Resources Connection Inc (RGP) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Resources Global Professionals Q2 2012 earnings conference call. During today's call, all lines will be in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be given at that time. If anyone requires operator assistance during the call, (Operator Instructions). As a reminder, today's conference call is being recorded.

Now I would like to turn the program over to your host, Michelle Gouvion.

Thank you, Operator. Good afternoon, everyone, and thank you for participating today. Joining me on this call are Don Murray, 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 second quarter of fiscal year 2012. By now you should have received a copy of today's press release. If you need a copy and are unable to access a copy on our website, please call Patricia Marquez at area code 714-430-6314, and she will fax a copy to you.

Before introducing Tony, I would like to read an important announcement about certain statements that we may make during this call. Specifically, we may make forward-looking statements; in other words, statements regarding future events or future financial performance of the Company. We wish to caution you that such statements are just predictions and actual events or results may differ materially.

We refer you to our 10-K report for the year ended May 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 conditions to differ materially from the results of operations and financial conditions expressed or implied by forward-looking statements made during this call.

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

Thanks, Michelle. Good afternoon, and welcome to the Resources Global second-quarter conference call.

Let me begin by giving you a brief overview of our second-quarter operating results. Total revenue for the second quarter of fiscal 2012 was $145 million, a 4.7% increase over the comparable quarter a year ago, and a sequential increase of 5.1% over our first-quarter revenue of $138 million. Sequentially, in using average exchange rates in the first quarter of fiscal 2012, we lost approximately $1.3 million of revenue, primarily due to the strengthening of the US dollar versus the euro during the quarter.

Second-quarter gross margin was 37.9%, an increase of 10 basis points sequentially. During the second quarter, our SG&A costs were $43 million, a sequential increase of $371,000, which was less than anticipated due to lower branding and compensation-related expenses. We remain focused on leveraging our existing operating platform over an increasing revenue base.

During the second quarter, we generated cash flow from operations and adjusted EBITDA of $5.4 million and $14.3 million, respectively. Our pretax income on a US GAAP basis was $43.3 million, which includes non-cash income of $33.9 million related to a decrease in the estimated fair value of the Sitrick Brincko contingent consideration. As you recall, the terms of our agreements with Sitrick and Brincko include contingent consideration payable after the fourth anniversary of the close of our acquisition.

To the extent the average EBITDA of the four successive annual periods following the date of acquisition equals or exceeds $11.3 million, Sitrick and Brincko will be entitled to an earnout payment equal to 3.15 times the average annual EBITDA. Sitrick Brincko's average EBITDA for the first two annual measurement periods was $6.5 million -- approximately $4.8 million below the required base.

Based upon the first two years' actual results and updated probability weighted assessment of various projected EBITDA scenarios of the Sitrick and Brincko Group for the two years remaining in the earnout period, we estimate it is unlikely that contingent consideration will be payable. Consequently, this current fair value of the contingent consideration payable to Sitrick and Brincko, including the portion allocable to employees, was reduced to zero, representing an aggregate decrease of $33.9 million from our previous estimates.

On an after-tax basis, the fair value adjustment increased our net income for the second quarter by $20.4 million or $0.47 per share. Accounting standards require us to record either increases or decreases in the estimated fair value contingent consideration and amounts applicable to employees through earnings. The relatively low number of corporate bankruptcies over the past two years have significantly impacted the Sitrick Brincko business. We have just recently started to see a slight pickup in the restructuring-related activities, and are cautiously optimistic the business environment for these services is beginning to improve.

Our GAAP net income per share of $0.58 includes $0.47 per share related to the contingent consideration adjustments. Absent the impact of these items, our net income per share was $0.11, with an effective tax rate of 47.8%. Our cash tax rate remains approximately 42%. Using our cash tax rate and excluding contingent consideration adjustments, our second-quarter EPS would have been $0.12 per share.

Let's talk for a minute now about revenue trends. As we reported in September, non-holiday weekly revenues during the first four weeks of the second quarter averaged $11.3 million. During the following seven weeks, non-holiday weekly revenues ranged between $11.3 million and $11.9 million for an average of $11.6 million, with the last week of the quarter, Thanksgiving week, at $8.2 million.

Through the first five weeks of our third quarter, our weekly revenues have totaled $51.7 million, representing a 7% increase from the first five weeks in the third quarter last year. In the second week of the quarter, weekly revenue exceeded $12 million for the first time since February 2009.

