Resources Connection, Inc. (RGP) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Resources Global Professionals Fourth Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. Now I'll turn the conference over to Kate Duchene, Chief Legal Officer. Please begin.

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 fourth quarter of fiscal year 2012. By now, you should have a copy of today's press release. If you need a copy and are unable to access a copy 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 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'll now turn the call over to Tony Cherbak, President and Chief Operating Officer.

Thanks, Kate. Good afternoon, and welcome to the Resources Global Fourth Quarter Conference Call. I'm going to start by giving you a brief overview of our fourth quarter and year-end operating results. Total revenue for the fourth quarter was $145.5 million, similar to last year's fourth quarter and up 1.5% from our third quarter revenue of $143.3 million. For the year, we grew revenue by $26.3 million to $571.8 million, a 4.8% increase over the prior year. Fourth quarter gross margin was 40.2%, representing a 210 basis point improvement from a year ago. This improvement stems primarily from improving bill/pay spreads, lower 0 margin reimbursable expenses and improving trends in our self-insured health care plan. During the fourth quarter, our SG&A costs were $42 million, a $1.7 million decrease from the comparable quarter a year ago and a sequential decrease of $1.4 million. The sequential decrease stems primarily from lower marketing, compensation and benefit-related expenses. We remain focused on tightly controlling our SG&A spend while investing for the long-term benefit of the company. During the fourth quarter, we generated cash flow from operations and adjusted EBITDA of $16.6 million and $18.4 million, respectively. For the quarter, our pretax income was $14.7 million. Based upon an effective tax rate of 39.7%, our fourth quarter GAAP net income was $8.9 million or $0.21 a share. Now let's talk about revenue trends for a moment. As we reported in late March, weekly revenues during the first 4 weeks of the fourth quarter averaged $11.4 million per week. For the remaining 9 weeks of the quarter, weekly revenues ranged from $10.5 million to $11.7 million, averaging $11.1 million per week. The decline in weekly revenues during April and May occurred primarily in Europe. Although Europe began the first 4 weeks of the quarter experiencing week-to-week revenue growth, revenue declined during several weeks in the remainder of the quarter as the volatility caused by the European debt crisis took its toll. As a result, Europe's fourth quarter revenue declined 14.7% quarter-over-quarter and 9% sequentially. In light of the economic uncertainties in Europe, we believe our clients are cautious in their spending on business initiatives. However, we believe the current environment leads many companies to further assess using a variable model for an increasing portion of their intellectual capital needs. In Asia Pacific, revenues increased 5.1% sequentially and was flat quarter-over-quarter. The sequential increase was driven by strong growth in Japan. Despite economic data suggesting the U.S. economy may be slowing, our U.S. business remained stable, growing sequentially 3.8% in quarter-over-quarter at 4.6%. With that, I will now turn the call over to Nate for a detailed review of our financial results.

