Hackett Group Inc (HCKT) 2003 Q2 法說會逐字稿

Good evening. Welcome to the Answerthink Second 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 tonight's call, Mr. Ted Fernandez, Chairman and CEO and Mr. Jack Brennan, CFO. Mr. Brennan, you may begin.

Good afternoon, everyone and thank you for joining us today to discuss Answerthink's second quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of Answerthink and myself, Jack Brennan, CFO. A press announcement was released over the wires at 4:16 p.m. Eastern Time. For a copy of release, please visit our Web site at www.answerthink.com. We'll also place any additional financial or statistical data discussed on this call that is not contained in our release on our Investor Relations page of our Web site. Before we begin, I'd like to remind you that the following comments in the question and answer session, we will be making statements about expected future results which may be forward- looking statements for the purposes of the Federal Securities Laws. These statements relate to our current expectations, estimates and projections and are not a guarantee of future performance. They involve, risks uncertainties and assumptions that are difficult to predict and which may not be accurate. Actual results may vary. These forward-looking statements should be considered only in conjunction with the detailed information, particularly the risk factors contained in our SEC files. At this point, I'd like to turn it over to Ted.

Good afternoon, everyone. As we traditionally do, I will open up the call with some comments about the quarter overview and some highlights. I will then turn it over to Jack and ask him to comment on the quarterly operating results, comment on the balance sheet highlights and also speak outlook. I will then come back and make some overview market and strategic comments and then we will open it up for questions and answers.

So, first, let me start with the quarterly overview. We were pleased to report revenues and pro forma ESPN results within our previously provided guidance. During the quarter, we continued to make progress on all aspects of our strategy in sprite of a challenging economic backdrop. We continued to transition and launched new Hackett offering, and more importantly, we saw increase in sales activity and very important key implementation conversions into our business transformation area resulting from our Hackett growth strategy. On the flip side, we expected that the second quarter would continue to be a transitional quarter for the Peoplesoft group given the completion of several large projects in this first half of the year. This was further exacerbated by the disruption created by the proposed takeover by Oracle towards the end of the quarter. In spite of this unfavorable impact, we met guidance and made good progress across most of the other practice areas heading into Q3. We also continue look for acquisitions that could strengthen the core offering and also benefit from the Hackett Intellectual Capital. Today we announced the acquisition of Beacon Analytics. This acquisition further strengthens our ability to work throughout an organization on key decisions support strategies and further strengthens our offers targeted at the finance and administration function. We continue to look for organizations like Beacon that have the ability to leverage the Hackett best practices and its sales channels and that can also be immediately accretive.

On the demand side, we continue to believe that organizations are putting off necessary business and technology initiative. However, given the length of this economic cycle, it's simply becoming harder for them to continue to ignore strategic IT investment. We exited quarter seeing some combination of improved spending and decision-making by our clients along with some of the initial benefits of our Hackett expansion and our best practice implementation strategy. Although pricing continues to favor buyers, we are seeing an increasing number of companies evaluating broad business transformation initiatives which to us indicates both their pressing need to improve current business performance along with their improved perception of market conditions.

Financially, we continue to operate cash flow positive from operations and build our cash position during the quarter and during the quarter, I am sorry, we also announced a second $5 million commitment to our share repurchase program. During the quarter, we also continued our aggressive investment in broadening and transitioning our Hackett group best practices focused offering and our related implementation tools. We have now nearly completed the transition of all of our traditional benchmark offering to our enhanced EBI benchmark architecture, which expands our benchmark offering to include a stronger perspective on strategic alignment, along with enhanced ongoing performance improvement scorecards for our new multiyear offerings. We also launched the first ERP application Centric Hackett offering. Our insight relative to the quality of the business functionality, enabled by specific software modules and the best way to optimize them we believe creates a compelling new offering for our clients. The offering includes a diagnostic offering, supported by peer to peer collaborative learning sessions and access to research.

