Hackett Group Inc (HCKT) 2012 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 evening, everyone, and thank you for joining us to discuss the Hackett Group's fourth quarter and full-year 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.

Our press announcement was released over the wires at 4.11 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, and welcome, everyone, to the our fourth quarter earnings call.

As I customarily do, I will open up my comments by just providing an overview and make some highlight comments relative to the quarter and the fiscal year. I will then turn it back over to Rob and ask him to provide details on our operating results, cash flow and then also comment on our first quarter guidance. Rob will then turn it back over to me. I will provide some market and strategic overview comments, and then we will open it up for Q&A.

So, having said that, let me again welcome everyone to our call. We were pleased to report revenues of $57.1 million and pro forma earnings per share of $0.11, both which were at the high end of our guidance. As expected we had solid operating results with improved European performance and lower foreign exchange headwinds. Our fourth quarter was the culmination of another year of solid operating results and cash flow. We are especially proud of our ability to return a significant amount of capital to our shareholders through our $55 million share tender offer last March and on our recently initiated annual dividend, which we declared and paid prior to the end of our fiscal year.

Our results continue to emanate from a competitive but solid US marketplace. Strong performance from our SAP and EPM groups, along with the improved European results. And it's also worth mentioning the strong performance of our executive advisory group, which also continues to drive strong cross-selling synergies. Our emphasis on operating excellence by leveraging best practices and better management information through improved business analytics continues to resonate with our clients. Our expertise, which enables our clients to quickly respond to the volatility of the current global business environment, allows us to remain a strategic partner as clients work harder to increase profitability in a complex demand environment.

On the balance sheet side, our strong cash flow allowed us to pay down $3 million on our new credit facility during the quarter and an additional $4.5 million subsequent to quarter-end. We plan to aggressively pay down the facility in order to explore acquisitions and other potential investments, should they arise.

On the investment front, we continue to invest in our associates this quarter, especially in Europe, a market where we have been investing heavily and are now seeing some of the fruits from that investment in changes that we've implemented throughout the year. Additionally, we continue to make significant investments in our intellectual capital through the development of our new CFO ops offerings, which are part of our Hackett performance exchange, and in our brand through the constant research that we published that emanates from our proprietary benchmarking insight.

I will comment about these opportunities in more detail in 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 and also comment on first quarter guidance.

Rob?

Thank you, Ted, and welcome, everyone.

As usual, I'll cover the following topics during our call, an overview over 2012 fourth 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 first quarter of 2013.

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, intangible asset amortization expense, restructuring activity and assumes a normalized tax rate of 40%.

Before I move to our fourth quarter results, I'd like to make a few comments regarding our annual results for 2012. Annual revenues grew to $234 million, a 4% increase from 2011, or 5% when adjusting for constant currency. Pro forma earnings per diluted share were $0.40 in 2012, compared to $0.33 in 2011, an increase of 21%. For 2012, pro forma EBITDA was $24.8 million, as compared to $24.7 million the previous year.

As Ted mentioned, during 2012 we were pleased that we were able to utilize our strong balance sheet and cash flow to return capital to our shareholders in two important transactions. First, by partially leveraging our new credit facility we completed a stock tender offer that resulted in the repurchase of 11 million shares of the Company stock at a price of $5 per share for a total of $55 million. In addition, during the fourth quarter the Company announced an annual dividend program and issued a dividend of $0.10 per share for a total of $3.1 million.

Now in terms of fourth-quarter results, 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 7% on a sequential basis as some holidays fell into our fiscal 2013 year. Having said that, for the fourth quarter of 2012, total Company gross revenues were $57.1 million at the high-end of our quarters guidance. This represents year-over-year growth of 3% or 4% when adjusting for constant currency.

