Fair Isaac Corp (FICO) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Braun Consulting fourth quarter 2003 financial conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question and answer session.

At that time if you have a question, please press star then the number one on your telephone.

If you would like to withdraw your question, press the pound key on your telephone.

Statements made on this call that are not strictly historical are forward-looking statements that involve risks and uncertainties, many of which are not under the control of Braun Consulting.

The risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements.

Such risks and uncertainties include, but are not limited to, the nature of the market and demand for Braun Consulting service offerings, competition, overall general business and economic conditions, the nature of Braun Consulting's client and project engagements, attracting and retaining highly skilled employees, the ability of Braun Consulting's clients to pay for services, timely payment by clients for services rendered, and Braun Consulting's ability to effectively manage growth and clients relationships, as well as other risks identified in Braun Consulting's annual report on Form 10(K) for 2002 and other filings with the Securities and Exchange Commission.

Braun Consulting is under no duty to update any of the forward-looking statements after the date of this report or to confirm these statements to alter results or changes or expectations.

Your speakers for today are Steve Braun, Chairman and CEO and Tom Schuller, S.V.P.

I would like to turn the conference over to Mr. Braun.

Please go ahead, sir.

Thank you, Brooke.

Good afternoon and thank you for joining us.

By now, I hope you've had the opportunity to reach the press release that was issued at close of market.

During today's call we will provide the following:

A review of our fourth quarter and year end financial results, an update on our strategy and approach to the marketplace, an update on our client development efforts and other strategic initiatives, guidance for the fourth quarter and then we'll open the call for questions.

At this time, I would like to turn the call over to Tom Schuller for a detailed discussion of our Q4 results.

Tom?

Thanks, Steve.

Good afternoon, everyone, and thanks for joining us on the call.

I will begin with a review of our financial performance followed by an analysis of our clients operating metrics, cost control measures and balance sheet items.

Revenue prior to project expense reimbursements for the fourth quarter of 2004 was $9.3 million, an increase of 23.2% from the $7.5 million recorded in the third quarter of 2003, and an increase of 15.6% from revenue of $8 million the same period a year ago.

Total revenue for the fourth quarter 2003 including reimbursement expenses was $10.1 million, an increase of 20.2% from $8.4 million recorded in third quarter of 2003.

And an increase of 12.1% from the total revenue of $9 million the same period a year ago.

On a GAAP basis the net loss for the fourth quarter of 2003 was $832,000, or five cents per share, a decrease of 71% -- 71.4% from the $2.8 million loss reported in the third quarter.

The net loss in Q4 of 2002 was $21.7 million, or $1.14 cents per share.

This loss included significant charges from the change in evaluation of deferred tax assets.

Pro forma net income, excluding special charges and non-cash items of $1.3 million for the fourth quarter 2003 was $96,000, or one cent per share.

That compares to a pro forma net loss, excluding special charges and non-cash items, of $20.5 million, of $3.1 million, or 16 cents per share for the year ended December 31, 2002.

Special charges included cost associated with lease restructuring.

Non-cash items consisted of changes in evaluation allowance for deferred tax assets related to net operating losses.

Revenue before project expense reimbursement for the year ended December 31, 2003 was $31.6 million, down 31.2% from revenue of $45.9 million for the same period a year ago.

Total revenue for the year ended December 31, 2003, was $35 million, a decrease of 31% from total revenue of $50.8 million for the same period a year ago.

The net loss for the year ended December 31, 2003, was $11.3 million, or 66 cents per share, compared to a net loss of $28.1 million, or $1.39 cents per share for the same period a year ago.

Pro forma net loss, excluding special charges and certain non-cash items of $6.3 million for the year ended December 31, 2003, was $5.4 million, or 31 cents per share, compared to pro forma net loss excluding special charges and certain non-cash items of $24.1 million of $7.4 million, or 36 cents per share, for the same period a year ago.

Non-cash items consisted of changes in evaluation allowances for all deferred tax assets related to net operating losses.

Although deferred tax assets have been written down for GAAP purposes, Braun will retain future tax benefits.

Special charges included severence costs and expenses associated with consolidation of office space.

