Hackett Group Inc (HCKT) 2002 Q3 法說會逐字稿

Good afternoon and welcome to the answerthink, Inc. third quarter conference call. Your lines have been placed in listen only mode until the question-and-answer session. Please be advised that the conference is being recorded.

Hosting today's call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Jack Brennan, Chief Financial Officer. Mr. Brennan, you may begin.

Thank you. Good afternoon, everyone and thank you for joining us today to discuss answerthink's results for the third quarter. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of answerthink, and myself, Jack Brennan, CFO.

Before we begin,we would like to remind you that certain matters being discussed today other than historical information may consist of forward-looking statements as defined in the securities laws. These statements subject to the risks and uncertainties we discuss in our reports filed with the SEC and we refer you to the form 10-K that we filed with the SEC on March 28th, 2002. Actual results in the future may vary from estimates.

The press announcement was released over the wires today at 4:21 p.m. eastern time. For a copy of the release, visit our website at www.answerthink.com.

At this point, I'd like to turn it over to Ted.

Good afternoon, everyone. As we normally do, I will provide some overview comments relative to the quarter. I will then ask Jack to comment on the detailed operating results. I will provide some balance sheet highlights and detailed information and also comment on our financial outlook. Jack will then turn over back to me. I will make some detailed comments on our market and strategic initiative and then we will open it up for questions and answers.

So, let me start with our overview comments. We're pleased to report results in line with our previously provided guidance. During the quarter, we continued experience the cautious spending behavior from our clients that has characterized all of 2002. However, activity relative to new initiatives is slightly better in many of our practice areas as organizations move more aggressively on productivity and organizational execution related initiatives, which is being slightly offset by pricing, which continues to benefit buyers.

We are seeing providers move to protect existing relationships and new opportunities. Having said that, the third quarter played out very close to what we anticipated, with the majority of the sequential decline resulting from reduced activity from our largest client. We committed to operating cash flow neutral and excluding our stock buyback program, we actually did better than that. As we slightly increased our cash position to $61.4 million, even though we used $1.5 million during the quarter for our stock repurchase program.

We continue to believe the price of the stock is low when we consider the company's long-term underlying value and its potential. During the quarter, we also invested in expanding and creating a more powerful subscription based programs for our Hackett Best Practices Group. We also continued to make our most significant investment in our business process intelligence implementation tools.

We believe that we are creating a very unique value proposition by developing implementation tools that utilize the Hackett Best Practice knowledge, that design new business processes for clients and allow us to configure enterprise software in a dramatically smarter and more efficient way. We have started to apply these tools on new engagements and are now proposing on many of our new projects by giving our clients online demos that allow them to query the depth and applicability of our tools to specific situations.

On the client side, we continue to diversify our client base and reduce our dependency from any one client. This has been the single largest transition in 2002, and I think we have made the necessary changes to handle this transition properly. We also believe that our prospects continue to work with this client in 2003 as we exit the quarter are improved given new strategic initiatives that we are now assisting them on. As I have mentioned on previous calls, our results and progress speaks volumes about the commitment and quality of our people. During challenging circumstances, we continue to make great progress and hold our own across all fronts extremely well.

All in all, we believe that we are continuing to differentiate and expand our business model and improve our focus and execution during a very tough period. Let me turn it over to Jack to provide details on our operating results, our balance sheet, and comment on guidance.

Thank you, Ted. I plan to cover our financial results for the third quarter, highlights and balance sheet items, and conclude with a discussion of our outlook for the fourth quarter.

For the third quarter, our gross revenues were $42.9 million. Net revenues were $38.5 million, within the range of guidance we discussed in our second quarter conference call and slightly above analyst consensus estimates. This represents a 10% sequential decrease from the second quarter, and was principally caused by the anticipated reduced revenue from our largest 2002 client. All operating statistics, which I will discuss later on, will be on a net revenue basis.

Our pro forma net loss for the third quarter was $600,000, or 1 cent per diluted share, which was 1 cent better than consensus estimates. On a GAAP basis, our net loss was 44 cents per diluted share. Our GAAP loss includes a charge of $20 million related to the impairment of goodwill, which resulted from a decline in stock prices for both the company as well as our peer group. For service line results, revenue comparisons for both technology integration and the business strategy groups were affected by the transfer of resources in our CRM and IT strategy practices, out of business strategy and into technology integration at the beginning of the third quarter.

