Hackett Group Inc (HCKT) 2007 Q4 法說會逐字稿

Good evening, and welcome to the Hackett Group fourth quarter conference call. Your lines have been placed on a listen-only mode until the question and answer session. Please be advised that the conference is being recorded, hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez you may begin.

Good evening, everyone. And thank you for joining us to discuss the Hackett Group's fourth quarter and full-year 2007 results. Speaking on the call today and here to answer your questions are Ted Fernandez, Chairman and CEO of the Hackett Group, and myself, Robert Ramirez, CFO. Let me first start by apologizing in advance if Ted and I go into coughing attacks during this call as a result of the flu that we are both carrying around at this time. A press announcement was released at 4:21PM eastern standard time. For a copy of the release, please visit our website at www.thehackettgroup.com. We will 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, 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 guaranty 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 wholly in conjunction with the detailed information particularly with the risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted.

Thank you, Rob. As always, I will start by providing some overview comments on the quarter. I will then turn it over to Rob, ask him to comment on operating results, cash flows and also on outlook. Rob will turn it back over to me, I will review market and a strategic overview. And then we will open it up for Q&A. So having said that, let me start with the fourth quarter highlights. And let me welcome everyone to our first earnings call at the Hackett Group. In December, our shareholders approved the rebranding and in January, we had the opportunity to open the NASDAQ and to officially change our name and ticker symbol. The rebranding is an indication of the level of transformation that we have undergone. As we entered the year nearly 70% of our revenues now emanate from our Hackett Group's executive advisory program and our benchmarking and transportation group, that compares with 15% in 2002.

Our goals in 2007 were to continue to aggressively grow our Hackett business by growing our benchmarking and transformation at no less than 15% while continuing to grow our advisory services as aggressively as possible. We also needed to resume the growth of our REL group, and lastly to grow in Europe to take advantage of the enormous market opportunity available to our expanding brand. I'm pleased to report that we accomplished all of these goals and today we are reporting a 31% EPS improvement on a year-over-year basis with cash flow from operations in excess of $21 million. More importantly, we are also reporting a fourth quarter that is eight-fold better than last year, allowing us to set the stage for meaningful EPS improvement in 2008. We are delighted to see these strategies impact our results so positively.

Before I comment, though, about our prospect for 2008, let me comment further about Q4 and 2007. As you will recall at the beginning of the year, we changed the emphasis of our go to market strategy to ensure we optimize client relationships and leads across all of our offerings, this has allowed us to engage clients more strategically and result in a significant increase in the number of large revenue relationships we currently have. These changes along with the resurgence of our REL business are the primary reason for our increased growth and profitability. Specific to REL for the second quarter in a row, quarterly results came in higher than expected. We believe that the reinstituting -- that reinstituting the REL dedicated sales channel has allowed us to significantly improve the performance for this business. Our REL team was up sequentially and their quarterly year on year growth was very strong, with a growing contribution coming from the REL European team.

In Europe, we increased our investment in both resources and infrastructure across France, Germany and the UK, and those investments continue to pay off, with year-over-year Europe growth in the quarter in excess of 60%. Hackett Group European revenues totaled 36% of total Hackett revenues in the quarter. On the Hackett technology solutions front which is the former SAP Oracle Hyperion groups that were in (inaudible), those groups came in as expected, SAP continued to show improvement as it has done throughout the year, and the pipeline activity remains solid. Our Hyperion group is improving post Oracle's acquisition of Hyperion, where we felt a little bit of a freeze and we expect to see improvement in Q1 and also into Q2. Our Oracle group is where we continue to perform below expectations, we continue to see good activity, but we have failed to convert some key deals that would turn around it's performance.

On the SG&A front the cost reduction actions we took early in 2007 have improved our SG&A leverage and have allowed us to increase our incentive compensation as well as our investments in associate development events. We expect to continue to improve the leverage into 2008 and to continue to increase the investment in associate development as well as training. Our Q4 results continue to demonstrate the potential of our new business model which we embarrass barked on in 2003. We took a strong brand and benchmarking capability and we have developed it into a powerful highly recognized global professional services brand with an array of services that leverage our IP to significantly improve organizational effectiveness. Let me now turn it over to Rob, and ask him to provide details on our operating results, cash flow and to also comment on outlook.