In terms of client metrics, our client concentration for the top five clients was 51% in Q4 compared to 57% in Q3.

Our top ten clients accounted for 72% in Q4 compared to 82% in Q3, and our top 20 clients accounted for 96% of our revenue in Q4 compared to 99% in Q3.

The average annualized revenue from our top 20 clients increased to $1.8 million in Q4 compared to $1.5 million in Q3.

And for our top ten clients, it increased $2.7 million compared to $2.5 million in Q3.

In addition, our overall repeat business accounted for approximately 51% of our total revenue in Q4 compared to 53% in Q3.

Healthcare and pharmaceuticals continues to be our largest vertical, followed by media and telecom, and consumer package goods and retail.

Our industry concentrations was as follows: Healthcare and pharmaceuticals was 49% in Q4 compared to 43% in Q3; media and telecommunications was 27% in Q4 compared to 29% in Q3; consumer package goods and retail accounted for 13% in Q4 versus 20% in Q3; and others including financial services, hospitality services and manufacturing was 11% in Q4 compared to 8% in Q3.

We developed eight significant new clients in Q4, an increase from five in Q3, and serviced 31 total clients in the quarter.

Our percentage of fixed price versus time and materials projects was 46% fixed price and 54% time and materials in Q4, which was consistent with the previous quarter's results.

We ended the fourth quarter with 159 consultants and 203 total employees.

Consulting head count decreased from 166 consultants in Q3 and total employees decreased from 212 at the end of Q3.

Billable utilization was 72% in Q4, an increase from 67% in Q3.

Annualized revenue per consultant increased to $224,000 in Q4 from $183,000 in Q3.

Annualized voluntary employee turnover was 20.7% in Q4 compared to 20.6% in Q3.

We completed the lease restructuring for our Boston office space in November.

This will generate significant future savings.

In addition, we are in active negotiation to further reduce overall lease obligations with the expectation of completing a portion of the restructuring during the first quarter.

We ended the quarter with $15.7 million in cash and marketable securities and no debt.

Our cash and marketable securities position decreased by $1.5 million during the quarter.

The primary uses of cash during the quarter included approximately $1.4 million in payments associated with the Boston lease restructuring.

This will save the company approximately $3.2 million in future lease expense over the next three years.

Approximately $176,000 in severance related payments and the financing of a $1.3 million increase in accounts receivable.

Accounts receivable increased from $7 million in Q3 to $8.3 million in Q4.

Our weighted-average DSOs decreased to 38 days in Q4 compared to 39 days in Q3.

The company has approximately $950,000 available for use in its stock repurchase program.

The company did not repurchase any shares during the fourth quarter.

And as of December 31, 2003, the company had 17,122,453 shares outstanding.

With that I will return you to Steve Braun.

Steve?

Thanks, Tom.

Clearly, we are pleased with our performance during the fourth quarter.

As you know, last quarter we forecasted up to 10% sequential growth.

The guidance range we provided was based on projected committed revenue.

However, our forecasted revenue scenario accounted for the potential positive outcome of several new business pursuits.

The timing and close of these pending contracts were critical to determining the final results for the quarter.

Obviously, the number we are reporting today and the significant sequential increase in Q4 revenue reflect the positive resolution of those pursuits.

The primary factors contributing to our strong Q4 performance include strong bookings in the fourth quarter and an increase in the size and scope of opportunities.

We secured eight significant new clients during the quarter.

But what we are particularly encouraged about is the strategic nature and scope of these new projects.

We are also seeing a similar trend among our current client base.

This is something I will cover in more detail shortly.

Continued operational discipline.

We continue to make strong progress on the operational front, generating improvements in several key metrics during the quarter including revenue per consultant, utilization and billing rates.

From a cost standpoint, as Tom mentioned, we successfully restructured our Boston office lease which will lower infrastructure costs and generate significant savings over the next two to three years.

Moving forward, reducing lease related infrastructure costs will continue to be a top priority.

The continued evolution and honing of our model at this point is particularly important.

In 2003, we made significant investments to deepen our vertical expertise, align our services by industry group and further taylor our solution offerings, skill sets to take advantage of the market opportunities within these core verticals.