In the third quarter, our business applications grew, representing 56% of consolidated net revenue, and was down 9% sequentially. Business applications was directly impacted by the anticipated reduced demand for our largest 2002 client. Client integration -- I'm sorry, technology integration represented 30% of our net revenue and was down 1% sequentially, and adjusting for the transfer of resources, would have been down 8% sequentially.

Technology integration was primarily impacted by the continued weakness in our interactive and custom web development activities. Business strategy represented 14% of our net revenue and was down 27% sequentially. And adjusting for the transfer of resources would have been down 18% sequentially. Business strategy has shorter duration projects and can therefore experience significant quarter-to-quarter variations based on the timing of projects. This group is expected to be up slightly in the fourth quarter as some new products have recently ramped up.

If you breakdown our business across verticals, our longest vertical continues to be utilities, which represents 26% of our net revenue. Other key verticals are manufacturing, 21% of our revenue, telecommunications at 11% of revenue, financial services at 9% of revenue, media and entertainment at 9%, retail at 7% and pharmaceuticals at 6%. These percentages are fairly consistent with what we experienced in the second quarter.

In the third quarter, our net revenue concentration from our top 5 and top 10 customers was 40% and 50% respectively, compared to 40% and 52% respectively in the second quarter. As expected, the revenue concentration of our single largest 2002 client last quarter dropped from 16% last quarter to 12% this quarter. Based what we know at this point, revenue from this customer should be in the range of 10 to 12% of net revenue in the fourth quarter. Based on recent strategic initiatives that we're currently working on with this client, we believe that this client can continue to be one of our largest relationships in 2003.

Consulting head count at quarter end was 735, which represents a net consulting decrease of 66 during the quarter. Consultant utilization ran at 61%, up from 59% in the second quarter. Voluntary turnover in the quarter was 15%, low by historical standards and up by 11% in the second quarter.

Our per hour realized billing rate was $1.61 this quarter, down slightly from $1.64 last quarter. Although the rate environment continues to be very competitive, rates appear to be stabilizing. We expect our billing rate for the fourth quarter to be equal to or down slightly from the third quarter. From our historical peak a year ago, our rates are only down 8%. This is significantly better than most of our peer group and we believe reflects the high valued nature of our services. Our unique combination of services and the leverage of propriety best practice knowledge improves our ability to protect rates in the short-term and should enhance them as demand returns to more traditional levels.

Our gross margins as a percent of net revenue improved to 34% in the third quarter compared to 29% last quarter. This increase was attributable to both head count reductions and a lower cost per consultant. In certain of our practices where we believe rates will be impacted over a longer period of time, we've reduced some consulting salaries. Also, bonus expense was lower in the quarter.

In the quarter, we did incur approximately 650,000 or 1 cent per diluted share, of severance costs. And that is included in project and personnel costs in our income statement.

Our SG&A as a percentage of net revenue was 37% in the third quarter, up slightly from the second quarter. Actual SG&A spending decreased $1.2 million or 8% sequentially. We continue to manage our overhead costs very tightly and make the required reductions in back office head count and spending consistent with the decline in our business.

Turning to the balance sheet, our cash balances grew slightly to $61.4 million from $61 million at the end of the second quarter. Our cash balances include $2.9 million of restricted cash this quarter, that is pledged to support certain letters of credit. These letters of credit were previously backed by our revolving credit facility that we canceled during the quarter due to our significant cash balance and to avoid paying costly commitment fees.

Our cash flow from operations with approximately $1.5 million in the quarter. Quarter end DSOs were 61 days, down from last quarter's 63 days. We also received $1.3 million during the quarter for common stock issued under our employee stock purchase plan. These inflows were offset by capital spending of $900,000 and stock repurchases of $1.5 million.

In the third quarter, we repurchased 777,000 shares of our common stock at an average price of $1.91. Of our $5 million authorization from our board of directors, $3.5 million was available for future purchases as we started the fourth quarter.

