Hackett Group Inc (HCKT) 2009 Q3 法說會逐字稿

Good evening and welcome to The Hackett Group third quarter earnings 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 afternoon. Thank you for joining us to discuss The Hackett Group's third quarter results and its acquisition of Archstone Consulting. 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 4:10 pm eastern 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 body of 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, particular risk factors contained in our SEC filings. At this point, I would like to turn it over to Ted.

Thank you, Rob, and today I will start with the quarterly highlights. I will then turn it back over to Rob, so that he can comment on the detailed operating results, cash flow, and also address guidance. I will then pick it back up to make some comments relative to the market and some of our strategic initiatives and then we will open it up for Q and A. So let me start with the quarterly overview and highlights. And first let me start by welcoming everyone to the Hackett group's third quarter earnings call.

For the quarter we reported revenues of $34 million and pro forma EPS of $0.03. As Rob mentioned, both in line with our guidance. As expected, our results continued to reflect the impact of the volatile economic environment which our clients are experiencing across the US and international markets that we serve. We continue to see clients closely monitor their spend. However, when we look at our pipeline and see the increasing number of phase one, or diagnostic related initiatives that clients are currently considering, we believe this indicates the environment is improving, even if it is gradually. A strong focus for us throughout the year was to make sure that we did not let the challenging environment prevent us from being aggressive relative to the pursuit of new channels and acquisitions that could improve our ability to grow and also expand the value proposition that we offer to our clients.

Today we announced the acquisition of Archstone Consulting, a leading strategy, operations, and CFO consultancy. Archstone brings many strategic synergies to Hackett through its 130 plus highly skilled associates throughout the US and western Europe. Archstone will provide Hackett with new industry focused supply chain and procurement consulting capabilities which will strongly compliment Hackett's G&A and working capital offerings. Additionally, Archstone adds CFO advisory capabilities which will significantly expand Hackett's enterprise performance management transformation capabilities and will strongly compliment Hackett's highly recognized Hyperion or Oracle EPM implementation group. Archstone will also strengthen the IT strategy and BPO advisory capabilities within Hackett. As I mentioned, strategic across many different dimensions. When we look at the number of strategic touch points that Archstone will impact, we are excited about the prospects that this acquisition could have on our ability to grow our business in 2010 and how it will allow us to further leverage our SG&A infrastructure. Although Archstone will be diluted in Q4 as we try to quickly integrate their business on to our back office infrom structure, we expect them to be accretive starting in Q1 of 2010. In 2010, the acquisition is expected to add approximately $35 million to $40 million in annualized revenues and be increasingly accretive as the year progresses.

During the quarter we continued to see the benefits of our efforts to engage clients more strategically around the design and implementation of global operating platforms, or as we refer to them, service delivery models. However, we also continue to see that the economic activity in Europe lag the improved US activity, which we started to notice at the end of last year. Although we plan for a challenging environment for the balance of the year, we're also making sure that we build on the great momentum we created over the last several years. We are pleased that we have remained focused and have been playing offense during this period. Our focus has allowed us to continue to invest in our people and expand our capabilities while remaining profitable and cash flow positive. We believe our efforts in 2009 will improve our value proposition to our clients and enhance our operating leverage which we will be able to benefit from as revenue growth reemerges. Our plan was to do whatever we could do to exit the year as a better Company than we were when we started the year. With today's acquisition, I believe we will do so. I will comment further on the market conditions and specific go to market initiatives later during this call. But let me first ask Rob to provide details on our operating results, cash flow, and also comment on outlook. Rob.

Thank you, Ted, and good afternoon, everyone. I will cover the following topics during tonight's call. An overview of our 2009 third quarter results, along with an overview of related key operating statistics, a breakdown of our 2009 third quarter revenue, an overview of our cash flow activities during the quarter, a summary of the Archstone acquisition announced earlier today, and I will then conclude with a discussion on our financial outlook for the fourth quarter of 2009, including the impact of the Archstone acquisition on our guidance. 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 all references to gross revenues in my discussion represents net revenues plus reimbursable expenses. For purposes of tonight's call I will provide most of my comments on net revenues or revenues before reimbursements.

