Hackett Group Inc (HCKT) 2005 Q3 法說會逐字稿

Good evening and welcome to the Answerthink Third Quarter Conference Call. (Operator Instructions). Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO and Mr. Grant Fitzwilliam, Chief Financial Officer. Mr. Fitzwilliam, you may begin your conference.

Thank you operator. Good evening everyone and thank you for joining us today to discuss Answerthink's third quarter results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of Answerthink and myself, Grant Fitzswilliam, CFO. The press announcement was released over the wires at 4:02 p.m. Eastern Time today. For a copy of the release, please visit our Web site 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 Web site.

Before we begin, I would like to remind you that 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 law. These statements relate to our current expectations, estimates, and projections, and are not a guarantee of future performance. They involve risks, uncertainties, and assumptions 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 filings. At this point, I will turn it over to Ted.

Thank you Grant. As we customarily do, I will open the call making some overview comments about the quarter. I will then ask Grant to comment on the detailed operating results and also provide some commentary relative to cash flow, key changes in the balance sheet, and also provide comments relative to our outlook for guidance. So let me start with the third quarter overview.

We are pleased to announce pro forma EPS results in line with our previously provided guidance with operating margin of 8%, even though revenue were $1 million below are range. The quarter played out differently than we expected as the impact of lower than expected European revenues and a couple of transformation initiatives starting slightly later than expected resulted in lower expected Hackett revenues.

Having said that we finished with a stronger than planned September which allows us to enter the fourth quarter with improved momentum and actually sets up a better than planned fourth quarter. On our best practice solutions front revenue and earnings came in pretty much as planned with Hyperion Group continuing to grow very strongly and our PeopleSoft Group showing improved momentum as a result of several significant projects we entered the last quarter in '02.

Our focus during the quarter continues to be centered around leveraging our proprietary best practices intellectual capital to drive our growth. Overall, benchmarking and Advisory Program sales were up 42% on a year-over-year basis and this was in spite of our transition to our sea level executive advisory program as the primary product architecture program - architecture platform for advisory programs. The executive advisory programs were actually up 44% on a year-over-year basis, and this was offset by a similar decline in our profits advisory programs.

As we head into 2006, the plan is to bundle several of our profit level programs under our executive Advisory Program a product architecture by providing broader access to content and strategic advisors. This will also allow us better access to the sea level executives, which we have primary contact with and also allow us to leverage the enterprise level data that we are capturing in our fast-growing SG&A level benchmarks.

As you may recall in March, we realigned our business transformation group under the Hackett Group brand to strengthen the IP and research insight we could deliver to all Hackett clients. We also introduced a series of fixed-price - fixed go transformation advisory programs which has allowed us to position these skills to our clients at higher rates. Market and sales channel reception to these new programs has been very favorable as both the number of fixed-price transformation advisory programs, as well as the rates realized for these programs continue to grow nicely.

The transformation integration has allowed us to at best practice implementation inside of metrics the content which our best practice implementation tools to many of our membership based advisory programs but the real power of the combination is the way we bring our empirical data from our benchmarking to know how from our transformation together with the insight of our research team and how this combination supports our existing and planned advisory programs.

In our best practice solutions group we continue to see the importance of selling our unique value proposition that is defined by our best practice implementation tools. As I previously mentioned, in Q3 we experienced strong growth in our business intelligence group as a result of our very strong Hyperion growth. Our skills in this area have continued to expand and we continue to see strong demand for planning and performance management analytical applications as we look into 2006.

On the business applications front some significant wins with passed the new relationship have allowed us to stabilize those groups and we expect to see this trend continue into Q4. This happened, even though we had a significant joint engagement with Accenture that was discontinued as we entered Q3. Relative to Accenture we continue to see good proposal activity and we continue to close new deals across most of our business applications and business intelligence offerings.

Although our alliance revenues during the quarter were flat with Q2, in spite of the fact that we had the large joint deal discontinued early Q3, we were able to actually deploy our associates on the other joint wins quicker than we had originally expected. We believe that the move to combine our empirical data and research coupled by the strategic execution expertise of transformation advisory team provides us with an opportunity to continue to aggressively grow our Hackett revenues and to also strongly position our best practice implementation approach.

