Hackett Group Inc (HCKT) 2015 Q1 法說會逐字稿

Welcome to The Hackett Group first-quarter earnings call. (Operator Instructions) Please be advised that the conference is being recorded.

Hosting tonight's call are Mr. Ted Fernandez, Chairman and CEO, and Mr. Rob Ramirez, Chief Financial Officer. Mr. Ramirez, you may begin.

Good afternoon, everyone, and thank you for joining us to discuss The Hackett Group's first-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 4:31 PM Eastern Time. For a copy of the release, please visit our website at www.thehackettgroup.com. We will also place any additional financial or statistical data discussed on this call that is not contained in the release on the investor relations page of our website.

Before we begin, I like to remind you that in the following comments and in the Q&A 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 let me welcome everyone to our first-quarter earnings call. As we customarily do, I will start the call by providing some overview or highlight comments of the quarter. I will turn back over to Rob and ask him to comment on detailed operating results, cash flow, and also outlook. Rob will then turn it back over to me so that I can make some comments relative to market conditions and strategy, and then we will open it up for Q&A.

So again, let me welcome everyone to our first-quarter earnings call. This afternoon, we reported revenues of $61 million, up 11%; 14% on a constant currency basis. Pro forma earnings per share of $0.16, up 100%. Both revenue and earnings per share were above the high end of our guidance.

Improved results in Europe and stronger-than-expected US momentum drove our results, with 83% of our earnings-per-share improvement coming from improved operations, with the remaining 17% coming from lower global tax rates. Revenue in North America was up 11%, with both Hackett and ERP up nicely. And a specifically strong performance from our EPM group.

Our IP wedge offerings, benchmarking, and best practice advisory were up 20% and strongly positioned and differentiated our business transformation and EPM practices, which were also up nicely. European performance also improved, growing 10%, in spite of very strong foreign exchange headwinds.

Our ability to engage clients strategically with our benchmarking and best practice advisory offerings continues to expand. More importantly, our ability to use this intellectual capital to help configure software or organize most effectively is resulting in increased downstream opportunities for our transformation and EPM consulting groups. This is noticeable in our ability to compete for business as well in our improved gross margins through our business.

To further highlight our IP leverage, our SAP group was recently recognized as the Global Pinnacle Award winner by SAP, one of the most significant awards that a service provider can receive. We have previously mentioned that our Oracle EPM group was recognized at the EPM North America Influence Partner of the Year and that was for its second straight year.

Given our scale, we are certain that our ability to use our IP to highlight how to optimally configure software and to also make these organizational recommendations directly contributed to these significant awards.

On the balance sheet side, the Board recently approved to further increase our annual dividend from $0.14 to $0.20 effective this fiscal year. This will now represent a 66% increase over the amount we paid in 2014.

Consistent with our year-end comment, the dividend will be paid on a semiannual basis. This increase reflects our desire to reward those shareholders that are long-term holders of our stock as part of our overall strategy to return capital to shareholders.

On the investment front, we will continue to invest in the expansion of our capabilities in Europe. We believe by more closely mirroring our US capabilities in Europe, we can improve our ability to grow in that region and also further strengthen our global delivery capabilities, which are important for large multinational engagements.

Additionally, we continue to develop and attract talent and expand our brand by continuing to build our proprietary best practices intellectual property. We also continue to look for ways to leverage our IP to help differentiate and support the sale and delivery of our offerings.

As I mentioned previously, we are seeing that this improvement -- the improvement of this leverage throughout our business. What is clearly different is that we now see the potential to leverage this IP through new external channels. 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 first, let me ask Rob to provide details on our operating results, cash flow, and also comment on the outlook. Rob?

Thank you, Ted. As I usually do, I will cover the following topics during our call: an overview of our 2015 first-quarter results along with an overview of related key operating statistics.

I will also cover an overview of our cash flow activities during the quarter. I will conclude with a discussion on our financial outlook for the second quarter of 2015.

For purposes of this call, any references to The 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 revenues including reimbursable expenses.

Additionally, references to pro forma results specifically exclude non-cash stock compensation expense, intangible asset amortization expense, acquisition-related charges and gains, restructuring charges, and assumes a normalized 30% tax rate.

For the first quarter of 2015, total Company gross revenues were approximately $61 million and above our first quarter's guidance. This represents year-over-year growth of 11% or 14% when adjusting for constant currency.

