Hackett Group Inc (HCKT) 2008 Q3 法說會逐字稿

Good evening, and welcome to the Hackett Group third 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.

Thank you, operator. Good evening, everyone, and thank you for joining us to discuss the Hackett Group's third quarter 2008 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. A press announcement was released over the wires at 4:05 p.m. eastern time. For a copy of this release, please visit our website at www.thehackettgroup.com. We will also place any additional financial or statistical data discussed on this call that is not contained in the release on the Investor Relations page of our website.

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

Thank you, Rob. As we customarily do, I will start by providing some overview or highlight comments on the quarter. I will then turn it back over to Rob and ask him to comment on our operating results, also speak to cash flow and provide some commentary on outlook. Rob will turn it back over to me. It will allow me a chance to provide some market perspective and talk about some of our strategic priorities, and then we will open it up for Q&A.

So, let me start with the Q3 highlights and welcome, everyone to our third quarter earnings call. We are pleased to report another strong quarter with pro forma earnings per share increasing 29% led by the Hackett Group's 11% revenue growth, 13% on a constant currency basis. Our strong operating results, coupled with improved DSO performance, resulted in over $12 million in cash flow from operations in the quarter. This allowed us to increase our cash balances during the quarter while returning over $6 billion to our shareholders through our stock buyback program. On a year-to-date basis, our operating income of $16.3 million has more than doubled from last year, which speaks to all aspects of our progress. Despite the economic turmoil and even though the sudden drop in foreign currencies are reducing our total company fourth quarter revenue guidance by nearly 4% and our EPS guidance by $0.01, we are poised to have another strong quarter to close out 2008. We have seen clients continue to seek our advice in implementation assistance. We know their need to better understand and manage their cost and working capital has only increased as the economy has slowed and as credit availability has become more difficult to obtain. The question is whether they can do this for themselves or who they decide to turn to for assistance. Our job is to continue to ensure that our clients understand that our unique intellectual capital and implementation expertise enables them to make the necessary changes in a very targeted and timely manner.

We were also pleased to report our first quarter -- our first year-over-year growth in our technology solutions group since the first quarter of 2006. It is clear that the investments that we have made in new leadership, our offshore facility and in our best practice in industry solutions are paying off for this group. As I have mentioned throughout the year, several changes have driven our improved performance. The introduction of our transformational benchmark has expanded our initial entry point with our clients. The improved performance by our REL team has been meaningful and the cross-selling opportunities to and from our other Hackett offerings still represent a significant growth opportunity that we have yet to capture. Lastly, our ability to sell other services into our executive advisory client base has been expanding, but we are just starting to fully realize the power of this continuous and trusted relationship that we have with these clients.

Let me elaborate just a little bit more on each of these items. As you will recall, at the beginning of last year, we introduced the transformational benchmark that allowed us to sell our transformation planning, design and implementation services along with our benchmark. As a result, we've experienced an increase in the average revenue per client and we have improved the leverage of our intellectual property in our pricing which is also evident in the increase in revenue per professional and also in gross margins. . Along with this strategy, the improved REL performance and the improved REL performance have been the primary reasons for our increased growth and profitability since the beginning of 2007. On the REL front, we are seeing improved performance across all of our operating metrics and regions. This is a group that's benefiting from the credit crisis that clients seek alternative ways to generate cash. Over the last two years, we increased our investment in both resources and infrastructure across France, Germany, and the UK and we launched our lines in the Nordic region. Those investments continue to pay off with year-over-year international growth of 22% in Q3. Lastly, the investments in leadership and sales and marketing in our technology solutions businesses have started to pay off, and this has been most evident in the improved performance of our Hyperion or Oracle EPM group. It is clear that our go to market execution has improved. Our brand permission has -- and our brand permission has expanded globally. At the same time, we recognize there's much room for improvement and the opportunity to -- provided by our brand and the unique best practice intellectual property that we have is vast. We are creating a powerful, highly-recognized global professional services brand with services that help clients improve organizational effectiveness globally. Let me now ask Rob to provide details on our operating results, cash flow and also comment on our

Thank you, Ted, and good evening, everyone. I plan to cover the following topics. An overview of our third quarter results, a breakdown of our third quarter revenue, an overview of our key operating statistics including significant cash flow activities during the quarter, and I will then conclude with a discussion on our guidance for the fourth quarter of 2008. For purposes of this call, any references to Hackett Group will specifically exclude Hackett Technology Solutions. Correspondingly, I will comment separately regarding the financial results of the Hackett Group, Hackett Technology Solutions and the total company. Please note that references to gross revenues in my discussion represent net revenues plus reimbursable expenses. Additionally, references to pro forma net income exclude non-cash stock compensation expense, intangible asset amortization expense and assumes a normal life tax rate of 40%.