I would now like to address our future outlook. The environment continues to be challenging and has remained unchanged throughout 2002. We don't see any signs at this point that the environment for IT spending is getting any better, nor see any signs that it will worsen. A key component will be the 2003 budget cycle that will set the stage for next year's prospects. Client spending priorities continue to be focused on business process improvements to drive greater efficiency and effectiveness. This is being enabled by ERP system improvements, web enablement and decision support initiatives. We think this bodes well for us given our skills and strategic priorities.

Our strategy is to continue to leverage our Hackett Best Practice knowledge to further differentiate ourselves from our competitors. We believe that we have the world's best data on how the most efficient companies run their organization in areas such as finance, HR, IT, procurement, call centers, shared service centers and strategic decision making. We have spent over 16,000 consultant hours this year to develop our business process intelligence or BPI implementation tools. This includes identifying over 1,000 best practices employed by corporations and mapping these best practices to configuration [Inaudible] in Oracle, PeopleSoft, SAP and Lawson.

We now know that these software packages can be configured to best practices and how to do it strategically and efficiently. The best practices not supported by these packages, we understand and can recommend alternative technology solutions. Initial client and partner feedback on BPI has been overwhelmingly positive and confirms our belief that no other competitor has a similar approach. During the fourth quarter, we will continue to invest in and refine our BPI implementation tools and complete training for all of our director level consultants.

As Ted mentioned, we have hired a new leader for Hackett. We will be launching new benchmarking and collaborative products in the fourth quarter and throughout 2003. We have taken our Hackett sales staff from 2 to 13 individuals over the last month and believe we can substantially grow Hackett revenue 2003. This, in turn, should result in more follow-on work as we convert Hackett customers into consulting implementation projects.

We continue to look for a BPO partner as a new channel for business transformation initiatives, and we continue to work closely with our offshore partner HCL to align offshore resources to answerthink client opportunities. Despite the challenging 2002, we've made great progress on our strategic priorities and feel confident about our positioning as we look to the future.

The fourth quarter, we expect our net revenues to be in the range of $35 to $37 million. This expected decline from the third quarter is primarily driven by the number and timing of holidays and vacation during the fourth quarter. This should result in reduced client activity and actions and drive lower consultant productivity.

Diluted earnings per share in the fourth quarter should be in the range of a loss of 2 cents to break-even results. This should continue to operate cash neutral, excluding the impact of our share repurchase program. Our gross margin percent should be at about the same level as what we experienced in the third quarter. Gross margins should benefit from lower head count, which should be offset by lower utilization.

By the end of the fourth quarter, we expect our net consultant head count to decline by about 60 positions, as we plan to align resources to expected revenue levels. Severance costs in the quarter should be about 1 penny, and this cost is reflected in our EPS estimate. SG&A spending should be down from the third quarter levels, but should be up slightly as a percentage of revenue due to our large ramp up in Hackett sales force and leadership.

One final point about the fourth quarter, the company follows what's called the 4-4-5 accounting cycle, where each quarter contains 13 weeks. For the first time since our inception, our fourth quarter will contain 14 weeks. This extra week that we'll pick up is the week ending January 3rd, 2003. This extra week is expected adversely impact our reported results for the fourth quarter, as we are planning that payroll costs will exceed revenue for that week. The New Year's holiday falls on a Wednesday and there should be very little client activity during that week. This is projected to have an adverse impact of approximately 1 penny per share in the quarter and that's also been factored into our guidance.

At this point, I'd like turn it back to Ted to cover our market outlook and strategic priorities.

Thank you, Jack Let me see if I can add more detail to some of the comments that Jack made relative to some of our strategic priorities and to help you better understand our focus.

As Jack mentioned, although we have yet to see signs of meaningful demand improvement, we have not seen any deterioration from what we were experiencing at the beginning of the year. If anything,the prolonged economic cycle is driving more companies to move more aggressively to address productivity improvement initiatives. And this has resulted in improved pipeline activity in many of our practice areas. However, given the traditional seasonality which impacts client activity and access, as Jack mentioned, during the fourth quarter, we will remain cautious through the balance of the year and wait to see how the spending behavior is impacted by the budget cycle.