Thank you, Tony. As Tony mentioned, revenues for the quarter were $145.5 million, similar to the fourth quarter of fiscal 2011. On a sequential basis, revenues increased approximately 1.5%. On a constant currency basis, the quarter-over-quarter increase was 1.1%, and the sequential increase was 1.5%. Highlighting certain geographies. In the U.S. during the fourth quarter, revenues were $108.7 million, up 4.6% quarter-over-quarter and 3.8% sequentially. For the fourth quarter, total revenues internationally were $36.9 million, down 11.7% quarter-over-quarter and down 4.4% sequentially. International revenue accounted for approximately 25% of total revenues for the quarter compared to 27% in the third quarter and 29% in the fourth quarter a year ago. Europe's fourth quarter revenues decreased 14.7% quarter-over-quarter and 9% sequentially, while the Asia-Pacific region saw fourth quarter revenues increase 5.1% sequentially but flat quarter-over-quarter. On a constant currency basis, total international revenue decreased 7.4% quarter-over-quarter and 4.4% sequentially. On a quarter-over-quarter basis, the U.S. dollar was stronger against the major currencies in Europe and slightly weaker against Asia-Pacific currencies. As a result, on a constant currency basis, Europe's revenue decrease would have narrowed to 8.5%, while Asia Pacific's revenue would be unchanged on a quarter-over-quarter basis. Let me now discuss early revenue trends for the first quarter of fiscal 2013. Weekly revenues for the first 6 weeks of the first quarter, which include the Memorial Day and Fourth of July holidays, aggregate to approximately $62.9 million, which is essentially flat to the same period last year. On a weekly basis, they were $9.4 million, which was Memorial Day week; $10.8 million; $11.3 million; $11.1 million; $11.4 million; and $8.9 million the last week, including the Fourth of July holiday. And thinking about the remainder of the first quarter, it is important to remember that we generally lose about 5% of weekly revenue due to vacations taken by our consultants in the U.S. and Europe during the July through August time frame. I'll now discuss gross margins. Gross margin for the fourth quarter was 40.2% versus 38.1% in the year ago quarter and 37.4% in the third quarter. The 210 and 280 basis point increase in the quarter-over-quarter and sequential gross margin, respectively, stems primarily from continued improvement and bill/pay spreads, lower reimbursable expenses and health care costs, as well as the decreased percentage of our international revenue to total revenue. Sequentially, our gross margin also benefited by approximately 100 basis points by the lack of U.S. holidays during the quarter. Excluding reimbursable expenses, our fourth quarter gross margin was 41%, which compares to 39% in the fourth quarter a year ago. The average rounded billing rate for the quarter was approximately $129 per hour, up from $128 in the third quarter and down from $131 an hour a year ago. The average rounded pay rate for the fourth quarter was approximately $64, the same as in the third quarter and down from $66 a year ago. Please remember these hourly exchange rates are derived based upon prevailing exchange rates during each given period. Primarily due to the impact of summer vacations, as well as the Memorial Day and Fourth of July holidays in the U.S. during the first quarter, we would expect gross margin to decline sequentially by approximately 120 basis points. During the fourth quarter, gross margin in the U.S. was 41.8% and our international gross margin was 35.4%, representing a quarter-over-quarter improvement of 170 basis points in the U.S. and 230 basis points internationally. Our consolidated gross margin for fiscal 2012 was 38.3% compared to 38.6% in fiscal 2011. Now to headcount. For the fourth quarter, the average consultant FTE count was 2,284. This compares to 2,297 in the previous quarter and up from 2,222 in the year ago quarter. Quarter-end consultant headcount was 2,317 versus 2,249 a year ago. The total headcount of the company was 3,017 at quarter end. Selling, general and administrative expenses for the fourth quarter were $42 million or 28.9% of revenue versus $43.7 million or 30% of revenue a year ago. Sequentially, SG&A declined $1.4 million. The sequential decrease primarily resulted from lower marketing, compensation and benefit-related expenses. We believe SG&A expenses in the first quarter of fiscal 2013 will increase approximately $700,000. Stock compensation expense was $1.9 million or 1.3% of total revenue, down from $2 million in the third quarter and the fourth quarter of fiscal 2011. We would anticipate quarterly stock compensation expense to approximate the Q4 amount in the upcoming quarters. At the end of the fourth quarter, our office count declined by 3 from last quarter for a total of 77, 50 domestic and 27 international. The reduction stems from combining offices in the U.K, Canada and Texas. We do not expect these consolidations will impact our revenues. Related to the other components of our financial statements, depreciation and amortization was $1.8 million for the quarter, about the same as last quarter. We would expect depreciation expense for the upcoming quarters to decline about $100,000 per quarter. Interest income was $48,000 for the fourth quarter. Our adjusted EBITDA or cash flow margin, which we define as EBITDA before stock compensation and contingent consideration adjustments, was 12.6% in the fourth quarter, a 400 basis point increase from 8.6% in the third quarter and a 320 basis point increase from the year ago quarter. For fiscal 2012, our adjusted EBITDA percentage was 9.9%, up from 8.7% in fiscal 2011. During the fourth quarter, on a GAAP basis, we recorded a provision for income taxes of $5.8 million on pretax income of $14.7 million, representing an effective tax rate of approximately 39.7%. Our fourth quarter effective tax rate was lower than recent past quarters, primarily from the improved mix of operating results between the U.S. and foreign locations in which losses have been reduced and certain U.S. tax credits and other items that were recorded in the fourth quarter, which are not expected to recur. Our fiscal 2012 effective tax rate was 47.5%, excluding the impact of contingent consideration adjustments, and is impacted by our current inability to offset income and tax jurisdictions in which we are profitable, with losses and tax jurisdictions in which we are not profitable. Our cash tax rate continues to approximate about 42%. Our 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 mix of operating results between our U.S. 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 GAAP per share income during the fourth quarter was $0.21. In fiscal 2012, our non-GAAP per share income was $0.47, which excludes contingent consideration adjustments. This compares to non-GAAP per share income of -- in fiscal 2011 of $0.23, which excludes adjustments to contingent consideration and newly-established tax valuation allowances in that year. I'll now turn to our balance sheet. Cash and investments at the end of the fourth quarter were $128.1 million, a $6.7 million increase from the end of the third quarter. The increase stems primarily from cash generated from operations of $16.6 million, offset in part by share repurchases and dividends totaling approximately $9.1 million during the quarter. Capital expenditures were $453,000 during the quarter. For fiscal 2013, we anticipate capital expenditures of approximately $3.8 million. For fiscal year 2012, we generated cash flow from operations of $36.4 million, a 39.5% increase from fiscal 2011. During the fourth quarter, we repurchased approximately 534,000 shares of our common stock at an aggregate cost of $7 million or $13.09 per share. For the fiscal year, we repurchased approximately 3.9 million shares, representing about 8.6% of our shares outstanding as of the beginning of the fiscal year. Those shares were purchased at an aggregate cost of $45.4 million or $11.61 per share. During fiscal 2012, we returned almost $54 million to shareholders through our share repurchases and dividends. Our current stock buyback program has approximately $106.8 million remaining. We will continue to return cash to shareholders through our regular 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 fourth quarter were approximately 42 million. Receivables at quarter end were approximately $84.2 million compared to $90.6 million at the end of the third quarter. Days of revenue outstanding were approximately 55 days compared to 54 days in the prior year's comparable quarter and 56 days in the third quarter. I'll now turn the call over to Don for some closing thoughts.