Total Company international gross revenues accounted for 23% of total Company revenues in the fourth quarter of 2012, as compared to 24% in the fourth quarter of 2011. Gross revenues of for the Hackett Group, which excludes ERP Solutions, were approximately $45.1 million in the fourth quarter of 2012, essentially flat on a year-over-year basis. Hackett Group annualized gross revenue per professional was $342,000 in the fourth quarter of 2012, as compared to $353,000 in the fourth quarter of 2011 and $338,000 in the previous quarter.

Our ERP Solutions group gross revenue totaled $12 million, a year-over-year increase of 17%, driven by the strong performance of our SAP group. ERP Solutions hourly gross realized billing rate per hour was $147 in the fourth quarter of 2012, as compared to $139 in the fourth quarter of 2011. This includes the impact of our offshore resources, which approximate 40% of our ERP implemented resources. ERP Solutions consultant utilization was 69% for the fourth quarter of 2012, as compared to 65% in the fourth quarter of 2011.

Total Company pro forma cost of sales, excluding reimbursable expenses and stock compensation expense, totaled $32 million, or 62.6% of net revenues, as compared to $30.1 million, or 60.8% of net revenues in the previous year. Total Company consultant head count was 747 at the end of the fourth quarter of 2012, as compared to 756 in the previous quarter and 713 at the end of the fourth quarter of 2011. The year-over-year increase was primarily attributable to increased hiring activities in our EPM and SAP groups commensurate with market demand.

Total Company pro forma gross margin was 37.4% of net revenues in the fourth quarter of 2012, as compared to 39.2% in the fourth quarter of 2011. Hackett Group pro forma gross margins on net revenues was 37% in the fourth quarter 2012, as compared to 40% in the fourth quarter of 2011 due to excess capacity, which was addressed prior to the beginning of 2013. ERP Solutions pro forma gross margins on net revenues was 39% in the fourth quarter of 2012, as compared to 38% in the previous year, again, due to strong results from the SAP group. Pro forma SG&A was $13.4 million, or 26.1% of net revenues in the fourth quarter of 2012, as compared to $13.4 million, or 27% of net revenues in the fourth quarter of 2011. This 90-basis point improvement is primarily due to expanded SG&A leverage resulting from increased revenues.

Interest expense on borrowings under our credit facility with $160,000 in the quarter, down $36,000 from the previous quarter as a result of debt pay outs. There was no interest expense in the prior fiscal year as the indebtedness was incurred in conjunction with our tender offer in late March of 2012. Total Company pro forma net income for the fourth quarter of 2012 totaled $3.4 million, or $0.11 per diluted share, was at the high end of our fourth quarter's guidance. This performance compares to a pro forma net income of $3.6 million, or $0.09 per diluted share in the fourth quarter of 2011. As expected, fourth quarter 2012 results include approximately a $0.01 impact due to our development and [trevor] launch rollout of HPE, which is comparable to the prior year.

Total Company pro forma net income for the fourth quarter of 2012 excludes non-cash stock compensation expense of $1.5 million, intangible asset amortization expense of $136,000, restructuring charges of $108,000 and assumes a normalized tax rate of 40%, or $2.3 million. Pro forma EBITDA on net revenue in the fourth quarter of 2012 was $6.3 million, or 12.3% of net revenues, as compared to $6.6 million, or 13.4% of net revenues in the fourth quarter of 2011. During the fourth quarter of 2012 and 2011, the Company released $4 million and $5.3 million, respectively, on previously established tax valuation allowances against its deferred tax assets, which is reflected as a non-cash tax benefit in our GAAP PNL for both years.

GAAP diluted earnings per share were $0.21 for the fourth quarter of 2012, as compared to $0.23 from the same period in 2011. GAAP net income for the fourth quarter of 2012 and 2011 included a net tax benefit of $2.7 million, or $0.09 per diluted share, and $4.9 million, or $0.12 per diluted share respectively, due to the release of deferred tax valuation allowances in each year. GAAP diluted earnings per share in fiscal 2012 was $0.50, as compared to diluted earnings per share of $0.52 in the previous fiscal year.