First, I will discuss our third quarter 2008 results. We are pleased to report revenues, which were above the midpoint of our guidance range, which was $49 million to $51 million and pro forma EPS that was at the midpoint of our guidance range which was $0.08 to $0.10 cents per dilutive share. For the third quarter of 2008, total company revenues were $50.4 million, a year-over-year increase of 8%, or 9% adjusting for currency, driven by an increase in the Hackett Group revenue of 11.4% in US dollars or 12% -- 12.6% adjusting for foreign currency. Our pro forma net income totaled $3.6 million or $0.09 per dilutive share for the third quarter of 2008, which was an increase of $0.02 or 29% from the comparable period in the prior year. Third quarter pro forma earnings per dilutive share were unfavorably impacted by a half a penny as a result of the unfavorable fluctuations in foreign currencies. Pro forma operating profit for the third quarter of 2008 was $6 million or 12% of gross revenues as compared to 11% in the third quarter of 2007. On a year-to-date basis, pro forma operating income was $16.3 million as compared to $7.1 million in the comparable period of the previous year, representing an approximate 130% increase on a year-over-year basis. Our GAAP net income totaled $4.6 million or $0.11 per dilutive share. GAAP net income included tax expense in the quarter of $123,000.

As of the end of the third quarter of 2008, the company had approximately $56 million and $10 million of income tax loss carried forwards remaining in the US and foreign tax jurisdictions, respectively. Breaking down our third quarter revenue for 2008, revenue for the Hackett Group was $33.8 million, representing a year-over-year increase of 11.4% in USD and 12.6% adjusting for foreign currency. Further breaking down the Hackett Group revenue, international revenues which are primarily based with a contracting entity as domiciled, accounted for 39% of total Hackett Group revenues in the third quarter of 2008 as compared to 36% in the third quarter of 2007. The foreign currency translation impact on the Hackett Group's revenue growth rate on a year-over-year basis was an unfavorable 1.2%. As Ted has mentioned, throughout 2007, the strategic changes that were made to emphasize our new transformational benchmarks and the realignment of a dedicated sales team to REL as low as investments made in Europe and other international markets have all contributed to our improved performance.

Our Hackett Technologies Solutions group revenue totaled $16.7 million which represented a sequential increase of 5.4% and a 1.4% growth on a year-over-year basis. Key leadership changes in the second half of 2007 and investments in sales and marketing contributed to the sequential and year-over-year growth. We have not reported a year-over-year increase for Hackett Technologies Solutions since Q1 of 2006, so we are pleased to see that the investments we have made are having a positive impact on their results.

I will now discuss of some our key operating statistics. Consultant head count was 566 at the end of Q3, up from 548 in the previous quarter and flat on a year-over-year basis. Higher Hackett Group headcount has been partially offset by lower head count in our Hackett Technologies Solutions group as we have adjusted Hackett Technologies Solutions staffing levels throughout 2007 to conform to market demand. Annualized revenue per professional in the Hackett Group was $452,000 in the third quarter of 2008 as compared to $439,000 in the same period of 2007, an increase of 3%. For the Hackett Technologies Solution group, consultant utilization was 74% for the third quarter of 2008 as compared to 64% in the same period of last year. Our utilization target continues to be in excess of 70% for this business, which we achieved in the third quarter. Our hourly realized billing rate was $166 per hour for the third quarter of 2008 as compared to $168 in the third quarter of 2007. The slight decrease is primarily due to increased utilization of our offshore India resources which are billed at lower rates. Utilization is calculated based on 2,080 hours in a fiscal year. On a companywide basis, our pro forma gross margin, which excludes stock compensation expense, was 42% of gross revenues in the third quarter of 2008 as compared to 41% in the same period last year. Gross margin has continued to increase as a result of Hackett Group revenue mix which carries a higher gross margin percentage as compared to Hackett Technologies Solutions. For those of who you utilize net revenue calculations, pro forma gross margin was 47% of net revenues for the third quarter of 2008 as compared to 45% in the same period of 2007. Hackett gross margin on net revenues was 52.4% in the third quarter of 2008 as compared to 52.8% in the third quarter of 2007. As expected, pro forma SG&A, which excludes non-cash comp and amortization of intangibles, was approximately $15 million or 30% of gross revenues as compared to 30% of gross revenues in the third quarter of 2007.

