Hackett Group Inc (HCKT) 2010 Q4 法說會逐字稿

Welcome to the Hackett Group fourth quarter conference call. Your lines have been placed in 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 afternoon, everyone, and thank you for joining to us discuss the Hackett Group's fourth quarter 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 4.13 PM Eastern Time. For a copy of the 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 provide some overview comments on the quarter and also touch on lightly on our annual results. I'll turn it back over to Rob and ask him to comment on the quarterly operating results, cash flow, as well as outlook, and also provide some commentary relative to annual results. Rob will turn it back over to me, where I will talk about our market or strategic overview, and then we'll open it to Q&A.

Having said that, first let me welcome everyone to our fourth quarter earnings call. Q4 was the culmination of a strong year, which allowed us to reestablish revenue growth and solid operating margins coming off the 2009 recession period. I am proud that we were able to report strong year-on-year improvement on both a reported and organic basis while continuing to invest in our brand, as well as in innovative ways to serve our clients. We successfully integrated the acquisition of Archstone, grew our technology solutions business 39%, grew our membership, contract value and referral sales in our executive advisory business, expanded our presence in Asia-Pac with the sale of the largest intellectual capital-based engagement in our Company's history, and developed a new dashboard offering that we plan to launch next month.

Q4 came in at $48.6 million, with pro forma EPS of $0.07, both coming in at high end of our guidance. On an annual basis we reported 41% revenue growth, with our pro forma EPS increasing four-fold to $0.27. More importantly, we believe we can build on this momentum in 2011. As expected, during the fourth quarter we saw clients become more cautious about the year-end spending, which we believed would be short lived. As we've started the year I'm happy to say that we're experiencing strong client pipeline activity across virtually all segments of our business, including Europe, which should allow us to build momentum well into 2011. Consistent with previous quarters, our strong results continue to emanate from solid US activity, servicing our advisory client base more broadly and greater-than-expected cross-selling synergies from the Archstone acquisition. Of special note was the performance of our technology solutions team, which continued to experience very strong growth.

As I mentioned, throughout most of 2010, we have experienced strong market receptivity from the go-to-market combination of our enterprise performance management, transformation, and technology teams. This process and technology skill combination, along with our ability to leverage the Hackett brand and relationships into meaningful EPM engagement, has been a significant part of our 2010 success. It is clear that our investments in our brand and our associates, and our expanded offerings that resulted from the Archstone acquisition paid off strongly in 2010.

We are also very excited about the strategic opportunities to further expand our business model by leveraging our proprietary benchmarking performance analytics in our new performance dashboard offering. We will comment on these opportunities in more detail in my strategic overview comments later on. We continue to believe an economic recovery is underway, even though we do expect to see volatility from the ever growing and complex global economy. The volatility requires organizations to remain focused on improved decision making and operational education. We feel that our offerings are well aligned with these market conditions.

I will comment further on market conditions and specific go-to-market initiatives later on, 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 welcome, everyone. I'll cover the following topics during our call in a review of our 2010 annual and fourth quarter results along with an overview of related key operating statistics. I'll cover a breakdown of our 2010 fourth quarter revenue, and an overview of our cash flow activities during the quarter. I'll then conclude with a discussion on our financial outlook for the first quarter of 2011. 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 represent net revenues plus reimbursable expenses. Additionally, references to pro forma results specifically exclude non-cash stock-compensation expense, as well as intangible asset amortization expense, and assumes a normalized tax rate of 40%. For the fourth quarter of 2009, pro forma results also exclude acquisition-related restructuring charges and one-time costs.

Before I move on to our fourth quarter results, I would like to make a couple comments regarding our annual results for 2010. As Ted mentioned, 2010 proved to be a strong year in terms of revenue and earnings growth, and represented a strong rebound from a difficult and recessionary environment in 2009. Annual revenues grew to $201.3 million, a 41% increase from 2009. Pro forma earnings per diluted share grew to $0.27 in 2010 from $0.05 in 2009, an increase of 440%. For 2010, pro forma EBITDA was $20.6 million, as compared to $4.8 million in the previous year, representing an increase of 329%.

