Welcome to The Hackett Group Third Quarter Earnings Call. [Operator Instructions] 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 third 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 p.m. 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 Hackett Group's third quarter earnings call. As we customarily do, I will start the call by providing some overview and highlights of the quarter, I'll then turn it back over to Rob, and ask him to comment on operating results, cash flow and also on outlook. I will then -- he will then turn it back over to me to make some comments relative to market and some of our strategic priorities, and then we will move on to Q&A. So let me start with the third quarter highlights. We were pleased to report revenues of $58.6 million and pro forma earnings per share of $0.11, both which were at the high-end of our guidance. As expected, we have solid operating results in spite of the volatility in Europe demand that we experienced as we entered the quarter along with the foreign exchange headwinds that will continue through the balance of the year. Relative to Europe, we are now expecting the region to resume its momentum into Q4, so we're glad to see that. Our results continue to emanate from a more price sensitive, but solid, U.S. market activity; servicing our advisory client base more broadly; and strong performance from our earnings -- enterprise performance management and SAP groups. Our best practice research and related marketing efforts encourage our clients to strongly focus on operating excellence and broader enterprise management information. This enables them to quickly respond to the volatility and complexity of the current global business environment and has allowed us to remain top of mind as clients work harder to increase profitability in this environment. On the balance sheet side, our strong cash flow allowed us to pay down $4 million on our new credit facility during the quarter and an additional $3 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 with significant knowledge sharing, training events in both the U.S. as well as in Europe, in our intellectual property through our Hackett Performance Exchange initiative and in our brand through our published research that emanates from our benchmarking and performance study insight. I will comment about these opportunities in more detail in my strategic overview section of our call. I will also comment further on market conditions and specific go-to-market initiatives, but let me first ask Rob to provide details on our operating results, cash flow as well as outlook. Rob?

Thank you, Ted, and welcome, everyone. I will cover the following topics during our call: An overview of our 2012 third 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 fourth quarter of 2012. 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 net revenues plus reimbursable expenses. Additionally, references to pro forma results specifically exclude noncash stock compensation expense, intangible asset amortization expense, restructuring benefit and assumes a normalized tax rate of 40%. For the third quarter of 2012, total company gross revenues were approximately $58.6 million and at the high-end of our third quarter guidance. This represents a year-over-year increase of 1% or 3% when adjusting for constant currency. As I mentioned on our second quarter call, the third quarter on a sequential basis is seasonally impacted by the timing of the U.S. holiday, as well as the normal increase in vacation time taken in both the U.S. and in Europe which unfavorably impacted available billing days on a sequential basis by approximately 6%. Additionally, we mentioned that our European revenues will be down meaningfully on a sequential basis. European revenues were down 18% on a sequential basis. Correspondingly, total company international gross revenues accounted for 19% of total company revenues in the third quarter of 2012 or 21% adjusting for constant currency, as compared to 24% in the third quarter of 2011. Gross revenues for The Hackett Group, which excludes ERP Solutions, were…

Thank you, Rob. Looking forward, consistent with reported global GDP, economic recovery continues to be volatile. Related demand continues to be good but also impacted by the same volatility. We expect sovereign debt and deficit-related issues to continue to introduce uncertainty into our clients' demand environment until a clear long-term solution is implemented. 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 U.S., we continue to see solid activity. The clients are being more thoughtful and also price-sensitive. As I mentioned earlier, we expect our European growth to resume in Q4. And although we believe this should continued into 2013, we also expect volatility to be there as well. With that demand over the [ph] backdrop, let me now comment on some of our strategic priorities. As I mentioned each quarter, we continue to work hard to innovate new ways to develop continuous relationships that leverage our intellectual property, as well as create an opportunity to serve clients more broadly. The goal is to use our unique intellectual capital to establish strategic relationships with our clients and to expand that entry point by introducing our business transformation capabilities. This strategy would allow us to increase our client base, as well as increased revenue per client. The best example of this strategy has been and continues to be the leverage we're experiencing from our executive advisory client base. In 2011, we introduce our first 2 SAP and Oracle-based automated dashboard offerings of our new Hackett Performance Exchange with very positive feedback. Our initial marketing campaign included an invitation to become a charter launch member of our new exchange, which provided the users with access to our dashboard during a free trial period. Our…

[Operator Instructions] George Sutton.