GAAP net income for 2012 and 2011 includes a net tax benefit of $500,000, or $0.01 per diluted share, and $4.5 million, or $0.11 per diluted share, respectively, due to the release of deferred tax valuation allowances in each year. As previously stated, the GAAP book tax provision effective rate should approximate our current pro forma tax rate of 40% as we move forward. At the end of the fourth quarter of 2012, the Company had approximately $32 million and $14 million of income tax loss carry-forwards remaining in the US and in foreign tax jurisdictions, respectively. As a result, for tax purposes, we will continue to have the ability to offset most of our US and international tax liabilities.

The Company's cash balances were $17.6 million at the end of the fourth quarter of 2012, as compared to $15.2 million at the end of the third quarter of 2012. This cash increased in Q4 was primarily attributable to net cash generated from operations offset by debt repayments and dividends announced and paid. Net cash generated by operating activities in the fourth quarter was $9.2 million, which was primarily driven by operating earnings adjusted for non-cash items, increases and accrued expenses primarily related to the timing of US payroll related items, an increase in deferred revenue, and an increase in accounts payable due to the timing of vendor payments.

During the fourth quarter of 2012, the Company repaid $3 million of its existing credit facility. At the end of the fourth quarter, the Company had $25 million of borrowings outstanding. Subsequent to the end of the fourth quarter, the Company paid down an additional $4.5 million on the outstanding debt bringing the balance, as of today, to approximately $20.5 million. Capital expenditures for the quarter were $688,000, primarily related to development of the Hackett performance exchange. Our DSO, or days sales outstanding, at the end of the fourth quarter of 2012 was 59 days, as compared to 57 days at the end of the third quarter 2012 and 58 days at the end of the fourth quarter of the prior year.

I will now turn to our guidance for the first quarter. But before you do I want to -- before I move to the guidance, I want to remind everyone of the seasonality of our business relative to cost as we move from Q4 to Q1, specifically, consistent with first quarter guidance provided in previous years. Our first quarter guidance for 2013 will reflect the sequential increase in US payroll related taxes and the sequential buildup of our vacation accruals.

In addition, last week we signed an agreement to exit our Oracle ERP implementation practice. This divestiture is not expected to have an impact on the first quarter operating results. In accordance with GAAP, we will recast historical financial data that excludes the Oracle ERP implementation practice and post this on the investor relations page of our website. Our guidance, which only includes results from continuing operations, will therefore exclude revenues and pro forma results attributable to the Oracle ERP implementation practice.

We expect total Company gross revenues for the first quarter 2013 to be in the range of $55 million to $57 million. This compares to recasted Q1 2012 revenues of $54.1 million, which exclude revenues from the Oracle ERP implementation practice. Consistent with the first quarter of the last several years, we expect to exit the first quarter at a run rate higher than our entry rate. This is the result of client 2013 budgeted initiatives not ramping up fully until mid-February. We expect Hackett Group gross revenues to be slightly down on a year-over-year basis and flat on a sequential basis. We expect ERP solutions gross revenues, excluding the Oracle ERP implementation practice that was exited, to be up both sequentially and on a year-over-year basis.

Relative to pro forma diluted earnings per share, our first quarter will be negatively impacted up to $0.03 due to a traditional increase in US payroll related taxes and the seasonal sequential build up of vacation or bonus accruals when accrued -- when compared to the last quarter. As such, we expect our pro forma diluted earnings per share in the first quarter of 2013 to be in the range of $0.09 to $0.11.

Our pro forma guidance excludes amortization expense, non-cash stock compensation expense, the impact of discontinued operations resulting from the sale of the Oracle ERP implementation practice and includes a normalized tax rate of 40%. Additionally, Q1 2013 continues to improve cost relating to our investment in Hackett performance exchange of approximately $0.01, but comparable on a year-over-year basis. 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 $13.3 million. We expect first quarter pro forma EBITDA on net revenues to be in the range of 11% to 13%. We expect our cash balance to be down on a sequential basis due to debt repayments and the payment of 2012 performance related bonuses.

