Hackett Group Inc (HCKT) 2012 Q2 法說會逐字稿

Welcome to the Hackett Group's Second Quarter Earnings Call. Your lines have been placed on 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 Second 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 4.05 PM Eastern Standard 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 I ordinarily do, I'll open up with some overview comments. I'll then turn it back over to Rob and ask him to comment on the detailed operating results, comment on cash flow, and also provide some feedback relative to the credit facility, and then provide some detailed outlook and guidance information.

So let me start with the highlights on the quarter.

And first, let me welcome everyone to our second quarter earnings call.

We were pleased to report revenues of $61.3 million, which was at the high end of the guidance, and pro forma earnings per share of $0.11, which was at the midpoint of our guidance. As we mentioned on our last -- on our call last quarter, we exited the first quarter with improved demand. And we were able to capitalize on this demand and report improved results in the second quarter, both in the US as well as internationally. Our results were only tempered by higher-than-expected impact from the foreign exchange fluctuations.

Our results continue to emanate from solid market demand from the US (inaudible) based clients, servicing our advisory client base more broadly, strong performance from our EPM groups, and from our improved results from our European practices. Our best practice research and related marketing efforts encourages our clients to strongly focus on operating excellence and broader enterprise management information. This enables our clients to quickly respond to the volatility and complexity of the current global business environment and allowed us to remain top of mind with them as they work harder than ever to grow profitably.

On the balance sheets side, our strong cash flow allowed us to pay down $8 million on our new credit facility prior to quarter end, and an additional $2 million subsequent to quarter end. Our goal is to aggressively pay down the credit facility in order to explore acquisitions and other potential investment should they arise.

On the investment front, although we now expect European volatility to impact the third quarter, we will continue to invest in our associates, our intellectual property, our brand, while introducing new offerings and entering new markets to strengthen our business model. I will comment on these opportunities in more detail in my strategic overview section of our call.

I will also comment further on the market conditions and some specific go-to-market initiatives. But let me first ask Rob to provide details on our operating results, cash flows, and also comment on outlook.

Rob?

Thank you, Ted. And again, welcome, everyone.

As usual, I will cover the following topics during our call. An overview of our 2012 second quarter results, along with an overview of related key operating statistics, an overview of our cash flow activities during the quarter, and I will then conclude with a discussion on our financial outlook for the third quarter of 2012.

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 non-cash stock compensation expense, and intangible asset amortization expense, and assumes a normalized tax rate of 40%.

As Ted mentioned, for the second quarter of 2012, total company gross revenues were approximately $61.3 million and at the high end of our second quarter's guidance. This represents a year-over-year increase of 4% or 6% adjusting for constant currency.

Total company international gross revenues accounted for 21% of total company revenues in the second quarter, or 24% adjusting for constant currency as compared to 22% in the second quarter of 2011.

Gross revenues for The Hackett Group, which excludes ERP solutions, were approximately $50.1 million in the second quarter of 2012, representing a year-over-year increase of 7% or 10% adjusting for constant currency. Hackett Group annualized gross revenue per professional was $379,000 in the second quarter of 2012 as compared to $377,000 in the second quarter of 2011, and $374,000 in the previous quarter.

Our ERP solutions group grossed revenues totaled $11.2 million, a year-over-year decrease of 7% as expected.

ERP solutions hourly gross billing rate per hour was $140 in the second quarter of 2012 as compared to $143 in the second quarter of 2011. This includes the impact of our offshore resources, which approximate nearly 40% of our ERP implementation resources.

ERP consultant utilization was 73% for the second quarter of 2012 as compared to 77% in the second quarter of 2011.

Total company pro forma cost of sales, excluding reversible expenses in stock compensation expense, totaled $33.9 million or 62% of net revenues as compared to $32 million or 61% of net revenues in the previous year.

Total company consultant head count was 749 at the end of the second quarter of 2012 as compared to 730 in the previous quarter and 735 at the end of the second quarter of 2011. The sequential and year-over-year increase was primarily attributable to increased hiring activities in our EPM group commensurate with market demand.

Total company pro forma gross margin was 38% of net revenues in the second quarter of 2012 as compared to 39% in the second quarter of 2011. The Hackett Group pro forma gross margins on net revenues was 39% in the second quarter of 2012 as compared to 40% in the second quarter of 2011.