Total Company international gross revenues accounted for 18% or 20% in constant currency of total Company revenues in the first quarter of 2015 as compared to 18% in the first quarter of 2014. Total international revenues, primarily derived from Europe, were up by 2% on a year-over-year basis, primarily due to a weak prior-year comparable base.

Gross revenues for The Hackett Group, which excludes ERP Solutions, were $51.6 million in the first quarter of 2015, an increase of approximately 12% on a year-over-year basis. Hackett Group annualized gross revenue per professional was $374,000 in the first quarter of 2015 as compared to $336,000 in the first quarter of 2014 and $342,000 in the previous quarter.

Gross revenues from our ERP Solutions group, which consists of our SAP reseller, consulting, and application management managed services group, totaled $9.4 million, up 7% on a year-over-year basis. ERP Solutions hourly gross realized billing rate per hour was $142 in the first quarter of 2015 as compared to $127 in the first quarter of 2014. This includes the impact of our offshore resources, which approximate 42% of our ERP implementation resources.

ERP Solutions consultant utilization was 72% for the first quarter of 2015 as compared to 76% in the prior year. As we discussed throughout the previous year, our acquisition of the EPM AMS group in 2014, along with expanded growth in our SAP AMS offerings, has continued to increase the portion of our total Hackett revenues that relate AMS. These services are provided to clients on annual contracts and continue to grow at a pace that is in excess of 25% on a year-over-year basis.

Total Company pro forma cost of sales, excluding reimbursable expenses and stock compensation expense, totaled $33.6 million or 61.3% of net revenues as compared to $32.6 million or 66% of net revenues in the previous year.

Total Company consultant headcount was 778 at the end of the first quarter of 2015 as compared to 762 in the previous quarter and 770 at the end of the first quarter of 2014.

Total Company pro forma gross margin was 38.7% of net revenues in the first quarter of 2015 as compared to 34% in the first quarter of 2014, a 470 basis point improvement. Hackett Group pro forma gross margins on net revenues was 39% in the first quarter of 2015 as compared to 34% in the first quarter of the previous year, primarily due to improved leverage from increasing revenues.

ERP Solutions pro forma gross margins on net revenues was 36% in the first quarter of 2015 as compared to 32% in the previous year, led by improved revenue growth and higher margins from our AMS businesses.

Pro forma SG&A was $14.3 million or 26% of net revenues in the first quarter of 2015 as compared to $12.9 million or 26.1% of net revenues in the previous year. This increase in SG&A is primarily due to incremental costs relative to incentive compensation accruals and higher selling-related expenses resulting from improved Company performance.

For the first quarter of 2015, interest expense on borrowings under our credit facility was $140,000 as compared to $124,000 in the first quarter of 2014, resulting from a higher average debt balance in the current year. Total Company pro forma net income for the first quarter of 2015 totaled $4.8 million or $0.16 per diluted share, which was above our first quarter's guidance.

Earnings per share in the quarter was negatively impacted by approximately $0.01 due to the impact of foreign currency fluctuations. This compares to pro forma net income of $2.3 million or $0.08 per diluted share in the first quarter of 2014. Excluding the benefit from a lower normalized tax rate, pro forma EPS was up 83% when compared to last year.

Total Company pro forma net income for the first quarter of 2015 excludes non-acquisition stock compensation expense of $1.6 million, acquisition-related stock compensation expense of $274,000, and intangible asset amortization expense of $547,000. Pro forma results also assumes a normalized tax rate of 30% or $2.1 million.

Pro forma EBITDA in the first quarter of 2015 was $7.6 million or 14% of net revenues as compared to $4.5 million or 9% of net revenues in the first quarter of 2014, an increase of 68%. GAAP diluted earnings per share was $0.10 for the first quarter of 2015 as compared to GAAP diluted earnings per share of $0.01 in the first quarter of 2014.

At the end of the first quarter of 2015, the Company had approximately $16 million of income tax loss carryforwards remaining in the United States relating to both state and federal purposes, and approximately $10 million 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 in the near future.

The Company's cash balances were $10.8 million at the end of the first quarter of 2015 as compared to $14.6 million at the end of the previous quarter. This decrease in the first quarter was primarily attributable to net cash used from operations, capital expenditures, and cash utilized to repurchase common stock.