During the second quarter, we continued to experience increased demand from our Global Clients, as Asia-Pacific and Europe grew by 14.8% and 19.8%, respectively, on a quarter-over-quarter basis. Though our third quarter is impacted to some degree by the winter holidays, we remain optimistic as we look forward to 2012, and believe that demand for our services will continue to improve. Based upon recent wins at some large global clients, we believe companies are investing in initiatives oriented to increasing efficiencies at their manufacturing, finance, and IT organizations.

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 $145 million -- an increase of $6.5 million or 4.7% from $138.5 million in the second quarter of fiscal 2011. On a sequential basis, revenues increased 5.1%. On a constant currency basis, the quarter-over-quarter increase was 3.9% and the sequential increase was 6%.

For the second quarter, revenues in the US were $102.9 million, up 1.3% quarter-over-quarter, and up 2.6% sequentially. For the second quarter, total revenues internationally were $42.1 million, up 13.8% quarter-over-quarter, and up 11.4% sequentially. International revenue accounted for approximately 29% of total revenues for the quarter, up from 27% in the first quarter. Europe's second-quarter revenues increased 19.8% quarter-over-quarter, and 21.9% sequentially. while the Asia-Pacific region saw second-quarter revenues increase 14.8% quarter-over-quarter, but down 5.6% sequentially, partially attributable to the annual holiday periods in China.

On a constant currency basis, total international revenue increased 11.1% quarter-over-quarter and 14.8% sequentially. On a sequential quarterly basis, the US dollar was stronger against the major currencies in Europe and weaker against currencies in Asia-Pacific. As a result, on a sequential constant currency basis, Europe's revenue increase would have been 26.6%, and Asia-Pacific's revenue decrease would have been 6.5%. On a quarter-over-quarter basis, Europe's revenue increase would have been 17.3%, and Asia-Pacific's increase would have been 9.1%.

Let me now discuss early revenue trends for the third quarter of fiscal 2012. Weekly revenues for the first five weeks of the third quarter were $11.7 million, $12.1 million, $11.9 million, $10 million, and $6 million, which was the week following Christmas. In thinking about the remainder of the third quarter, it is important to remember that the New Year's, Martin Luther King, and Presidents' Day holiday occur in January and February. Historically, our weekly revenues during those weeks are impacted by about 15%.

On to gross margins. Gross margin for the second quarter was 37.9% versus 37.8% in the first quarter and 39.5% at year-ago. The 10 basis point increase in the sequential gross margin stems primarily from improved asset leverage in the US, partially offset by a slight reduction in bill pay spreads. The decrease in bill pay spreads stems from the increased percentage of our international revenue, which currently operates at lower gross margins.

Excluding reimbursable expenses, our second-quarter gross margin was 38.8%, which compares to 40.5% in the second quarter a year ago. The average billing rate for the quarter was approximately $129, the same as in the first quarter, but down from $131 a year ago. The average pay rate for the second quarter was approximately $66 versus $65 in the first quarter and $65 one year ago. Please remember, these hourly rates are derived based upon prevailing exchange rate during each given period.

In thinking about the gross margin in the third quarter of fiscal 2012, and consistent with prior years, we would expect gross margin to decline by approximately 150 basis points, primarily due to the resetting of payroll taxes on January 1, as well as the impact of the winter holidays. For the second quarter, gross margin in the US was 39.9% and our international gross margin was 33%.

Now to head count. For the second quarter, the average consultant FTE count was 2,334. This compares to 2,232 in the previous quarter, and 2,180 in the year-ago quarter. Quarter-end consultant headcount was 2,359 versus 2,268 a year ago. Total headcount of the Company was 3,075 at quarter-end.

Selling, general and administrative expenses for the second quarter were $43 million or 29.7% of revenue, a quarter-over-quarter increase of $371,000. SG&A was $42.6 million or 30.9% of revenue in the first quarter of fiscal 2012. SG&A for the second quarter was slightly below what we had anticipated when we last spoke, primarily resulting from slightly less branding-related expenses and lower employee compensation expenses. Primarily driven by the reset of payroll taxes, we believe SG&A expenses in the third quarter of fiscal 2012 will increase approximately $1.5 million from the second-quarter level.