Thanks, Nate. Well, during our fourth quarter call one year ago, we described some of our financial goals for fiscal 2012. And these included: grow our business, improve our gross margins and increase the operating leverage in our business while continuing to invest in the business for the long term. At the time, I also described our Fortune 500 client base as operating with tight spending constraints in light of the then current global economic environment. While these operating conditions continue at our clients one year later and constrained our growth during fiscal 2012, we made progress in improving our financial metrics. As Nate reported, our fourth quarter gross margin improved 210 basis points from the comparable quarter a year ago. This improvement results from the continued efforts of our client service team to negotiate bill and pay rates to achieve our targeted gross margin goal of 40%. And while our gross margin will vary quarter-to-quarter based on seasonal factors, we remain focused on achieving our gross margin goal over the longer term while working with our clients who remain very cost-conscious. Now our improved gross margin and SG&A leverage increased our fourth quarter adjusted EBITDA margin to 12.6%, 240 basis points shy of our long-term goal of 15%. Additionally, during fiscal 2012, substantially all incremental gross margins resulting from revenue growth improved our operating margin, and this result evidences the operating leverage we believe is inherent in our business model. We will continue to balance our investment and growth opportunities with further improving operating leverage in fiscal 2013. As Nate highlighted, our improving operating metrics have allowed resources to increase the return of capital to shareholders by approximately 80% in the form of dividends and share repurchases from approximately $30 million in fiscal 2011 to about $54 million in fiscal 2012. While doing so, we have retained our balance sheet strength, which will allow us to opportunistically invest in our business, whether it be organically or through acquisitions. And I believe we'll continue this balanced approach in fiscal 2013. Our improving financial metrics results from our steadfast focus on client service and client relationships. Our continued success in this area is demonstrated by the following statistics. Client continuity is outstanding. During our fiscal 2012, we served all of our top 50 clients from fiscal 2011 and fiscal 2010. For fiscal 2012, we have served 218 clients, exceeding $500,000 in fees, roughly equivalent to the 221 clients served at this level in fiscal 2011. During fiscal 2012, our top 50 clients represented 40% of total revenues, while 50% of our 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 3.3% of revenues. For fiscal 2012, all of our top 50 clients have used more than one service line. 84% of those top 50 clients have used 3 or more service lines. So this service line penetration reflects the diversity of relationships we have within our client organizations. For fiscal 2013, our objectives include continued improvement in revenue growth and operating metrics. We will focus on developing new revenue streams such as resources, health care solutions and expansion of our legal information and supply chain service lines and a new approach to marketing to the middle market. We see less competition in the middle market from the Big Four. So this concludes our prepared remarks, and we'll be happy to answer your questions at this time. Thanks.