Our SG&A levels have benefited from cost containment initiatives that began in early 2007, offset by higher accrued bonuses and the impact of unfavorable foreign currency movements during the quarter. The company's cash balances, including marketable investments of $2.4 million held in Bank of America's Columbia strategic cash portfolio, were $26.7 million at the end of the third quarter of 2008 as compared to $20.3 million at the end of the second quarter of 2008. Cash flows from operations were $12.9 million for the third quarter of 2008, primarily driven by strong operating earnings, a reduction in the company's DSOs and the timing of the timing of US payroll cycles. Our DSO at the end of the third quarter of 2008 was 56 days as compared to 65 days at the end of the second quarter of 2008. This represents a nine day reduction in the third quarter of 2008 and a three day reduction since the end of 2007. We believe that we will continue to make improvements to our DSO as we move into 2009. During the third quarter of 2008, cash was utilized to repurchase approximately 1.1 million shares of the company's common stock at an average price of $6.02 for a total cost of $6.5 million. From a year-to-date perspective, the company has repurchased approximately 3.5 million shares at an average price of $4.59 for a total cost of $16.2 million.

I would now like to discuss our guidance for the fourth quarter of 2008. However, before I provide the Q4 outlook, it is important to note a couple of key items. The first item is the seasonality of our business. Specifically, the increased holiday and vacation time that is taken in the fourth quarter will decrease our available billing days of the Q4 of 2008 by approximately 7% as compared to the third quarter. Secondly, there has been significant weakening in foreign exchange rates against the US dollar recently, primarily with the British pound and the euro which we have factored into our Q4 guidance projection. We expect the impact of foreign currency fluctuations to unfavorably impact total company Q4 revenues by approximately 4% on a year-over-year and sequential basis. As a result, we expect total company revenues for the fourth quarter of 2008 to be in the range of $46 million to $48 million. We expect Hackett Group revenues to be up on a year-over-year basis by approximately 6% to 9% on a US dollar basis and 12% to 15% adjusting for foreign currency. Our Technology Solutions group has an immaterial amount of international revenues.

Relative to pro forma diluted earnings per share, we expect the unfavorable impact of available billing days and unfavorable foreign currency fluctuations to be partially offset by lower payroll taxes and the utilization of vacation accruals. Based on our current projections, we expect that the weakening of foreign currencies will have an approximate $0.01 negative impact to pro forma diluted earnings per share. As a result, we expect our pro forma diluted earnings per share in the fourth quarter of 2008 to be in the range of $0.07 to $0.10. This pro forma estimate excludes amortization expense and non-cash stock compensation expense and includes a normalized tax rate of 40%. Gross margins are expected to improve sequentially as we see the impact of decreasing payroll taxes and no further build-up in the vacation accrual in the fourth quarter. We expect pro forma SG&A levels to be approximately $13.5 million. We expect our cash balances, excluding the impact of any stock buyback activities, to be up consistent with our pro forma earnings guidance. At this point, I would like to turn it back over to Ted to review our market outlook and strategic priorities for the coming months.

Thanks, Rob. As we look forward, we continue to believe that the market demand for our services remains healthy, but we are cognizant that the recent market turbulence can impact behavior. As I mentioned in my opening comments, a growing number of companies now recognize the need to reduce cost and optimize cash. The key for us is to make sure that the clients understand the role we can play in helping them affect the necessary changes as their revenue growth prospects change. Geographically, we entered the year expecting the US economy would slow and we would see lower discretionary spending impact our US business. In Europe, we expected better demand, but tempered from the strong demand that we had experienced throughout 2007. The impact of the slowing economy is now clearly evident globally and in our view, was only exacerbated by the global credit crisis. We expect clients to be more thoughtful about their discretionary spend during this period, but it is also clear that the cost reduction in cash flow improvement initiatives will receive increased attention from our client base and has resulted in a net increase in overall demand thus far. This is more evident when you look at our activity on a local currency basis. Despite the global economic slowdown, we remain optimistic that we will continue to be net winners during this period. Given this activity, our prospects for strong EPS and EBITDA improvements in fiscal 2008 have remained unchanged, even though foreign currency changes will negatively impact our Q4 revenue and EPS results.