Stock compensation expense was consistent with the first quarter at $1.9 million or 1.3% of total revenue, and down from $2.6 million or 1.9% of total revenue in the second quarter of fiscal 2011. We would anticipate quarterly stock compensation expense in the upcoming quarter to approximate the amount recorded in the second quarter. At the end of the quarter, our office count remained at 80 -- 51 domestic and 29 international.

Related to other components of our financial statements, depreciation and amortization was $2.7 million for the quarter compared to $2.8 million last quarter. We would expect depreciation and amortization expense for the upcoming quarters to approximate $2.1 million per quarter.

As Tony discussed, during the second quarter, we recorded non-cash income of $20.4 million net of tax, or approximately $0.47 per share related to decreasing the estimated fair value to zero of the Sitrick Brincko contingent consideration, and the related employee portion. Throughout the remaining earnout period of two years, we will continue to assess the estimated fair value of the contingent consideration.

Interest income was $65,000 in the second quarter versus $88,000 last quarter and $114,000 a year ago. Quarter-over-quarter, interest income has declined primarily due to lower average cash balances and lower interest rates. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation and contingent consideration adjustments, was 9.9% in the second quarter -- an improvement of 160 basis points from 8.3% last quarter, but down slightly from 10.5% in the second quarter of fiscal 2011.

Excluding the impact of the estimated fair value of contingent consideration and the employee portion, our pretax income was $9.3 million for the quarter. During the second quarter, on a GAAP basis, we recorded a provision for income taxes of $18 million on GAAP pretax income of $43.3 million, representing an effective tax rate of approximately 41.5%. This amount includes the tax impact of the aforementioned contingent consideration fair value adjustments.

Excluding those adjustments in our pretax income, our provision for taxes would have been $4.5 million and our effective tax rate would have been approximately 47.8%. Our effective tax rate is impacted by our current inability to offset income and tax jurisdictions in which we are profitable, with losses in tax jurisdictions in which we are not. 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.

In summary, our per-share income of $0.58 per share during the second quarter includes $0.47 per share associated with the adjustments to the estimated fair value of contingent consideration. On a non-GAAP basis but consistent with most analyst models, which utilize a cash tax rate of 42% and exclude contingent consideration adjustments, our per-share income would have been $0.12 per share.

I'll now turn to the balance sheet. Cash and investments at the end of the second quarter were $120.7 million, a $9.1 million decrease from the end of the first quarter. The decrease stems primarily from cash generated from operations of $5.4 million, offset in part by share repurchases and dividends totaling approximately $13.1 million during the quarter.

During the second quarter, we repurchased approximately [1,002,000] shares of our common stock at an aggregate cost of $10.9 million or $10.88 per share. On a fiscal year-to-date basis, we have repurchased approximately 2,463,000 shares at an aggregate cost of $27.5 million or $11.17 per share. These shares represent approximately 5.4% of our outstanding shares as of the beginning of the fiscal year.

Our current Board authorization for our stock buyback program has approximately $124.6 million remaining. We will continue to return cash to shareholders through our regularly quarterly 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 second quarter were approximately 43.2 million.

Receivables at quarter-end were approximately $87.9 million compared to $85.6 million at the end of the first quarter. Days of revenue outstanding were approximately 54 days compared to 51 days in the prior year's comparable quarter a year ago, and two days higher than the first quarter. Our days of revenue outstanding can be impacted by Sitrick Brincko, as they historically have had longer repayment trends.

With that, I'll turn the call over to Don for some closing thoughts.

Thank you Nate. Well, while "uncertain" continues to be the description used by many executives to describe the economic environment, we believe we will be able to continue to grow revenues profitably through 2012. I believe our second quarter results reflects our continued focus on leveraging our existing client service infrastructure over an increasing revenue base.

As we have previously discussed, while we will make investments in our high-growth markets, many of our offices can further leverage their existing personnel over an increased revenue base, allowing for increased operating leverage, subject to seasonal factors over the 2012 calendar year. Resulting from the global economic uncertainty, we believe our Fortune 500 clients continue to shy from hiring full-time employees to meet peak demand and initiative-based requirements, when a high-quality variable cost alternative is available.

We believe this trend has benefited our practices over the past couple of quarters. Our client-focused variable operating model allows us to quickly adapt our consultant profiles to the ever-changing intellectual capital requirements of our clients.