At the heart of that strategy is our strong belief that our advisory membership based program allow us to develop a close, continuous relationship with our clients that positions us to independently and objectively assist them as their needs emerge. The expanded Hackett with a combination of benchmarking, strategic consulting and research advisory is allowing us to serve clients across several dimensions, which is unique to Hackett and allowing us to define new intellectual capital centric services and an entirely new category which we refer to as strategic advisory.

We recently kicked off our 2006 planning process and at the heart of the planning strategy is the guiding principal that is centered around the growth and leverage of our membership advisory programs. Our goal is to see how quickly we can get 500 clients across 1,000 programs in our membership advisory programs up from approximately 150 plus clients today and 300 plus - across 300 plus programs.

You will hear this reference of 500 and 1,000 on a more frequent basis as we head into 2006. Let me turn it over to Grant to provide details on our operating results, cash flow and also common on outlook.

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

For the third quarter, revenue were $40 million, up 8% from the third quarter of last year, down 4% sequentially and $1 million below guidance. After a forma net income was 2.1 million or $0.05 per diluted share which was the mid-point of guidance.

Pro forma earnings exclude non-cash compensation and intangible assets, amortization, and include a normalized 40% tax rate. Our pro forma operating profit margin was 8% an improvement from 5% in both the second quarter of this year and the third quarter of last year.

On a GAAP basis, our net income was $0.05 per diluted share which was within the range of guidance and included non-cash stock compensation expense of $905,000 and amortization of intangible assets of $375,000. Our GAAP effective tax rate for the first nine months of 2005 was 8%, which is our estimated tax rate for all of 2005 to provide for certain state and foreign taxes. We accrued no U.S. federal taxes due to our NOL carry-forward position.

As of the end of 2004, the company has approximately $74 million of U.S. Federal loss carry-forward. The Hackett Group came in slightly below forecasts, driven by softness in the European market and some Transformation Advisory projects that started later in the quarter than expected which will benefit us going into the fourth quarter. Revenue from the best practice solutions Group was in line with plan.

Breaking down revenue for the third quarter, benchmarking in membership advisory programs were $7.2 million which will represent a year-over-year increase of 24% in the quarter and a year-to-date year-over-year increase of 28%, led by over 100% growth in membership advisory programs. Revenue from Hackett's Transformation Advisory group was $9.2 million which represents a year-over-year quarterly increase of 10% and a year-to-date year-over-year increase of 27%.

Business Intelligence reported $10.1 million of revenue, which represents a year-over-year increase for the quarter up 33%. Business Intelligence growth was fueled by continuing strong performance from our Hyperion practice.

Our Business Applications group reported $13.6 million of revenue, a year-over-year quarterly increase -- decrease of 12%. As noted by Ted in our second quarter earnings call Business Applications revenue was negatively impacted by Joint Accenture projects that were discontinued early in the third quarter.

From a sales perspective benchmarking and membership advisory contract sales in the third quarter totaled 8.1 million, compared to 5.7 million in last year's third quarter which represents 42% increase. Benchmark sales are up strongly year-over-year. Advisory sales were flat with executive advisory sales up 44% year-over-year, offset by a decline in Process Advisory Sales. From a year-to-date perspective, benchmark sales are up 20% and membership advisory sales are up 64% from the prior year.

Revenue from the Accenture Alliance represented 10% of total revenue in the quarter, consistent with 10% last quarter despite the negative impact of the significant joint projects that was discontinued in the third quarter. Most of this revenue represents technology implementation services that are included in our Business Applications and Business Intelligence groups. We expect fourth quarter revenue from the Accenture channel to be comparable with third quarter levels.

Revenue from our top five and top 10 customers was 20% and 33% respectively compared to 19% and 30% respectively in the previous quarter. Revenue from our largest customer was 6% compared to 5% in the previous quarter. The total headcount at quarter end was 601, compared to 596 at the end of last quarter. Included in consultant headcount were 54 subcontractors which compares to 52 last quarter.

Consultant utilization was 67% in the third quarter, down from 70% last quarter but consistent with the same period in the prior year. Our per hour realized billing rate was $194 this quarter, up from $192 last quarter, reflecting the continued impact of higher rates from our Hackett and Business Intelligence products and services.

Our gross margins as a percentage of revenue were 41% in the third quarter, which was flat compared to the previous quarter and up from 36% in the previous year's third quarter. Margins were favorably impacted by improved rate per hour and lower payroll taxes. These impacts were offset by lower utilization caused by summer vacations.

