Hackett Group Inc (HCKT) 2011 Q4 法說會逐字稿

Welcome to the Hackett Group fourth quarter earnings 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 afternoon everyone, and thank you for joining us to 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, Rob Ramirez, CFO. A press announcement was released over the wires at 4.07 PM Eastern Time. For a cope 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 Investors Relations page of our website.

We will also briefly discuss on today's call the tender offer that we just announced. We would like to point out that the tender offer has not yet commenced. We encourage stockholders to read the tender offer materials that will become available tomorrow, as those documents will contain important information about the tender offer. A free copy of the tender offer documents that will be filed with the SEC may be obtained when filed from the SEC's website or from Hackett's website. We also refer you to the press release we issued at 4.06 PM Eastern Time for contact information should you have questions.

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 open up with some overview or highlight comments relative to the quarter. I will then turn it back over to Rob, and ask him to comment on our operating results, some detailed cash flow comments, also provide guidance for the quarter, and in this quarter specifically speak to the Dutch tender offer, and provide additional details relative to the new credit facility as well. Rob will then turn it back over it me, I will make some market and some strategic overview comments, and then we will open it up for Q&A. So let me first start with the overview comments, and again welcome everyone to The Hackett Group's fourth quarter earnings call.

Our fourth quarter was a culmination of another year of strong operating results. Annually we experienced over 20% earnings growth, which is more impressive when you consider the strong results we reported in 2010,and the volatile global economic environment we continue to operate in. Additionally, we continue to invest in the innovation and with the development and launch of our new Hackett performance exchange offerings.

As expected we maintained our momentum exiting the third quarter and finished the year strongly. Q4 revenues came in at $55.5 million, a 14% year-on-year improvement with pro forma earnings per share of $0.09, both coming in at the high end of our guidance. On an annual basis we reported 12% revenue growth with our pro forma net income and EBITDA increasing 20%.

Our results continue to emanate from solid market demand from US based clients, servicing our advisory client base more broadly, cross-selling synergies primarily in our EPM practices, and from the success of our new operations in Australia. It is clear that our efforts to expand our brand permission from helping a client define its performance improvement opportunity, to assisting that client implement our recommendations continues to expand.

Given our strong cash flow and cash balances and the attractive terms offered by our new $50 million credit facility, today we also announced a $55 million Dutch tender offer. This tender offer will allow our shareholders to tender shares back to the Company at a price range between $4.25 and $5.00. We plan to fund the tender offer with up to $20 million from cash on hand, and the remainder by drawing down on our new credit facility. If shares totaling $55 million are tendered we would expect this tender to result in over 25% accretion, and correspondingly enhance shareholder value.

This tender also provides our large shareholders with a liquidation opportunity without disrupting share value, which should also reduce potential overhang risk. As an example, our second largest shareholder who owns approximately $5 million unregistered shares of stock, and therefore, not part of current public float has indicated the desire to sell up to 100% of his holdings. Rob will provide further details on both our Dutch tender offer and our new credit facility during his financial and operating review.

Our investments and our associates, our intellectual capital, and our brand new offerings and new markets continue to strengthen our business model. We also continue to see the opportunity to further differentiate our business model through the successful introduction of our Hackett performance exchange offerings. I will comment about these opportunities in more detail on my strategic overview section of our call. I will also comment further on the market conditions and specific go-to-market initiatives, but let me first ask Rob to provide details on our operating results, cash flow, comment on outlook, and again cover the Dutch tender offering and the new credit facility.

Rob.

Thank you, Ted. I will cover the following topics during the call, and a review of our 2011 fourth quarter results, along with an overview of related key operating statistics, and overview of our cash activities during the quarter, and as Ted mentioned I will conclude with a discussion on our financial outlook for the first quarter of 2012, as well as an overview of our stock tender offer and credit facility. For purposes of this call, any references to Hackett Group will specifically exclude ERP Solutions. Correspondingly I will comment separately regarding the financial results of the Hackett Group, ERP 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 noncash stock compensation expense and intangible asset amortization expense, and assume a normalized tax rate of 40%.