Thank you, Ted. Hello, everyone. I plan to cover the following four main topics this evening. An overview of our fourth quarter results, a breakdown of our fourth quarter revenue, an overview of our key operating statistics, including cash flow activities during the quarter, and I will then conclude with a discussion on our financial outlook for the first quarter of 2008. As Ted mentioned, effective January 1, 2008, Answerthink, Inc. was renamed The Hackett Group, Inc. The Answerthink technology and practices were moved into the Hackett Group brand as the Hackett Technology Solutions Group. For purposes of this call, any references to Hackett Group will specifically exclude Hackett technology solutions. Additionally, please note that all references to revenue in my discussion will pertain to gross revenues which is total revenues including reimbursable expenses.

First, I will discuss our fourth quarter 2007 results. We are pleased to report revenues that exceeded our quarterly guidance which was $41.5 million to $43.5 million, and pro forma EPS that is at the upper end of the quarterly guidance, which was $0.06 to $0.08 per diluted share. For the fourth quarter of 2007, the company's revenue was $44.9 million, a year-over-year increase of 18%. Excluding the impact of our exit from our Lawson and SAP staff augmentation practices in 2006, the comparison to the fourth quarter of 2006 was an increase of 21%. Our pro forma net income totaled $3.4 million or $0.08 per diluted share, for the fourth quarter of 2007.

Pro forma net income excludes noncash stock compensation expense of $846,000, intangible asset amortization expense of $296,000, the recovery of $2.2 million of funds resulting from the previously disclosed UK tax misappropriation, impairment reserve on the Bank of America marketable investments, $450,000, and assumes a normalized tax rate of 40%. Pro forma operating profit for the fourth quarter was $5.7 million with 13% of gross revenues. In addition, the actual realized loss on redemption from the Bank of America balance was approximately $9,000 during the fourth quarter. Our GAAP net income totaled $6.3 million or $0.14 per diluted share. GAAP net income included tax expense in the quarter of $31,000. As of the end of the fourth quarter of 2007, he company had approximately $65 million of U.S. federal income tax loss carried forward. Breaking down fourth quarter revenue for 2007, revenue for the Hackett Group was $29.9 million, representing a year-over-year increase of 44%. Further breaking down the Hackett Group revenue, benchmarking and business transformation revenue totaled $26 million, representing a year-over-year increase of 50%, membership advisory revenue totaled $3.9 million, representing a year-over-year increase of 12%. Given our Q4 sales and renewal activity, our year-over-year annualized contract value at the beginning of 2008 was an increase of 17%.

As Ted mentioned, the strategic changes that were made over the past year regarding the emphasis of transformational benchmarks and the realignment of the dedicated sales team to REL, as well as investments made in Europe, have all contributed to the strong performance. The strong recognition of the Hackett brand in Europe along with our unique value proposition has continued to favorably impact our year over year growth. European revenues in the fourth quarter of 2007 represented 36% of total Hackett Group revenue. Foreign currency translation impact on the Hackett Group's revenue growth on a year-over-year basis was a favorable 4%. Our Hackett Technology Solutions Group totaled $15 million, representing a year-over-year decrease of 14%. Excluding the impact of our exit from our Lawson and SAP staff augmentation practices, in comparison to the fourth quarter of 2006, was a decrease of 7%. Our top 10 clients represented approximately 28% of gross revenue in the fourth quarter of 2007, as compared to 20% in the same period of 2006. As Ted has discussed, this is in line with our business strategy of optimizing our client relationships across all Hackett service offerings in order to expand our revenue per client. For the fourth quarter of 2007, no one client represented more than 5% of gross revenues.