ERP solutions pro forma gross margins on net revenues was 34% in the second quarter of 2012 as compared to 36% in the previous year, primarily due to decreased year-over-year revenues in our Oracle BRP group.

Pro forma SG&A was approximately $14.3 million or 26% of net revenues in the second quarter as compared to $14.4 million or 27% of net revenues in the second quarter of 2011. This 100 basis point improvement is primarily due to expanded SG&A leverage resulting from increased revenues.

Interest expense on borrowings under our credit facility was $247,000 in the quarter.

Total company pro forma net income for the second quarter of 2012 totaled $3.5 million or $0.11 per diluted share, and was at the midpoint of our second quarter's guidance. This performance compares to pro forma net income of $3.6 million or $0.09 per diluted share in the second quarter of 2011.

Second quarter 2012 pro forma earnings per diluted share were unfavorably impacted by approximately $0.015 as a result of fluctuations in foreign currencies when compared to the second quarter of 2011. As expected, second quarter 2012 results include an unfavorable $0.01 impact due to our continued spend relative to the rollout of HPE as compared to the previous year.

Total company pro forma net income for the second quarter of 2012 excludes non-cash stock compensation expense of $1.4 million, intangible asset amortization expense of $137,000, and assumes a normalized tax rate of 40% or $2.3 million.

Pro forma EBITDA in the second quarter of 2012 was $6.6 million or 12% of net revenues as compared to $6.5 million or 12% of net revenues in the second quarter of 2011. Excluding the impact of unfavorable foreign currency fluctuations, the EBITDA growth would be approximately 13%.

Total company GAAP net income for the second quarter of 2012 totaled $3.8 million or $0.12 per diluted share. This compares to $4.4 million or $0.10 per diluted share in the second quarter of 2011.

In the second quarter, we released the remaining balance of our US federal valuation allowance. As this release did not fully offset the Company's US federal tax for the quarter, an additional $232,000 of US federal tax expense was recorded.

Moving forward, the GAAP tax provision effective rate should approximate our current pro forma tax rate of 40%.

At the end of the second quarter of 2012, the Company had remaining approximately $37 million and $13 million of income tax loss carryforwards remaining in the US and in foreign tax jurisdictions, respectively.

Now turning to cash balances, the Company's cash balances were $14.5 million at the end of the second quarter of 2012 as compared to $13.5 million at the end of the first quarter of 2012. This cash increase in Q2 was primarily attributable to net cash generated from operations, offset by debt repayments and capital expenditures.

Net cash generated from operating activities in the second quarter of 2012 was $10.1 million, which was primarily attributable to net income adjusted for non-cash items, the timing of accounts payable, and US payroll cycles, and offset by an increase in accounts receivable.

During the second quarter of 2012, the Company repaid $8 million of its existing credit facility. At the end of the second quarter, the company had $32 million of borrowings outstanding.

Capital expenditures for the quarter were $1.2 million, primarily related to the development of the Hackett Performance Exchange Initiative and infrastructure investments that were made in the US. Total capital expenditures for the fiscal year are estimated at approximately $3 million with approximately $2 million attributable to Hackett Performance Exchange investments.

Accounts receivable increased by $1.9 million from the first quarter commensurate with sequential revenue increases. However, our DSO, or day of sales outstanding, at the end of the second quarter was 55 days as compared to 56 days at the end of the first quarter of 2012 and 57 days at the end of Q2 of 2011.

Now turning to guidance for the third quarter of 2012, consistent with seasonal Q3 trends, we expect the impact of the additional US holiday and the typical increase in vacation utilized in both the US and Europe, to unfavorably impact available days b y approximately 5% on a sequential basis. In addition, the recent sovereign debt-related concerns in Europe appear to be impacting client decision making. As a result, we expect our European revenues to be down sequentially by approximately 25% and approximately 15% on a year-over-year basis.

As a result, we expect total company gross revenues for the third quarter of 2012 to be in the range of $56 million to $58 million. We expect Hackett Group gross revenues, excluding Europe, to be flat to slightly up sequentially and up 2% to 4% on a year-over-year basis. Including the impact of Europe, we expect Hackett Group gross revenues to be down approximately 5% sequentially and flat to slightly up on a year-over-year basis.