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.

Let me start with market outlook. Consistent with reported and forecasted global GDP, the economic recovery and related demand continue to be volatile. We expect the sovereign debt and deficit related issues to continue to introduce uncertainty into our clients demand environment until a clear long-term solution is implemented. As we mentioned last quarter, our plan is to make the necessary operating changes that will allow us to continue to improve our profitability and cash flow under these circumstances.

In the US, we continue to see solid demand for our services, although clients are being more thoughtful and price sensitive with their decisions. In Europe, we expect the environment to continue to be volatile and vary by industry and country, but given the improvements we've made in our European business throughout 2012, we expect the momentum that we built in the fourth quarter to continue into 2013.

With the demand -- with that demand overview of the backdrop, let me now comment on some of our strategic priorities. Consistent with our prior quarters, we continue to work hard to innovate new ways to develop continuous relationships that leverage our intellectual capital, as well as create an opportunity to serve clients more broadly. Our goal is to use our unique intellectual capital to establish a strategic relationship with our clients and to expand that entry point by introducing our business transformation consulting capabilities. This strategy would allow us to increase our client base, as well as increase our revenue per client. The best example of this strategy has been the revenue leverage that we have experienced from our executive advisory client base.

On the Hackett performance exchange front, our goal continues to be to complete the enhancements that resulted from our charter launch program in the first half of this year. This will then allow us to launch our new offerings and to facilitate any additional testing required. The enhancements will include the completion of our first version of our account-to-report module and will result in a new dashboard that would incorporate our order-to-cash, procure-to-pay and account-to-report modules in a new CFO ops dashboard.

We are also developing functionality that will allow clients to complete and upload their proprietary cost and full-time equivalent data, which is a key element of our existing functional benchmarks also. We call this new feature CFO Ops Plus. This will significantly enhance our offering and allow us to build a direct bridge to additional analysis as client circumstances dictate. We believe these enhancements will allow our clients to get a fully automated benchmark with a bridge to additional cost and FTE analysis, as well, and also to be able to utilize that dashboard to monitor the ongoing performance, if they so choose. This gives our clients a number of ways to utilize our new offerings, which was a key component and feedback that we received from our charter launch program.

In January we completed most of our plans -- planned enhancements for our Oracle platform users and we have now started testing it with our charter member launch program participants. Our goal is to complete the same enhancements for the SAP platform users in Q2, which would allow us to fully test and assess the impact of our new offerings in the second half of this year, as we communicated last quarter. Given this progress, we have started to market these new capabilities to our former benchmarking clients. We want to make sure they see our benchmarking innovation and how these products are evolving. We believe they are absolutely a key differentiation to any of our competitors and really define our strategic relevance in the marketplace.

As I repeatedly mentioned, this is an ambitious new offering, but if successful, it 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 new offering, we believe it could represent a new way to monitor and benchmark our clients performance, which could result in a new revenue stream and a significant increase in data capture, as well as operating insight. We also believe this type of relationship could only help our consulting revenue growth. We also believe that the Hackett performance exchange builds on our strategic desire to expand our unique brand permission and continuous executive advisory relationship leverage, both of them key components of our overall strategy.

Speaking of continuous client relationships, our long-term goal is to be able to ascribe an increasing percentage of our total annual revenues to clients who are continuously engaged with us through our executive advisory programs and, eventually, also with our Hackett performance exchange. At the end of Q4, our executive advisory members increased to 846 across 245 clients, which culminated in an annualized contract value for the year increasing by 16%. Consistent with prior quarters, over 45% of our Hackett Q4 sales came from our advisory client base, continuing to show its strong relationship leverage.