Our Hackett Group, excluding Technology Solutions' long-term prospects of 15% plus growth remain unchanged. However, with the current level of economic uncertainty, we don't know the impact we may experience in the short term. With that demand overview as a backdrop, let me comment on our strategic priorities for 2008 and I'll start with revenue growth. We continue to believe that the opportunity to grow by increasing our revenue per client with our current offerings is significant. Specifically, in some of these I covered in my opening remarks, the increased leverage that can come from further expanding the number of advisory clients utilizing our other services is meaningful. The ability to better integrate the REL capabilities with other Hackett opportunities is significant and as I mentioned earlier, have been limited at this point. Another meaningful opportunity for us. In our ability to convert more of our transformational benchmarks into larger implementation initiatives continues to be very significant. We also continue to see a great opportunity to continue to expand internationally. We have seen our brand strongly resonate with both prospective clients and associates outside the markets that we currently serve. We want to expand our alliance partners relationships in markets that we are not currently serving as a great way to expand our brand and offering and drive incremental revenue growth very efficiently.

I have previously noted the strong performance from our European Nordic region alliance and as I've mentioned previously, we would like to use the same strategy in other regions. During the third quarter, we signed an alliance agreement with an organization in South Korea and we now expect to announce another alliance during the fourth quarter. During the quarter, we also expanded our presence to Asia PAC with our new planned expansion starting in Australia. Lastly, we continued to actively look for acquisitions that would enhance and strongly leverage our existing intellectual capital to drive and accelerate our growth. Let me comment further on the executive advisory leverage. As you know, our long-term goal is to be able to ascribe an increasing percentages of our total annual revenues to clients who are continuously engaged with us through our executive advisory programs. Our clients use our executive advisory programs to track emerging issues and to support performance improvement initiatives that they are assessing or executing on their own. At the end of the quarter of gross membership counts approximated 770 while client counts approximated 235. Client count is basically flat with last quarter, but more importantly, an increasing number of advisory clients are buying for or are driving a larger amount of our total revenues. We've seen this happen throughout the entire year which is a validation of our strategy. We continue to believe that both the percentage of clients and the sales to that loyal client base should continue to expand. Correspondingly, expanding our member and client counts remains one of our key strategies. As I mentioned last quarter, given the success we're having leveraging our executive advisory entry point into broader relationships, we plan to increase the number of sales associates solely focused on executive advisory program growth through the balance of the year and into '09. Those recruiting and hiring efforts are underway.

Let me speak to the need to expand and leverage our best practice intellectual capital. We know that the reason we're distinct is because of the proprietary data we captured through ow benchmarks and the applied knowledge that we have captured in our best practices repository and implementation tools that help clients drive to a targeted solution very efficiently. A key element of our 2008 plan are changes to the product architecture which determines how we avail our intellectual capital to clients. We believe we are continuing to improve how we do this, and one of our key initiatives has been to fully integrate the access and automation of our best practice implementation tools into our new global delivery methodology. We believe this will enhance the marketability, usability and enhance data and IP capture.

And lastly, talent management. As we continue to grow and fully recognize the potential of our business model, it has become increasingly evident that the only limit to our progress and opportunity will be our ability to attract, retain, develop and energize our associates. Our associates are passionate about our organization and we must ensure that we nurture this sentiment. To this end, we have been developing a comprehensive global talent management program that will ensure we have an opportunity to excel across all of these dimensions. Last quarter, we rolled out the first phase of the talent management initiative at our expanded US and European knowledge share meetings which were attended by all of our market facing associates. We have now also rolled out a new performance management program and have set a very aggressive expansion of our training curriculum for all of our associates going into 2009. We have and will continue to increase our investment in this very important area.

In summary, the strategy we've put in place several years ago, along with the changes we affected over the last couple of years, have been favorable to our growth and profitability. As I repeatedly say to our associates, the opportunity for our organization is truly boundless when you consider the power of our brands, the unique intellectual capital along with the very talented associates, we know we have an opportunity to build one of the most admired and valuable professional services organizations in the world. We believe this is applicable, even during challenging economic times. Let me close by thanking all of our associates for their contributions and their tireless effort and congratulate them again for the great progress that we continue to make. Let me now open it up for Q&A.

