and we are responding to it. And it could take us six weeks to two months to actually close the project because there's a big process a major company goes through. But, on a typical existing client when they need somebody and they say, hey, send two people out, we have a project, it could be a week.

So you, I mean, across all the geographies you haven't seen any real declines in terms of the orders?

Mark, so, if you look at those -- the weekly revenue trends that we gave you for the first four weeks of the quarter, which took you through September, you know you saw those kind of increase up to $11.5 million rate for the last couple of weeks.

I noticed that, and that is the reason why I was asking about the lead time. It clearly wouldn't be indicative of any real slowing there.

Lastly, in terms of Europe, last time around we had this liquidity issue you ended up getting your -- particularly in London, ended up being hit quite a bit and the same thing in the Netherlands. What is the game plan -- you know, if some of the fears end up becoming reality over there, how should we think about managing through that?

First of all, Tony is making many more trips to Europe, and he and I are going there again in a month. We have changed leadership in the UK. We are in the process of continuing to rationalize the size of our work force and the skill sets that we had in the Netherlands and other parts of Europe. On the other hand, we have places like Germany that we are investing in to continue to grow. So we are trying to manage it. We manage it country by country, and we are looking at it very closely, and our goal is to get the operations for all of Europe profitable in the future.

I'm sorry. I missed it. Did you give the Netherlands number?

We did not disclose it in the opening remarks, but they were up 32%.

What was the total that they came to?

You have that, Nate?

It's about $8 million.

Thank you very much.

(Operator Instructions) Paul Condra, BMO Capital Markets.

Great. Thanks, guys. Actually most of my questions have been asked. I just wondered if you could give us CapEx for the quarter and where your expectations are for the year?

Sure, Paul. CapEx was about $1 million, and about $700,000 of that will be reimbursed from a handful of landlords. And for the remainder of the fiscal year, the total CapEx is probably a couple million dollars, and I would -- if I were building a model, I would just split that amongst the three quarters evenly.

Okay. Great. That is it. Thank you.

Paul Ginocchio, Deutsche Bank.

Thanks. Hey, I am just wondering, we are hearing a lot about skills mismatch in the US and how the employment rate is high, but were the skills that companies want they are having a hard time finding people. I am just wondering if you have, if you have seen any kind of change in the amount of unfilled requirements you are getting from your clients. Is the number of unfilled orders going up for you, or are you having a hard time finding talent? Thanks.

I would say for us we are not having a problem with unfilled orders. It is always a business issue for us to find the right people, and I would say we are having the same type of experiences we've had to find the right people, and there is more people out there to choose from.

But where you see I would say a mismatch of talent is we have a lot of major technology companies as clients. They can't find the number of engineers or scientists that they are looking for in the US, and they are being hindered in bringing in H1 Visas to help them.

So I've heard that from several of our large clients, and one of the issues they have is, if they can't get the work done in the US in their R&D centers, they are going to send it overseas. Because they have R&D centers in China and India and Ireland and other places. So when we see mismatch of talent, it is typically not in our sphere. It's really in the engineering and scientific talent fields.

Okay. That's not driving your international growth.

No. Our international growth, a part of it is -- I mean, if you look at where our clients are investing in building new facilities, it is in Asia, and it is going to be in Brazil. So that's why basically our Asian practice is growing much faster because that's where people are investing and that's where the economy is growing.

Gary Krishnan, Credit Suisse.

Hi, thank you. I had a quick question around the nature of projects you have been doing. I know in the last quarter you talked about how your pay rates are rising because there were more projects requiring specialization and saw a modest decline this quarter. What was driving that?

First of all, Nate can handle the decline in the pay rate because he did somewhat address that in his prepared comments. But just relative to the types of projects that we are seeing by service line, you know, we had another very strong quarter in information management. It was up double-digits, over 20%. Right along with information management is our human capital line specializes in change management. That goes hand-in-hand, and we take that out as an integrated service offering to our clients. And then accounting and finance was up, as I mentioned, over 10%. But Nate can kind of revisit his comments on the decline in the aggregate bill rate.

What we talked about was on a rounded basis, the dollar decline, it is actually a little bit smaller than that because of the way the number rounded. It really is just a mix with the various consultants, and the actual change I would tell you is fairly nominal.

Okay. And with respect to Sitrick Brincko, does it feel like at least when you look at weekly revenue, you're sort of closer to stabilizing, so to speak? I mean at least anecdotally Europe bankruptcies and so forth, can you give us a sense of what you're seeing in terms of trends?

Yes, I mean we are optimistic that that business may have troughed. I think you are right. Just in the last few weeks, we've seen some renewed activity in terms of chasing a few engagements. So it would seem to us that perhaps that the volume issues there have troughed, and not that we want to see a lot of corporate bankruptcies, but clearly a higher number of those have come across the wires just in the recent weeks.

Thank you. That was all.

Thank you, sir. And at this time I'm showing no additional questioners in the queue. I would like to turn the program back over to Don Murray for any additional or closing remarks.

Well, I would just like to thank all of our investors for their continued support and interest in Resources. You know, we are in a tough economic environment, and we are working hard to continue to move positively forward. So we look forward to our next update in January for our second quarter.

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 disconnect at this time.