Today we've reached an inflection point.

By organizing around verticals, we've been able to create a tightly focused demand generation capability and a solid platform for driving demands on a go-forward basis.

Finally a gradual but positive upturn in the economic environment.

On this last point, I think this is the sentiment you are hearing from many of our peers, that there is increasing client optimism about their economic environment.

Clients are slowly shifting their mind sets and investments from protecting profitability to driving revenue growth.

And the emphasis is on the intelligent use of IT dollars which clearly defined ROI.

Companies continue to look for ways to consolidate and advance the gains already made in the areas of CRM and B.I. with data warehousing, contact center and eBusiness integration serving as the underpinning.

This is very much in line of what we have been talking about over the last several quarters as it relates to the value of customer data and profiting from the customer and market intelligence.

During 2003 our focus was on forging our executive team and organizational structure to lead Braun into the next phase of growth.

To be more specific, we refocused the business on key growth markets.

We made key hires throughout the organization and we invested considerable time and energy in honing our service offerings to support our evolving positioning as a customer value architect.

As a result, we believe we are financially and strategically on track to grow this business profitably.

The outgrowth of these efforts and the emphasis our architecting customer value has been a gradual shifting in our model.

The bulk of work that we are winning and seeing in our pipeline continues to draw upon our customer strategy and analytics capability and business intelligence expertise with the project decisions being made at the executive level.

We are also seeing strong demand for business process and transformation solutions.

With the continued shift in focus from operational CRM to more emphasis on analytical integrated customer management solutions, we are seeing increasing demand for business profits experts with key industry and functional domain expertise.

This is an area where we made significant strides in 2003 with the formalization of our enterprise operations and applications competency, which is squarely focused on helping clients operationalize their customer growth strategies.

More specifically, this competency provides the critical linkage between strategy and implementation, applying business process and practice improvements to help clients drive performance and results, ranging from reduced costs and increased revenue to uplift in customer and employee satisfaction.

Strategy for 2004 is very much a continuation of this focus.

From a client development standpoint, our strategic framework for capturing customer value coupled with our enterprise data capability and industry expertise, has served to elevate our role within client organizations.

As we mentioned last quarter, we continue to migrate away from technology-specific point solutions and packaged application implementation to more strategic customer focused and business-process oriented engagements that are sponsored at the executive level.

Over the last six to nine months with the continued refinement of our customer value message, we have seen a gradual increase in the size and scope of client opportunities.

Today the assignments we are tackling are far more strategic and substantive in nature.

We are working side by side with senior executives to bring strategic enterprise-wide customer solutions from concept to reality.

Right now we are seeing momentum within our current client base.

In addition to securing several project extensions, in several instances we significantly expanded our role and scope of work.

Briefly let me update you on a few of these recent expansions.

Building on the data strategy and call center assignments we have been leading for a national managed care provider, we have recently been asked to expands our focus and establish a P.M.O. organization to oversee an enterprise-wide rearchitecture of their technical system.

This will include the selection and implementation of new technology as well as the development of business processes and knowledge management systems to enable the client to effectively and efficiently govern all components of the business.

Initially, this has been slated as a three-year engagement.

Establishing a P. M.O. organization represents a significant step up in the role we are being asked to play with our clients.

Not only does it speak to the depth of our customer strategy and data capabilities, but it calls on our business process and program management expertise to operationalize the strategies and systems we are putting into place.

Additionally, this puts us in a prime position to capture key components of this three-year plan spend.

Next, we have been working with a leading media conglomerate to transition their organizational structure and overall focus from product centric to customer centric.

Braun was hired by the executive team last year to lead this enterprise-wide transformation effort, which encompasses a complete review and restructuring of their technical infrastructure, business processes and tactical marketing.

We were selected for this assignment based on work we successfully delivered over the last five years with media companies on similar engagements, including firms like DirectTV, AT&T, New York Times and Rogers Cable.

To date, we have been working side by side with their technology, marketing and customer care teams to devise a business transformation plan and the accompanying technical design and deployment roadmap.