As I have previously mentioned, we have been strongly tested during this economic cycle in our sound financial position and strong strategic positioning speaks volumes about our people. They have remained focused on our clients as well as making notable contribution to the strategic and cost management initiatives. I want to thank them and recognize their outstanding commitment to the organization. All in all, good progress was made in a tough marketplace that demands strong operational discipline that you play to your strengths, and that you are highly responsive to the changing client demand. I believe we are doing so. Let me now turn it over to jack to provide details on our operating results, our balance sheet and also comment on outlook.

Thank you, Ken. As usual, I plan to cover the financial results for the second quarter highlights and balance sheet items and conclude with a suggestion of the financial outlook for the third quarter. For the second quarter, I reported revenues were $31.5 million, which was within the range of guidance that we previously provided. This represents a 14% sequential decrease from the first quarter. Our pro forma net loss for the second quarter was $502,000 or 1 cent per share diluted, which was also within the range of guidance that we previously provided. On a GAAP basis, our net loss was 13 cents per share diluted, GAAP earnings included restructuring costs related to an increase in previously established reserves for the closure and consolidation of facilities.

In the second quarter, our business applications grew a reported $16.1 million of revenue, which represented 51% of our total revenue. Technology integration reported $7.7 million of revenue and represented 25% of total revenue. Business transformation recorded $5.1 million of revenue and represented 16% of total revenue. The Hackett group recorded $2.6 million of revenue and represented 8% of the total revenue. The primary driver behind the business applications revenue decrease was a decline in the Peoplesoft implementation revenue. We had two large Peoplesoft projects which continue to line down. Also, the announced tender offer by Oracle to purchase Peoplesoft has resulted in some indecision by Peoplesoft customers for new initiatives, which we believe will continue into the third quarter.

Our technology integration group continues to be impacted by weak demand for Web-based custom development. The Hackett group had strong sales in the quarter, but because of the late timing of several of those deals, most of that revenue impact will favor -- most of that revenue will impact favorably the third quarter. If you break down our business across verticals, our largest vertical this quarter was manufacturing, which represented 35% of our revenue. Other key verticals were utilities, which was 18% of the revenue, telecommunication that 9% of revenue, and financial services at 8%, and media and communications at 8%. These percentages were fairly consistent with the first quarter of this year. In our second quarter, our revenue concentration from the top five and top ten customers was 31% and 42% respectively. This concentration is lower than last quarter where the top five and top ten customers represented 38% and 51% of revenues respectively. The revenue concentration of our single largest client in the second quarter was 9%, which was down from 10% last quarter. Consultant head count at quarter end was 496 consultants. This represented a net consultant decrease of 71 during the quarter. Most of these reductions were in the Peoplesoft implementation practice, as we continued to align resources with the demand. Consultant utilization in the quarter was 65%, down from 68% in the first quarter, reflecting two less billable days in the quarter due to the timing of holidays. Our per hour realized billing rate was $1.86 this quarter, up from $1.84 last quarter. During the quarter, our rates did benefit from a shift in business away from lower rate business applications projects, to higher rate, Hackett and business transformation offers. Although the rate environment continues to be very competitive, billing rates have been stable, and in fact are up slightly on a year-over-year basis.

As we look forward, I would expect the rate per hour to continue to stay in the mid 180 range. The expected benefit from a continued shift in mix to higher rate Hackett and consulting related offerings should be offset by a continued price pressure for ERP implementation projects. Our gross margins as a percentage of gross revenue were 32% in the second quarter compared with 31% last quarter. Gross margins benefited from higher rates, and a lower average cost per consultant. We did incur approximately 650,000 severance cost in the second quarter which was consistent with the first quarter levels. Our SG&A as a percentage of gross revenue was 35% in the second quarter, up slightly from 34% in the first quarter. Actual SG&A spending decreased by $1.5 million or 12% sequentially. This decrease can be attributed to lower severance costs of $500,000 and lower back office spending as a result of a decrease in the administrative support personnel.