Our pro forma SG&A as a percentage of revenues was 33% in the third quarter, down from 36% last quarter. Higher SG&A costs in the prior quarter resulted primarily from our annual Hackett Best conference and other discretionary expenses.

Our cash balances including restricted cash and marketable investments were $41.1 million at the end of the third quarter, a decrease of 4.6 million from the second quarter. This decrease resulted primarily from an increase in accounts receivable and unbilled revenue totaling 4 million, payments totaling 2.7 million relating to a deferred payment on a prior acquisition and payroll taxes paid on vested restricted stock units. These impacts were partially offset by earnings in the quarter.

During the quarter, we did not repurchase any shares of our common stock. At the end of the third quarter, $7.9 million was available for future use for purchase of common stock.

DSO's increased from 75 days last quarter to a disappointing 86 days this quarter which compares to 79 days in the third quarter of last year. Two factors drove the increase. Firstly, two of our top five customers with large quarter end receivable balances did not make payments until after quarter end and secondly, we closed the quarter with stronger than planned September revenue and as a result did not bill this revenue until early October.

I have been personally focused on making sure that DSO gets back to our 70 day targeted level. To update you on recent progress, cash collections for the month of October are up 40% compared to the same period in the prior year. We expect DSO to be below 80 days by the end of the fourth quarter, and we will be targeting 70 days in 2006.

I would now like to discuss our guidance for the fourth quarter. For all of Answerthink, we expect fourth quarter revenues to be in the range of 38 to $41 million. At the mid-point of the guidance this would reflect year-over-year growth of 17%. There is a seasonal impact in the fourth quarter where we expect to have approximately 12% less billing days when compared to the third quarter due to holidays and vacation usage.

Based on our current review of the pipeline, the Hackett Group should be up, benefiting from a strong momentum transformation advisory head entering the quarter and the continued buildup of membership advisory revenues. We expect the best practice solutions Group to be down given the impact of few available days in the fourth quarter.

Diluted pro forma earnings per share in the fourth quarter should be in a range of $0.04 to $0.06. This pro form estimate includes a normalized tax rate of 40%. On a GAAP basis our diluted earnings per share should be in the range of $0.03 to $0.06. Our GAAP estimates include an estimate of 1.3 million for non-cash compensation and intangible amortization expense. It also includes an 8% tax rate to accrue for certain state and foreign taxes.

Our gross margin percent in the fourth quarter should be comparable to third quarter levels. Lower utilization driven by increased vacation holidays will be offset by a reduction in the vacation accrual balance. Consultant headcount should be up slightly, and SG&A expense should approximate our third quarter level.

Excluding any impact of our stock buyback program our cash position should be up due to positive operating income and improved DSO that will be partially offset by a $1.1 million payment for an acquisition earn out.

In summary, we made good operating profit margin progress in the third quarter and into fourth quarter with improved momentum. We continue to make progress towards our target operating margins of 12-15%. Contributing to the progress are the incremental effects of Hackett rates and margins as we continue to grow and also improve leverage in our SG&A spend. At this point I will turn it back to Ted to cover our market outlook and strategic priorities.

Thank you, Grant. As we look forward we continue to expect strong demand for the unique combination of offerings and value proposition that we define using our proprietary best practices intellectual capital. Our ability to strategically advise clients through some combination of benchmarking Transformation Advisory along with our ability to provide on demand access to our proven best practices and strategies in our membership advisory programs is uniquely ours and available nowhere else.

Our ability to then link our best practice knowledge base to software configurations or workflow automation decisions through our Business Applications and Business Intelligence teams leveraging our BPI or best practice implementation tools also allows us to provide our teams with an IP centric value proposition in these service areas.

As we look at the overall market demand with more tempered expectations relative to Europe as we enter the quarter, we are encouraged by the activity we continuing to experience across most of our offerings. With that as a backdrop let me now comment on our strategic priority and our progress in each area during the past quarter.

Our first initiative has began and continues to be to continually grow - rapidly grow our Hackett Group with new and renewable multi-year offerings. As I covered in my opening remarks the receptivity to our offering structure and the value proposition of our executive advisory programs that were launched in March of 2004 has been very strong. We expect the transition to this offering structure to be in place for most of our programs as we move into 2006.

As I previously mentioned, you will hear me comment on our progress on how quickly we get to 500 clients across 1000 programs in our advisory program as quickly as possible as a key driver of our growth strategy as we plan and head into 2006.