We expect ERP solutions gross revenues to be slightly up sequentially and up approximately 5% on a year-over-year basis. We expect our pro forma diluted earnings per share in the third quarter of 2012 to be in the range of $0.09 to $0.11. Additionally, Q3 2012 continues to include increased costs related to our investment in Hackett Performance Exchange of approximately $0.01 or an incremental $0.005 when compared to the third quarter of 2011.

Sequentially, we expect pro forma gross margins in the third quarter to benefit from the seasonal reductions in US payroll-related taxes resulting from reaching FICA limits and the utilization of vacation accruals, offset by decreasing European revenues.

As a result of our revenue guidance, we expect pro forma gross margin on net revenue to be approximately 36.5 % to 37.5 % in Q3.

We expect pro forma SG&A for the third quarter to be approximately $13.5 million or down approximately $800,000 on a sequential basis.

We expect interest expense associated with borrowings under our credit facility to be approximately $200,000 or down approximately $50,000 on a sequential basis.

We expect pro forma EBITDA on net revenues to be in the range of approximately 10.5% to 12.5%.

We expect our cash balances, excluding the impact of debt repayments, to be up on a sequential basis.

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.

Looking forward, we continue to believe that a gradual but volatile economic recovery is still under way. However, it is subject to the existing sovereign debt related issues which will continue to introduce volatility in our demand environment.

In the US, we continue to see solid demand for our offerings. In Europe, after a better-than-expected first half, we have recently experienced increased volatility in our clients' decision making, which as Rob mentioned, will unfavorably impact our third quarter results.

Given Europe's strong performance in the first half of the year, we hope this is a short-term phase which coincides with some of the recent indecision over sovereign debt-related concerns as we enter the third quarter. But it is too early to tell.

With the demand overview as a backdrop, let me comment on some of our other strategic priorities.

As we have mentioned, we continue to work hard to innovate ways to develop recurring revenue offerings that leverage our intellectual property as well as create an opportunity to serve clients more broadly.

Using our unique intellectual capital, delivered in an easy-to-use way, coupled with broader business transformation offerings would 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.

In 2012, as we have discussed, we introduced our first two SAP and Oracle-based automated dashboard offerings of our new Hackett Performance Exchange with very positive feedback from our clients. Our initial marketing campaign included an invitation to become a charter member of our new Hackett Performance Exchange would provide users with a six-month trial period. Our objective was to give us an opportunity to test our offering with a large global client base that would allow us -- give us a chance to enhance our offering and build our benchmark database.

As I mentioned last quarter, we continue to work with a growing group of companies to achieve this objective with the goal of transitioning many of these clients to a paid membership relationship. As of the end of the quarter, we had 27 clients utilizing our offering in a production or development environment. We continue to work closely with these clients in order to incorporate and test their feedback. And as I mentioned last quarter, these clients' contribution is critical to the development of our product and even though some of their pre-trial period expired during this second quarter, we will not request that they move to a paid relationship until we have tested the offering across a large number of users and incorporated important capability.

Although this process is fluid, we hope to complete it -- complete this by year end allowing us to transition these initial users to paid members. Although we continue to sign up clients to our free-trial program, we now believe that the best indication of progress is the number of members using our offering and contributing to our database.

So even though we ended last quarter with 52 clients across 106 modules and we've continued to add to that number, we will really focus everyone's attention on relative to the feedback we're getting from the actual users. As I mentioned last quarter, this is an ambitious new offering, but if successful, we could enhance our business model by creating a powerful and possibly continuous relationship with our clients. And although there is much to learn about this 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 our clients' performance. We also believe this type of relationship could only help our consulting revenue growth as well.

We believe the Hackett Performance Exchange builds on our strategic desire to help our unique brand permission and continuous executive advisory relationship leverage. Speaking specifically to the executive advisory client leverage as we repeatedly cover, long term, our goal is to be able to prescribe an increasing percentage of our total annual revenues to clients who are continuously engaged with us through our executive advisory programs and hopefully, some day, with our Hackett Performance Exchange.

At the end of Q2, our Executive Advisory members totaled 805 across - 805 members across 229 clients. More importantly, over 40% of our Hackett second quarter revenue, excluding our SAP business, sales came from our advisory client base, continuing to show its strong relationship leverage.

Lastly, we believe that we have the client base, offerings, and market coverage to grow our business, and continue to look for acquisitions and strategic alliances to add scope, scale, and capability that can strongly leverage our brand in our existing intellectual capital to drive and accelerate growth.