I will now discuss some of our key operating statistics. Consultant head count was 552 at the end of the fourth quarter of 2007, as compared to 584 at the end of the fourth quarter of 2006. The lower head count is primarily related to the decreases in our Hackett Technology Solutions Group, as we have adjusted staffing to conform to current market demands. Annualized revenue per professional in the Hackett Group was $411,000 in the fourth quarter of 2007, as compared to $322,000 in the same period of 2006, an increase of 28%. Revenue per professional was positively impacted in the quarter by improved rates and utilization of our business transformation consultants. Revenue per professional is calculated by dividing annualized gross Hackett Group revenues by the average number of consultants and subcontractors during the period. Our revenue per professional was $379,000 for fiscal year 2007.

For the Hackett Technology Solutions Group, consultant utilization was 62% for the fourth quarter of 2007 as compared to 60% in the same period of last year. Our utilization target continues to be in excess of 70% for these businesses. Our hourly realized billing rate was comparable at $161 for the fourth quarter of 2007 and 2006. On a company-wide basis, our pro forma gross margin, which excludes stock-compensation expense, was 43% of gross revenues in the fourth quarter of 2007 as compared to 38% in the same period of last year. Gross margin has continued to increase as expected as a result of Hackett Group revenue growth and the company's exit from its low margin Lawson and SAP staff augmentation practices. It is important to note that from a seasonal perspective, the fourth quarter benefits from lower U.S. payroll taxes and the utilization of vacation accruals. For those of you who utilize net revenue calculations, pro forma gross margin was 48% of net revenues for the fourth quarter of 2007, as compared to 42% in the same period of 2006. Our pro forma SG&A, which excludes noncash stock compensation expense, intangible asset amortization expense, and professional fees associated with the U.K. tax misappropriation was 31% of gross revenues in the fourth quarter of 2007 as compared to 37% in the fourth quarter of 2006.

Our SG&A levels have benefited from our cost containment initiatives and from strong revenue performance, offset by higher accrued bonuses than in the same period of the previous year. The company's cash balances including restrictive cash and marketable investments held in Bank of America's Columbia Strategic cash portfolio were $27.7 million at the end of the fourth quarter of 2007 compared to $25.6 million at the end of the third quarter of 2007. Cash flow from operations was $8.3 million for the fourth quarter of 2007 and was $21.6 million for the full year 2007. Fourth quarter cash flow was driven by strong operating earnings and the recovery of funds related to the U.K. tax misappropriation. Our DSO at the end of the fourth quarter of 2007 was 60 days as compared to 59 days at the end of the third quarter of 2007. Since the beginning of the fiscal year, we have reduced DSOs by 25 days. We believe the company will continue to make improvements in its DSO in 2008.

As the company previously reported, the Hackett Group was an investor in Bank of America's strategic cash portfolio which is currently being liquidated. At the end of the fourth quarter, the company had a net carrying value of $7 million remaining in marketable investments in this portfolio. Subsequent to quarter end, the company received additional redemptions totaling $2.5 million. This brings total redemptions to date to approximately $3.2 million. During the fourth quarter of 2007, cash was utilized to repurchase approximately one million shares of the company stock at an average price of $4.09, for a total cost of approximately $4.2 million. From a year-to-date perspective, we have repurchased approximately 2.7 million shares of our common stock at an average price of $3.70 for a total cost of approximately $10.1 million. I would now like to discuss the status of our share repurchase program. Subsequent to the end of the fourth quarter of 2007, our Board of Directors authorized an additional increase to the company's share buy back program of $5 million. Approximately $10 million remains available under the company's share repurchase program authorization.

I would now like to discuss our guidance for the first quarter of 2008. For the total company, we expect our revenues to be in the range of $42 million to $44 million . We expect Hackett Group revenues excluding Technology Solutions to improve on a year-officer-year basis by approximately 30% in the first quarter of 2008. We expect Hackett Technology Solution revenue to decrease by approximately 15% to 20% on a year-over-year basis. Consistent with Q1 guidance provided in previous years the first quarter of 2008 will absorb the sequential impact of the increase in U.S. payroll related taxes and the sequential build-up of vacation accruals, which represents an approximate $0.03 pro forma impact on a sequential basis. As a result we expect pro forma diluted earnings per share in the first quarter of 2008 to be in the range of $0.04 to $0.06. This pro forma estimate excludes amortization expense and noncash stock compensation expense and includes a normalized tax rate of 40%.