First I will discuss our third quarter 2009 results. For the third quarter of 2009, the Company's gross revenues were $34 million, a year-over-year decrease of 33% with Hackett group net revenues down 32% on a year-over-year basis and Hackett technology solutions net revenues down 35%. As expected the economic disruption that has existed over the past year has continued to affect client decision making. All client budget and spending continue to be heavily scrutinized which has resulted in longer purchase decision cycles that has negatively impacted our revenues on a year over year basis. As expected, our pro forma cost of sales was down sequentially by approximately $900,000, primarily as a result of cost reduction actions we have taken. On a total Company basis, our pro forma gross margin, which excludes noncash stock compensation expense, was 38% of net revenues in the third quarter of 2009, as compared to 47% in the third quarter of 2008. Hackett group pro forma gross margin on net revenues was 42% in the third quarter of 2009, as compared to 52% in the third quarter of 2008. Our annualized gross revenue per professional was $315,000 in the third quarter of 2009 as compared to $452,000 in the comparable period of 2008. This clearly indicates that we continue to run below capacity at this point in time.

Pro forma SG&A, which excludes noncash stock compensation expense, amortization of intangibles, and acquisition related costs, was approximately $10 million, or 33% of net revenues in the third quarter of 2009 as compared to $15.3 million or 34% of net revenues in the third quarter of 2008. This decrease of approximately $5.3 million on an absolute dollar basis is primarily related to lower bonus accruals and commission expenses due to revenue decreases as well as the benefit of other cost reduction actions taken during 2009. Our pro forma net income totaled approximately a million, or $0.03 per diluted share for the third quarter of 2009. Pro forma net income excludes noncash stock compensation expense, intangible asset amortization expense and acquisition relate costs and assumes a normalized tax rate of 40%. Our GAAP net income totaled $816,000, or $0.02 per diluted share. GAAP net income included tax benefits in the quarter of $20,000. As of the end of the third quarter of 2009 the Company had approximately $52 million and $10 million of income tax loss carry forward remaining in the US and in foreign tax jurisdictions respectively.

Breaking down third quarter revenue for 2009. Gross revenue for the Hackett Group was $23.1 million representing a year over year decrease of 32%. On a net revenue basis, Hackett revenues also decreased 32%. International gross revenues which are primarily based on where the contracting entity is domiciled, accounted for 37% of Hackett group revenues in the third quarter of 2009 as compared to 39% in the third quarter of 2008. The foreign currency translation impact on Hackett Group's revenue growth rate on a year-over-year basis was an unfavorable 2%. Our Hackett technology solutions group gross revenue totaled $10.9 million which represented a year-over-year decrease of 35%. For the technology solutions group our hourly gross realized billing rate was $139 for the third quarter of 2009 as compared to $166 in the third quarter of 2008. This decline in billing rate was primarily attributable to lower mix from our higher rate Oracle EPM practice and the increased utilization of our offshore India resources. Consultant utilization was 72% for third quarter of 2009 as compared to 74% in the same period last year. The Company's total consultant headcount was 497 at the end of the third quarter of 2009, as compared to 507 in the previous quarter. As I mentioned previously, during the quarter and throughout 2009, we have reduced our headcount to conform to current market demand.

The Company's cash balances were $23.8 million at the end of the third quarter of 2009, as compared to $24.2 million at the end of the second quarter of 2009. Net cash provided by operating activities was $1.4 million for the third quarter, which was primarily attributable to a decrease in DSO, or days sales outstanding, and the timing of vendor payments partially offset by the timing of our US payroll cycle. Our DSO at the end of the third quarter was 54 days as compared to 57 days at the end of the second quarter 2009, and 56 days at the end of the third quarter of 2008. We continue to target DSO levels below 50 days. During the third quarter of 2009, cash was utilized to repurchase 391,000 shares of the Company's common stock at an average price of $2.53 for a total cost of $990,000. At quarter end we had approximately $3.5 million remaining in stock repurchase program authorization.