[Operator Instructions] We have a question from Andrew Steinerman of JPMorgan.

Could you talk about what type of bill rate, pay rate improvement you saw to drive part of that gross margin improvement? Are you finding that pricing is firming up because the supply of the type of consultants that you have is tightening? And did you have to walk away from any business to be disciplined on bill rate, wage rate improvement and to move forward the gross margin in this environment?

Andrew, I would tell you that kind of the last question that you posed in terms of walking away from work, I would say no. We aren't really experiencing where we're walking away from work. I think this is -- we talked a little bit about the environment seeming to change in last quarter's call. And I think it's just a kind of a continuation of our folks working very hard obviously in the average rate per hour. You saw that increase of about $1. That at the end of the day, it just comes from a lot of work and on a number of engagements. I think we're also seeing in Europe the -- that you saw their gross margin internationally, and a lot of that was driven from Europe also improved, which is interesting, given the economy over there but again, I think it's just a lot of negotiation with our clients.

So bill rates are up both in the U.S. and in Europe year-over-year?

Yes.

And then I also asked about the supply. How does the supply of candidates feel?

The supply of candidates in high demand areas like information management and supply chain management is tighter. So we're having to spend more effort on recruiting the exact skills the clients are looking for. In accounting and finance, there's a really good supply of great people. So it's really in the more specialized consulting areas in information management and legal in supply chain where the supply is tight.

Our next question is from Jeff Silber of BMO Capital Markets.

I wanted to focus on the look on Europe a little bit more. If you could give it a little bit more color by geography, that would be great. And if you could also let us know, just in terms of dollars, what the amount of revenues you generated in Europe in the quarter were?

Nate, do you want to take that?

Sure. Jeff, the overall -- what I would tell you, in Europe, the toughest markets for us in the fourth quarter were the Netherlands and the U.K. And the revenue in Europe for Q4 was $23.2 million. The other countries are actually, basically have been performing on average about flat, okay? So the tailwinds are in the U.K. and the Netherlands.

And is it fixed -- I'm sorry.

We just came -- I'm sorry. Tony and I just came back from Europe. And despite the negative economic winds over there, our people were pretty upbeat about improving their metrics and improving revenue, especially in countries like Germany and Sweden where we have had growth and continue to have growth. So Europe is a battle, but our people seem to be really up to the task. Tony?

Yes, and I would just tell you that the meeting was very positive. As Don says, the Europeans have done a good job improving their metrics this last year. And in Sweden, in particular, we found out that we got kind of a large IT project with a city government doing an assessment of the requirements for a new ERP system. In that case, we beat out a Big Four competitor.

All right. That's great. And I know you used to disclose the Netherlands revenues separately. If we can get that as well. I just want to see what percentage of Europe that comprised.

The Netherlands was about $6.2 million for the quarter.

Okay, great. And the U.K. is smaller than that?

Yes.

Okay, great. All right.

Yes. We used to disclose Netherlands because it is by far the biggest piece of our European revenue. And it's not anymore as the other countries are growing, so it's probably not an item we're going to continue to disclose separately since it's not that significant.

And your next question is from Tim McHugh of William Blair.

I wanted to circle back to the gross margin. Can you just give a little more color, I guess, around the health care costs? It doesn't -- I know you said reimbursable expenses, but you gave us the gross margin excluding reimbursable, and the year-over-year change wasn't that different from kind of the overall number. And I know you said international -- or domestic growing faster than international impacted it, but their international gross margin was up a lot. So it's just a pretty significant change in -- is it -- how big of an impact was that health care cost?

Right. Yes, from the way I -- Tim, on a quarter-over-quarter basis, if you looked at that total 210 basis point increase, approximately 80 basis points is from bill/pay, reduction in health care and other benefit cost is 70 basis points, and then the remainder is the reimbursable expenses. Now what you have to remember is when we report gross margin without the reimbursable expenses, they're just -- they're out of both numbers. The 60 basis points is really the change in what has happened in the fourth quarter as the amount of travel, reimbursable travel that our consultants are doing has declined. One of the things in terms of cost savings is a lot of clients are saying, "Hey, source the consultants locally."