We've proven we can weather the impact of an extended weak IT spending environment. However, our focus since the beginning of the year has been to execute on strategies that will allow to us resume our growth regardless of the severity or the extent of the economic cycle. Let me provide further insight relative to these strategic priorities.

As both Jack and I mentioned, our first strategic priority has been to integrate our Hackett Best Practice knowledge into our implementation services. As I mentioned earlier, our single largest investment, Jack mentioned 16,000 hours now through the third quarter of 2002, has been the development of our business process in intelligence implementation tools. Let me try to add greater context to the nature of the tools we've created.

We believe we have moved way beyond traditional methodology and created tools that helps clients quickly evaluate at applicability of best practices within their organizations. This is not a methodology, but rather a very content-rich set of tools that help clients evaluate and specifically decide whether a best practice should be applied in their specific circumstance with detailed guidance relative to what software can enable such a practice. Our tools also specifically address the expected implementation benefits and also details implementation risk, and they do this all identified up front.

This level of detail exists for every best practice decision we think a client should consider across 33 business process areas, with direct reference to a software module and a detailed configuration guidance. Our ability to significantly enhance client decision-making during implementation at both the business process design and directly to configuration decisions is very compelling, especially when you consider that we are constantly updating best practices through our Hackett knowledge base and offering. Which today is the most comprehensive best practice reference point that exists anywhere in the world.

In September, we started to train all of our directors in these tools. We will quickly cascade this training to the practice levels and this will accelerate during the fourth quarter and continue, obviously, into 2003. We also continue to extend the tool deeper into our 33 business process areas and into a greater number of ERP modules.

Our second initiative is to accelerate the growth of our Hackett group and also to do this with a new and expanded subscription-based offering. This will allow us to leverage our business model beyond your traditional, once every three to four year benchmarking offering and relationship that we have experienced with our Hackett offerings through today. We have used our ethic acquisition, which we closed in March, as the primary transition to the subscription-based services within Hackett, with the launch of our initial collaborative learning programs which we did in the second quarter.

During the quarter, we also made very significant changes within Hackett. In addition to bringing on a new leader, Bruce Barlag, a very talented former Gardener Group executive, to our Hackett group, we -- we believe that Bruce brings a great background in two key areas that we didn't have, the development and marketing of content-driven subscription based services and specifically on how to build and expand our sales channel to these specific offerings. Over the last 75 days, Bruce along with several key answerthink executives led a very significant restructuring within our Hackett group, which has resulted in the new and expanded product and pricing architecture for our offering.

Jack mentioned it was also important to bring in a new and specifically-trained sales group that knew how to support this offering, and we've added 12 additional people to our group. In addition to helping clients assess how they compare to world class companies across the 33 business processes within an enterprise, we are now expanding our offering to allow our clients to efficiently compare their performance on a continuous basis to other high-performing companies in an increasing number of business process areas. We then complement this specific business process program with collaborative learning meetings, which are facilitated through a physical meeting or through a webcast, which allow our clients to learn by sharing and utilizing their company-specific data within this venue. No one offers this enterprise-wide company-specific collaborative learning offering today. As we mentioned, we launched four programs in our collaborative learning area in the second quarter and are planning to launch four new additional programs in the fourth quarter.

Hackett has been known for its unmatched benchmarking offering, but when we exit 2003, we wanted to be known for what it should be, helping clients to continual measure and implement best practice strategies that result in world class performance. The idea is to help our clients achieve and maintain performance improvement. We want our clients to see us as a stable of Olympic coaches that they can access by picking up the phone or going on-line and participating in a webcast or simply scheduling a meeting with us.

Our third initiative is to create a new BPO advisory service for our core implementation skills. As we have mentioned throughout the year, this will require us to enter into a very meaningful relationship with one or two large BPO partners that will be able to leverage our business process tools to enhance the assessment of the transformation opportunity which will result in a more quantifiable and predictable service level for the clients and equally important that will dictate the type of contract and commitment that they should make. This does involve a very complex relationship, but we believe our value proposition to a large BPO provider is unquestioned and believe it is only a matter of time before we can attract the right partner. We continue to hold ongoing discussions with several potential partners.