Now, moving on to the fourth quarter of 2010, as I mentioned on our third-quarter call when I discussed our fourth quarter guidance, the fourth quarter was negatively impacted by the typical seasonal increase in holidays and vacation utilized in both the US and Europe, which unfavorably impacted available days by approximately 11% on a sequential basis. Having said that, fourth quarter total Company gross revenues were $48.6 million, and at the high end of our quarter's guidance. Year-over-year growth was 41%, or 43% when adjusting for constant currency, which includes the impact of Archstone, acquired in the fourth quarter of 2009, as well as improved performance from our other US practices. Excluding Archstone, total Company fourth quarter year-over-year organic growth was 32%. Total Company international gross revenue accounted for 28% of total Company revenues in the fourth quarter of 2010 as compared to 30% in the fourth quarter of 2009. As expected, Europe demand continues to lag behind the US.

Total Company pro forma net income for the fourth quarter totaled $2.8 million, or $0.07 per diluted share, and was at the high end of our guidance. This performance compares to a pro forma net loss of $0.02 per diluted share in the fourth quarter of 2009. Pro forma net income for the fourth quarter of 2010 excludes non-cash stock-compensation expense of $1.3 million, intangible asset amortization expense of $464,000, and includes a normalized tax rate of 40%, which totaled $1.8 million -- $1.9 million. Total Company GAAP net income for the fourth quarter totaled $3 million, or $0.07 per diluted share. This compares to a total Company GAAP net loss of $8.6 million, or $0.22 per diluted share, in the fourth quarter 2009, which had included $5.9 million of acquisition-related restructuring charges and one-time costs relating to the Archstone acquisition.

Total Company pro forma cost of sales, excluding reimbursable expenses and stock-compensation expense, totaled $26.9 million as compared to $21.7 million in the previous year, an increase of $5.2 million. This increase is primarily due to headcount increases as a result of the Archstone acquisition. Total Company consultant headcount was 663 at the end of the fourth quarter of 2010 as compared to 676 in the previous quarter. The sequential decrease was primarily attributable to rationalization of headcount in selected practices commensurate with demand. Total Company pro forma gross margin, which excludes non-cash stock-compensation expense was approximately 39% of net revenues in the fourth quarter of 2010, as compared to 30% in the fourth quarter of 2009. Excluding Archstone, the total Company pro forma gross margin on net revenues was 41%. The year-over-year increase was driven by increased revenue for Professional in Hackett and an increase in gross billing rate per hour from our technology group.

Pro forma SG&A was approximately $12.2 million, or 28% of net revenues in the fourth quarter of 2010, as compared to $10.8 million, or 35% of net revenues in the fourth quarter of 2009. This year-over-year decrease as a percentage of net revenues is primarily due to the efficient integration of the Archstone back office functions. Pro forma EBITDA in the fourth quarter of 2010 was $5.1 million, or 12% of net revenues, as compared to a pro forma net loss of $1.1 million in the fourth quarter of 2009. As of the end of the fourth quarter of 2010, the Company had approximately $48 million and $14 million of income tax loss carry forwards remaining in the US and in foreign tax jurisdictions respectively.

Now moving on to additional metrics relating to fourth quarter results, total Hackett Group gross revenues were 32.9 million, which was a sequential decrease of 9%, but a year-over-year increase of 22%, or 25% when adjusting for constant currency. The sequential decrease is primarily due to the impact of fewer available days in the fourth quarter, as I previously discussed. Hackett Group annualized gross revenue per professional was $326,000 in the fourth quarter of 2010, as compared to $351,000 in the previous quarter and $303,000 in the fourth quarter of 2009. The sequential decrease was primarily driven by the impact of decreased available days. Hackett Group gross margins on net revenues were comparable at 38% in the fourth quarter of 2010 and 2009.