Net cash utilized by operating activities in the first quarter of 2015 was $2.4 million, which was primarily driven by net income adjusted for non-cash items amounting to $6.4 million, offset by decreases in accrued expenses, primarily relating to the payout of 2014 performance bonuses, decreases in accounts payable due to the timing of maintenance payments relating to our AMS business, and an increase in accounts receivable resulting from an increase in revenue and an increase in our DSO.

Our DSO, or days sales outstanding, at the end of the first quarter of 2015 was 63 days as compared to 61 days at the end of the fourth quarter of 2014. At the end of the first quarter, the Company had $18.3 million of borrowings outstanding. Given our cash balances, this represents a net deposition of less than $7.4 million.

During the quarter, we purchased 75,000 shares of the Company's stock at a total cost of approximately $653,000 or an average cost of $8.70 per share. Our remaining stock repurchase authorization at the end of the quarter is approximately $3 million. As a result of stock repurchases subsequent to quarter end, our current buyback authorization now stands at approximately $2.3 million.

I am now going to discuss our guidance for the second quarter. We expect total Company gross revenues for the second quarter of 2015 to be in the range of $61 million to $63 million, with a reimbursable expense estimate of 11% on net revenues.

On a total Company basis, we expect revenues to be up 2% to 3%; or 5% to 6% on a constant currency basis. Unfavorable FX will also impact pro forma earnings per share by at least $0.01.

We expect Hackett to be up 8% to 10%, with the US revenue growth stronger than revenue growth in our international business. We expect our ERP Solutions group to be down 15% to 20% due to strong SAP software sales in the second quarter of 2014.

Assuming comparable year-over -year software sales, ERP Solutions will be up in excess of 10%. As such, we expect our pro forma diluted earnings per share in the second quarter of 2015 to be in the range of $0.16 to $0.18. Our pro forma guidance excludes amortization expense, total non-cash stock compensation expense, and includes a normalized tax rate of 30%.

As a result of our revenue guidance, we expect pro forma gross margin on net revenues to be approximately 38% to 39% in the second quarter, with Hackett margins expected to increase by 400 to 500 basis points and ERP decreasing from 52% to approximately 36%, reflecting the large software sales in Q2 of the previous year.

We expect pro forma SG&A and interest expense for the second quarter to be approximately $14.4 million or flat sequentially. We expect SG&A to decrease as a percentage of net revenues as a result of continued leverage on revenue growth when compared to the previous year.

We expect the second-quarter pro forma EBITDA on net revenues to be in the range of approximately 14% to 16%. We expect our cash balances, excluding the impact of any debt repayments or share buyback activity, 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. As we look forward, consistent with last quarter, we expect continued growth from our US business across nearly all of our groups. We also expect activity to be stable to improving internationally as we expand our offerings abroad, even if it comes with a more volatile decision-making environment when compared to the US.

One of the key drivers for our growth in the US has been the focus on growing our wedge offerings, which include our benchmarking and executive advisory services, which we accomplish by expanding our dedicated sales channel as well as our offerings. Both of these offerings are highly differentiated in the marketplace, and as I mentioned, collectively grew over 20% in the quarter and provide significant cross-selling leverage for all of our other offerings.

Another key driver of our growth strategy has been to continue to expand our market-leading enterprise performance management business. EPM now represents approximately 47% of our North American Hackett revenues.

So why are we having success competing with much larger competitors? We believe we've assembled a terrific team. But what uniquely differentiates Hackett is our ability to leverage our best practice configuration and organizational insight that emanates from our benchmarking and advisory businesses.

Our empirically-based message helps our software partners be successful in positioning their business value of their software when their product is optimally configured, targeting the appropriate information, and also by taking advantage of our best practice insights to organize their business most effectively.

Additionally, our increased focus on application managed services, which was highlighted with the addition of our EPM AMS services group in early 2014, has also provided us with both the opportunity to serve clients after they go live in both Oracle and SAP groups. This extension of capability in this area and the ability to leverage the highly trained offshore resources effectively have strengthened our implementation teams as well.

Our focus on AMS, which is part of both our Oracle EPM and SAP practices, is also provided us with a growing level of recurring revenue at very strong margins. Our long-term strategy is to continue to build our brand by building new offerings and capabilities around our unmatched best practices intellectual capital in order to serve clients strategically and whenever possible continuously.