Before I move on to our fourth quarter results, I would like to make a few comments regarding our annual results for 2011, as Ted mentioned 2011 proved to be a strong year in terms of revenue and earnings growth. Annual revenues grew to $225 million, a 12% increase from 2010. Pro forma earnings per diluted share grew to $0.33 in 2011, from $0.27 in 2010,an increase of 22%. For 2011 pro forma EBITDA was $24.7 million, as compared to $20.6 million in the previous year, representing an increase of 20%. On a year-to-date basis pro forma EBITDA expanded 90 basis points from 11.4% to 12.3% of net revenues.

Moving on to the fourth quarter, as I mentioned on our third quarter call when discussing 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 10% on a sequential basis. Having said that, for the fourth quarter of 2011, total Company gross revenues were $55.5 million, and at the high end of our quarter's guidance. This represents year-over-year growth of 14%. Total Company International growth revenues accounted for 24% of total Company revenues in the fourth quarter of 2011, as compared to 23% in the fourth quarter of 2010,which was primarily driven by growth in Australia.

Gross revenues for the Hackett Group which excludes ERP Solutions were approximately $45 million in the fourth quarter of 2011, representing a year-over-year increase of 16%. Hackett Group annualized gross revenue per professional $353,000, as compared to $321,000 in the fourth quarter of 2010, and $366,000 in the previous quarter. The sequential decrease in revenue and revenue per professional is primarily due to the seasonal decrease in available days.

Our ERP Solutions Group gross revenue totalled $10.3 million, which represented a year-over-year increase of 7%. ERP Solutions hourly gross realized billing rate per hour was $139, as compared to $134 in the previous quarter, and $124 in the fourth quarter of 2010. This includes the impact of our offshore resources which approximate nearly 40% of our ERP implementation resources. ERP Solutions consultant utilization was 65% for the fourth quarter of 2011, as compared to 78% in the previous year, the prior year benefited from strong year-end go live activity in our SAP practice.

Total Company pro forma cost of sales excluding reimbursable expenses and stock compensation expense totalled $30.1 million, or 61% of net revenues as compared to $26.9 million, or 62% of net revenues in the previous year. This year-over-year increase is primarily a result of ERP Solutions revenue mix.

Total Company consultant headcount was 713 at the end of the fourth quarter of 2011, as compared to 746 in the previous quarter, and 663 at the end of the fourth quarter of 2010. The sequential decrease was primarily attributable to headcount adjustment in selected practices, as well as a reduction in utilization of subcontractors.

Total Company pro forma gross margin which excludes noncash stock compensation expense was 39.2% of net revenues in the fourth quarter of 2011, as compared to 38.5% in the fourth quarter of 2010. Hackett Group gross margin on net revenues was 40% in the fourth quarter of 2011, as compared to 38% in the prior year. ERP Solutions gross margin on net revenues was 38% in the fourth quarter of 2011, as compared to 41% in the previous year. This decrease was primarily driven by lower utilization on a year-over-year basis, as we increased headcount throughout the year.

Pro forma SG&A was approximately $13.4 million, or 27% of net revenues in the fourth quarter of 2011, as compared to $12.2 million, or 28% of net revenues in the fourth quarter of 2010. This 80 basis point improvement is primarily due to expanded SG&A leverage resulting from increased revenues. Total Company pro forma net income for the fourth quarter totalled $3.6 million, or $0.09 per diluted share, and was at the high end of our guidance. This performance compares to pro forma net income of $2.8 million, or $0.07 per diluted share in the fourth quarter of 2010.

Total Company pro forma net income for the fourth quarter of 2011 excludes noncash stock compensation expense of $1.1 million, intangible asset amortization expense of $204,000, and assumes a normalized tax rate of 40%, which amounted to $2.4 million. From a year-to-date perspective, total Company pro forma net income totalled $13.6 million, with $0.33 per diluted share, as compared to $11.2 million, or $0.27 per diluted share in 2010.

Pro forma EBITDA in the fourth quarter of 2011 was $6.6 million, or 13.4% of net revenues, as compared to $5.1 million, or 11.8% of net revenues in the fourth quarter of 2010.