Before I move to our fourth quarter guidance, I would like to summarize our acquisition of Archstone Consulting which was announced today. Under the terms of the acquisition agreement, we will issue approximately 5.2 million shares of which 1.6 million are subject to an earnout based on revenues to be achieved in 2010. The shares issued are subject to a one-year lockup. Additionally, Hackett will issue approximately 950,000 shares to Archstone executives that will vest over a two to five year period. The Archstone acquisition is expected to add $35 million to $40 million in annualized revenues to Hackett and be accretive by $0.04 to $0.06 to pro forma earnings per share in 2010. From a cash perspective we will spend approximately $2 million to settle Archstone's net debt outstanding and we will incur approximately $1 million in severance and other acquisition related expenses in Q4.

Now turning to guidance, before I provide our fourth quarter outlook, it's important to note a couple of key items. The first item is the acquisition of Archstone that was announced today. Archstone's results will be included in our consolidated results from the date of the close until our fiscal year end. In conjunction with this acquisition, the Company will record a restructuring charge that is primarily related to the rationalization of acquired lease obligations. Additionally, we will provide for severance costs which relate primarily to the consolidation of back office, personnel and infrastructure. This restructuring charge is expected to range between $3 million to $4 million. As a result of the equity issued in connection with the Archstone acquisition, we expect our fully diluted weighted average shares outstanding to increase by approximately 1.9 million shares in Q4 since the acquisition has occurred near the mid point of the quarter. We expect an additional increase of approximately 1.5 million shares in the first quarter 2010.

The second item I would like to discuss is the seasonality of our business, specifically, the increased holiday and vacation time that is taken during the fourth quarter will decrease our available billing days by approximately 12% when compared to Q3. As mentioned previously, the Archstone acquisition has closed near the midpoint of the fourth quarter. As a result, we expect to lose approximately 49% of their available billing days during the fourth quarter due to the number of holidays and vacation days that will be utilized throughout the remainder of the year.

We expect -- we continue to expect client budgets to remain tightly controlled through the balance of the year, and purchase decision cycles to be extended and intentionally pushed into 2010. As a result, we expect total Company gross revenues for the third quarter of -- for the fourth quarter 2009, to be in the range of $34 million to $36 million, including $4 million to $5 million attributable to Archstone. Relative to pro forma diluted earnings per share, we expect the unfavorable impact of decreased billing days to be partially offset by lower payroll taxes and the utilization of vacation accruals. As such we expect our pro forma diluted earnings per share in the fourth quarter of 2009 to be in the range of minus $0.01 to $0.03.

Given the timing of the transaction close and the transition cost that will be incurred until we finalize the consolidation and integration of back office infrastructure and personnel, we expect the acquisition of Archstone will have a dilutive effect on pro forma earnings per share of approximately $0.02 in Q4. Our pro forma guidance excludes amortization expense, restructuring charges, acquisition related costs, and noncash stock compensation expense and includes a normalized tax rate of 40%. Sequentially, we expect gross margins to be unfavorably impacted by the timing of the Archstone acquisition, which as discussed, is heavily affected by the decrease in available billing days in Q4. We expect pro forma SG&A for Q4 to be approximately $11.5 million, or up approximately $1.5 million, primarily due to Archstone related SG&A, which will be partially offset by additional SG&A expected savings. We expect our cash balances, excluding the impact of any stock buyback activities, to be down on a sequential basis, primarily due to cash outlays to pay off Archstone related debt and payment of acquisition related costs. At this point, I would like to turn had back over to Ted to review our market outlook and strategic priorities for the coming months.