The enhanced focus on our executive advisory programs and the strength and empirical data driven by our benchmarking group along with the insight that comes from our transformation advisory team and the integration of all these key elements really add a valuable proposition to all of these programs that we believe will fuel our growth.

Our second initiative is to continue to expand our best practice implementation tools. We continue to see our clients and alliance partners decision to team with us directly attributed to the proprietary best practice implementation content and tools. As I have said in the past the objective of our best practice implementation tools is to help define their performance improvement opportunity and to help them make smarter business process and software configuration decisions that allow them to realize targeted results.

As we mentioned last quarter, in January we launched version 2 of our BPI tools. We are now looking for a way to update our content on a more frequent basis as well as across industry verticals and source location as key elements for our next version.

Our third initiative is to create incremental revenue channels through strategic relationships. That will help us leverage and expand our intellectual capital base and our BPI tools. We comment on Accenture every quarter, but it is also important to consider the strategic relationship we established with Lawson in Q2 and how this relationship is helping both organizations growth revenues.

Last week we announced a new alliance with EquaTerra a business process advisory firm that we plan to team with to better serve clients considering in-sourcing and outsourcing decisions. All of these relationships provide strategic channel expansion and revenue growth opportunities for our organization. We also continue to see these kinds of strategic relationships as a great way to further expand our intellectual capital base.

Our fourth initiative was to expand our tool shore capabilities. In November of '04 we opened a facility in Hyderabad and we have continued to expand the leverage of this facility to support not only our Business Applications groups but also to support our Hackett Group delivery and internal software development efforts. We are continuing to expand the leverage of this very important talent pool.

Our fifth and last initiative is to continue to pursue strategic acquisitions. We continue to believe that our unique Hackett access and our best practice intellectual capital coupled with our strong balance sheet and infrastructure can be utilized to support a larger service organization. Our focus and goals remain unchanged. Acquisitions must be accretive and 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 services focus provides us with a unique set of value creation opportunities. Accordingly, we continue to be excited about our strategic positioning, the progress we continue to make and the opportunities that they provide the organization as we look forward.

Lastly, I want to also recognize the efforts of our associates. They remain focused on great client service and continue to make noticeable contributions to all of our strategic initiatives. I want to thank them and recognize their outstanding effort and spirit during this very important Transformation that our entire organization is undergoing. Those are my comments. Let me then turn it back over and see if we have Q&A.

Thank you. [Operator Instructions]. Our first question comes from George Sutton of Craig-Hallum.

Hi guys. I wanted to understand a little better if I could this Transformation Advisory quarter that you had. Obviously did not meet your expectations, but you're going into Q4 better than expected. Can you explain that a little bit more clearly?

Yes. When we look at Q3 relative to Q2, we can almost break it up into three things. Europe came in slightly lower and that had an impact. As Grant mentioned, there were a couple of projects that by delaying a week probably had an impact and believe it or not, the other impact is since we report on the gross basis the reimbursed client expenses is actually up - down meaningfully from Q2. Those are the things that change transformation.

The flipside of that is that we continue to have very strong activity in the U.S. We are not expecting Europe as we looking the Q4 to grow so we are being cautious about what Europe will do Q3 to Q4 but when we look at both the - when we look at just the October activity the number of wins that we started in the latter part of Q3, it is really an opportunity for us to work pretty hard until we are heavily impacted by the end of quarter holiday impact where most of our people to try to take the last week or two off. But the momentum going into - as we exited Q3 allows us to be pretty bullish about what the prospects are for Q4 and that is what allows us to provide the guidance that Grant commented on which is Hackett should be off strongly because of that activity and we expect the technology implementation team - the best practice solution team tend to be impacted more commonly by the available data off of Q4.

With respect to your Accenture relationship, you mentioned Q3 levels that were expected were similar to Q2. You obviously have a Accenture renewal coming up here I think at the end of November. Can you just discuss that and the relationship more broadly and any sort of metrics you can give us with respect to activity levels there because what I have been picking up are some pretty good wins, but you have not necessarily started to work with them and I just wanted to make sure I triangulate that information. Thanks.

Okay George well first of all, when we spoke to all of you on our Q2 earnings call, we actually expected the Accenture revenue number to be down from Q2 to Q3. We were pleasantly surprised that we were able to deploy - replace the revenue from a pretty significant deal which ended in July on other projects as the quarter developed. So, the impact of Accenture in the quarter actually ended being more favorable than we originally impacted.