During the fourth quarter the Company released $5.3 million of previously established deferred tax valuation allowances against its deferred tax assets, which was reflected as a noncash tax benefit in our GAAP P&L. As a result total Company GAAP net income for the fourth quarter of 2011 totalled $9.7 million, or $0.23 per diluted share. Excluding the tax valuation allowance adjustment GAAP EPS for the fourth quarter would have been $0.11 per share. This compares to GAAP net income of $3 million, or $0.07 per diluted share in the previous year.

As of the end of the fourth quarter the Company had approximately $40 million and $12 million of income tax loss carry-forwards remaining in the US and in foreign tax jurisdictions respectively. Now turning to cash the Company's cash balances were $33.8 million at the end of the fourth quarter of 2011, as compared to $19.6 million at the end of our previous quarter. This cash increase was driven by net cash provided by operating activities for the fourth quarter of 2011, and was offset by stock buybacks and capital expenditures.

Net cash provided by operations in the fourth quarter was $16.9 million, which was primarily driven by operating earnings, decreases in Accounts Receivable, increases of accrued expenses primarily relating to the timing of US payroll-related items, and increases in deferred revenue, and increase in Accounts Payable due to the timing of payments. Capital expenditures for the fourth quarter were $784,000, primarily related to the development of the Hackett performing exchange offering. Our DSO or Days Sales Outstanding at the end of the fourth quarter were 58 days, as compared to 60 days at the end of the third quarter.

During the fourth quarter of 2011 cash was utilized to repurchase approximately 561,000 shares of the Company's common stock, at an average price of $3.47 per share for a total cost of $1.9 million. On a year-to-date basis the Company repurchased approximately 2.3 million shares foray total cost of $9 million at an average price of $3.84. At the end of the fourth quarter the Company had approximately $556,000 remaining in its stock repurchase program authorization.

Before I move to guidance for the first quarter of 2012 I would like to remind everyone the seasonality of our business relative to costs as we move from Q4 to Q1. Specifically, consistent with first quarter guidance provided in previous years, our first quarter guidance for 2012 will reflect a sequential increase in US payroll-related taxes and the sequential build-up of our vacation accruals. We expect total Company gross revenues for the first quarter of 2012 to be in the range of $54.5 millionto $56.5 million. For the quarter we expect The Hackett Group to be up nicely on a year-over-year basis, and we expect the ERP Group to be down.

Consistent with the first quarter of the last two years, we expect to exit the first quarters at a run rate at least 10% higher than our entry rate. This is a result of client 2012 budgeted initiatives not ramping up fully until mid-February. Relative to pro forma diluted earnings-per-share, our first quarter will be negatively impacted up to $0.03 due to the traditional increase in US payroll-related taxes and the seasonal sequential build up of vacation accruals when compared to the last quarter. As such we expect our pro forma diluted earnings per shares in the first quarter of 2012 to be in the range of $0.06 to $0.08 per diluted share. Since the completion of the stock tender offer will be towards the end of the first quarter, it will not impact our first quarter guidance or results.

Given our current introductory pricing strategy on our Hackett performance exchange initiative, we expect the increased depreciation and selling costs to be dilutive in the first half of 2012, but neutral to slightly accretive in the second half of the year. Our pro forma guidance excludes amortization expense, noncash stock compensation expense, and includes a normalized tax rate of 40%. As a result of our revenue guidance we expect pro forma gross margin on net revenues to be approximately 36% to 38% in the first quarter. We expect pro forma SG&A for the first quarter to be approximately $14 million. We expect first quarter pro forma EBITDA on net revenues to be in the range of approximately 10% to 12%.

Now let me provide some details regarding our stock tender offer that Ted mentioned. The Company announced today a stock tender offer to repurchase up to $55 million in value of its common stock, at a price not greater than $5.00 nor less than $4.25 per share. The offer is scheduled to expire March 21st, 2012. We are conducting this stock tender offer through a procedure commonly called a modified Dutch Auction. That procedure allows stockholders to select a price within the specified range set by the Company at which shareholders are willing to sell their shares. The Company will select the single lowest purchase price within the range that will allow the Company to purchase $55 million in value of shares at such price based on the number of shares tendered.

