Hackett Group Inc (HCKT) 2006 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.

Thank you, operator. And good evening, everyone, and thank you for joining us today to discuss Answerthink's preliminary 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 Fitzwilliam, CFO. A press announcement was released over the wires at 4:51 P.M., Eastern Time, today. For a copy of the release, please visit our website, at "www.answerthink.com." We have also placed 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, I 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 the "Risk Factors" contained in our SEC filings.

It is important to note that we are reporting preliminary Q3 results. The reason that our results are preliminary is that late last week, the Company learned of a misappropriation by its former UK disbursements agent, which relates to funds earmarked for payroll taxes due to the United Kingdom Inland Revenue Service.

The disbursement agents had been utilized by the Company from early 2003 to January 2006 to make payroll tax and vendor disbursements in the United Kingdom. After further investigation, the agent had admitted to the misappropriation of funds. A suit was commenced against the agent in the United Kingdom on October the 27th 2006, and certain assets of the former agent have been frozen.

The former disbursement agent has offered to pledge as security assets equal to a significant portion of the Company's claim. We cannot predict the outcome of this suit or whether our efforts to recover the misappropriated funds will be successful, notwithstanding the offer to pledge these assets.

The Company has commenced an internal review to assure that the full extent of the misappropriation is confirmed. The audit committee will also conduct its own review of this matter with the assistance of outside professionals. The Company estimates that the total payroll taxes that should have been paid to the UK Inland Revenue and which were remitted to the disbursement agent for payment for the period in question to be approximately $2 million.

There can be no assurance that the Company's actual exposure is limited to these matters or the actual exposure for these tax matters will not increase materially from the estimate provided above or that these amounts will not need to be recorded in prior period, namely 2003, 2004 and 2005.

The Company indicates that it will likely delay the filing of its quarterly report on Form 10-Q for the third quarter, which is due next week on November the 8th 2006 in order to allow for the audit committee's independent review and the Company's review of these issues to be concluded and for the required quarterly review procedures to be completed by its independent public accountant, BDO Seidman.

The Company is unable to predict the ultimate outcome of the review or the timing of its conclusion. The Company will also consider in consultation with BDO Seidman and its former independent public accountants prior to August 2005 as to whether any restatement of prior financial statements would be required under generally accepted accounting principles with respect to the matters described.

In addition, the Company has commenced a review of the Company's internal controls over financial reporting, including, in particular, its controls over foreign cash disbursements and whether there have been any material weaknesses in the Company's internal controls in 2006 and prior periods.

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

Thank you, Grant. Notwithstanding the -- obviously, the events here over the last several days, today, we reported preliminary Q3 results with both revenue and pro forma EPS in line with guidance. Overall results were close to expected with strong year-over-year revenue and annualized contract value growth in our membership advisory business and with slightly lower revenues than expected in our REL, benchmarking and transformation groups. Our best practices solutions group performed as expected with our business intelligence group performing better than expected offset by slightly lower revenues from our business applications group.

As I mentioned on our second quarter call, a key part of our 2006 strategic plan was the change we made to our sales incentive structure by increasing the sales commissions and commission accelerators specific to membership advisory sales relative to our benchmarking and transformation sales. We have continued to see this emphasis on membership advisory result in a 48% increase in membership advisory revenue growth this quarter and a 42% increase in annualized contract value this quarter, when we compare both of those numbers on a year-over-year basis.

However, it is clear that it has negatively impact -- that our -- this emphasis on advisory growth has negatively impacted growth of our other Hackett offerings. Specifically, we have seen the number of new channel client sales in transformation and benchmarking decline on a year-over-year basis.

Having said that, these are things we believe can be reversed once the sales incentive structure is changed. So therefore, even though we continue to believe that the emphasis has been the right one given our strong desire to build a large membership advisory base and the impact that it represents to our business model long-term, we now know that we will make -- we will have to make further changes at the beginning of '07 to strike a better balance for the total business.

As we work through our 2007 strategic plan, we believe, by making adjustments to our current sales incentive structure, we can recapture a more normalized growth rate for our benchmarking and transformation groups while continuing to grow our membership advisory revenues. These adjustments along with the realignment of the REL sales channel directly to the REL leadership at the beginning of Q3, we believe, will create a broader sales and revenue growth impact on our business in 2007.