Turning to the balance sheet, our cash balances were $65.4 million, compared to $61 million at the end of last quarter. The cash provided by operations was approximately $7 million in the quarter, reflecting a receipt of the expected tax refund of approximately $8.5 million, which was partially offset by higher DSO's. The quarter in DSO's were 67 day up from last quarter's 57 days. Higher DSO's resulted from lower than normal collections, and the last week of the quarter as our fiscal quarter closed on July on Friday, July 4.

As well as extended credit terms granted to a few fortune 500 companies. We believe that any DSO level under 70 days is a normal operating target for our business. We use cash of $2.6 million in the quarter to repurchase our stock. Since the inception of our share repurchase program, we have purchased $3.1 million shares of our common stock, at an average cost of $2.10. Of our $10 million authorization from the Board of Directors, $3.5 million was available for future purchases as of the end of the second quarter.

As we look forward, our strategy is to continue to grow Hackett revenue through the development and launch of new initiatives in additional investment of sales channel. We believe that as the Hackett group continues to grow, we will further penetrate their expanding client list across all other service offerings. We are also leveraging the Hackett best practice knowledge into our software implementation businesses to be able to offer a value proposition which cannot be (inaudible) by our competitors. We also expanded our business intelligence capabilities with the acquisition of Beacon Analytics, a company that specializes in Hiperion (ph) software implementations. This group was acquired for $3.8 million in cash, and $2.5 million of contingent consideration which will be paid over three years if (inaudible) earnings targets are met. As part of the transaction, we also acquired $1.8 million of working capital. Beacon Analytics is expected to contribute approximately $8 million of annualized revenue and to be slightly accretive to earnings per share.

We continue to work on our cost structure in our goal to drive positive operating earnings despite the challenging environment. Effective the beginning of this third quarter, we have made salary reductions to reflect the current market conditions for consultant salaries. The consultants most impacted are those in service areas that have experienced the most rate pressure. In all, we have reduced our salary costs by approximately 6%. We have also redesigned our compensation structure to reduce the fixed component of salaries and increased the variable component. At the start of the fourth quarter, we plan to roll out a variable compensation plan that will pay consultants more if they are billable on a client and less if they are non-chargeable. We believe this will motivate the right behavior and allow us to reward our best performers. We also continue to reduce back office expenses, and this trend is expected to continue into our third quarter.

I would now like to address the future outlook. We have yet to see any meaningful changes in the I.T. spending environment, although overall I.T. services demand appears to have stabilized. We are encouraged by the general sentiment that the economy may be beginning a gradual recovery. We are seeing better demand for benchmarking and business transformation initiatives, which is what we would expect to see at the beginning of the business cycle. We do expect that the Hackett group will show strong sequential growth into the third quarter, and that our business transformation group will grow as well. This will be tempered, primarily by continued expected declines in Peoplesoft implementation work, and to a lesser extent continued declines in Web-based custom development. We expect that our Web-based custom development revenues will be down to 500,000 in our third quarter.

For the third quarter, including the expected impact of the Beacon acquisition for the two months -- for two months of the quarter, we expect our gross revenues to be in the range of $31.5 million to $33.5 million. Diluted pro forma earnings per share in the third quarter should be in the range of break-even to income of 3 cents. This pro forma estimate includes a normalized tax rate of 40%. On a GAAP basis, the diluted earnings per share should be in the range of a loss of 1 cent to income of 3 cents. The GAAP estimate includes a zero effective tax rate. The GAAP results also include non-cash amortization expense related to the granting of restricted stock units on July 14, as a result of our previously announced stock option exchange program. The granted $3.9 million restricted stock units which amortized over four years and have a quarterly expense impact of approximately $600,000.

Starting with the third quarter, our diluted per share count will include the full impact of this grant. Our earnings estimates for the third quarter also assume an accrual for bonus expense pursuant to the new utilization in EBITDA based bonus programs which we plan to pay out quarterly. Our gross margin percent should be higher in the second quarter, and -- I'm sorry, will be higher in the third quarter, reflecting principally head count reductions in a lower average cost per consultant. By the end of the third quarter, we expect the net consultant head count to be about 10 positions higher than at the end of the second quarter, which would result in an ending head count number of approximately 479 consultants. This includes about 30 consultants from the Beacon Analytics acquisition. Excluding our stock buy-back program, our cash position at the end of the third quarter should decrease somewhat reflecting the cash used to acquire Beacon Analytics, partially offset by expected positive cash flow from operations at this point, I'd like to turn it back to Ted to cover the market outlook and strategic priorities.