The offer is only being made pursuant to the offering materials and related detailed documentation which the Company will file tomorrow with the SEC. Any specific questions should be addressed directly with Bank of America Merrill Lynch, the dealer manager for the offer, or Georgeson, the information agent for the offer. The contact information can be found in the press release we issued tonight announcing the offer, or in the tender offer materials being filed with the SEC tomorrow.

Additionally, the Company also announced that it is entered into a five year $50 million credit facility with Bank of America. Under the credit agreement Bank of America has agreed to lend the Company up to $20 million from time to time pursuant to our revolving line of credit, and up to $30 million pursuant to a term loan. The loans and the credit facility will bear interest of up to 3% based on current market rate indexes. The proceeds of the term loan will be used along with cash on hand for the purchase of the shares in the tender offer along with related fees associated with the offer and the credit facility, which we estimate to be approximately $1 million.

Lastly, we expect our cash balances to be down from Q4 as we plan to use up to $20 million in cash to fund the tender offer. In addition, during the first quarter we will pay 2011 performance bonuses, as well as costs associated with the tender offer and credit facility.

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.

Thank you, Rob. On the macroeconomic front, we do not expect much change over the next 12 months. We continue to believe a gradual but volatile economic recovery is under way, and that the existing sovereign debt related issues will continue to introduce greater volatility in our demand environment. The complexity and volatility of the global economy requires organizations to remain focused on improved decision making and operational excellence. We feel that our offerings are well aligned with these market conditions.

We also continue to expect to see solid demand in the US and International markets that we serve. Geographically we expect healthy demand in the US and Australia, and decent demand in Europe to continue. 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 global brand with a series of intellectual capital offerings that are used in a continuous way, we can improve revenue growth along with the predictability and profitability of our operating results. Using unique intellectual capital delivered in an easy to use way, coupled with broader transformation offerings would also allow us to increase our client base, as well as increase revenue per client. The best example of this strategy has been the revenue leverage we have experienced from our executive advisory client base.

As we have mentioned, we have worked hard during the last several years to innovate new ways to develop recurring revenue offerings that leverage RAP, as well as create an opportunity to serve clients more broadly. In 2011 we covered in each and every quarter the fact that we had initiated the sale of our first two SAP and Oracle based automated dashboard offerings of our new Hackett performance exchange,with very positive feedback from our clients. This initial marketing communication included an invitation to become a charter member of our new Hackett performance exchange.

Our goal is to rapidly grow our user base to aggressive introductory pricing in order to drive adoption. We have now signed up 52 clients across 92 modules, and we have launched several marketing, and we have also launched several marketing alliance initiatives that should allow us to continue to grow our charter launch membership base. The majority of these clients signed multi-year contracts which provide them with the right to cancel for no cost after a six month trial period, or continue their contractual paid relationship.

As I previously mentioned, our goal is simple. The more clients that use our offerings increases the value of our database, and the results and feedback on how best to enhance the overall experience and value of our offering. As I mentioned last quarter and every quarter throughout 2011, this new offering if successful could enhance our business model by creating a powerful and possibly continuous relationship with our clients. Although there is move to learn about our new offering, we believe it could mean a new revenue stream, significant increase in data capture and operating insight, as well as a continuous way to monitor and benchmark a client's performance.

We also believe this type of relationship could only help our consulting revenue growth as well. As Rob mentioned in his comments, our Hackett performance exchange launch entrance will be slightly dilutive in the first half of 2012, and if we get the plan renewal behavior to be neutral to slightly accretive in the second half the year. We believe the Hackett performance exchange builds on our strategic desire to expand our brand permission and the continuous executive advisory relationship leverage that we have tried to build throughout the last several years.

Let me comment specifically about that executive advisory client relationship. Long-term our 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, and now our Hackett performance exchange. In the fourth quarter our executive advisory members increased to 815, and client count is up to 239. Nearly 50% of our Hackett Q4 revenue sales came from our advisory client base, continuing to show its strong relationship leverage. Additionally, annualized contract value from our executive advisory client programs increased 17% year-over-year. Lastly, we continue to look for acquisitions and strategic alliances that can strongly leverage our existing intellectual capital to drive and accelerate our growth.