Okay. And then I guess, just going forward, I guess, is any of that -- was any of the health care improvement reflective of you guys being overly conservative in how you estimated health care costs for the quarter or -- just trying to get a sense [indiscernible].

I would -- Tim, we're self-insured, and we have a pretty standardized methodology based on claims. And really, what we've seen over the last -- probably 12 to 18 months is just a decline in claims in comparison to where we were, and that has kind of just continued. My sense is that we've probably leveled off. I would doubt we're going to see that type of reduction in claims activities going forward.

Okay. And then my last one. You closed or consolidated 3 offices. Did you exit markets with those, or did you just consolidate within them?

We just -- consolidate. These were all kind of what I would call in regions that like in London where we just combined.

Just combining some suburban offices.

Yes, that's the word I was looking for.

The next question is from Sara Gubins of Bank of America-Merrill Lynch.

Just to quickly follow up on that last question. Would you consider consolidating more locations?

Would we consider? We look at the opportunities when leases come up and where the need is. At the same time, we also look at kind of needs to open a new office or 2, especially in the emerging countries like China. So yes, we're always looking for the opportunities to consolidate, reduce our rent expense. At the same time, we need to continue to invest. So it depends on when the leases are up and how attractive that suburban market is compared to being in the downtown market.

Okay. So we shouldn't expect to see that number continue to inch its way down?

No, we don't. I wouldn't say we are looking at any specific markets to shut down offices. It's really just -- as some of these smaller suburban offices close-up, we assess -- we probably did the same thing 1.5 years ago with a couple of offices as well.

Okay. And then share repurchases certainly continued in the fourth quarter, but they were less than what we've seen in recent quarters. Was there any particular reason for that? And can you just talk about your future plans for repurchase?

Well I think we'll continue -- if you look at the stock market and kind of our stock, it's hard for us to do high -- large repurchases in down-trending markets because of some of the rules of repurchasing. So I would tell you, we actually tried to probably purchase more shares than we were able to get during the quarter.

I think this comes up every quarter, but there are SEC rules around when a company can repurchase its stock. And it cannot repurchase its stock on a downtick and only on an uptick, so we have been active in the market every day in trying to acquire up to the maximum that we're allowed to acquire. And a lot of days, it just wasn't feasible. It never happened because of the downturns.

Okay, great. And then just one last one. Could you give us an update on what you're seeing from work coming from clients who are looking to comply with Dodd-Frank?

We're seeing a lot of regulatory work on the Dodd-Frank side. We're also seeing some Basel III. And so it continues to be a strong source of business for our financial services clients.

The next question is from Giri Krishnan of Credit Suisse.

Could you speak to spending trends as it relates to both the Fortune 500 client base versus some middle market clients? And are you noticing any specific trends there?

I would say with the Fortune 500 or the Global 1000 businesses that they're investing money in large scale ERP system upgrades, which creates a lot of work for the major consulting firms who do the implementations. And then that typically spins off work for us in accounting and finance and treasury functions. So the Fortune 1000 seem to be doing ERP upgrades, primarily to try to be more efficient and cut back hiring. That seems to be the #1 trend. The #2 trend you see is, of course, all the new regulations and trying to be regulatory-compliant. You pick up a paper every day and you read about somebody in trouble being fined, being investigated, et cetera, so that's the second big trend that we see with the major companies. The middle market, which we've never really actively focused on marketing to, is I think a lot less hindered by regulations, as well as they're much faster in making decisions and growing their businesses, et cetera. So I don't think we have the same constraints on spending with the middle market as you do with the Fortune 1000. The difference is, with the middle market is, they're not always going to be repeatable clients. So you might go into a middle-market company, do a project and maybe not get a follow-on project for a year or 2. So it takes a little bit more effort to keep marketing to the middle market, but we think there's a faster growth potential there.

Okay. And can you -- last quarter, you spoke about having brought on board some health care consultants, and it seems like it was a ways away from generating meaningful revenue. Could you update us on what's been happening there and what we should expect?

Well, a couple of comments. They are making very good progress in some of the tool development. And I would imagine that by the time we get to the end of the calendar year, we'll see some of the results of those efforts. That group has helped us sell additional work in the health care space. And what I would tell you in that regard is one of our top 10 clients during the quarter from a revenue standpoint is now a health care client.