Thank you. (OPERATOR INSTRUCTIONS) One moment. Ok. Our first question comes from Bill DiTullio from Boenning and Scattergood. Your line is open.

Good evening. Thank you for taking my question. Guys, I was wondering if you can give us a little more color on the sales cycle, specifically the differences if you're seeing any between the United States and Europe and between the Hackett Group and REL.

Well, first of all, sales cycles generally -- we're seeing actually both -- all kinds of different behavior. One behavior is clients now realizing that their demand or their revenue growth opportunities are, in fact, changing or will be more volatile, so we see them taking a more comprehensive look at all aspects of cost and cash. That can lead to a slight delay in that decision-making progress, but we also recognize that if they do it thoughtfully, the opportunities for us will be more significant. Having said that, so far, we've seen an equal number of clients then turn to us with more urgency and simply say hey, look, I would like to get started on an initiative. On the REL front specifically, there's no doubt that the credit crisis has led to an increased activity in both our European and U.S. team, and the prospects for that team just remain very, very strong. As I said in our overall comments, thus far, we've been net winners of the behavior we've seen from clients and we'll continue to track it closely and hope that it stays that way.

Great. Could you give us -- also talk about what are your pricing plans going into next year? Do you foresee changing them at all?

We do not. As you've seen over the last 18 months, our revenue for professional and gross margins have expanded very nicely. We believe that the opportunity that it is currently providing for us is meaningful. So, for us, it is really just positioning our intellectual capital in the most strategic way. It is what allows us to drive, if you want to call it, better pricing leverage, and drive better margin performance. If we simply engage a client about -- with just -- we have people who do something really well, instead of making sure clients understand that, in addition to having very talented people, we have intellectual capital both in terms of benchmark metric and best practice execution which is unique to us and that allows them to get to an answer in a more targeted fashion and more quickly. Our pricing works out very nicely and we don't intend to change that. I think for us, as you can see by my comments on the talent management program, our focus is just making sure that all of our associates are better or are getting better at explaining how they can leverage our IP and how well we can help them affect change. We think that's where the best opportunity for increased -- for improved pricing and margin expansion lies.

Great. And that kind of leads into my next question. We talked about -- you had mentioned utilization. You're currently meeting those target levels overall. Could you give us an idea, are you meeting that target utilization specifically within the Hackett Group?

Actually, in the target group, we have been on an overall basis, slightly below our target for the entire year. So, it is funny, because we know that we've achieved very high levels of revenue per professional and improved gross margins, but we know that not all of our teams within our Hackett Group are at target utilization. On the tech side, we have clearly seen improved utilization, especially it is being reflected in our improved Hyperion performance, so we've seen that in some aspects of tech as well.

Ok. Can you give us an idea where attrition stands? Are you seeing any slowdown in that or just kind of the same?

We have seen a slowdown in attrition. If anything, we believe that the increase -- we're seeing an increased number of opportunities to hire people over the last several months than we saw, let's say, in the first half the year. So, from a resource perspective, although we're working very diligently in investing more dollars to see if we can improve the performance of all of our people, we do see an opportunity to bring in new and very good talent in some areas that we're targeting.

This will be at the junior level or senior level or both?

This -- my comments are really more about some of the more senior or impact people.

Ok.

Our ability to hire overall, I would say, has remained very good throughout the last couple of years, and I think it will remain unchanged.

Great. And my final question is this, a broad question about your goals for 2009. Just wanted to get some color as far as where maybe your productivity client goals, and then given the impact of exchange rates, would you still think 4% impact would be appropriate for '09?

Well, relative to foreign currency, your guess is as good as mine. So, I would love to add color to that. To be honest with you, we were surprised at just the sudden drop, especially those first couple of weeks in October were just steeper than anything we've experienced. So, my hope is as some of the rates -- some of the Bank of England and European Community Bank rates come down, that maybe we'll see some improvement in that relative relationship than what we've seen lately, but that's a personal hope. We'll track them closely and we'll provide more perspective on that as we guide Q1. Relative -- is that -- did I answer your question or did I leave something out?

Yes, as far as -- yes, regarding the foreign currency, but just the other two things were discuss productivity goals and client goals thrown on.