Gross margins are expected to improve on a year-over-year perspective, due to the increase in Hackett Group revenue mix. We expect SG&A levels to be comparable to the fourth quarter of 2007. We expect our cash balances, including -- excluding the impact of any stock buyback activities to be up slightly as a result of the payment of year-end bonuses. At this point I would like to turn it back over to Ted to review our market outlook and our strategic priorities for the coming

Thank you, Rob. As we look forward, we continue to believe that the market demand for our services remains healthy on the Hackett Group front. Geographically as we entered the year we expected to see lower U.S. demands at the U.S. economy slowed and expected lower discretionary spending to impact our business. In Europe, we expected the demands to remain strong across the market that is we served with perhaps some tempering of the very strong demand we experienced in 2007. As we exited the year, we've experienced a slight stall in client's decision making. However, as we entered the year, pipeline activity increased noticeably, which has now resulted in strong February sales in both the U.S. and Europe, as well as new opportunities continuing to surface setting up a strong sales activity for the month of March also. Given this strong improvement in our Q1 entry versus exit run rate, we expect to see solid results in Q1 and sequential growth from Q1 to Q2, barring some change in the current market activity that we are experiencing.

On the technology solutions front, overall activity is good. But we have tempered our expectations in light of the economic slowdown until we see our Oracle group converge some of our larger opportunities that we are pursuing. With that as a backdrop, let me comment on our strategic priorities for 2008 and start with revenue growth. Given our current momentum, our 15% plus revenue growth rate for the Hackett Group, which is our advisory and benchmarking and transformation businesses for 2008 remain unchanged. On the Hackett Technology Solutions front, we believe on a year-over-year basis that revenue will be down about 5% to 10%. With that combination of revenue growth we would expect to see our overall prospect for meaningful EPS expansion in 2008 also remain unchanged for the total business. This is a combination of mix and improved margins as well as SG&A leverage.

Let me now comment further on our revenue growth initiative. Although we plan to continue to expand our client base, our opportunity to increase our revenue per client, with our client base and service offering is significant. Let me highlight some of our 2008 actions that are expected to drive revenue growth. We have [affected] a regional strategy in the U.S. and Europe that allows us to create greater focus on account planning as well as market activities and it also results in more active collaboration of our regional leaders and teams with our sales organization. We're seeing some of the benefits from this early interaction already pay off. We expect our Hackett Technology Solutions Group to leverage the regional focus to improve the lead flow from these efforts. We also brought incentives to make this happen. We have enhanced the focus of our executive advisory associates on increasing the service we deliver to our advisory clients by introducing them to the value of our other offerings.

We continue to see a great opportunity to grow at an accelerated pace in Europe. As Rob mentioned we continue to see our brand, strongly resonate in Europe with both prospective clients and associate that is we are recruiting. We also see opportunities to work with alliance partners in markets that we are not currently serving as a great way to extend our brand and offerings to drive incremental revenue growth with limited infrastructure investment. We have successfully done this in the European in Nordic region and would like to use this same strategy in other regions. The pursuit for these partners continues. And we will continue to look for acquisitions that would enhance our intellectual capital and would strongly leverage our existing intellectual capital to grow.

Second item I'd like to cover is our desire to develop continuous client relationships. This is truly a differentiating aspect of our business model and it is our desire to continue to grow the number of these continuous client memorable relationships that participate in our executive advisory programs, but we'd like to see them also utilize our other offerings on some predictable basis. As we have stated previously, our long-term goal is to be able to ascribe and predict our total revenues to clients who are continuously engaged with us through our executive advisory programs. Our clients use our advisory programs to track emerging issues and to support performance improvement initiatives that they are assessing or executing. At the end of the quarter, gross membership counts exceeded 930, while client counts approximated 270, as members per client continued to increase. One measure of our opportunity is that only approximately 10% of our current advisory base also bought one of our Hackett offerings in 2007. Long term we would like to see 1/3 of this base drive 75% of our total revenue.

Q4 is an important -- is important to our executive advisory sales because it coincides with the largest number of renewals. We are pleased to say that our Q4 was the largest sales and renewed quarter since we launched our programs in early 2004. Our research is being downloaded in record volumes, and our work and key issues such as globalization talent management, forecasting and IT business value management are becoming a strategic resource for our client.