For example, several of our financial services industry clients are incorporating this strategy to offset the impact of previous personnel reductions, and increase quarterly regulatory and financial reporting requirements. Each of our service lines are increasingly benefiting from this trend. Sitrick Brincko's business has suffered primarily due to the low volume of corporate bankruptcies during the past couple of years. While I know Mike and John are disappointed in the results of the first two years of the four-year earnout period, I believe they are committed to continue to help us grow this practice area in the coming years.

This business remains profitable and contributes to the overall skill sets that we bring to our clients. Based upon our work assisting several large clients during reorganization, we believe this service offering will continue to benefit us over the long-term.

In summary, we remain focused on leveraging our operating platform towards achievement of our long-term target of 15% adjusted EBITDA. In doing so, our strong base of continuing clients will be a critical advantage for us.

The following statistics continue to reflect the health of our client relationships -- client continuity is outstanding. Through the second quarter, we served all of our top 50 clients from fiscal 2011 and 2010. In fiscal 2011, we had 221 clients for whom we provided services exceeding $500,000 in fees. Through the second quarter of fiscal 2012, on a run rate basis, we have served 229 clients at this level, representing an increase of over 3%.

Our top 50 clients represented 39% of total revenues, while 50% of our revenues came from 84 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 2.1% of revenues. Through the second quarter, 100% 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 and relationships we have within our client organizations.

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

(Operator Instructions). Kevin McVeigh, Macquarie.

I wonder if we could just talk a little bit about the mortgage trends sequentially? If I heard it right, it seems like you're going to be somewhere around 36.5% in Q3, and just that seems a little low relative to where mortgages have been trending historically. Just any thoughts on that? And how much of that is payroll tax reset versus a mix shift away from more Sitrick Brincko? And if you could just help us directionally on how much Sitrick Brincko contributed in revenue and profitability in the quarter as well.

So, Kevin, what I would tell you with regard to the margin, the 150 basis point decline projected from the second quarter level really stems from two pieces. And that is the reset of the payroll taxes as well as the number of holidays occurring in the quarter. So the impact of Sitrick Brincko is basically viewed to be constant.

Okay. And how much did they contribute in the quarter there?

On a revenue basis, $4.3 million. And they're operating at a better than 20% EBITDA margin.

Super. And just share count for the quarter for Q3 that we should use?

You know, the share count that I had given was 40 -- just a second here -- 43.2 million.

Okay. Thank you.

Sara Gubins, Bank of America Merrill Lynch.

Could you talk about some more of the puts and takes on bell rate trends? Last quarter, you were up a little bit year-over-year; this quarter, you were down a little bit year-over-year. Are you seeing more pressure on pricing? Or is this somehow a mix change?

Sara, I guess what I would answer is it's primarily a mix from international, the growth of -- in some of our international markets that are currently at lower gross margin. If you look at the US, the gross margin actually increased 70 or 80 basis points to that -- to 39.9%. On an international basis, we experienced a decline. And with the growth of the international practice, that has impacted the -- that's where the change in the bill pay rate spread is coming.

Okay. And then, separately, if you could give some more color on what you're seeing in terms of demand trends in the US. I know your comparisons were quite difficult this quarter, but the growth rate on a year-over-year basis slowed quite a bit as well. So I'm just hoping to get some more detail on what led to the slowing trend.

You know, relative to demand in terms of projects, we're still seeing quite a bit of demand on the IM side. In fact, if you looked at our top 10 clients, IM ERP implementations, upgrades, change management is kind of at the top of the list. In addition, at some of our manufacturing clients, we still see a lot of work around supply chain management, centralized procurement, things like that.

So those are the types of services that we see in demand across the globe. I'd say on the overall growth rate, clearly, we have a little bit of slowing in Asia-Pacific in terms of the growth; they were up about 15% in aggregate. But they were up 42% a year ago, so it was kind of a tough comparable from where we've been getting a lot of our growth, which has been that Asia-Pacific region.

Okay, thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much. I'm not sure if you had a chance to discuss about the trends in Europe -- obviously, a little bit stronger than we would have expected, considering the news coming out of there. Can you tell us generally what's happening to your business in Europe?

You know, I'd say -- so far, the business has been fairly resilient, but it certainly does not escape us, everything that's going on over there. And it's certainly a concern for both ourselves and the people that run our European practice.