Relative to REL, if you recall that at the beginning of the third quarter, we realigned the REL sales team to the REL US and European leadership. We believe this change is allowing us to rebuild our pipeline and momentum in the Group. In light of this progress, we now believe that REL will be up about 10% sequentially from Q3 to Q4. On the membership advisory product integration front, our total working capital advisory membership program is now approaching 20 members.

Let me comment further on our membership advisory performance. Membership advisory annualized contract value or ACV, this figure represents the annualized value of active contracts at any period end. We believe this number provides the best indication of our progress and future growth prospects for this business. At the end of the quarter, our annualized contract value was $12.1 million, which represents a 42% year-over-year increase.

Given the brief history of this offering, the ACV growth or annualized contract value growth represents great progress while we continue to acknowledge the opportunity to further improve the value that we currently offer clients. We also saw our membership count increase and programs per client increase strongly during the quarter. Gross membership counts were up 13% sequentially to approximately 650 and up 2% sequentially on a net basis to 488.

Client counts, excluding the completion of an individual vendor program that resulted in 12 client losses, were up 8% sequentially to 245. We are expecting this momentum to continue into Q4 and to be -- and to strongly position the group for growth in 2007. One new development is that we have clearly seen the strong demand for our process advisory bundles that we started to sell in late 2005 drive very strong membership count growth as well as members per client growth over the last several quarters.

Given this strong demand, along with the strong reveal of our process advisory programs, we now expect to retain and promote both our executive advisory programs as well as our process advisory programs as key components of our strategy.

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

Thank you, Ted. I plan to cover four main topics. Firstly, overall results, followed by a breakdown of revenue, followed by key operating statistics and then conclude with a discussion of our financial outlook for the fourth quarter. Note that all references to revenue in my discussion will pertain to gross revenue, which is revenue including reimbursable expenses.

Note also that all Q3 2006 results and Q4 guidance numbers do not include any potential impact related to the UK misappropriation matter that I described earlier. For the third quarter, our revenues were $43.6 million, a 9% increase from Q3 of last year. If you exclude REL from the current quarter, revenue was essentially flat from the prior year's quarter, with Hackett up 6% and best practice solutions down by an equal amount.

Our pro forma net income was $1.3 million, or $0.03 per diluted share. Pro forma earnings exclude non-cash compensation and intangible asset amortization and include a normalized 40% tax rate. But revenues and pro forma EPS are within guidance. On a GAAP basis for the third quarter, we had net income of $513,000 or $0.01 per diluted share, which includes non-cash stock compensation expense of $1 million and amortization of intangible assets of $463,000.

Our effective GAAP tax rate for the quarter was 33% due to a year-to-date catch-up for a US federal alternative minimum tax. As of the end of the third quarter of 2006, the Company has approximately $70 million of US federal loss carry-forwards.

Moving onto revenue, from a revenue perspective, total Hackett revenue was $21.3 million compared to $25.6 million in the previous quarter and $16.3 million in the third quarter of last year. This quarter includes $4 million for REL compared to $6.3 million in the second quarter and zero in the third quarter of last year.

Breaking down Hackett revenue, benchmarking revenue was $4.0 million, a sequential decrease of 22% and a year-over-year decrease of 22%. As we discussed on our previous quarterly earnings call, we expected revenues to be down as a result of client deferring the start date of contracted benchmarks, particularly for multiyear benchmarks.

Membership advisory revenue was $3.0 million, which is up 49% on a year-over-year basis, and also up sequentially if you exclude the $300,000 one-time revenue pickup in Q2, 2006, related to a vendor program use-it-or-lose-it contract clause that we discussed on the previous earnings call. Annualized contract value for Hackett's membership advisory business was $12.2 million at the end of the third quarter of 2006, up 6% sequentially despite the usual seasonal impact of the slow Q3 summer sales period and up 42% on a year-over-year basis. This metric, as Ted said, provides the best indication of momentum in this business.

Transformation revenue was $14.3 million, which includes $4 million attributable to REL. Excluding REL, transformation revenue was $10.3 million, a year-over-year increase of 12%. As mentioned by Ted earlier, transformation revenue had been negatively impacted by the 2006 sales commission plan, which paid the lowest commission rate for transformation sales.

As Ted also mentioned, the 2007 commission plan is currently being worked through to address this issue. In addition, the REL sales force has been rededicated to selling only total working capital-related products effective July 1, 2006, and we expect this to reverse the downward trend in REL revenues.