Our fourth quarter initiative -- our fourth initiative is -- was -- is to grow our offshore JB services. As we mentioned in the past, the need to offer an offshore offering continues to grow. We have been working closely with our partner to educate clients and identify opportunities for our combined services. Although the JB realized revenue in the third quarter, our momentum going into the fourth quarter is not what we'd like in the area. Having said that, we continue to work with our partner and our clients to position our combined skills and believe that there is merit in this strategy.

Our fifth initiative is to continue to aggressively identify acquisitions. We continue to be vigilant in this pursuit, and we continue to be very active in this area. However, we believe the extended economic cycle will result in further consolidation and that we should be beneficiaries of this activities given our strong balance sheet and distinct value proposition. We fundamentally believe we need to find opportunities that provide not only strategic synergy, but they come to us, obviously, with the right financial profile.

In summary, even though we'd like to see an improved IT spending environment, we continue to deliver results within our guidance, protect and enhance our financial position and to execute on our strategies which will allow us to expand ore service offering, create a unique and highly differentiated value proposition which will result in a stronger business model. We believe all of these things enhance our opportunity to resume our ability to grow. Let me stop here and open it up for questions and answers.

Thank you. At this time, we are ready to begin the question-and-answer session. If you'd like to ask a question, please press star 1. You will be announced prior to asking your question. To withdraw your question, you may press star 2. Once again, to ask a question, please press star 1. Our first question comes from John Mahoney. You may ask your question and please state your company name.

Hi, John Mahoney from Raymond James. How you guys doing? Hello?

Yeah, how are you, John.

How are you?

Good. I wanted to get some -- I -- you're not breaking out anymore I guess the different business segments or did I miss that, consulting?

Yes, John, we are breaking it out, I gave you the percentage of the totals that they represented. I will give you the numbers right here. Our strategy unit at the end of the quarter was $5 million and $278,000 of revenue. Business applications was $21,572,000 of revenue.

Uh-huh.

And technology integration was $11,811,000.

Okay. Any of the verticals you mentioned, you seeing any -- which of the verticals -- I guess this upcoming quarter we're looking for a slight decline, but any of the verticals showing a different rate of interest in signing consulting engagements?

I think our observations, as we talked about the overall outlook, that we have not seen noticeable changes throughout 2002. Both Jack and I made that comment. We're continuing to see the significant activity in utilities and manufacturing and our telecommunications clients, our blue chip clients held up extremely well. What we're seeing is clearly that people now understand that the extended economic cycle required them to be more aggressive on productivity-related initiatives and that -- that's the activity where we believe we can benefit from.

How much of a hindrance do you think it is for you currently, and you're not -- obviously you're doing well relative to other consulting companies, but coming out of, you know, when the skies start to clear and blue skies ahead, how much of a hindrance will your side be in winning some of the early-engagement opportunities?

I think if we didn't have the distinct value proposition we have with the Hackett knowledge base and the uniqueness of our implementation tools, I think size would be a hindrance. However, you know, clients know where we bring value and come to us for very specific assistance. I think we're just expanding on that. Our hope is that if -- if we can really aggressively grow Hackett, those touch points into those clients that really use us and benefit from our ability to implement best practices both in processes in the software will expand into our implementation services. But we continue to work with very large clients where the clients, unfortunately because of our size, sometimes will carve out just a million, $2 million project, and global implementation goes to a global provider. We're used to that. But having said that, we've also been used to, and as you know, ramped up from nothing. So, it is all relative. We believe our size allows to us be extremely competitive.

Okay. Best of luck.

Thanks, John.

Thank you. Our next question comes from Clint Finlay You may ask your question and state your company name.

This is Clint Finlay with Wachovia Securities. How you doing?

Hey, Clint.

Ted, I wondered if you could comment on briefly, is the Hackett offering currently being sold as a subscription offering? If not, how does the revamping here change the revenue stream going forward?

As we mentioned last quarter, we started selling the subscription offering as a result of our ethic acquisition and launched four programs in the second quarter. But in the third quarter we've taken a step back to really decide how aggressively do we want to transition our total offering and how quickly do we want to expand the total number of programs that we can provide across the 33 functional areas that we cover? So, the answer is the process has started.