In summary, we are pleased with our improving fourth quarter and annual operating results, and how they position us for the new year. Our unique ability to combine proprietary intellectual capital with terrific talent, coupled with strong cash flow and balance sheet continues to bode well for our prospects. As always let me close by thanking our associates for their tireless efforts, and as always to urge them to stay highly focused on our clients, our people, and the exciting opportunities available to our organization.

Those are my strategic and overview comments. Let me then ask the operator to open it up for Q&A.

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

Thank you. Good afternoon.

Hi George.

Hi George.

I wondered if you could spend a second on the performance exchange, and just give us an update, Ted, are you happy with the 52 client size, is that what you were going for, and can you be a little more specific as to what you mean by several marketing alliances that you have signed?

Well, first of all, George, I think you now know me very well, so I always want more of everything, and I am sure all of our associates that are listening on the call would agree with this comment, but yes, we are happy with the progress that we are making. We are continuing to build our client base. Most of these clients are absolute name plates. We are getting great feedback from them.

So we think if we can maintain this progress throughout the year, and get some reasonable renewal rate when clients start actually moving to that paid relationship sometime in the latter part of Q2, and then through the balance of next year, that we could as Rob said, we could start building a revenue base in the second half the year that would allow us to be neutral to slightly accretive. We have goals for 2013. I would rather keep those to myself because anything else will be considered hype, and really at this point I just have such a high level of uncertainty would be inappropriate, but we expect to continue to build this client base, and we expect to build a profitable business by the time we get to 2013 around our offerings.

Specifically, on the alliance front we have announced the fact that we are working with SSON to help us promote the sale of our offerings. This is a relationship that has started with the promotional activity starting in Europe, but we expect to expand those as 2012 plays out, and then we continue to work very closely with SAP to see how we can collaborate on joint marketing initiatives, and we believe that relationship and those efforts should help us build our client base throughout 2012 as well.

Okay. And then relative to your Dutch Auction I am curious what spurred this idea or interest in doing this?Is it the availability of the debt at attractive rates, or was it the shareholder sale interest? Just kind of curious what was behind that?

The interest, yes and yes. The fact is that we obviously believe in the long-term prospects of the Company, but we also when we realized that we could have a facility that we could put in place with what we believe are very attractive terms, and then you couple that with the fact that we also know that we have got some large shareholders, including the one that I mentioned on the call, which resulted from the sale of Archstone Consulting to us, that could really in my view utilize a process like this to get some meaningful liquidity, and reduce and/or eliminate any potential overhang risk that any large shareholder may bring.

So the opportunity to the fact that we have a strong capital and balance sheet that allowed us to turn capital to shareholders, all shareholders was attractive. The fact that we could hopefully accommodate significant reduction of potential overhang risks for that individual holder, but any large holder as you know given the volume of our stock in our mind created a very significant opportunity that we thought we should take advantage of, so that all of those things drove our conclusion. We also like the fact that we have been strong, we have had very strong cash flow as you know.

We have been buying back stock aggressively throughout the years, so I mean those things really allowed us to take a much bigger chunk at very attractive terms, and create a pretty significant accretion opportunity for all continuing shareholders as well. All of those things played into our decision to move forward with it.

Thank you.

(Operator Instructions). The next question comes from Morris Ajzenman with Griffin Securities, your line is open.

Hi, guys.

How are you?

Hi. Alright. Actually I mean I like the Dutch tender auction here.

Thank you.

It is actually helping investors from perspective getting returns on that, and cash is always good in difficult times, but let me make sure I heard this right. You said during your presentation, if you were to acquire all the stock at $5.00, it would be 25% accretive to EPS, is that correct or not?

That is correct. If you took just the 2011 earnings and you reduced our denominator by 11 million shares, or 55 divided by 5.00, right, the high-end of the price, that would provide accretion of greater than 25%.

Okay. And that is on the assumptions in $20 million in cash and $30 million or thereabouts from the credit facility, is that correct?

Yes. Up to $20 million from cash on hand, and then the balance from the facility, so you can tell our plan is not to draw down on that entire facility.

Okay. So that would mean about $35 million, and my understanding based on free cash flow generation going forward, if you were to draw down $30 million to $35 million, that would take you between 18 and 24 internally to regenerate that cash. Is that a fair estimate?