We believe the clients that leverage our IP are more likely to allow us to serve them more broadly. IP-based services enhance our opportunity to serve clients remotely, continuously, and more profitably. Our goal is to use our unique intellectual capital to establish a strategic relationship with our clients directly or through strategic alliances and channels and to further use that entry point to introduce our business transformation and technology consulting as well as our AMS capability.

Specific to new alliances and channels, we are announcing new opportunities to use our IP, not only to enable us to differentiate our offerings, but we now believe we can use our IP to help others sell and deliver theirs as well.

We recently announced a new collaboration with CIMA, the Chartered Institute of Management Accountants. We believe this relationship will allow us to build an entirely new business in the professional development and talent management areas. This is a significant opportunity and we plan to provide you with more details as our new relationship is better defined.

On the Hackett performance exchange, or HPE, front, we continue to build our pipeline and explore lines that could use -- that allow us to expand the sale of this unique offering. We also hope to be able to identify and announce other opportunities that will leverage our best practices IP in entirely new ways as the year unfolds.

This strategy will allow us to increase our client base, profitability, and increase revenue per client. It would also represent increasing revenue, recurring revenue at higher margins due to the way these services are provided, as well as contracted.

The best example of this strategy continues to be the revenue leverage we have experienced from our executive advisory base. Specific to that client base, our long-term goal is to be able to ascribe an increase in percentage of our total annual revenues to clients who are continuously engaged with us through our executive advisory programs, and eventually through new offerings like the Hackett performance exchange and some of the new ventures that we are exploring.

At the end of the quarter, our executive advisory members totaled 950 across 295 clients. In the quarter, over 40% of our Hackett sales were also advisory clients, which continues to support the leverage of this entry or IP wedge offering.

Lastly, even though we believe we have the client base, offerings, and market coverage to grow our business, we continue to look for acquisitions and alliances that can strategically leverage our IP and add scope, scale, or capability, which can further accelerate our growth.

In summary, we have reported strong quarterly results. We are also optimistic that the improvements and investments we are making in our IP, in our sales channel, and in our expanded AMS focus will continue to lead to improving results.

More importantly, I believe that we have never been any better positioned strategically. The unique value of our IP and the potential it offers when coupled with our terrific talent and improving execution are strong proof points.

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.

These include my comments. Let me turn it back over to you, operator, and we can start our Q&A.

(Operator Instructions). Morris Ajzenman.

On the CIMA thing, I know you can't say too much. But nonetheless, what are your shared costs until this thing's up and running? And when do you think it will be up and running, this offering?

Well, I think if things go according to plan, our goal is to have a fully defined strategy with CIMA by sometime in the fall. Again, if it goes according to plan, this would allow us to develop a complete suite of professional, development, and training programs for individuals who are -- who reside in shared service or global business service centers.

We think that addressable market is approximately $5 million. And if we were able to jointly capture some of that, a group of students that needed our training and hopefully our certification, which is the goal, is to become the certifying standard for those individuals that work in those environments, we could build a very substantial business.

We are early in those conversations. We have been working with them for several months to develop the overall opportunity. There is a process that is required to develop these programs and to also get the necessary approval and certifications that would only make these training programs more valuable and really encourage those who take our programs to stay with us on a continuous basis. So that is what we are working on.

We think it's a meaningful opportunity. To specifically answer your question, the beautiful part about that opportunity is this is an organization who reached out to us, because they believe that launching these training programs is critical to the changing work environment and the transition of those employees that are moving from functional corporate groups into these large shared service centers and global business centers.

Our hope is to try to build an equivalent business to the one they have built in trying to provide training and testing and certification for management accounts the way they do globally. If we do that, then this would be a huge success.

More importantly, they came to us because they believe that the intellectual capital, the detailed information required to know what individuals do in those large centers across all of the back-office functions, resides uniquely with Hackett. And then the access and credibility of those individuals to receive that kind of information, whether it's the development guys and the ultimate training and tests that they would receive, to know that they are getting that from information that is provided by Hackett and continuously updated by Hackett, in their minds made this a very meaningful collaboration. So stay tuned would be the best that I could tell you.

And on the alliances, which is HPE, is it your will hope to have an announcement sometime during 2015 as it relates to an alliance?