Revenues for business applications totaled $12 million, down sequentially as expected. The year-over-year decrease of 12% reflects our continued de-emphasis of any low-rate, low-margin SAP related staff augmentation work. Revenue for business intelligence totaled $10.3 million, down sequentially and up 2% on a year-over-year basis as we continue to benefit from the strong performance in our tiering practice offset partially by lower revenue in our customs business intelligence practice.

Revenue from the Accenture alliance represented 4% of Answerthink's revenue in the quarter, most of this revenue coming from technology implementation services that are included in our technology implementation groups.

I would now like to discuss our key operating statistics. Consultant headcount at quarter end was 621, a decrease of 21 compared to 642 at the end of last quarter. The decrease is primarily attributable to a reduction in headcount in the business applications groups. Revenue per professional in the Hackett Group was $341,000 compared to $387,000 in Q2 2006 and $383,000 in the third quarter of last year. Revenue per professional was negatively impacted in the current quarter by lower than normal consultant utilization in the transformation practice and the benchmarking revenue decline.

Revenue per professional is calculated by dividing gross Hackett Group revenue by the average number of consultants and subcontractors during the period. For the business applications and business intelligence practices, consultant utilization was 70%, which is comparable to the 71% in the third quarter of last year.

For the business applications and business intelligence practices, our per-hour realized billing rate was $161 this quarter, up from $156 last quarter and $158 in the third quarter of last year. These rates include the offshore rate for work performed in India and reflects stable pricing in the marketplace.

Our pro-forma gross margins, which excludes stock compensation expense was 38.2% in the third quarter, down from 41% in the previous year's third quarter. This, again, was impacted by the revenue decline. Our pro forma SG&A as a percentage of revenue was 33% in the third quarter, up from 31% last quarter and flat with last year's third quarter. While SG&A costs have benefited from the Company's restructuring efforts, the percentage, is, again, negatively impacted by the revenue decline.

Our cash balances, including restricted cash and marketable investments, were $21.1 million at the end of the third quarter, an increase of $4 million. This increase resulted primarily from the timing of the US payroll cycle, reductions in accounts receivable and unbilled revenues, partially offset by $1.7 million spent repurchasing the Company's stock.

DSO increased by two days to 82. Although, accounts receivable and unbilled revenue balances decreased on a quarter-over-quarter basis, which would usually drive an improvement in DSO, revenue declined sequentially, which creates an offset for the DSO calculation purposes. At the end of the third quarter, $6.1 million was available for future purchases of common stock.

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 $39 million to $41 million. Diluted pro-forma earnings per share in the fourth quarter should be in the range of $0.00 to $0.02. This pro-forma estimate includes a normalized tax rate of 40% and excludes any potential charges or expenses related to the UK misappropriation.

As we said in our press release, we do expect to incur expenses in the fourth quarter of 2006 as a result of these matters, including increased legal and accounting costs. At this time, we cannot predict the amount of such expenses. From a Hackett revenue perspective, in Q4, we expect membership advisory, benchmarking and REL revenues to be up and for transformation to be down. Transformation down -- being down due to the seasonal impact of fewer billing days in Q4.

For both the business applications and business intelligence practices, we expect revenue to be down due to the seasonal impact of fewer available billing days in the fourth quarter. In addition, business applications revenue will be further impacted by approximately $1 million due to the October 31st, 2006 transaction whereby the majority of our Lawson Practice employees were transferred to Lawson Software Inc.

This transaction is expected to yield $1.5 million in cash through a combination of amounts received from Lawson and networking capital proceeds primarily from accounts receivable balances being collected. From an SG&A perspective in Q4, we are continuing to make investments primarily related to certain practice, meetings, any investment and a new CRM tool, which is expected to benefit our sales channels and our membership advisory business. These investments are reflected in our guidance.

We expect our cash balance to be down in Q4, impacted by the final Hyperion acquisition earn out payment of approximately $1.8 million, and the timing of our US payroll cycle, partially offset by the Lawson practice transaction proceeds I mentioned earlier. Cash balances, again, could be also materially impacted by the UK misappropriation matter.

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

Thank you, Grant. As we look forward and head into Q4, we continue to believe that the demand for our services remains healthy. Geographically, we continue to expect slower but solid GDP growth and related business spending reflected in our US demand.