Thank you, Jack. As both Jack and I have mentioned, we remain cautious about the market environment, but there appears to be stability along with other positive signs emerging. We believe that many strategic projects continue to be put on hold, but some companies are having a harder time simply flashing in targeted improvements in their organization. However, we also see the decisions based on that individual company's market prospects. We believe our focus on the implementation of best practices as a way for companies to achieve world class performance uniquely positions us. We also believe that this business performance focus will continue as the economy improves and more companies realize the need to make long term commitments if we want to target and achieve sustainable world class performance. Strategically, it is important to understand how significantly our focus on the Hackett leverage has changed how we go to market over the last year. It is also important to know that this transition takes time to fully implement for it to benefit our client and to impact our operating results.

Given that backdrop, let me update you on the strategic priorities and our progress during the quarter. Our first priority was to integrate our Hackett best practice knowledge into the implementation solutions. As we have mentioned previously, we launched our new BPI tools as we refer to them, and initiated our training during the fourth quarter of last year. We continue to expose our clients to the new tools and approach, and continue to receive very positive feedback. They know the intellectual capital we use is unique and they know the approach we have developed then must also be unique. During the quarter, we continued to expand the number of modules and functional processes our BPI tools cover within the base application implementation partners which today include Peoplesoft SAP, Oracle, Lawson and Hiperion. Keep in mind that the BPI tools help clients evaluate and specifically decide whether a best practice should be applied to their circumstance with a detailed reference and guidance on how the software must be configured to enable that best practice, thereby affecting business profits. Our second initiative is to accelerate the growth of the Hackett group with new and expanded renewables, or multiyear offerings. During the quarter, we experienced increasing pipeline and sales activity along with the improved pricing that we have been able to achieve during the first half of this year.

Last quarter, we launched our first benchmarking product utilizing our new business value index architecture. Our Q2 plan was to get all of our traditional benchmark offering which include I.T., H.R., SG & A and procurement into this new product architecture. If you recall, we launched our financial benchmark in this architecture early in the second quarter. We came very close to getting all of the offerings fully transitioned during the quarter. So, therefore, we now know that we will be fully transitioned by Q3. We think our improved and expanding offering allows us to strengthen the total value proposition we deliver to our clients, and will also allow us to work more closely with our clients throughout their total operating, efficiency improvement efforts. We no longer want to engage clients in a transactional manner, but we want to work with them by providing them initial data and ongoing data so that we can work with them for a number of years.

As I previously mentioned, in Q2 we also finalized and launched our new offering focused on ERP optimization. This offering allows our participants to assess how well they have implemented and thereby leveraging specific software investments. We expect this to be a Hackett growth driver. Our third initiative is to create a new BPO channel for core implementation skills. As we have mentioned throughout the year, this will require us to enter into a very meaningful relationship with one or more partners. We believe that several of the large BPO provider could significantly differentiate their offering using our knowledge base and our BPI tools to assess the transformation opportunity of the clients, and in creating and monitoring the performance of a client's BPO platform utilizing our best practicer's knowledge. We continue to discuss this teaming strategy with several possible partners. We also believe that our value to a partner in is only enhanced by the expansion of our Hackett offerings, Hackett sales channel, and also the brand expansion that we continue to invest in. Our fourth initiative is to expand blended (inaudible) offshore offerings.