That is correct. Short of any, obviously any other significant use which we would obviously have to go back to our bank for, that is correct.

Okay. Again, I applaud you on that action. The second, just a minor thing here. Rob, you indicated into this first quarter a negative impact of $0.03 a share from payroll taxes and vacation accruals.

Yes.

What was that negative impact in the first quarter of last year?

About the same.

About the same. Okay. So I don't know if you have been conservative enough. You have revenues rising to approximately $54 million, let's call it anywhere in $55 million range at your midpoint versus last year first quarter of $53 million, and your pro forma EPS last year was $0.07, and this yearyou are giving $0.06 to $0.08. Can you just help us understand what the revenue increase of it looks like 5%, 6%, 7% EPS at the midpoint would be unchanged versus last year?

Well, as you know, our operating leverage continues to improve but also the growth Rob also mentioned, the mix will change from last quarter as we are expecting pretty nice revenue growth in the Hackett business that yields a higher gross margin than the ERP business. So the combination of that shift which is actually Hackett growing, and ERP actually going to be down year-on-year and the SG&A leverage we built throughout the year would allow us obviously to operate, to achieve the higher end of the range, assuming that things go according to plan.

Thank you.

The next question comes from Bill Sutherland with Northland Capital Market. Your line is open.

Thanks. Thanks for taking the question, guys. So Ted, I was just trying to follow the logic on what you just said on that prior answer. Because I was thinking about that, too. I realize there is going to be a little pressure, or maybe more than a little, from the performance exchange roll out. Is that the main factor that offsets the natural sort of scale benefits and the current--?

Well, no. We do have a little, we do have the Hackett performance exchange being dilutive in this quarter at a greater rate than it was first quarter of last year. So that is correct. But having said that, when we look at the profitability of the core Hackett business in the first quarter of this year versus last year, our margin improvement, our margins in that business improved in the second half of the year as compared to the first half the year, and continue into Q1. So just greater operating leverage from the Hackett business is offsetting any reduction in growth in the ERP in the quarter on a year-over-year basis. Those are the dynamics that lead to our range.

And ERP business is down just because--?

Oracle business is a little bit slower than it was same time this year, and SAP Business which has been just incredibly strong for us, is being impacted a little bit by the slow ramp in the quarter similar to the Hackett business. We would expect those businesses, especially the SAP Business to continue to grow and be profitable, to continue to do the improvement as, to really continue to better the improvement and have made on a year-over-year basis, so I mean those are the dynamics.

As Rob said, we look at all of those businesses, we look at an exit rate which is at least 10% greater, so when we look at March as compared to the run rate in January on a weekly basis, we see that we are going to exit at a significantly higher rate. That creates nice momentum into Q2. If that happens the way we believe, then similar to last year we will have a pretty nice year on an absolute basis, and hopefully also on a year-over-year comparison.

Okay. So on the International revenue, what percentage is Australia now? Is it like 2 or 3?

What was that Rob? I think last quarter it was 17 and 4. So I believe Australia clearly has continued to grow. I don't know if that is, is it the same, about the same in Q1, Rob?

It will be.

So it is expected to be about the same mix in Q1.

And what are your feelings about the business outlook in Europe, Ted?

Well, we did have some growth in the European business in the fourth quarter. We didn't yield a lot from that, because we were making investments to position ourselves for that growth. As you know, when we look at the 2008 performance for that European business versus today, there is a big opportunity that we have yet to recapture. We believe we will, but given the uncertainty around the whole economic environment in Europe, we just hate to plan on it, but our demand environment as I said in Europe is decent. We expect to grow that business on a year-over-year basis this year, and we would expect the profitability of that business to improve on a year-over-year basis as well in 2012 compared to 2011.

Okay. I think that is it on my end. Thanks for everything.

Thank you, Bill.

Thank you. At this time there are no further questions. I would now like to turn the call back over to Ted Fernandez.

As always, let me thank everyone for participating in our quarterly earnings call, and look forward to updating everyone when we report the first quarter. Thank you again for participating on our call.

Thank you. This does concludes the conference call. You may disconnect at this time. Have a great day.