Our Technology Solutions group gross revenue totaled 415.8 million, an increase of 109% on a year-over-year basis. We experienced increases in all of our technology practices on a year-over-year basis. For the Technology Solutions group our hourly gross realized billing rate was $154 for the fourth quarter as compared to $147 in the previous quarter. Consultant utilization for our Technology Solutions group was 73% for the fourth of quarter 2010 as compared to 84% in the previous quarter, primarily driven by decreases in available days.

Now moving on to our cash balances, the Company's cash balances were $27 million at the end of the fourth quarter of 2010 as compared to $25 million at the end of the third quarter of 2010. Cash increase in the fourth quarter was due to cash generated from operations of $5.2 million, primarily driven by increases in operating earnings and partially offset by our fourth quarter stock buyback activity, which totaled $2.4 million, as well as increases in DSO. Our DSO at the end of the fourth quarter of 2010 was 59 days as compared to 52 days at the end of the third quarter and 68 days at the end of 2009.

Sequential DSO is typical for year end -- I'm sorry, sequential DSO increase is typical for year end, as organizations tend to protect cash balances for year-end reporting purposes. We continue to target DSO levels below 50% -- below 50 days as our overall company goal. During the fourth quarter of 2010, cash was utilized to repurchase 665,000 shares of the Company's common stock at an average price of $3.57, for a total cost of $2.4 million. From a year-to-date perspective, the company has repurchased 1.9 million shares at an average price of $3.26, for a total cost of $6.1 million. As of the end of our fourth quarter our remaining authorization was $4.5 million.

I'll now turn to our guidance for the first quarter of 2011. However, before I provide the Q1 outlook it is important to note the seasonality of our business relative to costs, as we move from Q4 to Q1. Consistent with Q1 guidance provided in previous years, our first-quarter guidance of 2011 will reflect the sequential increase in US payroll-related taxes and the sequential buildup of vacation accruals. We expect total Company gross revenues for first quarter of 2011 to be in the range of $49 million to $51 million. On a sequential basis from Q4, as I've discussed, Q1 2011 pro forma net earnings will be negatively impacted up to $0.03, primarily due to traditional increase in US payroll-related taxes and the seasonal sequential buildup of vacation accruals as compared to Q4.

As a result, we expect our pro forma diluted earnings per share in the first quarter of 2011 to be in the range of $0.05 to $0.07. Our pro forma guidance excludes amortization expense and non-cash stock-compensation expense and includes a normalized tax rate of 40%. As a result of our revenue guidance, we expect gross margin on net revenues to be approximately 37% to 39% in Q1. Additionally, we expect pro forma SG&A levels to be approximately $13 million in the first quarter of 2011. We expect our cash balances, excluding the impact of any stock buyback activities, to be down as a result of the payment of 2010 performance bonuses.

At this point I'd like to turn it over to Ted to review our market outlook and strategic priorities in the coming months.

Thanks, Rob. At a macroeconomic level we continue to expect to see continued improvement in the US and international markets that we serve. Although the rate of growth will vary by geography and industry, nearly all GDP gross projections have improved over the most-recent quarter. As we have consistently said, gradual growth improvement with expected volatility is favorable for our services. Geographically, we expect to sea healthy demand in the US, and for the first tame in over two years we expect Europe to experience improved demand in the upcoming year. Specifically we started the year -- as we started the year we saw noticeable improvement in our pipeline as clients started to plan for the improving economic prospects.

We saw our January activity result in increased February deployment as we expect to build this momentum -- and we expect to build this momentum into March. What is important about this increased activity is it applies to both US and Europe and relates to virtually all of our practices. This will allow us to exit the quarter at a significantly stronger revenue run rate than when we started the quarter, which bodes well for our second quarter and, hopefully, the remainder of the year. As previously mentioned, in February we signed our largest IP-centric contract that will provide special access to our best practices implementation intellectual capital to help a foreign public sector agency pursue significant operating improvement.