As I mentioned, there is an increase in the way we integrate our offshore partners into our solutions. This approach has allowed us to be more competitive with pricing while protecting or increasing our margins. This resource model has also resulted in reduced head count and some (inaudible) development centric resources in both business applications and technology integration areas as the subcontractor volume in these projects has increased. We will continue to look for ways to bring our clients the appropriate way to leverage global sourcing models as appropriate. Our fifth and last initiative is to continue to pursue strategic acquisitions. We continue to believe that the extended economic cycle will result in further consolidation and that we should be beneficiary with this activity given our distinct value proposition using Hackett and our very strong balance sheet and infrastructure, that we believe can be utilized to envelope a larger service delivery footprint. We have worked hard to accumulate our sizable cash position and believe that targets must be immediately accreted, and/or have high growth prospects, and strongly leverage our Hackett best practices, intellectual capital and sales channels. In summary, we will continue to be highly focused on building our value proposition to protect and improve the financial position and to invest in the strategic priorities. We strongly believe that we are on the right track. Those are my comments. Let me now turn it over to the Q & A section of our call.

Kelly, we're ready for calls.

Thank you. At this time we are ready to begin the question and answer session. If you would like to ask a question, please press "*1". You will be announced prior to asking you question. If you would like to withdraw your question, press star-two. Once again, to ask a question, please press "*1". Our first question is from Clint Fendley of Wachovia Securities.

Hi. Good afternoon, guys. Ted, first question, I wondered I guess I was a bit surprised to see the sequential revenue declined in the Hackett group. I wondered if you could provide more color on what happened there.

I think Jack said it the right way. We clearly saw sales increased, but as you know the Hackett revenue is amortized over the period of the contract, so as the contract spread out over a period beyond a quarter, some will go out 12 months, some will go out more than 12 months, some will extend into a quarter, it can impact how that revenue is recorded. But I think our comments relative to both pipeline and sales can be and the impact they will have in the third quarter I think responds to any concern that you may have.

I would also say that -- it's essentially flat on a sequential basis. You recall last quarter, it did grow 71% sequentially. It had -- let's just say a great quarter last quarter. If you look at it even in the second quarter year-over-year basis, it's still 60%. We continue to believe it's made great progress.

Okay. Moving on, then, Jack, to the DSO's. I guess the up-tick there. Do you foresee any more extension of: the credit terms and do you believe that you can maintain that below 70 days?

No. I mean, I -- I clearly believe that we should be -- south of 70 days, and hopefully south of 67 days. A lot of it depends on what the last week of the quarter looks like in terms of, you know, our people focused on collections or you know, if you have a holiday week, you have a lot of the customers that are on vacation, a lot of contacts on vacation, you end up getting a lot of the checks the following week. So, no, we do believe that we can manage it under.

Okay. And on the beacon analytics, did that close then here toward the end of July?

It actually just closed today.

Okay. And finally, I guess, Ted, on the gross margin from the changes that we saw there, I wondered if your. Comp structure changes have increased your turnover any, or if they had any impact on the morale?

Well, we do expect for some of our people, you know, not to like changes. I don't think anybody likes changes. But I think overall, our people realize that the rate pressure is there, and if we want to remain competitive, stay on a winning track, and be able to really build a -- and grow a profitable business, that it was important for us to do so. And we think it was a very important move. So, I think I -- it goes without saying that if I said that any changes, including any reductions are not hard to do. You know, our people have been terrific, but they also know that we have been through a tough three-and-a-half year period. They know this is what it takes to be successful. I do expect some turnover. However, I believe that it is absolutely a strategic weapon in -- and it's a smart and innovative way and it will impact us favorably for a long time to come.

Thanks, guys.

Our next question is from John Mahoney of Raymond James.

Hi, guys. Very impressive results given the backdrop and the confusion around some of your software products. Could you give us some idea about what's going on in the market on the M & A side? You made one acquisition. Are you starting to become more active because things seemed to have stabilized?