So, so far, it's been decent, up 20% this quarter. I think that they're certainly starting to feel some pressure, especially in France; Italy has been pretty resilient. Ireland has been pretty resilient. But the UK is coming back for us a little bit. I would say maybe it's a little bit more of a struggle in the Netherlands. And then in Scandinavia, generally, the Scandinavian business has been very resilient even throughout the recession, but I think that they're starting to feel a little bit of pressure as well.

So all throughout Europe, you can't deny what's happening with the debt issues that they face over there. So it's, at this point in time, it's wait and see. We try to talk to our European colleagues about controlling what they can control, and that's getting in front of their clients and trying to see how we can help our clients over there.

All right, great. Can you also bring us up to speed about the proposal in Europe for the larger auditing firms to shed their non-audit business?

That's -- it's still ongoing there. Nothing has been committed to law at this point. Our speculation is, is that that's probably a pretty good likelihood. I think a lesser likelihood is the second part of that regulation that will require mandatory rotation of the audit firms. I think that that's going to get a lot of pushback from the financial community over there. But we do think that this other proposal about splitting up the consulting has got some pretty good momentum. And we'll see what happens. But nothing definitive at this point.

All right, great. Just a couple quick numbers questions. What was capital spending in the quarter that ended? And then in terms of billing days for the current quarter, and what they were in the third quarter last year?

The CapEx for the quarter was about $650,000, and we would expect similar quarterly levels for Q3 and Q4. And Jeff, what was your second question? The billing days?

Yes, billing days. With the leap year and the holidays, I just want to make sure we're comparing apples to apples.

Yes, you basically have 61 days. The remaining -- what we've reported on what it excludes is three more days, which would be New Years, Martin Luther King, and Presidents Holiday.

So, again, on the year-over-year basis compared to last year, is there any difference in billing days?

No.

Okay, great. Thanks so much.

Andrew Steinerman, JPMorgan.

I actually got intrigued by the thought that perhaps the accounting firms in Europe will have to split off their consulting arms. Do you feel like if that happens, that will be a distraction for them and a good opportunity for alternative firms like Resources? Or do you think that creates kind of more focused competitors and it would increase the competitive landscape over time?

Andrew, we look at that possibility as a positive thing for us and a real opportunity. When the accounting firms spun off their consulting practices around 2001, several things happened. Not one of those consulting practices were able to stand on their own. They all got acquired. In Europe, they got acquired by different companies; in the US, they got acquired. And hardly any remnants of those consulting practices really exist today.

[Varying Point] tried to go independent and tried to be a public company, but they, I don't think, ever were really profitable. So, we believe if that happens in Europe, the focused competition will kind of delude itself, as these companies align themselves with other potential larger consulting firms. Number one.

Number two, there could be an opportunity for us to pick up some of the more boutique practices that might not fit into whichever direction the consulting practices spin off to. So, if you look at the strength of the big four, it's in their names. It's in the fact that they are auditors and they're trusted advisors because of their auditing function. So we think if they spin it off, that will give us some opportunities, and we'll be alert to looking at potential boutique parts that we could maybe incorporate into our business.

Okay. That makes sense. I think in the past you've talked about kind of an aspiration to get back to 15% revenue growth on a CAGR basis in kind of more normal times. What do think it would take, in terms of real GDP or any other items that you would want to throw out there, for us to have a conducive environment where we could grow at the aspired rates?

I think what it'd take for us to grow at -- or 15% type of rate would either be, one, a more dynamic economy driven by the US, since the US is our largest market. So we'd need to see a more robust economic growth in the US.

The second thing is more focused growth in the emerging markets, which we're investing in and attempting to take advantage of those emerging markets. The third thing is for us to do things strategically different so that we can grow faster despite the economy. So those might be looking at what we would perceive opportunities in, let's say, healthcare consulting, being one; if the bankruptcy environment picks up, we think we have a basis to grow that business faster than normal. So it's a combination of those things. One is the economy and two is strategy.

Great. Thank you so much.

Paul Ginocchio, Deutsche Bank.

You talked in the last quarter about maybe a 20 to 30 basis point sequential increase in your gross margin that came in 10 basis points. Just wonder what the difference was relative to your previous expectations, what drove that?

As I had mentioned earlier, the mix with the higher percentage of revenue coming from international, which has a lower overall gross margin.