Okay. And then last question. I didn't catch your comments about the SG&A expectation for the first quarter. Could you also talk about what sort of leverage we should expect on that line over the next year?

Yes, the -- what I had said is that during Q1, we thought the SG&A would probably increase about $700,000 from the Q4 level. We are continuing to very -- stay very focused on SG&A. And if you look at our past statements where we've kind of said, as we see the revenue growth, what we're trying to do is get that gross margin all to fall to the bottom line. We typically lose 5% to 6% of it to some of the incentive comps. So I would continue to use kind of the same model. And I think as we see higher growth, we'll -- we'll keep investing, but we're -- as you can see from the results in the fourth quarter, we've stayed very focused on controlling those costs.

The next question is from Gary Bisbee of Barclays Capital.

In -- you gave the first 6-week revenue trend, can you give us a sense how is the U.S. trending versus international? I guess I'm specifically most curious about Europe.

Sure. The U.S. is continuing on kind of the trajectory that we saw in the year -- for this year. And Europe is tough although it's -- they're holding their own. So we don't see any big falloff in Europe outside of the currency headwinds that -- as Nate mentioned in his prepared remarks, the U.S. dollar is strengthening compared to the Euro.

But when I go back to your comments from a quarter ago, early in this quarter, you just reported Europe was actually up. And then I think even on a constant currency, you said it was down 8.5%. So it had to have gotten a lot worse in the second half of the May quarter. Are you -- call it, down mid-teens or something, is it trending in that range? Or is it -- and have you seen stabilization over the last...

Yes, what I would tell you -- just to put the -- on a comparable basis to a year ago, as Tony mentioned, the U.S. is about 4.5%, 5% up from the first 6 weeks of -- from a year ago. In Europe, again on a quarter-over-quarter basis, it's down about 15% or 16%. But I would tell you probably 65% of that is currency. So it's moderately down, but it's probably somewhat stable from where it was trending the last several weeks of the fourth quarter.

Okay. That's really helpful.

But what it is Gary -- and what I would kind of label it is, we don't really see the sky falling in Europe. It's obviously down, but it appears reasonably stable under the environment.

And the currency must be down close to 10% from last year. So when you do the translation, it shows a reduction in U.S. dollars but not a reduction in local currency, right?

Right. Okay. And then, so I feel like it's been more than a year now that we've been hearing about liquidity being an issue as you try to do share repurchases. Have you given any thought or would you, going forward, to potentially doing a tender offer for a larger chunk of stock, which would allow you to buy more and also allow you to clear out some shareholders who don't want to stay invested in the business? It seems to me that would be a great way to reinvest a portion of your cash, given you're sitting on so much.

That's -- some people of different investment bankers have brought to us. It's something we look at periodically. Our view is the market on an overall basis is so volatile. I'm aware of a couple of other companies that have done these in the last 6 months. And just because of the market, their stocks' way down. So for the current period, for the time being, I think we're going to kind of continue the trend that we've been on. But that's clearly something that's out there that we look at periodically, Gary.

Any -- is there any desire to be more acquisitive or maybe, are you seeing any sellers who -- people who want to get out because times are getting tougher? Is there any likelihood you could put a decent portion of that cash to work in M&A?

Yes, we're looking at acquisitions every week. I would say that Nate and I have met with 2 companies seriously just in the last few weeks. We're looking at other businesses. There is some incentive for privately-held companies to sell with the uncertainty about capital gains rates next year. So yes, we're looking at lots of things. We're looking for opportunities to expand our scope of business, services, as well as our network. So we are definitely seriously looking at companies.

And then if I could sneak one more in, what was the Sitrick Brincko revenue in the quarter?

It was roughly flat to last quarter, right around $5 million.

Your next question is from Mark Marcon of R.W. Baird.

Could you talk a little bit about what you're seeing in Asia ex Japan? I know it's not really large but just curious in terms of how things are going in China.

China is flat. It's not a booming economy in China because of the exports to the U.S. and Europe are down. I think we're happy with the way we are in China and where we're -- what we're doing, as well as looking at possibly opening another office in China. But the economy -- we all read the paper -- was dependent on exports to Europe and the U.S. and they're now refocusing their economy internally. And so we're working with our clients on those activities. On the other hand, we take a lot of heart from the fact that Japan, which hasn't had a booming economy in -- for as long as we can remember and also had the misfortune last year with the earthquake, the tsunami, the nuclear disaster, et cetera, but we've been hitting new highs in Japan in revenue.