I think we have said consistently, John, that you know, we believe that strategic acquisitions that could be accretive are things that we would like to continue to do. So, we remain very active, but follow up pretty -- you know, specific profits on what -- you know, what fits into the business model operationally, financially and culturally. But we expect to be active. We hope that we are, but obviously, it requires agreement across the three dimensions, from a team and -- but I look at what it takes to compete going forward. And one of the things we know that is absolutely critical is you must have a distinct way to compete, a way to differentiate your offering. We have a very, very unique opportunity given the size of our group, because of the Hackett Intellectual Capital and the investment that we have made now to leverage that throughout the implementation offers. I think that, you know, really talented teams that are at or around areas where we would like to either get stronger or expand that look to that value proposition and think that it helps them go to market. We hope that attracts others to join Answerthink. I guess the long answer is what I have told you, but the short answer is that we will remain very active in looking for organizations that can improve -- improve our ability to grow and grow both profits and revenues, and that very importantly, that can leverage the Hackett Intellectual Capital that we have invested (inaudible)

On the sales side, what is the sales force comprised of, and how are you going to market can the different offerings. Not just the Hackett, across the board. The number of people with quotas et cetera.

The number of people, and if fact, I don't have it off the top of my head, the number of people from actual dedicated sales executives in the Answerthink side has decreased in the last 12 months as you know as we have aggressively grown the Hackett sales force to somewhere probably in the mid 20's now. And we think that is the right way. That Hackett offers us a distinct way of engaging clients in a very, very unique way. On the traditional model, then we're following the kind of venues that you would expect. A very strong account management program around top 25 to 30 accounts working very closely with our software partners, to look for unique ways to go to market together and serve our clients. You know, the partnership model, obviously puts also a tremendous emphasis on some of our most senior people, leaders to help really leverage those channels and we do those both on national relationships and also with very strong geographic ties. Then we do, you know, some --some of the things that we're finding quite a bit of success with is the fact that we're aggressively getting in front of client, executive briefing, all around some of the research data that comes from the Hackett Intellectual Capital and some of the best practices implementation research that we're doing. And we feel very comfortable about it, and more importantly, when we get in front of clients, we share information, we tell them how we then implement solutions, leveraging the information. I think if we rarely leave the room without someone saying this is highly unique. Someone has a better relationship or just comes in and buys the business, it gets us a pretty strong way of competing, differentiating ourselves, and I think that's truly helping us out.

Thanks a lot.

Our next question is from Paul Solla (ph) from Potomac Capital Management.

Hi, it's P.J. Solla. Two questions. What percentage of your business is originating from Hackett, referrals or some sort of engagement there?

I don't have that percentage, Paul, but clearly, an increasing amount is happening. We're seeing both at the Hackett volume has increased we have also seen especially around some of the core back office areas, the converging rates have improved as well. It's -- it has been a meaningful contributor in the first half of this year.

Is it a quarter of your business or more, that magnitude?

It's a substantial piece. I would say it's clearly a substantial piece. Definitely more than a quarter.

Okay. And I think you discussed this on the call, I heard part of it, but in terms of looking for partners on the -- in the BPO, outsourcing area, how would you characterize the status of that now? Are you talking to -- to one person and trying to iron out a deal, is it several, or are you continuing ongoing conversations you have had in the past?

We have had -- you know, I would define interest and discussions from several potential partners. I think that as I mentioned on the call, that -- you know, the Hackett activity has increased, as, you know, both the brand recognition, the number of people using it, the service offering expanding it, and I think that, you know, our methods to the marketplace which we could be a really strategic and important partner to a meaningful BPO provider, I think has improved, so as we have mentioned now for probably 12 months, our hope is to enter into a relationship that's meaningful. That's not easy to do, because we don't want a soft strategic alliance. We want something that has real meaning and sharing and that can benefit the company and we're not going to rush to that, but we believe that the prospects of achieving that -- you know, exists, and in my view, it will continue to improve as our Hackett growth strategy continues to be recognized.

Okay. Thank you.

We have a follow-up question from John Mahoney of Raymond James.

Hi, guys. I just had a follow-up question. I wondered how the competitive landscape has changed. Who are you guys competing with on some of these -- you mentioned several, you know, representatives client wins and engagements. Who you are competing against and who are you beating? Who are you losing to?