In summary, we are pleased with our second quarter and first half 2012 operating results. And even though we have recently experienced higher-than-expected headwinds from Europe, we continue to believe that our unique ability to combine proprietary intellectual capital with terrific talent, coupled with strong cash flow and our ability to leverage our balance sheet, continues to bode well for our prospects.

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 the exciting opportunities available to our organization.

Those are my comments. Let me turn it over to you, operator,to go over to Q&A.

Thank you. We will now begin the question-and-answer session. (Operator Instructions).

Our first question comes from Morris Ajzenman of Griffin Securities. Go ahead. Your line is open.

Good afternoon, guys.

Hi, Morris.

On the guidance that you've given us for the third quarter, does that incorporate any FX impact, either on the top line or the pro forma EPS numbers?

Yes, it does on both.

Can you give us --

-- FX will continue to be unfavorable to our results on a year-over-year basis.

All right. But you're not willing to give us any sort of estimate of what you think -- I'm sure you could even incorporate it, but you're not willing to break that sort of --

No, we're just -- suffice to say that given the volatility we saw in the Euro in the month of July, our Euro estimates for the third quarter are lower than are the actual average Euro FX that we experienced in the second quarter.

As you know, our -- I don't want to say only -- but our overwhelming exposure to FX results from billing in Euros and then reporting those results back to the US through the pound sterling since the British pound is our functional currency.

Okay. All right.

And a question for Rob. You (inaudible) the third quarter outlook, the available days will be 5% down sequentially. Can you give us -- is that correct first of all?

That's correct.

And how does that compare year over year?

About the same, Morris.

The same. Unchanged. Okay.

And last question and then I'll queue up again. Particularly in Europe and maybe in the US, any industries where you see a weakness from? Is there pattern from that perspective?

No. We just -- if you had -- if we had done this call two to three weeks ago, we would have given you an entirely different story given how strongly we finished in Europe in the second quarter.

But I don't know if it coincides with the dip in the Euro and some of those issues that arose, that drove the Euro down, at some of the Spanish issues seem to garner more attention and put more pressure on the ECB to act.

Somewhere in that time period when we went back and looked at and updated our forecasts for our earnings call, we simply saw some clients defer decision making. And once we saw that deferred decision-making happening in late July knowing that the European vacation or holiday typical vacation starts traditionally in that late July period and access to clients is limited for that 30-day period, we believed that this is what we would have experienced in Europe.

So when I comment about hoping that this is a short-term phase, I say that with a background that we had a strong second half. We had decent activity in the pipeline, which is no different. But the decision-making clearly changed over the last two or three weeks. And the only thing we can assume is just that clients are looking for more clarity on exactly what's going to happen with some of the European sovereign debt-related issues, and specifically, the Euro.

And we did see an impact on that decision-making. And we think that's what drove that sequential decrease in Europe, which was much more pronounced than we would have expected.

In a -- given the volatility we were seeing, we would not be surprised to see it -- see the revenue down consistent with the available dates the way we're seeing in the US -- okay -- which is okay, not great, but still solid. But to see some decisions kind of changed or deferred lead us to believe that Europe will be down. And we'll have to wait to see whether that's short term or whether that's something that bounces back to a more natural state once we see the third quarter play out.

Thank you.

(Operator Instructions).

Our next question comes from George Sutton of Craig-Hallum. Go ahead, sir. Your line is open.

Hey, guys, Jason in for George.

Hi, Jason.

Ted, just wondering if you have any plans to release the third module for the Hackett Performance Exchange in the third quarter or if you're continuing to focus on enhancements to the first two modules?

No, as I mentioned last quarter, we had done quite a bit of work on a third module. But given the feedback that we were getting for clients in the amount of work that we were still doing on the first two modules, we put that on hold and really have focused all of our efforts at making sure we have a large enough test-user base, getting that feedback, incorporating those changes and trying to test those changes as quickly as possible so that the product delivers exactly what we intend it to.

But look, as I said then, we're working with large multi-national, really global companies in complex database environments. We're getting terrific feedback. The product is being improved every day. And we'll focus on these first two modules to ensure we've got it right and hope to start transitioning some of these clients to a paid relationship as, I said in my comments, by the end of the year.

