Hackett Group Inc (HCKT) 2005 Q2 法說會逐字稿

Good evening, and welcome to the Answerthink second-quarter conference call. Your lines have been placed on listen-only mode until the question-and-answer portion of tonight's conference. Please be advised that tonight's conference call is being recorded. Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Jack Brennan, Chief Financial Officer.

Thank you, Mr. Brennan, you may begin.

Thank you very much. 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.

The press announcement was released over the wires at 4:09 PM Eastern time. For a copy of the release, please visit our website at www.Answerthink.com. We will also place any additional financial or statistical data discussed on this call that is not contained in the release on the investor relations page of our website.

Before we begin, we would like to remind you that in the following comments and 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 risk factors, contained in our SEC filings.

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

Good afternoon, everyone. As we ordinarily do, I will start the call by making some opening comments relative to the highlights of the quarter. I will turn it back over to Jack to comment on the quarter operating results, cash flow highlights and also to provide comments on our outlook for guidance. Jack will turn it back over to me. I will make some additional comments, just on some of our market and strategic priorities. And then we will open it up for Q&A.

Having said that, let me start with our quarterly overview. We are pleased to announce results where our revenues exceeded our previously provided guidance, and our earnings and EPS were in line with the previously provided guidance. Of special note was our ability to achieve sequential growth across all of our service groups for the second quarter in a row.

Our focus during the quarter continued to be centered around leveraging our proprietary best practices intellectual capital to drive our growth. This was most strongly evident in our Hackett Group, with strong sequential and year-over-year sales and revenue growth driven by strong activity in our membership advisory programs, as well as in our benchmarking and in our transformation advisory programs. Also important to highlight was the increasing impact that our Accenture alliance had on our overall growth across virtually all service groups.

As you may recall, in late February, we announce the alignment of our business transformation group under the Hackett Group brand. The introduction of a series of fixed-price, fixed-scope transformation advisory programs to Hackett clients was directly responsive to increasing client requests for strategic planning and execution support beyond the benchmarking and executive advisory programs that Hackett was previously providing. Market reception to this move has been very favorable, as both the number of transformation advisory programs as well as the rates realized in these news programs was up strongly.

This move allowed us to start offering access to key best practice implementation insight and metrics which support our best practice implementation tools, and we put this directly into our Hackett membership base advisory program. Additionally, our membership advisory program clients also benefit from the deep execution inside of our most experienced business transformation associates, which are now supporting research and specific inquiries as they are requested. So, it was a win-win on both dimensions of the business.

In our Business Applications and Business Intelligence groups, we continue to see the importance of strong reselling, our value proposition that is defined by our best practices implementation tools. In Q2, we experienced sequential growth in both groups, which was highlighted by the very strong sequential and year-over-year growth in our Hyperion practice area. It is clear that the demand for planning and performance management analytical applications continue to increase very nicely.

On the alliance front, we continue to close new deals with Accenture. Overall, alliance revenues and the number of clients we serve together continued to grow into Q2. We saw joint wins across virtually all of our Business Applications and Business Intelligence offerings including PeopleSoft, Oracle, SAP and Hyperion, to name a few. We also saw nice benchmarking activity, as well.

We believe that the move to combine our empirical data and research, coupled with our strategic execution expertise, provides us with an opportunity to continue to aggressively grow our Hackett revenues. At the heart of that strategy is our strong belief that our advisory membership-based programs allow us to develop a close and continuous relationship with our clients that position us to independently and objectively assist them as their needs emerge. With our new expanded capabilities under the Hackett brand, we believe we create a new category of empirically-based advice that we will continue to refer to as strategic advisory.

Overall, the expansion of services under the Hackett Group has further strengthened the intellectual capital and offerings we offer through Hackett, as well as strengthened our service delivery capabilities of our membership advisory programs. We're also pleased with the sales growth and expansion of our advisory programs, which grew well over 100% on a year-over-year basis for these renewable membership-based programs. Membership-based growth continues to be a key component of our long-term value creation strategy, as membership offerings allow us to strategically advise and market to clients -- again, on a continuous basis. This is a unique and very important aspect of our strategy.

Let me turn it over to Jack to provide details on our operating results, cash flow and also comment on outlook.

I plan to review our financial results and operating statistics for the second quarter, then conclude with a discussion of our financial outlook for the third quarter. All references to revenue in my discussion will pertain to gross revenue, which is revenue including reimbursable expenses.