We have significantly revamped where that focus -- where those programs are going to be launched and the sequence. We have driven a different pricing architecture that provides incentive for the subscription-based offering and will also result in an increase in the pricing of what I will call it our transaction-base benchmarking offering. And we've also been working at a very unique bundling on a combination of those services.

All of that you will see in the marketplace this quarter in what we will call a soft launch and introduction. Then you can expect the -- the new sales force and the marketing and related activity to pick up substantially in January.

Do you foresee an increased marketing expense, then? Related to the rollout in January?

The answer is that we will have a -- some increased marketing expense, but it will be done within the context of the total answerthink, just the way we've made the increase to SG&A spend within the total context of the organization. If we realize -- if you -- if you listen to Jack's comments, if we're able to realize the revenue increases that we believe we can realize from both the expansion of the offering and the additional sales executives that we have brought on board, the margin on this offering is very substantial and will more than offset any of the planned investments that we're currently contemplating.

Okay. And have most of the sales people that have been added in this area, have they been brought in from the outside? Or were they transferred from other areas within the company?

Of our 13 sales people in that group, 12 came in from the outside and all of them come from, I'll call them Marquee subscription-based sales organizations. So, they were outside.

Okay. And, Ted, shifting gears a little bit here, why are we seeing the delay on the joint venture activities? Is it related to any of the -- I guess disturbances that we've seen in India over the last -- past summer -- or is there something related more to the joint venture relationship?

Actually it's -- it's -- it's really a couple of things. One it -- is clearly we had some clients that second-guessed themselves as they were being educated in the process when the turbulence in India emerged during the second quarter. But the primary reason is that the -- the demand for offshore services has significantly changed or has been changing from just pure large custom-development opportunities to -- to I'll call them large ERP migration opportunities.

When you look at the base of our business, we are architecture and functionally rich, and we've simply been refocusing and retargeting our efforts to really leverage our strengths. Our ability to simply go in and sell large custom opportunities given our permission being in the sea level officer and not some of the lower level development areas. I simply believe was less than what we thought.

Now what we've really looked at is where in our current offering and where we have the greatest reach can this blended offering be most strategic? And that's what we're aggressively working with our partner on as we speak. We know that the blended offering has its place and we just want to make sure that we're working with our partner to make sure that we have at available when clients deem it to be appropriate.

Okay. Jack, the recent layoffs, have they been focused any one particular vertical or offering?

I will say that the layoffs that we experienced in the third quarter were really focused primarily in the continued to be the custom development interactive marketing and we've also had some fine-tuning in the business applications group. Primarily in Oracle, where we're seeing a little bit of softness in Oracle. And there are a few in transformation, you know, given the falloff and demand as we just continue to fine-tune the resource levels consistent with the -- with the revenue decline that we experienced there. So, again, primarily focused on technology integration and impacts in Oracle and just a little bit of transformation.

What was the total head count number for the quarter?

735. Billable head count. Total head count would be 862.

Okay. And last question here, what caused -- I realize it is a small portion of the total cash balance, but what caused the small part to be restricted in the quarter?

The reason that is restricted is because we have outstanding letters of credit that have always been backed by a revolving credit facility, and we canceled the revolving credit facility during the quarter, just given our large cash position and no intention to ever use it, we wanted to avoid paying commitment fees on the unused amount. So we canceled it. As a result of canceling it, we need support our letters of credit so what we did is we just cash collateralized the letters of credit. So that cash just becomes restricted against the letters of credit.

Great.

The cash is still in the bank account, but restricted and pledged against those letters of credit.

Understood. Thanks, guys.

And by the way, Clint, that's for -- primarily for real estate-related commitments.

Yes.

Jack --

And it's all real estate.

And clearly a much more efficient alternative than the commitment fees we incurred without using the facility.

Absolutely. Thanks, guys.

Thank you. The next question comes from Vakir Indenaly You may ask your question and state your company name.

Artery Capital. Ted, you talked quite a bit on Hackett group and the other Hackett group offerings. Could you more specifically tell us what are some realistic, you know, revenue prospects for this group and what will be margin associated with this type of revenues? And also, if you could expand on the how this practice may leverage your core implementation business? Thank you.