In Europe, we continue to see more volatile macroeconomic environment across those markets that we serve. Therefore, we will continue to be more tempered about our expectations in that region. However, we believe the demand environment in Europe is improving.

With that as a backdrop, let me comment on some of our strategic priorities and the progress in each of these during the past quarter. One, we've clearly emphasized our desire to build our membership advisory programs and as a goal, we've said that we wanted to get 1,000 members and 500 clients as quickly as possible.

I always like to start by reminding everyone that we launched our process advisory programs in late 2003 and our executive advisory programs in March of 2004. So given that brief history of these offerings, we are clearly pleased with our progress. The member and client account goals for us are important because they represent a level of scale across the programs that provide depth of membership as well as scale that allows us to drive significantly higher levels of profitability for this business.

As both I and Grant mentioned, we experienced strong revenue growth and annualized contract value growth along with improving client renewal rate in our membership advisory programs. When we consider this progress along with the large number of multi-year contracts that we continue to sell in our advisory business, we know that we are building a total contract value that gives us strong visibility beyond our annualized contract value indication.

As I have previously mentioned, we believe that the advisory program members define a large and growing client base that see us as strategic and trusted advisers. We also believe that those users will also be frequent users of our complimentary benchmarking transformation, TWC and Best Practice Solution offerings.

This is a key aspect of our strategy as we believe over time, we will be able to ascribe and hopefully predict an increasing percentage of our total annual revenues to our advisory program members and clients. Another key initiative we've had throughout the year is the concept of advisory inside, which we developed to further emphasize the unique nature of our business model.

Our advisory inside delivery strategy allows us to demonstrate to clients that we have developed an efficient way to continue to support strategic initiatives once an implementation initiative is completed. This demonstrates to clients that we are architected to leave and not stay when initiatives are complete.

It also lets them know that we are serious about continuously supporting their initiatives and that the value -- and the value of knowledge transfer for both, both which are critical elements to an ambitious performance improvement program. We believe that educating our clients on the leverage and value of our membership advisory program to support strategic and implementation initiatives further differentiate the value proposition of all of our consulting offerings.

Let me also comment on other key actions and investments as we complete the year. So I'll start with Europe. We have made a very significant investment in Europe via our REL acquisition. But additionally, we have or are in process of upgrading our offices in London, Frankfort and Paris.

Another key investment will be an all-hands meeting that we will be holding in November that will allow us to bring all of our European associates together for the first time since the REL acquisition. On the North American front, in addition to the investments we have made throughout the year upgrading our Hackett client-facing systems and tools and across sales and marketing.

At the end of Q3, as Grant mentioned, we also made a significant investment to acquire expanded CRM systems capability for our sales and marketing associates that will also significantly improve the way we interact with our membership advisory clients. During Q4, we're also holding several practice wide meetings to recognize the contribution and provide additional training to several of our Best Practice Solution and Hackett teams.

We have also continued to expand our best practice repository and implementation tools. We are in the process of completing our annual review and refresh of our BPI repository and tools as we refer to them. This ensures that we have updated all of our IP for emerging best practices as well as for improvements in enterprise applications functionality that comes from new software releases.

This is a valuable component of our IP and a strategic enabler for our associates and clients. Lastly, we have continued to invest in our processes and infrastructures that enable us to leverage the talented team that we have built in Hyderabad, India across many divestitures of our business. And this is something that we will continue to do.

In summary, we look back at 2006 and realize that although the focus and investments we made to emphasize the growth of our membership advisory business was more than we expected. We will -- we also will realize that the value of building a strong membership advisory base along with a complimentary set of consulting offerings, we believe, will result in a unique and more powerful and valuable organization.

As I've said many times before, at the heart of that strategy is our strong belief that our advisory membership base programs allow us to develop a continuous relationship with our clients that positions us to independently and objectively assist them as their execution needs emerge.

Let me close by recognizing our associates. They continue to be passionate about our business model and the value they deliver to our clients and continue to make noticeable contributions across all of our strategic initiatives. I want to thank them and recognize their outstanding effort and spirit.

Having said that, let me turn it now over to Q&A

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from George Sutton. And would you please state your company name.

Craig-Hallum. Let me start by asking on the European issue, how was this discovered?

We received a notice from Inland Revenue.

So it was tax related.