Jason, on for George. Ted, I was wondering if you could talk a little bit more about how Europe performed relative to the commentary that you provided last quarter and then what kind of growth you expect to see at the end of the year here?

Well, as Rob mentioned, when we guided the quarter, we expected Europe to be down as much as 25%. The number came in at 18% sequential decline. But as I mentioned in my opening comments, first, it performed better, but more importantly, the fact that we now expect it to grow sequentially and on a year-over-year basis, I think, puts it back more on track where we were in the first half of the year where it was performing consistent with the overall business. So we know that Europe continues to be a more volatile business environment than the U.S. marketplace. Having said that, we've seen that we're able to execute -- if we're able to execute properly, it provides us with ample opportunity to help us grow our overall business. So we know we need to be cognizant of the fact that it will be more volatile or could be more volatile. I mean, nobody will know exactly what that volatility is. But we continue to believe that we can grow that business and it can contribute favorably to both growth and EPS as we go forward.

Okay. And then by my math, it looks like this year will be impacted by about $0.03 to $0.04 due to investments in the Performance Exchange. And I'm just wondering if -- and I know you haven't provided any guidance for next year, but wondering if you can kind of walk through how we should think about next year given these investments that you're adding that we weren't aware of a quarter ago?

Well, first of all, I'd like to say that, one, we continue to believe the product holds great promise, but we, obviously, have to complete the product and that meant taking all of the feedback we got from these very sophisticated users that have been working with us throughout the year and incorporate their changes. So that's what we're doing now. We're continuing to work closely with those clients and continuing to market our capabilities. Our plan is to launch a marketing campaign with the new enhancements as early in Q1 as possible and to allow us a chance, as we said, some time in the first half of the year to let our existing users, who have provided most of this feedback, a chance to see the offering with the enhancements that they recommended to us. We think the fact -- there were a couple of key items that they gave to us that we think will significantly improve the product. The fact that we're adding a third module and integrating those in a stack, for lack of a better term, and driving those to the CFO's office, which is our single largest buyer of all services at Hackett, we think creates the right alignment with our other offerings. Number two, the fact that they wanted for us to have this fully automated product, but also wanted to see us build a direct tie from our existing functional benchmarks that many of these clients have used over a long period of time. We think it's also another great enhancement. Well, it simply means that the client can come and utilize our product to benchmark their performance, if they use it as a onetime event, or if they -- the first time they run the dashboard. And that they can…

Yes, that does. That's very helpful. I appreciate the color on that.

Okay.

And then I guess just one last quick one here. I'm not sure I caught the number of members on the Performance Exchange, if you could give that? And then as well as just directionally, the clients and modules there?

816 members, 240 clients, we -- it's is growing consistent, is growing with the overall business -- consistent with the overall business. If you remember last year, we entered the year with double-digit ACB growth, so we're seeing that materialize in revenues in the current year and our ability to continue that momentum into next year. Believe it or not, falls heavily into the fourth quarter because this is when the largest renewal period comes. So the leverage on the client base continues to be solid. Our ability to use that to incubate our relationships, start a strategic and continued relationship with clients, we think continues to work pretty nicely. And the keys is for us to continue to expand that permission into other services which we think we're continuing to do by the fact that over 45% of our sales, which only exclude the SAP practice, came from that -- from clients that are currently using our executive advisory programs

Okay. And then just -- do you have the production number on the Performance Exchange?

The number of clients that are in -- that's 30 members. We have over 30 members that are currently continuing to extract, contribute data and provide us feedback for the Hackett Performance Exchange.

Morris Ajzenman.

Just a follow-up on the earlier question. First question on Europe. Growth to resume on the fourth quarter. Just a little more color, is that new clients, just existing clients, is it a step back, is that stepping up again, just a little more color on that just to help us understand...

It's both. We're seeing new clients, but there are a couple of clients that have utilized us in Europe in the past that have come back with some pretty nice initiatives. Again, remember, as we entered the third quarter, we didn't know if these were going to be deferrals or this was going to be a reaction to what they were experiencing in the second quarter. It's nice to see that both new clients, as well as existing clients that were working with us on initiatives have decided kick those off.