For the second quarter, our revenues were 41.7 million, up 13% sequentially from the first quarter and up 11% from the second quarter of last year. Revenues exceeded the range of previously provided guidance. Our pro forma net income was 1.5 million or $0.03 per diluted share, which was within the range of guidance. Pro forma earnings exclude non-cash compensation and intangible asset amortization and include a normalized 40% tax rate.

On a GAAP basis, our net income was $0.03 per diluted share and included non-cash stock compensation expense of 728,000 and amortization of intangible assets of 420,000. Our GAAP effective tax rate for the first six months was 9%, which is our estimated tax rate for all of 2005 to provide for certain state and foreign taxes. We accrued no US federal taxes, due to our NOL carryforward position. As of the end of 2004, the Company had approximately 74 million of US federal loss carryforwards.

In the second quarter, revenue from benchmarking and membership advisory programs was 7.3 million, which represented a sequential increase of 16% and a year-over-year increase of 31%. Revenue from Hackett's Transformation Advisory group was 10.5 million, which represented a sequential increase of 15% and a year-over-year increase of 45%. Business Intelligence reported 9.5 million of revenue, which represented a sequential increase of 16% and a year-over-year increase of 9%. Our Business Applications group reported 14.4 million of revenue, which represented a sequential increase of 9% and a year-over-year decrease of 11%.

This quarter, we had strong performance across all business groupings. The Hackett Group in particular had an outstanding quarter. We reported 11.9 million of benchmarking and membership advisory contract sales in the second quarter. This compares to 6 million last quarter and 8.4 million in last year's second quarter. If you break down contract sales between benchmarking and membership advisory, the mix of membership advisory continues to grow. Membership advisory sales represented 37% of total Hackett sales in the second quarter, compared to 23% in the same quarter last year, a year-over-year sales increase of 131%.

This transition is the key component of our long-term strategy to increase our annual subscription business that allows us to create renewable relationships with our clients. Hackett's Transformation Advisory group benefited from the integration of this business under the Hackett brand late in the first quarter. We launched new transformational advisory products in March and have used the Hackett sales channel to market these new offerings. This has resulted in both increased sales and higher effective billing rates.

Our best practice solutions groups, Business Intelligence and Business Allocations, both showed sequential revenue gains in the quarter. Our Hyperion practice performed exceptionally well, as we continued to experience very strong demand for Hyperion implementation services. Revenue from the Accenture lines continued to grow and represented 10% of total Answerthink revenue in the quarter, up from 7% last quarter. Most of this revenue represents implementation services that are included in our best practice solution groups.

Revenue concentration levels decreased this quarter. Revenue from our top five and top ten customers was 19% and 30%, respectively, compared to 24% and 36%, respectively, in the previous quarter. Revenue from our largest customer was 5%.

Consulting headcount at quarter end was 596 compared to 569 at the end of last quarter. Included in consulting headcount were 52 subcontractors, which compares to 48 last quarter. Consulting utilization was 70% in the second quarter, which is equal to the 70% last quarter. Our per-hour realized billing rate was $192 this quarter, up from $182 last quarter, reflecting the continued shift in mix to higher-rate Hackett products and services. Also, rates benefited from our recent launch of new transformational advisory offerings and the use of the Hackett sales force to sell these products.

Our gross margins as a percentage of revenue were 41% in the second quarter, compared to 35% in the previous quarter. This increase was attributed to a few factors. Gross margins in the Hackett Group improved, not only from the new transformational advisory offerings but also from our benchmarking and membership advisory programs. Late last year, we launched the new Hackett portal, which significantly improves the process used to gather and analyze client data. Margins improved as a result of the operating efficiencies created by the new portal. Across all of our businesses, margins benefited from a 5% decrease in the average cost per consultant, due primarily to lower employment-related taxes in the second quarter compared to the first quarter. Finally, 1% of the improvement in margin can be attributed to increased software sales through our SAP software reseller in the quarter.

Our pro forma SG&A as a percentage of revenues was 36% in the second quarter, up from 34% last quarter. Higher SG&A costs resulted primarily from higher selling costs related to the Hackett channel and our annual best practices conference in April, which was attended by nearly 400 executives, reflecting our continued investment in the Hackett business. Also, expenses in the second quarter were impacted by higher recruiting fees and legal expenses.