With that demand overview as a backdrop let me now comment on some of our strategic priorities. We have always believed that if we can combine our strong global brand with a series of intellectual capital offerings that are used on a continuous basis, we can improve revenue growth, as well as the predictability and profitability of our operating results. Using unique intellectual capital delivered in an easy-to-use way, coupled with broader transformational offerings, would also allow us to increase our client base and also increase revenue per client. We worked hard during 2010 to innovate new ways to make this happen. In March of 2011 we will introduce our new Hackett Performance Exchange, which will allow us to deliver and leverage our unique intellectual capital and best practice expertise in a new and transformative way.

Throughout 2010 we mentioned that we had been collaborating with a large software provided on a new offering that would leverage our benchmarking performance analytics database. We have now nearly completed our beta testing of our first two fully-automated dashboard offerings of our new Hackett Performance Exchange with very positive feedback. This new offering will allow us to measure, benchmark and estimate the performance improvement opportunity of critical operating processes on a monthly basis.

So how does it work? We have developed an application that securely extracts operating information directly from a client's ERP system, which allows them to measure and compare performance to Hackett peer and world-class standards, utilizing our cloud-based dashboard solution. Best of all, the dashboard solution is fully automated, takes only a few hours to set up, and can be viewed on any laptop utilizing secured web access. By allowing clients to track their performance and compare the results with their peer groups will enable them to quickly address performance opportunities related to service level, as well as cash and cash performance.

In March, we will start selling our first two offerings, and we plan to release two additional offerings this summer. Our goal for 2011 is to rapidly grow our user base through aggressive pricing in order to drive adoption. As you can imagine, the more operating data we capture and analyze on a monthly basis, the more insight we can deliver to our clients. This new offering, if successful, could help enhance our business model by creating a powerful and possibly continuous relationships with our clients. It would mean a new revenue stream, a significant increase in data capture and operating insight, as well as a continuous way to monitor and benchmark clients' performance in critical business areas that could only help our other services, as well. We believe this offering is core to our desire to expand our brand permission and executive advisory client leverage.

With that in mind let me comment on each of these areas in more detail, which I have covered in previous quarters. Specifically to brand permission, the key here is to expand -- extend our brand permission from being the premier global benchmarking organization to all of our capabilities, including our consulting capabilities. We continue to invest in our go-to-market messaging in an effort to help our clients understand why our benchmarking, and now our dashboard, and best practice insight makes us unlike any other consulting organization. We must make sure that our clients know that we are every bit as good at helping them implement the outcome as we are at measuring and benchmarking their opportunity to improve.

Specifically to executive advisory leverage, which is the continuous relationship we have with our clients who are executive advisory programs, 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 these programs, which will now include the Hackett Performance Exchange, as well. In Q4 we saw executive advisory members continue to increase to 632, with clients up slightly to 216. We continue to see over 40% of our core Hackett sales come from less than 20% of our advisory base. Our advisory relationship allows us to maintain a continuous strategic relationship with clients, which we should continue to serve more broadly.

Relative to alliances, over the last several quarters we've extended our geographic reach by entering strategic alliances. We believe these efforts will help us drive incremental growth in 2011. In the summer of 2010 we mentioned our pilot launch with a large strategic consulting firm. During Q4 we experienced our first meaningful joint win with this partner. We are planning some joint marketing initiatives in 2011 as we look to further expand this relationship. Lastly, let me comment on potential acquisitions. We will continue to look for acquisitions that can strongly leverage our existing intellectual capital to drive and accelerate our growth. Archstone Consulting was a prime example.

In summary, we made great progress in 2010 as we strongly bounced back from the headwinds of the recession. We are pleased with our improved performance, as well as the prospects for 2011. As I always mention, when you consider our powerful brand, our unique ability to combine our proprietary intellectual capital with our terrific talent, as well as the strong balance sheet and ample cash balances we carry with no debt, we are eager to see what 2011 offers. As always, let me close by thanking our associates for their tireless efforts and always urge them to stay highly focused on our clients, our people, and our existing opportunities available to our organization. I thank them and congratulate them on their 2010 performance.