Great. Second question, and again, another broader question. Looking domestically in U.S., any strengths or weaknesses both geographically and by industry served that you can comment on?

There really isn't. I mean, we continue to see decent activity, as I mentioned. What we're seeing is client is simply being more thoughtful. They want to make sure that the project has decent ROI and they're probably taking advantage of the sluggish GDP growth to work with us and say, "Hey, I can help you with the -- when you kickoff, not kickoff, but I'd like a little bit more -- I'd like a slight better price." So there -- when you look at the GDP environment, which if you go back I guess, 1.8%, 1.5% and 2% before we find out whether the Q3 was revised just in the U.S., clients have experience that volatility revenue growth that's been harder to come by. They're looking to make their bottom line through productivity improvement. One we're glad they're continuing to use us and our activity is good, bad, is that -- if we expect that to move through with nice velocity through the pipeline, they're utilizing pricing to their advantage when they can.

Well, but I guess what I was getting is an example. Would tech be performing better than the financial services and/or with the East Coast for doing better than the West Coast, or there is really no trend in that respect?

No, no. We serve large global clients. A larger part of our client base is, if you want to call it, East of the Mississippi. But, no, we continue to see activity throughout the country. It's not specific to an industry. It's more specific to the pressure that they're feeling, whether it's gross margin or operating profit from growth that is harder to come by. So that's really where it's come from. Clients know that to continue to increase profitability, they've got to improve their operating excellence. And in many cases, that also means they need better information. Those are the 2 areas that really drive our business the most, and that's why I think we continue to see that activity.

Perfect. And last question, you touched on the debt reduction. It looks like in 4 to 6 quarters, you're going to pay down all debt, and that's probably towards the former, that number. Then you talked about always look for acquisitions, which you always do, but not always easy to find. Assuming 4 or 5 quarters out from now, no acquisitions, there isn't too much you could do about that except become more aggressive throughout your share repurchase or what have you. Is that fair to assume?

That is correct. We either will find acquisitions that drive growth and synergies for us, or we'll do what we've done in the past. And in some instances, as you know, we bought back stock. And in March, we went back and bought back a substantial -- we returned quite a bit of capital to shareholders through our tender offer.

The next question comes from Bill Sutherland.

So Ted, you mentioned last quarter that U.S. -- in the core Hackett business, the U.S. was essentially on track from a demand perspective except you had one large industrial client unexpectedly drop out of the queue. So, you said they might be back. I'm just curious if that's part of the fourth quarter? .

Interesting enough, we are back in discussions with them about a potential initiative, but we'll have to wait and see how that is scoped in the bottom line [ph] and whether they, in fact, kick it off. But yes, we're glad to see them reach out to us and see if we can help them. So we hope that, that turns into positive news here some time in the near future.

And so is it fair to say that you guys are -- you keep referring to the volatility in the environment. And I think you're saying it hasn't changed.

That's correct. I mean, we -- as GDP slowed -- I mean, I don't think there's any doubt. When you look at our clients' operating plans, I think they were counting on slightly better U.S. demand, a little bit more stable European demand and also China, to probably be up a little stronger than it is, pre-stimulus. So overall, we saw activity start pretty strongly into Q1 going into Q2. We saw GDP tempered a little bit for them to sit there and start second guessing what they needed to do with global initiatives and that was really triggered initially by some European uncertainty as you saw some of the -- if you want to call it some of the companies that are having more difficult sovereign debt related and austerity issues. That came into limelight some time in the May time frame. And then that pushed into Q3. With the U.S. -- I'm going to say the U.S.'s activity relatively unchanged, but impacted by the fact that if Europe didn't go quite their way, then maybe they needed to reconsider some of the things they were doing in the U.S. and global. I can think of specifically the automotive industry as a sector that we specifically -- I can specifically think of a great example. And that's what continues, Bill. I mean, overall, our GDP continues to be somewhere in this, let's say, U.S. 1% to 2% or 1.5% to 2% in the U.S., little bit more volatile in Europe with some of the companies down a quarter into slow or no growth or slow growth, expected to come back up. That's what we're experiencing. Our clients are managing. As you can see, the reported results come in a little bit tougher, a little margin pressure, a little foreign exchange headwind, but still doing, I think, a remarkably good job at meeting the earnings expectations for the year. Those earnings expectations are coming on slower-than-planned revenue, but with higher productivity. Our goal then is to help them with those productivity initiatives. And then in that productivity initiative, then if pipeline velocity is an issue, then you -- they become a little bit more price sensitive and take advantage of that, and they have.