We are now moving into the implementation phase which represents a multi-year, multi-phase, long-term assignment.

Both of these projects underscore the shift currently underway within our model.

We are winning substantive engagements against substantive competitors.

In both instances, we competed against well entrenched global service providers, ultimately securing the work due to our industry depth and integrated comprehensive approach.

These projects, in conjunction with the other extensions, have important positive revenue implications for the first quarter and beyond.

Additionally, these expansions represent a critical step up in the type of work we are being asked to perform.

Over the past several years, we've successfully addressed some of the toughest CRM challenges facing client organizations with comprehensive and innovative solutions.

As such, we've built a strong resume of experience and success in helping companies make the critical transition to customer centric enterprises.

This has enabled to us evolve in scale the nature of client projects, yielding more strategic and substantive new client wins.

On the new business front, we continue to see this trend.

During the quarter, our strong vertical focus produced eight significant new client wins and continues to differentiate Braun in several sizeable pursuits now in progress.

Recent wins include Staples, Adventis, Jansen Pharmaceuticals, and Verizon Information Services, amongst others.

In each of these accounts, we've initiated up-front work that we believe has strong potential to scale beyond the first quarter.

In summary, the fourth quarter was a major step forward on a number of fronts.

Not only did we significantly grow our revenue base during the quarter, we exceeded our earnings goal by generating pro forma earnings per share.

In addition, we significantly improved gross margins while reducing G&A.

As a result, we are moving towards our target operating model.

Building on these accomplishments, combined with stabilizing market conditions and the trends we are seeing in the business, we believe we can continue to make progress in the near-term towards achieving our long-term target operating model.

This target model is based upon running gross margins within the range of 40 to 45%, noting that we are pleased that our Q4 gross margins of 42% already place us within that range, maintaining sales and marketing expenditures with the current range of 8 to 10%, and finally, continuing to lower our G&A closer to our desired target of 20 to 25%.

Key to lowering G&A is our ability to maintain a continued tight focus on cost while simultaneously growing the top line.

We believe our current G&A and infrastructure can support our business and growth objectives without any additional significant investments for the foreseeable future.

Our continued progress towards our target model provides us with a strong foundation for generating sustainable, long-term profitable growth.

While we are seeing a growing, steady pipeline and have confidence that we will post revenue growth in the coming quarters, we continue to maintain a conservative outlook based upon the continued uncertainty in the economic environment.

We expect revenue for the first quarter to be in the range of $9 to $9.5 million.

Brooke, with that, I will open the call to questions.

Thank you.

Ladies and gentlemen, if you would like to register a question, please press star, then the number 1 on your telephone.

If your question has been answered and you would like to withdraw your registration, please press the pound key.

If you are using a speaker phone, please lift your handset before entering your request.

One moment, please, for the first question.

Your first question comes from the line of Tim Byrne with Robert W. Baird.

Please proceed with your question.

Thank you for taking my call.

Steve, could we start with your sense of linearity in the period from revenues as well as bookings and one of the issues I'd like you to touch on, do you feel that you saw any end of year budget flush that was more one time in nature and not really sustainable?

Yeah.

Good question, Tim.

We certainly believe that traditionally that there is budget flush and we saw some of that in this quarter.

We also think that that probably is most prominent in our healthcare and pharmaceutical base.

So certainly there was some of that.

That traditionally has been offset by the fact that Q4 does have some rather significant holiday seasonality impact.

But how those two offset each other, not exactly clear.

I think more importantly as we look at Q4 into Q1, we continue to see strength in our healthcare and pharmaceuticals vertical.

And others as it relates to continued revenue growth.

So anything that we closed pretty much in Q4 also has tailed into Q1 and beyond.

So it's pretty hard to really break out exactly what was budget flush, what was spend that was the result of fairly strong performances on some of our clients in Q3 and Q4 versus what their intentions are on a go-forward basis from a spend standpoint.

But I'm certain there is something that in there.

How about from a linearity standpoint, Steve?

Again, we are projecting revenues from a guidance standpoint to be $9 to 9.5 million, which represents somewhere around flat to slightly up.