Those are my comments. Let me now open it up for Q&A. Operator?

Thank you. (Operator Instructions)Our first question comes from George Sutton from Craig-Hallum. You may ask your question.

Hi, guys, thank you. A few questions. First, could you update us on the deals that had pushed from Q4 into future periods and just give us a sense of, are those -- those, I believe, were predominantly contracted business, will they move into Q1, or are we talking a delivery time sometime this year?

No, actually, they worked out exactly as we expected. There were three significant transactions. Two of the three have already commenced their projects with us in the first quarter, and one, which was abruptly stopped, has not continued. So exactly what we were expecting, George.

You had mentioned, Ted, that the combination of the EPM solution, your transformational consulting and your technology teams have come together in a number of new deals for you that really has accelerated the technology side. Could you give us an example of -- without naming a customer, but just an example of how that's come together?

Well, first of all, I did -- we did comment about that throughout the year. When we acquired Archstone we said in the headline that we thought we would build an enterprise performance management powerhouse, and we strongly believe that's exactly been the outcome. And, yes, you're seeing both the impact on both the consulting, the transformation side of enterprise performance management, as well as the growth -- the strong rebound in growth in our Hyperion, or Oracle EPM business. George, I believe that the marketplace knows that in this very hot area where people are looking for additional information to manage their business, not only financial information, but strategic and operational information, as well, it's an area of significant growth, it's an area where I think we've really distinguished ourselves, and it's an area that we expect to continue to see aggressive growth. We compete, George, on really major deals with blue chip clients in this area on a day-in and day-out basis, and I think it just speaks to the positioning of the offering and the combination of this consulting and technology skill.

Okay. Then lastly, if I could, the Hackett performance exchange, obviously we've been getting increasingly excited about this for a while, can you help us understand how this will be distributed?

Well we're starting with a very significant campaign to our existing client base, so we're looking at clients that we observed over the last 24 months, and giving them the preferred opportunity to utilize this product before we go into the market more broadly. We think this will give us an opportunity to start building adoption throughout 2011. It'll give our clients who have been loyal to us over the last couple years ability to gain insight and utilize this offering at a -- clearly at a preferred price. So we're going back initially to those clients that we know extremely well, trying to let them benefit from this offering, and we believe it will drive the initial adoption of our dashboard offering.

As you can imagine, George, there is value in being able to measure an organization's operating performance on a monthly basis, but if you think of what a database with hundreds of companies would do to our ability to comment about an organization's performance, both on a specific operating area of the business, our ability to drill down regionally, our ability speak to seasonal factors, our ability speak to industry trends by being able to cut this data on an industry basis, it's a significant opportunity for us to really elevate the capability and value we bring to our clients. We are launching this in March, hope to start loading clients on to the dashboard itself sometime by mid-April. So the campaign starts in -- I guess in virtually a few day and look forward to see how that impacts both the client's performance and our performance throughout the year, and as we exit 2011.

Just to add a little bit more color, we're not planning on the dashboard itself to contribute to revenue growth in 2011. We don't want to put that pressure on the offering. We want to drive aggressive user adoption so we will carry the cost and focus less on revenue. However, we know that if a client likes the value that we bring to the table, which can only be enhanced by bringing additional users into that performance exchange, our ability to then grow that revenue and benefit from it in a significant way in future years could be significant to us.

Okay, great, thanks, guys.

Thank you. Morris Ajzenman from Griffin Securities, your line is open.

Hi, guys.

Hey, Morris.

International revenues, again, you've been saying it's been lagging the US. I know you've been saying in previous quarters you thought you saw some bit of improvement following of a lag in the US six to nine months. Just give us a handle, what was 2010 revenues internationally? (Inaudible) was it flat, was it down, was it up modestly versus 2009?