Next item is to -- let me comment on the -- our desire to expand and leverage our best practice intellectual capital. We've always said that we're distinct because of the proprietary data that we capture through our benchmarks and the applied knowledge we have captured in our best practice repository and tools to help clients implement a solution. A key element of our 2008 plan are changes to our product architecture which determines how we avail our intellectual capital to our clients to ensure that we're not only expanding our content but to also ensure that we're -- being responsive to client needs.

To this effect key 2008 actions include rationalizing our benchmarking, question or data elements in order to improve our delivery speed and responsiveness to client specific issues. Expanding the number of performance surveys to support key research themes, launching a new baseline measurement tool for transportation engagements where clients do not want to execute a full benchmark. Integrating working capital management questions into our benchmark and create a separate report that will further integrate our REL knowledge as well as increase REL lead flow. Executing targeting industry's specific groups benchmark studies to further enhance industry-specific data capture, enhancing our world class property report which is part of our executive advisory programs to support broader measurement initiatives, and continuing to execute our periodic best practices implementation refresh, and to make sure that we continue to integrate all of our benchmarking and best practices intellectual capital in our best practices intelligence center portal. Our clients get a chance to see this for those investors that are interested in seeing -- as one of my -- as one of our former founders, Alan Frank, would say, our secret sauce, I'd be delighted to give you a walk-through whenever you like.

Lastly, let me comment on our desire to leverage our India team across all aspects of our business. We mentioned previously that we had expanded our resources in our Hyderabad facility, and that we had launched new research teams to support our globalization efforts, along with increase in the resources that support our Oracle team's delivery efforts. In Q4 we moved all of our quantitative resources to India further increasing our leverage of our facility and our associates. We continue to expect our India footprint to increase in the delivery of all of our services and in supporting back office functions as we head into 2008. We believe this move will further improve our operating margins.

In summary, we made great progress in 2007, and we enter 2008 with good momentum. As I say to our associates, the opportunity for our organization is truly boundless, the power of our brand, our unique intellectual capital and know-how provides us with the opportunity to build one of the most admired, professional services organizations in the world. As always, let me close by thanking our associates for their outstanding contribution during this strategic transformation of our entire business model, and thank them for their outstanding effort and spirit. Those conclude my comments, let me just now open it up for Q&A.

Thank you, sir, we will now begin the Q&A session. (OPERATOR INSTRUCTIONS) One moment please. George Sutton, your line is open, and please state your company name.

Craig-Hallum. Guys, great quarter. I wanted to poke a little bit more into the February discussion that you discussed earlier, with respect to the sales that you did there. What do you think caused that strength, and was there anything unusual in that strength that would suggest you may not see that in other months?

Well, no, we really obviously like everyone else, we're hoping that the demand for our business remained unchanged. As we kind of sit back and evaluate it logically, we know that as the economy slows, people take a harder look at spending, and discretionary spend, especially for some professional services, decreases. The key question that we were -- that we continue to ask ourselves, though, is whether our business model is so responsive to organizational effectiveness, it's almost like the Mayo Clinic, if you know you need to get in shape, you go more often. Well, when companies say, hey, look, growth is slowing, I'm going to have margin pressure, I need to refocus on SG&A efficiency, and perhaps also -- and also cash flow, I mean, our Hackett Group services are dead on with that request. So as I mentioned, we were expecting and had more tempered expectations. But given the activity that we saw in February and expect in March, our expectations for '08 remain unchanged. It's just strong activity and our pipeline activity remains good, and our win rate is only improving.

There was a backhanded logic to my question that you did address a little bit there. I just want to make sure I'm understanding it correctly. So on the Hackett side of the business, the pure traditional Hackett part of the business, there is an argument that could be made that in difficult times you have a little bit of a counter cyclical nature, in that companies are looking for these kinds of solutions more aggressively. And I guess we'd suggest that the implementation part of your business might not see that. Is that a fair --

When you say implementation, you mean the Technology Solutions business?