Well, we are hoping, because we have been working really now for nearly a year to find a software alliance partner for HPE. So we continue to work on that diligently as well as we continue to work and discuss how other software companies can leverage our IP to strengthen their go-to-market.

So as I mentioned in the first quarter, we would expect to have some of these things, some of these proof points unfold during 2015. And we continue to believe that.

One last question and I will get back in queue. ERP utilization rates year over year dropped from 76% to 72%, yet the gross billing rate per hour was up 11.8%, from $127,000 to $142,000. Just kind of talk to that and how should we say that play out in the near future?

Well, that really can vary significantly by the type of engagements we take on, the scale, if you are getting -- sometimes if you are getting smaller engagements, you are able to yield a higher rate. It also depends on the mix: the offshore to onshore mix. So those things can impact the utilization as well as the rate per hour in the SAP group.

The one thing that I can tell you is that that group's profitability continues to improve. The AMS, or recurring revenue portion, which actually comes at a higher gross margin than our implementation business for SAP, also has continued to grow. This just bodes well for the continuing improvements that we speak to and envision for the remainder of 2015.

Thank you.

George Sutton.

Ted, I wanted to focus my questions on Europe, if we could. Europe really saw the first improvement we have seen in a while. You did reference some easy comps. I am wondering if there's something more to the strength you saw in Europe this quarter.

Well, look, we clearly improved the operating performance in Europe throughout all of 2014 and into the first quarter. So when we look at where we were a year ago to today, in total, our performance as well as reducing the operating costs, as we did a year ago, have benefited our overall European results.

Look, we think the environment has really not changed much. But we never complained about the activity in Europe really being weak. We just know that it can be volatile.

Things that can be in the pipeline -- Europeans tend to rethink things and aren't as proactive as the clients that we normally interact with here in the US. And sometimes that has impacted our performance. But all in all, our execution has improved. The growth did improve.

By the way, the comps were favorable. But I also want you to know, they were hammered -- our results were hammered by the significant FX changes relative to euro and pound, which are the two primary currencies that we do business with in Europe. So overall, year over year, Europe has made improvement and our hope is that it continues to do that.

But as we have said to our investors and we have shared with you, George, over the last 12 months, we will plan Europe cautiously and make sure that we don't expect them to outperform until we see the results actually realized and we'll continue to really ride the very strong US demand and momentum that we have been experiencing now for some time.

And also, it has not only improved momentum. You are seeing not only that momentum improve, but I hope it wasn't missed that the strong gross margin, the 470 basis point improvement in gross margin and the 400 to 500 basis point improvement that we expect in the Hackett-related business on a year-over-year basis to continue to Q2. So it has improved execution, strong US demand, and stable to improving Europe results.

Now you mentioned you are planning to expand capabilities in Europe. I wondered if you could be more specific there.

Well, we want to continue to invest in EPM. We started a year ago by bringing in an EPM overall leader that had EPM capabilities. We moved people from the US to Europe. We have been hiring people in the EPM space.

We want to continue to do that in Europe. We also started seeing some demand and made some investments; had some multinational engagements last year in the procurement space.

So we are going to look. We're going to look to continue to invest in Europe across these areas where we know we are having great success in the US throughout 2015. We will do that judiciously. We would do that carefully. But we will continue to invest in Europe.

Lastly for me, I am not sure if it's congratulations or -- I'm going down memory lane with respect to the executive advisory base. I can't remember what the initial goals you had were for the number of customers with a number of programs. But 295 clients and 950 members sounds almost like a milestone and I just wanted to get the relevant numbers from you.

Not yet, not yet. My initial goals were 500 clients and 1,000 members. So we are approaching it on the member side, but we still have a ways to go on the client side. Let's see if some of the new ventures and initiatives we are working with will help with some of that, George, as we -- as 2015 unfolds.

Okay. Appreciate the help.

(Operator Instructions). Bill Sutherland.

Thanks very much. Ted, the revenue per professional was up very nicely: 11%. Wanted just to get your thoughts, some color on that, please.

Well, I've got to tell you, all of our practice leaders are just really doing a better job in not only competing for business, but also what I will call resource management in every aspect of our business. Our COO, David Dungan, works closely with all of them.

And I can tell you that at the beginning of 2014, we made a statement that we would improve our execution across all dimensions. And that was a combination of revenue growth and also building out our pyramid a little bit more efficiently.