Our cash balances, including restricted cash and marketable investments, were 45.7 million at the end of the second quarter, a decrease of 4.6 million from the first quarter. This decrease principally reflects our stock buyback program, a 3 million payment to settle our New York lease obligation and an increase in DSOs from 71 days last quarter to 75 days this quarter. These impacts were partially offset by earnings in the quarter.

During the quarter, we repurchased 811,000 shares of our common stock at a cost of 3.1 million. At the end of the second quarter, $7.9 million was available for future purchases of common stock.

I would now like to discuss our guidance for the third quarter. For all of Answerthink, we expect third-quarter revenues to be in the range of 41 to 43 million, which is essentially flat compared to the second quarter and would reflect year-over-year growth of 10 to 16%. Our guidance assumes that third-quarter revenues will be seasonally impacted by expected vacation usage in the summer months. Based on our current review of the pipeline, the Hackett Group should continue to grow, and our best practices solution groups should be down slightly. We expect revenue from the Accenture channel to decrease from second-quarter levels, as a meaningful joint business applications project in the second quarter is not expected to continue through the third quarter. Our plan is to redeploy these resources to other joint wins.

Diluted pro forma earnings per share in the third quarter should be in the range of $0.04 to $0.06. This pro forma estimate includes a normalized tax rate of 40%. On a GAAP basis, our diluted earnings per share should be in the range of $0.04 to $0.07. Our GAAP estimate includes an estimate of 1.1 million for non-cash stock compensation and intangible amortization expense. It also includes a 9% tax rate to accrue for certain state and foreign taxes.

Our gross margin percent in the third quarter should be comparable to second-quarter levels. Consulting headcount should be up modestly. SG&A spending should be lower in the third quarter, due to the absence of the Hackett best practices conference and projected lower recruiting and legal fees. Excluding any impact of our stock buyback program, our cash position should be up slightly. As expected, positive operating income should be partially offset by approximately 2.5 million of deferred payments on prior acquisitions.

In summary, we made good progress in the quarter and demonstrated solid growth across all of our businesses. We continue to make progress toward our target operating margins of 12 to 15% and expect to report operating margins in the 7 to 10% range in the third quarter.

Before I turn it back to Ted, I would like to mention that I have decided to accept a new role with Answerthink. Effective this quarter, I will assume the role of Corporate Development Officer, reporting to Ted. The Company's CFO position will be assumed by Grant Fitzwilliam, who has been with Answerthink since its formation in 1997 and most recently served as leader of the Company's Sarbanes-Oxley practice. Grant also led the Company's internal Sarbanes-Oxley compliance efforts this past year, so he has a very good understanding of our finance, IT and administrative functions. I will be working closely with Grant over the next couple of months to ensure a smooth transition.

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

Thank you, Jack. Let me just make, then, some market and strategic overview comments. As we look forward, we continue to expect strong demand for the unique combination of offerings that we are now offering through our Hackett Group brand. Our ability to strategically advise clients through some combination of benchmarking, transformation advisory, along with our ability to provide 24-by-7 on demand access to our proven best practices and strategies through our membership-based programs is uniquely ours and available nowhere else. Our ability to then link our best practice knowledge base to software configuration or workflow automation decisions through our Business Applications and Business Intelligence teams also allows us to provide comments with a strong value proposition in these service areas. As we look at the overall market demand, we are encouraged by the activity we are continuing to experience across virtually all of our groups.

With that as a backdrop, let me now comment on our strategic priorities and the progress in each area during the past quarter. Our first initiative, and it has remained this way here for the last several years, is to continue to rapidly grow our Hackett Group with new and renewable multiyear offerings. As Jack and I have covered in our remarks, we continue to experience strong growth in our membership-based advisory programs, with our subscription sales during the quarter growing 131% from Q2 of last year. Clearly, our focus in this area is paying off, as we are moving our Hackett model to more renewable-based revenues more aggressively than we envisioned.

We also believe our recent addition of our transformation offerings under the Hackett brand will allow us to increase the leverage of content that resided within our best practices implementation tools, which previously was not made available to Hackett clients. They were only available if you were to hire our consulting resources. Now, the move to add this content, these best practices execution decisions, quick-win, key performance metrics, we believe will significantly enhance our Hackett membership-based programs. The move that we have made will also leverage sales and marketing investments that we have made in Hackett more broadly. All in all, we think this will allow us to grow revenues and operating margins more rapidly.