Great. Sorry, I missed that. (multiple speakers) Maybe I missed this -- and then if maybe I missed this as well -- did you give an outlook for SG&A into the February quarter?

Yes. What we had -- what we said is, is that due to the -- primarily due to the resetting of the payroll taxes, that SG&A would increase about 1.5 million from the Q2 levels.

Thank you very much.

Timothy McHugh, William Blair.

This is actually [Matt Hill] in for Tim McHugh this afternoon. My first question was in regards to Sitrick Brincko. You had said in your earlier comments that you'd seen a slight pickup in and were cautiously optimistic going forward. I was just kind of wondering if you could give a little more detail about what you're seeing in the restructuring marketplace now.

Yes, I think they're -- the group is probably chasing a higher number of opportunities. I think if you look at just in the past few months, there's been a slight increase in corporate filings. So I think there's -- you know, as I said, it's just looking at the different types of proposal activity that we're involved in.

Matt, the group is continually getting a lot of crisis communication assignments. So they're really bringing in a lot of new assignments on the crisis communications, not all the time related to restructuring. So every week, we hear about them signing up another crisis communications client; they're just not at the same revenue level as a restructuring business. So they're doing a very robust job in marketing, but what's coming in right now is much more crisis communications versus restructuring communications and restructuring advisory services.

Okay, thanks. And then one other one. In regards to financial services, I'm wondering if you can give a little commentary about, in the different subsegments, what you're seeing for demand trends at versus, say, an investment bank or asset management or an IT kind of back-office support?

We can't really break it down into those subsegments because we really don't track it on that basis. I can tell you that in terms of financial services overall, there's certainly a little bit of pressure in that market. There's been a fair amount of layoffs by the big banks. Our business in that market on a year-to-date basis is up about 4%; over this last quarter, it's been fairly flat. But we still continue to serve some very significant clients in that industry.

Okay, thank you.

Giri Krishnan, Credit Suisse.

I guess first off, I think last quarter, you had spoken about how pricing with respect to the big four was rational with the exception of Japan. Has that changed at all? Or has it pretty much remained as it was last quarter?

That's -- it's fair to say that that's still pretty consistent. I would tell you, just having come back from Japan, the pricing by the big four is fairly -- well, depending on your perspective, you could call it rational or irrational. I think from the big four's perspective, they're looking at their pricing as covering some of their fixed costs.

But they're clearly hurting over there. They've gone through a couple of rounds of layoffs within the big four firms. So the pressure is pretty significant. Luckily, our Japanese practice is extremely well-managed. We're coping with it. It's probably impacted our gross margin over there by a couple of points. But we're keeping up our revenue levels and our levels of profitability in spite of their extremely aggressive pricing.

And we deal with aggressive pricing all over. It's not prevalent, but because we have such a prestigious client base, it's a very desirable client base for the big four to try to penetrate if they're not there.

So a lot of times, they'll come in to try to buy work just to get into a major company that they're not already there. And we have to fight that all the time to either retain the work and keep them out; or, if they go too low, we just let them have the work. So, it's kind of a robust environment. And one of our strengths is, because our client base and the types of clients we have, is that they're after the same clients all the time.

Okay. And then with respect to your branding campaign, clearly, you've invested in your branding campaign. Are there any metrics or any anecdotal sort of evidence you can share with us, that would help us understand how it's maybe driving demand from your clients on your service lines? That would be helpful.

Well, part of our branding campaigns -- what we're looking for is to increase awareness of our name. We're not a consumer company, so we're not out there trying to increase consumer consumption. But what we're trying to do is increase the brand awareness of who Resources is.

We have had one or two clients that actually heard our radio ads in the morning news programs and called us to bring us in, because they had heard the ads. So we did get a client in New York, a client in San Francisco from just the radio ads. But our primary goal is not to get direct clients -- it'd be nice, but we don't expect to get a lot of direct clients. What we expect to do is building brand awareness over several years.

I think in support of Don's comment, the way that we look at building our brand is by every hour that our consultants work out at our clients, that's the primary way that we build the brand, but we support it with some of these supplementary activities, including our print and media campaigns.

Sure. And then, lastly, did you break out the revenue for Netherlands?

No. Giri, we stopped doing that a few quarters ago. Europe is really structured now as kind of operating as -- while there's individual offices, there's a lot more sharing of people and resources over there.