Our relationship on an overall basis I think both sides understand that we know how to work together and we are helping each other strategically. The October renewal, as far as we are concerned, the contract has a 90 day termination provision that really allows either party to terminate obviously with some kind of making sure that you're being fair to one another but to allow the other party to terminate with 90 days notice. Neither party has provided that notice.

We continue to look for ways to work with Accenture more strategically and we continue to believe we are a strategic partner and think that they can be even more strategic than they currently are being with us especially given the volume of business that we have closed over the last 18 to 24 months.

So we continue to push the envelope with them and try to get more of their attention and as they have always said, hey Ted you prove it out in front of clients. The comment on activity. Pretty consistently we have been having five plus wins each quarter. This quarter was no different. The level of activity has continued to be good. The revenue was actually higher even though that engagement lost and I would like to think that they recognize us as a more strategic partner this year than they did a year ago.

Okay and with respect to the Lawson relationship, they have made a very big deal in their conference calls and I have seen them at some conferences and they are very excited about this alliance with Hackett. Can you just give us a sense of - for example, they mention 18 customers signed up to the new Passport Charter Program. What does that mean and just give us the state of that state of that relationship if you would. Thanks.

Well the state of that relationship but first we were pleased to see them comment about the strategic value that they believe we are bringing to them as they try to sell and position the value of their applications in the marketplace. The level of customers that have now signed up with the Hackett Passport Program in our view is pretty favorable. I mean our idea is to continue to add members to that program, and we have set a target. Obviously, that is higher than18 that we will review at our anniversary date which will be the middle of next year, so our hope is that we continue to build the membership team for the Hackett Passport Program that their clients will actually articulate how both having the relationship has allowed them to differentiate the Lawson products in that the interaction with our strategic advisors is also extremely valuable and we would like to see them continue with the relationship as planned. We believe we are off to a very good start with them.

Okay, thanks guys

Justin Martos with Graham Partners.

What is the description of revenue as a percentage of Hackett now?

The revenue in the quarter was just - over 29% so it is just under 30%, but I look at that when we look at both Hackett and advisory. So, on an overall basis I do not have that percentage. But we normally give it to you as a percentage of the benchmark and Advisory Program number that we disclosed on our table.

Right and you gave the other - was it around $8 million number? There was a number that he gave regarding - it was around 8 million was?

Hold on a second and let Grant refer to that number.

Revenue for the third quarter for benchmarking membership advisory was 7.2 million.

10.2 million.

A combination of both of those.

Great and so I guess the big difference from the expectation was really the Hackett. You just had a couple of deals that slipped? Is that it or?

A couple of deals slipped. Europe was softer and we are small enough that we are impacted by the level of reimbursed client expenses that we reported gross revenue.

And you Hyperion business did better because you added a new group I think earlier this year? Is that part of the reason what it has been doing better?

We added actually the real capabilities. We added a small team of very talented people to our Hyperion group in January and yes we believe we have one of the best Hyperion implementation teams in the country and we would like to think Hyperion thinks that and clearly the performance of that team would indicate that.

And when you expect the Lawson relationship to actually contribute revenue or when can you talk about that?

Oh no, the Lawson relationship has revenue which is being amortized into our P&L already.

And how much did you guys talk about?

The non-contingent piece of year one was I believe right around $2 million. So just assume we are just dividing that over 12 months.

Right and if you meet certain metrics then you will have additional revenue that gets put into that quarter? Is that correct?

Yes they did have some menu related items that allow them to add benchmarking and some other things that they can trigger or position as they like and then we have got the assessment of a year or two of exclusivity.

What were the total of non-cash expenses in the current quarter?

Total non-cash, we had $905,000 amortization. I'm sorry. 905,000 of non-cash stock compensation expense and intangible amortization of $375,000.

Thank you.

[Operator Instructions]. Our next question comes from Jeff Myers, Intrepid Capital.

Great thank a lot guys. First question just for clarification so I guess 8.1 was for the Hackett bookings for the quarter? What were subscription programs as a percentage of that?

The 8.1 was sales for benchmarking and membership advisory. Of that, 23% was advisory and remainder 77% was benchmarking.

Okay. This is sort of a big picture question. I guess maybe looking out to next year, how fast do you guys think you can grow Hackett - you know use both sides of Hackett and maybe also, if you want to give a shot the other two business lines.