Lastly, although the environment continues to be volatile, we believe that we have the client base offerings and market coverage to grow our Business. We -- however, we continue to look for acquisitions and strategic alliances to add the scope, scale and capability that can leverage our brand and our existing intellectual capital to drive and accelerate our growth.

As Rob mentioned in our Q1 guidance, after the year-end we decided to exit our Oracle ERP Implementation business. We decided we simply did not have the scale required by our clients to properly serve and, therefore, grow this business. Correspondingly, we have signed an agreement to transition this business to KPMG over the next several months. This agreement will also make KPMG our preferred provider in this area so that we can leverage KPMG's global scale whenever the expertise is required.

In summary, we reported solid quarterly and annual results with strong cash flow and, as Rob said, which allowed us to return significant capital to our shareholders. We believe the marketplace will continue to be volatile. Having said that, we believe that our unique ability to combine our intellectual capital with terrific talents to help our clients optimize their performance under these circumstances bodes well for our prospects. As always, let me close by thanking our associates for their tireless efforts and, as always, urge them to stay highly focused on our clients, our people and the exciting opportunities available to our organization.

Those concludes my comments. Operator, let me turn it back over to you so that we can initiate the Q&A.

(Operator Instructions)

George Sutton with Craig-Hallum.

Hi, guys. Jason Kreyer on for George Sutton. Thank you for taking my questions and congrats on the quarter.

Thank you, Jason.

Regarding your European demand in the quarter, can you just talk a little bit about the linearity what you saw as the quarter progressed? And then do you expect any further rebound in Europe from what you saw in Q4? Do you expect that to improve in 2013 or do you expect that to be stable? And then second, you talked about some staffing increases in Europe in the quarter and I'm just wondering if you can give a little bit outlook in 2013 -- if you think that's where you'll see the majority of the staff increases.

Well let me go back, Jason, and really comment on Europe's performance for the entire year. We made significant changes to our European team at the beginning of last year. We believe we also created regional groups that we think have allowed us to focus on the respective markets that we really focus on, I think, a little bit better. The combination of those things, as you know, led to a pretty decent European performance.

That when you take out the -- if you want to call it the hiccup that we had going into Q3, which we believe was driven by some of the sovereign debt issues, which kind of surfaced late in Q2, which I think disrupted some of that decision making -- Europe at a pretty good year -- had a very strong Q4 on a year-over-year basis. And we expect that Europe will continue to grow on that performance in 2013.

So we believe the changes that we made were more fundamental. We see that our ability to compete in the -- in our primary marketplaces, which are the UK and Germany, are continuing to be pretty solid. We are happy with the changes that we've made in those teams. So we believe that Europe will grow top bottom line in 2013.

Okay. And then any color on headcount as it relates to international or domestic?

Well we added headcount in Europe throughout most of the year. So that was really to support and sustain the growth that we were planning on. We also opened up a facility in Hungary, in Budapest, to actually help augment all of our European teams with some resources that we thought had some language and some talent versatility as well. So that speaks to Europe.

In the US, if you go back to Rob's comments, we really were expecting higher growth and we carried a higher capacity that, in retrospect, than we wanted to if we wanted to improve the profitability as planned. So that growth, which we were planning on at the beginning of last year, which would've been somewhere in the 8% to 10% range was obviously lower. So, as Rob mentioned, we made changes to those groups that were not running -- well we said within the bounds of our target utilization to make sure that we didn't have that access capacity as we went into 2013.

Okay. And then just one follow-up. You're on pace to pay down most of the outstanding debt in the next couple of quarters. So just wondering if you can provide any thoughts on how you expect to leverage the balance sheet going forward? If you would see additional returns to shareholders or if there is some M&A opportunities that you'd like to pursue?

If we continue to have the access to the terms and credit facility, which we do have a multi-year facility we have at Bank of America -- if we continue to have that access throughout 2013, which we expect to have, yes, we expect to continue to leverage the balance sheet. We think the terms that they have provided us our exceptional and, with access to that capital, you can expect us to either acquire or return additional capital to shareholders.