And I hate to even use that term, I apologize. Yes.

The answer is, yes, and, therefore, we are more -- we're trying to be much more tempered about that. But if our Hackett business, George, continues to grow at north of 15% the way we set our long-term growth rate, and our tech business shrinks 5% to 10% as we said, hey, we're now expecting just making sure that we're not anticipating any significant comeback, that we'd like for all that to be pleasant if it ever happens. The overall impact -- the overall prospect for significant EPS expansion remain unchanged. And unless something changes, as we look at what we can do in Q1, and the momentum gives us at Q2, we have no reason to change it.

On the technology solutions part of your business, Oracle becomes a more important and customer -- not customer, but factor. How has all of the combination there impacted you positively or negatively?

Where, it clearly is an advantage to have both a Hyperion team and Oracle team. because it gives us overall scale when we look at an Oracle client that now is acquiring or evaluating Hyperion as part of a broader Oracle solution. We have still to leverage that in our Oracle specific performance, however, we are expecting and seeing improved activity in the Hyperion group side, who suffered a little bit with Oracle's determination on how they were going to continue to work with partners in the summer. So a combination of new leadership on board and I think Oracle having sorted that out for us appears to give us -- we're optimistic that we'll see improved performance in that Hyperion team. But overall, we provide a more tempered outlook for the team, because we believe that to do otherwise until the Oracle group turns that around, we should not do so, and the team's right now are -- the Oracle SAP and Hyperion teams are pretty close to a third, a third, a third.

Last question, with respect to your February -- again, I'm poking at the February discussions specifically, when you sell something in February, that begins to have a modest impact in March and more of an impact in the following quarter or quarters, is that correct?

Yes, our utilization in February started to change really noticeably by the middle of the month. And we carry that into March and obviously then into Q2. So, we started kind of slowly from a January kind of run rate. We still don't know whether there really was just simply people coming back from vacation, the news got a little grim and people kind of said, okay, what do I really want to do? We don't know that. We're just guessing. What we know is that the pipeline started to build shortly after the year started, and once we started closing those deals, that it impacted our run rate in February and we expect that to continue to march into Q2.

Super. You're not doing this call in the dark?

No.

Well, we had an interesting afternoon, George, let me put it that way.

We got a notice that all power in Miami-Dade county was lost about three hours ago, and we thought we were going to do this out of my home in Key Biscayne, but we waited long enough and the power came back.

Well, I'm glad you're able to do it.

We're here and I'm glad we're not coughing up a storm.

Alright. Thanks, guys.

Okay, George.

Bill Sutherland, your line is open, and please state your company name.

Boenning & Scattergood. Thanks very much. I heard you had a Homer Simpson incident at the nuclear facility down there.

Is that what -- we were trapped in the dark and we haven't had access to anything, we've been working on preparing for the call. Unless you've heard something, we haven't really gotten to the root of what's happened.

I'm sure you know more than we do.

Ted, could you speak to sales productivity, I don't know exactly how you're measuring it. But if you have something you can point us towards and where you would like to take it?

Well, I mean, I think overall as we saw kind of '07 play out, we continue to believe that our sales productivity can improve, and the quota and the actual performance that each of our sales executives can achieve. When you couple that business model with a partner model where, individuals then drive some activity through director relationships, I also believe that model, George -- Bill, I'm sorry, provides us more air cover when things slow down a little bit, but we've been working on that blend for a while. We've seen our sales execs improve productivity, throughout '07, and we think that has an opportunity to continue into '08 unless, as I mentioned, current market activity changes somehow.

Did you or Rob provide a quarter bearing sales number total?

No, we don't -- would hate to start doing that, and expanding the data that's already in the press release. But -- we do expect it to continue to improve into '08 and are optimistic that it can be done.

You -- have you rolled out the benchmark you've developed for REL?