I have said that we believe that the Hackett Group should grow at 25 to 30%long-term growth rate and have an opportunity for operating margins in excess of 20% long term and we believe that our best practice implementation teams have an opportunity to grow because of the volatility of the past years we have said zero to 10% with 8-10% operating margin opportunity. So the combination of those two is what kind of drives our 12 to 15% operating margin targets 12 to 18 months out there.

I've got you. Have you thought at all about strategy to really to highlight Hackett and we have discussed this before either spinning Hackett off or maybe change the name of the company to Hackett or something along those lines?

We clearly think about all the alternatives that we have to drive shareholder value. We believe that we have been on a strategy to make sure that a couple of things happen. One, that people understand the reason we are strategically relevant is the intellectual capital that we have and that we built both in Hackett and in our best practice implementation tools and yes we have discussed - talked about all the various alternatives that would allow us to optimize shareholder value and discussed those with the board and consider them - at least discuss them quarterly.

So yes we know that we have several different paths to go as the business model matures that will allow us to optimize shareholder value. The most important thing that I have tried to tell all of our people to focus on is that the way we can really differentiate our business model is, in my view, by aggressively building the membership advisory program. As I have said, that we have 1000 programs in building a large enough base which not only allow us to have a renewable revenue stream but that also allows our benchmarking group to gather data and a lot of those clients to benchmark themselves if that is the kind of assistance they need at that point in time or to also get some of the transformation or best practice solutions implementation support that we have. So we continue to be focused around making sure that we're building continuous relationships that allow those clients to turn to us as their needs emerge and we will let the value creation opportunities then play out as we see that business model mature.

Maybe you could just talk a little bit more about the transformation that is going on within the Hackett subscription I guess going from the process advisory to the - more of the CEO guys or maybe talk about the difference in products and also the difference in target audience and if there is a risk at all in making this sort of product transformation there?

I do not want to say that anything we do is without risk but I would say that we launched our profit advisory program in September of '03. This is a series of programs that supports a kind of director level individuals in perhaps payroll or planning or other SG&A functions. What we quickly developed as we launched those programs in '03 is that the intellectual capital and the access that we had within Hackett really was defined in driven through the sea level executives. So in March of '04, we launched our executive advisory program, which really elevated the type of data that we were delivering to those executives. It included with those executives a world-class progress report feature that would allow clients to submit and compare performance data on an ongoing basis. It provided a broader access to our strategic adviser. It was simply a richer program that focused on sea level executives with richer support and also with a higher price point.

So as the program has developed a couple of things. One is we really would like to try to move to one, I am going to call it program offering and we would like that program offering to be as rich as possible so the value proposition is unquestioned. We're going through a process where we're saying hey we know that our most influential buyer is the sea level executive or his direct designee. That is where we have the access today. That is a series of programs that we have stepped up our price point that is growing rapidly.

How do we take our process level advisory programs which we have launched in September of '03 and through a combination of bringing those together under a broader platform or by including them in executive advisory level programs we were able to I am going to call it 'uplift' and move - provide a richer client experience for all those individuals while at the same time we were able to go to one or a more consistent programmer product architecture. We think that is the way to go. We have seen this leveraged by competitors pretty nicely and we like the price point.

But yes, that transition that has to be affected as you try to make that happen, but when we look at the growth prospects for our executive advisory programs and we believe that we're going to transition those programs to a richer experience even if we have to do some compromising with them on what they pay us for those existing client, we are just looking for the smartest way to do that but at the end of the day, we're saying, how quickly can we get 500 clients across 1000 programs as the key planning feature of 2006 and I am obviously we will be finalizing our planning here over the next 45 days. I will call it that is our first stake in the ground that we have set as kind of a goal for the organization as we look forward.

Right. What was the mix this past quarter between process and executive?

I think Grant just mentioned on the sales side it was 70 -- 23% and 77% benchmarking to advisor. On the revenue side it was 29% and 71%.

All right guys. I felt that within the advisory programs you were saying there were two types. There was process advisory and executive advisory. I guess I'm curious as to what the mix is between those two?

Well the sales perspective in the third quarter a meaningful - a majority of it was coming from Executive Advisory.

I've got you and what about on the revenue side?

We do not have that breakdown.

Got you. Okay.

You are digging a little deeper than we provide but hopefully they gives you directionally where we're heading.

That is my job.

We understand.

All right guys well thanks a lot and I will see you in New York.