Okay. And you said you're focused on a large enough user base. What is large enough to you?

Well, as I said, we've got 27 right now. We'd like for that to be bigger.

So what is large? We don't know. But as we -- as the feedback and the nature of their comments come back in that testing gives us, it's just a matter of if it's just a cosmetic item, not worried at all. But if it's something relative to the execution of the product and how efficiently we extract, calculate, then we want to make sure that we've got all of that feedback before we start investing in the third.

Okay. And then just one more. And maybe I'm just jumping the gun on this a little bit. But with the Dutch auction behind you now and given kind of the low cost of debt, and you've said in the past that you don't really have a problem with your current leverage, how are you thinking about capital going forward? Are you primarily focused on paying down that debt? Or could we possibly see some different things to deploy the capital?

Well, as I've said, on the investment side, we're going to aggressively pay it down. But our agreement with the bank is really -- it's a great one. So we feel great about the leverage we used. And if we pay it down and the terms continue to be at or near where we've got them today, oh, no, you will continue to see us aggressively use that capital.

Okay. Great. Thank you.

Our next question comes from Bill Sutherland of Northland Capital Markets. Go ahead, your line is open.

Thank you.. Hi, guys.

Hi, Bill.

So talk a little bit, Ted, about the sales cycle as it currently kind of is in place for the , I guess, the bigger consulting side of the business. Is it -- what's typical? And then --

Well, let me try to put it from what -- it really has not changed much except for what we experienced in Europe over the last two to three weeks. The level of activity in the pipeline is solid in the US. As I said, in the second quarter, I would say the same thing right now, if we just look at pipeline activity, decent in Europe. The difference that we saw in Europe was this -- it was a combination of deferrals and a combination of clients trying to reduce the nature that the size of the scope and that didn't happen until -- I'll go back -- until -- again, it could be entirely coincidental. But it really coincides where you saw that Euro dip down to the Euro $1.20 mark several weeks ago.

So I think the market is looking for clarity.

On the US side, with the exception of one large industrial client, which we expected to see, which we still believe maybe more impacted with timing because of potential acquisition or divestiture, on the US side, we saw what we typically see. As the environment stays kind of sluggish or slow growth, you see some clients tighten up a little bit. But we also saw it, new clients come in asking for productivity enhancement initiatives with some urgency.

And we normally see that kind of fluid activity. And as you know historically, we do -- we do -- we compete very effectively in that.

In this case, in this specific quarter-to-quarter transition, we simply couldn't cover the decline in Europe just given how significant it was in a relatively short period of time. So we'll have to wait and play it out.

But overall, if you want to say client decision-making, US, unchanged.

Having said that, do we believe -- as I sit here and hear -- because as you hear these global companies report -- it's interesting, we're not a large consulting company, but we work with the largest global clients in the world. Most of these clients have international operations and specifically, European operations. If these clients are suffering in Europe, if their ability to drive targeted profitability is being hampered by Europe, it will impact global initiatives.

To just simply think or say that global activity, both in the US or if you were focused on China, which we're not, is not impacted by the health and the performance of the European economy, I think it's simply not true. But we have done pretty well serving those US-based global clients as they prioritize global initiative.

And right now, even though we're seeing more of a shuffle, right -- Some stuff tighten up a little bit, but some other stuff kind of rush in -- the US activity's unchanged. But the European activity, which, as I said in my comments, Europe outperformed the first six months of the year. So to kind of see this kind of quick -- if you want to call it indecision in these clients' decision-making relative to initiatives, was a little surprising.

Perhaps we shouldn't be. Perhaps we are getting to a point where the European Community really needs to provide (inaudible) direction. And that would allow clients then to go ahead and plan accordingly.

The best -- the worst thing you can give clients is lack of clarity. That in -- that just drives clients into some paralysis. You can tell a client things are going to be tough and that's clarifying, I think, clients will make decisions. You can say you're going to grow, you can do that. But if you just simply muddle it up and don't give them some clear direction, I think people will pause. And I think that's we felt in Europe.

What when you enter a quarter, remind us kind of what your revenue visibility is at that point? And I know it's higher at this point a month into it.

So the combination by the time we get here, the combination of if you want to go to (inaudible) or highly probable is in the mid-80s. And then the other, you're just really working off a [weighted] pipeline, a majority of which comes from those very same clients just transitioning from one phase to another.