Okay. Great. Thank you very much.

Morris Ajzenman with Griffin Securities.

Based on your pro forma -- you restated earnings for the divestiture of the Oracle ERP, it looks like that business had $12 million in revenues for 2012. Any comment on what you're going to be getting paid for that?

The answer is, we don't want to comment on proceeds, only because there is a process that will take place over the next several months relative to the transfer of resources and clients that will ultimately determine the proceeds. Having said that, we don't expect the proceeds to be material because that practice, as you also saw from the recasted information, was a marginally operated -- a marginal loss last year and operated a marginal loss the previous years. So it's just a practice.

We've never been able to align the fact that we serve very large global clients with what has ended up being, now for a number of years, an undersized -- very good but undersized ERP group. So we our -- we looked for the way to make the best (inaudible) that it would give us two things, a great place for our people to transition to, for that transition to be fair and also to result in a teaming arrangement -- a preferred partner relationship with KPMG -- that would allow us to leverage their global scale, which we think will help us when we're having initiatives that require Oracle ERP implementation support.

So it was really a way of transitioning. Proceeds are not material. We don't expect a gain or loss of the sale of the business. It will have no impact on Q1. But when we look at it, it was just simply hurting our comps and we had one of two choices. We either needed to invest heavily or we needed to move. We decided to move. As you know, we invested and we had three tech groups. And when I look back, we aggressively scaled and profitably scaled our high peering group that supports our very strong EPM group.

We niched our SAP group into life sciences and consumer products in that small and medium business area with SAP. And that group has done exceptionally well. And in Oracle, we really didn't have the same ability to niche it. So that misalignment really just didn't provide us with an opportunity to really scale that. So we decided to exit it. Proceeds will not be material. No impact in Q1.

Gross margins below Company average at Company average for this quarter?

Say that again.

Gross margins --

Oh yes. Absolutely. Because what happened, Morris, as you can imagine, you can go back and look at that revenue but it -- there was a part of that revenue that was being supported through subcontracting relationships, which were very low margin. So that our W-2 group, which a significantly smaller than those revenues would've indicated.

Okay. And one last unrelated question. We talk about the -- let me get this up here -- the Hackett Group -- kind of flattish top line over the last -- year-over-year last quarter and you look out into the first quarter basically kind of flat also. What is there -- you discussed the volatile environment, talked about the difficulty in clients going forward with projects, I presume. But what is with this group that really drives productivity for your customers when we're not seeing better top line growth -- actually flattish top line growth for the Hackett Group overall?

Well last year you are right -- up 4% unreported and 5% on constant currency basis. It's pretty simple. Our clients are struggling with growth. They clearly need to address productivity needs. Having said that, they have the pricing power giving -- given that decision to move forward. So whether it's their decision process, involving procurement, simply saying do you want us to include others and give us more favorable pricing -- that's the demand environment we're in.

So at least for the foreseeable future, if the -- on an organic basis, we would expect that growth next year to be consistent with this year. Having said that, we would expect our profitability improvement on that growth, given the changes we have made, to be -- let's call it more in line with our previous years. So we would still be targeting a meaningful year-over-year EBITDA and profitability growth even if growth continues at the current pace. But we think it's just the environment.

Clients are struggling. They want to move forward. They will do that. You want to do that quickly. You do that on their terms and on and on and on. It just creates for a greater competition and it's great for that environment. So I think for us, as we tell them, you need to adjust assume that that's the environment you are facing. We need to be highly responsive but we also need to be sensitive to their profitability demands because everyone -- almost all industries that we serve are trying to increase profitability with a more limited growth opportunities in the current global economic environment.

Last question and then I'll get back in queue. Last quarter I think you had stated you were working with 30 global companies and gave some more detail beyond that. Has anything changed from that perspective of who you're currently working with?