If you look at the details of that we have about 90% plus visibility on the low end of that range, which is as good or better than we've normally been historically.

In addition to that, we have about $1.2 million in what we call 90% or verbal, which is projects that are waiting for start dates and contracts but then we have a solid pipeline behind that.

What we have seen in this first quarter, however, is some hesitancy on clients to start some of these projects.

And some of that may be due to just natural seasonal tendencies, again, in normal times Q1 tends to be much heavily weighted toward the back end of the quarter because it's tough to get projects up and going in January.

In the more recent past, as we all know in tough economic times, oftentimes we have not seen all the spend materialize.

So we are still sitting back looking at that.

But we feel like we are in a good position again to see linear growth.

Right.

To your point, then, the low end of the range, a lot of bad has to happen for you to be at that $9 million which is sequentially down in the quarter.

The question is, what kind of upside, if any, will you see?

I think that's a good perspective.

Okay.

Then can you talk a little bit about the external environment from a pricing perspective?

I understand that your realized revenues and realized build rates are going up as you your mix of business changes.

Are you seeing any kind of alleviation of pricing pressure from a competitive standpoint yet?

We are still seeing on certain fronts pretty significant pricing competition, but the areas we happen to be competing in as we continue to move our model upstream, we are seeing less pressure and actually an ability to continue to scale our rates.

I think that's one of the things that we are probably most excited about is the fact that our new projects are consistently being sold at slightly higher rates than our existing portfolio.

We've seen that trend over the last really 90 to 120 days.

We continue to see that and I think that's what you are seeing as a result of our average rates and certainly the realized rates as well.

Do you continue to see an increase in the average rates in your proposals or are you kind of stabilizing at the level you had been in in the third quarter?

Tim, this is Tom Schuller.

We have seen a modest pickup there, maybe 1.5% pick up right now, and that's over the last six months and that's pretty good.

Still trending upward.

Can you talk a little bit about your hiring plans.

You have a bunch of new reqs open on your website.

What is your sense for adding capacity?

I think previously you thought you had capacity to do $9 to $10 million in revenue.

I'm just curious what the plans are going forward here in the near-term?

Yea, I think -- Tom gave the numbers you saw, our consulting head count was slightly down from Q3 to Q4.

We've actually taken that number up in Q1 in response to what we are seeing on the demand front.

But we still have capacity to do $9.5 to $10 million at the current head counts rate.

And we will continue to focus on running the business in a manner that allows to us achieve that capacity.

But at the same time we are seeing certain demand areas that we think are going to continue to be strong for the foreseeable future and have identified hires that we will make based upon that demand coming to the forefront.

So to answer your question, we do expect to add net hires in Q1.

And it's a little bit to that point in new skill sets but also to increase the overall revenue capacity of the business on the margin?

I think it's as opposed to new skill sets it's enhancing the existing skill sets and yes, to add capacity.

As I mentioned in my discussions we are pleased that we are in a position where we can start to begin focusing on moving towards our optimal target model.

Sure.

Can you talk a little bit to the point about people, your compensation plan?

If you start to look forward now the business is performing better, your positive pro forma, what your targeted mix of comp is across salary, bonus and stock and stock options here?

Are we going to see any dramatic changes as the business begins to improve here?

I don't think you will see any dramatic changes.

We actually have over the last three to four quarters accrued small bonuses.

We've actually factored in the accruing bonuses in a more significant degree as we go across this year within our internal models.

That would be the only change of any substance.

Did you see an increase of your bonus accrual in the fourth quarter?

No, we didn't have any increase in the fourth quarter.

We were consistent over the course of last year.

Okay.

Can you talk a little bit, Tom, with the kind of puts and takes with some lease restructuring, some cash payments, costs coming down, what you might expect for cash balances over the next couple of quarters?

Say, where do you end middle of next year at?

Yeah, I could be maybe a little more specific.

I think in Q1 depending on the amount of billing we get out the door here in January, which is the primary collection for any period, we would hope to be cash flow break-even for the quarter, assuming that we don't enter into any restructuring on the lease front that require some cash buyouts like we did last quarter.

Obviously, if we did that it would have a long-term very positive impact but right now we don't have that in the plans.