As Jack commented, and also consistent with my comments in this area, during the quarter, we continued to make very significant investments in sales and marketing efforts within our Hackett business model, not only with the significant best practice conference, but also through the incentives to our sales force and adding to that sales force. I think it's also worth mentioning that we have also significantly added to the headcount to support our Hackett service delivery model in our Hyderabad, India facility, as well.

Our second initiative is to continue to expand our best practice implementation tools. We continue to see clients and our alliance partners' decisions to team with us directly attributed to the proprietary best practice implementation content and tools. The objective of our best practice implementation tools is simply to help clients define their performance and proven opportunity and to help them make smarter business process and software configuration decisions that allow them to realize the targeted results. We mentioned last quarter that in January we would launch version 2 of our BPI tools. We are now looking for ways to update all of the content on a more frequent if not a real-time basis.

Our third initiative is to create incremental revenue channels through strategic relationships, by leveraging our best practices or Hackett knowledge base and off of the tools that we have been speaking about. As I mentioned in my overview comments, our Accenture relationship continues to grow. We continue to see our relationship expand geographically as well as in their operating groups, and also in their ERP or Global Business Solutions group. A great example of the potential of our relationship has been seen within the Government group, where a number of our most significant wins in this quarter came.

During the quarter, we also closed a strategic relationship with Lawson, which has created a series of programs for their customers to leverage our content and research. This is the kind of relationship that has the potential to grow to have a meaningful impact on our results over the next several years. We continue to see this kind of strategic relationship as a great complement to our existing membership-based growth.

On the Sarbanes-Oxley research front, we now expect our joint study with KPMG, which set out to survey public companies on their total cost of compliance, to be completed during the latter part of this coming quarter. We plan to release the findings through a number of national forums, and we expect the insight from the study to result in a new Sarbanes-Oxley benchmark offering.

Our fourth initiative is to expand our dual-shore capability. As we previously mentioned in November of last year, we opened up our new facility in Hyderabad. We continue to expand the leverage of this facility to support not only our Business Applications business but, as I previously mentioned, now to support our Hackett Group delivery and also our Hackett internal software development efforts.

Our fifth and last initiative is to continue to pursue strategic acquisitions. We continue to believe that our unique Hackett access, our best practices intellectual capital, coupled with our strong balance sheet and infrastructure, can be used to support a larger service organization. Our goals remain unchanged. Acquisitions must be accretive, have strong growth prospects but, most importantly, have strong synergy with our intellectual capital and strategic advisory offering focus.

In summary, we believe that our intellectual capital and strategic advisory service focus provides us with a unique set of value-creation opportunities. Accordingly, we continue to be excited about the strategic positioning, the progress we continue to make and with the opportunities that they provide the organization as we look forward.

Lastly, I want to recognize the efforts of our associates that remain focused on great client service and continue to make noticeable contributions across all of our strategic initiatives. I want to thank them and recognize their outstanding effort and their spirit.

And I also would like to especially thank Jack for his efforts as CFO, not only in helping with some of the key initial acquisitions that allowed us to go public, to oversee the whole go-public effort and the leadership he provided there, as well. But obviously, I also want to thank him for how well he helped us all work through the impact of the Internet bubble, which I think this organization has really handled very well. I am glad that he will continue to work closely with me on strategic development and also to help Grant Fitzwilliam, as he assumes his new responsibility.

As Jack mentioned, Grant has a long history with the organization, being part of the original group who left KPMG to start the organization. So he is a Certified Public Accountant from the state of Georgia. While at Answerthink, he has held several key practice leadership roles, including leading our Oracle practice several years ago, and most recently our Sarbanes-Oxley group. We think all of this experience will help him immensely in his new role as CFO with the organization.

Let me now open it up for Q&A.

(OPERATOR INSTRUCTIONS). George Sutton.

Great quarter. I wanted to understand what changed here, because this would appear to be an inflection quarter for you, and when we look at a lot of the comps that we would compare you against, they haven't done particularly well. So it wouldn't necessarily appear to be a market-driven change; it would appear to be more company-specific. Can you talk about that a little bit?

Well, I think when you look at the growth we experienced in the quarter, you have to go back and look at the things that we have been doing over the last several years, which was, one, to enhance and aggressively invest in the Hackett Group model and the sales channel and expand into some of the new offering areas. I think those things growing continue to have an increasing impact on our business model.

But I think it would be a shame, especially since I have taken so much heat over it, to not also recognize the fact that Accenture continued to grow and had an impact across most of our group.