Thank you, Rob. As we look forward, although in 2008 we performed highly in an increasingly difficult economic environment, it is clear that 2009 has turned out to be more challenging that we originally anticipated. We continue to believe that the market demand for our services remains favorable. However, our clients are also trying to aggressively disperse through the balance of the year. Companies continue to recognize the need to drive sustainable cost reduction and cash flow during this period of economic uncertainty. They also realize, that as the economy recovers, near-term revenue gains may be difficult to come by. This will mean that operating -- they must strive to achieve operating excellence that would allow them to sustain the leverage that they have been able to achieve in 2009, which will be absolutely key to many of their 2010 operating results and guidance. We continue to believe that as GDP gradually improves in the markets that we serve, the severe pressure on discretionary spending will start to ease and clients will start to address how they can sustain the productivity gains they have achieved. As a result, we expect to see gradual improvement in the US and international markets as we conclude 2009 and head into 2010. We also now believe that the European recovery may lag the US recovery by more than a quarter or two as we expected just last quarter.

With that demand overview as a backdrop, let me now comment on some of our strategic priorities, and let me focus specifically on revenue growth. Our revenues did stabilize in the third quarter and although we expect to feel the unfavorable impact of the holiday and vacation time, which Rob mentioned in his comments, we are -- we remain optimistic about the recovery. Although we have seen clients' request and then push off project into 2010, the level of these phase one requests, as we have referred to, is clearly increasing. So unless this pipeline activity is further derailed, we would expect to see improved market conditions in early next year. Long term we understand our largest opportunity to grow will come by extending our special market permission from being the premier global bench marking organization to our global implementation capabilities. We continue to invest and making sure that our clients understand that we are every bit as good in helping them implement the outcome as we are at identifying the opportunity to improve using these unique capabilities.

To that point, in Q3 and into Q4, we have continued to invest in the sales training to ensure that market phasing associates continue to improve their skills at presenting our key go to market messages and making sure that they're engaging clients strategically. We also continue to focus on broadening our client message around our key service delivery expertise, which is architecting and implementing global G&A operating platforms. As I repeatedly mentioned, our long term goal is to be able to ascribe an increasing percentage of our total annual revenues to clients who are continuously engaged with us through our executive advisory programs. At the end of the quarter, our membership counts approximated 650 across 207 clients which is virtually flat from last quarter. In Q2 -- I'm sorry, in Q3 approximately 40% of our total Hackett sales came from less than 10% of our advisory client base. Clearly, a strategic leverage we will continue to build on and exploit. As you will recall at the beginning of the year, we started to increase our investment in an advisory dedicated sales team in both the US and in Europe. We expect to continue to increase this investment as we head into 2010. I always like to note that all of our client touch points, briefing, inquiries, research, webcast remain very high and consistent with prior quarters. These touch points are very important in expanding our market permission and staying top of mind with our client bas as we help them address strategic issues.

We also continue to see a great opportunity to expand internationally. During the quarter, we launched our lines with IQ business Group in South Africa which will help us introduce our brand in that marketplace. We expect to announce a similar alliance in Asia during Q4 and hope to see this activity further expand as we head into 2010. Although today we announced the acquisition of Archstone Consulting, we will continue to look for acquisitions that enhance and strongly leverage our existing intellectual capital to drive and accelerate our growth.

In summary, the strategy we put in place several years ago has been favorable to our brand expansion, growth, and profitability, even though 2009 has clearly been more difficult for everyone. Regardless of that short-term impact that we have been experiencing, from the global -- from the current global economic prices, we are certain that the opportunities for our organization remains boundless. We feel the acquisition of Archstone further supports this belief. As I repeatedly mentioned, we have a powerful brand, proprietary and unmatched intellectual capital, a terrific group of talented associate, and a strong balance sheet with ample cash battle and no debt. Let me close by thanking our associates for their numerous contributions and their tireless effort and to urge them to stay highly focused on our clients and our people. Lastly, let me close by welcoming all of the Archstone associates to the Hackett family. I've concluded with my formal comment. Let us now turn it over and -- for Q&A. Operator.

Thank you. (Operator Instructions) Our first question comes from George Sutton from Craig-Hallum. Your line is open.

Good afternoon. Hello, Ted, hello, Rob.

Hi, George.

So my first question relates to the acquisition. Obviously there are a lot of acquisition opportunities out there. There's obviously something in particular about Archstone that you were enamored with. Can you give us maybe the one minute viewpoint you might have given your board initially when you were looking at this opportunity in terms of how it really fits in specifically with what you are trying to accomplish.