Okay. Thank you.

Gary Bisbee, Barclays Capital.

I guess on -- let me follow-up on that last question there. Can you give us what the split is of Europe versus Asia-Pacific right now? Or ballpark number?

Yes. So, 29% of the revenues are international; about one-third of that is Asia-Pacific.

Okay. And is there -- should we think about anything else -- the rest of that is Europe? Or are you doing anything --?

Well, the balance of it would be Europe, including Canada and Mexico.

Okay. All right. All right, fair enough. And are those significant pieces, Canada and Mexico, right now or --?

Mexico is one office and Canada is three offices -- not what I would consider a significant component of the overall international revenue.

Okay. All right, great. Don, in your comments, you made a comment just expressed, I think, confidence is the right word, but you can tell me if it was a different one -- that the business can continue to grow revenue profitably through calendar '12, was, I think, the comment. How should we think about -- are there any data points you could give us, in terms of the change and pace of new engagements, or anything to help us understand how you can -- how you see that confidence in continued solid profitable revenue growth?

I mean, the confidence comes from us visiting our clients, from us talking to our clients. Our client service directors spending time at the clients and discussing the issues. The trends that we see that are helping us is a lot of our major clients are actually still doing layoffs.

So if you look at the big financial institutions in New York, for which many of them are clients, they're still announcing layoffs. Some of our larger financial clients are moving their back offices and need help with doing that and consolidation. We have clients that are moving some of their operations out of India back to the United States. They need help with that.

So a lot of the trends are that clients don't have the intellectual capital to help them get through projects, to help them get through these initiatives, and they're going to firms like us more and more. So that's one of the trends that we see.

Second trend is the ERP trend, where a lot of major companies are implementing the latest new version of SAP, which is a huge upgrade. That produces work for us. We're already beginning to see that, where we're getting work to help accounting, finance, treasury departments, implement their SAP operations.

Then we have the growth of regulatory changes, both accounting changes and regulation itself, that we're beginning to, again, get work to help clients cope with them. So we see those things as helping us grow. The profitable part comes from us trying to keep a lid on growth of unnecessary expenses. So that's why I'm confident.

Okay. And then, Nate, I guess, just a follow-up on the financials. You said D&A would be somewhat lower going forward the next few quarters. Is that just the amortization, because you've written down the expected earnout for Sitrick Brincko, that that amortization is less there or something? Or is there something else going on?

The amortization is really the end of the amortization periods for certain of the intangible assets for prior acquisitions. (multiple speakers)

(multiple speakers) Okay.

(multiple speakers) So they -- if they were being amortized over three years or what have you, they -- it reached their end.

And so it looks like depreciation is also notched down a little bit the last six months. Is that just the natural -- you know, some things falling out of the personal asset base? I guess CapEx (multiple speakers) hasn't been growing a whole lot?

Yes, I mean, one of the things (multiple speakers) -- yes, one of the things is when you look at, Gary, our offices, we're starting to see a lot of the leases starting to turn. And as that happens, the lease holds are depreciated over the initial lease term. So we're oftentimes renewing in place those types of things. So that's really probably what's driving that. I don't think that's a big number, though.

Yes. It just -- it sounded it was like a half-a-million a quarter or so below what you've been doing -- okay. And then, I guess just the last question.

Last quarter, you -- encouraging to see the continued fairly aggressive share repurchases. Last quarter, you commented that there was some liquidity -- because of the liquidity, you couldn't repurchase as much as you wanted. Was that an issue again this quarter? And should -- is there any way to think about how you might -- are you likely to continue to be repurchasing at the level that you can, if the business trends like it is and the stock stays in the range that it's been in the last six months?

Yes, last quarter, I don't think we'd commented that we had liquidity issues in repurchasing our stock. What we have is, there's regulatory limits on how much stock we can purchase every day and when we're allowed to purchase. So, we're only allowed to purchase X number of shares a day, depending on the trading volumes, and we're only allowed to purchase on an uptick.

So, many days last quarter, and some of the days this quarter, we never have got to the limit of what we wanted to purchase every day. And those are regulatory limits that we have no control over.

(multiple speakers) Right, yes.

So (multiple speakers) we would anticipate what our positive cash flow, that we'll continue to repurchase our stock as opportunistic as we can be. What those levels will be, we can't really predict. But we want to still be out there in the market and returning cash to shareholders.