Relative to unpaid payroll taxes and we quickly proceeded to check with our disbursement agent to obviously prove to them that those payments have been made. And in the process of that work, we actually uncovered or, in fact, he confessed that in fact he had not made some of those payments.

The fact that you're just now being contacted suggests that while he's been there since 2003, this was a relatively recent event. Is that a fair assumption?

I'm sorry. That what was the rest of the -- a relatively recent event?

Well, the fact that you're hearing from the tax services now suggests that if he hadn't been paying for years, let's say, you would have heard that.

We would hope to believe that. However, I mean, first, let me start by saying until the review is complete, obviously, we will not know, George, but we have -- the number that we provided is the number of all the taxes that we remitted to him and that he should have paid to the UK Inland Revenue. So that is-- that's the amount of the total Texas. And then as Grant also mentioned, as part of that process now, they have offered to securitize that exposure with some of their personal assets.

Having said all that and I'm sure, I don't have legal counsel in here with me -- I probably should -- I think Grant's comments were clear that until that review is done, we will not know for certain the extent of the amount and whether or not we will be successful in recovering the amounts that were stolen by the individual, obviously, as part of the effort, we've already undertaken.

Moving on, the membership advisory business, you've talked a lot about when you add these additional customers, the thought has been membership advisory customers will buy a lot of the other services over time. Obviously, we're seeing strength in one area and not in others and the suggestion is that it's compensation related, but are you concerned that you're not seeing attachment rates with other services from the membership advisory customers?

Well, actually, in 2006, we didn't have as a goal to actually go back to that same membership base and look for an attachment rate. However, we believed that the relationships would build and happen naturally. The key for 2006 was to allow this, if you want to call it , the -- our infant service offering to really build a very strong base and then to go back as we went into '07 and '08 and try to see how we could then leverage this space in a more strategic way.

Since we do believe, we believe making common sense that if somebody is able to pay what is, in essence, a retainer to have access to intellectual capital and to our people, would you think that they would then turn to our other offerings when those needs arise. We clearly see clients by a combination of offerings, but your question is slightly different.

You're saying, "Hey, Ted, have you gone back and tried to harvest the growth in that membership advisory into the other areas during this same period and the answer is, we have not and we have not done so intentionally because we believe it's important for that to happen naturally and for us to really build a strong and healthy membership base as a primary goal.

Okay. Last question for me. The loss in transaction, can you give us some sense of the revenue base there, and you've had a traditional or relatively recent Hackett-Lawson relationship from a, you know, you were getting some minimums from them. Is that yield still in place?

Our Hackett-Lawson relationship continues. The implementation business, we have -- we had a relationship with Lawson where we were doing a large amount of our implementation work in that business as subcontractors with Lawson and you know, at first, their interest in the business and a change in leadership that we had in that business let us come to the conclusion that reaching this agreement with Lawson made sense. So approximately it was a business that's been doing about a $1.5 million of revenue per quarter and yielding a small profit given the staff augmentation nature of the business.

Okay, thanks.

[OPERATOR INSTRUCTIONS] Our next question comes from Bill Sutherland. And please state your company name.

Boenning & Scattergood. Hi, Ted and Grant.

Hi Bill.

I hope the connection's okay. Following-up on the question on loss is this group one that's focused more on middle-market customers?

Yes. It was a group that was focused on more middle-market implementation specific to Lawson and as I mentioned primarily -- it's primarily revenue base was Lawson Software, Lawson Software as a [inaudible]

Okay. Ted, you started to talk or maybe it was Grant, anyway, some directional information about Q4 by the different operating groups. Would you mind I'd like to kind of just do that again with you and maybe, maybe with a little bit more color to it, if we could?

Okay. Well, then let's break it down into the two pieces. Hackett first, and then the BPS group second. On the Hackett side, what Grant mentioned is that first on the membership advisory side, look, we expect the momentum and the growth that we've demonstrated over the last several quarter to continue into Q4.

The second business the benchmarking business, we are expecting it to grow nicely, sequentially into Q4. Grant mentioned that that would be up -- Grant mentioned that REL would be up and I also commented that we actually expect REL to be up about 10% sequentially and then we are expecting transformation to be down, oh, somewhere around $0.5 million.

Will it be okay on a per day basis, transformation?

Will it be okay on a --?