Let me give you an idea. Those international revenues were down about 6% to 7% on an annual basis. And to give you some perspective on the profit contribution, when we look at the performance of our non-US business 2010, as compared to 2008, which you know was a strong year for us, the contribution for Europe was approximately a third in 2010, as it was in 2008 levels. So clearly for us, Europe coming back and contributing at some normalized or historical trend, which we would look at 2008, would be a very significant opportunity for us. So we're delighted to see improved pipeline activity. We think it's sustainable. How robust, we don't know, but we do believe that Europe should grow and improve its contribution in 2011.

Okay. Now, 28% of revenues internationally fourth quarter, I missed it, what was it for full year?

I didn't provide the full year. I just said that they were down --

No, no, no, as a percent of revenues for the full year?

Oh, do you have that number, Rob? We can follow up with you. Morris, and provide that to you. He's trying to calculate it.

Okay, just give us -- and then all you're stating now is growth in 2011? You're not giving any granularity? [You're not single digits, double digits?]

In the European marketplace?

Yes, Europe, 11 --

Europe and abroad? No, our hope is that Europe can grow reasonably consistent with the rest of our business, so we do.

Okay. And can you just give me -- now switching gears quickly -- the available days were down 11% from the third to the fourth quarter sequentially. Can you give us what it'll be from the fourth quarter to the first quarter available days?

When you look at -- although available days were down 11%, when you actually look at the revenue we achieved in Q4, we ate into that 11%. That means that we actually were able to deploy people on non available days through incentives, overtime, and the like. So we probably reduced that in nearly half of -- and you can see that when you look at our revenue change from Q3 to Q4, Morris. That was really done through the deployment of people. So our Q4 to Q1 viable days would probably be up in -- would be some where in the low to mid teens, and if it was not -- if the January would be a start consistent with our March rate, obviously you would see the full impact object that. I think the significant thing for sues that we've seen, we're -- let's just say, our pipeline activity and the deployments in February, as I mentioned in our comments, were pretty significant, and that's why you're seeing an exit run rate significantly higher than our January run rate.

All right. I just want to make sure, are you saying the first quarter available days will be up approximately mid teens versus the fourth quarter, right?

Yes.

And the fourth the fourth quarter you had revenues of $48.6 million, and your guiding to $49 million to $51 million?

Yes.

The numbers don't jive together. If you have that sort of increase in available days and you're having this run rate improvement, are you just being very conservative in the guidance?

We have a -- our January start was actually, if you want to call it softer than you would hope, you would hope that everybody would have redeployed and started those engagements right after you came back. We actually didn't see the full ramp until early to mid February, so as you can imagine it this way. January's utilization was low and then has been ramping up pretty consistently throughout the quarter, and we'll exit the quarter with -- that's what allows us to exit the quarter with a significantly higher revenue run rate than what we start the quarter.

Got you, okay, that's the difference. ANd last question and I'll let someone ask a question here. D&A for 2011, will it be -- I think it was about [37] or so for 2010. Your 10-K's not out yet but it will be similar, will it be up? What number should we use for D&A for 2011?

Well, we just guide for the quarter, Morris, so the number that I gave is for Q1. It's going to be about $13 million.

Right, that's SG&A. He's asking for deprecia --

No, no, D&A, D&A. Depreciation --

Oh, I head SG&A, I'm sorry.

We're expecting a slight increase as a result of some of these investments that we're making. For the year depreciation was approximately $1.8 million. We expect it to be somewhere between $2.2 million and $2.3 million in 2011.

Thank you.

Okay. That's deprec -- also, Morris, I didn't answer your previous question, but for the full year international revenues were about 20%.

20%, okay. Thank you.

That's a total, Morris, not just Hackett, okay?

Yes, that's --

Total Company.

Right, that's right.

all right.

Thank you. (Operator Instructions)Bill Sutherland from Boenning & Scattergood, your line is open.

Thank you.

hi, Bill.

Hi, guys. The software partner that's been involved in the performance exchange, are they -- what's their role as you roll out, if any?