First, we love their people. They have very similar backgrounds, we think many of them come from some of the same types of organizations that not only the original group from our organization started, but where we built a lot of skill and capability around. So, we think that is very important and we think culturally, we will be able to come together very quickly. Strategically, their capabilities in the supply chain area and procurement area and their strong industry focus will -- these will be brand new dimensions in our business. So, even though we believe that the offerings that we currently have are incredibly competitive and valuable, we knew that at some point, adding industry dimension to all of the things that we do today would be important.

So, one, they bring an industry dimension we believe they will bring it to all of our offerings, including our research in some of the benchmarking insights. Their capability, their ability to engage clients strategically at an industry level is important. Functional capabilities in both a supply chain and procurement, critical and new to us. And then, their CFO advisory group not only strongly compliments a CFO focus within the Hackett Group, they have a very large component of that group which is specifically focused on enterprise performance management transformation. Which is just the kind of skills that would significantly, I would say improve and enhance the capabilities of our Hyperion or Oracle EPM group. So when we look at the cultural fit, the brand new skill that they bring to us, the industry dimension that they bring to us, this unique capabilities in the EPM area that can strongly -- that we believe will strongly enhance our Hyperion capabilities. We look at where they're adding scale across the US, and also in Europe. We just think it has just phenomenal potential.

Can you discuss how you plan to integrate the sales force of Archstone? What's the pitch to your sales people in terms of what they might be able to now offer?

Well, it's interesting. They have -- they don't have a sales force. They have a partner model. So they're actually looking -- they're really excited to be able to leverage the fact that we have a back sales force across many dimensions of our business. So, it's really going to be an opportunity for our existing sales force to now know that when they engage a client in areas where we were previously, simply ignoring, like in very critical supply chain and procurement areas, we now have an opportunity to take advantage of those opportunities. That's where we see a great opportunity. So we see cross-selling opportunity into the relationships that they drive through their strong partner relationships and we see that, we see the opportunity to take the very strong dedicated sales force along with the, I'll call it the partner or principle capabilities we have in our organization, and we think that they will be highly complimentary to one another.

One other question if I could. With respect to the GDP environment, we are now at levels seemingly where the GDP growth is in the range that you suggested is appropriate for your business and you also suggested that your touch points are still at similar levels that they have been in the past. At what point, those seem like areas that would be positive for you in terms of the forward-looking numbers, but we're not there yet. I'm just wondering if you could discuss the disconnect.

To me, it's pretty simple. The economic crisis was so severe and swift, that to some extent the GDP growth, which was just reported in the US, positive growth in UK and Germany, still negative in the UK. It's still not being, I'm going to call it -- that's not the way our clients are behaving today. I see clients knowing, one, that the economic uncertainty that they started the year with is virtually gone. They want to make sure that before they start getting ahead of themselves that the economic recovery is sustainable. So I think having GDP growth for a couple of quarters will be important.

And I think lastly, we see, since we're so close to these clients, we see just how strongly they're trying to defend some of the bonus resets that they had that they've been able to kind of put in place almost three times over in many of these organizations, so they are doing everything they can to finish the year strongly, capture whatever incentive comp they can, but we know that many of the things that they are engaging on or discussing with us, are things that they know they must start to address in 2010. So I think a key part of this whole transition is making sure that these clients properly plan for all of these initiatives that they know they must undertake in their two 2010 budget cycle. I expect to be able to get some, I'm going to call it hard evidence of that by the time we see these clients engage us early in 2010, but the pipeline activity that we see relative to a client asking these phase one questions across a number of our clients and across a numerous areas of their business, indicates that they perceive that that environment will improve and that we will see gradual improvement in their spend throughout 2010 and that will directly benefit our revenue.

Got it. Thanks.

Thank you. (Operator Instructions) Morris Ajzenman from Griffin Securities, your line is open.

Hi.

Hi, Morris.