Okay. Understood. Thank you very much.

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

I'm wondering if you could talk a little bit about the -- that European change, in terms of the audit separation versus consulting. What's the base -- I know that things are unclear, but based on what you currently know, what do you think the earliest timing of that would be?

Can you repeat that, Mark? It didn't quite come through very clearly.

Yes. I'm asking about the potential regulatory change where the big four audit firms would separate out their consulting practices in Europe. And specifically, based on what you currently know, what's the earliest that you think you could see something actually occur?

Well, I'm not -- we're really unclear until they ultimately rule on whether they're going to force the firms to split off their processes. Right now, they've kind of floated it out there. There's been a lot of discussion related to it, but nothing has come down.

These types of discussions have -- they have a way of rolling on and on. So I don't think that there's any certainty over any particular time frame at this point. You've seen the same thing in the US relative to IFRS; you've seen the [days] move and move. So this is just a discussion that was documented in various different newspapers. I think it's ongoing, but relative to the date, it would be very hard to predict at this point.

So based on that, it doesn't sound like you would take any direct action to try to take advantage of a change like that. It would be premature at this point, right?

Well, I think it would be premature until they ultimately decide whether they're going to split off the audit and the consulting practices.

Okay. And then, when you take a look at the international gross margins, are there major differences -- aside from the Japanese commentary -- are there major differences between the different regions in terms of the gross margins?

I'd say that there's differences between Europe and between Asia-Pac. Asia-Pac gross margins look a little bit more like the US. They're not quite as high but they trend more towards the US. In Europe, the gross margins are more towards that 30% level, based upon the way that they do business over there with consultants. Most of the consultants in Europe are independent contractors. There are a couple of offices that we have, where there are some bench consultants, that's relatively few.

But the independent contractors, there's a basic understanding of a 70/30 split in Europe. So that's the piece of it that drags that international margin down a little bit. And that's not in every single region, but it's predominant in Europe.

Okay. Like, if you take a look at the Netherlands or the UK on a static basis --

Yes.

-- would those gross margins be flat relative to a year ago? Or are they trending as we're seeing the overall international gross margins?

They're -- I'd say they're maybe -- they're fairly flat to maybe a little bit down.

Is that just because of utilization? Or is that because of some of the pricing pressure?

I would not say that it's necessarily because of pricing pressure, although the environment is competitive over there. I would tell you that it's -- in Europe, you see, especially in the Netherlands, you see a lot more professional services firms. So there is a lot of competition.

Yes. And then in the UK, what are you hearing from your clients in terms of the go-forward? Because it sounds kind of like things have been hanging in there up until this point. But how are you, as a management team, preparing for all the things that we keep reading about?

Well, again, it's -- we try to -- a lot of those things that you read about, Mark, we can't control, right? So, our main message to all of our people, not only in Europe but the balance of the Company, is do what you can control, which is being in front of your clients, making sure that you're proactive in bringing out the current proposed regulations to them; talking to them about where you can help them in -- you know, with whatever issues that they are facing. So ours is a very proactive client-facing approach, and not trying to focus too much on what we can't control.

Right. And then, in the US, can we talk about are you seeing any regional differences between the offices? Or is it fairly steady across the entire country?

I'd say, on a sequential basis, both the west, the east and the central were up on a sequential basis; a little bit down in the Atlantic region, and a little bit down in the Sitrick Brincko business.

And then can you talk a little bit about the practices in the US? I imagine information management continues to be very strong. Does that imply that finance and accounting is down a little bit in the US?

As we mentioned -- as we've mentioned, I'd say, the last several quarters, information management is strong; the change management side of our human capital practice goes right along with that. It's an integrated service offering for us.

Accounting and finance is -- the business is doing fine. We're doing a lot of shared service center type projects. Bear in mind, finance and accounting is one of our biggest service lines. So it's doing fine. It's -- again, in looking at the overall growth rate, just trying to stay in front of our clients and find what projects that they're doing. If it's in IM, we'll do that; if it's in accounting and finance, we'll take that too.

All right. Thank you.

Thank you. I'm showing no other questions from the phone lines.

Okay. Well, I want to thank everybody for their interest in Resources. We continue to work really hard to do the best we can, and we look forward to talking to you after our next quarter. Thanks.

Ladies and gentlemen, thank you for joining today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.