Okay, terrific.

George Sutton, Craig-Hallum.

Hi guys. Just a couple follow-ups. Ted on the 500/1000 goals, are you suggesting that is a 2006 goal or are you suggesting that is just a number thrown out there that you will work towards in 2006?

I don't even want to infer that that is a 2006 goals because I do not want to hang up the phone and have a group of our people run into my office and throw me out the window. The hurricane have been bad enough. No. I set that goal for a reason. So the question is I will allow the planning process over the next 45 days to emerge and develop exactly when we think that is a realistic target. But given the fact that -- let me just say that given the fact that we have gotten to 150 plus and 300 plus to this point, I would like to think that that is an achievable number within a reasonable period of time but I want the process to work itself out and for the team to come back and let me when that can be achieved and how.

Okay. Switching gears to share repurchases. How do we read the fact you did not make share repurchases in the quarter? Was there any thought process behind it that we should take suggesting maybe you were focused on looking at acquisitions or something else?

I think I would answer that with our standard comment, which is that share repurchase program there was put in place because we believe we ought to be taking advantage of the opportunity and we like to participate unless other things preclude us from doing so.

Okay, thank guys.

Justin Martos, Graham Partners.

On the Hackett Group, is there any seasonality you guys are seeing last year versus this year back half of the year versus the first half of the year? Anything you guys could say if you know the figure?

The seasonality that we have seen over the last two year in Hackett, we expect the fourth quarter to be strongest sales. I will call it sales quarter for the group so that ends up then having an impact on the first half of the year. Seasonally, the third quarter has been a little bit more challenging the last two years. I do not know if that is the August effect both here and in Europe. Clearly getting people's attention is obviously a little bit more difficult across the board.

Overall, we should build. In the last quarter, leverage that into the first half of the year. We built on the first quarters pretty nicely last year, even though our first quarter was not that great. We had a very strong sales quarter in the second quarter. We have built on that right now and we hope we can build on that in Q4 but generally, sales build in the first half of the year -- I mean the revenue of sales billed in the fourth quarter and then early in the year it allows revenue to build out in the first couple of quarters. A little bit of a lull in the third quarter and that is kind of the way we see the year played out.

Right and when you are talking about Hackett you are talking about Hackett and the Business transformation part of that? Is that correct?

That is correct, although the sales for the transformation advisory are probably less impacted by this year end renewal year closings budget flush, whatever you want to attribute it to. The year end sales event that is created each and every year and we have done that pretty successfully of the last couple of years, and hope we can do that again this quarter.

And in the last quarter, you said you were affected by the gross versus the net revenues and the Transformation piece. Was that -- was there a particular project in June quarter that caused it to increase over margin and that went away and it was a little bit harder? Is that what drove a lot of that difference?

We do not know. We looked at it as we were analyzing - we did not attribute it to any specific project. I don't know if Grant you've got something that you-we took it down to a project level.

It just seemed to be a second quarter anomaly where the second quarter expense ratio was higher and we are back to more historical levels.

I looked at it relative to Q2. As you know in Q2, our revenues were $1.7 million above guidance versus this quarter where we are $1 million below and as we kind of piece hit it we were trying to pull it together. A year ago was pretty obvious. The other pieces we have to kind of dig a little deeper to kind of find the items that came to our attention.

I think you quantified the delta. I mean was it a couple of hundred thousand is that it?

When you look at the number from Q2 to Q3, you normally take a third, a third, and a third. Europe some kind of transformation or even a little benchmarking activity starting a little later than we planned and expense to tech.

A third, a third, a third for the whole company?

Yes. When you look at absolutes Q2 to Q3.

And finally how is this SOCS product going? The Sarbanes Oxley product going?

We just launched the preliminary findings at our business process sourcing conference that was held in Atlanta this past week. We are going back to do some updated analysis and to publish the research and to launch our offering but we had a preview of it provided to the I think nearly 200 people I think was the last total count that attended our business process conference last week.

Do you expect that that will help with revenues?

I know that our sales channels our sales leader is planning on it. If not, some in fact in Q4 clearly until '06.

Okay, thank you.

At this time, I show no further questions. I would like to turn the meeting back over to Mr. Fernandez for any closing comments.

As always, let me thank everyone for participating on our quarterly earnings call. We look forward to updating you when we complete the fourth quarter. Again, thank you for participating. Good night.

This concludes today's conference. Thank you and have a good night.