Just a follow-up to that question there. You answered sort of the outlook, but just to take another stab at it. You gave guidance as series for to $36 million -- if you back out $4 million to $5 million from the Archstone, you would have a sequentially into fourth quarter, $31 million in revenues and if you adjust that by the decline in the billable days, or 12%, you're basically back to that $34 million run rate for the months if did you that on an average per day. It would be similar run rate per day.

Per available billable day.

Right, for available bill able day. Basically the flattest trends continue despite the economy showing some signs of picking up. You addressed that. The only thing I'm not sure about, your -- I guess just maybe being cautious looking at your 2010, it looks like clearly domestically, the economy is starting to come out of this lethargic state and it looks to be, time will tell that it might be ramping up a little bit more than expected. Yet, you are looking at gradual improvements based on what you're seeing from Phase I, let's call it interest, requesting a custom base of modest improvement throughout 2010. Wouldn't it be more, and again, I presume you're being kind of cautious on this, but wouldn't we see more than modest improvement throughout next year? Wouldn't that be very disappointing? Let's put off (inaudible) to the side here right now.

First, Morris, I just want to make sure, are you done with your question?

Yes.

First, we clearly do not want to get ahead of ourselves, so I want to make sure that I'm providing an accurate -- a picture of the outlook, but since we don't guide into 2010, and we clearly want to see client behavior change and reflected before we speak to it. I think to do it any other way would be inappropriate, especially enlight of the fact that the first half of the year, the negative 6% from Q4 and Q1 GDP, was more severe than anyone anticipated. So I think it's fair to be cautious, and I think it's prudent and appropriate to be cautious as we comment on 2010. But let me make sure that I provide you perhaps with other insights.

I think that with modest revenue improvement in 2010, given our current operating leverage, we would see significant improvement in EPS. Now, we will provide specifics as we then guide quarter to quarter. But the operating leverage for us has clearly improved. We expect Archstone to simply be additive to that. But for us to comment on when we will start seeing sustainable and consistent sequential revenue growth before we actually have it in backlog and have probably reported it for one quarter, in my view, would be -- would not be prudent. So I'm trying to provide perspective without guiding which, as you know, we only do one quarter at a time.

So basically you have the operating leverage with modest increase in top line, and that's the best we can kind of look at right now, based on current available information, and as we get into next year then we'll be able to give us more insight on that top line?

As we see it materialize and as I start seeing it across a broader number of our clients and across a number of our larger competitors, which I gauge very closely, then I will move accordingly. But until then, it's important to be prudent.

Last question, the Archstone acquisition, that's going to be a third entity, that's gong to be under global industry and strategic account management, Hackett Group Hackett technology solutions and the third group, how is it going to be set up?

It will all fold under the Hackett Group. We will operate in 2010 as two practices. Our strategy and operations group will focus on the supply chain and procurement functions of an organization across the industries that Archstone targets. That will be one dimension.

The second piece of the business, the CFO advisory group that has that large enterprise performance management component, they would like to transition, and by the way that first group will continue to leverage the Archstone brand because in that strategy and operations space they have built a great market permission and that's an area where Hackett has none, or so we clearly will not assume that we do. So we will continue to leverage Archstone as long as we think it enhances our ability to go to market. So no time line on that. And on the CFO side that team would like to move and leverage The Hackett Group brand as quickly as possible because clearly our capabilities and our permission in and around the CFO and specifically enterprise performance management, are very significant. So we will make that transition, that practice will move onto the Hackett brand very quickly as we head into 2010.

Ultimately Hackett technology solutions, you talked some synergies with Archstone, but what's the game plan for now Hackett technology solutions going forward?

Eventually, we will continue to pull Hackett technology solutions closer and closer under The Hackett Group brand.

Thank you.

Thank you. Bill Sutherland from B&S, your line is open.

Thanks for taking the questions. On Archstone, what is client concentration like there?

Very similar to ours. Maybe a little higher. They end up working with four or five clients a quarter, which ends up being a significant relationship. Then they end up working with a much broader base. They serve about 50 clients during any quarter. Four or five will drive a significant number, probably 40% to 50%, and the vast are clients in other stages of assessment analysis or completion.

Those cycles are quite similar to your transformation?