So we are aggressively trying to get to cash flow neutral, which was one of our goals that Steve and I talked about over the last couple of quarters.

Okay.

Excellent.

Then from a share count perspective, Tom, we are sitting here at a price of $3.

As you move towards business improves and maybe drives the price of the stock up towards $5, can you give us some kind of sense as to what the dilution impact that would have from an option perspective?

How much are sitting out there on the schedule from $3 to $5?

There is a thought, there are some shares out there.

We covered the dilution in our pro forma analysis to take it up to about $17.8.

I have to get back to you on the additional, if you are using $5 as an assumption I would have to get back to you on that and I would be glad to do that.

Okay.

I guess that the last thought, question for you is, Steve, you laid out a perspective and operating model from an EBIT margin perspective, gross margin and then what your SG&A cost might be.

Can you give us some sense of what you are thinking about and what you would articulate to investors over the next couple of years as what a reasonable revenue growth and an EPS growth might look like?

Well, certainly over the course of this year, we believe that quarterly growth sequentially up to 5% is within reason.

As we continue to drive against the target model as we laid out and assuming we keep gross margins in the 40 to 45% range, which is key, and we can drive revenues closer to $11.5 to $12 million, we believe that our operating income falls within that 5 to 15% range, at that revenue level.

So that's --.

Five to 15 percent, I'm sorry?

Five to 15% operating income assuming that we maintain sales and marketing within the eight to 10% range, it can drive G&A down into that 20% range and around at $12 million in revenue it gets closer to the 20% range.

Let's say we get towards 2005 and I know I am asking to you speculate at this point in time without any visibility, but given the nature of the business that you are building here and the type of projects, what is a kind of reasonable growth rate for revenue?

Could this business in a more stable environment do kind of 15% revenue growth, is it more like ten, do you think you could really productize it, make it more like 20?

Do you have some sense of that?

Yeah, I think we certainly feel like it's somewhere within that 15 to 20% range.

Okay.

All right.

Thank you.

Yes.

Your next question comes from the line of Sandra Notardonato with Adams, Harkness & Hill.

Please proceed with your question.

Thanks.

Just on the last comment that you made about the 5 to 15% operating margins, that seems like such a wide band for a narrow revenue number.

Can you talk about what gets you to the 15% with a little bit more detail?

Yes.

It really is dependent upon a couple of fronts, starting with the cost side and lease restructuring.

We believe we have the opportunity over the next quarter or two to take somewhere between another two and $300,000 out of the G&A costs that are lease-related.

And we've got proposals on the table that we are working through at this point in time trying to come to some conclusion on.

So that's one side of the equation; that's critical.

The other is we continue to drive gross margins at the mid to higher level of that 40 to 45% range.

And historically, our sales and marketing have stayed within that 8 to 10% range roughly so we don't anticipate that there will be any changes on that front.

So it really comes from being able to continue to drive gross margins effectively and fortunately on that front, we continue to see some of the metrics that support that around utilization and specifically bill rates trending up.

But to support that, and then on the cost side of the equation, it's a very well defined effort that we are going through as it relates to the dealing with a couple of leases.

Once we get through this final phase of lease restructuring, we will be complete on the lease restructuring side of the equation.

Let me add that part of that, too, is essentially we have an infrastructure in place that can support a revenue base significantly higher than where we are today, so that's really where the leverage comes from.

Can you talk about what that revenue base is that it could support?

Can you give a range?

Yeah, we believe where we are at today that we do not have to make any significant additional investments in infrastructure to get this business to approximately $15 million in size.

The target utilization rate that you are shooting for, I think you said it was 72% this quarter.

What is the target?

It's 75%.

75%.

Okay.

Did the unexpected or better than expected increase in demand this quarter cause you to use any subcontractors?

We did have some subcontractors in that number as we normally do and, Tom, I think the number was --.

From a cost perspective about $230,000.

Okay.

So it really didn't have any impact on gross margins out of the normal.

Not particularly, no.

Anything you can talk about on the offshore front?

A lot of the niche consultancies are talking about trying to meet customer demand with some offshore initiatives.