The integration of the working capital questions, the answers we have not formally rolled out the benchmark with the integrated question set. Even though we had been adding the questions to our benchmarking tool set throughout '07. Having said that, I did get a call from our REL leader mentioning the fact that he had gotten the lead from a benchmarking effort, and I have yet to go back to see if that was all the new content or just someone applying the new strategy with the content that was populated in '07. So the answer is formally it has not been launched, we do expect that to launch in Q2. And the idea is pretty simple, if we -- we should be capturing data related to the -- how well somebody is managing cash and inventory, and if we have a report out that shows a significant opportunity, then we'll review that with the client. We do not, we'll just deliver our standard benchmark. It's purely value add and we hope that it improves not only the integration of knowledge, but that it drives more leads for REL.

The -- I noticed the top customer increased to 5%. Can you all give us a little more color, like what vertical and what kinds of services they're taking?

It's a clients that we've done business with throughout '07. It happens to be in financial services where we have kind of -- financial services broadly where we have very low penetration, less than 10% of our total base. So, we can -- we would love to see more clients move in that direction.

Is it taking just a -- more than one Hackett service?

Yes. It is being served broadly across a number of offerings, that is correct.

That's good.

But if you look at the overall top 10, the top 10 are different.

Yes, the overall top 10 really vary by business. Yes.

We have a little bit of everything which is nice to see.

The -- a couple, Rob, just a couple guidance questions, CapEx in '08?

It's not a number we typically provide, George, we're not a capital intensive organization from a cap perspective.

Okay. So it won't be extraordinary.

We did the laptop refresh, but I would doubt that it would be much more than $2.5 million, it could be a little higher in '07.

Okay. And same kind of tax rate range?

Yes, we have no reason to do that unless we get significantly more aggressive and try to leverage a European tax strategy that we had reviewed in prior years but have not implemented to date. So we will continue to guide throughout the year at the 40% effective tax rate.

We'll use the pro forma effective tax rate of 40%.

As far as quarters, is there anything we should know about available days that's maybe off from prior years? I mean, if it's not meaningful, it's not --

Listen, we have more available dates in Q1, if January had gotten to -- off to a strong start, we would have seen that in a more pronounced way in January, but we like to see revenue build to Q2, and hopefully progress a little bit into Q3, and then we have more of an available day impact in Q4. And that will vary again as our business makes changes, the exact number will depend on where we are exiting Q3 when we look at Hackett Group versus Hackett Technology Solutions.

Okay. I was sort of just asking maybe a more basic question related to how it impacts utilization, and, therefore, margins.

Utilization, again, margins, we get higher utilizations in Q1 -- normally in Q1 and Q2. We get more of the vacation impact in Q3, and then we get vacation and holiday impact in Q4. Having said that, remember, just like we just did in Q4 and commented the $0.03 impact in Q1. We also then have to -- we then have to get through the primarily the Social Security $90,000 plus impact that is loaded in the first half of the year along with vacation accrual impact. So it's a combination of revenue, improvement with -- tempered with not your full margin realization, and then revenue then will slow down a little bit as you have fewer available days and the vacation holiday impact in the third and fourth quarter, but then the fact that you paid up all your payroll taxes starts to come back in and starts benefiting gross margins the way you saw this year.

Yes. I understand. Lastly on membership advisory, the -- is -- I would assume that the annualized contract value growth of 17% would be more indicative of a trend line than the 12%.

Great question. Absolutely. And as we go into the year, we would expect -- we think that's a great indication of where the revenue growth for that group will be. And -- so if we -- we'd love to see it grow on a blended basis with the rest of the business, so we say 15% plus, and would love to see advisory grow as part of that overall model. One of the pleasant surprises in Q4 was the fact that we knew that by making -- by setting every transaction the same in '07, that you may actually reduce the emphasis of perhaps the lower dollar volume executive advisory program. But we're seeing our sales force -- we saw great Q4 sales activity improve renewal activity in Q4. And we hope that it's the fact that people really now understand, that if the client is in execution mode, we lead with other offerings, if the client is the an education assessment or self-executing, it's great for them to become an executive advisory member of one of our programs.

Good work, guys, and go get some chicken soup.

I had a little vegetable soup for lunch and I will have some for dinner.

I'm showing no further questions at this time.

Well, let me thank everyone for participating in our Q4 and fiscal year-end earnings call. We look forward to providing you with another update when we report the first quarter. Thank you, again, for participating.

Thank you.