Productivity goals remain the same because if anything, we like the gross margin performance of both of our teams, so the relative pricing that we've been able to get and the relative gross margin it is resulting in, we think, it is very, very healthy. So, our hopes are to keep it very close to current levels. Relative to client expectations, too early to tell. I think -- I tried to provide as much color as I could. I think what we can say is hey, look, we've been net winners thus far, we understand why our business model could continue to have some success during this transition, but we're also cognizant of the fact, like I said, that hey, listen, things could change depending on just how difficult the economy gets in certain regions and for certain clients. So, we wanted to provide that perspective and try to be as open as we can about it, but we'll add a lot more color as we guide Q1.

Fair enough. Thank you, guys. Congratulations on a solid quarter. Thank you.

Thank you.

Your next question comes from George Sutton from Craig-Hallum. Your line is open.

That's close. Hi, guys.

Hi, George.

The thing that I was really pleased with this quarter was the cash flow, and I wondered if Rob could address that in a little more detail. We don't have all of the numbers from the press release. Was a lot of the cash flow driven by the continued reduction in DSOs?

Sure. DSOs and actually, got some pleasant news as we were researching, George. Our DSO, and I don't think Ted even knows this, is actually the lowest in the company's history at this particular juncture. So, yes, the decrease of nine days in a quarter was an extreme benefit as well as the timing of our payroll cycles. We have one cycle that falls outside the quarter, so that had a positive impact as well. And of course, the most important thing is just a strong operating earnings in the quarter.

So, you mentioned you felt you might be able to further increase or improve DSOs.

That's our goal.

I'm curious, can you give us a sense of how significantly you could improve them from here?

How significantly. , George, we have a pretty aggressive target that we're aiming toward. I mean, if you look at other of our competitors, you'll see some outliers that are in the 30s and 40s. We continue to think we can head toward those

Ultimately, you can use your own DSO success in selling REL.

They have helped us, by the way. Our internal target has been 45 days. Our COO has been all over this. Rob and his team, along with our practice leaders and David Dungan's leadership has really driven this number down pretty significantly. Broadly speaking, our revenues, our results probably drove $7 million to $8 million, George, of the money. The cash flow improvements probably drove another $4 million to $5 million and the other delta is a couple of items. The payroll was probably another $2 million.

Ok. Thank you for those details. Now, Ted, your expectations for Q4 look to be almost like there's no real change in the environment other than FX, and I think when you address -- on the call last quarter, you suggested that Europe might remain relatively strong vis-a-vis the US and of course, I think that's changed in the quarter, and your guidance really remains fairly robust. So, can you give me a sense of whether or not anything really has changed or not?

Well, clearly things have changed. For us to say that we don't recognize what everyone's going through and the type of conversations we have with our clients would not be appropriate. Now, relative to our own business and relative to Europe, it is interesting. During the third quarter, we get the August holiday impact. So, we wondered whether, in the middle of the third quarter, we were seeing some impact in activity or any lull of activity because of the holiday period versus something more significant. But we were pleased with some of the activity that we saw in September and have seen so far in October. And so when we look at those -- when we look at that activity on a constant currency basis, we're saying hey, look, we're holding up pretty nicely and as I would say, knock on wood. And so, no, we look at that and then when you couple in with Europe, what we believe is probably improving opportunity for REL which is a nice piece of that entire European story, it still represents -- still paints, I'll call it a healthy picture for us.

So, the real question for us is whether the economic impact on clients becomes so severe that they take more severe actions. When clients are hit very hard, what we see sometimes is that they decide to be less thoughtful and then just decide to make unilateral cuts which may be a very bold and may make them feel a lot better in the short term, but long term, they'll see that those kind of changes do not drive sustainable continuous improvement. So, our goal out there is to make sure that we are making sure clients understand that hey, you need to do this in a thoughtful way. We're one of those people that really can help you. We have unique intellectual capital to do that and hope that continues to show up in our demand.

Super. That's helpful. And then lastly, can you just give us the share count at the end of the quarter? You did give us a weighted average in the press release, but can you give us a share count at the end of the quarter?

I believe it is slightly over $42 million, George. If you wait a second, I can give you the exact --

I'm not going anywhere.

Fully distributed?

No, he's just asking for an ending share count. It is approximately $42 million, George. I'll give you the exact number later.

Okay, perfect. Thanks, guys.

And there are no further questions. Mr. Fernandez, you may continue.

All right, well, let me thank everyone for participating in our third quarterly earnings call. We look forward to updating you further when we report the fourth quarter in our annual results. Thank you again for participating.

Thank you for participating in today's conference call.