Can you bring us up to date on anything that Braun is doing?

Absolutely.

That's a key point.

The good news is that most of our business, which focuses around strategic work at the high levels within clients, represents at least 50 to 60% of our business.

So that we have not seen any impact on.

A lot of our technology work is around data warehousing and business intelligence side of the equation, and quite frankly, of all the technical implementation areas, that has been most sheltered from the standpoint of being impacted from offshore competitiveness.

So a good portion of our business still is largely sheltered and obviously we built the model to be positioned in that manner.

What we do realize is that we, as we continue to drive larger revenue stream and take a broader perspective like the project from the P. M.O. standpoint, we do have an opportunity to significantly leverage offshore capabilities.

We went through process over the last 90 days where we are soliciting RFPs from offshore groups and we'll be making a decision as it relates to how we partner on that front sometime over the next 90 days.

Just a couple more questions.

I'm trying to better understand the longevity of the increase in IT services spending that you and other companies are seeing.

So is there any way that you can share what's in your pipeline that mirrors or mimics what you are seeing out of the three-year engagement you have with the healthcare client?

Are there more contracts like that, is what I'm trying to get to?

I think the three-year engagement around the P.M.O is an area that is relatively new for us from the standpoint of taking responsibility around that level spend.

And that is somewhat unique.

But as I talked about the other front as it relates to the work we are doing for the media company, that is very much within the heart of what we are doing across the board and what's in our pipeline.

It's projects are truly work from a very strategic level to help customers develop their customer growth strategies, operationalize that.

And we are really seeing tremendous traction right now is in our business intelligence, data warehousing and analytical capabilities as it gets applied to very specific situations, whether it's contact center application, whether it's website portals, et cetera.

So we continue to see traction on that front.

And that represents the bulk of what our existing project portfolio and our pipeline is addressing.

Okay.

Can you give me the involuntary turnover in the quarter?

Yes. 20.7%.

I'm sorry?

That was the involuntary?

I'm sorry, that was the voluntary, yes.

The involuntary, I'll get right back to you.

I've got the number here.

Okay.

Let me just ask another question while you're doing that.

Could you give us a projection on what you think the cash position will be by year-end?

Our goal, obviously, is to start generating positive cash and we are pushing diligently towards that in Q1.

We haven't given full year projections, but I would say our goal is to run this business on a cash flow positive basis going forward.

How about capital expenditures this year in comparison to last year?

Capital expenditures are generally pretty modest for us, generally in the $50 to $100,000 a quarter.

So we have a pretty good infrastructure in line.

It's not a huge amount.

As we stated earlier, really most of the big infrastructure investments have been made.

If there's capital expenditures, it's primarily on upgrading our technology environment around laptop servers, et cetera.

And we had 7% involuntary turnover.

7% involuntary turnover.

Okay.

How many people did you specifically plan on hiring in Q1?

You made some comments about trying to target some new hires.

I know it's going to be limited, but do you have a number that you need to hire to meet the demand that you are seeing in Q1?

Yeah.

We anticipate that our head count could increase anywhere from 5 to 15 head count, depends on what happens specifically as it relates to demand realization.

One of the things that we have seen over the last really 60 days or so, is a significant drop in attrition which is outstanding from the standpoint of really being in a position to really trying to grow the business without having to deal with significant attrition.

This is my last question.

With business improving for a number of companies, do you anticipate that consolidation will ratchet up a little bit here in the first half of the year?

That's a good question.

I certainly think that the environment in general is ripe for consolidation.

I certainly believe that there is a lot of need as it relates to firms that have the ability like ours to generate strong client relationships resulting in large client revenue streams to create critical mass.

So, certainly, I think the environment is conducive to it.

Okay.

Thank you.

Thanks, Sandy.

Mr. Braun, there are no further questions at this time.

I will now turn the call back to you.

Please continue with your presentation or closing remarks.

Thank you, Brooke.

First of all I'd like to thank all of the Braun employees for an outstanding effort over Q4 and for supporting the success that we had.

I'd like to thank everybody for joining us on the call and we look forward to seeing you next quarter.

Thanks.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.