And your business -- contract duration?

No change.

But it tends to be how many -- it's several months?

Oh, again, you can say -- it depends on the phase of the engagement. So if it's a first phase, you could be talking two to four months. And then if you move into design and then that goes up, and if you move to detail (inaudible), that goes up further. So it all depends on the phase that you are with each client and how that client progresses through those stages.

Okay. What -- I forget -- do you two headcount for sales, Rob, in your stats?

We don't provide it, but it's unchanged. And I -- it's strong. It's strong. We continue to work with our sales program in different ways, which is really -- the only thing we've been working more is, do you want more people supporting some higher impact people? Or do you want to match that on a one-on-one basis?

But the overall headcount in sales has remained pretty steady for us.

The executive advisory member count, I think it's down a little bit quarter over quarter. Any color on that?

No. Interesting there, we went slightly different -- first to second quarter, it's not necessarily a big quarter for us when you come to the total renewal period. As you know, that happens more to the latter part of the year.

But if I gave you any color, interesting insight would be is that the European activity and renewal was stronger than the US. But for me to say that that is an indication of any sort would just be wrong.

But to what degree is there an effort there to keep building the member base? Is this just --

No, we continue to -- no, we continue to have an effort to build it. As you know, we had -- we've had pretty nice ACB growth last year. And our goal is to continue to do that throughout the year.

And what we said is we'd like to see that growth to be consistent with the growth of our overall business.

Okay. So I realize it's not a big sales or renewal quarter. So it was just surprising to see that big a change in this quarter.

Oh, not significant. Not significant in total count. And not significant in the overall impact.

And as you saw, the percentage of total revenue sales that emanated from that client base was over 40%. That's pretty solid. Great leverage from that client base. Because we always track the members and the clients. But the more critical spend is, are we continuing to get a significant share of our total revenues from that client base since they know it's better.

And we continue to see that. We continue to see that's it's a great way to incubate clients that like to establish access to our IP and establish a relationship with Hackett. And we see many clients transition from that just pure IP relationship to a broader transformation relationship.

It's been a great strategy for us.

Okay. And then the last one. HPE, how should we think about the former way you approached it, just the total signups, I guess, versus this group of 27 that are really intensively involved with helping you develop. These others are on --

Well, first of all, I think what we're saying is, we have work to do with the product. And the best feedback we're getting is from these very sophisticated clients which we're growing. Those that are in production or development environment that are extracting data, and are using our product, and giving us feedback, and telling us where we've got some improvements to make.

The signup sheet is a client who -- let's say we consider that as an expression of interest and whether -- and that client needs to look. And we want to say those are clients that if that area becomes a priority for them or if we want to go back and then try -- if you want to call it, that's our target-rich environment. The client who's been told about the product, introduced by the product, and has bought it either directly or it's part of the combination of other offerings.

The reason that I didn't want to keep giving you that number, even though we continue to add to those signings, consistent with prior quarters -- is because I want to make sure that we're not misleading someone between someone who has signed a contract to participate in our free trial period versus given the fact that we've got work to do on the product, those that are getting -- that are utilizing it and giving us critical feedback so that we can complete the product and transition them to that page stage.

So I was trying to be as careful as possible, especially since I believe some people, regardless of how much I tell them (inaudible) based on our known offerings and know this is a free option on a very ambitious offering, I want to make sure that it doesn't receive more attention it deserves until it's a proven strategy.

Simple as that, even though obviously, our goal, as I said in the comments, to continue to invest, work with these large clients, given the payback, if we're successful, continues.

I guess logically, we would assume that a large portion of the clients that are actively involved are going to -- if they like it, let's put it that way, they're more --

That is our goal. But as you know, since I told you last time when we were on the call, I hate to speak to something that is not certain. So once I prove it, I'll be on here and I'll tell you about it. Highly ambitious. Very high potential. But as I said, work remains. We work hard at it. And if successful, yes, big payback for us.

All right. Okay. Thanks, guys.

All right.

At this time, I show no further questions. I would now like to turn the call back over to Mr. Fernandez. Go ahead, sir.

Thank you, operator. Again, let me thank everyone for participating in our second quarter call. We look forward to updating you again when we report the third quarter. Thanks again.

This concludes today's conference. Thank you for your participation. You may now disconnect.