And then lastly, we think this last change that we made to integrate the transformation group within Hackett not only -- and in fact, we also moved some very experienced salespeople that were part of that group into that team, as well -- not only significantly increases the experience that is now part of Hackett to help support all of its research, benchmarking and membership-based programs, which is a critical part; but also, by unlocking, which is the term I use, by also allowing the BPI content that was only available to our clients through the use of consulting services, now to augment our membership-based programs, we think it just also strengthens our offering overall. And as Jack mentioned, on the flip side, the packaging of the transformation offerings has also allowed us to see great improvement in that transformation advisory offering that we hope will continue.

So, overall, we think that market demand has been solid. We haven't seen it change in a while. But we think the things that we have been putting in place and have been working on for quite a long time, including this most recent change, I think, are reflected in our results.

The second thing I really wanted to understand was Lawson, a pretty significant announcement you made in the quarter. Can you give us a sense of when you begin to see revenues from that specific opportunity that you put the 8-K out on, not your overall work with Lawson? And give us a sense of what that means, because you're obviously putting a lot of -- you're getting that value from the Hackett brand. And I just want to make sure I understand how it's going to be used.

As you know, we executed that contract early in the quarter. We announced that the fixed portion of it was approximately $2 million and that there was a variable portion which could be significantly higher than that. But of that fixed portion, I would say most of that gets amortized over one year, and there is a smaller amount that will get amortized into the second year. And the second quarter did benefit, from a revenue standpoint, from that relationship. So it should really go out, let's say, 12 to 24 months.

We didn't get the full benefit of the amortization piece. As you know, that happened during the quarter and, as Jack mentioned, probably the more important thing -- not to downplay how important this first piece is, but if the relationship continues into year two, the amounts that we are currently realizing would more than double.

The other thing I wanted to make sure I understand was you mentioned some one-time costs in your SG&A in the quarter. I'm just trying to get a sense of what a run rate might look like going forward. And can you give us any sense of how much the conference specifically cost?

I would say that, obviously, there were significant costs related to just our continuing investment in Hackett. The conference, all in, with travel costs, TV (ph) and so forth, was probably close to the $0.5 million range. We also had increased commissions for the Hackett sales force. As you know, they're currently marketing the new transformation advisory products. So you can see the benefit, obviously, in revenues and margin, but there is obviously a cost to market those new products.

And then, we had higher recruiting and legal fees that, from a going-forward standpoint -- I mean, obviously, I think commissions will continue to run probably higher than what we have traditionally had. Legal costs should go down because of some one-time events this quarter. Recruiting should go down, as you can see. Our headcount estimated increase for next quarter is not as much as this quarter, plus we plan to better leverage our existing internal recruiters.

So we believe, clearly, the costs will go down, probably not down to the level that we have seen each of the quarters last year and the first quarter, but clearly below what we spent in the second quarter.

Thanks, guys. Great job.

Justin Martos (ph).

Graham Partners. When do you guys expect the utilization rate to sort of start ticking up here? It's been 70% for a couple of quarters now.

Well, we'd like to target 70% on an overall basis, and we have more vacation and holiday impact in Q3, and then it gets higher in Q4. And as Jack said, having said that, we benefit in those quarters also from higher vacation usage, as well as lower employment taxes. So you get a little bit of both; you drive slightly lower utilization, unless you are running a little bit hotter than the 70% number, but you also get the benefit of lower cost of services as a result of the lower operating taxes in the second half of the year.

And how big was Accenture in this quarter in your Business Apps business, or, I guess, overall for the Company? Is it getting to 10% yet, or affiliated type revenue?

It's actually more than 10%; it's really 10% -- Accenture pipeline was 10% of total Answerthink revenues, and most of those revenues really fall into our Business Intelligence and Business Applications groups, so obviously the percentage there would be higher for those groups.

So, it was actually greater than 10%?

Yes, for those groups it was.

10% for the total company and, as Jack says, since most of the revenues are in those two groups, then obviously higher than 10% for Business Applications and Business Intelligence groups.

And then on the Hackett, how much was benchmarking versus business advisory?

I don't have that breakout --

I think you gave the overall mix, Jack, of total sales. On revenue recognized, do you have that number?

I would say, on revenue recognized -- I actually don't have that number. Obviously, we are seeing an increased portion being attributable to advisory. But as a percentage of total, I don't have that number.