Their cycles are very, very similar to our transformation cycle. And the scale of those engagements and the way they're framed, very, very similar.

And how have they been trending in this economy with their functional focus, supply chain procurement?

They're down about the same as we are on a year-over-year basis.

Okay. The main thing that struck me about the deal is it being all stock. Was that something -- kind of tell me what you thought as you decided on that and how that occurred.

Well, as you can imagine, to get anyone to do a cash transaction today, since they believe that they would be selling at, I will call it at the low point of the cycle, is impossible. So what the Archstone shareholders wanted was an opportunity to be able to get shares. Obviously they believe they can make a significant contribution to our results, then benefit from the share appreciation that we could develop jointly. So it was -- it was the right way to, I'd say, capture the opportunity. I don't believe that you could do a quality and strategic opportunity the way I believe this team would be if you were simply trying to get them to settle for cash value today. We are delighted to have them on this basis.

I was just thinking maybe some combo of cash and stock might have gotten it done.

Well, if you think about it, it really did, because since they had some debt that we're paying off today that we paid off today when we closed the transaction, it was a combination of cash and stock, even though that debt is being offset by other assets. So we're buying a company that has a favorable net assets, but we're satisfying debt which was considered when we looked at the relative values of the organization. So in our view, clearly the assumption and payoff of that debt reduced some of the equity that we paid, and that's why you see perhaps on a relative value, the number of shares issued versus the amount of revenue that they will add in Q1. You will see that it's very favorable to us.

Okay. Did you say -- I didn't quite hear the number total and client advisory. Did you say it's still 690 and 215 respectively?

650 members and 207 clients.

207 clients, and I'm sorry --

650 members.

6-5-0?

Yes, 6-5-0.

That's down a little then.

Again, we track clients. The members is the number of members within members. So our key question is how many strategic client relationships we have. So I think the clients was down a few. I forget if it was five or so. So when we look at that client count, especially if you look at anybody who provides the service, and you look at just the reduction of client count in this environment on a sequential basis, we think the group did incredibly well.

Okay. So how would you characterize kind of the booking activity in executive advisory? Because I know you put more sales focus on it.

Improving, and we're going to double down on the number of dedicated sales people in that area in 210 versus the investment we made in 2009. We have a very important Q4 period that we're in right now, but we feel that the investments that we made in 2009 were smart ones. We want to continue to -- I want this group to continue to target the 500 client -- the 500 clients and 1,000 members goal that I set out several years ago when we moved into this business. I still believe that that's something we can achieve. I think we need to do with it a higher dedicated sales force, and I think we're heading in the right direction. But remember what I've shared with you before, Bill. We've seen clients whose only business is this kind of business, made huge investments in sales and marketing, significant increase. And they are experiencing declines greater than ours. So when I look at how smartly we invested, how we'll now increase that in 2010, and look at how our counts are compared to others, who only focus on this, and made significant increase, I'm very happy with the performance of the group on a year-to-date basis.

Okay. Rob, when I look at last year's seasonal impact -- let me just ask the question. Is the seasonal impact this year more pronounced than last year because of the holiday sequence, or just the economic pressures this year?

No, in Q4 of last year, if you remember, Bill, every six or seven years or so we have an extra week. In previous years in Q4 we actually had an extra week of time.

So this is more the normal.

On a normalized 13-week basis, for the quarter this would typically be the impact.

I would say clearly the 14 versus 13 week is the bigger impact, but I also believe that the clients deliberately moving some activity from Q4 to start in Q1 is a secondary impact.

Okay.

Where we would normally try to make up the unavailable days by driving revenue into it, we just don't believe that the environment is there to push that in addition to the fact that we could never make up the difference in that extra week we had last year.

Thanks.

Thank you. That does conclude the question-and-answer session. And I would like like to turn the call over to Ted Fernandez.

Let me thank everyone for participating in our third quarter earnings call and welcome all of the Archstone associates into the Hackett family. Look forward to updating everyone when we report the fourth quarter. Thank you again for participating.

Thank you for participating in today's conference call. Have a great day.