So the price sensitivity issue, you're sort of -- I mean, I can tell by your margins that you're managing it well. Or have that just begun to crop up going into Q4.

Not nearly as well as we would have liked to. How is that? You think we've said it well, we think we could have done it better. So what we've done when we entered the quarter is to -- as we said, on the gross margin line, we said we took the issues to address any imbalance that we had because I think all we want to make sure is if growth is going to be a little harder to come by, we want to make sure that we don't compromise gross margin targets. So that means we need to be a little bit more conservative with capacity. So we're making sure that we're doing those things now and go into next year -- let's put it this way, as strongly as we always like to. So that's why I make the comments that regardless of the environment, our goal is to continue to improve our financial performance, and that's the combination of, if growth is going to be a little slower to come by for clients, and it is for us, we want to make sure that we continue to improve our financial performance. We have very talented people. They expect to be rewarded well, and we have loyal shareholders and we'd like to see them rewarded as well.

So headcount -- consultant headcount is likely to be down from 756?

That's correct. Let's put it this way. The actions that we're taking will be offset by the fact that we continue to high in a couple of areas. So we -- as Rob said in the Hackett area where we have excess capacity, obviously, because we were expecting slightly better pricing in pipeline velocity, we want to make sure that we don't take any of that for granted and compromise our performance as we go into next year. And we've made -- we've addressed those issues to make sure that we're in the strongest position we possibly can be.

Okay. And then last on HPE, so the members that have been working with you, they sound like they're not interested in one module or another. They really think the value is going to be in this CFO ops package?

Well it's actually 2 things. I think that the fair way to put it with them is that they like the tool, like the efficiency of the tool, and want to see the information in the tool be different. So one is the feedback they're giving us to -- giving us relative to how well is that tool working. But when you step back, and you say, "Okay, by introducing the tool only through an end-to-end process" which means that we're going down a level or sometimes 2 from the CFOs office or designee, we said it "it's not in our best interests". And by the way, they told us, "it's not in your best interest to redefine the relationships that you had and go down on the organization at all." So once I knew that they were saying, "hey, do you understand that this is a slightly different buying center, even though you want to address their needs." Our traditional buyers says, "I'm not the one dealing, I'm not the one addressing the value of your dashboard directly, it's a designee a level or 2 below." We quickly came back working with some of these clients and said, "Well, what if we were to stack these modules and make sure that our primary offering integrated the information of the 2 modules plus the new module that we're bringing out, and went right back into our primary buying center?" And they were -- they strongly encouraged us to do that. So it positioned us thus back with, I'll call it, the traditional relationship and entry point we have in the organization and then the other key point was, boy, in the event we see something, we -- is really insightful and meaningful, and we want to take action from the…

George Sutton.

Just one quick follow-up. So on the press release, you indicated that you've broadened the revenue concentration quite a bit. I'm just wondering if you can comment at all on that?

What specific comments can you -- are you referring to, Jason?

Well, you had a pretty good quarter relative to your guidance. And the top customer decreased sequentially and the top 5 customers decreased sequentially. So I'm just wondering if you added a lot more new wins or what led to that revenue concentration decrease?

It's just a mix and timing issue.

So Rob said it's just a mix and timing issues.

It's just mix and time.

Okay.

Yes, we -- I mean, there's no doubt that we continue to serve a broader set of clients. So this can simply be one large project completing and another one starting. It could be a very, very small activity, a very small movement. But, look, the fact that we serve a larger number of clients and rely less heavily on our top 10 clients, we think is the strength of the model. It's just the model continuing to expand, although we never, never want to forgo a client -- a larger client. We'd love to have as many of those as possible. But nothing significant from just the trend that I see here, either on a quarter-on-quarter or a sequential.

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

Let me close by, again, thanking everyone for participating in our third quarter earnings call. We look forward to updating you on our fourth quarter and our annual result when we report again some time in February of next year. Thank you again for participating.

Thank you. This does conclude today's conference call. Thank you for participating. Have a good day.