And the subscription sales as a percentage of total Hackett, I guess of the orders that you guys have been -- the metrics you guys have been talking about, I guess that has also increased, as well? You gave as a percentage of I guess revenue now, which was, what, 37%. But it sounds like the order rate continues to move up. Is that fair to say?

Year over year, as Jack said, was up 131%, which represented -- what did you say, Jack? 35% of the total (multiple speakers)?

It's 37% of (multiple speakers).

37% of the total sales.

And that compares to 23% of the sales a year ago, so you can see that we continue to increase the mix of our advisory services.

Right. And on the -- just following up on the cost question, so you have incentivized your sales force a little bit more aggressively, and I guess it's really paying off in terms of the orders. Do you guys have any sort of -- you know, with the subscription business, you recognize only a certain portion each quarter. Is there any way you could sort of quantify how your deferred revenues -- or how that book is shaping up?

Obviously, to the extent that we get paid in advance, and we get paid in advance of the revenue and how that is amortized, that does result in deferred revenue. And so that revenue on our subscription business is amortized either over one, two or even sometimes three-year periods if we sign up a three-year program. And for benchmark, it obviously gets recognized over the period that the benchmark is delivered.

Just to make sure we have answered your question, both the backlog on the membership advisory as well as benchmarking continued to grow with the overall year-over-year growth and overall year-over-year sales growth. But we are still not providing a contract value or contract bookings number.

Will you have to provide that annually, or is that something that you guys don't have to provide?

I think for 2005, what we decided was to augment the information we provided in Hackett by providing the sales information on a quarterly basis instead of annually, the way we did last year. I think, as we go into '06, as this part of the business continues to be more meaningful on an overall basis, then we will look at all other metrics that we believe are important to the investors.

And what is the Hackett headcount now?

We actually really don't disclose headcount, other than our total headcount for all billable consultants.

That's clearly increasing, not only -- as I will call it -- increasing both US as well as offshore. So clearly increasing. A part of the investment that we have made in the business model has been to increase the headcount, as well, to support not only sales and marketing but also our delivery efforts.

I know you guys are not really talking about the December quarter, but it sounds like the corporate environment that you guys have found yourselves in, in the channel that you're operating in, seems to be pretty strong. Can you just talk about -- a lot of projects seem to be going along at a normal pace, but then there's always that possibility of things being a little bit better at the end of the year. Can you just talk about what you're seeing under this, how people making decisions and implementing projects is going forward?

Well, the activity has been pretty constant here for a while. The behavior is slightly different in third quarter, as clients' personnel take vacation and our personnel take vacation. So you work through that, but that's something that you should expect to encounter as you go into this period. And hopefully, for us, the biggest challenge for us in the second half of last year was the fact that we saw some meaningful disruption in the tech implementation side of our business, as people encountered Sarbanes-Oxley for the first time. And we don't believe that obstacle will be nearly as disruptive as it was last year. And that, coupled, obviously, with the Accenture alliance growing -- we just believe we are significantly better off on all fronts as we go into the second half of the year.

And final question -- on the SarbOx on the Hackett, do you have any sort of preliminary idea as to how well that could take off, since there are so many companies that are faced with that sort of problem and trying to deal with it? Do you guys have any guesstimates out there about the need?

We really do not have an idea, but what we do know is that we have an increasing number of requests directly or indirectly that have a Sarbanes-Oxley impact. So we think that completing our total cost of compliance study and launching that offering will only help us not only better serve existing clients but, obviously, we also expect to have clients sign up to this new program, once it's launched.

Nice quarter. Thank you.

(OPERATOR INSTRUCTIONS). Ben Andrews (ph).

Jack, was there any EzCommerce revenues in Q2 of last year?

Yes. We did the acquisition as of, I believe -- is it early May or the end of May?

That's June (ph) (multiple speakers).

Yes, we closed it in early May, so we had May and June revenues.

May and June?

I believe it was about $2 million, Ben. Jack is looking here for it. I believe it's about $2 million.

And you made a small BI acquisition earlier this year, right?

We brought in six individuals into the Hyperion group, which bought some backlog with it that has clearly enhanced the growth of that BI group, as well. It was a great move, as well.

And Jack, roughly what was Siebel in Q2 last year, which you don't have at all this year?

Siebel was about $400,000, second quarter of last year.

Dominic Marshall (ph).