What you're seeing is a manifestation of all those efforts: improved go-to-market execution by leveraging the IP -- the unique strengths of a Hackett, our ability to compete for business. I think the confidence from our channel partners is improving. They know that they can take us to market when they have a client that's really -- I'll call it doesn't fully realize the value of their software and that we can use our IP to help them respond to some of those questions just very, very credibly and that helps us with downstream revenue and just day-to-day blocking and tackling.

But it's a combination of those things that we've really been talking for a while. And they all just continue to be -- they continue to come together. It always helps to have improving demand in that activity in the US and our ability to compete. All of these things are just working very well for us.

Not to say we are anywhere near firing on all cylinders, but clearly, year-over-year improvement. And even when you look at year-over-year guidance, our execution is just significantly better.

A lot of people are using FX headwinds to talk about revising guidance downward. Everything we've done since the beginning of 2014, in spite of FX, which is significant, if you have got a European operation the way we do. We are just powering through that. We are very proud of it.

So it is not necessarily rates or utilization, but which is having a more prominent impact on the --?

No, no, no, we're -- I would say it's utilization, without a doubt. I can't say that -- we are seeing in some areas improving rates, and I think that's when we position RP and our total value proposition a little bit better than just tactical execution of a project. So I would say there's a little bit of that.

But it's just -- it's revenue growth and just a smarter resource planning and targeting and improved pyramid. It's a combination of those three things. So it is utilization. It's win, and its managing our cyber [COS] more effectively as well.

Now as you all don't provide a utilization number for the Hackett side, and -- what's -- do you want to tell us kind of where you run there? Or is that --.

We really don't. Part of the reason we don't and talk about revenue per professional is because of the way some of our people can migrate and assist with some of the areas that are not rate based, like our benchmarking and executive advisory offerings, which are purely -- if you want to call it factory based, where people, even from some of the groups, can move in and out to assist in the delivery of those.

I would say that we've improved it. But similar to our pyramid, it would not be at the levels that you would hear our largest competitors boast or speak to. So we still have gross margin opportunity.

Okay. Just a couple of housekeeping items for me. The quarterly billable days -- is that worth -- Rob, is that worth tracking for the quarters?

We usually talk about it when it's material.

Okay. So they're roughly even this year?

No, they're even on a year-over-year basis.

Correct. Year-on-year basis. It's sequential where you would have the impact.

Right.

But they are highest in Q1, right? Then your vacations start to kick in a little bit more as you get into that latter part of Q2. You then have significant vacation in Europe in Q3 and obviously some in the US. Then you have the holiday in the Q4 period.

Remember, this year, Bill, the impact wasn't as great as it's been in prior years, because we had the extra week in Q4 of 2014.

So you are comping against -- you will have one less week this year?

On a fiscal year basis.

Correct.

Right, but in terms of your reported F Q4 number --

On the reported F Q4 number --

You will be down one week.

Yes, we will this year. But this year, what we find out is that when you're in that last week, it was a breakeven. That additional week was a breakeven.

I can imagine.

So I'd love to say that it created an advantage in Q4 or that it disadvantages us -- it disadvantages us slightly on revenue on a Q4-to-Q4 fiscal year basis, but it does not disadvantage us on a profitability basis on a full fiscal year basis.

Okay. And then last, Rob, roughly what other non-cash items that you are assuming in your pro forma gross margin SG&A?

I'm sorry, your non-cash stock compensation expense?

Well, that's the main one, yes.

That is going to be the big one in the current quarter.

Just -- is it kind of like last year's number? For the first quarter, it was quite different.

Are you specifically talking gross margin? Gross margin is primarily non-cash stock compensation expense.

Yes. And I am just saying in the first quarter, it was quite a bit higher than typical, particularly when you included the acquisition-related comp. I am just asking what kind of number to plug in there -- that's all -- for Q2.

I would assume this current run rate at this juncture, Bill.

Say it again?

I would assume this current run rate at this juncture.

So with the acquisition comp, it was $1.3 million, right, for the first quarter?

Correct. That's correct.

And the same for all the quarters this year?

Yes.

All right. Interesting. Thank gentlemen. Good quarter. Thanks.

Jeff Martin.

Ted, could you characterize -- I know you have said the decision-making environment in Europe is volatile. You have said that for a couple quarters now. How would you characterize the decision-making environment in North America?