It continues to be a narrowing combination, John. But I would say that we rarely compete on the benchmarking element of our business. I mean, the quote that I used in the press release about that we believe no one can provide the insight we provide at the price point and time line that we're providing, I think more and more people are recognizing that. On the implementation side, you know, it's the former big six now final four, wherever they reside, so you know, that's now resides within IBM consulting which now has PWC, and it clearly Accenture, and Delight, Bearing Point and Cap Gemini NWE. They will be the principle competitors. We see fewer and fewer, I will call it kind of geographic focus groups, but sometimes we see some people, some very small niche groups in industry, verticals, but not very often, but it's really the bigger names, and it's more a function of where there are size and breadth can be properly utilized by the client for a piece or all of the engagement. I don't think that's changed. I think what's changed for us is that the recognition of the Hackett value for clients because of the way we're rearchitecting our product and the way that allows us to position our offering hopefully, if not sole source in a way that is meaningful enough for us to get strategic implementation work.

Thank you very much.

Our final question is from Bill Sutherland of Commerce Capital Market.

Thank you for taking my question. I was wondering, Ted, on the offshore strategy that you are currently implementing, excuse the background noise, I'm in an airport -

Well, I think the comment is that we have been, as you know -- we have been working with HCL probably now for over a year in looking for ways to implement a global sourcing model. We continue to team with them very effectively. But I think that the biggest change for us is that we continue to believe that we need to be closer to that resource element and whether we get that on dedicated basis, or whether we make that part of an acquisition strategy, I think it's something that you will see us more aggressively evaluate as we go into 2004.

Okay. One little specific question, what was turnover in the quarter?

Turnover isn't something that we generally disclose and we had a lot of involuntary terminations. In the quarter? Yeah, it was mostly involuntary?

We are down head count net 71.

Right.

And most of those obviously are involuntary, but we don't really disclose, you know, the breakout between voluntary and involuntary. We don't feel it's meaningful in an environment where you really really -- you know, significantly are downsizing. I guess the -- maybe a better way to answer it for you is I will tell you that I can't think of maybe there was an individual throughout the organization that wasn't maybe an important or strategic role that perhaps could have been part of that 71, but I think we have done an outstanding job at keeping the people that are having a meaningful impact on our business and we're doing -- I think we're being very innovative in the implementation of our compensation strategies in looking for ways to reward those who are making the greatest contribution and beyond that who we identify as an enterprise group. Changes we have made are highly responsive both to the clients demands which are obviously very important for our ability to build and develop those practices going forward.

Finally, as I sort of try to parse through what might be the moving parts in your guidance for third quarter revenue, I guess the midpoint of that, that small range, it would seem to be the growth would be coming from the beacon increment?

Yeah. I will take a look at our revenues guidance. It pretty much reflects stable revenue across what we expect to get from the Beacon acquisition.

But if you look at the moving pieces, it would be a little bit more downsizing in the people soft area in particular with some growth in Hackett and a couple of other areas?

Yeah. It would be obviously continued -- we believe good Hackett growth as you go into 3Q also business transformation growing as well. And let's say that being offset by continued decline, principally in Peoplesoft, as well as our custom web development business continuing to go down, and what we believe will remain at the end of the third quarter is a very, very small business in the custom web development space.

Then, lastly, Jack, are you hoping that Peoplesoft starts to stabilize before the end of the year, or is it impossible to fathom?

: I can -- I would rather speak to it historically. This is Ted. I believe it's been a phenomenal practice for us. We have got great calls and great people in that group. No doubt, it's been a tough transition for the group. Also coupled with the market changes. I expect Peoplesoft to be a significant part of our business. In the years to come. And I expect the group will weather the transition and I expect it to be a meaningful contributor as we exit the year and into 2004.

Great.

But no doubt, it's been you know, it's been through a pretty tough nine months.

Great.

But it's a great group with great prospects.

Great. Thanks, everybody.

No further questions at this time.

Let me then close by thanking everyone for participating in our second quarter earnings call. I look forward to catching up with everyone again when we report our third quarter results. Thank you again for participating.