Wells Capital Management. Just a few quick questions for you guys. In terms of the EBIT targets that you talked about, 7 to 10% in the third quarter and eventually 12 to 15%, is that including or excluding the stock compensation expense?

That would be excluding. That's on a pro forma basis, so it would exclude the stock compensation expense, as well as intangible asset amortization. But it includes a normalized 40% tax rate, as opposed to the tax rate that we are actually paying now, which is very low, given our NOL carryforward.

Now, is this -- I thought you were making reference to an EBIT or operating margin (multiple speakers).

You are right; it's operating income. You are right.

Then, just quickly, on the buyback, I was wondering if you could talk a little bit about what your buyback window is, in a typical quarter?

Well, obviously, we are allowed to buy back stock as long as we are not in possession of any material inside information. So that window is opened or closed, depending upon the activity currently being conducted by Answerthink.

So, practically, though, I'm assuming that you have to wait a few days after the end of this announcement here, and that you stop at some point as you approach the end of the quarter? Is that correct?

Assuming there is no other material inside information out there, that's correct.

Is there kind of a drop-dead point at which you stop buying stock during the course of a quarter, just based on the normal progression of the quarter?

No, there's no fixed date.

And then, just on the DSOs, that was up a little bit this quarter and obviously led to some of the negative cash flow. I was just wondering if you could talk about what your target is for DSOs, and how that might impact cash flow going forward?

Our target is 70 days. So we didn't operate at our target, seemed to get a little bit of a distraction with the July 4th weekend. Obviously, that being at the end of the quarter caused some distraction. And obviously, I just think we need to continue to stress with our internal back-office people, who do the processing as well as the project management individuals that really oversee jobs and oversee the investment and are really the point person on collections. We just need to continue to stress focus in that area, and we hope that we will move towards our target next quarter and beyond.

One other real quick thing. I was just wondering if the position that you are taking over there, Jack, in the business development -- is that a new position? And if so, if you could talk a little bit about what the scope of that position is?

Yes. It's clearly business development, helping Ted with M&A, joint ventures, alliances, any other strategic activity and just working very closely with Ted in that area. I would say those would be the key areas.

So it's a newly-created position?

Newly-created position.

Well, thank you. Nice quarter and good luck.

Brian Pfeiffer (ph).

Morgan Stanley. Ted and Jack, nice quarter. And I'm sorry if this question has been asked, but I've gotten cut off a couple times because I'm on a mobile phone. Ted, I was wondering if you would comment on the target revenue growth rate and the operating margin level for the Hackett Group? And then I have one follow-up question, as well.

Jack commented on the fact that we had overall targets of 12 to 15%, and I think when we provide that, we also say that we're looking for targeted sequential growth of 5% on a quarterly basis. When we then look at our businesses and kind of separate Hackett out, I mentioned last quarter that we thought Hackett's growth prospects, in our view, should be in the 30% range. And I've also mentioned that I think the operating margin targets for that business paired are 20% plus operating margins. When we look at the technology implementation side, we see operating margins that we'd target somewhere in the 8 to 10, and when you blend those two, that's how you get the 12 to 15.

And then, could you maybe just comment a little bit further on the integration of the transformation business into the Hackett Group?

Well, both Jack and I commented on the fact that market receptivity has been very strong. We saw both transaction count and the rate being realized with those programs favorably impact the quarter. We believe that we can continue to add, I'll call it, transformation-centric programs within the Hackett channel in that, obviously, we're extremely hopeful that the rate gains that we saw this quarter we will be able to continue to build on as we work our way through the second half of the year.

Thanks again, and very nice quarter.

Justin Martos.

Graham Partners. On the cash, going forward, you have a $2.5 million cash payout in the September quarter. Is that correct?

Yes, that is correct.

And then, CapEx -- what was it this quarter? And what do you expect it to be next quarter?

CapEx ran about $600,000 this quarter. I would expect it to go down next quarter, given the fact that we did move into a new facility in Atlanta for the Hackett Group.

And you also expect the absolute dollar accounts receivable to fall a little bit. Is that correct?

If DSOs improve and revenues are flat, they should fall.

Our target is to stay at 70, so obviously the goal is to get it down from the 75 we closed this quarter at, as quickly as we can.

At this time, I show no further questions.

Well, again, let me thank everyone for participating in our second-quarter earnings call, and I look forward to catching up again when we report for the third quarter, sometime in the latter part of October or early November. Thank you again for participating.