We think it's solid. We think it has been unchanged. In fact, we didn't think it was -- even when we had that negative GDP quarter at the beginning of 2014, I really do believe that people really either blamed it on weather but did not change anyone's prospects or business plans in any way.

So no, we are expecting the US activity to remain solid. And we expect decision making to be consistent with what I'll call North American-based culture. It will be proactive unless you have some meaningful disruption for them to change otherwise.

Okay. And then with the AMS side of the business growing 25%, it will be helpful to know what ballpark the revenue base is on that.

I think -- what was that, Did Do we provide -- what's the annualized contract value?

(multiple speakers)

It's in the --.

$16 million to $17 million.

Okay. It's $16 million to $17 million, Rob says.

Okay. And --.

And that probably would be pretty equally split between SAP and [ERP] groups, yes.

(multiple speakers)

And you mentioned it's got stronger margin. Are we talking several basis point stronger or even more than that?

Yes, they are in the 45% to 50% area. No, they are very good.

All right. And then can you help characterize what typical software sales are on the ERP side of the business? You have a tough comp in the second quarter. Be helpful to know if there is a general level on a quarterly basis or an annualized basis what that number is.

I would say on an annual basis, they normally run about $3 million. But last year, they were higher than that because of the activity we experienced in Q4. So typically, you're seeing about the -- if it was perfectly -- if they all fell across perfectly, which they never do, you are having some number between $500,000 and $1 million of reseller -- if you want to call it revenue -- for us. But it varies.

Okay. And then --.

Per quarter. This is per quarter.

Right.

Last year, we just had -- we actually got off to a pretty bad start. If you go back and look at the SAP sales for that previous two or three quarters, the comps for SAP were kind of weak. And they were being affected by lower reseller sales and we saw that reseller activity really spike up in Q2 and stay pretty nice -- not at the Q2 levels, but stay strong through Q3 and Q4 of last year.

So we were almost making up for some -- if you want to call it not too good of a previous 12-month period before we hit second quarter of last year. So it was total, and then we had one significant deal as well.

Got it. And then last question is on CIMA; you refer to a 5 million addressable market. I assume that is 5 million people? [And not 5 million] dollars.

5 million people that we think that CIMA and Hackett could pursue together. And if you were able to get -- so it just depends. You then decide what kind of penetration rate you think you could have.

We obviously have plans for those things. If we are able to get everything done that we would like to during 2015, but I will wait for some of that to develop before I get a little bit ahead of myself. But suffice to say that if we are able to put together the kind of vision that we are working towards, there is a very substantial opportunity available to us and CIMA.

Okay. And then help us understand once you kind of get the strategy formulated and the types of training programs you're going to develop, in terms of the go-to-market strategy, what kind of timeline is a reasonable expectation to introduce that and then eventually start signing people up on it?

Well, we believe that we actually have one offering that they had developed that we have been -- I'll say it: rewriting or improving along with them. That is going to be -- that is ready and should be ready to go-to-market sometime this summer. That will be an entry-level program, but we are hoping to develop something much more comprehensive and more broadly.

But we need to make sure that we have other things in place that will allow us to move from a vision to full certification capability, which really then creates -- it allows us to play a really strong hand and it would allow us pursue a certain -- if you want to call it -- piece of that addressable market very aggressively.

But look, if that venture -- given the opportunity available and the fact that our primary contribution is intellectual capital and secondarily is sales support, you know, if that business was to get off the ground in 2015 and build any kind of -- something -- any -- if you want to call it zero to 5 million people or zero to something greater, I don't know.

And we were sharing that with CIMA. Because of the operating margins in the business, look, it could be nicely accretive to us in 2016 if we were able to get all that done this year.

I would assume those are IP-type margins?

They will be IP-type margins. Our contribution would be entirely IP or the review of the content and the courses and the test and all that with existing people. So we would expect a significant -- it would be IP-type margins.

In the 80% to 90%.

Yes, operating margins, yes. They would be significantly -- we would be targeting significantly higher operating margins than we do in our current business.

Sure. Okay, sounds great. Thanks. Ted.

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

Thank you. Let me thank everyone again for participating in our first-quarter earnings call. We look forward to updating you again once we close the second quarter. Thanks again for participating.

Thank you for participating in today's conference call.