Well we really put the 30 -- once -- when if you go back to my comments when we guided the fourth quarter, we really put the 30 charter launch participants -- it was really more than 30 -- probably closer to 40 participants, which were part of our charter launch program. We put them on hold so that we could make all of the enhancements, which we thought would allow us to introduce the two new offerings, which are the CFO ops and CFO ops plus dashboards.

So as I mentioned in my previous comments, we have just completed that on the Oracle platform users so now were going back to them and asking them to allow us to do some initial testing on those products so that we can make sure that product is ready to go to market with. And we're planning to do the same with SAP, but that will follow into Q2.

Having said that, we felt strongly enough about where we were with those enhancements that we have started to market all of the offerings to our former benchmarking users so that they know that Oracle-related capability is available -- or will be available by the end of the first quarter. And we will do the same and make sure they understand that SAP capability we expect to be available by the end of the second quarter. So great progress in making all the changes.

We're now just starting to roll it back to charter launch members, just started the marketing related to the new capabilities so the clients understand what's coming and what we've created. And as I mentioned in my comments, we would then expect all of that to play out in the second half of year, which would allow us to do two things. It is what we wanted to build, get feedback from the client and we would then expect that to make a revenue and profitability contribution in 2014.

Thank you.

Bill Sutherland with Northland Capital Markets.

I'm just a little confused on the European revenue progression in the year because -- I guess if you could just go over it again. I think you said, Rob, that it remained as a percent of revenue at -- or it was 23% versus 24%. But with Hackett Group revenue up 4% or 5% -- it did decrease at the percent of total then it didn't grow as fast as domestic. Or am I just looking at this wrong?

No. You mean Europe grew higher than domestic.

But the percent of revenue declined.

Only because in international revenues you also have Australia, which didn't perform as well but as a smaller piece of our total international revenues. But in the context of just Europe year on year, which we don't report -- individually report or detail out, Europe's annual and Q4 numbers grew on a year on year basis.

Okay. So you are assuming the same trends in all markets for Hackett Group in 2013, Ted, is that right?

Yes. I think -- like I've said previously, if we experience the same growth we did in 2012, what we would expect is -- and as we said, that was 4% of reported, 5% constant. So if we got that 5% constant with lower affects headwinds along with the productivity enhancements that we made going into the year on that revenue growth, we would expect us to pursue traditional EBITDA and EPS annual growth.

And then the ERP Solutions on a pro forma basis, adjusting for Oracle --

Oracle was not contributing to our profitability. In fact, as you'll see in the recasted numbers, we actually lost a little bit of money in 2012.

Yes I heard that. But I'm just thinking top line and it's just going to stay in that high single-digit top line do you think, or is there a --

No. Our plan is unless we see a change in the overall global GDP environment, which right now we are not planning on -- we hope it does but we're not planning on -- our hope is to achieve at least the same growth we did last year, but with significantly better profitability because we would profit more from the existing revenue as well as the -- any other revenue growth that we achieve in 2013.

And just one last one. So when Rob -- when you recast the numbers, what will be the growth for ERP Solutions in '12 over '11?

Oh in '12 over '11? It will be high. It will be a little greater than 50%. Oh, I'm sorry. No, that's the -- (inaudible - background noise)

Are you talking Q1 or are you talking year on year?

I'm asking --you guys are going to continue to kind of growth in '12 without Oracle, I'm just wondering what the gross was without Oracle in 2012.

Oh it -- Oracle probably negatively impacted the annual growth and I'm saying this, Rob, correct me, by about a couple percent. Unfavorable. But that's in that recasted information that is -- that has been posted in our -- on our investor relations website.

Okay.

So I'm saying that top of mind so please check. But it was unfavorable.

Okay. Any improvement in the sales cycle at this point or conversion or is it just all feeling the same to you as you get started on '13?

Well I guess it would say in Europe, yes. In the US, no.

Okay.

I think that's what I was trying to communicate in my outlook comments.