Okay. Let me -- let me stay away from revenue numbers so that it is not construed as guidance, but we will state that we believe that the current revenues should grow aggressively given the talent and the quality of the individuals that we brought on board, along with what we believe is a much smarter way to offer these capabilities and this concept to our clients. In general, and -- and let me comment on margins, the margins for leveraged content versus, you know, resourced supported delivery, can be as high as 75%. So, when you consider the overall contribution if that revenue growth is captured, obviously it can have a very quick and very positive impact on our business model.

Now, having said that, what we also believe is that today we're currently -- we currently conduct about 250 benchmarks, 125 are done directly through individual transactions. Another 25 are done through institutional or other kind of groups that come to us for support group or industry-related initiative. And we're currently supporting, oh, let's say somewhere around 40 to 50 -- let's say 40 collaborative clients. To us, there is really a kind of a two things that can really favorably impact our model.

One, if we aggressively grow the revenue in Hackett, what that will mean is that the number of clients that we will be speaking to and providing the strategic value on a continual basis is going to increase pretty substantially. And what we also know is there is a certain number of those clients that simply want direct assistance, once they've identified benefits of some best practice strategy and we believe that will have a direct impact in our implementation services.

So, without speaking directly to revenue dollars, we expect the revenue in that practice to grow throughout 2003. Equally important, we expect the number of clients that are buying our subscription base or even our newly architected benchmarking offerings to increase and therefore the implementation, I'm sorry, the benefit to the implementation business, in our view, to have a direct correlation that we have today, which about 1 in 5 of those clients will seek some assistance from them, from us, on how to execute those strategies. So, obviously the two very important components.

And it's worth mentioning that to the extent that that penetration or that revenue growth and client penetration increases, I believe that some of the -- the partners, the potential BPO partners that we have had some discussions with about our relative alliance will only better understand the power of not only the content we have, the implementation tools we're developing, but just to how efficiently it can help them mitigate the risk and establish service levels for their very large BPO opportunities. These initiatives are very directly aligned and we believe they all benefit one another, all of the strategies that we're trying to execute.

Okay. Thank you.

Thank you. Our next question comes from Claire Love, you may ask your question and state your company name.

Hi, this is Claire with Credit Suisse First Boston. I was wondering if you could extend upon what you were discussing with the BPO advisory service? It sounds like since you're looking for this new BPO relationship to be created, I had understood that the BPO advisory service seems like it would be a particularly value added to actually the company who was thinking about outsourcing a specific activity like HR or whatever and you would help the company consult directly to the company about what they ought to be doing or who they should be going to. It sounds like now you're describing sort of the value this would be creating for the actual outsource provider who could sort of better mitigate the risks you described. So, if you could describe what the goal is here, if it's going to be sort of some revenues will be coming directly from customers who are, you know, looking to outsource or are they going to be coming primarily from the other outsourcing provider you're looking to partner with?

That's an excellent question. And in fact we do provide outsourcing assessment or advisory support for several clients as we speak today. However, we believe that the channel opportunity or the fastest way to dramatically expand the revenue growth and the resources utilized by that capability would be most impacted if we were actually able to enter into a very meaningful and exclusive relationship with an outsourcer that would have received access to our implementation tools and also to the resources because many of the large IP outsources who today are trying to aggressively expand their BPO offering do not have the type of skill and clearly do not have the type of knowledge or implementation tools that we have across the business process areas that we support both through Hackett and through our -- our -- our BPI tools. So, the answer is we'd like to be able to do both.

But when we look at how best to leverage our BPO assistance, we believe that if a very large outsourcer would define a guaranteed participation in their BPO contracts, in exchange for our exclusive support both with knowledge base and with implementation tools and resources, that the impact that that could have in revenue growth would be substantially higher than the strategic advisory support we provide today. We don't believe they're mutually exclusive, but we do believe that the type of relationship that we seek with a BPO partner is -- is an exclusive one, if it's going to have the kind of impact that we are obviously pursuing.

Okay. That's great. Thank you so much.

Thank you.

Thank you. Again, to ask a question, please press star 1. I show no further questions at this time.

All right, well, let me then close and again, thank everyone for participating and we look forward to providing you with another update at the end of our fiscal year and obviously we'll include our fourth quarter results. Again, let me thank everyone for participating on the call.