I would just add that in China, one of our major markets there is Hong Kong, and that's primarily financial institution-oriented business for us. And due to the European debt crisis, there's a lot of European banks there, and they've cut way back on the amount of services that they're offering or that they're buying. In Beijing, our business was pretty strong, so we had year-over-year growth in Beijing. But overall in China, just a little bit down from last year but as you know, China increased about 70% last year, so it's a pretty tough comparable.

Yes. And just following on the financial services comment, what are you seeing globally out of financial services? Because it seems like it's a mixed picture. You've got Dodd-Frank, which should generate some business at some point, when the regulations are more tightly defined and at the same time, clearly, it's tough in financial services.

Well our biggest -- probably our largest client this year was a financial services business. Financial services is going through extraordinary change. A lot of it is regulatory. A lot of it is trying to improve their cost structure by moving jobs around the world, et cetera. So we've been getting quite a bit, quite a lot of projects in those areas helping the big financial institutions. So it's a very important, probably our most important single industry segment.

Is it still around 20%?

Yes, that's about right.

Okay, great. And can you give us some comment with regards to, you've obviously been experiencing good growth in some of the newer solution areas, like supply chain? Can you give us a sense for the relative sizes of those various solution sets?

Mark, they're all pretty roughly similar what they -- in the past. And again, keep in mind many of the projects we do cross the service lines but kind of in round numbers, the 2 largest ones are finance and accounting, which is usually just under 60% -- between 50% and 60%. IM tends to be in the 20% range. Supply chain in the 10% range, then human capital, legal and RAS making up the remainder. One area that continues is, over the past couple of years that has declined as a portion of our business, is what we refer to as the RAS business, which is the Sarbanes compliance.

What's that down to?

A little under 7%, 6.5% or so.

Right. And then you've done a great job in terms of managing the SG&A. You gave us guidance for the first quarter. You've got some initiatives to go after the middle market and potentially some new areas. How should we think about it based on what we're currently seeing for the year? I mean, if revenue stays in the current trajectory, it sounds like we'll just see a very slight increase.

Yes, I'd say that's right. We're -- unless we can generate some stronger revenue momentum, we're going to continue to be very tight on our G&A and our hiring and our people count. So we can afford to make investments, but we're very good at trying to make sure that the people we do have or that we've invested in are giving us a return. So we will continue those strong controls for the coming year.

Do you have levers to pull back on if things get worse?

Yes, I mean, we could pull back if things get worse. Our business plan doesn't call for things to get worse. Our business plan -- our belief is we're going to continue to improve our revenue trend, especially with some of our new investments into the health care and our legal services, et cetera.

[Operator Instructions] The next question is from Ato Garrett of Deutsche Bank.

Looking at the contribution to gross margin improvements from the improving bill and pay spreads, was that broad-based, or was that driven primarily by 1 or 2 different industries?

I would tell you, it's fairly broad-based. We -- as you know, from our prior calls, we said it was an area that we remain focused on. And as I would tell you, it's really not segmented in any one particular client or area.

It's broad-based and it's geographically because it's focused on mainly Europe and United States, where in Japan and China, we really haven't had any margin issues there. So it's really the U.S. and Europe that we've given the focus to.

Your next question is from Kevin McVeigh from Macquarie.

This is actually Derek Sbrogna in for Kevin McVeigh. I just have one quick question. In addition to the Dodd-Frank, are there any specific areas you're seeing a pickup in demand for new projects?

Yes, as Don mentioned, I think, earlier, information management is probably very pervasive in our top 10 clients as having a lot of activity through upgrades, new ERP implementation or some kind of business intelligence focus. In addition, supply chain management, we've been designing centralized procurement processes, negotiating supply contracts for a lot of our clients as well. So I'd say that those 2 areas are pretty prevalent. Along with the information management, there comes a lot of change management work for our human capital practice. So that -- we saw good growth in that as well, but those are probably the 3 areas that are the strongest for us.

There are no further questions at this time. I'd like to turn the call over to Don Murray for any closing remark.

Well, I'd like to thank our investors and analysts for their continued interest in Resources. And we look forward to talking to you after our next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.