Well, flat-to-up on a -- you said it was a --

It will be down sequentially from Q3 and when you consider the nature of that business or any -- or any I'll call it consulting business, keep in mind that in Q4, we lose about 8% of our available days as compared to Q3 as a result of the additional vacation time and holidays that you have between Thanksgiving and New Year's.

Well, that's what I was trying was, on a revenue per day basis, it --

On a revenue per day basis, I haven't calculated that. I mean, top of my head, it will be very close to Q3. And it will be close to Q3.

And then last, Ted, it's good to see you're going to get a sequential rise out of REL in Q4. Do you -- can you give us a sense of kind of how that's coming together. Obviously not specifics, but is it -- what I guess what I'm trying to get is the group was doing quite a bit more a few quarters ago. Can it get back there? Is this -- is the enterprise able to really just rebound completely in your mind?

Well, I don't want to say rebound completely since we're in a business where you obviously build momentum as you engage new clients in those relationships expand. Having said that, the leadership along with my belief is that the rededication of that sales channel is allowing that leadership to reestablish and build momentum in the pipeline, which is where it all starts. We have always felt strongly that I guess looking back, the integration of the sales channel in the first half of the year was just not a great idea. The required focus to sell a more complex solution is something we should've just left alone at least for a while.

And the leadership of that group believes that it can continue to build momentum and as they say it's the matter of building a certain amount of flow. And that comes primarily by having the kind of focus and capability in the sales channel, and they believe by having all their mindshare that they will do that over time.

So for me, I think what I'd love for them to do is to actually accomplish the 10% sequential increase that we're looking for and for us to see the pipeline which we have seen the activity clearly improve even over the last 90 to 100 days for that to continue through the balance of the year, so that we can then build momentum into '07.

I mean, Bill, just to in fact add a little more color. I mean, when we look at where we were at the beginning of '07 versus as we exit '06, we see that we have significantly impacted the growth of our REL and transformation businesses, to the tune of about $4 million a quarter when you take both of those on a combined basis.

Right.

First of all, I think if you heard anything on the call is that if anything, we're continuing to invest in those -- in those practices and those associates. We believe that it is momentum that can be regained. And on the REL side, the distraction was a big one, but we're seeing that improve already. And on the transformation side, the idea of having transformation, in essence the lowest commission of percentage dollar in '06 was probably as our transformation leader will refer to, too strong of a turn right.

It -- perhaps it should have been something less aggressive so that we could continue to grow transformation as it had in '03 and '04, '05, which it grew over 30% on a year-over-year-basis. However, we believed we could do both and we were wrong. And having said that, though, we're sure happy to see the membership advisory make the progress, see that membership business scale, see that annualized contract value build and only time will tell whether the strong right that we took in emphasizing membership advisory was a great investment.

But we do know that our business value and our business model is distinct by scaling that membership advisory business. So although we hate the pain, we're glad to see the progress in that business.

And let me sneak one more in. When you go through the process here this quarter, Ted, of coming to an incentive program or I should say a commission sales program for next year and maybe even more to the point of how you refocus the sales group, will it also include changes to how you go to market with the benchmarking? Or is it mostly just focusing on how you reinvigorate transformation?

No it will impact benchmarking as well. Since benchmarking -- as you know, we did a -- the commission structure was 1X transformation, 2X benchmarking, 3X membership advisory. So no, we think some combination of dedicated focus on membership advisory in the channel along with some striking a different balance in the incentives for a -- for our broader solution selling team,

I think, in our mind will allow us to achieve normalized growth rates in transformation and bench marking and obviously we'll also make sure that those changes allow us -- give us the ability to continue to keep the momentum going in membership advisory. So that's what we've already kicked off our '07 planning process and are spending quite a bit of time on as we speak.

Did you -- did Grant, mention IBM in the numbers?

I mentioned Accenture.

Accenture, I mean -- I'm sorry.

I mentioned that Accenture revenues -- alliance revenues were 4% in the quarter

Okay. Thanks to you both.

Okay, Bill.

Thank you. This concludes the question-and-answer session. I would now like to turn it back over to Mr. Fernandez

Given that we have no other questions, let me just, one, thank you for participating in the call and obviously, we will keep you as adequately briefed as we possibly can on the developments of the -- both the potential loss in the UK operations and our efforts to recover those amounts as well. Thanks again for participating on our call.

Thank you for participating in today's conference call.