On rollout, none. We really want to drive adoption, if you want to call it, for our own. We think it only creates value of the platform itself. Having said that, we expect to have the product go through their -- what they call their certification process over the next 90 days. So they're eager to see us bring back the completed process for the product -- post beta. We'd like to see a nice ramp up and then submit that along with the ramped up activity.

And will they hand this over to some sort of enterprise sales force?

Well, their desired goal was to include it as part of a new series of modules they were releasing that they were planning to release in May, which is a new shared services module offering, and their stated goal to us was that they would like to offer this as a feature to that launch. But first, obviously, we need to comply with the certification process, make sure that they see the value prop, which they obviously encouraged to us deliver, and if all that goes well, then, yes, they would then allow that to be sold through their sales force, as well.

And then, not to get too far ahead of us, or ahead of the -- of our skis, I guess, but are you all -- how would you participate in a sale by the software company?

No differently than we participate if we sell other software vendors. It would just be a sharing of the sale itself, a percentage of the total amount sold.

Okay. What -- Rob, roughly what has been the expense level on performance exchange since you began it?

CapEx --

Has it been capitalized mos --?

We had -- it's several million dollars, $2 million to $3 million in 2010 and will accelerate in 2011.

It's been mostly capitalized?

Oh, no, just --

It's been expensed?

Yes, just only the portion you're allowed to capitalize you capitalize, and then obviously there's a tremendous amount of effort that goes uncapitalized.

so that's a total number, not to get too precise?

No, no, no, that's just the capitalized number that's reflected as CapEx.

Oh. Oh, that's -- okay. All right. And the -- would you mind just going over again that Asia-Pac sale? You said -- you refer to it as IP-centric. I just -- is it just a major implementation -- or not implementation, I should say a transformation, consulting engagement?

It's a major transformation of a large public sector agency. Interesting, they came to us and asked if they could leverage our process flows and configuration guides and our best practices repository to really manage and drive their own transformation efforts, which they are embarking over a -- really, a several-year period. So it's a combination of access -- special access to our intellectual capital, which they will then deploy and utilize for their own purpose, along with some benchmarking and consulting support of nearly a $10 million transaction. The reason it was worth mentioning, Bill, was because how they strongly believe that utilizing our intellectual capital could help them both manage and drive a long-term transformation process. So we love it when a client recognizes that IP and pays us not only for access to IP, as well as to access to our profession.

So did you say -- you said $10 million. That would be multi-year?

Multi-year, yes.

And have you done a lot of public sector to date? I don't remember a lot of these.

The answer is no. We actually have had a -- in our benchmarking business, we have actually had some very strong results this year from state agencies more than anything else. States utilizing our benchmarking services to evaluate and analyze their performance improvement opportunities.

Boy, they could use it.

And we've seen that also grow in a nice way also in the higher ed area. So those are areas that were new growth areas for us, and, yes, for something foreign public sector a new area for us, as well.

Last one, Ted. On the performance exchange, as you provide special deals to drive adoption, you're focusing on the executive advisory members?

That is one of the group, so they are clearly in that population. So they will -- let's say, of a couple hundred clients, they may represent a third of that initial client launch. But it also includes clients that we've served in other areas of significant transformation engagement or benchmarking engagements over the last 24 months. That will be our initial launch list.

Strikes me as a good way to really get the executive advisory numbers moving again.

Well, we're actually happy with the success of the advisory program in 2010, but you are right, this is a great way to expand the access to con -- if you want to say continuous access to Hackett. We've never delivered it through a dashboard offering, but they will also have access to content, along with the dashboard performance metrics and the comparison. So it's a combination of all of those things that we think makes it very unique value proposition so we're eager to see client reaction to it.

Right. Okay, thanks, guys.

I show no further questions. I'd like to turn the call back over to Mr. Fernandez for closing remarks.

Thank you, operator. Let me thank everyone, again, for participating in our fourth-quarter earnings call. We look forward to updating you again when we release our first-quarter results. Thank you, again.

Thank you for participating in today's conference call.