Okay. And you are not trying to do anything with the sales force to try to engineer a little more growth are you? It sounds like you're just --

No, we -- our changes were really more to -- the answer is no. We will continue to run our hybrid model, which is our partners and our dedicated sale force will share that sales of revenue growth responsibility. And, yes, we have made changes within that but it's really more individual or regional-related changes that we think drive better alignment or put a better athlete in place. But no significant or wholesale changes in the overall model other than some new people in some key slots and some different alignment with some of the sales resources with some of these new, if you want to call them, more senior partners.

Okay. And then, Ted, the last one, on -- as you have your charter members test CFO ops and ops plus, is that going to also steer the process or steer the direction of how you monetize it -- how you price it?

I think the only significant change in that approach is that we want -- we're in (inaudible - background noise) by way of introducing an entire stack of revenues, if you wanted to call it. So we are going to clients and talking to them about our total capabilities and then, depending on the request, it may be specific to the measurement capabilities. And we are simply trying to make sure clients understand the most efficient way that they can benchmark their capabilities.

If they're Oracle and SAP users, we will be bi-utilizing our CFO ops dashboard. If they continue to value and want more data -- specific data on cost and FTE that would further augment that review, they can then use the secondary module, which is the CFO ops plus. And then lastly -- or they can -- if they choose since they're very familiar with our existing transformational benchmark or they can avail themselves to that.

The client's requirement for detail, the client's budget requirement, the clients ability to mobilize resources if they choose not to -- I believe this will give the clients a number of ways to engage with Hackett, which we believe is very compelling. And that's really what we want them to know. We want them to know that the capabilities we have built on top of what we believe are our world-class benchmarking capabilities -- don't exist anywhere else.

We want them to know that if they want to avail themselves to that insight and they want to do that for one-third of the cost for -- without providing any data they can go to the first -- our goal with these enhancements -- they would avail themselves to the CFO ops dashboard. If they wanted additional information and -- but still do it in what we believe now will be half the time, they can avail themselves to the second -- the CFO ops plus. And if they want a detailed transformation plan to accompany that insight and they want greater granularity, they can go to our existing transformational benchmark.

So we want to make sure that clients understand we're the absolute global leader in this area. Our innovation is second to none. And whether they have budget time constraints, right now at least in the finance area, if they're SAP and Oracle users, there should be no reason why they are not utilizing Hackett.

Having said, Bill, okay because now you're hearing the vision, right? We have work to do to roll out, test, fully validate the capabilities that are part of this vision and we're trying to do that as quickly as we can. And that's why I try to provide some perspective relative to Oracle rolling out first, SAP rolling out second and how we use the remainder of 2013 and position for 2014. Because I want to make sure we're not getting ahead of ourselves, but we like the alignment.

We like the capabilities. These were a direct -- this was direct feedback from what the clients urged us to do. Without a doubt, our ability to extract information has really improved dramatically. Our ability to drive metrics and really make sure that those metrics are relevant across a broad client base, which was part of a charter launch program, those things we've gotten dramatically better at. And, look, we're obviously getting a lot closer to our end-product and vision.

Okay. I was just -- I will follow up on that as far as how you're going to be pricing it at a later date. It sounds like that's something you're going to figure out as they start to use it.

But we have a framework now. So unless the utilization of the product from the initial users changes, we think we've got a compelling framework. The key now is to complete the product so the client can use it as intended.

I understand. And then the sales effort in the executive advisory where we've increased -- you haven't talked about [CV] in a while but you've increased it 16%. That must be an improvement.

It was a pretty good last year and it's even better this year. So, yes. That investment in that executive advisory program is paying off and the leverage of those clients into our broader offering is also paying off. So that's been very successful.

Yes. Good. Okay. Thanks, guys.

Okay.

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

Thank you operator and let me, again, thank everyone for participating in our fourth-quarter earnings call. We look forward to updating everyone when we report the first quarter. Thanks again. Good evening.

Thank you for participating in today's conference call.